Q1 2021 Crown Crafts Inc Earnings Call

Pardon me this conference operator, today's call will begin and one that it. Thank you very much for your patience.

I will begin in one.

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Our host for today's call is Mr., Chen Chairman, President and Chief Executive Officer.

This time, all participants are going to listen only mode.

Later, we will conduct a question and answer session and instructions will follow that.

Any reproduction of this call Oh, we're in part because not permitted without prior written authorization from Crown Crafts, Inc.

And as a reminder, this conference is being recorded today August 12 2020.

At this time I would now like turn the call over to Olivia Elliott.

<unk>, President and CFO, who will begin the call. Please go ahead.

Thanks.

Good afternoon, and welcome to the Crown Crafts Investor Conference call for the first quarter fiscal 2021.

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 one hour. After the end the call three four P.M. Central standard time on November 13, 2020, Oh.

Also a web replay of the call will be available for 90 days and can be accessed by visiting our website at www Dot crown crafts Dot com.

Before we begin I would like to remind listeners that the cautionary language regarding forward looking statements contained in the press release.

Same language applies the comments made at 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 if history is paying dividends and the annualized yield on the kobe'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.

Well now turn the call over to right.

Thank you are a lot of yet and welcome everyone.

Today's conference call. We appreciate your time and interest before the market open. This morning, we released our earnings.

Our first quarter, which ended June 26.

2020.

And we're going to discuss our first quarter results and I'll take you through a boy a brief overview of it and then Olivia give me a little more details.

Net sales for the quarter.

That's true was 16 million too well.

As opposed to the same quarter last year.

15 and 42.

An increase of 263000 balls a 1.6%.

Net income for the same period this year.

There's 1 million to one.

As opposed to last year of 1 million or 79, or an increase of 136000 or 12.6%.

Diluted earnings per share or 12 cents this year.

Versus 11 cents and the same quarter last year.

As we began the quarter.

We were at the high object Corona 19, and then.

They're in a quarter or internet business.

Both director can show Maher and through ecommerce retailers grew very nicely.

As we have previously reported we set up our warehouse and Compton, California to be able to drop ship direct pick in China.

We do this for the majority of our retailers.

And this has served us very well during this period.

As many brick and mortar wait times, where actual volumes.

We have saying Hey, big increase.

Consumer demand for products.

As always we continue to maintain <unk> crop cost control.

And once again it proves that our company our company as a bold thing to react swiftly to changing market conditions.

In the press release. This morning, we also announced that the company has board of directors has declared a quarterly cash dividends on the company has series a common stock of eight cents per share, which will be paid October the check at 2020 to show.

Our holders of record as of the close of business on September the 11th 2020.

Due to the stronger performance and our financial position. The board directors has decided to resume the payment of dividends.

As an appropriate return value to the shareholders.

Based on Yesterdays closing price this represents an annualized yield of 6.5%.

With that I'll turn it over to Olivia.

I'm only going to give financial highlights for more detailed analysis. Please refer to the company form 10-Q filed with the Securities and Exchange Commission. This morning.

Net sales were 16.2 million for the first quarter of fiscal 2021, compared with 15.9 million for the first quarter of the party or an increase of $263000 or 1.6%.

The increase in sales is primarily due to higher sales fell three bedding and blankets and major retailers offset by lower sales have been toys and disposable.

Gross profit increased about $472000, an increased from 28.5% of net sales in the prior year <unk>, 31% of net sales for the current year. The increasing amount is primarily due to the higher sell sales as well as a more favorable customer and product mix in the current your core.

Marketing and administrative expenses decreased slightly in the mail and were 20.9% of net sales for the current your quarter compared with 21.7% of net sales in the prior year.

The decrease in amount for the current year period is primarily the result of lower overall compensation cost of 175000, partially offset by higher outside services 98.

The current your provision for income taxes is based upon an estimated annual effective tax rate from continuing operation of 25.1% compared with 24.3% and the far your core.

During the prior year quarter, the company reversed thirst for unrecognized tax liabilities that it had previously recorded for fiscal years 2011 for 2013, which resulted in the recognition of a discrete income tax benefit of $232000.

In addition, during both the current and prior quarters the company recording to greet injuries associated with excess tax benefits surcharges arising from the best thing of not that's just stopped during the period and also recorded reserve 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 of 25.9% for the current year and 5% for the part here.

Net income for the first quarter fiscal 2021 was 1.2 million or 12 cents per diluted share.

Net income for the first quarter fiscal 2000, 21.1 million or 11 cents per diluted share, which included three cents associated with the reversal of the discrete income tax benefit and the associated interest <unk> [noise].

And I'll they'll give the call back to Reno, Okay. Olivia Thank you very much.

Chad if you will come back home well open it up any questions that anyone on the line might have.

Certainly thank you Sir we will now begin the question and answer session to ask a question do you like press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before Crescent Vicki.

Withdraw your question. Please press Star then too.

At this time, we'll pause momentarily to assemble a roster.

And the first question will be from Linda Bolton Weiser with D.A. Davidson. Please go ahead.

Hi, how are you.

Although were good how are your good good.

So I'm good quarter congratulations.

I was wondering I was looking at the segment results and seeing the bedding blankets and accessories was up about 30%, whereas bed et cetera was down 25%. So that is there anything unusual going on with regard to timing of certain orders are shipments or anything like that that may one segment. So different from the other in terms of <unk>.

For a month.

Yeah, London wash and they.

And the bed and Bath segment.

Lastly segment.

Well a couple of things going on that that depressed sales one as you know from farmhouse, Oh Wow, we have a very nice business for triple it.

Oh and their restaurants and their restaurants will close.

We saw them they they placed Matt there so that they get off to kids when they visit their guy yeah. There. They go inside their restaurants and bars and the inside spent 10 years. So therefore, they have not been ordering goods.

In the core that has depressed the cycles.

For that segment of a baseness and they all the one which has now been bags is they.

Material that we used to make our fixtures, which is our disposable bill and China.

Oh that material got devoted to my based buyers and we had a hard time finding material.

Yes, that's now found a substitute material and we have good Joe Moore am we should be back to ship thing I'm going to say probably in late August or September.

Okay. Thanks for that explanation and then the 30% growth and betting is that just the strength of the DTC and the E commerce or is there anything especially going on there.

Linda that's all hundred pretty much 100% attributable to.

Oh, the E commerce, and they direct chicken Shemer piece, which is our carousel designs that was up.

But then also our E retailers, who have a website their business was up appreciably and as I said earlier when there was a mode must what many of our competitors a number of years or go to go to outsourcing and go into.

Third party worst warehouses or three p. else, we're resistance that and we said now we're going to control our own destination and we did and we set up a drop ship within our own social Okay, and Compton, California, which we have now been and Shanks 1996.

So that gave us a flexible thing and we're happy to FLEXCEL Baltic two Shipp director can show. So we should end up shovel P type approach.

Ken.

Ken placing orders and we have to capability to drop.

So that was one of the biggest bancorp's.

Okay. So it sounds like that's something that.

Can continue we you know it to the extent that E. Commerce continues to be strong maybe you'll continue to benefit.

Is that correct.

Well I mean again your trial, that's all forward looking statement.

Well you can rest assure that.

We're not going to shut down that line that does they dropshipping okay.

Okay.

And then.

I think you noted well you.

Frequently no [laughter], how good you aren't cost control.

And it did look like the marketing an admin expenses. If you exclude the advertising. It was about 3.0 million dollar is a little bit lower than maybe what I would've thought.

Is that sustainable or is that did you do some unusual cost cutting or is that a sustainable level of of us DNA expense.

We think that that is subsiding animals for the future.

Okay.

And then.

I think that you had talked about that you Gotta 2 million dollar.

P.P.P. loan.

Is that something that you have to pay back and what's the timing of repayment of that.

Well lined up the timing and it's a little bit of uncertain right Matt.

Oh, They ask me Hey.

I'll now since they were gonna open up.

Tour save applications for forgiveness Monday of this week, but our lender has now opened up their portal for us to follow we're right. We can do okay.

Then once we file.

The bank has 60 days I think it isn't to get it submitted the S.P.A.N.S.P.I. has 90 days to look at it and decide if they're going to forget about the law.

If there were going to require a repayment.

If they require repayment.

We don't started until early next year.

So if they require repayment it would be paid off gradually.

There would be probably at all.

On a full time on 24 months, yes.

Okay.

But that would not start until sometime after the first so the year.

Based on a 60 days a nine days that couldn't be center that will be the required to star we could get an answer sooner than that if the bank does that work and some mentioned sonar and then it BSP I don't fares and approves or the 9%.

Okay.

And if you if the loan was forgiven would there be any special use for that cash or just leave it on the balance sheet or.

Well, there and what it would stay on the Bausch <unk> Lomb.

Okay, we've used the money, okay, because whenever we applied.

For the SB eight line, we agreed that we wouldn't it keep everybody employed through the 60 days carried up a pandemic and we did that we did that 100% I mean, and so we can't be every body employed and that's the biggest portion of what the money.

As usual.

Right Okay.

Okay.

Oh.

And then can I ask you Oh, no gross margin performance was quite good and the core in the quarter. You mentioned that there was favorable mix can you just repeat what what mix was that was that product mix or channel mix or can you give a little more color on that.

Hey, it's that's both okay.

Oh.

Product mix.

Sure did too.

A more favorable margin slightly.

Than historical.

And.

Panel, a blending or channel makes thing.

Oh shovel, a major or how customers.

Oh that TJ Maxx Marshalls.

The home goods, Oh Ross stores.

Tuesday morning, workloads Dare most of the pool. So they were not taken any color shops, okay. So that has a while improving our margin as well.

Okay Gotcha.

And then finally.

I think we read that you have maybe one Disney license expiring at the end of the calendar year 2020 is that correct and how significant is that licenses that a big one.

Lunda I don't have that information right in front of my.

But I think you're right there is one expiring.

Oh.

But it's not a huge one and it's not and danger of stopping Wendy.

Okay.

And then a well let me just have one more if I could <unk>.

In looking at your margins.

Overtime, you did have a peak operating margin of about 13.3% a couple of years ago enough why 17.

Is there a margin level they can be achievable someday in the future I'm not putting any timeframe on it but is there anything structurally that has changed I mean, I guess, we've had the tariff. Since then but is there anything that's changed that would make that margin structure on achievable in the future.

Well I'm good yeah, right to say this but you're asking for forward looking information, which as you well now we're trying very very hard.

Not a share that information all forward looking buys.

But you know.

I mean, one thing that has helped us improve.

Our gross margin and we've said this before and <unk> Dan.

The.

Babies Ross going out of business.

Going into bankruptcy and ultimately liquidation had a good and bad I'll say the bad effect as we lost revenue.

Good effect was because of all the advertising and promotion required for a lot of account.

It was probably the lowest margin account we have.

So that has had a positive span on our gross margin going forward.

Okay. That's very helpful. Randall Thank you very much.

Well I welcome finally Avago banking.

Once again, if you have a question. Please press Star then one.

The next question will come from Michael Bernstein with oral crust. Please go ahead.

Hey, great quarter.

Michael.

How are you.

Good how are you.

At home locked up.

But in any event.

Question, how is the P. P PD lone carried on your balance sheet.

Until we are either brand and until were granted forgiveness is carried at that so there's a piece of it in the current maturities and then there's a bigger piece in the long term debt Wow, Okay, and if it's forgiven.

Which it's highly likely that it will be or a large portion will be.

Well that's become income.

Well I would be again, it would be below operating income.

Okay, and the the size of that loan.

It was a little over 2 million.

Well I came back a little longer term I got I may have nine and change.

Okay, that's within my 5% error factor.

I wouldn't say.

Thank you very much.

Quite welcome banking.

Ladies and gentlemen, this concludes our question and answer session I would like to turn the conference back over to Randall chestnut for any closing remarks.

Chad factory very much on.

Again, I'd like to remind everybody.

But these past three months and found very difficult time.

But your company has done well and cross one thing just the bulk water and we're very proud of that.

We think thats a phenomenal accomplishment.

I would like to thank all of our customers employees suppliers and shareholders, well, they're continuing interest and support and crime class.

You want half what 21 was a solid core and were very probable. Thank you very much have a good day.

And thank you Sir the conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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