Randall Chestnut - Chairman, President and CEO Olivia Elliott - Vice President and CFO.

Dave King - ROTH Capital Partners Max Batzer - Wynnefield Capital.

Hello, ladies and gentlemen. And welcome to the Crown Crafts Incorporated Investors Conference Call. Your host for today's call is Mr. Randall Chestnut, Chairman, President and Chief Executive Officer. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time.

Any reproduction of this call, in whole or in part, is not permitted without prior written authorization from Crown Crafts Incorporated. And as a reminder, this conference is being recorded today, November 12, 2014. At this time, I would now like to turn the call over to Ms. Olivia Elliott, Vice President and CFO, who will begin the call.

Please go ahead..

Thank you. Good afternoon. And welcome to the Crown Crafts Investor Conference Call for the Second Quarter of Fiscal Year 2015. With me today is Randall Chestnut, the company's President and Chief Executive Officer..

Good afternoon..

A telephone replay of this call will be available one hour after the end of the call through 8 a.m. Central Time on November 21, 2014. Also, a web replay of this call will be available for 90 days and can be accessed by visiting our website at www.crowncrafts.com.

Before we begin, I would like to remind everyone of the cautionary language regarding forward-looking statements contained in the press release. That same language applies to comments made in today's conference call. I will now turn the call over to Randall..

Olivia, thank you very much and good afternoon again everyone. And welcome to the Crown Crafts Incorporated investor conference call for the second quarter, which ended on September 28, 2014 and it’s our second quarter of FY 2015. I will touch on the few of the numbers.

We will have a brief discussion, Olivia will have more to it and then at the end we will have a chance for any questions. Net sales for the quarter were $20.4 million, as opposed to $20.1 million in the same quarter prior year or an increase of $390,000 or 1.9%.

Net income was $830,000, down from a $1,142 million in the prior year or down $312,000 or 27.3%. Diluted earnings per share decreased from last year $0.12 to $0.08 this year. On a year-to-date six months, our sales were $36.1 million, as opposed to $36.7 million in the prior year or a decrease of $519,000 or 1.4%.

Net income for the six month was a $1,533 million, as opposed to a $1,964 million in the previous year or a decline of $400, excuse me, or a loss of $431,000 or 21.9%. Diluted earnings per share were $0.20 last year and $0.15 this year.

Our second quarter net income was impacted by an after-tax charge or after-dollar charge related to the settlement of a previously disclosed lawsuit. Excluding net charge, net income would have been $1.4 million, an increase of 1.9% over last year’s quarter -- 19.1%, I’m sorry, an increase of 19.1% over last year’s quarter.

During the second quarter of fiscal 2015, the company reached the settlement of its lawsuit with BreathableBaby, in which BreathableBaby alleged that the company infringed BreathableBaby’s patent rights relating to its air permeable infant bedding technology.

Under the terms of a settlement, the company will manufacture and sell a redesigned mesh crib liner product, and will make a one-time payment of $850,000 to BreathableBaby, which settlement was recorded in the second quarter.

Net income for both the three and six-month periods ending September, 28, 2014 was impacted on an after-tax basis by approximately $530,000, or $0.05 per diluted share.

The parties are in the process of finalizing our settlement agreements, which the company will file with the Securities and Exchange Commission and to which reference is made for a complete description of the terms of the settlement. Continuing on, net sales for the quarter improved 1.9%, versus the same quarter in the previous year.

We are pleased with the slight increase in sales, as the first quarter of this year was down 5.5% from the previous quarter. Management is very pleased with our position in the marketplace, and we might add that we are optimistic and excited about the future. During the past several quarters, we’ve been able to improve our gross margin.

Our controlling cost, we maintained a 28.6% gross margin which was even with the previous year. For the six-month period, we achieved the slight gross margin improvement, posting 28.0% as opposed to 27.9% in the previous year-to-date six-month period. Turning to the balance sheet briefly and Olivia will add more color on this.

We finished the quarter with no debt and a cash balance of $2.2 million. Today, we announced that we will pay a quarterly cash dividend of $0.08 per share, payable January 2 of 2015 to shareholders of record, as of the close of business on December 12, 2014.

The $0.08 quarterly dividend represents a 4.4% annualized yield based on yesterday’s stock closing price. With that, I’ll turn it back over to Olivia to add more too it. Thank you..

Thank you. I'm only going to give financial highlights. For more detailed analysis, please refer to the company's Form 10-Q filed with the Securities and Exchange Commission this morning.

Net sales were $20.4 million for the second quarter of fiscal 2015, compared with $20.1 million for the second quarter of the prior year, an increase of $390,000 or 1.9%. Year-to-date fiscal 2015 net sales were $36.1 million, compared with $36.7 million for the same period in the prior year, a decrease of $519,000 or 1.4%.

Gross profit was stable at 28.6% of net sales, for both the current and prior year quarters, an increase in amount by $190,000 for the second quarter of fiscal 2015, compared with the second quarter of the prior year. This increase was primarily due to the increase in net sales.

For the six month period, gross profit decreased in amount by $93,000 and increased slightly as a percentage of net sales, from 27.9% to 28%. Legal expense for both the three and six-month periods of fiscal 2015 increased as compared with the same periods of the prior year.

Legal expense for the current year quarter includes the charge of $850,000 related to the settlement of the BreathableBaby litigation as well as the attorney’s fees of $204,000 incurred in connection with the settlement negotiation.

On an after-tax basis, the settlement affected net income by approximately $530,000 or $0.05 per diluted share and the legal fees associated with the settlement affected net income by approximately $130,000 or $0.01 per diluted share.

Other marketing and administrative expenses decreased in amount for both the three and six-month periods at the current year compared with the same periods in the prior year.

The decreases were primarily due to lower performance-based compensation cost and a lower provision for doubtful account, which were offset by higher factoring phase in the current year quarter. The company’s provision for income taxes is based upon estimated annual effective tax rate of 37.4% for both fiscal years 2015 and 2014.

Net income for the second quarter of fiscal 2015 was $830,000 or $0.08 per diluted share compared to the net income of $1.1 million or $0.12 per diluted share in the second quarter of fiscal 2014. Excluding the $530,000 after-tax impact of the BreathableBaby settlement, net income would have been $1.4 million or $0.13 per diluted share.

Net income for the first six months of fiscal 2015 was $1.5 million or $0.15 per diluted share compared to net income of $2 million or $0.20 per diluted share for the first six months of fiscal 2014. Excluding the $530,000 after-tax impact of the BreathableBaby settlement, net income would have been $2.1 million or $0.20 per diluted share.

With regards to the balance sheet, inventory at the end of the second quarter of the current year was $19.1 million compared to $15 million at the end of the prior year quarter.

The company is provisioning itself to have adequate inventory to meet the needs of its customers for the second half of the year which has traditionally been our strongest quarters. I will now return the call to Randall..

Olivia, thank you very much. And Gary, we’ll ask you to come back and see if anyone has any questions..

[Operator Instructions] And our first question comes from Dave King with ROTH Capital Partners. Please go ahead..

Thanks. Good afternoon Randall and Olivia..

Hey, Dave..

Hi, Dave. Good afternoon..

Thank you. I guess, first off, my question has to do with the BreathableBaby settlement in legal cost. So Olivia based on your comments, it sounds like there is about $204,000 in there this quarter from legal expense.

I guess, is it fair to assume then now with this settlement now behind you that those should subside as we go forward? And then kind of more generally, Randall on the -- in the comments in the release, it sounds like part of the settlement is to now sell redesigned Mesh Crib Liner.

I guess could you just comment on what impact, if any of that, would have on revenue? Thanks..

Dave, the legal cost will subside and be reduced as soon as the final settlement is, as we said in the press release, we are still negotiating the few points. And as soon as those points are resolved, the cost will be cut. We have not at this point announced the terms of the redesigning of the product that’s still being worked out.

But Dave, going forward, we don’t think that this will overall on the company have an impact at all on the forward-looking revenue..

Fantastic. That’s very helpful.

And then may be just one more if I may Randall just in terms of the overall environment these days, how would you characterize it? What are you thinking in terms of the overall kind of juvenile category, house of your customers along those lines and recent point of sale trends, any think, you can add to provide some context in terms of, what you are seeing out there, I think would be helpful? Thank you..

Dave. As I said, we are optimistic and pretty excited about our future. I am particularly excited about our position in the market, where we are in the market.

As we had announced in previous conference calls, we are still circling around on a major retailer that last year, we had some placements fixture fills if you will, where they did a modification of the fixtures and that has a good and bad impact and has a great impact, because you get a one-time shot for some additional shipments.

But it’s also down because if there is any left out inventory you have to go through the liquidation and markdown that inventory. So we didn’t have that but we also didn’t get those bump-in sales. We didn’t lose any placements, didn’t lose any positions but we just didn’t get that bump.

So as we circle around on that, revenue from other accounts are having to offset that. But overall, except with a few, a couple of minor areas, the health of our customers is good, our relationships are good, our placements are fantastic and we feel optimistic about the future..

Fantastic. I will step back and good luck with the rest of the year..

Okay. Thank you..

The next question comes from Steven Zelkowicz with Wynnefield Capital. Please go ahead..

Actually, it’s Max Batzer. How are you, Randall? Good to hear your voice..

Hey, Max. Good.

Long time, haven’t heard from you?.

I’m the personal holder, now you see. So, I just can’t reach. But I have a question and Steven is in the room with me, in the interest of disclosure. I see the inventory builds and I heard the comments.

Would you say that any of that related to the possible threat of a strikeout on the West Coast that created a desire to build up that inventory a little bit ahead?.

Max, no. I mean, we’ve been -- and as you know, we’ve been in this business a long time..

I do know that..

And we have these threats of the port strikes not every year but on a fairly regular basis and we don’t order ahead of time. I mean, we take it, we watch it everyday, we read about it everyday and we worry about it everyday but we don’t try to build inventory to cover for it. We have faced this. One-way or the other, it’s going to work out.

If not, we will try to find additional ports. If we really get in trouble, we will flag goods if we have to, to service customers. But the inventory build is not in anyway shape or form related to anticipation of a port strike..

Okay. Well, now save me from looking back and when I do every penny spec, Randall.

With this inventory build on a percentage basis, let’s call it 40%, would that be typical if I look back into the quarterly records from years gone by, whatever the absolute number is I don’t care, I’m just looking for the percentage build?.

No. And as Olivia, I think alluded to, at the end of the second quarter last year, we were 15 unchanged and we are 19 unchanged this year. So it’s higher by $4 million at the end of the second quarter this year than it was last year..

How about previous years?.

It’s probably a little bit higher, Max. I don’t have the numbers. It’s higher, it’s higher..

Where I was headed was, it makes me feel like you’re optimistic about the business..

We said we’re optimistic and pretty excited about the future. And Olivia also said, we’re heading into the second half of the year, which is typically our strongest..

No, I’m familiar with that.

I just want to -- I’m trying to get deduce from your inventory build, what your view future business is and trying to read the key leads the way you do, Randall?.

That would be a forward-looking statement Max and that has….

I hadn’t asked you to read. I said, I’m trying to read them..

Max, you known us a long time, we worry about every dollar of inventory, but this is not inventory we’re worried about.

Is that a fair statement?.

Fair enough. Thank you..

With that said, I’d love to cut it, okay, but that goes when it’s down to $10 million, we take the same attitude..

No. I hope you respect for your tightness with the buck Randall and Olivia as well and thank you very much..

Thanks, Max..

Okay, guys..

Thank you. Take care..

[Operator Instructions] The next question comes from [Matthew Wallace] [ph], a Private Investor. Please go ahead..

Hi, Randall..

Hi, Matthew.

How are you?.

I was okay until this smoothing. What I don’t understand is that past conference calls when we talked about the lawsuit, you’ve said that there was really nothing to worry about, that was insignificant or it’s nothing important. And then today I see [indiscernible] costing us a bunch of money.

So my first question is, are there any other surprises that we have coming?.

Well, I mean, Matthew, I don’t think that mislead you that this lawsuit was -- I mean, we’ve taken the attitude on past conference calls that we don’t address litigation and we still take that attitude that we can’t address ongoing litigation.

So if the Matthew read that it was not going to be of any consequences, then I’m sorry, you must read that, okay. From that standpoint, I will tell you that if you compare the settlement versus the ongoing litigation costs, we feel this is a very good move for the company and for the shareholders.

Okay. And then I have another question, which concerns the stock. The stock is down 25% approximately from its high. And I wanted to find out -- I guess privately while ago if you know who the seller was that there has been a sell-through last four months. And it still seems to get it at the end of every day.

And no matter what kinds of block size put up to buy stock to gets it and then pulls down.

So is that because someone is getting out of the stock that has a major holder?.

Matthew, if that’s the case, no one has done any filing. And in most cases, if you are a 5% or more shareholder, you have to do a filing within so many days of the transaction. And so my answer is, no. We are not aware of any activity from any major holders, either buying or selling where there would be any filings..

And does the company have any plan to do anything about the price of the stock where it’s company stock or declare a higher dividend or anything to that effect that would increase the price of the stock?.

I mean, Matthew those things are reviewed by the Board on an ongoing basis. And the Board met last week and the action was taken which we announced today to continue the quarterly cash dividend at the same rate of $0.08 per quarter or $0.32 on an annualized basis.

And any other decisions as far as stock buyback, dividends et cetera would be on the Board level on a case-by-case basis..

Can I ask if you have any plans to do anything like that?.

Again that would have to be a Board decision. And if we had plans, we would have to announce it and we haven’t made any announcement. The only announcement we made was the $0.08 per quarter dividend today..

Thank you..

Thank you very much. Have a good day..

This concludes our question-and-answer session. I would like to turn the conference back over to Randall Chestnut for any closing remarks..

Gary, thank you very much. And wrapping it up, and I will repeat sort of what I said to Matthew a moment ago, we believe that the BreathableBaby settlement, which eliminates the substantial burden expense and risk of continued litigation, will allow us to focus our energies and resources on growing and strengthening our business.

And we believe that it’s in the best interest of company and our shareholders. I repeat management is very pleased with the results of the quarter. It was a good quarter. And last but not least, we would like to thank all of our customers, employees, suppliers, and shareholder for their continued interest in supporting Crown Crafts.

And thank you very much and have a good day..

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect..