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Retail Food Group cuts profit forecast

gloria-jeansBakery, pizza and coffee chain owner Retail Food Group has downgraded its full-year profit expectations, sending its shares down by more than 10 per cent.

The owner of Donut King, Pizza Capers, Michel’s Patisserie and Gloria Jean’s Coffees is now forecasting underlying profit growth of around 15 per cent in the 2016/17 financial year, down from its previous forecast of 20 per cent.

The company said its domestic franchise operations were trading in line with the prior year, but growth across most brands had been offset by a decline for Michel’s Patisserie, which has been hit by supply chain issues.

Retail Food Group also will record a $22 million writedown in its 2016/17 financial results after re-assessing the recoverability of advances made to the marketing funds for Michel’s Patisserie and Pizza Capers.

It said the advances will not be recovered in full because each business now has fewer outlets.

Retail Food Group shares dropped 53 cents, or 10.4 per cent, to $4.56, a near-16 month low.

The company also said its international operations continue to grow, although a significant new master franchise deal had been delayed to 2017/18.

Its coffee and beverage division, which includes the Di Bella brand, was performing to expectation, with growth in commercial coffee contracts offset by a reduction in the lower-margin supermarket capsule business.

Retail Food Group said it anticipates organic growth to continue in 2017/18, largely driven by its international, commercial and coffee divisions, while its food franchises are expected to achieve modest growth.

The company said it also continues to enjoy a strong relationship with its bankers, with facility headroom of c.$80m, and a conservative leverage ratio of c.2x, providing ample funding for non-organic growth initiatives.

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