Crown Crafts (CRWS) Fiscal Q1 2027 Earnings Call: Sales Up 8%, Margin Expands

Crown Crafts (NASDAQ: CRWS) reported higher sales, expanded adjusted gross margin and a return to profitability for fiscal Q1 2027. Improved inventory availability supported revenue, while tariff refunds materially benefited GAAP earnings and cash generation.

Key Takeaways

• Net sales reached $16.8 million, up 8%, as improved inventory levels allowed Crown Crafts to better meet demand despite soft consumer spending.
• Adjusted gross profit was $4.3 million, with adjusted gross margin rising 290 basis points year over year to 25.6%, supported by pricing initiatives and a higher-margin product mix.
• GAAP net income was $2.1 million, or $0.19 per share, compared with a prior-year loss of $1.1 million, or $0.10 per share.
• Tariff refunds reduced cost of products sold by $3.7 million during the quarter. The company said it also generated a profit after adjusting for the tariff-related benefit.
• Operating cash flow totaled $5.5 million, while debt declined from more than $14 million at the beginning of the fiscal year to $9.6 million at quarter-end.
• Management said relaunched Groovy Girls sales exceeded expectations, driven primarily by Canada, with European and Amazon launches planned for the fall.

Core Financial Data

Business and Operating Performance

Improved inventory levels were the main sales driver. Management said Crown Crafts was better positioned to satisfy demand than during the previous year’s tariff instability.

Margin improvement continued even excluding tariff refunds. The company attributed the adjusted gross-margin expansion to strategic pricing and an increasingly favorable mix of higher-margin products. Cost controls also reduced normalized marketing and administrative expense as a percentage of sales.

The relaunched Manhattan Toy Groovy Girls line performed particularly well in Canada. Demand was strong enough that Crown Crafts began redirecting inventory originally intended for the US market. Management cited support from its Canadian distributor and Indigo Bookstores’ marketing and launch event.

International sales also benefited from Crown Crafts’ new Canadian distributor, which handles both the Manhattan Toy and Sassy product lines across channels. New European distributors added since the prior fall provided further improvement.

The company is pursuing operational consolidation and debt reduction. Its warehouse consolidation is expected to take approximately 18 months, with completion targeted for May 2028. Management said related spending is unlikely in fiscal 2027 and will probably begin in the following fiscal year.

Crown Crafts also right-sized its quarterly dividend to retain more cash for growth investment and debt repayment. Management described the revised dividend as providing an approximate 4% yield.

Management Outlook and Timelines

Management plans to launch Groovy Girls at K&J in Germany in September for European markets. An Amazon launch remains targeted for October, although strong Canadian demand could limit the initial Amazon offering to only part of the product line.

Current capital expenditure is expected to remain focused on normal items such as IT, ERP upgrades and molds for plastic toys. Warehouse-related capital spending is expected to begin no earlier than the next fiscal year.

The Manhattan Toy office lease in Minnesota expires at the end of March next year and will not be renewed. Management is considering either remote work for the small local staff or a smaller space that could include a photography studio.

Risks and Items to Watch

• Management described consumer spending as soft amid high interest rates, inflation and global geopolitical uncertainty.
• Fiscal Q1 GAAP earnings received a material benefit from tariff refunds, although management said the company remained profitable on an adjusted basis.
• Crown Crafts requested $5.6 million to $5.7 million of tariff reimbursements and had received and booked approximately $4.7 million. About $900,000 remained unreceived and unbooked.
• Strong Canadian demand for Groovy Girls has required inventory to be diverted from the US, potentially limiting the breadth of the initial Amazon launch.
• Warehouse consolidation will require upfront investment and an approximately 18-month implementation period.

Analyst Q&A Highlights

Management said Groovy Girls’ Canadian performance has exceeded expectations. The distributor’s relationship with Indigo Bookstores and supporting marketing activity likely helped the launch, although management did not identify a broader reason for the brand’s particular strength in Canada.

Most of the approximately $4.7 million in booked tariff reimbursements was received in July. At quarter-end, the amount was recorded in other current assets rather than trade receivables.

Management expects the warehouse consolidation project to begin in late fall or early winter and target completion in May 2028. Normal IT, ERP and product-mold spending should account for current-year capital expenditures.

The new Motherhood diaper bags have started selling on Amazon but had a slow initial launch. Crown Crafts also has two NoJo-branded bags, including one sold through Walmart, and continues to develop the category.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Good afternoon, everyone. everyone and welcome to the Crown Crafts Fiscal Year 2027 First Quarter Conference Call. During today's call, the company may make certain forward-looking statements, and actual results may differ materially from those expressed or implied. These statements are subject to risks and uncertainties that may be beyond Crowncraft's control, and the company is under no obligation to update these statements. For more information about the company's risk factors and other uncertainties, please refer to the company's filings with the Securities and Exchange Commission, including its annual report on Form 10-K. With that, I would now like to turn the call over to President and Chief Executive Officer Olivia Elliott. Please go ahead.

Olivia Elliott

Thank you, Operator, and thank you, everyone, for joining this afternoon's call. Today, after the close, Crown Crafts reported very solid quarterly results, given the still-solved demand environment. We accomplished this by focusing on what we can control, and our team did a terrific job executing on our strategy. We were able to grow our net sales 8% despite the uncertainty that consumers continue to feel around high interest rates, inflation, and global geopolitical events. Improved inventory levels account for most of the growth, as we were able to better meet demand than during last year's tariff instability. Just as important, we were able to drive a higher gross margin, both on a GAAP basis and also when adjusting for tariff refunds, as Claire will walk us through in a moment. On an adjusted basis, our growth margin for the quarter climbed nearly three full percentage points year over year to 25.6%.

As a result, we were able to produce positive net income versus the loss reported in the prior year period, and we once again generated positive operating cash flow of nearly $5 million, similar to the March quarter. Combined with a significant reduction in our debt balance during the quarter, our balance sheet is significantly strengthened. As we mentioned on our last call, during the June quarter, we relaunched Manhattan Toy Brands Groupie Girl. pleased to say that so far, sales of this iconic line of fashion dolls has exceeded our expectations, largely driven by the Canadian market. And we believe this bodes well for continued success of this retro-inspired beloved brand. Next, I'll provide an update on our strategic initiatives to grow both our top and bottom line. Our priority is our ongoing innovative internal product development to expand our product offering. Another initiative is to build on our recent margin expansion to further drive profitability.

We're moving towards a favorable mix of higher margin products and, of course, our relentless spending disciplines. We're also striving to consolidate certain internal operations for greater efficiency, reduce our debt levels, and over the next two years, we'll be working on warehouse consolidation to further enhance our operating structure. These initiatives to create long-term value can often require upfront investment, and to that end, our Board has elected to right-size our quarterly dividend, which will provide us strategic access to a greater portion of our cash flow. That will also allow us to pay down debt and build the balance sheet strength that will support Crowncraft's growth well into the future. In essence, our new quarterly dividend allows for a well-balanced capital allocation approach that includes investing in growth initiatives and maintaining a solid balance sheet, while still rewarding our valued shareholders with what is now approximately a 4% attractive dividend yield. In closing, we had a solid quarter as we continued to execute on our business plan. While leveraging our inherent strengths, including our brands, our licenses, and our valued retail and licensing partners, our multi-pronged strategy that covers internal development of new products, reinvigorated marketing efforts, tight cost controls, and the strategic allocation of capital, positions as well for the creation of long-term shareholder value.

And now I'll turn it over to Claire to provide additional details around our quarterly results before we take your questions.

Unknown Speaker

Thank you, Olivia, and welcome everyone once again to the call. Our first quarter net sales of $16.8 million were up 8% over the prior quarter as improved inventory levels helped us capitalize on still soft consumer spending. As Olivia mentioned, we had strong growth margin performance. During the quarter, tariff refunds reduced our cost of products sold by $3.7 million. Even adjusting for this benefit, our gross profit of $4.3 million was above the prior year's $3.5 million and equates to a gross profit margin of 25.6%, which was up 290 basis points year-over-year. This section of our adjusted growth margin reflects both our strategic pricing initiatives and an increasingly favorable mix of higher margin products. We recorded marketing and administrative expense of $5.2 million for the first quarter as compared to $4.7 million a year earlier, although this quarter's figure includes just over half a million dollars of accrued incentive and compensation associated with tariff refunds.

On a normalized basis, we reduced marketing and administrative expense as a percent of net sales to 28% versus 30.5% in the first quarter of fiscal 2026, which speaks to our sharp focus on cost efficiencies, as Olivia mentioned. Moving down the income statement, we also successfully reduced net interest expense to only $190,000, well below the year ago $283,000 as a result of our efforts to reduce debt over the past year. From a GAAP perspective, we reported net income of $2.1 million, or $0.19 per share, well above the prior year loss of $1.1 million, or $0.10 per share. While first quarter net income benefited from the tariff-related adjustments described, I'll again note that on an adjusted basis, we still generated the first quarter profit versus the prior year quarter's net. loss. Turning to our balance sheet, as of June 28, we had total liquidity of $12.1 million, including cash and equivalents and availability on our revolving line of credit. During the first quarter, we significantly reduced our debt from more than 14 million at the start of the fiscal year to just 9.6 million at the end of the quarter. Not only do we reduce outstanding debt, but our net cash from operating activities of $5.5 million served to further support our balance sheet strength, putting us in a strong position to capitalize on future growth opportunities in a disciplined manner.

In summary, this was another quarter of strong execution in which we focused on what we can control while economic conditions remained soft. Even adjusted for tariff refunds, we grew revenues, expanded our growth margin, and generated stronger earnings per share than in the year-ago quarter. further strengthen our balance sheet and are well positioned to make progress against our strategic initiatives as we move through the new fiscal year. And now And now, operator, if you could please open the lines, Olivia and I would be happy to take questions. Thank you.

Operator

We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. and again that is star 1 if you would like to ask a question and our first question will come from Doug Ruth with Lenox Financial Services.

Unknown Speaker

Olivia and Claire, congratulations, fabulous report. I have several questions, so if you like I'm asking too many and I'll mind getting back in the queue. Could you give us a...

Olivia Elliott

offer some commentary of what you think is happening with Groovy Girls? So Groovy Girls has done phenomenally well in Canada. And as we look back on history, even when, you know, before we acquired Manhattan Toy, the first time they launched Groovy Girls, it appears that it took off in Canada first then as well. So, yes. We have actually sold so much in Canada at this point in time that we're having to divert inventory that should be coming to the US to go to Canada. So we're really excited about the opportunity there. And then we'll be launching Groovy Girls at K&J in Germany for the European markets in September.

Unknown Speaker

Okay. Is there a theory of why the Canadians like Groovy Girls so much?.

Olivia Elliott

We don't know. I can tell you that our distributor, they are partnered with Indigo Bookstores who really put some marketing efforts behind it and they hosted an event so that probably helped with it to.

Unknown Speaker

have such a large partner to launch with. Okay. What about, you had previously mentioned that ultimately the Groovy Girls will be on Amazon. Is there like a date that that might happen?.

Olivia Elliott

We are still hoping to launch early fall the inventory having it take off faster than we expected, it may not be the full line, but we're still targeting October sometime with at least part of the line.

Unknown Speaker

Okay, very good. And then could you explain to us what the status is of the I think you had told us there was maybe around 5 million, maybe 5 and 1 half million.

Olivia Elliott

expecting more money or do you think that's it or we're hoping to get more money so we had Requested reimbursement for 5.6 to 5.7 million in tariffs. And so far we've received about 4.7 million. And that is the portion that we booked. Most of that was received in July. A very, very small portion had been received in the first quarter. There's about 900,000.

Unknown Speaker

we still haven't received and we have not booked okay and then how is the balance sheet changed from or are you able to tell us anything about you know where the balance sheet is now versus where it was you know based on maybe tariff money.

Olivia Elliott

You mean as of today versus the quarter end? Yes. It's certainly improved by getting $4-plus million in cash in in the month of July, but that's about all we can really tell you. Oh, okay. I didn't realize the $4 million came in in July. Okay, very good. Yes. So it was booked as other current assets as opposed to a trade receivable at quarter end and quarter end.

Unknown Speaker

I see. So that's the other current asset that's on the balance sheet. Yes, and I think there's more information Claire just pointed out in – Footnote four. Footnote four. Okay, good. Okay, and then what can you tell us about the warehouse?.

Olivia Elliott

We'll be starting that project sometime in late fall or early winter. It's about an 18-month process and the plan is to get it consolidate sometime in May of 2028. So that process is not quite started yet.

Unknown Speaker

Okay and can you provide any additional details about capital expenditures and what you're thinking and how much you might be spending?.

Olivia Elliott

As of right now, our capital expenditures should just be the normal capital expenditures, which is mainly IT, so it would be any ERP upgrades that we're going through right now. molds for plastic toys, anything for the warehouse is unlikely to be spent in this fiscal year. It'll probably start sometime in the next fiscal year.

Unknown Speaker

Okay. All right. And then how about the international sales are doing so well. Can you share anything that's happening and why they're doing so well or what you're doing and the kind of.

Olivia Elliott

stuff. A lot of that's Groovy Girls in Canada, but it's more than that in Canada as well. We had two different distributors in Canada previously and starting in this calendar year, maybe a little bit in December of 25. we got a new distributor that is handling both the Manhattan Toy and Sassy product lines and taking that to all channels. So we've seen a pretty good improvement there across the board. Groovy Girls certainly added to it. And then we did starting when we went to K&J last fall, we did pick up some new distributors that started buying product maybe later in the fall, early winter. So a little bit in Europe, a little improvement as well.

Unknown Speaker

Okay. And then what can you tell us about Legoland? And we know we got that big new facility or I guess it's a year old now in Shanghai. What's happening with Legoland?.

Olivia Elliott

I don't think there's been any changes with Legoland. That was the last new park of any size and a little A lot of the parks for Legoland actually start winding down and closing for the winter. So there are some that are open, I know like Florida and California stay open year round, but a lot of them close maybe sometime in October. So those are more seasonal sales than year round.

Unknown Speaker

Okay. And then how about the Manhattan Toy Office in Minnesota? Is there any thoughts or updates on that at all?.

Olivia Elliott

That lease expires at the end of March next year. So we'll obviously not renew that lease. We're still kind of thinking about what we need, if anything at all, in Minneapolis. If we do get a lease, I mean there's two trains of thought there, we can either let, it's very small staff so they can either work from home full-time or we may need some small lease that can just hold a few people and some like a photography studio but but we will not be renewing the.

Unknown Speaker

very expensive lease that we're in right now. Okay. And my last question, is there Any new thoughts or ideas on diaper bags and how the company might proceed with that business?.

Olivia Elliott

We're still working on that product line. We did just start selling the new motherhood diaper bags. Very slow start at this point in time. It's only on Amazon. We're working on that. We have a couple of No-Joe bags, No-Joe branded, one of which is in Walmart. That's really it right now but we haven't given up on diaper bags we're just still working on it.

Unknown Speaker

Okay. You just did a fabulous job and thank you for what you did on behalf of the shareholders.

Operator

Thank you. And this now concludes our question and answer session. I would like to turn the floor back over to Olivia Elliott for closing comments.

Olivia Elliott

Thank you, Operator, and again, we appreciate everyone being on the call. We look forward to building on the early success of Groovy Girl and our other innovative products on the way. We appreciate your continued interest in Crown Crafts and will keep you posted on our progress as we move through the new fiscal year. Please feel free to reach out with any additional questions, and thanks again for your time.

Operator

for being with us. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]