Conference Transcript - RMCF 2026-06-09

Operator

Our next presenter is Jeff Gagan from Rocky Mountain Chocolate Factory, ticker RMCF. Jeff, I'll see you.

Jeffrey R. Geygan, CEO

Thank you and welcome, everyone. Glad to have you here today. I'm going to move to the Safe Harbor Statement for everyone to take a look at. While you're reading this, I just want to thank you for joining us today. It's an honor to be here presenting to you. It's an exciting story and one that we're really glad to tell. we're in a transformational stage right now this dates back about two years when Kerry Cass and I joined the company to really do a turnaround but more than a turnaround it's been a transformation of the business despite us being 45 years old feels like we're somewhat of a startup here just to describe from a description perspective we have 250 locations across the US and internationally about 140 of those are Rocky Mountain chocolate factory stores of which the company owns for about 110 of those are co-brand primarily cold stone creamery throw the brand through a series of steps that we've taken including selling more product into existing locations as well as developing new store locations the company started in Durango Colorado in 1981 by 1986 we had a public listing the company experienced rapid growth throughout the 90s and into the early 2000s and then came a period about 10-15 years where that slowed down and ultimately declined to the point where in 2024, I was brought in as an existing board member, but as a board member was asked to step in as CEO, at which point the transformation began. During the last two years, we've raised equity twice, we refinanced our debt, we've exited some of the unprofitable businesses that we're in, including making some strategic decisions about where we produced most importantly was really the cultural shift that was occurring during this whole time which included the concept of continuous improvement of critical thinking of paying attention to detail so the first thing that had to change here was culture in the meantime we brought in an executive and leadership team a hundred percent of the executives that were here two years ago have part of the company and a good percentage of our leadership team has changed as well but with every human every additional individual we bring in I've joked with Carrie how it seems that we could just continue to improve the skill set and the talent that's here but it's important that we get the culture right we get the right people aligned with what we're trying to accomplish when Carrie and I first showed up we really set up the four pillars of the transformation which included data and analytics revenue growth operational efficiencies and financial stability to the first point we immediately began with the new ERP system as well as rolling out POS across the entire system today of our 140 stores about 125 of those have our new POS system which is enabling us to capture data and analytics at the stores that we've never had before. The second part of this strategy was really to grow our revenue, but a precedent to that is we needed to get the economics of the business correct, which meant we needed to get our gross margin right. And during the last few years, commodity costs, labor costs, and so on have gone up quite a bit. So we spent probably 18 months through a series of price adjustments and really rethinking what the economics of the store needed to look like, what the economics of the factory needed to look like. We're pretty close to that right now. In fact, a couple weeks ago we had a separate conference, and we'd indicated that we thought that the economics were currently about where they needed to be and overlay that on the revenue growth side. We've added roughly 40 stores to area developments, which are agreements with individual franchisees where they commit to over a four- to five-year period, adding incremental stores. Currently, we have 40 stores under contract over a five-year period, representing about 30% of our existing 140. And we're continuing to develop those stores all under a newly modified logo and brand that we've only rolled out in the last 12, 18 months. Most recently, we opened a store up in Chicago, Illinois, on the corner of State and Madison. It's a beautiful location, which has proved positive that the market not only likes it, but our customers are really excited about it as well. When it comes to the executives of the company, I mentioned Cary Cass, who joined me in August of 2024. I was originally brought in in May of 2024, and notably among the executives and leadership team, we've tried to attract individuals with experience in both franchising and retail, which has been made a huge difference for us given that our primary business is that of being a franchise or we happen to sell premium confectionery products but we're a franchise or at our heart and we're really trying to be excellent in that area this is evidence of the decline in store count over the years and more or less a flat line of the average unit volume which is a measure of the amount of retail sales across the entire system. Last year, per our franchise disclosure document, we had about $613,000 of AUV. We haven't put out our 2026 franchise disclosure document. That will evidence that our AUV has gone up modestly from here. But the challenge for us on a forward basis is to increase sales at each of the locations and improve profitability for the benefit of the franchisees. which we're working on right now. Again, we're bringing in financially sophisticated, well-capitalized, and entrepreneurial new operators. When Kerry and I arrived, the average number of stores per operator was about 1.35. Today, that's increased to about 1.40. It's a metric that we track closely, believing that if we can help each franchisee own multiple locations uh that's a path for them to greater profitability uh and evidenced our 40 stores across five operators under our area development agreements that would be an average of eight stores per operator so our goal is to continue to drive that ratio of stores per operator in the in an attempt to create more profitable uh stores and our belief is that if we can get operators that are generating uh more more profitably they'll probably have an interest in expanding to a second, third, and fourth location, or at the very least they would tell their friends that they should become a franchisee of Rocky Mountain Chocolate Factory. Back to the four pillars, the most important one was really data and analytics. With that in mind, shortly after we arrived we rolled out a new ERP system that replaced our roughly 20 year old system, and this has been a wealth of financial data that's allowed us to make very strategic and informed decisions. Decisions based upon facts that the company never had. And I also mentioned we have 125 of our franchise locations are now connected to our new POS system, which gives us daily sales and analytics around what's happening in the stores, which has been extraordinarily valuable to us. In addition, number two is we needed to grow revenue. Part of that was seeing how we can impact customers, not just in the store, but out of the store. To that end, we rolled out a unique website for every store location, which was a 180-degree shift from the previous company management, where we're now giving each of the franchises the ability to have a unique website that describes their team, a little bit of the culture of the local site, and attached to that is a DoorDash, what's called DoorDash Storefront, which is a zero commission, buy online option, which our stores never had individually. At least, well, some of them had, but this is really, across the system, we're saying to all stores, you ought to use some kind of third-party delivery. We can give you a white-labeled version of DoorDash, which is very profitable for you, And, in fact, in many of the locations, we're finding that third-party delivery transaction value is twice that of someone just walking into the store, which is notable. In addition, we rolled out all the major third-party delivery, which would include DoorDash, Grubhub, Uber Eats, Instacart, and EasyCater across our system, which is really just going live right now. And I mentioned the DoorDash average transaction value can be 2x the average store, but what's really interesting is the easy cater transaction can be in the hundreds of dollars, and your typical transactions in the, you know, like $20, $30, $40 range. So we're really looking at ways to drive more traffic into the stores, and the presumption that a third-party delivery is necessarily us going out into the community, delivering to someone elsewhere, surprisingly, in many instances, in fact, one retail location reported to us that about half of their third-party delivery were people coming and picking up, fulfilling at the store location, which we found to be interesting. Anyway, with all the data and analytics we have, we're learning a lot more about the business and what levers we can pull to help the franchisees sell more and become more profitable in the process. On the right-hand side, we have fourth quarter results, and as I've informed investors, this is a transformation or a turnaround, and it's not going to be linear necessarily. We're going to have quarters where it doesn't quite meet our expectation, But we believe we have a really great long-term strategy that's driven by let's get the economics of the business right. Let's put disciplined pricing actions in place, make sure that whenever we're selling product out of the Durango facility that we're selling at an acceptable margin. Let's work to develop more and more franchise locations, given that we have somewhat of a captive universe. We have 140 stores we can sell to. We can sell more product into existing stores, and then we can increase store count, which we're doing right now. As I mentioned, we have 40 new stores under contract under an area development agreement. All these are really important precursors to we've got the economics right, followed by now we're going to scale it. So it's the old nail it and scale it strategy. In terms of strategic opportunity, Rocky Mountain Chocolate Factory, Really, it's a little bit of a niche business here in terms of, you know, who are our competitors. And although over a meeting today someone said chocolate must be a very competitive business, which I responded to, I think we have a unique positioning based upon the experience that our guests have when they come in the store, the five senses, whether it's the aroma, the taste, the feel, touching our product and coming into the store. There's a little bit of chocolate theatrics going on, watching a caramel apple being made, watching fudge being made, or cherries being dipped in chocolate. It's really a fun experience, and there's the Rocky Mountain moment, and even today, we had a one-on-one with someone who described their first experience at Rocky Mountain when they were younger, and they tried the product, and then years later, they're bringing their kids in, and they're trying the product. That is a very common story for us, so we know we've got 45 years of people who've tried our product. They love our product, and I can hardly travel anywhere in the United States or outside the United States, and I say to people I work at Rocky Mountain, they say, I love your brand. I say, how can you love our brand? We're only in 26 states. We only have 140 stores. They say, well, it was Denver International. It was Minneapolis, St. Paul.

Operator

I love the brand. In my experience, this is common, and I think, oh, there is something.

Jeffrey R. Geygan, CEO

I can't put it in an Excel file, and I can't bottle it, but that's real. So the opportunity for us is to lean into that, to leverage it, and part of it is the theatrics.

Operator

So what happens to you when you go into the store?

Jeffrey R. Geygan, CEO

And then part of it is what happens with the product that we sell. When Kerry and I showed up, I said, there's a lot that we need to change here, but the one thing we can't touch is the chocolate because the chocolate is excellent. So let's stay focused on that. Simultaneously, of course, we need to drive top line. We also need to manage our internal expenses. Kerry and I have found that even three years later, There are still places where we can cut costs without compromising on quality. And probably most importantly here is within the last 12 months, we really did a rebranding. We have stores in Charleston, Chicago. We just opened a store up in Tinton Falls, St. Asbury Park, New Jersey, which is just miles from our long brand store, all under a new design. And sometime the next week, we're opening another store in Folsom, California, all under the same new look and design. It's fantastic. If you have a chance to look at it online, and if you've been to an existing store and you can contrast this to the new store, you can say, wow, this is really nice. We're also, this fall, we have a store down at Houston International Airport, IAH, where in the new United Terminal B, we'll have a new store. And we have others under design right now. We have two stores opening up in Miami that should be open sometime in the next probably six to nine months. So it's an exciting time for us. In terms of the long-term strategy here, it's really, number one, is modernize operations. We talked a little bit about that with ERP, POS, getting other data and analytics to drive decisions. Number two, we've got to get our margins right. We believe we're there right now, but it's a dynamic process. We just have to keep at it, and commodity prices continue to change, so we need to be alert. We've done the brand redesign. Now we need to really go out to the existing stores, not the brand-new stores, but the current stores, talk to franchisees about we're putting a new sign-up, we're going to put a new paint, we're going to do new cabinets, we're just going to do a remake of the store inside. That's rolling out right now. And the early signs when we do a rebrand is round numbers 10% to 15% instant pickup in sales, which is important. And we're trying to improve the franchise network, attract multi-unit operators, guys that are well-capitalized, because it does cost a couple bucks to build one of these, and we want to make sure that the people that are our business partners, are good business partners and have the wherewithal, not open just one, but open up a six- or a 12-pack with us over time is what we're looking at. There are no shortage of places for us to expand. We're primarily west of the Mississippi. One of our competitors, Kilwinds, is primarily east of the Mississippi, but we're not in Boston, New York, Philly, D.C., Atlanta right now. we're just recently going into Miami but there's a lot of white space out east for us to build or to add on to never mind there's still pockets out on the west coast that we can expand into and then of course there's in you know internally we've got to be good about managing our P&L you know managing operation expense and just running the business more efficient efficiently our The goal, of course, is to get back to profitability as quickly as possible. But as we mentioned earlier, the transformational cornerstones, the better data and analytics, got to drive top line. We need operational efficiencies and then financial stability. And I think we're pretty close on all these. And it's a work in progress for sure. So why would you want to make an investment here? Number one, you've got a motivated and aligned management team. And I'm really big on using equity as an incentive. And I tell the guys, my company, Global Value Investment Corp., where I was previously CEO, owns about 20% of this. The company has about $6.6 million of debt on its balance sheet today. I personally am $600,000 of that. So I'm highly motivated to get this working, get it work right and quickly, and all of my executive management has equity stake in the business. And, in fact, we've been giving out equity to our employees. This is a great story. So maybe three months ago, we were giving out equity to guys who have really made a difference. And I went down to the production floor, and I gave one of our lead production guys 500 shares of stock. He said, what's a stock? And I said, okay, so you're going to help fix this thing. You've got to participate. So culturally, we're really changing how people think about it. Our business model is highly scalable. As a franchisor, we slough off some of the capital risk in terms of opening stores. The operating lease sits with the franchisee. The labor sits with the franchisee. Inventory sits with the franchisee. So the prospect for us to expand and expand pretty rapidly is very high with a minimal amount of capital. We've got good momentum going right now. I would say on here I put this. Our current pipeline is the strongest in decades. My guess is it's probably the strongest in the history of the company. I don't know that for a fact. But we've got 40 stores queued up right now, which is about 30% of our existing base. I'd be a little surprised if the company ever had that. And we're not done yet. The guys that are running our franchise development have tall marching orders in terms of continuing to grow that. And there's a very large and growing addressable market. And Kilwinds is a great company. Those are kind of our traditional competitors. But as I've said to our franchisee, I think we make a terrific product. We're not going to fool around with the formula. We'll change everything else but that. So I think we could expand this company from where we are to 2, 3X, where we are today. So with that, I'll pause. I assume we're pretty close on time. I don't see a clock, but it'll be five minutes. Yeah, so I'm glad to take questions. Well, yeah, so the question is, and in here we specifically call out NAFTA and the question is how far would we expand could it be Asia could it be Middle East could it be India yeah and the company has been in the Middle East in the past we've been in Panama we've been in Korea we're in the Philippines right now but my my initial approach would be let's go somewhere we can drive a truck and I can drive south of the border I can drive north of the border there was a former franchisee who's in Canada right now with 48 stores we don't have any presence in Mexico today but one of our recent equity investors who is Mexican descent added a director on our board who is Mexican and US citizen who's given us some unique perspectives on Mexico so I really think we have an opportunity in the in the US and this is hypothetical but I think it'd be pretty easy to see in the US you have you go from 150 to 300 or 600 stores and then you go north of the border and you add another 50 and south of the border into Mexico and you know Mexico is pretty big country so I think for the next 5-10 years I can stay we can stay pretty busy just being in the North North America yes or yeah so the question is would we do a co-brand or have more than one brand inside of a store we have a 110, what we call co-branded. Technically, it's a licensee versus a franchisee relationship. That's primarily with Cold Stone Creamery and ice cream and chocolate go very well together. The economics of it are a little bit different. My preference would be to stay with straight franchising, but Cold Stone's been a great partner for us. They have close to 1,000 stores. We're only in 110 of them, so I think there's other opportunity there. But it would have to be the right mix and match. Yeah, the average franchisee footprint, an ideal store for us is about 1,000 to 1,200 square feet, although I will say our smallest store is a 200-foot kiosk. It's in Houston. That store does about $7,000 a square foot in sales, which is notably above the average. But ideally to really have that chocolate theatrical experience in a store needs to be about 1,000, 1,200. Chicago is about 1,200. Charleston is about 1,200, plus or minus. but that's right we have some stores that are 15 or 2,000 square feet that's too big it really just the economics of it don't make as much sense I'm sorry the gentleman in the back had a question yeah and the question on the table really is with rising inflation and commodity prices and uncertainty how's that affected us the vast majority the product that we source is sourced in America arguably cocoa beans come from somewhere else but we buy that from a US processor on the West Coast so we haven't directly have been impacted by the cost of importing tariffs and you know maybe 12 18 months ago we were emphatic to say we're a US source company we could have gone to Asia for supplies and so on we didn't we elected to keep all that in the US which was fortuitous for us at the time there's no denying that gasoline at a five bucks a gallon is going to curb demand but but frankly in proportion to the amount of increase in you know some of the energy cost I don't think it's had a measurable impact on what we're trying to do we're the masters of our destiny here I think we can continue to discipline our franchisees and work collaboratively to drive sales talk about the in-store experience and manage our costing I think we can grow this company for a long time sure yeah so the question on the table with GLP ones has that impacted our outlook or even demand yeah and we actually do have what we call packing size versus regular size so we already we're already positioned to have that but anecdotally someone said to me a couple days ago they'd read that with GLP one and bite by product name that people are now losing weight so they feel that they can indulge themselves a little bit more often yeah so I guess Yeah, the question is, what are the store level economics, which we haven't disclosed, but I would say to you, if you're a business owner and you're putting your capital at risk, minimum you should accept is a 15 percent pre-tax margin. And I'm not saying that's what's happening. I'm just saying if you are going into business, I can tell you we have stores that are really good operators that generate returns in the 20, 25 percent range. I'm not saying that's everything, but these stores run right at scale, are very profitable. The AUV today on average is $613,000, but we have, I can say our largest store is about $3 million. We have a long tail with $300,000, $400,000 stores. And if you think about this, today we've said we'll only approve the opening of a store that we believe can do $1 million. dollars Chicago recently opened four months later it's averaging about a million to a million one million two and so we're we think that if we can open a million dollar store that gives us the flexibility to try and slough off some of the lower producing stores which those stores inherently are more expensive to service and there's a there's a little bit of a brand reputation there you know The image of a store that's only doing $200,000, $300,000 probably is not up to snuff. We're not eager to shut down stores, but there are stores that if they called me up and said they want to shut down, I'd probably say, you know, understood. So I believe the gentleman in the back had a question. Yeah, so the question is would we look at other product offerings? And I'll tell you right now about half of our stores are selling ice cream. It's just not our brand. And apropos of Cold Stone Creamery and us having this relationship for the last 15 years, yeah, we're going to roll out our own brand. Rocky Mountain chocolate-branded ice cream before the end of this year. Correct. Yeah, and the question or the comment was similar to Kilwins. Kilwins has their own brand. Yeah, it's very good, and I go to Kilwins all the time. I know the guys there. So just to check the competition. Yeah, but it's logical because the ice cream goes along with chocolate very well, but I'd rather sell our branded rather than building someone else's brand.

Operator

So, yeah.

Jeffrey R. Geygan, CEO

Yep. And apropos of that, we're also going to do our own coffee, because about 40% of our stores sell coffee. We'll source coffee either out of Mexico or all the coffees limitless in terms of what we can do with that. We'll do a lot of cool stuff. Yeah, and I've been given the hook here, guys. So anyway, thank you.

Operator

You've been a great audience.

Jeffrey R. Geygan, CEO

Appreciate your time today.