CROWN CRAFTS INC

Previous wording

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 expects 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.

Current wording

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.

Previous wording

Sales decreased to $87.3 million for the fiscal year ended March 30, 2025, compared with $87.6 million in the fiscal year ended March 31, 2024, a decrease of $382,000, or 0.4%. Sales of bedding and diaper bags increased by $9.0 million, and sales of bibs, toys and disposable products decreased by $9.4 million. The increase in sales of bedding and diaper bags is due to the impact of the Acquisition, which added $11.9 million net sales for the fiscal year ended March 30, 2025, and sales of bibs, toys and disposable products decreased primarily due to a major retailer reducing inventory levels and the loss of a program at another major retailer.

Current wording

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.

Previous wording

Marketing and administrative expenses increased by $2.6 million and increased from 18.4% of net sales for fiscal year 2024 to 21.4% of net sales for fiscal year 2025. The current year period includes $244,000 associated with the closure of the Company’s subsidiary in the United Kingdom and $1.2 million in costs associated with the Acquisition. Advertising costs increased $342,000 from the prior year.

Current wording

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.

Previous wording

The Company’s financial results are closely tied to sales to the Company’s top two customers, which represented approximately 66% of the Company’s gross sales in fiscal year 2025. A significant downturn experienced by either or both of these customers could lead to decreased sales.

Current wording

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.

Previous wording

During fiscal year 2025, 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 our products. Additionally, the impact of inflation on input and other operational costs could adversely affect the Company's financial results.

Current wording

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.

Previous wording

The U.S. government has implemented tariffs on imports from certain countries, including China. The Company primarily sources products from foreign contract manufacturers, with the largest concentration being in China. The new tariffs have increased the cost of the products the Company sources from China and are affecting future shipments from the Company’s Chinese-based suppliers. The Company may not be able to pass along all increases in tariffs and freight charges to its customers, and any alterations the Company may make to its business strategy or operations to adapt to the foregoing, including sourcing products from suppliers in other countries, 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.

Current wording

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.

Previous wording

Net cash provided by operating activities increased from $7.1 million for the fiscal year ended March 31, 2024 to $9.8 million for the fiscal year ended March 30, 2025. The Company in the current year experienced a decrease in its accounts receivable balances that was $1.2 million higher than the decrease in the prior year, and the Company in the current year experienced an increase in its accounts payable balances that was $3.3 million higher than the decrease in the prior year. The Company in the current year experienced an increase in its accrued liabilities balances that was $2.5 million higher than the decrease in the prior year.

Current wording

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.

Previous wording

Net cash used in investing activities was $17.2 million in the fiscal year ended March 30, 2025 compared with $193,000 in the fiscal year ended March 31, 2024. The increase in the current year was primarily due to the $16.3 million payment that was made in the current year to complete the Acquisition.

Current wording

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.

Previous wording

Net cash used in financing activities was $7.8 million in the fiscal year ended March 31, 2024 compared with $7.1 million in cash provided by financing activities in the fiscal year ended March 30, 2025. The Company incurred net borrowings under its revolving line of credit of $3.8 million and a term loan of $8.0 million that did not occur in the prior year, such borrowings primarily being required to fund the Acquisition.

Current wording

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.

Previous wording

The Company’s credit facility at March 30, 2025 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 30, 2025, the Company had elected to pay interest on balances owed under the revolving line of credit, if any, under the SOFR option, which was 5.9%. 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.

Current wording

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.

Previous wording

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. As of March 31, 2024, there was a balance of $8.1 million owed on the revolving line of credit, there was no letter of credit outstanding and $19.2 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

Current wording

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.

Previous wording

To reduce its exposure to credit losses, the Company assigns substantially all 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.

Current wording

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.

Previous wording

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 $386,000 and $353,000 during fiscal years 2025 and 2024, respectively.

Current wording

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.

Previous wording

To reduce the Company’s exposure to expected credit losses, and to enhance the predictability of its cash flows, the Company assigns substantially all 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.

Current wording

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.

Previous wording

*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 otherwise 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.

Current wording

*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.