Crown Crafts, Inc.

Good day and welcome to the Crown Crafts Inc. Fourth Quarter Fiscal Year 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. 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, and to withdraw your question, please press star then two. Please note today's event is being recorded. I would now like to turn the conference over to Matt Hodges with Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining the Crowncraft's fourth quarter and fiscal 2025 conference call. Joining me on the call today are Crowncraft's President and CEO, Olivia Elliott, CFO, Craig Damaris, and Vice President, Claire Spencer, who will be CFO upon Craig's retirement next week. During today's call, the company may make certain forward-looking statements and actual results may differ materially from those expressed or implied. These statements are subject to risk 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. Now I'd like to turn the call over to President and CEO Olivia Elliott.

Thank you, Matt. Good morning, everyone. Fiscal 2025 turned out to be a transitional year for the company, much like 2024, but for different reasons. Persistent inflation caused consumers to pull back on discretionary spending throughout the year, resulting in total sales for the fiscal year being slightly below last year. We, along with others who import from China, also experienced a slowdown in sales due to uncertainty around the United States tariff policy. However, as part of our long-term strategic plan, we continued looking for innovative ways to strengthen our market position. This led us to acquire the assets of Baby Boom Consumer Products, which added diaper bags for our portfolio of products, as well as several popular brand licenses, such as Bluey and Miss Rachel. This was our second major acquisition over the last two years as we continue to expand our product offerings to drive future growth both domestically and internationally. From an operations perspective, we have worked diligently to take out unnecessary costs to maintain acceptable margins and profits. Overall, we remain financially healthy with adequate cash at year end and total inventories less than last year. Our cash flow for the year was 9.8 million, providing us the ability to pay regular dividends and service debt. Finally, I would like to introduce the newest member of our team, Claire Spencer. Claire joined Crown Crafts on June 16th, and as Matt mentioned, will become CFO on June 30th.

Thank you, Olivia. I am very excited to join Crown Crafts and have the opportunity to lead the finance and accounting team to support the company's financial and strategic goals and drive shareholder value.

Welcome, Claire. We're excited to have you join our team. Before I turn it over to Craig to walk through the financials in more detail, I would like to thank him for his leadership, hard work, and dedication to helping us achieve our goals. The entire Crown Crafts team wishes him a very happy retirement.

Thank you, Olivia. It's been a pleasure working with you, the Crown Crafts team, the board of directors, and all of our shareholders over the last four years. I'll begin with a look at the fourth quarter results and then provide some color on the full year results. Fourth quarter net sales were 23.2 million, a 2.9% increase compared to the prior year quarter. The increase was driven by strong sales of baby boom products, partially offset by a decline in sales of bibs, toys, and disposable products. Gross profit for the quarter was 18.3% compared to 23.2% in the fourth quarter of fiscal 24. The margin decrease is primarily related to the impact of higher tariffs, increased rent at our Compton facility, an increase in royalty expense resulting from the Baby Boom acquisition, and higher closeout sales at lower margins as we continue to lower our inventory levels. Marketing and administrative expenses during the quarter increased 17% year over year, driven by increased advertising costs and the expenses associated with the Baby Boom business. Gap net loss for the fourth quarter was $10.8 million, or $1.04 loss per diluted share. Gap net loss was the result of a $13.8 million goodwill impairment charge resulting from the prolonged decline in our market capitalization, indicating a decline in the fair value of our goodwill reporting units. Following the impairment charge, we have no goodwill in our balance sheet at March 30, 2025. Adjusted net loss was $429,000, or adjusted diluted loss per share of $0.04. Turning now to our results for the full year, net sales for fiscal 25 were $87.3 million compared to $87.6 million in the prior year. As Olivia mentioned earlier, sales were impacted by consumers pulling back due to economic conditions. However, we did see the addition of $11.9 million in net sales from the Baby Boom acquisition, but that was more than offset by declines in the legacy business. Gross profit for the year was 24.4% compared to 26.4% in fiscal 24, primarily reflecting increased tariffs, rent, and royalty expense, as well as higher closeout sales mentioned earlier. Marketing and administrative expenses included $1.1 million in acquisition costs associated with the Baby Boom acquisition, and $244,000 related to the closure of the company's subsidiary in the UK. Gap net loss for fiscal 25 was $9.4 million, or $0.90 loss per diluted share. Gap net loss was impacted by the goodwill impairment charge discussed earlier. Adjusted net income for the year was 1 million or adjusted diluted earnings per share of 10 cents. Turning now to our balance sheet, as of the end of fiscal 25, cash and cash equivalents totaled 521,000 compared to 830,000 at the end of fiscal 24. Inventories were 27.8 million, a decrease of 6.4% compared to 29.7 million at the end of the last fiscal year. The decline was driven by higher closeout sales to prepare for our upcoming warehouse consolidation. Borrowings under our credit facility at the end of fiscal 25 were 18.5 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. 2025 cash flow from operations was 9.8 million compared to 7.1 million in the prior year. We expect to use our cash flow to repay 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. And finally, we paid 32 cents per share in cash dividends to shareholders in fiscal 25 with a yield of 10% based on yesterday's close. This marks the 15th consecutive year paying out dividends to our shareholders. Our dividend is a key component of our capital allocation strategy of creating and returning value to our shareholders. And now I'll turn the call back over to Olivia for additional comments.

Thank you, Craig. Over the last couple of years, the economy has been a headwind for consumers and ultimately Crowncraft. During this time, we have taken several steps forward to position the company for long-term success when the economy starts to improve. We have added more products to our portfolio through acquisition and our own internal product development. We've added more of the most popular and trending brands through acquisition or by expanding the depth of our product catalog. We continue to have good working relationships with our major retail partners, and we have expanded our e-commerce capabilities. I would like to thank our team for their resilience and all the hard work they have put into integrating our acquisitions, finding opportunities to cut costs, and for their commitment to making Crown Crafts one of the leading producers of infant, toddler, and juvenile consumer products. As we begin fiscal 2026, our most pressing challenge is navigating the impact of tariffs. As of now, the goods we order will incur an additional 30% tariff. We are working with our manufacturers and our retail partners to absorb a portion of this amount, and we are also looking at other ways to mitigate additional tariff expenses. We will continue to explore ways to increase sales and gain market share. This includes product and channel expansions. In closing, I would like to thank our shareholders for your support, and we look forward to updating you on our progress throughout the year. With that, I'd like to open the line for questions.

Thank you. If you'd like to ask a question, please press star then 1 on your telephone keypad. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. If at any point your question has been addressed and you'd like to remove yourself from queue, please press star then 2. Today's first question comes from Doug Ruth at Lenox Financial Services. Please go ahead.

First, I would like to thank Craig for what he has done for the shareholders. I thought you did a really nice job with the reporting, and I want to wish you well in retirement. And I also wanted to welcome Claire to the team. Looking forward to seeing how you're able to increase shareholder value.

Thank you, Doug. Appreciate it.

You're welcome. Can you give us, Olivia, can you give us an update on where things are with the warehouse at this point?

So we're still exploring pretty much every option that we can think of. But with tariffs, we've kind of put that on the, you know, for the last few months we've been focused on tariffs and not really on the warehouse. But we're still exploring those options.

Do you still think you'll make a decision sometime here in fiscal 2026?

I hope so. We're probably slowing down on the timeline for actual moving, but I think we will make some decisions in the near future.

Okay. I understand that you went to the New York Toy Show that was held in March. I was wondering how did the show go for the company?

So yeah, we had a lot of our sales and product development team that attended Toy Fair. I think they had a lot of really good traffic and some good feedback on the new products that we showed. And they actually wrote some orders, but it's not really common to write orders at the show anymore with just the EDI capabilities, et cetera. So from what I understand, everything went well, and the products that we intend to the new product showed very well.

And then I know that one thing that is featured on the website is the Stella doll, a new Stella doll, and then I understand that Meghan Markle had purchased a doll for her daughter. Are you able to comment on how the what's happening with the Stella doll and the redesign and any kind of sell-through?

Yes, and so we redesigned what was called Stella and Wee Baby Stella, and now we have a new Love Stella line that includes a newborn doll before the product started more at maybe the toddler age range. And so now we've got a newborn doll. We've redesigned the toddler doll so that it sits up better. And, yes, Meghan Markle did include our Stella doll on one of her shows, and it certainly helped with a lot of the marketing and the advertising and the social media.

Okay. Then I understand that the world's largest Legoland is going to open in Shanghai on July 5th, and I was wondering if that creates some opportunity for – Will Crowncraft be providing some of the Star Wars plush animals for that, plush figurines for that location?

Yes. So they had a soft opening, I believe. I can't remember if it was in late May or early June. And from what I understand, the soft opening went very well. And we are supplying the plush for that park.

And then were the – Were the sales to – were Crown Craft sales to Legoland, did they increase in fiscal 2025 versus fiscal 2024?

2025 versus 2024, yes. I think that the changeover – so I don't know if you recall that they were only going to allow the Lego branded plush into the parks – It used to be us and then a couple of other competitors, and so we had some form of a transition throughout this year, but it has gone slower than we expected. But we expect that in the near future we'll be the only plush in the park.

And then you had also talked in the past about the diaper bags, that there might be opportunities with possibly some new brands. Is there any development there?

Yes, we're still working on that. We've got a lot of excitement from some of our licensing partners that want us to do some licensed diaper bags. To be frank, the tariffs are hitting the diaper bags harder than anything, so we're trying to look at opportunities to keep those costs within reason so that we can expand that further.

At one time, you had talked about a potential tax credit for for importing products for children or for babies. Is there any update on that at all?

I think, are you talking about the tax credit for parents, maybe? Not really for us.

The tax credit for parents, yeah, like for babies.

I have not really heard if that, I haven't heard if that went went through or if that's part of the final plan, but there was some talk at some point about giving new parents a tax credit. Yes.

Okay. And then how about the distribution in Europe using the distributor instead of the direct sales force? Is that helping the company?

Yes. It takes some time to get all of the new products flowing through the distributors, but I think at the end of the day, we're anticipating our international sales to continue to go up.

My last question is, how about the Manhattan Toy website, the redesign there? Has that made a difference for the company?

Oh, I think so. I mean, it's much easier to shop on the website. I think we've got a much better visual. It's updated. And I think that, you know, we're doing a good job of driving more people to the website through our social media posts, et cetera.

Very good. That's nice to hear that. Okay. I'm going to thank you for answering my questions. And all the best to you, Craig.

Thanks so much, Doug. Thanks, Doug.

Thank you. And as a reminder, if you'd like to ask a question, please press star then 1 at this time. Our next question comes from David Whittier, a private investor.

Please go ahead. Yes, my questions have been answered. Thank you.

Thank you, sir. And this does conclude our question and answer session. I'd like to turn the conference back over to the management team for any closing remarks.

Thank you. We'd like to thank you for your continued support of Crowncraft, and we look forward to updating you on our Q1 earnings, which will be in mid-August. Thank you very much.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.