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, February 12, 2019.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 Third Quarter of Fiscal 2020. 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 1 hour after the end of the call through 4:00 p.m. Central Standard Time on February 19, 2020. 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 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 dividends and its history of paying dividends, we remind listeners that the declaration of each dividend is at the discretion of the Company's Board of Directors and the Company expressly disclaimed 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. Before the market open this morning, we announced our earnings for our third quarter that ended December the 29 of 2019, and I will address a little information about the quarter.Net sales for the quarter were $18.6 million or down just slightly from last year at $18.7 million, but net income which $2,095 million, up from last year of $1,554 million or an increase of $541,000, or 34.8%. Diluted earnings per share were $0.21 per share and there were $0.15 per share last year. Olivia will address the year-to-date numbers a little bit later in the call.We're very proud of our third quarter performance. In spite of having flat sales, we were able to post a sizable gain and net income. Net income was aided by tax credit for increased research activity and Olivia will address that later in the call as well. Gross profit for the quarter improved to 31.3% of net sales this year versus 30.0% same quarter last year.For the last few months, we have been challenged by the issues from the tariffs that were imposed on goods coming out of Asia particular China. We took numerous actions to address these. One of the ones, we were granted an exclusion on one of our products called table toppers, which is a disposable product and we were fortunate to get that excluded from the tariffs.We've also worked with our suppliers as the exchange rate became more favorable and we got better prices from some of our suppliers. In addition where we could, we passed price increases onto our customers. Hopefully, this issue is behind us now and we can move forward.One other issue that we're dealing with is the coronavirus and I'll address that briefly. We're monitoring that very closely. The escalation of the outbreak occurs during Chinese New Year and the factories are just now returned to work. At this point, it's still too early to determine the effect that the coronavirus will have on our deliveries coming out of Asia.On the balance sheet side, we remained strong and we had a revolver that was paid off and we had a small cash balance at the end of the quarter, and we had availability on the revolver of $23.7 million as of December 29, 2019. In the press release this morning, we announced that the Board of Directors had declared a quarterly cash dividend of the Company's Series A common stock of $0.08 per share.Based on yesterday's closed price of the Company's stock, this represents an annualized yield of 5.1%.The dividend will paid on April 3, 2020 to shareholders of record as of the close of business on March 13, 2020. Once again, we're pleased to offer this dividend that reflects the board's confidence in the business and their ongoing commitment to provide value to our shareholders.I'll give it back to Olivia for additional comments. Thank you.

I'm only going to get financial highlights from more detailed analysis, please refer to the Company form 10-Q filed with the Securities and Exchange Commission this morning.Net sales were $18.6 million for the third quarter of fiscal 2020 compared with $18.7 million for the third quarter of the prior year, a slight decrease of $81,000 or 0.4%. Net sales were $53.1 million for the first nine months of fiscal 2020, compared with $54.7 million for the same period of the prior year, a decrease of $1.6 million or 2.9%.Sales of bibs, bath, staff developmental toys, feeding, baby care and disposable products increased by $616,000 in the current year, while sales of bedding, blankets and accessories decrease by $2.2 million in the current year. The decrease in sales was primarily due to timing of shipments to certain retailers as well as a program that was discontinued during the second quarter of the current year.Gross profit for the quarter increased by $224,000, an increase from 30% of net sales for the prior year quarter to 31.3% of net sales for the current year quarter. Gross profit for the year-to-date period increased by a $146,000, an increase from 29.4% of net sales in the prior year to 30.6% of net sales for the current year.Marketing and administrative expenses for the quarter were flat at $3.4 million and decreased slightly from 18.5% of net sales in the prior quarter to 18.4% of net sales in the current year quarter. Year-to-date marketing and administrative expenses decreased in amount by $614,000 and decrease from 20% of net sales for the prior year to 19.5% of net sales for the current year.Current year included $210,000 in expenses to transfer the Sassy inventory from Grand Rapids, Michigan, to the Company's distribution facility in Compton, California, in addition, outside…

Olivia, thank you very much, and Jerry, I'll call you to come back in and open it for any questions that anyone may have on the line.

We will now begin the question-and-answer session. [Operator Instruction] The first question is from Linda Bolton-Weiser with D.A. Davidson. Please go ahead.

So, your gross margin performance has been really good all the fiscal year and it was good again in this quarter. It looks like depending on how you doing in the fourth quarter, it could be 30% or even higher for the year -- for the fiscal year. Is this something -- is this a level roughly that you think is sustainable going forward? Or is there some reversal of your gross margin level that you foresee?

Hi, Linda, thanks for the question and you're not going to like my answer, but that's a forward-looking assumption and we try very hard not to get forward-looking statements. And so therefore, I'm going to back off and say that we can't answer that.

Okay. But I mean, you've talked about, you've done some particular cost reduction measures that have helped your gross margin. Is that really the explanation for the good performance?

It is Linda, and we've said that repeatedly over the years that we don't do it. Just when times are good, we maintain type cost controls year-round, and we do that on an ongoing basis. And that does help to protect our gross margin. And during these past few months with the tariffs, it was even more critical that we do that. And so, we tried to use a balancing act of reducing prices of China, increased prices for the customer, and to offset the tariff increases. So, we're pleased with the fact that we were able to maneuver through the land mines and come out with a good quarter.

And then, thanks for talking about the coronavirus situation in China. Can you give a little more specifics like, how numerous are the numbers of different outsourced plants that you use? Like, do you use just 10 or 100? And have the plants that are used to make your products, have some of those gone back to work already? Or are they all still out of work in terms of going back to the factory?

Yes, Linda. I'll give you the information that we know as of just today. We use, I don't know, the count is numerous. But as the rule goes, 80% or 90% of our volume comes out of 10 factories or so. So, of those factors, we do know that if the workers live in the province where the factories located, they can come back to work and go straight into the factory and start the work.We do know that some of our factories have a few people back that work. We also know that if they live in neighboring provinces in China or other provinces, and they come back to work, which they are trying to then the government requires as they go into quarantine for 14 days. And that quarantine can either be in the local dormitories or it can be in local hotels that the government provides for them.So with that said, it's a mixed bag. We have factories that have people working and we have factories that have people they're in quarantine, they should be back. They're about a weekend to the 14 day quarantine now and another week or so. So, we're hoping and they want to go back to work. I mean, they need to work. So, we're watching a daily.Our own office in Shanghai is open. We're open for business. We're taking it very careful. We're rotating staff and we're not bringing all of them in, there is that many people eight or so. And we're letting some work from home and rotating in and out. So, they're working in a big office building, which has a lot of people. So, we're trying not to overexpose. So, we're in hopes that this thing is starting to get under control. We hope.

Thank you. That's a very good explanation.

That's about I can give you so.

Yes, no, thank you. That's very helpful. And can I just ask you about your cash flow performance? I mean, it's been pretty solid and you've continued to pay your dividend. Although year-to-date, your operating cash flow is down a couple million and it's usually negative in the fourth quarter. So, are you -- I'm kind of thinking that you might have to put a little more debt back on the balance sheet to pay the dividend in the fourth quarter? Or how is that going to work exactly with your cash flow?

Again, that's a forward looking statement, but I will give you that answer, because I think it deserves an answer. We think too by the end of the fourth quarter, Linda that we'll have to be on the revolver, not to a big degree, but to a slight degree because we paid the special dividend.Now keep in mind, the special dividend was not on the third quarter. It was actually paid at the beginning of the fourth quarter. So, we didn't come out of the cash flow numbers until Q4, the quarter were in line now.And so, to answer your question, we think, we'll have to go back in for the revolver, but not a large amount both for an amount of money. Don't worry. It won't be any worse close to stretching the limit.

Okay. Yes, that's what it look like so thank you for that. I guess there would be all of my questions for right now. Thank you. I really appreciate it. And we'll see you in a few weeks.

[Operator Instruction] The next question is from Ralph Marash with First Manhattan. Please go ahead.

Great. Couple of questions. I noticed the advertising spend for the year is down on a percentage basis and a good amount. Just curious, if you have an explanation for that?

It's just timing, I think. I mean, the main advertising that we have is with our direct-to-consumer business and so that's on ebb and flow.

Okay. And the higher inventories year-over-year.

That's a combination, Ralph. One of them we purchase extra inventory on certain items that we're expected to have the tariff increase effective December 15. But obviously, as you know that tariff increased did not go into effect, but it was -- it was an item that it doesn't go stale.So, we've got good inventory and thank goodness for all of our spending right now. I'm sure we're glad we got it, but we did purchase extra inventory. Plus Chinese New Year came a little bit earlier, so we purchased inventory and anticipation of Chinese New Year as well. So, that's --those two items contribute to the inventory inquiry.

Thanks for that explanation. On margin, maybe the follow-up a little on what Linda was saying about gross margins. So, the fact that you are a public company and your customers obviously have sharp pencils and green eye shades and they follow your profitability and they understand that some of the explanation is from the tariffs dislocation and anticipation and so on. Is it conceivable that you'll have to give back some of your selling price gains?

Well, I mean, Ralph, the short answer is. We think we've already done and we have to negotiate with every major customer to delay -- postpone some of the tariffs to get the price increases, et cetera. So with the majors, we struck a deal with all of them. Now, that's not to say, Ralph, they can come back and open the can of worms, but we don't -- I don't foresee it right now.

Okay. I'll do my part and encourage them not to pester you.

Yes, please do.

They always listen to me. Thanks. That's it.

Thanks, Ralph.

Thank you, Ralph. Appreciate it.

The next question is from Tony Chiarenza with Key Equity Investors. Please go ahead.

Good afternoon. I hope you're both doing well.

Hey, Tony, we're doing fine. Thank you.

My question is. Can you give me a little bit better perspective on what demand conditions look like, as you see them right now or things kind of just stable? Or do you see things kind of slowing down a little bit because of whether it's corona or whether it's been concerned about the economy, et cetera? That would be helpful.

I would say Tony, that it's more in the line of being stable than it is up and down. As Olivia alluded to, in the third quarter, we had promotions that were not repeated at certain retailers that we had last year plus we had one program that was discontinued that we suffered the loss of. But, retailers, they sell as long as they got customers coming into the store or to their websites. So right now, I would say it's more of a steady state than it is up or down.

Okay. So, you don't see any evidence of a recession or a slowdown or anything like that, and neither do you see a boom is basically the bottom line?

We don't at this point, no.

Okay. That's very helpful. I thank you for your answer.

You're quite welcome.

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

All right, Jerry. Thank you very much, Olivia. Thank you. And thanks for everybody on the call and the questions. And we -- a reminder that we are a March ending fiscal year, so our next conference call will be mid-June, which will be for our fiscal year-end FY '21 which will end

Fiscal '20.

Fiscal '20, I am sorry. I am already in '21. Anyway, it will provide Fiscal '20. which will be in the end of March this year. So, we'll speak to you again at that time. We are very proud of the performance of the quarter and year-to-date periods. We have followed through some of the challenges and we're very encouraged by it.We'd like to thank all of our employees, suppliers, customers and shareholders for their continued support. And we look forward to speaking with you after we close our year-end. Thank you very much. And have a good afternoon.

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