Crown Crafts Inc (CRWS) 2025 Q3 法說會逐字稿

Good day everyone and welcome to the Crown Crafts Incorporated Third quarter fiscal 2025 conference call.

(Operator Instructions)

At this time, I'd like to turn the conference call over to John Beisler with Three Part Advisors, the company's investor relations firm.

Please go ahead.

Thank you, Jamie and good morning, everyone.

We appreciate you joining us for the Crown Craft's third quarter fiscal 2025 conference call.

Joining me on the call this morning are Crown Craft's President and CEO Olivia Elliott and the company's CFO Craig Demarest.

Earlier today, Crown craft thought its form 10-Q and issued a press release regarding their third quarter fiscal 2025 financial results.

Copy of this release is available on the company's website crowncraft.com.

During today's call, the company will make certain forward-looking statements, and actual results may differ materially from those expressed or implied.

These statements are subject to risk and uncertainties that may be beyond Crowncraft's control, and the company is under no obligation to update these statements.

For more information about the company's risk factors and other uncertainties, please refer to the company's filings with the Securities and Exchange Commission.

Finally, I would like to remind you today's call is being recorded and a replay will be available through the company's investor relations page.

Now I'd like to turn the call over to the President and CEO Olivia Elliott.

Thank you, John.

Good morning, everyone, and thank you for joining today's call.

Our Third quarter results reflect our ability to generate cash flow and profitability during this challenging period of economic uncertainty.

In spite of the headwinds, we have continued to face this fiscal year, our team has remained focused on delivering strong operating cash flow and proactively managing our controllable expenses.

We also continue to refresh some of our categories and develop new products so that we are well positioned to capitalize on future growth when consumers are ready to spend more on discretionary items.

During the quarter, we completed the integration of our most recent acquisition, Baby Boom, which we are excited to record added $3.8 million in sales this quarter.

We remain optimistic about the future of these product categories, including diaper bags, which are a new category for us.

With that, I'd like to turn it over to Craig to cover the financials in more detail that I will follow up with additional comments before taking questions.

Thank you, Olivia.

Good morning, everyone.

That sales for the third quarter of fiscal '25 were $23.3 million compared to $23.8 million in the prior year quarter.

The decrease is primarily attributable to lower online toy sales and the loss in November of '23 of a bid program at a major retailer.

This was partially offset by the addition of the $3.8 million in net sales related to Baby Boom, which we acquired in the second quarter of this fiscal year.

Gross profit for the quarter was 26.1% compared to 27% in the third quarter of fiscal '24.

The margin decrease can be attributed to slight changes in product mix together with higher lease costs for our warehouse in California.

We continue to evaluate our footprint and look to reduce our warehousing costs through strategic consolidation in fiscal '26.

Our third quarter marketing and administrative expenses were $4.4 million compared to $4.1 million in the prior year quarter.

The increase is primarily related to expenses associated with the purchase of Baby Boom.

Including $186,000 in acquisition related costs.

Interest expense for the quarter increased $183,000 from the prior year quarter due to the higher borrowings related to the Baby Boom acquisition.

Net income for the quarter was $893,000 or $0.09 per diluted share compared to net income of $1.7 million or $0.17 per diluted share in the prior year quarter.

Turning now to our balance sheet, we remain in a strong financial position as cash in cash equivalents at the end of the third quarter.

We're $1.1 million compared to $829,000 at the end of fiscal '24.

Borrowings under our credit facility at the end of the quarter were $20.9 million compared to $8.1 million.

At the end of fiscal '24, reflecting amounts borrowed in the Second quarter to fund the Baby Boom acquisition.

Year-to-date through the end of the third quarter, cash flow from operations was $7 million compared to $4.1 million in the same period last year.

We expect to use our cash flow to repay our borrowings.

However, as always, our debt balance may fluctuate from quarter to quarter due to the timing of inventory purchases and other working capital needs.

Our inventory balance has declined from $34.9 million in December '23 to $32.4 million in December '24, even with the inventory added in the Baby Boom acquisition.

Finally, we paid our regular quarterly dividend of $0.08 per share and declared our next dividend, which will be paid in April.

Now I'll turn the call back over to Olivia for additional comments.

Thank you, Craig.

Looking ahead, our focus is on growing the top line while maintaining our cost discipline.

In addition to refreshing our high-end toy and diaper bag lines acquired over the past couple of years, our product development teams are also focused on new products to complement our current categories.

We're monitoring the ongoing updates out of Washington regarding tariffs, particularly as it pertains to announced 10% on Chinese imports, where virtually all of our products are made.

As China remains our best sourcing option, we will need to work with our suppliers to absorb the increase and consider price increases.

We continue to review potential locations to relocate our warehouse.

After visiting 3 locations, we've narrowed that down to two and continue to evaluate the financial profiles of each.

Overall, we remain well positioned to navigate the current economy while preparing our brands to perform as conditions improve.

Our balance sheet is strong and we are able to effectively manage our borrowings and continue to pay our dividends through operating cash flow, which stands as a key component in our strategy to deliver long term value to our shareholders.

With that, I'd like to open up the line for questions, Jamie.

Ladies and gentlemen, at this time we'll begin the question-and-answer session.

(Operator Instructions)

And our first question today comes from Douglas from Lenox Financial Services.

Please go ahead with your question.

Good morning Olivia and Craig.

Thank you for hosting the conference call today.

Could you give us a little more colour and tell us how now that you've got the warehouse possibilities down to two, could you tell us some of the things that you're seeing or some of the things that you're thinking about how you'll ultimately make the decision on what town to locate the warehouse?

A big part of the Consideration is going to obviously be cost.

That being said, we need to look at lead times, one of our final options is on closer to the west coast and one is closer to the east coast, and while you may save a little bit more in the least cost going to the east coast, the cost to get the goods all the way across the country is going to be higher, it's going to take longer and there's also a bigger impact should freight rates go up on the downside.

So, you know we're looking at the whole big picture for the most part, all the warehouses look exactly the same, we're mainly focused on the location and any type of technology that we may want to put into the warehouses can be done at either location.

Are you like leading, leaning towards one location over another, or you're totally undecided at this point?

Probably leaning a little bit towards the west Coast, location just from the overall package, but we're still trying to get all of the information together and get the actual quotes for the locations that we were, specifically looking at.

Okay.

Now changing, could you give us an update on the diaper bag business and some of the initiatives that you're focused on?

Sure, so we, we've had some really good meetings with both, some potential new licensors for, diaper bags.

It seems to be a category that a lot of people, are interested in.

We've also had some good meetings with the retailers, we've done some, what I think are very good designs, some refreshed.

[Silhouettes], some refreshed looks, I think we've got a great, deck that we've been showing and we're hoping to get some new placement in that, so it won't be until 2026 because most of the lines for 2025 had already been placed by the time we did the acquisition in July.

So, I think we've got, a good opportunity coming in the next year or so to pick up some placements.

Now, you had talked about both potentially both domestic and international.

Is that still what you're thinking that there there's opportunities in both places?

Yeah, I think there's opportunities in both places.

We're focusing on domestic first because we think that's a bigger opportunity, but yeah, we can do both.

And what's the status of Manhattan toy, how are the holiday sales and anything you can share with and then also the placement through Walmart.

So I'll take the easy first.

The placement at Walmart's doing well.

We expect to keep that placement in Walmart, at least for another year.

We found that out, so, we think that we still think we have opportunities to get more placements, so we think that's going well, you know.

The holiday sales were disappointing.

That's where we saw the biggest decline in sales was at the Manhattan toy brand.

We think that most people were trading down to maybe the less expensive lines of toys, it just didn't go as well as it had the year before.

So, that's where I think our biggest disappointment was for this holiday season.

That being said, we continue to develop new products.

We think that we've done a really good job of refreshing that.

We've had a positive.

I guess the customer itself, the retailers, the specialty stores, etc. They have positive things to say about the new development.

So, I think there's still an opportunity there, it just didn't come this holiday season.

Okay, and what about working with the distributor overseas for the Manhattan toy, has that been effective for the company?

Yes, and so what we closed the London office and we've gone strictly to a distributor system based in on the international front and yes, our distributors have had, most of them are picking up some of the Manhattan toy sales and so that, that's definitely a a bigger opportunity to continue to grow.

Okay.

And then what about what's the relationship, what's happening with Legoland at this point?

Legoland continues to grow.

They're building new parks.

I think that we expect the Shanghai Park to open here in 2025, and so we continue to grow there.

Yeah, we were the fourth quarter sales up at Legoland?

So, a lot of the Legoland parks are closed for the winter.

So, you have a couple of the ones in the US I think Florida and California stay open during the winter season, but the rest of them are closed.

They, I think they open mainly April to October.

Okay, I have a few more questions, but maybe I could let somebody else, ask some questions and I can come back for some more.

Okay.

Your next question comes from [John Dyer] from Pinnacle.

Please go ahead with your question.

Good morning everyone.

I just have a quick question on the real estate.

I just want to confirm when the various leases are expiring.

I understand the content lease expires in June '28.

The Minneapolis headquarters expires June '27.

And Eden Valley warehouse expires June '26.

Are all those, correct?

I believe the Minneapolis is March '27, but yeah, that's close.

The Eden Valley and the Compton ones are correct.

Okay.

(Multiple speakers) (inaudible)

Okay, so they're all pretty close.

I mean, given that Eden Valley is going to expire.

In about a year and a quarter or so it sounds like you're going to be making a decision on the new warehouse pretty soon.

Yes, I think we'll make a decision on the final location pretty soon.

We'll have to sublease in Compton in the meantime, so we're going to have to get the timing right and if for whatever reason the Eden Valley warehouse expires before we are ready, we'll take some kind of interim step, we're thinking through that process.

But it could be that we move those, go ahead and move those goods to the final location but use a 3PL temporarily until the warehouse is ready, so it's kind of a balancing act that we're working through.

Right, I understand.

So is it fair to say we might know by your fiscal year end

I think it's possibility.

Okay

Okay, yeah, I mean if not June by August, I think you know we'll be able to tell you the final location.

Okay, so mid year and what about the Minneapolis headquarters where what's that transition going to be?

We need to get into a smaller space.

It was too big for the personnel that was there on the date of acquisition, certainly too big for what we have now, and so, we were working to try to come up with a solution to downsize, sooner rather than later.

But that didn't really work out, so you know we're stuck there until the lease runs out, but we won't go back into that particular location.

We could get a much smaller, less expensive location and quite frankly out of downtown, maybe on the outskirts.

Okay, but you're going to keep it in Minneapolis.

You're not going to move everybody to Gonzalez.

No, we won't move everybody to Gonzalez.

It'll be a small office, but we'll need to keep something.

Okay, alright, good, I think that was it thank you for your answers.

Thank you.

Thank you.

And our next question is a follow up from Douglas from Lenox.

Please go ahead with your follow up.

Okay, you had talked about developing some new toys.

Is there any certain toy that you have in development that you're especially excited about?

Well, on the toy side specifically, I think we're really excited about the new doll line that is actually starting to ship now.

We redesigned the Stella program, and we think that it's going to be, a better option for specifically in the specialty store side, and then, mostly on the toy side if you're looking at Manhattan toy, we're really just still refreshing the line.

There's only so many new products that you can develop and get into production each year.

So, we're still working on just the overall refresh of those products, [sassy] just continues to knock it out of the ballpark and everything we develop is really working out well.

What is it specifically about the Stella doll that is a selling point, do you think?

So, I mean the biggest thing is that there was, there were two sizes of dolls, there was I forget what the second one is, but one of them was smaller than the other one and the price differential was pretty great on it and so everybody stopped buying the bigger doll and started getting the smaller doll.

And so, what we've done is we've just refreshed, really the size of the dolls and, we've moved manufacturing facilities and so that we can, hit the price point better.

So the the difference in price between the bigger doll and the smaller doll is not as great, so possibly you'll sell more of the bigger dolls.

But what happened in that case was the dolls looked the same except for they were two different sizes, so everybody traded down to the smaller size and so we're still going to have two separate dolls, but we're gearing them mainly.

One is the baby's first doll and it's more of an infant doll.

It doesn't have removable clothes, it doesn't have hair, and then you kind of grow into the next size doll as you become a toddler, so we've differentiated the dolls more.

Okay.

All right.

Now, I noticed quite a change in the marketing expense, for, in the third quarter.

Do you, did you feel like the spend was approximately at the right level now?

The third quarter this year versus third quarter last year.

Yes, yeah, it looked like the marketing expense was lower if I read that correctly.

So, it's actually up a little bit and it's mostly the difference is mostly going to be the continued integration costs for Baby Boom, otherwise marketing expenses were flat.

I misspoke.

I meant the advertising expense.

I'm sorry.

No, I think we're going to have to spend a little bit more on advertising to drive those online sales.

I think that's probably where we missed the mark the most is, we, when we first acquired Manhattan toy advertising costs were more than the sale and so we pulled back on those that spend and I think we pulled back too far so I think in order to drive higher sales online we're going to have to do some more spin.

Yeah, you explained previously that this was sort of an experiment, and you were so possibly if you, if you would have spent more possibly the Manhattan toy sales might have been higher than they actually were.

I think it's likely, yes.

Okay.

And then when you talk about just, the big picture, what should, like on an annual basis, what should the marketing and administrative expense, what should that be as a percent of revenue?

That's something we're probably not going to answer because we just don't forecast.

Okay.

How about, when we talk about the one large category, bibs, toys or disposables.

Was most of the decline then in the, well, do you, are you able to provide any kind of additional breakdown of the decline from the three different categories?

So, the decline in bibs toys and disposables was primarily the Manhattan toys.

We also had a small part of the decline was going to be the last bit of run out for the loss of the Target bib program that we lost in November '23, and so Q3 of last fiscal year had about half of the quarter had bid sales, whereas this this year we had none for that one customer, but the vast majority of it was the Manhattan toy branding.

Okay.

I think that you folks are doing a terrific job.

I like the progression of what's happening with the warehouse.

I really appreciate the care that you're taking for the shareholders, really trying to make the best decision that you can to get the right location for the warehouse, and I'm very grateful for what you're doing there for the shareholders.

Thank you.

Okay, that's the end of my questions.

Thank you.

Thanks.

And our next question is another follow up from [John Der] from Pinnacle.

Please go ahead with your follow up.

Good morning.

What regarding the tariffs.

The 10% increase, I guess.

When does that go into effect and I guess What measures are you taking to Either offset that or share it with vendors or what are the options?

So, it goes into effect pretty much immediately.

Actually, our initial conversations with our suppliers out of China, it indicates that we're probably going to be able to roll back prices, our initial first cost purchase prices out of China.

Enough to cover the vast majority of it,

So, while you know we may have to raise some prices to our retailers, to a small degree depending on category, depending on supplier, we are hopeful that we can minimize the impact to our customers and to the consumer, and it feels like that's really a likely option based on our initial conversations with suppliers.

Okay, good, that's encouraged.

When will that go into effect one way or the other, the rollback of the purchase prices?

Immediately, so I mean we need to have those rollbacks that, pretty much concurrent with the increase in the tariffs.

So, there may be some product that was already in either on the ocean or some that was already in production that, we may not be able to roll back that quickly, but oftentimes we do say, look, you've got to lower the price on what's already in production but certainly for any new production.

Right, but you have those agreements in writing at this point?

We don't actually have agreements with our suppliers.

It's on a PO by PO basis, which makes it much easier to change, as soon as possible.

Okay, and the POs that you submitted.

Recently have been OKed by the vendors.

Well, we haven't submitted any with the new lower prices, but we can I mean absolutely we can go back and change the prices we've done it before.

Okay alright.

Okay, that's fine.

It sounds like it's a working process at this point.

Yes, absolutely.

It's kind of ever changing here for the past couple of weeks.

Right, okay, great, I appreciate it and good luck.

Thank you.

And ladies and gentlemen, with that we'll be concluding today's question and answer session.

At this time, I'd like to turn the floor back over to Olivia Elliott for any closing remarks.

Thank you, Jamie.

Thank you for your continued interest in our company.

We look forward to speaking with you again when we report our fourth quarter and fiscal year 2025 results in June.

And ladies and gentlemen, with that, we'll conclude today's conference call and presentation.

We do thank you for joining.

You may not disconnect your lines.