Q3 2025 Crown Crafts Inc Earnings Call
Good day, everyone and welcome to the Crown Crafts incorporated third quarter fiscal 2025 conference call.
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Speaker Change: At this time I'd like to turn the conference call over to John Butler.
Speaker Change: With three part advisors, the company's Investor Relations firm. Please go ahead.
Speaker Change: Thank you Jamie and good morning, everyone. We appreciate you joining us for the Crown Crafts third quarter fiscal 2025 conference call.
Speaker Change: Joining me on the call. This morning are crown crafts, President and CEO, Olivia Elliott and the company's CFO Craig divorce.
Speaker Change: Earlier today, the Chromecast filed its Form 10-Q and issued a press release regarding the third quarter of fiscal 2025 financial results.
Speaker Change: Copy of this release is available on the company's website crown crafts Dot com.
Speaker Change: During today's call the company will make certain forward looking statements actual results may differ materially from those expressed or implied.
Speaker Change: These statements are subject to risks and uncertainties that may be beyond crown crafts control in the company is under no obligation to update these statements.
Speaker Change: 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.
Speaker Change: 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.
Speaker Change: Now I would like to turn the call over to the President and CEO Olivia Elliott.
Olivia Elliott: Thank you John Good morning, everyone and thank you for joining today's call.
Olivia Elliott: Our third quarter results reflect our ability to generate cash flow and profitability. During this challenging period of economic uncertainty.
Olivia Elliott: In spite of the headwinds we have continued to face this fiscal year. Our team has remained focused on delivering strong operating cash flow and proactively managing our controllable expenses. We also continued to refresh some of our categories and develop new products. So that we are well positioned to capitalize on future growth when consumers are ready to.
Olivia Elliott: And more on discretionary items.
Olivia Elliott: During the quarter, we completed the integration of our most recent acquisition, which we are excited to report added $3 8 million in sales. This quarter, we remain optimistic about the future of these product categories, including diaper bags, which are a new category for us.
Olivia Elliott: With that I'd like to turn it over to Craig to cover the financials in more detail then I will stop what with additional comments before taking questions.
Craig: Thank you Olivia and good morning, everyone net sales for the third quarter of fiscal 'twenty five were $23 3 million compared to $23 8 million in the prior year quarter.
Craig: The decrease was primarily attributable to lower online toy sales in the loss in November of 'twenty three.
Craig: Good program at a major retailer. This was partially offset by the addition of the $3 8 million in net sales related to the baby boom, which we acquired in the second quarter of this fiscal year.
Craig: Gross profit for the quarter was 26, 1% compared to 27% in the third quarter of fiscal 'twenty for.
Craig: The margin decrease can be attributed to slight changes in product mix together with higher lease costs for our warehouse in California.
Craig: We continue to evaluate our footprint and look to reduce our warehousing costs through strategic consolidation in fiscal 'twenty six.
Craig: Our third quarter marketing and administrative expenses were $4 4 million compared to $4 1 million in the prior year quarter.
Craig: Increase is primarily related to expenses associated with the purchase of baby boom.
Craig: Including 186000 in acquisition related costs interest expense for the quarter increased 183000 from the prior year quarter due to the higher borrowings related to the baby boom acquisition.
Craig: Net income for the quarter was 893000 or nine cents per diluted share compared to net income of $1 7 million or <unk> 17 cents per diluted diluted share in the prior year quarter.
Craig: Turning now to our balance sheet, we remain in a strong financial position as cash and cash equivalents at the end of the third quarter were 1.1 million compared to 829000 at the end of fiscal 'twenty for borrowing.
Craig: Borrowings under our credit facility at the end of the quarter with 20.9 million compared to $8 1 million.
Craig: At the end of fiscal 'twenty, four reflecting amounts borrowed in the second quarter to fund the baby boom acquisition.
Craig: Year to date through the end of the third quarter cash flow from operations was $7 million compared to $4 1 million in the same period last year.
Craig: We expect to use our cash flow to repay our borrowings. However is always our debt balance may fluctuate from quarter to quarter due to the timing of inventory purchases and other working capital needs.
Craig: Our inventory balance has declined from $34 9 million in December of 23 to $32 4 million in December of 'twenty, four even with the inventory added in the baby boom acquisition.
Craig: Finally, we paid a regular quarterly dividend of <unk> per share and declared our next dividend, which will be paid in April.
Craig: Now I'll turn the call back over to Olivia for additional comments. Thank you Greg.
Craig: Go ahead, our focus is on growing the top line, while maintaining our cost discipline. In addition to refreshing our high end toy and diaper bag line acquired over the past couple of years. Our product development teams are also focused on new products to complement our current categories.
Craig: We're monitoring the ongoing updates out of Washington regarding tariffs, particularly as it pertains to announce 10% on Chinese imports, where virtually all of our products are made and.
Craig: China remains our best sourcing option, we will need to work with our suppliers to absorb the increase and consider price increases we continue to review potential locations to relocate our warehouse after visiting three locations, we've narrowed that down to change and continue to evaluate the financial profiles of each.
Craig: Overall, we remain well positioned to navigate the current economy, while preparing our brands to perform as conditions improve.
Craig: Our balance sheet is strong and we were able to effectively manage our borrowings and continue to pay our dividends through operating cash flows which stands as a key component in our strategy to deliver long term value to our shareholders.
Craig: With that I'd like to open up the line for questions Jamie.
Speaker Change: Ladies and gentlemen at this time, we'll begin the question and answer session to ask a question you May Press Star and then one using a touchtone telephone to withdraw. Your question you May Press Star then two.
Speaker Change: You are using a speaker phone, we do ask that you. Please pick up the handset prior to pressing the keys to ensure the best sound quality.
Speaker Change: Once again that is star and then one to join the question queue.
Speaker Change: We will pause momentarily to assemble the roster.
Speaker Change: And our first question today comes from Doug Ruth from Lenox Financial services. Please go ahead with your question.
Doug Ruth: Good morning, Olivia and Craig Thank you for hosting the conference call today.
Speaker Change: Could you more on that.
Speaker Change: Could you give us a little more color in and tell us how now that you've got the warehouse possibilities down to two could you tell us some of the things that you're seeing or some of the things that you're thinking about how you will ultimately make the decision on what town the locate the warehouse.
Speaker Change: I know a big part of the.
Speaker Change: Consideration is going to obviously be cost that being said, we need to look at lead times.
Speaker Change: One of our our final options is closer to the West Coast and one is closer to the east coast and while you may save a little bit more and the lease costs go into the east coast.
Speaker Change: The cost to get the goods all the way across the country is gonna be higher it's going to take longer and there's also a bigger impact should freight rates go up on the downside. So you know we're looking at the whole big picture for the most part all the warehouses look exactly the same.
Speaker Change: We're mainly focused on the location and you know any type of tech.
Speaker Change: Technology that we may want to put into the warehouses can be done at either location.
Speaker Change: Are you like leading a leaning towards one location over another or your.
Speaker Change: Totally undecided at this point.
Speaker Change: I'm, probably leaning a little bit towards the west coast location, just from the overall package that yeah, we're still trying to get all of the information together and get the actual quotes for the locations that we were specifically looking at.
Speaker Change: Okay.
Speaker Change: Now changing or could you give us an update on the diaper bag business and some of the some of the.
Speaker Change: Is that your you're focused on.
Speaker Change: Sure. So we you know we've had some really good meetings with both some some potential new license the worst for diaper bags. It seems to be a category that a lot of people are interested and we've also had some good meetings with the retailers. We've done some some what I think are very.
Speaker Change: Three oh good designs from some refresh.
Speaker Change: Silhouettes, some refresh logs.
Speaker Change: You know I think we've got a great deck that we've been showing and we're hoping to get some some.
Speaker Change: Some new placement in that that we won't be until 2026, because most of the lines for 2025 had already been placed by the time, we did the acquisition in July. So I think we've got a good opportunity coming in the next year or so to pick up some placement.
Speaker Change: Now you had talked about al Bolles.
Speaker Change: Potentially both domestic and international is that still what you're thinking that there there's opportunities in both places.
Speaker Change: Yeah, I think there's opportunities in both places we're focusing on domestic first because we think that's a bigger opportunity, but yet we can do better.
Speaker Change: Okay, and what's the status of man he had in Hawaii, how how are the holiday sales and I mean anything you can share with US and then also the placement through Walmart.
Speaker Change: So I'll take the easy one first the placement at Walmart is doing well.
Speaker Change: We expect to keep that placement and Walmart at least for another year. We found that out. So we think we we still think we have opportunities to get more placements. So we think that's going well yeah.
Speaker Change: The holiday sales were disappointing that's where we saw the biggest decline in sales was at the Manhattan Toy brand.
Speaker Change: We think that most people were trading down to two maybe the.
Speaker Change: Less extensive lines of toys at it it just didn't go go as well as it it had the year before so that's where I think our biggest disappointment was for this holiday season that being said we continue to develop new products. We you know we think that we've done a really good job of refreshing that we've had.
Speaker Change: Positive.
Speaker Change: I guess.
Speaker Change: So.
Speaker Change: The customer itself the retailers the specialty stores et cetera. They they have positive things to say about about the new developments. So you know I think there's still an opportunity there. It just didn't come this holiday season.
Speaker Change: Okay and worried about the working with the distributor overseas for the band together in Hawaii.
Speaker Change: Has that been effective for the company.
Speaker Change: Yes, and so what we you know we closed the London office and we've gone strictly to a distributor system based in on the international front and yes. Our distributors have had you know most of them are picking up some of the Manhattan toy sales and so that that's definitely a bigger opportunity to continue to grab.
Speaker Change: Okay, and what about what's the relationship what's happening with cycle land at this point.
Speaker Change: Lego land continues to grow they're you know they're building new new parks I think they respect this Shanghai Park to open here and 2025 and so we.
Speaker Change: Continue to grow there.
Speaker Change: Yeah, we're we're the fourth quarter sales up at like a land.
Speaker Change: So a lot of the Lego land parks are closed for the winter. So you'd have a couple of the ones in the U S. I think Florida, and California to stay open during the winter season, but the rest of them are closed. They I think they opened mainly April to October.
Speaker Change: Okay I have a few more questions, but maybe I could let somebody else yes.
Speaker Change: There are some questions I can come back for some more.
Speaker Change: Okay.
Speaker Change: [laughter].
Speaker Change: Your next question comes from John <unk> from Pinnacle. Please go ahead with your question.
John Butler: Good morning, everyone I just have a.
Speaker Change: A quick question on the real estate.
Speaker Change: I just wanted to confirm when the various leases are expiring.
Speaker Change: I understand the content lease expires in June of 'twenty eight.
Speaker Change: The Minneapolis headquarters expires June of 'twenty seven.
Speaker Change: He didn't belly warehouse expires June of 'twenty six.
Speaker Change: Are all those correct.
Speaker Change: And I believe the Minneapolis at March of 'twenty, seven, but yeah, that's close to in valley and the kinds of things are correct choosing twenty-six Compton is definitely the June quarter of 2008, you write that all of us wanted.
Speaker Change: Okay.
Speaker Change: Yeah, Okay, so theyre all pretty close.
Speaker Change: I mean, given that even valley was going to expire.
Speaker Change: You know in about.
Speaker Change: So you're in a quarter or so it sounds like youre going to be making a decision on the new.
Speaker Change: New warehouse pretty soon.
Speaker Change: Yes, I think we'll make a decision on the final location pretty soon.
Speaker Change:
We'll have to sublease and Comped and in the meantime, so we're gonna have to get the timing right and if for whatever reason the Eden Valley warehouse expires before we are ready we will.
Speaker Change: It takes some kind of interim step we're thinking through that process, but it could be that we moved does go ahead and move those goods to the final location, but he's a three PL temporarily until the warehouses ready so.
Speaker Change: So it's kind of a balancing act that we're working through.
Speaker Change: Right I understand.
Speaker Change: Is it fair to say we might no bi.
Speaker Change: Your fiscal year end.
Speaker Change: What's the decisions.
Speaker Change: Alrighty.
Speaker Change: Okay.
Speaker Change: I mean, if not gene by August I think we'll be able to tell you the final location.
Speaker Change: Okay, there's no midyear.
Speaker Change: And what about the Minneapolis headquarters were.
Speaker Change: What's that transition going to be.
Speaker Change: We need to get into a smaller space. It was too big for the personnel that was there on the date of acquisition certainly too big for for what we have now and so you know we were working to try to come up with a solution to downsize.
Speaker Change: Sooner rather than later, but that didn't really work out. So you know we're stuck there until the lease runs out but we won't go back into that particular location, we could get a much smaller less expensive location and quite frankly out of downtown maybe on the outskirts.
Speaker Change: Okay, but you're going to keep it at Minneapolis, we're not going to move everybody to Gonzales.
Speaker Change: Yeah, we won't lose everybody begins atlas it'll be a small office, but we'll need to keep building.
Speaker Change: Okay alright good.
Speaker Change: I think that was it thank you for your answers.
Speaker Change: Thank you. Thank you.
Speaker Change: And our next question is a follow up from Doug Ruth from Lenox. Please go ahead with your follow up.
Doug Ruth: Okay, you had talked about developing some new toys is there any certain toy that you have in development that you're especially excited about.
Speaker Change:
Speaker Change: Well on the toy side, specifically I think we're really excited about the new Dol on that is actually starting to ship now we redesign the stellar program and we think that it's going to be.
Speaker Change: A better option for specifically in the specialty store side, and then you know mostly on the toy side, if you're looking at Manhattan toy really just still refreshing a lot and there's only so many many new new products that you can develop and get into production each year. So we're still working on.
Speaker Change: Just the overall refresh of those.
Speaker Change: Those products SaaS. He just continues to tab.
Speaker Change: Knock it out of the ballpark and everything we develop is is really.
Speaker Change: Really working out well.
Speaker Change: What is it specifically about the stellar Dol that you are selling.
Selling point do you think.
Speaker Change: So I mean, the biggest thing is is that there was there were two sizes of dolls there was.
Speaker Change: I forget what the second one is but one of them was smaller than the <unk>.
Other one and the price differential with was pretty great on it and so everybody stopped buying a bigger dollar started getting the smaller Dol.
Speaker Change: And so what we've done is we've just refresh.
Speaker Change: Really really the size of the dolls and yeah, we've moved manufacturing facilities and so that we can hit the price point better.
Speaker Change: So the difference.
Speaker Change: The difference in price between the bigger Dol and it's all the smaller dollar is not as great. So, possibly you saw more of the bigger dolls.
Speaker Change: Well what happened in that case was the Donald's look the same except for they were two different sides of it so everybody traded down to the smaller side and so we're still going to have two separate Dol, but where we're gearing them mainly one is the baby's first style and it's more of an infant doll. It doesn't have removable close it doesn't have hair.
Speaker Change: And then you kind of grow into the next size doll as you become a toddler said, we've differentiated the docs more.
Speaker Change: Okay.
Speaker Change: Right now I I noticed quite a quite a change in the marketing expense.
Speaker Change: For you know in the third quarter do you did you feel like the AD spend was approximately at the right level now.
Speaker Change: The third quarter this year versus third quarter last year, yes, yeah. It it looked like the marketing expense was all with lower if I'm, if I read that correctly.
Speaker Change: No, it's actually up a little bit and it's mostly the difference is mostly going to be.
Speaker Change: The continued integration costs for her baby boom, otherwise marketing expenses were flat.
Speaker Change: I misspoke I meant I meant the advertising expense I'm sorry.
Speaker Change: Our.
Speaker Change: No I think we're gonna have to spend a little bit more on advertising to drive those online sales.
Boy that probably weren't where we missed the mark the most is when.
Speaker Change: When we first acquired Manhattan toy advertising costs were more than the sale and so we pulled back.
Speaker Change: On the those that spend and I think we've pulled back too far so I think in order to drive higher sales online, we're going to have to do some more spend.
Speaker Change: Got you.
Speaker Change: Explained previously that this was sort of an experiment and you were so.
Speaker Change: Possibly if you if if you would have spent more possibly the man he had been poised sales might've been higher than than they than they actually were.
Speaker Change: I think it's it's likely yes, okay.
Speaker Change: And then when you talk about just the big picture.
Speaker Change: What Troy.
Speaker Change: Like on an annual basis, what should the marketing and administrative expenses, what should that be as a percent of revenue.
Speaker Change: That's something we're probably not going to answer because we just don't forecast.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change:
Speaker Change: How about you know when we when we talk about the one large category bibs toys or disposables.
Speaker Change:
Speaker Change: What was most of the decline then in the.
Speaker Change: Do you have.
Speaker Change: Are you able to provide any kind of additional breakdown of the decline from from the three different categories.
Speaker Change: So the decline in bibs toys, and disposables was primarily the Manhattan toys. We also had a small part of the decline was going to be the last bit of run out for the loss of the target that program that we lost in November of 'twenty three.
Speaker Change: So Q3 of last fiscal year had about half of the quarter had been sales, whereas this year, we had none for that one customer, but the vast majority of it was the Manhattan toy brightness.
Speaker Change: Okay.
Speaker Change: I I think that you folks are doing a terrific job I liked the progression of what's happening with the warehouse.
Speaker Change: I really appreciate the care that you're taking for the shareholders.
Speaker Change: It's all really trying to make the best decision that you can to get the to get the right location for you know for the warehouse.
Speaker Change: I'm very grateful for what you're doing there for the shareholders.
Speaker Change: Thank you Doug Thanks, Okay that that's.
Speaker Change: That's at the end of my questions. Thank you.
Speaker Change: Thanks.
Speaker Change: And our next question is another follow up from John <unk> from Pinnacle. Please go ahead with your follow up.
John Butler: Hi, good morning.
John Butler: One regarding the tariffs.
John Butler: 10% increase I guess.
John Butler: What does that go into effect and I guess.
John Butler: What measures you're taking to.
John Butler: You can offset that or a shirt with vendors are.
John Butler: What are the options.
John Butler: So it goes into effect pretty much immediately actually our initial conversations with our suppliers out of China.
John Butler: Indicates that we're probably going to be able to roll back prices are you know our initial first cost purchase prices out of China enough to cover the vast majority of it so.
John Butler: Wow you know we may have to raise some prices to our retailers to a small degree depending on category depending on supplier we.
John Butler: We are hopeful that we can minimize the impact to our customers into the consumer.
John Butler: And it feels like that that's really a unlikely option based on our initial conversations with suppliers.
John Butler: Okay. Good that's occurred when will that go into effect, one way or the other then.
John Butler: The rollback of the purchase prices.
John Butler: Hum.
John Butler: Immediately so I mean, we we need to have those rollbacks at you know pretty much concurrent with the increase in the tariffs.
John Butler: So yeah, there may be some some product that was already in either on the ocean or something that was already in production that we may not be able to roll back that quickly, but you know oftentimes we do say, yes look you've got a lower the price on what's already in production, but certainly for any new production.
John Butler: Right, but do you agree.
Speaker Change: The agreements in writing at this point.
Speaker Change: We don't actually have agreements with our suppliers, it's on a po by Po basis, which makes it much easier to change you know as soon as possible.
Speaker Change: Okay.
Speaker Change: You submitted.
Speaker Change: Recently I've been okayed by the lenders.
Speaker Change: Well, we havent submitted any with the new lower prices, but we can I mean, absolutely. We can go back and change the prices we've done it before.
Okay.
Speaker Change: Right.
Speaker Change: Okay.
Speaker Change: That's fine it sounds like it's a work in process at this point, yes, absolutely, it's kind of an ever changing here for the past couple of weeks.
Speaker Change: Right Okay.
Speaker Change: Okay, Great I appreciate it good luck.
Speaker Change: Thank you thanks.
Speaker Change: And ladies and gentlemen, with that we'll be concluding today's question and answer session.
Speaker Change: At this time I'd like to turn the floor back over to Olivia Elliott for any closing remarks.
Olivia Elliott: Thank you Jamie. 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 2025 results in June.
Olivia Elliott: And ladies and gentlemen, with that we'll conclude today's conference call and presentation. We do thank you for joining you may now disconnect your lines.
Olivia Elliott: Yeah.
Olivia Elliott: [music].