Crown Crafts, Inc. Faces Earnings Decline Despite Acquisition Gains
Shares of Crown Crafts, Inc. (CRWS) have decreased by 1.3% since they reported earnings for the quarter ending September 29, 2024. In contrast, the S&P 500 index saw a minor drop of 0.3% during the same period. Over the past month, the stock has seen a more significant decline of 8.7%, while the S&P 500 has increased by 2.6%.
Sales Growth and Net Income Challenges
Crown Crafts reported net sales of $24.5 million for the second quarter of fiscal 2025, marking a 1.4% increase from $24.1 million in the same period last year. This growth was primarily due to the acquisition of Baby Boom Consumer Products, which added $3.4 million in sales.
However, challenges in the company’s legacy operations, including the loss of a bib program with a significant retailer, hindered some of this growth. Consequently, net income fell by 52.8% to $0.9 million, or $0.08 per diluted share, compared to $1.8 million, or $0.18 per diluted share, in the same quarter last year. This decrease was partly influenced by $0.8 million in acquisition-related costs, lowering earnings per share by about $0.06.
Sales from bedding and diaper bags reached $11.9 million, up 22.7% from the previous year, whereas sales of bibs, toys, and disposable products dropped 13.2% to $12.5 million.
Key Metrics and Financial Overview
For this quarter, gross profit represented 28.4% of net sales, an increase from 27.3% reported in the second quarter of fiscal 2024. This improvement came from adjustments in the product mix but was somewhat countered by increased rent costs at Crown Crafts’ Compton facility.
Marketing and administrative expenses rose to $5.4 million from $4 million in the same quarter of fiscal 2024, accounting for 22.3% of net sales, up from 16.7% year-on-year. This increase resulted from acquisition-related costs and general inflationary pressures.
Crown Crafts, Inc. Price, Consensus and EPS Surprise
Crown Crafts, Inc. price-consensus-eps-surprise-chart | Crown Crafts, Inc. Quote
Management Insights
CEO Olivia Elliott praised the Baby Boom acquisition, noting it has expanded their product line with items like diaper bags and licensed bedding sets featuring popular characters such as Bluey and Cocomelon. Crown Crafts is looking to enhance cross-selling opportunities between Baby Boom and its existing subsidiaries, including NoJo and Manhattan Toy.
Elliott also remarked that the acquisition aligns Crown Crafts to satisfy demand in its key categories, particularly during the holiday season. They are planning to optimize their cost structures, including possible warehouse consolidations for fiscal 2026, aimed at lowering operational costs.
CFO Craig Demarest highlighted the company’s focus on using its cash flow to pay down debt from the acquisition, mentioning a strong financial position with $2 million in cash.
Performance Influencers
Although the Baby Boom acquisition added to revenues, legacy operations encountered difficulties, stemming from decreased orders and inventory adjustments by retailers. Overall consumer demand has been lackluster, leading to substantial sales drops for some products.
Profitability has also taken a hit from higher lease expenses and costs tied to the acquisition. Nevertheless, the company is optimistic about future consumer confidence, with hopes that declining interest rates and inflation may enhance purchasing power in the coming months.
Strategic Goals and Future Outlook
Crown Crafts did not share specific financial forecasts but mentioned plans, including a consolidation of its warehouse operations by fiscal 2026. Additionally, they intend to boost direct-to-consumer sales through new websites for their NoJo and Sassy brands, set to launch before the holiday shopping season.
Acquisition Summary
In the second quarter of fiscal 2025, Crown Crafts finalized the Baby Boom acquisition for $18 million, or $16.4 million after adjustments for working capital at closing. The acquisition was financed through an $8 million term loan and additional borrowing from the company’s expanded $40 million revolving credit line. This deal is expected to generate $20 million in annual revenue, though the fiscal 2025 results will reflect only eight months’ worth of earnings.
The company plans to utilize its cash flow to accelerate debt repayment while focusing on the successful integration of Baby Boom’s operations. Additionally, Crown Crafts announced a quarterly cash dividend of $0.08 per share, maintaining its historical payment record.
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