Core Insights - Companies heavily reliant on China for product sourcing are experiencing significant gross margin degradation due to tariffs, with micro-cap stocks seeing declines of 50-700 basis points [1] - Despite challenges, two micro-cap companies have successfully adjusted to tariffs through cost restructuring and sourcing diversification, making them appear attractively valued [2] Company Summaries Crown Crafts, Inc. (CRWS) - Crown Crafts specializes in infant, toddler, and juvenile products, with Walmart and Amazon as key customers, contributing 47% and 19% of fiscal 2025 gross sales respectively [3] - In the latest quarter, Crown Crafts faced a 3.1% decline in sales and a 70 basis point erosion in gross margin due to tariffs, yet managed to increase EPS year-over-year from $0.08 to $0.11 [4] - Administrative and marketing costs decreased by 13.6% year-over-year, with further cost savings expected from management's consolidation plan by fiscal 2027 [5] - The stock is trading at 3.2X trailing 12-month EV/EBITDA, significantly lower than industry averages, with a current dividend yield of 11.72% [6] Hamilton Beach Brands Holding Company (HBB) - Hamilton Beach operates in two segments: Home and Commercial Products (74% of total revenues) and Health (26% of total revenues), with Walmart and Amazon accounting for approximately 29% and 24% of revenues respectively [7][9] - The company experienced a one-time 690 basis point hit to gross margin from tariffs but has implemented pricing actions and diversified manufacturing to mitigate future risks [10] - The Health segment's operating profit turned positive, and the premiumization strategy through the Lotus brand has shown strong sell-through performance [11] - A 15.2% year-over-year drop in revenue was attributed to trade paralysis among major retail customers, but there are signs of recovery as trade conditions stabilize [12] - The stock is currently trading at 6.26X trailing 12-month EV/EBITDA, with support around a tangible book value of $11.48/share [13] Market Context - Both companies have significant exposure to consumer spending, particularly through Walmart, which is managing macroeconomic challenges effectively [14]