Crown Crafts 3Q keeps turnaround going

Don Hogsett, Staff Staff, February 18, 2002

ATLANTA — Boosting margins, slashing costs and hacking away at interest expense and debt, a radically repositioned Crown Crafts Inc. extended its recent turnaround with a second-straight quarterly profit, climbing out of a three-year trough in which the company lost more than $100 million.

Climbing back on track after a major refinancing and the sale of its bedding and woven products businesses, the company recorded a profit of $791,000, compared with a prior-year loss of $5.9 million.

A substantially smaller company after the sale of two big business units, Crown Crafts has shed virtually all of its U.S. manufacturing and has been transformed into a pure-play marketer of infant's products, a category the company entered only a few years ago, under new chairman and ceo Randall Chestnut.

Thinned out by the sale of the two operations, sales in the fourth calendar quarter — the company's third fiscal quarter — decreased by 64.4 percent, to $23.9 million from $67.1 million a year ago. Sales of infant's products, Crown's new core business, slipped during the period by 11.1 percent, to $22.9 million from $25.7 million last year, due in large part to the temporary suspension of shipments to a large retail customer. Shipments have since been resumed, said Chestnut.

Apart from the lower level of sales, said Chestnut, Crown Crafts was unaffected by the recent bankruptcy of Kmart.

Despite the slowdown in infant's sales, the business remains strongly profitable, and operating profits for the business grew by 51.6 percent during the period, to $2.3 million from $1.5 million last year, aided by the consolidation of the company's various infant's businesses into a single administrative and design unit.

In a major lift to the bottom line, average gross margin rocketed during the quarter by 450 basis points, to 22.0 percent from 17.5 percent a year ago, when the company was still encumbered by its money-losing adult bedding business.

Following a major refinancing and overhaul of its balance sheet, Crown whittled down its balance sheet by 60 percent, to $1.4 million from $3.4 million last year, a savings of more than $2 million.

Chestnut pared the company's costs by 130 basis points, to 15.9 percent from 17.2 percent a year ago.

And in another major cost-savings move, he said he's moving the company's headquarters from Atlanta to Gonzales, LA, home of the company's Hamco infant's bib business.

Crown Crafts Inc.

Qtr. 12/30 (x000) 2001 2000 % chg
(loss) a-Results in the quarter include a $4,000 gain on the sale of assets; an income-tax benefit of $121,000 vs. $103,000 last year; a loss on foreign currency conversion of $55,000, compared with a $5,000 prior-year gain. Results in the year-ago quarter were reduced by a $4.4 million impairment charge. b-Nine-month results include a $4,000 gain on the sale of assets; a $25.0 million one-time gain from the forgiveness of indebtedness income in connection with a refinancing; a $137,000 gain on currency conversion vs. $26,000 last year; and a tax benefit of $83,999 vs. a year-ago tax provision of $35,000.
Sales $23,869 $67,064 -64.4
Oper. income (EBIT) 1,457 194 651.0
Net income 791a (5,877)a
Per share (diluted) 0.03 (0.68)
Average gross margin 22.0% 17.5%
SG&A expenses 15.9% 17.2%
Nine months 2001 2000 % chg
Sales 93,906 207,433 -54.7
Oper. income (EBIT) 3,988 (7,836)
Net income 25,133b (28,140)b
Per share (diluted) 2.75 (3.27)
Average gross margin 21.8% 12.7%
SG&A expenses 17.6% 16.5%

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