Crown Crafts (NasdaqCM:CRWS) Q3 2026 Earnings call February 11, 2026 09:00 AM ET Speaker5Please note this event is being recorded. I would now like to turn the conference over to John McNamara with Three Part Advisors. Please go ahead.Speaker7Thank you. Good morning, everyone, and thank you again for joining the Crown Crafts Fiscal Year 2026 Third Quarter Conference Call. With us on the call this morning are Crown Crafts President and Chief Executive Officer Olivia Elliott and Vice President and Chief Finan ...

Financial Data and Key Metrics Changes - The company has maintained a strong dividend yield of 11% [1] - The impact of tariffs has led to a pullback in production, affecting inventory levels and sales [18][22] Business Line Data and Key Metrics Changes - The company has expanded its product lines through strategic acquisitions, including entering the toy market and higher-end developmental toys [3] - The company has seen a shift in consumer purchasing behavior, with customers trading down to lower-priced products [15] Market Data and Key Metrics Changes - The birth rate has stabilized, with a slight increase in 2024, which is a positive indicator for the company [12] - The company is observing a trend where first-time parents tend to spend more on baby products compared to subsequent children [12][13] Company Strategy and Development Direction - The company aims to grow its market share in various categories, particularly where it is not currently the leader [19] - There is a focus on international expansion, leveraging existing distributor relationships to increase market presence [41][44] Management's Comments on Operating Environment and Future Outlook - The management acknowledges both optimistic and challenging aspects for the upcoming fiscal year, particularly regarding tariff impacts and inventory management [18][22] - The company is committed to continuous product development regardless of economic conditions [28] Other Important Information - The company is planning to consolidate warehouses to improve efficiency [30] - There is a strong emphasis on maintaining safety standards in product manufacturing, especially for baby products [26] Q&A Session Summary Question: How does the company target expectant mothers and growing families? - The company utilizes social media platforms like Facebook and Instagram to reach expectant mothers and engages influencers to promote products [50] Question: How important are licenses to the product mix? - Licenses are crucial, especially in toddler bedding, where they account for about 95% of the category [54] Question: How important is the dividend to the company? - Maintaining the regular dividend is important, but special dividends are unlikely while focusing on debt reduction [55]

Core Insights - Crown Crafts, Inc. (CRWS) has been upgraded to "Outperform" from "Neutral" as it navigates a challenging cost environment and integrates post-Baby Boom operations, focusing on margin and cash-flow improvements [1] - The company is implementing a cost restructuring strategy aimed at achieving structural savings, transitioning from one-time integration benefits to a more sustainable cost-reduction program [2] Financial Performance - In Q2 fiscal 2026, CRWS experienced a 3.1% decline in net sales year over year, while net income increased by 34.5% to $1.2 million from $0.9 million, indicating effective cost management despite revenue challenges [5] - Marketing and administrative expenses decreased by 13.6% year over year, falling to 19.9% of sales from 22.3%, reflecting successful integration and synergy capture [2] Operational Restructuring - Management is consolidating internal operations by merging NoJo and Sassy's back-office functions to eliminate duplicate roles and contracts, with savings expected to accumulate progressively through fiscal 2026 and into fiscal 2027 [3] - The company is shifting diaper bag sourcing away from China to mitigate tariff impacts, indicating a direct reset in cost of goods for a significant product category [4] Valuation and Dividend - CRWS's valuation remains compressed due to ongoing tariff impacts and an incomplete restructuring process, but the balance sheet is positioned to support a valuation floor with total debt reduced to approximately $16.3 million [6] - The company offers a high dividend yield of 11.64% with an annual payout of $0.32 per share, although the payout ratio of 533% appears overstretched due to a temporarily depressed profit base [7] Strategic Positioning - Crown Crafts is moving beyond the Baby Boom integration phase, achieving a more balanced portfolio with growth in bibs, toys, and disposables to offset declines in bedding and diaper bags [10] - Management is focusing on international distribution and selective brand reinvestment to reduce dependence on U.S. big-box retailers, aiming for a steadier earnings base and improved margin durability [11]

Core Viewpoint - Crown Crafts, Inc. reported a modest decline in net sales and gross profit for the first quarter of fiscal year 2026, primarily due to the impact of tariffs and inventory shortages, despite the contribution from the Baby Boom acquisition [3][4][5]. Financial Performance - Net sales decreased to $15.5 million for the three months ended June 29, 2025, down from $16.2 million for the same period in the prior year, representing a decrease of $734,000 or 4.5% [4][9]. - Gross profit fell by $448,000, resulting in a gross profit margin decrease from 24.5% to 22.7% of net sales compared to the prior year [5][9]. - The company reported a net loss of $1.10 million, or $0.10 per share, compared to a net loss of $0.3 million, or $0.03 per share, in the prior-year quarter [9][14]. Sales Breakdown - Sales of bedding and diaper bags increased by $540,000, while sales of bibs, toys, and disposable products decreased by $1.3 million [4]. - The Baby Boom acquisition contributed $2.1 million in net sales during the quarter, but overall sales were negatively impacted by inventory shortages due to high tariffs [3][4]. Expenses - Marketing and administrative expenses rose by $454,000, increasing from 26.3% of net sales to 30.5% of net sales compared to the prior year [6][9]. Dividend Announcement - The Board of Directors declared a quarterly cash dividend of $0.08 per share on the Company's Series A common stock, payable on October 3, 2025, to stockholders of record as of September 12, 2025 [7][9]. Company Overview - Crown Crafts, Inc. designs, markets, and distributes a variety of infant, toddler, and juvenile consumer products, and is one of America's largest producers in this sector [9][10].