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Crown Crafts Inc Reports Operating Results (10-Q)

February 09, 2011 | About:

Crown Crafts Inc (NASDAQ:CRWS) filed Quarterly Report for the period ended 2010-12-26.

Crown Crafts Inc has a market cap of $48.8 million; its shares were traded at around $5.06 with a P/E ratio of 8.8 and P/S ratio of 0.6. The dividend yield of Crown Crafts Inc stocks is 1.6%. Crown Crafts Inc had an annual average earning growth of 6.8% over the past 5 years.Hedge Fund Gurus that owns CRWS: Jim Simons of Renaissance Technologies LLC. Mutual Fund and Other Gurus that owns CRWS: John Rogers of ARIEL CAPITAL MANAGEMENT LLC.

Highlight of Business Operations:

Gross Profit: Gross profit decreased in amount and as a percentage of net sales for the three-month period of fiscal year 2011 as compared to the same period of fiscal year 2010. During the current year period, the Company made promotional sales to one of its major retail customers, resulting in a contribution margin from sales to that customer that was lower than in the prior year period. The Company incurred higher raw material, labor, transportation and currency costs in the current year period associated with the Companys sourcing operations in China, as well as a royalty shortfall from a major licensor that was $95,000 higher than in the prior year period. Offsetting these increases was a decrease in amortization costs of $69,000 in the current year period associated with the acquisition of the baby products line of Springs Global in November 2007.

Marketing and Administrative Expenses: Marketing and administrative expenses for the three and nine-month periods of fiscal year 2011 increased as compared to the same periods of fiscal year 2010. Advertising costs were $64,000 and $164,000 higher in the three and nine-month periods of the current year, respectively. The Company incurred approximately $250,000 in non-recurring professional fees in connection with certain corporate governance matters in each of the three and nine-month periods of the current year that were not incurred in the prior year. The Company also incurred costs of $401,000 for the nine-month period of the current year that were associated with the Companys proxy contest that were not incurred in the prior year.

Net cash used in investing activities was $1.7 million in the current year compared to $5.1 million in the prior year. Cash used in investing activities in the current year included $2.1 million associated with the Bibsters® Acquisition, offset by proceeds of $505,000 from the maturity of a certificate of deposit purchased in the prior year in connection with the issuance on behalf of the Company of a standby letter of credit to guarantee the payment of certain of the Companys royalty obligations. Cash used in investing activities in the prior year included $4.4 million associated with the Neat Solutions Acquisition.

Net cash provided by financing activities in the current year was $1.4 million compared to cash of $20.1 million used in financing activities in the prior year. There were net borrowings of $4.2 million in the current year on the Companys revolving line of credit compared to $18.1 million in net repayments in the prior year, the largest portion of which came from a reduction of the Companys cash reserves in December 2009. The Company had built up its cash reserves in the prior year by drawing upon its revolving line of credit in order to preserve the Companys ability to meet its working capital needs in the event that the Companys primary lender should suffer an adverse liquidity event that would jeopardize the Companys ability to draw upon its revolving line of credit. The Company also paid $562,000 in dividends in the current year as compared to none in the prior year and had $333,000 in higher repayments of the Companys term debt obligations in the current year as compared to the prior year.

Total debt outstanding under the Companys credit facilities before the reduction for the original issue discount on the non-interest bearing notes increased from $5.9 million at December 27, 2009 to $7.7 million at December 26, 2010. The increase is due primarily to outlays to fund the Bibsters® Acquisition. At December 26, 2010, there was a balance of $5.7 million due on the revolving line of credit, there was a $500,000 letter of credit outstanding and the Company had $16.6 million available under the revolving line of credit based on its eligible accounts receivable and inventory balances.

To reduce its exposure to credit losses and to enhance the predictability of its cash flow, the Company assigns the majority of its trade accounts receivable to CIT pursuant to factoring agreements. CIT approves customer accounts and credit lines and collects the Companys accounts receivable balances. Under the terms of the factoring agreements, which expire in July 2013, CIT remits payments to the Company on the average due date of each group of invoices assigned. If a customer fails to pay CIT on the due date, the Company is charged interest on the unpaid balance at prime plus 1.0%, which was 4.25% at December 26, 2010, until payment is received. The Company incurred interest expense of $19,000 and $15,000 for the three-month periods ended December 26, 2010 and December 27, 2009, respectively, and $54,000 and $50,000 for the nine-month periods ended December 26, 2010 and December 27, 2009, respectively, as a result of the failure of the Companys customers to pay CIT by the due date. CIT bears credit losses with respect to assigned accounts receivable from approved customers that are within approved credit limits. The Company bears the responsibility for adjustments related to returns, allowances, claims and discounts. CIT may at any time terminate or limit its approval of shipments to a particular customer. If such a termination were to occur, the Company must either assume the credit risk for shipments after the date of such termination or cease shipments to such customer.

Read the The complete Report

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 5.0/5 (3 votes)


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