Crown Crafts Cutting Costs

Don Hogsett, Jeff Linville, February 14, 2005

Gonzales, La. — Helped by continued aggressive cost-cutting, which offset modestly thinning margins, third fiscal quarter earnings at Crown Crafts Inc. climbed 24.4 percent, to $918,000 from $738,000 during the same period a year ago.

Sales at the supplier of infant's and juvenile products were relatively flat, slipping three-tenths of a percent, to $20.66 million from $20.72 million a year ago.

In a lift to the bottom line, and offsetting thinning margins, Crown kept hacking away at costs. The company has been working at cost reduction in the years since its sweeping restructuring and overhaul of operations, including the spin-off of its adult bedding business and a move to Louisiana from more costly headquarters in Atlanta. Costs were whittled 80 basis points, or eight-tenths of a percentage point, to 13.1 percent of sales from 13.9 percent during the same period last year. Measured in absolute dollars, costs were pared 6.1 percent, to $2.7 million from $2.9 million, yielding a cash savings of $176,000.

But average gross margin continued to thin, declining 40 basis points, or four-tenths of a percentage point, to 21.3 percent from 21.7 percent the preceding year. “As quotas from China are being eliminated, pricing pressures are driving margins down,” said E. Randall Chestnut, chairman, president and CEO.

Additionally, said Chestnut, “Direct-to-retail licenses, which have been in effect through much of fiscal year 2005, have deflated top-line gross sales and continue to affect margins negatively.”

Crown Crafts Inc.

Qtr. 12/26 (x000) 2004 2003 % change
a Third quarter results include miscellaneous income of $83,000, compared with $5,000 during the same period a year ago; and an income-tax benefit of $71,000 versus $93,000 during the prior-year period. Results during the same period of 2003 included a $19,000 gain on foreign currency conversion.
b Nine-month results include $88,000 in miscellaneous income. Results in the same nine months during 2003 included a $25,000 gain on foreign currency conversion.
Sales $20,664 $20,717 -0.3
Oper. Income (EBIT) 1,696 1,607 5.5
Net income 918a 738a 24.4
Per share (diluted) 0.04 0.03 33.3
Average gross margin 21.3% 21.7%
SG&A expenses 13.1% 13.9%
Nine months
Sales 60,597 61,183 -1.0
Oper. Income (EBIT) 8,089 8,868 14.5
Net income 1,658b 1,530b 8.4
Per share (diluted) 0.08 0.07 14.3
Average gross margin 20.7% 22.1%
SG&A expenses 13.3% 14.5%

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