Rocky Mountain Chocolate Factory(US:RMCF)2023-07-14 20:06Financial Performance - Basic loss per share from continuing operations increased from $(0.05) for Q1 2022 to $(0.24) for Q1 2023, with revenues decreasing by 6.8% from $6.9 million to $6.4 million[81]. - Total costs and expenses increased by 10.5% from $7.2 million in Q1 2022 to $7.9 million in Q1 2023, with significant increases in franchise costs (62.1%) and general and administrative expenses (20.3%)[87][95]. - For the three months ended May 31, 2023, the company reported a loss before income taxes of $1.5 million, with an effective income tax rate of 9.3% for the same period in 2022[99]. Sales Performance - Durango Product sales decreased by 6.5% from $5.2 million in Q1 2022 to $4.8 million in Q1 2023, primarily due to a 47.9% decrease in shipments to customers outside the franchised network[82][83]. - Retail sales at Company-owned stores declined by 23.3% in Q1 2023 compared to Q1 2022, attributed to the sale of a Company-owned store in the prior year[84]. - Same-store sales through the domestic franchise network decreased by 2.7% in Q1 2023 compared to Q1 2022[85]. Margins and Costs - Durango Product gross margin fell to 3.0% in Q1 2023 from 14.2% in Q1 2022, driven by a 37.2% decrease in production volume and a 25.4% increase in overhead costs[88][91]. - Total adjusted gross margin decreased by 58.9% from $1.04 million in Q1 2022 to $428.5 thousand in Q1 2023[89]. - General and administrative expenses as a percentage of total revenues increased to 30.0% in Q1 2023 from 23.3% in Q1 2022[95]. - Franchise costs as a percentage of total royalty and marketing fees increased to 47.9% in Q1 2023 from 28.0% in Q1 2022[93]. Cash Flow and Working Capital - As of May 31, 2023, working capital decreased to $5.7 million from $6.2 million as of February 28, 2023, primarily due to operating activities[100]. - Cash and cash equivalents increased by $400,000 to $5.1 million as of May 31, 2023, mainly due to proceeds from the sale of U-Swirl assets[101]. - Operating activities used cash of $421,554 during the three months ended May 31, 2023, compared to cash provided of $11,298 in the same period of 2022[102]. - Investing activities provided cash of $853,315, primarily from the sale of U-Swirl assets, partially offset by property and equipment purchases of $549,534[103]. - There were no cash flows from financing activities during the three months ended May 31, 2023 and 2022[104]. Future Outlook - As of May 31, 2023, the company had purchase obligations of approximately $548,000 for future purchases of commodities[106]. - The company is subject to inflationary pressures affecting ingredient and labor costs, with potential impacts on lease costs and the ability to pass on these costs to customers[107]. - Seasonal fluctuations in sales are expected to continue, impacting quarterly results and influenced by new store openings and franchise sales[109].