Crown Crafts: A Classic Free Cash Flow Generating Business

| About: Crown Crafts, (CRWS)

Business: Crown Crafts, Inc. (NASDAQ:CRWS) engages in the design, marketing, and distribution of infant and toddler products in the United States and internationally. Its infant products include crib bedding, blankets, nursery accessories, room decor, bibs, burp cloths, bathing accessories, and other infant soft goods.

Free Cash Flow Generation (Data as of 2/25/2010)

Year 2002 2003 2004 2005 2006 2007 2008 2009

Free Cash Flow (in millions) 5.1 6.4 2.8 5.9 7.3 11.0 2.5 8

Impressively, in no year did capital expenditures exceed $450 thousand.

From 2002-2009, total assets averaged $58.46 million.

From 2002-2009 Free Cash Flow averaged $6.13 million.

Therefore, we get an average Free Cash Flow ROA for the period of:

  • $6.13 million / $58.46 million = 10.48% (quite good)

At a $30 million market cap, CRWS is trading at:

  • 3.75X 2009's Free Cash Flow and 4.9X its 8 year average Free Cash Flow.

Management has been very diligent about paying down debt. Long-Term Debt was $36.8 million in 2002. In the latest quarter reported, Long-Term Debt stood at $1.784 million. On February 9, 2010 Crown Crafts' Board of Directors declared a quarterly dividend of $0.02 a share. Revenue in the latest quarter reported was up 6.98%

It's always heart-warming to see old school, conservative management. CEO Randall Chestnut and his team really execute on the blocking and tackling of a well run enterprise.

For me, researching CRWS is always a pleasure. It was one of my first big winners, making me over 650% in less than two years during a restructuring in 2006-2007. I try to regularly keep up with their results. CEO Randall Chestnut is a fierce competitor. He was the right-hand man to David H. Murdock of Castle & Cook/Dole Foods (NYSE:DOLE) fame at various textile companies which Murdock would take over and Chestnut would turn around.

After Chestnut became CEO of Crown Crafts, he shuttered money-losing units, moved manufacturing to Asia, slashed costs to the bone, aggressively paid down debt with cash flow, and recently made some accretive acquisitions at very shrewd EBITDA multiples. CRWS has a very lean cost structure that makes it a natural supplier to Wal-Mart (NYSE:WMT), but a tough model for its competitors to emulate. Bottom line, the company has the cost advantages of Asian manufacturing combined with a seasoned U.S. management team which is as shrewd and honest as the day is long. It is quite a combination.


  1. Excellent Management

  2. Lean Cost Structure

  3. Free Cash Flow Generation

  4. Strong Sourcing/Logistics

  5. Shrewd Acquisitions

Primary Risks

  1. Private Label Brands

  2. Customer Concentration

  3. Retail-Direct Licensing

  4. Tough Competitive Environment

  5. Asian Product Safety

Disclosure: No positions