Crown Crafts Inc (CRWS) 2026 Q4 法說會逐字稿

Greetings, and welcome to the Crown Craft fiscal fourth-quarter 2026 earnings call. (Operator Instructions)

I'd now like to turn the conference over to your host, Olivia Elliott, Chief Executive Officer. Please go ahead.

Thank you, operator, and welcome, everyone to this morning's call. We're glad you can join us.

We generated solid quarterly results in an operating environment that continues to be challenging. This reflects the strength of our business model, the broad appeal of our brands, and, of course, the hard work of our dedicated team.

Despite global conflicts, fluctuating tariffs, higher gas prices, and consistently high inflation weighing on the American consumer, we were able to hold net sales almost flat with the prior year at $22 million, bringing our full-year net sales to more than $80 million.

In addition, our gross margin improved to nearly 23% during the fourth quarter, up 460 basis points versus the prior-year period. The result was positive net income for the quarter and operating cash flow of more than $8 million for the fiscal year.

An exciting fourth-quarter highlight was our February announcement of the relaunch of Manhattan Toys Groovy Girls, which we kicked off at the North American International Toy Fair following a ceremonial ringing of the closing bell at NASDAQ.

This iconic collection of soft-fashioned dolls has already been met with a strong reception since its official rollout to specialty retailers just last month, and it's perfectly timed to tap into today's retro-inspired consumer market. We're excited about the potential for this beloved brand and other opportunities as we continue to focus on innovative internal product development to expand our product offerings.

In addition to driving revenue growth, another priority of ours is margin expansion and the resulting bottom-line growth. We believe our gross margin of 22.9% for the quarter, while improved over the prior year's results, has further room to expand as we grow sales, improve operating leverage, and continue our spending discipline.

This includes our continued efforts to execute on cost initiatives with our previously communicated plans, consolidate certain internal operations to eliminate redundant activities, and create a leaner operating structure.

Turning to our balance sheet and capital allocation, which Claire will provide further details on in a moment. As I mentioned, we generated more than $8 million of operating cash flow during fiscal 2026, despite the soft operating environment, and we continue to have sufficient liquidity to support our growth plans.

Our capital allocation strategy is well-balanced, and during the fourth quarter, we paid our regular dividend while continuing to invest in internal product development and marketing efforts to grow our market share over time.

In closing, Crown Craft is executing effectively. We're focused on driving our long-term growth opportunities while managing inventories, tightly controlling costs, and strategically allocating capital toward growth initiatives, as well as returning capital to our loyal shareholders.

Looking ahead, our foundation for success includes our strong brands and licenses, our valued retail and licensing partners, our solid balance sheet, and of course, the talented people who drive our success each day and will ultimately help us create meaningful shareholder value over time as a leading producer of infant, toddler, and juvenile consumer products.

With that, I'll turn it over to Claire to take us through additional financial details on our quarterly results.

Thank you, Olivia, and thanks, everyone, for being with us today.

For the fourth quarter of our fiscal year, we generated net sales of $22.4 million, despite continued softness in consumer spending, which compares to $23.2 million in the year-ago fourth quarter. Our gross profit of $5.1 million represented a 22.9% margin, which was up from 18.3%. In the fourth quarter of 2025.

As Olivia mentioned, this 460-basis-point improvement was driven by our strategic pricing initiatives and more favorable mix of higher-margin products. We were able to hold marketing and administrative expense almost entirely flat versus the prior-year quarter at $4.6 million, despite continued inflationary dynamics.

We were also able to reduce interest expense at $194,000 for the fourth quarter of 2026 compared to $333,000 a year earlier, benefiting from a sizable reduction in debt.

The bottom-line result was positive net income for the quarter of $280,000, which improved from a loss of approximately $11 million the prior-year fourth quarter due to a non-cash goodwill impairment charge in the year-ago period. Our basic and diluted earnings per share were $0.03, up from a loss of $1.04 per share the prior year.

Moving on to our balance sheet. We ended the fiscal year with total assets of $70.7 million. Inventories were $28.4 million as of March 29, up slightly from $27.8 million at the end of fiscal 2025. Our total debt balance was $14.1 million at year-end, a reduction from $18.5 million at the end of fiscal 2025, and we had $12.5. Million of undrawn availability on our revolving credit facilities.

Lastly, as Olivia referenced, our net cash from operating activities was $8.3 million for the fiscal year, further supporting our solid financial foundation and the execution of our business plan.

Wrapping up, we executed well during the final quarter of the fiscal year despite a less-than-robust macro environment as we were able to significantly improve our gross margin versus the year-ago quarter. We have the necessary competitive advantages, strategic plan, and financial strength. Our skilled team members to continue their efforts day in and day out, grow the business, and enhance profitability as we move into fiscal year 2027.

With that, operator, Olivia and I would be happy to take questions if you could please open the lines.

Thank you. (Operator Instructions)

Ethan Calder, Mountain Equities.

I just wanted to ask regarding generally relationships with Walmart or Target, and anyone else, and if you could tell us how that stands, if you're pursuing other relationships? And if you can just give us some information on that. Thank you.

Sure. Relationships with Walmart and Target remain good. We have multiple salespeople that talk to them regularly. I meet with people at trade shows as well. And as always, we're always searching for other retail partners. I mean, we've got plenty of mass retailers, specialty stores, focusing a little bit on some international sales. There's not as many out there that are as big as Walmart, Target, and Amazon, for sure. But we look for new opportunities all the time.

Thank you. (Operator Instructions)

Doug Ruth, Lenox Financial Services.

Could you give us some more commentary on what you're thinking about the Groovy Girls? Is the higher inventory possibly a reflection of inventory to support that rollout?

There is some inventory that is at year-end for Groovy Girls, probably the majority of the higher inventory is just the capitalization of the tariffs into the inventory cost, which obviously increased the value of the inventory over the fiscal year.

And then as far as Groovy Girls, when you're saying what we're thinking about Groovy Girls, were you just asking about inventory or more in general?

Well, more in general. What can you tell us about sales and also the way you're selling the product? I think you're using some newer methods. Maybe you could share a little bit about that.

So right now, we rolled out sales to the specialty stores beginning May 1. And so that's when we started shipping to the specialty stores. So it probably didn't set in the stores until later in the month. And that is really -- I mean, both specialty stores in the US and then through our distributor into Canada, which those sales haven't even set in Canada yet.

And then we plan to roll out in the fall at Amazon and then also internationally, when we go to the K&J trade show in September. So right now, it's only at specialty stores, and we're very happy with the sales so far. I think it's -- we didn't have a lot in our budget for fiscal 27, but we are happy with where we are so far.

And then we'll, in the fall, Amazon will have the, basically the whole -- the full offering of whatever you're selling for Groovy Girls.

Correct. .

That sounds terrific. And I know in the past, part of the real big success with Groovy Girls was the relationship you had with Target, is that something that you're also thinking about?

At this point in time, we are not talking about rolling out Groovy Girls into mass. That's possibly an opportunity for the future, but we've probably changed the product a little bit so that we're not selling the same exact product into mass as we are into specialties.

Okay. And what can you tell us about the tariffs? Are you expecting a tariff refund? Have you received a tariff refund?

So we have applied for the tariff refund as of. Two weeks ago, I think it's the number we put in the 10-K, we had received about $175,000 back, of which I think $165,000 was actually tariffs and maybe 10 was interest. It was about a $5.5 million number that we requested, and we're hopeful. Anything can happen, but we have received some, and so we're hoping that we will receive what we requested.

Very good. And then what is the status now? I know that the Eden Valley warehouse, that lease is going to expire, I believe, at the end of this month. What is the company thinking? What is your strategy here?

We extended that lease to be more around the same time as the Compton facility, and then we would -- we're going to restart looking for a new warehouse and with plans to move in the next two years, closer to the expiration of both of those leases.

Okay. And then how about the Stella doll? That doll, I know you had redesigned it. What could you tell us about how has that been going since the redesign?

Stella's doing well. Once again, it's mostly in specialty store, Amazon, on our own website, but Stella sales are doing fine.

And then I noticed that the facility, the corporate headquarters that you had shrank the size of that quite a bit. Could you maybe offer any commentary on that when you signed the new lease?

Yes, so our old headquarters, where we had been for almost 25 years needed a little bit of updating, and the price was going up substantially, so we decided that we would move not far down the road to a new facility, less space. Everything is a new build-out, and so everything's fresh and new, and we're all on one floor and all together, so we're enjoying that.

Very good. And what are you thinking about with the diaper bag business now?

We're still working on diaper bags. As with the tariffs, that was the worst impact was on the diaper bags and so -- and then Target had taken the diaper bags direct source, Walmart shrunk the space in half for what they were carrying. And so we're working right now on kind of redeveloping and thinking again about the diaper bags. We still have a little bit of placement. We have one bag at Walmart and then we're selling on Amazon in our own warehouse.

Okay. And then I know that now the Manhattan Toy Minneapolis office, that lease is down to less than one year. Are you starting to think about what you might be doing with that facility?

Yes. So we're going to move out of that facility. Obviously, it's way too big for what we need, and we're still kind of trying to figure out what we want to do.

Okay, so maybe more information in the next couple of quarters that might be reasonable? .

Sure.

Okay. And then I'm also pleased that you've been able to increase the advertising budget. Can you maybe talk about that at all?

Yeah. We've increased the advertising budget. We've also added a few people on our marketing team in order to build out our photography, our social media, and then also advertising, primarily on (inaudible) and for our own warehouse. I mean, our own website. Sorry.

Okay. And have you been pleased with how that's been going?

Yes. I mean, we're certainly at the beginning of our marketing efforts, just expanding that, but so far, yes.

And then I also see that the international sales are growing. There's not often a lot of commentary about that, can you tell us, I feel like that's really been successful. Could you share what's working and how that's been growing?

There's really two main efforts that I think we're seeing flow through there. One of them is that we've worked since the Manhattan Toy acquisition on consolidating the distributors for Manhattan Toy and Sassy so that we have, instead of having two distributors or really it wasn't even two distributors in a lot of places, but Manhattan Toy was going direct to the retailers and then Sassy was using distributors.

And so we've consolidated those sales into all of the Sassy distributor model, and that's helped. And then also, we changed distributors in Canada, and I think that's been very successful for us. That happened not long after probably sometime in December.

So that made a positive difference.

Yes.

Okay. My last question is, I know that that new facility has opened up the Legoland facility in Shanghai. And you had previously mentioned that the company was getting some growth with Legoland. Could you just offer a little bit of commentary about Legoland and what's happening for the company there?

Yes. We did ship to Shanghai Legoland. They opened a little bit later than we expected, so sales weren't what we had hoped they'd be for that opening. But we did ship to them, and actually, that's probably leading to part of the international sales increase as well.

Okay. Well, thank you for answering my questions, and congratulations to you and Claire and the Board of Directors, and thank you again for what you're doing on behalf of the shareholders.

Great. Thank you.

Anthony Lebiedzinski, Sidoti & Company.

So certainly nice gross margin expansion. You mentioned that part of the reason for that was the strategic pricing actions that you took. So any way you guys can quantify as far as the extent of pricing had benefited and how do you see that going forward whether you think that's sustainable going on an ongoing basis?

We really don't quantify that, but I can explain probably the majority of it is that when we got the tariffs hit, it's a delayed time period from when you can raise your prices with the retailer. So a lot of them have a 60-year or a 90-day window.

And then we also waited at the beginning of the fiscal year to see where the tariffs would actually land, because obviously, we didn't want to go to the retailer and say, hey, we're raising your prices 150%, and so we waited a little while to see where the tariffs would land, and so the last of the price increases really didn't go through until sometime in the third quarter.

So I think what we're seeing in the fourth quarter is the benefit of having the entire quarter have the retail price increases equal the tariffs or be closer to that.

Thank you very much, and best of luck.

Thank you.

John Dyscher, Pinnacle Value Fund.

I was just curious, is there anything on the horizon that might change your outlook for tariffs? I know the last time we spoke in February, there was nothing imminent, but I'm just curious with the fluid situation, is there anything on the horizon that might alter the tariff situation?

I don't think so. I think we keep up with the news the same as you, and you really never know what's going to happen. But right now, it feels like it's stable.

It's stable, steady state. Okay, good. When did you move from the old headquarters to the new, and is there any significant dollar savings from doing so?

We moved at the end of April, and there's really no significant dollar savings. They were really going up on the rent at the old building, and so, the move allowed us to keep the rates pretty much close to what we had been paying before.

And in terms of the bigger picture real estate situation, so you've extended Eden Valley's lease to match when Compton matures. I think that's May of '28. You're going to move from downtown Minneapolis. When do you start discussions with potential replacements for Compton? Is that by the end of the year or a year from now? Or when do you start looking for alternatives?

Pretty much the end of the calendar year. So starting in late fall, maybe beginning of winter, we will start looking again at potential -- really at potential cities, and then identify exactly where we want to move. And then following that, we would start looking at specific sites. It takes about 18 months.

18 months from when to when?

From identifying where we want to move to be -- I mean, because most likely it's going to have to be a build-out. And so dealing with all of that, and then we wouldn't want to just move everything at one time. So we would start moving maybe Eden Valley earlier and then move Compton a little bit, maybe a month or two behind that.

Okay. Do you have a laundry list of locations that are at the top of the list right now?

We don't right now. When we had looked at it in about a year ago, 18 months ago, I think we had narrowed it down to Reno, Houston, and Memphis, and we're probably heavily leaning towards Reno. But at this point in time, I think we're going to probably -- I don't want to say start completely over, but we may add some more cities to the list and look at those.

Okay. All right, good, and that'll start later this year or early calendar '27.

Yes.

Okay, good. Great. Thanks very much.

Thank you.

Thank you. (Operator Instructions)

Robert Johnson, Intertek Group.

Good morning. Just a very top-level question. You probably can't give me a direct answer, but just looking at the cash flow generation and the valuation of the company, is the dividend, is that a sacrosanct issue for the company? Is that something you consider quarterly? Just any commentary around the dividend policy would be nice.

We really don't have a dividend policy per se. The Board considers it every single quarter, and we talk about it at that time.

Okay. Thank you.

Thank you.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Ms. Elliott for any final comments.

Thank you. And thank you again, everyone, for joining today's call. We appreciate your support and look forward to providing additional updates as we move through our new fiscal year. If you have any additional questions, please don't hesitate to reach out. Thanks again.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.