Q2 2024 Rocky Mountain Chocolate Factory Inc Earnings Call
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Yeah.
Speaker 1: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss Rocky Mount and Chalkins financial results for the fiscal second quarter 2020.
Good morning, ladies and gentlemen, thank you for standing by welcome to today's conference call to discuss Rocky Mountain Chocolate financial result for the fiscal second quarter 2024.
Speaker 1: At this time, all participants are on a listen-only mode. As a reminder, this conference is being recorded. Joining us on the call today are the company's CEO , Rob Salk, and CFO , Alan Nario. Please be advised, this conference call will contain statements that are considered board-looking statements under private security investigation from Act of 1995.
At this time all participants are in a listen only mode.
As a reminder, this conference is being recorded joining.
Joining us on the call today are the company's CEO .
And CFO Alan narrowing them. Please be advised this conference call will contain statements dark instead of forward looking statements under private Securities Litigation Reform Act of 1995.
Speaker 1: 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 subject to 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.
Speaker 1: These forward-looking statements are also subject to other recent uncertainties that are described from time to time in the company's filings with the SEC.
Forward looking statements are also subject to other risks and uncertainties described from time to time in the company's filings with the S. E C.
Speaker 1: Do not place undue reliance on any forelooking statements which are being made only as of the date of this call.
Do not place undue reliance on any forward looking statements, which are being made only as of the date of this call.
Speaker 1: Except as required by law, the company undertakes the obligation to publicly update or revise any phone looking statement.
Except as required by law the company undertakes no obligation to publicly update or revise any forward looking statements.
Speaker 1: The company's presentation also includes certain non-GAAP financial measures, including the Justice Evita, and supplemental measures of performance of the business. All non-GAAP measures have been reconciled to the directly comparable GAAP measures in accordance with SEC rule.
The company's presentation also includes certain non-GAAP financial measures, including adjusted EBITDA.
Supplemental measures of performance of the business.
All non-GAAP measures have been.
Reconciled to the directly comparable GAAP measures.
Gordon with SEC rules.
Speaker 1: You will find reconciliation tables and other important information in the earnings release and form 8K, Furnace to the SEC, earlier today which are currently available on the company's Edgar page on the SEC's website and will be available on the company's investor relations section of its website within approximately 24 hours after this course ended.
You will find reconciliation tables and other important information in the earnings release and form 8-K furnished to the S. E C.
They are today, which are currently available on the Companys at the beach on the S. E C. Its website and will be available on the company's Investor Relations section of its website within approximately 24 hours after this class and it.
Speaker 1: And now I will send a call over to the company's CEO Rob Salz. Rob, please go ahead.
And now I will turn the call over to the company's CEO rock Salt Bob. Please go ahead.
Thank you and good morning, everyone.
Speaker 2: During the quarter, we continue to remove impediments to the growth of the business through the execution of the three pillars of our strategic transformation plan. Do more with last.
During the quarter, we continued to remove impediments to the growth of the business through the execution of the three pillars of our strategic transformation plan.
More with less simplify and focus our operations and amplify and elevate the Rocky Mountain Chocolate brand.
Speaker 2: simplify and focus our operations, and amplify and elevate the Rocky Mountain Chocolate.
Speaker 2: These initiatives are expected to generate material revenue growth in the quarters ahead as we enter the holiday season.
These initiatives are expected to generate material revenue growth in the quarters ahead as we enter the holiday season.
Speaker 2: Specifically, the improvements we have made to our e-commerce school.
Specifically the improvement we have made to our ecommerce business and the strong demand for products during the holidays.
Speaker 2: and the strong demand for products during the holidays are expected to lead to outside results in the back half of our fiscal year. In fact, we expect the combination of e-commerce and specialty retail sales in our fiscal second half. So we see the sales from these channels for all of fiscal 2020.
<unk> to lead to outsized results in the back half of our fiscal year <unk>.
We expect the combination of e-commerce and specialty retail sales in our fiscal second half to exceed the sales from these channels for all of fiscal 2023.
Speaker 2: To begin with, I'd like to highlight the progress we've made to reveal the notation of our long-term strategy.
To begin with I'd like to highlight the progress we've made towards the implementation of our long term strategy.
First.
Speaker 2: To do more with less, during the quarter we reduced our driver fleet by 33% while maintaining consistent and ever increasing pound volume shift from our Durango facility.
To do more with less during the quarter, we reduced our driver fleet by 33%.
Maintaining consistent and ever increasing town volume shipped from our Durango facility.
Speaker 2: This is a direct result of our logistics optimization efforts, which include increasing the use of third-party logistics partners to deliver products.
This was a direct result of our logistics optimization efforts, which include increasing the use of third party logistics partners to deliver products.
Speaker 2: We believe there is additional leverage to be realized in our existing operations. And we recently announced that supply chain industry veteran Scott Leleb has been appointed as Senior Vice President of Manufacturing and Supply Chain to help further the subject.
We believe there is additional leverage to be realized in our existing operations and we recently announced that supply chain industry veteran Scott will lead has been appointed as senior Vice president of manufacturing and supply chain to help.
Further this objective.
Speaker 2: Since joining as an advisor last October , Scott's strong background in the confectionery industry has made him an invaluable asset to our leadership team. And I look forward to continuing the work with...
Since joining as an advisor last October Scott strong background in the confectionary industry has made him an invaluable asset to our leadership team.
And I look forward to continuing to work with him.
As we execute our plan.
Speaker 2: During the quarter, we increased our employee compensation structure at the Durango Production Facility to reduce turnover and help establish a long-term foundation for more efficient and ultimately higher throughput. This has helped us to manage attrition and enabled us to attract former Rocky Mountain Shock of employees to return to the company.
During the quarter, we increased our employee compensation structure at the Durango production facility to reduce turnover and help establish a long term foundation for more efficient and ultimately higher throughput.
This has helped us to manage attrition and enabled us to attract former Rocky mountain chocolate employees to return to the company, which provides a quicker ramp for productivity compared to new hires.
Speaker 2: which provides a quicker ramp for productivity compared to new hires.
Speaker 2: Despite the increase in base pay for our processing team, we experienced a 16% reduction in labor salaries per pound produced compared to our fiscal first quarter.
Despite the increase in base pay for our processing team, we experienced a 16% reduction in labor salaries per pound produced compared to our fiscal first quarter.
Speaker 2: Second, to simplify and focus the operations, we completed the implementation of our streamlined franchisee royalty structure and volume discount program, which we recently showcased the sum of our highest performing franchisees during our 2023 annual National franchisee convention in September .
Second to simplify and focus the operations, we completed the implementation of our streamlined franchisee royalty structure and volume discount program, which we recently showcased some of our highest performing franchisees during our 2023 annual national franchisee Convention.
In September .
Speaker 2: in addition to providing a royalty rate of as low as 4%.
In addition to providing a royalty rate of as low as 4%.
Speaker 2: Our franchise fees, especially those with multiple units.
Our franchisees, especially those with multiple units.
Speaker 2: are now eligible to receive a volume-based discount of up to 5% of all purchases, of products, and supplies from the ranks.
Now eligible to receive a volume based discounts of up to 5% of all purchases.
Products and supplies from Durango.
Speaker 2: We believe that some powers are top franchisees to deliver even more sales of Rocky Mountain Chocolate products while also incentivizing franchisees to become multi-unit operatives.
We believe this empowers our top franchisees to deliver even more sales of Rocky mountain chocolate products, while also incentivizing franchisees to become multi unit operators.
Speaker 2: We're making continued progress towards our 25% SKU reduction target. As we work the sunset under performing SKUs and increased production of our most popular item.
We're making continued progress towards our 25% SKU reduction target.
We worked with Sunset underperforming Skus and increased production of our most popular items.
Speaker 2: In time, we anticipate the alignment of product offerings
In time, we anticipate the alignment of product offerings with consumer preference will result in higher sales cost savings through reduced waste and lower storage expenses as well as an improved experience for our customers and better store economics for our franchisees.
Speaker 2: as well as an improved experience for our customers and better store economics for our franchise.
Speaker 2: Third, to amplify and elevate, we unveiled a transformational brand refresh during our 2023 annual National Franchise e-convention, which was our highest attended convention in the history of the company, a real reflection of our re-energized Franchise e-net.
Third to amplify and elevate we unveiled a transformational brand refresh during our 2023 annual National Franchisee Convention, which was our highest attended convention in the history of the company a real reflection of a reenergized franchisee network.
Speaker 2: Our brand refresh provides a streamlined trade name and logo.
Our brand refresh provides a streamlined trade name and logo.
Speaker 2: Building upon our rich history of bringing the Rocky Mountain chocolate experience the customers for over 40 years.
Building upon our rich history of bringing the Rocky mountain chocolate experience to customers for over 40 years.
Speaker 2: As I mentioned earlier, we made significant improvements to our e-commerce experience, including the removal of shipping fees at checkout. This is resulted in a more transparent, online shopping experience. Please...
As I mentioned earlier, we made significant improvements to our ecommerce experience, including the removal of shipping fees at checkout.
This resulted in a more transparent online shopping experience.
The higher volumes since activating this benefit we have experienced a tripling of transaction volume and a more than doubling its sales compared to the same couple of months last year.
Speaker 2: Since activating this benefit, we have experienced a tripling of transaction volume and a more than doubling of sales compared to the same couple of months last year.
Speaker 2: In addition to the shipping fee removal, we have increased our coverage for two-day delivery service, which shibments commencing from third-party facilities in California to serve our customers throughout the Western region.
In addition to the shipping fever removal, we've increased our coverage for two day delivery service with shipments commencing from third party facilities in California, the server customers throughout the Western region.
Speaker 2: By adding California, we can now reach over 90% of the US population within two days.
In California, we can now reach over 90% of the U S population within two days.
Speaker 2: Something we could not do cheaply or easily from Durango.
We could not be cheaply or easily from Durango.
Speaker 2: These enhancements were made possible by the recently completed rollout of our partnership with a nationally renowned cold chain logistics company. We expect these initiatives will support our return to growth as we enter the all-important holiday season.
These enhancements were made possible by the recently completed rollout of our partnership with a nationally renowned cold chain Logistics company. We expect these initiatives will support a return to growth.
We enter the all important holiday season.
Speaker 2: The further amplifying elevate, we participated in our first investor conference in nearly a decade this past quarter, inaugurating our re-engagement with the investment community under the new leadership team.
To further amplify and elevate we participated in our first Investor conference in nearly a decade this past quarter inaugurating, our reengagement with the investment community under the new leadership team.
Speaker 2: Our active participation in these events not only serves to reaffirm our commitment to proactive engagement with shareholders and prospective investors, but also amplifies the reach of our message about the plans for the future of Rocky Mountain Shop.
Our active participation in these events not only served to reaffirm our commitment to proactive engagement with shareholders and prospective investors, but also amplifies the reach of our message about the plans for the future.
Our Rocky Mountain chocolate.
Speaker 2: The improvements we're making today are foundational to our three to five year transformation plan. Our strategy implementation is yielding strong operational improvements and we can continue to expect these initiatives to result in short and long-term financial benefits.
The improvements, we're making today are foundational to our three to five year transformation plan our strategy.
Implementation is yielding strong operational improvements and we can continue to expect these initiatives to result in short and long term financial benefits.
Speaker 2: Another news I'd like to highlight a few additional developments from company-owned stores are during a production facility and networking logistics.
In other news I'd like to highlight a few additional developments from company owned stores.
During a production facility and network and logistics.
Speaker 2: We increased sales by 7% year over year at our Durango retail store for the quarter, driven by higher average revenue per customer transaction.
We increased sales by 7% year over year at our Durango retail store for the quarter driven by higher average revenue per customer transaction.
Speaker 2: We celebrated the grand reopening of our Corpus Christi location in July , which is now accompanying on the store.
We celebrated the Grand reopening of our Corpus Christi location in July which is now a company owned store.
Speaker 2: This story exemplifies how Rocky Mountain Chocolate Store should be run.
This store exemplifies our Rocky mountain chocolate store should be run.
Speaker 2: Clean and well lit, fully stocked with fresh product, ample sampling, and a passionate caring staff attending to our local customers. I was privileged to work with the
Clean and well that.
Fully stocked with fresh product ample sampling and passionate caring staff attending to our local customers.
Privileged to work with the team at that Grand reopening with.
Speaker 2: With the new management, Svels for August were up 48% versus the prior year, and since remained well above 20%.
With the new management sales for August were up 48% versus the prior year and has since remained well above 20%.
Speaker 2: Corpus Christi is a classic example of the impact store transformations can have on our underperforming locations. And of the potential of generating substantial incremental fails from within our existing franchise notes.
Corpus Christi is a classic example of the impact store transformations can have on our underperforming locations and have the potential of generating substantial incremental sales from within our existing franchise network.
Speaker 2: We expect to see this trend continue. As we roll out updates of our storefronts nationwide, it's part of our brand refresh.
We expect to see this trend continue.
As we rollout updates of our storefronts nationwide as part of our brand refresh.
Speaker 2: excluding the planned exit of two wholesale customers during our prior fiscal year, second quarter sales from Margarine Othesillity increased modestly, despite headwinds from record high temperatures over the summer, which impacted consumer demand for chocolate and confectionery products.
Excluding the planned exit of two wholesale customers during our prior fiscal year.
Second quarter sales from Margaret facility increased modestly despite headwinds from record high temperatures over the summer, which impacted consumer demand for chocolate and confectionery products.
Speaker 2: Likewise, the same stores pound ship across the domestic franchise and license locations also approximately unchanged compared to the prior years.
Likewise, the same stores pounds shipped across the domestic franchise and licensed locations were also approximately unchanged compared to the prior year.
Speaker 2: And lastly, this fall, we partnered with a respected third party co-packer to fulfill all our final consumer packaging needs. Where final assembly of our box items will now take place.
And lastly, this fall we partnered with a respected third party co packer to fulfill all our final consumer packaging needs, where final assembly of our box items will now take place late.
Speaker 2: Labor has been a continuing challenge in Durango, and we accelerated this planned move to handle not only this year's base holiday volumes, but also to remove any labor constraints as our future Durango production volumes increase.
Labor has been a continuing challenge in Durango.
We accelerated this planned move to handle not only this year's based holiday volumes, but also to remove any labor constraints as our future during our production volumes increase.
Speaker 2: This is crucial for the fulfillment of our strategic plan and necessary to handle higher volumes in the second half of this fiscal year and beyond.
This is crucial to the fulfillment of our strategic plan.
And necessary to handle higher volumes in the second half of this fiscal year and beyond.
To summarize.
Speaker 2: We are working hard to implement our strategic transformation plan and our efforts are bearing fruit.
We are working hard to implement our strategic transformation plan and our efforts are bearing fruit.
Speaker 2: We continue to position Rocky Mountain Taukets for long-term growth and profitability, and we're building a strong foundation to execute our plan as we progress through the remainder of this fiscal year.
Continued position Rocky mountain chocolate for long term growth and profitability and we're building a strong foundation to execute our plan as we've progressed through the remainder of this fiscal year.
Speaker 2: I'll now hand it over to our CFO , Alan Aroyo to discuss our fiscal second quarter financial highlights before returning for closing remarks. Alan?
I will now hand, it over to our CFO , Alan a royal to discuss our fiscal second quarter financial highlights before returning for closing remarks Alan.
Speaker 3: Thank you Rob. Please note that all financial results discussed today are for continuing operation.
Thank you Rob. Please note that all financial results discussed today are for continuing operations, while all variance commentary.
Speaker 3: While all variants commentary is on a year-over-year basis, unless otherwise stated. Now moving on to our results. Total revenue of $6.6 million was unchanged from the $6.6 million in the prior year.
Year over year basis, unless otherwise stated.
Now moving onto our results total revenue of $6 6 million was unchanged from the $6 6 million in the prior year.
Speaker 3: We benefited from the reopening of the Corpus Christi store in July , which mostly offset lower shipments of products related to the plan exit of two out of network customers earlier this year.
We benefited from the reopening of the Corpus Christi store in July , which mostly offset lower shipments of product related to the planned exit of two out of network customers earlier this year.
Speaker 3: Looking further at our sales, total product sales were 4.7 million compared to 4.8 million.
Looking further at our sales total product sales were $4 7 million compared to $44 8 million.
Speaker 3: Royal P and marketing revenue increased to 1.5 million compared to 1.4 million.
Royalty and marketing revenue increased to $1 5 million compared to $1 4 million.
Speaker 3: Re-cale sales at our company operating stores increased 17% to 3009,000 compared to 263,000.
Retail sales at our company operated stores increased 17%.
309000 compared to 263000.
Speaker 3: This increase was partially due to a store closure in the prior year and the reopening of the Corpus Christi store.
This increase was partially due to historic closure in the prior year and reopening of the Corpus Christi store.
Speaker 3: Seems your fails for a company owned, store in Durango. We're up 70% year over year.
Same store sales for our company owned store in Durango were up 7% year over year.
Speaker 3: Famed source sale that all domestic Wattumown Chocolate Locations increased 2.3% during the season in 2013
Yeah.
Same store sales at all domestic Rocky mountain chocolate locations increased two 3% during the quarter compared to the prior year.
Speaker 3: And franchise fee revenue with 41,000 compared to 45,000.
And franchise fee revenue was 41000 compared to 45000.
Moving on.
Speaker 3: Total product and retail gross profit was 0.4 million compared to 1.2 million with a gross profit margin of 7.6 percent compared to 23.3 percent.
Total product and retail gross profit was <unk> 4 million compared to $1 2 million with a gross profit margin of seven 6% compared to 23, 3%.
Speaker 3: The decrease was primarily due to lower production volume and higher costs related to wages and inflation as we resolved labor shortage.
The decrease was primarily due to lower production volume and higher costs related to wages and inflation as we resolved a labor shortage.
Speaker 3: This is partially offset by higher retail risk margins, primarily attributable to better cost management following the creation of the flagship operations manager role in our delaying the flagship operations manager role in our delaying
This was partially offset by higher retail gross margins, primarily attributable to cost better cost management. Following the creation of flagship operations manager role and are doing a store.
Speaker 3: Total operating expenses were 7.6 million compared to 9 million.
Total operating expenses were $7 6 million compared to $9 million.
Speaker 3: The improvement was primarily due to lower professional fees associated with a contested solicitation of proxies in the prior year, as well as lower costs related to employee severance and relocation.
The improvement was primarily due to lower professional fees associated with the contested solicitation of proxies in the prior year as well as lower costs related to employee severance and relocation.
Speaker 3: This is partially offset by increased franchise and personnel cost.
This was partially offset by increased franchise and personnel costs.
Speaker 3: Net loss and continuing operations improved 68% to 1 million or 16 cents per share compared to a net loss from continuing operations of 3.2 million or 51 cents per share.
Net loss from continuing operations improved 68% to $1 million or <unk> 16 per share compared to a net loss from continuing operations of $3 2 million or 51.
<unk> per share.
Speaker 3: Adjustment even a loss was 600,000 compared to adjusted EBITDA of 700,000.
Adjusted EBITDA loss was 600000 compared to adjusted EBITDA of 700000.
Speaker 3: A year ago period benefited from a 2.8 million ad back related to professional fees associated with the contested solicitation of proxies as well as cost associated with employee severance of relocation.
The year ago period benefited from a $2 8 million add back related to professional fees associated with the contested <unk>.
Location of proxies as well as costs associated with employee severance and relocation.
Speaker 3: Turning to our balance sheet, we ended the second quarter with a cash balance of 4 million compared to 4.7 million at the end of fiscal 2023.
Turning to our balance sheet, we ended the second quarter with a cash balance of $4 million compared to $4 7 million at the end of fiscal 2023.
Speaker 3: The decrease in our cash position was primarily attributable to purchases of property and equipment partially offset by inventory reduction.
The decrease in our cash position was primarily attributable to purchases of property and equipment, partially offset by inventory reductions.
Speaker 3: We ended the second quarter with total inventory of 3.2 million compared to 3.6 million at year end fiscal 2023.
We ended the second quarter with total inventories up $3 2 million compared to $3 6 million at year end fiscal 2023.
Speaker 3: And as of August 31st, 2023, the company remained debt-free.
And as of August 31, 2023, the company remained debt free.
Speaker 3: With that, I'd like to turn the call back over to Rob, the closing remarks.
With that I'd like to turn the call back over to Rob for closing remarks.
Thanks Alan.
Speaker 2: We remain laser focused on executing our strategic transformation plan in an orderly and methodical sequence. Designed to create sustainable value for all of our stakeholders over the long run.
We remain laser focused on executing our strategic transformation plan and an orderly and methodical sequence designed to create sustainable value for all of our stakeholders over the long run.
Speaker 2: Well some short-term pain was necessary to solidify the foundation for the future of our business. We are confident in our plan and believe we have laid solid groundwork to build a great company into the future.
While some short term pain was necessary to solidify the foundation for the future of our business. We are confident in our plan and believe we have laid solid groundwork to build a great company into the future.
Speaker 2: We look forward to providing updates as we continue on our journey and fortify Rocky Mountain Chocolate's position as America's premier chocolate cure. This concludes...
We look forward to providing updates as we continue on our journey and fortify Rocky Mountain chocolate <unk> position as America's Premier Chocolate here.
This concludes our prepared remarks, we will be glad to answer any questions now.
Speaker 2: We will be glad to answer any questions now. Operator, back to you.
Operator back to you.
Speaker 1: Certainly, please end gentlemen to ask a question you will need to press star 11 on your telephone and read your name to be announced. To withdraw your question, please press star 11 again. Again to ask a question, please press star 11.
Certainly ladies and gentlemen to ask a question you wanted to Westar one one on your telephone and wait for your name to be announced.
Your question. Please press star one again.
Again to ask a question. Please press star one one.
Our first question.
Yeah.
And our first question.
Yeah.
Speaker 1: First question coming from the line up
Our first question coming from the line of.
Speaker 2: Roger Lippton from Lippton Financial Services, your line is open. Yes, good morning, Alan and Rob. How are you? We're doing great, Roger.
Roger Lipton.
And that's in financial services. Your line is open.
Good morning, Alan and Rob how are you.
Great Roger Roger.
Good.
Just a couple of quick questions.
The refresh that help corpus Christi so much.
Speaker 4: what, what did you spend and what, what, what are you asking your franchisees to spend in terms of?
What what did you spend in <unk>.
Are you asking your franchisees to spend in terms of.
You're encouraging them to refresh their stores.
Speaker 2: Yeah, thanks Roger for the question. That's really, it's a two-part question. Corpus Christi still has the quote-unquote old look, although it's a relatively newer looking store than most of our network. But we refresh theirs how that run a good store and simply running it correctly with everything that I just went through and you know from your experience.
Yeah.
Yeah. Thanks, Roger for the question that's really it's a two part question Corpus Christi still has the quote unquote old lock, although it's a.
Relatively new we're looking stores in most of our network.
Well, we refresh there is how that run a good store and simply running it correctly with everything that I just went through and you know from your experience.
Speaker 2: a well-run store with a great store experience, which is what we deliver and offer and seek to do consistently across the network.
A well run store with a great store experience, which is what we deliver and offer and we'll seek to do consistently across the network.
Speaker 2: that's where we're going. So we didn't have to spend a whole lot in Corpus. I mean, it was maybe less than $20,000. As to the store, refresh your talking about.
That's where we're going so we didn't have to spend a whole lot in corpus I mean, it was maybe less than $20000.
The store refresh youre talking about.
Speaker 2: That is a bigger deal. That will happen with our network over the next 12 to 24 months in the process of engaging the firm that's going to help us with that right now. And we're going to start with our derangling purpose, Christie Stores.
That is the bigger deal that will happen with our network over the next 12 months to 24 months are in the process of engaging a dip.
Firm, that's going to help us with that right now and we're going to start with to start with our Durango in Corpus Christi stores and that spread it out sooner thereafter, and that's going to be a meaningful lift for our franchisees it'll be.
Speaker 4: and that's spread it out sooner than thereafter. And that's gonna be a meaningful lift for our franchise V's. It'll be, you know, high five figures to low six figures. And what, I think there are a lot of moving parts here, obviously, in terms of...
Hi, five figures to low six figures.
There are a lot of moving parts here, obviously in terms of.
In terms of across your across your operations.
The factors that so substantially affected your shipments in the most recent quarter to what extent do you think.
Over the next six months.
Is that the large part of your year those factors can be alleviated.
Unknown Attendee: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss Rocky Moun child conspired and to result for the fiscal second quarter 2024. At this time, all participants on the list and only mode. As our minor discourses being recorded, joining us on the call today are the company CEO, Rob Salves and CEO, Allen Arroyo. Please be advised, this conference call will contain statements that are considered for looking statements.
Speaker 2: Well, a lot of background work was laid in in the last two quarters, primarily the things that are logistical barriers to greater success. So I want to remind, you know,
Well a lot of that groundwork was laid in in the last two quarters, primarily with things that are logistical barriers to greater success.
I want to remind all of our shareholders.
Speaker 2: We suspended truck from Durango to every single store. We suspended truck from Durango every single co-brand store.
We used to send a truck from Durango to every single store. We just had a truck from Durango every single co brand store all of those things have now been changed where the Super majority of our full chocolate shops.
Speaker 2: All of those things have now been changed where the super majority of our full chocolate shop.
Unknown Attendee: Under private security certification from Act of 1995, this border-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 border-looking statements. These border-looking statements are also subject to other recent uncertainties that are described from time to time in the company's filings with the SEC. Do not place undur a alliance on any border-looking statements, which are being made only as a bid date of this call.
Speaker 2: and nearly all of our non-fold chocolate shops are having the final miles of delivery of product unto them by somebody not us.
And nearly all of our non core chocolate shops are having the final mile of delivery of product onto them by somebody not us and that's part of the simplify and focused effort of our pillars, which is we ran a full trucking company out of Durango, and that's not our core expertise.
Speaker 2: And that's part of the simplifying focus effort of our pillars, which is we ran a full trucking company out of Durango, and that's not our core expertise. And so there's benefits to having that in terms of management focus and also ultimately benefits to the franchisees in getting product, fresher, and done more quickly overall. In terms of e-commerce.
And so there is benefits to having that in terms of management focus and also ultimately benefits to the franchisees and getting product.
Unknown Attendee: Except as required by law, the company undertakes an obligation to publicly update or revise any phone-looking statements. The company's presentation also includes certain non-gap financial measures, including adjusted EBITDA, as supplements and measures of performance of the business. All non-gap measures have been reconciled to the directly comparable gap measures.
Fresher and done more quickly overall.
In terms of E com.
Speaker 2: There were fundamental limits to how many packages could leave Durango in a single day. And as I noted in my remarks, the two day was prohibitive or impossible from Durango. All those barriers are now gone. So our e-com can benefit from that.
There were fundamental limits to how many packages could lead Durango in a single day.
And as I noted in my remarks get two day was prohibitive or impossible from Durango.
All of those barriers are now gone so our E com can benefit from that our delivery to stores now and this other enhancements coming down the line to.
Unknown Attendee: In accordance with SEC rules, you will find reconciliation tables and other foreign information in the earnings release, and form 8K, furnished to the SEC, earlier today, which are currently available on the company's edge of page on the SEC's website, and will be available on the company's investor relations section of its website within approximately 24 hours after the cost ended.
Speaker 2: Our delivery to stores now, and this other enhancements coming down the line, to make it easier for stores to buy more pounds.
To make it easier for stores to buy more pounds. So we're looking to realign even the structure of how they order all of those things are enabling them to ramp up and sell more.
Speaker 2: So we're looking to realign even the structure of how they order. All of those things are enabling them to ramp up and sell more.
Okay.
E Commerce.
You talked about the combination of e-commerce.
Rob Sals: And now, I will send a call over to the company's CEO, Rob Sals. Rob, please go ahead. Thank you, and good morning, everyone. During the quarter, we continue to remove impediments to the growth of the business through the execution of the three pillars of our strategic transformation plan. Do more with less, simplify and focus our operations, and amplify and elevate the Rocky Mountain chocolate brand. These initiatives are expected to generate material revenue growth in the quarters ahead as we enter the holiday season.
The retail sales, obviously, a lot higher in the second half.
How much is that of your of your total.
Our revenue base.
Speaker 2: Well, if you look at Fisselier 23, what we called on the channel in the 10K.
Well, if you looked at fiscal year 'twenty three what we call the omnichannel in the 10-K.
Speaker 2: was about 12, 13% of total sales.
Was about 12, 13% of total sales.
Speaker 2: And so we're looking for that number, the normal number to be significantly higher in fiscal 24, and the super majority of that, of course, all hits in the back six months.
And so we're looking for that number the nominal number to be significantly higher in fiscal 'twenty four and the supermajority of that of course, all hits in the back the back six months got it alright, thanks very much.
Speaker 4: Alright, thanks very much. That's a big help. We'll talk again at greater length, or up line.
Rob Sals: Specifically, the improvements we have made to our e-commerce business and the strong demand for products during the holidays are expected to lead to outsized results in the back half of our fiscal year. In fact, we expect the combination of e-commerce and specialty retail sales in our fiscal second half to exceed the sales from these channels for all of fiscal 2023.
We will talk again, a greater and greater.
Thank you.
Thank you for your price and drive very appreciated.
My pleasure.
Thank you.
Speaker 1: Now next question coming from the line of Peter Siddout who wins the voting company. Yelena Smellopen.
And our next question coming from the line of Peter Sidoti with Sidoti <unk> Company. Your line is now open.
Speaker 5: Good morning, gentlemen. It's a quick question. One can you speak to?
Good morning, gentlemen, just a quick one.
Rob Sals: To begin with, I'd like to highlight the progress we've made toward the implementation of our long-term strategy. First, to do more with less, during the quarter, we've reduced our driver fleet by 33% while maintaining consistent and ever-increasing pound volume shifts from our Durango facility. This is a direct result of our logistics optimization efforts, which include increasing the use of third-party logistics partners to deliver products. We believe there is additional leverage to be realized in our existing operations.
Alan can you speak to.
Speaker 5: The Ocasion head, your cash burn and any need for future financiants is for
So your cash on hand, cash burn and any need for future financing at this point.
Speaker 3: So we started a year in great cash position. We have a significant investments in equipment, as we've mentioned. And obviously the first six months is not been cash accumulated.
Yes.
So we started the year and good great cash position.
We have made significant investments in.
Equipment as we've mentioned.
And obviously the first six months has not been has not been cash accumulative. However, we believe with the cash on hand, and with the cash coming in in the last six months of the year and we still feel strongly about our cash position. We did recently renew our line of credit with Wells Fargo and so we do have.
Speaker 3: However, we believe with the cash on hands and with the cash coming in in the last six months of the year, we still feel strongly about our cash position. We did recently renew our line of credit with Wells Fargo. And so we do have a revolver that we could tap into temporarily if we had to. So again, there's no, again, there's no...
Rob Sals: And we recently announced that supply chain industry veteran Scott Walette has been appointed as Senior Vice President of Manufacturing and Supply Chain to help further this objective. Since joining as an advisor in last October, Scott's strong background in the confectionery industry has made him an invaluable asset to our leadership team. And I look forward to continuing the work with him as we execute our plan. During the quarter, we increase our employee compensation structure at the Durango Protection Facility to reduce turnover and help establish a long-term foundation for more efficient and ultimately higher throughput.
Our revolver that we could tap into.
Temporarily if we had to so again there is no again there is no.
Speaker 3: forecasted need or long-term financing. However, if there is some necessity, we could go into the line of credit.
Forecasted need through <unk>.
Long term financing. However, if there is some necessity we could go into a line of credit, but we feel very confident about our cash balance again with the strong position. We came in the year and with the back half of the year. The cash we're going to generate we should end the year in great shape also our equipment is on income.
Speaker 3: But we feel very confident about our cash balance. Again, with the strong position we came in the year and with the back half of the year, the cash we're gonna generate, we should end the year in great shape.
Rob Sals: This has helped us to manage attrition and enable us to attract former Rocky Mountain employees to return to the company, which provides the quicker ramp for productivity compared to new hires. Despite the increase in base pay for our processing team, we experience a 16 percent reduction in labor salaries per pound produced compared to our fiscal first quarter.
Speaker 2: Also, our equipment is unencumbered and as a possibility we'll look to put on some equipment financing. We're exploring that right now. Yes, it is.
Number then there's a possibility we will look to put on some equipment financing, we're exploring that right now that is correct.
Speaker 5: And Rob, you came on board, you had a yeoman stats that get done. And it can be a sad...
Rob you came on board you had a yeoman's that they get done can you give me a sense.
Speaker 5: How far along you feel you're in the process? Are you in the first inning, the third inning, the fifth inning? Yeah. How do you feel about it in terms of where you are at this point?
How far along you failure in the process are you in the first name the third inning fifth inning.
Okay.
How do you feel about it in terms of where you are at this point.
Speaker 2: Well, you know, it's funny Peter, the ending score card changes once you're in, and that's true with all situations like this. I don't know, I'm feeling sort of late second to mid-third.
Well you know it's funny Peter.
Rob Sals: Second, to simplify and focus the operations, we completed the implementation of our streamlined franchisee royalty structure and volume discount program, which we recently showcased some of our highest performing franchisees during our 2023 annual national franchisee convention in September. In addition to providing a royalty rate of as low as 4 percent, our franchisees, especially those with multiple units, are now eligible to receive a volume-based discount of up to 5 percent of all purchases of products and supplies from Durango.
Scorecard changes once you're in and Thats true with all situations like this.
I don't know Im feeling sort of late second or third.
Speaker 2: in terms of the total transformation. I think we've done a lot of the grunt work still more to go. I mean, really the brand refresh is a huge thing for our network and a huge thing to present ourselves to consumers that have not encountered Rocky Mountain chocolate before. We're insanely excited about the store refresh. And with the new brand and new packaging come on, that gives us a lot of opportunity and specialty retail.
In terms of the total transformation I think we've done a lot of the groundwork still more to go I mean really the brand refresh is a huge thing for our network and a huge thing to present ourselves to consumers that have not encountered rocky mountain chocolate before.
And certainly excited about the store refresh and with the new brand and new packaging come on that gives us a lot of opportunity in specialty retail.
Rob Sals: We believe that some powers are top franchisees to deliver even more sales of Rocky Mountain Chocolate products, while also incentivizing franchisees to become multi-unit operators. We're making continued progress towards our 25 percent SKU reduction target as we work on set underperforming SKUs and increased production of our most popular items. In time, we anticipate the alignment of product offerings with consumer preference, while result in higher sales, cost fading through reduced waste and lower storage expenses, as well as an improved experience for our customers and better store economics for our franchisees.
Speaker 2: that we're bringing something to a buyer that's gonna be really exciting. So we get to really hit the afterburners really come next year.
That we're bringing something to a buyer thats going to be really exciting so we.
We get to really hit the afterburners really come next year.
Speaker 2: Okay, well thank you. You must be doing something right to have Roger lift and on the cold. So thank you very much. Thank you. Thank you.
Okay, well. Thank you you must be doing something right that Roger Lipton on their calls so thank you very much.
Peter.
Hi, Thank you.
Thank you.
And I'm showing no further questions in queue at this time.
Speaker 1: Thank you ladies and gentlemen. This concludes today's conference call. You may now disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
And thank you ladies and gentlemen. This concludes today's conference call. You May now disconnect. Your phone lines at this time and have a wonderful day.
You for your participation.
Thank you operator, thank you.
Rob Sals: Third, to amplify and elevate, we unveiled a transformational brand refresh during our 2023 annual national franchisee convention, which was our highest attended convention in the history of the company, a real reflection of our re-energized franchisee network. Our brand refresh provides a streamlined trade name and logo building upon our rich history of bringing the Rocky Mountain Chocolate experience to customers for over 40 years. As I mentioned earlier, we made significant improvements to our e-commerce experience, including the removal of shipping fees at checkout.
Okay.
Yeah.
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Rob Sals: This is resulted in a more transparent online shopping experience, leading to higher volumes. Since activating this benefit, we have experienced a tripling of transaction volume and a more than doubling of sales compared to the same couple of months last year. In addition to the shipping fee removal, we have increased our coverage for two day delivery service with shipments commencing from third party facility in California to serve our customers throughout the western region.
Okay.
Okay.
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Rob Sals: By adding California, we can now reach over 90% of the US population within two days, something we could not do cheaply or easily from Durango. These enhancements were made possible by the recently completed rollout of our partnership with a nationally renowned coal chain logistics company. We expect these initiatives will support our return to growth as we enter the all important holiday season.
Yes.
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Rob Sals: The further amplifying elevate, we participated in our first investor conference in nearly a decade this past quarter inaugurating our re-engagement with the investment community under the new leadership team. Our active participation in these events not only serves to reaffirm our commitment to proactive engagement with shareholders and prospective investors, but also amplifies the reach of our message about the plans for the future of Rocky Mountain chocolate. The improvements we're making today are foundational to our three to five year transformation plan. Our strategy implementation is yielding strong operational improvements and we can continue to expect these initiatives to result in short and long term financial benefits.
Yes.
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Okay.
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Rob Sals: In other news, I'd like to highlight a few additional developments from company on stores, our Durango production facility and network and logistics. We increased sales by 7% year over year at our Durango retail store for the quarter driven by higher average revenue per customer transaction. We celebrated the grand reopening of our corpus Christi location in July, which is now a company on store. This store exemplifies how a Rocky Mountain chocolate store should be run, clean and well lit, fully stocked with fresh product, ample sampling and a passionate caring staff attending to our local customers.
Yeah.
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Okay.
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Rob Sals: I was privileged to work with the team at that grand reopening with the new management spelt for August or up 48% versus the prior year and a sense remained well above 20%. Corpus Christi is a classic example of the impact store transformations can have on our underperforming locations and of the potential of generating substantial incremental sales from within our existing franchise network. We expect to see this trend continue as we roll out updates of our storefronts nationwide as part of our brand refresh.
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Rob Sals: Excluding the planned exit of two wholesale customers during our prior fiscal year, second quarter sales from our Durango facility increased modestly despite headwinds from record high temperatures over the summer, which impacted consumer demand for chocolate and confectionary products. Likewise, the same stores pound ship across the domestic franchise and license locations also approximately unchanged compared to the prior year. And lastly, this fall, we partnered with a respected third party co-packer to fulfill all our final consumer packaging needs, where final assembly of our box items will now take place.
Rob Sals: This labor has been a continuing challenge in Durango, and we've celebrated this planned move to handle not only this year's base holiday volumes, but also to remove any labor constraints as our future Durango production volumes increase. This is crucial for the fulfillment of our strategic plan, and necessary to handle higher volumes in the second half of this fiscal year and beyond. To summarize, we are working hard to implement our strategic transformation plan, and our efforts are bearing fruit. We continue to position Rocky Moun's office for long-term growth and profitability, and we're building a strong foundation to execute our plan as we progress through the remainder of this fiscal year.
Allen Arroyo: I will now hand it over to our CFO, Allen Arroyo, to discuss our fiscal second quarter financial highlights before returning for closing remarks. Allen? Thank you, Rob. Please note that all financial results discussed today are for continuing operations, while all variants commentary is on a year-over-year basis, unless otherwise stated. Now moving on to our results. Total revenue of $6.6 million was unchanged from the $6.6 million in the prior year. We benefited from the reopening of the Corpus Christi store in July, which mostly offsets lower shipments of products related to the plan exit of two out of network customers earlier this year.
Allen Arroyo: Looking further at our sales, total product sales were $4.7 million compared to $4.8 million. Royalty and marketing revenue increased to $1.5 million compared to $1.4 million. Recale sales at our company-operated stores increased 17% to $309,000 compared to $263,000. This increase was partially due to a store closure in the prior year and reopening of the Corpus Christi store. Same store sales for our company-owned store in Durango were up 7% year-over-year. Same store sales at all domestic Rocky Mountain Chocolate locations increased 2.3% during the quarter compared to the prior year.
Allen Arroyo: And franchise fee revenue with $41,000 compared to $45,000. Moving on, total product and retail gross profit was $0.4 million compared to $1.2 million with a gross profit margin of 7.6% compared to $23.3%. The decrease was primarily due to lower production volume and higher costs related to wages and inflation as we resolved a labor shortage. This was partially offset by higher retail gross margins primarily attributable to better cost management following the creation of the flagship operations manager role in our Durango store.
Allen Arroyo: Total operating expenses were $7.6 million compared to $9 million. The improvement was primarily due to lower professional fees associated with a contested solicitation of proxies in the prior year, as well as lower costs related to employee severance and relocation. This was partially offset by increased franchise and personnel costs. Net loss and continuing operations improved 68% to 1 million or 16 cents per share, compared to a net loss from continuing operations of 3.2 million or 51 cents per share.
Allen Arroyo: Adjustment even a loss was 600,000 compared to adjusted EBITDA of 700,000. A year ago period benefited from a 2.8 million ad back related to professional fees associated with the contested solicitation of proxies, as well as cost associated with employee severance and relocation. Turning to our balance sheet, we ended the second quarter with a cash balance of 4 million compared to 4.7 million at the end of fiscal 2023. The decrease in our cash position was primarily attributable to purchases of property and equipment partially offset by inventory reductions. We ended the second quarter with total inventory of 3.2 million compared to 3.6 million at year end fiscal 2023. And as of August 31st 2023, the company remained debt free.
Rob Sals: With that, I'd like to turn the call back over to law for closing remarks. Thanks, Alan. We remain laser focused on executing our strategic transformation plan in an orderly and methodical sequence designed to create sustainable value for all of our stakeholders over the long run.
Rob Sals: While some short-term pain was necessary to solidify the foundation for the future of red business, we are confident in our plan and believe we have laid solid groundwork to build a great company into the future. We look forward to providing updates as we continue on our journey and fortify Rocky Mountain Chocolate's position as America's premier chocolate cure.
Rob Sals: This concludes our prepared remarks. We will be glad to answer any questions now.
Unknown Attendee: Operator, back to you. Certainly, please end gelman to ask a question. You will need to press star 11 on your telephone and read for your name to be announced. To withdraw your question, please press star 11 again. Again to ask a question, please press star 11. One moment for our first question.
Unknown Attendee: And our first question.
Roger Lipton: Our first question coming from the line of. Roger Lipton from Lipton Financial Services. Your line is open. Yes, good morning, Alan and Rob. How are you? We're doing great. Good. Just a couple of quick questions. The refresh that helped Corpus Christi so much.
Rob Sals: What could you spend and what are you asking your franchisees to spend in terms of your encouraging them to refresh their stores? Yeah, thanks, Roger, for the question. That's really it's a two part question. Corpus Christi still has the quote unquote old look, although it's a relatively newer looking store than most of our network. What we refresh there is how that running good store and simply running it correctly with everything that I just went through and you know from your your experience, a well run store with the great story experience, which is what we deliver an offer and will seek to do consistently across the network.
Rob Sals: That's where we're going. So we didn't have to spend a whole lot in Corpus. I mean, it was maybe less than $20,000. As to the store, refresh you're talking about that is a bigger deal that will happen with our network over the next 12 to 24 months in the process of engaging the firm that's going to help us with that right now. We're going to start with start with our derangling Corpus Christi stores and then spread it out sooner thereafter.
Rob Sals: And that's going to be a meaningful lift for our franchise these. It'll be, you know, high five figures to those six figures. And what there are a lot of moving parts here obviously in terms of in terms of across across your operations.
Rob Sals: The factors that so substantially affected your shipments in the in the most recent quarter to what extent do you think over the next six months, which is a large part of your year, those factors can be alleviated. Well, a lot of background work was laid in in the last two quarters, primarily with things that are logistical barriers to greater success. So I want to remind, you know, all of our shareholders, we've defended track from Durango to every single store.
Rob Sals: We just got a truck from Durango every single co brand store. All of those things have now been changed where the super majority of our full chocolate shops. And nearly all of our non full chocolate shops are having the final miles of delivery of products unto them by somebody not us. And that's part of the simplifying focus effort of our pillars which is we ran a full trucking company out of Durango.
Rob Sals: And that's not our core expertise. And so there's benefits to having that in terms of management focus. And also ultimately benefits to the franchisees and getting product pressure and done more quickly overall. In terms of e-com, there were fundamental limits to how many packages could leave Durango in a single day. And as I noted in my remarks, the two days was prohibitive or impossible from Durango. All those barriers are now gone.
Rob Sals: So our e-com can benefit from this, our delivery to stores now, and this other enhancements coming down the line to make it easier for stores to buy more pounds. So we're looking to realign even the structure of how they order all of those things are enabling them to ramp up and sell more.
Rob Sals: Okay, but e-commerce, we talked about the combination of e-commerce and specialty retail sales. Obviously a lot higher in the second half. How much is that? How do you... Total Revenue Base? Well, if you look at fiscal year 23, what we called on the channel in the 10K was about 12, 13% of total sales. And so we're looking for that number, the nominal number to be significantly higher in fiscal 24, and the super majority of that, of course, all hits in the back, the back six months.
Roger Lipton: All right, thanks very much. That's a big help. We'll talk again at greater length, or offline. Thank you. Thank you, Pete, questions, Roger. My pleasure. Thank you.
Unknown Attendee: Our next question coming from the line of Peter Sadodi, with Sadodi and company, you'll understand.
Allen Arroyo: Good morning, gentlemen. Allen, can you speak to the cash on hand, your cash burn, and any need for future financing at this point? Yes, so we started a year in good, great cash position. We have made significant investments in equipment, as we've mentioned, and obviously the first six months is not been cash accumulated. However, we believe with the cash on hand, and with the cash coming in in the last six months of the year, we still feel strongly about our cash position.
Allen Arroyo: We did recently renew our line of credit with Wells Fargo, and so we do have a revolver that we kept taping to temporarily if we had to. So again, there's no forecasted need for long-term financing. However, if there is some necessity, we could go into the line of credit. But we feel very confident about our cash balance. Again, with the strong position we came in the year, and with the back half of the year, the cash we're going to generate, we should end the year in great shape. Also, our equipment is unencumbered, and there's a possibility we'll look to put on some equipment financing. We're exploring that right now. Yes, probably.
Rob Sals: Rob, you came on board. You had a yoga stat to get done. Can you give me a sense how far along you feel you're in the process? Are you in the first inning, the third inning, the fifth inning? How do you feel about it in terms of where you are at this point? Well, you know, it's funny, Peter, the inning scorecard changes once you're in, and that's true with all situations like this.
Rob Sals: I don't know, I'm feeling sort of late second to mid-third in terms of the total transformation. I think we've done a lot of the grunt work still more to go. I mean, really, the brand refresh is a huge thing for our network and a huge thing to present ourselves to consumers that have not encountered Rocky Mountain chocolate before. We're insanely excited about the store refresh, and with the new brand and new packaging come on, that gives us a lot of opportunity and specialty retail that we're bringing something to a buyer that's going to be really exciting. So, we get to really hit the afterburners really come next year. Okay.
Unknown Attendee: Well, thank you. You must be doing something right to have Roger Lipton on the call. So thank you very much. Thank you.
Unknown Attendee: And I'm showing enough for the questions in the queue at this time. And thank you ladies and gentlemen. This concludes today's conference call. You may not disconnect your phone lines at this time and have a wonderful day. Thank you for your participation. Thank you, operator.
Unknown Attendee: Thank you.