Crown Crafts, Inc. Stock

Good afternoon, everyone. everyone and welcome to the Crown Crafts Fiscal Year 2027 First Quarter Conference Call. 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 Crowncraft's 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, including its annual report on Form 10-K. With that, I would now like to turn the call over to President and Chief Executive Officer Olivia Elliott. Please go ahead.

Thank you, Operator, and thank you, everyone, for joining this afternoon's call. Today, after the close, Crown Crafts reported very solid quarterly results, given the still-solved demand environment. We accomplished this by focusing on what we can control, and our team did a terrific job executing on our strategy. We were able to grow our net sales 8% despite the uncertainty that consumers continue to feel around high interest rates, inflation, and global geopolitical events. Improved inventory levels account for most of the growth, as we were able to better meet demand than during last year's tariff instability. Just as important, we were able to drive a higher gross margin, both on a GAAP basis and also when adjusting for tariff refunds, as Claire will walk us through in a moment. On an adjusted basis, our growth margin for the quarter climbed nearly three full percentage points year over year to 25.6%.

As a result, we were able to produce positive net income versus the loss reported in the prior year period, and we once again generated positive operating cash flow of nearly $5 million, similar to the March quarter. Combined with a significant reduction in our debt balance during the quarter, our balance sheet is significantly strengthened. As we mentioned on our last call, during the June quarter, we relaunched Manhattan Toy Brands Groupie Girl. pleased to say that so far, sales of this iconic line of fashion dolls has exceeded our expectations, largely driven by the Canadian market. And we believe this bodes well for continued success of this retro-inspired beloved brand. Next, I'll provide an update on our strategic initiatives to grow both our top and bottom line. Our priority is our ongoing innovative internal product development to expand our product offering. Another initiative is to build on our recent margin expansion to further drive profitability.

We're moving towards a favorable mix of higher margin products and, of course, our relentless spending disciplines. We're also striving to consolidate certain internal operations for greater efficiency, reduce our debt levels, and over the next two years, we'll be working on warehouse consolidation to further enhance our operating structure. These initiatives to create long-term value can often require upfront investment, and to that end, our Board has elected to right-size our quarterly dividend, which will provide us strategic access to a greater portion of our cash flow. That will also allow us to pay down debt and build the balance sheet strength that will support Crowncraft's growth well into the future. In essence, our new quarterly dividend allows for a well-balanced capital allocation approach that includes investing in growth initiatives and maintaining a solid balance sheet, while still rewarding our valued shareholders with what is now approximately a 4% attractive dividend yield. In closing, we had a solid quarter as we continued to execute on our business plan. While leveraging our inherent strengths, including our brands, our licenses, and our valued retail and licensing partners, our multi-pronged strategy that covers internal development of new products, reinvigorated marketing efforts, tight cost controls, and the strategic allocation of capital, positions as well for the creation of long-term shareholder value.

And now I'll turn it over to Claire to provide additional details around our quarterly results before we take your questions.

Thank you, Olivia, and welcome everyone once again to the call. Our first quarter net sales of $16.8 million were up 8% over the prior quarter as improved inventory levels helped us capitalize on still soft consumer spending. As Olivia mentioned, we had strong growth margin performance. During the quarter, tariff refunds reduced our cost of products sold by $3.7 million. Even adjusting for this benefit, our gross profit of $4.3 million was above the prior year's $3.5 million and equates to a gross profit margin of 25.6%, which was up 290 basis points year-over-year. This section of our adjusted growth margin reflects both our strategic pricing initiatives and an increasingly favorable mix of higher margin products. We recorded marketing and administrative expense of $5.2 million for the first quarter as compared to $4.7 million a year earlier, although this quarter's figure includes just over half a million dollars of accrued incentive and compensation associated with tariff refunds.

On a normalized basis, we reduced marketing and administrative expense as a percent of net sales to 28% versus 30.5% in the first quarter of fiscal 2026, which speaks to our sharp focus on cost efficiencies, as Olivia mentioned. Moving down the income statement, we also successfully reduced net interest expense to only $190,000, well below the year ago $283,000 as a result of our efforts to reduce debt over the past year. From a GAAP perspective, we reported net income of $2.1 million, or $0.19 per share, well above the prior year loss of $1.1 million, or $0.10 per share. While first quarter net income benefited from the tariff-related adjustments described, I'll again note that on an adjusted basis, we still generated the first quarter profit versus the prior year quarter's net. loss. Turning to our balance sheet, as of June 28, we had total liquidity of $12.1 million, including cash and equivalents and availability on our revolving line of credit. During the first quarter, we significantly reduced our debt from more than 14 million at the start of the fiscal year to just 9.6 million at the end of the quarter. Not only do we reduce outstanding debt, but our net cash from operating activities of $5.5 million served to further support our balance sheet strength, putting us in a strong position to capitalize on future growth opportunities in a disciplined manner.

In summary, this was another quarter of strong execution in which we focused on what we can control while economic conditions remained soft. Even adjusted for tariff refunds, we grew revenues, expanded our growth margin, and generated stronger earnings per share than in the year-ago quarter. further strengthen our balance sheet and are well positioned to make progress against our strategic initiatives as we move through the new fiscal year. And now And now, operator, if you could please open the lines, Olivia and I would be happy to take questions. Thank you.

We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. and again that is star 1 if you would like to ask a question and our first question will come from Doug Ruth with Lenox Financial Services.

Olivia and Claire, congratulations, fabulous report. I have several questions, so if you like I'm asking too many and I'll mind getting back in the queue. Could you give us a...

offer some commentary of what you think is happening with Groovy Girls? So Groovy Girls has done phenomenally well in Canada. And as we look back on history, even when, you know, before we acquired Manhattan Toy, the first time they launched Groovy Girls, it appears that it took off in Canada first then as well. So, yes. We have actually sold so much in Canada at this point in time that we're having to divert inventory that should be coming to the US to go to Canada. So we're really excited about the opportunity there. And then we'll be launching Groovy Girls at K&J in Germany for the European markets in September.

Okay. Is there a theory of why the Canadians like Groovy Girls so much?.

We don't know. I can tell you that our distributor, they are partnered with Indigo Bookstores who really put some marketing efforts behind it and they hosted an event so that probably helped with it to.

have such a large partner to launch with. Okay. What about, you had previously mentioned that ultimately the Groovy Girls will be on Amazon. Is there like a date that that might happen?.

We are still hoping to launch early fall the inventory having it take off faster than we expected, it may not be the full line, but we're still targeting October sometime with at least part of the line.

Okay, very good. And then could you explain to us what the status is of the I think you had told us there was maybe around 5 million, maybe 5 and 1 half million.

expecting more money or do you think that's it or we're hoping to get more money so we had Requested reimbursement for 5.6 to 5.7 million in tariffs. And so far we've received about 4.7 million. And that is the portion that we booked. Most of that was received in July. A very, very small portion had been received in the first quarter. There's about 900,000.

we still haven't received and we have not booked okay and then how is the balance sheet changed from or are you able to tell us anything about you know where the balance sheet is now versus where it was you know based on maybe tariff money.

You mean as of today versus the quarter end? Yes. It's certainly improved by getting $4-plus million in cash in in the month of July, but that's about all we can really tell you. Oh, okay. I didn't realize the $4 million came in in July. Okay, very good. Yes. So it was booked as other current assets as opposed to a trade receivable at quarter end and quarter end.

I see. So that's the other current asset that's on the balance sheet. Yes, and I think there's more information Claire just pointed out in – Footnote four. Footnote four. Okay, good. Okay, and then what can you tell us about the warehouse?.

We'll be starting that project sometime in late fall or early winter. It's about an 18-month process and the plan is to get it consolidate sometime in May of 2028. So that process is not quite started yet.

Okay and can you provide any additional details about capital expenditures and what you're thinking and how much you might be spending?.

As of right now, our capital expenditures should just be the normal capital expenditures, which is mainly IT, so it would be any ERP upgrades that we're going through right now. molds for plastic toys, anything for the warehouse is unlikely to be spent in this fiscal year. It'll probably start sometime in the next fiscal year.

Okay. All right. And then how about the international sales are doing so well. Can you share anything that's happening and why they're doing so well or what you're doing and the kind of.

stuff. A lot of that's Groovy Girls in Canada, but it's more than that in Canada as well. We had two different distributors in Canada previously and starting in this calendar year, maybe a little bit in December of 25. we got a new distributor that is handling both the Manhattan Toy and Sassy product lines and taking that to all channels. So we've seen a pretty good improvement there across the board. Groovy Girls certainly added to it. And then we did starting when we went to K&J last fall, we did pick up some new distributors that started buying product maybe later in the fall, early winter. So a little bit in Europe, a little improvement as well.

Okay. And then what can you tell us about Legoland? And we know we got that big new facility or I guess it's a year old now in Shanghai. What's happening with Legoland?.

I don't think there's been any changes with Legoland. That was the last new park of any size and a little A lot of the parks for Legoland actually start winding down and closing for the winter. So there are some that are open, I know like Florida and California stay open year round, but a lot of them close maybe sometime in October. So those are more seasonal sales than year round.

Okay. And then how about the Manhattan Toy Office in Minnesota? Is there any thoughts or updates on that at all?.

That lease expires at the end of March next year. So we'll obviously not renew that lease. We're still kind of thinking about what we need, if anything at all, in Minneapolis. If we do get a lease, I mean there's two trains of thought there, we can either let, it's very small staff so they can either work from home full-time or we may need some small lease that can just hold a few people and some like a photography studio but but we will not be renewing the.

very expensive lease that we're in right now. Okay. And my last question, is there Any new thoughts or ideas on diaper bags and how the company might proceed with that business?.

We're still working on that product line. We did just start selling the new motherhood diaper bags. Very slow start at this point in time. It's only on Amazon. We're working on that. We have a couple of No-Joe bags, No-Joe branded, one of which is in Walmart. That's really it right now but we haven't given up on diaper bags we're just still working on it.

Okay. You just did a fabulous job and thank you for what you did on behalf of the shareholders.

Thank you. And this now concludes our question and answer session. I would like to turn the floor back over to Olivia Elliott for closing comments.

Thank you, Operator, and again, we appreciate everyone being on the call. We look forward to building on the early success of Groovy Girl and our other innovative products on the way. We appreciate your continued interest in Crown Crafts and will keep you posted on our progress as we move through the new fiscal year. Please feel free to reach out with any additional questions, and thanks again for your time.

for being with us. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Greetings, and welcome to the Crown Crafts Fiscal Fourth Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Olivia Elliott, Chief Executive Officer. Please go ahead.

Thank you, operator, and welcome, everyone, to this morning's call. We're glad you can join us. We generated solid quarterly results in an operating environment that continues to be challenging. This reflects the strength of our business model, the broad appeal of our brands and of course, the hard work of our dedicated team. Despite global conflicts, fluctuating tariffs, higher gas prices and consistently high inflation weighing on the American consumer, we were able to hold net sales almost flat with the prior year at $22 million, bringing our full year net sales to more than $80 million. In addition, our gross margin improved to nearly 23% during the fourth quarter, up 460 basis points versus the prior year period. The result was positive net income for the quarter and operating cash flow of more than $8 million for the fiscal year.

An exciting fourth quarter highlight was our February announcement of the relaunch of Manhattan Toys Groovy Girls, which we kicked off at the North American International Toy Fair following a ceremonial ringing of the closing bell at NASDAQ. This iconic collection of self fashioned doll has already been met with a strong reception since its official rollout to specialty retailers just last month and is perfectly timed to tap into today's retro-inspired consumer market. We're excited about the potential for this beloved brand and other opportunities as we continue to focus on innovative internal product development to expand our product offerings.

In addition to driving revenue growth, another priority of ours is margin expansion and the resulting bottom line growth. We believe our gross margin of 22.9% for the quarter, while improved over the prior year's results, has further room to expand as we grow sales, improve operating leverage and continue our spending discipline. This includes our continued efforts to execute on cost initiatives with our previously communicated plans consolidate certain internal operations to eliminate redundant activities and create a leaner operating structure.

Turning to our balance sheet and capital allocation, which Claire will provide further details on in a moment. As I mentioned, we generated more than $8 million of operating cash flow during fiscal 2026 despite the soft operating environment, and we continue to have sufficient liquidity to support our growth plans. Our capital allocation strategy is well balanced. And during the fourth quarter, we paid our regular dividend while continuing to invest in internal product development and marketing efforts to grow our market share over time.

In closing, Crown Crafts is executing effectively. We're focused on driving our long-term growth opportunities while managing inventory, tightly controlling costs and strategically allocating capital towards growth initiatives as well as returning capital to our loyal shareholders. Looking ahead, our foundation for success includes our strong brands and licenses, our valued retail and licensing partners, our solid balance sheet and of course, the talented people who drive our success each day and will ultimately help us create meaningful shareholder value over time as a leading producer of infant, toddler and juvenile consumer products.

With that, I'll turn it over to Claire to take us through additional financial details on our quarterly results.

Thank you, Olivia, and thanks, everyone, for being with us today. For the fourth quarter of our fiscal year, we generated net sales of $22.4 million despite continued softness in consumer spending, which compares to $23.2 million in the year ago fourth quarter. Our gross profit of $5.1 million represented a 22.9% margin, which was up from 18.3% in the fourth quarter of 2025. As Olivia mentioned, this 460 basis point improvement was driven by our strategic pricing initiatives and more favorable mix of higher-margin products. We were able to hold marketing and administrative expense almost entirely flat versus the prior year quarter at $4.6 million despite continued inflationary dynamics. We were also able to reduce interest expense at $194,000 for the fourth quarter of 2026 compared to $333,000 a year earlier benefiting from a sizable reduction in debt.

The bottom line result was positive net income for the quarter of $280,000, which improved from a loss of approximately $11 million in the prior year fourth quarter due to a noncash goodwill impairment charge in the year ago period. Our basic and diluted earnings per share were $0.03, up from a loss of $1.04 per share the prior year.

Moving on to our balance sheet. We ended the fiscal year with total assets of $70.7 million. Inventories were $28.4 million as of March 29, up slightly from $27.8 million at the end of fiscal 2025. Our total debt balance was $14.1 million at year-end, a reduction from $18.5 million at the end of fiscal 2025, and we had $12.5 million of undrawn availability on our revolving credit facility. Lastly, as Olivia referenced, our net cash from operating activities was $8.3 million for the fiscal year, further supporting our solid financial foundation and the execution of our business plan.

Wrapping up, we executed well during the final quarter of the fiscal year despite a less than robust macro environment as we were able to significantly improve our gross margin versus the year ago quarter. We have the necessary competitive advantages, strategic plans and financial strength of our skilled team members to continue their efforts day in and day out, grow the business and enhance profitability as we move into fiscal year 2027.

With that, operator, Olivia and I would be happy to take questions, if you could please open the line.

[Operator Instructions] Our first question comes from the line of [indiscernible] with Mountain Equities.

It sounds like a great quarter and a great performance. I just wanted to ask regarding generally relationships with Walmart or Target and anyone else and if you can tell us how that stands, if you're pursuing other relationships? And if you can just give us some information on that.

Sure. Relationships with Walmart and Target remain good. We have multiple salespeople that talk to them regularly. I meet with people at trade shows as well. And as always, we're always searching for other retail partners. I mean, we've got plenty of mass retailer, specialty stores, focusing a little bit on some international sales. there's not as many out there that are as big as Walmart targeted Amazon, for sure, but we look for new opportunities all the time.

Our next question comes from the line of Doug Ruth with Lenox Financial Services.

Olivia and Claire, I want to congratulate you. I thought you did a fabulous job. It's a really strong report. And thank you for what you're doing on behalf of the shareholders.

Thank you, Doug.

Could you give us some more commentary on what you're thinking about Groovy Girls? Is there -- is the higher inventory possibly a reflection of inventory to support that rollout?

There is some inventory that is at year-end for Groovy Girls. Probably the majority of the higher inventory is just the capitalization of the tariffs into the inventory cost, which obviously increased the value of the inventory over the fiscal year. And then as far as Groovy Girls, when you're saying what we're thinking about Groovy Girls were you just asking about inventory or more in general?

While more in general, what can you tell us about sales and also the way you're selling the product? I think you're using some newer methods. Maybe you could share a little bit about that.

So right now, we rolled out sales to the specialty stores beginning May 1. And so that's when we started shipping to the specialty stores, so it probably didn't sit in the stores until later in the month. And that is really -- I mean both specialty stores in the U.S. and then through our distributor into Canada, which those sales haven't even set in Canada yet. And then we plan to roll out in the fall at Amazon and then also internationally, when we go to the K&J trade show in September. So right now, it's only at specialty stores, and we're very happy with the sales so far. I think it's -- we didn't have a lot in our budget for fiscal '27, but we are happy with where we are so far.

And then in the fall, Amazon will have the -- basically the whole -- the full offering of whatever you're selling for Groovy Girls.

Correct. Correct.

That sounds terrific. And I know in the past, part of the real big success with Groovy Girls was the relationship you had with Target. Is that something that you're also thinking about?

At this point in time, we are not talking about rolling out Groovy Girls into mass. That's possibly an opportunity for the future, but we've probably changed the product a little bit so that we're not selling the same exact product into mass as we are into specialty.

Okay. And what can you tell us about the tariffs? Are you expecting a tariff refund, have you received a tariff refund?

So we have applied for the tariff refunds. As of 2 weeks ago, I think it's the number we put in the 10-K, we had received about $175,000 back, of which I think $165,000 was actually tariffs and maybe $10,000 was interest. It was about a $5.5 million number that we requested and we're hopeful. Anything can happen, but we have received some. And so we're hoping that we will receive what we requested.

Very good. And then what is the status now? I know that the Eaton Valley warehouse that lease is going to expire I believe at the end of this month, what is the company thinking? What is your strategy here?

We extended that lease to be more around the same time as the Compton facility. And then we would -- we're going to restart looking for a new warehouse and with plans to move in the next 2 years closer to the expiration of both of those leases.

Okay. And then how about the [indiscernible] that, I know you had redesigned it. What could you tell us about how has that been going since the redesign?

[indiscernible] is doing well. Once again, it's mostly in specialty store, Amazon, on our own website that [indiscernible] are doing fine.

Okay. And then I noticed that the facility, your -- the corporate headquarters that you had shrank the size of that quite a bit. Could you maybe offer any kind of commentary on that when you signed the new lease.

Yes. So we -- our old headquarters where we had been for almost 25 years needed a little bit of updating and the price has gone up substantially. So we decided that we would move not far down the road to a new facility, less space everything -- it was a new build out, and so everything is fresh and new, and we're all on one floor and altogether, so we're enjoying that.

Very good. And what are you thinking about what the diaper bag business now?

We're still working on diaper bags. As you know, with the tariffs, that was the worst impact was on the diaper bags. And so -- and then Target had taken the diaper bags direct stores. Walmart shrunk the space in half for what they were carrying. And so we're working right now on kind of redeveloping and thinking again about the diaper bags. We still have a little bit of placement. We have one bag at Walmart, and then we're selling on Amazon in our own warehouse.

Okay. And then I know that now the Manhattan Toy Minneapolis office, that lease is down to less than 1 year. Are you starting to think about what you might be doing with that facility?

Yes. So we're going to move out of that facility. Obviously, it's way too big for what we need, and we're still kind of trying to figure out what we want to do.

Okay. So maybe more information in the next couple of quarters that might be reasonable.

Sure.

Yes. Okay. And then I'm also pleased that the -- that you've been able to increase the advertising budget. Can you maybe talk about that at all?

Yes, we didn't. We've increased the advertising budget. We've also added a few people on our marketing team in order to build out our photography, our social media and then also advertising primarily on dot-coms and for our own warehouse -- I mean, our own website, sorry.

Okay. And have you been pleased with how that's been going?

Yes. I mean we're certainly at the beginning of our marketing efforts, just expanding that so far, yes.

Okay. And then I also say that the international sales are growing. There's not often a lot of commentary about that. Can you tell us -- I feel like that's really been successful. Could you share what's working and how that's been growing?

So there's really 2 main efforts that I think we're seeing flow through there. One of them is that we've worked since the Manhattan Toy acquisition on consolidating the distributors for Manhattan Toy and face so that we have -- instead of having 2 distributors or really won't even 2 distributors in a lot of places, but Manhattan Toy was going direct to the retailers and then Sassy was using distributors. And so we've consolidated those sales into all of the Sassy distributor model, and that's helped. And then also, we changed distributors in Canada, and I think that's been very successful for us. That happens not long after probably sometime in December.

So that made a positive difference.

Yes.

Yes. Okay. My last question is I know that new facility had opened up the LEGOLAND facility in Shanghai, and you had previously mentioned that the company was getting some growth with LEGOLAND. Could you just offer a little bit of the commentary about LEGOLAND and what's happening for the company there?

Yes. We did ship to Shanghai LEGOLAND. They opened a little bit later than we expected. So sales weren't what we had hoped it before that opening but we did ship to them. And actually, that's probably leading to part of the international sales increase as well.

Okay. Congratulations to you and Claire and the Board of Directors. And thank you again for what you're doing on behalf of the shareholders.

Our next question comes from the line of Anthony Lebiedzinski with Sidoti & Company.

So certainly nice gross margin expansion. You mentioned that part of the reason for that was the strategic pricing actions that you took. So any way you guys can quantify as far as the extent of pricing had benefited? And how do you see that going forward or whether you think that's sustainable going on an ongoing basis?

We really don't quantify that, but I can explain probably the majority of it is that when we got the tariff hit we -- it's a delayed time period from when you can raise your prices with the retailers. So a lot of them have a 60-year or a 90-day window. And then we also waited at the beginning of the fiscal year to see where the tariffs would actually land because obviously, we didn't want to go to the retailer and say, "Hey, we're raising your prices 150%. And so we waited a little while to see where the tariffs would land. And so the last of the price increases really didn't go through until sometime in the third quarter. So I think what we're seeing in the fourth quarter is the benefit of having the entire quarter has the retail price increases equal the tariffs or be closer to that.

Our next question comes from the line of John Deysher with Pinnacle Value Fund.

I was just curious, is there anything on the horizon that might change your outlook for tariffs I know the last time we spoke in February, there was nothing imminent, but I'm just curious if the fluid situation. Is there anything on the horizon that might alter the tariff situation.

I don't think so. I think we keep up with the news the same as you, and you really never know what's going to happen. But right now, it feels like it's stable.

It's stable, steady state okay, good. When did you move from the old headquarters to the new? And is there any significant dollar savings from doing so?

We moved at the end of April, and there's really no significant dollar savings that were really going up on the rent at the old building. And so the move allowed us to keep the rates pretty much close to what we had been paying before.

Okay. All right. That's good to hear. And in terms of the bigger picture real estate situation, so you've extended Eaton Valley at least to match kind of what -- when comp matures. I think that's May of '28, you're going to move from downtown Minneapolis. When do you start discussions with potential replacements for Compton? Is that by the end of the year or a year from now? Or when do you start looking for alternatives?

Pretty much the end of the calendar year. So starting in late fall, maybe beginning of winter, we will start looking again at potential -- really at potential cities and then identify exactly where we want to move. And then following that, we would start looking at specific sites. It takes about 18 months.

18 months from when to when?

From identifying where we want to move to be -- I mean because most likely it's going to have to be a build-out -- and so dealing with all of that. And then we wouldn't want to just move everything at 1 time, so we would start moving maybe Eaton Valley earlier and then move Compton a little bit, maybe a month or 2 behind that.

Okay. Do you have a laundry list of locations that are at the top of the list right now?

We don't, right now, when we had looked at it in about a year ago, 18 months ago, I think we had narrowed it down to Reno, Houston and Memphis, and we're probably heavily leaning towards Reno. But at this point in time, I think we're going to probably -- I don't want to say start completely over, but we may add some more cities to the list and look at those.

Okay. All right. Good. And that will start later this year or early calendar '27?

Yes.

[Operator Instructions] Our next question comes from the line of Robert Johnson with InterTech Group.

Just a very sort of a top-level question, you probably can't give me a direct answer. But just looking at the cash flow generation and the valuation of the company, is the dividend, is that sort of a sacrosanct issue for the company? Is that something you consider quarterly? Just any commentary around the dividend policy would be nice.

We really don't have a dividend policy per se. The Board considers it every single quarter, and we talk about it at that time.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Ms. Elliott for any final comments.

Thank you, and thank you again, everyone, for joining today's call. We appreciate your support and look forward to providing additional updates as we move through our new fiscal year. If you have any additional questions, please don't hesitate to reach out. Thanks again.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Good day, and welcome to the Crown Crafts, Inc. Third Quarter Fiscal Year 2026 Conference Call. [Operator Instructions]

Please note this event is being recorded. I would now like to turn the conference over to John McNamara, with 3 part Advisors. Please go ahead.

Thank you. Good morning, everyone, and thank you again for joining the Crown Crafts Fiscal Year 2026 Third Quarter Conference Call. .

With us on the call this morning are Crown Craft, President and Chief Executive Officer, Olivia Elliott, and Vice President and Chief Financial Officer, Clare 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, including its annual report on Form 10-K and the Form 10-Q for the quarter ended December 28, 2025.

With that, I would now like to turn the call over to President and Chief Executive Officer, Olivia Elliott. Olivia?

Thank you, John, and good morning, everyone. As we noted in the press release issued earlier today, we believe our third quarter results demonstrate the resilience of our business model and the diligent efforts of our team as we work to overcome the challenging demand environment and the ongoing effects of higher tariffs.

Net sales for the third quarter were $20.7 million compared with $23.4 million in the prior year quarter. while net income increased to $1.5 million from $900,000 a year ago. We are committed to driving profitability as we continue to execute on pricing and cost actions to offset the sales environment. While we are encouraged by the positive performance in our bids, toys and disposable categories during the holiday season, the macro backdrop remains difficult for our category.

Elevated U.S. tariff rates have raised product costs and contributed to uncertainty from certain China-based suppliers, while consumer spending remains uneven and price sensitive. Third quarter gross margin was 23.5% compared with 26.1% in the prior year quarter despite our ongoing mitigation efforts. Also impacting gross margin were certain onetime costs that Claire will speak to in a, moment. Within this environment, we are staying focused on what we can control. For starters, we are very excited about our product pipeline.

Earlier this week, we announced Manhattan Toys relaunch of Groovy Girls, an iconic line of soft fashion dolls that will be available starting in May of 2026. This relaunch reflects the strength of Manhattan Toys portfolio and our commitment to internal product development. We believe Groovy Girls will create opportunities with specialty customers and in direct-to-consumer as we broaden our reach in the Juvenile space. Operationally, our supply chain team continues to work closely with our sourcing partners in China and other regions to manage through tariffs, freight and capacity constraints.

The majority of our products are produced by foreign contract manufacturers with the largest concentration in China, and we remain focused on quality, compliance and reliability while also continuing to evaluate alternative sources of supply where appropriate. Our inventory strategy has been deliberately conservative as we aim to minimize exposure to excess inventory in a volatile pricing and tariff environment. We also continue to execute on cost initiatives with further plans to consolidate certain internal operations.

And during the quarter, we incurred $600,000 in severance expenses in connection with consolidation efforts. These actions are designed to eliminate redundant activities, reduce payroll and administrative expenses over time and create a leaner operating structure that can better absorb external factors such as tariffs and raw material volatility. Shifting gears, we ended the third quarter with a solid balance sheet and liquidity position. We continue to view cash flow generation, debt reduction and disciplined capital allocation including our regular quarterly dividend as key pillars of our shareholder value proposition, and we believe our brands, customer relationships and category positions have us well prepared to enhance long-term shareholder value as conditions normalize.

With that, I will now turn the call over to Claire, who will walk you through the financial details for the quarter. Claire?

Thank you, Olivia. For the third quarter of fiscal 2026, which ended December 28, 2025, and net sales were $20.7 million compared with $23.4 million in the third quarter of the prior year. Gross profit was $4.9 million compared with $6.1 million and gross margins or 23.5% versus 26.1%. The change in gross margin was driven primarily by higher tariffs on products imported from China, and onetime licensing expenses in connection with the insurance claim, I will speak further on in just a moment.

Marketing and administrative expenses increased by $600,000 to $5 million in the current year quarter due to severance expenses incurred in connection with operational consolidation efforts. As a percentage of net sales, marketing and administrative expenses were 24% in the third quarter compared with 18.8% in the same period last year. Other income and expense was a positive contributor in the third quarter. Other income benefited by a $2.5 million insurance proceeds received during the quarter, related to certain claims made by the company under our representation and warranty insurance policy purchased in connection with the recent acquisition. The net impact of these insurance proceeds to income before tax expense, excluding certain legal and licensing related expenses was $2.1 million in the current year quarter.

Income before tax expense for the quarter was $2.1 million, up from $1.3 million in the prior year quarter. Income tax expense was $600,000, up from $400,000 a year ago. And net income for the quarter was $1.5 million, an increase from $900,000. Basic and diluted earnings per share were $0.14 in the third quarter of fiscal 2026 which was up from $0.09 in the third quarter of fiscal 2025.

Turning to the balance sheet. We ended the quarter with total assets of $76.1 million, and we had $10.6 million of additional availability under our revolving credit facility. Inventories were $31.2 million at quarter end compared with $27.8 million at fiscal 2025 year-end, reflecting our seasonal builds ahead of Chinese New Year. Total debt at quarter end was $16.4 million, and we were in compliance with all financial covenants.

Net cash provided by operating activities for the 9-month period was $7.1 million, up slightly from $7 million in the prior year period. In summary, third quarter results reflect ongoing tariff-driven margin pressure and a continued soft demand environment, offset by cost actions and nonrecurring items such as severance expense and insurance proceeds. We believe our balance sheet, liquidity and disciplined approach to expenses provide a solid foundation as we navigate the current environment and position the company for improvement as conditions normalize.

With that, I will turn the call back to Olivia for some closing remarks before we open the line for questions. Olivia?

Thank you, Claire. We entered this fiscal year fully aware that we would be operating against a difficult backdrop, including elevated tariffs, shifting retailer behavior and a cautious value-focused and uneven consumer environment.

The third quarter did not change that reality, but it did reinforce our conviction that our strategy anchored in strong brands and licenses, disciplined cost management, conservative inventory management and sourcing decisions and a focus on cash generation is the right 1 for Crown Crafts. At the same time, our capital allocation strategies focus on growth-oriented investments in our business and the return of capital to our valued shareholders.

We remain confident in the long-term fundamentals of the infant, toddler and juvenile category and in Crown Crafts ability to be a trusted partner to our customers, licensors and consumers. I want to thank our employees for their hard work and dedication, our customers and licensors for their continued partnership and our shareholders for their ongoing support.

With that, we'd now be happy to take your questions. Operator?

[Operator Instructions] Our first question comes from John Deysher with Pinnacle.

Just curious, the sales decline, you had all your acquisitions for both quarters. I think where was the softness on the revenue line?

The softness is really in the bedding category. So from the toddler bedding perspective, it's a category of business that just isn't -- it's not required. I mean you need sheets for a crib, that type of thing, but you can skip the toddler bedding set altogether. And so in this environment, we're seeing where the consumer is maybe trading down and not buying the betting set but buying just a blanket instead. And so a bedding set can be maybe a $50 item where a blanket is more like a $12 item.

So we're still seeing the category be popular as just what the consumer is buying right now.

Okay. So it was just about all bedding.

It was all bedding. .

Okay. Okay. And you mentioned China was a major source. What percentage of the product comes out of China roughly right now?

Almost all of it. I mean, it's in the high 90%.

Okay. All right. Got you. And then in terms of the reimbursement, not reimbursement. The benefit of $2.5 million from insurance claims. Could you provide some color there? That's a big number. Unfortunately, it went your way, but I'm just curious what the back story is there.

It relates to a product category that was dropped at retail, not long after we did the acquisition. And so we made a claim under the reps and warranties insurance and it went our way, as you said. That also included a couple of onetime costs associated with that same category of business, which was a licensing shortfall and then some inventory that we closed out at a pretty deep discount.

Okay. So let me just make sure I understand it. So you made the acquisition, but a product was dropped and you submitted a claim because you thought you were going to have that product going forward. Is that right?

That's correct.

Okay. That's interesting. Okay. All right. I'm glad you agreement specified that. Okay. And do you expect anything more like that going forward?

Not that I'm aware of right now. .

Our next question comes from Anthony Lubinski with Sidoti & Company.

I just have a couple of things here. Can you just comment on the pricing? How much did that contribute to the quarterly revenue? Just wondering if you could comment on that.

Use meat on retail price increases? .

That's correct. .

So as of October, we have pretty much gotten all of the price increases through all of our retailers. And so I think we mentioned in the last quarter, the first quarter that the tariffs went through, which was in our June quarter, we had tariff increases, but not a lot of retail price increases. And so it takes a period of time to get all of those prices through.

So as of October, the last of the major retailers took the price increases. And so the third quarter was kind of a mix. We had half of the quarter where we didn't have them and then half of the quarter where we did.

Got you. Okay. All right. And then in terms of the cost actions that you have taken, can you comment -- can you give any specifics as to what the annualized cost savings might be as we think about the business going forward?

We're still working on that number. We're going through our budgeting process now for our next fiscal year and we'll go a little bit more where we can make some of those cuts now. It will take a little bit of time. I think a lot of it's going to be in some of our IT contracts and other contracts where currently each of our subsidiaries has to have a separate agreement. But we can only do that when the current contracts roll out. So it's going to be something that you might see part of in this fiscal year and then we won't really realize the full amount until the next fiscal year.

So hopefully, by June, when we have our next call, we'll be able to give more color.

The next question comes from Igor Novacor with Lars Capital.

I be surprised that you still get 90% of all your products from China given the difficult regulations between United States and China. So what is your contingency plan if the tariffs will go up again to 100%? What would you do?

We are actively looking at sources in other countries. We've been doing that for some period of time, and we have other contacts, et cetera. But right now, we've stuck with China for several reasons. One, being the biggest is quality and safety. As you know, we deal in infant products, and so we have to we have to take time to make any changes because we need to make sure that the product is very safe and that the proper quality control standards are in place.

So while we are exploring those, and we have been for the last year or so, we're taking it slowly. But we do have those contacts. We've been to Cambodia, Pakistan, India, any number of other countries that we're making those contacts, toys would be the hardest because particularly the plastic toys because those are molded and you can't just pick up your mold out of the current factory and move it to some other factories. So we would have to rebuild those malls -- so that would be the toughest category for us.

To follow up on this. I know it's -- there's a lot of moving parts and tariffs have been moved back in for several times. What is your effective tariff rate right now on average versus pre-April last year? How much what would it be today?

That would -- I do not have kind of an effective tariff rate. I mean, obviously, the current 20% rate is on all categories of business, but it varies widely. So for example, toys, the only duty and tariff on it is the 20%, whereas on diaper bags, the total of all of that is above 60%. So it just varies very widely. Everything else kind of falls out in the middle.

Do you have -- I see that you mentioned the price increases in October, the last price increases. Do you think you'll be able to rate prices further? Or you think unless something changes you have done for now? Other than normal price .

Unless something changes, we're done for now. I just don't think that the consumer can absorb any price increases right now and the price increases that have already gone into effect are impacting sales. .

The next question comes from Doug Ruth with Lenox Financial Services.

Olivia, under difficult circumstances, I feel that you and the company have done a wonderful job, and I'm grateful for what you've done for the shareholders. I have some questions now. Where will the GrooVYVGART girls be sold?

So initially in specialty stores and on our own website, manhattantoy.com is the initial goal. I mean the hope is eventually that we'll roll it out to some larger retailers, but we would need to change the product a little bit so that we don't -- you can't take the same product to both channels or then you ruin 1 channel. .

Yes, I understand. Would you be selling them overseas as well?

Yes. So it will be sold internationally through our distributors. .

And then I noted that year-over-year, the inventory was down about 4%. Are you -- is the company happy with the present inventory level?

I mean I'll use the word happy, yes. I mean, I always think that we could have less inventory, but some of our planners disagree with me. So yes, I mean, I think overall, the inventory levels are good.

Okay. And then you had previously talked some about the international sales. Could you tell us some about what's going on with the Disney license, like I know you got the the Disney license in Canada? And how has that been going?

So the Disney license in Canada, our license to that started this calendar year. So just in January. And so we've already talk to some of the larger retailers, the product from the old licensor is kind of selling out, and we're in the process of putting the product in for our product. .

Okay. And then also, I think you were talking about having a different distributor in Canada for the Sassy toys and the Manhattan toys. Is there any update on that? .

Yes. So we think that's going well. That transition just also started happening kind of in December, January. But I think that's going to be a very good partnership for us. .

And then I also heard you mention that you had 33 international distributors for like the toy and the Manhattemployee, can you give us some ideas of what's happening there?

I don't know if that's the exact number. We have more than 30 distributors in probably more than 50 international countries. And so that's going well. We're continuing to try to sign up more distributors and expand the countries, but that's certainly been a focus for us, and I think it's going very well.

And then how about the the Q3 sales were the international sales higher? And is there any way you could maybe give us a percentage of how much they might be increased?

We don't have that number sitting here with us. And I don't think we've disclosed that specifically. So I think I'll have to pass on answering that question. .

I noticed that you had increased the advertising budget. And then I had heard you talk previously that you were doing some things like with Facebook and Instagram. Could you maybe tell a little bit more about what's going on with that?

So we're continuously trying to increase our presence, both in the marketing and the advertising side. I mean it's just a part of doing business now. It's the way you get your consumer. And so we've increased it a little bit this year, and I think that you'll see us budget more and spend more in the next fiscal year.

Otherwise, it's very hard to get the consumer nail. Is the company thinking

Anything more about the warehouse, I believe that possibly 1 of the leases is coming up, is there any talk about that at all?

We still put that on hold right now. We are extending the lease in Minnesota to coincide with the termination of the lease in California, and we'll pick back up on that conversation probably toward the end of this calendar year. You kind of need about an 18-month lead time to get the -- to choose where a location do a lease and then do whatever kind of build-out needs to go into the new location.

So probably, I'm going to say, maybe November of this year, we'll start that conversation again.

With this insurance policy, the representation and warranty insurance policy, how who figured out by that? How did that come about? .

You mean getting the policy itself.

Is that a normal -- is that something that the company maybe does when you make an acquisition? Or is this something that was unique.

It was something specific to this acquisition. It was just part of the agreement. .

Well, whoever came up with that, I would like to give -- I would like the company to consider giving that person a bonus. And if it was you, I think you should get the bonus. That was an outstanding idea to come up with it. I've never heard of that before, and it really worked out for the -- for everybody -- for the company and the investors favor. So that's really -- it was really a great idea.

I don't think I can take credit for that one. It was kind of a mutual agreement. So I appreciate the comments.

Okay. Well, I want to thank everybody who is involved in it and of course, the people that did know who they are, but thank you for doing that. And thank you, Claire, for your contribution and really did a great job.

We have a follow-up question from John Deysher with Pinnacle.

My follow-ups have been answered. So thank you and good luck going forward. .

Our next question comes from Greg Venit with Retail.

I think in a previous conference call, there was some discussion about Target was going to get out of some of their, I guess, store categories and that they may be the impression I got is that they may be looking towards you or somebody else. Could you comment on that?

I think what you're talking about is just that Target has been taking a lot of their programs. Private label and direct sourcing them. And so we've had a couple of categories in the past, 1 of them being our category, and then 1 of them being the diaper bags that have been taken away from us and given that on private label and gone direct source. So they're not bringing.

Yours back because they were going to get to like -- right now,

We have not been able to get those back. We certainly are trying and we hope to. But at this point in time, we've not gotten them back.

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 all for your support and interest in Crown Crafts. We look forward to updating you on our next call in mid-June. Thank you.

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

Good day, and welcome to the Crown Crafts, Inc. Fiscal 2026 Second Quarter Conference Call and Webcast. [Operator Instructions] 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. Go ahead, Olivia.

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?

[Operator Instructions] 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.

Okay. In the past, you had talked some about that there was a trial and error period with the Manhattan toy advertising budget. And I noted that in the second quarter, there was a fairly large increase. I was curious how you feel -- how you're doing with the budget and the kind of results that you thought were generated from the increased spend?

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.

[Operator Instructions] 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. And so we'll see our sales team, which -- to date, our sales and design teams have been very separated. And so we'll merge those departments as well. And so we may see people who didn't sell Sassy now start selling Sassy and vice versa.

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 begin our budgeting process for fiscal '27 when we come back from the Christmas holidays. And so I think by the end of February, March, we'll have a better idea of the impact. So I'm not sure -- we don't forecast earnings. So I don't know how much information we'll give publicly. But internally, we'll have a better idea.

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. -- 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. And then I know there was a learning curve with the Manhattan Toy. And you -- I was just curious if you could offer any kind of commentary how Manhattan Toy might be doing at Walmart at this point?

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. And then how about international sales? I know you had reworked how you were distributing the products outside of America. Are you -- maybe you could just give us a little bit of update as far as how those sales are going now?

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.

Manhattan. Okay. And then -- 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 sells -- shows that 20,000 of those are sold per month. I mean 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.