Total revenue for Rocky Mountain Chocolate Factory was down by half a million dollars during the first quarter of the company’s 2024 fiscal year.
The news comes after total revenue increased in fiscal year 2023 by 3% to $30.4 million compared with $29.5 million in FY 2022. The company said the decrease was mostly a result of losing $300,000 because of a lower shipment of products.
The company divested its U-Swirl frozen yogurt business in May and started to cut down on the number of underperforming products by 25%. CEO Rob Sarlls said despite losing the revenue from those products, the move will increase the ability to produce significantly higher volumes of the chocolate company’s most popular items.
Total factory and retail gross profit was 300,000 compared to 900,000, with a gross margin of 5.1% compared to 16.3%.
The decreases were primarily a result of lower production volume resulting from the company’s strategy to produce finished goods closer to final consumption, reduction of noncore products, and higher costs related to wages and inflation.
The company began implementing its strategic plan in late May to right the ship after the company had a 30% decrease in store count over the last 10 years.
In addition, the company recently entered a standstill agreement with dissident shareholders in December so that the board and shareholders could develop a clear vision for RMCF.
“To amplify and elevate our brand, we recently completed an overhaul of our franchise offering and documentation, establishing for the first time an area development offering to better attract multiunit operators, as well as simplifying our royalty structure and implementing new standards and incentives for greater selling of Durango-sourced products,” Sarlls said.
Operating expenses also increased from the first fiscal quarter 2023 to the first quarter 2024, from $7.2 million to $7.9 million. The increase was attributed to the hiring of additional staff in mid- to senior leadership roles.
“With the completion of the frozen yogurt sale, our two newly appointed franchise operations directors have transitioned into their new roles and are now fully focused on encouraging higher compliance to brands standards, as well as working directly with franchisees to help increase sales and achieve better store-level economics,” Sarlls said.
RMCF has also migrated some store delivery logistics to now utilize third-party cross docking to reduce trips and maximize pound volume on trucks shipped from Durango. The company also eliminated two off-site third-party warehouses during the quarter because of better efficiency and demand planning.
This created a 46% reduction of inventory compared to the prior year and initiatives have combined for over $700,000 in annual cost savings, which is more than 60% of the company’s $1.2 million annual cost saving target introduced last quarter, Sarlls said.
The company continues its overhaul with its new strategic plan as it prepares for its annual stockholder meeting event Aug. 18 in Durango.