Shares of Crown Crafts, Inc. CRWS have lost 4.7% since the company reported its earnings for the quarter ended Dec. 29, 2024. This compares to the S&P 500 Index’s 0.8% gain over the same time frame. Over the past month, the stock lost 5.2% versus the S&P 500’s 2.6% rise.

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Financial Performance Overview

For the third quarter of fiscal 2025, Crown Crafts reported net sales of $23.4 million, down 1.9% from $23.8 million in the prior-year period. The decline was driven by lower online toy sales and the loss of a major retailer's bid program in November 2023, partially offset by a $3.8 million contribution from the Baby Boom acquisition.

The company’s gross profit declined 5.2% year over year to $6.1 million from $6.4 million in the prior-year period, with the gross margin contracting to 26.1% from 27%. The margin contraction was attributed to slight changes in product mix and higher warehouse lease costs in California.

Marketing and administrative expenses increased 7.1% to $4.4 million from $4.1 million, largely due to acquisition-related costs. As a result, operating income fell 26.9% to $1.7 million from $2.3 million in the prior-year period. Net income for the quarter came in at $0.9 million, or $0.09 per diluted share, representing a 47.5% decrease from $1.7 million, or $0.17 per diluted share, a year ago.

On a segmental basis, sales of bedding and diaper bags grew 24.3% to $11.2 million from $8.9 million in the prior-year period, driven by the acquisition of Baby Boom, which contributed $3.8 million. However, this increase was offset by a 17.8% decline in sales of bibs, toys, and disposable products, which fell to $12.2 million from $14.8 million in the prior-year period, primarily due to lower toy sales and the loss of a program at a major retailer.

Other Key Business Metrics

Crown Crafts’ interest expense rose 87.9% year over year to $0.4 million from $0.2 million in the prior-year period due to increased borrowings tied to the Baby Boom acquisition. Cash and cash equivalents stood at $1.1 million as of Dec. 29, 2024, compared with $0.8 million as of March 31, 2024, while total debt increased significantly to $20.9 million from $8.1 million over the same period.

CRWS has been actively managing its inventory, which stood at $32.4 million as of Dec. 29, 2024, compared with $29.7 million as of March 31, 2024. Operating cash flow increased to $6.9 million year to date compared with $4.1 million in the same period last year, partly due to improved accounts payable management.

Management Commentary

CEO Olivia Elliott emphasized the company’s ability to maintain profitability despite ongoing economic uncertainty, citing strong operating cash flow and disciplined expense management. The company remains focused on expanding product offerings, particularly in diaper bags and high-end toys, to drive future growth. However, management acknowledged that consumer discretionary income remains constrained, impacting overall sales.

The company is also addressing rising costs, particularly due to newly imposed 10% tariffs on Chinese imports, which affect virtually all of its products. Management is negotiating with suppliers to absorb some of these costs while considering selective price increases. CRWS is also evaluating warehouse relocation options to reduce long-term leasing costs.

Factors Influencing Results

The revenue decline was primarily driven by weaker online toy sales and the loss of a bid program at a major retailer. While the Baby Boom acquisition helped offset some of these losses, the higher costs associated with financing the deal and integrating the acquired business negatively impacted profitability.

A potential risk factor going forward is new U.S. tariffs on Chinese imports, which could increase costs for Crown Crafts, as virtually all of its products are sourced from China. Management has initiated discussions with suppliers to mitigate the impact through cost reductions, but price increases for consumers may still be necessary.

Guidance and Strategic Initiatives

While Crown Crafts did not provide specific forward-looking guidance, management emphasized a focus on maintaining cost discipline while driving top-line growth. Product refresh initiatives and potential new retail placements in 2026 could support revenue recovery. However, macroeconomic uncertainty and higher tariffs remain key headwinds.

Other Developments

During the quarter, Crown Crafts completed the integration of Baby Boom, acquired in July 2024 for $18 million. The acquisition expanded the company’s product offerings in the diaper bag category, which management believes presents significant long-term growth potential. Additionally, the company is reviewing warehouse locations, with a final decision expected by mid-2025.

Crown Crafts also declared a quarterly dividend of $0.08 per share, payable on April 4, 2025.

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