Q3 2023 Rocky Mountain Chocolate Factory Inc (Delaware) Earnings Call

Good afternoon, ladies and gentlemen, thank you for standing by welcome to today's conference call to discuss the financial results for Rocky Mountain Chocolate Factory's fiscal third quarter ended November 30 of 'twenty 'twenty. Two at this time all participants are in a listen only mode. As a reminder, this conference is being recorded.

Joining us on the call today are the company's CEO , Rob Sarles, and CFO , Alan or Royale.

Please be advised this conference call will contain statements that are considered forward looking statements under the private Securities Litigation Reform Act of 1995. These forward looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in.

These forward looking statements. These forward looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the S. E. C do not place undue reliance on any forward looking statements, which are being made only as of the date of this call.

Except as required by law the company undertakes no obligation to revise or publicly release the results of any revision to any forward looking statements.

Our presentation also includes certain non-GAAP financial measures, including adjusted EBITA as supplemental measures of performance of our business.

All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with S. E C rules.

You will find reconciliation tables and other important information in the earnings press release and form 8-K, we furnished to the S. E. C earlier today, which will be available on the company's Investor Relations section of its web site within approximately 24 hours. After this call has ended.

And now I will turn the call over to the company's CEO , Rob Sarles, Rob. Please go ahead.

Well, thank you and good afternoon, everyone.

Our fiscal third quarter was highlighted by our strongest third quarter itself since 2017 as.

As long as the strongest third quarter of adjusted EBITDA since 2020.

The groundwork our team has put in place since I arrived in May of last year as the governor has generated strong momentum as evidenced in part by your flagship triangles for generating record sales in the fiscal third quarter up 34% compared to the prior year.

Although we are still early in the development and deployment of our strategic transformation.

Initial wins are very encouraging.

They tell us that we're on the right path.

The combination of our transformation plan and extensive dialogue with our franchisees.

It's continued to foster growth there both in manufacturing and retail level.

As he mentioned that earnings call any business transformation starts with Onboarding the right team.

Earlier this fiscal year, we brought on a new Chief financial Officer, and Vice President sales and marketing.

And since our last conference call. We've made several key additional hires.

In October we announced the appointment of Scott.

As our senior supply chain adviser.

Scott brings more than two decades of supply chain and strategic planning experience to our team.

And over 10 years of which were with Hershey.

His strong track record of identifying operating improvements and processes that expanding margins and increased quality flexibility and efficiency will serve us well and enable us to handle greater volumes in the future.

Yes, just last week, we hired two additional operations experts, we're in the process of relocating to the right.

To enhance our business.

For the first time ever Rocky Mountain Chocolate factory will have a resident trained R&D expert.

Not only would product formulation and new product development, but also with quality and regulatory compliance.

Additionally, we have hired a senior director of manufacturing with extensive operational efficiency expertise with a financial background as a major plus.

Both of these new hires are critical to the first phase of our strategic plan, which includes the improvement of our operations in the factory and the enhancement of our end to end supply chain.

Separately in November we announced the appointment of Kelsey Smith as flagship operations manager to oversee the conversion of our Durango, Colorado store into a world class operation and a reinvigorated speaking for the Durango community.

He has been working closely with various colleagues representing all aspects of the business, including operations marketing business development franchise support and training.

We're excited to see the growth Q3 to our hometown of Durango and the year ahead.

And the potential scope of impact it could have throughout our network.

Thinking about our franchise network.

When I joined the company last May I pledge to visit 50 franchisees and 50 weeks during my first year as CEO .

I'm proud to say it all the way to accomplishing my goal, having visited 27 stores so far.

Can say confidently that are never it feels more connected and energized with our team.

He has 10 years and the dialogue and feedback I have received during my business as you're ready like a small but meaningful improvements.

One example of this is what I've learned in our stores.

Are we getting one delivery by the company truck in December .

One of our busiest months of the year.

And the second delivery by the company truck last night and store feedback on easing replenishment. During this crucial selling season was well received.

I look forward to completing the 50 visits in the spring Bryan will go coast to coast visiting all of our Great Airport locations.

Furthering our commitment to our franchisee network in December we officially established our franchisee Advisory Council and recently held our first meeting just this past Monday and Arizona.

The council was formed the fostered timely consistent and transparent dialogue among franchisees and Rocky Mountain Chocolate factory, which is critically important given the transformation underway.

Our goal with the council is more fully and wanted to radio with the franchisee network to collaborate on the changes needed for grateful mutual success.

Period experience for our customers.

During the meeting this week, we previewed been working aspects of our developing strategic plan, which were well received.

The Council also agreed to meet every other month to weigh in and advise the company on significant transformation changes coming down the pike over the next 12 to 24 months.

We will be holding our next convention in the first annual convention in decades, and San Antonio in late September what do you think is there ready to get underway on making this highly impactful and very well attended and the franchisee Advisory Council is partnering with us on that.

While our financial results this quarter were a strong step in the right direction, we're still facing some level of macroeconomic pressure, resulting in labor and supply chain challenges.

It's not as bad as the pressure we faced earlier in calendar 2022.

And as I mentioned in our last conference call, we were dealing with labor shortages, and our Durango manufacturing facility, which impacted productivity.

During our fiscal third quarter. However, we rolled out several new hiring and retention policies at the factory, which included enhanced new higher retention bonuses, resulting in 150% increase in applications versus the third quarter last year.

We have an active strategic planning committee wholly focused on rebuilding our culture, which we believe will improve the attractiveness to new potential hires while also improving retention.

Outside of their angle I'm happy to announce we increased pay for our truck drivers, bringing them up to market.

Once you have the impact of inflation has had on so many Americans keeping our fleet of drivers happy has allowed us to deliver products on time and ensuring efficient cadence for our manufacturing facility for each of our franchisee stores.

The benefit of this improved productivity far outweighs the cost of raising these truck driver wages.

With respect to the supply chain.

We went into the quarter, we met with our largest chocolate supplier to discuss opportunities for synergies and other process enhancements that can help us both reduce costs.

They will be critical to our future growth not only in terms of pounds volume, but in collaborating with our team and new R&D head on innovation.

It's worth noting while we raised prices earlier this fiscal year, which helped to offset inflationary cost pressure our volumes have held up relatively well and are flat to slightly higher compared to the year ago quarter, which I believe speaks to the quality of our products and the loyalty of our customers.

It's another step in our business transformation, we have been actively identifying opportunities throughout the organization for margin and profitability improvements specifically, we've been working through an S. SKU rationalization.

Sure.

Folio by at least 20%, we're moving products that account for an insignificant amount of revenue.

Moving forward, our new R&D team will work to replace some of these skus with new innovative products throughout calendar 2023.

We look forward to bringing exciting new products to the menu for our customers.

While the transformation of the business is still in its infancy, a very solid third quarter and recent holiday season as.

It has proved to us not only that we are on the right track with our plan, but then our commitment to extensive dialogue with the franchisee network and other stakeholders has begun to bear fruit.

We look forward to sharing the exciting results from the holiday season on our next call.

As well as the full details of our new strategic transformation plan.

I will now hand, it over to our CFO , Alan a royal to discuss the financial highlights of the quarter Alan.

Thank you Rob.

Jumping right into our financial results. Please note that all variance commentary is on a year over year basis unless stated otherwise.

Total revenue increased 11% to $9 5 million for the three months ended November 32022, compared to $8 5 million.

Breaking down our revenue total factory sales for the third quarter increased 14% to $7 3 million compared to $6 4 million.

Primarily due to higher shipments of product to our franchised and licensed retail stores as well as higher sales to customers outside of the Rocky Mountains franchisee network.

Same store sales and all domestic Rocky Mountain Chocolate factory locations increased 3% during the three months ended November 32022, and same store sales of the company's domestic frozen yogurt cafes increased 14%.

Retail sales increased 7% to approximately 679000 compared to 636000 in the fiscal third quarter.

23.

Royalty and marketing revenue for the quarter was relatively flat at approximately $1 5 million.

Franchise fee revenue was also relatively fat flat at approximately 60000 compared to a year ago period.

Total gross profit for the fiscal third quarter increased 17% to $2 1 million compared to $1 8 million.

Total gross margin increased 50 basis points to 26, 3% compared to 25, 8% in.

In the year ago period, the year ago quarter.

With the increase primarily due to increased pricing.

Which was partially offset by higher labor material and inventory costs.

Looking at our operating expenses for the quarter total opex decreased to $9 7 million compared to $10 5 million in the year ago period.

Operating loss was reduced to 216000 for the three months ended November 32022, compared to a loss of $2 million in the year ago period.

The decrease in Opex and operating loss was primarily driven by lower costs associated with the contested solicitation of proxies as well as increased operational efficiencies.

Net loss in the third test in the fiscal third quarter improved significantly to two.

212000, or <unk> <unk> per share compared to a net loss of $1 5 million or <unk> 24 cents per share.

Our adjusted EBITDA increased nearly 30% to $1 3 million for the three months ended November 32022, compared to $1 million in the year ago quarter.

Now turning to the balance sheet, we ended the quarter with a cash balance of $3 2 million compared to 717 6 million at the end of our last fiscal year, which was February 28 2022.

The decrease in our cash position was driven by an increase in inventory as we stockpiled finished goods to prepare for the seasonally strong demand in the holidays.

As of November 30th 2022, the company continues to remain debt free.

With that I'll turn the call back over to Rob.

Thanks Alan.

Overall, we were pleased with our results this quarter, we've made great progress to improve company culture and round out our executive team.

We are nearly complete with the development of our strategic plan.

We already have a few early wins under our belts, which is great to see.

And validates that we are on the right path.

We believe that the best days for RMC ever ahead, as we improved value to our customers our franchisees our employees and shareholders.

This concludes our prepared remarks, and we will.

We'll now open it up for questions and those participating in the call.

Operator back to you.

Thank you very much we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.

To withdraw from the question queue. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Okay.

Okay.

Yeah.

Thank you ladies and gentlemen. This concludes today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.

Hi.

Yeah.

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