Crown Crafts Inc (CRWS) 2015 Q4 法說會逐字稿

Hello, ladies and gentlemen, and welcome to the Crown Crafts Incorporated investors conference call. Your host for today's call is Mr. Randall Chestnut, Chairman, President and Chief Executive Officer. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will follow at that time. Any reproduction of this call in whole or in part is not permitted without prior written authorization from Crown Crafts Incorporated. And as a reminder, this conference is being recorded today, June 12, 2015.

At this time, I would now like to turn the call over to Ms. Olivia Elliott, Vice President and CFO, 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 2015. With me today is Randall Chessman, 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 Time on June 19, 2015. Also a web replay of this 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. I would also like to refer everyone to the non-GAAP reconciliations contained in the press release, the explanations of the items excluded to calculate the Company's non-GAAP financial measures, and the Company's basis for the presentation thereof.

Finally, with regard to the 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 dividend.

I will now turn the call over to Randall.

Olivia, thank you. And good afternoon again, ladies and gentlemen, and welcome to the Crown Crafts Incorporated investor conference call. Before the market opened this morning we released the earnings for our fourth quarter and full year, which ended on March 29 of 2015.

I will make a few comments. Olivia will come back and talk the financial side, and then we will open it up to anybody that has any questions that they may have at the end of the call.

Net sales for the quarter were $26.090 million as opposed to $24.011 million in the prior-year or an increase of just under $2.1 million or 8.7%. Net income for the quarter was $2.139 million as opposed to $2.028 million in the same quarter previous year or an increase of 5.5% or $111,000. Diluted earnings per share was flat at $0.21 per share.

For the full year net sales were $85.978 million as opposed to the previous year of $81.294 million or a sales increase of 5.8%, $4.684 million. Net income for the full year was $5.718 million as opposed to $5.771 million in the prior year or a decline of $53,000 or 0.9% or just under 1%. Diluted earnings per share declined from $0.59 to $0.57.

If you take the effect of the one-time settlement we had in the litigation, the patent litigation which was settled in the third quarter, and you effect that, which, net of taxes, net income basis was $530,000, then the numbers reflecting that one-time charge would make the adjusted net income $6.248 million as opposed to $5.771 million in the prior year, or an increase of $477,000, 8.3%, and diluted earnings per share would have gone from $0.59 to $0.62.

Continuing on, FY2015 was another very good year for the Company. Adjusted EBITDA, earnings before interest, taxes, depreciation and amortization adjusted to exclude the one-time legal settlement, was $11.1 million, which was up from $10.4 million in the prior year. Adjusted EBITDA rose to 12.9% of net sales from 12.8% in the prior year. In fact, the operating efficiencies have resulted in this percentage being double-digit every year for the past 10 years, something that we are pretty darn proud of.

We believe that the consistency that comes from delivering strong results year after year is the product of the contribution made by our experienced management team, and dedicated and loyal employees. Just a couple of highlights on that that we looked at recently.

73% of our employees have over five years of service. And 44% of our employees have over 10 years of service. And if you take our senior management team, the average age of service to Crown Crafts for the senior management team is 18 years. And is something that we are very proud of, and we think that is an asset, a strong asset, of the Company.

We are pleased with the sales gains for the quarter and the year. The 5.8% sales increase for the full year is contributed by several factors -- one, new placements of programs that we assumed from a former competitor that we had diluted to all during the year; second, strong placement and sellthrough of our licensed toddler bedding. And the third and one of the most important is our creative audit development sales teams did a fantastic job of reacting to the opportunities that arose in the market during the year.

Gross profit percentage declined from 27.7% to 27.4% for the full-year FY2015. The decline is a result of the placements which I mentioned, and these programs were assumed from some of our retailers which were held by a former competitor, which were at lower preset prices and margins.

Turning to the balance sheet, as we have done every quarter and year end since 2011, we again finished the year with no debt and a cash balance of $1.8 million.

On May 19, 2015, we announced a quarterly dividend of $0.08 per share. This represents a 3.8% annualized yield based on yesterday's closing price per share of the Company's common stock. This quarterly dividend will be paid on July 2 of 2015 to shareholders of record on June 12 of 2015. We are pleased with the strength of our balance sheet and the operating cash flows, which allow us to pay what will be our 22nd consecutive quarterly dividend to our shareholders.

With that, I will turn it over to Olivia for 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 for the fourth quarter of fiscal 2015 were $26.1 million compared to $24 million for the fourth quarter of the prior year, an increase of $2.1 million or 8.7%. Fiscal 2015 net sales were $86 million, compared with $81.3 million for fiscal 2014, an increase of $4.7 million or 5.8%. The increase in sales is largely related to initial shipments of new programs and the strength of our licensed toddler properties.

Gross profit for the fourth quarter increased in the amount by $435,000 but decreased as a percentage of net sales from 26.5% for the fourth quarter of fiscal 2015 to 26% for the fourth quarter of fiscal 2015. For the year, gross profit increased in amount by $1 million but decreased as a percentage of net sales from 27.7% for fiscal 2014 to 27.4% for fiscal 2015.

The increase in amount was associated with the increase in sales, while the decrease as a percentage of net sales was a result of the assumption of new business from a former competitor with lower preset prices.

Legal expense for fiscal 2015 increased by $501,000 over fiscal 2014. Current year legal expense includes $1.2 million associated with the BreathableBaby litigation, of which $850,000 represents a charge recorded in the second quarter, related to the settlement of the litigation, and $380,000 represents legal fees associated with the case.

Other marketing and administrative expenses for fiscal year 2015 increased by $673,000 as compared with fiscal year 2014. As a percentage of net sales, other marketing and administrative expenses were 15.1% of net sales for both fiscal years.

The Company's provision for income taxes is based upon an estimated annual effective tax rate of 37.6% for fiscal 2015 and 38.3% for fiscal 2014.

Net income for the fourth quarter of fiscal 2015 was $2.1 million or $0.21 per diluted share compared to net income of $2 million or $0.21 per diluted share in the fourth quarter of fiscal 2014. Net income for fiscal 2015 was $5.7 million or $0.57 per diluted share compared to net income of $5.8 million or $0.59 per diluted share for fiscal 2014.

Excluding the $530,000 after-tax impact of the BreathableBaby settlement, current year net income would have been $6.2 million or $0.62 per diluted share. I will now return the call to Randall.

Olivia, thank you very much. And Gary, if you will, come back and we will open it up for any questions that anyone might have.

(Operator Instructions) Dave King with ROTH Capital.

First off, you had a pretty good increase in sales this quarter. So I just wanted to better understand that a little bit. In terms of -- it sounds like some of that was for -- I guess, if I look at the bedding and blanket side it sounds like some of that was for some initial shipment for new programs. Is there any color in terms of how much of the call it 17% increase in that part of the business was initial shipments versus just strong replenishment orders, etc.? And I'll stop there.

Dave, I'm a little bit shooting from the hip. But there were some additional shipments in the quarter, and I'm not sure exactly how much. But if you are looking at strictly the (inaudible) the bedding/blankets side of the business, probably half of it was initial shipments of new shipments, and the other half would have been ongoing repeat reorder business.

That's good color, though, and that's helpful. And then I guess, the other part of that that I was just curious about, then -- so then, in terms of the bibs and bath side, revenue was up a fair bit sequentially but still down year on year. Is there anything there to be aware of that maybe was outside of the year-ago period? Or just how are you thinking about that side of the business at this point?

No, it's nothing -- no, it was not. And it's a business that we are pretty excited about going forward. But we did have -- we were circling back over some years, last year where we had some additional placements, initial shipments that we didn't have this year. So it's just a matter of the timing.

Okay, fair enough. And then maybe switching gears a little bit, Olivia, maybe it's a question for you. In terms of the legal side of things -- so, all in, it looks like you could call it, you had about $1.3 million, I want to say, over the course of the year in terms of if you include the settlement but then also the legal cost, if I'm doing that right, maybe a little bit more.

That's correct.

So then, over the last two quarters, it looks like there's been about $60,000 or so in legal costs per quarter. Is that a fair run rate to be thinking about going forward, absent anything new that comes up on that front?

Yes, I think that's probably a pretty fair, consistent rate.

Okay, that helps. All right, well, thanks for the color and good luck with next year. Thank you.

Danielle McCoy with Wunderlich Securities.

First, I was wondering if you could just touch on the inventory level, up a little over 13% year over year.

Danielle, yes, inventory levels were up. But they were pretty much all in relationship to yielding for the new programs that we had taken, one. And two, if you look back, our year-ending inventory level at the end of the fourth quarter of FY14 was low. I mean very low. Okay? And, candidly, lower than it should have been.

So we were circling around a year where we had a really low year. This year, we had a more normal inventory level and then we also had the build for the new programs and new business that we've taken. So it was a combination.

Okay, great. And then, I noticed that there was a little bit of a shift on the percent of business from Walmart. That was a little bit down. But then, on the flipside, it was increased for Toys "R" Us. Is that something that we should expect to go a little back-and-forth over time? Or is this something that might be a little more permanent?

No, I don't think you should take a signal that that's a permanent shift in business. It's a bit -- floats back and forth quarter to quarter, year to year. And those happened to be our number one and number two accounts. And, depending on what programs are set, what time of the year they are set, etc., that can have a swing of a fairly sizable number from year to year. But there's nothing appreciable to read into that.

Okay. And then just lastly, I was wondering if you can give us an update on Petunia Pickle Bottom and how that's going and when we should expect that to hit the shelves.

It's going to be late this year/early next year before you see any of that. It's in product development-design as we speak. It's a new license that we just announced. And we are pretty excited about it. We think it's a cute brand and it's got some cute product designs -- excuse me, designs that we can design around. But it's going to be later this year/early next year -- physical calendar year, I'm talking about -- before you see anything on the shelf.

Okay, perfect. Thank you guys so much. Good luck.

(Operator Instructions.) As there are no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Randall Chestnut for any closing remarks.

Gary, thank you very much. And we will close. We will close by saying that management remains optimistic about our future. We had a very good year and we are excited about that and we are very optimistic about the future.

We are very pleased with our position in the marketplace. Our designs and product are well-positioned for the future. We like to thank all of our customers, employees, suppliers and shareholders for their continued interest and support in the Company. FY2015 was a very successful year.

Thank you very much and have a good weekend.

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