RMCF Stock Up Following Q2 Earnings Uptick, Gross Margin Expands

Rocky Mountain Chocolate Factory, Inc. RMCF delivered a loss per share of 11 cents in the second quarter of fiscal 2025, narrower than the year-ago quarter’s loss of 16 cents per share.

RMCF’s Revenues in Detail

Rocky Mountain registered revenues of $6.4 million in the fiscal second quarter, down 2.7% year over year.

Lower revenues from all three sources dampened the topline.

Following the earnings release on Oct. 15, shares of this company gained nearly 1.4% till last trading.

Rocky Mountain’s Segment Details

Rocky Mountain derives revenues from three sources — Durango product and retail sales, Franchise fees and Royalty and marketing fees.

For the quarter under review, Durango product and retail sales reported revenues of $4.9 million, down 1.9% from the year-ago quarter. This primarily resulted from decreased year-over-year franchisee demand for products purchased from the Durango production facility, in part impacted by a June 1, 2024 price increase to the franchise network, and in part as a result of lower total store count.

Revenues from the Franchise fees totaled $0.04 million, down 7.3% year over year.

Royalty and marketing fees generated revenues of $1.4 million, down 5.1% from the year-ago quarter. This was primarily due to a decrease in stores year over year that are subject to royalty fees.

RMCF’s Gross Margin

In the quarter under review, Rocky Mountain’s gross margin increased to 11.5% from 7.7% in the year-ago quarter. This primarily resulted from an increase in selling prices and operational efficiencies.

Rocky Mountain’s Operating Expenses Analysis

Sales and marketing expenses decreased 68.8% year over year to $0.1 million, partly due to operational efficiencies and cost-cutting measures and partly due to the timing of anticipated expenses. General and administrative expenses decreased 3.9% year over year to $1.6 million primarily due to a decrease in legal and third-party fees.

Franchise costs increased 55% year over year to $0.9 million, primarily due to investments made in the company’s franchise development team designed to increase franchised store locations as it continues to build its franchise network and identify new sites and franchisees. Retail operating expenses increased 19.8% year over year to $0.2 million, primarily resulting from the addition of the Corpus Christi location and the acceleration of expenses on a year-over-year basis.

Rocky Mountain’s Profitability

Loss from operations totaled $0.9 million, narrower than the year-ago quarter’s loss of $1 million.

In the fiscal second quarter, Rocky Mountain’s net loss was $0.7 million, narrower than the year-ago quarter’s net loss of $0.9 million.

RMCF’s Liquidity & Debt Management

Rocky Mountain exited second-quarter fiscal 2025 with cash and cash equivalents of $0.9 million compared with $0.6 million at the fiscal first-quarter end.

Cumulative net cash used in operating activities of continuing operations at the end of second-quarter fiscal 2025 was $5.7 million compared with $0.9 million a year ago.

Our Take

Rocky Mountain exited the second quarter of fiscal 2025 with impressive bottom-line results. During the reported quarter, the gross margin expanded, which also bodes well.

On the earnings call, management confirmed that the company rebranding is nearing completion, and the company expects to finalize the new RMCF store design soon. Per management, this is a major step for Rocky Mountain as it further enables it to drive new franchise interests with mock-ups of its new store design and branding. Management is currently targeting the re-brand launch before the end of the year while also mentioning the company’s growing pipeline of additional sites and qualified operators. These raise our optimism about the stock.

However, RMCF’s top-line results were dismal. Lower revenues from all three sources were also discouraging. The company continued to incur a net loss in the quarter, which is also discouraging.

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