Retail Food Group just posted a massive loss and has started to cuts costs and stores

Tianjin opening of Gloria Jeans. Supplied

Retail Food Group is shutting fast food outlets, cutting costs and reviewing its business to try to stem declining sales at it franchised network.

The owner of Brumby’s, Donut King, Crust Gourmet Pizzas, Michel’s Patisserie and Gloria Jean’s today posted a net loss after tax of $87.8 million for the first half on the back of “difficult trading” conditions and an underperforming franchise business.

The company has decided to close between 160 and 200 Australian outlets by end of the 2019 financial year because of high rents and declining shopping centre performance.

The company, which is also seekin annualised operational cost savings of $10 million, will return to trading on the ASX this Monday, March 5, after being suspended for not lodging its half year results by February 28.

“We have had to make some tough decisions about our business model, our franchise network and the value of some of our assets,” says Managing Director Andre Nell.

“The key to improving our performance is to simplify what we do. We have all the assets we need to deliver our diversified business strategy — now we need to make sure we make the best use of those assets.”

The company has been under pressure since a Fairfax Media investigation revealed hundreds of stores were going to the wall as “a result of a brutal business model”. The company says it has no evidence of franchisees underpaying staff.

The result for the six months to December included non-cash impairments and write-downs of $138 million. The impairments included Michel’s Patisserie ($45 million), Pizza Capers ($4.5 million) and Coffee Retail Division ($34.5 million).

Revenue was $195.5 million, up from $161.9 million. Underlying profit after tax was $24.7 million, down 31.8%.

Dividends were suspended.

The number of franchised outlets fell by 66 to 2450 over the six months. Same store sales growth was just 0.3% and average transaction value growth 2.1%.

Total franchise earnings were down 30% to $47.7 million.

Net debt at the end of December was $259.7 million and the company has agreement from its banks to extend $150 million in debt facilities.

“RFG’s future profitability and growth is directly linked to the health and sustainability of its franchise network, and it is clear from the review process that RFG needs to reset its business model and enhance its support,” says Nell.

“As the company progresses its business-wide review, consideration will be given to further structural improvement to better ensure RFG is applying resources more effectively. This includes further review of our broader brand strategy and portfolio.”

The first half numbers in detail:

Retail Food Group

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