Q4 2020 Crown Crafts Inc Earnings Call
Pardon me the supposed to conference operator for today's Crown Crafts call will begin at approximately 60 seconds. We ask that you. Please continue to hold on the call will begin shit begin momentarily. Thank you.
[music].
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 it's not permitted without prior written authorization from Crown Crafts Inc.
As a reminder, this conference is being recorded today June 10th 2020.
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 2020 with me today, I guess Randall chestnut, the company's president and Chief Executive Officer.
Uh huh.
A telephone replay of this call will be available one hour. After the end of the tall for four PM Central time on June 17th 2020.
Also web replay of the call will be available for 90 day and can be accessed by visiting our website at www Dot Crown crafts dotcom.
Well, we began I would like to remind listeners that 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 right now.
Thank you and good afternoon again to everyone. We appreciate your attendance today.
Wait before the market open. This morning released earnings for our fourth quarter and four year for fiscal 2020.
And well hit on some of those numbers Olivia will add more to it and then we'll open it up for any questions anyone might have on the line.
Net sales for the fourth quarter.
This year, what warning was 20 million three okay.
As opposed to the previous year same quarter 21, 71 sub are down 1 million board pad or section I have per se.
Net income.
For the year was 1 million second choice.
Excuse me I'm, sorry for the quarter 1 million six always versus a million threenine into in the same quarter last year or an increase of $216000.
15.5%.
Well this quarter the fourth quarter diluted earnings per share or 16 cents. This year and 14 cents last year.
If you put into the fiscal year. The net sales were 70 73 million 396.
As opposed to the prior year 76, three anyone or reduction of 2 million night it.
Our 3.9%.
Net income for the here.
6 million 561.
As opposed to 5 million, Oh, one and the previous year.
<unk> decreased over a million by 42, excuse me on inquiries well million by 42 or 30.7%.
30.7% and of course.
The diluted earnings per share were 50 cents last year, and 65 cents and 2020.
[noise], we finished 2020 agreed with very strong performance.
During the quarter, we had some favorable reversal of income tax reserves and Olivia will address ours in more detail a little bit later in the call.
We're pleased with the results are we were able to achieve.
One point to note during the our Internet business, both both direct and through Internet retailers grew nicely to over one third of our gross sales.
We expect this trend to continue in the future.
Several years ago, we set up our warehouse to drop ship our products to consumers on behalf of certain of our retail customers and this has been great for the company.
Well, we've been focused nearly exclusively on the Corona burst in recent months. Most of you will recall one of the biggest challenges southern company. During the year was encouraged duties are the constant threat of increase duties on our products imported from and manufactured in China.
Yeah in each case, we were able to react quickly to offset the increase cost.
What the combination of price increases to our customers.
And cost concessions from our suppliers.
These efforts resulted in a slight improvement in gross margin as a percent of net sales for fiscal 2020 as opposed to physical 2019.
We're very pleased with the effort of our staff to position the company for the future.
[noise] turning to dividends the board the board of Directors has decided not to declare a dividend not to the core of the crude declared a quarterly dividend that would otherwise have been scheduled to be paid in July.
With the uncertain times were experiencing because the corona of ours. The board felt that it was best to conserve cash at this time.
We're confident that our shareholders willing gray with this temporary suspension of dividends.
We believe that we can and will resume paying dividends in the near future.
Our country I'm World has been fighting the garage of ours for the past few months, we have never experienced anything of this magnitude.
In calendar 2019 as calendar 2019 came to a close.
We had ramped up our inventories in anticipation of expected tariff increases and the usual shutdown in China for the lunar new year.
This successfully prepared us.
Well the minor disruptions in the flow of our product from trial due to the grown of ours in nearly all cases, we're able to timely bill our customer orders from existing inventory. Additionally, our manufacturers in Asia have returned to near 100% a pre cobalt freight corona.
Our Oh.
Production levels.
In an effort to address the uncertainty surrounding the economic conditions and support the continued support of our operations. We did apply far and received alone undo the paycheck protection program.
We have been able to remain open for shipping and production at our comp in California, and Douglas filled Georgia facilities.
[noise] and other locations.
We had most of our employees working remotely for approximately two months.
Well. This is presented a few minor difficulties for the most part it has been successful.
Nearly all of our employees has now returned to normal locations and schedules.
Olivia I'll turn it back over to you for more comments.
I'm only going to give financial highlights for more detailed please refer to the company form 10-K filed with the Securities Exchange Commission. This morning.
Net sales were 20.3 million for the fourth quarter fiscal 2020 down 1.4 million or 6.5% from prior year sales of 21.7 million.
For the year net sales were 73.4 billion for fiscal 2020.
Down 3 million or 3.9% some 76.4 million in the prior here.
The decrease in sales for the year is primarily due to timing of shipments for certain retailers as well as a program that was discontinued during the second quarter fiscal 2020.
Gross profit decreased by $862000 and with 26.3% of net sales for the current year quarter compared with the prior year quarter gross profit of 28.6% of let's say.
Gross profit decreased by $717000, but increased from 29.2% of net sales for fiscal 2019% to 29.4% of net sales for the current year.
Marketing and administrative expenses decreased by 1.3 million for fiscal 2020 compared with fiscal 2019.
Hurt your compensation costs were $525000 lower than prior years, well outside services and advertising cost for 284001 hundred $22000 lower respectively.
Prior to year included 210000 in cost associated with transferring most of this assay inventory from Grand Rapids, Michigan to the company's distribution facility in constant California.
The current your provision for income taxes is based upon an estimated annual effective tax rate from continuing operations of 24% compared with 24.4 person in the prior year.
During the current here the company reversed the reserves for unrecognized tax liabilities that had previously recorded for fiscal years 2011 through 2013, and 2015, which resulted in the recognition of a discrete income tax benefit of 444000.
Also in the current year the company recorded a discrete income tax benefit of 274000 to reflect the aggregate effect of certain tax credits.
In addition, during both the current and prior year. The company recorded discrete entries associated with excess tax benefits surcharges arising from the best thing of non vested stock during the period and also recorded reserves for unrecognized tax liability.
The effective tax rate from continuing operations combined with the effect of these discrete income tax charges and benefits resulted in an overall provision for income taxes, a 15.5% for the current year at 26.1% for the prior year.
Net income for the fourth quarter of fiscal 2020 with $1.6 million or 16 cents per diluted share compared with net income of $1.4 million or 14 cents per diluted share in the fourth quarter fiscal 2019.
Net income for fiscal 2020 was $6.6 million or 65 cents per diluted share compared with net income of $5 million or 50 cents per diluted share for fiscal 2019.
And I'll now return in the fall to Reno Olivia. Thank you very much and Andrea will bring you back in and we'll open it up any questions anyone my hair on why.
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 his speakerphone, please pick up your handset before pressing the keys.
At any time your question has been a trust and you would like to withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
And our first question will come from Linda Bolton Weiser of D.A. Davidson. Please go ahead.
Hi, I hope, you're both doing well.
Long Island as.
How about two yeah hanging in there hanging in there.
So my first question has to do with just the current trends of what you're seeing I know you don't want to give guidance, but is there anyway that you could talk about.
What you're seeing for April and May I'm, just to give us a sense for how to think about the first half of the next fiscal year. I mean, you said that ecommerce is now about a third of your business. So does that mean, you're holding up pretty well given the retail store closures or tenure.
Just give us a little color on what you're saying.
And loans Oh, Yeah, I'll try to help me a little bit, but let me first saying, we don't give guidance you know that okay.
Oh.
They downturn.
Has not band as severe as what we had expected okay Oh.
We have been able to ship all the way through as we said, we'd Kemper warehouse owe them and we kept our facility opened them Douglas, though Georgia.
So we've been operationally as opposed to Brussels, there's all the way for.
And the sales have.
Not deteriorated as we had expected they would they you know they've held up pretty good.
That's the best I can do.
Okay.
Do you think theres any.
I'm just trying to think about consumer behavior towards your products I mean, it does depend.
Depend largely on birthrate, but do you think there's some sort of something with the man going on because there is more of a stay at home situation right now people trying to make the home more comfortable for for the infant or is there anything like that that you're picking up on.
Well, we believe lung, though that with the people staying at home and with the stimulus checks that they were saying.
But we've seen such a bone.
In Internet sales either through other customers that we drop ship for our through our own internal sales have been stronger. So we do believe that consumers are stay at home and they're more interested in shopping from home and they're placing orders so.
We use we think that's not a bomb phone.
Okay. Thank you also your margin expansion was pretty good for the year I think it was up about 90 basis points on an adjusted basis to 10.5% and you talked about some of the reasons for that do you think that's.
Some time in the future.
In the out years, you can get back to your prior peak of 13% operating margin is that something that's feasible or is your business way different now than it was a few years ago.
Again, that's lumber that's a little bit forward looking.
We're confident with the company, where we stand you know the results that we posted a more whereas for the future.
That will we feel very comfortable.
We never expected anything of this magnitude with the Corona bars never.
So that you know came out of left field and we had to you know just going forward and we did on daily basis.
Okay and then.
Let's see I haven't examined your whole cash flows and everything but it does look like.
You have a bit of dead on your balance sheet did you did you draw down on your revolver in a in the fourth quarter.
We did we pulled out a little bit I don't know exactly what it was olympias looking it up we had two and change I think.
Oh Boy, that's a 2.6 million point Sixmillion pulled down on the revolver at you around.
So you'll just keep he'll discuss sort of keep that cash on the balance sheet as a buffer as we go through the crisis here.
Yes.
The cash.
I mean.
We didn't have any cash we had a slight went on sale, where a small amount of cash but that's that's just a matter of timing when as you know I want to count versus another one.
But you know.
We.
And Tim too.
Go through the next few months, you know conserving cash and we which we do and we do very well with.
Oh so.
That was a moment in time, when we have 2.6 million at year end I think that cash balance of 200000 or something 282 way.
So that was just a minor you know blip on the radar whether some one account versus another account.
There was not intentional.
And how much is left in your revolver that's accessible.
As a as of yearend it was 20.1 million.
Okay.
It was after the two important sanctions on already drawn down on.
Oh It was an additional amount of failed I was on additional revival London.
They were good drone.
Right.
And then finally your gross margin in the quarter I mean, although for the year. It was pretty good for the quarter. It was down year over year and it was a little worse than we expected was that just product mix or was there anything particular in the gross margin in in the fourth quarter.
Linda we always experience you know we've talked about this in the past we have an overhead variant.
What's the timing of when we have purchases.
When we add inventory so sometimes you know a Chinese new year for example, when we're not getting any purchases and that causes overhead variance to be a little bit lower or unfavorable. So you know from year to year, we always say the quarters are not exactly.
Easy to forecast on annual basis, you should be able to look at it that that that's consistent.
Okay.
And then on the dividend as soon as you see that things are back to a normalized situation you'll consider resuming the dividend is that correct.
As we said you know we've we've classified this and I said in my remarks, and temporary suspension of dividends.
And we've always said, we still say.
The dividends or the cleared by the board quarter by quarter Bucks or so.
No, but we do classify those one.
As a temporary suspension.
Okay well. Thank you that's all for me and I Hope you both say well. Thank you. Thank you. Thank you Linda I have a good day.
Our next question comes from Spencer King Clar of art into capital Management. Please go ahead.
Oh, Hey, Randall how are Ya.
Good how are you.
Good. Thanks, you guys touched on pretty much all my questions, except I still have one here at the bottom of my page.
Just in terms of like you know I understand you're being conservative at the moment with.
What seems like a dividend cut was minor precaution than any like financial distress, but I also know that these tough environments can sometimes mean opportunities are you guys thinking about any like opportunistic M&A or anything like that at all.
Again, I mean that would be.
Oh Spencer that would definitely be forward Watson.
And Oh I can address that.
Okay.
Yes, I guess Ferguson <unk>.
And then even even with like you know where you where your stock is that now could you know you maybe put that revolver to work and do a little bit of buybacks or anything like that have yet to be thought about that at all.
Well I mean again right now what's the on certain dam, the cloud sort or floating around and the world.
We're not running out and spending money doing buybacks dividends et cetera, we're sort of taking a wait to see approach and we're holding on to the cash to be sure. We've got plenty of coverage.
And we honestly believe.
That is the right thing to be doing right now.
Okay, yes that makes sense.
Thanks Randall.
Thank you.
Our next question comes from Sean just shy of Pinnacle. Please go ahead.
Hello, Thanks for taking my question.
No.
[laughter] I'm just curious back to the M&A question obviously.
You're not going to talk a lot about what you might be doing but could you just.
Remind us what the nature of your business is in terms of competitive landscape or are there.
It's a fragmented.
Landscape with lots of small players is it landscape with a couple of Giants Oh.
Remind us again, what not business looks like for both bedding and Oh. Your your your core product lines, just a snapshot of what the overall industry looks like would be appreciated.
John Yeah, I'll be happy to do that Uh Huh business consists of a lots of small players no majors at all.
In fact, we would probably be considered the major and most of the categories were him because we have such dominant market share in almost every category. We're in so it's made up a lot of a lot of small companies.
No problem that you would know not all public they're all private.
And so it's.
Before the trade shows run erupted bother Corona bars, you go to trade show they'd be shipped hundred exhibitors and yeah, and that's you know sort of representative of the landscape.
There's that many different people.
At our competitors in some form or fashion not all the same area, where EM, but yet those same dollars for the bay.
So it's a very scattered.
You know landscape.
Okay, what allows that landscape to persist two issues those 600 players offer something unique and different to the customer.
Well some of them have parish small nextshares, you know had a lot of them are niche players.
No.
There's probably.
A dozen to maybe two dozen larger companies and we would fall into that category and then beyond the two dozen they drop down very very small and a lot I'm will be just one brown.
And you know they dreamed up and then it's some unique product so the baby in the family that's helpful.
And so you know.
That's sort of it's very much of an entrepreneurial business.
Okay.
And you mentioned trade show what is the big trade show that everybody goes to and your industry.
Not anymore, but if it's those virus ever says passes there's two and the U.S. and one international.
Oh, the two in the U.S. as a b C in Las Vegas.
And James Yeah, My which this year was gonna be held in Orlando and they were both canceled.
And we have elected to not show in either one of those shows we backed out of which shows for years and years in years, and we backed out a couple of years ago and we only show now at one show and we backed out for this year and we think that she'll be cancelled and that's in Germany and its can Jay.
And that's probably going to emerge as the biggest trade show for baby in the World already has already and you know as the other shrunk.
So that's the only when you're going to going forward. That's for the last two years actually all the one we benefit.
Hey, John This your K and Jay was in September.
And we have backed out but.
And we think they're probably going to cancel okay.
Hi, good. Thank you that's very helpful you're quite welcome.
So again, if you would like to ask a question. Please press Star then one.
And our next question will come from Ralph Marash, Oh first Manhattan. Please go ahead.
Hi, Randall and Olivia.
Well how are you sure. Okay. Thanks glad you guys are both okay has a couple questions about the P.P. loan.
First of all it's no interest if I remember correctly.
Actually it's there is a minimum interest rate of I think it's 1%.
Okay, and how much of that do you anticipate being forgiven.
Well, that's that's an unknown right now.
As you know I'm not going to say the law changes, but the speculation keeps changing day in and they now.
But you know we don't know I mean, we expect the majority of it will be and should be and but we won't know until it's all said and okay and what's the term of alone.
Two years two years okay.
If I recall correctly, one of the elements of alone is.
You either cannot or should not pay dividends.
Oh, it well that is not in the legislation in the field.
Not specify okay for the specifically for the Paycheck protection you heard about paycheck protection, but there are other parts of the care that that do have that but the but the P.P.P. the ones that we're under it did not prohibit dividends and it didn't really addressing.
Okay. Okay.
And there were some some larger ones at Lucky as referred to I forget the name of them, but you know larger corporations could come under.
The prohibitive.
Yeah.
Give me an example, Delta airlines right, Okay. They come under a very large loan.
And I think they have to suspend dividends.
Okay.
And the loan was made through your normal banking channels.
Yes, there was done through our normal banking channel just sure okay.
Thanks very much.
Mm Hmm, you're quite welcome. Thank you.
Our next question will come from Dennis Schenelle Rutabaga capital. Please go ahead.
Yes, good afternoon, Randall and Olivia. Thanks, Thanks, so much for taking my questions Hey, Hi, how are you. Good. Thank you. Good. Thank you <unk>, what's kind of curious to to drill down into the.
Sales gains that you saw in on on the Internet. So I was going through like I think a prepared a presentation that you guys did.
I'd had some data from your fiscal 19, and I saw that Amazon was listed as a 16% customer and then what you identified is DTC was was 9% so totaled 25% and then we're talking about.
A third or more like sales over the internet and in in the current fiscal or the past fiscal year for 20, So and I know from your 10-K that Amazon went from 60% fiscal 19% to 20%.
20.
So is that would that that additional 30% plus would that old going that DTC category or there is there another way of thinking of that.
Oh.
We have other customers that aren't lifted in that Pie chart and I'll give you. An example, I mean, what we ship dotcom for Buybuy Baby, we shipped dotcom for Walmart, though.
Sometimes the Pie chart is that our Powerpoint presentation has they say Walmart dot com extend to the Walmart number and so okay.
It's all over the place if you're looking at that Pie chart M. plus we have a number of internet retailers, but you know that are independent.
I don't have retailers that do quite a nice job to specialize in baby and that would be another got it.
Okay. Great. Thanks, that's helpful would you identified they like to place over a third of the business thing that's terrific I'm. So would you identify how much what you would identify as a direct to consumer.
I mean, it was it still around that nine or 10%.
Maybe a slight bit last yeah. Okay. Okay. Thank you [laughter] at in the neighborhood, but maybe a slide but let us okay and refresh my memory. What is identified as direct to consumer is that all just carousel design or is that more more broadly other products that you would also be.
Be offering.
No Dennis at this point, that's 100% Carousel designs interesting, okay, great great all new direct to consumer.
No Joe or sassy.
Oh, we know Joe and say assay.
We elect to walk through other retailers are high Amazon and other you know, there's Olivia said at Walmart Buybuy baby. So excellent okay. Great. Thank you for that clarification and then one last one for me again in the just kind of skimming through the 10-K I think if I read this correctly you talked about international sales.
Being 6% in fiscal 20 up from 4% and I know you had identified.
International is a place to grow so that actually looks like a pretty nice increases that kinda. It is that tracking with what's your expectations.
Yes, we would like to say Dennis said grow a little faster.
But we've had.
We've had some growth problems there some of credit related where you can't get credit from some countries.
And Ah just supply problems, we're not dissatisfied with it we're pleased with it is growing nicely, but we would like to say it grow faster excellent good great well after a good start. Thank you very much in and good luck with the rest of the fiscal year.
And you have a good day.
This concludes my question and answer session I would love to turn the conference back over to Mr. Randall chestnut for any closing remarks.
Oh, Andrea Thank you very much on again.
Oh.
Although this is very difficult time your company has address each day's challenge and we remain solid going forward into the future.
We'd like to thank all of our customer employs suppliers and shareholders for their continued interest and support and crown crafts.
Fiscal 2020 was a great year and we're excited about our future. Thank you very much have a good day.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.