Crown Crafts moves into the black

Don Hogsett, Staff Staff, February 16, 2004

Helped by stronger margins, lower interest costs and lower debt levels, Crown Crafts Inc. engineered an earnings recovery during its third fiscal quarter, recording a profit of $738,000. The figure reverses a year-before loss of $1.1 million stemming from the shutdown of the company's Mexico-based manufacturing operation.

Wall Street applauded the return to profitability, and drove the company's share price higher by 8.6 percent, or $0.06 per share, to $0.76. The movement took place amid relatively high volume on the Over the Counter Bulletin Board on Feb. 11, after the company put out the news.

But sales at the supplier of infant and juvenile products backed off by 4.2 percent, to $20.7 million from $21.6 million, up against a tough comparison with last year's new program roll-outs, and further exacerbated by softness in the Pillow Buddies business.

Sales of Pillow Buddies declined after the company walked away from costly licensing commitments, and after the Disney Consumer Products business took one of its brands directly to retailers, cutting out Crown Crafts.

Helping to lift the bottom line, average gross margin strengthened by 40 basis points, or four-tenths of a percentage point, to 21.7 percent from 21.3 percent a year ago.

Acting as an offset, operating costs rose higher when measured as a percentage of lower sales, rising by 80 basis points to 13.9 percent from 13.1 percent a year ago. Measured in absolute dollars, however, costs held relatively steady, inching up 1.4 percent, to $2.9 million from $2.8 million.

Interest costs were whittled down at a double-digit pace as the company stabilized the balance sheet by working down its long-term debt levels. Interest expense subsided by 12.1 percent, to $986,000 from $1.1 million last year after the company pared its long-term debt by $3.6 million, or 11.6 percent, to $27.3 million from $30.9 million.

Inventories were kept in check, rising by 2.6 percent, even given the 4.2 percent drop in sales.

Absent last year's costs of closing the Mexico operation, cash on hand during the quarter increased more than six-fold, jumping by 571.1 percent, to $1.3 million from $194,000.

Crown Crafts Inc.

Qtr. 12/28 (x000) 2003 2002 % chg
a-Third-quarter results include miscellaneous income of $5,000, compared with $303,000 in the prior-year period; a $93,000 income-tax benefit, compared with a year-ago tax payment of $166,000; and a $19,000 gain on foreign currency conversion, compared with a $2,000 gain a year ago. Results in the prior-year second quarter were reduced by a $1.8 million restructuring charge stemming from the closing of the company's Mexican operation.
b-Nine-month results include a $25,000 gain on foreign currency conversion, compared with a year-before loss of $29,000 on foreign currency conversion. Results in the prior-year period include the $1.8 million restructuring charge and $378.000 in miscellaneous income.
Sales 20,717 21,636 -4.2
Oper. income (EBIT) 1,606 (5)
Net income 738a 989a
Per share (diluted) 0.03 (0.11)
Average gross margin 21.7% 21.3%
SG&A expenses 13.9% 13.1%
Nine months 2003 2002 % chg
Sales 61,183 67,962 -10.0
Oper. income (EBIT) 4,654 3,766 23.6
Net income 1,555b 366b 324.9
Per share (diluted) 0.07 0.02 250.0
Average gross margin 22.1% 22.1%
SG&A expenses 14.5% 13.9%

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