Crown Crafts' (CRWS) CEO on Randall Chestnut Q1 2015 Results - Earnings Call Transcript

Aug.13.14 | About: Crown Crafts, (CRWS)

Crown Crafts, Inc. (NASDAQ:CRWS)

Q1 2015 Earnings Conference Call

August 13, 2014 2:00 PM ET

Executives

Randall Chestnut - Chairman, President and CEO

Olivia Elliott - VP and CFO

Analysts

Dave King - ROTH Capital Partners

James Fronda - Sidoti & Company

Operator

Hello ladies and gentlemen, and welcome to the Crown Crafts Incorporated Investors Conference Call. Your host for today’s call is Mr. Randall Chestnut, Chairman, President and Chief Executive Officer. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. Any reproduction of this call in whole or impart is not permitted without prior written authorization of Crown Craft’s Inc. And as a minder, this conference is being recorded today August 13, 2014.

At this time, I would now like to turn the call over to Ms. Olivia Elliott, Vice President and CFO who will begin the call. Please go ahead.

Olivia Elliott

Thank you. Welcome to the Crown Crafts Earnings Conference Call for the first quarter of fiscal year 2015. With me today is Randall Chestnut, the Company's President and Chief Executive Officer.

Randall Chestnut

Good afternoon everyone.

Olivia Elliott

A telephone replay of this call will be available from one hour after the end of the call through 8 AM Central Standard Time on August 20, 2014. Also, a Web replay of this call will be available for 90 days and can be accessed by visiting our Web site 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 again welcome to everyone to the Crown Crafts' first quarter FY 2015 Investor Conference Call. Before the market opened earlier today, we released the earnings for our first quarter which ended June 29, 2014, so all comments and all numbers will be for the first quarter, which are for the year-to-date as well for FY15.

Net sales for the first quarter were $15.7 million as opposed to 16.6 million in the same quarter of the previous year or down roughly $900,000. Net income was $703,000 as opposed to $822,000 in the prior year or down $119,000, and diluted earnings per share decreased from $0.08 last year to $0.07 this year. Sales throughout the quarter were impacted by lower replenishment orders from our customers as they maintained very tight controls over their inventories. During the entire quarter retail in general continued to remain sluggish. We are pleased that we were able to maintain a strong gross margin at 27.3% as opposed to 27.1% in the previous year for the same quarter.

In addition we’re very happy to report that we remain debt free no debt on the balance sheet and we ended the quarter with a cash balance in hand of $6.2 million. Also in the press release today we announced our 19th consecutive quarterly dividend and we will pay $0.08 per quarter to all the shareholders of record as of September 12, 2014 and this will be paid on October 3, 2014. This represents a 4% annualized yield based on yesterday’s closed price.

The staff and management of the Company are working aggressively to take opportunities to gain market share in this retail environment. We continue to expand product offering an example of this is the recently announced licensing agreement with Carter’s for the infant bedding category. Most of you will remember that the couple of years ago we signed a license with Carter’s for the toddler bedding but this is our first venture into the infant bedding category so now we hold a license with Carter’s for infant and toddler products, and that we’re very pleased with.

Wrapping out before I turn it back over to Olivia, one last comment. We’re excited about the momentum of the Company as we head into the second half of this year and we remain very optimistic about the future in FY15. We’ll come back in a few moments to open it up for any questions. But I’ll give it to Olivia to add a few details for the numbers. Thank you.

Olivia Elliott

Thank you. And now we’re going to give financial highlights. For more detailed analysis please refer to the Company’s Form 10-Q filed with the Securities and Exchange Commission this morning.

Net sales for the current year first quarter were $15.7 million, which is $909,000 or 5.5% lower than the first quarter of fiscal 2014. Sales were negatively impacted by lower replenishment orders from the Company’s retail customers and they fell to maintain lower inventory levels. Also initial set orders from a major retail customer were lower in the current year and some items from the customer’s modular set from the current year were not refreshed with new products.

Gross profit as a percentage of net sales increased from 27.1% to 27.3%, a decrease in amount by 212,000 in the current year quarter as compared to the prior year quarter primarily due to the decrease in sales. Marketing and administrative expenses for the first quarter of the current year decreased slightly in amount but increased as a percentage of net sales as compared to the prior year.

The Company’s provision for income taxes is based upon an estimated annual effective tax rate of 37.6% for the current year quarter compared to 37.2% for the prior year quarter. Net income for the first quarter of fiscal 2015 were $703,000 or $0.07 per diluted share compared to net income of $822,000 or $0.08 per diluted share in the first quarter of fiscal 2014.

I will now return the call to Randall.

Randall Chestnut

Olivia, thank you very much. And in my closing comments, as most investors are aware our first quarter which is the one we just ended has a start within our weakest quarter and this year which will repeat that it too is our weakest quarter. So we continued that tradition. We are excited about future and we will repeat that and we’ve got some great things going on that we are excited about. So with that Keith I’ll call you backup and you can open it up for anyone that might have any questions.

Question-and-Answer Session

Operator

Yes sir, thank you. We will now begin the question-and-answer session. (Operator Instructions) And the first question comes from Dave King with ROTH Capital.

Dave King - ROTH Capital Partners

So I guess first off I was just curious about I guess the retail environments on the comments in the release and then what you eluded to on the call so far Randall. I guess in terms of those lower replenishment rates, how should we be thinking about that? Sounds like obviously they’re going to be carrying lower inventory levels, but how much of that do you think is due to sell through? And then how should we be thinking about the lower replenishment rates continuing as we move forward? Should that result in kind of continued year-over-year declines if we think about it versus prior year or was this more kind of a one-time kind of adjustment on the part of some of your customers?

Randall Chestnut

Dave it is really hard answer I could be very candid, when we think that the retailers are moving in the right direction they are replenishing inventory one is and the other one slows down et cetera et cetera. So it’s very difficult to say. I mean the numbers that we’re seeing at retail aren’t showing a decline in point of sale to any appreciable degree, that’s holding steady. So we have to believe that the inventory adjustment is more inclined to be a one off rather than a trend.

Dave King - ROTH Capital Partners

Okay, that helps it is great color. And then maybe on your kind of own inventory situation, it looks like that kicked up a bit probably sequentially or even year-over-year even with the sales decline. Is there anything to be worried about there or maybe how would you characterize your own kind of inventory levels at this juncture?

Randall Chestnut

Dave no, there is nothing to be concerned about at all from the inventory standpoint we end our year and this is our first quarter obviously we end our year with historically lower than any other point in the year. And we have a tendency to build inventory back in anticipation of stronger sales in the latter three quarters of the year. So, the part of that what you’re saying is just a build for the inventory for the future. But there is nothing to be concerned about in the inventory.

Dave King - ROTH Capital Partners

Okay, and then maybe switching gears a little bit on the Carter’s announcement I thought that was a great new announcement I guess any color do you have any color that you can provide on how meaningful of an opportunity that is or how we should be thinking about that kind of versus the existing bedding business in terms of magnitude how should we be thinking about that or do you have any kind of reference point that we could keep into our model?

Randall Chestnut

Because of the strength of the brand it’s a great product category and it’s been in the marketplace for a while and so this is sort of where we’re recreating product to go back in those slots. So it’s a very good thing for the future it’s a great brand it’s a great placement and we’re excited about it. We were excited a few years ago whenever we were able to get the toddler but the toddler in the non-character license as you will know it’s a little more difficult than the lifestyle and Carter’s fits more into the lifestyle so that works perfectly into the infant arena. So yes we are excited about that.

Dave King - ROTH Capital Partners

And then maybe lastly so the cash balance was up a fair bit and obviously you have some opportunities it sounds likes ahead of you. Maybe if you use some of that maybe just overall Randall do you have any thoughts or how should we be thinking about your cash balance and uses of cash in terms of how you’re going to prioritize it? Is it fair to assume it’s more opportunities afforded to based on some of the competitors and some of their situations out there or is it possibility for increased dividend at some point I guess just how should be thinking about priority? Thanks.

Randall Chestnut

Dave it’s a good question but right now we’re holding on to the cash if opportunities present themselves where we can use that cash to enhance our position in the marketplace either through inventory acquisitions et cetera we’ll use the cash for that. I mean I am not going to say that there is not going to be higher dividends but right now we’ve told everyone and we’ve said this now for with us a 19 consecutive quarters we do it once a quarter. And we analyze our cash position and where we are with the need of cash, the use of cash and we analyze that very carefully and then we determine if we’re going to pay a dividend and how much dividend we’re going to pay. So, there is nothing to announce is what I am saying, I did announced we’re paying $0.08 a quarter on October the 3rd.

Dave King - ROTH Capital Partners

Sounds good. Well, fair enough and good luck with the rest of the year.

Operator

Thank you. And the next question comes from James Fronda with Sidoti & Company.

James Fronda - Sidoti & Company

Could you just talk about the gross margin a little bit on the quarter I guess with revenues declining and how it improved just a little bit?

Randall Chestnut

We’re pleased with the fact that even on a percentage basis James that we were able to maintain the gross margin percentage and actually increase it by 2 basis points so slight increase. And it’s showing that we’ve been able to redirect some of our product that we exited from some low margin product a few years ago and we've been able to at least for the moment hold the price and hold the cost on our sourcing. So we’re pretty excited about that and we were able to even in a down quarter we were able to hold on to what we consider strong gross margin.

James Fronda - Sidoti & Company

Alright, that’s all I had, thank you guys.

Operator

Thank you. (Operator Instructions) There are no more questions at the present time. I would like to turn the call back over to management for any closing remarks.

Randall Chestnut

Keith, thank you very much. And wrapping up and making the final remarks we said for many years we appreciate everyone’s time, attention and interest in the company. We all remain excited about the latter part of this year and we’ll speak to everyone again when we’ll report the second quarter earnings sometime in early November. And in the meantime if you have questions don’t hesitate to call either myself of Olivia. Thank you very much. Have a good day. Thank you.

Operator

To access the digital replay of this conference you may dial 1877-344-7529 or 1412-217-0088 beginning approximately 4 PM Eastern today. You’ll be prompted to enter a conference number which will be 10049550. You will be prompted to record your name and company when joining. The conference is now concluded. Thank you for attending today’s presentation. You may disconnect. Have a nice day.

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