Introduction
Crown Crafts (NASDAQ:CRWS) is a producer of infant and toddler products. Adverse business conditions and the trade war between the US and China have caused the stock price of CRWS to decline to a 7-year low. I believe the company has been punished too hard and is an attractive investment at current levels. CRWS has a sustainable dividend yield of 7%, its balance sheet is in a good condition and its operating performance has stabilized after a tough fiscal 2017 and 2018.
In this article, I will first discuss the issues the company has faced since 2017. Secondly, I will discuss Crown Crafts' financials over the last few years. Thirdly, I will argue that the company's valuation prices in all negativity and none of the potential upside.
Crown Crafts Infant products. Source: Instagram
Bad news has dominated the headlines for the company since 2017
Since 2017 the company has faced a lot of headwinds. First of all, one of its main categories came under severe pressure due to a new consumer trend. Historically, the company has been able to sell a lot of accessories and side products when parents bought a crib for their baby. However, the last few years, experts have warned that it is best to let babies sleep in a ‘naked crib.’ This means that no blankets, toys or pillows are to be put inside the crib.
Secondly, Crown Crafts has been deeply affected by the bankruptcy of Toys"R"Us and Babies "R" Us. In 2017, 19% of its revenue was derived from Toys"R"Us. For fiscal 2018, this figure has dropped to 15% (Source: April 26, 2019, presentation). Some of these lost sales have been offset by increased orders from Toys"R"Us’ competitors. On the whole, the company struggled in fiscal 2019 to recover those sales from Toys"R"Us.
