Rocky Mountain Chocolate Factory reports disappointing results

Rocky Mountain Chocolate Factory, Inc. has reported declining results for the first half of financial year 2008/2009. The company, headquartered in Durango, Colorado, is an international franchiser of gourmet chocolate and confection stores and a manufacturer of an extensive line of premium chocolates and other confectionery products. As of October 8, 2008, the company and its franchisees operate 331 stores in 36 states, Canada and the United Arab Emirates. The company’s common stock is listed on The Nasdaq Global Market.


For the six months ended August 31, revenues decreased 10.0% to USD 13.4 m. Same-store sales at franchised retail outlets declined 2.3% during the period, while same-store pounds of products purchased from the company’s factory by franchisees decreased 12%, when compared with the corresponding period of the previous fiscal year. Total factory sales declined 15.1% in the first half of 2008/2009, primarily due to a 52.0% reduction in product shipments to third-party customers.


The product shipment decline to customers outside the company’s system of franchised retail stores accounted for over 100% of the total revenue decrease of 10.0% and 92.7% of the total factory revenue decrease of 15.1%. Total factory sales to the company’s system of franchised retail stores declined 1.1% in the six months, compared with the same period in the prior year.


Net income for the first half of 2008/2009 declined 22.3% to USD 1.8 m compared with net income of USD 2.3 m in the first half of 2007/2008. Basic earnings per share declined 16.2% to USD 0.31, diluted earnings per share decreased 16.7% to a USD 0.30 , versus USD 0.36 for the first half of financial year 2007/2008.
Total retail sales for the company’s network of stores increased 3.3% to a record of approximately USD 56.8 m, compared with system-wide sales of approximately USD 54.9 m in the corresponding period of the previous year.
“While our operating results for the second quarter and first half of fiscal 2009 were disappointing relative to the company’s performance in recent years, we remained solidly profitable during a period of great economic stress that has significantly impacted the sales of most retailers and the levels of customer traffic in regional shopping malls and other venues where our stores are located,” noted Bryan Merryman, COO of Rocky Mountain Chocolate Factory. “We are monitoring our expenses carefully and believe that our sales and profit margins will recover once the U.S. economic environment improves. Until such time as a stabilization in the economy becomes evident, we are not comfortable issuing sales and earnings guidance for the balance of the current fiscal year.”


“Franchisees opened 8 new stores during the second quarter and 16 new stores during the first half of Fiscal 2009,” added Merryman. “Based upon information currently available to the company, we anticipate that the number of new store openings for the full year will approximate our earlier expectations of 35 to 40 units.”
“The recent slowdown in retail sales activity throughout America, combined with a severe contraction in stock market valuations of most companies, are factors beyond our control,” observed CEO Frank Crail. “However, we are pleased to be able to provide our shareholders with cash dividend income during such difficult times, and the structure of our business model has continued to allow the Company to generate more than enough cash to fund its operations, repurchase common stock, and support its cash dividend policy. We recently declared our 21st consecutive quarterly cash dividend which, at USD 0.10 per share, provided our shareholders with an approximate 5.2% annualized dividend yield based upon our closing stock price on October 8, 2008.”