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Crown Crafts: Higher Profits on Lower Sales

Infant and juvenile bedding producer Crown Crafts pushed third fiscal quarter profits up by 15.8%, using a trifecta of stronger margins, lower costs and deep cuts in interest expense to offset lower sales. Building further on an improved second fiscal quarter, the supplier said profits climbed to $1.1 million from $918,000 last year. The bottom line improved in spite of a slide in sales, down 13.5% to $17.9 million from $20.7 million a year ago.

Crown Crafts widened its average gross margin 290 basis points to 24.2% from 21.3%. Gross margin dollars were up 0.9%, to $1.8 million from $1.7 million year-to-year.

Interest expense was slashed by 17.1%, to $773,000 from $932,000 last year, generating a cash savings of $159,000.

Hobbled by the lower top line, expenses climbed higher when measured as a percentage of sales, by 80 basis points to 13.9% from 13.1% a year ago. But measured in absolute dollars, the only way it counts, costs were actually whittled down by 8.4%, to $2.5 million from $2.7 million, yielding a savings of $227,000.

The company said sales fell in the quarter “as a result of changing customer purchasing and marketing strategies.” Some customers, for example, cut the number of licensed products they carry. And sales were hurt as “customers purchasing private label merchandise increased the number of items they sourced directly.” Price erosion and the relaxation of quotas also hurt.

E. Randall Chestnut, president and ceo, said Crown Crafts is moving to reclaim sales volume. “The company is aggressively pricing existing and new products,” he said, but not at the cost of selling at a loss.

“Our philosophy is to maintain profitability in our business relationships.”

Crown Crafts Inc.

Qtr. ended 1/1/06 (x000) 2005 2004 % change
a. Third quarter results include miscellaneous income of $3,000, compared with $83,000 during the same period a year ago. Results in the prior-year quarter included an income tax benefit of $71,000.
b. Nine month results include miscellaneous income of $20,000, compared with $88,000 the year before.
Sales $17,882 $20,664 -13.5
Oper. income (EBIT) 1,846 1,696 8.8
Net income 1,063a 918a 15.8
Per share (diluted) 0.05 0.04 25.0
Average gross margin 24.2% 21.3%
SG&A expenses 13.9% 13.1%
Nine months
Sales 52,826 60,597 -12.8
Oper. income 4,359 4,425 -1.5
Net income 1,946b 1,658b 17.4
Per share (diluted) 0.9 0.8 12.5
Average gross margin 22.5% 20.7%
SG&A expenses 14.3% 13.3%

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