Core Insights - The company is focused on maintaining quality and compliance while exploring alternative supply sources, primarily due to the concentration of production in China and the impact of tariffs on costs [1][3][21] - The relaunch of the Groovy Girls product line is expected to enhance the company's market presence and direct-to-consumer sales starting in May 2026 [2] - Despite a decline in net sales to $20.7 million from $23.4 million year-over-year, net income increased to $1.5 million, indicating resilience in the business model [4][7] Financial Performance - Third quarter gross margin decreased to 23.5% from 26.1% due to elevated U.S. tariff rates and one-time costs [3][6] - Marketing and administrative expenses rose to $5 million, influenced by $600,000 in severance expenses related to operational consolidation [5][6] - The company reported a net cash flow from operating activities of $7.1 million for the nine-month period, slightly up from $7 million in the previous year [9] Inventory and Supply Chain - The company maintains a conservative inventory strategy to minimize excess inventory exposure amid volatile pricing and tariffs, with inventories at $31.2 million at quarter-end [1][8] - The majority of products are sourced from China, with over 90% of production concentrated there, although the company is exploring alternative sourcing options [12][21] Strategic Initiatives - Cost initiatives are being executed to streamline operations and reduce payroll and administrative expenses, aiming for a leaner structure to better absorb external factors [5][9] - The company is committed to disciplined capital allocation, including regular dividends, to enhance long-term shareholder value [5][9] Market Environment - The macroeconomic environment remains challenging, with uneven consumer spending and price sensitivity affecting sales, particularly in the bedding category [3][4][11] - The company is optimistic about the long-term fundamentals of the infant, toddler, and juvenile category, despite current market pressures [10]

Crown Crafts (NasdaqCM:CRWS) Q3 2026 Earnings call February 11, 2026 09:00 AM ET Company ParticipantsClaire Spencer - VP and CFODoug Ruth - PresidentIgor Novgorodtsev - Portfolio ManagerJohn Deysher - President and Portfolio ManagerJohn McNamara - Managing DirectorOlivia Elliott - President, CEO, and DirectorConference Call ParticipantsAnthony Lebiedzinski - Senior Equity AnalystNone - AnalystOperatorPlease note this event is being recorded. I would now like to turn the conference over to John McNamara with ...

Financial Data and Key Metrics Changes - Net sales for the third quarter were $20.7 million, down from $23.4 million in the prior year quarter, while net income increased to $1.5 million from $900,000 a year ago [3][8] - Gross margin decreased to 23.5% from 26.1% in the prior year quarter, primarily due to higher tariffs and one-time costs [4][8] - Marketing and administrative expenses increased by $600,000 to $5 million, with expenses as a percentage of net sales rising to 24% from 18.8% [8][10] - Basic and diluted earnings per share were $0.14, up from $0.09 in the prior year quarter [9] Business Line Data and Key Metrics Changes - The softness in revenue was primarily attributed to the bedding category, where consumers are opting for lower-cost items like blankets instead of higher-priced bedding sets [14][15] - Positive performance was noted in bibs, toys, and disposable categories during the holiday season [3] Market Data and Key Metrics Changes - The majority of products are sourced from China, with over 90% of products coming from there, which poses risks due to ongoing trade tensions [16][32] - Consumer spending remains uneven and price-sensitive, impacting sales [4][35] Company Strategy and Development Direction - The company is focused on driving profitability through pricing and cost actions to offset the challenging sales environment [3] - A conservative inventory strategy is in place to minimize exposure to excess inventory amid volatile pricing and tariff environments [6] - The relaunch of the Groovy Girls product line is expected to create opportunities with specialty customers and expand reach in the juvenile space [4] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the difficult operating backdrop, including elevated tariffs and shifting retailer behavior, but remains confident in the long-term fundamentals of the infant, toddler, and juvenile category [11] - The company is committed to cash flow generation, debt reduction, and disciplined capital allocation as key pillars of shareholder value [7] Other Important Information - The company incurred $600,000 in severance expenses related to operational consolidation efforts [6] - Insurance proceeds of $2.5 million were received during the quarter, positively impacting income before tax [9] Q&A Session Summary Question: Where was the softness on the revenue line? - The softness was primarily in the bedding category, with consumers opting for lower-cost alternatives [14][15] Question: What percentage of the product comes from China? - Almost all products, in the high 90% range, are sourced from China [16] Question: Can you provide details on the $2.5 million insurance claims benefit? - The claims relate to a product category dropped at retail shortly after acquisition, leading to a successful claim under the representations and warranties insurance [17][20] Question: How much did retail price increases contribute to quarterly revenue? - Price increases were implemented across retailers by October, impacting the sales mix during the quarter [24][26] Question: What is the contingency plan if tariffs increase again? - The company is exploring alternative sourcing options but is currently focused on maintaining quality and safety standards [32] Question: Will Groovy Girls be sold internationally? - Yes, the product will be sold internationally through distributors [42] Question: How is the Disney license in Canada performing? - The license started in January, and the company is in the process of introducing its products to larger retailers [44] Question: What is the status of international sales? - Specific numbers were not disclosed, but the company is actively working to expand its international distributor network [48]