Crown Crafts (NASDAQ:CRWS) reported higher fiscal second-quarter earnings despite a nearly 20% drop in sales, as improved margins and lower interest costs helped offset softer demand.
Net sales fell to $19 million from $23.7 million a year earlier. Net income edged up to $1.3 million, and earnings per share rose to $0.12 from $0.11, President and CEO Olivia Elliott said on the company’s earnings call.
Elliott attributed much of the sales decline to a difficult comparison with the prior-year quarter, when sales rebounded after initial tariff-related inventory disruptions. Consumer demand also remains soft, she said, citing concerns about interest rates, gas prices, affordability and geopolitical events.
Margins Improve as Sales Decline
Gross margin rose to 32% from 27.7% a year earlier. Adjusted for tariff refunds and severance expenses, the latest quarter’s margin was 30.9%. Elliott attributed the improvement to a shift toward higher-margin products and pricing initiatives.
Marketing and administrative expenses declined to $4.5 million from $4.7 million. The company also recorded $72,000 in net interest income, compared with nearly $300,000 in net interest expense a year earlier. Elliott said lower debt, higher cash balances and interest associated with tariff refunds contributed to the change.
Asked to break down the revenue decline, Elliott estimated that about half or slightly more reflected the prior-year quarter’s inflated sales. The remainder included the loss of programs such as a blanket program and the company’s decision to stop selling some unprofitable products. She said she did not have exact figures.
Elliott declined to provide a sales or margin forecast. She said the adjusted gross margin was a level the company strives for and that, aside from the tariff and severance adjustments, there were no other unusual items in the quarter.
Cash Flow Helps Reduce Debt
Operating cash flow for the first six months of the fiscal year reached $11 million, helped in part by tariff refunds. Total debt fell to $5.3 million at the end of September from $14.1 million at the start of the fiscal year in March. Liquidity, including cash and availability under the company’s revolving credit line, stood at $18.8 million.
Elliott said Crown Crafts has applied for a little less than $900,000 in additional tariff refunds that it has neither received nor recorded. The company remains hopeful it will receive the money, she said.
The CEO said the company would like to lower debt further, while noting that a warehouse consolidation and potential move would involve expenses. Asked about returning capital to shareholders, Elliott said such decisions are made by the board each quarter but that dividends are currently the preferred approach.
Product and Sourcing Updates
Elliott said the relaunch of Manhattan Toy’s Groovy Girls fashion dolls benefited sales, with the line showing strong growth in Canada. The dolls became available on Amazon at the beginning of the week of the call, she said. European sales are expected to begin in the next quarter following a positive reception at the Kind + Jugend trade show.
The company is also examining sourcing alternatives. Elliott said the team visited factories in Vietnam, Thailand and Cambodia and found several promising options, particularly in Vietnam. Crown Crafts already does business with a factory in Thailand, while Egypt could be a destination for a future sourcing trip.
Changing suppliers could happen relatively quickly for some products, such as blankets, bibs and wooden toys, Elliott said. Plastic toys would take longer because they require molds, design work and safety testing.
Consolidation Plans Advance
Crown Crafts has begun preliminary work on consolidating warehouses, with a target of around April or May 2028, ahead of the expiration of both warehouse leases. Elliott said an announcement about the plan could possibly come when the company releases year-end results in June.
The company also plans to leave its current Manhattan Toy office location. Elliott said any replacement would be smaller and less expensive, potentially serving primarily as storage and a photography studio. No final decision has been made.
About Crown Crafts (NASDAQ:CRWS)
Crown Crafts, Inc. is a consumer products company that designs, markets and distributes products for infants, toddlers and young children. Its offerings include feeding and care products, bibs, bath accessories, developmental toys, activity products, nursery bedding, blankets and other nursery accessories. The company sells products through mass-market retailers, specialty stores and e-commerce channels. Crown Crafts markets products under proprietary brands such as Neat Solutions and Sassy, as well as through licensed brands and designs.
