Leaner Crown Crafts cuts losses

Don Hogsett, September 24, 2001

Starting to put behind it more than a year's worth of crushing losses rung up by an adult bedding business which has now been sold off, a much smaller, much leaner Crown Crafts Inc. recorded a sharply improved first-quarter loss of $2.7 million, compared with a year-ago deficit of $10.9 million.

More importantly, however, without the drag of the money-losing businesses which have been sold off over the past 12 months, the company's new free-standing core infant's products business was solidly profitable during the period.

But generating the overall first-quarter loss, the period included three months worth of losses from the adult bedding business before it was spun off to former ceo Michael Bernstein as part of a sweeping restructuring. Going forward through the new fiscal year, without the drag of that baggage, the newly streamlined Crown is expected to be consistently profitable as it focuses on its high-margin — and historically highly profitable — infant's and juvenile products businesses.

Minus the adult bedding business — and the woven products unit which was sold off to Mohawk Industries — overall sales declined by 33.5 percent, to $38.7 million from $58.2 million. Excluding results of the sold-off units, sales of the core infant's business totaled $19.4 million, from $20.0 million, off 4.1 percent.

Perhaps more importantly, without the pull of the money-losing business, Crown actually recorded a profit of $1.7 million, down 21.2 percent from $2.1 million a year ago.

"Following the sale of adult bedding and the refinancing, both of which were effective July 23, 2001, this essentially closes the books on the old Crown Crafts," said new chairman and ceo Randall Chestnut.

The new Crown Crafts, he emphasized, "is both profitable and cash-flow positive and the refinancing right-sizes and restructures the company's balance sheet to fit the cash flows of the continuing businesses."

In a big lift to the bottom line, average gross margin improved substantially without the downward pressure of the adult bedding business. Margins widened to 19.4 percent from just 7.6 percent a year ago. Gross margin dollars improved by more than two-thirds, rocketing up by 69.2 percent, to $7.5 million from $4.4 million last year. Operating costs held steady at 20.6 percent of sales.

In another prop to the bottom line, following the refinancing and the sale of the bedding business, interest costs were whittled down by 16.1 percent, to $3.3 million from $3.9 million. Long-term debt was reduced by 1.0 percent, to $47.2 million from $47.7 million.

Crown Crafts at the same time reported that for all of last year the company posted a sharply widened loss of $73.6 million, up from a prior-year deficit of $29.1 million.

Crown Crafts Inc.

Qtr. 7/1/01 (x000) 2001 2000 % CHG
a-Prior-year sales includes results of the woven products and adult bedding businesses, which have since been sold.
b-Results in the quarter include a $370,000 gain on the disposition of assets, compared with $476,000 the previous year; miscellaneous income of $557,000, vs. $111,000 a year ago; income-tax expense of $41,000, compared with no income-tax liability of benefit in 2000; and a $136,000 gain on foreign currency conversion, compared with a prior-year gain of $31,000.
Sales $38,699 $58,194a -33.5
Oper. income (EBIT) (444) (7,529)
Net income (2,723)b (10,855)b
Per share (diluted) (0.32) (1.26)
Average gross margin 19.4% 7.6%
SG&A expenses 20.6% 20.6%

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