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Crown Crafts Still Struggling

Company Hits Speed Bump Following Close of Throw Division

Don Hogsett -- Home Textiles Today, February 26, 2007

Hitting a big speed bump after several months of strong earnings gains following a major refinancing, third fiscal quarter profits at Crown Crafts Inc. tumbled by 42.2%, to $614,000 from $1.1 million last year, hobbled by a one-time charge tied to the closing of its Churchill Weavers throw division, a drop in sales, thinning margins, higher costs, and a bigger tax bill.

Taking a major bite out of the bottom line was a valuation allowance of about $550,000 tied to the impending shutdown of its Churchill Weavers hand-woven throw subsidiary. Excluding the sharply skewing effect of that non-cash accounting item, Crown Crafts earned $1.2 million, up a solid 9.1% from $1.1 million last year.

Absent that one-time accounting charge, earnings per share more than doubled, climbing to 11 cents per diluted share from 5 cents a year ago on a lower number of shares outstanding following last year's refinancing.

And even after the third-quarter earnings drop, profits through the first nine months of the year more than tripled, jumping by 253.5%, to $6.9 million from $1.9 million last year, aided by a $4.1 million gain stemming from the debt refinancing.

Sales fell by 7.9%, to $16.5 million from $17.9 million, due to pricing pressure, and as the company walked away from unprofitable programs. Sales of bedding, blankets, and accessories fell by $1.1 million, and were off by $400,000 in the larger bibs and bath products division.

But even after the quarter's dip, sales for the nine months year-to-date increased by 2.6%, to $54.2 million.

E. Randall Chestnut, ceo, said the majority of the sales shortfall stemmed from pricing pressures from just two retailers. As a result, he said, Crown decided to walk away from programs "which cannot be profitable to the bottom line."

Given the drop in third fiscal quarter sales, average gross margin tightened by 220 basis points, or 2.2 percentage points, to 22.0% from 24.2% a year ago. When measured as a percentage of lower sales, operating costs climbed by 200 basis points, or 2.0 percentage points, to 15.9% from 13.9% a year ago. And following a long stretch of lower dollar costs which acted as a prop to the bottom line, operating costs increased by 5.8% in absolute dollars, rising by $144.000 to $2.6 million from $2.5 million last year.

Stockpiles climbed sharply during the third quarter, jumping up by 19.3%, to $11.6 million, hurt in part by falling sales.


Qtr. 12/31 (x000) 2006 2005 % change
a. Third quarter results include $4,000 in miscellaneous costs, compared with $3,000 during the same period a year ago; and income tax expense of $194,000, compared with $13,000 the prior year when the company received tax benefits stemming from prior losses.
b. Nine-month results include a $4.1 million gain on debt refinancing; miscellaneous costs of $144,000, compared with $20,000 the prior year; and income tax expense of $2.3 million, compared with $118,000 the year before when it received tax benefits from prior losses.
Sales $16,453 $17,882 -7.9
Oper. income (EBIT) 999 1,846 -45.9
Net income 614a 1,063,000a -42.2
Per share (diluted) 0.06 0.05 20.0
Average gross margin 22.0% 24.2%
SG&A expenses 15.9% 13.9%
Nine months
Sales $54,191 $52,826 2.6
Oper. income (EBIT) 6,153 4,359 41.2
Net income 6,879b 1,946b 253.5
Per share (diluted) 0.69 0.09 666.7
Average gross margin 25.8% 22.5%
SG&A expenses 14.4% 14.3%

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