Crown Crafts, Inc. — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2023, ended January 1, 2023. Comparisons are to the periods ended December 26, 2021. The company sells infant, toddler and juvenile products through one principal business segment.
Financial performance
| Metric | Quarter | Nine months |
|---|---|---|
| Net sales | $19.0 million, down 16.4% | $53.4 million, down 13.4% |
| Gross profit / margin | $4.5 million / 23.7%, versus 27.1% | $15.1 million / 28.3%, versus 27.4% |
| Operating income | $1.8 million, versus $3.1 million | $6.2 million, versus $7.3 million |
| Net income | $1.35 million, down 44.6% | $4.82 million, down 35.6% |
| Diluted earnings per share | $0.13, versus $0.24 | $0.48, versus $0.74 |
| Operating cash flow | Not provided separately | $4.37 million, versus $4.27 million |
Quarterly sales fell in both product categories: bedding, blankets and accessories declined 23.6%, while bibs, toys and disposable products declined 8.8%. Nine-month declines were 20.8% and 4.9%, respectively. Nine-month gross margin improved despite lower sales, reflecting stabilized input costs, product price increases and the prior-year gross loss at Carousel Designs. Marketing and administrative expenses decreased in dollars but increased as a share of sales.
Financial position and liquidity
- Cash was $3.08 million at January 1, 2023, up from $1.60 million at fiscal year-end. Working capital was approximately $39.3 million; current assets were $49.2 million and current liabilities $9.9 million.
- Inventory increased to $25.8 million from $20.7 million at April 3, 2022. Accounts receivable, net, including amounts due from the factor, totaled approximately $18.9 million.
- No revolving-credit borrowings or letters of credit were outstanding; $26.0 million was available under the $26.0 million facility, subject to eligible receivables and inventory. The facility matures July 11, 2025. The company reported covenant compliance.
- Nine-month investing cash use was $0.36 million, primarily capital expenditures. Financing cash use was $2.53 million, primarily dividends. Dividends declared were $0.24 per share for the nine months.
- No material debt was outstanding. The prior-year comparison included a $1.985 million gain from forgiveness of the PPP loan, which increased prior-year earnings but did not recur.
Outlook, commentary and risks
- No specific revenue or earnings guidance was provided. Management believes operating cash flow and available credit will fund working capital and capital expenditures for at least the next 12 months.
- Management attributed lower sales mainly to reduced retailer replenishment orders and customer inventory reductions following heavy earlier purchases; current macroeconomic conditions also weighed on consumer spending. A struggling retail customer contributed to a roughly $0.6 million quarterly sales decline.
- The company cited uncertainty related to the economy, consumer demand, COVID-19, supply chains and transportation, input costs (including cotton, oil and labor), foreign sourcing and currency movements, competition, and customer orders. The two largest customers represented about 73% of fiscal 2022 gross sales; licensed products were about 40%, including 33% associated with Disney affiliates.
- A new 60-month lease for the Compton, California facility was signed February 3, 2023. Stated minimum non-variable rental payments total approximately $18.5 million over fiscal 2024–2029; the company had not yet calculated the lease asset and liability to be recorded.
- Tax examinations include California income tax years and an amended federal return for fiscal 2017. Management considers its positions reasonable, but adjustments are possible. The filing reports no legal proceeding expected to have a material adverse effect, no material change in disclosed risk factors, and effective disclosure controls.
Important facts for investors to verify
- Whether customer inventory reductions and weaker replenishment orders persist, and how sales trends develop by product category and major customer.
- Whether gross margin remains resilient as input costs, freight, pricing and product mix change.
- Inventory growth, receivable exposure to CIT, and continued availability of the full revolving facility.
- Cash generation and dividend sustainability relative to earnings and working-capital needs.
- The financial impact of the new Compton lease, tax examinations, and continued reliance on major customers and licensed brands.