Rocky Mountain Chocolate Factory, Inc. (Nasdaq: RMCF) (the
"Company", “we” or "RMCF"), an international franchisor and
processor of premium chocolates and other confectionary products,
is reporting financial and operating results for the three months
ended May 31, 2023. The Company will host a conference call today
at 5:00 p.m. Eastern time to discuss the results.
“During the quarter, we continued to lay the
foundation of our strategic transformation plan: do more with less,
simplify and focus our operations, and amplify and elevate the
Rocky Mountain Chocolate brand,” said Rob Sarlls, CEO of Rocky
Mountain Chocolate Factory. “To do more with less, we have
significantly reduced waste and scrap due to better staff training
and the elimination of underperforming SKUs. We have also migrated
certain store delivery logistics to now utilize third-party cross
docking to reduce trips and maximize pound volume on our own trucks
shipped from Durango. Further, we eliminated two offsite
third-party warehouses during the quarter as we have become more
efficient with inventory management and demand planning, as
reflected by a 46% reduction of inventory compared to the prior
year. These initiatives have combined for over $700,000 in annual
cost savings, which is more than 60% of our $1.2 million annual
cost saving target introduced last quarter. This is ahead of our
original expectations in terms of both magnitude and timing.”
“To simplify and focus our operations, our key
strategic decision to divest our U-Swirl frozen yogurt business was
completed in May, which enables us to better focus on our core
premium chocolate business moving forward. Additionally, we are
midway through a plan to reduce SKU count by 25% as we eliminate
underperforming chocolate SKUs and increase our ability to produce
significantly higher volumes of our most popular items.
“To amplify and elevate our brand, we recently
completed an overhaul of our franchise offering and documentation,
establishing for the first time an area development offering to
better attract multi-unit operators, as well as simplifying our
royalty structure and implementing new standards and incentives for
greater selling of Durango-sourced products. With the completion of
the frozen yogurt sale, our two newly appointed franchise
operations directors have transitioned into their new roles and are
now fully focused on encouraging higher compliance to brands
standards, as well as working directly with franchisees to help
increase sales and achieve better store-level economics. For our
image transformation, our sales and marketing team has recently
partnered with Crown Creative to elevate and update our brand and
trade dress.”
“Most notably,” Sarlls continued, “we have
formed a strategic partnership with a nationally renowned cold
chain logistics company to provide more efficient nationwide
two-day delivery for online customers, something that was not
achievable from Durango as a shipping origin. Full rollout of this
partnership will continue over this next quarter to enable
significantly higher sales volumes for both online consumers and
other key omnichannel customers.
“As we continue through fiscal 2024, we look
forward to demonstrating further progress on our plan as we
position RMCF for sustainable growth and profitability as America’s
preferred premium chocolatier.”
Recent U-Swirl Divestiture
On February 24, 2023, and May 1, 2023, the
Company completed the sale of its U-Swirl Company-owned locations
and U-Swirl franchise rights, respectively. As a result, the
historical and current results of U-Swirl operations are reported
as discontinued operations. Therefore, for all periods presented in
this release, all figures incorporate these changes and reflect
continuing operations only, unless otherwise noted.
Fiscal Q1 2024 Financial Results vs.
Year-Ago Quarter
- Total revenue was
$6.4 million compared to $6.9 million. The decrease was primarily
due to $0.3 million of lower shipment of products related to the
planned exit of two customers.
- Total factory and
retail gross profit was $0.3 million compared to $0.9 million, with
gross margin of 5.1% compared to 16.3%. The decrease was primarily
due to lower production volume resulting from the Company’s
strategy to produce finished goods closer to final consumption, the
aforementioned reduction of non-core SKUs, and higher costs related
to wages and inflation. This was partially offset by positive
contributions to gross profit including lower transportation
expense, reduced waste and scrap, and lower warehousing
expense.
- Total operating
expenses were $7.9 million compared to $7.2 million. The increase
was primarily due to increased staffing costs driven by new mid-
and senior leadership, including the Company’s CEO, CFO and Senior
Supply Chain Advisor whom are all working to drive the
aforementioned operational improvements; increased franchise
support costs related to store visits, new store openings and
transfers; and annual convention costs that were previously
biannual.
- Net loss from
continuing operations was $1.5 million or $(0.24) per share,
compared to a net loss from continuing operations of $0.3 million
or $(0.05) per share.
- Adjusted EBITDA (a
non-GAAP measure defined below) was $(0.8) million compared to $0.7
million, with the decrease primarily driven by lower revenue
related to the planned exit of certain customers, as well as higher
staffing and franchise expenses.
Conference Call Information
The Company will conduct a conference call on
July 13, 2023 at 5:00 p.m. Eastern time to discuss its financial
results. A question-and-answer session will follow management’s
opening remarks. The conference call details are as follows:
Date: Thursday, July 13, 2023Time: 5:00 p.m.
Eastern timeDial-in registration link: hereLive webcast
registration link: here
Please dial into the conference call 5-10
minutes prior to the start time. An operator will register your
name and organization. If you have any difficulty connecting with
the conference call, please contact the company’s investor
relations team at RMCF@elevate-ir.com.
Non-GAAP Financial Measures
To supplement RMCF’s consolidated financial
statements, which are prepared and presented in accordance with
GAAP, RMCF provides investors with certain non-GAAP financial
measures, such as adjusted EBITDA. The presentation of these
non-GAAP financial measures is not intended to be considered in
isolation or as a substitute for, or superior to, the financial
information prepared and presented in accordance with GAAP.
Adjusted EBITDA, a non-GAAP financial measure,
is computed by adding depreciation and amortization, stock-based
compensation expenses, costs associated with non-recurring expenses
(which include costs associated with proxy contests and related
matters, costs associated with the departure of executive officers,
costs recognized to retain new executive officers, event specific
inventory disposal costs, and gains and losses associated with
long-lived asset sales and impairment) to GAAP income (loss) from
operations.
This non-GAAP financial measure may have
limitations as an analytical tool, and this measure should not be
considered in isolation or as a substitute for analysis of results
as reported under GAAP. Management uses adjusted EBITDA because it
believes that adjusted EBITDA provides additional analytical
information on the nature of ongoing operations excluding expenses
not expected to recur in future periods, non-cash charges and
variations in the effective tax rate among periods. Management
believes that adjusted EBITDA is useful to investors because it
provides a measure of operating performance and its ability to
generate cash that is unaffected by non-cash accounting measures
and non-recurring expenses. However, due to these limitations,
management uses adjusted EBITDA as a measure of performance only in
conjunction with GAAP measures of performance such as income from
operations and net income. Reconciliations of this non-GAAP measure
to its most comparable GAAP measure are included at the end of this
press release.
About Rocky Mountain Chocolate Factory,
Inc.
Rocky Mountain Chocolate Factory, Inc., (the
"Company"), ranked number one on Newsweek's list of "America's Best
Retailers 2022" in the chocolate and candy stores category and
headquartered in Durango, Colorado, is an international franchiser
of premium chocolate and confection stores and a processor of an
extensive line of premium chocolates and other confectionery
products. The Company, its subsidiaries, franchisees and licensees
currently operate over 270 Rocky Mountain Chocolate Factory stores
across the United States, the Republic of Panama, and The Republic
of the Philippines. The Company's common stock is listed on the
Nasdaq Global Market under the symbol "RMCF."
Forward-Looking Statements
This press release includes statements of our
expectations, intentions, plans and beliefs that constitute
“forward-looking statements” within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”),
and are intended to come within the safe harbor protection provided
by those sections. These forward-looking statements involve various
risks and uncertainties. The statements, other than statements of
historical fact, included in this Quarterly Report are
forward-looking statements. Many of the forward-looking statements
contained in this document may be identified by the use of
forward-looking words such as "will," "intend," "believe,"
"expect," "anticipate," "should," "plan," "estimate," "potential,"
or similar expressions. However, the absence of these words or
similar expressions does not mean that a statement is not
forward-looking. All statements that address operating performance,
events or developments that we expect or anticipate will occur in
the future - including statements expressing general views about
future operating results - are forward-looking statements.
Management of the Company believes that these forward-looking
statements are reasonable as and when made. However, caution should
be taken not to place undue reliance on any such forward-looking
statements because such statements speak only as of the date of
this press release. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise, except
as required by law. In addition, forward-looking statements are
subject to certain risks and uncertainties that could cause our
Company’s actual results to differ materially from historical
experience and our present expectations or projections. These risks
and uncertainties include, but are not limited to: inflationary
impacts, the impacts of the COVID-19 pandemic on our business, the
outcome of legal proceedings, changes in the confectionery business
environment, seasonality, consumer interest in our products, the
success of our frozen yogurt business, receptiveness of our
products internationally, consumer and retail trends, costs and
availability of raw materials, competition, the success of our
co-branding strategy, the success of international expansion
efforts and the effect of government regulations. For a detailed
discussion of the risks and uncertainties that may cause our actual
results to differ from the forward-looking statements contained
herein, please see the section entitled “Risk Factors” contained in
our most recent Annual Report on Form 10-K and subsequent Quarterly
Reports on Form 10-Q, each filed with the Securities and Exchange
Commission.
Investor Contact
Sean Mansouri, CFAElevate
IR720-330-2829RMCF@elevate-ir.com
Media Contact
Rob
SwadoshSwadoshGroup908-723-2845Rob.swadosh.swadoshgroup@gmail.com
STORE INFORMATION
|
|
|
|
|
New stores opened duringthe three months endedMay 31, 2023 |
|
Stores open as ofMay 31, 2023 |
|
|
|
|
United States |
|
|
|
Rocky
Mountain Chocolate Factory |
|
|
|
Franchise Stores |
2 |
|
152 |
Company-Owned Stores |
0 |
|
1 |
Co-brand Stores |
2 |
|
113 |
International License Stores |
0 |
|
4 |
Total |
4 |
|
270 |
|
SELECTED BALANCE SHEET DATA (in
thousands)(unaudited)
|
|
|
|
|
|
May 31, 2023 |
|
February 28, 2023 |
|
Current Assets |
$ |
10,516 |
|
$ |
11,205 |
|
Total
Assets |
|
20,799 |
|
|
21,987 |
|
Current
Liabilities |
|
4,795 |
|
|
5,010 |
|
Total
Liabilities |
|
7,051 |
|
|
7,617 |
|
Stockholder's Equity |
$ |
13,748 |
|
$ |
14,370 |
|
|
|
|
|
CONSOLIDATED STATEMENTS OF OPERATIONS(in
thousands, except share and per share data)(unaudited)
|
|
|
|
|
Three Months Ended
May 31, |
Three Months Ended
May 31, |
|
|
2023 |
2022 |
2023 |
2022 |
|
Revenues |
|
|
|
|
|
Factory sales |
$ |
4,824 |
|
$ |
5,158 |
|
75.0 |
% |
74.7 |
% |
|
Royalty and marketing fees |
|
1,375 |
|
|
1,440 |
|
21.4 |
% |
20.9 |
% |
|
Franchise fees |
|
45 |
|
|
54 |
|
0.7 |
% |
0.8 |
% |
|
Retail sales |
|
192 |
|
|
250 |
|
3.0 |
% |
3.6 |
% |
|
Total Revenues |
|
6,436 |
|
|
6,902 |
|
100.0 |
% |
100.0 |
% |
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
Cost of sales |
|
4,758 |
|
|
4,526 |
|
73.9 |
% |
65.6 |
% |
|
Franchise costs |
|
680 |
|
|
419 |
|
10.6 |
% |
6.1 |
% |
|
Sales and marketing |
|
473 |
|
|
481 |
|
7.3 |
% |
7.0 |
% |
|
General and administrative |
|
1,932 |
|
|
1,606 |
|
30.0 |
% |
23.3 |
% |
|
Retail operating |
|
103 |
|
|
158 |
|
1.6 |
% |
2.3 |
% |
|
Depreciation and amortization, exclusive of depreciation and
amortization expense of $171 and $160 included in cost of sales,
respectively |
|
31 |
|
|
29 |
|
0.5 |
% |
0.4 |
% |
|
Total Costs and Expenses |
|
7,977 |
|
|
7,219 |
|
123.9 |
% |
104.6 |
% |
|
|
|
|
|
|
|
Income (loss) from operations |
|
(1,541 |
) |
|
(317 |
) |
-23.9 |
% |
-4.6 |
% |
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
Interest expense |
|
(6 |
) |
|
- |
|
-0.1 |
% |
0.0 |
% |
|
Interest income |
|
20 |
|
|
2 |
|
0.3 |
% |
0.0 |
% |
|
Other Income, net |
|
14 |
|
|
2 |
|
0.2 |
% |
0.0 |
% |
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
(1,527 |
) |
|
(315 |
) |
-23.7 |
% |
-4.6 |
% |
|
|
|
|
|
|
|
Provision for income taxes |
|
- |
|
|
(29 |
) |
0.0 |
% |
-0.4 |
% |
|
|
|
|
|
|
|
Net
income (loss) from continuing operations |
|
(1,527 |
) |
|
(286 |
) |
-23.7 |
% |
-4.1 |
% |
|
|
|
|
|
|
|
Discontinued Operations |
|
|
|
|
|
Earnings
from discontinued operations, net of tax |
|
69 |
|
|
171 |
|
|
|
|
Gain on
disposal of discontinued operations, net of tax |
|
635 |
|
|
- |
|
|
|
|
Net
income (loss) from discontinued operations, net of
tax |
|
704 |
|
|
171 |
|
|
|
|
Consolidated Net (Loss) Earnings |
|
(823 |
) |
|
(115 |
) |
|
|
|
Basic Earnings (loss) Per Common |
|
|
|
|
|
Share |
|
|
|
|
|
Loss from continuing operations |
$ |
(0.24 |
) |
$ |
(0.05 |
) |
|
|
|
Earnings (loss) from discontinued operations |
$ |
0.11 |
|
$ |
0.03 |
|
|
|
|
Net Earnings |
$ |
(0.13 |
) |
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
Diluted Earnings (loss) Per Common |
|
|
|
|
|
Share |
|
|
|
|
|
Loss from continuing operations |
$ |
(0.24 |
) |
$ |
(0.05 |
) |
|
|
|
Earnings (loss) from discontinued operations |
$ |
0.11 |
|
$ |
0.03 |
|
|
|
|
Net Earnings |
$ |
(0.13 |
) |
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
Weighted Average Common |
|
|
|
|
|
Shares Outstanding |
|
6,276,613 |
|
|
6,206,939 |
|
|
|
|
|
|
|
|
|
|
Dilutive Effect of Employee Stock |
|
|
|
|
|
Awards |
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
Weighted Average Common |
|
|
|
|
|
Shares Outstanding, |
|
|
|
|
|
Assuming Dilution |
|
6,276,613 |
|
|
6,206,939 |
|
|
|
|
|
|
|
|
|
|
GAAP RECONCILIATIONADJUSTED EBITDA(in thousands)
(unaudited)
|
|
|
|
|
Three Months Ended
May 31, |
|
|
|
2023 |
2022 |
Change |
|
GAAP: Income from Operations |
$ |
(1,541 |
) |
$ |
(317 |
) |
n/m |
|
Depreciation and Amortization |
|
202 |
|
|
189 |
|
|
|
Stock-Based Compensation Expense |
|
202 |
|
|
132 |
|
|
|
Costs associated with non-recurring expenses (1) |
|
373 |
|
|
657 |
|
|
|
Non-GAAP,
adjusted EBITDA |
$ |
(764 |
) |
$ |
661 |
|
n/m |
|
|
|
|
|
|
(1) Non-recurring expenses include costs
associated with the departure of the former Senior Vice President –
Franchise Development, the retention of a new Chief Executive
Officer, staff relocation costs associated with hiring, costs
associated with a stockholder’s contested solicitation of proxies
and non-recurring gains or losses on the sale of long-lived
assets.
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