Rocky Mountain Chocolate Factory, Inc. Q3 FY2026 earnings call

• Executed margin-first transformation strategy, prioritizing profitability over lower quality revenue, resulting in near-term revenue pressure but improvement in gross profit and margin. - Exited lower margin special and wholesale revenue streams, leading to significant improvement in gross profit dollars and margin. - Implemented targeted price adjustments across core franchise categories, optimized SKU portfolio, and achieved production labor efficiencies. - Franchise development momentum with two new stores under construction and 34 stores under area development agreements. - Rebrand progress with full transition to new packaging, scheduled full remodels starting after March 1. - Digital and technology initiatives including DoorDash storefronts live, new store websites, loyalty program development, and ERP system implementation. - Completed $2.7 million equity capital raise, strengthening balance sheet.

During the third quarter of 2026, total revenue was $7.5 million compared to $7.9 million in the prior year. Total product and retail gross profit increased to $1.4 million in the 2026Q3 from $700,000 in the same quarter last year. Net loss for the quarter was $200,000 or negative 2¢ per share, compared to the net loss of $800,000 or negative 11¢ per share in the prior year. EBITDA was $400,000 in the 2026Q3 compared to a negative $400,000 in the same quarter last year.

• Continue margin-first transformation strategy, expecting to maintain and expand margins. - Anticipate benefit from lower input costs, including cocoa price reduction. - Franchise development to continue with measured rollout of area development agreements. - Technology initiatives to enhance customer experience and operational efficiency. - Strengthened balance sheet provides flexibility for investing in operations, franchise development, and technology.

• Persistently higher input costs. - Near-term inefficiencies related to production transition. - Market uncertainties affecting franchise development and revenue growth.

Q: Good morning, and congrats on the good quarter. Jeff, can you talk a little bit about the 34 new stores, the agreement there? And the pace of deployment and what else you have in the pipeline for other areas and what you're targeting for store growth in the future?

A: Yeah. Good morning, and thank you, Doug. The 34 current area development agreements are across four unique franchisees, three of whom are existing franchisees, one of whom is new to the system. Our franchise development department has other prospective area development agreements in queue. We expect to add to the total over time. The rollout of these would be on a measured basis but accelerating into the later years. All of the agreements are designed to either have stores started within three or four years and the totals completed within four or five years.

Q: How have you lined up the financing for these stores? Do the existing owners have liquidity or debt facilities or equity lined up to execute this plan?

A: They do. And as you have noted in our recent comments, we're focused on partnering with well-capitalized and financially sophisticated individuals, necessarily meaning that their need to put significant debt on to build a store is minimal.

Q: On the profitability, it looks like your initiatives over the last year are starting to show in the P&L. I'm trying to understand the cocoa price impact because that has come down. And how much more of a margin tailwind that will be as the prices normalize from what's happened in the current market into your P&L over the next couple of quarters? How much more margin expansion do you expect?

A: Well, as we speak, the cocoa futures are trading at just over $5,100. Keep in mind that for many years, cocoa traded between $1,500 and $3,000 a metric ton. In a relatively short period of time, they spiked to close to $12,000. Then for the subsequent probably eighteen to twenty-four months, they held it between $8,000 and $12,000. When we began initiating a strategy to lock in future pricing, we really used $8,000 as a ceiling, and we've been successful with that. Recently, we were able to lock it in closer to $5,000 for roughly 20% of our expected production this year. Bear in mind, we consume chocolate, not cocoa, but directionally, our chocolate price moves with the cocoa price. I don't think we've rendered a view publicly in terms of the potential impact other than to say as cocoa prices come down, they represent chocolate represents a substantial part of our raw material cost. So I think you can expect we'll have a margin tailwind here.

Q: Have you disclosed maybe, Carrie, what percent of your raw materials are chocolate, or cocoa, if you're able to break it down to the actual raw ingredient?

A: That's something we have not disclosed.

Q: Last one, Jeff, on the balance sheet, you've added equity now twice. Where are we in that journey of, call it, recapping the balance sheet since you've been the interim CEO? And where are you trying to take that in the future?

A: Yes. Of course. All these decisions are board decisions. But, we reducing debt think the next leg of our capital allocation plan will be investing in the company, all of which we presume will be coming from free cash flow as opposed to additional equity issuance.

Q: Hi. Good morning. Could you just talk about when do you expect the accelerated franchise effort to begin affecting the top line?

A: Yeah. It's a great question. From opening to maturity, we assume a store will take roughly three years. From lease signing to store opening, that takes roughly six months. The lease process takes anywhere from two to four months. So there's somewhat of a lag in terms of a store being announced to it actually being fully productive. At this point, I think we've been fairly public. We would have very little interest in supporting the opening of a store that we don't think can generate at least a million dollars in annual sales at retail over three years in a three-year period. So I think you can back into any type of modeling you're doing based upon the flow of stores. Not knowing that it's critical for us to have new stores, not just to improve the quality of our network, but to drive long-term profitability.

Q: Right. So is it fair to say you don't expect any dramatic revenue growth in 2026 at this point? And really expect the efforts to start showing up next year?

A: If you're talking exclusively about additional revenue growth from new stores, I would say yes. But we have a network of 140 stores where there is substantial opportunity for us to have more chocolate factory product being represented and sold through those stores. So we're hyper-focused on local store mix and increasing same-store sales. In addition, we do have an e-commerce channel and we also have specialty markets and intend to try to penetrate that further with the caveat being only where we make an appropriate margin.

Q: Okay. And you've been there for a while and really have done an excellent job. What's the biggest obstacle you now feel that you're facing when looking at growing the business? Is it financial? Is it market? Is it just people? Execution.

A: Yeah. We just need to do a better job at executing profitably. Just as I cited in our call here, we think there's still more cost to come out. But this isn't a cost-saving story. This is a top-line story. So we have to be able to execute efficiently, but we need to grow our top line. And that's going to come primarily through our franchise system, principally from our existing franchise base, supplementally from the new stores.