Crown Crafts Q4 FY2026 Earnings Call - Gross Margins Surge 460 BPS as Tariff Pricing Pass-Through Takes Hold

Operator: Greetings, and welcome to the Crown Crafts fiscal fourth quarter 2026 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I’d now like to turn the conference over to your host, Olivia Elliott, Chief Executive Officer. Please go ahead.

Olivia Elliott, Chief Executive Officer, Crown Crafts: Thank you, operator, and welcome everyone to this morning’s call. We’re glad you can join us. We generated solid quarterly results in an operating environment that continues to be challenging. This reflects the strength of our business model, the broad appeal of our brands, and of course, the hard work of our dedicated team. Despite global conflicts, fluctuating tariffs, higher gas prices, and consistently high inflation weighing on the American consumer, we were able to hold net sales almost flat with the prior year at $22 million, bringing our full-year net sales to more than $80 million. In addition, our gross margin improved to nearly 23% during the fourth quarter, up 460 basis points versus the prior year period. The result was positive net income for the quarter and operating cash flow of more than $8 million for the fiscal year.

An exciting fourth quarter highlight was our February announcement of the relaunch of Manhattan Toy’s Groovy Girls, which we kicked off at the North American International Toy Fair following a ceremonial ringing of the closing bell at Nasdaq. This iconic collection of soft fashion dolls has already been met with a strong reception since its official rollout to specialty retailers just last month and is perfectly timed to tap into today’s retro-inspired consumer market. We’re excited about the potential for this beloved brand and other opportunities as we continue to focus on innovative internal product development to expand our product offerings. In addition to driving revenue growth, another priority of ours is margin expansion and the resulting bottom-line growth.

We believe our gross margin of 22.9% for the quarter, while improved over the prior year’s results, has further room to expand as we grow sales, improve operating leverage, and continue our spending discipline. This includes our continued efforts to execute on cost initiatives with our previously communicated plans to consolidate certain internal operations to eliminate redundant activities and create a leaner operating structure. Turning to our balance sheet and capital allocation, which Claire will provide further details on in a moment. As I mentioned, we generated more than $8 million of operating cash flow during fiscal 2026, despite the soft operating environment, and we continue to have sufficient liquidity to support our growth plans.

Our capital allocation strategy is well-balanced. During the fourth quarter, we paid our regular dividend while continuing to invest in internal product development and marketing efforts to grow our market share over time. In closing, Crown Crafts is executing effectively. We’re focused on driving our long-term growth opportunities while managing inventories, tightly controlling costs, and strategically allocating capital toward growth initiatives, as well as returning capital to our loyal shareholders. Looking ahead, our foundation for success includes our strong brands and licenses, our valued retail and licensing partners, our solid balance sheet, and of course, the talented people who drive our success each day and will ultimately help us create meaningful shareholder value over time as a leading producer of infant, toddler, and juvenile consumer products. With that, I’ll turn it over to Claire to take us through additional financial details on our quarterly results.

Claire, Chief Financial Officer, Crown Crafts: Thank you, Olivia, and thanks, everyone, for being with us today. For the fourth quarter of our fiscal year, we generated net sales of $22.4 million, despite continued softness in consumer spending, which compares to $23.2 million in the year-ago fourth quarter. Our gross profit of $5.1 million represented a 22.9% margin, which was up from 18.3% in the fourth quarter of 2025. As Olivia mentioned, this 460 basis point improvement was driven by our strategic pricing initiatives and more favorable mix of higher-margin products. We were able to hold marketing and administrative expense almost entirely flat versus the prior year quarter at $4.6 million, despite continued inflationary dynamics.

We were also able to reduce interest expense at $194,000 for the fourth quarter of 2026 compared to $333,000 a year earlier, benefiting from a sizable reduction in debt. The bottom line result was positive net income for the quarter of $280,000, which improved from a loss of approximately $11 million the prior year fourth quarter due to a non-cash goodwill impairment charge in the year-ago period. Our basic and diluted earnings per share were $0.03, up from a loss of $1.04 per share the prior year. Moving on to our balance sheet. We ended the fiscal year with total assets of $70.7 million. Inventories were $28.4 million as of March 29th, up slightly from $27.8 million at the end of fiscal 2025.

Our total debt balance was $14.1 million at year-end, a reduction from $18.5 million at the end of fiscal 2025. We had $12.5 million of undrawn availability on our revolving credit facility. Lastly, as Olivia referenced, our net cash from operating activities was $8.3 million for the fiscal year, further supporting our solid financial foundation and the execution of our business plan. Wrapping up, we executed well during the final quarter of the fiscal year despite a less than robust macro environment as we were able to significantly improve our gross margin versus the year-ago quarter. We have the necessary competitive advantages, strategic plan, and financial strength for our skilled team members to continue their efforts day in and day out, grow the business, and enhance profitability as we move into fiscal year 2027.

With that, Operator, Olivia and I would be happy to take questions if you could please open the line.

Operator: Thank you. If you’d like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you’d like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Ethan Calder with Mountain Equities. Please proceed with your question.

Ethan Calder, Analyst, Mountain Equities: Well, good morning. Thank you for taking my call. Sounds like a great quarter and a great performance. I just wanted to ask regarding generally, relationships with Walmart and Target and anyone else. If you could tell us how that stands, if you’re pursuing other relationships, and if you can just give us some information on that. Thank you.

Olivia Elliott, Chief Executive Officer, Crown Crafts: Sure. Relationships with Walmart and Target remain good. We have multiple salespeople that talk to them regularly. I meet with people at trade shows as well. As always, we’re always searching for other retail partners. We’ve got plenty of mass retailers, specialty stores, focusing a little bit on some international sales. There’s not as many out there that are as big as Walmart, Target, and Amazon, for sure. We look for new opportunities all the time.

Ethan Calder, Analyst, Mountain Equities: Okay, thank you very much.

Olivia Elliott, Chief Executive Officer, Crown Crafts: Thank you.

Operator: Thank you. If you’d like to join the question queue, please press star one on your telephone keypad. Our next question comes from line of Douglas Ruth with Lenox Financial Services. Please proceed with your question.

Douglas Ruth, Analyst, Lenox Financial Services: Olivia and Claire, I want to congratulate you. I thought you did a fabulous job. It’s a really strong report. Thank you for what you’re doing on behalf of the shareholders.

Olivia Elliott, Chief Executive Officer, Crown Crafts: Thank you, Doug.

Douglas Ruth, Analyst, Lenox Financial Services: Could you give us some more commentary on what you’re thinking about Groovy Girls? Is the higher inventory possibly a reflection of inventory to support that rollout?

Olivia Elliott, Chief Executive Officer, Crown Crafts: There is some inventory that is at year-end for Groovy Girls. Probably the majority of the higher inventory is just the capitalization of the tariffs into the inventory cost, which obviously increased the value of the inventory over the fiscal year. As far as Groovy Girls, when you’re saying what we’re thinking about Groovy Girls, were you just asking about inventory or more in general?

Douglas Ruth, Analyst, Lenox Financial Services: Well, more in general. What can you tell us about sales and also the way you’re selling the product? I think you’re using some newer methods. Maybe you could share a little bit about that.

Olivia Elliott, Chief Executive Officer, Crown Crafts: Right now, we rolled out sales to the specialty stores beginning May 1st, that’s when we started shipping to the specialty stores, it probably didn’t set in the stores until later in the month. That is really, both specialty stores in the U.S. and then through our distributor into Canada, which those sales haven’t even set in Canada yet. Then we plan to roll out in the fall at Amazon, then also internationally, when we go to the K&J trade show in September. Right now it’s only at specialty stores, and we’re very happy with the sales so far. I think we didn’t have a lot in our budget for FY 2027, but we’re happy with where we are so far.

Douglas Ruth, Analyst, Lenox Financial Services: Then, in the fall, Amazon will have basically the full offering of whatever you’re selling for Groovy Girls?

Olivia Elliott, Chief Executive Officer, Crown Crafts: Correct.

Douglas Ruth, Analyst, Lenox Financial Services: Okay.

Olivia Elliott, Chief Executive Officer, Crown Crafts: Correct.

Douglas Ruth, Analyst, Lenox Financial Services: That sounds terrific. I know in the past, part of the real big success with Groovy Girls was the relationship you had with Target. Is that something that you’re also thinking about?

Olivia Elliott, Chief Executive Officer, Crown Crafts: At this point in time, we are not talking about rolling out Groovy Girls into mass. That’s possibly an opportunity for the future, we’d probably change the product a little bit so that we’re not selling the same exact product into mass as we are into specialty.

Douglas Ruth, Analyst, Lenox Financial Services: Okay. What can you tell us about the tariffs? Are you expecting a tariff refund? Have you received a tariff refund?

Olivia Elliott, Chief Executive Officer, Crown Crafts: We have applied for the tariff refunds. As of two weeks ago, I think is the number we put in the 10-K, we had received about $175,000 back, of which I think $165 was actually tariffs and maybe $10 was interest. It was about a $5.5 million number that we requested. We’re hopeful. Anything can happen. We have received some. We’re hoping that we will receive what we requested.

Douglas Ruth, Analyst, Lenox Financial Services: Very good. What is the status now? I know that the Eden Valley warehouse, that lease is going to expire, I believe, at the end of this month. What is the company thinking? What is your strategy here?

Olivia Elliott, Chief Executive Officer, Crown Crafts: We extended that lease to be more around the same time as the Compton facility. We’re going to restart looking for a new warehouse with plans to move in the next two years, closer to the expiration of both of those leases.

Douglas Ruth, Analyst, Lenox Financial Services: Okay. How about the Stella doll? That doll, I know you had redesigned it. What could you tell us about how has that been going since the redesign?

Olivia Elliott, Chief Executive Officer, Crown Crafts: Stella’s doing well. Once again, it’s mostly in specialty store, Amazon, on our own website, but Stella sales are doing fine.

Douglas Ruth, Analyst, Lenox Financial Services: Okay. I noticed that the facility, the corporate headquarters, that you had shrank the size of that quite a bit. Could you maybe offer any kind of commentary on that when you signed the new lease?

Olivia Elliott, Chief Executive Officer, Crown Crafts: Yeah. Our old headquarters where we had been for almost 25 years, needed a little bit of updating, and the price was going up substantially. We decided that we would move, not far down the road, to a new facility, less space. It was a new build-out and so everything’s fresh and new and we’re all on one floor and all together, so we’re enjoying that.

Douglas Ruth, Analyst, Lenox Financial Services: Very good. What are you thinking about with the diaper bag business now?

Olivia Elliott, Chief Executive Officer, Crown Crafts: We’re still working on diaper bags. As you know, with the tariffs, the worst impact was on the diaper bags. Target had taken the diaper bags direct source. Walmart shrunk the space in half for what they were carrying. We’re working right now on kind of redeveloping and thinking again about the diaper bags. We still have a little bit of placement. We have one bag at Walmart, then we’re selling on Amazon in our own warehouse.

Douglas Ruth, Analyst, Lenox Financial Services: Okay. I know that now the Manhattan Toy Minneapolis office, that lease is down to less than one year. Are you starting to think about what you might be doing with that facility?

Olivia Elliott, Chief Executive Officer, Crown Crafts: Yes. We’re going to move out of that facility. Obviously, it’s way too big for what we need, and we’re still kind of trying to figure out what we want to do.

Douglas Ruth, Analyst, Lenox Financial Services: Oh, okay. Maybe more information in the next couple of quarters, that might be reasonable.

Olivia Elliott, Chief Executive Officer, Crown Crafts: Sure.

Douglas Ruth, Analyst, Lenox Financial Services: Yeah. Okay. I’m also pleased that you’ve been able to increase the advertising budget. Can you maybe talk about that at all?

Olivia Elliott, Chief Executive Officer, Crown Crafts: Yeah, we’ve increased the advertising budget. We’ve also added a few people on our marketing team in order to build out our photography, our social media, and also advertising, primarily on dot-coms and for our own website.

Douglas Ruth, Analyst, Lenox Financial Services: Okay. Have you been pleased with how that’s been going?

Olivia Elliott, Chief Executive Officer, Crown Crafts: Yes. We’re certainly at the beginning of our marketing efforts, just expanding that. So far, yes.

Douglas Ruth, Analyst, Lenox Financial Services: Okay. I also see that the international sales are growing. There’s not often a lot of commentary about that. I feel like that’s really been successful. Could you share what’s working and how that’s been growing?

Olivia Elliott, Chief Executive Officer, Crown Crafts: There’s really two main efforts that I think we’re seeing flow through there. One of them is that we’ve worked since the Manhattan Toy acquisition on consolidating the distributors for Manhattan Toy and Sassy so that we have, instead of having two distributors, or really it wasn’t even two distributors in a lot of places, but Manhattan Toy was going direct to the retailers, Sassy was using distributors. We’ve consolidated those sales into all of the Sassy distributor model, and that’s helped. Also we changed distributors in Canada, and I think that’s been very successful for us. That happened not long after, probably sometime in December.

Douglas Ruth, Analyst, Lenox Financial Services: That made a positive difference.

Olivia Elliott, Chief Executive Officer, Crown Crafts: Yes.

Douglas Ruth, Analyst, Lenox Financial Services: Yeah. Okay, my last question is, I know that that new facility had opened up, the LEGOLAND facility in Shanghai, and you had previously mentioned that the company was getting some growth with LEGOLAND. Could you just offer a little bit of commentary about LEGOLAND and what’s happening for the company there?

Olivia Elliott, Chief Executive Officer, Crown Crafts: Yes. We did ship to Shanghai LEGOLAND. They opened a little bit later than we expected, so sales weren’t what we had hoped they’d be for that opening. We did ship to them, and actually, that’s probably leading to part of the international sales increase as well.

Douglas Ruth, Analyst, Lenox Financial Services: Okay. Well, thank you for answering my questions, and congratulations to you and Claire and the board of directors, and thank you again for what you’re doing on behalf of the shareholders.

Olivia Elliott, Chief Executive Officer, Crown Crafts: Great. Thank you.

Operator: Thank you. Our next question comes from the line of Anthony Lebiedzinski with Sidoti & Company. Please proceed with your question.

Anthony Lebiedzinski, Analyst, Sidoti & Company: Good morning, everyone, and thanks for taking the question. Certainly nice gross margin expansion. You mentioned that part of the reason for that was the strategic pricing actions that you took. Any way you guys can quantify as far as the extent of pricing had a benefit and how do you see that going forward, whether you think that’s sustainable on an ongoing basis?

Olivia Elliott, Chief Executive Officer, Crown Crafts: We really don’t quantify that. I can explain probably the majority of it is that when we got the tariff hit, with the delayed time period from when you can raise your prices with the retailer. A lot of them have a 60 or a 90-day window. Then we also waited at the beginning of the fiscal year to see where the tariffs would actually land, because obviously we didn’t want to go to the retailer and say, "Hey, we’re raising your prices 150%." We waited a little while to see where the tariffs would land. The last of the price increases really didn’t go through till sometime in the third quarter.

I think what we’re seeing in the fourth quarter is the benefit of having the entire quarter have the retail price increases equal the tariffs or be closer to that.

Anthony Lebiedzinski, Analyst, Sidoti & Company: Thank you very much, and best of luck.

Olivia Elliott, Chief Executive Officer, Crown Crafts: Thank you.

Operator: Thank you. Our next question comes from the line of John Deysher with Pinnacle Value Fund. Please proceed with your question.

John Deysher, Analyst, Pinnacle Value Fund: Hi. Good morning. Thanks for taking my questions. I was just curious.

Olivia Elliott, Chief Executive Officer, Crown Crafts: Good morning

John Deysher, Analyst, Pinnacle Value Fund: Is there anything, good morning, anything on the horizon that might change your outlook for tariffs? I know the last time we spoke, in February, there was nothing imminent, I’m just curious with the fluid situation, is there anything on the horizon that might alter the tariff situation?

Olivia Elliott, Chief Executive Officer, Crown Crafts: I don’t think so. I think we keep up with the news the same as you, You really never know what’s going to happen. Right now, it feels like it’s stable.

John Deysher, Analyst, Pinnacle Value Fund: It’s stable. Steady state. Okay, good. When did you move from the old headquarters to the new, Is there any significant dollar savings from doing so?

Olivia Elliott, Chief Executive Officer, Crown Crafts: We moved at the end of April, there’s really no significant dollar savings. They were really going up on the rent at the old building, the move allowed us to keep the rates pretty much close to what we had been paying before.

John Deysher, Analyst, Pinnacle Value Fund: Okay. All right. That’s good to hear. In terms of the bigger picture real estate situation, you’ve extended Eden Valley’s lease to match kind of when Compton matures, I think that’s May of 2028.

Olivia Elliott, Chief Executive Officer, Crown Crafts: Correct.

John Deysher, Analyst, Pinnacle Value Fund: You’re going to move from downtown Minneapolis. When do you start discussions with potential replacements for Compton? Is that by the end of the year or a year from now, or when do you start looking for alternatives?

Olivia Elliott, Chief Executive Officer, Crown Crafts: Pretty much the end of the calendar year. Starting in late fall, maybe beginning of winter, we will start looking again really at potential cities identify exactly where we want to move. Following that, we would start looking at specific sites. It takes about 18 months.

John Deysher, Analyst, Pinnacle Value Fund: 18 months from when to when?

Olivia Elliott, Chief Executive Officer, Crown Crafts: From identifying where we want to move because most likely it’s going to have to be a build-out, and so dealing with all of that. We wouldn’t want to just move everything at one time, so we would start moving maybe Eden Valley earlier and then move Compton a little bit, maybe a month or two behind that.

John Deysher, Analyst, Pinnacle Value Fund: Okay. Do you have a laundry list of locations that are at the top of the list right now?

Olivia Elliott, Chief Executive Officer, Crown Crafts: We don’t right now. When we had looked at it in about a year ago, 18 months ago, I think we had narrowed it down to Reno, Houston, and Memphis, and we’re probably heavily leaning towards Reno. At this point in time, I think we’re going to probably, I don’t want to say start completely over, but we may add some more cities to the list and look at those.

John Deysher, Analyst, Pinnacle Value Fund: Okay. All right, good. That’ll start later this year or early calendar 2027.

Olivia Elliott, Chief Executive Officer, Crown Crafts: Yes.

John Deysher, Analyst, Pinnacle Value Fund: Okay, good. Great. Thanks very much.

Olivia Elliott, Chief Executive Officer, Crown Crafts: Thank you.

Operator: Thank you. Ladies and gentlemen, as a final reminder, if you’d like to join the question queue, please press star one on your telephone keypad. We’ll pause a moment to allow for any other questions. Our next question comes from the line of Robert Johnson with Intertek Group. Please proceed with your question.

Robert Johnson, Analyst, Intertek Group: Good morning. Just a very sort of top-level question, and you probably can’t give me a direct answer, but just looking at the cash flow generation and the valuation of the company, is the dividend, is that sort of a sacrosanct issue for the company? Is that something you consider quarterly? Just any commentary around the dividend policy would be nice.

Olivia Elliott, Chief Executive Officer, Crown Crafts: We really don’t have a dividend policy per se. The board considers it every single quarter, and we talk about it at that time.

Robert Johnson, Analyst, Intertek Group: Okay. Thank you.

Olivia Elliott, Chief Executive Officer, Crown Crafts: Thank you.

Operator: Thank you. Ladies and gentlemen, this concludes our question and answer session. I’ll turn the floor back to Olivia Elliott for any final comments.

Olivia Elliott, Chief Executive Officer, Crown Crafts: Thank you. Thank you again, everyone, for joining today’s call. We appreciate your support and look forward to providing additional updates as we move through our new fiscal year. If you have any additional questions, please don’t hesitate to reach out. Thanks again.

Operator: Thank you. This concludes today’s conference call. You may disconnect your lines at this time. Thank you for your participation.