Crown Crafts Inc (CRWS) 2014 Q4 法說會逐字稿

Good afternoon. Welcome to the Crown Crafts, Inc. conference call. All participants will be in listen-only mode.

(Operator Instructions).

After today's presentation there will be an opportunity to ask questions.

(Operator Instructions).

Please note this event is being recorded. At this time I would now like to introduce and turn the conference over to Ms. Olivia Elliott, VP and CFO. Please go ahead.

Thank you. Welcome to the Crown Crafts investor conference call for the fourth-quarter and full fiscal year 2014. 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 one hour after the end of the call through 8 AM central daylight time on June 26, 2014. Also, a web replay of this call will be available for 90 days and can be accessed by visiting our website at 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 good afternoon again. And welcome to the Crown Crafts investor conference call.

Before the market opened this morning we released the earnings for the fourth quarter and our full fiscal year which ended March 30, 2014. And today we will be talking about the numbers for the quarter and for the full year.

Net sales for the quarter, FY14, we finished at $24.011 million versus the previous year of $23.611 million, or up $400,000, or 1.7% for the quarter. Net income, we finished the quarter at $2.028 million as opposed to $1.854 million in the prior year, up $174,000, or 9.4%. Diluted earnings per share increased from $0.19 last year to $0.21 this year in the quarter.

Turning to the full year, net sales for the full year finished at $81.294 million as opposed to $78.416 million in the previous year, or up just under $2.9 million, or 3.7%. Net income for the full year was $5.771 million as opposed to $5.111 million in the previous year, up $660,000 or 12.9%. And diluted earnings per share increased from $0.52 in the previous year to $0.59 in the current year that just ended.

FY 2013 was a good year for the Company and we are pleased with the overall results. Net income for 2014 was the highest that the Company has seen since fiscal 2002 if you exclude one-time effects of $3.7 million after-tax gain on debt restructuring in 2007 and $4.2 million income tax benefit in fiscal 2006. Long-time shareholders will recall that 2002 was the year that the Company began the strategic transformation by divesting of legacy businesses and reemerging as a new focus on infant and juvenile products.

We are very pleased with the sales gain for the quarter in the year. We improved the full-year sales over the previous year by 3.7%.

This was accomplished by creating new products and placements during the year, even though the retail environment continued to be soft and retailers continue to be vigilant on maintaining tight inventory controls. We are extremely proud of our product development and design teams that put these products together to allow for the sales increase that we had during the year.

Turning to the gross profit for a moment, gross profit increased from 26% to 26.5% in the current-year quarter, the fourth quarter year over year and improved from 25.2% to 27.7% for the full 12 months, FY14. The full-year improvement in gross profit is attributable to several factors. Among those is a more favorable product mix in the current year as opposed to the previous year.

The sales increase of 3.7% in the current year also provided better coverage for the fixed portion of the Company's cost of sales than the prior year. Also during the year we reduced our distribution cost by about $0.25 million by eliminating a secondary warehouse that we had used for overflow and backup shipping.

On the balance sheet side, we finished the year debt free and with a small cash balance on hand. We announced on May 13 a quarterly dividend payment of $0.08 per quarter. This represents a 3.9% annualized yield based on yesterday's close price.

The quarterly dividend of $0.08 will be paid on July 3, 2014, to shareholders of record as of June 13. We are very pleased at the strength of our balance sheet and operating cash flow allows us to provide this dividend to our shareholders. Olivia, I will turn it back over to you for additional comments.

Thank you. I'm only going to give financial highlights. For a more detailed analysis please refer to the Company's Form 10-K filed with the Securities and Exchange Commission this morning.

Net sales were $81.3 million for fiscal 2014, which was $2.9 million higher, or 3.7% than fiscal 2013 sales of $78.4 million. Net sales for the fourth quarter of fiscal 2014 were $24 million, which was $400,000, or 1.7% higher than the fourth quarter of fiscal 2013 sales of $23.6 million. The majority of the sales increase was due to the introduction of three new programs during the second quarter of the current year.

Gross profit for fiscal 2014 increased in amount by $2.8 million and increased as a percentage of net sales from 25.2% to 27.7%. The increase as a percentage of net sales can be attributed to a more favorable product mix in the current year compared with the prior year.

The higher level of sales in the current year also provided better coverage of the fixed portion of the Company's cost of sales than in the prior year. Additionally, the Company in the current year experienced a decline of $248,000 in costs associated with the Company's rental of an auxiliary warehouse and distribution center, which the Company vacated and sublet in fiscal year 2013.

Marketing and administrative expenses for fiscal year 2014 increased in amount and as a percentage of net sales as compared with fiscal year 2013 primarily due to increases in the Company's performance-based compensation cost. The Company also in the current year experienced increased legal fees primarily associated with the companies defense of two lawsuits.

The Company's provision for income taxes increased to 38.3% during fiscal 2014 from 36.3% in fiscal 2013. The increase in the effective tax rate is primarily due to a decrease in the current year in the amount of certain expenses that are deductible for tax purposes but not for book purposes as well as a decrease in California Enterprise Zone wage credits.

Net income for the fourth quarter of fiscal 2014 was $2 million, or $0.21 per diluted share compared to net income of $1.9 million, or $0.19 per diluted share for the fourth quarter of fiscal 2013. Net income for fiscal 2014 was $5.8 million, or $0.59 per diluted share compared to net income of $5.1 million, or $0.52 per diluted share for fiscal 2013. I will now return the call to Randall.

Olivia, thank you very much and that concludes our remarks. And Ed, if you will come back we will open it up to any questions that anyone on the line may have.

Thank you. We will now begin the question-and-answer session.

(Operator Instructions). Dave King, ROTH Capital.

Thanks, good afternoon Randall and Olivia. I guess I got a few questions here.

First off on the gross margin, I was curious obviously it was up year over year which is again encouraging but it was up a little bit less than in the prior quarters and it was down a little bit sequentially. I guess I was just looking for more color about either what drove the decline or how we should be thinking about it on a go-forward basis knowing that you don't necessarily want to give any guidance. How should we think about it in terms of the puts and takes and what a sustainable kind of level should be, or what you guys are managing towards.

Dave, there is nothing special in the gross profit that changes it that greatly from quarter to quarter. We had some new placements that we had made in the second and third quarter, and new shipments for new product deliveries that we have made in the second and third quarter which probably the initial shipments had a little higher profit in it than some of the ones did in the fourth quarter. But there is nothing that is really earmarked that we can point to that has a huge effect on it either plus or minus from quarter to quarter.

Okay that helps. And then in terms of inventory, it looks like those were down sequentially, or at least on a day's basis, down sequentially but still kind of up in a fair bit year over year in terms of days.

I'm just wondering what might be driving that? I think in the past maybe there was some specific stuff that may have driven it last quarter? What drove it this quarter and how should we be thinking about the inventory balances moving forward?

Typically, Dave, at the end of the fourth quarter that is our low point for inventory. And it's our yearend and as you well know you followed us now for several years, our first quarter's typically -- I don't want to say our weakest quarter but it's the less strongest quarter of all the four out of the year is a better way to put it.

So at the end of the fourth quarter that's when inventories come at an all-time low. And what you are comparing really in the previous year is where inventories were really below the low. They were in the previous year, FY13, inventories had come down really below where they should have been.

So you are looking now at a more normalized inventory level at the end of the fourth quarter. Is it up maybe a tad bit higher than maybe I would like to see it a few points, but it's very few points.

Right. And it's still pretty low. I'm just, you know --

It is pretty low, yes.

Okay, thanks for that. And then I guess just more broadly, Randall, thinking about the retail environment there, what are your thoughts today? Has it improved at all?

The talk out there about stabilizing, or maybe even improving birth rates. You're starting to hear a little bit about that. I guess, what are your current thoughts on that and are you seeing it at all at retail these days?

Dave, I'll answer them sort of one by one and take the birth rate first. We are seeing some early indications, some numbers that maybe there is a slight uptick of just a few thousand births over previous declines.

And that is I think the FY13, excuse me for calendar 2013, it's a slight slight uptick. But it's ever so slight. So we haven't seen, or it's so slight we don't see any effect from that.

We are still seeing retailers maintain tight inventory controls and that is really the key right now. If they don't have sellthrough then it shows up in tightening up the inventory and postponing and pushing back deliveries.

Once we get it into the store and it gets on the floor we are seeing some pretty decent sellthrough numbers. So we are encouraged by that but every time it has anything of any bit of a slow down the retailers tighten inventory up and they reduce the inventory.

But overall we are pleased with where we are positioned in the stores. And we are pleased with where we are positioned as far as our sellthrough.

All right. That helps greatly and good luck with fiscal 2015.

(Operator Instructions). At this time I am showing no further questions. I would like to now turn the conference back over to Mr. Randall Chestnut for any closing remarks.

Okay, Ed, thank you very much and we really appreciate everyone's time and attention. Our fiscal year ends in March and it seems like it is a long time between the time we end our year and when we have this conference call. And so the next conference call will not be as far apart, it will be for the end of the first quarter and we will have that call sometime in mid-August.

And until that time we would like to say that we are very pleased with the performance that we had this year. It was a very good year and we are happy with that performance.

We are also pleased with our position in the market and our designs and out products and as I said our position where we are in the store and the sellthrough that we are achieving when it is on the retail floor. We'd like to thank all of our customers, employees, suppliers, shareholders and everyone for their continued interest and support in the Company.

2014 was a very successful year and we thank you very much and we will talk to you again in a couple of months. Have a good day, bye.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.