Q3 2024 Crown Crafts Inc Earnings Call

Participants

Douglas Ruth; Analyst; Lenox Financial Services, Inc.

Presentation

Operator

Good morning and welcome to the Crown Crafts, Inc. Third Quarter Fiscal Year 2024 conference call, all participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.
I would now like to turn the conference over to John Beisler with Repark advisors. Please go ahead.

Thank you, operator, and good morning, everyone. We appreciate you joining us for the Crown Crafts Third Quarter Fiscal 2024 conference call. Joining me today our current crush President and CEO., Olivia Elliott, and the company's CFO, Craig Demarest
Earlier this morning, Chromecast filed its 10-Q and issued a press release regarding their third quarter fiscal 2024 results. A copy of this release is available on the company's website found Kraft.com. During today's call, the Company will make certain forward-looking statements and actual results may differ materially from those expressed or implied. These statements are subject to risks and uncertainties that may be beyond Crown Crafts control and the Company is under no obligation to update these statements. For more information about the Company's risk factors and other uncertainties, please refer to the Company's filings with the Securities and Exchange Commission.
Finally, I would like to remind you, today's call is being recorded and a replay will be available through the Company's Investor Relations page.
Now I would like to turn the call over to the President and CEO, Olivia Elliott.

Thank you, John, and good morning, everyone. Our third quarter results reflect meaningful top and bottom line improvement. We saw our gross margin returned to more historical levels. And we continue to see a nice contribution from Manhattan toys, which contributed $6 million in net sales during the quarter as we continue to monitor the macro environment we are encouraged to see that recent economic reports indicate a more favorable outlook as the year progresses. However, the overall impact from the higher inflationary environment that has transpired over the past couple of years continues to be a prolonged strain on our consumers as reflected yesterday in yesterday's CPR report. This is particularly evident at the lower end of the income scale with those consumers have experienced a longer term effect to their discretionary income due to higher interest rates for mortgages and credit cards as well as the resumption of student loan repayment another encouraging update is the reopening of 11 buybuy BABY stores, which started during the quarter. Although we did ship product to these locations, we expect this to be a more gradual benefit as they slowly roll rollout of the opening of more stores. About Bailey's goal to open a hundred additional stores over the next few years would equal the number of stores that were closed as part of last year's bankruptcy. These openings would be a great benefit, giving us additional physical locations for consumers to get a firsthand look and feel for our products, particularly our higher-end infant bedding offering. We also continue to work with other specialty retailers to add our products to their shelves. We have made good controls on our inventory throughout the year as major retailers continue to carry lower levels of goods within their system. At the end of the quarter, total inventory was $34.9 million compared to $34.2 million at the end of fiscal '23 compared to the same period last year. Nojo and Sassy inventory levels have declined from $25.8 million last year to $22.7 million this year.
With that, I'd like to turn the call over to Craig to cover the financials in more detail.

Thank you, Olivia, and good morning. Everyone. net sales for the third quarter of fiscal '24 increased approximately 25% to $23.8 million compared to $19 million in the prior year. Quarter. The increase is attributable to the addition of Manhattan toys, which added $6 million in net sales to the current year quarter. Net sales of bedding, blankets and accessories were essentially flat as consumers face the economic pressures that Olivia mentioned.
Gross profit for the quarter was 27% compared to 23.7% in the third quarter of fiscal '23 as margins have returned to historical levels and consistent with year to date margins.
Marketing and administrative expenses were $4.1 million in the current year quarter versus $2.7 million in the prior year quarter. This increase is primarily related to expenses associated with Manhattan toys. Net income for the quarter was $1.7 million or $0.17 per diluted share compared to net income of $1.3 million or $0.13 per diluted share in the prior year quarter.
Turning now to our balance sheet cash and cash equivalents at the end of the third quarter were $683,000 compared to $1.7 million at the end of fiscal '23 borrowings on our revolver at the end of the quarter were $10 million compared to $12.7 million at the end of fiscal '23. And finally, we paid our regular quarterly dividend of $0.08 per share and declared our next dividend, which will be paid in April on an annualized basis. Our shares currently offer just over 6% yield based on yesterday's closing price.
And now I will turn the call back over to Olivia for additional comments.

And Craig, as we approach the end of fiscal 2024 we continue to implement our long-term strategic plan, which was approved by our board in fiscal 2023. As a reminder, this plan includes continuing growth in our toy category through market share expansion within both Sassy and Manhattan toys. Toys are projected to represent nearly half of our overall sales for fiscal 2024 compared to just 17% at the end of fiscal 2023. We also have plans to enter into new and adjacent product categories through a combination of organic growth and strategic acquisitions. We are working on product development to bring select items from the Manhattan toy lineup into Walmart if the price points makes sense. And we continue to look at additional acquisition opportunities that expand or complement our existing portfolio selling direct to consumers has remained challenging given the significant upfront spending to build out the website followed by advertising of the brand. Manhattan toys had a website in place at the time of the acquisition, which we are using to sell some of the Sassy brand and our NoJo brand is ready to launch its own website. The remainder of the plan is centered on implementing operating cost efficiencies and investing in technology and our organizational structure. Our Company has a long track record of holding expenses in line and we will continue to run the business with this at the forefront.
Overall, we continue to manage our business through the ongoing macroeconomic challenges while positioning our brands to capitalize when the overall economy improves. We believe the long-term prospects of the company remain favorable as evidenced by our long-standing track record and dividends and look forward to delivering long-term value to our shareholders.
With that, I'd like to open up the line for questions Daniel

Question and Answer Session

Operator

(Operator instructions) Douglas Ruth, Lennox financial services.

Douglas Ruth

Greg Craig, congratulations. A very good report are coming back in for you. Can you talk about are you having any success lowering the main hit employee our manufacturing cost?

Yes, actually, we are. So I mean, we we kind of went into this with a look at everything from the First Call to freight on pretty much everything across the whole manufacturing channel, we've managed to get some decrease this quarter.

Douglas Ruth

Is there or is there more to come? Do you think.

We are always dry? And so I mean we're pushing on on certain things. I mean, as you know, the inventory that was already in the warehouse was at some higher cost. And so as we run through that I'm hopeful that we can see more modest decreases.

Douglas Ruth

Okay. And my understanding is that you are considering the possibility of combining our warehouses could do maybe explain to us what's happening with that.

And we're on the early stages of that. And so yes, we're starting to look at other locations for warehouses, possibly even outside of California. And so to do that, you know, it's a it's a pretty big commitment and it takes some time because when we do make a move, it will be for up at least hopefully 10 years or more. So we want to make sure we get it right? So we're looking at that on the front end right now, and hopefully we'll have a solution within the next 18 months or so.

Douglas Ruth

Okay. Very good. And my final question, can you are give us a little bit more color on what the relationship with Walmart and is it possible that maybe Manhattan client might be able to our get into Walmart maybe in fiscal 2025, anything you could share is appreciated.

So yes, we've got a very good relationship with Walmart, Sassy and NoJo have both been selling to them for many, many years longer than I've been at the Company. And so we are talking to Walmart. We do have some opportunities in. So a very minimal amount of stores in fiscal 2025. But hopefully the sales and go well with that, then we'll have an opportunity to expand more.

Douglas Ruth

Okay. Thank you for answering my questions and congratulations on a really a tremendous thought earnings report.

Thank you, Doug.

Operator

As a reminder, if you have a question, please press star one. If there are no further questions. I would like to turn the call back over to Olivia Elliott for closing remarks.

Thank you for your continued interest in our company, and we look forward to speaking with you again when we report our fourth quarter and fiscal year 2024 results in June. Thank you.

Operator

The conference has now concluded. Thank you for attending. Today's presentation. You may now correct.