Rocky Mountain Chocolate Factory, Inc. Q2 FY2026 earnings call

Franchise Growth: Hired new VP of Franchise Development, renewed enthusiasm from existing and prospective operators, discussions with potential new markets including north and south of the border. First wave of new store builds from existing franchisees then new operators. Recently signed agreements for stores in Folsom, CA and Tinton Falls, NJ; Houston Hobby Airport location in final negotiation. ### Brand Development: Refreshed branding including new logo, store design, packaging, website, and mascot Truffles the Bear. Most remodel work to begin in early 2026, goal to align nearly all stores with new brand identity in 24 months. New packaging rolled out, positive feedback; new R&D executive hired to accelerate new product introductions. ### Operational Improvements: New VP of Operations implemented cost-saving strategies like eliminating overtime, reducing scrap/waste, improving in-stock items. Overhauling warehouse and logistics for lean inventory and frequent deliveries. Expanding geographic footprint, preparing for holiday seasons with improved production flexibility, staffing, and logistics changes.

Total revenue for the quarter was $6.8 million, with product sales at $5.2 million and franchise and royalty fees at $1.6 million (up from $1.5 million last year). Product and retail gross profit was negative $33,000 compared to $0.6 million last year. Retail operations have generated a pretax margin of between 15% and 20%.

Store Growth: Stated goal to be net positive in store growth annually, no specific number disclosed for '26 and '27. ### Cash Burn: Expect to not continue burning cash in the next 12 months, and any capital raise would be at the Board of Directors' discretion.

Forward-looking statements are subject to certain known and unknown risks and uncertainties as well as assumptions that could cause actual results to differ materially from those reflected in these forward-looking statements, as described in the company's filings with the SEC.

Q: Can you discuss the background of the new Chief Operating Officer?

A: Yes, the new COO is Luis Burgos, with 30-plus years in manufacturing and operations, worked for start-ups and large companies like Kimberly-Clark, fluent with FDA rules and regulations.

Q: As you open new stores, do you have targets for number of openings you expect for '26 and '27?

A: Not disclosed yet, but goal is to be net positive in store growth annually.

Q: Thinking about between owned and franchised?

A: Historically few owned stores; philosophy is to be a good franchisor by running businesses as proof of concept. Expect to have handful of additional strategic owned stores for testing.

Q: You seem to be burning a little cash at this point. Can you just talk to me, how long you think that will continue? And will there be a need for equity financing?

A: Fiscal Q1 and Q2 are slow, performing to budget. Any capital raise at discretion of Board of Directors; do not expect to continue burning cash in next 12 months.

Q: Can you expand on what's driving the increase in franchise demand beyond the visual aspects of the brand?

A: Low labor model attractive in rising labor cost environment, defined store build costs with reduced expenses, ability to articulate ROI to franchisees, new VP of Franchise Development with proven track record, and interest from existing franchisees when asked.

Q: Can you walk through what's changed in your factory operations that's most meaningfully impacting cost per unit or fulfillment reliability?

A: New VP of Operations made changes in factory, but most happened after end of quarter, still testing best practices.

Q: With cocoa prices easing from historic highs, how are you thinking about the potential margin benefit and timing, including your hedging strategy and supplier costs?

A: Cocoa prices have dipped, locked in some production, expect improved margins over time as chocolate is 40% of raw material costs, taking advantage of lower prices but with long tail of previous locked prices.