Crown Crafts Inc 2027 Q1 Earnings Call

Please go ahead. Thank you, operator, and thank you everyone for joining this afternoon's call.

Today after the close, Crown Crafts reported very solid quarterly results given the still soft demand environment. We accomplished this by focusing on what we can control, and our team did a terrific job executing on our strategy. We were able to grow our net sales 8%, despite the uncertainty that consumers continue to feel around high interest rates, inflation, and global geopolitical events. Improved inventory levels account for most of the growth, as we were able to better meet demand than during last year's tariff instability. Just as important, we were able to drive a higher gross margin, both on a GAAP basis and also when adjusting for tariff refunds, as Claire will walk us through in a moment.

On an adjusted basis, our gross margin for the quarter climbed nearly three full percentage points year over year to 25.6%. As a result, we were able to produce positive net income versus the loss reported in the prior year period, and we once again generated positive operating cash flow of nearly $5 million, similar to the March quarter. Combined with a significant reduction in our debt balance during the quarter, our balance sheet is significantly strengthened. As we mentioned on our last call, during the June quarter, we relaunched Manhattan Toy Brands' Groovy Girls. I'm pleased to say that so far, sales of this iconic line of fashion dolls has exceeded our expectations, largely driven by the Canadian market. We believe this bodes well for continued success of this retro-inspired beloved brand. Next, I'll provide an update on our strategic initiatives to grow both our top and bottom line.

A top priority is our ongoing innovative internal product development to expand our product offerings. Another initiative is to build on our recent margin expansion to further drive profitability. From moving towards a favorable mix of higher margin products and of course, our relentless spending discipline. We're also striving to consolidate certain internal operations for greater efficiency, reduce our debt levels, and over the next two years, we'll be working on warehouse consolidation to further enhance our operating structure. These initiatives to create long-term value can often require upfront investment. To that end, our board has elected to rightsize our quarterly dividend, which will provide us strategic access to a greater portion of our cash flow that will also allow us to pay down debt and build the balance sheet strength that will support Crown Crafts' growth well into the future.

In essence, our new quarterly dividend allows for a well-balanced capital allocation approach that includes investing in growth initiatives and maintaining a solid balance sheet while still rewarding our valued shareholders with what is now approximately a 4% attractive dividend yield. In closing, we had a solid quarter as we continue to execute on our business plan. While leveraging our inherent strengths, including our brands, our licenses, and our valued retail and licensing partners, our multi-pronged strategy that covers internal development of new products, reinvigorated marketing efforts, tight cost controls, and the strategic allocation of capital positions us well for the creation of long-term shareholder value. Now I'll turn it over to Claire to provide additional details around our quarterly results before we take your questions.

Thank you, Olivia, and welcome everyone once again to the call. Our first quarter net sales of $16.8 million were up 8% over the prior quarter as improved inventory levels helped us capitalize on still soft consumer spending. As Olivia mentioned, we had strong gross margin performance. During the quarter, tariff refunds reduced our cost of products sold by $3.7 million. Even adjusting for this benefit, our gross profit of $4.3 million was above the prior year's $3.5 million and equates to a gross profit margin of 25.6%, which was up 290 basis points year-over-year. This expansion of our adjusted gross margin reflects both our strategic pricing initiatives and an increasingly favorable mix of higher margin products. We recorded marketing and administrative expense of $5.2 million for the first quarter as compared to $4.7 million a year earlier.

Although this quarter's figure includes just over $500,000 of accrued incentive and compensation associated with tariff refunds. On a normalized basis, we reduced marketing and administrative expense as a percent of net sales to 28% versus 30.5% in the first quarter of fiscal 2026, which speaks to our sharp focus on cost efficiencies as Olivia mentioned. Moving down the income statement, we also successfully reduced net interest expense to only $190,000, well below the year ago $283,000 as a result of our efforts to reduce debt over the past year. From a GAAP perspective, we reported net income of $2.1 million, or $0.19 per share, well above the prior year loss of $1.1 million, or $0.10 per share.

While first quarter net income benefited from the tariff-related adjustments described, I'll again note that on an adjusted basis, we still generated a first quarter profit versus the prior year quarter's net loss.

Turning to our balance sheet, as of June 28th, we had total liquidity of $12.1 million, including cash and equivalents and availability on our revolving line of credit. During the first quarter, we significantly reduced our debt from more than $14 million at the start of the fiscal year to just $9.6 million at the end of the quarter. Not only did we reduce outstanding debt, but our net cash from operating activities of $5.5 million served to further support our balance sheet strength, putting us in a strong position to capitalize on future growth opportunities in a disciplined manner. In summary, this was another quarter of strong execution in which we focused on what we can control while economic conditions remain soft. Even adjusted for tariff refunds, we grew revenues, expanded our gross margin, and generated stronger earnings per share than in the year-ago quarter.

We also further strengthened our balance sheet and are well positioned to make progress against our strategic initiatives as we move through the new fiscal year. Now, operator, if you could please open the lines, Olivia and I would be happy to take questions.

Olivia and Claire, congratulations. Fabulous report. I have several questions, so if you feel like I am asking too many, I do not mind getting back in the queue. Could you offer some commentary of what you think is happening with Groovy Girls?

Groovy Girls has done phenomenally well in Canada. As we look back on history, even before we acquired Manhattan Toy, the first time they launched Groovy Girls, it appears that it took off in Canada first then as well. We have actually sold so much in Canada at this point in time that we're having to divert inventory that should be coming to the U.S. to go to Canada. We're really excited about the opportunity there. Then we'll be launching Groovy Girls at K&J in Germany for the European market in September.