Retail Food Group posts $306 million loss

Embattled franchisor Retail Food Group (RFG) posted a $306.7 million full-year loss on Friday, capping off a tough 12 months for the group.

The group, which operates the franchise rights for food retailing brands Gloria Jeans Coffee, Donut King and Brumby’s Bakery, said it will close 250 domestic stores, up from the previously reported 200 by the end of 2019.

Despite seeing revenue rise 7.1 per cent over the last 12 months, the company was forced to make impairments and provisions to the tune of $402.9 million to cover closures, restructuring and a reduction in brand value and assets, which resulted in the loss.

The biggest brand system and goodwill impairments came from struggling franchises, Gloria Jeans Coffee ($90.1 million) and Michel’s Patisserie ($59.2 million).

RFG also reported decreases in receivables, PP&E, intangible assets, and deferred tax balances, and increases in provisioning, primarily attributable to non-cash impairments and write-downs, and provisioning, totalling $320.9 million.

“As 2017 progressed, it became evident that trading results were not meeting management’s expectation, impacted by challenging retail market trading conditions, especially within shopping centre locations, negative market sentiment towards franchising and RFG in particular, the cumulative impact of 2H17/1H18 store closures, and internal challenges in the management of RFG’s business model,” RFG said in a statement.

“These factors, together with concerns regarding franchisee sentiment and engagement, and the group’s supply chain performance, also contributed to a decline in new store growth, resale and renewal activity, and the number of outlets being passed to RFG management.”

Shares in RFG plummeted by as much as 12 per cent following its earnings announcement. Shares had dropped to 54 cents at 1030 AEST, still up from the all-time low of 39.5 cents set two weeks ago, following repeated allegations of misleading franchisor behaviour and reports of misconduct within its network.

The group has recently been the subject of much contention at the Parliamentary Inquiry into the Franchising Code of Conduct. The group has cited improved franchisee support in a rapidly changing retail environment as the key contributor to its plan for rebuilding revenue and market share.

This story originally appeared on sister site Inside Franchise Business.

EDIT: Updated shares figures for Monday 3/9/18

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