Crown Crafts(CRWS) - 2026 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements The company experienced decreased net sales and a wider net loss, alongside a reduction in total assets and operating cash flow, primarily due to increased inventories Condensed Consolidated Balance Sheets Total assets and shareholders' equity declined from March 30, 2025, to June 29, 2025, while inventories increased | Balance Sheet Items | June 29, 2025 ($ thousands) | March 30, 2025 ($ thousands) | | :--- | :--- | :--- | | Total Current Assets | 51,242 | 55,303 | | Total Assets | 76,023 | 81,154 | | Total Current Liabilities | 17,797 | 15,505 | | Total Liabilities | 38,154 | 41,535 | | Total Shareholders' Equity | 37,869 | 39,619 | - Inventories increased to $31.6 million as of June 29, 2025, from $27.8 million as of March 30, 2025, with nearly all being finished goods[28] Condensed Consolidated Statements of Operations Net sales decreased by 4.5% year-over-year, leading to a significantly wider net loss and diluted loss per share | Metric | Three Months Ended June 29, 2025 ($ thousands) | Three Months Ended June 30, 2024 ($ thousands) | | :--- | :--- | :--- | | Net sales | 15,478 | 16,212 | | Gross profit | 3,518 | 3,966 | | Loss from operations | (1,199) | (297) | | Net loss | (1,104) | (322) | | Diluted loss per share | $(0.10) | $(0.03) | Condensed Consolidated Statements of Cash Flows Operating cash flow decreased due to increased inventories, while cash used in financing activities also declined | Cash Flow Activity | Three Months Ended June 29, 2025 ($ thousands) | Three Months Ended June 30, 2024 ($ thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | 5,248 | 8,013 | | Net cash used in investing activities | (86) | (284) | | Net cash used in financing activities | (5,456) | (7,455) | | Net decrease in cash | (294) | 274 | Notes to Financial Statements Notes detail the company's single segment operation, the Baby Boom acquisition, concentration risks, and a prior goodwill impairment charge - The company operates primarily in one principal segment: infant, toddler and juvenile products[23] - On July 19, 2024, the company acquired substantially all assets of Baby Boom Consumer Products, Inc. for a purchase price of $18.0 million in cash, funded by a term loan and borrowings under its revolving line of credit[29] - A non-cash goodwill impairment charge of $13.8 million was recorded during the three-month period ended March 30, 2025, resulting in no goodwill reported as of June 29, 2025[46] | Customer | % of Gross Sales (Q1 FY26) | % of Gross Sales (Q1 FY25) | | :--- | :--- | :--- | | Walmart Inc. | 45% | 39% | | Amazon.com, Inc. | 17% | 22% | | Target Corporation | 11% | <10% | - Sales of licensed products represented 50% of gross sales in fiscal year 2025, with 21% from license agreements with The Walt Disney Company[50] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes decreased net sales to tariff-driven inventory shortages and notes a decline in gross margin due to increased tariff costs | Metric | Q1 FY26 ($ thousands) | Q1 FY25 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | 15,478 | 16,212 | -4.5% | | Bedding and diaper bags | 6,791 | 6,251 | 8.6% | | Bibs, toys and disposable products | 8,687 | 9,961 | -12.8% | | Gross Profit | 3,518 | 3,966 | -11.3% | | Gross Margin | 22.7% | 24.5% | -1.8 p.p. | | Marketing & Admin Expenses | 4,717 | 4,263 | 10.6% | | Net Loss | (1,104) | (322) | 242.9% | - The decrease in net sales was attributed to inventory shortages resulting from a strategy to minimize the impact of high tariffs, which offset the $2.1 million in net sales added by the Baby Boom acquisition[62] - The decline in gross profit margin was primarily a result of increased tariff costs associated with products imported from China[63] - As of June 29, 2025, the company had $7.7 million outstanding on its revolving line of credit with $12.2 million available for borrowing[71] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk on variable-rate debt, commodity price risk from China sourcing, and significant market concentration risk - A one percentage point increase in interest rates would decrease annual net income by approximately $108,000, based on the $13.9 million of variable-rate debt outstanding[77] - The company is exposed to commodity price risk from changes in the cost of cotton, oil, and labor in China, its primary sourcing location[78] - Significant market concentration risk exists, with the top two customers representing 66% of gross sales and licensed products accounting for 50% of gross sales in fiscal year 2025[79] Item 4. Controls and Procedures Disclosure controls and procedures were deemed ineffective due to a material weakness in internal control over financial reporting, with remediation ongoing - The company's principal executive and financial officers concluded that disclosure controls and procedures were not effective as of June 29, 2025[80] - The ineffectiveness is due to a material weakness in internal control over financial reporting concerning the review and approval of manual journal entries, as previously reported in the Form 10-K for the year ended March 30, 2025[81] - Remediation efforts include improving internal control policies for segregation of duties and enhancing the review process for manual journal entries[83][86] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is not involved in any legal proceedings expected to materially adversely affect its financial condition or operations - The company reports no material legal proceedings that would be expected to have a significant adverse impact on its business[88] Item 1A. Risk Factors No material changes to previously disclosed risk factors have been reported since the last annual filing - No material changes to the risk factors from the company's Annual Report on Form 10-K for the year ended March 30, 2025, have been reported[89] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including financing agreements, officer certifications, and interactive data files - The exhibits filed with this report include the Nineteenth Amendment to the Financing Agreement with CIT Group, certifications by the CEO and CFO, and interactive data files[98][102]