Crown Crafts Incorporated (NASDAQ:CRWS) announced its financial results for the Second Quarter Fiscal 2025, highlighting a slight increase in net sales but a decrease in net income compared to the previous year. The company's recent acquisition of Baby Boom Consumer Products has been a significant factor in revenue growth, contributing $3.4 million to the quarter's sales. Despite the increase in gross profit margin, net income saw a decline.
Crown Crafts remains optimistic about the integration of Baby Boom and its future impact on sales, particularly in the toddler segment with popular licensed products. The company is also looking forward to the launch of the NoJo direct-to-consumer website and the expansion at Legoland as key growth drivers.
Key Takeaways
- Net sales rose slightly to $24.5 million, up from $24.1 million in the same quarter last year.
- The acquisition of Baby Boom Consumer Products contributed $3.4 million in sales.
- Gross profit margin improved to 28.4%, up from 27.3%.
- Net income decreased to $860,000, or $0.08 per diluted share, from $1.8 million, or $0.18 per diluted share.
- The company is focused on integrating Baby Boom and expanding direct sales through their website.
- A dividend of $0.08 per share will be paid in January.
Company Outlook
- Crown Crafts aims to consolidate warehouse operations by fiscal 2026 to cut costs.
- The company is optimistic about the holiday season and the launch of NoJo's direct-to-consumer website.
- Baby Boom is expected to contribute approximately $20 million in annual sales by fiscal 2026.
- Marketing and administration costs are projected to be around 19% of sales.
Bearish Highlights
- Core legacy sales decreased by nearly 13%, with a significant decline attributed to a major retailer's destocking.
- Despite exploring alternative sourcing options, the current reliance on China presents potential tariff risks.
Bullish Highlights
- The Baby Boom acquisition is expected to enhance the toddler product segment significantly.
- There are plans to expand offerings at Legoland with new products and park openings.
- No significant shelf space losses were reported despite a sales decline.
Misses
- A retail customer in-sourced a bib program, leading to a $600,000 decline in sales.
Q&A Highlights
- Olivia Elliott emphasized the importance of the Baby Boom acquisition and its contribution to sales growth.
- Elliott confirmed that most products are sourced from China, with ongoing exploration of alternative sourcing options.
- The company will present at the Three Part Advisors IDEAS Conference on November 19.
In summary, Crown Crafts Incorporated is navigating a period of transition, with the recent acquisition of Baby Boom Consumer Products playing a crucial role in the company's strategy. While net income has seen a dip, the company is making moves to bolster future growth through strategic integration, direct-to-consumer sales, and cost reduction initiatives. The company's reliance on China for sourcing remains a point of vulnerability amidst potential tariff changes, but the overall outlook remains cautiously optimistic as Crown Crafts prepares for the upcoming holiday season and beyond.
InvestingPro Insights
Crown Crafts Incorporated's recent financial results and strategic moves align with several key insights from InvestingPro. The company's focus on dividend payments and shareholder value is reflected in InvestingPro Tips, which highlight that Crown Crafts "pays a significant dividend to shareholders" and "has maintained dividend payments for 15 consecutive years." This is particularly relevant given the company's announcement of an upcoming $0.08 per share dividend.
The company's current valuation metrics also provide interesting context to its financial performance. According to InvestingPro Data, Crown Crafts has a P/E Ratio of 10.78, suggesting it may be undervalued relative to its earnings. This could be attractive to investors, especially considering the company's recent acquisition of Baby Boom Consumer Products and its potential for future growth.
Moreover, the InvestingPro Tip indicating that Crown Crafts has "liquid assets exceed short term obligations" aligns with the company's ability to navigate the current transitional period and invest in growth initiatives like the NoJo direct-to-consumer website and expansion at Legoland.
It's worth noting that while the company faces challenges such as decreased core legacy sales and potential tariff risks from China sourcing, InvestingPro Tips suggest that the stock "generally trades with low price volatility," which may provide some stability for investors during this period of change.
For readers interested in a more comprehensive analysis, InvestingPro offers 8 additional tips for Crown Crafts, providing a deeper dive into the company's financial health and market position.
Full transcript - Crown Crafts Inc (CRWS) Q2 2025:
Operator: Good day and welcome to the Crown Crafts Incorporated Second Quarter Fiscal 2025 Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. 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 Crown Crafts' second quarter fiscal 2025 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 their second quarter fiscal 2025 financial results. A copy of the release is available on the company's website crowncrafts.com. 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 Crown Crafts's control and 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.
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. The highlight of the quarter was our purchase of the assets of Baby Boom Consumer Products, which positively contributed to our bottom line. 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. The Baby Boom acquisition comes at a potential positive inflection point for customer demand just as we head into our most important selling season. 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. 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.
Craig Demarest: Thank you, Olivia. Good morning everyone. Net sales for the second quarter of fiscal 2025 were $24.5 million, up from $24.1 million in the prior year quarter. 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. Gross profit for the quarter was 28.4%, improved from 27.3% a year earlier. The profit increase reflects a slight change in product mix, partially offset by higher lease costs for our warehouse in California. We're actively evaluating our footprint and look to reduce the associated expense through strategic consolidation in fiscal 2026. 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% of net sales in the prior year quarter to 22.3%. More than half of the increase, or $788,000, relates to costs associated with the Baby Boom acquisition. 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. 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 2024. Borrowings on our revolver at the end of the quarter were $20.8 million compared to $8.1 million at the end of fiscal 2024, reflecting amounts borrowed in the second quarter to fund the Baby Boom acquisition. The acquisition closed on July 19 for a total purchase price of $18 million, or $16.4 million after adjustments for working capital at closing. 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 million to $40 million. 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. Finally, we paid our long-standing regular dividend of $0.08 per share and declared our next dividend, which will be paid in January. Now I'll turn the call back over to Olivia for additional comments.
Olivia Elliott: Thank you, Craig. We're optimistic about the upcoming holiday season and the opportunity to drive higher revenues. For one, we've now owned Baby Boom for approximately four months and have made significant progress integrating the brand into NoJo. In addition, we have several Manhattan Toy products in Walmart (NYSE:WMT) and will continue to pursue additional cross-selling opportunities among Manhattan Toy, Baby Boom and our legacy brands. As Craig mentioned, we continue to strategically evaluate warehouse options and expect we can achieve consolidation sometime in fiscal 2026. 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. 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?
Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Doug Ruth of Lenox Financial Services. Go ahead please.
Doug Ruth: Congratulations on the higher revenue and the improved gross margin.
Olivia Elliott: Thank you, Doug.
Doug Ruth: 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 hit previously told us that you thought you might be able to narrow down the choices from maybe three to one to two by three thirty one twenty five. Just curious any kind of update on that?
Olivia Elliott: 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 we'll have it narrowed down to at least two, hopefully one by the end of the fiscal year.
Doug Ruth: 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?
Olivia Elliott: 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 are doing very well.
Doug Ruth: Okay. And then previously you had told us about the trying to improve the Manhattan Toy margins. How has that been working?
Olivia Elliott: They're improving. 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.
Doug Ruth: 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, wonderful job with that.
Olivia Elliott: 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.
Doug Ruth: Okay, and then what about the using your Sassy toy distributor in Europe to distribute some of the Manhattan Toys in Europe? Is there any progress on that?
Olivia Elliott: 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.
Doug Ruth: 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.
Olivia Elliott: Yes. And so we're utilizing kind of crossing the Manhattan Toy and Sassy teams. So they're working on all of the products, and we think that we're getting some very good new products being developed.
Doug Ruth: Okay. Then shifting to the Baby Boom, can you give us some feedback? You have the four licenses, Bluey, Cocomelon, Ms. Rachel, and Paw Patrol. Is there any one that seems to be doing quite a bit better than another?
Olivia Elliott: 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. Ms. 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 process.
Doug Ruth: What is the product for Ms. Rachel?
Olivia Elliott: It's the toddler bedding.
Doug Ruth: Okay.
Olivia Elliott: Little bedding sets, and some blankets, squishy pillows, that type of thing.
Doug Ruth: Yes. 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?
Olivia Elliott: 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 be shipping that now and then.
Doug Ruth: And then, can you talk a little bit about the diaper bags and what's specifically happening with that business?
Olivia Elliott: 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 residing in the [indiscernible] offices in kind of a little carved out area. And so that team came with the acquisition 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 is a lot of opportunity there.
Doug Ruth: Okay. And are you pleased with the efforts of the people there and what they're doing for the company?
Olivia Elliott: Yes, absolutely.
Doug Ruth: Okay. 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?
Olivia Elliott: Yes. And so 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.
Doug Ruth: Okay. I got two more questions. How about the direct-to-consumer business? Is there any update on that?
Olivia Elliott: Yes. And so we're hoping to have NoJo’s website up and running, selling direct-to-consumer before the holidays. And we are working fast and furiously to get Sassy Babies up and running and ready to go.
Doug Ruth: Okay, and then the last thing was, sort of your last comment was what does this strategic process that you are talking about for 2026? Could you offer any additional comments there?
Olivia Elliott: 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.
Doug Ruth: 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.
Olivia Elliott: Thank you.
Doug Ruth: Thank you both.
Operator: Our next question comes from John Deysher of Pinnacle. Go ahead, please.
John Deysher: Good morning. Solid quarter.
Olivia Elliott: Good morning.
John Deysher: Good morning. A couple questions. One, Baby Boom, you said in the press release when you bought it that you expected sales 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?
Olivia Elliott: 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.
John Deysher: Okay. You're so confident there. And on the marketing and administration 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?
Olivia Elliott: I mean, 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.
John Deysher: Okay, so 19% of sales, that's reasonable; 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 we'll have a better idea as to what the footprint looks like?
Olivia Elliott: Yes, I think that's a likely option.
John Deysher: Okay. All right, good. I think that does it for me. Thank you very much.
Olivia Elliott: Thank you.
Operator: The next question comes from Dennis Scannell of Rutabaga Capital. Go ahead, please.
Dennis Scannell: Yes, good morning, Olivia and Craig. Just a couple questions for me...
Olivia Elliott: Good morning.
Dennis Scannell: Good morning. So just a couple quick things for me. So Baby Boom contributed $3.4 million in sales, so that's about 14% of your sales growth. So core legacy sales down around 13%, gets a little less than 13%, so about how much of that was that bib program that one of your retail customers decided to in-source versus just kind of legacy products?
Olivia Elliott: That was about $600,000.
Dennis Scannell: Okay, so a portion of it but not all. Anything else you can say about the sales decline? I definitely hear the note of optimism with the rate decreases and perhaps a turn in consumer confidence. But anything else going on in that sales decline either in terms of particular customers destocking or losing shelf space, anything of that nature?
Olivia Elliott: 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. 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.
Dennis Scannell: Yes. Okay. Thank you. One other quick thing with the change in administration, again, it's a little early to tell exactly what the new administration will be doing, but 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?
Olivia Elliott: Almost everything comes from China. And we've looked at other countries, we've tried to move some products, but at the end of the day it is so far still been very much better costing coming from China. The costs are better, the infrastructure is better, 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, 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.
Dennis Scannell: Yes, right. And 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?
Olivia Elliott: 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.
Dennis Scannell: Yes, fair enough. Great. Okay. Thanks a lot. Good luck.
Olivia Elliott: Thank you.
Craig Demarest: Thanks.
Operator: [Operator Instructions] 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.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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