Crown Crafts Inc (CRWS) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to the Crown Crafts, Incorporated investor conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) And as a reminder, this conference is being recorded.

I would now like to turn the conference over to the Company's Vice President and Chief Financial Officer, Olivia Elliott. Please go ahead.

Thank you. Welcome to the Crown Crafts investor conference call for the third quarter of fiscal year 2009. With me today is Randall Chestnut, President and CEO of Crown Crafts, and Amy Vidrine Samson, Vice President and Chief Accounting Officer.

Good afternoon.

Hello.

A telephone replay this call will be available after 2:30 p.m. central standard time today through the end of the day on February 18th. A web replay of this call will be available for 60 days. You can access it by visiting our web site 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.

I will now turn the call over to Randall.

Olivia, thank you. And again, good afternoon. Earlier today, the Company reported results for Q3 FY '09 which ended December the 28th of 2008. The following were the results before the impairment charge which I will discuss a little later in the call.

Net sales for the third quarter of 2009, FY 2009, year just ended, was $19.3 million as opposed to $18.4 million in the previous year. Net income for Q3 was down slightly, $822,000 versus $1.224 million in the previous year, as was EBITDA down slightly from $2.074 million to $2.534 million in the quarter just ending. For the year to date, I'd like to touch on those numbers.

The year-to-date numbers for FY '09 are $62.8 million as opposed to $51 million in the previous year. Net income for the year to date was $2.476 million versus $2.751 million in the previous year, and EBITDA is $6.336 million as opposed to $5.464 million in the previous year. The sales increase this year is attributed to the acquisition of the Springs Baby Product line which occurred in November of 2007. This year, in the third quarter, we had the advantage of a full quarter shipping as opposed to only seven weeks in the comparable quarter of the previous year.

The third quarter this year was negatively impacted by $423,000 as opposed to $283,000 in the same quarter of the previous year for amortization of goodwill related to the Springs Baby acquisition. Going forward, both companies, CCIP and Hamco, have confirmed increased product placements in the future, and we're hopeful that despite this tough economy that we're in, our sales will continue to grow.

In today's press release, the Company announced a noncash charge of $9 million related to goodwill. The decline in the market capitalization of the Company during the quarter was the triggering event requiring the Company to perform an interim goodwill impairment analysis. The Company was not able to complete the impairment testing before filing its Form 10-Q for the third quarter for fiscal '09. Based on the analysis completed to date, the Company estimated a range of impairment loss of $6 million to $12 million. The $9 million charge recognized in the quarter represents the Company's best estimate of impairment at this time. The Company will adjust the charge if necessary once the impairment analysis is complete.

The current economic environment has led the Company's customers to delay shipments. As a result, the Company revised -- is revising today its 2009 revenue, EBITDA, and earnings per share guidance. The Company expects net revenue for fiscal 2009 which ends March the 29th of 2009, to be in the range of $84 million to $87 million. In addition the Company expects EBITDA for the fiscal 2009 to be in the range of $9.3 million or 11.1% of net revenues to $9.9 million or 11.4% of net revenues. And diluted earnings per share excluding the effect of the one-time $9 million impairment charge will be in the range of $0.40 to $0.44. This does vary slightly from what we had -- guidance we had given earlier which had sales of $90 million to $93 million and EBITDA in the range of $10.2 million to $10.8 million.

I'll now turn the call over to Olivia, and after she reports on numbers in more detail, we'll open it up to any questions that anyone might have. Thank you.

I'm only going to give financial highlights for the quarter and year to date. For more detailed analysis, please refer to the Company's Form 10-Q, filed with the Securities and Exchange Commission earlier this morning.

Sales of bedding, blankets, and accessories increased by $1.5 million for the quarter as compared to the same period in the prior year. $3.1 million of the increase is due to the acquisition of the baby products line of Springs Global in November, 2007 which increases offset by a net $1.6 million decline in our core business. Year to date, sales of bedding, blankets, and accessories increased by $14.1 million, primarily due to $13 million of sales associated with the Springs acquisition and by $1.1 million in organic sales growth.

Bed and bath sales decreased by $650,000 for the quarter and by $2.2 million year to date. Gross profit decreased as a percentage of net sales for the three and nine-month periods of fiscal year 2009 as compared to the same period of fiscal year 2008. This decrease in percentage is due primarily to amortization costs in the current year associated with the acquisition of the baby products line of Springs Global. Additional costs in the current year related to the establishment of a foreign representative office in China, increased product testing costs, increased product development costs, and increased product costs from Asia. These increases were partially offset by a $215,000 charge related to vinyl bibs in the second quarter of the prior year and $292,000 in the third quarter of the prior year associated with the warehousing and shared services agreement with Springs Global.

Marketing and administrative expenses have decreased as a percentage of net sales for both the three and nine-month periods of the current year. Although the Company has incurred increased amortization associated with the Springs acquisition, the prior year to date included costs associated with the Company's proxy contest of almost $0.5 million which were only partially offset year to date by the costs associated with the governance and stand still agreement with Winfield Capital. Aside from these factors, the remaining decrease in marketing and administrative expenses as a percentage of net sales is due to the Company's ability to increase net sales without a significant increase in fixed costs.

During the current year quarter, the market cap of the Company was below its net book value which the Company concluded was a triggering event that required an interim impairment test of goodwill. The Company was not able to complete the test prior to filing the 10-Q for the quarter. The Company has estimated that a probable pretax impairment charge will be in the range of $6 million to $12 million, and during the current year quarter recorded a pretax charge of $9 million, which is the best, reasonable estimate of the probable impairment to the goodwill of one or both of its reporting units.

Based upon the completion of the interim impairment test the Company will record an adjustment if any to this estimated impairment charge in the quarter ending March 29th, 2009. The increase in interest expense for the three and nine-month periods of the current year is due to a higher revolving line of credit balance and a new term loan executed in conjunction with the acquisition of the baby products line of Springs Global in November, 2007, as well as the revolving line of credit balance being higher due to excess funds drawn down and invested in reaction to the current credit situation.

I will now return the call back to Randall.

Okay, Olivia, thank you very much. Well now, Katie, if you will come back on and you'll open it up -- we'll open it up to any questions that any participants may have.

Certainly. (Operator Instructions) Okay, our first question comes from the line of [Harry Long with McDonald Long]. Please go ahead.

Hi, guys. How you doing?

Fine, Harry. How about you?

Great. Yes, really well.

Good. Good.

I just noticed the cash flow from operations is really fantastic in the quarter. It looks like you guys are collecting receivables, looks like inventories are being kept to pretty moderate levels. In terms of the delay of shipment, I came on a little late on the call, I apologize. I know you guys revised estimates. Could you talk a little about where you're seeing weakness in strength at the different retailers?

I mean, I don't want to get too specific into each one of the retailers, but we are seeing, with some of the retailers, Harry, they are delaying shipments. Let's put it this way -- some of the value-oriented retailers are delaying less than some of the other retailers. I really don't want to go into it by account. But we are seeing some delays at some ends of the business, but the value-oriented retailer is being less than it is with other retailers. And obviously we think it's being affected by the economy.

Of course, yes. And just a quick follow-up. I was just trying to break out a lot of different things -- I'm looking at your financials. I know there's a lot of stuff that's moving around at the same time. But could you talk a little bit about pricing? And maybe separate a little bit blanket pricing versus bibs and that kind of thing?

What pricing are you talking about? Our pricing to the retailer or -- or our FOB costs out of Asia? Which one, Harry?

Both actually.

Our FOB costs out of Asia are up some, okay. And we've been reporting that for the past several quarters. That we've been paying more even though we're seeing now that starting to turn some in Asia and -- and not be -- not raising as much as it once was. The RMB has been relatively steady now for the last four to six months, where it was rising fairly rapidly prior to that.

In addition, the Chinese government had reduced the value-added tax rebate to suppliers in Asia fairly drastically last year. But now in the last three to four months, they've given some of that back. As far as pricing to the retailer, we did pass on price increases last year. And we were tenacious with that, and we were successful with that. So we were successful in getting some price increases and passing it through when we saw the cost in Asia rising.

Well, great quarter. I mean it looks like some fantastic cash flow from operations.

Okay. Thank you, Harry. Katie?

Your next question comes from the line of [Charles Levy with Smith Barney]. Please go ahead.

Hi, Charles.

Hi, good afternoon, afternoon.

Afternoon.

I see you disclosed the purchases that you made in October and November I guess. You characterize them as privately negotiated transactions. Did you mean by that that you negotiated the price in the over-the-counter market, or is this something that took place away from the normal trading market?

Charles, the -- the ones we were talking to there was a fairly sizable blocked trade that we negotiated, but it did go through the market. I mean the market saw it.

Okay, yes, that does correlate to the trading.

It does correlate, and it did flow through, and it did show up as a trade. What we're referring to is someone came it us and had a block, and we purchased the block.

Understood.

But then it showed up on the -- on the ticker as it went through.

Yes. Understood. Are you still in the market to buy stock under your authorizations?

I mean, we don't have, Charles, today an active buyback plan in place. When the capital committee and the Board has decided that for the short term right now cash is king, and we're keeping and holding cash. And we think financially we're in one of the best shapes of anybody in our industry for that reason. So right now, we're not -- we're not in an active buyback program. Not to say that we might not in the future, but we don't have an active day-to-day program in buying.

No, that's fine. And I agree with the policy. And the good news is that it means somebody else is buying the stocks.

That's true.

Okay.

That's true.

Keep up the good work.

Okay. Thanks, Charles. Appreciate it. Thank you.

Bye.

(Operator Instructions) We'll go to the next line of Gary Steiner with Huber Capital Management. Please go ahead.

Hi, Randall.

Hi, Gary, how are you?

Good. Good. Couple of things. Just on the marketing and administrative costs. That was down in the quarter, year over year. Just any color there?

Olivia, I'll let you and Amy take that. Go ahead.

In the -- in the current quarter, we reversed some previously accrued incentive-based compensation. We had been accruing it throughout the year, and in the -- in this particular quarter, we reversed that this year, whereas we were accruing 100% last year.

Okay. What was the amount of the reversal?

Hold on just a second --

Let me get that exact amount.

-- Gary and we can give it to you.

Okay. Maybe while she's working on that --

Yes, go ahead to the next question, we'll give you the answer to that in a moment.

I actually know it -- it was $264,000.

All right, $264,000.

Okay. Could you just talk generally about how sell-through of your product is at retail? I mean, obviously a lot of retailers are pulling down inventory now, and that's affecting your reported sales. I am just curious to understand how your actual sell-through is at retail.

Gary, we tried to analyze that, and we keep trying to analyze it as best we possibly can. And I think by and large, it is affected at virtually every retailer to some degree, some retailers being a lot less than others. But we -- as I alluded to earlier, the value-oriented end of the market, the sell-through once it does get into the store and gets through the inventory and gets on the shelf, has been -- once it gets to the shelf, has been fairly consistent. And if anything, steady to slightly down. At some of the other retailers, it is not that case, and it is affected and is off at retail.

Okay. And then just the last one that I had in terms of the guidance -- I don't know if I'm doing the numbers correctly or not. So maybe I'm missing something. But so if we -- we just sort of look at your new guidance relative to your old guidance. You have reduced the EBITDA guidance by, call it, about $900,000 for the year. But you've only reduced your earnings by $0.01 to $0.02 depending on which part of the range one chooses. But if I just look at $900,000, that equates to almost $0.06 a share. And I'm just trying to understand from -- if I'm missing something there.

Part of that is when we originally put out the guidance back in March of last year or little later, we had more shares outstanding, and we continued the buy back plan so the number of diluted shares that we are estimating to be outstanding is lower.

It's down 9.2. So it's 9.2 million shares outstanding now, Gary.

Got it, okay. Great. Thanks so much.

You're quite welcome. Thank you. Katie?

Yes, there are no further questions at this time. Please continue.

Okay. We'll give it just a second and see if we have anyone else. If not, we'll bid everyone farewell.

Okay. Let me wrap it up. We appreciate everyone's interest in the Company. We appreciate your time and attention. And we appreciate your calling in today.

The environment is a tough environment. The whole retail market is very difficult. We feel very confident that we're getting our fair share of the business. And we are -- as we alluded to in the call, we have some placements going forward that we think will help us even through this difficult time. So again, thank you very much. And if you have questions afterwards, please feel free to give myself, Olivia, or Amy a call. Have a good day. Thank you.

Thank you. Ladies and gentlemen, this conference will be available for replay after 2:30 today through February 18th at midnight. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code 982534. Those numbers again are 1-800-475-6701 and access code 982534. That does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.