Crown Crafts Q1 2025 Earnings Report

Crown Crafts EPS Results

• Actual EPS: -$0.03
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Crown Crafts Revenue Results

• Actual Revenue: $16.21 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Crown Crafts Announcement Details

• Quarter: Q1 2025
• Date: 8/14/2024
• Time: N/A
• Conference Call Date: Thursday, August 15, 2024
• Conference Call Time: 9:00AM ET

Crown Crafts (NASDAQ:CRWS) (NASDAQ: CRWS) is a U.S.-based designer, marketer and distributor of infant, toddler and juvenile consumer products. The company develops a wide range of softlines and related accessories, including crib and toddler bedding, blankets, decorative pillows, bath towels and washcloths. Since its founding in 1957, Crown Crafts has focused on combining creative design with functional quality to meet the shifting preferences of young families and caregivers.

The company operates two primary business segments. Its Domestic Products segment encompasses the design, sourcing and marketing of finished goods under proprietary and private labels for major mass merchants, online retailers and specialty stores in North America. Key product lines include crib and toddler bedding sets, nursery décor items and infant bath linens. The International Sourcing segment manages relationships with offshore manufacturers—primarily in Asia—to procure fabrics and finished products that are then sold into the domestic market. This dual‐segment structure allows Crown Crafts to balance creative control with global cost efficiencies.

Crown Crafts markets its products under a variety of brand names, including Crown Crafts Baby, NoJo and Lambs & Ivy, and supplies a broad retail network that includes department stores, warehouse clubs and e-commerce platforms. The company’s headquarters is located in Gonzales, Louisiana, and it maintains a field sales organization to support key customers in the United States and Canada. Crown Crafts also collaborates with international retail partners, leveraging its sourcing capabilities to serve markets beyond North America.

Over more than six decades of operations, Crown Crafts has evolved from a regional textile concern into a specialized juvenile-products provider. The company’s senior leadership team is focused on product innovation, supply‐chain management and strategic partnerships to drive long‐term growth. By blending creative design with sourcing expertise, Crown Crafts aims to deliver durable, attractive and affordable nursery and infant care essentials to families worldwide.

Crown Crafts Q1 2025 Earnings Call Transcript

Key Takeaways

• Net sales fell to $16.2 million in Q1 fiscal 2025 from $17.1 million a year ago, resulting in a $0.03 per share net loss versus a $0.04 per share profit in Q1 last year.
• Gross margin contracted to 24.5% of net sales from 27.7% a year earlier, driven by higher warehouse costs and unfavorable timing of inventory purchases.
• Long-term debt was slashed to $1.5 million at quarter end, down from $8.1 million, thanks to cash provided by operations and lower inventory spending.
• The company acquired Baby Boom assets for $18 million, financed by an $8 million term loan and expanded revolving credit, and expects the deal to be immediately accretive.
• Encouraging performance in the bedding business and strong retailer feedback on new Manhattan Toy products point to growth opportunities as inflation eases.

Presentation

[Operator]

Good day, and welcome to the Crown Crafts, Inc., first quarter fiscal year 2025 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star, then one on a touchtone phone. To withdraw your question, please press Star, then two. Please note, this event is being recorded. I would now like to turn the conference over to John Beisler, Investor Relations. Please go ahead.

[John Beisler, Head of Investor Relations at Crown Crafts]

Thank you, Dave, and good morning, everyone. We appreciate you joining us for the Crown Crafts first quarter fiscal 2025 conference call. Joining me this morning are Crown Crafts President and CEO, Olivia Elliott, and the company's CFO, Craig Demarest. Crown Crafts issued a press release yesterday afternoon regarding their first quarter 2025 financial results. A copy of this release is available on the company's website, crowncrafts.com. The company's Form 10-Q was also filed yesterday. During today's call, the company will make certain forward-looking statements, and actual results may differ materially from those expressed or implied. These statements are subject to risks and uncertainties that may be beyond Crown Crafts' control. The company is under no obligation to update these statements. For more information about the company's risk factors and other uncertainties, please refer to the company's filings with the Securities and Exchange Commission.

[John Beisler, Head of Investor Relations at Crown Crafts]

Finally, I would like to remind you today's call is being recorded, and a replay will be available through the company's investor relations page. Now, I'd like to turn the call over to President and CEO, Olivia Elliott.

[Olivia Elliott, President and CEO at Crown Crafts]

Thank you, John. Good morning, everyone. Our first quarter fiscal 2025 results were impacted by the prolonged inflationary pressures facing consumers, limiting their discretionary income. Excluding the costs related to the closure of our UK subsidiary and acquisition-related costs, our performance for the quarter was generally breakeven. The most recent consumer survey provided a mixed outlook, with consumers feeling slightly more confident about near-term prospects, with concerns about inflation, the job market, and a potential recession ahead. There is growing sentiment about potential rate cuts from the Fed in the remainder of the year and into 2025, which would bring some measure of relief to consumers through lower credit card interest rates, which impact our lower-income customers the most. We did see some encouraging developments in the quarter, including the performance of our bedding business and the reduction of our debt levels with cash provided by operations.

[Olivia Elliott, President and CEO at Crown Crafts]

Finally, we purchased the assets of Baby Boom Consumer Products last month. This is a very exciting opportunity for the company, and I will speak more about this later in the call. With that, I'd like to turn it over to Craig to cover the financials in more detail.

[Craig Demarest, CFO at Crown Crafts]

Thank you, Olivia, and good morning, everyone. Net sales for the first quarter of 2025 were $16.2 million, compared with $17.1 million in the prior year quarter. The decrease is primarily due to a major retailer reducing inventory levels and the loss of a program at another major retailer. Gross profit for the quarter was 24.5% of net sales, compared with 27.7% in the first quarter of fiscal 2024. The decrease in gross profit is primarily related to increased warehouse costs and the timing of purchases, which caused an unfavorable change in the absorption of costs into inventory. Marketing and administrative expenses were $4.3 million, compared to $4 million in the prior year quarter.

[Craig Demarest, CFO at Crown Crafts]

The current year quarter includes $244 thousand for the closing of Manhattan Toy's U.K. subsidiary and $116 thousand in costs associated with the Baby Boom acquisition. Net loss for the quarter was $322 thousand, or $0.03 per share, compared with net income of $366 thousand, or $0.04 per share in the prior year. Turning now to our balance sheet. Cash and cash equivalents at June 30 totaled $1.1 million, compared with $829 thousand at the end of fiscal 2024. Inventories at the end of the quarter were $30.6 million, compared to $29.7 million at the end of fiscal 2024 and $37.7 million at the end of the first quarter of the prior year.

[Craig Demarest, CFO at Crown Crafts]

Our long-term debt at the end of the first quarter of fiscal 2025 was $1.5 million, compared to $8.1 million at the end of fiscal 2024. This decrease is primarily related to the collection of fourth quarter fiscal 2024 receivables, coupled with lower-than-planned inventory purchases during the current year quarter. Regarding the acquisition of Baby Boom, we paid $18 million for the assets of the company, subject to customary working capital adjustments. We financed the transaction through a combination of an $8 million term loan, repayable monthly over four years, and additional borrowings under our revolving line of credit. The term of the line of credit was extended by one year to July 2029, and we increased its borrowing capacity from $35 million-$40 million.

[Craig Demarest, CFO at Crown Crafts]

Finally, our quarterly dividend of $0.08 per share offers an annualized yield of 6.7% based on yesterday's closing price per share. We continue to believe our dividend is a key component towards offering long-term returns to our shareholders. Now, I'll turn the call back over to Olivia for additional comments.

[Olivia Elliott, President and CEO at Crown Crafts]

Thank you, Craig. Before I get into our purchase of Baby Boom, let me provide an update on a few other matters. We continue to receive positive feedback on new product development at Manhattan Toy, which acquisition in March 2023 expanded our distribution channels and cross-selling opportunities. As part of continuous management of our cost structure, we decided to close its U.K. subsidiary at the end of June 2024. We continue to evaluate options for a future warehouse location to reduce our lease expense. This effort likely will continue through the rest of fiscal 2025 and into next fiscal year. Now, let me turn to our acquisition of Baby Boom. We're very excited about the opportunity to add Baby Boom's products and licenses to our lineup. The acquisition enhances our toddler bedding business with some very popular licensed brands, including Bluey, Ms. Rachel, and PAW Patrol.

[Olivia Elliott, President and CEO at Crown Crafts]

It also adds diaper bags to our product offerings. The diaper bags are sold under both company brands and under a license from Eddie Bauer. There will be some expenses in the near term as we move the Baby Boom inventory from a 3PL in Ontario, California, to our existing warehouse in Compton, rent additional storage space in a temporary facility, and move some Sassy inventory from California to our Eden Valley, Minnesota, warehouse. But the acquisition is expected to be immediately accretive to earnings. As we work through the remainder of calendar 2024 and into 2025, we will continue to focus on optimizing our cost structure and developing products that position our brands to capitalize when the overall macroeconomic picture improves. I'd like to thank our team for their efforts and our customers for their continuing support.

[Olivia Elliott, President and CEO at Crown Crafts]

We look forward to updating you on our progress throughout the year and thank you, our shareholders, for your continued support. With that, I'd like to open up the line for questions. Dave?

[Operator]

We will now begin the question and answer session. To ask a question, you may press Star, then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press Star and then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Doug Ruth with Lenox Financial. Please go ahead.

[Douglas Ruth, President at Lenox Financial Services]

Good morning, appreciate the details that you provided. With the Baby Boom toddler bedding, which of the brands do you think has the most opportunity? And maybe you could tell us why.

[Olivia Elliott, President and CEO at Crown Crafts]

Meaning the licenses?

[Douglas Ruth, President at Lenox Financial Services]

Yeah, so the license with the bedding.

[Olivia Elliott, President and CEO at Crown Crafts]

So they have some very popular licenses right now. They have Bluey, which is a really, really popular, probably the most popular one right now. CoComelon, which has been popular for quite some time, and then we're really excited about some of the YouTube brands. We think Ms. Rachel has a good opportunity. The inventory is not in yet. It's a new license that had been signed right before we did the acquisition, and so we're waiting on the inventory to come in, but we think that's gonna be a hit.

[Douglas Ruth, President at Lenox Financial Services]

What makes Bluey popular?

[Olivia Elliott, President and CEO at Crown Crafts]

It's a television show that today's kids are just very excited about. He's a cute little puppy dog.

[Douglas Ruth, President at Lenox Financial Services]

Okay, very good. And then could you talk about the diaper bag and how big of an opportunity you think it might be?

[Olivia Elliott, President and CEO at Crown Crafts]

So right now, diaper bags are probably about 40% of the acquisition sales. We do think that we have an opportunity to grow diaper bags in some other... Right now, it's mainly in Walmart and Target. We think we have an opportunity to grow that across other retailers, and we also think that we have an opportunity maybe in specialty stores and to take that internationally.

[Douglas Ruth, President at Lenox Financial Services]

Okay, and then could you give us a little bit more detail about the feedback that you're receiving about the product development with the Manhattan Toy? With the Manhattan Toys.

[Olivia Elliott, President and CEO at Crown Crafts]

Sure.

[Douglas Ruth, President at Lenox Financial Services]

Yeah.

[Olivia Elliott, President and CEO at Crown Crafts]

So, the big product launches happen at some of the gift shows that primarily happen during the summer. So in June, we showed at one of the major gift shows, and we introduced the new line of Wimmer, which is the true infant 0 to kind of 9-12-month products. And they were just really excited about those, and the specialty stores are really, you know, pushing us to go ahead and get that inventory in so that they can start purchasing it. We also are working on a new updating the Stella Doll collection, and so the initial feedback on that is very good.

[Douglas Ruth, President at Lenox Financial Services]

Very good. And then how about, can you explain a little bit more about what happened in the United Kingdom and the decision to close the Manhattan Toy subsidiary there?

[Olivia Elliott, President and CEO at Crown Crafts]

I mean, so Sassy Baby already had international distribution, and they do primarily through distributors, whereas the Manhattan Toy kinda handled those retailers direct. And so as we looked at those two models, it feels like the distributorship model works the best, and so we were able to close that office, cut down those expenses, and we had three employees there, and we're replacing it with two employees in the US.

[Douglas Ruth, President at Lenox Financial Services]

Okay. And then, are you thinking that the final decision about the warehouse, do you think that would be made in... Would that be made in, is it possible still for fiscal 2025, or do you think that would be made sometime in fiscal 2026?

[Olivia Elliott, President and CEO at Crown Crafts]

I think we will have narrowed down to one or two locations or, or at least—you know, not necessarily the exact address, but I think we'll have narrowed down to the, the city location, by the end of fiscal 2025.

[Craig Demarest, CFO at Crown Crafts]

Well, that's encouraging. I just wanted to say that I'm, you know, I'm optimistic about the future of the company, and I want to thank you for answering my questions.

[Olivia Elliott, President and CEO at Crown Crafts]

Thank you, Doug.

[Operator]

The next question comes from Josh Peters with Morgan Dempsey. Please go ahead.

[Josh Peters, Portfolio Manager at Morgan Dempsey]

Good morning, Craig. Good morning, Ellie or Olivia.

[Olivia Elliott, President and CEO at Crown Crafts]

Hi, Josh.

[Craig Demarest, CFO at Crown Crafts]

Good morning.

[Josh Peters, Portfolio Manager at Morgan Dempsey]

Yeah, I too am very excited about the Baby Boom acquisition, and since I still have relatively young children in the house, I kind of get the Bluey thing compared to some of what I've seen over the last 15 years for small child entertainment. Bluey is much less likely to drive its parents absolutely insane.

[Olivia Elliott, President and CEO at Crown Crafts]

Right

[Josh Peters, Portfolio Manager at Morgan Dempsey]

through repeated exposure. I realize we're not the target audience there. That's always an important point. I have just a couple of questions. One, I was very, you know, happy to see the bedding line items start to turn around in the quarter, and obviously, you've talked about some very promising feedback and potential growth for Manhattan Toy. I am curious about what. If you're able to give me, you know, some sense of what the Manhattan Toy contribution to sales in the quarter was? Because the quarter was, you know, pretty soft on that line item.

[Olivia Elliott, President and CEO at Crown Crafts]

Actually, I don't have that number broken out right now. I can tell you that where it was soft was in the bib side of the business. We mentioned that there was a lost program that impacted the sales, and that was the bib program at Target, because Target decided to take that entire program direct source. So they're sourcing that themselves.

[Josh Peters, Portfolio Manager at Morgan Dempsey]

Okay. So, but that affects more your pre-existing business than Manhattan Toy. Is that a fair characterization?

[Olivia Elliott, President and CEO at Crown Crafts]

Correct.

[Craig Demarest, CFO at Crown Crafts]

Yes.

[Josh Peters, Portfolio Manager at Morgan Dempsey]

Okay. Okay. Yeah, I'm just trying to get a sense of some of the discrete contributions from different parts of the business. You mentioned also a major retailer reducing inventory. That's been a story here for a while. Do you feel like the customer is now comfortable with their level of inventory, and we're going to at least get the benefit of, you know, what's actually being sold at the cash registers?

[Olivia Elliott, President and CEO at Crown Crafts]

Yeah. Well, we know what's being sold at the cash registers, and we can see that this particular inventory isn't, I mean, this particular customer is not buying to the POS. You know, just when we think the wheels are on the bus and the inventory levels are back to normal, this happens. And so I would like to say that we're, that they're purchasing back to the POS, but I'm not sure that they are. It seems very erratic right now. One week they're purchasing to POS, and the next week they're not.

[Josh Peters, Portfolio Manager at Morgan Dempsey]

Okay. Well, I suppose everybody's still dealing with the volatility associated with the interesting things of the last, you know, 3, 4 years here.

[Olivia Elliott, President and CEO at Crown Crafts]

Right.

[Josh Peters, Portfolio Manager at Morgan Dempsey]

On gross margin, you know, I see, I see the pressure there and just trying to get a little bit better handle on how that is working its way through. So, you know, when you refer to, you know, timing of purchases, is this, you know, a disproportionate piece of high-cost inventory from perhaps a year or two ago when shipping costs were really high, and obviously, we've had the increase in the rent and the Compton facility. You know, just trying to get a sense of, you know, are we, you know, absorbing those costs now, finally through the P&L, and we can see some margin improvement from here?

[Craig Demarest, CFO at Crown Crafts]

Yeah, the margins are mostly impacted by the additional warehousing costs and the allocation of overhead between inventory and cost of sales. And all of that is kind of based on purchases, and we had a lower than we planned or lower than expected purchases during the first quarter, which wound up with, like we said, an unfavorable absorption of the cost into the balance sheet that has to run through the P&L. So, that can fluctuate from quarter to quarter. If you look at the prior year first quarter, it was a favorable impact to margin. So the combination of the two from prior year and the current year made it look a little more pronounced than maybe it really is.

[Josh Peters, Portfolio Manager at Morgan Dempsey]

Okay. Well, that's really good perspective, you know, just to understand the accounting process associated with some of that. Last question relating... Well, there's a couple, I suppose, in here, questions. Relating to the Baby Boom acquisition, are you expecting to file an 8-K that will have some financial history for Baby Boom and the pro forma-

[Craig Demarest, CFO at Crown Crafts]

Yes

[Josh Peters, Portfolio Manager at Morgan Dempsey]

financial statements? Pardon?

[Craig Demarest, CFO at Crown Crafts]

Yes, we will. We'll file their one-year historical financial statements, accompanied by pro forma financial information.

[Josh Peters, Portfolio Manager at Morgan Dempsey]

Okay. Do you have a sense of when that's likely to be filed? I suppose there's, you know, delays associated with actual accounting and-

[Craig Demarest, CFO at Crown Crafts]

Yeah, I would look-

[Josh Peters, Portfolio Manager at Morgan Dempsey]

things like that.

[Craig Demarest, CFO at Crown Crafts]

I would look for it around the first of October.

[Josh Peters, Portfolio Manager at Morgan Dempsey]

Okay. From that, you know, I'll certainly look forward to actually getting the filing, but we paid $18 million for the business. You know, in very rough terms, are you able to break that down between, you know, net physical assets associated with the business as opposed to what you're paying for goodwill and intangibles?

[Craig Demarest, CFO at Crown Crafts]

Yeah, I mean, we disclosed in the press release that it's going to be adjusted to the extent that it, the working capital differs from the $6.5 million. And we're not buying the underlying equity of the company, so, and we're not buying a whole lot of, you know, PP&E or a plant facility or anything like that. So it'll be the difference between what we paid and the working capital. And that'll be allocated over the next, you know, month. We have a third party who does evaluation of the intangibles, licenses and brands and the like.

[Josh Peters, Portfolio Manager at Morgan Dempsey]

Okay. So subject to adjustments as the business continues to operate here, $6.5 million is the net tangible asset, bogey, so to speak?

[Craig Demarest, CFO at Crown Crafts]

That was the estimate at the acquisition date. We still have, I don't know, maybe another week or two before the seller has to provide us with a close, you know, an actual close, accounting close as of the acquisition date, but that should be coming in the next week or so.

[Josh Peters, Portfolio Manager at Morgan Dempsey]

Okay. All right. Well, I'm sorry to be getting into some pretty small bore things there, but, you know, you've already given me quite a good education over the years on the big picture for the business, and really looking forward to seeing the growth of the business with this latest acquisition. Very optimistic. Thanks.

[Olivia Elliott, President and CEO at Crown Crafts]

Thank you.

[Craig Demarest, CFO at Crown Crafts]

Mm-hmm.

[Operator]

The next question comes from Doug Ruth with Lenox Financial. Please go ahead.

[Douglas Ruth, President at Lenox Financial Services]

I wanted to ask a follow-up to sort of Josh's question. With the sales from Manhattan Toy, it seemed like when you did the last earnings call, you indicated that perhaps the revenue might grow 7.5%-10% in this fiscal year. I was wondering, do you have an update? Do you have a projection as far as what kind of growth you might get from Manhattan Toy this fiscal year?

[Olivia Elliott, President and CEO at Crown Crafts]

We do not. I guess I don't recall. We, we typically don't provide forecasts, so I'm trying to figure out where the 7%-10% came from.

[Douglas Ruth, President at Lenox Financial Services]

Well, you had said that. Initially, you thought that the revenue would be higher in the first year of operation, and then what you made some projections as far as how long it might take for you to get back to the original projection. So-

[Olivia Elliott, President and CEO at Crown Crafts]

Right. So I think that timeframe is 2-3 years out before you get to the what we initially forecasted.

[Douglas Ruth, President at Lenox Financial Services]

Yeah. So I took your number, and then I just calculated it, and that's what it appeared to be 7.5%-10% growth per year for the next, like, three years. So I was just wondering, do you think there'll be revenue growth for Manhattan Toy in this fiscal year?

[Olivia Elliott, President and CEO at Crown Crafts]

We really don't make those forecasts.

[Douglas Ruth, President at Lenox Financial Services]

Okay.

[Olivia Elliott, President and CEO at Crown Crafts]

You know, I hate to do that.

[Douglas Ruth, President at Lenox Financial Services]

No, I understand. I just... It's a question I thought should be asked, and I appreciate you considering it.

[Olivia Elliott, President and CEO at Crown Crafts]

All right. Thank you.

[Craig Demarest, CFO at Crown Crafts]

Thank you.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to Olivia Elliott for any closing remarks.

[Olivia Elliott, President and CEO at Crown Crafts]

Thanks, Dave. Thank you for your continued interest in our company. We will participate in the Three Part Advisors IDEAS conference on August 28, and our presentation will be available on our website. We look forward to speaking with you again when we report our second quarter results in November.

Participants

Executives

• Craig Demarest, CFO
• John Beisler, Head of Investor Relations
• Olivia Elliott, President and CEO

Analysts

• Douglas Ruth, President at Lenox Financial Services
• Josh Peters, Portfolio Manager at Morgan Dempsey