Q3 2023 Crown Crafts Inc Earnings Call

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Good day and welcome to the Crown Crafts incorporated third quarter fiscal year 2023 conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask questions.

Please note this event is being recorded.

Now I'd like to turn the conference over to Craig <unk> Chief Financial Officer. Please go ahead.

Thank you Jason.

Welcome to the Crown Crafts Investor Conference call for the third quarter of fiscal year 'twenty to 'twenty three with me today is the 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 May 15th.

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 will now turn the call over to Olivia. Thank you Craig Good morning, everyone and thank you for joining us for our third quarter fiscal year 2023 conference calls as we noted in our press release that went out. This morning, the ongoing macroeconomic challenges related to inflation continued to impact our consumer demand, which wasn't general worse than expect.

During our third quarter.

Also continued to experience lower replenishment orders for some items for which retailers still have excess inventory.

Spite of these challenges our balance sheet remains strong and we believe for well positioned to withstand the current headwinds and take advantage of future growth opportunities when the markets return to more normal conditions.

I'm going to look at the third quarter results at a high level and then I'm going to turn over the call to Craig will go into a little more detail.

Third quarter net sales were $19 million down from $22 7 million last year.

Year to date net sales were $53 4 million down from $61 7 million last year.

All people forces in the marketplace have continued contributed to the sales decline after experiencing empty shelves during the 2021 holiday season due to port issues retailers responded by building up their inventory levels. During the first calendar quarter of 2022.

Hosting an over inventory situation by late spring.

This situation has been exacerbated by changing consumer buying patterns whereabout. Many consumers are now trading down to lower priced items buying fewer items or forgoing some items altogether due to inflationary concerns.

In response, many retailers have lowered their in stock levels.

Retailers, where we can see data on sell through to consumers in many cases replenishment orders arent keeping up with sell through at.

It is important to note that our retail partnerships remain strong and we continue to place new items.

Third quarter net income was $1 3 million or 13 cents per diluted share compared with $2 4 million or <unk> 24 cents per diluted share last year.

Year to date net income was $4 8 million or <unk> 48 cents per diluted share compared with $7 5 million last year or 74 cents per diluted share.

Prior year to date net income included an almost $2 million gain of forgiveness of a paycheck protection program loan and a 797000 dollar loss related to carousel does that.

Excluding the impact of the loan forgiveness and carousel designed prior year to date net income would've been $6 3 million or <unk> 63 per diluted share.

We finished the quarter with $3 1 million in cash and no borrowings on our revolving line of credit.

Inventory remains a little high at $25 8 million at the end of the quarter compared with $24 5 million at the end of December 2021.

We're able to reduce our inventory levels during the third quarter a period in which we typically see an increase in inventory as we approach Chinese new year.

We continue to be diligent in managing inventory the majority of which is current inline product.

In order to move some inventory to make room for new programs, we have provided higher than normal discounts to retailers in some cases and we've also taken some reserves on inventory that we intend to sell the closeout customers.

We believe that our inventory will return to close to normal levels over the next couple of quarters.

We also announced that our board of directors declared an eight cents per share cash dividend on the company's common stock that will be paid on April 7th 2023 to shareholders of record at the close of business on March 17th 2023.

This represents an annualized yield of five 4% based on yesterday's closing price.

We're very pleased that our balance sheet remains strong and we can continue our commitment to return long term value for our stockholders.

We remain excited about our long term opportunities as we as we move forward with our strategic plan, which includes expanding in the toy category growing our product offering both organically and through acquisition, increasing our direct to consumer sales, reducing operating costs and making further investments to enhance our technology.

And then prove our organizational structure at.

At the same time, we're managing our business to maximize profitability in the face of current challenges and now I will turn the call over to Craig.

Thanks Olivia.

We only give our financial highlights for a more detailed analysis I'll refer you to the company's Form 10-Q filed with the SEC. This morning.

And what he had mentioned net sales were $19 million for the third quarter of fiscal 'twenty, three compared with $22 7 million for the third quarter of the prior year, a decrease of $3 7 million or 16, 4%.

Sales of bedding blankets and accessories decreased by $2 8 million, while sales of bids toys and disposable products decreased by 963000.

Sales declined in part due to sales to a struggling retail customer that were approximately $600000 lower in the current year quarter.

We're also seeing the effects of current macroeconomic conditions more so in the current quarter than in prior quarters.

<unk> diverted their discretionary spending to holiday purchases.

Net sales decreased to $53 4 million for the first nine months of fiscal 'twenty, three compared with $61 7 million for the same period in the prior year, a decrease of $8 2 million or 13, 4%.

Sales of bedding blankets and accessories decreased by $6 8 million in sales of bids toys and disposable products decreased by $1 4 million.

The decreases in sales are primarily due to lower replenishment orders at retailers.

Company's customers continue to reduce purchases because their inventories increased which we believe resulted from customers excess inventory purchases during the first quarter of calendar 'twenty, two and consumers' response to macroeconomic conditions.

Gross profit decreased by one 7 million and decreased from 27, 1% of net sales for the prior year quarter to 23, 7% of net sales for the current year quarter.

Gross profit decreased by 1.8 million, but increased from 27, 4% of net sales for the prior year nine months period to 28, 3% of net sales for the same period in the current year.

The decrease in the gross profit amount is associated with the decline in sales during the period and is net of the positive impact of the closure of carousel, which in the prior year nine months period recognized the gross loss of 689000 as a result of the closure of the business in the first quarter of fiscal 'twenty two.

Although the gross profit in the prior year nine months period was impacted by increases in cost across the entire supply chain. The company in the current year has realized some stabilization and its input costs.

Finally, the company has benefited from recent increases in the selling prices of our products.

Marketing and administrative expenses decreased by 352000, but increased from 13, 6% of net sales for the prior year quarter to 14, 4% of net sales for the current year quarter.

Marketing and administrative expenses decreased by 733000, but increased from 15, 6% of net sales for the prior year nine months period to 16, 6% of net sales for the same period in the current year.

The prior year nine month period included $496000 of charges incurred by Carousel.

Other items in the prior year nine months period include just under $2 million gain recognized from the forgiveness of the PPP loans.

The current year to date provision for income taxes is based upon an estimated annual effective tax rate from continuing operations of 23, 3% as compared with an estimated annual effective tax rate from continuing operations of 20% for the prior year.

Gain on extinguishment of debt associated with the forgiveness of the PPP loan was permitted to be excluded from taxable income the effective which lowered the effective tax rate for the prior year period by approximately four percentage points.

During both the current and prior year quarters. The company recorded discrete reserves for unrecognized tax liabilities as well as adjustments to income tax expense 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.

But in an overall provision for income taxes of 24, 4% for the current year nine months period, and 19, 4% for the comparable prior year period.

Net income for the third quarter of fiscal 'twenty, three was $1 3 million or 13 cents per diluted share.

And net income of $2 4 million or 24 cents per diluted share for the third quarter of fiscal 'twenty two.

Net income for the first nine months of fiscal 'twenty, three was $4 8 million or <unk> 48 cents per diluted share compared to net income of $7 5 million or <unk> 74 cents per diluted share for the same period in fiscal 'twenty two.

And with that I'll turn the call back to Olivier.

Thank you Greg Jason we'll now open up the line for questions.

Thank you.

We will now begin the question and answer session and to ask a question you May Press Star then one on your Touchtone phone.

If 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.

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

Our first question comes from Michael Bernstein from Laurel, Chris Capital. Please go ahead.

Olivia good morning.

Good morning, how are you good how are you.

How much are you I noticed you said sales were down 600000 with one customer.

That's probably.

Bye Bye baby.

Are you getting credit coverage would that customer now.

We are not.

And do you have no longer shipping.

Youre not shipping them do you have any exposure.

We do have a little bit of exposure.

It's not very much but we have some.

And.

How much business.

Did you do with them the prior year.

They were about 2% of our business.

Just two.

Okay.

I'm sorry.

Did you say two or three I'm, sorry, I couldn't hear you.

Somewhere about 2%, 2% to 3%, yes, okay. Thank you very much.

Welcome.

Our next question comes from John Today sure from Pinnacle. Please go ahead.

Good morning, just a quick question in terms of shelf space here.

It sounds like you're making a lot of accommodations are to the.

To your customers and I just want to confirm that you feel those accommodations are allowing you to maintain your shelf space.

We do I mean, you know as as.

Is anything go you'll lose the Peggy gang of peg, but overall, our shelf space remains very strong.

Yeah, I think the biggest problem is is that the customers aren't reordering to the same levels as the consumers are buying.

Okay. So it's more of a macro a headwind.

Are you losing shelf space.

Or is it for the sales decline.

Correct, Okay. Okay.

Regarding the buy buy baby exposure can you give us an idea of what the dollar amount is.

It's less than a quarter of a million dollars.

Less than a quarter of a million okay alright.

Good.

Or any of your other customers in.

Any kind of distress situations like that.

Not that we're aware of I mean, everybody else, we continue to ship and continued get the credit coverage, okay and no difficulty collecting receivables.

Okay.

Alright, Thank you very much.

Thank you.

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

There are no more questions in the queue. This concludes our question and answer session I would like to turn the conference back over to Olivia Elliott for any closing remarks.

Thank you and thank you everyone for your continued support and interest in the company and a special thanks to all of our employees suppliers and customers. We look forward to talking to you again in June when we released our fourth quarter and fiscal year 2023 results. Thank you.

Conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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