Crown Crafts (NASDAQ:CRWS) reported fiscal 2026 third-quarter results that reflected a softer demand environment and higher tariff-related costs, while net income benefited from insurance proceeds tied to a prior acquisition. Management said it remains focused on pricing, cost actions, conservative inventory management, and cash generation as it navigates uneven consumer spending and elevated U.S. tariffs.
Quarterly results: sales down, net income up
For the third quarter ended December 28, 2025, Crown Crafts posted net sales of $20.7 million, down from $23.4 million in the prior-year quarter. Gross profit declined to $4.9 million from $6.1 million, and gross margin fell to 23.5% from 26.1%.
President and CEO Olivia Elliott said the company viewed the quarter as demonstrating “the resilience of our business model” as it works through “the challenging demand environment and the ongoing effects of higher tariffs.” She added that the company was encouraged by “positive performance” during the holiday season in its bibs, toys, and disposable categories.
Tariffs and one-time items pressured margins
Management attributed the year-over-year gross margin decline primarily to higher tariffs on products imported from China, as well as one-time licensing expenses related to an insurance claim. Elliott noted that elevated tariff rates have raised product costs and contributed to uncertainty from certain China-based suppliers, while the consumer remains “price-sensitive.”
During the Q&A, Elliott discussed tariff variability by category. She said that while a current 20% rate applies broadly, the effective tariff burden varies significantly depending on product type, citing toys as being subject to “only” the 20% duty and tariff, while diaper bags can be “above 60%” when all duties and tariffs are included.
Marketing and administrative expenses increased by $600,000 to $5.0 million, driven by severance expenses tied to operational consolidation efforts. As a percentage of sales, these expenses rose to 24% from 18.8% in the prior-year quarter.
Insurance proceeds boosted other income
CFO Claire Spencer said other income and expense was a positive contributor in the quarter due to $2.5 million of insurance proceeds received from claims under a representations and warranties insurance policy associated with a recent acquisition.
Spencer said the net impact of the proceeds to income before tax expense—excluding certain legal and licensing-related expenses—was $2.1 million in the quarter. Income before tax expense totaled $2.1 million, up from $1.3 million a year ago, while income tax expense increased to $600,000 from $400,000.
In response to an analyst question, Elliott said the claim related to “a product category that was dropped at retail not long after we did the acquisition.” She added the situation also included one-time costs, including “a licensing shortfall” and inventory that was “closed out at a pretty deep discount.” Management said it was not aware of anything similar expected going forward.
Demand softness centered in bedding; pricing actions implemented
Elliott said the sales decline was concentrated in the bedding category, particularly toddler bedding sets, which she described as more discretionary than core crib essentials. She said consumers appear to be trading down—for example, choosing a lower-priced blanket rather than a higher-priced bedding set—reflecting current value-focused behavior.
On pricing, Elliott said the company had largely pushed tariff-driven retail price increases through its retailers by October. She explained that the third quarter included a transition period, with roughly half the quarter reflecting pre-increase pricing and half reflecting the updated pricing. She added that absent a change in conditions, the company does not expect to push additional price increases, citing limited consumer ability to absorb higher prices and noting that the implemented increases have impacted sales.
Management also addressed retailer behavior, including shifts toward private label. Elliott said Target has moved certain programs to private label and direct sourcing, and that Crown Crafts has lost some categories there in the past, including bibs and diaper bags. She said the company has not yet been able to regain those categories.
Sourcing concentration, cost initiatives, and balance sheet
Management said the vast majority of Crown Crafts’ products are sourced through foreign contract manufacturers, with the largest concentration in China. In response to a question about contingency planning if tariffs were to rise further, Elliott said the company is actively exploring alternative sourcing in other countries but is proceeding cautiously due to the quality and safety requirements of infant products. She said the company has been making contacts and visiting countries including Cambodia, Pakistan, and India, while noting that some toy production—particularly molded plastic toys—would be difficult to relocate quickly due to tooling and mold constraints.
On cost actions, management said it continues to execute operational consolidation plans and incurred $600,000 of severance in the quarter. Elliott said the steps are intended to reduce redundant activities and lower payroll and administrative expenses over time. When asked for an annualized savings estimate, Elliott said the company was still working through budgeting for next fiscal year and expects to provide more detail later, adding that some savings may depend on the timing of contract renewals, including IT and other agreements currently maintained separately by subsidiaries.
Spencer reported that the company ended the quarter with:
- Total assets: $76.1 million
- Additional availability under its revolving credit facility: $10.6 million
- Inventories: $31.2 million at quarter end, compared with $27.8 million at fiscal 2025 year end (seasonal build ahead of Chinese New Year)
- Total debt: $16.4 million, with compliance across all financial covenants
- Net cash provided by operating activities (nine months): $7.1 million, compared with $7.0 million in the prior-year period
Elliott said Crown Crafts continues to prioritize cash flow generation, debt reduction, disciplined capital allocation, and its regular quarterly dividend. She also reiterated confidence in the long-term fundamentals of the infant, toddler, and juvenile category.
On product development, Elliott highlighted Manhattan Toy’s planned relaunch of Groovy Girls, a line of soft fashion dolls expected to be available starting in May 2026. She said the initial focus will be specialty stores and the company’s website, with international distribution through its distributors, and that broader retail expansion could come later with channel-appropriate product adjustments.
About Crown Crafts (NASDAQ:CRWS)
Crown Crafts, Inc (NASDAQ: CRWS) is a U.S.-based designer, marketer and distributor of infant, toddler and juvenile consumer products. The company develops a wide range of softlines and related accessories, including crib and toddler bedding, blankets, decorative pillows, bath towels and washcloths. Since its founding in 1957, Crown Crafts has focused on combining creative design with functional quality to meet the shifting preferences of young families and caregivers.
The company operates two primary business segments.
