Embattled healthy fast foods chain Oliver’s Real Food (ASX: OLI) could be starting to see the light, today revealing an improved earnings guidance after spending the last few months tackling its poor trading situation.
The company’s stock had been on the decline over the past year then tanked at the end of January upon revealing a downgraded profit guidance for the 2019 financial year.
Since then, many board and senior management changes have been made and the company appears to be working hard to get things back on track.
In an update today, Oliver’s announced what it considers a “remarkable turnaround”, anticipating a breakeven for this quarter.
However, it still expects to be in the red by the financial year’s end with a projected trading loss of about $5.3 million.
The company also believes the 2020 financial year will see it return to profitability.
Oliver’s company founder and newly re-appointed chief executive officer Jason Gunn told Small Caps that responding to some key concerns has already had a “pretty transformational impact” on the business.
He said in the last 12 months – and for the first time in its 15-year history – the company was seeing negative same store sales growth.
“We’ve already addressed that and are seeing it respond – our average transaction value has jumped up, our sales have jumped up, our profit margins have jumped up as a result of that,” Mr Gunn said.
“We want to return to a position where we’re seeing our same store sales growth continue to grow at 5-7% as it always had, and really get back to focusing on delivering a great experience for our customers,” he added.
Eliminating the cash burn
Oliver’s January revised earnings guidance revealed that sales revenue for the July to December 2018 period were reportedly lower than the company’s forecast.
It attributed this shortfall to several factors including weaker-than-expected retail spending over the Christmas period, the repricing of products and roadworks near flagship stores, which impacted customer access.
In addition, a capital raising in November failed to hit its target of $7.4 million, raising just $4.12 million, meaning the company didn’t have the desired funds to fully assist with its planned growth initiatives.
In a market update earlier this month, Oliver’s also disclosed that the incoming board had identified a weekly cash burn rate of about $100,000.
Mr Gunn said the company was rife with issues including “ridiculous amounts of spending at head office level” and a “disconnect from the customer”.
He described upper management’s “new cars, corporate Amex cards and big fat salaries” as “just excessive beyond comprehension”.
“It was off the charts and it was destroying the business,” he said.
In March, the company announced other cost-saving measures including the liquidation of some underperforming stores.
“The reasons why those stores weren’t performing were many and varied but given the situation we were faced with financially, we just had to make some immediate decisions,” Mr Gunn said.
“It was probably going to be more costly to rectify the performance at those stores then simply close them and concentrate on delivering a great result on the remaining network.”
He said the company does not anticipate closing any of its remaining 25 stores spanning from Brisbane to Melbourne, which he believes are “really good, profitable stores”.
Another key issue was that former chief executive officer Greg Madigan made a lot of operational changes that had a negative effect because he “did not fully understand the market”.”
These changes included placing microwaves in stores to heat food faster and lowered prices thinking this would achieve greater foot traffic, which it did not.
“That just had a detrimental impact on our revenues and our margins and most importantly, people who were looking for ‘fresh, natural, organic food’, which is our catch phrase, aren’t looking for the word ‘microwave’ to be tacked on to the end of that,” Mr Gunn said.
The third concern the company has been working to rectify involved responding to the operations team.
“The changes that had been made under the old management were really making it difficult for [store staff] to deliver a great experience for the customer,” Mr Gunn said.
“We’ve got a very strong, loyal customer base but if they become disillusioned with us as an organisation and they feel like we’re disconnected, then they’ll wander off and that was starting to happen.”
He said one of the big indicators of the operation teams’ discontent was the fact that many team members stopped eating pita pockets – Oliver’s signature dish – once the microwaves were introduced.
“This is really telling – if the staff that work in the stores aren’t even eating the product then it’s no wonder our sales have dropped,” Mr Gunn said.
Mr Gunn confirmed that the microwaves have now been removed from all stores.
Following the disappointing January announcement, Oliver’s chairman Mark Richardson resigned and was replaced by Nick Dower.
Chief executive officer Greg Madigan also stepped down with company founder and former CEO Jason Gunn returning to the company and position.
The chief financial officer Alan Lee, who had announced his resignation in December, was replaced by Rowena Hubble in February in an interim role.
In March, the company announced also announced the appointments of Steven Metter as company secretary and Amanda Robson Gunn as operations manager.
By afternoon trade, company shares were up 72.73% at $0.038.