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RFG downgrades after poor trading

Gloria JeansRetail Food Group (RFG) has cast a cloud over its first-half profits, downgrading its domestic franchise revenue forecasts in a trading update on Tuesday morning amid poor trading in its coffee division.

The franchise giant now expects 1H18 statutory NPAT to be around $22 million, compared to $33.5 million in the prior corresponding period, including the impact of $7 million in one-off costs associated with its business wide review and the disposal of corporate properties.

Yesterday, RFG shares plunged to a five-year low amid ongoing media reports its business model has left many Gloria Jean’s, Brumby’s and Donut King franchisees struggling

RFG said the performance of its domestic franchise business is consistent with that of other retailers, particularly those with high exposure to shopping centres, noting that Crust and Donut King are trading to expectation while Michel’s Patisserie, Brumby’s and Gloria Jeans are struggling.

It also outlined the impact of several reports in Fairfax media over the last few weeks which have thrown a spotlight over allegations of wage underpayment within RFG’s franchise network, criticising the company’s business model.

“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. Associated revenues are now forecast to be below prior expectations and future franchise trading revenues are also likely to be impacted,” RFG said.

Managing director Andre Nell said RFG will look to accelerate any cost-saving initiatives that arise from its business wide review, which has been one of its key defences against many of the allegations put forth against the company in recent weeks.

“The retail market is expected to remain challenging for the new future and we remain focused on responding to this challenge through delivering franchisee support initiatives and reducing corporate costs,” he said.

RFG did not provide any updated full-year guidance, but has previously said it expects 6 per cent NPAT growth for FY18, guidance it maintained at its AGM recently.

The company is also currently renegotiating its three-year loan facilities worth $150 million, with an eye on lengthening the maturity dates past December 2018.

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