Donut King and Michel’s Patisserie chain owner Retail Food Group has admitted it needs to do more to help its struggling franchisees after flagging the closure of up to 200 stores.
RFG, which also owns the Gloria Jean’s cafe chain, announced it will close between 160 and 200 outlets by the middle of 2019 because of unsustainable rents and declining performances in shopping centres.
The move on Friday came three months after the group was accused in media reports of mistreating franchisees with exorbitant supply and marketing costs.
The accusations were followed by two profit warnings and, on Friday, a first-half loss of $87.8 million due to $138 million in writedowns and provisions.
About a quarter of the hit came from a $35.7 million store closure provision following a retrospective review of the company’s performance over the past three years.
Managing director Andre Nell said RFG was taking decisive action after the company’s internal structures had failed to keep pace with its rapid expansion.
“The future for us is about a simpler business model that’s very attuned to provide better support to our franchise network,” Mr Nel told AAP.
“And to adapt to a more challenging retail environment.”
The closures, the majority of which will involve Gloria Jeans, Michel’s and Donut King stores in shopping centres, will be completed by the middle of next year.
“We are making the hard decisions to transform the business model,” Mr Nell said.
RFG, which had 2,450 outlets by December 31, made a $45 million non-cash impairment against Michel’s Patisserie, $34.5 million against its coffee division, and $4.5 million against Pizza Capers.
Stripping out the one-off items, underlying profit for the six months to December 31 fell 31.8 per cent to $24.7 million.
RFG said it was improving its compliance on correct wage payments and targeting $10 million of annual savings by integrating head office and other support infrastructure.
“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 to franchisees,” Mr Nell said.
RFG, whose shares have been in a trading halt since Wednesday as it waited for its auditor to sign off on its accounts, also suspended its dividend.
The stock, which last traded at $2.04, will resume trading on Monday.
RFG’S ROUGH FIRST HALF
* Net loss $87.8m v $32.7m profit
* Revenue up 43.0pct to $155.5m
* No interim dividend