Good day, and welcome to the Crown Crafts, Inc. Fiscal 2026 Second Quarter Conference Call and Webcast. Please note this event is being recorded. I would now like to turn the conference over to John McNamara of Three Part Advisors. Please go ahead.

Thank you, Michael. Good morning, everyone, and thank you again for joining the Crown Crafts Fiscal Year 2026 Second Quarter Conference Call. With us on the call this morning are Crown Crafts' President and Chief Executive Officer, Olivia Elliott; and Vice President and Chief Financial Officer, Claire Spencer. During today's call, the company may 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. With that, I would now like to turn the call over to President and Chief Executive Officer, Olivia Elliott.

Thank you, John, and good morning, everyone. As we noted in the press release we issued this morning, we reported stronger second quarter net income, which we believe reflects positively on our ability to navigate the current environment. The ongoing tariff landscape, particularly on goods sourced from China, continues to drive costs and pressure margins. These tariff policies affect many products in our sector and many brands are being forced to pass on price increases. Complicating this is the volatility in global supply chains and raw material costs. We are encouraged by recent trade talks between the U.S. and China, and we'll continue to navigate persistent uncertainty in a challenging macro environment. We will seek opportunities when growth potential presents itself and prudently manage cost, including capitalizing on synergies following last year's acquisition. To that end, as previously reported, after quarter end, we began consolidating some internal operations, which will not only result in reduced payroll expenses, but will eliminate some redundant costs as well. Our relationships with our suppliers, customers and licensors remain strong, and we expect to continue renewing our licensing agreements while our product development team is hard at work on exciting future launches. Our balance sheet and cash flow remain solid as we manage the business, and we are positioning the company to respond quickly to any change in the overall environment. With that, I'll turn the call over to our Chief Financial Officer, Claire Spencer, who will walk us through the financial details.

Thank you, Olivia. I will begin with an overview of the quarterly results, along with additional color on our financial performance. Second quarter net sales were $23.7 million compared to $24.5 million in the second quarter of fiscal year 2025 due to a $1.6 million decline in the sales of bedding and diaper bags, partially offset by an $800,000 increase in the sales of bibs, toys and disposable products. The decrease in bedding and diaper bags was primarily due to a decrease in the number of items included in the program at a major retailer. This was partially offset by increased sales in bibs, toys and disposable products across various distribution channels. Gross profit was $6.6 million, reflecting a margin of 27.7% in the second quarter as compared to 28.4% in the year earlier period, primarily a result of increased tariff costs associated with products imported from China. We reduced marketing and administrative expenses by $740,000 to 19.9% of net sales for the quarter relative to 22.3% in the prior year period. This reduction was due to acquisition-related costs in the prior period, which was partially offset by increased advertising costs. GAAP net income for the second quarter was $1.2 million or $0.11 per diluted share, up from $0.08 in the year-ago quarter, which was driven primarily by the reduction in marketing and administrative expenses from the prior year period, as previously mentioned. Turning now to our balance sheet. As of the end of the second quarter, cash and cash equivalents totaled $810,000, up from $521,000 at the end of fiscal 2025. The inventory balance of $32.6 million is in line with our prior quarter and prior year quarter. The balance is higher than at the end of fiscal 2025 as fiscal year-end is typically our lowest inventory levels, followed by increases throughout the year ahead of new program sets in Chinese New Year. As of September 29, 2025, the company had $16.3 million in indebtedness and $13.7 million remains available under our revolving line of credit. Finally, we declared an $0.08 per share cash quarterly dividend to shareholders as we continue our long history of returning value to our shareholders. Now I'll turn the call back to Olivia for additional commentary.

Thank you, Claire. We entered the second quarter fully aware of the macro challenges, especially the elevated tariff environment and its effect on profitability. Yet we managed to achieve a slight increase in net income, a testament to our resilience and prudent management. While tariffs continue to weigh on our gross margins and overall profitability, we will adapt and adjust our strategies as needed to help offset its impact, ensuring we remain well positioned to capitalize on opportunities and drive stronger growth and profitability as market conditions evolve. In closing, I would like to thank our shareholders for your support, and we look forward to updating you on our progress in the coming quarters. With that, we'd like to open the line up for questions. Michael?

And your first question comes from Doug Ruth with Lenox Financial Services.

Olivia and Claire, I want to offer my congratulations. The report was really fantastic. You really exceeded my expectations.

Thank you, Doug.

Could you explain where did the increase from the bibs, toys and disposable products? Where did that increase come from?

It's kind of across the board. It's in all of the different product lines, and it's at several retailers. So we really just saw an increase there pretty much everywhere.

Wonderful. And then how do you feel about the company's inventory? I noted that it's a little bit lower than it was in the second quarter of fiscal 2025.

I'm comfortable with the inventory levels. We've had some shifts throughout this year in the timing of when some of the retailers are going to reset new programs. But for the most part, I think we're in a good place.

I had looked at the Manhattan Toy website. It looks really very inviting, really professional. I was curious if you're getting any kind of feedback on how that's been going.

Yes. I think that overall, most people like the look of it. But more importantly, I think they like the ability to navigate and to purchase from the website. So I think we've gotten a lot of good response.

Okay. And then I know that the large LEGOLAND opened up in China, and I was curious to hear how Manhattan Toy sales are going at LEGOLAND at this point?

I think the sales are good at LEGOLAND. I think the park opened a little bit later than planned. So that did impact, I guess, according to what we budgeted. But for the most part, I think it's going well.

In the past, you mentioned there was a trial and error period with the Manhattan Toy advertising budget. I noticed there was a significant increase in the second quarter. How do you feel about the budget and the results generated from the increased spending?

I think the sales are coming slower than we had hoped. But at the end of the day, I think it's important for us to invest in the advertising and the marketing in order to begin driving those sales.

Okay. And then I know you had previously talked about the redesigned Stella doll. And then I saw there was this article in the New York Times noting that Meghan Markle had bought a Stella doll for herself. I was curious to hear if all the hype and stuff is if that's helping sell some of the Stella dolls and maybe anything you could share about that?

I think the Stella dolls have been well received. I mean for the most part, it's a specialty store item. It's not placed at any of the major brick-and-mortar retailers. So obviously, any kind of marketing we can get from it, especially from somebody such as Meghan Markle, it's got to help.

Okay. I have a few more questions, but perhaps I'll let somebody else ask some questions and maybe I can come back on the line.

Your next question comes from John Deysher with Pinnacle.

I was just wondering if you could elaborate on the consolidation of internal operations and what that involves and what the anticipated savings might be as well as the timetable?

I can elaborate a little bit on the process of it. But right now, we're not really giving a lot of information on the potential savings as we're still gathering that information. What we'll be doing is consolidating the 2 subsidiaries into one, which should help us eliminate some duplicate positions, but also in particular, a lot of IT costs. And so almost everything, whether it's a website, whether it's your EDI contracts, pretty much any IT contract, you have to have one for every single subsidiary. And so we believe we have a lot of opportunities to get rid of some of those redundant costs by only having to have one contract for everything. We're still going through the process of everything that we can eliminate, but we do anticipate that throughout the year, it will be a little bit more with each quarter. You've got contracts, you can't get out of them early. We'll obviously try. But for the most part, we're not able to get out of too many of them early. But as the year goes on and these contracts expire, then we'll be able to consolidate them.

Okay. And when you say the 2 subsidiaries, you're talking Sassy and NoJo?

Yes.

Okay. But you're keeping the brands?

The brands will stay, absolutely.

You're just kind of consolidating the back offices for both of those?

Correct. Our sales and design teams have been quite separate until now, and we will be merging those departments. This means we may see individuals who previously did not sell Sassy start to do so, and the opposite may occur as well.

Okay. And I realize the contracts mature over a period of months. But when will you have an idea as to what the savings might be just on a rough basis as a result of the consolidation.

We'll start our budgeting process for fiscal '27 when we return from the Christmas holidays. By the end of February or March, we'll have a clearer understanding of the impact. We do not forecast earnings, so I'm uncertain about the amount of information we'll publicly disclose. However, internally, we'll have a better grasp of the situation.

By the end of February or so.

Yes.

Your next question is a follow-up from Doug Ruth with Lenox Financial Services.

Olivia and Claire, I know that the diaper bag situation has been somewhat fluid. I was wondering if you could maybe offer a little bit of commentary what your thoughts are with that business.

We've been struggling with the diaper bags, as you're aware, the tariffs really, really hurt the diaper bag category in total, and we've been struggling to find new sources and to keep those costs down. And so we're still working on moving from China to other countries and finding new sources to be able to bring the cost of those down.

And so fundamentally, though, you still feel that there's opportunities with diaper bags, but possibly the country of production might have to change. Is that what you're thinking or...

That's true. So our design team has really done a great job of refreshing the look, making them more modern. So we have some great designs. We just need to get the costs down in order to get them to retail.

Okay. And would that be true both in America and also outside of America.

Right now, we're really focusing on the U.S. and Canada. But I think there is an opportunity, particularly on company-branded designs that we can go internationally. We just haven't explored that yet as we need to focus on the U.S. first.

Okay. I know there was a learning curve with the Manhattan Toy. I was curious if you could provide any insights on how Manhattan Toy is currently performing at Walmart.

Manhattan Toy at Walmart has been a mixed bag. I mean we've got a few SKUs that are continuing on, and then we've had some that are dropped and then they're going to be replaced with some other products. But Manhattan Toy was always a higher-end product, and so it wasn't placed in all stores for Walmart. It was kind of in what was considered their better departments at some of their stores.

Okay. Could you provide an update on how international sales are progressing? I know you adjusted your distribution strategy for products outside of the United States.

So that was a big part of the increase at Sassy in the bibs and toy area, particularly toys. That's what's really sold internationally. But that was a big part of the increase there. And so we've had a lot of good opportunities that have come internationally. We were at the K&J show in Germany at the beginning of September. We're signing up some new distributors and some countries we are not currently in. And so that's probably one of the brighter spots in the business right now.

So the bright spot is international Manhattan Toy sales.

Manhattan Toy and Sassy.

Is there any particular country that seems to be doing especially well?

There may be a few. I mean, I know that really, I'm going to say Europe in general.

Okay. And are you encouraged that, that trend could maybe continue looking through the balance of fiscal 2026?

I do think so, yes.

Okay. And is there any particular SKU that people seem to like or...

Internationally, I mean, I know domestically, our ring stacker is the #1 best-selling item. I think that does pretty well internationally as well. But other than that, I can't tell you if there's a specific SKU internationally. We do limit the...

The ring stacker on the Amazon website shows that 20,000 of those are sold per month. That's a phenomenal sale.

Yes. It's our single best-selling toy item. And has been for years.

When was that toy invented?

It's been around for quite some time. I think they had that toy when we acquired Sassy Baby. So I don't really know when it was invented, but it's been a #1 bestseller for many years.

Every child in the world should have that particular toy. That is a...

We agree.

Yes. That is a fabulous toy.

We agree.

Thank you very much for answering my questions. I am just really thrilled with how great that report was. Thank you for doing what you did.

Thank you, Doug. We appreciate your support.

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

Thank you for your interest in our company. We look forward to speaking with you again when we report our third quarter results in February.

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