Shares of Rocky Mountain Chocolate Factory, Inc. (RMCF Quick QuoteRMCF - Free Report) have plunged 21.9% since the company reported its fiscal third-quarter results for the period ended Nov. 30, 2024. In comparison, the S&P 500 Index gained 1.7% over the same period. Over the past month, RMCF’s stock lost 14.6% against the trailing S&P 500’s 1.1% increase, reflecting investor concerns over its financial performance and future prospects.

Key Performance Metrics

In the third quarter of fiscal 2025, RMCF reported total revenues of $7.9 million, a 2.5% increase from $7.7 million in the prior-year period. Durango product sales rose 4.9% to $6.4 million from $6.1 million, while Royalty and marketing fees declined 11.5% to $1.1 million from $1.2 million a year ago.

Total product and retail gross profit for the third quarter of fiscal 2025 was flat at $0.7 million. Despite revenue growth, higher supply and labor costs compressed gross margins slightly, from 10.2% to 10%.

The company posted a net loss of $0.8 million, or $(0.11) per share, consistent with the year-ago period's net loss of $0.8 million or $(0.12) per share. Adjusted EBITDA improved to $41,000 from a loss of $0.3 million in the prior year, signaling some progress in operational efficiency.

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Other Key Business Metrics

The company’s cost management initiatives were evident as it maintained stable gross profit despite persistent margin pressures. Total costs and expenses increased 1.4% to $8.6 million, driven in part by non-recurring professional expenses.

RMCF ended the quarter with a cash balance of $1.1 million, down from $2.1 million as of Feb. 29, 2024, reflecting investments in operational improvements and inventory buildup to meet holiday demand. Accounts receivable rose to $4.1 million from $2.2 million during the same period, driven by higher demand across all channels. Inventory rose to $5.7 million from $4.4 million earlier in the year, aligning with its strategy to support franchisee needs during critical periods.

Management Commentary

Interim CEO Jeff Geygan emphasized the company’s ongoing transformation, including the implementation of a new ERP system designed to improve inventory management, production scheduling, and financial reporting. This system is expected to enhance cost efficiency and data-driven decision-making. The company also highlighted its rebranding efforts, including new store designs and updated packaging, aimed at revitalizing its franchise model and enhancing customer engagement.

Factors Influencing Results

RMCF attributed its margin pressures to increased supply and labor costs, alongside investments in strategic initiatives such as its ERP system and marketing enhancements. E-commerce sales, a bright spot, nearly tripled year over year during the holiday season, driven by targeted marketing campaigns and data analytics. Additionally, the company reported successful fulfillment of nearly all franchisee and specialty market demand during the holiday season, a significant improvement from previous years.

Guidance and Outlook

While no specific financial guidance was provided, management indicated that its ongoing efforts to streamline operations and improve franchisee support would position the company for long-term growth. Investments in the ERP system and rebranding initiatives are expected to yield incremental benefits in the coming quarters, although near-term challenges related to cost pressures remain.

Other Developments

During the quarter, RMCF secured a three-year $6 million credit facility to replace its prior facility, enabling investments in equipment, machinery and growth initiatives. The company also announced plans to open two new stores and a kiosk in Chicago, Charleston and Brandon, demonstrating its commitment to expanding its franchise footprint. Additionally, RMCF completed strategic store transfers, optimizing its franchise network by retaining high-performing locations and closing less profitable ones.