CROWN CRAFTS INC Q4 FY2026 earnings call

• Overall Financial Performance • Generated solid Q4 2026 results in a continued challenging macroeconomic environment, with net sales nearly flat year-over-year. • Gross margin improved 460 basis points to 22.9% in Q4 2026, up from 18.3% in Q4 2025, driven by strategic pricing initiatives and a favorable shift to a higher-margin product mix. • Delivered positive net income of $280,000 ($0.03 diluted EPS) in Q4 2026, a strong improvement from a $11 million net loss ($1.04 loss per share) in the year-ago quarter, which included a non-cash goodwill impairment charge. • Full-year 2026 net operating cash flow totaled $8.3 million, with a strong balance sheet and $12.5 million in undrawn availability on the company's revolving credit facility. • Total debt was reduced from $18.5 million at the end of fiscal 2025 to $14.1 million at the end of fiscal 2026, leading to lower interest expense.

• Strategic & Operational Updates • Relaunched the iconic Manhattan Toys Groovy Girls soft doll line at the North American International Toy Fair in February 2026, with an initial rollout to U.S. and Canadian specialty retailers starting May 1, timed to capitalize on current retro consumer trends; early sales reception has been strong. • Continued executing cost consolidation initiatives to eliminate redundant activities, build a leaner operating structure, and maintain spending discipline to drive further margin expansion. • Moved corporate headquarters to a smaller, newly built out single-floor facility after the prior long-time headquarters required substantial updates and faced significant rent increases; rent levels remain consistent with prior rates. • Consolidated international distribution for all brands under the existing Sassy distributor model, and changed Canadian distributors, which has driven international sales growth; also fulfilled an order for the newly opened Shanghai Legoland, which contributed to international growth. • Expanded the marketing and advertising budget and added marketing team roles to build out social media, digital content, and direct-to-consumer advertising for the company's e-commerce website, with early progress meeting expectations. • The redesigned Stella doll line is performing well, with sales meeting expectations across specialty retail, Amazon, and the company's direct website.

• Capital Allocation • Maintained a balanced capital allocation strategy, continuing to pay regular quarterly dividends, invest in internal product development, and fund marketing growth initiatives to expand market share over time. • Ended fiscal 2026 with total assets of $70.7 million and inventory of $28.4 million, a slight increase from $27.8 million at the end of fiscal 2025; the increase is driven largely by tariffs capitalized into inventory cost, with a small portion tied to Groovy Girls launch inventory.

Crown Crafts did not break out formal financial performance by separate product segments in this earnings call. Aggregate net sales for the fourth quarter of fiscal 2026 were $22.4 million, compared to $23.2 million in the year-ago quarter. Full-year 2026 aggregate net sales totaled more than $80 million. Specific segments referenced in the call include infant/toddler/juvenile products, the relaunched Groovy Girls doll line, the redesigned Stella doll line, and the diaper bag business, but no separate revenue or margin figures were provided for individual segments.

Management did not issue explicit quantitative financial guidance for fiscal 2027, or revise prior guidance, in this earnings call. The key forward-looking statements from management are: management expects gross margin to expand further as sales grow, operating leverage improves, and cost discipline continues; the Groovy Girls rollout will continue with a full launch on Amazon planned for fall 2026, and international expansion following a September 2026 trade show; management plans to begin a search for a consolidated new warehouse facility by the end of calendar 2026, with a move planned within the next two years to align with the expiration of existing facility leases; the company will redevelop its diaper bag business after facing market headwinds from tariffs and reduced retail placement, to reposition the segment for future performance; the company plans to exit the large underutilized Manhattan Toy Minneapolis office as its lease expires in less than one year, and will announce further plans for that facility in coming quarters.

• Macroeconomic headwinds: Persistent high inflation, higher energy prices, fluctuating tariffs, and global geopolitical conflicts continue to weigh on U.S. consumer spending, creating a soft operating environment for discretionary consumer products.
• Tariff uncertainty: While the current tariff environment is perceived as stable, ongoing trade policy fluidity creates unforeseen cost risk; the outcome of the company's $5.5 million tariff refund application is not guaranteed, even though the company has received approximately $175,000 in refunds to date.
• Real estate transition risk: Consolidating and relocating multiple warehouse and office facilities over the next two years requires site selection, build-out, and phased relocation, which carries execution and cost uncertainty.
• Product launch risk: Early Groovy Girls sales are positive, but full rollout to new channels and international markets is still underway, so long-term demand for the relaunched line has not been validated.
• Diaper bag segment risk: The diaper bag business has already faced reduced retail placement from major mass retailers and significant cost pressure from tariffs, creating uncertainty around the segment's future profitability.

Q: What is the current state of Crown Crafts' relationships with major mass retail partners like Walmart and Target, and is the company pursuing new retail partnerships?

A: Relationships with Walmart and Target remain strong, with dedicated sales contacts and regular executive engagement at industry events. The company is actively searching for new domestic retail partners and expanding international sales opportunities, though no other major mass retailers match the scale of Walmart, Target, and Amazon currently.

Q: Can you share an update on the Groovy Girls relaunch, including rollout timing, distribution strategy, and early performance? Is a mass retail launch with Target planned for the line?

A: The line launched to U.S. specialty retailers in early May 2026, with Canadian sales via a new distributor starting shortly after; a full launch on Amazon is planned for fall 2026, and international expansion will be pursued after a September 2026 trade show. Early specialty retail sales have met or exceeded management's low initial expectations for fiscal 2027. A mass retail rollout is not planned at this time, though it remains a potential future opportunity; the current product is positioned specifically for the specialty channel.

Q: What drove the 460 basis point gross margin improvement in Q4, and is this improved margin sustainable going forward?

A: The majority of the improvement came from delayed full impact of strategic price increases implemented to offset higher tariffs. Price increases were phased because retailers require advance notification of price changes, and management waited to confirm final tariff levels before adjusting prices, with the last increases fully implemented in the third quarter of fiscal 2026. The full benefit of these price increases was first felt in the fourth quarter, and management expects margin gains to hold with continued cost discipline.

Q: What is the company's timeline and strategy for consolidating its warehouse facilities, and what locations are being considered?

A: The Eden Valley warehouse lease was extended to align with the 2028 expiration of the Compton facility lease. The search for a new consolidated warehouse will begin by the end of calendar 2026, with an expected full move completed within two years. The process of identifying a location and completing build-out is expected to take 18 months after the search starts. Previous top candidate locations were Reno, Houston, and Memphis with a strong lean toward Reno, but management will re-evaluate and add potential new locations before making a final decision.