Crown Crafts, Inc.

Good morning, and welcome to the Crown Crafts second quarter fiscal year 2023 conference call. All participants will be in a listen-only mode. Should you need any assistance today, please signal a conference specialist by pressing the star key followed by zero. 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 a question, please press star, then two. Please note this event is being recorded. I would now like to return the conference over to Craig Demarest, Vice President and Chief Financial Officer. Please go ahead, sir.

Thank you, Joe. Welcome to the Crown Crafts Investor Conference call for the second quarter of fiscal year 2023. With me today is Olivia Elliott, the company's President and Chief Executive Officer. A telephone replay of this call will be available one hour after the end of the call through 4 p.m. Central Time on February 16th. also a web replay of this call will be available for 90 days and can be accessed by visiting our website at www.crowncrafts.com. Before we begin, I would like to remind listeners of the cautionary language regarding forward-looking statements contained in the press release. That same language applies to comments made in today's conference call. I will now turn the call over to Olivia.

Thank you, Craig. Good morning and thank you for joining us for our second quarter fiscal year 2023 conference call. As expected, the current macroeconomic challenges related to inflation and excess inventories at our retailers continue to impact us in the second quarter. However, our balance sheet remains strong and we believe that we are well positioned to withstand the current headwinds and take advantage of future growth opportunities when the markets return to more normal conditions. Looking at the second quarter results at a high level, second quarter net sales were 18.7 million, down from 20.2 million last year. Year-to-date net sales were 34.4 million, down from 38.9 million last year. Multiple forces in the marketplace have contributed to the sales decline. After experiencing empty shelves during the 2021 holiday season due to port congestion, Retailers responded by building up their inventory levels during the first calendar quarter of 2022, resulting in an over inventory situation by late spring. This situation has been exacerbated by a change in consumer buying patterns, whereby many consumers are now trading down to lower priced items, buying fewer items, or foregoing some items altogether due to inflationary concerns. It's important to note that we have maintained our overall shelf space at our retailers, and our partnerships with them remain strong. Second quarter net income was $2 million or 20 cents per diluted share compared with $2.4 million or 24 cents per diluted share last year. Year-to-date net income was $3.5 million or 34 cents per diluted share compared with $5.1 million or 50 cents per diluted share last year. Prior year-to-date net income included an almost $2 million gain of forgiveness of our Paycheck Protection Program loan and a $795,000 net loss related to carousel designs. Excluding the impact of the loan forgiveness and carousel designs, prior year-to-date net income would have been $3.9 million or $0.38 per diluted share. For the current year, we continue to see increased costs throughout the supply chain, which we pass along to our customers whenever we can. The good news is that these costs have somewhat stabilized over the past several months. On the balance sheet side, we finished the quarter with $2.3 million in cash and no borrowings on our revolving line of credit. Our inventory remains high at $27.7 million at the end of the quarter, compared with $24.2 million at the end of September 2021. This is due primarily to the market trends mentioned earlier. We continue to be diligent in managing inventory, which is mostly current in-line products. However, in order to move some inventory to make room for some new programs, we may need to provide higher than normal discounts to retailers. We hope to see closer to normal levels by the end of the fiscal year. We also announced that our Board of Directors declared an $0.08 per share cash dividend on the company's common stock that will be paid on January 6, 2023 to shareholders of record at the close of business on December 16, 2022. This represents an annualized yield of 5.4% based on yesterday's closing price. We're very pleased that our balance sheet remains strong and we can continue to reward our stockholders with an attractive dividend. As I mentioned during last quarter's conference call, we're excited about our long-term opportunities and we're moving forward with our strategic plan, which includes expanding in the toy category, growing our product offerings both organically and through acquisition, increasing our direct sales to consumers, and making further investments to enhance our technology and improve our organizational structure. At the same time, we're managing our business to maximize profitability in the face of current challenges. I'll now turn the call over to Craig.