Rocky Mountain Chocolate Factory, Inc. (NASDAQ: RMCF) Q2 2026 Earnings Call | 10/14/2025

Overview:

• Speakers: Jeff Gagan (Interim CEO), Carrie Cass (CFO), Conference Operator, Peter Sidoti (Analyst, Sidoti & Company), Sean Mansoury (Investor Relations).
• Focus: Discussion of fiscal Q2 2026 financial results, operational improvements, franchise growth, and brand modernization efforts.

Key Points from Jeff Gagan (Interim CEO):

1. Business Transformation:
   • Over the past 16 months, the company has modernized operations, strengthened processes, and laid the foundation for stable growth.
   • Shifted focus from planning to execution, aiming for long-term value creation despite short-term challenges.
   • Difficult personnel and operational decisions were made to stabilize the business and unlock long-term potential.
2. Operational Improvements:
   • New VP of Operations (Luis Burgos, 30+ years of experience) introduced cost-saving strategies, including reducing overtime, scrap, and waste, and improving in-stock inventory.
   • Overhauling warehouse and logistics to maintain lean inventory and improve delivery frequency.
   • Deploying technology and automation in production while preserving the brand’s handcrafted legacy.
   • Improved logistics by relocating consumer packaging to Durango and adding warehouse capacity in Albuquerque, reducing transit time and costs.
3. Franchise Development:
   • Strong momentum with renewed interest from existing and new franchisees.
   • New VP of Franchise Development hired in August, engaging franchisees at the September National Franchisee Convention.
   • Strategic expansion planned in new markets (U.S. and cross-border), with a focus on well-capitalized operators in high-traffic locations.
   • Recent store openings: Charleston, SC (new branding, fourth store for franchisee), Chicago State Street (holiday opening), and agreements for Folsom, CA, and Tinton Falls, NJ. Negotiations ongoing for Houston Hobby Airport.
   • First remodel completed at Corpus Christi, TX, company-owned store, resulting in immediate sales increase.
4. Brand Modernization:
   • Comprehensive rebrand includes new logo, store design, packaging, website, and updated mascot (Truffles the Bear).
   • Most remodels to begin in early 2026, with a 24-month goal to align all stores with the new brand identity.
   • New modular packaging rolled out, allowing rapid response to franchisee feedback (e.g., new sampler package developed in six weeks).
   • Hired a new R&D executive to accelerate product innovation.
5. Digital and Customer Engagement:
   • Refreshed website launched to align with in-store experience and promote premium offerings.
   • New loyalty program planned for early 2026 to enhance customer retention.
   • Expanding third-party delivery (e.g., DoorDash) to improve reach and store-level economics.
   • Standardizing store-level SKUs to ensure consistent product offerings across all locations.
6. Strategic Acquisitions:
   • Acquired a Camarillo, CA store for $165,000 (generated $700,000 in sales last year), expected to boost Durango production and store profitability.
   • Plans to acquire more company-owned stores in strategic markets to test new practices and potentially sell to franchisees.
7. Holiday Season Preparation:
   • Positioned to meet demand for Q3 and Q4 (Christmas and Valentine’s Day) with increased staffing, extended production hours, and healthy inventory levels.
   • Focus on executional excellence to support franchisees and deliver a premium customer experience.

Financial Results (Carrie Cass, CFO):

• Revenue: $6.8M (up from $6.4M in Q2 2025).
  • Product sales: $5.2M (vs. $4.9M).
  • Franchise and royalty fees: $1.6M (vs. $1.5M).
• Gross Profit: Negative $33,000 (vs. $0.6M in Q2 2025), due to inventory adjustments, partially offset by factory efficiency gains.
• Expenses: $7.3M, flat year-over-year.
• Net Loss: $0.7M ($0.09/share) vs. $0.7M ($0.11/share) in Q2 2025.
• Balance Sheet:
  • Cash: $2M (up from $0.7M at Feb 28, 2025).
  • New borrowings: $1.8M ($1.2M term loan, $0.6M credit facility) at 12% interest, maturing September 30, 2027.
  • Total debt: $7.8M as of August 31, 2025.

Q&A Highlights:

• New VP of Operations (Luis Burgos): 30+ years of experience, including with Kimberly Clark, managing operations from startups to large organizations, and fluent in FDA regulations.
• Store Openings: Goal to be net positive in store growth annually, exceeding closures with new openings.
• Company-Owned vs. Franchised Stores: Plans to acquire strategic company-owned stores to test practices and potentially sell to franchisees, enhancing franchisor credibility.
• Cash Burn: Expected to subside in Q3 and Q4 (stronger seasons); no cash burn expected over the next 12 months. Capital raise decisions would involve the Board.
• Franchise Demand Drivers: Low labor model, reduced build costs, clear ROI articulation, and experienced VP of Franchise Development.
• Factory Operations: New VP of Operations implementing changes post-quarter, still refining best practices.
• Cocoa Prices: Dropped to $5,806/metric ton from highs of $10,000–$11,000. Locked in lower prices, expecting improved margins as high-cost inventory is phased out (chocolate is 40% of raw material costs).