Shares in Gloria Jeans owner dive as it warns on profit again

The embattled owner of the Donut King and Gloria Jeans brands has again lowered its profit guidance, only three weeks after warning investors of a weaker than expected first half.
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Retail Food Group said on Tuesday that it would no longer achieve a profit of $22 million for the six months to June 30.

RFG’s shares dived as much as 10 per cent on the news, before recovering to close down 6 per cent at $2.32.

The company, which also owns the Brumby’s Bakeries, Crust Pizza, Pizza Capers and Michel’s Patisserie chains, did not say what it now expected its profit to be other than “less than the $22 million” advised on December 19.

RFG said the lower than expected result was because revenue from new master franchise agreements for its Crust Pizza and Donut King in the UK would not be received during the first half of 2018.

Instead the profit from the two new agreements would boost RFG’s second-half results.

“RFG’s financial results for first half of 2018 are still in preparation and will be released once RFG’s financial statements for the period have been finalised,” the company said in a statement.

RFG’s shares plunged 25 per cent in December when the group said it expected its first-half profit to fall to $22 million, well down on the $33.5 million it posted during the same period a year earlier.

The downgrades come after Fairfax Media revealed in December that the group was using a brutal business model that had sent hundreds of franchisees within its network to the wall financially.

Fairfax’s investigation uncovered rampant underpayment of workers within RFG’s brands as a result of the unfair business model for franchisees, and highlighted the company’s misuse of marketing funds contributed by franchisees.

RFG has said it had appointed Deloitte to conduct a review of its n business, including the terms of its agreements with franchisees and the alleged underpayment of workers.

The media investigations led to a sharp plunge in RFG’s share price, with its shares tumbling from $4.40 to a low of $1.62 in December before recovering slightly to trade at around $2.40.

RFG’s share price has also been affected by short-sellers, who believe the company’s financial bona fides don’t stack up.

Totus Capital fund manager Ben McGarry, who has been shorting RFG since before the Fairfax Media investigation, said nothing had improved for the company in the past month.

“The company is still facing the twin issues of the balance sheet problems and the business model to fix and until it does it’s going to stay under pressure,” Mr McGarry said.

“We’ve had another downgrade today and they can’t even quantify it – it’s just ‘less than $22 million’. It’s difficult to see how it is going to bounce.”

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