Gonzales-based Crown Crafts Inc. reported earnings of $755,000, or 8 cents per share, for the three months ended Sept. 30, down from $1.1 million, or 11 cents per share, a year earlier.
The infant apparel and accessories maker also reported lower revenue for the second quarter of its 2013 fiscal year. The company’s revenue dropped to $17.3 million, compared to $21.3 million a year earlier.
During a conference call with stock analysts and investors, Crown Chairman, President and Chief Executive Officer Randall Chestnut said the second-quarter results were affected by several factors, some expected and some beyond the company’s control.
Crown discontinued an unprofitable private-label bedding program and shifted orders forward from the second quarter of fiscal 2013 to the first quarter, Chestnut said. Both moves lowered second-quarter revenue.
The situation was compounded by the poor economy and retailers maintaining tight inventories, the company said.
But Chestnut said there are reasons for optimism.
Crown’s branded products saw sales increases of 6.8 percent, and margins improved as the company redesigned products to move away from cotton, he said. Crown also selectively increased prices where appropriate.
Those moves helped increase earnings for the first half of the fiscal year, despite lower sales. Crown earned $1.7 million, or 17 cents per share, on sales of $34.7 million, compared with $1.6 million, or 16 cents per share share, on sales of $38.8 million a year ago.
Crown also declared a special cash dividend of 50 cents per share, in addition to the quarterly cash dividend of 8 cents per share. Both dividends will be paid on Dec. 27 to stockholders on record Dec. 14.
However, Nelson Obus, managing member of The Wynnefield Group, Crown’s largest investor, said the last thing he wanted to see was Crown paying a big dividend.
The special dividend creates the perception that Crown is a cash cow rather than a growth company, Obus said. Crown’s management has turned $6 million of buying power into $1 million, he said.
Crown should be using its cash to acquire other companies in the infant and juvenile space, where bargains can be had in a difficult and uncertain economy, Obus said. The company should target deals in the $5 million to $10 million range.
Crown isn’t being aggressive enough because Chestnut doesn’t want to take on debt, Obus said. Chestnut said over the years, Crown, under his direction, has used a mix of cash and debt to acquire other firms.
Crown generates $6 million to $8 million in cash each year, and the company will begin building up cash after the dividends, Chestnut said. In addition, Crown has $19 million available through a line of credit, with an interest rate of 3.25 percent, so the company isn’t limited to using cash for acquisitions.
Chestnut said Crown is constantly looking at acquisitions but recently backed away from a couple of possibilities because of safety concerns and Consumer Safety Product Commission issues.
It was good that Crown did so because one of those companies has since closed, Chestnut said.
Crown doesn’t want to overpay or buy a troubled company, Chestnut said.
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