Rocky Mountain Chocolate Factory Reports Record 2nd Quarter EPS

Rocky Mountain Chocolate Factory, Inc. reported record earnings per share of $.26 for the quarter ended August 31, 2000 compared to $.13 per share for the quarter ended August 31, 1999, an increase of 100%. hen adjusted for the costs associated with the unsolicited tender offer in fiscal 2000, earnings per share increased 52.9% t $.26 in fiscal 2001 compared to $.17 in fiscal 2000. The Company reported earnings before interest, taxes, depreciation and amortization ("EBITDA"), which increased $97,000, or 7.9%, o $1,317,000 in the second quarter of fiscal 2001 compared to $1,220,000 in the second quarter of fiscal 2000. Total revenues decreased 8% t $5.6 million in the second quarter of fiscal 2001 from $6.1 million in the second quarter of fiscal 2000. Operating income increased 20.3% t $1.0 million in fiscal 2001 from $835,000 in fiscal 2000 and net income increased 49.9% t $505,000 in fiscal 2001 from $337,000 in fiscal 2000. When adjusted for the costs associated with the unsolicited tender offer in fiscal 2000, net income increased 15.1% t $505,000 in fiscal 2001 compared to $439,000 in fiscal 2000.

The decrease in revenues in the second quarter of this year resulted from decreased retail sales, principally attributable to a reduced number of Company-owned stores in operation in the second quarter of this year versus the second quarter of last year as Company-owned stores were sold to franchisees. The Company intends to continue Franchising selected Company-owned stores in order to focus on its Franchise system.

Same store sales at franchised stores and Company-owned stores decreased 5.9% ad 7.3%, espectively, in the second quarter of this year versus the second quarter of last year. Slower sales of Beanie Babies and related products in the children's/novelty section of our retail stores contributed significantly to the decrease in same store sales. Same store pounds purchased from the factory by the franchise system declined 3.5% i the second quarter of this year versus the second quarter of last year.

During fiscal 2000, the Company extensively evaluated its manufacturing processes, franchise support system and business strategy. As a result, the Company restructured its manufacturing and management processes and renewed its commitment and focus on growing its franchise system. The Company also decided to pursue new distribution channels on a more focused and selective basis. Second quarter results in fiscal 2001 versus second quarter results in fiscal 2000 benefited from these efforts.

Factory margins increased to 44.7% i the second quarter of this year from 42.0% i the second quarter of last year. The improvement was due in part to certain changes to the Company's manufacturing processes and cost structure. Retail store margins in the second quarter of this year were consistent with the second quarter of last year.

Operating expenses (franchise support, sales and marketing, and general and administrative) decreased approximately $67,000 or 6.6% t $955,000 in the second quarter of this year compared to $1,022,000 in the second quarter of last year. Operating expenses were in line with the Company's business plan.

Rocky Mountain Chocolate Factory, Inc. is an international franchiser of old-fashion chocolate and confection stores and a manufacturer of an extensive line of premium chocolates and other confectionery products.