Q4 2021 Crown Crafts Inc Earnings Call
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Pardon me. This is the conference operator speaking the Crown Crafts, Inc. Fourth quarter fiscal year 2021 Conference call will go live in approximately 60 seconds.
The economy stay on the line and we appreciate your patience.
Yeah.
Okay.
Yeah.
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Hey, Luke.
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Welcome to the Crown Crafts, Inc. Fourth quarter fiscal year 2021 conference call. Your host for today's call is Randall Chestnut Chairman and CEO 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.
It without rider printing without prior written authorization of Crown Crafts, Inc. And as a reminder, this conference is being recorded today June 9 for 2021.
At this time I'd like to turn the call everybody, Craig Demerist, Vice President and CFO, who will begin the call. Please go ahead.
Not permitted wells.
Welcome to the Crown Crafts Investor Conference call for the fourth quarter and full fiscal year 2021.
With me today are Randall chestnut, the company's Chief Executive Officer, and Olivia Elliott, our President and Chief operating Officer.
A telephone replay of this call will be available 1 hour.
Thank you for the end of the call through 4 P. M Central daylight time on September 9.
Also a web replay of this 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'd like to remind listeners of the cautionary language.
Our app 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 Randall.
Correct. Thank you very much and good morning to everyone.
And we're doing a little bit different this time.
Language from like a few housekeeping comments and a few general comments on Lovey on Craig will take it from there first of all I'd like to welcome because this is the first time he has been on a conference call.
<unk> <unk> 2 our team he joined the company in February as Vice President and CFO.
CFO.
Also Olivia who is with us on that has been with us for many years.
It was promoted to president and Chief operating Officer in January after 19 years with the company.
I'll make a few remarks, then I'll turn it back over to Olivia on credit to report on the operating.
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FY 'twenty 1 for year.
Excluding the impact of the closure of Carousel designs.
Where's the best diluted earnings per share in over a decade.
We will discuss the carousel call on the Carousel portion on later on.
Operator.
Internet sales, excluding carrier sales were approximately 40% for both for fourth quarter and full year FY 'twenty 1.
As we had reported and discussed in earlier calls.
We continued operating our warehouse.
On the cost as many of our competitors moved to third party models many years ago.
Commonly known as <unk>.
Operating our own distribution center.
We were able to drop ship direct to consumers for most of our large customers.
This has helped us tremendous.
We're happily during the past year during the pandemic and the closure of a lot of stores.
FY 'twenty, 1 was a great year and we're proud of the results.
This with great regret and disappointment that we announced earlier.
The closure of Carousel designs effective may for 'twenty 1.
Olivia on Craig will discuss the impact of disclosure.
For many of our shareholders, who have been with us for a number of years, you know that will make the tough decisions to adjust our operations when it becomes necessary.
Fortunately this was 1 of ours.
With that Olivia I'll turn it over to you. Thank you Rachel and good morning, everyone.
I'm going to start out by touching on the fourth quarter and full fiscal year 2021 results at a very high level, then I'll turn the call over to Craig to go into a lot more detail.
Fourth quarter.
On unfold for $21.8 million compared with $20.3 million in the prior year, an increase of 1.1.
$1.5 million for 7.5% for the full fiscal year 2021, net sales were $79.2 million compared with $73.4 million in the prior year, an increase of $5.8.
Net sales of 7.9%.
On May 11th we announced that we have made the very difficult decision to close carousel designs.
Associated with that closure the company recorded a pre tax $2.2 million impairment charge on care sales of long lived assets in the fourth quarter.
Which was $1.7 million after.
If you exclude the after tax charge fourth quarter net income for the current year would have been $1.9 million or <unk> 19 per diluted share compared with $1.6 million or <unk> 16 per diluted share in the prior year.
In fiscal year 2021, net income would have been $7.8 million or <unk> 76.
Share compared with $6.6 million or <unk> 65 cents per diluted share.
On the balance sheet side, we finished the fiscal year with $613000 in cash and no borrowings on our revolving line of credit.
At year end, our balance sheet included our paycheck protection program loan of almost 2.
$2 million and it was classified as current however, subsequent to year end, we were notified by the SBA that they had fully for given our alone.
On May 13th we announced that the company's board of directors had declared an <unk> <unk> per share cash dividend on the Companys common stock that will be paid on July <unk> 2021 to stockholders.
Per day with record as of the close of business on June 11.2021.
As Randall mentioned earlier fiscal year 2021, with a very good year for us and we're very proud of all of our employees have stepped up to the plate to make sure that we were able to continue to operate during the COVID-19 pandemic.
And now I'll turn.
Cohorts over to Craig to go into a lot more detail.
Thanks Olivia.
I'm only going to give financial highlights for a more detailed analysis. Please refer to the company's 10-K filed with the SEC. This morning.
As Olivia noted net sales were $21.8 million for the fourth quarter fiscal.
Call It 'twenty, 1 compared with $23 million for the fourth quarter of the prior year, an increase of $1.5 million or 7.5% for the year net sales were $79.2 million for fiscal 2021, compared with $73.4 million for the prior.
<unk> <unk>, an increase of $5.8 million or 7.9% the.
The increase in sales is primarily due to higher sell through at major retailers, which was partially offset by declines at certain customers that were impacted by the COVID-19 pandemic, particularly 1 customer.
<unk> remained closed throughout the entire year.
Gross profit increased by 477000.
An increase from 26, 3% of net sales on the prior year quarter to 26, 7% of net sales in the correct for your quarter.
Gross profit increased by.
$5 million, an increase from 29, 4% of net sales for the prior year to 34% of net sales for the current year.
The increase in gross profit is primarily due to the increase in net sales as well as a more favorable customer and product mix.
Marketing and administrative expenses increased from $3.5 million in the prior year quarter to $3.6 million in the current year quarter, but decreased from 17, 3% of net sales to 16, 6% of net sales over the same period.
Marketing and administrative expenses increased by 360.
$65000, but decreased from 18, 9% of net sales for the prior year to 18% of net sales for the current year.
The increase in amount for the current full year period is primarily the result of higher outside services of $336000 and higher.
Overall compensation costs of 236000, partially offset by lower travel expenses of $117000.
The provision for income taxes is based upon on an annual effective tax rate on continuing operations of 24% for both the current and prior year.
Higher recognition of certain tax credits favorably impacted the current year by $74000 in the prior year by $274000.
The current year quarter and current full year were impacted favorably by $320.
Due to the reversal of a portion of reserves for unrecognized tax.
Abilities and the related interest and penalties that had been previously recorded.
The quarter and the year ended March 29, 2020 were impacted favorably by $276560.8000, respectively. Due to the reversal of a portion of reserves for unrecognized tax liabilities.
<unk> related interest and penalties that had been previously recorded.
The effective tax rate from continuing operations combined with the effect of the discrete income tax items resulted in an overall provision for income taxes of 21, 3% for the current year and 15, 5% for the prior year.
And the net income for the fourth quarter of fiscal 2021 was $238000 for <unk> per share.
Compared to net income of $1.6 million or <unk> 16 per share for the fourth quarter of fiscal 2020.
Net income for fiscal 2021 was 6.
<unk> 1 million for 60 cents per diluted share compared to net income of $6.6 million or <unk> 65 per diluted share for fiscal 2020.
Included in net income for the current quarter and current year is a $2.2 million impairment loss, which is $1.7 million.
After tax or <unk> 17 per diluted share related to the impairment of long lived assets of care cell designs.
The tax credits previously mentioned favorably impacted the current year quarter and current year by <unk> <unk> per diluted share and <unk> <unk> per diluted share respectively.
The prior.
Higher year quarter was favorably impacted by <unk> <unk> per diluted share in the prior year was favorably impacted by 9 <unk> per.
Per diluted share.
With that I'll turn the call back over to Randall.
Okay, Craig Thank you very much on.
Cole I'll ask you to come back up.
And open it up for any questions on anyone on the line may have.
Certainly we will now begin the question and answer session.
Ask a question you May press Star then 1 on you touched on phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
Your question has been addressed and you would like to withdraw your.
Your question. Please press Star then 2.
Our first question today will come from Linda Bolton Weiser with D. A Davidson. Please go ahead.
Okay.
Hi, how are you.
Hey.
Good day, congratulations to everybody on their new roles and welcome to the.
CFO.
Hum.
So can I just start out by asking about carousel designs can you remind me I was under the impression that that was an E. Commerce business is that correct can you just describe what that business was a little bit.
Linda It was.
And remain.
Through the whole time, we owned it on ecommerce business, yes that made goods in the United States and Douglas feel Georgia.
And sold it on its own website and through some other websites.
Very prominent websites, but it was all.
The new Commerce, yes, and it just got to the point.
With diminishing sales the pandemic et cetera that the company was not very prosperous anymore and.
We realized that and knew that and we made the tough decision to move forward with the closure.
Yeah.
Okay.
No.
The thing.
I'm confused about is during the pandemic e-commerce businesses have generally thrives and I think you've even talked about the advantages for your business and you've talked about the drop ship, which I assume is shipping directly to customers that have ordered through.
<unk> e-commerce, so I'm just confused about it.
That operating separately from Curacao, and you're driving on the rest of the E Commerce and it was just carousel that had the problems or can you just explain that.
Yeah, I can't explain it I mean.
The 1 I'm talking about there is to set.
Businesses Linda.
1 I keep referring to this done so well during the pandemic.
As our as our no Joe and SaaS business, which is all imported okay, and it's imported from Asia, mostly and warehoused.
In Southern California, and there we have established and do drop ship to.
Our customers.
And consumer.
Unlike carousel designs Carousel designs was made in the USA, which made the price point considerably higher.
And therefore, we ran into especially during the pandemic.
When prices were so sensitive.
The only way to generate sales work to give substantial discounts off of the everyday price at carrier sale that coupled with.
Advertising cost that we had to pay to get moved up onto the <unk>.
<unk> on order on the website.
Made it when you add those 2 together it made it unprofitable.
Okay.
Dan.
So.
So should we I mean, when I'm thinking about my model.
Are those considered to be kind of going forward loss sales or do you think the sales would be made up through more sales and your other channels of distribution.
I mean, it's hard to say, Linda who knows okay I mean it.
With the slight when you take out anything.
It spreads around to other places we get it all I doubt it okay, well, we'll get a portion of it yes.
But.
It's kind of spread around.
I can't quantify it.
Okay.
And can Linda let me say this its a different product that was a very high end product.
That had a very high on ticket price.
And in many cases.
And some of the simple or items sold for twice what the day the import products.
Oh for.
Okay.
I gotcha.
So.
Are we should we assume that the benefit to your bottom line from closing the business.
Would be reflected in your ongoing.
<unk>.
Or do you think you'll take that benefit and somehow reinvest in the rest of the business.
Well I mean, Linda again, that's a forward looking question and you know we shy away from those.
As much as we possibly can know we shy away from a period.
So.
Unfortunately, you got to sort that out on your own okay.
But we gave you we gave the readers.
The information and it has been unprofitable and has been unprofitable for awhile.
In the press.
Debt.
Put out when we close carousel, we did put the historical losses that were associated with it.
Yes, I did see that and is there any way you can say, what the sales and profitability was for FY 'twenty 1.
We.
What did we put.
For Lee press release hold on I think we've put a range we put a range let me pull it back up.
Yeah.
Well, we put the 'twenty on there.
The last previous the previous reported year.
Which was net.
Net of $4.8 million for $8 million in 2020, yes. That's the last for reported year of loan growth. So we have a we didn't break down 20.
Steve for 'twenty 1.
Yeah, Okay, but I would assume it would.
Put it on the decline further.
That's probably a fair assumption.
Okay Gotcha.
Alright, and then.
When you talked about on your gross margin was up year over year on the quarter. So that's good I think you mentioned in the press release.
Both customer and product mix can you elaborate on what what does that mean, what customers and products in particular, our most favorable for gross margin.
I mean, it's.
It's a combination of a lot of different products a lot of different shifts over the customers.
It's not 1 particular product that you can report.
0.2.
Combination.
And London, Let me go back and correct, what I said.
Carousel sales.
For FY 'twenty, 1, which we did not report were actually up on slide 10, mainly.
Mainly because the first first quarter and then it declined afterward, and also it was up a little bit because of the continuing promotion all from regular price.
Generated extra sales, but did not produce profit.
For the lender going back to try to answer that question. It's.
Hard to say I mean, it's a combination of a lot of different things.
Net.
On that.
It improves the gross margin, it's not 1 item that we can point day.
I mean, many of your products are sold on Amazon, correct, with Amazon and e-commerce channels be higher or lower.
Provision for you.
We don't Linda we don't report margins by customer Okay.
And we definitely shy away from that.
But do you know.
Amazon should be in the range of all of our other customers.
Our growth okay.
And then.
I think you mentioned well have you reported anywhere are mentioned to investors what percentage now of revenue is through all e-commerce.
Channels.
Well in the revenue.
Remarks that I made we said that in the fourth quarter and in the end of the year debt.
40% growth through ecommerce when you exclude share when you exclude credit cash flow.
So it's a huge it's a huge percentage.
It's still 40%.
Okay, that's really high yeah.
I mean, Dan must have increased from the pandemic do you have a number like how does that compare to FY 'twenty.
Okay.
We may have that runs on.
And that would include cares yep.
Yes.
So last year that number was closer to <unk>.
The lower 30%.
So I've picked up 10 points.
Yeah.
Okay.
We've seen that for many companies.
During the pandemic.
So you also mentioned 1 customer that's been closed for pretty much. The whole year are you referring to a certain restaurant chain, where you provide some products or are you talking about something else no. That's the 1 we're talking about.
And we say that they were close they were.
As far as we're concerned.
Restaurant chain remained open but they just didn't have inside dining so they didn't use our problem.
Right and that should change pretty soon though with the reopening of everything.
We hope so.
We have seen a little bit of some of the stores Linda reopening.
But it's it's sort of it's just starting to take place and as few and far between right now.
Okay.
A loss of was that material.
Was that low loss of a couple percentage points of your sales would you say yeah. It was material.
Youre close okay.
Okay.
Enough that we at.
At Midas.
And then.
On your on your.
Your revenue growth has been very it's been very good and many companies have seen a lift during the pandemic, especially in the home goods areas.
Is there any I know you don't want to talk forward looking but I'm just trying to gauge.
What your view of the consumer behavior is I mean, do you think things will kind of change a lot once reopening occurs or like have they have they reach on their babies rooms, and the furnishings and they've done it and so that's demand that will taper off or do you have any viewpoint on this.
We really don't not speculation.
On our part and we don't have enough information for world, we can nail that down.
My gut instinct tells me that the trend towards shopping online.
Not going to reverse itself.
Even as stores open back up.
I think thats going on behalf of shift towards online shopping.
Okay.
And then.
Your PPP loan you said you worked forgive.
Given on that.
Does that get classified ads just goes out of we won't see that as debt anymore or how does that work on the balance sheet.
That will no longer be debt and it will be a gain on the income statement, but it'll be a non operating gain.
Okay.
And then just finally a lot of other companies have been talking about.
Various cost pressures shipping and freight delays are you experiencing any sort of delays getting product from Asia.
What are you seeing in terms of the cost inflation side.
Linda we are saying yes.
Yes, we are seeing and feeling the effects.
The cost increases coming out of Asia, mostly particularly as it relates to freight rates.
Freight rates are up.
Appreciably.
We had done as much as we.
Possibly could buy enduring ourself to a couple of major carriers that we did a little better right. So we're not as bad as some are but it is still affecting us we have seen some price increases coming out of Asia.
And.
It's sort of a mixed bag, but yes, we.
We are seeing as pretty much everybody is on goods coming out of Asia seeing freight increases.
And seeing raw material and price increases on purchase product.
Yes.
Are you thinking.
Youll try to pass that along to retailers and end consumers or are you looking at cost.
Reduction initiatives are or what do you how are you thinking to offset.
I mean, London, where we can and we've always done this free pass as much along as we can.
And we're pretty tenacious on.
Thinking that when we get it all pass through probably not.
We will.
It'll be our mission to recover as much as we possibly can.
Have you already taken price increases on some people we have yes.
Okay.
You know a couple of my companies have actually stepped up and I've had some M&A activity recently Hum and with all these facts in the marketplace, there's been a lot of deals.
That area have you thought about looking.
The additional acquisitions.
Since you just finished up such a strong year on year on a good position.
Are you kind of considering anything on that front.
Linda.
They hadn't have on appetite continually for.
Looking at acquisitions.
And we continue.
Got it for the acquisitions on a regular basis.
And our balance sheet as you well know is pristine.
Where we can afford to.
Avail ourselves of the opportunity that might present themselves.
So, yes, we're always looking and.
Good luck.
That's where I'll start we're always looking.
What would be the highest level you would take leverage up to to do it to do a deal.
Oh I don't want to go there.
I don't know if it was the right deal we would we would do some leverage.
But it would have to be we're not going to bet the whole company on <unk>.
1 acquisition, which a lot of people do and if they fail the <unk>.
Okay.
And then sorry to have so many but I'm just 1 last 1 for me I know that you had talked a while ago about kind of ramping up some of the efforts internationally with your good sales growth that you had in the fiscal year or did international grow kind of in line with the company or.
Or higher or lower sales.
International went up a slight bit but it was also affected by the pandemic.
And we.
And so therefore, it didn't do as well as we had expected.
But so you know we think that's going on.
Correct itself to go on for forward in the future. We still have an effort to do that and we plan to keep doing that.
And on your international sales are they in just brick and mortar or are you doing some ecommerce internationally as well no. We're doing both we're doing both.
We're doing both.
Okay.
Alright, well thank you for for entertaining my questions and good luck on the next fiscal year.
Thank you Linda I appreciate that you have a good day.
And our next question will come from John.
1 day share with Pinnacle. Please go ahead.
Morning, everyone.
Hey, John.
I was just curious thanks for the color on cars on what's good to know what actually happened there.
Are there any.
Legacy assets there.
You might be able to exploit going.
Going forward, you still own the brand Theres probably.
A detailed customer list with emails are are there any fixed assets.
Now that you might be able to do something with.
Well I mean, yes, John most and most notably we still on the brand.
We're still on the website.
We still on the library of art work, which is pretty large okay, which is transferable to some of our other products and divisions. So yes, there are some assets the.
The hard assets for P. P on a.
The answer for that is pretty much no.
No because we don't do domestic manufacturing anywhere else on the company.
So those are not transferable.
And those we are disposing off.
But the other soft assets, yes, they are transferable.
Yeah.
Is there any initiative.
2 other cros so.
Our email address is with your with your other brands.
Well I mean, the email addresses.
Our direct to consumer.
And you know.
Those we don't do.
And our other division.
Sales direct to consumer we sell through retailers and drop ship for the retailers. So the email addresses arent transferable so to speak okay right.
I understand has your experience with car so.
Done anything.
<unk> for your appetite for additional direct to consumer businesses going forward.
I would say yesterday is no question, we've learned a lot and what we did learn is.
Is made in the USA is quite expensive 1.
To the consumer doesn't want to pay the price of a made in USA products. So 3 you wind up having to discount it and for the cost of getting up on the top position on the Internet is quite expensive.
So.
Some.
And what other.
It is not as attractive as most people think right, okay, well I mean, I guess hindsight's always 20 in your <unk> you.
Probably glad you did it you learned a lot and it'll help your business going forward.
Well I mean, we regret that we had to make the decision.
Session.
But John again, we're a company and we proved this over the years.
Well make those tough decisions when we have to.
Right.
Okay. Okay. Thanks, a lot and good luck going for it.
Thank you very much have a good day.
And once again, if you'd like to ask a question. Please press Star then 1.
[noise] and this will conclude the question and answer session I'd like to hear on the conference.
Back over to Randall chestnut for any closing remarks.
Thank you very much and thanks to everyone that was on the call today, just a few quick closing comments as we began FY 'twenty..1 there was a lot of concern about the year due to the COVID-19, and we were part of that concern.
<unk>.
With the quick response of our staff, we adjusted accordingly, thereby leading to a huge increase in non internet sales as we alluded to earlier.
We'd like to thank all of our employees suppliers customers and.
And our valued shareholders.
And Mike FY 'twenty, 1 a good year.
And I repeat FY 'twenty, 1 was a great year again. Thank you very much we look forward to speaking with you.
At the end of Q1 have a good day.
Thank you.
Uh huh.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
Okay.
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Thanks.
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Yes.
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