Freshii pumps brakes on rapid expansion
Restaurant chain suffers decline in same-store sales
TORONTO Freshii Inc., the ambitious Canadian restaurant chain that has frequently touted its rapid global expansion, is backing away from plans to nearly double its stable of franchises by next year after the company’s same-store sales decreased in the third quarter.
Chief executive Matthew Corrin said Freshii was withdrawing its outlook for 2019 — which included plans to add roughly 320 stores to an existing 431 — after issues with permits and lease negotiations in different markets around the world delayed store openings.
The announcement, which came as the company reported disappointing earnings for the quarter, sent shares tumbling as much as 50 per cent Thursday.
Without the pressure to open new locations, Corrin said he can be more disciplined in fixing or closing the “bottom 10 per cent” of stores that he believes to be the culprit behind the steep drop in the company’s same-store sales growth, which registered at -0.8 per cent in the quarter, down from 5.1 per cent a year prior.
Freshii, which Corrin founded in 2005, has been growing rapidly; since its initial public offering in January 2017, the chain has doubled in size, and now has franchises in 17 countries.
Historically, we’ve been … (way) ahead of the industry average.
Corrin now says he is certain that only 175 new stores would open in the next “several quarters” — far from the previous plan, which would have seen Freshii reach 760 stores by next year.
In its third-quarter report, Freshii said it opened 18 stores and closed eight. It saw a net loss of US$400,000 — up from US$500,000 a year earlier — with system-wide sales growing 26 per cent to US$45.8 million.
“We’re frustrated by it,” Corrin said of the decline in same-store sales. “We’re not satisfied.”
“Historically, we’ve been … (way) ahead of the industry average.”
Corrin promised that closing stores or swapping out underperforming franchisees would bring about a quick turnaround. While he didn’t say how many stores he would close, he suggested a portion of the bottom 10 per cent would “likely go away in the next number of quarters.”
“I think the point of ending guidance today is to not tell you what you should expect in the future,” Corrin told an analyst who asked about future store closures during a conference call Thursday morning. “Our base is getting bigger, so the bottom 10 per cent gets bigger inevitably.”
In a report Thursday, analysts at CIBC were unconvinced by Corrin’s plans to change Freshii’s direction, pointing to its stagnant menu and a glut of rivals in the fast-casual health-food industry as other potential reasons for the decline in same-store growth. Investors appeared to have “lost confidence in management’s ability to quickly right the ship,” the CIBC report said.
Freshii stock on Thursday dropped as much as 51 per cent, to $1.95, before rebounding to close at $2.63, down 34 per cent for the day.