Crown Crafts Inc (CRWS) 2020 Q1 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, August 14, 2019.

At this time, I would now like to turn the call over to Ms. Olivia Elliott, Vice President and CFO, who'll begin the call.

Ms. Elliott, please go ahead.

Thank you.

Welcome to the Crown Crafts investor conference call for the first quarter of fiscal 2020.

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

Good afternoon.

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

Central Daylight Time on August 21, 2019.

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 listeners 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 regard 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 remind listeners 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 dividend.

I'll now turn the call over to Randall.

Olivia and Anita, thank you very much, and welcome, everyone, to our first quarter FY 2020 investor conference call for the quarter that ended June 30 of 2019.

Before the market opened this morning, we issued a press release outlining the earnings of the quarter.

And I'm going to touch on those, and Olivia will come back and add more to it before we open it up for questions at the end.

For the quarter end, net sales were $15.942 million as opposed to $15.460 million in the same quarter of FY '19 or an increase of $482,000 or 3.1%.

Net income was $1.079 million as opposed to $264,000 in the same quarter last year or an increase of $815,000 or an increase of 309%.

Diluted earnings per share were $0.11 this year as opposed to $0.03 in the same quarter last year.

The gross profit in the current year quarter increased from 28.5% of net sales increased to -- I'm sorry, 28.5% of net sales from 26.7% of net sales in the previous year quarter.

Historically, our first quarter has been our weakest quarter.

This year, we're pleased that we had improved on a net sales as compared to the first quarter of last year.

We're also very pleased with the improvement in gross margin, net income and earnings per share.

Current year net income was favorably impacted by $0.03 per diluted share due to a state income tax adjustment that Olivia will discuss in more detail a little later.

During the quarter, we liquidated all remaining Babies"R"Us private label inventory that we have had since they filed for bankruptcy and liquidation.

We're very pleased that we've been able to put this in the rearview mirror.

The company has had a couple of difficult years with the transition to the naked crib and the loss of our second largest customer, which had a tremendous impact and we weathered through it.

We controlled our cost, weathered the storm, and we came out on the other end very healthy.

Our staff did an amazing job getting through this very difficult period, and we're pleased with the current results.

We finished the quarter with a cash balance of $3.5 million and unused borrowing availability of $19.2 million.

Our balance sheet remains very strong.

Today, in the announcement, the company also announced that its Board of Directors declared a quarterly cash dividend on the company's Series A common stock of $0.08 per share, which will be paid October 4, 2019, to shareholders of record at the close of business on September 13, 2019.

This represents an annualized yield of 6.5% based on yesterday's closing of our stock price.

We're very pleased to continue to reward our shareholders with cash dividends.

That concludes my remarks, and I'll give it back to Olivia to add more color.

Thank you very much.

I'm going to give financial highlights.

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

Net sales were $15.9 million for the first quarter of fiscal 2020 compared with $15.5 million for the first quarter of the prior year, an increase of $482,000 or 3.1%.

The increase in sales is primarily due to higher overall replenishment orders with sales of bibs, toys and disposables increasing by $1.3 million and sales of bedding and blankets decreasing by $808,000.

Gross profit increased by $423,000, an increase from 26.7% of net sales in the prior year to 28.5% of net sales for the current year.

The increase in amount is primarily due to the higher sales than the current year quarter.

Marketing and administrative expenses decreased in amount by $233,000 and decreased from 23.8% of net sales in the prior year to 21.7% of net sales this year.

The prior year quarter included $210,000 in expenses to transfer the Sassy inventory from Grand Rapids, Michigan to the company's distribution facility in Compton, California.

The current year provision for income taxes is based upon an estimated annual effective tax rate from continuing operations of 24.3% compared to 24% in the prior year quarter.

During the current year quarter, the company reversed the reserves for unrecognized tax liabilities that had previously recorded for fiscal years 2011 through 2013, which resulted in the recognition of discrete income tax benefit of $232,000.

In addition, during both the current and prior year quarters, the company recorded discrete entries associated with excess tax benefits or charges arriving from the vesting of nonvested stock during the period and also recorded reserves for unrecognized tax liability.

The effective tax rate from continuing operations, combined with the effect of these discrete income tax charges and benefits, resulted in an overall provision for income taxes of 5% for the current year and 23.3% for the prior year.

Net income for the first quarter of fiscal 2020 was $1.1 million or $0.11 per diluted share, which included $0.03 associated with the reversal of the discrete income tax benefit and the associated interest and penalties.

Net income for the first quarter of fiscal 2019 was $264,000 or $0.03 per diluted share.

And I'll now give it back to Randall.

Olivia, thank you very much.

Anita, if you'll come back on, you can open it up now for Q&A.

(Operator Instructions) The first question today comes from Josh Peters with Zenith Sterling Advisers.

Congratulations in light of the increase in profit share year-over-year.

I want to dig in just a little bit to the differences in the sales trends, where the bib and toy business up about 19% year-over-year but bedding and blankets down 9.5%., and just add a little color what's driving the growth on the growth side and the continued decline on the bedding side.

I mean Josh, we -- part of it is new placements and fixture fill, and we shipped some of that in the quarter.

We've been -- that's really the majority of it.

There's nothing spectacular that stands out in the quarter that caused us to have an increase of any appreciable degree except for just regular repeat business and some placements.

Okay.

And the decline in -- on the bedding side, is that a function of naked crib still taking a toll?

It's a combination of that, and it's also a combination of one of our customers in the fourth quarter of last year took advantage and stocked up on quite a bit of inventory that carried over into the first quarter, which reduced the reorders in the first quarter.

That probably had more of an effect on NoJo the crib and bedding business than anything else.

Okay.

So it sounds like just normal variability but still solid progress on profitability.

One other question, and then I'll let somebody else get on the line.

It's great to see that you paid off all your debt and you're back in a positive cash position -- well, cash that was positive.

But I noticed that your receivables balances come way down.

Is it at what you think of as a normal level going forward from here?

Or can we expect maybe the net cash position might run back down in the next couple of quarters?

Well, that, Josh -- and that would be a forward-looking statement to predict where our cash will be.

But I can tell you that, yes, it's going to bounce in and out of the revolver for the remainder of the year but to no appreciable degree.

No [degree] that you should worry about, okay?

Okay.

And again, congratulations on a solid quarter.

Thank you.

Thank you very much.

There appears to be no further questions.

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

Okay, Anita.

Thank you very much.

And that concludes -- well, we've got one more on now.

Anita?

The next question comes Ralph Marash with First Manhattan.

Just 2 quickies.

The early order, the fourth quarter order, was that an attempt to beat tariffs?

What that the reason?

Not really, not really.

It was a customer that -- if I gave you the name of obviously you'd recognize them very well.

But it was a customer that took advantage of just stocking up on some inventory at year-end in the fourth quarter, our fourth quarter, which ended in March.

And there was nothing spectacular about it except that when they do that, then it obviously has a negative effect on the following quarter.

There's nothing unusual or spectacular about it.

No.

I don't think it related to the tariffs at all.

Okay.

So then I'll just expand the tariff question.

Are you seeing any kind of issues regarding tariffs, either from customer concerns or in your own order pattern, your own, yes, order pattern with your suppliers?

Ralph, to this point, we've only had 2 of our categories of any sizable degree that were affected, okay?

And that was in round 2 -- 1 in round 2 and 1 round 3. We -- the round 4 that was announced to be effective September 1 and now some of that has been postponed to December of 2019 is -- the 10% is going to get most of the balance of our products, okay?

And our philosophy has been and we've told it and we've repeated it over and over again is we're going to pass it on.

We're going to raise the prices, and that we've done.

And we've had some pushback.

But by and large, most people understand, and they're accepting it and passing it on.

And we are phasing it through, meaning, if we've got inventory in the warehouse at the pre-tariff rates, we'll work through that before we put the new tariffs in.

We'll work with the retailer in that form and fashion.

So -- but we've had a little bit of pushback.

But by and large, most people have accepted it.

But we've taken a pretty firm stand that we're going to pass it on.

Next question comes from Fred Foulkes with Boston University.

It's a great quarter.

You really answered my questions on tariffs.

But I was wondering, to some of your larger customers, you've still been able to -- they're willing to accept your passing on those additional costs.

So far, Fred, they have, okay?

We had one item, and it was an item that was sitting in the bubble anyway that may or may not have been continued and one sizable retailer just said, "Okay, it's not performing that well.

Let's just discontinue it." That's been the only case we've had where we've had just out and out resistance.

We've had some people say, "Oh, you got to give us 6 months notice to pass through a price increase." And our answer to that is,"Oh, we did get 6 months notice on the tariffs.

So sorry, we'll work with you on the existing inventory but we're passing it through." And a lot of major retailers, in particular one, Walmart has been very vocal that they're going to pass it on.

And so it's inflationary, and there's no question about it.

And we are taking a very firm stand, and we're passing it on.

Our margins, as you see, are healthy but they're not healthy enough to eat those kinds of increases.

Our next question comes from Dennis Scannell with Rutabaga Capital.

Yes.

Just a quick one from me.

In previous calls, you've actually called out the sales contributions from Sassy and Carousel.

Is that something you're willing to do on a continuing basis?

We didn't do that.

The reason we have been doing that the last couple of years because it was primary differences between year-over-year because you had it for a partial year in one year and then a full year in the other.

So it was causing major swing.

So we really didn't call those out specifically this year.

Okay.

Is it -- just out of curiosity then, where we saw bedding down on the -- on a year-over-year basis, any commentary on how Carousel performed on a year-over-year basis?

Was it up, flat, down?

Dennis, it was down a little, okay?

It basically is in for bedding, and it was too affected by the effects of the naked crib.

So it was down, so I -- yes.

This concludes our question-and-answer session.

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

Okay.

Thank you, Anita.

And just the last closing remarks.

As we begin another year, we're very pleased and excited and optimistic about the future.

And I will emphasize, your company is very solid, and I'd like to repeat that.

Your company is very solid.

We'd like to thank all of our employees, suppliers, customers and shareholders for their continued support, and we'll speak to you again in 3 months or so.

Thank you very much.

Have a good day.

Thank you.

This conference has now concluded.

Thank you for attending today's presentation.

You may now disconnect.