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Why the Oliver’s Real Food Ltd (ASX:OLI) share price has been crushed today

One of the worst performers on the Australian share market on Wednesday has been the Oliver’s Real Food Ltd (ASX: OLI) share price.

In morning trade the healthy fast food operator’s shares have emerged from a trading halt and are down a whopping 55% to 11 cents.

Why are Oliver’s Real Food’s shares being crushed?

On Monday Oliver’s Real Food requested a trading halt while it prepared to release a trading update and revised FY 2018 earnings guidance.

As I mentioned yesterday, it seemed likely that this update was going to be a negative one. Seldom do companies request a trading halt for a positive revision to their guidance.

Unfortunately for shareholders I was right this time and Oliver’s Real Food reported an alarming downturn in its performance.

According to the release, the company has downgraded its EBITDA guidance to between $3 million and $3.3 million (including the profit of approximately $1.8 million from the sale of properties). Previous guidance that was reaffirmed just seven weeks ago was for EBITDA of approximately $4.8 million.

That’s a stunning downgrade of between 31.3% and 37.5% in just the matter of weeks.

Management has blamed this on numerous factors including weak trading over the Easter and school holiday period, poor performing additions to its store network, delays to other openings, and one-off costs.

While management has advised that initiatives have been put in place to improve its performance, it hasn’t been enough to keep many shareholders from heading to the exits.

One initiative includes expediting the development and planned delivery of its in store self‐ordering kiosk system. Management expects this to lead to an increase in store sales, but I’m doubtful.

I think these kiosks work well to boost sales in crowded restaurants which suffer from long queues. But as far as I’m aware, Oliver’s is not suffering from this luxury. Perhaps the money being put into this initiative would be better spent trying to get people through its doors.

Overall, whilst its shares could arguably be at a level that makes it an attractive speculative investment, I’m not convinced it’s investment grade at this point.

Because of this I would suggest investors focus on unhealthy fast food purveyors instead such as Collins Foods Ltd (ASX: CKF) and Domino’s Pizza Enterprises Ltd (ASX: DMP).

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Motley Fool contributor James Mickleboro owns shares of Collins Foods Limited. The Motley Fool Australia has recommended Domino's Pizza Enterprises Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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