Crown Crafts CEO pleased with Springs Global products performance
Crown Crafts Inc reported a net loss (after recording a substantial goodwill impairment charge) for the third quarter of fiscal year 2009 and revised the Company's revenue and earnings guidance for fiscal year 2009.
The Company's net loss for the third quarter of fiscal year 2009 was $8.2 million, or $0.88 per diluted share, on net sales of $19.3 million, compared to net income for the third quarter of fiscal year 2008 of $1.2 million, or $0.12 per diluted share, on net sales of $18.4 million. The net loss for the third quarter of fiscal year 2009 included a non-cash pre-tax charge of $9.0 million for an estimate of a probable impairment to goodwill.
Excluding the goodwill impairment charge, the Company would have reported net income of $822,000, or $0.09 per diluted share, in the third quarter. The impairment charge did not result in any cash expenditures and did not affect the Company's cash position, cash flows from operating activities or availability under its credit facility.
An interim goodwill impairment test was triggered during the quarter as a result of the decline in the market capitalization of the Company. The Company has completed step one of its impairment test but was unable to complete step two before filing its Form 10-Q for the third quarter of fiscal year 2009. Based on the analysis completed to date, the Company estimates a range of probable impairment loss of $6.0 million to $12.0 million.
The $9.0 million charge recognized in the quarter represents the Company's best estimate of the probable impairment at this time. The Company will adjust the charge, if necessary, after completing step two of its impairment test in connection with its next periodic report filing with the Securities and Exchange Commission.
Gross profit for the quarter of $3.8 million has decreased as compared to $4.6 million reported in fiscal year 2008 primarily as a result of amortization associated with the Springs Global acquisition, the costs of establishing a Foreign Representative Office in China and increased product costs from Asia.
The Company tightly managed its marketing and administrative expenses and was able to lower those expenses during the current year quarter. Cash flow from operations in the year-to-date period of fiscal 2009 was $9.1 million, an increase of $6.2 million compared to the year-to-date period of fiscal 2008.
"We are pleased to report increased sales despite the difficult economic environment. The increase resulting from the acquisition of the baby products line of Springs Global in the third quarter of fiscal year 2008 was partially offset by lower replenishment orders and discontinued programs," commented E. Randall Chestnut, Chairman, President and Chief Executive Officer of the Company.
"Although we regret the need to record such a sizeable charge to our goodwill, we are convinced that our business model, our focus on cost controls and our strong cash position will keep us in an excellent competitive position to manage through this economic downturn and subsequently benefit from its recovery. Notably, year-to-date EBITDA (earnings before interest, taxes, depreciation and amortization) for the current year was $6.3 million, up from $5.5 million in the prior year, and we continue to generate strong cash flow," Mr. Chestnut continued.