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RM

Rocky Mountain Chocolate Factory, Inc. (RMCF)·Q1 2025 Earnings Summary

Executive Summary

  • Revenue was $6.41M, essentially flat year over year; product/retail gross margin fell to (5.8%) versus 5.1% due to higher raw materials and labor costs, and EPS from continuing operations was $(0.26) versus $(0.24) .
  • Total costs and expenses were $8.04M (flat YoY) and loss from continuing operations widened to $(1.66)M, reflecting cost pressure despite stable revenue .
  • Management set explicit targets: exit FY25 at ~20% gross margin with adjusted EBITDA near breakeven; by FY27, reach 25–30% gross margins and 10–12% adjusted EBITDA margin, supported by ERP/POS rollouts and franchise network optimization .
  • Liquidity actions underway: ~$1M non-core land sale and active work to expand credit capacity; subsequent to Q1, the company entered a new $6M facility replacing the prior $4M line to fund investments (catalyst for narrative shift) .

What Went Well and What Went Wrong

What Went Well

  • “Supporting our franchisee network is our top priority” with deployment of dedicated business consultants and a plan to return to same-store sales growth in FY25; multiple new store/kiosk concepts are being signed for streetside, outdoor mall, and airport locations .
  • Over $3M earmarked for new equipment and production efficiencies to improve quality, predictability, and cost-effectiveness; ~$1M land sale helps finance investments and liquidity .
  • Clear multi-year targets and operational discipline: exit FY25 at ~20% gross margin and adjusted EBITDA breakeven; FY27 25–30% gross margins and 10–12% adjusted EBITDA margin .

What Went Wrong

  • Product/retail gross margin turned negative in Q1 to (5.8%) from 5.1% YoY, driven by higher raw materials and labor costs .
  • Royalty/marketing fees declined ~$0.29M YoY; franchise & royalty combined fell to $1.13M from $1.42M despite slight increase in product/retail sales .
  • Loss from continuing operations widened YoY to $(1.66)M from $(1.53)M and EPS from continuing operations declined to $(0.26) from $(0.24), reflecting margin pressure and cost structure constraints .

Financial Results

Headline metrics vs prior periods

MetricQ3 2024Q1 2025Q2 2025
Revenue ($USD Millions)$7.70 $6.41 $6.38
EPS (Continuing Ops, $)$(0.12) $(0.26) $(0.11)
Product & Retail Gross Margin %10.2% (5.8%) 11.5%
Total Costs and Expenses ($USD Millions)$8.47 $8.04 $7.29

Revenue mix

MetricQ3 2024Q1 2025Q2 2025
Sales ($USD Millions)$6.06 $5.28 $4.92
Franchise + Royalty Fees ($USD Millions)$1.28 (1.235 Royalty + 0.041 Franchise) $1.13 (combined) $1.46 (combined)
Total Revenue ($USD Millions)$7.70 $6.41 $6.38

Profitability detail

MetricQ3 2024Q1 2025Q2 2025
Loss from Operations ($USD Millions)$(0.78) $(1.63) $(0.91)
Net Loss from Continuing Ops ($USD Millions)$(0.76) $(1.66) $(0.72)
Diluted Loss/Share (Continuing Ops, $)$(0.12) $(0.26) $(0.11)

KPIs (where disclosed)

KPIQ3 2024Q1 2025Q2 2025
Same-store sales YoY (domestic)(2.1%) — (not disclosed)— (not disclosed)
E-commerce % of total revenue— (not disclosed)~3% — (not disclosed)
Stores open (as of period-end)268 (Nov 30, 2023) ——

Note: Segment reporting is disclosed annually (Franchising, Manufacturing, Retail); the company does not provide segment results quarterly .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Gross Margin targetExit FY25—~20% (near historic averages) Introduced
Adjusted EBITDAExit FY25—Near breakeven Introduced
Gross Margin targetFY27—25–30% Introduced
Adjusted EBITDA MarginFY27—10–12% Introduced
POS rolloutFY25 year-end—>100 stores on new POS Introduced
ERP deploymentFall 2024—New ERP go-live ahead of holiday season Introduced
Net store growthFY25—Target net store count growth; transfers to preserve prime locations Introduced
Liquidity actionsFY25/Q2Prior $4M lineNew $6M facility post-Q1 (retired prior facility) Raised capacity

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q1 2025)Trend
Supply chain/productionCo-packaging moved to Utah to relieve labor constraints; margin hit but throughput potential (Q3’24) >$3M CapEx for equipment; plan ERP in fall to improve scheduling/sourcing; focus on fastest-moving SKUs Improving execution; systems upgrades
LiquidityExploring equipment financing; rising CapEx; line of credit utilization (Q3’24) Land sale (~$1M) and active work with credit providers to increase working capital Improving; later strengthened with $6M facility (Q2’25)
Franchise networkAdded VP Franchise Development; intent to expand (Q3’24) Deploy business consultants; pricing +15% to franchisees; target net store growth; transfers to preserve top sites Positive; groundwork for footprint growth
Rebranding/store designEngaged award-winning design firm (Q3’24) Brand update to complete later in year; new concepts (streetside/outdoor mall/airport) Near completion by year-end (Q2’25 update)
E-commerceUnderpenetrated; opportunity identified (Q3’24) ~3% of revenue today; building dedicated team and loyalty integration Scaling; strong holiday growth later (Q3’25)
LaborDurango labor bottlenecks (Q3’24) Wage increases at factory to attract/retain talent; reduce downtime Stabilizing

Management Commentary

  • “Supporting our franchisee network is our top priority… We anticipate returning to same-store-sales growth in Fiscal 2025 and setting the stage to expand our total store count…” .
  • “Exiting fiscal ’25, we believe we can return to a 20% gross margin… [and] adjusted EBITDA profitability as we exit the year… [In] fiscal ’27… 25% to 30% [gross margins]… 10% to 12% adjusted EBITDA margin” .
  • “With over $3 million… committed to new equipment and production efficiencies… We recently sold a parcel of land for nearly $1 million to partially finance these investments…” .
  • “We are deploying dedicated business consultants nationwide… backed by data-driven insights… We are in the process of signing agreements for several new store and kiosk design concepts…” .

Q&A Highlights

  • The available Q1 FY25 transcript captures prepared remarks and strategic targets; Q&A content was not included in the accessible transcript file, so no additional clarifications were recorded from analysts in Q1 materials .

Estimates Context

  • S&P Global/Capital IQ consensus estimates for Q1 FY25 could not be retrieved due to data access limitations; accordingly, beats/misses versus consensus cannot be assessed for this quarter. S&P Global consensus was unavailable.
MetricQ1 2025 ConsensusActual
Revenue ($USD Millions)N/A*$6.41
EPS (Primary or Continuing) ($)N/A*$(0.26) (Continuing ops)

*Values retrieved from S&P Global. Consensus was unavailable at time of request.

Key Takeaways for Investors

  • Margin trajectory matters: Q1 gross margin (5.8%) underscores cost pressure, but explicit targets (20% by FY25 exit; 25–30% by FY27) and ERP/POS rollouts provide a credible operational path to improvement .
  • Franchise-first strategy: business consultants, store transfers, targeted market expansion (Boston/NYC/Atlanta/Chicago/Portland/Seattle) can lift AUVs and reverse multi-year store contraction, driving royalty recovery .
  • Liquidity/capex balance: ~$1M land sale and active credit work (followed by $6M facility post-Q1) fund line-speed investments; watch inventory build and working capital discipline into holiday seasons .
  • E-commerce and specialty retail are leverage points: e-commerce at ~3% of revenue has room to scale; specialty retail/co-brand (e.g., Costco/Cold Stone) broaden reach and can smooth seasonality while supporting franchise traffic .
  • Cost normalization is the swing factor: production/labor/logistics upgrades must translate to sustained throughput and lower unit costs; monitor product gross margin progression in Q2–Q4 seasonally stronger quarters .
  • Leadership upgrades: CFO appointment and IT leadership executing ERP/POS initiatives indicate improved operational discipline; governance and on-site leadership at Durango remain central to turnaround .
  • Near-term catalysts: completion of rebranding and store design by year-end, continued franchise signings/transfers, and holiday execution under the new ERP/POS stack can shift narrative and estimates trajectory .