This article is from the Australian Property Journal archive
DESPITE food retailing performing better than other retail categories, even it is not immune to challenging trading conditions, as evidenced by Retail Food Group (RFG) announcing that it will close 200 stores due to unsustainable rent and declining shopping centre performance.
RFG revealed a 31.8% fall in net profit to $24.7 million in the first half year, largely due to ongoing challenging retail market trading conditions, especially within increasingly competitive shopping centre locations.
Following the review, RFG decided there would be a reset to focus on the quality of the domestic franchise business and will close around 160-200 store by end of FY19, predominantly due to unsustainable rent and declining shopping centre performance, in a move which is expected to result in around $10 million in annualised operational savings.
“Persistently tough retail conditions and the cumulative impact of 2H17 and 1H18 domestic outlet closures, combined with onerous lease conditions and internal challenges in the management of RFG’s business model, particularly evident in a sharp decline amongst domestic franchise sales and renewals, contributed to RFG’s 1H18 results,” managing director Andre Nell.
The planned store closures, recent trading performance, and a re-assessment of near-term trading prospects, resulted in non-cash impairments and write-downs, and provisioning, totalling $138.0 million, being recognised in the 1H18 result.
RFG has booked a non-cash impairments against the book value of Michel’s Patisserie ($45.0 million), Pizza Capers ($4.5 million) and Coffee Retail Division CGU ($34.5 million).
In addition, there is a non-cash write-down, and provisioning, of $18.3 million on account of PP&E and inventory write-downs, loss on real property disposals and miscellaneous matters.
Nell said 1H18 had been a challenging period for the Group and its franchisees, requiring a strategic reset and decisive actions being taken to address underperformance to secure a sustainable long-term future for the Company’s and its franchisees’ businesses.
“It recognises that retail trading conditions, especially in shopping centres, will remain challenging for the foreseeable future and RFG needs to improve the support it provides to its franchisees as a consequence.
“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.
“This process will ultimately drive a simpler business model underpinned by a leaner and more agile support structure.” Nell concluded.
Australian Property Journal
