RFG outlets shrank by 8 in 1H13

Despite its profits hitting A$16.5m.

According to J.P. Morgan Chase & Co.'s research report dated February 22, 2013, it believes that Retail Food Group Limited’s 1H13 result to be experiencing weakness in most of the company’s core franchise systems due to declines in Average Weekly Sales, and Net Outlets, except for Donut King. RFG saw 36 closures even with their addition of 28 more outlets, resulting to a net decrease of 8 outlets.

Also, the brand’s franchising and wholesale PBT margins fell 4.4ppts and 9.0ppts respectively, partly due to the financial assistance provided to Michel’s Patisserie.

Although RFG’s reported 1H13 core NPAT has risen slightly above guidance of an estimated 7.5% growth, J.P. Morgan perceives this as due mainly to the contribution from the brand’s Gourmet Pizza acquisitions.

Here’s more:

RFG reported 1H13 core NPAT of A$16.5m, slightly above guidance of ~7.5% growth (implying A$16.1m). Though the result came in ahead, we believe this was wholly due to the contribution of acquisitions with weakness across most of the core franchise systems, except Donut King. Average Weekly Sales declined for the remainder of the systems, as did net outlet growth. RFG is banking on future earnings growth to be driven by Gourmet Pizza, but we believe that this may not happen at the same rate as the decline in the core systems. Remain Underweight, A$3.05 PT

AWS went backwards for all systems except Donut King. Donut King grew AWS by 4.8% offsetting declines in Michel’s Patisserie (-1.7%), Brumby’s (-1.1%), and Esquires/BB's (-0.6%). The weighted average AWS growth was 1.7% (excluding Michel's), down from the ~2.0% reported at the AGM in October 2012.