Earnings Call Transcript - RMCF Q3 2025

Operator, Operator

Good evening, 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 Third Quarter 2025. 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 Geygan, and CFO, Carrie 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. 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. The company's presentation also includes certain non-GAAP financial measures, including adjusted EBITDA as supplemental measures of performance of the business. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You will find reconciliation, tables and other important information in the earnings press release and Form 8-K, furnished to the SEC earlier today and are currently available on the company's EDGAR page on the SEC's website and will be available on the company's Investor Relations section of the website within approximately 24 hours after this call has ended. And now, I would like to turn the call over to the company's Interim CEO, Jeff Geygan. Jeff, please go ahead.

Jeff Geygan, Interim CEO

Thank you, and good afternoon. This quarter, we continue to advance our initiatives to strengthen Rocky Mountain Chocolate Factory's foundation and drive future revenue growth and profitability. Building on the initiatives discussed during our last call, we have concentrated on improving our liquidity, revitalizing our franchise network, and executing key operational priorities as we navigate this transformation. The results from the current quarter may obscure the significant qualitative improvements stemming from the company's transformation and our shift toward new methodologies. Today, we'll provide updates on these initiatives and affirm our commitment to delivering value for all stakeholders. Starting with new store openings, we recently announced plans for two new stores and one kiosk in three U.S. markets: Chicago, Illinois; Charleston, South Carolina; and Brandon, Florida. Each of these openings involves current Rocky Mountain Chocolate Factory store owners, highlighting our enhanced store design and franchisee-oriented approach. We expect the Brandon and Charleston locations to open in the coming months, with Chicago set to open this summer. Additionally, we just completed several store transfers, where an existing store is sold to a new owner. This is a key part of our long-term strategy to elevate our franchise system and improve our average unit volume, a crucial metric in the franchise industry. We have proactively replaced owners in locations we find more desirable and potentially lucrative under new management. We assist in the transfer process to maintain the most desirable locations while allowing less favorable ones to close. For instance, we have recently transferred our Vail, Colorado and Steamboat Springs, Colorado locations, while we chose to close the Tilton, New Hampshire location earlier this year. Our VP of Franchise Development, Kara Conklin, has skillfully managed this new process since joining the company over a year ago. We are intentionally overseeing our network of stores, continually seeking financially savvy, entrepreneurial candidates to join our franchise family. We aim to attract new owners capable of becoming multi-unit operators, which aligns with our long-term vision. These developments reflect the growing interest in our improved franchise model and our focus on creating a world-class franchise business. Alongside these announcements, we have a pipeline of desirable locations and qualified owners, anticipating a return to growth in a number of franchise stores for the first time in over a decade. Regarding the holiday season, I am pleased to report that we fulfilled nearly all franchisee and specialty market demand, which is a significant accomplishment and an improvement from last year. This strong holiday performance demonstrates our ability to deliver under pressure and indicates the potential for even better results as we refine our processes and enhance efficiencies across the organization. It also reinforces the trust that franchisees place in us to support their business during important selling periods. Concerning our operational infrastructure, we launched our new ERP system on January 6, which integrates key business functions like inventory management, procurement, production scheduling, and financial reporting. With this system, we expect to improve cost management, reduce time and errors from manual processes, and enhance decision-making with near real-time insights and analytics. We anticipate that our ERP system, alongside our upgraded store-based POS system, will enhance our visibility into consumer purchasing behavior, helping us to optimize pricing and factory output, ultimately boosting operating profits. As noted in our last conference call, our rebranding efforts, new store design, and updated packaging are nearing completion. While we initially intended to finish this sooner, the extended timeline has allowed us to refine our designs, which we believe will significantly enhance the customer experience. Our new branding offers a modern look while maintaining our commitment to premium quality craftsmanship. Our revamped in-store design will provide customers with an engaging experience and an elegant collection of packaged items. This marks a critical step toward revitalizing franchise store growth, positioning us as a distinctive and attractive brand for both store owners and consumers. Our e-commerce segment, including RMCF and Amazon.com, is rapidly growing, with sales nearly tripling during October, November, and December compared to last year. This growth was aided by enhancements in our marketing efforts aimed at online customers, including personalized email campaigns, social media ads, and promotions that drive traffic to our website and our network of stores. We have also leveraged data analytics more effectively this year to understand consumer preferences, allowing us to offer more relevant products. To further enhance the online shopping experience, we've invested in skilled personnel for website optimization, digital marketing, social media, and related campaigns. We expect to see significant improvements in our digital presence soon. We encourage your frequent visits and purchases on rmcf.com. We are also expanding our loyalty program to foster customer retention and reward repeat purchases in-store and online. Using DoorDash and similar customer engagement applications, we aim to increase store sales. By extending various programs to more stores, we expect to build stronger connections with consumers and enhance brand loyalty across multiple channels. On the personnel side, we have made strategic hires to bolster our executive management team and support our franchise network. This includes a new VP of Franchise Business Support, Lizzy Mae Kerr, and a VP of Marketing, Jeremy Garcia, both of whom bring valuable experience and proven success. Our executive management team is now fully assembled, positioning us to execute our long-term vision effectively, led by the right people in key roles. We also appointed two new Board members, Mel Keating and Al Harper, both of whom contribute executive expertise that will be instrumental as we refine our long-term strategy. As previously announced, we secured a $6 million credit facility on September 30, which provides the flexibility needed to invest thoughtfully in our operations and growth initiatives, building a lasting company of value. We are undergoing a historic transformation in the company, having completed our executive team and focusing on our franchise network, offering premium confectionery products and gourmet apples in retail formats aimed at consumers of all ages. As we review our performance this quarter, while we are making strides, significant work remains to accelerate revenue growth and optimize costs to enhance overall profitability. We are encountering pressures on both gross and operating margins from various issues, which we believe are temporary. We relentlessly address revenue and cost challenges and expect better outcomes in the upcoming quarters. We are well poised to tackle these issues, especially with our new ERP system, which will vastly improve our access to relevant and timely data and analytics. Additionally, we are pursuing various margin-enhancing initiatives, and early results are promising. In conclusion, we recognize the importance of continuous improvement and delivering results. We are laying the groundwork for substantial revenue growth and enhanced profitability through strategic investments in our people, operations, franchise network, and brand. We still have work to do in this transformation process, understanding that we need to approach things differently. We are cultivating a disciplined culture, believing we possess the business discipline to make a series of sound decisions aligned with our long-term vision. We foster disciplined people who engage in thoughtful consideration and take disciplined action in methods and processes. Our ongoing commitment and long-term outlook empower us to implement a strategic plan that we believe will generate substantial equity value for our stockholders and benefits our franchisees, customers, and consumers. Thank you. I will now hand it over to our CFO, Carrie Cass, to discuss our Q3 financial results.

Carrie Cass, CFO

Thank you, Jeff. Please note that unless stated otherwise, all comparisons are on a year-over-year basis. Now, moving on to our fiscal third quarter 2025 results. Total revenue for the third quarter of 2025 increased to $7.9 million compared to $7.7 million during the same period last year. Product sales were $6.4 million compared to $6.1 million last year. And franchise and royalty fees were $1.1 million compared to $1.2 million in the same period last year. Total product and retail gross profit was essentially flat at $0.7 million, with gross margins at 10% compared to 10.2%. The decrease in gross margin was primarily driven by higher supply, third-party vendor and labor costs. Total costs and expenses increased to $8.6 million compared to $8.5 million in the year-ago period, driven in part by non-recurring professional expenses. Net loss for the quarter was $0.8 million or negative $0.10 per share compared to a net loss of $0.8 million last fiscal quarter. Our EBITDA improved to $41,000, a positive number compared to a negative $0.3 million a year ago. Turning to the balance sheet. We ended the fiscal third quarter with a cash balance of $1.1 million compared to $2.1 million at February 28, '24. Accounts receivable at the fiscal quarter ended were $4.1 million compared to $2.2 million in February 28, 2024. Accounts receivable was elevated as a result of increased demand across all channels. We ended the fiscal quarter with total inventories of $5.7 million compared to $4.3 million at February 28, 2024, which reflects our strategic buildup of inventory at the factory to ensure we were well positioned to meet the needs of our franchisees during the critical holiday season. Our accounts payable at the fiscal quarter ended were $2.1 million compared to $3.4 million at February 28, 2024. We ended the quarter with a current ratio of 2.6x compared to 1.6x at February 28, 2024. Long-term debt at our fiscal quarter ended was $6 million. There was no long-term debt at February 28, 2024. The long-term debt is a credit facility put in place on September 30 to replace our $3.5 million long-term credit line. This concludes our prepared remarks. We will be glad to answer any questions now. Operator, back to you.

Operator, Operator

Thank you. At this time, while we're waiting for participants to join, I'd like to turn the call over to the company's Investor Relations advisor, Sean Mansouri. Please go ahead.

Sean Mansouri, Investor Relations Advisor

Thank you. Before we open the call for live Q&A, the company would like to address questions that have been received via e-mail over the past week and even over the past hour since issuing results. So, to kick things off, Jeff, Carrie, what kind of benefits do you expect to drive from the new ERP system?

Jeff Geygan, Interim CEO

Sean, thanks. There are a host of benefits, but the real value of the new ERP is we're going to have timely, accurate data and analytics to assist us in making managerial decisions to drive profitability as we go forward.

Sean Mansouri, Investor Relations Advisor

Understood. And can either of you provide an update on the rebranding initiative and its potential impact on franchisee interest?

Jeff Geygan, Interim CEO

Coincidentally, we had our franchisee advisory council call earlier today. And the level of enthusiasm amongst this group of 12 who represent the greater group has been very high, as evidenced by the fact that we have three of our existing franchisees willing to open the first three stores, two new stores, one being a kiosk. And I think everyone who's seen our new logo, the new store design, are quite excited about it as we're excited to roll that out.

Sean Mansouri, Investor Relations Advisor

Thank you. And what progress has been made on new store openings? And are there any specific geographies that you are targeting?

Jeff Geygan, Interim CEO

Kara Conklin, I mentioned earlier, is working vigorously to create a pipeline here. We have the three stores that we've mentioned, that's all that we've announced to date, but we have a robust pipeline.

Operator, Operator

At this time, there are no calls in the queue. And I would like to go ahead and thank everyone for joining the call today. You may all disconnect your lines at this time, and have a wonderful day. Thank you for your participation.