Rocky Mountain Chocolate Factory, Inc.
Q4 2015 Earnings Call Transcript

Published: 21 May 2015

[Operator:]

Hello and welcome to the Rocky Mountain Chocolate Factory Fiscal Year 2015 Earnings Conference Call. All participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today’s presentation. An operator will give instructions on how to ask questions at that time. Some of the statements made during today's call will be considered forward-looking statements that involve a number of risks and uncertainties. There are several factors that could cause actual results of Rocky Mountain Chocolate Factory to differ materially from these forward-looking statements. These factors include, but are not limited to the potential need for additional financing, the availability of suitable locations for new stores, and the availability of qualified franchisees to support new stores, customer acceptance of new products, dependence upon major customers, economic and consumer spending trends, and other factors listed from time-to-time in public announcements and in Rocky Mountain Chocolate Factory's SEC reports. In addition, please be advised that the financial results for the fiscal periods presented in this call do not necessarily indicate the results that may be expected for any future quarters or the upcoming fiscal year. To Rocky Mountain Chocolate Factory's knowledge, the information relayed in this conference call is correct as of the date of its transmission and the Company does not undertake any obligation to update this information in the future. [Operator Instructions]. Please note this conference is being recorded. I would now like to turn the conference over to Mr. Franklin Crail, Chief Executive Officer. Please go ahead sir.

[Franklin E. Crail:]

Thanks Sam. Good afternoon everyone and welcome to Rocky Mountain Chocolate Factory’s fourth quarter and fiscal 2015 year-end conference call. I am Frank Crail, President of Rocky Mountain Chocolate Factory and with me here today is Mr. Bryan Merryman, the Company’s Chief Operating Officer. We’re going to start the call this afternoon with Bryan giving you a summary of both our fourth quarter and fiscal 2015 year-end operating results. And at the conclusion of his presentation, we will be happy to answer any questions that you may have. So at this point, I’ll turn the call over to Bryan.

[Bryan J. Merryman:]

Thanks, Frank. I would like to also welcome everyone to our call today. I am going to start off with some highlights from the year and then get into more detailed operating results for the year and the quarter. For the year total revenue increased 5.9% to a record $41.5 million. System wide same store sales at domestic Rocky Mountain Chocolate Factory's stores increased 3.1% and sales outside our system of franchise stores increased 16%. Our adjusted EBITDA in non-GAAP measure that does not include depreciation and amortization, equity compensation expense, and impairment and restructuring charges increased 5% in the fourth quarter of fiscal 2015 and a healthy 17% for the full year. Adjusted EBITDA from our frozen yogurt operations increased 227% from 393,000 in fiscal year 2014 to 1,284,000 in the current year validating expectations that the transactions consolidating our yogurt operations would create scale in a profitable company capable of becoming a consolidation force in the frozen yogurt industry. We experienced further international progress with the recent signing of the license agreement for the Republic of Philippines, as well as execution of a license agreement for the Province of British Columbia, Canada by a licensee of U-Swirl, Inc. Subsequent to year end we announced a license agreement for the Province of Ontario, Canada also a by-licensee of U-Swirl, Inc. During the year we repurchased over 3.1 million of our common stock under our previously announced repurchased authorization and we paid $2.7 million in dividends. We finished the year in excellent financial condition with 7.2 million in cash. On March 13th we paid our 47th consecutive quarterly cash dividend and increased our quarterly dividend 9% from $0.11 per share per quarter to $0.12 per share, per quarter. Additionally we reset the buyback authorization to 3 million in January and today we announced that the Board again reset the authorization to 3 million. With that I’ll get into some detail on the year. As I mentioned earlier, total revenues increased 5.9% to a record 41.5 million. Factory sales increased 2.7% primarily due to a 16% increase in shipments of products to customers outside our network of franchise retail stores. This was partially offset by 6.3% decrease in the average number of domestic Rocky Mountain Chocolate Factory's stores in operation. Royalty and marketing fees increased 24.8%, this was due to increased franchise units in operations resulting from acquisitions and consolidation of our frozen yogurt operations. Franchise fees increased 29.8%, primarily the result of two international license agreements and with sale of certain company owned stores, and the associated franchise fees. Retail sales declined 3.7%, this was due to a change in units and operation caused by the sale of certain company owned stores and a 0.2% increase in company owned same store retail sales. Franchised Rocky Mountain Chocolate Factory's same store sales were up 3.1%. Factory adjusted margins decreased to 110 basis points, this was due primarily to higher commodity cost specifically cocoa and dairy have been near historical highs. Adjusted EBITDA was $9,014,000 versus $7,009,000. Non-GAAP adjusted net income was $4,832,000 versus $4,797,000. Non-GAAP adjusted diluted earnings per share were flat at 75% in the current year and $0.75 in the prior year. Net income was approximately $3,038,000 compared to $4,393,000. Fully diluted GAAP earnings per Share was $0.61 versus $0.68. We continued to generate excess cash flow. On March 13th, the company paid its 47th consecutive quarterly cash dividend of $0.12. The company finished quarter and year in excellent financial condition with 2.1 to 1 current ratio. During the year we opened up 41 new locations including 24 U-Swirl locations, 6 Cold Stone stores, 7 international stores, and 4 domestic Rocky Mountain Chocolate Factory standalone stores. Moving on to the quarter, total revenues increased 0.9%. In the quarter, factory sales increased 2.6%, this was due to a 3.7% increase in same store pounds purchased by our domestic franchisees and licensees. And a 7% increase in total franchise system purchases. This was partially offset by 3.7% decline in sales to specialty markets, which our customers outside our system of franchise stores. Retail sales in the quarter declined 13.5%, this results from the acquisition of four company-owned locations in the prior year, offset by the closing and/or sale of six locations in the current year. Same-store sales at all company-owned locations decreased 0.4% in the quarter. Royalty and marketing fees increased 3.1% in the quarter. This was due to a 17.7% increase in U-Swirl franchise revenue related to a full quarter of revenue from acquired brands versus partial quarters in the prior year. Also same-store sales increased 7.5% at domestic Rocky Mountain Chocolate Factory units in operation and this was partially offset by a 6% decline in the number of domestic franchise Rocky Mountain Chocolate Factory units in operation for the quarter. Franchise fees increased 75% in the fourth quarter. This was due to five domestic franchise openings in the quarter compared with one in the prior year partially offset by fewer Cold Stone co-branded openings with two openings in the current year compared to seven in the prior year. Factory margins decreased 130 basis points in the quarter from 29.9% to 28.6%. This was due to higher commodity costs specifically cocoa and dairy have been their historical highs. Adjusted EBITDA was $2,242,000 versus $2,136,000 in the prior quarter. Non-GAAP adjusted net income was $1,487,000 in the quarter versus $1,731,000 in the prior year. Non-GAAP adjusted diluted earnings per share declined to $0.24 in the current year versus $0.27 in the prior year. Net income was approximately $1,387,000 compared to $1,487,000. Fully diluted GAAP earnings per share was $0.22 versus $0.23 in the prior year. We opened seven stores during the quarter including three U-Swirl stores, two Cold Stone store, and two standalone Rocky Mountain Chocolate Factory domestic stores. We continued to generate excess cash flow in the quarter, and finished with $7.2 million in cash. With that, I will turn it back over to you Frank.

[Franklin E. Crail:]

Okay Bryan, thank you and at this time we would like to answer any questions you might have.

[Franklin E. Crail:]

Thank you, operator. Again, I would like to thank all of you that attended our year-end conference call. We look forward to talking with you at the end of our first quarter. So have a good day and thank you very much. Bye-bye.

[Operator:]

To access the digital replay of this conference, you may dial 1-877-344-7529 or 1-412-317-0088 beginning at 6 PM Eastern today. You will be prompted to enter a conference number, which will be 10065292. You will be prompted to record your name and company when joining. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.