Crown Crafts, Inc. (CRWS) Earnings Call Transcript

Thanks, operator, and good morning to everyone joining us today. It's great to have you with us; we turned in strong results for the quarter against an operating backdrop that remains difficult; that speaks to how solid our business model is, how widely our brands appeal, and naturally, the effort put in by our committed team. Even with conflicts around the globe, shifting tariff levels, pricier gasoline, and inflation that has stayed elevated and pressed on the U.S. consumer, we managed to keep net sales essentially level with the same period a year ago at $22 million, which lifted net sales for the entire year past $80 million. On top of that, our gross margin climbed to close to 23% in the fourth quarter, a gain of 460 basis points compared with the equivalent period last year. That gave us positive net income for the quarter along with operating cash flow exceeding $8 million across the fiscal year. One thrilling fourth-quarter moment came in February, when we announced that Manhattan Toy's Groovy Girls would be relaunched, and we celebrated the occasion at the North American International Toy Fair after a ceremonial closing bell ring at Nasdaq. Since the official rollout to specialty retailers only last month, this famous line of soft fashion dolls has drawn a very warm response and arrives at just the right moment to connect with the retro-loving consumer market of today. We feel great about what this cherished brand can do, along with other possibilities, as our attention stays on inventive in-house product development to broaden what we offer. Beyond generating revenue growth, margin expansion and the bottom-line growth it produces remain another key priority for us. In our view, the 22.9% gross margin for the quarter, though better than last year's figures, still has room to grow as sales increase, operating leverage improves, and our spending discipline continues. That covers our ongoing work on cost programs tied to the plans we previously shared to combine certain internal operations, removing duplicate activities and building a leaner operating structure. Now to our balance sheet and capital allocation, on which Claire will give more detail shortly. As I noted, we produced over $8 million in operating cash flow in fiscal 2026, even with the weak operating climate, and we still hold ample liquidity to back our growth plans. Our approach to capital allocation is nicely balanced. In the fourth quarter, we made our regular dividend payment while still putting money into internal product development and marketing to build market share over the long run; to wrap up, Crown Crafts is performing well. Our focus is on pursuing long-term growth opportunities while handling inventories, keeping a tight grip on costs, and directing capital strategically toward growth efforts, along with giving capital back to our faithful shareholders. As we look forward, the elements underpinning our ability to succeed are our robust brands and licenses, the retail and licensing partners we value, a healthy balance sheet, and naturally the skilled individuals who fuel our progress daily and will in the end assist us in generating substantial shareholder value as time goes on, positioning us as a top maker of consumer goods for infants, toddlers, and juveniles. Having said that, I'll hand things over to Claire, who will walk us through further financial specifics regarding our quarterly results.

Thanks, Olivia, and I appreciate all of you joining us today. Looking at the fourth quarter of our fiscal year, net sales came in at $22.4 million, even with consumer spending still soft, compared with $23.2 million in the same quarter a year ago. Gross profit reached $5.1 million, a 22.9% margin, an increase over the 18.3% recorded in the fourth quarter of 2025. As Olivia noted, that 460 basis point gain came from our strategic pricing initiatives along with a better mix of products carrying higher margins; we managed to keep marketing and administrative expense essentially level with the prior year quarter at $4.6 million, even with ongoing inflationary pressures. We also brought interest expense down to $194,000 in the fourth quarter of 2026 from $333,000 a year earlier, helped by a substantial cut in debt. The end result was net income of $280,000 for the quarter, an improvement over a loss of roughly $11 million in last year's fourth quarter, which stemmed from a non-cash goodwill impairment charge taken in that period. Basic and diluted earnings per share came to $0.03, versus a loss of $1.04 per share a year ago. Turning to the balance sheet: we closed the fiscal year with total assets of $70.7 million. Inventories stood at $28.4 million as of March 29th, a modest increase from $27.8 million at the close of fiscal 2025. Total debt was $14.1 million at year-end, down from $18.5 million when fiscal 2025 ended. Undrawn availability under our revolving credit facility totaled $12.5 million. Finally, as Olivia pointed out, net cash from operating activities reached $8.3 million for the fiscal year, which further underpins our solid financial foundation and our execution of the business plan. To sum up, we performed well in the last quarter of the fiscal year despite a macro environment that was less than robust, significantly lifting our gross margin over the year-ago quarter. We possess the competitive advantages, strategic plan, and financial strength needed for our talented team members to keep pushing forward every day, expand the business, and boost profitability as we enter fiscal year 2027. With that, Operator, Olivia and I are ready to take your questions, so please open the line.

Morning, and thanks for letting me join. That was clearly a strong quarter and strong results. My question is more general — about our ties with Walmart and Target, plus anyone else. Could you update us on where those stand, whether you're going after additional partnerships, and share whatever details you can? Thanks.

Of course. Our ties with Walmart and Target are still solid. Several members of our sales team are in regular contact with them. I also see their people at trade shows. And as ever, we keep looking for new retail partners. We already work with a lot of mass retailers and specialty stores, and we're putting some added emphasis on international sales. There aren't many players out there as large as Walmart, Target, and Amazon, that's certain; we're constantly hunting for fresh opportunities.

Okay, thank you very much.

Thank you.

Olivia and Claire, congratulations to both of you. I thought the job you did was fabulous. That report is really strong. On behalf of the shareholders, thank you for what you're doing.

Doug, thank you.

Can you share a bit more about your plans for Groovy Girls? Might the elevated inventory level partly reflect stock meant to back that launch?

A portion of the inventory at year-end does relate to Groovy Girls. Most of the increase, though, likely comes from tariffs being capitalized into inventory cost, which of course raised the inventory's value across the fiscal year. On Groovy Girls — when you ask what we're planning for it, did you mean just the inventory, or something broader?

Okay, stepping back a bit. Could you give us some insight into how the product is selling and the approach you're taking to sell it? My understanding is that you've adopted some newer tactics. Perhaps you could tell us a bit about those.

As of right now, we began rolling out sales to specialty stores on May 1st — that's the date we started shipping to them — though it likely wasn't until later that month that items actually appeared on shelves. This applies to specialty stores across the U.S. as well as via our distributor into Canada, and those Canadian sales haven't landed there yet. After that, our plan is a fall rollout at Amazon, plus international markets, once we attend the K&J trade show in September. At present, it's available only through specialty stores, and so far the sales have made us quite pleased. I believe our budget for FY 2027 didn't include much for this, but we're pleased with our position up to now.

So by autumn, Amazon is going to carry essentially the complete range of what you offer under Groovy Girls, right?

That's right.

Okay.

Correct.

That's wonderful to hear. I recall that previously, a significant portion of Groovy Girls' major success came from the partnership you had with Target. Are you also considering something along those lines?

Right now, we aren't discussing bringing Groovy Girls into mass. That could be a possibility down the road, and we'd likely modify the product somewhat so that what we sell into mass isn't identical to what we sell into specialty.

All right. So regarding the tariffs, what's the situation? Do you anticipate getting money back from tariffs? Has any tariff refund actually come in?

Yes, we've filed for those tariff refunds. I believe the figure we disclosed in the 10-K was that, as of 2 weeks back, roughly $175,000 had come back to us. Of that, about $165,000 related to tariffs themselves, and approximately $10,000 was interest. The total amount we asked for was around $5.5 million. We remain hopeful. Anything could happen. Some money has arrived. Our hope is to get the full amount we applied for.

All right, so where do things stand at the moment? From what I understand, the lease on that Eden Valley warehouse runs out at the close of this month, if I'm not mistaken. How is the company approaching this? What's the plan on your end?

That lease was extended by us so it lines up more closely with the timing of the Compton facility. Our plan is to begin the search again for another warehouse, with the intention of relocating within the next two years, nearer to when both of those leases come to an end.

All right, then what about the Stella doll? From what I understand, you gave that doll a redesign. Could you share how things have gone since that change was made?

Stella is performing nicely. Again, you'll mainly find it through specialty retailers, on Amazon, and via our own site, yet Stella's revenue is holding up just fine.

All right. So I saw that the size of the facility—the corporate headquarters—got reduced pretty significantly. Any thoughts you could share about that at the time you signed the new lease?

Yes. The headquarters we'd occupied for close to 25 years was in need of some modernization, and costs were climbing a lot; so we made the call to relocate, only a short distance away, into a new facility with fewer square feet. It was a brand-new build-out, meaning everything is modern and new, and we're situated on a single floor, all of us together, which we're happy about.

All right, so where do things stand in your thinking on the diaper bag category right now?

Diaper bags remain a project we're actively pursuing. With the tariffs, as you're aware, that category absorbed the hardest hit. Target moved to sourcing diaper bags directly. Walmart cut the shelf space they devoted to the line by 50%. At this moment we're in the process of reworking the line and rethinking our approach to diaper bags. We do retain a small amount of placement. A single bag is on shelves at Walmart, and we also sell through Amazon using our own warehouse.

All right. So I understand the lease on the Manhattan Toy Minneapolis office now has under 12 months left on it. Have you begun considering what your plans might be for that location?

Yes. That location is one we will be leaving. Clearly, it's far larger than our needs require, and we're still in the process of working out what direction we want to take.

Oh, got it. Possibly additional details over the upcoming 2 quarters — that would make sense.

Of course.

Yeah. Okay. I'm also glad you managed to boost the ad spend. Could you perhaps say something about that?

Yes, we did raise the advertising budget. In addition, we brought on a handful of new marketing staff so we could expand our photography work, our social media presence, and our advertising too, mostly on dot-coms and for our own site.

All right. Has the progress there met your expectations?

Absolutely; we're really only at the start of what we're doing on the marketing side, and we're just growing it. Up to now, absolutely.