The Retail Food Group Limited (ASX: RFG) share price is flying today, up 19.67% at the time of writing to 7.3 cents.
Retail Food Group is the company behind several well-known food and beverage brands such as Gloria Jean’s, Donut King, Crust, Brumby’s, and Michel’s Patisserie.
Why is the Retail Food Group share price on the move?
The catalyst behind today’s surge appears to be a trading update from the company this morning. In the update, Retail Food Group shed light on recent trading conditions and provided full-year earnings guidance.
In regard to operating performance, the company revealed it has continued to observe an increase in customers within shopping centres as COVID-19 restrictions have been eased:
“Customer count has continued to improve, with recent trading data reflecting a weighted average decline amongst all brands of 13.76% versus the previous corresponding period, albeit this remained well below pre-pandemic levels,” said executive chair Peter George.
Mr George noted that only 17 outlets remain temporarily closed in Australia due to the pandemic. While the company is working with impacted franchisees to facilitate re-opening, it expects around 7 of these outlets to be permanently closed.
Additionally, Retail Food Group announced it has secured rent concessions for around 415 outlets. “This is a positive outcome for both franchisees and RFG which provides both cash-flow support and added certainty,” said Mr George.
The company also revealed it has completed the restructure of its wholesale coffee business. This has unlocked annualised cost savings of around $6 million per annum.
International franchising division
Shifting gears to its international operations, Retail Food Group stated its international franchise network has experienced a similar improvement in trading conditions as local government restrictions have been eased.
Accordingly, ~150 international outlets are now operating with limited dine-in, while a further ~230 outlets are operating on a takeaway-only basis. However, the company noted that ~138 outlets remain closed, 30 of which will be closed permanently.
FY20 guidance and outlook
Retail Food Group previously withdrew its FY20 earnings guidance in late March in response to the challenges posed by the pandemic.
This morning, however, the company reinstated guidance. Retail Food Group is expecting FY20 underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of around $35 million. This compares to underlying EBITDA of $50.7 million in FY19, and pre-pandemic guidance of between $42 million and $46 million provided in October 2019.
RFG also expects its net debt position to stand at approximately $25 million as at 30 June 2020.
Commenting on the company’s near-term outlook, Mr George said, “RFG expects trading conditions to remain challenging in the foreseeable term and therefore anticipates a continuation of those measures implemented by the Group in response to the pandemic to support franchisees.”
“That said, there are a number of positive developments within the Group’s business that provide optimism for the future”, Mr George concluded.
Including today’s 19.67% jump (at the time of writing), the Retail Food Group share price is down just over 30% year-to-date.
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Motley Fool contributor Cathryn Goh has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The post Why the Retail Food Group share price is soaring 20% today appeared first on Motley Fool Australia.
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