Rocky Mountain Stock Slips Post Q3 Earnings Despite Margin Improvement

Core Viewpoint - Rocky Mountain Chocolate Factory, Inc. (RMCF) is undergoing a transformation focused on profitability and long-term value creation, despite a decline in revenue due to strategic exits from lower-margin channels [6][7]. Financial Performance Overview - For Q3 of fiscal 2026, RMCF reported total revenues of $7.5 million, a 4.4% decrease from $7.9 million in the same quarter last year [2]. - The net loss narrowed to $0.2 million, or $0.02 per share, compared to a loss of $0.8 million, or $0.11 per share, in the prior-year quarter [3]. - Total product and retail gross profit increased to $1.4 million from $0.7 million year-over-year, driven by pricing actions and improved efficiencies [3]. Key Business Metrics - Gross manufacturing margin improved to 21.4% from 10% in the same quarter last year [4]. - Total costs and expenses decreased by 13.2% to $7.5 million from $8.6 million a year ago [4]. - The addition of a second production shift is expected to unlock annual cost savings of $500,000 to $1 million [4]. Management Commentary - Management emphasized the quarter as an inflection point, focusing on profitability over revenue growth [6]. - Progress in franchise development and digital marketing efforts is seen as a key driver for future growth [6]. Factors Influencing Financial Results - Revenue decline was attributed to the exit from lower-margin revenue streams, viewed as necessary for resetting the economic foundation [7]. - Cocoa price volatility impacted results, but recent declines and tariff eliminations are expected to provide margin support [8]. Guidance and Outlook - RMCF did not provide formal quantitative guidance but expects continued margin improvement and gradual return to profitability [10]. - Near-term growth is anticipated from improving same-store sales and expanding e-commerce capabilities rather than rapid unit expansion [10]. Other Developments - RMCF completed a $2.7 million equity capital raise, using $1.2 million to pay down debt and retaining $1.5 million for working capital [11]. - An area development agreement with four franchisees will bring 34 new stores over the next four to five years [11]. - Technology initiatives are being rolled out, including expanded point-of-sale systems and a loyalty program expected to launch soon [12].