Q2 2025 Crown Crafts Inc Earnings Call
Speaker Change: Good day and welcome to the Crown Craft Incorporated second quarter fiscal 2025 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions.
Speaker Change: To ask a question, you may press star then 1 on your telephone keypad.
Speaker Change: To withdraw your question, please press star then 2. Please note this event is being recorded.
Speaker Change: I would now like to turn the conference over to John Beisler with three part advisors, the company's investor relations firm. Please go ahead.
John Beisler: Thank you, Cindy, and good morning, everyone. We appreciate you for joining us for the CrownCraft's second quarter fiscal 2025 conference call.
John Beisler: Joining me today are Crown Cross President and CEO Olivia Elliott and the company's CFO Craig Demarest.
John Beisler: 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 beyond Crowncraft's control, and the company is under no obligation to update these statements.
John Beisler: 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.
John Beisler: 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.
Olivia Elliott: Thank you John and good morning everyone. We're pleased to report our second quarter results which reflect a favorable contribution from our recent acquisition of Baby Boom Assets. A solid overall gross profit and continued strong execution as we await a stronger macro environment.
Olivia Elliott: The highlight of the quarter was our purchase of the assets of Baby Boom Consumer Products, which positively contributed to our bottom line.
Olivia Elliott: We're excited about the addition of Baby Boom's portfolio of branded and licensed products that enhances our presence in the toddler segment and further extends our product offerings with the addition of diaper bags.
Olivia Elliott: The baby boom acquisition comes at a potential positive inflection point for customer demand just as we head into our most important selling season.
Olivia Elliott: Interest rate cuts and lower inflation are adding to consumer purchasing power. And just this past Friday, the University of Michigan's Consumer Sentiment Index climbed to its highest level since April.
Olivia Elliott: Looking ahead, we're confident in our forward trajectory. Before I share more on our strategy and outlook, I'll turn it over to Craig to cover our solid second quarter results in more detail.
Thank you, Olivia. Good morning, everyone.
Craig Demarest: Net sales for the second quarter of fiscal 25 were $24.5 million.
up from $24.1 million in the prior year quarter.
Craig Demarest: The increase is primarily attributable to the addition of Baby Boom, which added $3.4 million of net sales in the current year quarter and was largely offset by declines in our legacy businesses, including the previously discussed loss of a bid program at a major retailer.
Craig Demarest: Gross profit for the quarter was 28.4%, improved from 27.3% a year earlier.
Craig Demarest: The profit increase reflects a slight change in product mix partially offset by higher lease costs for our warehouse in California.
Craig Demarest: We're actively evaluating our footprint and look to reduce the associated expense through strategic consolidation in fiscal 2026.
Craig Demarest: Our second quarter marketing and administrative expenses were $5.4 million, up $1.4 million from the prior year quarter, and increased from 16.7 percent of net sales in the prior year quarter to 22.3 percent.
Craig Demarest: More than half of the increase, or $788,000, relates to costs associated with the Baby Boom acquisition.
Craig Demarest: Net income for the quarter was $860,000 or $0.08 per diluted share compared to net income of $1.8 million or $0.18 per diluted share in the prior year quarter.
Craig Demarest: Turning now to our balance sheet, we remain in a strong financial position as cash and cash equivalents at the end of the second quarter were $2 million up from $1.1 million at the end of the first quarter and $829,000 at the end of fiscal 24.
Craig Demarest: borrowings on our revolver at the end of the quarter or 20.8 million compared to 8.1 million at the end of fiscal 24 reflecting amounts borrowed in the second quarter to fund the baby boom acquisition.
Craig Demarest: The acquisition closed on July 19th for a total purchase price of $18 million or $16.4 million after adjustments for working capital at closing.
Craig Demarest: We funded the purchase through an $8 million four-year term loan and available borrowings under our revolving line of credit, which was increased from $35 to $40 million.
Craig Demarest: We expect to use our cash flow to rapidly repay our borrowings. However, as always, our debt balance may fluctuate from quarter to quarter due to the timing of inventory purchases and other working capital needs.
Craig Demarest: Finally, we paid our long-standing regular dividend of $0.08 per share and declared our next dividend, which will be paid in January.
Olivia Elliott: Now I'll turn the call back over to Olivia for additional comments. Thank you, Craig. We're optimistic about the upcoming holiday season and the opportunity to drive higher revenues.
Olivia Elliott: For one, we've now owned Baby Boom for approximately four months and have made significant progress integrating the brand into NoJo.
Olivia Elliott: In addition, we have several Manhattan Toy products in Walmart and will continue to pursue additional cross-selling opportunities among Manhattan Toy, Baby Boom, and our legacy brands.
Speaker Change: As Craig mentioned, we continue to strategically evaluate warehouse options and expect we can achieve consolidation sometime in fiscal 2026.
Speaker Change: Overall, while driving top-line growth, we will continue to actively manage our cost structure and position our business to profitably capture market share as the macro environment improves.
Speaker Change: We're as optimistic as ever about our long-term prospects and look forward to updating you on our progress next quarter. With that, I would like to open up the line for questions. Cindy?
Thank you very much.
We will now begin the question and answer session.
Speaker Change: To ask a question, you may press star then 1 on your telephone keypad.
Speaker Change: If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: If at any time your question has been addressed, and you would like to withdraw your question, please press star then 2.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Our first question comes from Doug Ruth of Lenox Financial Services. Go ahead, please.
Congratulations on the higher revenue and the improved gross margin.
Speaker Change: Thank you, Doug. You're welcome. And then I wanted to ask some questions about the warehouse first. Could you tell us the status of where you are? And you had previously told us that you thought you might be able to narrow down the choices.
Speaker Change: from maybe 3 to 1 to 2 by 331.25. Just curious, any kind of update on that?
Speaker Change: I think that's still a probability. We're currently at three locations that we're considering. We're going to go do some site visits before the holidays, well before the Christmas holidays, and hopefully, you know, we'll have it narrowed down to at least two, hopefully one, by the end of the fiscal year.
Speaker Change: Okay, that sounds positive. And then I had some questions about Manhattan Toy. You noted that you have some of the products in at Walmart and is there any feedback about the sell-through and how that's been going?
Speaker Change: Yes, so we have some of the Manhattan Toy products in what kind of Walmart considers their better area or their better stores, and so far the sell-through is doing well. I think the products are...
popular and they're doing very well.
Okay, and then previously you had told us about the
Speaker Change: trying to improve the Manhattan toy margins, and how has that been working?
Speaker Change: They're improving. You know, it takes a little bit of time because if you've already got something placed or you already have the product in the warehouse, it's hard to do that. But as we're developing new products and as we're switching manufacturers for some other products and doing new pricing, we're definitely getting improved profitability.
Speaker Change: And then, is there any feedback on the new Manhattan Toy website? I thought it looked really great. I thought that the company did a wonderful job with that.
Speaker Change: Thank you. Yes, we think it's very good. It flows better and we do think that we have a little bit more engagement when somebody comes to our website looking for products.
Okay.
Speaker Change: and then what about the using your sassy toy distributor in in Europe to distribute some of the Manhattan toys in Europe is there any progress on that?
Speaker Change: Yes, and so we had both lines together in the same booth in Germany in September, and so we're already making some progress on getting the Manhattan Toy products sold through those distributors.
Speaker Change: Wow, very good. And then what about the product development team? You seem to be very encouraged with what your team there was doing with developing new toys for Manhattan Toy.
Speaker Change: Yes, and so we're utilizing, kind of crossing the Manhattan Toy and Sassy team, so they're working on all of the products and we think that we're getting some very good new products being developed.
Okay, then shifting to the baby boom.
Speaker Change: Can you give us some feedback, you know, we have these you have the four licenses Bluey, Cocomel, and Miss Rachel, and Paw Patrol Is there is there any one that seems to be doing quite a bit better than than another?
Speaker Change: So all of the licenses are doing well. I mean, clearly Bluey is one of the most popular licenses around right now, so it's on fire. Miss Rachel is extremely popular. That product had just started coming in after we did the acquisition, but I think it looks really good and has a lot of prospects.
What is the product for Ms. Rachel?
It's the toddler bedding. Oh, okay.
Speaker Change: little bedding sets and some blankets, squishy pillows, that type of thing.
Speaker Change: Yeah, so the consumer brands did not have that or was in the process of developing it and now you folks have continued on with that. Is that what happened?
Speaker Change: Correct. I mean it was already on order. It may have just started coming in, but it had not hit any shelves yet and so we should should be shipping that now.
Speaker Change: And then can you talk a little bit about the the diaper bags and what what's specifically happening with that with that business?
Speaker Change: So Diaper Bags is new for us. We retained the design team in New Jersey and are in process of moving them to a permanent office. They were still still residing in the Batesh Group's offices in kind of a little carved out area and so that team came with the acquisition.
Speaker Change: and we're focusing heavily on growing that product line. It had shrunk a little bit prior to the acquisition, and so we want to put a lot of focus on it. It's a category that has always interested us, and so we think there's a lot of opportunity there.
Speaker Change: Are you pleased with the efforts of the people there and what they're doing for the company?
Speaker Change: Yes, absolutely. And then Legoland, you told us previously that you thought that there would be an opportunity to expand that business. Is there any update with that?
Speaker Change: Yes, and so, I mean, we've expanded not only our product, the number of products that we sell to Legoland, but we also are looking forward to, I believe it starts in 2025, they are building some new parks that should open sometime in the summer of 2025.
Speaker Change: Two more questions. How about the direct-to-consumer business? Is there any update on that?
Speaker Change: Yes, and so we're hoping to have Nojo's website up and running selling direct to consumer before the holidays and then we're working fast and furiously to get Sassy Babies up and running and ready to go.
Speaker Change: Okay, and then the last thing was, sort of your last comment, was what does this strategic process that you're talking about for 2026, could you offer any additional comments there?
Thank you. Bye bye. Bye bye.
Speaker Change: I mean, really, we're focusing heavily on just integrating the acquisitions, cost control, the warehouse. We're really not looking right now at any additional acquisitions because we need to take the time to absorb what we've already done. That being said, I mean, it wouldn't mean that we wouldn't do something possibly if it came along and we couldn't say no, but that's not our focus right now.
Speaker Change: Okay, well thank you very much for answering my questions and congratulations to you and to the team for what you're doing for the shareholders.
Thank you.
Speaker Change: Our next question comes from Dawn Dasher of Pinnacle. Go ahead, please.
Speaker Change: Good morning, solid quarter. Good morning. A couple of questions. One, baby boom, you said in the press release when you bought it that you expected sales.
Speaker Change: to be about $20 million. Are you still tracking that way? I know you've only owned it for four months, but do you still expect $20 million in sales per year?
Speaker Change: I think that's a good estimate. I mean, it won't happen in fiscal 2025 because we'll only have them eight months. That's more of an annual run rate.
Speaker Change: Okay, good. You're so confident there. And on the marketing and administration,
Speaker Change: If we take out the acquisition costs, it looks like it was about 19% of sales. Is that a reasonable run rate to use going forward, or how should we think about that?
Speaker Change: If you take out the acquisition cost, it's probably not a bad number. I mean, there was nothing else in there that was one-time. Okay, so 19% of sales, that's reasonable.
Speaker Change: That's good. And then in terms, just to make sure I understand where we are with the real estate consolidation, you're suggesting that by the time we have the fourth quarter call,
next year.
Speaker Change: We'll have a better idea as to what the footprint looks like.
Yes, I think that's a likely option.
Okay, so, okay.
Okay, all right, good.
Speaker Change: I think that does it for me. Thank you very much.
Great, thank you.
The next question comes from...
and Dennis Scanlon.
and the channel of Rutabaga Capital. Go ahead please.
Speaker Change: Good morning, Olivia and Craig. Just a couple of quick things from me. So just a couple of quick things from me.
Speaker Change: Baby boom, you know, contributed 3.4 million in sales. So that's about, you know, 14% of your sales growth. So core legacy sales down around 13%, it gets a little less than 13%. So about how much of that was...
Speaker Change: that BIP program that one of your retail customers decided to insource versus just kind of legacy products.
That was about $600,000.
Okay.
perhaps a turn in consumer confidence, but...
Speaker Change: anything else going on in that in that sales decline either in terms of particular customers destocking or you know losing shelf space anything of that nature
Speaker Change: other than the bibs we really haven't lost any other shelf space it's just that we're seeing weak point-of-sale kind of across the board it's it's
Speaker Change: There is one major retailer that is worse than others right now but for the most part it was across the board and almost across the board. Retailers and across the board.
subsidiaries and product lines.
Speaker Change: Thank you. One other quick thing with the change in administration, again it's early to
Speaker Change: a little early to tell exactly what the new administration will be doing, but...
Speaker Change: At least on the campaign trail, there was a lot of talk about tariffs, particularly high tariffs in China. Are you all, can you talk a little bit about your sourcing strategy, kind of how much of your product does come from China and how you're looking at that going forward?
Speaker Change: almost everything comes from China and you know we've we've looked at other countries we've you know we've tried to move some products but at the end of the day it is
Speaker Change: So far still been very much Better costing coming from China. It's the costs are better. The infrastructure is better You know we go to some countries And they say that they're going to give you your product and hand it off on X day And it gets handed off three weeks later
So it's just, China is still the better option.
Speaker Change: That being said, we continue to look at other places and be ready just in case there are higher tariffs that we can't pass along and other countries become more viable.
Speaker Change: Yeah, right. And, you know, just naively, it's not like your competitors are sourcing anywhere differently, right? Or is there some manufacturing here in the U.S. or Mexico or something that other competitors access?
Speaker Change: If there's any in the U.S., it is very little. I mean, we have explored Mexico. I think there's probably some of our competitors doing a little bit there. At the end of the day, we just haven't pulled the trigger and moved anything to Mexico because it's still better in China. Yep. Fair enough. Great. Okay. Thanks a lot. Good luck.
Thank you. Thanks.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to Olivia Elliott for any closing remarks.
Olivia Elliott: Thank you for your continued interest in our company. We will be participating in the Three-Part Advisors Ideas Conference in Dallas on November 19th and we look forward to speaking with you again when we report our third quarter results in February. Thank you.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.