Retail Food Group reveals heavy losses, up to 200 store closures

Retail Food Group (ASX: RFG) has released its delayed half year report which confirms a "disappointing performance" with plans to close up to 200 outlets on the back of a net loss after tax of $87.8 million, compared to $32.7 million profit in the previous half year.

RFG, which operates food franchises such as Donut King, Gloria Jean's Coffee and Pizza Capers, Crust Pizza and Michel's Patisserie, was suspended from trade on the ASX on Thursday for failing to lodge its half year financial report.

The company delayed the release of its results on Wednesday, saying it was waiting for its auditor to sign off on the report, as it also battles allegations that it mistreats its franchisees along with a falling share price on the back of a series of profit warnings in early 2018. 

RFG's first half results to December 31, 2017, refers several times to "challenging trading conditions" while acknowledging its own "disappointing performance" as it outlined its business-wide review to turn the company around.

The company also booked non-cash writedowns and non-cash impairments totalling $138 million to cover the costs of its network analysis and closure program and the reduced book values of Michel's Patisserie, Pizza Capers and the Coffee Retail Division.

Managing director Andre Nell says the company is taking "decisive action" to address the company's underperformance.

"We have had to make some tough decisions about our business model, our franchise network and the value of some of our assets," Nell says.

"The key to improving our performance is to simplify what we do. We have all the assets we need to deliver our diversified business strategy now we need to make sure we make the best us of those assets.

"The actions we are taking now will secure a sustainable long-term future for the company and our franchisees' businesses and drive future value for our shareholders."

Retail Food Group says its business-wide review was also influenced by "increasingly competitive shopping centre locations" and "onerous lease conditions" as it revealed it had lost a total of 66 outlets to leave it with a total of 2,450 at the end of the period.

As part of the business-wide review, RFG says it will close between 160 and 200 outlets as the company negotiates rent decreases on its "unsustainable" stores.

The company says it is also aware that it needs to improve the support it provides to its franchisees.

"RFG's future profitability and growth is directly linked to the health and sustainability of its franchise network and it is clear from the review process that RFG needs to reset its business model and enhance its support of franchisees including accelerating the delivery of initiatives that increase their revenues, reduce operating costs and provides them with more hands-on assistance in the field," Nell says.

Retail Food Group is facing the potential for a class action over its relationship with franchisees following a report from Fairfax Media which scrutinised dealings with the franchisees under its brands.

Bannister Law says it is investigating the class action because of a number of concerns raised by a multitude of franchisees, including the terms of operation, and contributions made by the franchisees including, but not limited to, marketing fees.

Shares in RFG will resume trading on Monday.