Retail Food Group Ltd (ASX: RFG)
Retail Food Group Ltd plunged heavily by about 36.5% on March 05, 2018 with the release of the announcement on booking heavy write-downs and store closures by end of last week. This follows the recent suspension as the firm’s auditors were unable to sign off on its accounts for the December half year. The embattled group has been smashed at the back of write-downs, treatment to franchisees, and extensive underpayment of staff. As a result, RFG reported a loss of $87.8 million for the first half of 2018 compared to a profit of $32.7 million in the first half of 2017. Underlying net profit after tax of $24.7m was down 31.8% owing to disappointing performance in challenging trading conditions.
The group is also now closing between 160 and 200 stores and this accounts for 13% of its total network. This has come at the back of unsustainable rent and declining shopping centre performance. The group also suspended its dividends for the half year at the back of the disappointing performance.

The group has thus indicated for non-cash impairments and write-downs, and provisioning, totalling $138.0m at the back of planned store closures, recent trading performance, and a re-assessment of near-term trading prospects. Brand System impairments alone accounted for $84.0m.
On the other hand, RFG is tracking well on international expansion strategy. The group is entering breakthrough joint venture arrangements with leading UAE based businesses to establish a world class coffee enterprise throughout the Middle East & North Africa (MENA) region and accelerate Brand System expansion within the Gulf.

Meanwhile, Westpac and National Australia Bank, have introduced new measures on the company that include lifting in debt-to-earnings ratio to 3 times from 2.5 times wherein failure to reach the limit would lead to a breach of borrowing requirements. On the other hand, RFG has a budget from its bankers of about $90 million in underlying full-year 2019 earnings before interest, tax, depreciation and amortisation. While the group has not been able to predict any full year outcome, the retailer believes to resuscitate on the basis of underlying business operations and its ability to support its Brand Systems and their franchisees, with fast track initiatives under the business wide review.
 

1H 18 Result (Source: Company Reports)
 
On the other hand, Myer Holdings Ltd (ASX: MYR) bucked its own trends and rallied by about 15%. While there is no specific news coming in, the stock is witnessing high trading volume, and this may be owing to the speculation around a takeover offer. Meanwhile, the group had lately announced about deterioration in trading during the start of the second quarter of FY18 following a subdued performance during the first quarter. This led to the group indicating for a materially low 1H 2018 Net Profit After Tax (NPAT), pre-implementation costs and individually significant items, against the previous corresponding period. Further, the group reiterated that retail trading conditions during the second half are also expected to be challenging and the group is thus unable to provide any specific profit range for the full year 2018 NPAT. Meanwhile, Chief Executive Officer and Managing Director, Richard Umbers, has stepped down from his role while Chairman Garry Hounsell, has been appointed as Executive Chairman.

Given the developments and market updates, it would be prudent to see the stock price movement of both the retailers.

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