Q4 2022 Crown Crafts Inc Earnings Call

Good afternoon, everyone and welcome to the Crown Crafts incorporated fourth quarter fiscal year 2022 conference call.

All participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

Ask a question you May press Star and then one using a touchtone telephone switch all your questions you May press star two.

Please also note today's event is being recorded.

At this time I'd like to turn the floor over to Craig Demarest, Chief Financial Officer, Sir. Please go ahead.

Thank you Jamie.

Welcome to the Crown Crafts Investor Conference call for the fourth quarter and full fiscal year 2022.

With me today is Olivia Elliott, the company's President and Chief Executive Officer.

A telephone replay of this call will be available one hour. After the end of the call through four P. M Central time on September eight.

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 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.

I'll now turn the call over to Olivia.

Thank you Craig good afternoon, and thank you for joining us for the fourth quarter and full fiscal year 2022 conference call.

I wanted to start by congratulating Randall chestnut on his retirement after serving as chairman and CEO of Crown Crafts since 2001 as part of our management team and a member of the board since 1995.

The ongoing strength of our company is a tribute to the legacy that Randall leaves behind I had the privilege of working with random for over 20 years and I'd like to thank him for all that he did for the company and for me personally as well.

Turning to fourth quarter was that no fourth quarter net sales were $25 7 million compared with 21 8 million in the fourth quarter of last year.

There were no current quarter sales of Carousel designs, which ceased operations in may of 2020 one.

But if you exclude care yourself from the prior year fourth quarter sales would've been $20 6 million.

Net sales for fiscal year, 2022 were $87 4 million compared with $79 2 million last year.

If you exclude carousel from both years net sales for the current year would've been $86 7 million compared with $73 8 million last year, which represents an increase of 17, 5% for Diageo and sassy.

We continue to see a shift in sales due to consumer starting to shop in brick and mortar locations again, but the internet based sale still represent almost 30% of our sales.

We've also continued to see higher international sales this year with those sales representing four 2% hurt your sales.

Fourth quarter net income was $2 4 million compared with 238000 last year. Prior year fourth quarter results include an after tax impairment charge of $1 7 million related to care and sell assets when.

When you exclude the impact of carousel from both quarters net income would have been $2 6 million for the current year quarter or <unk> 26 cents per diluted share compared with 2 million or 20 cents per diluted share last year.

Net income for fiscal year, 2022, with $9 9 million compared with $6 1 million last year.

Your net income included an almost $2 million gain from the forgiveness of the paycheck protection program loan.

When you include the impact of the forgiveness of the slow from the current year.

Ourself on both years net income for the current year would've been $9 million or 89 cents per diluted share compared with $8 million or 79 cents per diluted share last year.

We're very happy with the results of this quarter and for the entire here.

We're also happy to have made progress.

Recovering from some of the headwinds that we've been discussing in prior quarters Thankfully Hurricane Ida the Compton warehouse water damage and the warehouse management system implementation are behind us.

We're also seeing signs that the bottleneck of container ships, and California has receded and Lockdowns in China are beginning to lift somewhat so the delays that we're seeing now aren't as bad as what we experienced throughout fiscal 2022, we.

We do however continue to see increased costs throughout the supply chain and we pass along these increased costs for our customers whenever we can.

Looking at the balance sheet, we finished the fiscal year with $1 6 million in cash and no borrowings on our revolving line of credit.

17th we announced that our board of directors had declared an eight cents per share cash dividend on the company's common stock that will be paid on July eight 2022 to shareholders of record at the close of business on June 17th 2022.

This represents a four 9% yield based on yesterday's closing price.

We're very pleased that our financial strength allows us to continue the quarterly dividend I'm now going to turn it over to Craig to discuss the quarter in more detail and then we will come.

Come back and make some closing remarks and take some questions.

Thanks, Olivia I'm going to give financial highlights for a more detailed analysis. Please refer to the Companys 10-K filed with the SEC. This morning.

Olivia mentioned net sales were $25 7 million for the fourth quarter of fiscal 'twenty, two compared to $21 8 million for the fourth quarter of the prior year, an increase of $3 9 million or 17, 7% for.

For the year net sales were $87 4 million for fiscal 'twenty, two compared with $79 2 million for the prior year or an increase of $8 2 million or 10, 4% sales of bibs Bath developmental toys feeding baby care and disposable products increased $9 9 million over the <unk>.

Higher year, which was partially offset by a decrease of $1 7 million in the sales of bedding blankets and accessories, which included a decrease of $3 5 million due to the closure of carousel designs in the first quarter of fiscal 'twenty two.

The increase in sales in fiscal 'twenty, two is partially due to a strong new modular set and higher replenishment orders at a major retailer.

Also in advance of the expectation that shipments and customers from the Companys Comped in warehouse would be suspended during the first days of April 2022, due to the company's annual calendar of inventory customers were encouraged to place their orders earlier than they ordinarily would have.

This resulted in approximately $700000 being shifted from fiscal year 2023 into fiscal 'twenty two.

And finally the results for fiscal 'twenty to also include an additional week compared with fiscal 'twenty one as the company operated under a 53 week calendar year for fiscal 'twenty two.

These increases were somewhat offset by decline in sales to online retailers as customers have begun to return to stores.

Gross profit increased from $587000, but decreased from 26, 7% of net sales in the prior year quarter to 25% of net sales in the current year quarter.

Gross profit decreased from 789000 and decreased from 34% of net sales for the prior year to 26, 7% of net sales for the current year.

The closure of Carousel resulted in a $2 $2 million decrease in gross profit, which in fiscal year 2022 included the sale of inventory below cost and the recognition of charges of 334000 associated with the settlement with a supplier of equipment to purchase fabric and 260.

5000 associated with the liquidation of Carousel remaining inventory upon the closure of the business.

The company's gross profit was also adversely impacted in fiscal year 2022 by increases in cost across the entire supply chain.

Marketing and administrative expenses decreased from $3 6 million in the prior year quarter to $3 $4 million in the current year quarter and decreased from 16, 6% of net sales to 13, 2% of net sales over the same period.

Marketing and administrative expenses decreased by $1 2 million and decreased from 18% of net sales for fiscal year 2021 to 14, 9% of net sales for fiscal 'twenty two.

The decrease in amount included lower charges incurred by carousel of $2 1 million for fiscal year 2022, as compared with fiscal 'twenty one.

Other items in fiscal 'twenty two included the $2 million almost $2 million gain recognized in the first quarter from the forgiveness of the PPP loan.

The other items in the fourth quarter and full year of 2021 include a $2 2 million impairment loss related to the impairment of the assets of carousel.

The provision for income taxes is based upon an annual effective tax rate on continuing operations, which was 21% in fiscal 'twenty, two and 24% in fiscal 'twenty one.

Our current year 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 lowers the effective tax rate for fiscal year 'twenty two by approximately four percentage points.

During the current and prior year the company recorded discrete reserves for unrecognized tax liabilities as well as entries associated with excess tax benefits or shortfalls arising from the vesting 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, 5% for fiscal 'twenty, two and 21, 3% for the prior year.

Net income for the fourth quarter of fiscal 'twenty, two was $2 4 million or <unk> 24 per share compared to net income of 238000 or <unk> <unk> per share for the fourth quarter of fiscal 'twenty one.

Net income for fiscal 'twenty, two was $9 9 million or 98 per share per diluted share compared to net income of $6 1 million or <unk> 60 per diluted share for fiscal 'twenty one.

And with that I'll turn the call back over to Olivia Thanks, Craig where it is.

Truly proud of the results for fiscal year 2022 our entire staff has done an outstanding job of working through this year.

Many challenges and posting very good results.

As we begin fiscal 'twenty three we're excited about our opportunities for continued profitable growth in the future.

We recently presented a new strategic plan for our board of directors and we look forward to implementing that strategy. This strategy include among other thing growing our toy category through market share expansion entering new adjacent product categories organically as well as for tuck in acquisitions.

Going directly to consumers implementing operating cost efficiency, and making further investments in technology and our organizational structure.

We'll implement these strategies without losing focus on cost containment, maintaining our strong balance sheet and delivering solid returns to our shareholders.

And with that Jamie I think we will take questions before we deliver the final closing remarks.

And ladies and gentlemen at this time, if you would like to ask a question you may do so by pressing star and then one using a touch tone telephone.

If you are using a speaker phone, we do ask that you. Please pickup your handset prior to pressing the keys to ensure the best sound quality.

So it's for all your questions you May press Star two.

Once again that is star and then one to join the question queue.

We will pause momentarily to assemble the roster.

Once again to ask a question you May press Star and then one.

And our first question today comes from.

Tony Sorrento from key equity investors incorporated. Please go ahead with your question.

Hi, good afternoon. Thank you so much for taking my question. My first thought here is obviously.

In terms of your sales your very concentrated between Walmart and Amazon and I heard you mentioned as part of your new strategic plan is to kind of go directly to consumers is this something that you're trying to diversify obviously, it's difficult to run a business. When you know Walmart is half your sales if they decide to cut off with category I cut you off.

If you are in serious trouble so what's the plan to kind of diversify the customer base.

So part of that is going direct to consumer I mean, it's something that.

Thanks to everybody is doing in today's day and age and it's something that we really need to get can't go in with.

Yes, there are.

Candidly, no more walmart or target or Amazon's out there, where we're going to get 50% of our business.

There are other other small customers out there you know it may be a million dollars a year or $2 million there.

No smoking gun out there that is going to be another $30 million in sales.

But.

Internationally can be a good opportunity for us.

Part of that is in building further our own brands because you don't exactly have licenses that got worldwide.

As Jay noted here in the U S and Canada only.

Building, our brand going internationally direct to consumer and then everything else will be yeah, a little bit here and there. Okay. How would you consider your relationship with Walmart at this point.

And we believe we have a really good relationship with Walmart I mean, we service them well.

You know, we keep a good eye on our designs and as long as we bring forth. The designs that the consumer wants then yeah. We think our relationship is very good.

Know how competitive is it the category at Walmart I mean, how many would.

Would you say how many providers are there that are in your space at this point also go into Walmart.

Oh, I mean, there's quite a few and you know there's always competitors that I'm more than happy to take that that shelf space. So we in most of our categories. There are particular set dates and so yeah.

We're competing at any given point in time with with people that want the business. Okay. And then just a question of you having the product and having the design that the customer.

Will demand at a particular time.

And the ability to service the customer I mean, they have has certain requirements for in stock levels and and things like that so it's the entire.

Alrighty to service them Okay.

Okay.

One question I know you pay the dividend and the dividend and it's great I think it's a it's a good show of support to the shareholders have you given any thought to a share buyback given the price of the stock.

We've done share buybacks in the past and just because of our.

Liquidity it really.

It hasn't really help things and so at this point in time.

You know, while we discuss it from time to time dividend seems to be the best answer for us yeah.

I think it makes sense, obviously since the liquidity so limited.

Remove more shares on the market, that's only going to make the problem even worse.

Hopefully you'll grow larger at some point and then you can have more shares and increased liquidity.

Thank you so much for addressing my questions and good luck and congratulations on a great quarter.

You very much.

And our next question comes from Ralph Marash from first Manhattan Company. Please go ahead with your question.

Hi, Olivia and Craig.

Hey, Ralph how are you.

Okay hope, you're both well too.

So you certainly seem to have navigated all the difficulties of the last 12 to 18 months I'm very well.

And you mentioned, you know increasing costs, which we know everyone faces.

But you also mentioned that you seem to be able to pass along those costs and your gross margin performance would indicate that youre pretty much in line. So is that an accurate impression.

Yeah.

We certainly try to pass them on where we can we do have some categories that are a little more price sensitive.

Some of them being things like toddler bedding sets et cetera.

That you know, we may not be able to pass along the entire price increase but we do what we can.

Other categories, we have passed on that price increase.

There was some difficulty I guess in the beginning and in trying to get them through but I think now.

And the world that we're in today everyone's passing on price increases and it's come a little bit easier to do.

Okay.

And your comparative inventory numbers seem to indicate that in inventory is in pretty good shape as well I know.

For much of the last 18 months or so you've been a little heavy on inventory on purpose to avoid disruptions.

So could you just comment on where your inventory stands now in terms of where you'd like it to be.

We are in really good shape and inventory.

<unk> of our inventory is.

Current skus and so we're not at all worried about it we did bring in extra inventory in the fall when all the problems started happening partially just because we were a little worried about the supply chain, partially because we were trying to get some inventory before price increases.

Thanks.

You know there is probably still a little bit of over inventory in some areas just because yeah. We knew that we can sell through it in a period of time and it was going to be a decent price increase but for the most part I think it's you know it's very.

A good level.

Very good thanks a lot.

Yeah.

Once again, if you would like to ask a question. Please press star and then one.

Our next question comes from John <unk> from Pinnacle. Please go ahead with your question.

Oh good afternoon, thanks for taking our questions.

I was just curious on.

On the direct to consumer initiative that.

That you mentioned.

I think that was car or Soc business and I think.

If I recall correctly, there were some issues there with Oh fulfillment.

Uh-huh advertising being on the search engines.

I'm just wondering kind of how you why you think you should reenter the direct to consumer business.

When it didn't quite work at least to us are with carrier so what's different.

It's really two different model, so carousel was manufacturing.

Manufacturing in the U S, which was quite expensive and often in the vast majority of the products we were selling from carousel. We're.

They were.

One piece here one piece there the consumer was actually designing the product.

Here, we would be selling.

It's already in our warehouse in finished goods, there's no manufacturing and.

Yeah, we're already for many of our Dot com customers were already shipping direct to the consumer on their behalf. So we have the ability to ship direct to consumer and it's just such a different model.

We think that it can be successful.

Okay. So the infrastructure is in place already since you're.

So I get for your Dot com customers, but yeah. I mean, how are you going to attract traffic to your website.

How do you gain customers.

There's definitely going to have to be some advertising you know.

We have to start by part of it we're going to sell we're going to.

Do some third party selling on Amazon. So that's how we're gonna start out, but we're also going to get our website updated and has the ability to sell and there's going to have to be some advertising.

And so while you see them.

Yeah, because we're selling direct to consumer.

Price can be higher than what we're selling out through our retailers, but there will be a cost associated with it.

Do you expect the profitability to be comparable to <unk>.

The core business right now.

Oh, no I think that we will have we can be just as profitable on a dollar perspective may be even more profitable percentages may not be the same because you are going to have a higher advertising costs.

When will you launch this.

We're very much in the early stages of it. So we hope to get began selling direct to consumer sometime in the latter half of this fiscal year, but.

Every little thing you do.

And kind of Pops up that you have to resolve so I mean, the plan is this fiscal year, but I'm not exactly sure what month that'll happen. Okay. No [laughter], we agree to take your time and.

Hopefully you will break that out going forward, so we could kind of.

Keep track of what Youre doing a direct to consumer wise.

Great. Thank you very much yeah right.

And ladies and gentlemen, I'm showing no additional questions at this time I'd like to turn the floor back over to Olivia Elliott for any closing remarks great.

Great. Thank you Jamie we want to thank everyone for your continued support and interest in our company and a special thanks to all of our employees suppliers and customers. We look forward to talking to you again in mid August when we release, our first quarter results.

You very much.

Ladies and gentlemen, with that we'll conclude today's conference call and presentation. We thank you for joining you may now disconnect your lines.