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Crown Crafts Shows More Profit

Don Hogsett -- Home Textiles Today, November 27, 2006

Still building sales and margins in a tricky retail environment, and chalking up a $4.1 million gain as it slashed its debt as part of a sweeping refinancing, Crown Crafts Inc. recorded a second fiscal quarter profit of $5.3 million, more than four times the size of $1.2 million in year-ago earnings.

Sales at the diversified producer of infant and juvenile bedding rose by 1.4%, to $21.6 million from $21.2 million, as gains in the core bedding business offset a continuing slide in fashion throws.

The lion's share of the earnings pickup resulted from a $4.1 million gain stemming from a recent refinancing that reduced the book value of debt to $2.9 million from $7.0 million. But even without that big gain, operating profits rose by 50.2%, to $3.0 million from $2.0 million, swollen by suddenly wider margins.

But there's a qualifying footnote there as well. Operating profit soared on the strength of sharply higher margins, which climbed by 500 basis points, or 5.0 percentage points, to 26.7% from 21.7% a year ago. But driving that growth, the company said, was another one-time item.

Margins were strong on their own, but made even stronger by an over-absorption of overhead, which contributed about 1.4% of the total 5.0% increased in margin strength. That over-absorption, the company noted, will reverse itself out over the rest of the year as all costs are fully absorbed. Even without the help from that one-time item, margins still rose an impressive 360 basis points, or 3.6 percentage points.

Breaking results out by category, bedding, blankets and accessories sales grew by 2.5%, to $15.2 million, and sales of bibs and bath were flat at $5.7 million. Sales at the Churchill Weavers division, which produces pricey hand-woven throws, declined by 10.2%, to $655,000.

Wall Street and investors rewarded the company on the day of the report by driving its stock price higher by 3.5%, or $0.13 a share, to $3.85.

CROWN CRAFTS INC.

Qtr. 10/2 (x000) 2006 2005 % change
a. Second quarter results include a $4.1 million gain on debt refinancing and miscellaneous income of $21,000, compared with miscellaneous expenses of $25,000 during the same period a year ago.
b. Six-month results include a $4.1 million gain on debt refinancing and $140,000 in miscellaneous income, compared with $17,000 last year.
Sales $21,574 $21,214 1.4
Oper. income (EBIT) 3,024 2,013 50.2
Net income 5,353a 1,151a 365.1
Per share(diluted) 0.54 0.05 980.0
Average gross margin 26.7% 21.7%
SG&A expenses 12.6% 12.2%
Six months
Sales $37,738 $34,955 8.0
Oper. income (EBIT) 5,154 2,512 105.2
Net income 6,264b 883b 609.4
Per share(diluted) 0.64 0.04 1,500.0
Average gross margin 27.4% 21.7%
SG&A expenses 13.7% 14.5%


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