• Total Revenue: $6.4 million, down from $6.6 million year-over-year.

• Product Sales: $4.9 million, compared to $5 million last year.

• Franchise and Royalty Fees: Flat at $1.5 million.

• Gross Profit: $0.6 million, up from $0.4 million.

• Gross Margin: Improved to 11.5% from 7.7%.

• Total Costs and Expenses: Reduced to $7.3 million from $7.6 million.

• Net Loss: $0.7 million or $0.11 per share, compared to a loss of $1 million or $0.16 per share.

• Cash Balance: $1 million, down from $2 million at February 29, 2024.

• Total Inventories: $6.1 million, up from $4.4 million at February 29, 2024.

• Line of Credit Outstanding: $3.5 million, compared to $1.3 million at February 29, 2024.

• Long Term Debt: None.

• Warning! GuruFocus has detected 4 Warning Signs with RMCF.

Release Date: October 15, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Rocky Mountain Chocolate Factory Inc (NASDAQ:RMCF) is executing a multiyear strategic plan focused on strengthening liquidity, rebuilding the executive team, and laying a foundation for sustainable growth.

• The company is expanding its footprint with new store openings, including a new location in Edmond, Oklahoma, and is finalizing agreements for three additional locations.

• RMCF has been recognized in the Franchise 400 for 2024, highlighting its leadership in the premium chocolate category and attractiveness to franchisees.

• The company is nearing completion of a rebranding process, which includes a new store design aimed at enhancing customer engagement and franchisee interest.

• RMCF has implemented a new $6 million credit facility, providing additional capital for strategic growth initiatives and retiring a previous $4 million credit facility.

Negative Points

• Total revenue for the fiscal second quarter decreased to $6.4 million from $6.6 million in the same period last year.

• Net loss for the quarter was $0.7 million, or $0.11 per share, compared to a loss of $1 million, or $0.16 per share, in the previous year.

• The company ended the fiscal second quarter with a reduced cash balance of $1 million, down from $2 million at the end of February 2024.

• RMCF's inventory levels increased to $6.1 million from $4.4 million, reflecting a strategic buildup but also tying up capital.

• The impact of new store openings on revenue growth for fiscal 2025 is expected to be limited due to the time required to establish new locations.

Q & A Highlights

Q: Have you seen any measurable improvements in operational efficiencies since increasing employee wages at the factory level? A: It's a bit early to tell, but retention levels have significantly improved. This is encouraging as having well-trained employees who report to work on time is crucial for achieving production goals. - Jeffrey Geygan, Interim CEO

Q: With 90% to 95% of the rebranding process complete, how do you expect the new brand and store designs to affect customer engagement and franchisee interest? Can you share any early feedback from the rebranding efforts? A: We will be rolling out the rebranding shortly, and the internal team has reacted very favorably to the new designs. We believe everyone will be excited about the changes. - Jeffrey Geygan, Interim CEO

Q: You mentioned targeting new store openings across eight strategic markets. How do you prioritize these markets, and what factors are considered when selecting new store locations? A: We prioritize markets based on logistics and existing store locations. The best new locations are between existing stores to optimize logistics. We see significant opportunities in the Northeast and Southeast U.S., where we have less presence. - Jeffrey Geygan, Interim CEO

Q: How do you foresee new store openings impacting overall revenue growth in fiscal 25? A: New store openings take time to impact revenue significantly. The immediate growth opportunity lies in increasing sales at existing stores and expanding e-commerce, which can be activated quickly. - Jeffrey Geygan, Interim CEO

Q: Can you provide more details on the new $6 million credit facility and its intended use? A: The new credit facility allows us to retire the previous $4 million facility and provides additional capital for investments in equipment, machinery, inventory, and strategic growth initiatives. - Carrie Cass, CFO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.