Crown Crafts Continues A Safe Yield After Trimming Fat

| About: Crown Crafts, (CRWS)

Crown Crafts (NASDAQ:CRWS) is a leader in the infant/toddler retail products industry. It provides goods such as baby beds, bibs, soft baby goods, etc. It also holds a number of licenses to promote sales of its products, from industry giants such as Disney Baby, Nickelodeon, Baby Looney Tunes, Sesame Street and others

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CRWS posted a $0.50 special dividend in addition to a $0.08 quarterly dividend in December 2012.

The most recent earnings call had a modestly upbeat feeling throughout the transcript. Sales for 3Q2013 were $20 million, a decline of 7% from the previous third quarter. Yet, net income was up to $1.6 million, an increase of 3.6% from 3Q2013. EPS remained steady at $0.16/share. Gross margins improving from 22.8% to 24.9% was a catalyst for the net income increase.

There were a number of factors contributing to the increase in profit margins, which should be continued permanently or for the rest of the calendar year. A private labeling program that was costing Crown Crafts on units shipped has been discontinued. The cost of supply for raw materials has decreased. Crown Crafts is still reaping benefits from re-engineering several of its high-cost products. It also raised prices without impacting sales too much.

The company's dividend is another pleasing aspect, as it has announced the 13th consecutive quarterly dividend. It will maintain the $0.08/share dividend, which is a 5-6% annual yield. The date of record is March 15, 2013. The dividend will be paid for through half of the free cash flow, with the other half being devoted to corporate purposes of improving the company.

The company is debt-free as well, and there's something to be said for that, considering uncertain interest rates in the upcoming future.

Some challenges do face this company, such as how long the lower-priced raw materials will be able to contribute to improved profit margins. Its main competitors, Kids Line from Kid Brands (NYSE:KID) and Summer Infant (NASDAQ:SUMR) could pose a challenge as well. There is another challenge, one not so obvious and outside Crown Crafts' control: the overall number of births has declined in the past few years.

The CEO was unconcerned about efforts from the competition, stating: "We learned a long time ago that we just keep our head down and keep pushing and trying to do what we do best. And I really can't answer what their intentions would be."

Bottom Line

There is reason to be hopeful for this company and its stock price. It has cut bloat, raw material costs have decreased, increased product prices aren't affecting sales too negatively, and it has maintained the dividend. Some causes for concern include challenge from the completion and a pursuit of a debt-free growth strategy. Overall, I would rate this stock a "Buy, if it makes sense for you."

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.