Crown Crafts, Inc.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Objective

The following discussion and analysis is intended to provide material information relevant to an assessment of the Company’s financial condition and results of operations, as well as an evaluation of the amounts and certainty of cash flows from operations and from outside sources. This discussion and analysis is further intended to provide details concerning material events and uncertainties known to management that are reasonably likely to cause reported financial information to not be necessarily indicative of future operating results or future financial condition. This data includes descriptions and amounts of matters that have had a material impact on reported operations, as well as matters that management has assessed to be reasonably likely to have a material impact on future operations. Management intends that this discussion and analysis will enhance a reader’s understanding of the Company’s financial condition, results of operations, cash flows, liquidity and capital resources. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Annual Report.

Results of Operations

The following table contains results of operations for the fiscal years ended March 29, 2026 and March 30, 2025 and the dollar and percentage changes for those periods (in thousands, except percentages).

Net Sales:

Sales decreased to $82.3 million for the fiscal year ended March 29, 2026, compared with $87.3 million in the fiscal year ended March 30, 2025, a decrease of $5.0 million, or 5.7%. Sales of bedding and diaper bags decreased by $6.1 million, and sales of bibs, toys and disposable products increased by $1.1 million. The decrease in sales of bedding and diaper bags is due to the decrease in the number of items included in programs at a major retailer, which was partially offset by an increase in the sales of bibs, toys and disposables. Sales were also negatively affected by inventory shortages resulting from the Company’s strategy to minimize the impact of increased tariffs in effect primarily during the first quarter of the fiscal year ended March 29, 2026.

Gross Profit:

Gross profit decreased by $1.2 million from the prior year reflecting a margin of 24.4% of net sales for the fiscal years ended March 30, 2026 and March 29, 2025. The primary cause of this decrease in gross profit relates to increased tariff costs associated with products imported from China.

Marketing and Administrative Expenses:

Marketing and administrative expenses increased by $289 thousand and increased from 21.4% of net sales for fiscal year 2025 to 23.1% of net sales for fiscal year 2026. Advertising costs increased $467,000 from the prior year.

Other Income (Expense): 

Other income increased $2.6 million from the fiscal year ended March 30, 2025 to the fiscal year ended March 29, 2026. The increase is primarily due to $2.5 million, received during the third quarter of fiscal year 2026, in proceeds from certain claims filed by the Company under a representations and warranties insurance policy (the “Insurance Proceeds”) purchased in connection with NoJo’s acquisition of substantially all of the assets, and assumed certain specified liabilities, of Baby Boom Consumer Products, Inc. (the “Acquisition”). The financial impact of the Insurance Proceeds, excluding certain legal and license related expenses, resulted in a net impact of $2.0 million to income before income tax expense for the fiscal year ended March 29, 2026.

Income Tax Expense:

The Company’s provision for income taxes includes all currently payable federal and state taxes and is based upon the Company’s annual effective tax rate (“ETR”). The Company’s provision for income taxes for the fiscal years ended March 29, 2026 and March 30, 2025 are based upon an annual ETR of 30.1% and 24.6%, 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 ETR was also impacted by discrete items such as the effects of tax shortfalls and excess tax benefits arising from the forfeiture and expiration of stock options and the vesting of non-vested stock.

Known Trends and Uncertainties

The Company’s financial results are closely tied to sales to the Company’s top two customers, which represented approximately 57% 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 monitors the impact of inflation on its operations on an ongoing basis and may need to adjust its prices to mitigate the impact of changes to the rate of inflation in future periods. Future volatility of prices could affect consumer purchases of the Company’s products. Additionally, the impact of inflation on input and other operational costs could adversely affect the Company's financial results.

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, and any further alterations the Company may make to its business strategy or operations to adapt to the foregoing will be time-consuming and expensive. The full impact of the new tariffs may have a material adverse effect on the Company’s business, cash flow, results of operations and financial condition. Some of these tariffs, the IEEPA tariffs, were recently deemed illegal by the U.S. Supreme Court ruling issued on February 20, 2026. In April 2026, the U.S. Customs and Border Protection launched CAPE, a platform for importers of record to submit IEEPA tariff refund requests. The Company has evaluated its eligibility, is complying with all applicable refund procedures and has submitted its eligible entries. The ultimate availability, timing and amount of any potential refunds of such tariffs are highly uncertain and are subject to further legal, regulatory and administrative developments. The Company continues to evaluate the impact of the tariffs, and their potential refund, on imports from China to the Company’s business and financial condition.

For an additional discussion of trends, uncertainties and other factors that could impact the Company’s operating results, refer to “Risk Factors” in Item 1A, Part I. of this Annual Report.

Financial Position, Liquidity and Capital Resources

Net cash provided by operating activities decreased from $9.8 million for the fiscal year ended March 30, 2025 to $8.3 million for the fiscal year ended March 29, 2026. The decrease in the current year was the result of an increase in inventories in the current year that was $4.5 million greater than the decrease in the prior year, and a decrease of $3.4 million in accrued liabilities from the prior year to the current year. The decrease in the current year was partially offset by a decrease in accounts receivable balances that was $4.0 million greater than the decrease in the prior year.

Net cash used in investing activities was $864 thousand in the fiscal year ended March 29, 2026 compared with $17.2 million in the fiscal year ended March 30, 2025. The decrease in the current year was primarily due to the $16.3 million payment that was made in the prior year for the Acquisition.

Net cash provided by financing activities was $7.1 million in the fiscal year ended March 30, 2025 compared with $7.7 million in cash used in financing activities in the fiscal year ended March 29, 2026. The decrease was due to the issuance of indebtedness pursuant to an $8.0 million term loan under a financing agreement with The CIT Group/Commercial Services, Inc. (“CIT”) in a prior year as well as the Company repaying debt in the current year.

The Company’s future performance is, to a certain extent, subject to general economic, financial, competitive, legislative, regulatory and other factors beyond its control. 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.

The Company’s credit facility at March 29, 2026 includes a revolving line of credit and a term loan of $8.0 million under a financing agreement with CIT. The Company may borrow up to $40 million under the revolving line of credit, which includes a $1.5 million sub-limit for letters of credit, bearing interest at prime minus 0.5% or the Secured Overnight Financing Rate (“SOFR”) plus 1.6%, 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, if any, under the SOFR option, which was 5.2%. 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% on daily negative balances, if any, held at CIT.                                    

As of March 29, 2026, there was a balance of $9.5 million owed on the revolving line of credit, there was no letter of credit outstanding and $12.5 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances. As of March 30, 2025, there was a balance of $11.9 million owed on the revolving line of credit, there was no letter of credit outstanding and $13.8 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

On June 23, 2025, the Company and CIT amended the Company’s financing agreement with CIT to: (i) provide that, until the Company’s term loan is paid in full, the Company shall maintain at all times Excess Availability (as defined in the financing agreement) equal to or the greater of (a) the sum of the balance outstanding under the Company’s term loan plus $1,000,000 or (b) $4,000,000 (the “Availability Covenant”); and (ii) reinstate the fixed charge coverage ratio; provided however, that the fixed charge coverage ratio shall not be tested at any fiscal quarter end in which, during the immediately preceding fiscal quarter, the Company at all times has been in compliance with the Availability Covenant.  As of March 29, 2026, the Company has complied with the Excess Availability requirements.

To reduce its exposure to credit losses, 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 described below. 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. CIT may at any time terminate or limit its approval of shipments to a particular customer. If such a termination or limitation occurs, the Company either assumes (and may seek to mitigate) the credit risk for shipments to the customer after the date of such termination or limitation or discontinues shipments to the customer. Factoring fees, which are included in marketing and administrative expenses in the accompanying consolidated statements of operations, were $335,000 and $386,000 during fiscal years 2026 and 2025, respectively.

Critical Accounting Policies and Estimates

The Company prepares its financial statements to conform with accounting principles generally accepted in the U.S. (“GAAP”) as promulgated by the Financial Accounting Standards Board (“FASB”). References herein to GAAP are to topics within the FASB Accounting Standards Codification (the “FASB ASC”), which the FASB periodically revises through the issuance of an Accounting Standards Update (“ASU”) and which has been established by the FASB as the authoritative source for GAAP recognized by the FASB to be applied by nongovernmental entities.

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated balance sheets and the reported amounts of revenues and expenses during the reporting period. The policies below, while not inclusive of all of the Company's accounting policies, set forth those accounting policies which the Company's management believes embody the most significant judgments due to the uncertainties affecting their application and the likelihood that materially different amounts would be reported under different conditions or using different assumptions.

Allowances Against Accounts Receivable: The Company estimates certain allowances from revenues recognized through sales made to its customers. These allowances include anticipated returns and claims, expected credit losses, cooperative advertising allowances, warehouse allowances, placement fees, volume rebates, coupons, and discounts.

The allowance for anticipated returns and claims is estimated based upon the Company’s historical experience with actual returns and claims, combined with the consideration of events that could result in a change from historical rates on a per-customer basis. The allowance for anticipated returns and claims is recorded as a reduction of net sales in the reporting period within which the related sales are recorded.

To reduce the Company’s exposure to expected credit losses, and to enhance the predictability of its cash flows, the Company assigns the majority of its receivables under factoring agreements with CIT. In the event that a factored receivable becomes uncollectible due to creditworthiness, CIT bears the risk of loss. With respect to the receivables that are not assigned under factoring agreements with CIT, the Company addresses this credit risk by establishing an allowance that is intended to represent the Company’s best estimate of the expected credit losses for such receivables. In the development of this estimate, the Company makes a number of judgements utilizing the Current Expected Credit Losses methodology, which requires the Company to estimate lifetime expected credit losses by specifically analyzing the receivables. This analysis incorporates an aging of the receivables, relevant payment history and historical loss experience, as well as the consideration of customer concentrations, customer creditworthiness, negotiated changes to the payment terms of customers, recent economic trends, and expectations regarding economic conditions over a reasonable and supportable future period. The allowance for expected credit losses is included in marketing and administrative expenses in the accompanying consolidated statements of operations.

The allowance for cooperative advertising, warehouse allowances, placement fees, volume rebates, coupons and discounts is recorded commensurate with sales activity or using the straight-line method, as appropriate. The majority of the Company’s allowances for such chargebacks occurs on a per invoice basis. The Company analyzes the components of the allowances for customer chargebacks monthly and adjusts the allowances to appropriate levels. Since allowances associated with cooperative advertising are accrued commensurate with sales activity or using the straight-line method, as appropriate, the timing of funding requests for cooperative advertising may result in fluctuations in the allowance from period to period, although such timing should not have a material impact on the consolidated statements of operations. The allowance for cooperative advertising is included in marketing and administrative expenses in the consolidated statements of operations. All other allowances for chargebacks related to warehouse allowances, placement fees, volume rebates, coupons and discounts are recorded as a reduction of net sales in the reporting period within which the related sales are recorded.

The Company’s actual experience associated with its allowances against accounts receivable in a future period may differ from the judgements, estimates, analysis and considerations employed in the development of these allowances. Thus, the Company’s allowances against accounts receivable at any point in time may be over-funded or under-funded.

Inventory Valuation: On a periodic basis, management reviews its inventory quantities on hand for obsolescence, physical deterioration, changes in price levels and the existence of quantities on hand which may not reasonably be expected to be sold within the Company’s normal operating cycle. To the extent that any of these conditions is believed to exist or the market value of the inventory expected to be realized in the ordinary course of business is no longer as great as its carrying value, an allowance against the inventory value is established. To the extent that this allowance is established or increased during an accounting period, an expense is recorded in cost of products sold in the Company's consolidated statements of operations. Only when inventory for which an allowance has been established is later sold or is otherwise disposed is the allowance reduced accordingly. Significant management judgment is required in determining the amount and adequacy of this allowance. In the event that actual results differ from management's estimates or these estimates and judgments are revised in future periods, the Company may not fully realize the carrying value of its inventory or may need to establish additional allowances, either of which could materially impact the Company's financial position and results of operations.

Goodwill: The Company measures for impairment of goodwill within its reporting units annually as of the first day of the Company’s fiscal year. An additional interim measurement for impairment is performed during the year whenever an event or change in circumstances occurs that suggests that the fair value of either of the reporting units of the Company has more likely than not (defined as having a likelihood of greater than 50%) fallen below its carrying value. The annual or interim measurement for impairment is performed by first assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If such qualitative factors so indicate, then the measurement for impairment is continued by calculating an estimate of the fair value of each reporting unit and comparing the estimated fair value to the carrying value of the reporting unit. If the carrying value exceeds the estimated fair value of the reporting unit, then an impairment charge is calculated as the difference between the carrying value of the reporting unit and its estimated fair value, not to exceed the goodwill of the reporting unit.

Business Combinations: The Company accounts for acquisitions using the acquisition method of accounting in accordance with FASB ASC Topic 805, Business Combinations. An acquisition is accounted for as a purchase and the appropriate account balances and operating activities are recorded in the Company’s consolidated financial statements as of the acquisition date and thereafter. Assets acquired, liabilities assumed and noncontrolling interests, if any, are measured at fair value as of the acquisition date using the appropriate valuation method. The Company may engage an independent third party to assist with these measurements. Goodwill resulting from an acquisition is recognized for the excess of the purchase price over the fair value of the tangible and identifiable intangible assets, less the liabilities assumed. In determining the fair value of the identifiable intangible assets and any noncontrolling interests, the Company uses various valuation techniques, including the income approach, the cost approach and the market approach. These valuation methods require significant management judgement to make estimates and assumptions surrounding projected revenues and costs, growth rates and discount rates. In the event that actual results differ from management’s estimates, the Company may need to recognize an impairment to all or a portion of the carrying value of these assets in a future period, which could materially impact the Company’s financial position and results of operations.