CROWN CRAFTS INC

Crown Crafts Inc. operates indirectly through its two wholly-owned subsidiaries, NoJo Baby & Kids, Inc. and Sassy Baby, Inc., in the infant, toddler and juvenile products segment within the consumer products industry. The infant, toddler and juvenile products segment consists of infant and toddler bedding, bibs, toys, plush, dolls, diaper bags, disposables and feeding products. Most sales of the Company’s products are generally made directly to retailers, such as mass merchants, large chain stores, mid-tier retailers, juvenile specialty stores, value channel stores, grocery and drug stores, restaurants, wholesale clubs and internet-based retailers. The Company’s products are marketed under a variety of Company-owned trademarks, under trademarks licensed from others and as private label goods.

The infant, toddler and juvenile consumer products industry is highly competitive. The Company competes with a variety of distributors and manufacturers (both branded and private label), including large infant, toddler and juvenile product companies and specialty infant, toddler and juvenile product manufacturers, on the basis of quality, design, price, brand name recognition, service and packaging. The Company’s ability to compete depends principally on styling, price, service to the retailer and continued high regard for the Company’s products and trade names. Several of these competitors are larger and have greater financial resources than the Company. The Company’s top two customers represented approximately 57% ¹ of gross sales in fiscal year 2026. Sales of products marketed under the Company’s trademarks, including Sassy®, Manhattan Toy®, NoJo®, Baby Boom® and Neat Solutions®, accounted for 41% ² and 39% ³ of the Company’s total gross sales during fiscal years 2026 and 2025, respectively. Sales of licensed products represented 52% ⁴ of the Company’s gross sales in fiscal year 2026, which included 23% ⁵ of gross sales under the Company’s license agreements with affiliated companies of The Walt Disney Company.

The Company generates revenue primarily through the sale of infant, toddler and juvenile products to retailers, including mass merchants, large chain stores, mid-tier retailers, juvenile specialty stores, value channel stores, grocery and drug stores, restaurants, wholesale clubs and internet-based retailers. The Company does not enter into long-term or other purchase agreements with its customers. The Company assigns the majority of its trade accounts receivable to CIT pursuant to factoring agreements, which have expiration dates that are coterminous with that of the financing agreement. Under the terms of the factoring agreements, CIT remits customer payments to the Company as such payments are received by CIT. CIT bears credit losses with respect to assigned accounts receivable from approved shipments, while the Company bears the responsibility for adjustments from customers related to returns, allowances, claims and discounts.

The Company’s primary focus is on infant, toddler and juvenile products, including developmental toys, dolls and plush toys, reusable and disposable bibs, infant and toddler bedding, diaper bags, blankets and swaddle blankets, nursery and toddler accessories, room décor, burp cloths, reusable and disposable placemats, feeding and care goods, and other infant, toddler and juvenile soft goods. Net sales by category for fiscal year 2026 were $35,004,000 ⁶ for bedding and diaper bags and $47,262,000 ⁷ for bibs, toys and disposable products, compared to $41,083,000 ⁸ and $46,167,000 ⁹ respectively in fiscal year 2025. Sales of licensed products represented 52% ¹⁰ of the Company’s gross sales in fiscal year 2026, which included 23% ¹¹ of gross sales under the Company’s license agreements with affiliated companies of The Walt Disney Company. The Company’s license agreement with Disney expires December 31, 2027 and covers infant and toddler bedding, diaper bags, infant feeding and bath in the United States and Canada, and bibs and disposable products in the United States, Canada and Japan.

On July 19, 2024, the Company completed the acquisition of Baby Boom Consumer Products, Inc. (the “Acquisition”) through NoJo’s acquisition of substantially all of the assets, and assumed certain specified liabilities, of Baby Boom Consumer Products, Inc. The Company incurred approximately $5,300,000 ¹² and $267,000 ¹³ of IEEPA tariffs during fiscal year 2026 and 2025, respectively. During the third quarter of fiscal year 2026, the Company received $2,500,000 ¹⁴ in proceeds from certain claims filed by the Company under a representations and warranties insurance policy purchased in connection with the Acquisition. The financial impact of the Insurance Proceeds, excluding certain legal and license related expenses, resulted in a net impact of $2,000,000 ¹⁵ to income before income tax expense for the fiscal year ended March 29, 2026. On June 23, 2025, the Company and CIT amended the Company’s financing agreement to provide that, until the Company’s term loan is paid in full, the Company shall maintain at all times Excess Availability equal to or the greater of (a) the sum of the balance outstanding under the Company’s term loan plus $1,000,000 ¹⁶ or (b) $4,000,000 ¹⁷ (the “Availability Covenant”). As of March 29, 2026, the Company had complied with the Excess Availability requirements.

Total net sales for fiscal year 2026 were $82,266,000 ¹⁸, compared to $87,250,000 ¹⁹ in fiscal year 2025, a decrease of $4,984,000 ²⁰ or 5.7% ²¹. Gross profit decreased by $1,187,000 ²² from the prior year reflecting a margin of 24.4% ²³ of net sales for both fiscal years 2026 and 2025. Net loss for fiscal year 2026 was $1,843,000 ²⁴ compared to net loss of $9,356,000 ²⁵ in fiscal year 2025, an improvement of $11,199,000 ²⁶. Net cash provided by operating activities decreased from $9,800,000 ²⁷ for fiscal year 2025 to $8,300,000 ²⁸ for fiscal year 2026.

The Company’s growth is impacted by the birthrate, and in particular, the rate of first births. The Company’s products are marketed under a variety of Company-owned trademarks, under trademarks licensed from others and as private label goods. Sales of products marketed under the Company’s trademarks, including Sassy®, Manhattan Toy®, NoJo®, Baby Boom® and Neat Solutions®, accounted for 41% ²⁹ of the Company’s total gross sales during fiscal year 2026. The Company continually develops new designs throughout the year for all of its product groups, affording design flexibility, multiple opportunities to present new products to customers and the ability to provide timely responses to customer demands and changing market trends. The Company also creates designs for exclusive sale by certain of its customers under the Company’s brands, as well as the customers’ private label brands.

The Company sources its products primarily from foreign contract manufacturers, with the largest concentration being in China. The Company makes sourcing decisions on the basis of quality, timeliness of delivery and price, including the impact of ocean freight and duties. Although the Company maintains relationships with a limited number of suppliers, the Company believes that its products may be readily manufactured by several alternative sources in quantities sufficient to meet the Company’s requirements. The Company maintains foreign representative offices located in Shanghai and Shenzhen, China, which are responsible for the coordination of production, purchases and shipments, seeking out new vendors and overseeing inspections for social compliance and quality control. The Company’s products are warehoused and distributed domestically from leased facilities located in Compton, California and Eden Valley, Minnesota and internationally from third-party logistics warehouses in Belgium, Shanghai and the United Kingdom.

Gross profit margin was 24.4% ³⁰ of net sales for both fiscal years 2026 and 2025. The primary cause of the decrease in gross profit relates to increased tariff costs associated with products imported from China. Marketing and administrative expenses increased from 21.4% ³¹ of net sales for fiscal year 2025 to 23.1% ³² of net sales for fiscal year 2026. Advertising costs increased $467,000 ³³ from the prior year. The Company’s provision for income taxes for fiscal years 2026 and 2025 are based upon an annual effective tax rate of 30.1% ³⁴ and 24.6% ³⁵, respectively.

As of March 29, 2026, the Company had 149 ³⁶ employees, all of whom are full-time and none of whom is represented by a labor union or is otherwise a party to a collective bargaining agreement. The Company’s products are warehoused and distributed domestically from leased facilities located in Compton, California and Eden Valley, Minnesota and internationally from third-party logistics warehouses in Belgium, Shanghai and the United Kingdom. The Company’s executive offices are located at 8184 Highway 44, Gonzales, Louisiana. The Company’s management and quality assurance personnel visit the third-party facilities regularly to monitor and audit product quality and to ensure compliance with labor requirements and social and environmental standards.

The Company may borrow up to $40,000,000 ³⁷ under the revolving line of credit, which includes a $1,500,000 ³⁸ sub-limit for letters of credit, bearing interest at prime minus 0.5% ³⁹ or the Secured Overnight Financing Rate plus 1.6% ⁴⁰, and is secured by a first lien on all assets of the Company. At March 29, 2026, the Company had elected to pay interest on balances owed under the revolving line of credit under the SOFR option, which was 5.2% ⁴¹. The financing agreement also provides for the payment by CIT to the Company of interest at prime as of the beginning of the calendar month minus 2.0% ⁴² on daily negative balances, if any, held at CIT. As of March 29, 2026, there was a balance of $9,500,000 ⁴³ owed on the revolving line of credit, there was no letter of credit outstanding and $12,500,000 ⁴⁴ was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances. Factoring fees were $335,000 ⁴⁵ and $386,000 ⁴⁶ during fiscal years 2026 and 2025, respectively.

The Company’s financial results are closely tied to sales to the Company’s top two customers, which represented approximately 57% ⁴⁷ of the Company’s gross sales in fiscal year 2026. A significant downturn experienced by either or both of these customers could lead to decreased sales. During the fiscal year, consumers responded to macroeconomic conditions by trading down to lower priced items, buying fewer items, or foregoing some items altogether due to inflationary concerns. The Company primarily sources products from foreign contract manufacturers, with the largest concentration being in China. The U.S. government has tariffs on imports from certain countries, including China. During 2025, the U.S. government increased tariffs which increased the cost of the products the Company sources from China and affected shipments from the Company’s Chinese-based suppliers. The Company was not able to timely pass along to its customers all increases in tariffs and freight charges. The Company incurred approximately $5,300,000 ⁴⁸ and $267,000 ⁴⁹ of IEEPA tariffs during fiscal year 2026 and 2025, respectively. In April 2026, the U.S. Customs and Border Protection launched CAPE, a platform for importers of record to submit IEEPA tariff refund requests. As of June 17, 2026, the Company has received $200,000 ⁵⁰ in IEEPA refunds.

Sales to customers in countries other than the U.S. represented 9% ⁵¹ and 8% ⁵² of the Company’s total gross sales during fiscal years 2026 and 2025, respectively. International sales are based upon the location that predominately represents what the Company believes to be the final destination of the products delivered to the Company’s customers. The Company is subject to income taxes in the many jurisdictions in which it operates, including the U.S., several U.S. states and China. The Company’s provision for income taxes for fiscal years 2026 and 2025 are based upon an annual ETR of 30.1% ⁵³ and 24.6% ⁵⁴, respectively. The increase in the ETR primarily relates to the result of tax credits that were included in the prior year provision that were not applicable in the current year provision and increase in state taxes due to jurisdictional nexus.

The Company faces material risk from customer concentration, as its top two customers represented approximately 57% ⁵⁵ of gross sales in fiscal year 2026, and the Company does not enter into long-term or other purchase agreements with these customers, meaning the loss of or a decline in orders from either could result in a material decrease in revenue and operating income. The Company is also highly dependent on licensed products, which represented 52% ⁵⁶ of gross sales in fiscal year 2026, including 23% ⁵⁷ associated with the Company’s license agreements with Disney, and the failure to renew major license agreements or a decline in the popularity of licensed programs could result in a material loss of revenues. Tariff risk is significant, as the Company incurred approximately $5,300,000 ⁵⁸ of IEEPA tariffs during fiscal year 2026, and the Company was not able to pass along to its customers all increases in tariffs and freight charges, with any unforeseen future additional tariffs potentially having a material adverse effect on the Company’s business, cash flow, results of operations and financial condition. The Company sources its products primarily from foreign contract manufacturers with the largest concentration being in China, exposing it to risks from geopolitical instability, trade disruptions, and changes in U.S. customs procedures or import regulations that could adversely affect profitability. Additionally, the Company’s credit facility contains covenants that could limit its ability to pursue acquisitions or other significant transactions, and the breach of any debt covenant could result in a default under the credit facility.

Management’s discussion and analysis emphasizes that the Company’s financial results are closely tied to sales to its top two customers, which represented approximately 57% ⁵⁹ of gross sales in fiscal year 2026, and that a significant downturn experienced by either or both could lead to decreased sales. Management notes that during the fiscal year, consumers responded to macroeconomic conditions by trading down to lower priced items, buying fewer items, or foregoing some items altogether due to inflationary concerns. Management states that the Company was not able to timely pass along to its customers all increases in tariffs and freight charges, and that any further alterations the Company may make to its business strategy or operations to adapt to the foregoing will be time-consuming and expensive. Management also highlights that the Company incurred approximately $5,300,000 ⁶⁰ and $267,000 ⁶¹ of IEEPA tariffs during fiscal year 2026 and 2025, respectively, and that as of June 17, 2026, the Company has received $200,000 ⁶² in IEEPA refunds. Management emphasizes that based upon the current level of operations, the Company believes that its cash flow from operations and the availability on its revolving line of credit will be adequate to meet its liquidity needs.