Q3 2021 Crown Crafts Inc Earnings Call

Pardon me. This is the conference operator, today's crown crafts call will begin in approximately 60 seconds. Please standby.

[music].

Hello, Ladies and gentlemen, and welcome to the Crown Crafts incorporated Investor Conference call. Your host for today's call is Mr. Randall Chestnut, Chairman 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 is not permitted without prior written authorization from Crown Crafts, Inc.

And as a reminder, this conference is being recorded today February 10 2021.

At this time I would now like to turn the call over to MS. Olivia Elliott, President and Chief operating Officer, who will begin the call. Please go ahead.

Thanks.

Welcome to the Crown Crafts Investor Conference call for the third quarter of fiscal 2021 with me today is Randall chestnut, the company's Chief Executive Officer.

Hi, good afternoon.

A telephone replay of this call will be available one hour. After the end of the call through four P. M. Central standard time on May 11th 2021.

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 dotcom.

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 and its history of paying dividends, 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'll now turn the call over to Randall.

Thank you and good afternoon again to average one.

<unk>.

For <unk>.

<unk> Investor Conference call.

Thanks for take promotion of Olivia Elliott.

President and Chief operating Chief operating officer, I'd like to call special attention.

Which occurred January the for this year with the beginning of first quarter.

Joined the company in 2001.

We've spent the past 20 years.

The financial and operations other come from.

Our knowledge makes us her the best executive to.

Tackle this important role.

Please then we could promote from within zone.

Soon we hope to announce the appointment of someone as vice President and Chief Financial Officer, Sean to relief of Lindsay I'll have that direct responsibility.

As investors I would ask when do you get an opportunity.

Please join me in congratulating, our low via on her new role.

Okay for the third quarter and Thats, the only I'm going to address only the third quarter Olivia will address the year to day one.

She makes sharp price inflation.

Net sales for the third quarter were 19 five margin this year as opposed to 18 point.

Last year for an increase of 899400 and a four 9%.

Net income for the quarter was 2 million 141, as opposed to 2 million all non current.

Our net price of 46000 or two 2% over last year same quarter.

Diluted earnings per share was 21 per share as well as 21 last year.

And as I said on Olympia will of duress for year to date numbers.

Although later in the call.

The third quarter performance for us and improvement of net sales and net income over the previous year, which we're very pleased with.

The effect of certain tax credits for it.

Included in this year's first quarter of 74000 <unk> per diluted share in last year's third quarter of 200 segment for <unk>.

<unk> <unk> per diluted share.

If you exclude.

The effects of these tax credits.

This year's quarter.

Net earnings per share would have been two times higher than last year's third quarter diluted earnings per share.

Gross profit for the quarter.

From a 31, 6% this year.

As opposed to 31 three in the same quarter last year.

Hello.

Quarter ending on the last nine months.

We along with everyone else have been impacted by COVID-19.

While remaining flexible and with the help of our entire staff. We've continued to ship for the entire period.

And for that we owe a debt of gratitude for all of our employees.

Thanks for the balance sheet remains strong with a paid off for a while.

Our cash balance of $3 7 million and availability on our revolver 26 net again.

As of December 27, 2020 for towards the end of the quarter.

Today, we announced that the company's board of directors declared a quarterly cash dividend of the company's series.

Common stock of <unk>.

<unk> part of your party or per share based on today's closing price our yesterdays closing price per share of the company's stock. This represents an annualized yield of 4%.

So now for them, where we paid April the second.

2021 to shareholders of record from the close of business March 12 2021.

Once again, we're pleased off for this dividend payment that reflects the board's confidence from our business and the ongoing commitment to provide value to our shareholders.

Olivia.

Thank you Randall.

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

Net sales were $19 5 million for the third quarter of fiscal 2021, compared with $18 6 million for the third quarter of the prior year, an increase of $889000 or $4 eight per cent.

Net sales were $57 3 million for the first nine months of fiscal 2021, compared with $53 1 million for the same period of the prior year, an increase of $4 $2 million or 8%.

The increase in sales is due to higher sell through at major retailers, which has been partially offset by declines at certain customers that have been impacted by the COVID-19 pandemic, particularly one customer that has remained closed throughout the entire nine month period of the current year.

Gross profit increased by $332000 and increased from 31 three per cent of net sales for the prior year quarter to 31 six per cent of net sales for the current year quarter.

Gross profit increased by $2 million, an increase from 36 per cent of net sales for the prior year nine month period to 31 nine per cent of net sales for the same period in the current year.

The increase in both gross profit is due to the increase in net sales as well as a more favorable customer and product mix.

Marketing and administrative expenses were flat at $3 4 million for both the current and prior year quarters, but decreased from $18 four per cent of net sales for the prior year quarter to 17, 6% of net sales for the current year quarter.

Marketing and administrative expenses increased by $258000, but decreased from $19 five per cent of net sales for the prior year nine months period to $18 five per cent of net sales for the current year nine months period.

The increase in amount for the current year to date period is primarily the result of higher outside services of 318000 and higher advertising of 138000, partially offset by lower travel expenses of 120000 and lower amortization of 45000.

The current year to date provision for income taxes is based upon an estimated annual effective tax rate from continuing operations of 23, 7% compared to 23, 3% in the prior year the.

The recognition of certain tax credit favorably impacted the current year quarter and year to date period by $74000 in the prior year quarter and year to date periods about $274000.

Net income for the year to date period was also impacted favorably by $292000 due to the reversal of a portion of reserves for unrecognized tax benefits and their related interest and penalties that had previously been recorded.

The effective tax rate from continuing operations combined with the effect of the discrete income tax charges and benefits resulted in an overall provision for income taxes of 23 seven per cent for the current year to date period and 16% for the prior year.

Net income for the third quarter of both fiscal 2021, and fiscal 2020 with $2 1 million or <unk> 21 per diluted share.

Net income for the first nine months of fiscal 2021 was $5 8 million or 57 cents per diluted share compared to net income of $5 million of 49 cents per diluted share for the same period in fiscal 2020.

The tax credits previously mentioned favorably impacted the current year quarter and year to date period by one cent per diluted share.

The prior year quarter was favorably impacted by three cents per diluted share in the prior year to date period was favorably impacted by six cents per diluted share.

I will now return the call for wasteful Olivia. Thank you very much and Chad if you'll come back up we will open it up for any questions that anyone might have on the line.

Certainly thank you Sir we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.

Youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

Yeah.

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

Yeah.

Hi, Randall and Olivia how are you.

Linda were good how are you.

Good good congratulations Olivia on your promotion.

Hum.

I was curious when I'm, you're talking about reported bringing somebody into the CFO role do you think you'll promote from within or are you looking at outside candidates.

Are we at this point, we prefer not to say in London.

Bill.

Still being ironed out.

Okay.

And.

Patients on the quarter I mean, it was really good profit growth and you're seeing some nice leverage because of your sales growth and looking at your segments I did notice that the bibs Bath toy feeding segment was down year over year, whereas it was up last quarter is there something that changed there.

Or why was it down whereas it was up in the second quarter.

No loans have nothing really to change the biggest thing that changed probably whereas we had enough come and reset which we've now implemented then we're almost through it at one of our major customers and when they start doing that they start per <unk>.

On the existing inventory, meaning paring down mainly slowdown buying other muscle.

But nothing has changed that.

Basically that.

Okay.

And your growth continues to be really good overall, though especially on the bedding blankets and accessories side.

I imagine that's driven by ecommerce can you are you able to tell us how much of your ecommerce sales were up in the quarter versus your brick and mortar sales.

We don't disclose those numbers lined up but it was up approach.

It really was and we don't disclose them and therein lies a little bit of a fallacy.

When you compare SaaS valley the bench.

No Joe because.

The bibs and chassis.

Part of the day, I don't lend themselves very well for.

For our Internet sales because in many cases, the price of the merchandise would not be as big as the price would be.

So therefore, it makes it difficult for problem luxury bundle onboard joy for me.

We can share multiple units.

So so we don't break those numbers out.

Okay.

So overall I mean, your your growth you know it does seem to have picked up here during the pandemic.

Do you think it's just that consumers have more time to think about it.

Decorating their child's bedroom or buying new things for their child or infant or is or is there something else that you can point to that has actually changed consumer buying behavior here during the pandemic.

No not really I mean, we're hearing from a lot of different not just in our category, but in other categories.

Unrelated to babies per gallon.

People are staying home, they're buying more for the home so fixed for home up anti fraud in mind.

So we're hearing that from a lot of different sectors and I'm sure you are too but that would be the biggest thing I mean that has no. There's no question about it.

It's hard for the American economy, but nevertheless, that's helped our business.

And.

And also the stimulus checks that true.

Right.

Okay, I guess I'm, a little curious about a couple some of my companies have been talking about starting to face some commodity cost pressures are you starting to see that or do you expect that in coming periods.

We do loans Theres no question about it.

The U S dollar to the RMB has for roughly 10%.

Since last May.

So.

Chinese suppliers are starting to come forth in China, we've got turbine prices and.

We've taken a posture when we know they do and in some cases.

Many cases will branch from increases, but we've also taken a very careful approach from granting 90 price we're going to pass it all in total lifetime.

Because the RMB changed from the dollar.

It has nothing to do with our business that's all related to.

Yeah Manav.

The stimulus from the amount of money.

The U S government is planning to afford new stimulus checks each day.

The dollar.

And that's without us out of our control.

So as we did with.

When tariffs were going to bite the bullet.

What we have to do and pass it all.

Okay.

I'm just wondering in looking at my for my fourth quarter projections, I know, you don't give guidance or anything but in the prior year fourth quarter, there did seem to be a little bit of an escalation in advertising expense.

Is that something that the ratio.

Pending increases always in the fourth quarter or was there something special last year I'm, just thinking how I should think about that comparison in the fourth quarter.

I'm not recalling anything that was special in the fourth quarter.

I think advertising will stay fairly steady you know when you look at this year.

I don't I don't recall anything special but I also don't think it's going to happen this year.

Anything extraordinarily compared to the first three quarters.

And except for Carousel.

<unk>.

Our advertising along the years.

There's more support for the retailers for them.

Their advertising campaigns.

<unk> don't go out in the market.

And by advertising and shut in for tariffs.

Okay.

So I'm just curious I know this this happened a long time ago, but in terms of the toys R. US bankruptcy and you actually manage through that pretty well have you found that your products have found new homes in terms of new distribution in some cases or expanded.

Houston is are there any other changes that have been like permanent changes that have taken place since that time and have you kept all that new distribution that you gained after the toys R us bankruptcy.

Well I mean, I can't sit here and say that dollar for dollar we have but.

We took a low Canada and kept on going in and.

And I think yes, we've overcome that okay.

Chemical Petcare for few quarters to day one.

You don't lose that kind of business they were our second largest rutile.

Without feeling the impact of it and we did favorably impact though.

But yeah, I think we're pretty much over that.

Oh.

We don't want to do it again.

Let's put it that line.

Are you experiencing any issues with them having supplied retailers that have gone under here during the pandemic or is that relatively small impact.

And for US that's relatively small impact.

Linda we don't sell a whole lot.

The independent retailers.

We do a level in the toy side other business for.

But keep in mind those impacts don't really affect us we factor in everything we do pretty much I think pretty much 99, 8%.

We factor shall workout.

And you.

From a from a credit standpoint.

So we don't price.

Rich.

No.

Yeah.

Theres been to my knowledge very few.

And no it's not.

And impact on cash.

Okay.

And lastly, I guess I would just like to ask about some of your international growth.

Our opportunities and progress you had been talking about some opportunities how how is that progressing are you continuing to further penetrate the international markets.

We are Linda.

Honestly the pay.

And then it slowed it down.

There's no question about it that counts.

Trying to.

Merchandise out of Asia into other countries has been a little bit.

Difficult, but we're still for showing that we've got a conference call.

With a with a person on Friday.

We're starting to ramp it back up and tried to build that business as much as we can we had a good momentum going and interest.

The pandemic did slow it down.

We're still.

Their business, but it's loaded thing.

Okay.

Well I guess, that's all the questions I had for you today, but so thank you for taking the time.

You are quite well. Thank you. Thank you.

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

Okay.

Ladies and gentlemen, this concludes our question and answer session.

Like to turn the conference back over to Randall chestnut for any closing remarks channel.

Thank you very much and thanks for everybody.

It was on the call today.

We.

And the early opening.

We're very proud of the performance for the quarter and the year to day period.

When we started this year out there was a lot of uncertainty.

And I'm kind of a cloud hanging over them, we came out with.

All three quarters knock on the work we've got one more to go but we came out with three quarters of them are phenomenal.

We'd like for that wed like to thank all of our employees suppliers customers shareholders for their continued support and.

And we look forward to speaking with you after we close our year end.

<unk> will be some time.

Mid mid June mid June.

Thank you very much and this concludes our conference have a good day. Thank you.

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

[music].

Thanks.

[music].

Good day.

Okay.

[music].