Retail Food Group sees profits sour

Retail Food Group sees profits sour

Retail Food Group's (ASX: RFG) exposure to shopping centres has been the company's Achilles' Heel in the first half, with the company watching profits dive by 72 per cent in the period.

At just $3.9 million, the group's net profit after tax was a far cry from its pre-pandemic 1H20 profit of $13.9 million.

The company attributes the dive to its extensive exposure to suburban and CBD shopping centres where government-mandated COVID-19 restrictions have had an enduring effect.

However, RFG notes the pandemic has driven a positive effect in certain categories - notably same store sales at Brumby's Bakeries were up 11.7 per cent, and its pizza division saw a 6.7 per cent lift in sales.

Performance was more mixed among its shopping centre-based coffee brands including Gloria Jean's, Donut King and Michel's Patisserie.

At a network level, these stores saw a 2.6 per cent decline in same store sales, although sales were relatively flat at decline of just 0.3 per cent when Victorian stores are taken out of the equation.

Together with the cumulative impact of underperforming outlet closures, total network sales for the half were down 13.2 per cent to $224 million.

Executive chairman Peter George says RFG has prioritised the improvement of leasing arrangements and COVID-19 relief for its franchise community, with concessions having been negotiated for more than 400 stores.

"Unfortunately, less than 30 per cent of these concessions have been formalised by landlords via adjusted rental statements," says George.

"This has led to high levels of confusion amongst all concerned parties, and given rise to a gross rental arrears amount of approximately $11.8 million across those outlets in the network where the group is 'head on lease'."

Internationally the story is grimmer. At 31 December 2020, 25 outlets remained temporarily closed, and master franchise networks across 34 countries remained subject to various trading conditions.

These pandemic-induced conditions contributed to a decline of 63 per cent for wholesale coffee revenues in the period, resulting in a first half profit of just $0.4 million for the segment.

George notes COVID-19's influence creates ongoing challenges and uncertainties within key markets in which the company operates.

"Despite this, there are a number of positive indicators across the group's business that provide confidence in respect to future performance following a return to less volatile conditions," says George.

"While ongoing COVID-19 related uncertainty, including the potential impact of government support initiatives such as JobKeeper being withdrawn, makes it difficult to predict future financial outcomes...the company approaches the future with cautious confidence."

Shares in RFG are up 5.63 per cent to $0.08 per share at 2.48pm AEDT.

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