Q2 2025 Rocky Mountain Chocolate Factory Inc Earnings Call

Speaker Change: Good evening, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss Rocky Mountains, Chalk with that financial results for the fiscal second quarter, 2,025. At this time, all participants on a listening mode. As a reminder, this conference is being recorded.

Speaker Change: Joining us on the call today, just the company's entrance to E.O. Jeff Skagan, and CFO, Carry Kess.

Speaker Change: Please be advised, this conference call will contain statements that are considered forward and let's statements under the private security and litigation reform at of 1995.

Speaker Change: These forward-looking statements are subject to certain known in unknown risk and uncertainties, as well as assumptions that can cause acts results differently from those reflected in these forward-looking statements.

Speaker Change: Before looking statements are also subject to the other risk and uncertainties that are described from time to time in the company's findings with the SEC.

Speaker Change: Please do not, excuse me, please do not place under reliance on these foreign-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 publicly update or revise any foreign-looking statements.

Speaker Change: The company's presentation also includes certain non-gap financial measures, including a Justice League, but as supplemental measures of performance of the business. All non-gap measures have been reconciled to the most directly comparable gap measures in accordance with SEC rules.

Speaker Change: You will find reconciliation tables and other important information in the earnings press release and form 8k, furnish on.

Speaker Change: Thanks for joining us. Thanks for joining us.

Speaker Change: and now I would like to turn the call over to the company's interest in EO.

Speaker Change: Excuse me, Jeff Geygan, Jeff, please go ahead.

Jeff Geygan: Thank you, and good evening.

Jeff Geygan: This quarter we made strides next season in our multi-year strategic plan. As I mentioned in our last call, we've been focused on several critical areas, strengthening the companies liquidity, rebuilding a strong executive team, and laying a solid foundation for sustainable growth and profitability.

Jeff Geygan: Today we'll be providing updates on these initiatives and sharing details about additional progress across the organization.

Jeff Geygan: Let's begin with new store openings. As we mentioned last quarter, we're targeting new stores across various strategic markets.

Jeff Geygan: Beginning next month with our first new store opening in Edmund, Oklahoma. In addition to we're in the process of finalizing recent franchise agreements for another three locations, which we expect to announce soon. We have a growing pipeline of additional sites and qualified operators.

Jeff Geygan: These expansion efforts underscore our commitment to scaling the business and bringing the Rocky Mountain Chocolate Factory experience to more communities across the United States.

Jeff Geygan: In this vein, we're pleased to share the Rocky Mountain Chocolate Factory has been included in the franchise 400 for 2024 by the franchise Times.

Jeff Geygan: This recognition reinforces our position as a leader in the premium chocolate category and highlights the attractiveness of our model for franchises.

Jeff Geygan: Turning to a company rebrand, I'm able to report that we're nearing completion with 90% plus of the process now behind us.

Jeff Geygan: We also expect to finalize the new RMCF store design very soon. This is a major step for us as a further enables our sales team to drive new franchise interest with mock-ups of our new store design and branding.

Jeff Geygan: We're targeting the lead brand launch before the end of the year and look forward to unveiling our work to redefine our brand and elevate the historic experience for our customers.

Jeff Geygan: With the holiday season quickly approaching, we're carefully managing our inventory to meet the demands of each RMCF franchisee. Our focus is on prioritizing fulfillment to our network to ensure every franchisee has the product. They need to maximize sales during the important peak season.

Jeff Geygan: Our franchisees are central to our growth strategy, the lifeblood of our company.

Jeff Geygan: We're continuing to improve our order for film and late across in that work and working closely with our franchises to provide an improved experience, helping the stores to increase sales and improve profitability.

Jeff Geygan: One example of our improved collaboration with the network is the recently formed franchisee product innovation group or fig.

Jeff Geygan: a group composed of Rocky Mountains.

Jeff Geygan: Product Development Team and Handful of our most creative and innovative franchisees who work together, sharing new product ideas and trends across the industry, specifically focused on developing innovative product for all of our franchisees and customers.

Jeff Geygan: Although it's early in the process of introducing new product to the network, this group is created in the valuable source of inspiration for a product development team that incorporates a variety of new flavors, colors, and packaging ideas. We look forward to sharing up dates as these product innovations go live in the future.

Jeff Geygan: On the personnel front, we've implemented several key strategic changes. During the quarter we increased hourly wages at the factory for our vitally important production workers, which immediately helped to both attract and retain the talent necessary to ensure our daily operations run consistently with minimal downtime.

Jeff Geygan: Historically, these contented with high employee turnover at the factory.

Jeff Geygan: The constant starts and stops with hiring and training with detrimental to factory utilization levels. We want to ensure we have the best talent in the Durangu area, work that our factory and equally important. We need to incentivize employees to remain employed after we spend time and resources training them within our system.

Jeff Geygan: This change will help increase our ally on our human capital investment over time.

Jeff Geygan: At the corporate level, we were excited to welcome Kerry Cas, our new CFO in August.

Jeff Geygan: She brings deep experience and finance and business strategy as well as a strong track record of leadership.

Jeff Geygan: She's positioned to play an important role in advancing our growth initiatives, managing our continued cost control efforts, and reinforcing the principles of our improved operational discipline.

Jeff Geygan: As I mentioned earlier, improving the company's liquidity position has been essential to execute a normal-to-year strategic plan.

Jeff Geygan: Earlier this month, we announced a new $6 million three-year credit facility with the group that investors led by one of our board members, Steve Craig.

Jeff Geygan: This facility enabled us to retire our previous $4 million credit for $4 million.

Jeff Geygan: Well, providing additional capital for investment in equipment, machinery, inventory, and our strategic growth initiatives.

Jeff Geygan: With an eye toward early 2025, we're gearing up to deploy a new ERP system that will dramatically improve our approach to business integration and data reporting across all departments. A much needed condition to allow for accelerated growth and more intelligent decision-making.

Jeff Geygan: This strategic initiative is focused on boosting operational efficiencies and streamlining processes throughout our organization.

Jeff Geygan: The no system will integrate key business functions such as finance, inventory management, procurement, logistics, production scheduling, franchise development and support.

Jeff Geygan: This integration will also provide for greater visibility into our operations, minimizing manual process errors and enhancing decision-making capabilities with real-time actionable data so we can adapt more quickly to change in market dynamics.

Jeff Geygan: 2 other key initiatives for fiscal 25 include the rollout of a customer loyalty program and e-commerce e-commerce strategy.

Jeff Geygan: Today, our loyalty program is active in just 21 stores, the small fraction of our total store network. We're working closely with our MCF's business consultants to ensure a smooth and consistent implementation across the network. We're making good progress during this transitional phase and look forward to sharing more updates in the future.

Jeff Geygan: Our e-commerce sales channel is an important driver of our revenue growth plan.

Jeff Geygan: We've set up an e-commerce sales team that's an independent unit of our business, similar to a company-owned store. We're laying the foundation to create a large e-commerce presence that will seamlessly integrate with and complement our physical store locations, all designed to drive traffic from our website to brick and mortar locations.

Jeff Geygan: We're managing our e-commerce business with the intent of increasing store-level traffic.

Jeff Geygan: It's still early to share a complete details about our plans for this initiative, but you should know we expect e-commerce to be an important contributor to revenue growth and profitability in the future.

Jeff Geygan: In summary, we're starting to see increased momentum across the business from new store openings and brand enhancements to operational and personnel improvements. We're encouraged by visual improvement occurring both within the company and across our network of franchisees as we continue to develop our path forward and execute a long-term strategy.

Jeff Geygan: When Tensley focused on making sound decisions today that will lead to creating long-term value for all of our shareholders.

Speaker Change: With that said, I'm now turning it over to our CFO CarriedCast to walk you through fiscal Q2 financial results.

CarriedCast: Thank you, Jeff. I'm thrilled to join Rocky Mountain Chocolate Factory and to work alongside this talented team as we focus on driving growth and delivering value to our shareholders.

CarriedCast: Moving on to our fiscal Q2-2025 results unless otherwise stated all comparisons are on a year-over-year basis.

CarriedCast: Total revenue for the quarter was 6.4 million, compared to 6.6 million in the same period last year. Products sales were 4.9 million, compared to 5 million last year, and franchises in Arroyo TPs were essentially flat at 1.5 million.

CarriedCast: The total product in revenue and retail gross profit was 0.6 million compared to 0.4 million, which gross profit improving to 11.5% compared to 7.7%.

CarriedCast: The increase in gross margin was primarily attributed to pricing creases and improved operating efficiency.

CarriedCast: Total cost and expenses improved to 7.3 million compared to 7.6 million in the for a year ago.

CarriedCast: Met lost for the quarter was 0.7 million or 11 cents per share compared with the loss of a million or 0.16% or 16 cents per share in fiscal quarter two of 2024.

CarriedCast: Turning to the balance sheet, we ended the fiscal second quarter with a cash balance of a million dollars compared to two million one at February 29, 2024.

CarriedCast: We also ended the fiscal quarter with total inventories of 6.1 million, compared to 4.4 million at February 29, 24. Which reflects our strategic buildup of inventory as a factory to ensure we are well positioned to meet the needs of our franchises during the important holiday season.

CarriedCast: As of October 31, 2024, we had 3.5 million outstanding on our line of credit and remained free of long-term debt. This compares to 1.3 million outstanding on our line of credit at February 29, 2024.

Speaker Change: As Jeff mentioned earlier, subsequent to the quarter end, we entered into a $6 million credit facility, which is enabled us to retire our previously-liant previous line of credit.

Speaker Change: This concludes our prepared remarks. We'll be glad to answer in questions you have at this time. Lisa, back to you.

Lisa: Thank you. Ladies and gentlemen, if you would like to ask a question, please press star 1-1 on your telephone.

Speaker Change: You will then hear an automated message advice that your hand is raised.

Speaker Change: The New Year's Day.

Speaker Change: At this time there are no questions in the QI will like to turn, the call over to the companies and investor relations advising Shon, men's very please go ahead.

Speaker Change: Thank you, Lisa. While we're waiting for a live Q&A to build up here, we would like to address some questions that have come in via email over the past week.

Speaker Change: So kicking things off, Jeff Kerry, have you seen any measurable improvements in operational efficiency since increasing employee wages at the factory level?

Speaker Change: Hey, Sean, this Jeff, thank you. It's a little bit early to tell us we've just recently implemented this, but I can say that the level of retention is dramatically higher than what it had been historically. So we're very encouraged by that improvement.

Speaker Change: Adding to my comments from earlier, having well-trained employees that report to work on a timely basis that allow us to run all of our production lines essential to our achieving our production goals.

Speaker Change: Excellent. And this one actually came in during the call. With 90 to 95% of the rebanding process complete, how do you expect the new brand and store designs to affect customer engagement and franchisee interest? Can you share any early feedback from the rebranding efforts?

Speaker Change: Well, I don't want to let the cat out of the bag. We've spent her awful lot of time and money in this initiative. It's taken a great amount of effort. We will be rolling that out shortly. I think everyone will be excited with what we've come up with. I know the team internally who's looked at it has reacted very favorably.

Speaker Change: Great. You mentioned targeting new store openings across H for Tejet Markets. How do you prioritize these markets and what specific factors are you considering when selecting new store locations? How do you foresee these openings impacting overall revenue growth in fiscal 25?

Speaker Change: Yes, very good question. Let me answer the latter part first.

Speaker Change: It takes time to identify the proper site, identify the right operator, some of those operators are existing fantasies, we know them well.

Speaker Change: But it then it takes time to actually put it get a store up and running. So as far as the impact for fiscal 25, which ends on February 28, I wouldn't see a significant amount of revenue growth from brand new stores. The revenue growth opportunity is really from existing stores, increasing sales, as well as e-commerce, which can be turned on very quickly.

Speaker Change: David.

Speaker Change: We have 147 stores across 36 states in the United States. One of the challenges we face is logistics that is getting product of the stores on a timely basis.

Speaker Change: I've said to our new store development department and they're actually an excellent group that if you look at the map where we have all these pins which are where our stores are located, the best location is going to be between two pins because that means I already have a truck going from side A to side B if we can put something in between that would be great.

Speaker Change: In this game of things, about 80% of our stores are west of the Mississippi, so there's really birds in territory for us, east of the Mississippi, where we already have a presence, more more so in the southeast, somewhat in the Midwest, but very little in the northeast.

Speaker Change: So in terms of where you could identify obvious opportunities, think Boston, the York, Philly, D.C. and then you start to come down to Atlanta, which are obviously key areas for us.

Speaker Change: Dense population, all the feedback from the few stores that we have out there is very good. So we think there's great opportunity for us in those areas specifically. But Cara Conquino heads our franchise.

Speaker Change: Development Team has a K&I on developing the right locations with the right operators. So we're very encouraged by the pipeline of prospective locations and operators that we have developing.

Speaker Change: Thanks, Chuck. That concludes the Q&A we receive via email operator back to you.

Operator: Thank you for your time, and I'll see you in the next video.