Crown Crafts reported Q1 2025 net sales of $16.21 million, down 5.3% year over year and 28.2% quarter over quarter, as inflationary pressures and retailer inventory reductions constrained demand. The quarter delivered a net loss of $0.322 million ($0.0312 per share) and a negative operating margin of 1.83%, driven by higher warehouse-related costs and an unfavorable absorption of overhead into cost of sales. EBITDA stood at $1.171 million with an EBITDA margin of 7.2%, reflecting ongoing cost discipline even as gross margin compressed to 24.5% from 27.7% a year ago. Cash flow remained robust, with operating cash flow of $8.01 million and free cash flow of $7.73 million, supporting deleveraging efforts and funding of strategic initiatives.
Management highlighted two major strategic developments: (1) the acquisition of Baby Boom Consumer Products for $18 million, financed via an $8 million term loan and revolver enhancements that extend the credit facility to 2029 and lift capacity to $40 million; and (2) the closure of the Manhattan Toys UK subsidiary as part of an efficiency program to optimize the international distribution model. Management characterized Baby Boom as immediately accretive to earnings and viewed the acquisition as expanding the bedding category, licenses (Bluey, Cocomelon, Ms. Rachel, Paw Patrol), and diaper bags, with potential cross-sell opportunities across Walmart, Target and international channels.
Looking forward, Crown Crafts sees ongoing focus on cost-structure optimization, product development (including Manhattan Toy), and warehouse footprint optimization. Management did not provide formal GAAP earnings guidance for the upcoming quarters, but signaled confidence in the earnings trajectory from Baby Boom and bedding improvements, while cautions remain regarding consumer spend volatility and retailer inventory dynamics. The company remains financially solid on an equity basis, with total assets of $76.4 million and a solid equity base (~$50.7 million) after the quarter, but net debt remained elevated at ~$15.2 million, underscoring the need for disciplined cash management as integration progresses.