Crown Crafts Inc (CRWS) 0 Q0 法說會逐字稿

Hello, ladies and gentlemen, and welcome to the Crown Crafts, Inc.

investors' conference call.

Your host for today's call is Mr. Randall Chestnut, Chairman, President and Chief Executive Officer.

(Operator Instructions)

Any reproduction of this call, in whole or in part, is not permitted without prior written authorization from Crown Crafts, Inc.

And as a reminder, this conference is being recorded today, June 14, 2017.

At this time, I would like to turn the conference call over to Ms. Elliott -- Ms. Olivia Elliott, Vice President and Chief Financial Officer, who will begin the call.

Please go ahead.

Thank you.

Welcome to the Crown Crafts Investor Conference Call for the Fourth Quarter and Full Fiscal Year 2017.

With me today is Randall Chestnut, the company's President and Chief Executive Officer.

Good afternoon.

A telephone replay of the call will be available 1 hour after the end of the call through 4 p.m.

Central Time on June 21, 2017.

Also, a web replay of the call will be available for 90 days and can be accessed by visiting our website at www.crowncrafts.com.

Before we begin, I would like to remind everyone of the cautionary language regarding forward-looking statements contained in the press release.

That same language applies to comments made in today's conference call.

Also, in regards to comments made in today's conference call that are related to the company's recently announced dividend, its history of paying dividends and the annualized yield on the company's common stock, we would like to remind everyone that the declaration of each dividend is at the discretion of the company's Board of Directors, and the company expressly disclaims any assurances as to the frequency and amount of any future dividends.

I will now turn the call over to Randall.

Olivia, thank you, and good afternoon again to everyone, and welcome to the Crown Crafts, Inc.

Fourth Quarter and Full Year Investor Conference Call for our FY '17, which both ended on April 2, 2017.

And I'll touch on some of the highlights, Olivia will come back, and then we'll have any questions from anyone that we might have.

Jumping right into the numbers, net sales for the quarter were $17.308 million as opposed to $25.077 million in the previous year, and these are fourth quarter numbers, by the way, or a decline of $7.769 million or 31%.

Net income for the quarter was $1.609 million as opposed to $2.194 million or a decline of $585,000 or 26.7%.

Diluted earnings per share were $0.16 this year as opposed to $0.22 last year.

Switching over to the full year, all 4 quarters, FY '17 finished the year at $65.978 million as opposed to $84.342 million in the previous year or a decline of $18.364 million or down 21.8%.

Net income for the year was $5.572 million as opposed to $6.829 million in the previous year or a decline of $1.257 million or 18.4%.

Diluted earnings per share were $0.55 for this year and $0.68 for the previous year of 2016.

FY '17 was a difficult year for the company's top line.

Sales were impacted from several factors including the following: as we've reported earlier, there's been a shift going on from moms buying infant beddings that have bundled into sets for a number of years to buying separates.

This shift is commonly referred to as the naked crib.

Sales were also impacted by a sizable customer that had experienced credit problems all during the year, which impacted our ability to ship to this customer.

In the previous year, as we had reported earlier, we had a Black Friday toddler bedding promotion which was not repeated in the current year, which also had a drag effect on the sales for the top line.

In addition, the previous year had 53 weeks, while the current year had only 52 weeks.

Our accounting calendar has 53 weeks in every few years to match up every 6 to 7 years.

Point and -- and the last point, point of sale at retailers was down for the entire year as the economy remained sluggish.

In addition, retailers kept inventory very tightly in check, which affected our ability to ship.

Turning to gross profit, gross profit increased as a percentage of net sales from 28.2% to 29.4% for the current year.

The increase in gross profit is attributed to improved product cost from Asia as well as the company's continued tight cost controls.

Turning to the balance sheet, as we have done every quarter since year ending 2011, we again finished the year with no debt, and cash on the balance sheet of $7.892 million.

Dividends.

On May 11 of this year, we announced a quarterly dividend of $0.08 per share.

This represents a 4% annualized yield based on yesterday's closing price per share of the company's common stock.

This quarterly dividend will be paid to shareholders.

It'll be paid on July 7 to shareholders of record on June 16, 2017.

Once this dividend is paid, the company will have returned more than $30.5 million to shareholders since the company resumed paying dividends in 2010.

We are very proud of this track record as we continue to operate the business in a manner that generates strong cash flow and deliver substantial value to our shareholders.

Just to repeat the number, we've returned over $30 million to the shareholders in the last few years.

Olivia, if you will take it and touch on more numbers.

I'm only going to give financial highlights.

For more detailed analysis, please refer to the company's Form 10-K filed with the Securities and Exchange Commission this morning.

Net sales were $17.3 million for the fourth quarter of fiscal 2017 compared with $25.1 million for the fourth quarter of the prior year, a decrease of $7.8 million or 31%.

Net sales for fiscal 2017 were $66 million, down $18.4 million or 21.8% from $84.3 million in the prior year.

The decrease in sales is partially due to a Black Friday promotion in the prior year that was not repeated in the current year as well as reduced product shipments to a customer that is experiencing credit problems.

Additionally, due to the strength of the U.S. dollar, the company has received price reductions from its global suppliers, which have been partially passed on to the company's customers.

Also affecting sales is the continuing overall sluggish retail environment, coupled with the change in the infant bedding marketplace, whereby parents are opting to purchase separates rather than bedding sets, leading to a lower average price point for the company's infant bedding products.

This trend has been partially offset by the company's expanded offerings of separates and infant beddings, bedroom decor.

Gross profit decreased in amount by $1.9 million but increased from 28.2% of net sales for the prior year quarter to 29.9% of net sales for the current year quarter.

Gross profit decreased in amount by $4.4 million but increased from 28.2% of net sales for fiscal 2016 to 29.4% of net sales for fiscal 2017.

The increase in the gross profit percentage in the current year is primarily due to the company's overall tight cost control combined with improved product cost from China, resulting from favorable exchange rate fluctuations.

Marketing and administrative expenses decreased -- declined by $2.3 million in fiscal year 2017 compared with fiscal year 2016.

The decrease is primarily related to a $1.4 million decrease in compensation costs.

The company's provision for income taxes increased slightly to 36.7% during 2017 from 36.4% in 2016.

The company's effective tax rate for the current year was beneficially impacted by the early adoption of Accounting Standards Update #2016-09, which resulted in the recognition of discrete income tax benefits amounting to $248,000 to reflect the effect of net excess tax benefits arising from the exercise of stock options and the vesting of nonvested stock during the year.

The company recorded during the prior year discrete net income tax benefits of approximately $260,000, primarily resulting from the application of more favorable state apportionment percentages to state income tax returned for several prior fiscal years.

Net income for the fourth quarter of fiscal 2017 was $1.6 million or $0.16 per share -- diluted share compared with net income of $2.2 million or $0.22 per diluted share in the fourth quarter of fiscal 2016.

Net income for fiscal 2017 was $5.6 million or $0.55 per diluted share compared with net income of $6.8 million or $0.68 per diluted share for fiscal 2016.

And now I'll turn it back to Randall.

Olivia, thank you again.

And Steven, if you'll come back, we'll open it up to anyone on the line that may have questions.

(Operator Instructions) And our first question comes from Dave King with Roth Capital.

Randall and Olivia, I guess, first, maybe can you talk a little bit about some of the trends by customer?

I mean, obviously, retail's pretty tough right now for everyone, but is most of that pressure still coming from the credit-challenged customer you've referred to in the past?

Or is there anything to play to at your largest customer?

Were there any programs that didn't renew there?

Or is that just them maintaining tighter inventories?

Some color there would help.

Dave, at the larger customers that you're referring to, the problem is not just the one customer that's got the credit problems.

There's been reduced order flow from the larger customers because of their sell-through.

Their point of sale has been down and has been -- had pressure on it.

And two, they, in turn, have tightened up their inventory and taken weeks out of the supply of inventory, which has reduced orders coming to us.

So it's a combination of both, and it's affecting virtually every major retail.

Okay.

Okay, that helps.

And then, thinking about the weakness that started up the credit-challenged customer and then also the pressures from the naked crib trend, can you remind us again on when those first started?

And then, is there a point at which you might anniversary some of that?

Or is that something that'll just kind of continue to weigh, particularly as we think about modeling year-on-year revenue and things like that?

How should we be thinking about those pressures?

No, Dave, and that's a good question.

And I'll -- one by one, the -- on the credit-challenged customer, it really started about 2 years ago, but it got really, really tight and heated, and we reduced order flow.

We got out of a program that was not that profitable with that account, and we decided to do that first.

And that had a negative effect on the top line to get out of that private label program.

And that started about a year ago, okay?

So we're coming up on anniversary-ing those probably second quarter of this year that we're in now, and we're in the first quarter now.

So the second quarter would be our September ending quarter.

The same applies for the naked crib.

The naked crib really has been going on for a number of years, but bumpers, which started playing into the reduction of the naked crib, the restrictions or the ban on bumpers or people not buying bumpers, really got hot middle of last year.

So again, that one to anniversary and circle around is going to be about the same time, probably the end of the second quarter.

Okay.

Okay, that's great color, very helpful.

And then, I guess, one more.

Given the challenges at bricks-and-mortar affecting a lot of companies at this point, I guess can you talk about what you're doing, if anything, now to grow your own direct-to-consumer capabilities?

And just what are your updated thoughts there, Randall?

We do a substantial online business already, Dave, as you're well aware of.

It is not really our own, but through other online retailers, okay?

The -- I mean, everybody knows who they are, but we've been -- we started a number of years ago doing something that a lot of suppliers don't do, and that's drop-shipping, okay?

I mean, we'll -- the order can be placed at one of the retailers, and we'll drop-ship it directly to the end consumer.

And we've been doing that now for a number of years.

That business is substantial for us, and is the one side of the business that's growing.

I've -- I didn't answer your question on what are we doing about getting into direct Internet sales, and we are looking at it, and we have not pulled a trigger and made a decision on it as of this point.

Our next question comes from Eric Beder with Wunderlich Securities.

Yes, this is Bryan Caronia on for Eric.

So the first question we had, if we could circle back to your commentary on the issue of shipments to your customer that was -- had a distressed credit situation this year.

Can you give any insight in terms of the breakdown as to how that affected your revenue number from your 2 operating segments, or your 2 product segments, perhaps more definitively in terms of the split of those sales that would have, if they had been -- if they had flowed through, the impact they would have had on the bedding and blankets and then, subsequently, on the bibs and bath segment?

We don't disclose by customer our revenue, and therefore that would be disclosing customer by revenue.

With that said, I will tell you that the -- this particular customer, we -- it's all in the bedding and blanket side of the business, okay?

It was none on the infant bibs and bath side of the business.

We did not have an ongoing business on the bib and bath side.

So the entire reduction is on the bedding and blanket side of the business.

Okay, great.

And then, in terms of your margin performance, you guys did a very strong job this year despite the decline in the top line in terms of growing your margins very well, particularly from the gross margin side as well as nice cost controls on the operating expenditures side.

So if you could provide any color, it would be great in terms of the where you see your ability to take further expansion on your gross margin side, as you pointed out, the reduced product import cost from overseas manufacturers.

And then as well as your continued ability or flexibility to manage operating expenditures on -- or account it, declined by a pretty significant rate on a dollar-for-dollar basis year-over-year.

So where you sort of see or have any opportunities to further reduce your SG&A expenses going forward as we navigate through this tough retail environment.

I mean, there's 2 answers to that.

The first answer is, if you look at the exchange rate, the RMB versus the dollar, it's actually going the opposite way.

And there's not quite the advantage now that there was 6 months ago in the exchange rate.

That has reversed itself to some degree.

So getting discounts and -- from China or from Asia, it is getting a little more difficult than it was a few months ago.

And the exchange rate now is down below CNY 6.80 to a dollar, and it got as high as almost CNY 7. And it's reversed itself some, so that's made it tougher.

On cost control, what I can tell you is we maintain -- we watch every penny, and we're very tight and we're very stingy, and we continue to do that and will continue to do that to maintain very tight cost control over every aspect of the business.

I can't identify for you how much more we can do.

I mean, there's not -- I will tell you, there's not a lot of low-hanging fruit left.

If there is and we didn't pull it, then that's our shame.

And I don't think there's a whole lot of low-hanging fruit left.

Great.

And then if I could just add in one more.

What are your thoughts and what are you seeing in terms of the M&A environment in the infant and juvenile segment?

I believe, on the last call, you had noted that sellers were, in terms of their asking price, were being a little bit elevated given the systemic headwinds and the overall retail environment.

So any updates or color you could provide as to what you're seeing and what you may be looking for in terms of Crown Crafts playing in that environment?

The sellers are -- the prices are still elevated, even though we are finding some opportunities where they're a little more realistic.

And we are very interested in finding the right acquisition at the right price that will complement what we do as a business.

So we're constantly looking.

And with that said that, I mean, it's something that we do pretty much every week that we're looking for new opportunities that will complement what we do.

But we're also very conservative on how much we'll pay, and that hasn't changed a whole lot.

(Operator Instructions) And this concludes our question-and-answer session for today.

I would like to turn the conference back over to Randall Chestnut for any closing remarks.

Steven, thank you very much, and I'll make them very brief.

Overall, we're very pleased with our position in the market.

Our designs and products are well positioned for the future.

We'd like to thank all of our customers, employees, suppliers and shareholders for their continued interest and support in the company.

FY 2017 was a difficult year, but the company remains solid and has a very bright future.

Let's move on to 2018.

Thank you very much, and have a good day, and thank you for your interest.

The conference has now concluded.

Thank you for attending today's presentation, and you may now disconnect.