The Bittersweet Truth: Rocky Mountain’s Earnings and Revenues Decline
Rocky Mountain Chocolate Factory, Inc. (NASDAQ: RMCF) faced a challenging start to fiscal 2025 as it delivered a loss per share of 26 cents in the first quarter, wider than the loss reported in the same period last year.
Peering into Revenues
The company’s revenues for Q1 stood at $6.4 million, reflecting a marginal 0.5% decrease compared to the previous year. This dip was attributed to lower royalty and marketing fees, which put a dent in the top-line figures.
Diving into Segments
Rocky Mountain draws revenues from three distinct sources, namely Durango product and retail sales, Franchise fees, and Royalty and marketing fees.
During the first quarter, Durango product and retail sales saw revenues of $5.3 million, marking a 5.2% increase from the previous year. This spike was primarily driven by a surge in franchisee demand and improved inventory management.
On the other hand, the Franchise fees totaled $0.1 million, showing a substantial 55.6% rise from the prior year owing to income from store ownership transfers.
Conversely, Royalty and marketing fees generated $1.1 million in revenues, down by 23.1% year-over-year due to a decline in the number of stores subject to royalty fees.
Analyzing Gross Margins
Rocky Mountain observed a decrease in gross margin to (5.8)% in Q1 compared to 5.1% in the same period last year, mainly due to higher raw material and labor costs.
Operational Expenses Overview
Sales and marketing expenses dipped 9.1% year-over-year to $0.4 million during the quarter, attributed to operational efficiencies and cost-cutting measures.
General and administrative expenses were down by 35.9% year-over-year to $1.2 million, primarily stemming from a decrease in legal fees related to prior year proxy solicitation disputes.
Assessment of Profitability
The company’s loss from operations widened to $1.6 million in Q1 compared to $1.5 million in the previous year. Additionally, Rocky Mountain reported a net loss of $1.7 million, a notable increase from the $0.8 million net loss in the same period last year.
Liquidity and Cash Management
At the end of Q1 fiscal 2025, Rocky Mountain had cash and cash equivalents of $0.6 million, a decline from $2.1 million at the close of fiscal 2024. Net cash used in operating activities for the quarter was $2.2 million, up from $0.4 million in the previous year.
Reflections and Projections
Rocky Mountain faced headwinds in Q1, evident from the decline in both top-line and bottom-line figures, driven by lower royalty and marketing fees. The contraction in gross margin poses further challenges. However, the solid performance in Durango product and retail sales along with robust franchise fee revenues provide glimmers of hope amidst the adversity.
