Rocky Mountain Chocolate Factory(RMCF) - 2026 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for Q3 2026 was $7.5 million, down from $7.9 million in the prior year, reflecting the company's exit from low-margin revenue streams [19] - Total product and retail gross profit increased to $1.4 million, compared to $0.7 million in the same quarter last year, driven by pricing actions and improved product mix [19] - Net loss for the quarter was $0.2 million, or negative $0.02 per share, compared to a net loss of $0.8 million, or negative $0.11 per share in the prior year [20] - EBITDA improved to $0.4 million in Q3 2026 from negative $0.4 million in the same quarter last year [20] Business Line Data and Key Metrics Changes - The company continued to exit lower-margin specialty and wholesale revenue streams, leading to a modest year-over-year decline in total revenue but significant improvement in gross profit and margin [5][19] - Gross manufacturing margin for the quarter was reported at 21.4%, compared to 10% for the same quarter of the prior year [5] Market Data and Key Metrics Changes - The company is experiencing momentum in franchise development, with two new stores under construction and 34 stores under area development agreements [4][8] - The franchise development team is actively working on building a backlog of new franchise opportunities, supported by improved digital marketing efforts [4][10] Company Strategy and Development Direction - The company is focused on a margin-first transformation strategy, prioritizing profitability and long-term value creation over lower-quality revenue [3] - The strategy includes improving product mix, implementing price adjustments, simplifying the SKU portfolio, and enhancing operational capabilities [3][6] - Franchise development is a key strategic revenue pillar, with a disciplined approach to expanding into both existing and new markets [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the potential for margin expansion due to lower input costs, including the elimination of a 10% tariff on cocoa [8] - The company believes it is at an important inflection point in its transformation, with improved gross profit and margin indicating progress towards sustainable long-term growth [17][18] Other Important Information - The company completed a $2.7 million equity capital raise, allowing it to pay down $1.2 million of debt and retain $1.5 million in additional working capital [16] - The company is advancing its digital initiatives, including the launch of DoorDash Storefronts and a new POS system to enhance data visibility and customer engagement [14][15] Q&A Session Summary Question: Can you talk about the 34 new stores and the pace of deployment? - The 34 area development agreements are across four unique franchisees, with a measured rollout expected to accelerate in later years [22][23] Question: How have you lined up the financing for these stores? - Existing owners have liquidity and debt facilities lined up, minimizing the need for significant debt to build a store [23] Question: What is the expected impact of cocoa price normalization on margins? - Cocoa prices have come down, and the company has locked in favorable pricing for a portion of its expected production, which is expected to provide a margin tailwind [24][25] Question: When do you expect the accelerated franchise effort to begin affecting the top line? - It is expected that from lease signing to store opening takes roughly six months, with a store taking about three years to reach maturity [27][28] Question: Do you expect dramatic revenue growth in 2026? - The company does not expect dramatic revenue growth from new stores in 2026 but sees opportunities for increased sales through existing stores and e-commerce channels [29][30] Question: What are the biggest obstacles facing the company in growing the business? - The primary challenge is execution, with a focus on profitable growth and improving top-line performance through the franchise system [30][31]