Embattled food retailing group, The Retail Food Group Ltd (ASX: RFG) has been under tremendous hammering and has lost about 76% in last six months (as at March 06, 2018), while the stock is trying to recover with a 5.3% rise on March 07, 2018. The group’s recent financial performance entailing losses (a net loss after tax of $87.8 million for the first half of FY18 owing to difficult trading conditions) and issues with franchisees has pushed the stock price in red zone. Meanwhile, UBS Group AG and related bodies corporate have ceased to be a substantial holder of the group.

The group now faces a possible class action over its franchisee model often termed as “a brutal business model” by the media. While RFG says to have no evidence of franchisees underpaying the staff, Maurice Blackburn Lawyers have set-up a registration portal for the shareholders to be a part of the class action against the group.

Meanwhile, Retail Food Group will be closing between 160 and 200 Australian outlets by the end of FY19 as the heavy rents and declining shopping centre performance are adding to the negatives. The group had notified about non-cash impairments and write-downs of $138 million for the half year and this included Michel’s Patisserie ($45 million), Pizza Capers ($4.5 million) and Coffee Retail Division ($34.5 million). On the other hand, the top-line of $195.5 million was up from $161.9 million. While some of the market specialists might believe that the stock price slump be leveraged as an opportunity, the uncertainty level is very high and cannot be ignored at the moment. The group has immense pressure given the tight banking covenants, suspension of interim dividend, and target to earn $90 million in underlying earnings before interest, tax, depreciation, and amortisation per year while repaying $12.5 million in debt in next 12 months. At the same time, lack of accurate information on issues at the franchisee network is not letting the group help recover from the deep trouble.

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