Rocky Mountain Chocolate Factory, Inc. Reports Third Quarter

Rocky Mountain Chocolate Factory, Inc. Reports Third Quarter
Operating Results 
Third Quarter and Nine-Month Earnings Increase, Excluding Asset
Impairment and Restructuring Charges Related to Yogurt Operations;
Company to Receive Royalties From Licensing of Rocky Mountain
Chocolate Factory Trademark to Fortune 500 Consumer Food Products
Company 
DURANGO, CO -- (Marketwire) -- 01/14/13 --  Rocky Mountain Chocolate
Factory, Inc. (NASDAQ: RMCF) (the "Company"), which
franchises/operates gourmet chocolate and self-serve frozen yogurt
stores and manufactures an extensive line of premium chocolates and
other confectionery products, today reported its operating results
for the third quarter and first nine months of FY2013. The Company
will host an investor conference call today at 4:15 p.m. Eastern Time
to discuss its operating results and other topics of interest (see
details below). 
HIGHLIGHTS 


 
--  Total revenue for the third quarter and nine-month period increased by
    4.3 percent and 6.2 percent, respectively.
    
    
--  Adjusted gross margin improved to 34.9 percent and 37.8 percent in the
    third quarter and nine-month period, respectively.
    
    
--  EBITDA, a non-GAAP financial measure, increased by 5.7 percent and 6.1
    percent in the third quarter and nine-month period, respectively,
    excluding non-recurring asset impairment and restructuring charges
    related to frozen yogurt operations (see reconciliation of GAAP and
    non-GAAP financial measures later in release).
    
    
--  Diluted earnings per share for the nine-month period of FY2013
    increased by 4.9 percent to $0.43 excluding non-recurring charges
    related to frozen yogurt operations.
    
    
--  Company enters into licensing agreement with global consumer food
    products company for use of Rocky Mountain Chocolate Factory trademark
    on cereal brands.
    
    
--  5th new store in Japan opened in third quarter in accordance with
    100-store Master Licensing Agreement.

  
MANAGEMENT COMMENTS 
"Overall, we were pleased with the operating and financial
performance of our Rocky Mountain Chocolate Factory business segment,
especially given the sluggish growth of the U.S. economy in recent
months," noted Bryan Merryman, Chie
f Operating Officer of Rocky
Mountain Chocolate Factory, Inc. "We continue to target international
franchising, co-branding, licensing and other growth vehicles outside
of our domestic franchise system. We believe these opportunities have
the potential, collectively, to significantly increase our earnings
over the next several years. To date, our licensing partner in Japan
has opened 5 stores, which are generating sales well above the
average volumes achieved by comparable Rocky Mountain Chocolate
Factory stores in the United States. Under the terms of a Master
Licensing Agreement that covers the entire country of Japan, our
licensing partner is required to open at least 100 new stores over
the initial 10-year license period, and we are currently evaluating
store locations and negotiating with potential licensees in a number
of other countries."  
"Excluding non-recurring and asset impairment charges related to
Aspen Leaf Yogurt, the Company would have posted a net income
increase of 6.4 percent during the third quarter and an increase of
4.2 percent in the first nine months of Fiscal 2013, despite
continued operating losses in the frozen yogurt business segment,"
continued Merryman. "Increases in factory margins, higher same-store
pounds of factory product purchased by franchised and licensed
stores, increased sales to customers outside of our franchised store
network, and sales at new stores in Japan were primarily responsible
for the Company's improved operating performance before the
impairment charge. In addition, continued improvement in the
factory's gross profit margin favorably impacted third quarter and
nine-month results. These positive factors were partially offset by
higher franchise costs related to our international development
program and increased expenses associated with operating more retail
stores."  
"As detailed in a news release distributed earlier today, we have
transferred all of our frozen yogurt assets and operations to
U-Swirl, Inc., along with a small amount of cash, in exchange for a
60 percent controlling equity interest in that publicly-traded
company," observed Frank Crail, Founder and Chief Executive Officer
of Rocky Mountain Chocolate Factory, Inc. "While we recorded a
non-recurring, non-cash asset impairment charge related to our Aspen
Leaf Yogurt business segment in the most recent quarter, we are
optimistic that U-Swirl's strong management team, bolstered by the
competitive strengths of a larger store base, can generate an
attractive long-term return on our investment in the frozen yogurt
business. Although we now own a majority equity stake in U-Swirl and
will be represented on U-Swirl's board of directors, Rocky Mountain
Chocolate Factory's management team will no longer be directly
involved in self-serve frozen yogurt activities. This will allow us
to focus exclusively upon the growth potential of our domestic and
international chocolate and confectionary manufacturing, franchising,
licensing and co-branding."  
"On the licensing front, we recently entered into an agreement with
one of the world's largest consumer food products companies that
allows such company to use the Rocky Mountain Chocolate Factory
trademark on certain cereal products," continued Crail. "After
conducting its own consumer research, the Fortune 500 company has
agreed to pay us an earned royalty, subject to a guaranteed minimum,
on all ready-to-eat cold cereal products sold, in the United States,
its territories and possessions, and U.S. military bases around the
world, that display the Rocky Mountain Chocolate Factory trademark.
We believe this represents an example of the licensing power that our
brand name is developing as we expand our retail presence throughout
the U.S. and in a growing number of foreign countries."  
"Even after recording a non-recurring impairment charge in the third
quarter of Fiscal 2013, we remain very proud of our strong balance
sheet," added Merryman. "The Company remains debt-free, with working
capital of $10.4 million and over $3.5 million of cash in the bank.
In May 2012, we announced a 10 percent increase in our quarterly cash
dividend to $0.11 per share, and we are very comfortable with our
current dividend policy, which has resulted in 11 cash dividend
increases during the 38 consecutive quarters since we began paying
dividends in September 2003. Cash flows provided by operating
activities continued to exceed our cash requirements for capital
expenditures and dividends during the first nine months of Fiscal
2013, and we have repurchased 163,300 shares of our common stock at
an average price of $10.48 per share since the beginning of the
fiscal year." 
THIRD QUARTER RESULTS  
For the three months ended November 30, 2012 (third quarter of
FY2013), revenue increased 4.3 percent to approximately $8.6 million,
compared with revenue of approximately $8.3 million in the third
quarter of the previous fiscal year. The revenue increase was
attributable to higher sales of factory products, greater sales from
Company-owned stores, an increase in royalty and marketing fees, and
higher franchise fees. 
Same-store sales at franchised retail outlets declined 0.7 percent in
the most recent quarter versus the prior-year period.  
Total factory sales 
increased 2.2 percent to approximately $6.3
million in the third quarter of FY2013, versus approximately $6.2
million in the quarter ended November 30, 2011. The improvement in
factory sales was primarily due to a 5.4 percent increase in
same-store pounds purchased by the Company's network of franchised
stores and an increase in sales to international and co-branded
locations. These increases were partially offset by a 19.6 percent
decrease in shipments to customers outside the Company's network of
franchised stores resulting from a shift in certain seasonal
shipments to December in the current fiscal year, whereas such
shipments were recorded in November of the previous fiscal year.  
Royalties and marketing fees increased 2.8 percent to $1,219,700 in
the third quarter of FY2013, compared with $1,186,100 in the
prior-year quarter, due to an increase in royalties based on the
Company's purchase-based royalty structure and higher royalties from
co-branded stores, partially offset by a modest reduction in
same-store sales and a decrease in the average number of domestic
franchised stores in operation. The average number of licensed
(co-branded) stores in operation increased from 46 units in the third
quarter of FY2012 to 54 units in the third quarter of FY2013.  
Franchise fees totaled $88,400 in the most recent quarter, compared
with negative franchise fees of ($21,600) in the third quarter of
FY2012 due primarily to a change in the franchise fee associated with
Aspen Leaf Yogurt stores and a resultant decrease in franchise fee
revenue associated with Aspen Leaf Yogurt locations opened during the
nine months ended November 30, 2011. The increase in franchise fees
in the quarter ended November 30, 2012 also reflected an increase in
franchised and licensed store openings from 4 in the third quarter of
FY2012 to 8 in the third quarter of FY2013. 
Retail sales increased 8.0 percent to $1,004,300 in the third quarter
of FY2013, from $929,900 in the third quarter of FY2012, due to an
increase in the average number of Company-owned stores in operation
from 12 in the prior-year quarter to 15 in the most recent quarter.
Same-store sales at Company-owned locations decreased 8.0 percent in
the third quarter of FY2013 when compared with the third quarter of
the previous fiscal year. The Company believes the decline in
same-store sales at Company-owned locations primarily resulted from
the grand opening effect of Aspen Leaf Yogurt locations upon revenue
during the three months ended November 30, 2011.  
The Company recorded a non-recurring, non-cash asset impairment
charge of approximately $2.0 million in the most recent quarter,
primarily related to the write-down of company-owned store asset
values in its Aspen Leaf Yogurt business segment. In addition to the
impairment of assets, the Company expects to incur future
restructuring costs of $500,000 to $600,000 associated with this
restructuring, of which approximately $47,000 were recognized in the
quarter ended November 30, 2012.  
As a result of the non-recurring charge, the Company posted a net
loss of ($509,484), or ($0.08) per basic and diluted share, in the
quarter ended November 30, 2012, compared with net income of
$724,968, or $0.12 per basic and diluted share, in the quarter ended
November 30, 2011.  
The Company generated EBITDA, excluding impairment and restructuring
costs, of $1,369,000 in the most recent quarter, compared with
$1,295,000 in the third quarter of FY2012. A reconciliation of
non-GAAP EBITDA to net income is provided in a supplementary table at
the end of this release.  
During the third quarter of FY2013, franchisees opened new Rocky
Mountain Chocolate Factory stores in Danbury, CT; Lehi, UT; Osaka,
Japan; Urawa Misono, Japan; Chiba Narita, Japan and Saskatoon,
Sasketchewan, Canada; Cold Stone Creamery co-branded stores in Price,
UT; Sandy, UT and Evansville, IN; and Aspen Leaf Yogurt stores in
Iowa City, IA; Littleton, CO and Broomfield, CO. A complete list of
stores is available on the Company's websites at www.rmcf.com and
www.aspenleafyogurt.com. 
NINE-MONTH RESULTS 
For the nine months ended November 30, 2012 (first nine months of
FY2013), revenue increased 6.2 percent to approximately $26.0
million, compared with revenue of approximately $24.5 million in the
first nine months of the previous fiscal year. The revenue increase
was attributable to higher sales of factory products, higher
same-store sales, increased sales from Company-owned stores, an
increase in royalty and marketing fees, and higher franchise fees. 
Same-store sales at franchised retail outlets increased 1.1 percent
in the nine months ended November 30, 2012 when compared with the
nine months ended November 30, 2011.  
Total factory sales increased 5.6 percent to approximately $17.5
million in the first nine months of FY2013, versus approximately
$16.6 million in the first nine months of FY2012. The improvement in
factory sales was primarily due to a 6.6 percent increase in sales to
domestic and international franchised and licensed stores and a 1.5
percent increase in shipments of product to customers outside the
Company's network of franchised retail stores. These increases were
partially offset by a 3.8 percent decrease in the average number of
domestic Rocky Mountain Chocolate Factory franchised stores in
operation. Same-store pounds purchased by the Company's network of
franchised stores was unchanged in the nine months ended November 30,
2012 relative to the prior-year period.  
Royalties and marketing fees increased 4.9 percent to $4,127,900 in
the first nine months of FY2013, compared with $3,935,900 in the
corresponding period of the previous fiscal year, due to an increase
in royalties based on the Company's purchase-based royalty structure,
higher same-store sales, and greater royalties from co-branded
stores, partially offset by a decrease in the average number of
domestic franchised stores in operation. The average number of
licensed (co-branded) stores in operation increased from 44 units in
the nine months ended November 30, 2011 to 52 units in the most
recent nine-month period.  
Franchise fees increased 8.5 percent to $247,500 in the nine months
ended November 30, 2012, from $228,200 in the prior-year period,
primarily resulting from an increase in international license fees,
partially offset by a decrease in domestic franchise store openings
from 11 during the nine months ended November 30, 2011 to 9 openings
during the nine months ended November 30, 2012. 
Retail sales increased 10.4 percent to $4,163,200 in the first nine
months of FY2013, from $3,772,000 in the year-earlier period, due to
an increase in the average number of Company-owned stores in
operation from 13 in the nine months ended November 30, 2011 to 17 in
the same period of the current fiscal year. Same-store sales at
Company-owned stores decreased 1.0 percent in the nine months ended
November 30, 2012 when compared with the first nine months of the
previous fiscal year.  
Net income for the nine months ended November 30, 2012 declined to
$1,381,627, versus $2,556,180 in the corresponding period of the
previous fiscal year. The decline in net income was entirely due to
the above mentioned non-recurring, non-cash impairment charge
associated with the Aspen Leaf Yogurt business segment that was
recorded in the third quarter of FY201
3. Basic earnings per share
decreased to $0.23 in the first nine months of FY2013, compared with
$0.42 in the prior-year period. Diluted earnings per share decreased
to $0.22 in the first nine months of FY2013, versus $0.41 in the
year-earlier period. 
The Company generated EBITDA, excluding impairment and restructuring
costs, of $4,728,000 in the first nine months of FY2013, compared
with $4,456,000 in the corresponding period of the previous fiscal
year. A reconciliation of non-GAAP EBITDA to net income is provided
in a supplementary table at the end of this release. 
On December 14, 2012, the Company paid a quarterly cash dividend in
the amount of $0.11 per share to shareholders of record at the close
of business on November 30, 2012. The annualized dividend of $0.44
per share provides a current yield of 3.8% to shareholders, based
upon the closing price of RMCF shares on the Nasdaq Global Market on
January 11, 2013.  
Non-GAAP Financial Measures
 Rocky Mountain Chocolate Factory, Inc.
has provided financial information in this release that has not been
prepared in accordance with GAAP. This information includes EBITDA,
which is defined as net income (loss) before interest, taxes,
depreciation, and amortization. The Company uses such non-GAAP
financial measures internally in analyzing its financial results and
believes they are useful to investors, as a supplement to GAAP
measures, in evaluating Rocky Mountain Chocolate Factory, Inc.'s
ongoing operational performance. The Company believes that the use of
these non-GAAP financial measures provides an additional tool for
investors to evaluate ongoing operating results and trends and in
comparing its financial measures with other companies in Rocky
Mountain Chocolate Factory's industry, many of which present similar
non-GAAP financial measures to investors.  
Non-GAAP financial measures should not be considered in isolation
from, or as a substitute for, financial information prepared in
accordance with GAAP. Investors are encouraged to review the
reconciliation of these non-GAAP measures to their most directly
comparable GAAP financial measure as detailed above. As previously
mentioned, a reconciliation of GAAP to the non-GAAP financial
measures has been provided in the tables included as part of this
press release. 
Investor Conference Call 
The Company will host an investor conference call today, January 14,
2013 at 4:15 p.m. EST to discuss its operating results for the
quarter and nine months ended November 30, 2012, along with other
topics of interest. To access the conference call, please dial
877-374-8416 (international participants dial 412-317-6716)
approximately five minutes prior to 4:15 p.m. EST and ask to be
connected to the "Rocky Mountain Chocolate Factory Conference Call".
A replay of the conference call will be available one hour after
completion of the call until Thursday, January 21, 2013 at 5:00 p.m.
EST by dialing 877-344-7529 (international callers dial 412-317-0088)
and entering the conference I.D. #10023114.  
About Rocky Mountain Chocolate Factory, Inc. 
Rocky Mountain Chocolate Factory, Inc., headquartered in Durango,
Colorado, is an international franchiser of gourmet chocolate,
confection and self-serve frozen yogurt stores and a manufacturer of
an extensive line of premium chocolates and other confectionery
products. As of January 13, 2013 the Company and its franchisees
operated 376 stores in 42 states, Canada, Japan and the United Arab
Emirates. The Company's common stock is listed on The Nasdaq Global
Market under the symbol "RMCF." 
Forward-Looking Statements 
Certain statements in this press release are "forward-looking
statements" within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. These
statements involve risks and uncertainties, and the Company
undertakes no obligation to update any forward-looking information.
Risks and uncertainties that could cause cash flows to decrease or
actual results to differ materially include, without limitation,
seasonality, consumer interest in the Company's products, general
economic conditions, consumer and retail trends, costs and
availability of raw materials, competition, the success of the
Company's co-branding agreement with Cold Stone Creamery Brands, the
success of international expansion efforts, including but not limited
to new store openings, the success of the Aspen Leaf Yogurt concept
and other risks. Readers are referred to the Company's periodic
reports filed with the SEC, specifically the most recent reports
which identify important risk factors that could cause actual results
to differ from those contained in the forward-looking statements. The
information contained in this press release is a statement of the
Company's present intentions, beliefs or expectations and is based
upon, among other things, the existing business environment, industry
conditions, market conditions and prices, the economy in general and
the Company's assumptions. The Company may change its intentions,
beliefs or expectations at any time and without notice, based upon
any changes in such factors, in its assumptions or otherwise. The
cautionary statements contained or referred to in this press release
should be considered in connection with any subsequent written or
oral forward-looking statements that the Company or persons acting on
its behalf may issue. 
(Financial Highlights Follow) 


 
                              STORE INFORMATION                             
                                                                            
                                 New stores opened during                   
                                    three months ended     Stores open as of
                                    November 30, 2012      November 30, 2012
                                ------------------------- ------------------
United States                                                               
Rocky Mountain Chocolate                                                    
 Factory                                                                    
  Franchise Stores                                      2                235
  Company-Owned Stores                                  0                  7
  Cold Stone Creamery                                   3                 55
Aspen Leaf Yogurt                                                           
  Franchise Stores                                      3                  8
  Company-Owned Stores                                  0                  8
International License Stores                            4                 64
                                ------------------------- ------------------
Total                                                  12                377
                                ========================= ==================
                                                                            
                                      
                                      
                             Interim Unaudited                              
                          STATEMENTS OF OPERATIONS                          
                   (in thousands, except per share data)                    
                                                                            
                            Three Months Ended        Three Months Ended    
                               November 30,              November 30,       
                             2012         2011         2012         2011    
                                                                            
Revenues                                                                    
  Factory sales          $     6,323  $     6,186         73.2%        74.7%
  Royalty and marketing                                                     
   fees                        1,220        1,186         14.1%        14.3%
  Franchise fees                  89          (22)         1.0%        -0.3%
  Retail sales                 1,004          930         11.6%        11.2%
  Total Revenues               8,636        8,280        100.0%       100.0%
                                                                            
Costs and Expenses                                                          
  Cost of sales                4,769        4,681         55.2%        56.5%
  Franchise costs                458          453          5.3%         5.5%
  Sales and marketing            448          401          5.2%         4.8%
  General and                                                               
   administrative                848          800          9.8%         9.7%
  Retail operating               744          650          8.6%         7.9%
  Depreciation and                                                          
   amortization                  223          194          2.6%         2.3%
  Impairment of long-                                                       
   lived assets                1,978            -         22.9%         0.0%
  Total Costs and                                                           
   Expenses                    9,468        7,179        109.6%        86.7%
                                                                            
Income from operations          (832)       1,101         -9.6%        13.3%
                                                                            
Interest income                   10           15          0.1%         0.2%
                                                                            
Income before income                                                        
 taxes                          (822)       1,116         -9.5%        13.5%
                                                                            
Provision for income                                                        
 taxes                          (313)         391         -3.6%         4.7%
                                                                            
Net income               $      (509) $       725         -5.9%         8.8%
                                                                            
Basic Earnings Per                                                          
 Common Share            $     (0.08) $      0.12                           
Diluted Earnings Per                                                        
 Common Share            $     (0.08) $      0.12                           
                                                                            
Weighted Average Common                                                     
 Shares Outstanding        6,050,279    6,126,007                           
                                                                            
Dilutive Effect of                                                          
 Employee Stock Options      130,577      159,445                           
                                                                            
Weighted Average Common                                                     
 Shares Outstanding,                                                        
 Assuming Dilution         6,180,856    6,285,452                           
                                                                            
                                                                            
                                                                            
                              Interim Unaudited                             
                          STATEMENTS OF OPERATIONS                          
                    (in thousands, except per share data)                   
                                                                            
                                Nine Months Ended       Nine Months Ended   
                                   November 30,           November 30,      
                                 2012        2011       2012        2011    
                                                                            
Revenues                                                                    
  Factory sales              $    17,485 $    16,558       67.2%       67.6%
  Royalty and marketing fees       4,128       3,936       15.9%       16.1%
  Franchise fees                     248         228        1.0%        0.9%
  Retail sales                     4,163       3,772       16.0%       15.4%
  Total Revenues                  26,024      24,494      100.0%      100.0%
                                                                            
Costs and Expenses                                                          
  Cost of sales                   13,461      12,892       51.7%       52.6%
  Franchise costs                  1,559       1,375        6.0%        5.6%
  Sales and marketing              1,318       1,226        5.1%        5.0%
  General and administrative       2,390       2,257        9.2%        9.2%
  Retail operating                 2,568       2,288        9.9%        9.3%
  Depreciation and                                                          
   amortization                      692         553        2.7%        2.3%
  Impairment of long-lived                                                  
   assets                          1,978           -        7.6%        0.0%
  Total Costs and Expenses        23,966      20,591       92.1%       84.1%
                                                                            
Income from operations             2,058       3,903        7.9%       15.9%
                                                                            
Interest income                       33          46        0.1%        0.2%
                                                                            
Income before income taxes         2,091       3,949        8.0%       16.1%
                                                                            
Provision for income taxes           709       1,393        2.7%        5.7%
                                                                            
Net income                   $     1,382 $     2,556        5.3%       10.4%
                                                                            
Basic Earnings Per Common                                                   
 Share                       $      0.23 $      0.42                        
Diluted Earnings Per Common                                                 
 Share                       $      0.22 $      0.41                        
                                                                            
Weighted Average Common                                                     
 Shares Outstanding            6,085,057   6,102,704                        
                                                                            
Dilutive Effect of Employee             
                                    
 Stock Options                   145,731     194,136                        
                                                                            
Weighted Average Common                                                     
 Shares Outstanding,                                                        
 Assuming Dilution             6,230,788   6,296,840                        
                                                                            
                                                                            
             SELECTED BALANCE SHEET DATA           
                  (in thousands)                  
                                                  
                        November 30,  February 29,
                            2012          2012    
Current Assets         $      13,493 $      14,099
Total Assets           $      20,780 $      24,163
Current Liabilities    $       3,094 $       3,542
Stockholder's Equity   $      16,794 $      18,736
                                                  
                                                  
                            GAAP RECONCILIATION                             
                    EBITDA EXCLUDING IMPAIRMENT CHARGES                     
                               (in thousands)                               
                                                                            
                               Three Months Ended November 30,    Change    
                                    2012             2011                   
GAAP: Income from Operations  $          (832) $         1,101       -175.6%
Depreciation and Amortization             223              194              
Impairment and Restructuring            1,978                -              
Non-GAAP EBITDA:              $         1,369  $         1,295          5.7%
                                                                            
                                                                            
                            GAAP RECONCILIATION                             
                    EBITDA EXCLUDING IMPAIRMENT CHARGES                     
                               (in thousands)                               
                                                                            
                                Nine Months Ended November 30,    Change    
                                     2012            2011                   
GAAP: Income from Operations   $         2,058 $         3,903        -47.3%
Depreciation and Amortization              692             553              
Impairment and Restructuring             1,978               -              
Non-GAAP EBITDA:               $         4,728 $         4,456          6.1%

  
For Further Information, Contact 
Bryan J. Merryman
COO/CFO
(970) 259-0554 
 
 
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