Dose of caffeine for Retail Food Group shares on profit outlook

Dose of caffeine for Retail Food Group shares on profit outlook

Shares in Retail Food Group (ASX: RFG) perked up today as the Gold Coast-based company's chairman Peter George estimated underlying earnings would rise by at least 20.9 per cent in the current financial year, with around 50 new outlets to be opened worldwide during the remainder of FY23.

The group - whose brands include Donut King, Gloria Jean's, Brumby's Bakery, Michel's Patisserie, Pizza Capers, Crust and more - is forecasting underlying EBITDA in the range of $26-29 million, representing a performance more in line with FY21 results and a 34.8 per cent year-on-year growth at the upper end of the projection.

The forecast came with the caveat of not including any material change in litigation relating to the competition watchdog or a Michel’s Patisserie class action, but the optimistic outlook was enough to lift shares by almost 14 per cent to 6.6cps.

While speaking at RFG's annual general meeting (AGM), George said total sales across the domestic network were up 16.5 per cent year-on-year in the first 21 weeks of trading in FY23, with Donut King as the "stand-out performer" notching 47.6 per cent same-store sales (SSS) growth in the year-to-date.

"During the 1H23 to date we have almost matched FY22 performance by establishing seven new outlets, including our first corporately established Gloria Jean’s Drive Thru outlet in Cairns," he said.

"These will be complemented by a further six new outlets currently scheduled for commissioning prior to Christmas 2022."

He said Gloria Jean’s drive thru outlets were strong performers in FY22 with SSS growth of 11.1 per cent, and the company planned to open four new USA-based drive-thru Gloria Jean's stores by the end of the financial year amidst a broader global roll-out across RFG's various brands. 

"41 new outlet openings in the 2H22 contributed to net outlet growth of 14 for that period, together with the development of a new store pipeline that has already contributed 32 new outlets (offset by 29 closures) in the 1H23," he said.

"A further c.50 new outlets across 16 countries are forecast for the remainder of FY23, which will more than offset the potential closure of c.25 ‘at risk’ outlets.

"Having recently returned from a brief trip to the USA to observe our operations and growth trajectory within that territory, I’m confident that these new drive thru stores will provide impetus for a stronger future for Gloria Jean’s in that market."

He explained that closer to home, Di Bella Coffee's performance improved slightly in FY22 despite a decrease in revenues stemming from the impacts of COVID-19, the division's exit from certain low-margin supermarket supply contracts, and the transition of international roasting operations to third party wholesale arrangements.

"Gross margin was also impacted by a combination of global freight costs and environmental factors which contributed to the rapid increase in Arabica green bean prices to a then c.10 year high late in the 1H22," the chairman said.

"Given the challenges then being experienced by our coffee based Brand System networks, RFG absorbed these additional costs for the majority of the 1H22 before applying wholesale price increases in December 2021 which partially offset the impact."

He said staffing challenges continued to be an issue for many of RFG's outlets, particularly in terms of baker availability for Brumby’s.

"Across our entire network this issue has contributed to lost trading days or reduced trading hours as a consequence of staff calling in sick or rosters being below full capacity," George said.

"We expect these challenges to ease in time, and in the case of Brumby’s, we have successfully implemented a baker recruitment program, and partnered with State based TAFEs, to create career opportunities that have already resulted in several apprentices having been employed to date."

He explained inflationary pressures have also represented a challenge for the network.

"Active engagement with our trade and supply partners to best manage supply chains and ensure they remain responsive to network requirements, together with proactive pricing strategies focused on preserving Franchise Partner profitability, have largely ensured that this challenge is being met," he said.

"In the case of coffee however, increases in green bean and logistics costs have impacted margins as, consistent with FY22, we have absorbed some of these pressures to support our Franchise Partner community."

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