Crown Crafts' (CRWS) CEO Randall Chestnut on Q4 2014 Results - Earnings Call Transcript

Jun.18.14 | About: Crown Crafts, (CRWS)

Crown Crafts, Inc. (NASDAQ:CRWS)

Q4 2014 Earnings Conference Call

June 18, 2014 02:00 pm ET

Executives

Olivia Elliott - Chief Financial Officer, Vice President

Randall Chestnut - Chairman of the Board, President, Chief Executive Officer

Analysts

Dave King - Roth Capital

Operator

Good afternoon and welcome to the Crown Crafts, Incorporated Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

At this time, I would now like to introduce and turn the conference call over to Ms. Olivia Elliott, VP and CFO. Please go ahead.

Olivia Elliott

Thank you. Welcome to the Crown Crafts Investor Call for the Fourth Quarter and Full Fiscal Year 2014. With me today is Randall Chestnut, the company's President and Chief Executive Officer.

Randall Chestnut

Good afternoon.

Olivia Elliott

A telephone replay of this call will be available 1 hour after the end of the call through 8 a.m. Central Daylight Time on June 26, 2014. Also, a web replay of this call will be available for 90 days and can be accessed by visiting our website at crowncrafts.com.

Before we begin, I would like to remind everyone of the cautionary language regarding forward-looking statements contained in the press release. That same language applies to comments made in today's conference call. I will now turn the call over to Randall.

Randall Chestnut

Olivia, thank you and good afternoon again. Welcome to the Crown Crafts' Investor Conference Call. Before the market opened this morning, we released the earnings for the fourth quarter and our full fiscal year, which ended March 30th of 2014, and today we will be talking about the numbers for the quarter and for the full year.

Our net sales for the quarter FY'14, we finished at $24,011 million versus the previous year of $23.611, or up $400,000, or 1.7% for the quarter. Net income, we finished the quarter at $2,028 million as opposed to $1,854 million and the prior year up 174,000 or 9.4%.

Diluted earnings per share increased from $0.19 last year to $0.21 this year in the quarter. Turning to the full year net sales for the full year finished at $81,294 million as opposed to $78,416 million in the previous year or up just under $2.9 million or 3.7%.

Net income for the full year was $5,771 million as opposed to $5,111 in the previous year, up $660,000 or 12.9% and diluted earnings per share increased from $0.52 in the previous year to $0.59 in the current year just ended. FY'2013 was a good year for the company and we are pleased with the overall results.

Net income for 2014 was the highest that the company has seen since fiscal 2002. If you exclude one-time effects of $3.7 million after tax gain on debt restructuring in 2007 and $4.2 million income tax benefit in fiscal 2006. Long-term shareholders will recall that 2002 was the year that the companies began a strategic transformation by divesting off legacy businesses and re-emerging as a new focus on infant and juvenile products.

We are very pleased with the sales gain for the quarter and the year. We improved the four-year cycles over the previous year by 3.7%. This was accomplished by creating new products and placements during the year. Even though the retail environment continues to be soft and retailers continue to be vigilant on maintaining tight inventory controls. We are extremely proud of our product development and design teams that put these products together to allow for the sales increase that we had during the year.

Turning to the gross profit for a moment, gross profit increased from 26% to 26.5% in the current year quarter, the fourth quarter year-over-year and improved from 25.2% to 27.7% for the full 12 months FY'14. The full year improvement in gross profit is attributable to several factors.

Among those is a more favorable product mix in the current year as opposed to the previous year. The sales increase of 3.7% in the current year also provided better coverage for the fixed portion of the company's cost of sales than the prior year. Also during the year, we reduced our distribution cost by about a $0.25 million by eliminating a secondary warehouse that we had used for overflow and backup shipping.

On the balance sheet side, we finished the year debt free and with a small cash balance on hand.

We announced on May 13th, a quarterly dividend payment of $0.08 per quarter. This represents a 3.9% annualized yield based on yesterday's close price. The quarterly dividend of $0.08 will be paid on July the 3,rd 2014 to shareholders of record as of June 13th 2014. We are very pleased with the strength of our balance sheet and operating cash flow allows us to provide this dividend to our shareholders.

Olivia, I will turn it back over to you for additional comments.

Olivia Elliott

Thank you. I'm only going to give financial highlights. For a more detailed analysis, please refer to the company's Form 10-K filed with the Securities and Exchange Commission this morning.

Net sales were $81.3 million for fiscal 2014, which was $2.9 million higher or 3.7% than fiscal 2013 sales of $78.4 million Net sales for the fourth quarter of fiscal 2014 were $24 million, which was $400,000 or 1.7% higher than the fourth quarter of fiscal 2013 sales of $23.6 million. The majority of the sales increase was due to the introduction of three new programs during the second quarter of the current year.

Gross profit for fiscal 2014 increased in amount by $2.8 million and increased as a percentage of net sales from 25.2% to 27.7%. The increase as a percentage of net sales can be attributed to a more favorable product mix in the current year compared with the prior year.

The higher level of sales in the current year also provided better coverage of the fixed portion of the company's cost of sales than in the prior year. Additionally, the company in the current year experienced a decline of $248,000 in cost associated with the company's rental of an auxiliary warehouse and distribution center which the company vacated and sublet in fiscal year 2013.

Marketing and administrative expenses for fiscal year 2014 increased in amount and as a percentage of net sales as compared with fiscal 2013, primarily due to increases in the company's performance based compensation cost. The company also in the current year experienced increased legal fee, primarily associated with the company's defense of two lawsuits.

The company's provision for income taxes increased to 38.3% for during fiscal 2014 from 36.3% in fiscal 2013. The increase in the effective tax rate is primarily due to a decrease in the current and the amount of certain expenses that are deductible for tax purposes, but not for book purposes as well as a decrease in California Enterprise Zones Wage Credit.

Net income for the fourth quarter of fiscal 2014 was $2 million, or $0.21 per diluted share, compared to net income of $1.9 million or $0.19 per diluted share for the fourth quarter of fiscal 2013. Net income for fiscal 2014 was $5.8 million or $0.59 per diluted share compared to net income of $5.1 or $0.52 per diluted share for fiscal 2013.

I will now return the call to Randall.

Randall Chestnut

Olivia, thank you very much. That concludes our remarks. Ian, if you'll come back, we'll open it up to any questions that anyone on the line might have.

Question-and-Answer Session

Operator

Thank you. We will now begin the question and answer session. (Operator Instructions) Our first question comes from Dave King of Roth Capital. Please go ahead.

Dave King - Roth Capital

Thanks. Good afternoon, Randall and Olivia.

Olivia Elliott

Hi, Dave.

Randall Chestnut

Hi, Dave. How are you?

Dave King - Roth Capital

Good. I guess, I have got a few questions here. I guess, first off on the gross margin, I was curious obviously it was up year-over-year, which is again encouraging, but it was up a little bit less than in the prior quarters and it was down a little bit sequentially.

I guess I was just looking for more color about either what drove the decline or how we should be thinking about on a go-forward basis. I know you don't necessarily want to give any guidance. I guess, how should we think about it in terms of the puts and takes? What a sustainable kind of level should be here way you guys are managing towards.

Randall Chestnut

Dave, there is nothing special in the gross profit that changes that greatly from quarter-to-quarter. We had some new placements that we have made in the second and third quarter new shipments for new product deliveries that we have made in the second and third quarter which probably the initial shipments had a little higher profit in it than some other ones did in the fourth quarter, but there's nothing that has really earmarked that we can point to that has a huge effect on it either plus or minus from quarter-to-quarter.

Dave King - Roth Capital

Okay. That helps though. Then in terms of inventory, it looks like those were down sequentially at least on a days' basis down sequentially, but still kind of up in a fair bit year-over-year in terms of kind of the days and I am just wondering what might be driving that.

I think in the past, maybe there was some specific stuff that may have driven the last quarter. I guess just what drove it this quarter and how should we be thinking about the inventory balances.

Randall Chestnut

Typically Dave, at the end of the fourth quarter, that is our low point for inventory and that's our year end as you well know. You follow us now for several years. Our first quarter is typically, I don't want to say our weakest quarter, but it's the less strongest quarter of all the four out of the year, is a better way to put it.

At the end of the fourth quarter, that's when inventory has come at an all time low, and what you are comparing really in the previous year is where inventories were really below the low. They were in the previous year FY'13, inventories had come down really below where they should have been, so you are looking now at a more normalized inventory level at the end of the fourth quarter is – bit higher than maybe as we would like to see it a few points, but it's very few points.

Dave King - Roth Capital

Right. They are still pretty low. I am just…

Randall Chestnut

It is pretty low.

Dave King - Roth Capital

Okay. Thanks for that. Then I guess just more broadly Randall, I guess, thinking about the retail environment out there, what are your thoughts today. Has it improved at all? The talk out there about stabilizing or maybe even improving birth rates just starting to hear a little bit about that, I guess, what are your current thoughts on that and are you seeing at all at retail these days.

Randall Chestnut

Dave, I'll answer them sort of one-by-one. Take the birth rate, the birth rate froze. We are seeing some early indications, some numbers that maybe there is a slight uptick just a few thousand of births over previous declines and that is I think for calendar '13, it's a slight, slight uptick, but it's very (Inaudible), so we haven't seen or it's like we don't see any effect from that.

We are still seeing retailers maintain tight inventory controls and that's really the key right now. If they don't have a sale-through, then it shows up in tightening of the inventory and post calling and pushing back to leverage.

Once we get it into the store and it gets on the floor, we are seeing some pretty decent sell-through numbers, so we are encouraged by that, but every time that has anything of any bit of a slowdown, the retailers tighten the inventory up and may have reduced the inventory.

Overall, we are pleased with where we are positioned in the stores and we are pleased with where we are positioned as far as our sell-through.

Dave King - Roth Capital

All right. That helps greatly and good luck on fiscal '15.

Randall Chestnut

Thank you, Dave.

Olivia Elliott

Thank you.

Randall Chestnut

Thank you very much.

Operator

(Operator Instructions) At this time I am showing no further questions. I would like to now turn the conference back over to Mr. Randall Chestnut for any closing remarks.

Randall Chestnut

Okay. Thank you very much and we really appreciate everyone's time and attention. Our fiscal year ends in March and it seems like it's a long time between the time we end our year and we will have this conference call, so the next conference call will not be as far apart. It will be by the end of the first quarter and we will have that call sometime in mid-August.

Until that time, we would like to say that we are very pleased with the performance that we had this year. It was a very good year and we are happy with our performance. We are also pleased with our position in the market and our designs and our products. As I said, our position while we are in the store, the sell-through that we are achieving is on the retail floor.

We would like to thank all of our customers, employees, suppliers, shareholders and everyone for their continued interest and support in the company. 2014 was a very successful year and we thank you very much and we will talk to you again in a couple of months.. Have a good day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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