Rocky Mountain Chocolate Factory (NASDAQ:RMCF) executives said the company’s “margin-first transformation strategy” produced meaningful gross profit improvement in its fiscal third quarter of 2026, even as revenue declined due to an intentional pullback from lower-margin channels.
Interim Chairman and Interim CEO Jeff Geygan told investors the company is prioritizing profitability and long-term value creation “over lower-quality revenue,” acknowledging that the approach created near-term revenue pressure and a modest net loss for the quarter. Management highlighted actions across pricing, product mix, SKU rationalization, and manufacturing efficiencies, while also pointing to franchise development momentum and technology investments intended to support future growth.
Margin improvement alongside intentional revenue pressure
Despite the lower revenue, Cass said total product and retail gross profit increased to $1.4 million from $0.7 million a year earlier, driven by pricing actions, improved product mix, and labor efficiencies. Cass added that the gains were partially offset by short-term operational inefficiencies related to higher material and freight costs, but said the company is continuing to optimize its manufacturing and cost structure and expects to maintain margins.
Costs also fell year over year. Cass reported total costs and expenses of $7.5 million, down from $8.6 million in the prior-year quarter, citing savings “across nearly all areas of operations.”
- Net loss: $0.2 million, or -$0.02 per share, compared with a $0.8 million loss, or -$0.11 per share, a year earlier
- EBITDA: $0.4 million, compared with -$0.4 million in the prior-year quarter
Geygan also cited improvement in gross manufacturing margin, stating it was 21.4% for the quarter ended Nov. 30, 2025, compared with 10% in the same quarter of the prior year and negative 0.6% in the prior quarter ended Aug. 31.
Pricing actions, SKU rationalization, and manufacturing changes
Geygan said the company has implemented targeted price adjustments over the past year and as recently as Jan. 2, designed to achieve a specific margin objective across four core franchise categories: bulk candies, packaged goods, supplies, and ingredients. He emphasized pricing actions were not uniform, saying some prices were unchanged and others reduced as the company seeks to optimize sales mix and throughput across a network of more than 250 franchised and licensed locations.
He also said the company is beginning to see benefits from SKU rationalization and production labor efficiencies, including elimination of “hundreds of low-contributing SKUs,” the elimination of temporary labor, a large reduction in overtime hours, and improved production scheduling. Management added a second production shift at the chocolate factory to increase flexibility and efficiency in scheduling and maintenance.
Geygan said he believes an additional $500,000 to $1 million of savings can be realized in the current cost structure.
Cocoa costs and purchasing strategy
Management said it expects additional benefit from lower input costs, including the “recent elimination of an approximate 10% tariff on cocoa.” Geygan told analysts that cocoa futures were trading at just over $5,100 at the time of the call, after having spiked as high as roughly $12,000 per metric ton. He noted the company consumes chocolate rather than cocoa directly, but said chocolate prices move directionally with cocoa.
Geygan said the company had used $8,000 as a ceiling when initiating a strategy to lock in future pricing and has recently locked in pricing closer to $5,000 for roughly 20% of expected annual consumption volume. Asked to quantify how much of raw materials are tied to chocolate or cocoa, management said it has not disclosed that detail, but Geygan said investors should expect a margin tailwind as cocoa prices come down because chocolate represents a substantial part of raw material costs.
Franchise development pipeline and store strategy
Franchise development was a major focus of the call. Geygan said the company currently has two new stores under construction and 34 stores under recently negotiated area development agreements. During the Q&A, he said the 34-store total spans four franchisees—three existing operators and one new to the system—and added that additional area development agreements are in the queue.
Geygan described a measured pace of rollout, with agreements generally requiring stores to be started within three or four years and completed within four or five years. He said the company is prioritizing “quality over quantity” and partnering with well-capitalized, financially sophisticated operators. Asked about financing, Geygan said those partners have liquidity and that the company is focused on franchisees whose need to take on significant debt to build stores is minimal.
Management also said it is rationalizing the current store base by allowing underperforming locations to close, citing minimal revenue contribution and potential brand-image impact. The company is working to reduce development costs and shorten the timeline from lease signing to opening, which Geygan said currently stands at about six months.
When asked when new franchise efforts will begin to show up on the top line, Geygan said a store typically takes roughly three years to reach maturity, with lease signing to opening taking about six months and the lease process taking two to four months. He added that the company has “very little interest” in supporting openings that it does not believe can generate at least $1 million in annual retail sales within three years. In response to a follow-up question, Geygan said that if the discussion is exclusively about incremental revenue from new stores, he does not expect dramatic revenue growth in 2026 from those openings and expects more impact next year.
He also pointed to opportunities within the existing network, citing “substantial opportunity” to increase the amount of chocolate factory product sold through approximately 140 stores, with a focus on store-level mix and same-store sales. He said the company also has an e-commerce channel and intends to penetrate specialty markets further, but only where margins are appropriate.
Rebrand, digital initiatives, and balance sheet actions
Geygan said all stores have fully transitioned to new packaging, with legacy copper packaging phased out on Nov. 30. Full remodels are scheduled to begin after March 1, with the goal of completing the majority by October 2026 ahead of the holiday season and aligning virtually all stores with the new brand identity within 24 months. Remodels will include new exterior signage, updated interior layouts, and enhanced merchandising.
Management discussed performance in several locations, including newer stores in Chicago, Illinois, and Charleston, South Carolina, as well as a remodeled company-owned store in Corpus Christi, Texas. Geygan said the Corpus Christi store has recorded daily sales over $4,000 on several occasions, adding that the company targets $2,800 per day as a benchmark for a $1 million location.
On digital and technology initiatives, the company said DoorDash Storefronts are live as a white-labeled, zero-commission model aimed at improving unit economics for franchisees. Geygan said the company has created unique store websites for 100% of domestic locations, accessible through the corporate store locator or web search, supporting online ordering for pickup or delivery via a store’s white-labeled DoorDash site. A loyalty program is under active development with vendor engagement underway and an expected rollout in the first half of the calendar year, management said.
Geygan also said more than 120 stores are live on a new POS system, which he said provides richer data on transactions, average ticket, basket composition, and cross-selling activity. The company’s ERP implementation is also ongoing, with management citing process improvements intended to reduce production costs.
Subsequent to quarter end, Geygan said the company completed a $2.7 million equity capital raise, enabling it to pay down $1.2 million of debt and retain $1.5 million in additional working capital. In response to an analyst question on the balance sheet, he said the next leg of the capital allocation plan is expected to focus on reducing debt and investing in the company, “presume[d]” to come from free cash flow rather than additional equity issuance.
About Rocky Mountain Chocolate Factory (NASDAQ:RMCF)
Rocky Mountain Chocolate Factory, Inc is a specialty chocolate confectionery franchisor and manufacturer headquartered in Durango, Colorado. Established in 1981, the company develops, produces and markets a range of premium chocolate products, including truffles, caramels, toffees, fudge, nuts, dipped fruits and caramel apples. It operates company-owned retail stores as well as a franchised network, supplying handcrafted confections and related gift items through more than 300 retail locations across North America and select international markets.
From its origins as a single store in downtown Durango, Rocky Mountain Chocolate Factory introduced its first franchised outlets in the mid-1980s and completed a public offering in 1985.
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