Rocky Mountain Chocolate Factory Reports Record FY2008 Revenues and Earnings

After-Tax Return on Beginning Shareholders' Equity Exceeds 34% for Fiscal Year Company Declares First Quarter Cash Dividend of $0.10 Per Share

DURANGO, Colo., May 8 // PRNewswire-FirstCall // -- Rocky Mountain Chocolate Factory, Inc. (Nasdaq: RMCF), which franchises gourmet chocolate and confection stores and manufactures an extensive line of premium chocolates and other confectionery products, today reported record revenues and earnings for the fiscal year ended February 29, 2008 (FY2008).

"We are very pleased to report another year of growth in revenues and net income during Fiscal 2008, despite a very difficult retail environment during the second half of the fiscal year," noted Bryan Merryman, Chief Operating Officer and Chief Financial Officer of Rocky Mountain Chocolate Factory, Inc. "Our revenues rose 1% to a record $31.9 million, while total system-wide sales at franchised and company-owned stores increased 4% to $113.3 million. Net income increased 5% to approximately $5.0 million, diluted earnings per share rose 7% to a record $0.76, and our after-tax return on beginning shareholders' equity reached a record 34% during fiscal 2008."

"Our franchisees opened 35 new stores during the course of the fiscal year," continued Merryman. "This increased the total number of Rocky Mountain Chocolate Factory locations in operation to 330 as of February 29, 2008.

For the fiscal year ended February 29, 2008, total pounds of confectionery products purchased from the factory by franchisees decreased 4%, due to a 9% decrease in same store pounds purchased from the factory by franchised stores, somewhat offset by a net increase of 3% in the number of franchised stores in operation. Same store sales at franchised stores were unchanged relative to the previous fiscal year. The Company believes the 9% decrease in same store pounds purchased was due to a product mix shift from factory-made products to products made in the store such as caramel apples and fudge. This trend has continued into the Company's first quarter of fiscal 2009, with same store pounds purchased decreasing an additional 15% in the two months ended April 30, 2008 when compared with the same period in the previous year.

For the three months ended February 29, 2008, revenues decreased 7% to $8.3 million, compared with $8.9 million in the fourth quarter of the previous fiscal year. Comparable-store sales at franchised retail locations declined 4.8% when compared with the quarter ended February 28, 2007.

Net earnings decreased 8% to $1.3 million in the fourth quarter of FY2008, versus $1.4 million in the corresponding period of the previous fiscal year. Basic and diluted earnings per share decreased 5%, to $0.21 basic and $0.21 diluted, in the most recent quarter, compared with $0.22 basic and $0.22 diluted in the year-earlier period.

"Sales at most Rocky Mountain Chocolate Factory stores are greatly influenced by the levels of 'foot traffic' in regional shopping malls and other retail environments where the stores are located, and widely reported declines in such traffic resulted in lower revenues and earnings in the fourth quarter of our 2008 fiscal year," continued Merryman. "In light of the significant uncertainties surrounding the U.S. economy and retail trends in coming months, combined with decreasing same store pounds purchased by franchisees, we do not feel comfortable providing specific revenue and earnings guidance for Fiscal 2009 at the present time. If recent economic and consumer spending trends continue but do not deteriorate further, we are likely to report a modest decline in earnings for the current fiscal year. We will resume our tradition of providing more specific guidance to the investment community when macro-economic factors and product mix shift trends can be evaluated with greater certainty. Fortunately, we believe we are in excellent financial position and well able to withstand the recessionary forces currently buffeting the U.S. economy. Our working capital as of February 29, 2008 exceeded $5 million, we had a current ratio of 2.4-to-1.0, there was no long-term debt outstanding on our balance sheet, and shareholders' equity exceeded $11.6 million."

On May 10, 2007 and February 19, 2008 the Board of Directors authorized the repurchase of up to $5 million and $3 million, respectively, of the Company's common stock in the open market or in private transactions. The timing of any such transactions will depend on a variety of factors, including market conditions, and the program may be suspended or discontinued at any time. To date, the Company has repurchased approximately 419,000 shares of common stock under these authorizations. During the past eight years, the Company has repurchased approximately 3,909,000 shares of its common stock under repurchase authorizations at an average price of $5.82 per share (number of shares and price per share adjusted for stock splits and stock dividends).

The Company also announced that its Board of Directors has approved a first quarter cash dividend of $0.10 per share, to be paid June 13, 2008 to shareholders of record June 2, 2008.

The Company will host a conference call today, Thursday, May 8, 2008, at 4:15 p.m. EDT to discuss FY2008 results and other topics of interest. To participate in the conference call, please dial 800-860-2442 (international/local participants dial 412-858-4600) approximately five minutes prior to 4:15 p.m. EDT and ask to be connected to the Rocky Mountain Chocolate Factory Conference Call. A replay of the conference call will be available one hour after completion of the call until May 15, 2008 at 5:00 pm EDT by dialing 877-344-7529 (international/local participants dial 412-317-0088) and entering conference I.D. # 419284.

Rocky Mountain Chocolate Factory, Inc., headquartered in Durango, Colorado, is an international franchiser of gourmet chocolate and confection stores and a manufacturer of an extensive line of premium chocolates and other confectionery products. The Company's common stock is listed on The Nasdaq Global Market under the symbol "RMCF".

Certain statements in this press release are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve risks and uncertainties, and the Company undertakes no obligation to update any forward-looking information. Risks and uncertainties that could cause cash flows to decrease or actual results to differ materially include, without limitation, seasonality, consumer interest in the Company's products, general economic conditions, consumer and retail trends, costs and availability of raw materials, competition and other risks. Readers are referred to the Company's periodic reports filed with the SEC, specifically the most recent reports which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. The information contained in this press release is a statement of the Company's present intentions, beliefs or expectations and is based upon, among other things, the existing business environment, industry conditions, market conditions and prices, the economy in general and the Company's assumptions. The Company may change its intentions, beliefs or expectations at any time and without notice, based upon any changes in such factors, in its assumptions or otherwise. The cautionary statements contained or referred to in this press release should be considered in connection with any subsequent written or oral forward-looking statements that the Company or persons acting on its behalf may issue.


STORE INFORMATION

New stores opened during
the year ended Stores open as of
February 29, 2008 February 29, 2008
United States:
Franchised Stores 32 284
Company-owned Stores 0 5
International Licensed Stores 3 41
Total 35 330


STATEMENTS OF INCOME
(in thousands, except per share data)

Three Months Ended Three Months Ended
February 28 and 29 February 28 and 29
2008 2007 2008 2007
Revenues
Factory sales $5,971 $6,365 72.1% 71.3%
Royalty and
marketing fees 1,564 1,676 18.9% 18.8%
Franchise fees 173 173 2.1% 1.9%
Retail sales 577 717 6.9% 8.0%
Total revenues 8,285 8,931 100.0% 100.0%

Costs and Expenses
Cost of sales 4,339 4,442 52.4% 49.7%
Franchise costs 315 423 3.8% 4.7%
Sales and marketing 427 466 5.2% 5.2%
General and
administrative 615 748 7.4% 8.4%
Retail operating 259 359 3.1% 4.0%
Depreciation and
amortization 198 191 2.4% 2.2%
Total costs and
expenses 6,153 6,629 74.3% 74.2%

Income from
Operations 2,132 2,302 25.7% 25.8%

Other Income (Expense)
Interest expense (2) - - -
Interest income 19 18 0.2% 0.2%
Other, net 17 18 0.2% 0.2%

Income Before Income
Taxes 2,149 2,320 25.9% 26.0%

Provision for
Income Taxes 819 877 9.9% 9.8%

Net Income $1,330 $1,443 16.0% 16.2%

Basic Earnings per
Common Share $0.21 $0.22
Diluted Earnings per
Common Share $0.21 $0.22

Weighted Average
Common Shares
Outstanding 6,240,125 6,417,707
Dilutive Effect
of Employee
Stock Options 142,436 203,325
Weighted Average
Common Shares
Outstanding,
Assuming
Dilution 6,382,561 6,621,032


STATEMENTS OF INCOME
(in thousands, except per share data)

Year ended February 28 and 29 Year ended February 28 and 29
2008 2007 2008 2007
Revenues
Factory sales $23,758 $22,709 74.5% 71.9%
Royalty and
marketing fees 5,697 5,604 17.9% 17.8%
Franchise fees 623 634 2.0% 2.0%
Retail sales 1,800 2,626 5.6% 8.3%
Total revenues 31,878 31,573 100.0% 100.0%

Costs and Expenses
Cost of sales 16,678 15,989 52.3% 50.6%
Franchise costs 1,499 1,570 4.7% 5.0%
Sales and
marketing 1,503 1,538 4.7% 4.9%
General and
administrative 2,506 2,539 7.9% 8.0%
Retail operating 995 1,502 3.1% 4.8%
Depreciation and
amortization 783 874 2.5% 2.8%
Total costs and
expenses 23,964 24,012 75.2% 76.1%

Income from
Operations 7,914 7,561 24.8% 23.9%

Other Income (Expense)
Interest expense (2) - -% -%
Interest income 103 67 0.3% 0.2%
Other, net 101 67 0.3% 0.2%

Income Before Income
Taxes 8,015 7,628 25.1% 24.1%

Provision for Income
Taxes 3,054 2,883 9.6% 9.1%

Net Income $4,961 $4,745 15.5% 15.0%

Basic Earnings per
Common Share $0.78 $0.74
Diluted Earnings per
Common Share $0.76 $0.71

Weighted Average
Common Shares
Outstanding 6,341,286 6,432,123
Dilutive Effect
of Employee Stock
Options 159,386 227,350
Weighted Average
Common Shares
Outstanding,
Assuming
Dilution 6,500,672 6,659,473


SELECTED BALANCE SHEET DATA
(in thousands)

February 29, 2008 February 28, 2007
Current Assets $8,963 $10,759
Total assets $16,148 $18,456
Current Liabilities $3,811 $3,256
Stockholders' Equity $11,655 $14,515


SOURCE Rocky Mountain Chocolate Factory, Inc.

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