Morning, everyone, and thank you for joining today's call. Our third quarter results reflect our ability to generate cash flow and profitability during this challenging period of economic uncertainty. In spite of the headwinds we have continued to face this fiscal year, our team has remained focused on delivering strong operating cash flow and proactively managing our controllable expenses. We also continue to refresh some of our categories and develop new products so that we are well positioned to capitalize on future growth when consumers are ready to spend more on discretionary items. During the quarter, we completed the integration of our most recent acquisition, Baby Boom, which we are excited to report added $3.8 million in sales this quarter. We remain optimistic about the future of these product categories, including diaper bags, which are a new category for us. With that, I'd like to turn it over to Craig Demarest to cover the financials in more detail, then I will follow-up with additional comments before taking questions.

Thank you, Olivia, and good morning, everyone. Net sales for the third quarter of fiscal 2025 were $23.3 million compared to $23.8 million in the prior year quarter. The decrease is primarily attributable to lower online toy sales due to the bid program at a major retailer. This was partially offset by the addition of the $3.8 million in net sales related to Baby Boom, which we acquired in the second quarter of this fiscal year. Gross profit for the quarter was 26.1% compared to 27% in the third quarter of fiscal 2024. The margin decrease can be attributed to slight changes in product mix together with higher lease costs for our warehouse in California. We continue to evaluate our footprint and look to reduce our warehousing costs through strategic consolidation in fiscal 2026. Our third quarter marketing and administrative expenses were $4.4 million compared to $4.1 million in the prior year quarter. The increase is primarily related to expenses associated with the purchase of Baby Boom, including $186,000 in acquisition-related costs. Interest expense for the quarter increased $183,000 from the prior year quarter due to the higher borrowings related to the Baby Boom acquisition. Net income for the quarter was $893,000 or $0.09 per diluted share compared to net income of $1.7 million or $0.17 per diluted share in the prior year quarter. Turning now to our balance sheet, we remain in a strong financial position as cash and cash equivalents at the end of the third quarter were $1.1 million compared to $829,000 at the end of fiscal 2024. Borrowings under our credit facility at the end of the quarter were $20.9 million compared to $8.1 million at the end of fiscal 2024, reflecting amounts borrowed in the second quarter to fund the Baby Boom acquisition. Year to date through the end of the third quarter, cash flow from operations was $7 million compared to $4.1 million in the same period last year. We expect to use our cash flow to repay our borrowings. However, as always, our debt balance may fluctuate from quarter to quarter due to the timing of inventory purchases and other working capital needs. Our inventory balance has declined from $34.9 million in December of 2023 to $32.4 million in December of 2024, even with the inventory added in the Baby Boom acquisition. Finally, we paid our regular quarterly dividend of $0.08 per share and declared our next dividend, which will be paid in April. Now I'll turn the call back over to Olivia for additional comments.

Thank you, Craig. Looking ahead, our focus is on growing the top line while maintaining our cost of goods sold. In addition to refreshing our high-end toy and diaper bag lines acquired over the past couple of years, our product development teams are also focused on new products to complement our current category. We're monitoring the ongoing updates out of Washington regarding tariffs, particularly as it pertains to the announced 10% on Chinese imports, where virtually all of our products are made. As China remains our best sourcing option, we will need to work with our suppliers to absorb the increase and consider price increases. We continue to review potential locations to relocate our warehouse. After visiting three locations, we've narrowed that down to two and continue to evaluate the financial profiles of each. Overall, we remain well positioned to navigate the current economy while preparing our brands to perform as conditions improve. Our balance sheet is strong, and we're able to effectively manage our borrowings and continue to pay our dividend through operating cash flow, which stands as a key component in our strategy to deliver long-term value to our shareholders. With that, I'd like to open up the line for questions. Jamie?

Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. Once again, that is star and then one to join the question queue. We'll pause momentarily to assemble the roster. And our first question today comes from Doug Ruth from Lennox Financial Services. Please go ahead with your question.

Good morning, Olivia and Craig. Thank you for hosting the conference call today. Could you give us a little more color and tell us how you've got the warehouse possibilities down to two? Can you tell us some of the things that you're seeing or some of the things that you're thinking about how you'll ultimately make the decision and what town the locate the warehouse?

Yeah. A big part of the consideration is going to obviously be cost. That being said, we need to look at lead times. You know, one of our final options is closer to the West Coast, and one is closer to the East Coast. And while you may save a little bit more in the lease cost going to the East Coast, the cost to get the goods all the way across the country is going to be higher. It's going to take longer. And there's also a bigger impact should freight rates go up on the downside. So we're looking at the whole big picture. For the most part, yeah, all the warehouses look exactly the same. You know, we're mainly focused on the location, and any type of technology that we may want to put into the warehouses can be done at either location.

Are you leaning towards one location over another, or are you totally undecided at this point?

Probably leaning a little bit towards the West Coast location, just from the overall package. But, you know, we're still trying to get all of the information together and get the actual quotes for the locations that we were specifically looking at.

Okay. Now changing topics, could you give us an update on the diaper bag business and some of the initiatives that you're focused on?

Sure. So we've had some really good meetings with both some potential new licensors for diaper bags. It seems to be a category that a lot of people are interested in. We've also had some good meetings with the retailers. We've done some, what I think are very good designs, some refreshed silhouettes, some refreshed looks. I think we've got a great deck that we've been showing, and we're hoping to get some new placement in that. So it won't be until 2026 because most of the lines for 2025 had already been placed by the time we did the acquisition in July. So I think we've got a good opportunity coming in the next year or so to pick up some placement.

Now you had talked about both potentially domestic and international. Is that still what you're thinking, that there's opportunities in both places?

Yeah. I think there's opportunities in both places. We're focusing on domestic first because we think that's a bigger opportunity. But, yeah, we can do both.

Okay. And what's the status of Manhattan Toy? How were the holiday sales, and is there anything you can share with us? And then also, the placement through Walmart.

So I'll take the easy one first. The placement at Walmart is doing well. You know, we expect to keep that placement at Walmart at least for another year. We've found that out. So we still think we have opportunities to get more placements. So we think that's going well. The holiday sales were disappointing. That's where we saw the biggest decline in sales was at the Manhattan Toy brand. We think that most people were trading down to maybe the less expensive lines of toys. It just didn't go as well as it had the year before. So that's where I think our biggest disappointment was for this holiday season. That being said, we continue to develop new products. We think that we've done a really good job of refreshing that. We've had positive feedback from the customer itself, the retailers, the specialty stores, etcetera. They have positive things to say about the new developments. So yeah, I think there's still an opportunity there. It just didn't come this holiday season.

Okay. And what about working with the distributor overseas for the Manhattan Toy? Has that been effective for the company?

Yes. So we closed the London office, and we've gone strictly to a distributor system based on the international front. And yes, our distributors have had, you know, most of them are picking up some of the Manhattan Toy sales, and so that's definitely a bigger opportunity to continue to grow.

Okay. And then what about what's happening with LEGOLAND at this point?

LEGOLAND continues to grow. They're building new parks. I think we expect the Shanghai Park to open here in 2025. And so we continue to grow there.

Yeah. Were the fourth quarter sales up at LEGOLAND?

So a lot of the LEGOLAND parks are closed for the winter. So you have a couple of the ones in the US, I think Florida and California, stay open during the winter season. The rest of them are closed. They, I think, open mainly April to October.

Okay. I have a few more questions, but maybe I could let somebody else ask some questions, and I can come back for some more.

Your next question comes from John Deysher from Pinnacle. Please go ahead with your question.

Good morning, everyone. I just have a quick question on the real estate. I just want to confirm when the various leases are expiring. I understand the Compton lease expires in June of 2028. The Minneapolis headquarters expires June of 2027. And Eden Valley warehouse expires June of 2026. So are all of those correct?

I believe the Minneapolis is March of 2027, but, yeah, that's close. The Eden Valley and the Compton ones are correct. June 2026. Compton is definitely the June quarter of 2028. You're right. That office one is in that. Okay. Is in that. Right. Yep. Okay. So they're all pretty close.

I mean, given that Eden Valley is going to expire in about a year and a quarter or so, it sounds like you're going to be making a decision on the new warehouse pretty soon.

Yes. I think we'll make a decision on the final location pretty soon. We'll have to sublease in Compton in the meantime, so we're going to have to get the timing right. And if for whatever reason, Eden Valley warehouse expires before we are ready, we'll take some kind of interim step. We're thinking through that process, but it could be that we move those goods to the final location, but use a 3PL temporarily till the warehouse is ready. So it's kind of a balancing act that we're working through.

Right. I understand. So is it fair to say we might know by your fiscal year-end what the decision could be in terms of your ability?

Alright. Yep. I mean, if not June, by August, I think we'll be able to tell you the final location.

Okay. There's no midyear. And what about the Minneapolis headquarters? What's that transition going to be?

We need to get into a smaller space. It was too big for the personnel that was there at the date of acquisition. Certainly too big for what we have now. And so, you know, we were working to try to come up with a solution to downsize sooner rather than later, but that didn't really work out. So, you know, we're stuck there until the lease runs out, but we won't go back into that particular location. We could get a much smaller, less expensive location, and quite frankly, out of downtown. Maybe on the outskirts.

Okay. But you gotta keep it in Minneapolis. You're not going to move everybody to Gonzales.

No. We won't move everybody to Gonzales. It'll be a small office, but we'll need to keep something.

Okay. Alright. Good. I think that was it. Thank you for your answers.

Thank you.

And our next question is a follow-up from Doug Ruth from Lennox. Please go ahead with your follow-up.

Okay. You had talked about developing some new toys. Is there any certain toy that you have in development that you're especially excited about?

Well, on the toy side specifically, I think we're really excited about the new Dottal line that is actually starting to ship now. We redesigned the STELLA program, and we think that it's going to be a better option specifically in the specialty store size. And then, you know, mostly on the toy side, if you're looking at Manhattan Toy, we're really just still refreshing the line. There's only so many new products that you can develop and get into production each year. So we're still working on just the overall refresh of those products. Sassy just continues to knock it out of the ballpark, and everything we develop is really working out well.

What is it specifically about the STELLA doll that you think is a selling point?

So, I mean, the biggest thing is that there were sizes of dolls. There was, I forget what the second one is, but one of them was smaller than the other one, and the price differential was pretty great on it, and so everybody stopped buying the bigger doll and started getting the smaller doll. And so what we've done is we've just refreshed, really, the size of the dolls, and we've moved manufacturing facilities so that we can hit the price point better.

So the difference in price between the bigger doll and the smaller doll is not as great. So possibly you'll sell more of the bigger dolls.

But what happened in that case was the dolls looked the same except for they were two different sizes. So everybody traded down to the smaller size. So we're still going to have two separate dolls, but we're gearing them mainly. One is the baby's first doll, and it's more of an infant doll. It doesn't have removable clothes. It doesn't have hair. And then you kind of grow into the next size doll as you become a toddler. So we've differentiated the dolls more.

Okay. Alright. Now I noticed quite a change in the market for, you know, in the third quarter. Did you feel like the ad spend was approximately at the right level now?

So third quarter this year versus third quarter last year?

Yes. Yeah. It looked like the marketing expense was always lower if I read that correctly.

Oh, it's actually up a little bit, and it's mostly the difference is most going to be the continued integration costs for Baby Boom. Otherwise, marketing expenses were flat.

I misspoke. I meant the advertising expense. I'm sorry.

No. I think we're going to have to spend a little bit more on advertising to drive those online sales. I think that's probably where we missed the mark the most. You know, when we first acquired Manhattan Toy, advertising costs were more than the sale. And so we pulled back on that spend, and I think we've pulled back too far. So I think in order to drive higher sales online, we're going to have to do some more spend.

Yeah. You explained previously that was sort of an experiment, and you were so possibly, if you would have spent more, possibly the Manhattan Toy sales might have been higher than they actually were.

I think it's likely. Yes.

Okay. And then when you talk about just the big picture, what should, like, on an annual basis, what should the marketing and administrative expense, what should that be as a percent of revenue?

That's something we're probably not going to answer because we just don't forecast.

Okay. How about, you know, when we talk about the one large category, bibs, toys, or disposables, was most of the decline then in the... Well, are you able to provide any kind of additional breakdown of the decline from the three different categories?

So the decline in bibs, toys, and disposables was primarily the Manhattan toys. We also had a small part of this decline was going to be the last bit of runout for the loss of the Target bib program that we lost in November of 2023. And so Q3 of last fiscal year had about, you know, half of the quarter had good sales, whereas this year, we had none for that one customer. But the vast majority of it was the Manhattan Toy brand.

Okay. I think that you folks are doing a terrific job. I like the progression of what's happening with the warehouse. I really appreciate the care that you're taking for the shareholders. Just really trying to make the best decision that you can to get the right location for the warehouse. And I'm very grateful for what you're doing there for the shareholders.

Thank you, Doug.

That's all the end of my questions. Thank you.

And our next question is another follow-up from John Deysher from Pinnacle. Please go ahead with your follow-up.

Good morning. Regarding the tariffs, the 10% increase, I guess, when does that go into effect? And I guess, what measures are you taking to either offset that or share it with vendors or what are the options?

So it doesn't affect pretty much immediately. Actually, our initial conversations with our suppliers out of China indicate that we're probably going to be able to roll back prices. Our initial first cost purchase prices out of China enough to cover the vast majority of it. So while, you know, we may have to raise some prices to our retailers to a small degree depending on category, depending on supplier, we are hopeful that we can minimize the impact to our customers and to the consumer. And it feels like that's really a likely option based on our initial conversations with suppliers.

Okay. Good. That's encouraging. When will that go into effect? One way or the other, the rollback of the purchase prices?

Immediately. So, I mean, we need to have those rollbacks, you know, pretty much concurrent with the increase in the tariffs. So, you know, there may be some product that was already either on the ocean or some that was already in production that, you know, we may not be able to roll back that quickly. But, you know, oftentimes, we do say, yes.

Hello?

You've got to lower the price on what's already in production, but certainly for any new production.

Right. But do you have those agreements in writing at this point?

We don't actually have agreements with our suppliers. It's on a PO by PO basis, which makes it much easier to change, you know, as soon as possible.

Okay. And the POs that you submitted recently have been okayed by vendors?

Well, we haven't submitted any with the new lower prices, but we can. I mean, absolutely. We can go back and change the prices. We've done it before.

Okay. Okay. Alright.

Okay.

That's fine. It sounds like it's a work in process at this point.

Yes. Absolutely. It's kind of ever-changing here for the past couple of weeks.

Right. Okay. Great. I appreciate it, and good luck.

Thank you.

Thanks. And ladies and gentlemen, with that, we'll be concluding today's question and answer session. At this time, I'd like to turn the floor back over to Olivia Elliott for any closing remarks.

Thank you, Jamie. Thank you, and for your continued interest in our company. We look forward to speaking with you again when we report our fourth quarter and fiscal year 2025 results in June.

And ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.