Rocky Mountain Chocolate Factory, Inc. :RMCF-US: Earnings Analysis: Q3, 2018 By the Numbers : January 19, 2018

Rocky Mountain Chocolate Factory, Inc. reports financial results for the quarter ended November 29, 2017.


  • Summary numbers: Revenues of USD 9.96 million, Net Earnings of USD 0.75 million.
  • Gross margins narrowed from 39.08% to 34.20% compared to the same period last year, operating (EBITDA) margins now 15.42% from 19.44%.
  • Change in operating cash flow of -164.14% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-11-29 2017-08-30 2017-05-30 2017-02-27 2016-11-29
Relevant Numbers (Quarterly)
Revenues (mil) 9.96 8.27 9.35 10.36 9.96
Revenue Growth (%YOY) 0.06 -3.9 -0.32 -5.89 1.51
Earnings (mil) 0.75 0.93 0.81 0.73 1.01
Earnings Growth (%YOY) -25.77 -4.77 11.18 -14.85 30.78
Net Margin (%) 7.54 11.23 8.71 7.06 10.16
EPS 0.13 0.16 0.14 0.12 0.17
Return on Equity (%) 3.84 4.81 4.29 3.85 5.34
Return on Assets (%) 10.22 12.53 10.99 9.83 13.49

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, RMCF-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if RMCF-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 20.50% and earnings by -19.09% compared to the previous period.

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 39.08% to 34.20%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 19.44% to 15.42% in this time frame. For comparison, gross margins were 46.64% and EBITDA margins were 22.07% in the previous period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

RMCF-US’s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 66.16 days, compared to last year’s level of 64.00 days.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

RMCF-US’s year-on-year change in operating cash flow of -164.14% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.


The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 16.23% to 12.04% and (2) one-time items that contributed to a decrease in pretax margins from 15.91% to 11.82%

EBIT Margin History
PreTax Margin History

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Company Profile

Rocky Mountain Chocolate Factory, Inc. is an international franchisor, confectionery manufacturer and retail operator. The Company’s subsidiary, U-Swirl International, Inc. (U-Swirl), franchises and operates soft-serve frozen yogurt stores. The Company operates through five segments: Franchising, Manufacturing, Retail Stores, U-Swirl operations and Other. The Company manufactures a range of chocolate candies and other confectionery products. The Company’s franchised/license system of retail stores features chocolate, frozen yogurt and other confectionary products. The Company also sells its candy in selected locations outside of its system of retail stores and licenses the use of its brand with certain consumer products. The Company’s products include a range of clusters, caramels, creams, mints and truffles. Its individual stores also offer over 15 fudges and other products prepared in the store. The Company uses chocolate, nut meats and other ingredients in its candies.

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