Recovery in yogurt business boosts Rocky Mountain revenues, earnings

by Eric Schroeder
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DURANGO, COLO. — Buoyed by revenues and a rebound in its U-Swirl yogurt business, earnings at Rocky Mountain Chocolate Factory Inc. increased 11% in the first quarter of fiscal 2014. Net income in the period ended May 31 was $1,179,000, equal to 19c per share on the common stock, up from $1,062,000, or 17c per share, in the same period a year ago. Total revenues in the first quarter were $10,177,000, up 5% from $9,658,000.

“Same-store sales continued to increase, rising 2.5% in the most recent quarter after a 1.1% improvement in the first quarter of fiscal 2013,” said Bryan Merryman, chief operating officer and chief financial officer. “Our pre-tax profit margin widened to 18% of total revenues, compared with 16.9% in the first quarter of the previous fiscal year. Other performance metrics of note included a 250 basis-point improvement in our retail gross margin, which reflected improved economies of scale at our majority-owned U-Swirl, Inc. subsidiary.”

Mr. Merryman said Rocky Mountain continues to emphasize international expansion. During the first quarter of fiscal 2014 the company entered into agreements with licensees in South Korea and Saudi Arabia. The licensee in South Korea already has opened a store in Seoul and is expected to open five stores within a 30-month period. In Saudi Arabia, the licensee must open four stores within 30 months. Additionally, Rocky Mountain continues to work with its licensee in Japan to address operational issues that have slowed the pace of anticipated openings in that country, Mr. Merryman said.

Rocky Mountain’s licensing agreement with The Kellogg Co. on Rocky Mountain Chocolate Factory Chocolatey Almond breakfast cereal was deemed a success by Mr. Merryman, who added that preliminary plans call for an expanded retail roll-out in early 2014.

“This licensing agreement illustrates the national recognition that our Rocky Mountain Chocolate Factory brand name has developed among consumers over the past 32 years, and we believe this roll-out will expose our brand name to several million consumers, while promoting ‘top-of-mind’ awareness that should benefit our Rocky Mountain Factory stores in regional malls and other retail venues,” he said.

After sustaining a loss in the first quarter of fiscal 2013, Rocky Mountain’s U-Swirl, Inc. business was profitable in the first quarter of fiscal 2014, Mr. Merryman said. Rocky Mountain restructured its frozen yogurt operations in the second half of fiscal 2013, including the transfer of its Aspen Leaf Yogurt and Yogurtini assets and other considerations for a 60% equity interest in U-Swirl. U-Swirl has 74 self-serve franchised and company-operated frozen yogurt stores in operation, up from 28 stores a year earlier, an expansion that Mr. Merryman said has allowed the company to realize economies of scale while positioning U-Swirl to potentially acquire additional frozen yogurt operators and franchisors in the future.

“We believe U-Swirl has an opportunity to become a leading consolidator in the industry, while generating an attractive return from R.M.C.F. shareholders in coming years,” he said. “We have also identified an opportunity to further distinguish U-Swirl from its competitors, while increasing sales opportunities for our chocolate factory in Durango, through the opening of co-branded U-Swirl Frozen Yogurt / Rocky Mountain Chocolate Factory stores, the first of which opened in Tennessee in the first quarter of fiscal 2014.”

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