Olivia Elliott - VP & CFO Randall Chestnut - Chairman, President & CEO.

David King - ROTH Capital Josh Peters - Zenith Sterling Advisers.

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, Inc. And as a reminder, this conference is being recorded today, August 9, 2018. 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. Welcome to the Crown Crafts investor conference call for the first quarter of fiscal 2019. With me today is Randall Chestnut, the Company's President and Chief Executive Officer..

Good afternoon, everyone. .

A telephone replay of this call will be available one hour after the end of the call through 4:00 p.m. Central day light Time on August 16, 2018. 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 listeners 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.

Also, in regard to comments made in today's conference call that are related to the Company's recently announced dividend, its history of paying dividends and the annualized yield on the Company's common stock.

We remind listeners that the declaration of each dividend is at the discretion of the Company's Board of Directors, and the Company expressly disclaims any assurances as to the frequency and amount of any future dividends. I will now turn the call over to Randall..

Olivia, thank you and good afternoon again to everyone on the call. Before the market opened this morning, we released our earnings for the first quarter of FY 2019, which ended July 1, 2018. And I’ll go through some information and Olivia will do a follow up, and then after that anyone has questions we will invite them.

Net sales for the quarter - for 2019 were $15.460 million as opposed to $13.647 in the same quarter of last year, an increase of $1.813 million or 13.3%. Net income for the same period was $264,000 as opposed to $518,000 in the quarter last year or a decrease of $254,000 or 49%. Diluted earnings per share were $0.03 this year and $0.05 last year.

Addressing the net income as we announced when we made the Sassy acquisition last December, we incurred $210,000 of expense in April of this year, April 2018, to move the Sassy inventory from Grand Rapids, Michigan to Compton, California.

This had a negative impact on the net income of $161,000 or - and diluted earnings per share $0.02 for the quarter. Q1 FY 2018 was the first quarter that were completely void of any shipments to Toys "R" Us or Babies "R" Us, which represented $3.4 million net sales in Q1 of last year.

At the end of Q1, that level of this business have been replaced by other customers, because Toys "R" US/Babies "R" Us, became a major competitor to us in this quarter thorough their store liquidations, which included deep discounts on in line merchandise.

In addition, our Crown Crafts Infant Products in Hamco, the subsidiaries impacted by the loss of Babies "R" US, the lower sales volume made it difficult for us to cover our fixed cost in this quarter.

Once the Babies "R" US/Toys "R" US product is sold through to the consumer, we anticipate replacing a portion of the sales volume through reallocation to other customers later in the year. The gross profit for the year increased slightly to 26.7% of net sales from 26.4% of net sales in the same quarter last year.

On the balance sheet side, we finished the quarter with a balance in our revolving line of credit of $3.8 million, and have unused borrowing capability or availability of $17.9 million.

After the end of the quarter, before we made the quarterly announcement, we've executed a three-year extension for our revolving line of credit with CIT, which includes an immediate reduction of the interest rate from LIBOR plus 2 to LIBOR plus 175. We're pleased to get that extension done.

The Company also announced this morning that its Board of Directors declared a quarterly cash dividend on the Company's Series A common stock of $0.08 per share, which will be paid on October 5, 2018 to shareholders of record at the close of business on September 14 of 2018.

This represents an annualized yield of 5.9% based on yesterday's stock closing price. We're pleased to be able to continue to reward our shareholders with cash dividends. One of the opportunities that we've had with the acquisition of Sassy, we now have a network of 20 international distributors.

We plan to show at the K&J tradeshow in Cologne, Germany, on September of 2018. We as a Company have never shown at this show before. It's an international show and is well regarded in the industry. We will be showing products from Crown Craft's Infant Products, Hamco, Neat Solutions, and Sassy.

Internationally at this show, all products will be branded Sassy, so to be a consistent statement for the international market. We're looking forward to that. I'll turn it back over to Olivia. And then we'll come back..

And now I'm going to give financial highlights. For more detailed analysis, please refer to the Company's Form 10-K filed with the Securities and Exchange Commission this morning. Net sales were $15.5 million for the first quarter of fiscal 2019 compared with $13.6 million for the first quarter of the prior year, an increase of $1.8 million or 13.3%.

The acquisitions of Carousel Designs and Sassy, added $4 million. However, this increase was offset by decreased sales due to the liquidation of one our largest customers, which represented $3.4 million in sales in the prior year quarter.

Although we anticipate replacing a portion of the Babies "R" Us sales volume, for reallocation to existing customers in the latter half of the year, the Babies "R" Us deeply discounted liquidation sale activity competed against our core business this quarter.

Gross profit increased by $526,000, an increase from 26.4% of net sales in the prior year, to 26.7% of net sales for the current year. The increase in amount is primarily due to the higher sales in the current year quarter.

Marketing and Administrative Expenses increased in amount by $784,000, an increase from 21.3% of net sales in the prior year, to 23.8% of net sales this year. Contributing to the increasing amount was $904,000 in cost during the current year quarter that was associated with Carousel Designs which were not incurred in the prior year.

The current year quarter also included $210,000 in expenses to move the Sassy inventory from Grand Rapids, Michigan to the Company's distribution facility in Compton, California. Offsetting these increases was $163,000 of lower advertising and cost incurred by CCIP and Hamco in the current year quarter as compared to the prior year.

The current year provision for income taxes is based upon an estimated annual effective tax rate from continuing operations of 24%. Recent tax legislation includes a provision to lower the federal corporate income tax rate from 34% to 21% effective as of January 1, 2018.

As the company's fiscal year 2018 ended on April 1, 2018, the lower corporate income tax rate was phased in, resulting in a blended federal statutory rate of 30.75% for fiscal year 2018.

Because the legislation had not yet been enacted the company provision for income taxes for the prior year quarter was based on an estimated effective tax rate from continuing operations of 35%.

During the first quarter of fiscal 2019 the company recorded a discrete income tax benefit of $5000 to reflect the effect of access tax benefit arising from the vesting of non-vested stock, during the period. The benefit recorded in the first quarter of the prior yield was $60,000.

The company also recorded a reserve for unrecognized tax benefits of $3000 in the current year and $11,000 in the prior year.

The effective tax rate on continuing operations combined with these discrete income tax charges and benefits resulted in an overall provision for income taxes of 23.3% for the current year’s quarter and 28.2% for the prior year quarter.

Net income for the first quarter of fiscal 2019 was $264,000 or $0.03 per diluted share compared to net income of $518,000 or $0.05 per diluted share in the first quarter of fiscal 2018. I will now turn the call to Randall..

Olivia, thank you very much. And that concludes our remarks and we’ll now - Andrea if you will come back and we’ll open it up for any questions that any one on the line may have..

[Operator Instructions] Our first question comes from David King of ROTH Capital. Please go ahead..

I guess first off, as you look to replace some of the loss revenue from BRU how much of it do you think you will be able to replace sort of over the near term and then what sort of visibility do you have into that? Have Target and Buy Buy et cetera begun the offering for incremental placements and how soon should we start to see that it sounds like back half mainly? Thanks..

Dave you’re exactly right, it’s a back half phenomena. Through the quarter as we said in the remarks, Babies"R"Us, Toys "R actually became a competitor.

They were selling current merchandize which we had just shipped just to prior the liquidation announcement at deeply discounted prices and towards the end some of them was much as 75% off of the original retail price.

We are - after that ended we did see some uptick in a number of accounts there is still some residual or individual has purchased merchandize we think from the stores and they’re selling it through certain websites that we saw in it. But that is not as big an impact as it was with the liquidation going on Toys "R" Us in the store.

So it’s going to be a spread out over the next third quarters..

And then it sounds like the other is starting to pick up the flag it sounds like you do have orders for incremental placements then?.

As you well know it’s difficult anymore because you get projections and then you don’t get firm orders until just before ship date but we have some good projections for the remainder of the year. And we’re pretty excited about that..

And then switching gears given the environment we’re following up on Sassy and Carousel, what’s your outlook on center of further acquisitions at this point how are asks compared to the bids - potential bids at this point?.

As we said in the remarks, we’re capitalizing on Sassy and their presence in the international market and we’re expanding that into our core businesses with Sassy-branded product that we will show in Cologne in September. So we are pretty excited about that.

Carousel sale is doing well and we got a lot of initiatives going on there for new product development et cetera. As far as other acquisitions on the horizon we did two in a relatively short period of time. So we're sort of trying to digest that at the moment.

We're still looking all the time but we’re sort of taken a break and trying to digest what we’ve got..

And at least these three deals are - sounds like going well for you so that’s great. I think that does it from me. Nice job in managing expenses and good luck with rest of the year..

Our next question comes from Josh Peters of Zenith Sterling Advisers. Please go ahead..

Thank you very much for taking my call and would like to congratulate I feel like you're managing the business very well to the factors that within your control here..

Good afternoon, Josh. Thank you..

I got a couple of questions. The first one is on Sassy, where you disclosed the amount of sales that Sassy contributed to this quarter I think it was $2.2 million and it was similar figure in the first calendar quarter.

The press release that you put out when you announced the transaction late last year was indicated about $11 million run rate for that business.

I'm wondering if that's still a good number to use in terms of its contribution to sales over the longer term or it is coming up a little bit shorter of that $11 million run rate?.

Josh that would be making a forward looking statement and which we try very hard not to do it but for modeling purposes, I would use a same number..

And then the other question I have, and unfortunately this has taken me into a topic I would really rather not get into, which is politics, geopolitics but since you do source the overwhelming proposition of your merchandize from China, I was wondering if you could give us an update on the state of any potential tariff impact.

So are there any products that you are importing from China that have already been affected by any tariff orders and whether that has been the case or not, what would be your plans for addressing us a threat like that should they come to past?.

Josh it’s a good question and I’ll answer it in parts as anything being affected up to this point the answer is no. We do have one category that we know is going to have a new tariff going to affect the later part of August. And we have another one that is going to be affected sometime in September.

It’s in the - like the third round and we don’t know the exact date for that one. We have annualized every way that we can and we have a few million dollars that could be affected by this. When I say a few, it’s a small - some of the smallest out of a few. They could be affected by the tariffs and 90% on that is really related to two problems.

So there is a 10% factor out there that’s not major and we’ll do with those either by change in the product, discontinuing the product or raising the price on that 10%.

So the 90% that’s affected is really two categories one is an item that we call cable table toppers which is a disposal placement and for some reason this is called up in the tariff for around one, around two - I am sorry but it goes into effect at the end of August.

Our intent there is - we have a very large market share and we intend to increase the price and pass on with the tariff, which we're in the process of finalizing and doing as we speak.

The other one is a bib that is made of a certain fabrication that lends itself to be caught up in the tariffs, and we have one major user and everybody else combined are really small, the size of one major user, and we're going to pass that price increase on, and we've already had that conversation with the retailer, and they're going to accept it.

So it really boils down, unfortunately, knock on wood, and we hope that it doesn't get too crazy beyond that. Really two items that has an impact on our business, and so we can address those, it's not like across the board.

Beyond that, the other small percentage beyond that is relatively the other small, and in varying degree, some of them will just discontinue the business because it's so small. And the rest of them will either increases prices and pass it through..

That's very helpful.

At least in terms of the impact of things that have been announced so far, but if we were to game out a scenario where a 25% tariff gets applied to every tiny import, is that a case where you think you could recover that through pricing or would you have to suck some of that up while you had to resource perhaps from some other countries.

Again, I'm just trying to get a little insight here, I'm sure you've gamed out a lot of scenarios with this, kind of the big gun on certain cloud on the horizon right now..

Well let me first say, I hope you're not right, okay, and that there is going to be a tariff unilateral on everything coming in, and it could be 25%. We don't think that's the case, but again, we don't know. But if that's the case, our intent is to either pass it on.

We are looking at other countries, but quite candidly for the products that we make, the textile products especially, it's very difficult to find it in other countries compared to - and so we are looking at other countries but nevertheless we are prepared to pass it on if we have to..

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

Andrea, thank you very much. And to everyone on the call, thank you for attending today, and thank you for your interest in the Company. If you look at the numbers, Q1 was a challenging quarter. But we're - if you set that aside, we as Management of the Company we're very close to what's going on.

We're excited and optimistic about the future and we think we have a bright future in front of us. We'd like to thank all of our employees, suppliers, customers, and shareholders, for their continued support. And we'll speak to you again next quarter. Have a good day. Thank you..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..