Shares in Retail Food Group rose by 10% yesterday even though it announced a smaller than expected net profit of $27.9 million, highlighting the company’s importance as one of the few retailers delivering positive results and forecasts for the year ahead.
The business also expects to invest more in online opportunities over the next year, and plans to engage more over social media.
RFG, which controls the Donut King, Brumby’s and Michel’s Patisserie brands, recorded a net profit after tax increase of 5.7% to $27.9 million, although chief executive Tony Alford says the growth would have been between 13-15% if not for the natural disasters experienced earlier this year.
“The company’s performance is testament to the effectiveness of its business model and franchise systems as is amply demonstrated by its ability to drive enduring results notwithstanding the severely challenged retail environment,” Alford said in a statement.
Up to 180 outlets were impacted, with six still closed, while 13 New Zealand outlets were affected by the Christchurch earthquake, with four remaining closed. The total impact of the disaster is estimated to be $2 million on net profit.
But the increase in the company’s share price also came after chairman John Cowley addressed what the company believes was only a temporary dilution of the company’s value.
RFG shares hit a high of $2.95 this year, until they fell to $2.39 in May. They have since fallen to $2.07 following the recent market turmoil, but rose to $2.35 after yesterday’s announcement.
“The board is optimistic that the recent diminution of RFG’s share price will be temporary, given it is neither reflective of the value position of the Company nor the sustained positive results delivered by a unique business model.”
“Given the combination of the existent share price and record cash position, the Board considers it both appropriate and in the interests of shareholders that the dividend re-investment plan be suspended at this juncture.”
The company was contacted this morning by SmartCompany but Alford was unavailable prior to publication.
It also praised a shift to online, saying there had been a 57% increase in retail sales for Michel’s online, and its “Create a Cake” option – enough to equal two additional outlets based up on sales in May and June.
The business expects to introduce a new digital loyalty program, digital menu panels and screens in stores, invest in in-store technology and create a “stronger brand experience” on social media over the next year.
Alford also confirmed the company’s commitment to the franchising model, saying that network sales increased by $10.5 million to $651.1 million, with 40 new outlets built. It also acquired the Esquires Coffee Houses brand, increasing its total reach to 1,148 stores across five brands.
Net profit is expected to rise by 10% in the 2012 year.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
