Crown Crafts Stock Declines Post Q3 Earnings, Revenues Weaken

Shares of Crown Crafts, Inc. CRWS have lost 4.8% since the company reported its earnings for the quarter ended Dec. 28, 2025, compared with the 1.6% decline in the S&P 500 Index over the same time frame. Over the past month, however, the stock has gained 1.7%, outperforming the S&P 500’s 1.9% decline.

Crown Crafts’ Earnings Snapshot

For the third quarter of fiscal 2026, ended Dec. 28, 2025, net sales declined 11.3% year over year to $20.7 million from $23.4 million. Gross profit fell 20.3% to $4.9 million from $6.1 million, with gross margin compressing to 23.5% from 26.1% in the prior-year period. Despite lower revenue and margin pressure, net income increased 69.1% to $1.5 million from $0.9 million, while diluted earnings per share rose 55.6% to $0.14 from $0.09.

By category, bedding and diaper bags sales dropped 29.8% to $7.8 million from $11.2 million, while bibs, toys and disposable products sales increased 5.8% to $12.9 million from $12.2 million, highlighting a sharp divergence in product performance.

CRWS’ Other Key Business Metrics

Operating income swung to a loss of $0.1 million from income of $1.7 million a year earlier, reflecting lower gross profit and higher expenses. Marketing and administrative expenses increased 12.9% year over year to $4.9 million from $4.4 million and rose to 24% of sales from 18.8%, primarily due to severance costs tied to operational consolidation efforts.

Other income swung sharply positive, rising to $2.5 million from a $33,000 expense in the prior-year period, largely due to insurance proceeds related to a representations and warranties policy connected to a recent acquisition. Excluding certain legal and licensing-related costs, the net impact of these proceeds added $2.1 million to income before taxes.

On the balance sheet, inventories stood at $31.2 million at quarter-end versus $27.8 million at fiscal year-end, reflecting seasonal build. Total debt was approximately $16.4 million, including $11.3 million under the revolving line of credit. Net cash provided by operating activities for the nine-month period was $7.1 million, slightly above the prior year’s $6.9 million.

Crown Crafts’ Management Commentary

Management described the quarter as reflective of a challenging demand backdrop and elevated tariffs, particularly affecting products sourced from China. Gross margin contraction was attributed primarily to increased tariff costs on imported goods. CRWS also cited uneven consumer spending and retailer program changes as headwinds, particularly in bedding and diaper bags.

In contrast, bibs, toys and disposable products delivered modest growth, benefiting from stronger holiday performance and category resilience. Management emphasized ongoing pricing actions, cost controls and operational consolidation aimed at driving profitability in a difficult macro environment.

Factors Influencing CRWS’ Headline Numbers

The most significant swing factor in quarterly profitability was the $2.5 million in insurance proceeds, which materially boosted other income. Without this nonrecurring item, income before tax would have been substantially lower. At the same time, higher tariff costs pressured gross margins, and severance expenses lifted operating costs.

Additionally, sales declines in bedding and diaper bags were tied to fewer items included in programs at a major retailer and inventory shortages linked to tariff mitigation strategies earlier in the fiscal year.

Crown Crafts’ Guidance and Capital Allocation

CRWS did not provide formal financial guidance. However, management indicated confidence that cash flow from operations and available capacity under its revolving credit facility would be sufficient to meet liquidity needs. As of quarter-end, $10.6 million remained available under the revolver.

Crown Crafts also declared a quarterly cash dividend of $0.08 per share, payable April 3, 2026, underscoring its ongoing commitment to returning capital to shareholders.

CRWS’ Other Developments

Subsequent to the quarter, Crown Crafts announced that Manhattan Toy will relaunch its “Groovy Girls” line of soft fashion dolls, with availability beginning in May 2026. The relaunch reflects management’s focus on internal product development and expanding opportunities within the juvenile category.