RETAIL FOOD GROUP SHARES PLUNGE ON PROFIT DOWNGRADE

RETAIL FOOD GROUP SHARES PLUNGE ON PROFIT DOWNGRADE

IT'S been a rough two weeks for Retail Food Group (ASX: RFG), as controversy continues to whittle down RFG's share price, culminating in today's collapse of more than 20 per cent following the announcement that the group is slashing profits by 34 per cent.

Today the group, responsible for brands inlcuding Crust Pizza, Brumby's and Donut King, downgraded its profit guidance sending RFG stock down to a five-year low. For context, at it's peak in March 2015, shares in RFG were at $7.67 - they are now down to $2.08 per share.

RFG warned that its half-year profits would likely be down by more than a third on last year's.

The company says recent negative media reports about its treatment of franchisees are partly to blame for the gall in sales, along with a tough retail environment. 

The group's media troubles stem from a Fairfax investigation, reported just over a week ago on the 10th of December, which reported scathing accusations against the group, suggesting the master franchisor left many of its franchisees struggling and without recompense.

RFG says its major brands Crust Pizza and Donut King have continued to perform to forecasts, but Michel's Patisserie, Brumby's and Gloria Jean's are trading below expectations, and domestic franchise revenue continues to track lower than anticipated.

"Recent negative media coverage about franchising, retail and RFG in particular has also contributed to a noticeable decline in momentum in new and renewing franchise sales," says RFG in a trading update to the ASX.

RFG says one-off costs totalling $7 million, including expenses linked to a business-wide review, will add to the pain.

The group now expects net profit to be around $22 million for the first half, down 34 per cent on the $33.5 million profit made over the same period a year ago.

Shares in the company are down by 20.78 per cent to $2.10 per share at 1:30pm AEDT.

Today marks the second day RFG shares have been in freefall.

As part of its report, Fairfax published claims that RFG has been crippling franchisees on a fiscal, personal and emotional level.

It also alleges that the group has charged fees and other costs to boost its profits, leading some franchisees into bankruptcy which in turn has led to systemic staff underpayment and destroyed relationships.

RFG has rejected the accusations unearthed by Fairfax.

"The Company's current strategy, management team focus on responding to challenging retail market conditions, including efforts to support its Franchise Partners and their team members, and its financial and operational performance, all of which have previously been announced by the Company, are not, in the Company's view, accurately reflected in the Fairfax Media's coverage," says RFG in a statement to the ASX.

Shares in RFG are down 25 per cent at close of business on Tuesday 19 December, down to $1.99 per share.

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