Good day and welcome to the Crown Crafts, Inc. Fourth Quarter Fiscal Year 2024 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to John Beisler, Investor Relations. Please go ahead.

Thank you, Betsy, and good morning, everyone. We appreciate you joining us for the Crown Crafts' fourth quarter and fiscal 2024 conference call. Joining me on the call today are Crown Crafts' President and CEO, Olivia Elliott, and the company's CFO, Craig Demarest. Earlier this morning, Crown Crafts filed its 10-K and issued a press release regarding the fourth quarter and fiscal 2024 financial results. A copy of this release is available on the company's website, crowncrafts.com. During today's call, the company will make certain forward-looking statements, and actual results may differ materially from those expressed or implied. These statements are subject to risks and uncertainties that may be beyond Crown Crafts control, and the company is under no obligation to update these statements. For more information about the company's risk factors and other uncertainties, please refer to the company's filings with the Securities and Exchange Commission. Finally, I would like to remind you today's call is being recorded and a replay will be available through the company's Investor Relations page. Now I would like to turn the call over to the President and CEO, Olivia Elliott.

Thank you, John, and good morning, everyone. Fiscal 2024 was a transitional year for the company. We started the year on the heels of acquiring and integrating Manhattan Toy as well as exploring the cross-selling opportunities made possible by the acquisition. We remain enthusiastic about the addition of Manhattan Toy as our offerings across the toy category continue to grow. Additionally, we plan to leverage our long-standing relationships with major retailers and specialty stores to gain shelf space and position our brands for future growth. We also continued to proactively manage the impact of the economic headwinds facing our operations and our customers. Inflationary pressures continue to linger, raising cost for materials and labor and reducing the discretionary income of consumers, which has a more meaningful impact on lower-income households. We will continue to strategically manage our cost structure and sales process. We remain well-positioned with our balance sheet and expect to see some of the macro pressure lessen throughout the remainder of the year. Despite these current challenges, we were able to minimize the impact on gross margin by proactively managing costs across the business. As a result, we reported another year of profitability and we reduced our debt by $4.6 million from the end of fiscal 2023. With that, I would like to turn it over to Craig to cover the financials in more detail.

Thank you, Olivia, and good morning, everyone. Net sales for the fourth quarter of 2024 were $22.6 million compared to $21.6 million in the prior year quarter. The increase reflects a full quarter's contribution from Manhattan Toy this year compared to two weeks in the fourth quarter of fiscal '23. This more than offset reduced orders from our customers, including a prior year feature from a major customer that was not repeated in the current year and the impact of consumers' response to the current macroeconomic conditions and adjusted inventory levels. Gross profit for the quarter was 23.2% compared to 21.9% in the fourth quarter of fiscal '23. The margin increase is primarily related to the effect of reserves recorded in the prior year associated with the customer who declared bankruptcy. Marketing and administrative expenses were $3.9 million in the fourth quarter of fiscal '24, relatively unchanged to the prior year quarter despite the addition of Manhattan Toys marketing and administrative costs for a full quarter. We worked throughout fiscal '24 to reduce the historical cost of both Manhattan Toy and our Legacy businesses. Net income for the quarter was $1 million or $0.10 per diluted share compared to net income of $828,000 or $0.08 per diluted share in the prior year. Turning now to our results for the full year. Net sales for fiscal '24 were $87.6 million compared to $75.1 million in the prior year. The increase was primarily driven by the addition of Manhattan Toy, which generated $18.5 million of net sales during fiscal '24 partially offset by a decline in our bedding blankets and accessories business. Gross profit for the year was 26.2% compared to 26.4% in fiscal '23, reflecting the rent increase at our California warehouse last February, partially offset by the impact of product mix. Marketing and administrative expenses were $16.1 million versus $12.7 million in the prior year. The increase primarily reflects the addition of Manhattan Toy at the end of fiscal '23. Net income for the year was $4.9 million, or $0.48 per diluted share compared to net income of $5.7 million or $0.56 per diluted share in fiscal '23. Turning now to our balance sheet. Cash and cash equivalents as of the end of fiscal '24 totaled $830,000 compared to $1.7 million at the end of the prior year. Inventories at the end of fiscal '24 were $29.7 million compared to $34.2 million at the end of fiscal '23. Our long-term debt at the end of fiscal '24 was $8.1 million compared to $12.7 million at the end of 2023. And finally, we paid $0.32 per share in cash dividends to shareholders in fiscal 2024, with a yield of 6.4% based on yesterday's close, we continue to believe our dividend is a key component towards offering long-term returns to our shareholders. Now I will turn the call back over to Olivia for additional comments.

Thank you, Craig. We recently passed the one year mark since our acquisition of Manhattan Toy. In that time, we have successfully completed the brand's integration into Sassy, and the IT conversion is nearly finished. On the operations side, we adjusted the brand's advertising spending and worked through the excess inventory to substantially improve the profitability of the brand compared to pre-acquisition periods. We are very encouraged by the strides Manhattan Toy has made on the product development front. Customers have given positive feedback on the items viewed at recent events and they look forward to having these products on their shelves. As stated earlier, these new designs expand our offerings across the toy category, which now represents the largest portion of sales across our portfolio. Looking ahead to fiscal 2025, we will continue to manage the macroeconomic challenges facing our business and consumers and expand the product offering across our brands. We believe we are well positioned for when the economy improves and our strong balance sheet will allow us to consider favorable acquisition opportunities that can strengthen our existing categories. We would like to thank our team for their efforts over the past year and our customers and licensors for their continuing support. We look forward to updating you on our progress throughout the year, and thank you, our shareholders, for your continued support. With that, I'd like to open up the line for questions. Betsy?

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Doug Ruth with Lenox Financial Services. Please go ahead.

Olivia and Craig, congratulations. It was a very solid report. It checks all the boxes, revenue growth, margin expansion, strong cash flow, debt reduction and, of course, the dividend. So thank you for what you did for the shareholders.

Thank you very much. We appreciate your support.

Okay. Could you tell us a little bit more about -- so we know you had sales of $18.5 million of the Manhattan Toy. Would there be a -- are you able to make a projection what the goal might be for Manhattan Toy for fiscal 2025?

We really don't give projections. We kind of stay away from forecasting. I think the best thing to do is probably go back to what we said when we acquired Manhattan Toy and that's the goal in the long-term. It won't happen in fiscal '25. I think we said it was going to be $24 million. It's going to take three or four years to get there, but the projections are that we will grow steadily over those few years.

Okay. Is it -- do you -- is it possible to get maybe get some placement for Manhattan Toy like in Walmart, maybe in fiscal 2025? Or would it take to be a longer time period than that?

No, we had some placement in Walmart already, and that will be shipping sometime between the first and second quarter of fiscal '25. Just a handful of items, and it's in a limited number of stores, but it's a start.

Very good. Congratulations. And then you also had talked about possibly combining the two warehouses, the Compton warehouse and then the Manhattan Toy warehouse. Is there any progress on that?

We're still exploring that opportunity. We have engaged a third-party to help us kind of figure out where the best place to place those warehouses are that minimize the impact to our customers as well as to anybody that's working in those warehouses.

Would you expect maybe something to happen in fiscal 2025? Or would we be looking beyond that?

I think you'll be looking beyond that. I think we -- by the end of fiscal 2025, I think we will have a plan, but I think any changes will happen in fiscal '26.

Okay. And what about the sales and product development office in Minneapolis, you had previously stated that possibly we're hoping to do something with the lease. Is there any progress on that?

That one is going to be a more long-term process. I think that lease ends in the beginning of 2027. And unfortunately, Downtown Minneapolis has way too much open office space to be able to sublease it. So that's going to be a longer term issue.

Okay. And what about the direct-to-consumer? How -- do you feel like you're making any progress with that?

We have not gotten anybody except for Manhattan Toy up and running on the direct-to-consumer for our own website, but we have NoJo's website is now complete and able to sell direct-to-consumer. And we are working through right now getting Sassy's website up and running. And so I do believe by the end of fiscal 2025, we will have all of these subsidiaries selling direct-to-consumer.

Okay. And what about -- how are things going for the company with Buy Buy Baby, you had previously told us that Buy Buy Baby had opened up, reopened some stores. Is there any progress with that initiative at all?

They did reopen, I believe, 11 stores and we are shipping to all 11 of those stores, but I believe any expansion by them is slower, I think, than we had hoped it would be and they haven't opened up any new stores since the initial grand openings.

Okay. And then I guess a couple more. There was recently an article about expansion of Legoland. And I know that was one of the things that came with the Manhattan Toy acquisition. How is that business going for the company?

That business is actually going very well. And we are -- we believe there will be three new parks, two of which will be in China, and those will be opened in, I believe, this summer of 2025. And so we're continuing to grow that business, and we look forward to them opening the new parks. One of the ones in China will be the largest one in the world.

Wow. So that would potentially really expand the international sales?

Correct.

And then the last question as I have was you did just did a tremendous job reducing the inventory. Are you happy with the inventory level where it's at? Or is there an objective for that?

I always think we have too much inventory. I do think we made great strides. We still have a little bit more, I'm going to say, close out inventory to work through, but I don't think it's -- it's not a huge number, but we always have something that we need to get rid of.

Okay. Thank you for answering my questions. Congratulations to the team there. You've just done a really good job integrating the Manhattan Toy business into your core operation?

Thank you.

[Operator Instructions] The next question comes from John Deysher with Pinnacle. Please go ahead.

Good morning. Thanks for taking my question.

Good morning.

Good morning. Manhattan Toy, you said, I think it was $18.5 million in this fiscal year. I think you indicated last fiscal year, it was about 25.8% on a pro forma basis. If that's the case, that seems like a pretty significant drop, and I know you're going to let some accounts go. But how should we think about that decline in Manhattan Toy year-over-year?

Some of the decline was planned. There was a there were some sales in the Legacy business to the original Buy Buy Baby that bankrupt. So that was a little bit of the decline. We had some customers that we stopped shipping to because they didn't have good credit. So that was planned as well. Once we got into it a little bit, it was a bigger drop, I guess, than we had planned initially because we realized that, for example, the direct-to-consumer business. They were spending as much on advertising as the top line sales. So obviously, when you're looking at something like that, the sales were at a 30% loss. So we sacrificed some top line sales to improve the bottom line. But we are -- we've been working throughout the year to get better costings to move our products to new factories where we can get better prices out of China. And I think that as time goes by, you'll see those sales pick back up.

Okay. So do you think the $18.5 million this fiscal year was the trough?

I do think that.

Okay. All right. So that should go up. And on the flip side, if we back out Manhattan Toy from the Legacy business, it looks like the Legacy year sales were about $69 million versus $49 million obviously a big jump. So what do you attribute that?

That was last year versus this year? Are you looking further back?

No, I'm just looking if we subtract the $18.5 million from the $87.6 million that's about $69 million. And if we subtract the $25.8, I'm sorry, I'm making apples -- yeah, I'm sorry. You're right. You're right. Sorry. Delete that last question. That was my error.

There'd be a slight decline, yes.

Yes, slight decline. Legacy, okay. Okay. That's it for me. Thank you.

The next question comes from Dennis Scannell with Rutabaga Capital. Please go ahead.

Yes. Good morning, Olivia and Craig. Just a couple of quick things for me. A quick question on gross margins in the fourth quarter. So gross margins were down, I'm sorry, gross margins were up year-over-year nicely, but down sequentially kind of what we were doing in the first three quarters, it looks like we're kind of around 27%. Is that just a seasonal issue or mix? Or just any commentary on the decline relative to the previous three quarters.

That's more of a timing issue. You see a little bit of a pullback when I hate to talk about burden variances, et cetera. But I mean, you see a little bit of a negative burden variance when you get into Q4 because of Chinese New Year, so we're bringing less inventory in during that time of year. So it's more of a seasonal or a timing thing.

Got it. Okay. Great. Thank you. So and then looking at for the full year around, sorry, where my notes went, around 26%. In past years, certainly before inflation really took off when we saw the softness on the consumer side, we had seen kind of gross margins 29%, maybe even 30%, it looks like fiscal '21 is recognizing that the mix of business has changed somewhat, particularly with the acquisition of Manhattan Toys. Is 29%, 30% gross margins a potential for the business going forward? Or is that not realistic?

I mean I think it's a potential in the longer term future. The biggest thing that's impacting us right now is the increase in the rent at the warehouse in California. So that's had a big impact on us. And until we get that long-term solution, there's -- it's not going to be at 30%, I don't think.

Yes, okay. Okay. And when you say just out of curiosity on the -- so in -- for the rents in California. It's not that you're looking to exit that? Or are you looking for another maybe a lower cost facility. Is there a solution to that rent, I guess, is my question.

We are working on that solution. And so we're -- we've engaged a third-party to help us with that move because if you're going to move a warehouse that you've been in for 25, 30 years, we need to have the plan to be there for 10 to 20 years at least on the forward-looking side. So we want to make sure that we do it right. So it is something that's going to take us 18 months to two years to get the long-term solution.

Got it. Interesting. Okay. And so an opportunity there. Great. Thank you very much.

Thank you.

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

We'd just like to thank you for your support over the years and we look forward to updating you on our Q1 earnings, which will be in mid-August. Thank you very much.

Thank you.

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