Q2 2022 Crown Crafts Inc Earnings Call
Ladies and gentlemen, thank you for joining today's Crown Crafts incorporated Investor Conference call the call will begin momentarily.
Again, we do thank you for attending the call, we'll be getting about 60 seconds, if anyone should need assistance, while you're waiting. Please press star zero. This thing one operator, thank you.
[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.
Joining Mr. Chesnut on the call will be Mr. Olivia Elliott.
President and Chief operating Officer, and Mr. Craig Demarest, Vice President and Chief Financial Officer.
At this time all participants are in a listen only mode.
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 incorporated.
As a reminder, today's conference call is being recorded today November 10 2021.
At this time I would like to turn the conference call over to Mr. Craig Demarest, who will begin the conference. Please go ahead.
Thank you Jamie.
Welcome to the Crown Crafts Investor Conference call for the second quarter of fiscal year 2022 with.
With me today are Randall chestnut, the company's Chief Executive Officer, and Olivia Elliott, the company's President and Chief operating Officer.
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 February eight 2022.
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 Dot com.
Before we begin I'd 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.
I will now turn the call over to Ryan.
Thank you Craig.
Good afternoon.
Everyone and thanks for joining us for our second quarter fiscal 2022 conference call.
We're happy with the results for the quarter. However, we did confront several noticed notable challenges during the quarter.
In the early part of August we implemented a new warehouse management system.
Which is intended to streamline our warehouse operations in Compton, California.
It took almost two weeks against the system up to speed and during this two week period of time.
We were born or shut much almost entirely.
At the end of August.
Southeast, Louisiana was impacted by Hurricane idle in our offices here in Gonzales, Louisiana were significantly impacted by the stone.
The roof of the building was destroyed and water linked until a building.
Requiring us to close the office for several weeks and have employees work for home.
Which in itself was a challenge as they were experiencing power and internet out of the outages to most of their homes at the same time that we were closed.
Along with many other U S companies, we're also experiencing delays and extra costs associated with the importation of goods from Asia.
Fortunately, we have a contract with a freight forwarder that is somewhat protected us with slightly better rates than other and importers are getting.
We're passing along increases.
To our customers wherever we possibly can to offset this.
Chargers.
Labor has also been very tight we've experienced higher turnover rates and our warehouse operation in Compton during the past few months.
We're working with our employees and human resources to hire and retain quality workforce, but that in itself has been somewhat problematic.
Turning to the balance sheet and dividends.
A lot of directors today declared a special dividend of the company's series a common stock of 35 cents per share along with our quarterly cash dividend of eight <unk> per share.
Both of these dividends will be paid on December 31st.
2021 to shareholders of record as of the close of business on December 10 2021.
After the payment of these dividends, we will have distributed.
The $2 $9 million back to the shareholders since we began paying dividends again in 2010.
That would be that warrants repeating itself.
Since 2010, we will have distributed back to the shareholders almost $53 million.
The normal dividend that we've usually pay of eight cents per share per quarter or 32 cents annually.
Equates to a four 3% annualized yield based on Yesterdays close punch.
We're very pleased with the financial strength of the company that allows us to play these dividends.
Now I'll turn it over to Olivia and Craig to discuss the quarter in more detail and then we will take questions.
From anyone that might have questions on the line. Thank you.
Thank you Randall and good afternoon everybody.
I'm going to touch on our second quarter results at a very high level, and then I'll turn the call over to Craig and he's going to go into more detail.
Second quarter net sales were $20 2 million compared with $21 7 million last year, but if you include carousel designs, which ceased operations in may of 2021 from both quarters second quarter sales for both years would've been $20 2 million.
Net sales for the first six months of fiscal year, 2022 were $38 9 million compared with $37 9 million last year and once again, if you exclude carousel from both years net sales for the current year to date period would have been $38 3 million compared with $34 9 million last year.
It represents an increase of nine 8% for no Joe and sassy.
We continue to see a shift in sales due to confess cause consumers starting to shopping brick and mortar locations again, but internet based sales still represent more than 25% of our sales.
We've also continued to see higher international sales this year with those sales representing almost 5% of year to date sales.
Second quarter net income was $2 4 million compared with $2 5 million last year. When you exclude the impact of carousel from both quarters net income would have been $2 4 million for both quarters or 24 cents per diluted share this year compared with 23 last year.
Net income for the first six months of fiscal year, 2022 was $5 1 million compared with $3 7 million last year.
When you exclude the impact of the forgiveness of the Paycheck protection program loan from the current year and Carousel from both years net income for the six month period of the current year would have been $3 9 million or <unk> 38 cents per diluted share compared with $3 6 million or <unk> 36 cents per diluted.
Per diluted share last year.
Randall mentioned, we continue to feel the impact of rising freight costs, which impacted our gross margin this quarter.
On the balance sheet side, we finished the quarter with $1 9 million in cash and no debt. So overall this was a very good quarter for us.
I'm now going to turn it over to Craig for more details.
Thanks, Olivia I'm going to give financial highlights for a more detailed analysis. Please refer to the company's Form 10-Q filed with the SEC. This morning.
As ILUVIEN mentioned net sales were $20 2 million for the second quarter of fiscal 2022, compared with $21 7 million for the second quarter of the prior year, a decrease of $1 4 million or six 6%.
Sales of bedding blankets and accessories decreased by $1 9 million, which included a decrease of $1 5 million due to the closure of carousel designs in the first quarter of this year.
This decrease was partially offset by an increase of $502000 and sales of bibs toys and disposables.
Net sales were $38 9 million for the first six months of fiscal 2022, compared with 37 9 million for the same period of the prior year, an increase of $1 1 million or two 8%.
The increase in sales is primarily due to $3 1 million higher sales of bibs toys, and disposables, partially offset by lower sales of bedding and blankets, including a decrease of $2 3 million due to the closure of carousel.
The increases in sales during the comparable six month periods are due to our strong new modular set and higher replenishment orders at a major retailer.
Gross profit decreased by $1 million and decreased by 32, 8% of net sales in the prior year quarter to 30% of net sales in the current year quarter. The decrease in gross profit includes the effect of the closure of carousel, which recognized gross profit of $629000 in there.
Prior year quarter.
Gross profit decreased by $1 4 million and decreased from 32% of net sales for the prior year six month period to 27, 5% of net sales for the same period in the current year.
The closure of Carousel resulted in a $1 $9 million decrease in gross profit.
Which in the current year six month period included the sale of inventory below cost and the recognition of charges of $334000 associated with the settlement with a supplier or a commitment to purchase fabric and 265000 associated with the liquidation of carousel as remaining inventory upon the closure of the business.
The company's gross profit has also been adversely impacted in both the three and six month periods at the current year by continuing increases in the cost of all oceangoing freight.
Marketing and administrative expenses decreased by 638000 and decreased from 17, 6% of net sales in the prior year quarter to 15, 6% of net sales in the current year quarter.
Marketing and administrative expenses decreased by 652000 and decreased from 19% of net sales for the prior year six month period to 16, 8% of net sales for the same period in the current year.
The decrease in amounts for the current year periods include lower charges incurred by Carousel of 547000 for the three months period and 807000 for the six month period.
Oh.
Other items in the six month period ended September 26, 2021 include a $1 $985 million gain from the forgiveness of the PPP loan.
The current year to date provision for income taxes is based upon an estimated annual effective tax rate from continuing operations of 19, 6% compared with 24, 2% in the prior year.
The current year to date provision includes no tax expense from the gain on extinguishment of debt, which will be permitted to be excluded from taxable income the effective which is expected to lower the effective tax rate for fiscal year 2022 by approximately 4%.
During the current and prior year six month period, the company recorded discrete reserves for unrecognized tax liabilities as well as entries associated with excess tax benefits or shortfalls arising from divesting of non vested stock and the exercise of stock options.
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 19, 2% for the current year to date period and 24, 9% for the prior year.
Net income for the second quarter of fiscal 2022 was $2 4 million or 24.
Per diluted share compared to net income of $2 5 million or <unk> 24 per diluted share for the second quarter of fiscal 2021.
Net income for the first six months of fiscal 2022 was $5 1 million or <unk> 50 per diluted share compared to net income of $3 7 million or <unk> 36 per diluted share for the same period in fiscal 2021.
I will now turn the call back over to Randall Craig Olivia. Thank you very much and.
Jamie if you come back home.
Put it up for anyone who might head in the ask a question just on the Dol.
Ladies and gentlemen at this time, if you'd like to ask a question you May Press Star and then one using a touchtone telephone to withdraw. Your question you May Press Star and two if you are using a speaker phone. We do ask that you. Please pickup your handset before pressing the numbers to ensure the best sound quality.
Once again that is star and then one to join the question queue.
And our first question today comes from Linda Bolton Weiser from D. A Davidson. Please go ahead with your question.
Yes, Hi, how are you I'm, sorry to hear about all the issues with the hurricane impact.
I love that word.
Yeah no.
So do you have your you're building now fixed in terms of the damage that it hasn't been repaired from the hurricane.
Not entirely.
It is as I said earlier, a lot of the hurricane ripped the roof literally all available.
And with all of those shortages of material and labor of the landlord has been able to do is put a temporary roof back on them a building and then still has a leak in one part, but fortunately, it's not over an area that affects us very much. So we've got everybody back to work.
But we still don't have a permanent room back on the boom.
Okay.
The challenge.
Hmm right.
So in terms of.
I have a little late so I heard you're describing the warehouse the warehouse issue.
Is that completely resolved now and are you is your shipping back to a normalized level now.
It is resolved it.
If we had planned Linda to take.
Little over a week to take on inventory to put the system in and convert it we had a slight hiccup or two what you always do.
And it took a little over that it took almost two weeks in which literally were.
We're a void of shipments for almost two weeks in the month of August.
And then two weeks later or a hurricane came so we had a great month.
But yeah.
Yes.
System is an operating is doing well and it's a good system. It just took a little bit longer than we had planned to get a tan and get it all working properly.
But it's worth it.
Right is there any way to quantify the sales loss in the quarter from from that issue.
London, that's very difficult to do because.
You know a lot of it comes back in the next month in September and so it's it's difficult to quantify.
I mean, we did lose some business because.
We know that some retailers.
Just cancel the orders and didn't reorder.
Okay.
And in terms of your pricing initiatives to try to recover some of your cost inflation.
Our competitors reacting I mean or do you think there's any risk of losing some shelf space or competitors pretty much doing the same thing with pricing.
Well I mean.
We have to.
We have to run our own business, Linda and that's what we do we run our business, we make our own decisions.
We do what's right for the company and for the shareholders.
And we're going to do that we may lose a little bit of business, but we're in hopes that it'll be fair amount of them.
And but we've got the past at all.
The cost of.
An article came out this morning, and said that inflation was at a 25 year high.
For the month of October.
Highest since 2000 and.
Since 1990 I'm sorry.
So we are facing inflation like we've never seen before.
We have to pass it on.
Yeah of course.
So in terms of them getting your product in from Asia are you able to get containers or are you literally having problems getting access to container shipping. So so what exactly are you experiencing is that we're getting the containers, but everything is just delayed or can you give a little more color.
We're on that.
We're a little bit fortunate in London, we have.
Yeah.
Our contract with a major.
Same shack sales of shipper.
We have an effect that they have their own terminal and the long beach area, where they bring in containers into and they break containers and ship them.
So we've been a little bit fortunate I'm not going to say.
Haven't had backup into that if we had goods floating around the Pacific Ocean trying to get into the long Beach Port we've had a number of them.
But and we've also because a lot of our products, particularly toy products come from southern China.
And this particular shipper doesn't handle southern China.
So instead of risk in the extra cost coming out of southern China, and then around the Hong Kong area.
We're actually trucking goods from the from the Hong Kong area, Guangzhou, etcetera, where trucking goods up to Shanghai. So we can use this particular shipper to ship out of the Shanghai area.
Which we're having to pay that cost to get it.
On Friday, it in China, but it's worth it because we get on a.
We shipped with a reliable ship or that we can count on little depth of goods on the boat and get it to us and it also helps protect our rights.
So we're doing a lot of different things, but net net net it is costing model.
And it is okay.
We're not we're not the only one in that book.
Right.
Okay.
So in terms of the cost inflation.
Would you say that in general.
Things are getting worse or.
We're kind of stabilizing and then you see kind of some some things are stopping going up in terms of cost inflation.
When does that would be a forward looking statement.
Oh.
We tried very hard as you well know not for my forward looking statements because.
Hard to live up to later.
But.
It's been difficult lets put it that way and we're fighting it every day.
Okay.
Candidly, we think we're doing probably.
Better a hell of a lot of people are doing.
Because of some of the moves we've made in some of those decisions.
Right.
Okay.
And then can you just comment maybe on the demand side of it.
In terms of your like P. O S movement at retail demand is still fairly strong for your product and things are moving off the shelf pretty quickly.
Is that the case or how would you characterize the mens.
Demand is very strong so our D O S. It.
Very simple and.
What's on the shelf.
Losing.
Okay.
We monitor P O S on a weekly basis as loved them with all of our major not every one of them some of them don't happen but.
It's 90% of them major 90% of our business, we get the reports weekly and see the Pos for the week before.
Okay.
That sounds good well I think that's all I have for now, but thank you for answering my questions and good luck with everything.
Thank you Linda Thank you Glenda I appreciate it thank you and have a good day.
You too.
Once again, if you would like to ask a question. Please press star and one.
And our next question comes from Ralph.
Morris from first Manhattan Company. Please go with your question.
Hey, Ralph he butchered your lineup.
Other than that how are you.
Right, if I take myself, if I take myself off mute that will help to one would help.
Hi.
I'm glad that much of the hurricane it's many of the hurricane issues are behind you and I hope that the rest of them get straightened out really soon.
Just two financial questions. The first is that inventories seem kind of high at the end of the quarter.
Actually I'll take that.
They are Ralph but that's a pretty damn good thing right now.
With all of the stuff floating around the Pacific Ocean at least we got goods.
So yes, they are a little bit hot.
And part of that was.
We had bulked up because we knew we were going to be down.
Down for a couple of weeks and we wanted to be sure. We got everything yeah, because we werent, bringing containers in novel with shipping that during that two week period.
So inventories are a little bit.
But this is not a.
It's it's not problematic.
That's very good thank you and the second question is that advertising.
For the office.
The other part of that is that we.
We bought these goods at lower prices than we would have the bonds today.
Thanks Sam.
Helpful on all counts.
Counts.
The second question was that advertising spending seemed much lower this quarter.
That's a direct result, carousel with a direct to consumer so direct to consumer is highly driven by advertising.
Yes.
Great. Thanks very much.
Thank you Rob.
Dan.
And ladies and gentlemen that is our final question today I'd like to turn the floor back over to the management team for any closing remarks.
Okay, Jamie Thank you very much and thanks to everyone.
He was on the call today.
I'll repeat we're extremely proud of the results of this quarter.
Management has done an outstanding job of working through all the challenges and posted good results for the quarter.
I'd like to thank everyone for their continued support and interest in the company and a special thanks for our employees suppliers and all of our customers well.
We look forward to talking with you again in mid February when we release, our third quarter earnings.
With that we'll conclude our conference call for today again, thank you for attending.
Yeah.
Ladies and gentlemen that does conclude today's presentation. We do thank you for joining you may now disconnect your lines.