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. Currently, 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, February 15, 2017. At this time, I would now like to turn the call over to Ms. Olivia Elliott, Vice President and Chief Financial Officer, who will begin the call. Please go ahead.

Thank you. Welcome to the Crown Crafts investor conference call for the third quarter of fiscal 2017. 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 4 PM Central Time on February 22, 2017. Also, a web replay of the 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. Also, in regard to comments made in today's conference call that are related to the Company's recently announced dividends, it's history of paying dividends and the annualized yield on the Company's stock, we would like to remind everyone 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. And welcome to the Crown Crafts Incorporated third quarter investor conference call and for the quarter that ended January 1, 2017. And I’ll go through some of the information and Olivia will follow-up and then we will open it up to anyone who may have any questions or comments after that. For the quarter, first, net sales were $17,262 million as opposed $20,691 million in the previous year or a decline of $3,429 million or 16.6%, I will address that in a moment. Net income for the quarter was $1,861 million as opposed to $2,143 million in the previous year or a decline of $282,000 or 13.2%. Diluted earnings per share decreased from $0.21 last year to $0.19 this year or a decline of $0.02 or 9.5%. Turning to the year-to-date, the year-to-date sales were $48,670 million as opposed to $59,265 million in the same nine months of last year or a decline of $10,595 or 17.9%. Net income for the nine months was $3,963 million as opposed to $4,635 million in the prior year nine months or a decline of $672,000 or 14.5%. And diluted earnings per share last year were $0.46, this year $0.39 or decline of $0.07 or 15.2%. Net income for both the quarter and year-to-date periods were favorably impacted by $315,000 or $0.03 per diluted share due to a change in the Company’s calculation of the state portion of its income tax provision. Olivia will address this in more detail a little bit later in the call. The decrease in sales is largely due to a Black Friday promotion in the prior year that was not repeated in the current year as well as reduced product shipments to our customer that’s experiencing credit problems. Gross profit percentages increase from 30.2% in the prior year quarter to 32.7% in the current year quarter. Year-to-date gross profit is 29.2% versus 28.2% for the nine-month period versus the prior year. The increase in gross margin for the three months and year-to-date periods are primarily due to the Company’s overall tight cost control combined with improved product cost in China, resulting from favorable exchange rate fluctuations. As we have discussed earlier, some of these gains from the favorable exchange rate have been passed on to our customer, which is also contributed to the reduction in the sales dollar. Turning to the balance sheet, we finished the quarter with no debt and $14.4 million cash in the bank. Today, we also announced our 29th consecutive quarterly dividend. The dividend is $0.08 per share which represents 4.4% annualized yield based on yesterday’s closing price. The quarterly dividend will be paid on April 7, 2017 to shareholders of record at the close of business on March 17, 2017. This dividend declaration demonstrates the committed of management and the board to our shareholders. Olivia?

I am only going to give financial highlights. For a more detailed analysis, please refer to the Company's Form 10-Q filed with the Securities and Exchange Commission this morning. Net sales were $17.3 million for the third quarter of fiscal 2017, compared with $20.7 million for the third quarter of the prior year, a decrease of $3.4 million or 16.6%. For the nine-month period, net sales were $48.7 million, down $10.6 million or 17.9% from $59.3 million in the prior year. The decrease in sales is largely due to Black Friday promotion in the prior year that was not repeated in the current year as well as reduced product shipments to a customer that is experiencing credit problem. Additionally, due to the strength of the U.S. dollar, the Company has received price reductions from its global suppliers, which have been partly passed on to the Company's customers. It should also be noted that the timing of shipments, both initial sets and replenishments could cause comparisons between quarters to be difficult. Gross profit decreased in amount by $613,000, but increased from 30.2% of net sales for the prior your quarter to 32.7% of net sales for the current year quarter. Gross profit decrease in amount by $2.5 million, but increased from 28.2% of net sales for the prior year nine-month period to 29.2% of net sales for the current year nine-month period. The increase in the gross profit percentage in the current year is primarily due to the Company’s overall tight cost control combined with improved product cost in China, resulting from favorable exchange rate fluctuation. Marketing and administrative expenses decreased in amount by $606,000 for the quarter and $1.4 million year-to-date, compared with the same periods in the prior year. The decrease in amount is primarily related to lower overall…

Okay. Olivia, thank you very much and that concludes our remarks and William if you come back and open it up for anyone that might have questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Dave King with ROTH Capital. Please go ahead.

Thanks. Hi, Randall and Olivia.

Hi, Dave.

Hi, Dave. How are you?

Good. I guess first off, maybe can you talk about the revenue puts and takes a bit. How much of the $3.5 million or so year-on-year decline was driven by that one customer experiencing credit problems. Are you again shipping to that customer at this point and then did the timing of any shipments have an impact took in this quarter, I guess some help there or color there would be helpful? Thank you.

Well, I mean if you combine the two things, Dave that we attributed to the clients, so that’s over 50% of the decline of two combined. One was a quite large Black Friday promotion that we did last year that didn't get repeated this year. And as you well know Black Friday promotions had good and bad news buried on. Good news is as you get the volume. The bad news is together there is a Black Friday out and you’ve got to sell it at a reduced price. So nevertheless, we didn't get it repeated this year. The second one is for the quarter that ended – two-thirds of the quarter we did not ship at all. We did ship for one-month and then we opened the back up late in the third quarter and we are shipping them again as we speak, okay and so we're watching that very carefully, very closely, but nevertheless we are shipping them again.

Okay. And then how should we be thinking about how that all ties into the increase we saw in bibs and bath versus the decline in bedding. Is that those same kind of issues or I guess what drove the increase in one versus the decline in the other?

Well, I mean we've didn’t addressed that again at this time Dave, but we did address that last quarter in detail. The decline in the bedding area comes mostly from well – a good portion of it, not mostly. But a good portion of it comes from what we're calling the shift to make it clear, which the millennial moms are opting towards going away from using bumpers in the cribs to using what’s call it a more naked crib and we are creating assessors to go around [indiscernible]. We are now shipping rugs that go into the nursery and these are not small ones, large size rugs that go into the nursery and we are just getting into that business. So we are looking at ways to expand beyond just the crib, but still we are catering to that nursery. So that’s part of the plan. The other part of the plan has been for that part of the business has been – and part of the business has been just generally the weak retail environment.

Great. That helps. I guess the other part I was just curious about is what’s driving the improvement I guess on the bibs and bath side, is there something to point to there, new programs or…

Yes. Dave, on that side of the business, we’ve had an outstanding year. We regained a license that we have had a long time ago that some of that grow that we got a full-year effect out of for this year, this past – the full calendar year especially that one, okay. And so that help quite a bit and we are the dominant supplier, I mean we own over 50% market share and it’s a bibs and we are pretty much the dominant supplier almost every retailers in the U.S. We do a sizable volume and the disposable products, the table toppers et cetera and also a sizable volume and the disposable bibs. And so that business has been even though it’s been a soft retail environment, it has been doing very well.

Fantastic. Maybe shifting gears a bit, in terms of the gross margin improvement, I think that was more than – certainly more than I was expecting, it sounds like some of that maybe then also due to the anniversary in the Black Friday promotion, but then a lot of that I think was also currency. How much of it was currency do you think versus just stuff you guys are doing to reduce costs? And then to what extent have the pricing pressures are I guess better way of asking it, in terms of the retailers then asking it to pass that on, has that abated it all, if at all?

How many questions did you asked there?

What’s driving on the margin improvement is the real question?

Okay. The margin improvement, Dave is a combination really – the Black Friday didn’t have an effect on just year-over-year because as I said, there is good news and bad news of Black Friday promotions. And the bad news is, you don't make much money on it and never had, but – so that improved it some. The other big improvement – the bigger improvement is the effect of the exchange rate, the R&D versus the dollar, but nevertheless I mean we have – it's been a little bit of a difficult year. So we've initiated some very, very tough cost controls and we watched that very carefully and we don't spend extra money. So I would say that the large driver is the R&D versus the dollar, and the second largest is the effect of the cost controls, and the third largest would be the Black Friday event.

Okay. That helps. And then lastly for me, so given the recent sales declines, I guess to what extent or what ability do you have to start looking at ways to kind of try to bring down your inventory or receivable some more and maybe improve the cash conversion a bit. I thought payable were up, but I guess I’m more curious on the asset side, what are some of the things you could do or within your control to try to maybe improve the cash conversion there?

I mean if you look our cash flow, Dave, is still very strong, okay.

Yes.

No doubt about that. I mean we generate a lot of cash. And Chinese New Year, we just came out of it, but in the end of the third quarter, we had to build up inventory in anticipation for Chinese New Year, which came and started late January and in the end of February almost. So we had to build up and stock up inventory. You will see that come back down by year-end, okay, but our year-end, which is March ending, okay. So that’s not a huge concern for us, okay, but we’re haven't to give in some cases some extra terms to some retailers. So that is going to have a negative effect on the cash flow, but not a big difference and we generated as I say a lot of cash round up the quarter with $14 million in cash, obviously we pay the special dividend right after the quarter ended, so that came out of that, but it was still a very strong quarter.

Great, fantastic. Thanks for all the color and taking the questions and good luck getting through year end here.

Thank you, Dave. Have a good day.

Thank you.

Thank you.

The next questioner today is Eric Beder with Wunderlich Securities. Please go ahead.

Good afternoon. Congratulations on managing through a tough period here.

Hey, Eric. How are you?

I am good. How are you doing?

Hanging in there.

So when you look the blanket markets, are the margins for those products materially different, obviously you're growing the bibs and the blankets have been a little bit tougher? Is the makeshift part of the margin story also here?

There maybe a little more profitability in the bib and bath side of the business and there isn’t in the bedding side, but not an approachable degree, it’s very minor, okay. And I’m trying to remember looking at the numbers not only I have in front of me, that’s…

You've been very – it was very nice dividend policy. What are you looking at in terms of using the cash potentially for acquisitions or for share repurchases or something like that?

Well, I mean Eric we are – not our policy as Olivia stated earlier, but our practice has been thus far to use the cash that we've got to look for acquisitions, which we are constantly doing, but unfortunately the price of acquisitions has gone up a little bit more than we have an appetite to pay for, so we've been dominant in that area. So our policy – our practice again, I get that word right. Our practice has been to pay a dividend, okay. We have done share repurchases in the past. I'm not going to say, we will never look at it again, but share repurchases didn't really change the landscape as much as we had hope for. So we have opted at this point not to do share repurchases.

Okay. When you look at the licensing area, is there any potential license that you see that you want and/or do you see any potential licenses from new movies rather pieces coming in for spring or summer that will help drive that business?

Well, I mean there's some many movies coming out in the spring and summer. I’m not sure they’re going to be an impact. Not only just say no, they're not going to be of the magnitude of the portion was that doesn't come along that out, which did, but it doesn't. There's a new cars movie coming out, that should have a kick or the toddler business, and so we're pretty excited about that. We've got some other licenses that we're working on, that we haven't announced at this point and we aren't at liberty to announce it, we are also pretty excited about that.

Okay. And could you give us an update on the restaurant business, where do you see that going, I know you’ve been doing some [profit shipped lanes] have any positives in that area going through?

We have shipped from test orders through another major restaurant chain, but at this point it has not been reordered, Eric, okay. So we had this conversation many times or to give away item that’s [drop out], but we can employ them, but we keep volume that we have had one test order with the major restaurant chain that you had recognized the name, but it hasn't reordered at this point.

Okay. Good luck for you and thank you.

Thank you.

Thank you. End of Q&A

[Operator Instructions] Looks like, we have no further questions. So this will conclude the question-and-answer session. I would now like to turn the conference over to Randall Chestnut for any closing remarks.

William, thank you very much. In closing, just a few comments, we remained debt free with significant cash on the balance sheet and a significant opportunity to keep creating cash for the future. Our position in the market is very strong. We've had some difficult situations over the past nine to 12 months with certain of our categories changing as they have, but we still remain a very dominant player in this market. We have strong licenses and very good designs. We are extremely pleased to return to our shareholders another quarterly dividend of $0.08 per share. We would also like to thank all of our customers, employers, suppliers and shareholders for their continued interest in supporting Crown Crafts. With that, that was concluded. And just a reminder, we are a Manchurian Company. So the quarterly call will be at the end of our fiscal year, but Olivia, that will be roughly mid-June, okay, before we report the numbers for the year-end. So thank you very much for your time and attention. Thank you for your interest in the Company and we will turn it back over to William to wrap it up.

Thank you, sir. The conference is now concluded. Thank you all for attending today’s presentation and you may now disconnect your lines.