Investors welcome Godfreys franchise move

Shares in the vacuum cleaner retailer jumped after it detailed plans to shift to a majority franchise model.

Former Godfreys CEO Kathy Cocovski left the company in July. (Pic: David Geraghty)

Vacuum cleaner retailer Godfreys has detailed plans to shift to a majority franchise model, with the move to result in $2 million in restructuring charges.

Investors have welcomed the plans despite the near-term profit hit, sending Godfreys (GFY) shares up as much as 8 per cent in early deals.

The transition to a majority franchise model is expected to see as many as 60 stores converted to franchise stores over a three-year period, including 18 in fiscal 2017.

Should the transition proceed as planned, the group expects to have as many as 140 of its portfolio of 224 stores operating under the franchise model, with the decision seen boosting its earnings in the medium-term.

“Following an internal strategic review to address continued weak performance in the business, the board has concluded that rebalancing the store portfolio with a bias to franchise stores is the best option to place the business on a solid footing for long-term growth,” chairman Rod Walker said.

“This streamlining of our store portfolio will enable greater management focus on our more profitable larger format stores. It will also deliver medium and long-term improvements to both profitability and the balance sheet.”

The retailer detailed its fiscal 2017 guidance for the first time, tipping a further slide in net profit after tax to $6-$6.6 million, from $9.2m last year and $11.5m in fiscal 2015.

Restructuring costs associated with the shift to a majority franchise model are seen crimping results by $2m.

Managing director John Hardy added the new strategy made sense given the comparatively strong showing of franchised outlets.

“Our franchise stores have a track record of outperformance, underpinned by the fundamental driver of small business ownership, particularly in regional areas where local knowledge and relationships are a major element of success,” he said.

“Refocusing the business on a franchise concept will enable Godfreys to accelerate the current business improvement program. We expect strong interest from within our existing team to become franchisees.”

An implementation team will be headed by current chief financial officer Bernie Bicknell.

At 10.45am (AEDT), Godfreys shares surged 6.6 per cent to 89c, as against a broader market gain of 0.3 per cent.