Crown Crafts, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended March 28, 2021 (52 weeks), compared with the 52 weeks ended March 29, 2020. The filing is an annual report, not a separate fourth-quarter report. Crown Crafts sells infant, toddler and juvenile products through retailers and online channels.
Key financial results
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $79.2 million | $73.4 million | +7.9% |
| Gross profit / margin | $24.1 million / 30.4% | $21.6 million / 29.4% | Margin +1.0 percentage point |
| Operating income | $7.6 million | $7.7 million | Down $0.1 million |
| Net income | $6.1 million | $6.6 million | Down 7.3% |
| Diluted earnings per share | $0.60 | $0.65 | Down $0.05 |
| Cash from operating activities | $8.7 million | $8.5 million | Up $0.2 million |
| Capital expenditures | $0.7 million | $0.7 million | Up $0.03 million |
- Bedding, blankets and accessories sales rose 23.6% to $47.0 million; bibs, bath, toys, feeding, baby care and disposable product sales fell 9.1% to $32.1 million.
- Gross margin improved primarily from a more favorable customer and product mix. Net income nevertheless declined, reflecting a $2.2 million noncash impairment charge for Carousel Designs and higher income tax expense.
- Cash and equivalents were $0.6 million at year-end, versus $0.3 million. Current assets were $41.5 million and current liabilities $12.9 million. Inventory increased to $20.3 million from $17.7 million.
- No revolving-credit balance was outstanding at March 28, 2021; $26.0 million was available under the facility. A $1.964 million PPP loan was included as current debt at year-end and was forgiven in full on May 20, 2021. Total operating lease liabilities were $4.4 million.
Material changes and notable items
- Sales growth was attributed mainly to stronger sell-through at major physical and internet retailers, partially offset by declines at some COVID-affected retailers. The filing says e-commerce and other customers partly offset the declines.
- Freight and supply-chain pressures worsened: container shortages, port congestion and shipping delays increased freight costs and interrupted product receipts. The company sources nearly all products from China and imports them through the Port of Long Beach.
- Carousel, which had declining sales and operating and cash-flow losses, was impaired in FY2021. The board approved its closure on May 5, 2021, and operations ceased May 21. The company expected $100,000 of employee termination/relocation costs and $200,000–$500,000 of contract termination costs in FY2022.
- The CIT revolving facility was amended after year-end to extend maturity from July 2022 to July 2025 and reduce stated borrowing spreads. The company reported covenant compliance at year-end.
- The company declared dividends of $0.49 per share in FY2021 ($5.0 million total), including a $0.25 special dividend, compared with $0.57 per share in FY2020. It also repurchased 250,000 shares from its CEO for approximately $1.9 million.
Outlook, risks and contingencies
- No specific revenue or earnings guidance is provided. Management said it expects operating cash flow and revolving-credit availability to be adequate to meet obligations over the next 12 months, while noting that COVID-19’s longer-term effects remain uncertain.
- Customer concentration is substantial: Walmart represented 43% and Amazon 25% of FY2021 gross sales, versus 42% and 20%, respectively, in FY2020. Customers generally do not have long-term purchase agreements.
- Licensed products were 41% of gross sales, including 34% associated with Disney licenses. Several Disney license agreements expire December 31, 2021; infant bedding expires December 31, 2022. Minimum guaranteed royalties totaled $2.6 million at year-end.
- Other stated risks include competition and pricing pressure, declining U.S. birthrates, product safety/recalls, inventory obsolescence, foreign sourcing and trade risks, distribution disruption, cybersecurity, and tax examinations. California and federal tax examinations were pending; the company reported a $630,000 reserve for unrecognized tax liabilities.
- The auditor issued an unqualified opinion on the financial statements and identified the California state tax reserve as a critical audit matter. Management concluded internal control over financial reporting was effective; the auditor did not express an opinion on internal controls.
Important facts for investors to verify
- Whether sales growth and improved gross margin persist, particularly as freight costs and shipping disruptions evolve.
- Continuing dependence on Walmart and Amazon, and the renewal or replacement of major Disney licenses and related minimum royalties.
- Financial and cash costs associated with Carousel’s closure, asset disposition and any remaining obligations.
- Confirmation of the PPP loan forgiveness accounting and the amended CIT facility terms, availability and covenant compliance after year-end.
- Outcomes of the pending tax examinations and adequacy of reserves; the filing does not provide a clear estimate of any potential additional tax exposure.