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Crown Crafts Margin Takes Hit

Crown Crafts Inc. broke through with a profitable second quarter, posting $844,000 in net income for the time frame. While this result was off by nearly 9 percent from the second quarter of fiscal 2004, it did improve on the bedding and bath products manufacturer's first quarter, in which it logged a $102,000 net loss.

The company also recorded operating income of $1.9 million, down by more than 8 percent from the fiscal 2004 second quarter. Second-quarter sales increased by almost 5 percent, reaching slightly more than $23 million. Crown Crafts was able to boost its bedding sales thanks to higher shipments of modular bedding placements, although that rise was offset by declining bath-products shipments — due, according to the company's 10-Q filing with the Securities and Exchange Commission, to the loss of a bath program with “a major customer” — and the transition of the Classic Pooh license to direct-to-retail.

Crown Crafts also took a hit on its gross margin, which fell by 200 basis points, due to decreases in average selling prices per unit. This offset the company's 80-basis-point reduction in its selling, general and administrative expenses as a ratio of total sales. On a dollar basis, the company was able to shave more than 8 percent of its SG&A in the quarter.

E. Randall Chestnut, chairman, president and CEO, viewed the reduced margin as part of the “tremendous change” in the U.S. retailing and sourcing environment.

Crown Crafts Inc.

Qtr. ended 9/26 (x000) 2004 2003 % Chg
Net sales $23,025 $22,001 4.7
Operating income 1,879 2,046 -8.2
Net income 844 924 -8.7
Earnings per share 0.04 0.04 0.0
Average gross margin 20.1% 22.1% --
SG&A percentage 12.0% 12.8% --
Six months
Net sales 39,933 40,466 -1.3
Operating income 2,730 3,046 -10.4
Net income 741 816 -9.2
Earnings per share 0.03 0.04 -25.0
Average gross margin 20.3% 22.3% --
SG&A percentage 13.5% 14.8% --

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