Chocolatier pursues yogurt profits

Can Rocky Mountain Chocolate Factory cut losses and stop losing money?

Rocky Mountain Chocolate Factory has acquired a 60 percent controlling equity interest in a public frozen-yogurt company in an attempt to make its frozen-yogurt franchise, Aspen Leaf Yogurt, profitable.

The chocolate company acquired Yogurtini International, LLC – a privately-owned self-serve frozen-yogurt franchise – and subsequently exchanged the Yogurtini assets, Aspen Leaf Yogurt and $78,000 in cash for 60 percent interest in U-Swirl Inc.

“We believe these transactions will make U-Swirl a competitive, profitable source in the self-serve frozen-yogurt market,” Bryan Merryman, chief operating officer for the Durango-based company, said in a conference call with investors Monday.

Merryman released RMCF’s operating results for the third quarter and first nine months of fiscal year 2013, which ended Nov. 30.

Revenue increased 6.1 percent to about $26 million for the first nine months of fiscal year 2013, compared with about $24.5 million during the same period of the previous fiscal year.

Revenue for the third quarter increased 4.3 percent to about $8.6 million, compared with about $8.3 during last fiscal year’s third quarter.

“Excluding nonrecurring 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 increase of 4.2 percent in the first nine months of fiscal 2013, despite continued operating losses in the frozen yogurt business segment,” Merryman said in a news release.

RMCF has yet to make a profit on Aspen Leaf, and the chocolatier announced in its second quarterly report in October 2012 that it just hoped the franchise would stop losing money.

Merryman blamed the failure on timing, saying Rocky Mountain Chocolate Factory didn’t get to market soon enough, and the potential for frozen-yogurt stores was affected by an explosion of mom-and-pop stores.

The U-Swirl transaction has been in the works for more than a year, he said, and the move will allow all three companies that were not profitable before the sale to become profitable “after a transition period we hope will be very short.”

RMCF is examining acquiring two other companies through U-Swirl, Merryman said.

The company also announced it has entered an agreement with one of the world’s largest consumer food-products companies to feature the Rocky Mountain’s chocolate brand on certain cereal products.

The company will not release the name of the cereal company until the product is launched, Merryman said.

Investors reacted positively to the announcement.

“This is a validation that the Rocky Mountain Chocolate Factory brand does matter to the public, and I hope this is the beginning of a lot more growth in that area,” said Jeff Geygan, president of the Milwaukee Private Wealth Management Inc.

Geygan had previously expressed concern about RMCF losing money with the Aspen Leaf venture and questioned when the company would cut its losses.

“We would have hoped they would have cut it off a little earlier, but in the end, we think they’re doing the right thing by reducing their exposure,” Nick Peters, vice president of investment research for the Milwaukee company, said in an interview with The Durango Herald.

Peters said, “Ultimately, we’re supportive of the transaction to buy Yogurtini and sell to U-Swirl because we think this will allow Rocky Mountain to focus on what they do best, which is franchise and sell chocolate.”

The chocolatier opened its fifth store in Japan in November as part of its master agreement that requires it to open at least 100 new stores during a 10-year license period.

Investors questioned when further expansion abroad would occur.

The company had planned to open stores in Shanghai and Hong Kong, but the deal hasn’t come to fruition yet, Merryman said.

“Both of those openings aren’t necessarily off, but we didn’t get it open for this season, and we continue to discuss the potential for locations in both those markets,” he said.

International growth is a large part of the company’s strategy moving forward, he said.