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Crown Crafts Wows Investors in 1Q

Boosting sales by more than 18%, and with margins gaining strength and costs coming down, Crown Crafts Inc. recorded a first fiscal quarter profit of $911,000, rebounding strongly from a year-before loss of $269,000.

The profit comes as a welcome surprise to a company that has recently regained its financial footing, and is all the more notable since Crown has routinely recorded a loss in its historically weak opening quarter. Indeed, said E. Randall Chestnut, Crown ceo and the architect of the company's turnaround, “This is the first profit we have posted in the first quarter since our restructuring in July, 2001.”

Even more remarkable, in a beleaguered and battered American textiles industry, Crown managed to boost its sales by 18.3%, to $16.2 million from $13.7 million, arresting and reversing a years-long slide in sales following a wrenching restructuring that included the sale of its adult bedding business to former ceo Michael Bernstein.

Wall Street and investors were clearly cheered by the good news last Wednesday, and rewarded the company by driving its stock price up by almost 15% in mid-day trading, by $0.33 per share, or 14.7%, to a new 12-month high of $2.58 a share.

Upward momentum in its stock price built on already strong gains since a recapitalization put in place a month ago secured the company's future by slashing debt levels, reducing borrowing costs to less than the prime rate, and providing fresh access to capital to accelerate its growth.

Crown Crafts stock has now climbed almost six-fold, or 486.4%, from its 12-month low of $0.44 per share.

Adding icing to the cake during the opening quarter, Crown boosted margins, by a remarkable 660 basis points, or 6.6 percentage points, to 28.3% from 21.7% during the same period a year ago. Fueled by stronger sales and wider margins, gross margin dollars soared by 54.4%, to $4.6 million from $3.0 million.

Leveraging the sharply higher sales, Crown whittled down its operating costs by 290 basis points, or 2.9 percentage points, to 15.2% from 18.1% a year ago. Virtually all of the reduction in costs was due to the higher level of sales, but even when measured in absolute dollars, costs were pared modestly, by 0.7%, to $2.5 million.

Crown said the quarter's strong sales gain was helped by a shift in timing, with $1.3 million worth of product shipped earlier in the quarter this year than last year. The big gainer was the bedding and blanket business, where sales jumped up by 21.4%, or $1.9 million, to $10.9 million from $9.0 million last year, helped by new private-label designs and timing issues.

The company's bibs and bath business climbed higher by 16.6%, to $4.8 million from $4.2 million last year. The sole disappointment was in the Churchill Weavers hand-loomed throws unit, where sales fell off by 20.3%, hurt by stiff competition and a dwindling base of specialty store customers.

Crown Crafts Inc.

Qtr. 7/2 (x000) 2006 2005 % change
(loss)
Sales $16,164 $13,659 18.3
Oper. income (EBIT) 2,130 499 326.9
Net income 911 (269)
Per share (diluted) 0.04 (0.03)
Average gross margin 28.3% 21.7%
SG&A expenses 15.2% 18.1%


First Quarter Segment Sales

Sales 2006 2005 % change
Bedding and blankets $10,905 $8,984 21.4
Bibs and bath 4,848 4,159 16.6
Handwoven products 411 516 -20.3


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