[Management View]
Key metrics: Net sales decreased by 4.5% to $15.5 million. GAAP net loss was $1.1 million, or $0.10 per diluted share. Gross profit margin fell to 22.7%.
Strategic priorities: Mitigating tariff impacts, expanding Disney licensing agreement to Canada, and introducing new product categories.

[Outlook]
Performance guidance: Cautious optimism for the rest of the fiscal year, driven by July sales improvements.
Future plans: Expanding Manhattan Toy and Sassy brand distribution, leveraging distributor-led models for overseas markets.

[Financial Performance]
YoY/QoQ trends: Net sales decreased by 4.5% YoY. Gross profit decreased by $448,000. Marketing and administrative expenses increased by $454,000.

[Q&A Highlights]
Question 1: I had read recently that Target is considering doing less direct sourcing. Do you think that might be able to create an opportunity for Crown Crafts, Inc.?
Answer: We hope so. We've heard rumors like that as well, and so hopefully that opens up an opportunity to get back some programs that they had taken and started direct sourcing themselves.

Question 2: Do you think that, with the 30% tariff, if that is the new normal, you think that the company could be profitable, maybe not immediately, but somewhere looking ahead?
Answer: We're certainly doing everything we can to mitigate the tariffs, and starting in late June, we started getting our price increases with our customers. Those will work their way through, some more in July all the way through the end of September. At that point, we are hopeful that we've done enough to mitigate the cost.

Question 3: Is there some opportunities you think to expand the Manhattan Toy sales overseas?
Answer: Yes. We closed the London office that came with the Manhattan Toy acquisition last year. The Manhattan Toy sales were sold direct to retailers, not through a distributor. We think combining both brands into one set of distributors is a big opportunity.

Question 4: An associate of mine told me that they were watching Miss Rachel on Netflix, and the Sassy stack of circles was featured in an episode. Would the company be doing something like that? Promoting the stack of circles and sharing that news?
Answer: Yes. Miss Rachel is a license with our toddler bedding. It was a Sassy product, and Sassy should be sharing that on their social media.

Question 5: Do you think that the operations of Manhattan Toy have stabilized at this point?
Answer: Yes. We believe it has stabilized. We redesigned several product lines, starting with infant toys and then the Stella dolls. We are currently working on plush and more expansions on the dolls.

Question 6: How about the new LEGOLAND in Shanghai? Is the company receiving any feedback on how the plush figures are selling?
Answer: We sold the initial set for the park opening and received a reorder. It seems like a very good sign.

Question 7: Is there any commentary on how the Stella dolls are selling now with the redesign?
Answer: They are doing well. Sales were impacted by the tariff situation, but the redesigned dolls have been well received at shows.

Question 8: Are your retailers really depleted on stocks and so that they're going to have to catch up and replenish here over the next couple of quarters or a year or so?
Answer: Retailers have lowered their in-stock levels, impacting sales. As SKUs run out, we hope to see order patterns return to normal levels.

Question 9: Are your order patterns also responding in kind so that you can source the product and have it ready for when those reorder or restock orders come in?
Answer: Yes. We use forecasts from retailers and our history to ensure we have the right amount of inventory.

Question 10: What kind of circumstances would necessitate a dividend reduction or omission?
Answer: The Board and management remain confident in the company's cash flow and balance sheet. At this point, we are not concerned.

[Sentiment Analysis]
Tone of analysts: Generally positive, with appreciation for management's efforts in navigating a challenging environment.
Tone of management: Cautiously optimistic, focused on mitigating tariffs and expanding market opportunities.

[Quarterly Comparison]
| Metric | Q1 2026 | Q1 2025 |
|----------------------------|---------------|---------------|
| Net Sales | $15.5 million | $16.2 million |
| Gross Profit Margin | 22.7% | 24.5% |
| Marketing/Admin Expenses | $4.7 million | $4.2 million |
| GAAP Net Loss | $1.1 million | $0.6 million |
| Cash and Cash Equivalents | $227,000 | $521,000 |
| Inventories | $31.6 million | $27.8 million |

[Risks and Concerns]
- Increased tariffs impacting profitability.
- Inventory shortages affecting sales.
- Elevated marketing and administrative costs.
- Declining cash position.

[Final Takeaway]
Crown Crafts faced significant challenges in Q1 2026 due to increased tariffs and inventory shortages. However, the company is actively mitigating these impacts through price increases and strategic expansions, such as the Disney licensing agreement. While the financial performance showed a decline, management remains cautiously optimistic about future sales and profitability, supported by recent positive sales trends and operational stabilization.