CROWN CRAFTS INC Q4 FY2025 earnings call

• Fiscal 2025 was transitional due to persistent inflation causing consumer pullback on discretionary spending and tariff uncertainty. - Acquired Baby Boom Consumer Products, adding diaper bags and brand licenses like Bluey and Ms. Rachel. - Worked to reduce costs to maintain margins. - Cash flow for the year was $9.8 million, with cash and cash equivalents at $521,000 and inventories down 6.4% from prior year. - Introduced Claire Spencer as new CFO. - Addressed navigating tariffs, exploring warehouse options, positive feedback from toy show, mention of Stella doll and its market impact, and website redesign benefits.

Fourth quarter net sales were $23.2 million, a 2.9% increase compared to the prior year quarter. Gross profit for the quarter was 18.3% compared to 23.2% in the fourth quarter of fiscal '24. For the full year, net sales were $87.3 million compared to $87.6 million in the prior year. Gross profit for the year was 24.4% compared to 26.2% in fiscal '24. The company added $11.9 million in net sales from the Baby Boom acquisition but saw declines in the legacy business. Revenue contribution from Baby Boom acquisition was $11.9 million out of the full year's $87.3 million net sales.

• Navigating the impact of tariffs, working with manufacturers and retail partners to absorb tariff costs. - Exploring product and channel expansions to increase sales and gain market share. - Intend to make decisions on warehouse consolidation in the near future and update on progress throughout fiscal 2026.

• Persistent inflation leading to consumer pullback on discretionary spending. - Uncertainty around US tariff policy affecting sales. - Goodwill impairment charge due to decline in market capitalization. - Tariffs impacting costs, especially for diaper bags.

Q: First, I would like to thank Craig for what he has done for the shareholders. I thought you did a really nice job with the reporting, and I want to wish you well in your retirement. And I also wanted to welcome Claire to the team. Looking forward to seeing what -- how you're able to increase shareholder value.

A: Thank you, Doug. Appreciate it.

Q: Can you give us -- Olivia, can you give us an update on where things are with the warehouse at this point?

A: So we're still exploring pretty much every option that we can think of. But with tariffs, we've kind of put that on the -- for the last few months, we've been focused on tariffs and not really on the warehouse, but we're still exploring those options.

Q: Do you still think you'll make a decision sometime here in fiscal 2026?

A: I hope so. We're probably slowing down on the time line for actual moving, but I think we will make some decisions in the near future.

Q: I understand that you went to the New York toy show that was held in March. I was wondering, how did the show go for the company?

A: So yes, we had a lot of our sales and product development team that attended toy fair. I think they had a lot of really good traffic and some good feedback on the new products that we showed, and they actually wrote some orders, but it's not really common to write orders at the show anymore with just the EDI capabilities, et cetera. So from what I understand, everything went well, and the products that we intend to -- the new products showed very well.

Q: And then I know that one thing that is featured on the website is the Stella doll -- a new Stella doll. And then I understand that Meghan Markle had purchased a doll for her daughter. Are you able to comment on how the -- what's happening with the -- what's happening with the Stella doll and the redesign and any kind of sell-through?

A: Yes. And so we redesigned what was called Stella and Wee Baby Stella, and now we have a new Love, Stella line that includes a newborn doll. Before, the product started more at maybe the toddler age range. And so now we've got a newborn doll. We've redesigned the toddler doll so that it sits up better. And yes, Meghan Markle did include our Stella doll on one of her shows, and it certainly helped with a lot of the marketing and the advertising and the social media.

Q: And then I understand that the world's largest LEGOLAND is going to open in Shanghai on July 5. And I was wondering if that creates some opportunity for -- will Crown Craft be providing some of the Star Wars plush animals for that -- plush figurines for that location?

A: Yes. So they had a soft opening. I believe -- I can't remember if it was in late May or early June. And from what I understand, the soft opening went very well, and we are supplying the plush for that park.

Q: And then were the sales to -- were Crown Crafts sales to LEGOLAND, did they increase in fiscal 2025 versus fiscal 2024?

A: 2025 versus '24, yes. I think that the changeover, so I don't know if you recall that they were only going to allow the LEGO-branded plush into the parks. Taking -- it used to be us and then a couple of other competitors. And so we had some form of a transition throughout this year, but it has gone slower than we expected. But we expect that in the near future, we'll be the only plush in the park.

Q: And then you had also talked in the past about the diaper bags that there might be opportunities with possibly some new brands. Is there any development there?

A: Yes. We're still working on that. We've got a lot of excitement from some of our licensing partners that want us to do some licensed diaper bags. To be frank, the tariffs are hitting the diaper bags harder than anything. So we're trying to look at opportunities to keep those costs within reason so that we can expand that further.

Q: At one time, you had talked about a potential tax credit for importing products for children or for babies. Is there any update on that at all?

A: I think are you talking about the tax credit for parents, maybe, not really for us reporting?

Q: The tax credit for parents, all right. Yes, for -- like for babies, and would that apply to diaper bags?

A: I haven't heard if that went through or if that's part of the final plan, but there was some talk at some point about giving parents -- new parents a tax credit, yes.

Q: And then how about the distribution in Europe using the distributor instead of the direct sales force, is that helping the company?

A: Yes. It takes some time to get all of the new products flowing through the distributors. But I think at the end of the day, we're anticipating our international sales to continue to go up.

Q: And my last question is, how about the Manhattan Toy website, the redesign there? Are you -- is that -- has that made a difference for the company?

A: I think so. I mean it's much easier to shop on the website. I think we've got a much better visual that's updated. And I think that we're doing a good job of driving more people to the website through our social media post, et cetera.

Q: Very good. That's nice to hear that. And all the best to you, Craig.

A: Thanks so much, Doug.

Q: My questions have been answered. Thank you.

A: