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Crown Crafts profits up as costs come down

Joan Gunin -- Home Textiles Today, November 20, 2000

ATLANTA -Hacking away at costs as it works its way towards a turnaround, Crown Crafts Inc. said operating profits before one-time items shot up almost nine-fold during the second fiscal quarter, climbing to $3.7 million from $411,000 last year.

Driving the big improvement, the diversified bedding producer continued to slash its overhead, streamlining operations and reducing its work force. Operating costs were cut by 19.4 percent, to $10.7 million from $13.3 million last year, a cash savings of $2.6 million.

Sounding more confident and relaxed than he has in almost a year, ceo Michael Bernstein joked with Home Textiles Today. "I've finally stopped sweating, and I'm really pleased with where we are," he said. "We can see the light at the end of the tunnel, and it's no longer a freight train coming straight at us. It sure hasn't been easy, but we're really moving forward."

Despite the big improvement in operating profits before one-time items, a one-time loss of $10.8 million tied to the recently completed sale of the woven products division put a big dent in the bottom line, generating a second-quarter loss of $11.4 million, compared to a year-ago deficit of $1.8 million. Included was a one-time inventory writedown of $4.2 million, tied to the recent sale, which put margins under heavy pressure and produced a small operating loss of $501,000, compared with last year's operating profit of $411,000.

Pressured, for the moment, by the inventory writedown stemming from the sale, average gross margin narrowed by 380 basis points, to 12.4 percent from 16.2 percent last year.

Bernstein added, "We're still in a big transition. We've completed the sale of the wovens business to Mohawk; we've shut down the studio line; we're down-sizing the plant in Roxboro, NC, and doing a lot of other things. And once we're through with that, we're well positioned to go forward as a profitable company. So, like Mark Twain, I'm happy to say that reports of our death are premature. It sure hasn't been easy, but I feel absolutely confident about our prospects. We have pretty good assets and pretty good businesses going forward, and I feel really good about where we are."

With the sale of the wovens business to Mohawk, Bernstein is "absolutely convinced that Crown Crafts will not only survive, but prosper. We just needed to reduce debt, cut expenses and work down our inventories to restore confidence with our lenders and investors. Now we've done that."

Cleaning up the balance sheet, Crown reduced its inventories by 55.1 percent, to $40.9 million from $91.1 million "Now a lot of that was tied to the deal, but most of it is the studio line and other inventory that we unloaded," he said. "Excluding the sale to Mohawk, we still reduced our inventories to $60 million, by more than $30 million."

And that, said Bernstein, is one of the things that helped the company to pull through. "We have been generating an enormous amount of cash liquidating the inventory, and that got us through this whole thing."

CROWN CRAFTS INC.


Qtr. 10/1 (x000) 2000 1999 %CHG

Sales

$82,175

$84,162

(2.4)

Oper. income (EBIT)

(591)a

411

-

Net income

(11,408)b

1,817b

-

Per share (diluted)

(1.33)

(0.21)

-

Average gross margin

12.4%

16.2%

-

SG & A expenses

13.0%

15.7%

-

Six months

2000

1999

%CHG

Sales

140,369

149,949

(6.4)

Oper. income (EBIT)

(8,030)a

(2,707)

-

Net income

(22,294)c

(5,644)c

-

Per share (diluted)

(2.59)

(0.66)

-

Average gross margin

10.4%

8.5%

-

SG & A expenses

16.1%

16.9%

-


( ): Denotes loss

a-Operating income in the quarter and six months includes an inventory writedown of $4.2 million tied to the sale of the wovens division. Excluding the one-time item, the company posted a second-quarter operating profit of $3.7 million, up almost nine-fold from $411,000 last year.

b-Net income in the quarter was reduced by $6.8 million in miscellaneous expenses tied to the sale of the wovens division, compared with miscellaneous income of $176,000 the prior year. The company recorded an income-tax provision of $138,000 vs. an income-tax benefit of $1.0 million last year.

c-Nine-month earnings include $6.2 million in miscellaneous costs stemming form the sale of the wovens division, compared with $195,000 in miscellaneous income a year ago. Income taxes totaled $138,000, compared with a prior-year tax benefit of $3.3 million.

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