Okay, welcome everyone again to the ICR Conference, so pleased to have you here. I'm Vance Edelson with ICR, and very happy to be joined today by Crown Crafts. It is their first time at the ICR Conference, and very pleased to be joined by both Olivia Elliott, the CEO, and Claire Spencer, the CFO, and for those of you not familiar, they design, they market, they distribute products for juveniles, infants, and toddlers, so it's a fantastic business to be in, and I'll start by mentioning that their dividend yield is 11%, so with that, we'll kind of dive right into the questions. I am going to open it up and poll the audience at some point. I'll bring you a microphone if you have a question.
So maybe in 15 minutes or so, I'll open it up. But we'll get started with some fairly straightforward questions, especially for those who are newer to the story. So Olivia, maybe for those who are just learning about Crown Crafts for the first time, can you tell us a little bit about the more recent history? And I was recently checking the stock has been traded for basically forever, like 50, 60 years. I couldn't get my FactS et to go back far enough to find the first trade. But maybe just the past five years or so, what's been happening with the company to get you to the position you're in today?
Okay. And so the company in the early 2000s became a pure-play infant products company, mainly in the infant bedding and bib categories. And so in the most recent years, really, it's been since 2009 or 2010, we've done several more strategic acquisitions that built upon that pure-play infant, toddler, and juvenile part of the company. So we've entered into toys. We've grown several of the categories. Well, we first entered into toddler bedding, then we grew the toddler bedding with the most recent acquisition last year in 2024, which also got us into diaper bags. And then we entered the toy market in 2017 in developmental and bath toys. And then in 2023, we did another acquisition that got us into more developmental toys, but kind of at a little higher-end branding. It was wood toys, plush, and dolls.
Great. And just quickly, your own personal story with the company. You've been there for a while, so tell us how you got to your current role.
This year will be 25 years. I joined the company when the company reorganized and moved the corporate headquarters to Louisiana. I came in as the Treasurer maybe for, I don't know, six or seven years. And then I spent 12 years as the CFO. And then when our CEO retired, I became the President first, maybe five years ago, followed by CEO four years ago.
Great. And Claire, you're a bit newer to the company, but tell us a little bit about your journey to get to the CFO role.
Yes. I was thrilled to join Crown Crafts in June of this past year when the CFO retired. Prior to Crown, I started my career in public accounting, worked on an IPO, and then at another public company. So I was thrilled to stay in the public space.
Wonderful. Okay. So perhaps, Olivia, if you can give us, you touched on it a little bit, but the types of products sold and what external factors affect the business? I would think fairly non-cyclical, people always having babies and so forth. Tell us a little bit about what the macro factors are that really drive your business up and down, how cyclical is it, things like that.
We have a little bit of seasonality in the toy side of the business. You see a fairly steep increase from October to early December heading into Christmas time, and then you also see another lift, believe it or not, at Easter time. Other than that, we have some seasonal programs, some seasonal blanket programs, to be more specific, that are more in the fall, winter time, but everything else is less seasonal, more cyclical, based primarily on when the retailer sets their new programs, and so you might see, you may see a complete turnover of what's in the store. You may see what we call a running change. Usually, that has less of an impact on the bottom line or top line. If they do change over the program, you'll see sales kind of decline as they're running out the inventory of the old program.
Then you'll see a huge lift when you set the program, and then it becomes more steady.
Great. And in a broader sense, when we think about the cycle year in, year out, I've heard you say in the past that it has a lot to do with how many first births families are having, because I guess they tend to spoil the first kid, right? So tell us about that. And I guess, where are we in that cycle? Do you look ahead and say, okay, there's going to be a lot of babies born? That's a good thing. How do you think about that?
So obviously, we watch the birth rate, which has declined for quite a few years, and then it's kind of stabilized off. And believe it or not, in 2024, you saw just a small increase, which is always a good sign. But more importantly, we do watch the first birth. As anyone who's a parent knows, you spend way more money on that first baby. You get everything anybody mentions that you should have. You get way more than you need. And so as you have each subsequent child, you tend to spend less, whether it's because it's hand-me-downs or you realize maybe you just didn't need everything. So we watch the first birth way more than we do the overall birth rate. While we are seeing an increase in couples who are choosing not to have children, most couples are continuing to have at least one baby.
We're not impacted as much by that first birth as we are by the overall birth rate. The other interesting thing about the birth rate is that we are seeing most of the declines are coming in what we call more of a teen, early 20 birth, where somebody has no disposable income. It's being offset by an increase in births in a mom that's in their 30s who has an established career and more disposable income. It's not all bad news with the birth rate. There's a lot of good news in there.
Interesting. When we think about your performance over the past three years within that general cyclical framework, have you been kind of swimming against the tide? Has it been a tough time the past several years?
The economy definitely has an impact. As a baby products company, as long as couples are having children, then obviously our products are needed. So I'm not going to say that we are completely, I mean, there is obviously an impact, but it's a little bit more stabilized in that you've got to have our products if you have a baby. What we are seeing is either a trade down. So you may be seeing a higher-end customer that used to shop in a specialty store that's now shopping at Walmart. And then you may see that Walmart customer that's trading down to, say, the dollar stores. They're also trading down within the same stores to maybe cheaper products. And they're buying less. So whereas before this economy, our most popular bib set was a 10-pack, now it's a three or four-pack.
And where we're seeing maybe the consumer not buying a $50 toddler bedding set, they're buying a $12 blanket. So our SKUs are really holding up unit sales. It's just that they're trading down in terms of price.
Interesting. And people talk about the K-shaped economy. And you mentioned selling through Walmart and so forth. How would you characterize your buyers out there, the ultimate buyers? Are they high-end, lower-end consumers, or everything in between?
It's really, we have buyers at kind of all levels. We have most of our products are in Walmart, Target, Amazon. But we do have some products in the specialty stores. We do not sell to the dollar store. So if they're trading down to the dollar stores, that won't be us.
Okay. And can you give us a general sense of those channels, how big they are? If I were to look at, say, a pie chart, how much is Walmart versus Amazon, just a rough sense?
Walmart's by far our largest customer. Claire may know the percentages more than me. I don't know them right off the top of my head. But it's Walmart, followed by Amazon, then Target, then get into more nationals like the Meijer, the Kohl's, that type of store. Specialty store, we do have some business mainly on the toy side. And then we have international, which is also mainly on the toy side. And believe it or not, we have two channels that are really kind of unique, LEGOLAND Parks. We have the LEGO license on plush, and we sell into the theme parks. And then we also have one SKU that we sell to Chick-fil-A. And it's a Table Topper that they give away to the consumer when you dine inside the store.
Wonderful. So now that we've talked about the types of products, the distribution, the consumer, the cycle, I know you don't have a crystal ball, but what kind of a year is 2026 shaping up to be? Do you have any feel for how it might all come together? Are you optimistic, or do you see a lot of headwinds you're going to have to face?
Probably both. I mean, we're still in our fourth quarter of our fiscal 2026, which ends in March. And then our fiscal 2027 will start in April. Once we round that corner of the first quarter of our fiscal year was when tariffs became effective. And we really pulled back on bringing product in. We kind of stopped the production in China at the really high tariffs. And so shelf space was empty. Some of our quicker moving SKUs were out of stock. So I think when we round to that first quarter, I'm optimistic that we're going to see some upticks.
Great. And then how about the competitive dynamics, right? So we've been talking about how you're selling to the consumer and so forth. Who are you competing against? And is the competition getting easier, worse? Do you see yourself taking share over time? Any kind of secret sauce that could help in that regard?
So in several of our categories, we're the leader. In bibs, we have probably 80%-90% of the market share. In toddler bedding, well, bibs are more like 50%. Toddler bedding is more 80%-90%. But in some of our categories, we are not the leader. And so we have a lot of opportunities for growth. In many different ways, we can grow with our current retailers. We can take more shelf space. We have a lot of room to expand the distribution channels. Toys can be sold at a wide variety of retail shops. Online, we sell to Amazon. We sell to Babylist. We have a little bit of direct-to-consumer on our own websites, but we have a lot of opportunity across all of our categories to get more direct-to-consumer. And then we are also focusing on international.
Great. And how do you capitalize on those opportunities? Is it about hiring salespeople? Is it about picking up the phone? Is it about high-level connections? How do you really take share over time?
There's quite a few ways. I mean, we have salespeople that we have internal salespeople. In some categories, we have sales reps. So in specialty stores, there's thousands of them. So you can't have somebody go to all of those specialty stores. We have distributors when it comes to the international. A lot of connections. I mean, we've been in the business for a long time. A lot of our employees have been with us. They've been with competitors, so they know the buyers at these stores. And then we go to trade shows. So we go to international and US gift shows, trade shows, Toy Fair. And so we get a lot of opportunities there.
Really interesting. So let's shift gears and talk about the tariff environment, which I'm sure is something you've been dealing with for almost a year now, if not longer. How are you coping with that? What are your strategies and how has it worked out for you?
The first quarter, as I mentioned, was a little bit difficult, mainly because we pulled back on the production, which everybody did. We were able to immediately go to our suppliers and get price decreases on the first cost of the goods. We were immediately able to take some initiatives, such as reducing the size of the packaging, which lowered the cost, also allowed you to get more units in a container, which lowered your freight, and then over time, it takes a little bit longer. We've given price increases to the retailers. That takes a little bit longer in that most of the larger retailers, such as the Walmarts, Targets, and Amazons, they have a process where they approve the new prices, and then it's 60 to 90 days before it becomes effective.
Probably about October, late October, we were finished passing along all of the price increases. Hopefully in the upcoming quarters, we're going to see a decent impact from that.
Great. And is it easy to shift the sourcing? I'm guessing there's a lot of considerations, like maybe China is good at certain things and you can't just move it somewhere else with the drop of a hat.
It depends on the category. So in some of the soft goods, it's a little bit easier to change countries. In the toys, the plastic toys are all molds. You can't just move a mold from one factory to another. So you have to rebuild the molds, and that costs a lot of money. Cost for us has still been more advantageous to stay in China. The other impact, which is probably the most important part of it, is safety. So our products are being used by babies. And particularly when you talk about toys, you have to assume that that baby is going to pick it up and put it in its mouth. So everything has got to be very strenuously tested.
You have to have, I mean, if it's a soft goods, we run everything through an X-ray machine to make sure no needles broke off into those goods. So we have to be very comfortable when we change factories, whether it's a factory or a country, that the new factory can maintain those safety standards. Whether it's ours or Disney's or Walmart's, whoever's it is, we've got to make sure the product is safe.
Wow. So a lot of considerations there. Okay. I'm going to pause briefly and poll the audience. Any questions? I can bring you a microphone. Otherwise, we'll just keep going. Okay. So let's shift gears once again. How do we think about new product development? Over the years, you've obviously introduced, reintroduced products. Is it foreseeable? Is it reasonable to expect that there could be more product introductions over the course of this calendar year, for example?
Absolutely. So one of the things that we do, whether the economy is good or bad, is we never stop our product development. We've been in this business for a long time, and there's always cycles of ups and downs. And so we just stay focused on product develop. We make sure that we always have new things coming out, keep everything fresh. And we have quite a few new product lines that are coming out. We hope to make a really exciting announcement in the next couple of months about a new product category that I think is going to be good.
Wonderful. Can't wait. That's great. Okay. And then Claire, on the inventory side, how does inventory management play into it? How do you feel about the inventories right now? And what steps have you taken over the past year to manage that inventory?
I'm comfortable with our current inventory levels. For about the past year, we've worked to maintain our inventory and to reduce SKU count so we can consolidate warehouses in the coming years.
Okay. Great. So the warehouse consolidation hasn't happened yet? Or okay. So it's planned. And just give us a feel. How many warehouses are we talking about that you have currently?
Two currently, and we'll be consolidating into one larger space in a few years.
Okay. Great. Great. And then kind of related to that, beyond the warehouses to become more efficient, you have been able to maintain profitability. What are some of the other levers that you have to pull or that you already have to maximize profitability given the current environment?
Yeah. Another response to tariffs where we looked at our packaging. So we reduced packaging anywhere we could. And that resulted in both a decrease in packaging costs, but also freight as we were able to include more product in our shipping containers. Once the economic levels normalize, we'll be able to continue to increase profitability with those cost savings.
Great. And do you feel like you have any advantages or disadvantages when it comes to the cost of the products? Are you considered a low-cost provider because of the efficiencies that you have or that you're working on? When we think about the competition, how do you stack up in terms of cost to produce, for example?
I mean, I think it depends on the category of business. For the most part, we're more competitive in each different channel. So our product cost is differentiated by what channel you're going into. Always maintaining quality and safety, but you may not have quite as many bells and whistles.
Okay. Neat. And then let's talk about the balance sheet. So you have some debt on the books, but you've had debt for quite some time. So I don't think you're losing too much sleep over it. But how is that in terms of priorities in wanting to pay down debt? How do we think about that?
Yeah. Reducing debt levels is a great priority for this year. I would say other priorities are investing internally in organic product development and continuing to maintain our dividend payments.
Okay, and the liquidity is pretty solid in terms of free cash flow, which is one of the reasons you can manage the debt that you have now. Okay, but still, when you think of capital allocation, it's really paying down the debt as a first priority.
Certainly.
Okay. Great. Great. And then you've done a lot of acquisitions over the years. Have those worked out well, would you say?
Yes. The timing of some of the acquisitions may not have been the best. So the last acquisition was within six months of the tariff announcements. What we tend to do best is we buy acquisitions where maybe they're already struggling. And so typically, we will buy an acquisition, and then we see maybe a sales downturn while we go in and we fix what needs to be fixed, and then we see an upturn. And so Manhattan Toy was in 2023. Sales certainly went backwards. We had a lot of different ways that we needed to fix it. One was being new product development. It was a little stale. So we've gone through each of the categories, and we've started to bring some freshness to the product line.
We needed to really rethink the direct-to-consumer website in that they were spending almost 100% of sales on advertising, which is in no way profitable. But we're starting to see that kind of go on an uptick. On the Baby Boom acquisition in 2024, the toddler bedding was pretty much we just kept on trucking exactly how it was. The diaper bags, we've seen some negative impacts with the tariffs because there was already a duty. There was the tariffs from the original 25%, and then you added more, so it went to above a 70% tariff. So we still have a lot of hope for that category. We're still continuing to refresh the line to work on other adjacent categories, but that one may have been slower than we really wanted it to be.
Okay. And let me ask you this. If liquidity and the balance sheet weren't an issue, and you had a stellar, clean balance sheet, would there be a pipeline, so to speak, of acquisitions? Do you have your eye on anything? Do you have a feel for what direction you'll want to move in when the time comes?
We'd like to stay in the infant, toddler, and juvenile category of business. I mean, we really don't want to go outside of that. But there are a lot of opportunities, whether it's in adding to existing product lines or adjacencies. I mean, there are plenty of categories. What we tend to stay away from is maybe safeties. We don't want to get into something like a car seat, things with lower margins like furniture. We tend to stay away from that. But there are plenty of opportunities out there. We have a lot that come across our desk that right now we're saying no to because we really need to pay the debt down before we do more. But absolutely, it's in the long-term plan that we'll do more acquisitions. We try to be disciplined about them and do them when they make sense.
We need to know that we can do something with it.
Great. And I think you mentioned international as an opportunity. So is that something that would be more organic, or is that something you'd almost definitely have to buy your way in?
Organic. So we have about 50, maybe 30 distributors selling into 50 countries internationally. So we're in most of Europe at this point in time, Israel, South Africa. We've got a pretty good distributor model out there. What we're focusing on right now is that Manhattan Toy and Sassy each had different models, different distributors. One sold direct to the retailers. So we're working on really combining that and taking advantage of using both of those opportunities. If they were doing Manhattan Toy, let's get Sassy there and vice versa. And then we're making a lot of headway into Canada right now. We just got the Disney license in Canada. So we're in process of taking over for, well, that's in the bedding side, but we're taking over for the outgoing licensee.
And then we've also just gotten a new distributor in Canada that is going to combine, once again, both the Sassy and Manhattan Toy lines so that we can take advantage of selling both product categories across all the way from specialty to mass.
Great. So you're kind of parlaying your expertise in the U.S. internationally. So is it fair to think, in your mind, five years from now, is Crown Crafts going to be more international than it is today?
Oh, definitely.
Okay. Okay. Great.
I mean, it'll never be as much as it is domestically, but yes, we should grow internationally.
Yeah. Just so folks know, so does that hamper overall profitability? I mean, a dollar earned is a dollar earned, so it's incremental. But do you think margins would generally be lower internationally for various reasons, or?
Right now, no, because they don't have tariffs. So we have warehouses in Belgium and the U.K. And so we don't have to pay tariffs on anything that's being sold internationally. And then a lot of the Canadian business is being brought by either a distributor or brought into a 3PL that is in Canada so we can bypass the tariffs that way.
Terrific. Let me just pause once more and see if the audience has any questions. Okay. I'm going to bring you a microphone. This is where I get to play Jerry Springer. There you go.
Thank you. So two-part question on different things. You had talked about your focus on the firstborn. So how do you guys go after the expected mom and the growing family? Because obviously, you want to get them as they're going into the fourth trimester before all that's happened. And then they're like, "Oh my God." So that'd be number one. And the second part is you had mentioned Disney. How important are licenses to your overall product mix? And are you open to looking at additional licensing opportunities? Or boy, we're chewing off Disney. That's enough.
So the first question, very important question right now, well, we've always been able our designs is what kind of draws the consumer in, and so the expectant mom is really looking if she's going to look for, say, elephants. Elephants are popular right now. We need to have the best designs, so it's always important for the designs to match what the consumer wants, but social media has become very impactful. We use Facebook for grandparents because most of the high-ticket items, including nursery bedding, is chosen by mom and bought by grandparents, and so Facebook, moving into Instagram, kind of becoming more grandparents, and then we go all the way through any of the categories. TikTok is really important for the young mom, the consumer, so we're having to ramp up a lot of the advertising.
We use influencers to some degree, especially in the toy side of the business. And so we just have to keep up with where the consumer is going for the ideas. But word of mouth is also important. Claire's got an almost two-year-old.
That's cute.
And she can come in and say, "Okay, every single one of my friends has the Sassy Ring Stacker. And every one of my friends has this." So word of mouth is also extremely important because moms talk to each other. The second question, absolutely, we do have more licenses than Disney, and we are open to more licenses. And it depends on the category of business. So toddler bedding is almost 100% license-driven. So crib bedding, we do have licenses, but moms typically choose a little bit more of a whimsical design, something that is an extension of the home, whether it's grays or blues or whatever it is. And then when you get into the toddler bedding side of the business, that two- to four-year-old is choosing what they want. So they're watching Mickey Mouse Playhouse.
They're watching whatever it is that they're watching, and they know what they want. So licenses are probably 95% of the toddler bedding category. And we have licenses. We have some of the more evergreen licenses, such as Disney, Sesame, Marvel. And then we have some of the licenses that kind of come and go, the CoComelons, the Blueys, things like that. So we try to keep a wide range of license opportunities. It's important to stay on top of what's coming in and going because you have minimum guarantees. And so we really have to watch that.
Great. And with just a half a minute left, I don't want to leave people hanging on the dividend yield, so about 11%. So how important is the dividend to you? If you had your druthers, would you maintain it? How should we think about that?
So everything's always at the discretion of the board. So we don't have really a policy with dividends, but maintaining the regular dividend is important to us. Special dividends are probably unlikely at this point in time while we're focusing on paying down the debt. But we would like to maintain the regular dividend to the extent that we can.
Okay. Great to hear. Well, thanks, everyone. Really appreciate it. Thanks, Olivia. Thanks, Claire.
Thank you.