Release Date: February 18, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Retail Food Group Ltd (ASX:RFG) announced a significant partnership with Restaurant Brands International to bring Firehouse Subs to Australia, aiming to open 165 restaurants over the next decade.
• The company reported a 4.8% growth in its core cafe coffee bakery brands, demonstrating strong performance in a challenging retail environment.
• RFG successfully opened 25 new domestic outlets, significantly outperforming closures, and acquired 22 Chibo Expresso stores, enhancing its retail footprint.
• The company's underlying EBITDA increased by 4.2% to $16 million, supported by various initiatives that offset previous lease provisions.
• RFG's strategic focus on core brands and innovation, including a new IT investment plan, aims to future-proof its brands and enhance customer experience.

Negative Points

• The quick service restaurant (QSR) segment faced challenges with competitors promoting heavy discounts, impacting customer traffic.
• RFG closed 17 low-performing core brand outlets, which detracted from overall network sales results despite improving network quality.
• The company experienced a slight deterioration in customer count within the cafe coffee bakery segment, attributed to lower foot traffic in shopping centers.
• Corporate stores, particularly Gloria Jeans, underperformed compared to Donut King and Beefy's outlets, with plans to exit low-performing stores.
• The company faced ongoing challenges in the highly competitive QSR segment, with a need for further work to stabilize and grow this part of the business.

Q & A Highlights

• Warning! GuruFocus has detected 3 Warning Signs with ASX:RFG.

Q: Can you discuss how trading has been in the first quarter of the calendar year? A: Matt Marshall, CEO: We've seen continued strong performance in our core CCB brands with some stabilization in QSR. Beefy's is performing particularly well, up about 20% in the first seven weeks. QSR was fairly flat, down about 3%, which is an improvement. However, it's important not to get too excited about just seven weeks of trading.

Q: Regarding the QSR segment, can you talk about store closures and the competitive landscape? A: Matt Marshall, CEO: Our multi-site operators are keen to grow their Crust network, and we have seen a net store increase compared to other large pizza players who are in net decline. We don't expect store numbers to decline in the next six months.

Q: How do the recent coffee price increases relate to the commodity cost of coffee? A: Rob, CFO: The price increase will cover the current commodity cost. We aim to minimize shocks to the system rather than trade coffee as a commodity. We have decent scale across our business, which helps manage these costs.

Q: What are the expected returns from the Firehouse Subs investment? A: Matt Marshall, CEO: Firehouse Subs fits our capital-light, easy-to-operate model. We expect strong unit economics and plan to prove the model with company stores in the first three years before sub-franchising in year four.

Q: Can you provide insights into franchisee profitability and the expansion opportunity for your brands? A: Matt Marshall, CEO: Our core brand strategy is improving network health, with average weekly sales up. While franchisees face trading pressures, our best operators continue to expand. We have benchmarked franchisee P&Ls favorably, giving us confidence in our expansion plans.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.