Rocky Mountain Chocolate Factory, Inc. Reports First Six Months of Fiscal Year 2021 Operating Results
Back to Newsroom
Mentioned in this Article

Rocky Mountain Chocolate Factory, Inc. Reports First Six Months of Fiscal Year 2021 Operating Results

Thursday, October 15, 2020 7:00 AM
Share this article now
Topic:
Earnings

DURANGO, CO / ACCESSWIRE / October 15, 2020 / Rocky Mountain Chocolate Factory, Inc. (NASDAQ:RMCF) (the "Company," "we" or "our") today reported its operating results for the three and six months ended August 31, 2020. The Company franchises and operates gourmet chocolate and confection stores and self-serve frozen yogurt cafés, and manufactures an extensive line of premium chocolates and other confectionery products.

COVID-19
We have experienced business disruptions resulting from efforts to contain the rapid spread of the novel coronavirus ("COVID-19"), including the vast mandated self-quarantines and closures of non-essential business throughout the United States and around the world. Nearly all stores have been directly and negatively impacted by public health measures taken in response to the COVID-19 pandemic, with nearly all locations experiencing reduced operations as a result of, among other things, modified business hours and store and mall closures. As a result, franchisees and licensees are not ordering products for their stores in line with historical amounts. This trend has negatively impacted, and is expected to continue to negatively impact, among other things, factory sales, retail sales and royalty and marketing fees of the Company.

SECOND QUARTER HIGHLIGHTS

  • Total revenue decreased 27.9 percent to $5.3 million during the three months ended August 31, 2020 compared to $7.4 million during the three months ended August 31, 2019.
  • Same-store pounds of product purchased from the Company's factory by franchisees and co-branded licensees decreased 27.7 percent during the three months ended August 31, 2020 compared to the three months ended August 31, 2019.
  • Net income decreased 91.7 percent to $76,000, or $0.01 per basic and diluted share in the three months ended August 31, 2020 compared to net income of $918,000, or $0.15 per basic and diluted share in the three months ended August 31, 2019.
  • Operating income decreased 90.4 percent to $119,000 in the three months ended August 31, 2020 compared to operating income of $1.2 million during the three months ended August 31, 2019.
  • Factory sales decreased 21.9 percent during the three months ended August 31, 2020 compared to the three months ended August 31, 2019, primarily due to a 34.5 percent decrease in sales of product to our network of franchised and licensed retail stores partially offset by a $416,000 increase in shipments of product to customers outside our network of franchised retail stores.
  • Royalty and marketing fees decreased 34.4 percent in the three months ended August 31, 2020.
  • Franchise fees decreased 10.1 percent in the three months ended August 31, 2020 compared to the three months ended August 31, 2019, primarily due to a decrease in revenue resulting from fewer franchise stores in operation and the associated recognition of revenue over the term of the franchise agreement.
  • The Company's franchisees opened one U-Swirl location during the three months ended August 31, 2020.

SECOND QUARTER OPERATING RESULTS
Total revenue decreased 27.9 percent to $5.3 million during the three months ended August 31, 2020 compared to $7.4 million during the three months ended August 31, 2019.

Total factory sales decreased 21.9 percent to $3.5 million in the three months ended August 31, 2020 compared to $4.5 million in the three months ended August 31, 2019. This decrease was due to a 34.5 percent decrease in sales of product to our network of franchised and licensed retail stores, partially offset by a $416,000 increase in shipments of product to customers outside our network of franchised retail stores. The decrease in sales of product to our network of franchised and licensed retail stores was primarily the result of the COVID-19 pandemic and the associated public health measures in place during the three months ended August 31, 2020, which significantly reduced traffic in our stores. The increase in shipments of product to customers outside our network of franchise and licensed retail stores was primarily the result of sales associated with our strategic alliance with Edible Arrangements®, LLC and its affiliates ("Edible"). Factory gross margins decreased 650 basis points to 16.9 percent of factory sales in the three months ended August 31, 2020 compared to 23.4 percent in the three months ended August 31, 2019.

Retail sales declined 45.1 percent to $495,000 in the three months ended August 31, 2020 compared to $902,000 in the three months ended August 31, 2019. This decrease in retail sales was primarily the result of limited operations and limited foot traffic during the three months ended August 31, 2020. The limited operations at our Company-owned stores was the result of the COVID-19 pandemic and the associated public health measures in place during the three months ended August 31, 2020. As of August 31, 2020, all Company-owned stores had resumed limited operations following COVID-19 related closure. Same store sales at all Company-owned stores and cafés decreased 39 percent in the three months ended August 31, 2020 compared to the three months ended August 31, 2019.

Royalty and marketing fees decreased 34.4 percent to $1.3 million in the three months ended August 31, 2020 compared to $1.9 million in the three months ended August 31, 2019, primarily due to the COVID-19 pandemic and the associated public health measures in place during the three months ended August 31, 2020 and a decrease in domestic franchise units in operation. Nearly all of our franchised locations experienced reduced operations during the three months ended August 31, 2020. The average number of total domestic franchise stores in operation decreased 4.8 percent from 272 in the three months ended August 31, 2019 to 259 during the three months ended August 31, 2020. This decrease is the result of domestic store closures exceeding domestic store openings. Same store sales at total franchise stores and cafés in operation decreased 29 percent during the three months ended August 31, 2020 compared to the three months ended August 31, 2019. The Company's franchisees opened one U-Swirl location during the three months ended August 31, 2020. Complete lists of stores and cafés currently in operation are available on the Company's websites at www.rmcf.com and www.u-swirlinc.com.

Franchise fees decreased 10.1 percent to $74,000 in the three months ended August 31, 2020 compared to $82,000 in the three months ended August 31, 2019, as a result of a decrease in revenue resulting from fewer franchise stores in operation and the associated recognition of revenue over the term of the franchise agreement.

Income from operations decreased 90.4 percent in the three months ended August 31, 2020 to $119,000 compared to $1.2 million in the three months ended August 31, 2019.

Net income decreased 91.7 percent to $76,000, or $0.01 per basic and diluted share, in the three months ended August 31, 2020, compared to net income of $918,000, or $0.15 per basic and diluted share, in the three months ended August 31, 2019.

Adjusted EBITDA (a non-GAAP financial measure defined later in this release) decreased 69.3 percent for the three months ended August 31, 2020 to $573,000 compared to $1.9 million for the three months ended August 31, 2019.

SIX-MONTH OPERATING RESULTS
Total revenue decreased 49.2 percent to $8.0 million during the six months ended August 31, 2020 compared to $15.8 million during the six months ended August 31, 2019.

Total factory sales decreased 44.2 percent to $5.6 million in the six months ended August 31, 2020 compared to $10.1 million in the six months ended August 31, 2019. The decrease was primarily due to a 53.7 percent decrease in sales of product to our network of franchised and licensed retail stores, the result of the COVID-19 pandemic and the associated public health measures in place during the six months ended August 31, 2020, which significantly reduced traffic in our stores, and a 5.9 percent decrease in shipments of product to customers outside our network of franchised retail stores.

Retail sales declined 61.1 percent to $683,000 in the six months ended August 31, 2020 compared to $1.8 million in the six months ended August 31, 2019. This decrease in retail sales was primarily due to the COVID-19 pandemic and the associated public health measures in place during the six months ended August 31, 2020. All of our company-owned stores experienced reduced operations and periods of full closure during the six months ended August 31, 2020.

Royalty and marketing fees decreased 58.1 percent to $1.6 million in the six months ended August 31, 2020 compared to $3.8 million in the six months ended August 31, 2019, primarily due to the COVID-19 pandemic and the associated public health measures in place during the six months ended August 31, 2020. Nearly all of our franchised locations experienced reduced operations and periods of full closure during the six months ended August 31, 2020.The Company's franchisees opened five U-Swirl franchised cafés during the six months ended August 31, 2020. Complete lists of stores and cafés currently in operation are available on the Company's websites at www.rmcf.com and www.u-swirlinc.com.

Franchise fees decreased 31.7 percent to $129,000 in the six months ended August 31, 2020 compared to $188,000 in the six months ended August 31, 2019, as a result of a decrease in revenue resulting from fewer franchise stores in operation and the associated recognition of revenue over the term of fewer franchise agreements.

Operating income decreased from $2.2 million in the six months ended August 31, 2019 to an operating loss of $4.7 million in the six months ended August 31, 2020.

A net loss of $(3.6) million, or $(0.59) per basic and diluted share, in the six months ended August 31, 2020, compared to net income of $1.6 million, or $0.27 per basic and $0.26 per diluted share, in the six months ended August 31, 2019.

Adjusted EBITDA (a non-GAAP measure defined later in this release) decreased from $3.7 million in the six months ended August 31, 2019 to a loss of $(3.5) million in the six months ended August 31, 2020.

Non-GAAP Financial Measures
Adjusted EBITDA, a non-GAAP financial measure, is computed by adding depreciation and amortization, stock-based compensation expenses, costs associated with non-recurring expenses (which include costs associated with Company-owned store closures, proxy contest and related matters, and the evaluation of strategic alternatives) to GAAP income from operations.

This non-GAAP financial measure may have limitations as an analytical tool, and this measure should not be considered in isolation or as a substitute for analysis of results as reported under GAAP. The Company believes that adjusted EBITDA provides additional analytical information on the nature of ongoing operations excluding expenses not expected to recur in future periods, non-cash charges and variations in the effective tax rate among periods. For example, the Company believes that adjusted EBITDA is useful to investors because it provides a measure of operating performance and its ability to generate cash that is unaffected by non-cash accounting measures and non-recurring expenses. However, due to these limitations, the Company uses adjusted EBITDA as a measure of performance only in conjunction with GAAP measures of performance such as income from operations and net income. Reconciliations of this non-GAAP measure to its most comparable GAAP measure are included below.

About Rocky Mountain Chocolate Factory, Inc.
Rocky Mountain Chocolate Factory, Inc., headquartered in Durango, Colorado, is an international franchiser of gourmet chocolate, confection and self-serve frozen yogurt stores and a manufacturer of an extensive line of premium chocolates and other confectionery products. As of October 15, 2020, the Company, through its subsidiaries and its franchisees and licensees operated 399 Rocky Mountain Chocolate Factory and self-serve frozen yogurt stores in 40 states, Canada, South Korea, Qatar, the Republic of Panama, and The Republic of the Philippines. The Company's common stock is listed on the Nasdaq Global Market under the symbol "RMCF."

Forward-Looking Statements
This press release includes statements of the Company's expectations, intentions, plans and beliefs that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to come within the safe harbor protection provided by those sections. These forward-looking statements involve various risks and uncertainties. The nature of the Company's operations and the environment in which it operates subjects it to changing economic, competitive, regulatory and technological conditions, risks and uncertainties. The statements, other than statements of historical fact, included in this press release are forward-looking statements. Many of the forward-looking statements contained in this press release may be identified by the use of forward-looking words such as "will," "intend," "believe," "expect," "anticipate," "should," "plan," "estimate," "potential," or similar expressions. Factors which could cause results to differ include, but are not limited to: the impact of the COVID-19 pandemic and global economic conditions on the Company's business, including, among other things, online sales, factory sales, retail sales and royalty and marketing fees, the Company's liquidity, the Company's cost cutting and capital preservation measures, achievement of the anticipated potential benefits of the strategic alliance with Edible, the ability to provide products to Edible under the strategic alliance, Edible's ability to increase the Company's online sales, changes in the confectionery business environment, seasonality, consumer interest in the Company's products, general economic conditions, the success of the Company's frozen yogurt business, receptiveness of the Company's products internationally, consumer and retail trends, costs and availability of raw materials, competition, the success of the Company's co-branding strategy, the success of international expansion efforts and the effect of government regulations. Government regulations which the Company and its franchisees and licensees either are, or may be, subject to and which could cause results to differ from forward-looking statements include, but are not limited to: local, state and federal laws regarding health, sanitation, safety, building and fire codes, franchising, licensing, employment, manufacturing, packaging and distribution of food products and motor carriers. For a detailed discussion of the risks and uncertainties that may cause the Company's actual results to differ from the forward-looking statements contained herein, please see the "Risk Factors" contained in Item 1A. of the Company's Annual Report on Form 10-K for the fiscal year ended February 29, 2020. Additional factors that might cause such differences include, but are not limited to: the length and severity of the current COVID-19 pandemic and its effect on among other things, factory sales, retail sales, royalty and marketing fees and operations, the effect of any governmental action or mandated employer-paid benefits in response to the COVID-19 pandemic, and the Company's ability to manage costs and reduce expenditures in a low or zero revenue environment and the availability of additional financing if and when required. These forward-looking statements apply only as of the date hereof. As such they should not be unduly relied upon for more current circumstances. Except as required by law, the Company undertakes no obligation to release publicly any revisions to these forward-looking statements that might reflect events or circumstances occurring after the date of this press release or those that might reflect the occurrence of unanticipated events.

For Further Information, please contact:
Rocky Mountain Chocolate Factory, Inc.
(970) 375-5678

(Financial Highlights Follow)

STORE INFORMATION

 
  New stores opened during        
 
  the three months ended     Stores open as of  
 
  August 31, 2020     August 31, 2020  
United States
           
Rocky Mountain Chocolate Factory
           
Franchise Stores
    0       162  
Company-Owned Stores
    0       2  
Cold Stone Creamery
    0       98  
International License Stores
    0       58  
U-Swirl
               
Franchise Stores
    1       76  
Company-Owned Stores
    0       3  
International License Stores
    0       2  
Total
    1       401  
                 

SELECTED BALANCE SHEET DATA
(in thousands)
(unaudited)

 
  August 31, 2020     February 29, 2020  
Current Assets
  $ 15,488     $ 13,612  
Total Assets
    29,187       27,817  
Current Liabilities
    9,994       5,607  
Total Liabilities
    13,135       8,461  
Stockholder's Equity
  $ 16,052     $ 19,356  
                 

CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
(unaudited)

 
  Three Months Ended August 31,     Three Months Ended August 31,  
 
  2020     2019     2020     2019  
Revenues
                       
Factory sales
  $ 3,498     $ 4,482       65.7 %     60.7 %
Royalty and marketing fees
    1,260       1,920       23.7 %     26.0 %
Franchise fees
    74       82       1.4 %     1.1 %
Retail sales
    495       901       9.3 %     12.2 %
Total Revenues
    5,327       7,385       100.0 %     100.0 %
 
            -                  
Costs and expenses
                               
Cost of sales
    3,054       3,738       57.3 %     50.6 %
Franchise costs
    451       442       8.5 %     6.0 %
Sales and marketing
    409       435       7.7 %     5.9 %
General and administrative
    788       831       14.8 %     11.3 %
Retail operating
    330       469       6.2 %     6.4 %
Depreciation and amortization, exclusive of depreciation and amortization expense of $158 and $147 included in cost of sales, respectively
    176       225       3.3 %     3.0 %
Costs associated with Company-owned store closures
    -       -       0.0 %     0.0 %
Total Costs and Expenses
    5,208       6,140       97.8 %     83.1 %
 
            -                  
Income (loss) from operations
    119       1,245       2.2 %     16.9 %
 
            -                  
Other income (expense)
                               
Interest expense
    (23 )     (3 )     -0.4 %     0.0 %
Interest income
    5       6       0.1 %     0.1 %
Other, net
    (18 )     3       -0.3 %     0.0 %
 
            -                  
Income (loss) before income taxes
    101       1,248       1.9 %     16.9 %
 
            -                  
Provision for income taxes
    25       330       0.5 %     4.5 %
 
            -                  
Consolidated net income (loss)
    76       918       1.4 %     12.4 %
 
            -                  
Basic Earnings (Loss) Per Common
                               
Share
  $ 0.01     $ 0.15                  
Diluted Earnings (Loss) Per Common
                               
Share
  $ 0.01     $ 0.15                  
 
            -                  
Weighted Average Common
                               
Shares Outstanding
    6,066,034       5,977,746                  
 
            -                  
Dilutive Effect of Employee Stock
                               
Awards
    219,043       279,584                  
 
            -                  
Weighted Average Common
                               
Shares Outstanding,
                               
Assuming Dilution
    6,285,077       6,257,330                  
 
                               

CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
(unaudited)

 
  Six Months Ended August 31,     Six Months Ended August 31,  
 
  2020     2019     2020     2019  
Revenues
                       
Factory sales
  $ 5,633     $ 10,088       70.1 %     63.8 %
Royalty and marketing fees
    1,585       3,779       19.7 %     23.9 %
Franchise fees
    129       188       1.6 %     1.2 %
Retail sales
    683       1,756       8.5 %     11.1 %
Total Revenues
    8,030       15,811       100.0 %     100.0 %
 
                               
Costs and expenses
                               
Cost of sales
    5,937       8,353       73.9 %     52.8 %
Franchise costs
    872       925       10.9 %     5.9 %
Sales and marketing
    883       992       11.0 %     6.3 %
General and administrative
    3,968       1,975       49.4 %     12.5 %
Retail operating
    649       918       8.1 %     5.8 %
Depreciation and amortization, exclusive of depreciation and amortization expense of $316 and $293 included in cost of sales, respectively
    362       457       4.5 %     2.9 %
Costs associated with Company-owned store closures
    69       -       0.9 %     0.0 %
Total Costs and Expenses
    12,740       13,620       158.7 %     86.1 %
 
            -                  
Income from operations
    (4,710 )     2,191       -58.7 %     13.9 %
 
                               
Other income (expense)
                               
Interest expense
    (47 )     (15 )     -0.6 %     -0.1 %
Interest income
    11       16       0.1 %     0.1 %
Other, net
    (36 )     1       -0.4 %     0.0 %
 
                               
Income before income taxes
    (4,746 )     2,192       -59.1 %     13.9 %
 
                               
Provision for income taxes (benefit)
    (1,155 )     562       -14.4 %     3.6 %
 
                               
Consolidated net income
    (3,591 )     1,630       -44.7 %     10.3 %
 
                               
Basic Earnings Per Common
                               
Share
  $ (0.59 )   $ 0.27                  
Diluted Earnings Per Common
                               
Share
  $ (0.59 )   $ 0.26                  
 
                               
Weighted Average Common
                               
Shares Outstanding
    6,062,443       5,970,012                  
 
                               
Dilutive Effect of Employee Stock
                               
Awards
    -       275,935                  
 
                               
Weighted Average Common
                               
Shares Outstanding,
                               
Assuming Dilution
    6,062,443       6,245,947                  
 
                               

GAAP RECONCILIATION
ADJUSTED EBITDA
(in thousands)
(unaudited)

 
  Three Months Ended August 31,        
 
  2020     2019     Change  
GAAP: Income from Operations
  $ 119     $ 1,245       -90.4 %
Depreciation and Amortization
    335       372          
Stock-Based Compensation Expense
    143       156          
Costs associated with non-recurring expenses (1)
    (24 )     92          
Non-GAAP, adjusted EBITDA
  $ 573     $ 1,865       -69.3 %
 
                       
(1) Non-recurring expenses include costs associated with Company-owned store closures, contested proxy costs and the evaluation of strategic alternatives.  
 
  Six Months Ended August 31,        
 
  2020     2019     Change  
GAAP: Income (loss) from Operations
  $ (4,710 )   $ 2,191       -315.0 %
Depreciation and Amortization
    678       750          
Stock-Based Compensation Expense
    287       387          
Costs associated with non-recurring expenses (1)
    274       347          
Non-GAAP, adjusted EBITDA
  $ (3,471 )   $ 3,675       -194.4 %
 
                       
(1) Non-recurring expenses include costs associated with Company-owned store closures, contested proxy costs, event specific inventory reserves and the evaluation of strategic alternatives.  
 

COVID-19 SPECIFIC FINANCIAL IMPACTS
(in thousands)
(unaudited)

COVID-19 Specific Impacts
  Six Months Ended August 31, 2020  
Accounts and notes receivable reserves
  1,469  
Intangible asset and goodwill impairments
    476  
PPP loans (forgiveness pending*)
    1,542  
 
       
Total COVID-19 Specific Impacts
  3,487  

 

SOURCE: Rocky Mountain Chocolate Factory, Inc.

Rocky Mountain Chocolate Factory, Inc.
Exchange:
Ticker:
NASDAQ
RMCF
$0.0000
NaN%
Back to Newsroom
Copyright 2020 © ACCESSWIRE. All rights reserved. Privacy Policy  |  Terms and Conditions
Drop us a line: