Crown Crafts, Inc.

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 today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to John Beisler 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 their third quarter fiscal 2024 results. A copy of this 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 Crowncraft'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.

Thank you, John, and good morning, everyone. Our third quarter results reflect meaningful top and bottom line improvement. We saw our gross margin return 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. As 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 impact 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 in yesterday's 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 out the opening of more stores. Bye-Bye Baby's goal to open 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 a great benefit, giving us additional physical locations for consumers to get a firsthand look and feel for our products, particularly our higher-end infant bedding offerings. We also continue to work with other specialty retailers to add our products to their shelves. 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 23. Compared to the same period last year, NOJO and SASE 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 olivian good morning everyone net sales for the third quarter of fiscal 24 increased approximately 25 percent to 23.8 million compared to 19 million in the prior year quarter the increase is 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 faced the economic pressures that Olivia mentioned. Gross profit for the quarter was 27 percent compared to 23.7 percent in the third quarter of fiscal 23 as margins have returned to historical levels and consistent with year-to-date margins. 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 compared to net income of 1.3 million or 13 cents per diluted share in the prior year quarter. Turning down our balance sheet, cash and cash equivalents at the end of the third quarter, were 683,000 compared to 1.7 million at the end of fiscal 23. Borrowings on our revolver at the end of the quarter were 10 million compared to 12.7 million at the end of fiscal 23. And finally, we paid our regular quarterly dividend of 8 cents 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 2024, 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 SASE 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 2023. 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 make sense, and we continue to look at additional acquisition opportunities that expand or complement our existing portfolios. Selling direct to consumers has remained challenging, given the significant upfront spending to build out the website, followed by advertising of the brand. 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 our Nojo brand is ready to launch its own website. The remainder of the plan is centered on implementing operating cost efficiencies and investing in technology and our organizational structures. Our company has a long track record of holding expenses in line, and we will continue to run the business with this 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 improves. We believe the long-term prospects of the company remain favorable, as evident by our long-standing track record and dividends, 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 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. The first question comes from Doug Ruth of Lenox Financial Services. Please go ahead.

Olivia and Craig, congratulations. A very good report. A couple questions for you. Can you talk about, are you having any success lowering the Manhattan Toy manufacturing cost?

Yes, actually, we are. So, I mean, we kind of went into this with a look at everything from the first cost to freight, pretty much everything across the whole manufacturing channel. We've managed to get some decreases.

Is there more to come, do you think?

We are always trying. So, I mean, we're pushing 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 decreases.

Okay. And my understanding is that you are considering the possibility of combining warehouses. Maybe 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, you know, it's a pretty big commitment, and, you know, it takes some time because when we do make a move, 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 we're looking at that on the front end right now, and hopefully we'll have a solution within the next 18 months or so.

Okay, very good. And my final question, can you give us a little bit more color on the relationship with Walmart, and is it possible that maybe Manhattan Toy might be able to get into Walmart maybe in fiscal 2025? Yes. Anything you could share is appreciated.

So, yes, we've got a very good relationship with Walmart. Sassy and Nojo have 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 sales go well with that, then we'll have an opportunity to expand more.

Thank you for answering my questions, and congratulations. It's really a tremendous earning report.

Thank you, Doug.

As a reminder, if you have a question, please press star 1. 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 in June. Thank you.

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