RFG flips results to $4.2m profit, signals interstate expansion for Beefy's

Gold Coast-based Retail Food Group (ASX: RFG) has reported domestic net outlet growth for the first time in recent years following 70 new store openings in the December half, while also delivering a net profit after tax (NPAT) of $4.2 million.

This compares to just 29 new openings and a loss of $1.1 million in the December half of 2022, and takes RFG's total domestic store count to 743.

Network sales reached $254.8 million, representing 4.7 per cent growth on the six months prior. This was driven by strong momentum in particular for the group's Café, Coffee, Bakery (CCB) segment which represents 70 per cent of sales and comprises the brands Gloria Jeans, Brumby's Bakery, Di Bella, Donut King, Michel's Patisserie, Café2U, The Coffee Guy, and most recently Beefy's Pies.

RFG acquired the Sunshine Coast-based chain Beefy's in November for $10 million, although the share-based component of the transaction has risen in value by around $500,000 since then with the company's shares up 27 per cent over that time.

Beefy's and its nine stores only contributed around $100,000 worth of earnings in the half, although that was over just 19 days.

The company reports that "early synergies and growth opportunities have begun to crystalise" at Beefy's including the planned opening of the brand's first NSW store in Ballina in the next quarter from a converted, high-perfoming Brumby's outlet, as well as the transitioning of coffee supply to RFG's in-house roastery.

Brumby's is the only brand in the RFG portfolio that didn't experience new store growth in the period, and some of its other flagship brands struggled. RFG's Quick Service Restaurant (QSR) division - which includes Crust Gourmet Pizza, Pizza Capers and Rack’em Bones BBQ Ribs - witnessed a sales drop of 5.5 per cent to $73.9 million, while segment EBITDA declined by 9.1 per cent to $3 million.

This compares to an EBITDA of $12.3 million for the CCB division, up 6 per cent year-on-year.

RFG notes its restaurants were affected by "heavy discounting" from competitors as they chase volume in a price war, with Crust losing its customer count by not matching discounts.

However, the focus remains on franchisee profitability and the virtual, delivery-only brand Rack ’em Bones BBQ Ribs has been leveraging the kitchens and operations of 90 QSR outlets, up from 42 by the end of June.

"The first half results demonstrate a momentum shift towards growth for RFG as we continue to invest in the quality of our retail systems that underpin our franchise operation," says CEO Matt Marshall, the group's former head of retail who was promoted at the start of FY24.

"Our CCB segment has performed strongly, with an ongoing focus on execution standards that enhance the customer experience.

"We understand the challenges in our QSR segment and have actions in place to drive frequency and attract new customers through product innovation, investment in technology and value. Driven by our franchisee first mantra, we remain intently focused on unlocking profitable growth opportunities."

RFG expects underlying revenue will rise by 8-16 per cent year-on-year to a band of $110-118 million, and has given guidance for an even more pronounced lift in underlying EBITDA to $28-32 million.

In the current half the company is launching a new incentive plan to unlock joint business plans for incentivising the highest performing franchise partner operators to grow their portfolios, while non-core brands are being consolidated including the conversion of mobile brands to Gloria Jean's.