crown crafts white paper

8/14/2019 Crown Crafts White Paper

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5353 Institute Lane No. 9 Houston, Texas 77005-1881

Crown Crafts (CRWS) is a classic free cash flow generating business.

Business: Crown Crafts, Inc. engages in the design, marketing, and distribution of infant and toddlerproducts in the United States and internationally. Its infant products include crib bedding, blankets, nurseryaccessories, room decor, bibs, burp cloths, bathing accessories, and other infant soft goods.

Free Cash Flow Generation (Data as of 2/25/2010)

Year 2002 2003 2004 2005 2006 2007 2008 2009Free Cash Flow (in millions) 5.1 6.4 2.8 5.9 7.3 11.0 2.5 8

Impressively, in no year did capital expenditures exceed $450 thousand.

From 2002-2009, total assets averaged $58.46 million.From 2002-2009 Free Cash Flow averaged $6.13 million.

Therefore, we get an average Free Cash Flow ROAfor the period of:

$6.13 million / $58.46 million = 10.48% (quite good!)

At a $30 million market cap, CRWS is trading at: 3.75X 2009's Free Cash Flow4.9X its 8 year average Free Cash Flow.

Management has been very diligent about paying down debt. Long-Term Debt was $36.8 million in2002. In the latest quarter reported, Long-Term Debt stood at $1.784 million. On February 9, 2010Crown Crafts' Board of Directors declared a quarterly dividend of $0.02 a share.Revenue in thelatest quarter reported was up 6.98%

It's always heart-warming to see old school, conservative management. CEO Randall Chestnut and histeam really execute on the blocking and tackling of a well run enterprise.

For me, researching CRWS is always a pleasure. It was one of my first big winners, making me over 650%in less than two years during a restructuring in 2006-2007. I try to regularly keep up with their results. CEORandall Chestnut is a fierce competitor. He was the right-hand man to David H. Murdock of Castle &

Cook/Dole Foods fame at various textile companies which Murdock would take over and Chestnut wouldturn around.

After Chestnut became CEO of Crown Crafts, he shuttered money-losing units, moved manufacturing toAsia, slashed costs to the bone, aggressively paid down debt with cash flow, and recently made someaccretive acquisitions at very shrewd EBITDA multiples. CRWS has a very lean cost structure that makes ita natural supplier to Wal-Mart, but a tough model for its competitors to emulate. Bottom line, the companyhas the cost advantages of Asian manufacturing combined with a seasoned U.S. management team which isas shrewd and honest as the day is long. It is quite a combination.


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Strengths

I. Excellent ManagementII. Lean Cost Structure

III. Free Cash Flow GenerationIV. Strong Sourcing/LogisticsV. Shrewd Acquisitions

Primary Risks

I. Private Label BrandsII. Customer ConcentrationIII. Retail-Direct Licensing

IV. Tough Competitive EnvironmentV. Asian Product Safety


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Disclosure

Contrarian Industries, LLC is not a registered investment advisor. Nothing in this white

paper should be construed as investment advice. It is merely the personal opinion ofContrarian Industries, LLC Managing Member Harry Long. Contrarian Industries, LLC andHarry Long disclaim any liability for any actions taken on reliance on the data and opinionsreflected in this white paper.

Contrarian Industries, LLC does not give investment advice to any entity or individual.Contrarian Industries, LLC does engage in private investment activities, algorithmic systemR&D, and strategic consulting.

Contrarian Industries, LLC may go long CRWS. Positions may change at any time, withoutnotice.

Clients, family members, and friends of Harry Long and Contrarian Industries, LLC maygo long CRWS at any time. Positions may change at any time, without notice.

Contrarian Industries, LLC and Harry Long disclaim any liability for any errors oromissions in data, facts, or analysis/opinion in this white paper and are under no obligationto update this white paper as new data is reported.

Investors should consult a registered investment advisor for advice on financial matters.

crown crafts white paper

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