Q2 2026 Rocky Mountain Chocolate Factory Inc Earnings Call
[Company Representative]: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss Rocky Mountain Chocolate Factory Inc.'s financial results for the fiscal second quarter 2026. At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded. Joining us on the call today is the company's Interim Chief Executive Officer, Jeffrey Richart Geygan, and Chief Financial Officer, Carrie E. Cass. Please be advised this conference call will contain statements that are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements.
[Company Representative]: These forward-looking statements are also subject to other risks and uncertainties that are described from time to time in the company's filings with the SEC. Do not place undue reliance on any forward-looking statements, which are being made only as of the date of this call. Except as required by law, the company undertakes no obligation to publicly update or revise any forward-looking statements. I will now turn the call over to the company's Interim Chief Executive Officer, Jeffrey Richart Geygan. Jeff, please go ahead.
Good morning, ladies and gentlemen. Thank you for standing by. Welcome to today's conference call to discuss Rocky Mountain Chocolate Factory's financial results for the fiscal second quarter 2026. At this time, all participants are in a listen-only mode. As a reminder, this conference call is being recorded. Joining us on the call today are the company's Interim CEO, Jeffrey Geygan, and CFO, Carrie Cass. Please be advised that this conference call will contain statements that are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain known and unknown risks and uncertainties, as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements.
Jeffrey Richart Geygan: Thank you, and good morning, everyone. Over the past 16 months, we've taken meaningful steps to modernize our business, strengthen operations, and lay the groundwork for stable growth, progress that's now becoming evident across the enterprise. These foundational steps are largely complete, and our focus is shifting towards disciplined execution. We're moving from transformational planning to transformational performance. The results of that shift are reflected in how we operate our business, how we support our franchisees, and how we present our brand to customers. The changes we're making today and in the past are intended to create value for investors over the long run. In the short run, we've made many difficult personnel and operating decisions that had to be put in place despite the immediate cost. We believe those changes were necessary and a prerequisite to allowing the company to achieve its long-run potential.
These forward-looking statements are also subject to other risk and uncertainties that are described from time to time in the company's filings with the SEC. Do not Place undue. Reliance on any forward-looking statements which are being made, only at the the date of this call. Except as required, by law, the company undertakes, no obligation to publicly update or revise any forward-looking statements and now I will turn the call over to the company's interim CEO. Jeff gagan Jeff, please, go ahead.
Thank you and good morning everyone.
Over the past 6 months, we've taken meaningful steps to modernize our business.
Strengthen our operations and lay the groundwork for stable growth.
Progress. That's now becoming evident across the Enterprise
These foundational steps are largely complete and our focus is Shifting towards disciplined execution.
We're moving from transformational planning to transformational Performance, the results of that shift, to reflected in how we operate our business, how we support our franchisees and how we present our brand to customers.
The changes we're making today and in the past are intended to create value for investors over the long run.
Smart run. We've made many difficult personnel and operating decisions that had to be put in place despite the immediate cost.
Jeffrey Richart Geygan: There's more work to be done with sales, production, and franchise development, but we believe we put the right people and processes in place to execute in ways that will allow us to return to historic levels of profitability over the coming quarters and years. Today, I'll walk you through several developments that highlight our progress, including franchise growth, brand development, and operational improvements as we move into the holiday season. Our ongoing operational challenges, evidenced in our Q2 report, are being met through a combination of improvements initiated by our new Vice President of Operations, who took over midway through the quarter.
We believe those changes were necessary and a prerequisite to allowing the company to achieve its long-run potential.
There's more work to be done with sales production and franchise development.
but we believe we put the right people and processes in place to execute in ways that will allow us to return to Historic levels of profitability, over the coming quarters
And years.
Today, I'll walk you through several developments. That highlight our progress.
Including franchise growth, brand development, and operational improvements as we move into the holiday season.
Our ongoing operational challenges. Evidenced in our Q2 report.
Jeffrey Richart Geygan: Within weeks of his onboarding, he laid out new money-saving strategies, including ways to eliminate overtime compensation, reduce scrap and waste, and improve in-stock items to fulfill incoming franchisee orders as a first step to increasing the ratio of Durango products sold in every store, a significant financial opportunity for the company. In addition, we're continuing to overhaul our warehouse and logistics operations to ensure lean inventory levels and more frequent delivery to franchise locations as we expand our geographic footprint. Continued improvement with operations is necessary as we enter our busy Q3 and Q4 holiday seasons, including both Christmas and Valentine's Day. We're well-positioned to meet franchisee demand and that of our remaining specialty markets customers. We're deploying more technology and automation in our production facility today without compromising our beloved handcrafted legacy that accounts for much of the nostalgia from nearly 45 years of customer engagement and satisfaction.
Are being met through a combination of improvements initiated by our new VP of operations who took over Midway through the quarter.
Within weeks of his onboarding, he laid out new money-saving strategies including ways to eliminate overtime compensation.
We do scrap and waste and improve in stock items to fulfill. Incoming, franchisee orders. As a first step to in the ratio of Durango products sold in every store.
A significant financial opportunity for the company.
In addition, we're continuing to overhaul our warehouse and logistics operations to ensure lean inventory levels and more frequent delivery to franchise locations as we expand our geographic footprint.
Continued improvement with operations is necessary as we enter our busy Q3 and Q4 holiday seasons, including both Christmas and Valentine's Day.
We're well positioned to meet franchisee demand and that of our remaining specialty market customers.
Jeffrey Richart Geygan: Our franchise development momentum continues to build. We're seeing renewed enthusiasm from both existing and prospective operators who recognize the opportunity within the Rocky Mountain Chocolate Factory Inc. system. We hired a new VP of Franchise Development in August. He attended our September National Franchisee Convention and engaged with well over a dozen current franchisees to lay out a vision for future store growth and area development agreements. We're continuing to canvas the U.S. and designate where we want to locate new stores in a very thoughtful and strategic array. The first wave of new store builds will come from our existing franchisees, followed by a group of new-to-the-system operators. We're in discussions with several now with a focus on developing new markets where we've historically had little or no presence, including both north and south of the border, where we think there is significant development opportunity.
We're deploying more technology and automation in our production facility today, without compromising our beloved handcrafted legacy that accounts for much of the nostalgia from nearly 45 years of customer engagement and satisfaction.
Our franchise development momentum continues to build. We're seeing renewed enthusiasm from both existing and prospective operators who recognize the opportunity within the Rocky Mountain Chocolate Factory system.
We hired a new VP of Franchise Development in August.
He attended our September, National franchisee convention and engage with well over a dozen. Current franchises to lay out a vision for future. Store growth and area development agreements.
We're continuing to canvas the U.S. and designate where we want to locate new stores in a very thoughtful and strategic array.
The first wave of new store bills will come from our existing franchisees, followed by a group of new to the system operators.
Jeffrey Richart Geygan: This is a renaissance for Rocky Mountain Chocolate Factory Inc. We're entering a new era of growth, not growth for growth's sake. We'll be very intentional with every move we make, always looking for ways to create and enhance shareholder value. We remain focused on increasing store ownership per franchisee, as I cited in our prior investor call. We recently opened a Charleston, South Carolina store, the first location to feature our refreshed branding and new store design, and the fourth store for this current franchisee. This location had its soft opening this summer, and we're planning a grand opening next month. The Chicago State Street store remains on track to open around the holidays. Construction is underway. This location will also serve as a showcase for the new Rocky Mountain Chocolate Factory Inc., from design and layout to product presentation and customer experience.
We're in discussions with several now with the focus on developing, new markets, where we've historically had little or no presence, including both North, and South of the Border where we think there are significant development opportunity.
This is a renaissance for Rocky Mountain Chocolate Factory. We're entering a new era of growth, but not growth for growth's sake.
We'll be very intentional with every move. We make always looking for ways to create and enhance shareholder value.
We remain focused on increasing store ownership per franchisee, as I cited in our prior investor call.
We recently opened a Charleston, South Carolina store. The first location to feature our refreshed branding and new store, design, and the fourth store for this. Current franchisee
This location had its soft opening this summer, and we're planning a grand opening next month.
The Chicago State Street store remains on track to open around the holidays construction is underway.
Jeffrey Richart Geygan: We continue to build a healthy pipeline of new locations. We recently signed franchise agreements for the Palladio in Folsom, California, and the Jersey Shore Premium Outlets in Tinton Falls, New Jersey. We're also in the final stages of negotiation for a Houston Hobby Airport location. We recently completed our first remodel at the Corpus Christi, Texas, company-owned store. As expected, store sales experienced an immediate pickup, and shortly afterwards, we had our busiest day in store history. As we have more empirical data related to remodels, we'll share that with investors. The combination of openings, remodels, and multi-unit franchise interest gives us a strong development pipeline, strongest we've had in years. More importantly, we're focused on quality over quantity, partnering with well-capitalized, experienced operators in attractive, high-traffic markets. Our disciplined approach to development and franchise recruitment is expected to drive meaningful long-term potential for our system's performance.
This location will also serve as a showcase for the new Rocky Mountain Chocolate Factory from design and layout to product presentation and customer experience.
We continue to build a healthy pipeline of new locations. We recently signed franchise agreements for the Palladium in Phelan, California.
And the Jersey Shore, Premium Outlets in Tinton Falls, New Jersey.
We're also in the final stages of negotiation for a Houston Hobby Airport location.
We recently completed our first remodel at the Corpus Christi Texas, company-owned store.
as expected store, sales experienced an immediate pickup,
Afterwards. We had a busiest day in store history.
As we have more empirical data related to remodels, we'll share that with investors.
The combination of openings remodels and multi-unit. Franchisee interest gives us strong development pipeline strongest we've had in years
More importantly, we're focused on quality over quantity, partnering with well-capitalized, experienced operators in attractive, high-traffic markets.
Jeffrey Richart Geygan: Turning to our rebrand, we've continued to make strong progress evolving the Rocky Mountain Chocolate Factory Inc. brand. Over the past year, we've modernized nearly every customer touchpoint, from our new logo, contemporary store design, updated packaging, refreshed website, makeover of our longtime mascot, Truffles the Bear, and the overall in-store experience. The refreshed look elevates the brand while maintaining the warmth, quality, and authenticity customers have always associated with the Rocky Mountain Chocolate Factory Inc. We expect most of our remodel work across the system to begin in early calendar 2026, with the goal of having nearly all stores align with the new brand identity in 24 months. These remodels will include new exterior signage, updated interior layouts, and enhanced merchandising designed to create a more cohesive and engaging customer experience across all stores, both new and remodeled. We're making meaningful progress improving product presentation and packaging.
Our disciplined approach to development and franchise recruitment is expected to drive meaningful long-term potential for our systems performance.
Turning to our rebrand, we've continued to make strong progress in evolving the Rocky Mountain Chocolate Factory brand.
Over the past year, we've modernized nearly every customer touchpoint from our new logo.
Contemporary store design.
Updated, packaging refreshed, website makeover of our longtime mascot, Truffles, the bear.
And the overall in-store experience.
The refreshed look elevates the brand while maintaining the warmth quality and authenticity customers have always associated with the Rocky Mountain. Chocolate Factory.
We expect most of our remodel work across the system to begin an early calendar. 2026 with the goal of having nearly all stores aligned with the new brand identity in 24 months.
these remodels will include new exterior, signage
Updated interior, layouts and enhanced merchandising designed to create a more cohesive and engaging customer experience across all stores, both new and remodeled.
Jeffrey Richart Geygan: Our new packaging has rolled out to most stores, and feedback from franchisees and customers has been positive. The updated design conveys the premium nature of our products and complements the in-store brand aesthetic. Our package is modular in design, so when franchisees asked for a new sampler package during our recent national convention, we were able to develop and roll that out in about six weeks, a feat never before even considered, but now a reality due to our unique design, which allows us to take in customer data and respond rapidly as we adjust to real-time feedback. In addition, we recently hired a new world-class R&D executive who has experience in the confectionery business. His addition to our team will accelerate the introduction of many new and exciting products to offer our franchisees and customers. Altogether, these initiatives are strengthening how customers experience our brand.
We're making meaningful progress, improving product presentation, and packaging.
Our new packaging has rolled out to most stores, and feedback from franchises and customers has been positive.
The updated design conveys the premium nature of our products and complements the in-store brand aesthetic.
Our package is modular in design.
So when franchisees asked for a new sampler package, during our recent National Convention, we were able to develop and roll that out in about 6 weeks, a feat never before even considered it. But now a reality due to the our unique design which allows us to take in customer data and respond rapidly as we adjust to real-time feedback.
In addition, we recently hired a new world-class R&D executive who has experience in the confectionery business.
His addition to our team will accelerate the introduction of many new and exciting products to offer our franchisees and customers.
Jeffrey Richart Geygan: They represent the next stage of our development, a consistent, elevated experience that supports the long-term franchisee success and a deeper customer connection. We've been modernizing the way customers interact with the Rocky Mountain Chocolate Factory Inc. brand online. Earlier this quarter, we launched our refreshed website, which reflects our contemporary identity and provides a cleaner, premium look. This refresh is an important step in aligning our digital presence with the in-store experience and features our updated package offerings just in time for the holidays. As originally conceived, our website will be an on-ramp for consumers to experience a small sampling of our delicious products, with all signs leading to a nearby store for the full selection of premium offerings. This will lead to our next iteration of store-level SKU reorientation, in which every store will carry all of the items that Rocky Mountain Chocolate Factory Inc.
All together, these initiatives are strengthening how customers experience our brand.
It represent the next stage of our development, a consistent elevated experience, that supports the long-term friendships and a deeper customer connection
We've been modernizing the way customers interact with Rocky Mountain Chocolate Factory brand online.
Earlier this quarter, we launched our refreshed website, which reflects our contemporary identity and provides a cleaner premium. Look,
This refresh is an important step in aligning our digital presence with the in-store experience and features. Our updated package offerings are just in time for the holidays.
As originally conceived, our website will be an on-ramp for consumers to experience a small sampling of our delicious products.
With all signs leading to a nearby store for the full selection of premium offerings.
Jeffrey Richart Geygan: offers, from Long Branch, New Jersey, to Huntington Beach, California. To strengthen customer attention and engagement, we're preparing to roll out a new loyalty program. This loyalty program will deliver a personalized and mobile-friendly experience, allowing us to better understand purchasing behavior and reward purchase frequency. We plan to launch a new program shortly after the first of the year. We're also expanding third-party delivery to meet customers where they are. Our partnership with DoorDash and other third-party delivery services continues to progress as we standardize store listings, locations, and menu data across the system. We're encouraging franchisees to transition to DoorDash's storefront model, which provides broader reach with stronger unit economics compared to the traditional delivery structure. In addition, this creates an operating structure to expand across all major third-party delivery platforms, which will be an ongoing initiative for every location.
This will lead to our next iteration of store-level SKU reorientation, in which every store will carry all of the items that Rocky Mountain Chocolate Factory offers.
Offers from Long Long Branch, New Jersey to Huntington Beach, California?
To strengthen customer retention and engagement, we're preparing to roll out a new loyalty program.
This loyalty program will deliver a personalized and mobile-friendly experience.
And allowing us to better understand purchasing behavior.
And reward purchase frequency.
We plan to launch new programs shortly after the first of the year.
We're also expanding third-party delivery to meet customers where they are.
Our partnership with door Dash and other third-party delivery, services continues to progress.
System.
We're encouraging franchises to transition to DoorDash's storefront model, which provides broader reach with stronger unit economics compared to the traditional delivery structure.
Jeffrey Richart Geygan: The economics of these platforms are expected to be accretive to store-level sales and profitability. Taken together, our digital initiatives represent the next phase of customer engagement for the brand. They extend the Rocky Mountain Chocolate Factory Inc. experience beyond the store walls as we take our premium offerings to mobile, third-party delivery, and corporate customers, deepening relationships, and supporting incremental profitable growth for our franchisees. In August, we acquired a longstanding store in Camarillo, California, for $165,000. Last year, that store generated $700,000 in sales. Under our management, it will shift to a more traditional mix of Durango and store-made products, creating a pickup in Durango production demand and improving store-level profitability. If you reference our segment analysis in the current 10-Q, you will see our retail operations have generated a pre-tax margin of between 15% and 20%.
In addition, this creates an operating structure to expand across all major, third-party delivery platforms, which will be an ongoing Initiative for every location.
The economics of these platforms are expected to be a creative to store-level sales.
And profitability.
Taking together our digital initiatives, represent the next phase of customer engagement for the brand.
They extend the Rocky Mountain Chocolate Factory experience beyond these store walls as we take our premium offerings to mobile.
Third-party delivery and corporate customers are deepening relationships and supporting incremental, profitable growth for our franchises.
In August, we acquired a long-standing store in Camaro. California for 165,000.
Last year that store generated those dollars in sales.
Under our management, it will shift to a more traditional mix of Durango and store made products.
Creating a pickup in Durango production demand and improving store level profitability.
Jeffrey Richart Geygan: The acquisition of this store is expected to be accretive to our overall earnings. In addition, it gives us physical presence in the important Southern California marketplace, while also creating a third company-owned store that we'll use as a testbed to explore new ways to engage with customers. Over time, we expect to have more company-owned stores located in strategic markets where we can use those to test and develop best practices. For too many years, we've often simply taken orders, not selling. The unique attributes of Rocky Mountain Chocolate Factory brand and experience need to be sold. A shift to selling represents a fundamental change in how we approach our customer engagement and is the single most exciting opportunity on the horizon. Pivoting to an in-store customer experience, unlike anything the company has executed in decades.
If you reference or segment analysis in the current 10 Q, you will see our retail operations have generated a pre-tax margin of between 15 and 20%.
The acquisition of this store is expected to be accretive to our overall earnings. In addition, it gives us a physical presence in the important Southern California marketplace.
While also creating a third company-owned store that will be used as a test bed to explore new ways to engage with customers.
Over time, we expect to have more company-owned stores located in strategic markets.
Where can we use those to test and develop best practices?
For too many years. We've often simply taken orders, not selling
The unique attributes of Rocky Mountain Chocolate Factory.
Brand and experience. Need to be sold a shift to selling represents a fundamental change in how we approach our customer engagement and is the single most exciting opportunity on the horizon.
Jeffrey Richart Geygan: We're in the early stages of developing a clear articulation of our message for both franchisees and customers. We're developing a message that ties together our new logo, store design, packaging, website, and Truffles the Bear. The next leg of our journey will show our transformation in its full color with all the possibilities this brand has previously been unable to capture. Of course, operational execution remains the center of our attention. The team in Durango continues to work on driving efficiency gains as we prepare for the holiday season. We now have the flexibility to extend production hours and add shifts as needed to meet upcoming seasonal demands, thanks to the insight and experience of our new VP of Operations. Inventory levels are healthy heading into the holidays, and our production plan is focused on maintaining freshness and product availability across the system.
Pivoting to an in-store customer experience, unlike anything, the company has executed in decades.
We're in the early stages of developing, a clear articulation of our message for both franchises and customers.
We're developing a message that ties together our new logo, store design, packaging, website, and Troubles the Bear.
The next leg of our journey will show our transformation in its full color. With all the possibilities, this brand has previously been unable to capture
Of course, operational execution remains a center of our attention, the team in Durango continues to work on driving efficiency gains as we prepare for the holiday season.
We now have the flexibility to extend production hours and add shifts as needed to meet upcoming. Seasonal demands thanks to the insight and experience of our new VP of operations.
Inventory levels are healthy heading into the holidays.
Jeffrey Richart Geygan: To support that, we've increased staffing to extend production runtimes, which improves efficiency and minimizes downtime between changeovers without incurring expensive overtime pay. Our raw materials and key ingredients are flowing well. We're positioned to meet demand for the season ahead. We've improved logistics by moving consumer packaging back to Durango and added warehouse capacity in Albuquerque, taking it from Salt Lake City and in the process reducing transit time to the factory from seven hours to three hours. This change has improved responsiveness and reduced transportation cost. Combined with discipline pricing, freight optimization, and ongoing process improvements, these initiatives are improving our cost structure and profitability. Culturally, this is a very different company than it was 16 months ago. We've built a leadership team and organization that is aligned, accountable, and focused on results.
And a production plan is focused on maintaining freshness and product availability across the system.
To support that, we've increased staffing to extend production run times, which improves efficiency and minimizes downtime between changeovers without incurring expensive overtime pay.
Our raw materials and key ingredients are flowing. Well,
we're positioned to meet demand for the season ahead.
We've improved Logistics by moving consumer, packaging, back to Durango and added Warehouse capacity in Albuquerque. Taking it from Salt Lake City and in the process reducing Transit, time to the factory, from 7 hours to 3 hours.
Changes improved responsiveness and reduced transportation costs.
Combined with disciplined pricing, freight optimization, and process improvements, these initiatives are improving our cost structure and profitability.
Culturally, this is a very different company than it was 16 months ago.
We built a leadership team and organization. That is aligned.
Jeffrey Richart Geygan: Across every function from Durango to the field, there's a growing sense of purpose, collaboration, and execution discipline. We've made tough decisions necessary to stabilize the business and have been deliberate in how we've built for the future. The progress we're seeing now is a direct result of that approach. Our transformation is continuing as planned. The foundation we've laid is solid. The factory is running more efficiently, franchisees have better tools and support, and our brand continues to evolve in ways that resonate with customers today. As we enter the holiday season, the organization is aligned around one simple objective: executional excellence. That means keeping product flowing, supporting franchisees, and delivering a consistent premium customer experience. As I began the call today, I reiterate, we are focused on creating value for our equity owners over time.
Accountable and focused on results.
To purpose, collaboration, and execution discipline.
We've made tough decisions necessary to stabilize the business.
And have been deliberate in how we built for the future.
The progress we're seeing now is a direct result of that approach.
Our transformation is continuing as planned.
The foundation we've laid is solid, the factory is running more efficiently, franchisees have better tools and support and our brand continues to evolve in ways that resonate with customers today.
As we enter the holiday season, the organization is aligned around one simple objective.
Executional excellence.
That means keeping product flowing supporting franchisees and delivering a consistent premium customer experience.
Jeffrey Richart Geygan: We will invariably experience unforeseen challenges in the short run, be those operational, personnel, or resource-driven, that we will have to navigate, but we'll never lose sight of where we're headed over the long run. Our goals are lofty. Our team is focused. Our mission is clear. Thank you for your attention. With that, I'll turn the call over to our CFO, Carrie E. Cass, to step you through our fiscal Q2 financial results. Carrie?
As I began the call today, I reiterate that we are focused on creating value for our equity owners over time.
We will invariably experience unforeseen challenges in the short run. Be those operational.
Personnel or resource driven.
That we will have to navigate but will never lose sight of where we're headed over the long run.
Our goals are lofty. Our team is focused. Our mission is clear.
Thank you for your attention with that. I'll turn the call over to our CFO, Carrie Cass.
Carrie E. Cass: Thank you, Jeff. Please note that unless otherwise stated, all comparisons are on a year-over-year basis. Total revenue for the quarter was $6.8 million compared to $6.4 million in the same period last year. Product sales were $5.2 million compared to $4.9 million last year, and franchise and royalty fees were $1.6 million, up from $1.5 million in the same period last year. The total product and retail gross profit was negative $33,000 compared to $0.6 million. The decrease reflects year-over-year comparability factors, the timing of inventory adjustments, and it's partially offset by continued factory efficiency gains. Total costs and expenses were $7.3 million, which were essentially flat compared to the same period last year. The net loss of $0.7 million or a negative $0.09 per share compared to the net loss of $0.7 million or a negative $0.11 per share in the second fiscal quarter of 2025.
To step you through our fiscal Q2 financial results.
Carrie.
Thank you. Jeff, please note.
That are on a year-over-year basis.
Total revenue for the quarter was $6.8 million compared to $6.4 million in the same period last year.
Product sales were 5.2 million compared to 4.9 Million last year and franchise and royalty fees were 1.6 million up from 1.5 million in the same period last year.
The total product and retail gross profit was -$33,000 compared to $0.6 million.
The decrease reflects year-over-year comparability factors the timing of inventory adjustments and it's partially offset by continued Factory efficiency gains.
Total costs and expenses were $7.3 million, which were essentially flat compared to the same period last year.
the net loss of 7 million or a negative 0.9 or negative 9 cents per share compared to the net loss of 0.7 million, or -11 cents per share in the
Carrie E. Cass: Turning to the balance sheet, as of August 31, 2025, we had cash of $2 million compared to $0.7 million at February 28, 2025. During the quarter, we added $1.8 million in new borrowings to support working capital and seasonal needs. This included a $1.2 million term loan and a $0.6 million incremental loan under our existing credit facility. Both loans carry the same 12% interest rate, interest-only payments, and the same September 30, 2027 maturity as the original $6 million facility established last year. As a result, total debt outstanding was $7.8 million as of August 31, 2025. This concludes our prepared remarks. We'll now open it up to Q&A. Operator, back to you.
in the second fiscal quarter.
25.
Turning to the balance sheet as of August 31st 2025. We had cash of million dollars compared to 7 million of February 28th of 25.
During the quarter, we added $1.8 million in new borrowings to support working capital in seasonal needs.
This included, a 1.2 million Term Loan and 0.6 million incremental loan under our existing credit facility.
both loans, carry the same 12% interest rate, interest only payments and the same September 30th, 27 maturity
As the original 6 million facility established last year.
As a result, total debt outstanding was 7.8 Million as of August 31st, 25.
This concludes our prepared remarks.
Operator: Certainly. As a reminder, to ask a question, please press star one-one on your telephone and wait for your name to be announced. To withdraw your question, please press star one-one again. Please stand by while we compile our Q&A roster. Our first question will be coming from Peter Sadodi of Sadodi & Company. Your line is up.
We'll now open it up to Q&A. Operator, back to you.
Certainly, as a reminder to ask a question, please press star, 1, 1, 1 on your telephone and wait for your name to be announced to withdraw your question. Please press star, 1, 1, 1 again and stand by while we compile our Q&A roster.
and our first question,
[Analyst]: Hi. Just a couple of quick questions. One, can you discuss the background of the new Chief Operating Officer?
Will be coming from Peter. Saudi of Saudi and Company. Your line is
Jeffrey Richart Geygan: Yeah, of course. This is Luis Burgos. He has 30+ years in manufacturing and operations. He has worked for startups with as few as 150 people and managed operations with over 3,000 people. He's operated in the U.S. and internationally. Notably, he was employed by Kimberly-Clark on two separate occasions, but he has a fantastic experience and background, and he's fluent with the FDA rules and regulations.
Hi, I just have a couple of quick questions. First, can you discuss the background of the new Chief Operating Officer?
Yeah of course this is um Louie Louie Virgos um he has 30 plus years in uh manufacturing and operations. He has worked for startups with as few as 150 people and manage operations with uh over 3,000 people.
[Analyst]: Great. As you open new stores, do you have targets for the number of openings you expect for 2026 and 2027?
Uh, he's operated in the U.S. and internationally, and um, notably he was employed by Kimberly-Clark on uh, two separate occasions. But he has a fantastic experience and background, and he's fluent with the FDA rules and regulations.
Jeffrey Richart Geygan: Peter, not that we've disclosed yet, but our stated goal is to be net positive in store growth on an annual basis, which means whatever the stores that are closed, we exceed that with new openings.
Okay, great. And as you open new stores, do you have targets for number of openings, you expect to, uh, 26 and 27.
[Analyst]: Can you just discuss the thinking about between owned and franchised?
That we've disclosed yet, but our, our state of goal is to be net positive in store growth, on an annual basis, which means what whatever the stores that are closed. Uh, we exceed that with new openings.
Jeffrey Richart Geygan: Yeah, sure. Historically, the company has had relatively few owned stores. Philosophically, we think if we're going to be a good franchisor, we need to be able to talk the talk, run the businesses, and have proof positive that we know what we're doing as an operator, not just as a franchisor. We had, until recently, two stores, one in Durango, which we've owned for many, many years, and a second in Corpus Christi, which was acquired roughly three years ago, which has gone through a very nice turnaround. Camarillo, California, which I cited in our numbers here, was able to be purchased at a very attractive rate, put us in a strategic market where we have boots on the ground, which we think is relevant.
And can you just discuss the thinking about between owned and franchised?
Yeah, sure. Historically, the company has had relatively few owned stores philosophically. We think if we're going to be a good franchise, we need to be able to, uh, talk the talk, run the businesses, and have proof positive that we know what we're doing as operators, not just as a franchisor.
Jeffrey Richart Geygan: My expectation is in the not-too-distant future, we'll have a handful of additional stores that strategically put us into markets where we can develop and potentially turn around and sell a cluster of stores to a prospective franchisee while we're developing those stores in those markets. With each store, we'll have an opportunity to test new products, new practices.
[Analyst]: Okay. Just one last question. You seem to be burning a little cash at this point. Can you just talk to me, how long do you think that will continue, and will there be a need for equity financing?
Uh, we had until recently 2 stores 1 in Durango, which we've owned for many, many years. And the second in Corpus Christi, which is required roughly 3 years ago, which has gone through. Um, a very, uh, nice turnaround, uh, Camaro, Texas, our cryo California, which I cited in our numbers here, um, was able able to be purchased at a very attractive rate. Put us in a, a strategic Market where we have boots on the ground, which we think is relevant. Um, my expectation is in the not too distant future. We'll have a handful of additional stores that strategically put us in the markets where we can develop and potentially, uh, turn around and sell the, a cluster of stores to a prospective franchisee while we're developing those stores in those markets. And, um, with each store, we'll have an opportunity to, uh, Test new new products, uh, new practices.
Okay, I just have one last question. Um, you seem to be burning a little cash at this point.
Jeffrey Richart Geygan: Of course, our fiscal Q1 and Q2 are historically our slow periods. Our Q3 and Q4 are historically our better periods. We're performing to budget this year. The discussion about any type of capital raise would be one that would have to be considered with the board of directors.
Can you just talk to me? Um, how old do you think that will continue and will it be a need for Equity financing?
Yeah. Well, of course, our fiscal Q1 and Q2 are historically our slow periods, while Q3 and Q4 are historically our stronger periods.
Better periods. Uh, we're performing the budget this year.
[Analyst]: I'm sorry. Could you just repeat it so I understand it?
We would the discussion about any type of capital raise would be 1, that would have to be considered with the board of directors.
Jeffrey Richart Geygan: Yeah, sure. Any type of capital raise would be at the discretion of the board of directors.
[Analyst]: Right. You're burning cash at this point in time. Do you expect to continue to burn cash for the next 12 months?
Jeffrey Richart Geygan: We do not.
[Analyst]: You do not? All right. Great, thank you.
I'm sorry. Could you just repeat it so I understand it? Yeah, sure. Any type of capital raise would be at the discretion of the board of directors, right? But you're burning cash at this point in time. Do you expect to continue to burn cash for the next 12 months?
Uh, we do not.
Jeffrey Richart Geygan: Thanks for your questions, Peter.
You do not. All right. Great. Thank you.
Carrie E. Cass: Thank you. I'm showing no further questions in the queue. I would now like to pass the call to Sean Mansouri for an email question.
Thanks for your questions, Peter.
Sean Mansouri: Thank you, LaTonya. To address a few questions that have come in via email over the past week, Jeff, Carrie, first here, can you expand on what's driving the increase in franchise demand beyond the visual aspects of the brand? In other words, what tangible changes in the business are making Rocky Mountain Chocolate Factory Inc. a more investable system for operators today?
Thank you. I am showing no further questions in the queue. I would now like to pass the call to Shun Mansouri for the email question.
Thank you, lotta to address a few questions that have come in via email over the past week.
Jeffrey Richart Geygan: Yeah. Thanks, Sean. It's a good question. For starters, I think one aspect of our offering that differentiates us from a lot of our competitive offerings is our relatively low labor model. In a world where labor costs, among other things, are rising, that's attractive. Number two, with the new store design, we've been able to move more closely to a defined number in terms of what it would cost to build. Once we had that defined number, we've been able to reduce those costs. I think our ability to articulate the ROI to a prospective franchisee in terms of cost to build and expected cash flow, those numbers are very attractive. We've worked with existing franchisees to try to get our store growth kickstarted.
Jeff Carry, uh, first here. Can you expand on what's driving the increase in franchise demand beyond the visual aspects of the brand? In other words, what tangible changes in the business are making RMCF a more investable system for operators today?
Yeah, thanks Sean. It's a good question. Um, for starters, I think 1
An aspect of our offering that differentiates us from a lot of our competitive offerings is our relatively low labor model. In a world where labor costs, among other things, are rising, that is attractive.
Number 2 with the new store, uh, design. We've been able to move more closely to a defined number in terms of what it would cost to build. And once we had that defined number, we've been able to reduce those costs. So I think our ability to articulate the ROI to a prospective franchisee in terms of cost to build and expected cash flow. Uh, those numbers are very attractive. Um, and again, we're we've worked with existing franchises to, um, try to to get our
Jeffrey Richart Geygan: Frankly, in most cases, it was just simply a matter of asking our franchisees if they had an interest, to which most of them said, "Yeah, I was waiting for someone at corporate to ask." That was an easy answer. We've also hired a new VP of Franchise Development, as I mentioned during my prepared remarks, who started in August, who has 20-plus years of franchise development and has a proven track record of building small systems into larger systems. We feel very optimistic about not just the design, the economics, but we're putting the mechanics in place to do this on a repeated basis. As I've said on several occasions, we're looking for financially sophisticated, well-capitalized, entrepreneurial franchisees to join our system. We've had conversations with a number of those types of investors recently.
Store, growth kickstarted and frankly, uh, it was, it was in most cases. It was just simply a matter of asking our franchisees if they had an interest to, which most of them said, yeah, I was waiting for someone to corporate to ask. Uh, so that was a, an easy answer. Uh, We've also hired a new, uh, VP of franchise development, as I mentioned, during my prepared remarks who started in
August, who has over 20 years of franchise development experience and a proven track record of building small systems into larger systems, makes us feel very optimistic about not just the design and the economics, but we're also putting the mechanics in place to do this on a repeated basis. As I've said on several occasions, we're looking for.
Sean Mansouri: That's great. Moving on to the next one. Can you walk through what's changed in your factory operations that's most meaningfully impacting cost per unit or fulfillment reliability?
Financially sophisticated, well-capitalized, entrepreneurial franchises to join our system, and we've had conversations with a number of those types of investors recently.
Jeffrey Richart Geygan: Sure. Carrie, do you want to take that?
Liability.
Carrie E. Cass: Sure. As Jeff mentioned, we just recently hired the new Vice President of Operations. He has made a number of changes in the factory, most of which have happened after the end of the quarter. We are still testing best practices downstairs. We've made a lot of progress in a lot of areas in the business. That's one we're still working on.
Sure, Carrie. Do you want to take that?
Sure. Um, as Jeff mentioned, we just recently hired the new BP of Operations. He has made a number of um changes in the factory, most of which have happened after the end of the quarter. So um, we're still testing best practices downstairs. We've made a lot of progress in a lot of areas in the business. That's one we're still working on.
Sean Mansouri: Thank you. With cocoa prices easing from historic highs, how are you thinking about the potential margin benefit and timing, including your hedging strategies and supplier costs?
Thank you.
Jeffrey Richart Geygan: Yeah, it's a great question. Good observation too. As we speak, the price of a metric ton of cocoa is $5,806. Sixteen months ago, for perspective, if we could lock into cocoa pricing at $8,000 per metric ton, I felt pretty lucky. $8,000 for many months was as low as it traded, and it had bumped up a couple of times to $10,000 or $11,000. Recently, for a variety of reasons that are mostly geopolitical and some weather-related, the price dipped below $8,000 into the $7,000, then $6,000 range. We took full advantage of that, locking in some amount of production. Bear in mind, it's not an all or none, and we're not in a spot market. Every time we lock at today's lower price, we still have the long tail backwards that are prices that we locked previously. The highest price we've locked since I've been here is $8,000.
And with cocoa prices easing from historic highs, how are you thinking about the potential margin benefit and timing, including your hedging strategy and supplier costs?
Yeah, it's a great question. Good observation too, as we speak uh the price metric ton of Coco's 58006 uh 16 months ago. For prospective if we could lock into cocoa pricing at 8,000 per metric ton. I've felt pretty lucky uh 8,000 for many months was as low as it traded and then had bumped up a couple times to 10 or 11 thousand dollars. Uh but recently for a variety of reasons that are mostly geopolitical and some other related, um, the price dip below, 87 and $6,000 range. We took full advantage of that, uh, locking in some amount of production. But bear in mind, we're, it's not an all or none and we're not
Jeffrey Richart Geygan: We expect that we'll pick up some margin in lower raw material costs. This cocoa, of course, becomes chocolate for us. Chocolate represents 40% of our raw material costs. This will be meaningful for us, and we expect to see improved margins over time as a result.
Sean Mansouri: Excellent. That concludes the emailed portion of the Q&A session. LaTonya, over to you to close the call.
The spot market. So every time we lock at today's lower price, we still have the the longtail backwards that uh our prices that we locked previously. But but the highest price we've locked. Since I've been here is 8,000. So we expect that. I will pick up some margin in lower raw material costs and this cocoa, of course, becomes chocolate for us chocolate represents 40% of our raw material costs. So this will be meaningful meaningful for us and we expect to uh, see improved margins over time as a result.
Operator: Certainly. This concludes today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
Excellent. Uh that concludes the email portion of the Q&A session, Latonia over to you to close the call.
Certainly and this concludes today's conference call, you may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.