Crown Crafts, Inc. — FY2022 Form 10-K
Business context and reporting period. Crown Crafts designs and markets infant, toddler and juvenile products, including bedding, blankets, bibs, bath products, developmental toys and accessories. This filing covers the 53-week fiscal year ended April 3, 2022; the comparison year ended March 28, 2021 comprised 52 weeks. Carousel Designs ceased operations on May 21, 2021.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $87.36 million | $79.16 million |
| Gross profit / margin | $23.31 million / 26.7% | $24.10 million / 30.4% |
| Income from operations | $10.31 million | $7.65 million |
| Net income | $9.92 million | $6.08 million |
| Diluted earnings per share | $0.98 | $0.60 |
| Operating cash flow | $8.26 million | $8.74 million |
| Cash and cash equivalents at year-end | $1.60 million | $0.61 million |
Net sales increased 10.4%. Bibs, bath, developmental toy, feeding, baby care and disposable products sales rose 30.8% to $42.02 million; bedding, blankets and accessories sales fell 3.6% to $45.34 million. Cost of products sold rose 16.3%, and gross margin declined 3.7 percentage points.
At April 3, 2022, current assets were $46.51 million and current liabilities were $11.79 million. The company had no outstanding balance on its revolving credit line and reported $26.0 million available, subject to eligible receivables and inventory. The $1.96 million PPP loan had been forgiven in full. Year-end shareholders’ equity was $45.80 million; operating lease liabilities totaled $2.64 million.
Material changes and unusual items
- Net income included a $1.985 million gain from PPP loan forgiveness; it is not operating income and should be considered when assessing recurring earnings.
- Gross profit included a $2.2 million adverse effect from Carousel’s closure, including inventory sold below cost and supplier-settlement and inventory-liquidation charges. Carousel also recorded a $689,000 gross loss in FY2022. FY2021 included a $2.234 million noncash impairment charge for Carousel.
- Management attributed sales growth partly to a strong new modular set, higher replenishment orders at a major retailer, the extra fiscal week and approximately $700,000 of orders shifted from FY2023 into FY2022. These were partly offset by weaker online-retailer sales as consumers returned to stores.
- Operating cash flow decreased by about $474,000, with higher receivables and the absence of the prior-year noncash impairment contributing to the decline. Dividends declared were $0.67 per share, including a $0.35 special dividend, versus $0.49 per share in FY2021.
Outlook, risks and contingencies
The filing provides no specific revenue, earnings or margin guidance. Management said that, based on current operating and financial plans, it expected to meet obligations over the following 12 months and believed operating cash flow and revolver availability would meet liquidity needs.
- Customer concentration is substantial: Walmart represented 52% and Amazon 21% of FY2022 gross sales, or approximately 73% combined. The company has no long-term purchase agreements with customers.
- Licensed products represented 40% of gross sales; Disney licenses alone represented 33%. The infant-bedding Disney license expires December 31, 2022, while the listed other Disney licenses expire December 31, 2023. Minimum guaranteed royalty commitments totaled $4.4 million, with $2.9 million due in FY2023 and $1.5 million in FY2024.
- Management cited higher supply-chain costs, freight inflation, shipping delays and disruption linked to China and the Port of Long Beach. Inability to pass cost increases through to customers could pressure profitability.
- COVID-19 effects remained uncertain, including impacts on sourcing, transport, customers and consumer demand. Other disclosed risks include declining U.S. birthrates, competition, inventory obsolescence, product-safety claims, cybersecurity and tax examinations.
- The IRS selected the FY2017 federal return for examination, and California was examining specified state returns. The balance-sheet reserve for unrecognized tax liabilities was $739,000; KPMG identified the California tax reserve as a critical audit matter. The company reported no legal proceeding expected to have a material adverse effect.
- The credit facility was extended to July 11, 2025 and amended after year-end to transition from LIBOR to SOFR plus 1.6%. The company reported compliance with its covenants at year-end. CEO Olivia Elliott’s employment agreement was amended in June 2022; former CEO Randall Chestnut retired effective May 1, 2022.
Important facts for investors to verify
- How much of sales growth and FY2022 earnings is sustainable after accounting for the extra week, shifted orders and PPP forgiveness gain.
- Whether gross margins recover as freight and other supply-chain costs evolve, and whether price increases can offset them.
- Customer and Disney-license concentration, renewal prospects, minimum royalty exposure and performance against sales expectations.
- Receivables and inventory trends, borrowing-base availability under the revolver, and the effect of dividend payments on liquidity.
- Updates and potential outcomes of the federal and California tax examinations and adequacy of the related reserves.