Rocky Mountain Highs

Same-store retail sales decreased 10.2% in the second quarter in comparison to the same period in 2004. The increase in total retail sales resulted from an increase in the average number of stores in operation this year compared with last year. Rocky Mountain officials blamed the same-store decline primarily on unusually hot weather, which historically cuts into chocolate sales. They also cited a moderate softening in the retail sector and a slight reduction because of high gas prices.

Frank Crail, Rocky Mountain chairman and CEO, called this quarter "a tough summer," saying, "Not only did we have hot weather in our key markets, we also faced increased competition," in key markets in Colorado and Massachusetts. In two of those markets, a Ben & Jerry's ice cream parlor opened near one of the Rocky Mountain stores, and in one market a Coldstone Creamery opened near the chocolate store.

Rocky Mountain continues to enjoy "strong demand for new store locations from both new and existing franchisees," according to Bryan Merryman, chief operating officer, who noted that about half of the new stores opened during the first half of this fiscal year have been franchised locations. In answer to an analyst's question, Merryman and Crail said that kiosks continue to perform well and remain a part of the company's growth strategy.

However, "We don't believe we'll sell as many kiosks in the future as we once did, but we'll make up those sales in the stores," Merryman said. According to Crail, franchisees prefer to have an in-line store to carry more products, so the demand is higher for the company's full-sized stores.

Rocky Mountain franchisees opened seven new stores in the second quarter and have opened 12 new locations during the first half of the fiscal year, according to Merryman. He said that while store openings during the second quarter were fewer than the 10 to 15 originally anticipated due to permitting and construction delays, franchisees have opened another six stores since the end of the quarter. Rocky Mountain expects a total of 15 to 20 new stores to open during the third quarter, Merryman said, and the company still expects new store openings for the fiscal year ending Feb. 28, 2006 to reach or exceed its target of 40 units.

This was the ninth consecutive quarter of record earnings when compared with previous-year periods," noted Crail, who pointed out that the comparison grows more difficult each quarter because the company is up against "very strong prior-year numbers. The per-share financial figures announced Wednesday were adjusted for a 5% stock dividend that was distributed to shareholders in March and a four-for-three stock split distributed to shareholders in June.

Rocky Mountain is an international franchiser of gourmet chocolate and confection stores and a manufacturer of premium chocolates and other sweets. The company and its franchisees operate 297 stores in 41 states, Canada, Guam and the United Arab Emirates.