Q1 2026 Rocky Mountain Chocolate Factory Inc Earnings Call
Good morning ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss Rocky mount's chocolate factories Financial results for the fiscal first quarter 2026. 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 is the company's interim CEO. Jeff gagan and CFO Carrie cast. Please be advised. This conference call will be extending 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,
Is defined as net income before interest taxes.
Depreciation or amortization of reconciliation to the most directly comparable. Gaap measures included in the company's earnings press release furnished to the SEC and available on the Edgar system.
Speaker Change: On the sec's website. And will it be available on the company's investor relations section of the website within approximately 24 hours after this call has ended? And now I would like to turn the call over to companies interim CEO.
Jeff: Jeff gagan Jeff. Please go ahead.
Jeff Gagan: Thank you and good morning everyone.
Jeff Gagan: It's been just about a month since our last conference call. However, I like to take a moment to reflect on the big picture at Rocky, Mountain chalk Factory.
Jeff Gagan: Over the past year, we focused on stabilizing the business including streamlining operations, rebuilding franchisee, trust integrity and selling skills. All while implementing operational systems required to scale, effectively.
Jeff Gagan: Our New Foundation is now largely in place.
Jeff Gagan: During our first fiscal quarter, we began to see our work translating into tangible results as continued evidence of our larger business transformation.
We're no longer in a rebuilding mode. We're now in an execution mode.
After laying the groundwork through a series of foundational initiatives, we're operating with greater Precision, accountability and clarity.
Our team is aligned around our shared goals and vision.
Jeff Gagan: Our franchisees are better supported with tools and insights to improve store level, operating results.
Jeff Gagan: Our brand is evolving to reflect our premium positioning to deliver both.
Jeff Gagan: Product excellence and positive intore experience.
The momentum we're building is evident. While there's still work to be done.
Jeff Gagan: We're encouraged by the progress we've made and the discipline we're applying across every aspect of our business.
Today, I'll take you through some specifics of ongoing developments.
Jeff Gagan: I'll begin with supply chain.
Jeff Gagan: During our first quarter, we waived all Freight charges for franchises and licenses in an effort to drive volume and approved product freshness across all stores.
Effective June 1st. We shifted to a flat monthly fee program for Freight delivery.
We believe this plan will encourage more frequent store orders and provide a more consistent and higher quality in-store experience for consumers.
Jeff Gagan: We implemented a product price adjustment in March. And again, in June and will continue to review all input cost. Make necessary adjustments to ensure we achieve our targeted, gross margin
Jeff Gagan: We're seeing a steady improvement in our margin capture as the adjusted pricing flows through our financial results.
Jeff Gagan: During this incrementally and in concert with our franchises and licenses.
Jeff Gagan: Allows them to adjust their in-store pricing to maintain store level profitability.
Jeff Gagan: With both our Erp and POS systems in place, we now have the ability to adjust pricing. Dynamically supporting titer cost alignment while managing to our targeted gross margin.
Jeff Gagan: Adoption of our new POS system accelerated during the quarter bringing in a new level of visibility to both corporate and franchisee operations.
Jeff Gagan: These tools are enhancing decision-making across production pricing and marketing. Providing key insights that simply weren't available before.
Jeff Gagan: As we collect more store level Financial day data, we're able to provide improved analysis into store performance.
Jeff Gagan: And help with product mix and Merchandising. Designed to drive, in-store sales and improve profitability.
Jeff Gagan: We're gaining additional perspective on what best-in-class looks like which helps in coaching currently underperforming stores.
Jeff Gagan: And has been instrumental as we accelerate initiatives to expand new store locations.
Jeff Gagan: We rolled out our new PS system to over 100 stores and we expect continued deployment over the next few months.
Jeff Gagan: as we aim to achieve 100% compliance,
Jeff Gagan: Our recent Erp implementation also continues to enhance our visibility into inventory procurement and Manufacturing operational performance.
Jeff Gagan: The system will generate timely analytics, enabling us to respond to changes with greater speed.
Jeff Gagan: And precision.
We recently hired Luis Burgos, a seasoned and highly qualified VP of operations to take over all manufacturing and Logistics activities.
Jeff Gagan: He comes to us with 6, Sigma lean manufacturing and continuous Improvement, certifications and tremendous experience.
Jeff Gagan: We believe he is the most qualified VP of operation. The company has employed. His addition to the executive team is significant.
Jeff Gagan: Turning to new store development on June 3rd, we opened our newest store in Charleston. South Carolina.
Jeff Gagan: The first 2 feature are fully refreshed brand identity and modern store layout.
Jeff Gagan: We're encouraged by early feedback and anticipate strong results as we enter the busy fall and holiday months.
Jeff Gagan: In downtown Chicago.
Speaker Change: Struck construction is expected to begin shortly on a premier location at 1 State Street.
Speaker Change: We're targeting and opening ahead of the holiday season and are excited by the prospects and brand recognition. In this Marquee store will bring the Chicago, and the surrounding areas.
Beyond these 2 locations were in lease. Negotiations for several new units.
Speaker Change: And actively building a development pipeline that reflects both growth and selectivity.
Our goal remains to expand with the right Partners in the right locations. As we're being careful to identify capable competent operators,
Speaker Change: As a critical precondition of our acceleration strategy, we're seeing operators that are well capitalized.
Speaker Change: Financially sophisticated and entrepreneurial with prior franchising experience, to join our growing family of franchises.
Speaker Change: The rollout of our brand refresh is an important milestone in our transformation.
Speaker Change: It has been deliberately sequenced to ensure consistency across the system.
Speaker Change: The sequencing includes new packaging.
Updated in-store merchandising and a redesigned e-commerce platform.
Speaker Change: We're bringing our existing group of loyal and seasoned Friends Along providing an unprecedented level of support and business Analytics.
Speaker Change: To encourage improved operating results, which we can now measure, effectively, and frequently.
Speaker Change: There's a growing excitement among many current franchises, as they seek greater opportunity to improve their current locations and look at expanding with new ones, some of which may be new builds and others, which may be transfers as we continue to assist with new store ownership.
Speaker Change: 1 of our internal goals is to to improve the ratio of store ownership across a limited number of franchises.
Speaker Change: Currently we have 1.34, rmcf stores per owner.
Speaker Change: Our largest multi-unit owner has 4 locations.
Speaker Change: We plan to track these numbers as we believe they're indicative of the efficacy of our store and franchisee development strategy.
Speaker Change: Systemwide signage updates are underway. Our Durango Company Store unveiled. Its new signage in June,
our Corpus Christi Company Store is expected to begin. Displaying its new signage this week.
Our new consumer packaging. Both are traditional boxed, chocolate, and grab and go totes are expected to begin shipping. To stores this month.
Speaker Change: We expected to display these on a refreshed website, rmcf.com.
Speaker Change: Shortly after these items hit store shelves.
Speaker Change: Overall, interest from both current and prospective franchisees has increased as our refreshed identity.
New packaging, updated website and other exciting developments continue to Launch.
Speaker Change: Our messaging is crystal clear about the type and caliber of operator, we're looking to attract and accept into our system.
This represents a radical departure from past practices of rmcs franchise development efforts.
The next major milestone in our branding initiative is a full relaunch of our digital presence.
Speaker Change: We're advancing toward a modern. E-commerce experience that. Complements our in-store environment.
Speaker Change: Our redesigned website is set to launch shortly alongside the roll out of our new packaging.
Speaker Change: Such that our new website will be a complete departure from our current platform, both in look and feel.
Speaker Change: We intend to supplement our new website, with contemporary, social media, and marketing initiatives, to drive, direct to Consumer traffic through e-commerce. And further direct those consumers to a nearby store to enjoy the full lineup of our premium offerings. Most of which can only be found in store
We're preparing to make door Dash and other food delivery platforms. Are required part of operating an rmcf location wherever feasible.
Speaker Change: We think this represents an untapped.
Speaker Change: Opportunity for many stores.
Speaker Change: And will improve store Revenue while capturing new customers.
Following the roll out of our new e-commerce platform. Our sights are set on revitalizing the Rocky Mountain, Chocolate Factory loyalty program
Speaker Change: The program today is limited in scope and available. Only in a handful of stores.
Speaker Change: As the POS rollout is complete. And we begin begin to gain greater tracks in online.
We believe there will be significant opportunity to create an engaging loyalty program that increases both transaction frequency and basket size across in-store and digital channels.
Finally, a refreshed website is expected to include a section for new franchises which has previously been hosted on a separate website.
It's far more intuitive to present a new franchise opportunity on the rmcf.com website. As we believe many of our most enthusiastic consumers want to own a franchise location.
Speaker Change: Please be sure to visit our new website next month.
Speaker Change: In closing.
Speaker Change: When we look at the full body of work, not just from the past few months, but over the last 15 months, the impact is now beginning to show and our current quarterly results. We're still very early in realizing the financial potential of our business transformation.
Speaker Change: A recent margin Improvement and our first quarter of positive. Evita in several years, is an indication in our strategy is taking hold
Speaker Change: As we look at the remainder of fiscal 2026, we're focused on generating profit and returning the growth.
Speaker Change: The first quarter demonstrated our foundational Investments and operational. Improvements are beginning to improve.
To produce these desired results. And we believe this trend will continue to build throughout the year in short.
Speaker Change: We believe we are in a better position to execute and we've been in many years with what we believe is the right strategy team and infrastructure. We're positioned to drive sustainable growth and long-term value creation.
Speaker Change: Thank you for your time and attention. I'll now hand it over to Carrie Cass, our CFO.
Carrie Cass: To walk you through our fiscal, q1 Financial results Carrie.
Carrie Cass: Thank you. Jeff. Please note that unless dated, otherwise all comparisons are on a year-over-year basis.
Carrie Cass: Total revenue for the quarter, was 6.4 million, essentially, flat, compared to the prior period.
Product sales were 4.7 million compared to 5.3 Million last year. And franchise on royalty fees were 1.7 million compared to 1.1 million
Carrie Cass: We did not renew a large specialty Market customer, since we were unable to reach a mutually beneficial agreement on product price.
To our benefit. We improved overall margin while dropping nearly 500,000 in sales, which is reflected in the year-over-year number
Carrie Cass: total product and Retail. Growth profit was 0.3 million compared to a negative Point 3 million.
Carrie Cass: the Improvement was primarily driven by adjustments to pricing and operational efficiencies and
Carrie Cass: our costs and expenses were 6.5 million.
Down from 8.
Million last year. The decrease was primarily driven by lower GNA costs and other operating efficiencies
Carrie Cass: net loss was 0.3 million or a negative -4 cents per share.
Compared to a net loss of 1.7 million or a negative -26 cents per share.
Carrie Cass: Even off the quarter was 2 million compared with a negative 1.4 Million last year.
Turning to the balance sheet. As of May 31st 25. We had a cash balance of 0.9 million compared to 0.7 million at February 28th, 25.
Carrie Cass: and, as of May, 31st,
Carrie Cass: We had 6 million in debt outstanding related to our Term Loan which is essentially flat compared to our debt position at February 28th.
Carrie Cass: This concludes our prepared remarks.
Speaker Change: Operator back to you.
Speaker Change: Thank you as a reminder, to ask a question. Please press star 1, 1 on your telephone and wait for your name to be announced to withdraw your question. Please, press star 1 1 again and please stand by while we compile our Q&A roster.
Speaker Change: Again, if you would like to ask a question, please press star 1 1 on your telephone.
Sean Mensor: Okay, thank you. Ladies and gentlemen, the company would like to address questions that have been received via email over the past week. I would now like to turn the call over to Sean mensor fmcs. External investor relations advisor.
Speaker Change: Thank you. Uh, before getting into live Q&A, we do want to address a few questions that were submitted via email over the past week, uh, and as recently as this morning, so to kick things off, Jeff carry. Uh, starting with number 1 here, you mentioned a flat-free freight. Charge what early indicators are you watching to evaluate whether it's driving? The intended shift in franchisee ordering Behavior.
Yes. Thank you, Sean. Um, we're we're able to see order frequency which under the previous scheme, had started to fade from every 2 weeks to in many cases, 4 weeks. And then a few cases, uh, every 6 weeks which of course meant we weren't getting the uh fresh product in stores.
Speaker Change: So we desired by by waiving the fee, we encouraged, uh, all franchises to order on a more frequent basis, which would be every 2 weeks. Uh, and we can see that uh, as evidenced through our um, Erp and POS systems.
Thank you. And this next 1 your Erp roll out is still undergoing refinement as that data stabilizes. What processes or decisions do you expect to look materially different 6 months from now?
Speaker Change: You have a great question and and being mindful of giving forward guidance, I just speak generally about the, uh, the the quality of the data that we're getting. And how that contrasts with what we might previously have seen. Uh, the Erp data that we received today, gives us great insight into uh, manufacturing uh, efficiencies, uh, order frequency, uh, profitability and and a whole host of other issues, which will be instrumental in our decision-making across virtually every Department.
Speaker Change: Thanks.
And with the e-commerce relaunch scheduled for summer. How does your online strategy differ from the past?
And how will success be measured now that it's positioned as a core brand experience?
Yeah, good. Good question. Um, I think the the the evidence of uh,
Speaker Change: Probably without seeing the new site, versus the old site, it's hard to speak to that. So I would encourage everybody to, to, to look at the new site. It's it's, it's very elegant, it's far more contemporary the user interface experience is vastly improved. Um, so we're we're excited about rolling that out. We think the results of the refresh will speak for themselves and and we'll report on that in the future. In fact, we'll we'll be excited to share the results.
Speaker Change: Great. And last 1, here, you delivered positive ibida. This quarter as you look to the remainder of fiscal 2026. What operational, levers are most likely to drive continued, evaa extension.
Speaker Change: Carrie, you want to take that 1?
Uh, sure we are. Um,
Speaker Change: Or the first time in several quarters have positive ebida. Um, that's attributed to our improved pricing our sgna discipline, and some Factory level efficiencies. And we expect all of those things to improve as we move forward. Um, we expect to continue benefiting from our margin discipline and strong franchisee, um, support tools.
As we go forward and, um, we're looking to continue to reduce pricing as we as we move forward. So,
And and just to clarify, reduce pricing or reduce costs.
Speaker Change: Reduce cost and also where we can find, uh, efficiencies and and benefit, uh, everyone in the system, um, reduce some pricing as well. Perfect. Uh, operator will turn it back to you for the live Q&A, certainly, as a reminder to ask a question. Please press star 1, 1 on your telephone and wait for your name to be announced to withdraw your question. Please. Press star 1 1 again.
Speaker Change: Please stand by.
Speaker Change: And I'm showing no questions.
Speaker Change: This concludes today's conference call, you may disconnect your phone lines at this time and have a wonderful day.
Speaker Change: I am showing that we do have a follow-up question from Peter, Saudi.
Speaker Change: And Peter, your line is open.
Hi. This is Peter sidoti from sidon company. Quick question, can you talk about your Capital means um
Speaker Change: The need to raise money to fund your expansion at this point. Uh, both your operating side and some of your Capital Improvements.
Speaker Change: Yeah. Hey, good morning Peter, uh, this is Jeff, um, that that's a discussion that's ongoing with the board. Uh, you know, obviously, uh, we're, we're contemplating,
Speaker Change: What what the path forward looks like and if we need to, I'm sorry I'm having a problem hearing you.
Yeah, well Peter it's it's a conversation. We're having with the board.
And and and presently we we we we are not planning to raise Capital at this particular moment but subject to further Board review. Uh, is it? We'll make those decisions.
Speaker Change: Okay. And what would the capital be needed for or what would you raise capital?
Speaker Change: To to to be determined presumably working capital.
Speaker Change: Okay, in terms of where we stand and are you committed to keeping the balance sheet clean and not, issuing warrants or rather dilutive Capital again uh a decision for the board to make. But that would be my preference.
Thank you.
Speaker Change: And our next question.
Speaker Change: Is coming from Doug Garber of Westport Alpha, your line is open. Doug.
Doug Garber: Hi, Jeff. How are you?
Jeff: I'm doing well, Doug. Good morning.
Speaker Change: Good morning.
Speaker Change: I wanted to ask you about um your your growth strategy um to bring in new franchises. Um and how are you developing that muscle? Um, and then also what are you doing in terms of
Improving the processes across the board to support your current franchisees so that they're, you know, their stores are more profitable and look like kind of the ones you have in Durango.
Speaker Change: Yeah, sure good question, thanks. Um let me start with the beginning as we contemplate expanding new stores. The the first place that we look would be to existing franchises for obvious reasons that the people that know and love the brand. Uh, we have a number of franchisees that meet our criteria that well, capitalized financially, sophisticated, and entrepreneurial, and of those, uh, recent
Speaker Change: Is under review right now. Those are by and large with existing franchises who we've identified as uh, appropriate franchises to expand in Target in markets that we want want to expand in bearing in mind uh, that we have. There's a lot of weight, white space Across America for us to expand number 1, number 2, in terms of new franchises, uh, to the system. Um, we we have a pretty good, uh, network of uh,
Sources that can refer sophisticated uh potential franchises to to join us. And we're uh taking advantage of that too.
Speaker Change: On the existing franchisee, um, initiatives, which is really as we've talked about in the past our dual Mandate of driving, uh, same store sales and approved improving the unit level of profitability. Uh we we made a
pretty serious departure from the way we've done business in the past. By employing, uh, 5 Business Consultants. Who are tasked with going to stores on a, a semi annual basis, um, with on-site visits, looking for at both the quality and the performance of the store providing insights into, uh, Pro product, mix and Merchandising, as well as um, implementing an, an annual business plan review. So that every store has some type of, uh, operating plan that we can, uh, work with the franchisees to develop and then review on a
Speaker Change: That where we can we we're we're circling in on what what's the best in class looks like? So this becomes the gold standard and as we talked to an existing franchisee, that may be underperforming, it's no longer just our opinion. It's really factually or data and analytics driven. Here's what's Best in Class looks like and here's how we can help you get there to improve again. Low. Uh same store sales and improved profitability. So does that answer your question?
Speaker Change: It does and um I just want to follow up on that and understand how much the price in varies. Now that you have all this data to analyze from, you know, the price in for your products and stores that are much more profitable than others. How how wide is that range?
Speaker Change: Yeah, it's it's a great question. It's, and it's fundamental to us being a franchisee, or as opposed to, um, being a, a, a a business that owns all of its stores. Uh, we can only suggest what our friend, where our franchisees set pricing. They have the the discretion to, to to to put their prices where they want. And if you you you'll take take an example of a
High-traffic tourist area, uh, versus a an urban setting that the pricing can be different. What we, what we try to do is challenge franchisees to set the price at an optimal level where they're not destroying demand, but they're maximizing profitability or pricing, uh, and I think that's, it's a new it, it's a new mind.
Speaker Change: That for a lot of our franchises where we can literally come in and say across the system. Here's the low and here's the high. Here's the median price for this particular item, you skew towards the Lower Side. What? Why? Why you experiment a little bit? Push your prices up and see when you start to, um, when you demand starts to decline. So it's it's and it's it's real time. So we're getting great data. We're able to share it with our franchises and by and large, our franchisees have been quite receptive to, um, uh, you know, you you you using different tactics and they may have in the past.
Speaker Change: Great. Now that that's good that they're receptive. Um, 1 or 2 more, if I could on the um on the p&l line items, um the franchise and royalty fees.
Were up about half a million year-over-year.
in any any color as as to why that was
Speaker Change: And, and I turned that 1 over to Carrie.
Um, we have different pricing structures in our different agreements and there have been quite a few more same store sales in the current period, which generates a higher uh, royalty for us as well as, um, some catch up with some old things that were hanging out there that we've been able to collect. So,
Speaker Change: Okay, and then um I'm trying to understand, you said the sales revenue. You lo you dropped the Wholesale customer and that accounted for about half a million of the decline year-over-year, all of the sales revenue decline. Do I understand that, right?
Speaker Change: Pretty much, yes.
And then, on the, um, the cost of sales that was also down over a million dollars, year-over-year.
Speaker Change: To less less volume to that, Wholesale customer or what's, you know? It's a pretty significant is that cocoa prices? What happened there?
Speaker Change: Partially we that customer that we're we're discussing. Um we were losing money on that on that specific transaction. So yes, a good portion of that drop in cost of goods, sold.
Speaker Change: Did attribute to, um, us, cutting that customer. Additionally, we have also, um, improved our efficiencies in the factory and, and our scrap. So,
When did that customer come out of the PML?
Basically, at your end.
Speaker Change: Okay, should we expect more efficiencies from the factory in terms of, you know, the cash, the cost, the cost of sales? Um, that is our goal. Um, okay. And the last 1 GA was down a good amount year over year as well about
You know, 240,000 any any color there?
Yeah. Again, we've gone about looking at all of the things we spend money on and, um, trying to get rid of a lot of the things that we just don't need. Um,
Speaker Change: Into the positive.
Speaker Change: Thanks to appreciate it.
Speaker Change: And our next question, will be a follow-up from Peterson.
Speaker Change: Uh just 1 more quick question. Um any thoughts on the timing of um permanent leadership at this point in time?
Speaker Change: Uh, again Peter I hate to keep deferring back to the board but it's a conversation that uh, the board and I have had on a non going basis.
Okay, thank you very much.
Speaker Change: Yep, sure. Glad to hear from you.
You.
Speaker Change: And this concludes today's conference call, you may disconnect your phone lines.
Speaker Change: And have a great wonderful day. Thank you for your participation.