Rocky Mountain Chocolate Factory, Inc.
Q1 2017 Earnings Call Transcript

Published: 12 Jul 2016

[Operator:]

Good afternoon and welcome to the Rocky Mountain Chocolate Factory First Quarter Fiscal 2017 Earnings Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note also that this event is being recorded. I would now like to turn the conference over to CEO, Frank Crail. Please go ahead.

[Franklin E. Crail:]

Thank you, operator. Good afternoon, everyone, and welcome to Rocky Mountain Chocolate Factory's first quarter of fiscal 2017 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 today with Bryan giving you a summary of our first quarter operating results, and at the conclusion of this presentation, we'll be happy to answer any questions that you may have. So at this time, I'd like to turn the call over to Bryan.

[Bryan J. Merryman:]

Thanks, Frank. I would also like to welcome everybody to today's call. For the first quarter, total revenues were down 9.5%. In our factory, revenues were down 8.9%. This was due primarily to a 20.4% decrease in shipments to customers outside our network of franchise stores and to a lesser extent a 5.8% decrease in same-store pounds purchased by franchisees and licensees, and a decline of 3.5% in the average number of domestic Rocky Mountain Chocolate Factory stores in operation. Retail sales decreased 10.5%. This was the result of sale of a certain U-Swirl location and the closure of an underperforming Company-owned location. Same-store sales at all Company-owned stores and cafes increased 1.5%. Royalty and marketing fees decreased 4.7%. This was due to a 11.5% decrease in domestic franchise units in operation. Same-store sales at domestic Rocky Mountain Chocolate Factory franchise stores increased 2%, while same-store sales at domestic U-Swirl franchise cafes declined 2.1%. Total same-store domestic franchise sales across all brands increased 0.3%. Franchise fees decreased 61%. Last year, we collected an international license fee for the province of Ontario, Canada, and those fees were recorded this fiscal year. Factory margins increased 10 basis points to 25.7% from 25.6%. This resulted from a decrease in the cost of certain commodities, primarily chocolate and almonds, and was offset by increased cost per pound on lower volume. Excluding retail, operating expenses decreased 4.9% due to lower G&A expenses and franchise costs. Adjusted EBITDA was $1,736,000 versus $2,097,000 last year. Net income was $732,000, compared to $763,000 last year. Diluted earnings per share was unchanged at $0.12 per share in the current and prior year. During the quarter, we opened 13 stores, one Rocky Mountain co-branded store, one domestic Rocky Mountain franchise opening, eight international Rocky Mountain Chocolate Factory locations opened, and three U-Swirl locations opened. We finished the quarter with approximately $6.1 million in cash and a current ratio of 1.8 to 1. During the quarter, we repurchased approximately 14,400 shares of our common stock at an average price of $10.07 per share. On June 17, the Company paid its 52nd consecutive quarterly cash dividend to shareholders in the amount of $0.12 per share. During the first quarter, we acquired certain assets of two small confection companies, FernCreek Confections and Elaine's Toffee Company. These acquisitions allowed us to acquire an all-natural, gluten-free line of products and a high-end toffee line and also expanded our customer relationships. And with that, I'll turn it back over to Frank for questions-and-answers.

[Franklin E. Crail:]

Thanks, Bryan. At this time, we'd be happy to answer any questions you might have.

[Operator:]

[Operator Instructions] Our first question is from [Brian London] [ph], a private investor.

[Brian London:]

I was just wondering, I listened in on the last conference call and I'm wondering if you guys are continuing to pursue selling candy bars in retail and if you see – what's the outlook in that kind of arena?

[Bryan J. Merryman:]

We’ve continued to have products in not necessarily candy bars but we continue to have products in [The Dove's Nest] [ph], we have products in Target, we also have products in King Superstore. We don't give forward guidance, but we're going to continue to grow that business.

[Brian London:]

Okay, thank you.

[Operator:]

Our next question is from [Jason Cassidy] [ph], a private investor. Go ahead.

[Jason Cassidy:]

I had a question about these two businesses that you acquired in the quarter. Can you give us a sense of the size in terms of revenue and I guess the cost to the Company, were these material acquisitions?

[Bryan J. Merryman:]

The acquisitions were very material. The total cost was less than $1 million, including inventory. Mainly, we were acquiring equipment and we did pay a little bit for the brands themselves and their customer list, where total revenues to the Company will be somewhere between 2% and 3% of our total revenues, so very small acquisitions.

[Jason Cassidy:]

And are you looking for additional acquisitions like this or on the other side of the business?

[Bryan J. Merryman:]

We are really not focusing on acquisitions at this time. It was really a liquidation of a business. We liked several of the customers that these two companies had, thought they would be a good fit with Rocky Mountain Chocolate Factory. Also, as I said in my prepared remarks, one of the companies has an all-natural gluten-free line of products and the other company has a high-end toffee line. And so we think they are very complementary in that over time we can grow those brands and they complement Rocky Mountain Chocolate Factory very well.

[Jason Cassidy:]

Okay, great. Thank you.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back over to Frank Crail for any closing remarks.

[Franklin E. Crail:]

Thank you, operator. I'd like to thank you again for attending our conference call for our first quarter, and we look forward to talking to you again in three months when we conclude our second quarter. Have a nice day and thank you again. Bye-bye.

[Operator:]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.