Crown Crafts Inc (CRWS) 2019 Q2 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, 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.

As a reminder, today's conference call is being recorded today, November 8, 2018.

At this time, I'd like to turn the conference call over to Ms. Olivia Elliott, Vice President and CFO, who will begin the call.

Please go ahead.

Thank you.

Good afternoon, and welcome to the Crown Crafts investor conference call for the second quarter of fiscal 2019.

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 Time on November 15, 2018.

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 dividends.

I will now turn the call over to Randall.

Olivia, thank you very much, and good afternoon again to everyone on the call, and thanks for participating.

Before the market opened today, we released our earnings for our second quarter FY 2019, which ended on September 30 of this year.

And I will give some of the financial information, some of the highlights.

Olivia will then give more detail.

And after that, we'll open it up to anyone who may have questions.

But net sales for the quarter were $20,536,000 as opposed to last year same quarter $16,461,000, or an increase of $4,075,000 or 24.8%.

Net income for the quarter was $1,809,000 as opposed $725,000 in the same quarter last year or an increase of $1,084,000 or 149.5%.

Diluted earnings per share this year were $0.18 as opposed to $0.07 last year.

Gross margin for the current year quarter was 31% of net sales, up from 30.5% in the same quarter last year.

Any way you look at it, it was a solid quarter, and we're very proud of the performance.

We're extremely pleased that we had a sales increase of 24.8% in the quarter versus the same quarter last year.

As everyone on the call knows, during the past 12 months, we've been navigating unusually challenging retail conditions, mainly with the loss of our second largest customer, Toys "R" Us, Babies"R"Us.

We're encouraged as we're beginning to see that some of the sales that would have been made to Toys "R" Us, Babies"R"Us are being filtered to other retailers.

Also during the quarter, we attended and presented product from Sassy, Crown Crafts Infant Products and Hamco at the K + J show in Cologne, Germany.

Because Sassy has such a strong international presence, we chose to brand the product that we were showing at the K + J show as Sassy product.

At the show, we visited with 11 of our current 14 distributors, representing 20 countries, and we met with distributors to possibly expand to another 11 countries.

We also met with a number of U.S. and international retailers.

The show was very successful as we began to expand our international presence.

This was our first showing at this show.

On the balance sheet side, we finished the quarter with a revolver balance of $4.4 million, and so we're very healthy from a cash revolver and availability standpoint.

Today, we announced that the company's Board of Directors declared a quarterly cash dividend on the company's Series A common stock of $0.08 per share.

This represents an annualized yield of 6.2% based on yesterday's closing price per share.

This dividend will be paid January 4, 2019, to shareholders of record as of the close of business on December 14, 2018.

Once again, we're pleased to offer a dividend payment that reflect the board's confidence in our business and our ongoing commitment to provide value to the shareholders.

With that, I'll turn it back to Olivia.

Thank you.

I'm only going to give financial highlights.

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

Net sales were $20.5 million for the second quarter of fiscal 2019, up $4.1 million or 24.8% from prior year sales of $16.5 million.

Year-to-date, net sales were $36 million, up $5.9 million or 19.6% from $30.1 million in the prior year.

The increase in the second quarter is primarily due to sales that resulted from the acquisitions of Sassy, which had $2.8 million of sales in the quarter, and Carousel, which had $1.8 million of sales in the quarter compared to $1.2 million of sales in the prior year quarter.

The company also experienced organic growth of $643,000 in the current year in spite of the loss of sales to Toys "R" Us, Babies"R"Us, which represented $1.7 million of sales in the prior year quarter.

Year-to-date, Sassy sales were $5 million and Carousel sales were $3.6 million compared to $1.2 million in Carousel sales in the prior year period.

These increased sales were offset by the elimination of sales to Toys "R" Us, Babies"R"Us, which amounted to $5.1 million during the prior year-to-date period.

During the first quarter of the current year, most of the sales that ordinarily would have been made to Toys "R" Us, Babies"R"Us had not yet shifted to other customers as they actually became a major competitor of the company as they conducted liquidation sales during the entire first quarter, which included deep discounts on in-line merchandise.

Gross profit increased by $1.3 million and increased from 30.5% of net sales for the prior year quarter to 31% of net sales for the current year quarter.

Year-to-date, gross profit increased by $1.9 million and increased from 28.6% of net sales for the prior year to 29.2% of net sales for the current year.

The increases are primarily due to the higher sales levels in the current year period.

Marketing and administrative expenses increased by $20,000 for the quarter and $804,000 year-to-date compared with the same periods in the prior year.

Contributing to the increase in amount were costs associated with Carousel of $832,000 in the quarter and $1.6 million year-to-date.

Carousel costs, which included acquisition costs, were $780,000 in the prior year quarter and $832,000 for the prior year-to-date period.

The current year-to-date period also included $210,000 in charges associated with transferring the remaining inventory acquired in the Sassy acquisition from Grand Rapids, Michigan to the company's distribution facility in Compton, California.

The prior year-to-date period included $427,000 in credit coverage fees associated with Toys "R" Us, Babies"R"Us.

The current year provision for income taxes is based upon an estimated annual effective tax rate from continuing operations of 23.4%.

Tax legislation enacted in December 2017 included a provision to lower the federal corporate income tax rate from 34% to 21% effective as of January 1, 2018.

As the company's fiscal year 2018 ended on April 1, 2018, the lower corporate income tax rate was phased in, resulting in a blended federal statutory rate of 30.75% for the fiscal year 2018.

Because the legislation had not yet been acted, the company's provision for income taxes for the prior year was based upon an estimated effective tax rate from continuing operations of 36%.

During the second quarter and year-to-date period of both fiscal 2019 and 2018, the company recorded discrete entries associated with excess tax benefits or charges arising from the vesting of non-vested stock during the period, and also recorded reserves for unrecognized tax benefit.

The effective tax rate from continuing operations, combined with these discrete income tax charges and benefits, resulted in an overall provision for income taxes of 26% for the current year-to-date period and 36.1% for the same period in the prior year.

Net income for the second quarter of fiscal 2019 was $1.8 million or $0.18 per diluted share compared to net income of $725,000 or $0.07 per diluted share in the second quarter of fiscal 2018.

Net income for the first 6 months of fiscal 2019 was $2.1 million or $0.21 per diluted share compared to net income of $1.2 million or $0.12 per diluted share for the same period in fiscal 2018.

I will now return the call to Randall.

Olivia, thank you very much.

And Jamie, if you'll come back on and see if anyone that's on the call has any questions they would like to ask.

(Operator Instructions) And we do have a question from Charles Levy, private investor.

I was wondering, are you pretty much through the difficulties from the Toys "R" Us situation in terms of comparisons as we go forward?

Charles, the answer is a mixed answer.

Mostly yes, but we're still -- there's still some -- we haven't regained all the steam that we had because it was a huge account.

It was a huge loss.

And we have replaced a substantial portion of that business, but candidly, we haven't replaced all, okay.

So we're still trying to find places to replace all of it.

And little by little, we're picking up some steam there.

But we're very pleased with the quarter.

We're very pleased with the results.

And with that customer being out of the quarter 100% and we still had the performance that we had, we're -- yes, we're very happy with it.

Yes, I can see that...

But we aren't quite back to par yet.

I'm sorry, I missed that.

Say again.

We -- all I said is we aren't quite back to par before with the sales number pre-Babies"R"Us, Toys "R" Us bankruptcy/liquidation.

Yes.

Well, I'm glad you broke out the increases from Carousel and Sassy.

That made it pretty clear as to where you stood.

I'm glad you mentioned it on the call also.

(Operator Instructions) And at this time, I'm showing no additional questions.

I'd like to turn the conference back call over for any closing remarks.

Jamie, thank you very much, and thanks to everyone that was on the call today.

We're -- we appreciate your continued interest in Crown Crafts.

In the press release that we issued earlier today, we announced that 2 of our subsidiaries are in the process of being formally rebranded and renamed.

Crown Crafts Infant Products, Inc.

will be renamed NoJo Baby & Kids, and Hamco, Inc.

will be renamed Sassy Baby, Inc.

We believe these changes better reflect the breadth of the company's portfolio and more clearly convey the value of our brands to consumers and our retail partners.

In addition, we have a new corporate logo, and we've launched the new -- or we're launching a new Crown Crafts website, which will be active in the next few weeks.

Q2 FY '19 was a solid quarter for the company and one that we're very pleased and very proud of.

We'd like to thank all of our employees, suppliers, customers and shareholders for their continued support, and we look forward to talking with you next quarter.

Thank you very much.

Ladies and gentlemen, the conference has now concluded.

We do thank you for attending today's presentation.

You may now disconnect your lines.