Crown Crafts Q1 2026 Earnings Call Transcript

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Provided by Quartr
August 13, 2025

Key Takeaways

  • Positive Sentiment: Company extended its Disney license agreement to include sales in Canada and added diaper bags to its licensed product offerings.
  • Negative Sentiment: First-quarter net sales fell 4.5% to $15.5 million and gross margin dropped 1.8 percentage points to 22.7%, driven by higher tariffs and inventory shortages from its tariff management strategy.
  • Negative Sentiment: GAAP net loss for the quarter was $1.1 million, or $0.10 per share, reflecting the impact of increased tariff costs and reduced sales due to product availability.
  • Neutral Sentiment: At June 29, the company held $0.23 million in cash, $31.6 million in inventory, and has $12.2 million available under its revolving credit line, supporting liquidity.
  • Positive Sentiment: Board declared an $0.08 per share cash dividend and management noted strong July sales, expressing cautious optimism for the remainder of the fiscal year.
AI Generated. May Contain Errors.
Earnings Conference Call
Crown Crafts Q1 2026
00:00 / 00:00

There are 6 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to the Crown Crafts Incorporated Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference back over to John Mcnamara. Please go ahead.

Speaker 1

Thank you. Good morning, everyone, and thank you again for joining the Crown Craft's fiscal year twenty twenty six first quarter conference call. With us on the call this morning are Crown Craft's President and Chief Executive Officer, Olivia Elliott and Vice President and Chief Financial Officer, Claire Spencer. During today's call, the company may 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 Craft's control, and the company is under no obligation to update these statements.

Speaker 1

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. With that, I would now like to turn the call over to President and Chief Executive Officer, Olivia Elliott. Go ahead,

Speaker 2

Thank you, John. Good morning, everyone. When we spoke with you at the June to discuss our results for fiscal twenty twenty five, we identified a few key themes that we expected would have a continuing impact on our financial results. Inflation has been one of those things, and while the official rate of increase has leveled off, consumers are still feeling the impact of the initial surge, which continues to affect discretionary spending habits. Tariffs, of course, have been a headline concern this quarter, and that concern is compounded by the uncertainty over what their final levels will look like.

Speaker 2

However, we also outlined how we are working to navigate these concerns and continue to execute our long term strategic plan. We recently noted that we expanded our product portfolio with the acquisition of Baby Boom and continue to drive growth with these new offerings. We've noted our solid relationships with suppliers, customers and licensors and to that end, we're delighted to announce that we have extended our license agreement with Disney. The Disney license now extends our reach to sales in Canada and will include diaper bags to our list of licensed products. Looking more broadly at sales, we are very encouraged by the numbers we've seen for sales in July and are cautiously optimistic about the rest of the fiscal year.

Speaker 2

And through all this, our balance sheet and cash flow remain solid. So while the overall environment remains challenging, we believe that we are well positioned to respond to circumstances as they arise and continue to grow the business and create value for our shareholders. With that, I'll now turn the call over to our recently named Chief Financial Officer, Claire Spencer, who will walk you through some of the financial details.

Speaker 3

Thank you, Olivia. I'm delighted to be here. I will begin with an overview of the quarter results and then provide some color. First quarter net sales were $15,500,000 a 4.5% decrease compared to the 2025. The decrease was driven by a decline in the sales of bibs, toys and disposable products, partially offset by an increase in the sales of bedding and diaper bags related to the Baby Boom acquisition.

Speaker 3

The decrease in net sales was largely a result of inventory shortages, resulting from the company's strategy to minimize the impact of extremely high tariffs in effect during the first half of the quarter. Gross profit decreased by $448,000 from the prior year three month period ended 06/30/2024. As a percentage of net sales, there was a decrease of 1.8% from 24.5% in prior year to 22.7% of net sales for the three month period ended 06/29/2025. The decrease is primarily a result of increased tariff costs associated with products imported from China. Marketing and administrative expenses increased by $454,000 from 26.3% of net sales for the three month period ended 06/30/2024 to 30.5% of net sales for the three month period ended 06/29/2025.

Speaker 3

The current year includes increased costs associated with the acquisition of Baby Boom as well as increased advertising costs. GAAP net loss for the first quarter was $1,100,000 or a $10 loss per diluted share, which was driven primarily by the impact of increased tariffs and the decline in sales related to inventory shortages that were a result of our tariff management approach. Turning now to our balance sheet. As of the end of the first quarter, cash and cash equivalents totaled $227,000 compared to $521,000 at the end of fiscal twenty twenty five. Inventories were $31,600,000 an increase of 13.6% compared to $27,800,000 at the end of last fiscal year.

Speaker 3

The inventory balance is in line with the first quarter of last year. Fiscal year end is typically our lowest inventory levels followed by an increase during the first quarter ahead of programs that set at retailers during the second quarter. As of 06/29/2025, the company had $13,900,000 in indebtedness and $12,200,000 remains available under our revolving line of credit. Finally, we declared an $08 per share cash dividend to shareholders as we continue a long history of returning value to our shareholders. Now I will turn the call back to

Speaker 2

Olivia for additional commentary. Thank you, Claire. We remain focused on navigating the current environment which is dominated by the impact of tariffs and expectations for what their levels will be on a longer term timeframe. We're encouraged by developments such as the renewal and expansion of our license agreements with Disney and by the sales level we saw in the month of July. We will continue to explore ways to increase sales and gain market share while managing our financial flexibility.

Speaker 2

In closing, I would like to thank our shareholders for your support and we look forward to updating you on our progress in the coming quarters. With that, I'd like to open the line up for questions.

Operator

We will now begin the question and answer session. Our first question comes from Doug Wood, Lexington Financial Services. Please go ahead.

Speaker 4

Olivier and Claire, I want to offer my congratulations. I think you did a wonderful job with the first quarter. You kept the operation stable during a large period of uncertainty. So I'm thankful as a shareholder for what you've done for the investors.

Speaker 2

Thank you, Doug.

Speaker 4

I have a few questions. Had read recently Target is considering doing less direct sourcing. Do you think that that might be able to create an opportunity for Crown Craft?

Speaker 2

We hope so. We've heard rumors like that as well and so hopefully that opens up an opportunity to get back some programs that they had taken and started direct sourcing themselves.

Speaker 4

Okay. And then do you think that with the 30% tariff, if that is the new normal, do you think that the company could be profitable, maybe not immediately, but somewhere looking ahead?

Speaker 2

We're certainly doing everything we can to mitigate the tariffs and starting in late June, I would say, we started getting our price increases with our customers and those will work their way through some more in July all the way through the September, and I think at that point in time, yes, we're hopeful that we've done enough to mitigate the cost. I mean we have to. That's kind of what we're going to have to do.

Speaker 4

Yes, very good. And then is there some opportunities you think to expand the Manhattan toy sales overseas?

Speaker 2

Yes. So as you know we closed that London office that came with the Manhattan Toy acquisition last year's first quarter. A little of it bled over into the second quarter. The Manhattan toy sales were sold direct to the retailers, so not through a distributor, whereas the Sassy model is through a distributor, and we think that that's a better opportunity to expand the sales. And so now that we've combined both of those brands into one set of distributors, we think that's a big opportunity.

Speaker 4

Okay. Then a completely different question. An associate of mine told me that they were watching Miss Rachel on Netflix and the sassy stacker circles was featured in an episode. I know you had promoted the Miss Rachel doll. Would you be doing something would the company be doing something like that, promoting the stack of circles and sharing that news?

Speaker 2

Yes. And so I believe we have. So it's the Love Stella doll was Meghan Markle had put that on her show and that's one of the Manhattan toy products. So Ms. Rachel is a license with our toddler bedding.

Speaker 2

It's a No Jo brand and so I believe actually sorry, Ms. Rachel is actually our No Jo brand, but it was a Sassy product, and so I believe that Sassy should be sharing that on their social media.

Speaker 4

Okay. And then I know that the company got off to a little bit of a rough start with the Manhattan Toy acquisition that there were some issues with the management system and then with redesigning some of the dolls. Do you think that has the operations in Manhattan Toy, you think they've stabilized at this point?

Speaker 2

Yes. We do believe that it has stabilized. We've gone through several different product lines starting with the infant toys. We redesigned those and those are some of what we placed into Walmart, very few products and in not all the stores, it's kind of the better stores. And then we started working on the Stella dolls, and so those have now been released, and we're currently working on plush and maybe some more expansions on the dolls.

Speaker 2

So I do believe that it has stabilized and hopefully we'll see that turning and the sales going up very soon.

Speaker 4

That sounds positive. And then how about the, I know that there is a new LEGOLAND in Shanghai. Is there any are you is the company receiving any feedback on how the plush figures are selling?

Speaker 2

So we sold in the initial set for the park opening and we did get a reorder. So, I think that it was bigger than what we expected and so that seems like it's a very good sign.

Speaker 4

That's great. And my last question, we had talked you just mentioned about the dolls and I know we had talked previously that there was the Stella doll, then there's a We Baby Stella and then there's a new Love doll. Is there any commentary on how the Stella dolls are selling now with the redesign?

Speaker 2

I think that they're doing well. Obviously, with the tariff situation and sales were impacted all across all the lines because we stopped bringing goods in kind of at the end of the fourth quarter of last year through mid May. And so all of the lines have been impacted by that. But yes, I mean, think it's been well received at the shows that we have presented them at and that they're doing fine.

Speaker 4

Thank you very much for answering my questions.

Speaker 2

Thank you.

Operator

Our next question comes from Josh Peters, Limburg Family Office. Please go ahead.

Speaker 5

Yes, thank you. Good morning, Olivia. I'd like to add my congratulations as well for navigating this extraordinarily difficult environment as elegantly as you have so far. Very encouraging to that you are getting the price increases that are necessary to function as a business and to restore profitability. But I'm also curious about the potential for some pent up demand.

Speaker 5

My understanding broadly speaking is that retailers have been reluctant to order at higher prices, especially when the tariff rates aren't known and they've been depleting their own inventories while waiting for things to start shaking out. Is that something you have any insight into? Are your retailers really depleted on stocks and so that they're going to have to catch up and replenish here over, let's say, the next couple of quarters or a year or so?

Speaker 2

That's all absolutely true. I mean, we are seeing retailers lower their in stock levels. One of our major retailers has gone from about ten weeks of supply on hand to an average of one to two weeks. And so that definitely impacted the sales. As those SKUs run out though, we're hopeful that we're going to see the order patterns get back to a normal level.

Speaker 2

When you have empty shelves, there's some sales that's going be a lost sale. But for the most part, there is demand for these products. And so I think that as everything gets back in stock, yes, I think we're hopeful that we're going to see normal order patterns. It's so hard to predict when point of sale is off and inventory levels are off both with us and with our retailers. But we think that what we saw in July is a good sign.

Speaker 5

Okay. And then as a quick follow-up execution wise to that, are your order patterns also responding in kind so that you can source the product and have it ready for when those reorder or restock orders come in?

Speaker 2

Yes, we believe so. So I mean we use forecasts for models both from the retailers as well as from our history and then we have to kind of go in and say, okay, what are the abnormal patterns that we've had historically so that we can make sure we have the right amount of inventory. Because if our retailers are only keeping one to two weeks of in stock then that means we have to have it in our stock to be able to fulfill the demand.

Speaker 5

Okay. And then that's very helpful and quite promising. Just want to add one final question about the dividend and I know it's always at the Board's discretion. But what kind of circumstances do you think that you would need to see to feel like a dividend reduction or a mission would be necessary? Because I almost feel like at this point if the dividend has survived this kind of category five storm that might betray an awful lot of confidence in the company's ability to generate at least that amount of cash going forward.

Speaker 5

So what would be the trigger to actually have to revisit the dividend rate?

Speaker 2

That's a question I'm going to have to tell you I don't think that I will answer. I think the best answer I can give you is that the Board and management remain confident that with the company's cash flow and balance sheet and at this point in time we're not concerned.

Speaker 5

All right. Well, that is helpful perspective. Thank you very much.

Speaker 2

Thank you.

Operator

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

Speaker 2

Thank you. We thank all of you for joining us today and for your support and we look forward to talking again in mid November when we release our second quarter earnings. Thank you all.

Operator

Ladies and gentlemen, the conference has now concluded. Thank you for attending today's presentation. You may now disconnect. Goodbye.

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