Rocky Mountain Chocolate Factory, Inc. Q4 FY2025 earnings call

• Revamped core systems, realigned pricing, rebuilt core processes, redesigned org structure, upgraded IT and manufacturing systems, and brought in new executive talent.
• Transitioned consumer packaging back in-house to Durango, improving fulfillment, cost management, and eliminating inefficiencies, avoiding ~$1.5 million in annual losses.
• Reevaluated specialty market relationships, discontinued unaligned partnerships, and repriced with key customers.
• Continued building franchise network with new store openings, store transfers, and remodeling, aiming for regional density.
• Introduced dynamic pricing model on March 1 based on ERP system, improving gross margin, with plans to adjust quarterly or more frequently.
• Rolled out new POS system for daily store-level visibility into sales and inventory.
• Launched new ERP system, integrating core functions, enabling smarter planning and cost controls.
• Achieved nearly 100% fulfillment rate for franchisee demand in Q4 holiday season.
• Began brand repositioning with new logo, store design, and packaging, with full rebrand to launch later in the year, starting with a remodeled store in mid-July.

For the fiscal fourth quarter, total revenue was $8.9 million compared to $7.3 million in the same period last year. Product sales were $7.1 million vs $5.6 million last year, and franchise and royalty fees were $1.8 million (essentially flat). Total product and retail gross profit was a negative $0.8 million compared to $0.1 million in Q4 last year. For the full year, revenue was $29.6 million vs $28 million in the prior year. Total product and retail gross profit was $0.1 million vs $1.4 million the previous year. The decrease in gross profit in Q4 was primarily due to higher raw material costs, and for the full year, it was due to increased cocoa costs, inflationary pressures, higher overhead, and reduced production volume.

• Expect to return to profitability in fiscal '26 with a strong foundation and new discipline.
• Capital spending in fiscal '26 to be modest, focused on maintenance after ERP implementation.
• Positive fulfillment trend continuing into new fiscal year, reinforcing ability to meet demand.

• Delays in filings due to ERP installation and additional testing by auditors to ensure data consistency and correctness.

Q: What's your process for determining quarterly price adjustments and how to avoid pricing fatigue with franchisees or consumers?

A: The March 1 reset is part of ongoing discipline. We'll do quarterly or more frequent adjustments as needed, with full transparency, passing on cost changes while maintaining target margin and giving franchisees adequate notice to avoid fatigue.

Q: Where do you stand in the rebranding process and what's the response so far?

A: Feedback on the rebranding has been fantastic, with the Charleston store receiving positive reviews. New packaging and signage are in progress, with new packaging shipping to stores in mid to late July and full rollout by early August. Remodels and signages are underway.

Q: What's your strategy for new unit growth going forward?

A: Fewer company-owned stores. Growth will come from existing and new franchisees, targeting well-capitalized, financially sophisticated, entrepreneurial individuals, preferably multi-unit or multi-brand operators, with focus on markets like Boston, New York, Atlanta, Miami for density.