Q4 2023 Crown Crafts Inc Earnings Call

Excuse me. Thank you for standing by the Crown Crafts conference will begin in approximately 60 seconds. Thank you.

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Good morning, and welcome to the Crown Crafts financial results for the fourth quarter and full year fiscal 2023, all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad after today's presentation.

There will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to John Beisner.

Buster Relations. Please go ahead.

Thank you operator, and good morning, everyone.

We appreciate you joining us for the Crown crafts fourth quarter and fiscal 2023 conference call.

Joining me on the call today are crown crafts, President and CEO , Olivia Elliott and the Companys CFO Craig's Mris.

Earlier this morning Crown Crafts issued a press release regarding their fourth quarter and fiscal 2023 results.

A copy of this release is available on the company's website crown crafts Dot com.

The company's Form 10-K is expected to be filed within the next few days.

During today's call the company will make certain forward looking statements and actual results may differ materially from those expressed or implied. These statements are subject to risks and uncertainties that may be the odd crown crafts control in the company is under no obligation to update these statements.

More information about the company's risk factors and other uncertainties. Please refer to the company's filings with the Securities and Exchange Commission.

Finally, I would like to remind you today's call is being recorded and a replay will be available through the company's investor relation page now I would like to turn the call over to President and CEO Olivia Elliott.

Thank you John and good morning, everyone fiscal 'twenty 'twenty grain presented a number of challenges across the business.

The year was impacted by the fall out of the port delays that occurred in the winter and spring of fiscal 2022, causing retailers to acquire excess inventories consumer spending slowed into the summer. Thanks in part to the highest inflation of the country has experienced in 40 years, which caused retailers to adjust their inventory positions.

Subsequently, reducing their REIT water levels in the second half of the fiscal year.

We experienced this particularly within our toddler bedding category, which historically has represented almost half of <unk>.

Although recent headlines indicate inflation may have peaked in the near term consumers are still experiencing higher prices for corn needs, such as food and housing which limit their discretionary income.

Despite these multiple challenges we focused on strengthening our relationships with our customers and maintained our overall shelf space for the year.

Obvious exception being buy buy baby and its parent company's financial problems impacted sales throughout the year before they filed for bankruptcy in April .

We also implemented cost savings across the business on a full year basis, our marketing and administrative expenses decreased compared to fiscal 2022, even when including certain one time items that Craig will speak to shortly.

In March 2023, we purchased Manhattan group, including Manhattan Toy in Manhattan for Europe .

We believe this acquisition provides many operate opportunities in fiscal 2024, and beyond which I will detail later in the call most.

Most importantly, we remained profitable and maintained our quarterly dividend payments in a time when many companies within the consumer and retail sector, we're forced to either reduce or completely suspend their dividends.

Overall, we weathered the multiple headwinds throughout fiscal 2023 and remain well positioned entering fiscal 'twenty 'twenty four with that I'd like to turn the call over to Craig to cover the financials in more detail.

Thank you Olivia and good morning, everyone.

Before I begin the discussion of our results. Please note that the fourth quarter of fiscal 'twenty. Two was a 14 week period versus 13 weeks this year and fiscal year 'twenty two with a 53 week year versus 52 weeks this year.

Net sales for the fourth quarter of 2023, or 21 6 million compared to $25 7 million in the prior year quarter.

The decline was primarily driven by reduced orders from our customers as a result of consumers' response to the current macroeconomic conditions and adjusted inventory levels as well as the reduction in sales to buy buy baby and the impact of the extra week in the fourth quarter of the prior fiscal year.

The prior year fourth quarter also included unusually high sales as a result of retailers Overstocking inventory following supply chain delays in late calendar 2021.

Gross margin for the quarter was 21, 9% compared to 25% in the fourth quarter of fiscal 'twenty two.

Arjun decrease reflected higher inventory reserves in the current year quarter related to buy buy baby private label inventory and the impact of a rent increase at our warehouse in California.

Marketing and administrative expenses were $3 8 million versus $3 4 million in the prior year quarter.

The increase here is primarily driven by expenses related to the Manhattan Group acquisition.

Net income for the quarter was 828000 or eight cents per diluted share compared to net income of $2 4 million or <unk> 24 cents per diluted share in the prior year quarter.

Net sales for fiscal 2023 were 75 million compared to 87 4 million in the prior year the.

The decline was primarily driven by the factors mentioned earlier.

Gross margin for the year was 26, 4% compared to 26, 7% in fiscal 'twenty two.

We've seen a benefit in the current year from some stabilization in many of our input costs and increases in the selling price of certain products.

Gross margin in fiscal 'twenty three was negatively impacted by the February rent increase at our warehouse in California.

Marketing and administrative expenses were $12 7 million versus 13 million in the prior year.

The decrease was primarily driven by the closure of our Carousel design subsidiary in the first quarter of fiscal 'twenty, two and lower compensation costs in the current year, which were partially offset by expenses related to buy buy baby bad debt reserve and the Manhattan Group acquisition expenses.

Other income in fiscal 'twenty, three was 258000 compared to $2 million in the prior year. The primary driver being last year's gain on the extinguishment of debt.

Net income for the year was $5 6 million or 56 cents per diluted share compared to net income of $9 9 million or <unk> 98 per diluted share in the prior year.

Turning now to the balance sheet as Olivier mentioned earlier, we acquired Manhattan Group on March 17.

The purchase price was $17 million and was funded through our revolver and cash on hand.

Our year end financials reflect the acquisition of Manhattan Route.

Cash and cash equivalents at the end of fiscal 'twenty, three totaled $1 7 million compared to $1 6 million at the end of the prior year.

Inventories at the end of fiscal 'twenty, three with $34 2 million compared to $25 8 million at the end of the third quarter and $20 7 million at the end of fiscal 'twenty two.

The increase in inventories is primarily related to the acquisition of Manhattan group as sassy and no Joe inventories were in line with historical fiscal year end levels.

In conjunction with the Manhattan Group purchase we increased our line of credit from 26 million to $35 million and extended the agreement by three years through July 2028.

Long term long term debt at the end of fiscal 'twenty, three was $12 7 million with an interest rate of six 4%.

Finally, we paid 32 per share in cash dividends to shareholders in fiscal 'twenty three we.

We believe the dividend, which currently provides a six 1% yield based on yesterday's closing price is a key component to offering long term returns to our shareholders.

Now I will turn the call back over to Olivia for additional comments. Thank you Craig.

This is the first opportunity we've had to discuss our acquisition of Manhattan, Great. So let me take a few minutes to discuss how they fit into our company and the opportunities they provide.

Hadn't twice product offerings, plush dolls, and wooden toy are highly complementary to crown crafts existing line of sassy choice there.

Range age grades higher than target a higher income consumer there is currently very little overlap in distribution channels, Manhattan toy yourself into Amazon target and specialty stores as well as legacy land and they have no penetration in Walmart. So there are opportunities to expand our sales channels.

We also have an opportunity on the international front through Manhattan towards Europe , roughly 14% of Manhattan sales are international.

We also believe there are meaningful cost savings opportunities available from sourcing and importation.

We mentioned in the March release, we expect this acquisition will add approximately $24 million to the company's net sales in fiscal 2024 and be accretive to earnings by the end of the fiscal year.

It should be noted that approximately 35 or 40% of Manhattan sale are in our third fiscal quarter, which is from October through December the toy category will become our largest product category across the business, representing approximately 40% of consolidated net sales.

Overall, we believe we are well positioned entering fiscal 2024, which would be further helped by an improvement in the macroeconomic picture we're.

We're excited about the opportunities that the addition of Manhattan toy brings to us and look forward to reporting on our progress in the coming quarters with that I'd like to open up the line for questions drew.

We will now begin the question and answer session.

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Before pressing the keys.

If at any time. Your question has been addressed and you would like 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.

The first question comes from John .

Sure with Pinnacle. Please go ahead.

Hi, Good morning, just a couple of quick questions.

Regarding the reserve or the bye bye baby bankruptcy how much.

Was that exactly.

60 east something on the receivables.

Thank you George.

663 that sounds right yes.

63000.

Right.

Okay.

There's no additional exposure going forward with that client.

No. We've got some private label inventory that we also took reserves on in the quarter for about $300000.

And from a go forward standpoint, no. We don't believe we've got any exposure out there. Okay. So 300000 for the private label and 263 for buy buy baby.

Or the receivables receivables right okay.

Okay and regarding the acquisition Oh, what were the nonrecurring acquisition related cost in the fourth quarter.

So that was primarily just the you know the due diligence cost a little bit of travel.

To do the due diligence and make the announcement.

The Magellan fees and that type of thing. So it's just is that truly acquisition due diligence type costs.

Okay, and what would those be in total.

As they were 370000 Brooklyn.

70000, okay.

So it looks like you had about 900.

Nonrecurring costs in the fourth quarter or is that is that right.

In total that's fair yeah.

No.

Going forward as.

What kind of when you get a Manhattan toy.

To where you want it to be.

Can you give us a feel for.

Kind of what the cost savings might be.

On a go forward basis.

That's not something we've really.

Given publicly.

I don't think we're really ready yet to discuss that.

Okay.

Oh, what do you think you'll have a better handle on that.

I think probably maybe midyear, maybe six months and into this year.

We'd like to get at least through.

A few months of sales and you know we're already realizing some cost savings I mean, you know it's easy to realize the cost savings in freight when they are their last calendar year included the highest of all time.

Also getting a lot of.

Just in negotiating better prices with our suppliers etcetera. So it would be nice to have a few months behind our belt before we really put that on Albemarle. Okay. So another six months or so.

Yeah that would be good alright, okay.

Thanks, very much and good luck.

Thanks.

This concludes our question and answer session. At this time I would like to turn the conference back over to Olivia Elliott for any closing remarks.

Thank you Gary.

Thank you for your continued interest in the company. We look forward to speaking with you again, when we report our first quarter results in August .

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

Hey, drew can we call them.

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Yeah.

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Yeah.

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