Freshii seeks to reassure investors after cutting guidance for growth

MONTREAL _ The chairman and chief executive of Freshii sought to reassure investors about the restaurant chain’s growth after it said earlier this week that it would open fewer locations than expected.

Speaking to an investor conference in Montreal, Matthew Corrin said Wednesday the company could have started a process to terminate its contracts with large franchisees who failed to meet the store opening commitments in their contracts.

However, he says Freshii opted against doing that because the franchisees are doing the right things and the value in the long term is greater if the company continues to support their development.

Corrin says it hurts to miss a store opening, but in his opinion it would be a too short-term view to penalize a franchisee.

“If you recognize the true value is supporting and seeing them through to building their scale and then collecting a royalty in perpetuity, the value creation of that royalty is much greater than the one-time upfront fee that we got at the start of the relationship,” he said.

Freshii (TSX:FRII) shares fell 35 per cent on Tuesday after the company lowered its guidance for new store openings and scaled back its longer-term expansion targets.

The company attributed the reduction to the closure of its locations in Target stores, challenges in ramping up the number of locations and a more conservative pace of store openings by its multi-unit franchisees than expected.

Corrin said multi-unit franchisees are looking to roll out several restaurants at the same time as part of a larger plan.

“Instead of looking at five sites and selecting three of them, they will literally look at 50 locations and narrow it down. Just the exercise of doing that extra level of diligence on 50 sites versus three, adds a layer of time,” he said.

In its revised outlook, Freshii said it expects between 90 and 95 net new store openings in its 2017 financial year, down from 150 to 160 locations.

The company also lowered its longer-term expansion targets and now plans to open between 730 and 760 stores by the end of its 2019 financial year, rather than the 810 to 840 stores previously anticipated.