Good morning. And welcome to the Crown Crafts Incorporated Third Quarter Fiscal Year 2022 Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Craig Demarest, Chief Financial Officer. Please go ahead.

Thank you, Gary. Welcome to the Crown Crafts Investor Conference Call for the third quarter of fiscal year 2022. With me today are Randall Chestnut, the Company's Chief Executive Officer; and Olivia Elliott, the Company's President and Chief Operating Officer. A telephone replay of this call will be available one hour after the end of the call through 4:00 p.m. Central Standard Time on February 16, 2022. Also, a web replay of this call will be available for 90 days and can be accessed by visiting our website at www.crowncrafts.com. Before we begin, I'd 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. I will now turn the call over to Randall.

Craig, thank you very much. And good morning to everyone on the call. Thank you for joining us for the third quarter fiscal 2022 conference call. As Craig said, with me in the conference room today are Olivia Elliott and Craig. We're happy with the results of the quarter, but we did confront many notable challenges during the quarter. Management responded promptly to these challenges. At the beginning of the quarter, our offices and warehouse in Compton, California, experienced an overhead water main leak, which damaged most of the office area. There was only minor damage to the warehouse, which allowed us to continue shipping, but much of the office, and particularly the design area, was unable to work from the office for several weeks. This was following the impact of Hurricane Ida, which did considerable damage to our Gonzales, Louisiana Office. So the past few months have not been kind to us from a water standpoint. Along with many U.S. companies, we continue to experience an increase in the cost of our product as well as delays and extra costs associated with importing goods from Asia. We have passed along some of these increased costs to our customers whenever we can. We have experienced labor shortages and higher turnover in the warehouse operations during the past few quarters, which has become worse recently due to the increase in COVID cases that we've experienced in Compton. Our board of directors declared a quarterly cash dividend of $0.08 per share yesterday, which was announced this morning to be paid on April 8, 2022, to shareholders of record as of the close of business on March 18, 2022. Before I turn the call over to Olivia and Craig, I'd like to congratulate Olivia Elliott on her recent promotion announced this morning to CEO effective March 1. I've worked with Olivia for more than 20 years and believe her contributions during that time make her the right person to lead the company into the future. Olivia, congratulations.

Thank you.

Now I'll turn the call over to Olivia and then she'll turn it back to Craig, who will give more color to the financials. Thank you.

Thank you, Randall. I'm really excited to have the opportunity to continue to work with our outstanding team. I look forward to a bright future for the company. I'm going to touch on the third quarter results at a very high level, then I'll turn the call over to Craig for more detail. Third quarter net sales were $22.7 million compared with $19.5 million last year. Carousel Designs didn't affect the current quarter, but for the prior year quarter, if you exclude Carousel, which ceased operations in May 2021, net sales for last year would have been $18.4 million, which represents an increase of 23.8% for NoJo and Sassy. Net sales for the first nine months of fiscal year 2022 were $61.7 million, compared with $57.3 million last year. If you exclude Carousel from both years, net sales for the current year-to-date period would have been $61 million compared with $53.2 million last year, which represents an increase of 14.6% for NoJo and Sassy. Internet-based sales represented more than 25% of our current year sales. We also continue to see higher international sales this year, with those sales representing almost 5% of year-to-date sales. Third quarter net income was $2.4 million compared with $2.1 million last year. Once again, Carousel did not affect the current year quarter. When you exclude the impact of Carousel from the prior year quarter, net income would have been $2.2 million last year or $0.22 per diluted share compared with $0.24 this year. Net income for the first nine months of fiscal year 2022 was $7.5 million compared with $5.8 million last year. When you exclude the impact of the forgiveness of the Paycheck Protection Program loan from the current year and Carousel from both years, net income for the nine-month period of the current year would have been $6.3 million or $0.63 per diluted share compared with $5.9 million or $0.58 per diluted share last year. As Randall mentioned, we continue to feel the impact of rising product and freight costs, which impacted our gross margin this quarter. On the balance sheet side, we finished the quarter with $2.1 million in cash and no debt. Overall, it's been a very good quarter for us. And now I'll turn it over to Craig.

Thanks, Olivia. I'll only give financial highlights. For a more detailed analysis, please refer to the company's Form 10-Q filed with the SEC this morning. As Olivia mentioned, net sales were $22.7 million for the third quarter of fiscal 2022 compared with $19.5 million for the third quarter of the prior year, an increase of $3.3 million or 16.8%. Sales of bedding, blankets, and accessories increased by $349,000, which is net of a decrease of $1.1 million due to the closure of Carousel. Sales of bibs, toys, and disposables increased by $2.9 million over the same period. Net sales were $61.7 million for the first nine months of fiscal 2022 compared with $57.3 million for the same period of the prior year, an increase of $4.3 million or 7.6%. The increase in sales is primarily due to $6 million higher sales of bibs, toys, and disposables, partially offset by a decrease of $1.7 million in sales of bedding and blankets, including a decrease of $3.5 million due to the closure of Carousel. The increases in sales during the comparable three- and nine-month periods are partially due to a strong new modular set and higher replenishment orders at a major retailer, and are somewhat offset by declines in sales to online retailers as consumers have begun to return to stores. Gross profit increased slightly in amount but decreased from 31.6% of net sales in the prior year quarter to 27.1% of net sales in the current year quarter. The increase in the gross profit amount is net of the effect of the closure of Carousel, which recognized a gross profit of $319,000 in the prior year quarter. Gross profit decreased from $1.4 million and decreased from 31.9% of net sales for the prior year nine-month period to 27.4% of net sales for the same period in the current year. The closure of Carousel resulted in a $2.2 million decrease in gross profit, which in the current year nine-month period included the sale of inventory below cost and the recognition of charges of $334,000 associated with the settlement with a supplier for a commitment to purchase fabric and $265,000 associated with the liquidation of Carousel's remaining inventory upon the closure of the business. The company's gross profit has also been adversely impacted in both the three- and nine-month periods of the current year by continuing increases in costs across the entire supply chain. Marketing and administrative expenses decreased by $326,000 and decreased from 17.6% of net sales in the prior year quarter to 13.6% of net sales in the current year quarter. Marketing and administrative expenses decreased by $978,000 and decreased from 18.5% of net sales for the prior year nine-month period to 15.6% of net sales for the same period in the current year. The decrease in amounts for the current year periods includes lower charges incurred by Carousel of $494,000 for the three-month period and $1.3 million for the nine-month period. Other items in the nine-month period ended December 26, 2021, include a $1.985 million gain from the forgiveness of the PPP loan. The current year-to-date provision for income taxes is based upon an estimated annual effective tax rate from continuing operations of 20% compared with 23.7% in the prior year. The current year-to-date provision includes no tax expense from the gain on extinguishment of debt, which will be permitted to be excluded from taxable income, the effect of which lowers the effective tax rate for fiscal year 2022 by approximately 4 percentage points. During the current and prior year nine-month period, the company recorded discrete reserves for unrecognized tax liabilities as well as entries associated with excess tax benefits or shortfalls arising from the vesting of non-vested stock and the exercise of stock options. The effective tax rate from continuing operations, combined with the effect of the discrete income tax items, resulted in an overall provision for income taxes of 19.4% for the current year-to-date period and 23.7% for the prior year. Net income for the third quarter of fiscal 2022 was $2.4 million or $0.24 per diluted share compared to net income of $2.1 million or $0.21 per diluted share for the third quarter of fiscal 2021. Net income for the first nine months of fiscal 2022 was $7.5 million or $0.74 per diluted share compared to net income of $5.8 million or $0.57 per diluted share for the same period in fiscal 2021. I will now turn the call back over to Randall.

Craig, Olivia, thank you very much. Gary, if you'll come back in and give the instructions for anyone interested in entering the Q&A section, we'll begin.

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

Hi, thank you. This is Griffin on for Linda. So I guess my first question is, can you comment a little bit more on the freight price fluctuations you saw during the quarter? Just kind of any more color there would be great.

I mean we really haven't given any details about what kind of impact it's had. But I mean, as I'm sure you're aware, it's pretty much across the board for all companies right now that freight costs have increased. I think product cost is rising from China, both because of raw materials and their labor costs. And then just the amount of time that it's taking and the detention at the ports etc., has definitely impacted gross margin.

Okay. Great. And then will you were you able to recapture any of the retailer orders that were canceled last quarter due to the shutdown from the system glitch?

Yes, we were. We spent the entire third quarter. Probably halfway through, we were able to catch up with most of those orders. So yes, you can see the impact of that in the numbers.

Okay, great. Can you share how you plan to address the labor turnover rate you're experiencing?

That's a tough one. So overall, in California right now, I mean, it's definitely a tough labor market. We've been combating it with temps. And in a lot of cases, we end up hiring the temps. But more importantly, I think the impact has been COVID. We've had a lot of outages just due to people being sick. So it's definitely been tough. But we're doing our best to make sure that we are fully staffed and are able to get temp workers in there to help us while we have those outages.

All right. Yeah. And then can you talk about kind of the current state of the consumer in your industry compared to kind of historical levels of demand?

The consumer demand is largely based on, in our industry, on designs. We continue to have great designs and product development coming from the company, so we feel like our products are still popular. It's definitely a little bit different in that we're talking more to the consumer, their social media, online sales. There's been a good switch to online sales, though it's kind of dialed back a little bit because last year, during COVID, that was the primary source of sales. We're seeing some movement back to brick-and-mortar. But still, the online sales and what the consumer sees is definitely different than it used to be in the past.

Great. And then my last question here is for Olivia. With your transition into the CEO position, can you kind of give us your initial vision for Crown Crafts?

We don't really do any forward-looking statements or anything like that, so that's kind of a tough one to tell you what our vision is because that would imply our strategy for the future.

Okay. Well thank you very much. Appreciate it.

The next question is from Justyn Putnam with Talanta Investment Group. Please go ahead.

Yes. Good morning. I was curious, excluding Carousel, are there any other expenses during the quarter that you would characterize as unusual or non-recurring?

No, aside from Carousel, there was nothing unusual this quarter. We had the forgiveness of the Paycheck Protection loan in the first quarter, but that clearly wasn’t sufficient. Other than the increased costs we've discussed regarding the cost of sales, there was nothing out of the ordinary.

Okay. So then with Carousel, you mentioned a couple of expense items in the Q. Inventory, you had to sell below cost, and then the supplier commitment that you had to fulfill. It looks like in the Q though, those numbers, I think they're in aggregate, around $600,000. And it looks like maybe you're talking about those being nine-month figures. Was any of those costs in the current quarter?

No. All of that was in the first quarter.

All that was in the first quarter. Okay. Great. And then my last question is regarding the large order you got from a major retailer here in the quarter. How would you characterize that order? Is that an order that's pulling forward some sales? Or were they trying to replenish inventory to make up from past quarters? Or how would you characterize that? And also, how material is that order?

We really haven't given that number, so I'm not going to give you the number. It's probably a little bit of both. It's hard to tell what they're doing. But definitely, we've experienced some shortages just because of the time it takes to get through the port. So in a big way, they were trying to replenish their shelves due to outages.

Okay. Well, in the material though, is it kind of unusual in size and scope? Or is it kind of normal in what you see periodically?

I'm going to say it's more normal than anything. I mean, order patterns can vary. It was a bigger order than what they would normally place at that time, but we have shipments all the time.

Okay, great. Okay, great. That’s my questions. Thank you very much.

Thank you.

The next question is from Max Batzer with Wynnefield Capital. Please go ahead.

Well, my question takes the form of a comment. I'd like to congratulate you, Olivia, and thank you very much for all the great work you guys have done down there. It's the end of an era and the beginning of a new one, but the continuity of the management has been great. As you guys know, we've historically been institutional holders and I've been a personal holder for a long time. And I just wanted to say thanks a lot. You guys have done a great job in a very, very tough industry. And that's all I had. So continue the good work and thanks.

Thank you very much.

Thank you, Matt.

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

Yes. Good morning. I would like to add my congratulations to Olivia. I have a couple of quick questions. Regarding the SG&A line, your operating expenses are at a level I haven't seen in many years. In fact, as a percentage of sales, it's the lowest I've ever observed. I'm curious if there were any unusual add-backs, as it didn't seem like Craig mentioned anything specific. I'm looking for clarification on this. I understand this touches on forward-looking statements, but how should we view this moving forward? Is this a sustainable run rate for the future? Any guidance you can provide would be appreciated.

So it's two things. For the most part, G&A are fixed costs. I mean you have a little bit of commissions in there, but that's pretty much a low number. So as sales go higher, you're going to see that percentage go down. Also, Carousel, a lot of their costs were in advertising, which was the selling cost. Without Carousel, you see the advertising cost going down a good bit.

Thank you for the clarification. Regarding the retail order that was larger than usual in the most recent quarter, was that primarily related to the bedding segment?

Actually, no, it was along the bib side.

Okay. Great. Great. Since your fiscal 2016, we've encountered significant challenges in the bedding part of your business following recommendations from pediatricians about the naked bed concept. However, we are noticing some encouraging momentum in that segment. Can you share your thoughts on this? Do you believe you are capturing more market share? Is there an increase in momentum in that area of the business?

I won't say whether there's more momentum, but we have actually done quite well in increasing our market share. Our designs have gained significant traction. Additionally, we have decided to expand into adjacent categories, particularly in decor and accessories. Since we won't be offering the bumpers and similar items for cribs anymore, our goal is to fully decorate the nursery. Therefore, we are exploring what other items we can introduce to capture more market share.

Got it. Excellent. Well, it's nice to see the sales moving in the right direction there. And then finally, in the quarter, were there any lost sales due to inability to get product in from Asia and to your customers? Or is your fulfillment kind of where you would hope to be, recognizing that there may be some delays and lead times are longer, but you're still filling what you can?

We're still filling what we can. I mean there are some delays. But as soon as we can get the product in, it's going right back out the other door. We're doing our best just to keep up with the momentum.

Okay, great. Thank you very much. And good luck.

Thank you.

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, Gary, thank you very much, and thanks to everyone on the call. We're extremely proud of the results for the third quarter of FY '22. Management has done an outstanding job working through all the challenges and posting very good results. We'd like to thank everyone for their continued support and interest in the company and a special thanks to all employees, suppliers and, of course, customers. Management looks forward to talking with you again in mid-June when we release the fourth quarter and full year fiscal 2022 results. Thank you very much. And with that, it concludes our conference today. Have a good day.

Thank you.

Thanks.

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