Crown Crafts' results tipped by dock lockout
February 17, 2003,
Despite a 9 percent drop in sales triggered by a West Coast dockworkers' lockout that left 40 containers of product bobbing at sea, Crown Crafts Inc. pushed third-quarter profits before one-time restructuring charges up by 6.5 percent, to $784,000 from $736,000 last year.
Operating profits shot up by 21.5 percent, to $1.8 million from $1.5 million the preceding year, with deep cuts in overhead offsetting moderate margin erosion.
The company's thinly traded stock advanced by 2.1 percent, to $0.49 a share in unusually heavy trading on the over-the-counter bulletin board, with 385,000 shares changing hands by mid-day Thursday, the day after the news came out.
Crown Crafts sales declined by 9.4 percent, to $21.6 million from $23.9 million last year, the shortfall blamed on a West Coast dock strike that cut off the flow of sourced product into the U.S., said Randall Chestnut, president and ceo.
"As the company began the quarter, we were faced with the West Coast port lockout affecting 40 inbound containers of product already in transit," said Chestnut. "It took eight weeks to process the last of these containers. In addition, through December there were shipping slowdowns at the ports in Asia due to a shortage of containers being returned from the United States. Since our retail partners work on just-in-time inventory, as does Crown Crafts, when shipments are delayed, valuable selling time is missed and re-orders are not generated. We attribute the majority of the reduction in net sales to this disruption in shipping."
Taking a big bite out of the quarter's bottom line, Crown Crafts recorded a one-time, pre-tax charge of $1.8 million to cover the cost of shutting its Mexican operation. "As part of our ongoing focus on operational efficiency, we made the tough but correct decision to close our Mexican manufacturing facility, Burgundy Interamericana, which produces only 5.7 percent of our product. Over the last several quarters we have negotiated sourcing arrangements worldwide at considerably lower prices, a trend we do not anticipate reversing. This decision should improve our operating costs going forward and further improve our cash flow.
The restructuring charge aside, Crown Crafts parlayed deep cuts in operating costs and interest expense into a 6.5 percent increase in profits, to $784,000, or $0.04 a share. In a big lift to the bottom line, expenses were pared by 280 basis points, or 2.8 percentage points, to 13.1 percent of sales from 15.9 percent a year ago. Measured in absolute dollars, costs were slashed by 24.9 percent, to $2.8 million from $3.8 million last year, generating a cash savings of $941,000. Dropping even more cash straight to the bottom line, interest expense was cut by 17.5 percent, to $1.1 million from $1.4 million, a cash savings of $238,000.
An offset, though, were somewhat weaker margins.
Crown Crafts Inc.
|Qtr. 12/29 (x000)||2002||2001||% change|
a-Third-quarter results include $302,000 in miscellaneous income, compared with $514,000 the prior year; income-tax expense of $166,000. Compared with a year-ago tax benefit of $121,000; and a $2,000 gain on foreign currency conversion. Compared with a year-ago gain of $55,000.
b-Nine-month results include a $25.0 million gain on the retirement of debt as part of a financial restructuring; $378,000 in miscellaneous income, compared with $1.7 million the preceding year; income-tax expense of $270,000, compared with an income-tax benefit of $83,000 the prior year; and a $29,000 loss on foreign currency conversion, compared with a $137,000 gain the previous year.
|Oper. income (EBIT)||1,770||1,457||21.5|
|Per share (diluted)||(0.11)||0.03||—|
|Average gross margin||21.3%||22.0%||—|
|Oper. income (EBIT)||5,541||3,988||38.9|
|Per share (diluted)||0.02||0.94||-97.9|
|Average gross margin||22.1%||21.8%||—|