Q3 2024 Crown Crafts Inc Earnings Call

Good morning, and welcome to the Crown Crafts incorporated third quarter fiscal year 2024 conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

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

Please note this event is being recorded.

I would now like to turn the conference over to John Beisner with three part advisors. Please go ahead.

Thank you operator, and good morning, everyone.

We appreciate you joining us for the Crown Crafts third quarter fiscal 2024 conference call.

Joining me today are crown crafts, President and CEO, Olivia Elliott and the company's CFO Craig Demarest.

Earlier this morning Crown Crafts filed its 10-Q and issued a press release regarding the third quarter fiscal 'twenty 'twenty four results.

This release is available on the company's website crown crafts Dot com.

During today's call the company will make certain forward looking statements and actual results may differ materially from those expressed or implied.

Rents are subject to risks and uncertainties that may be beyond crown crafts control in the company is under no obligation to update these statements.

For 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 Relations page now I would like to turn the call over to the President and CEO Olivia Elliott.

Thank you John and good morning, everyone. Our third quarter results reflect meaningful top and bottom line increases we saw our gross margin returned to more historical levels and we continue to see a nice contribution from Manhattan toy, which contributed $6 million in net sales during the quarter.

We continue to monitor the macro environment. We are encouraged to see that recent economic reports indicate a more favorable outlook as the year progresses.

However, the overall input packed from the higher inflationary environment that has transpired over the past couple of years continues to be a prolonged strain on our consumers as reflected yesterday and yesterday CPI report.

This is particularly evident at the lower end of the income scale, where those consumers have experienced a longer term effect to their discretionary income due to higher interest rates for mortgages and credit cards as well as the resumption of student loan repayments.

Another encouraging update is the reopening of 11 bye Bye baby stores, which started during the quarter. Although we did ship product to these locations. We expect this to be a more gradual benefit as they slowly roll rollout the opening up more stores.

How 'bout babies go.

100 additional stores over the next few years would equal the number of stores that were closed as part of last year's bankruptcy.

These openings would be of great benefit, giving us additional physical locations for consumers to get a firsthand look and feel for our products, particularly our higher end and put that in.

Offerings.

We also continue to work with other specialty retailers to add our products to their shelves.

Yeah.

We've made good controls on our inventory throughout the year as major retailers continue to carry lower levels of goods within their systems at the end of the quarter total inventory was $34 9 million compared to $34 2 million at the end of fiscal 'twenty three compared.

Compared to the same period last year, no Joe and sassy inventory levels have declined from $25 8 million last year to $22 7 million this year.

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.

Net sales for the third quarter of fiscal 'twenty, four increased approximately 25% to $23 8 million compared to $19 million in the prior year quarter.

The increase was attributable to the addition of Manhattan toy, which added 6 million in net sales to the current year quarter.

Net sales of bedding blankets and accessories were essentially flat as consumers face to economic pressures that Olivier mentioned.

Gross profit for the quarter was 27% compared to 23, 7% in the third quarter of fiscal 'twenty three as margins have returned to historical levels and consistent with year to date margin.

Marketing and administrative expenses were $4 1 million in the current year quarter versus $2 7 million in the prior year quarter.

This increase is primarily related to expenses associated with Manhattan toy.

Net income for the quarter was $1 7 million or 17 cents per diluted share.

<unk> to net income of $1 3 million or 13 cents per diluted share in the prior year quarter.

Turning now to our balance sheet cash and cash equivalents at the end of the third quarter were 683000 compared to $1 7 million at the end of fiscal 'twenty three.

Borrowings on our revolver at the end of the quarter were 10 million compared to $12 7 million at the end of fiscal 'twenty three.

And finally, we paid a regular quarterly dividend of eight <unk> per share and declared our next dividend, which will be paid in April.

On an annualized basis, our shares currently offer just over 6% yield based on yesterday's closing price.

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

As we approach the end of fiscal 'twenty 'twenty four we continue to implement our long term strategic plan, which was approved by our board in fiscal 2023.

As a reminder, this plan includes continuing growth in our toy category through market share expansion within both sassy and Manhattan toy.

Toys are projected to represent nearly half of our overall sales for fiscal 2024 compared to just 17% at the end of fiscal 2020 three.

We also have plans to enter into new and adjacent product categories through a combination of organic growth and strategic acquisitions. We are working on product development to bring select items from the Manhattan toy lineup into Walmart if the price points makes sense and we continue to look at additional acquisition opportunities that expand or complement our existing portfolio.

Yes.

Selling direct to consumers has remained challenging given the significant upfront spending to build out the website followed by advertising of the brain met.

Manhattan Toy had a website in place at the time of the acquisition, which we are using to sell some of the sassy brand and are no joke brand is ready to launch its own website the.

The remainder of the plan is centered on implementing operating cost efficiencies and investing in technology and our organizational structure. Our company has a long track record of holding expenses in line and we will continue to run the business with us at the forefront.

Overall, we continue to manage our business through the ongoing macroeconomic challenges, while positioning our brands to capitalize when the overall economy and price. We believe the long term prospects of the company remain favorable as evidenced by our longstanding track record and dividend and look forward to delivering long term value to our shareholders with that.

I'd like to open up the line for questions Danielle.

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

If you are using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

The first question.

Comes from Doug Ruth of Lenox Financial services. Please go ahead.

Olivia and Craig Craig Congratulations a very good report.

Thank you for you all.

Can you talk about are you, having any success lowering the man he had in Hawaii.

Our manufacturing cost.

Yes, actually we are so I mean, we we kind of went into this with I look at everything from the first calls to freight pretty much everything across the Oh manufacturing channel and we've managed to get some decreases.

Oh, Oh Oh.

Is there is there more to come do you think.

We are always try and so I mean, we're pushing on on certain things I mean, as you know the inventory that was already in the warehouse was at some higher cost and so as we run through that I'm hopeful that we can see more margin decreases.

And my understanding is that you are considering the possibility of combining our warehouses could you maybe maybe all of it.

Explain to us what's happening with that.

We're on the early stages of that so yes, we're starting to look at other locations for warehouses, possibly even outside of California, and so to do that.

It's a pretty big commitment and you know it takes some time because when we do make a move if you know it'll be for at least you know hopefully 10 years or more so we want to make sure we get it right. So where we're looking at that on the front end right now and hopefully we will have a solution within the next 18 months or so.

Oh, Okay very good and then my final question can you all give us a little bit more color on the relationship with Walmart and is it possible that maybe man he hadn't why it might be able to get into Walmart maybe in fiscal 2025.

Anything you can share is appreciated so.

Yes, we've got a very good relationship with Walmart Sassy and know Jos has both been selling to them you know for many many years longer than I've been at the company and so we are talking to Walmart. We do have some opportunities in you know a very minimal amount of stores in fiscal 2025, but hopefully if the sale.

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Go well with that then we'll have an opportunity to expand more.

Okay. Thank you for answering my questions and congratulations on really a tremendous saw earning report.

Thank you Doug.

As a reminder, if you have a question please press star one.

Seeing that there are no further questions I would like to turn the call back over to Olivia Elliott for closing remarks.

Thank you for your continued interest in our company. We look forward to speaking with you again, when we report our fourth quarter and fiscal year 2024 results N G.

Thank you.

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

Yeah.

Yeah.

Yeah.