1. Chen CHEN | Chester CHU | Johnny XU | Rosy WANG
Crown Crafts Inc.
Presented: October 10, 2017
Chen CHEN | Chester CHU | Johnny XU | Rosy WANG

2. Content Section 1 | Introduction Section 2 | Industry Overview
Section 3 | Macroeconomic Overview
Section 4 | Company Business Overview
Section 5 | Financial Analysis
Section 6 | Valuation
Section 7 | Recommendation

3. Introduction

4. Introduction Crown Crafts Inc. (Nasdaq)
Company at a glance and relevant stock market performance comparison
Crown Crafts Inc. (Nasdaq)
Year Founded
1957
Headquarter
Gonzales, Louisiana
Market Cap
$65.87m
Business
Infant, toddler, and juvenile
consumer products
Life Cycle Stage
Mature
Bought 1000 shares
@ $9.37 on
Stock Price $6.55 as of
Source for Graph: IBIS World, Yahoo Finance

5. Industry Overview

6. Children’s & Infants’ Clothing in the U.S.
Industry Overview
Economic Drivers
Per Capita Personal Disposable Income
Consumer Confidence Index
Birth Rate
Number of Children Under 9
Children’s & Infants’ Clothing in the U.S.
Materials Cost
Oil
Cotton
Labor
Costumers
Competition from Related Industries
Family Clothing Stores
Department Stores
Used Goods Stores
E-Commerce & Online Auctions
Source for Graph: IBIS World, Yahoo Finance

7. $9.6bn -1.7% -1.4% $458.6m $1.2bn 11,833 Industry Overview
Key Statistics Snapshot
Revenue
Annual Growth Rate
Annual Growth Rate
$9.6bn
-1.7%
-1.4%
Profit
Wages
Business
$458.6m
$1.2bn
11,833
Industry Structure
Life Cycle Stage
Mature
Regulation Level
Medium
Revenue Volatility
Low
Technology Change
Capital Intensity
Barriers to Entry
Industry Assistance
Industry Globalization
Concentration Level
Competition Level
High
Top 4 players account for 40% to 70% of industry revenue
Source for Graph: IBIS World.

8. Macroeconomic Overview

9. Macroeconomic Overview
Factors that will boost the growth of the industry
Per Capita Personal Disposable Income
U.S. Consumer Confidence Index
Number of Children Aged 9 and Younger
(Million) x
U.S. Birth Rate Per 1,000 Women by Age
Source for Graph: IBIS World, FRED Economic Data

10. Macroeconomic Overview
Factors that will harm the growth of the industry
Percentage of Services Conducted Online
Global Price of Cotton & Oil
: 17.5% Growth
: 7.3% Growth
Sales of Clothing and Clothing Accessories Stores
CPI Comparison
Source for Graph: IBIS World, FRED Economic Data

11. Company Business Overview

12. Market leader of infant and toddler bibs and disposable products
Company Overview
After a series of acquisition, Crown Crafts owns three subsidiaries
Company
Founded
Purchased
Hamco
Purchased
Bibsters
1968
2009
2017
1957
IPO on
AMEX
1997
Purchased
Neat Solution
2010
Purchased
Carousel Designs
Crown Crafts
Infant Products
Hamco
Carousel Designs
2007
2009
Market leader of infant and toddler bibs and disposable products
Dominant manufacturer of infant and toddler bedding, blankets and accessories in the industry
Both manufacturer and online retailer of premium infant, toddler bedding and nursery décor
CRWS 21th Annual BURKENROAD REPORTS Investment Conference Presentation

13. Crown Crafts Infant Products
Major Products
A glance for the major products of each subsidiaries
Toddler Bedding
Crib Bedding
Crib
Bedding
Crown Crafts Infant Products
Carousel Designs
Blanket
Design Your Own
Hamco
Neat Solutions
Bibs Solutions
Bath Solutions
On-the-go Solutions

14. Sales by Operating Subsidiaries Sales by Product Categories
Sales Breakdown
Decompose the sales by subsidiaries, regions, products & consumers
Sales by Operating Subsidiaries
Sales by Regions
The international sales is small so far and expected to increase in the future
Sales by Product Categories
Sales by Consumer
International
All Others
Toys R Us has filed for bankruptcy, which would have a negative effect on the sales
CRWS 21th Annual BURKENROAD REPORTS Investment Conference Presentation
CRWS K

15. Licensed products represented 62% of the gross sales
Line of Brands
As a manufacturer, Crown Crafts has 6 owned brands & 10 licensed brands
Company Owned Brands
Licensed products represented 62% of the gross sales
Disney licensed products contributes 43% of the sales, but the agreement would expire in Dec.2017
Licensed Brands
CRWS 21th Annual BURKENROAD REPORTS Investment Conference Presentation
CRWS K

16. Five Company Locations
International Strategies ; Online and Offline Strategies
Compton, CA
Headquarters of Crown Crafts infant Products ; Warehousing and distribution for the entire company
Bentonville, AR
Administrative office in support of sales to Walmart
Gonzales, LA
Headquarters for Hamco/ Neat Solutions and Corporate Headquarters
Shanghai, China
Foreign Representative Office
Douglasville, GA
Headquarters for Carousel Designs;
Online Shopping
China is the target market for the company’s international business
CRWS 21th Annual BURKENROAD REPORTS Investment Conference Presentation

17. Length of Service
Length of service reflects the dedication of the workforce
49% of employees have over 10 years of service
76% of employees have over 5 years of service
Average length of service is 12.6 years
The Crown Crafts had 119 employees up to May 5,2017.
Compared with the last year, employees decreased by 11%
CRWS 21th Annual BURKENROAD REPORTS Investment Conference Presentation
CRWS K； CRWS K

18. Contract with consumer & Licensed brands Online & Customized Service
Economic Moat
Business Relationship, Online & Customized Service, Economic Scale
Contract with consumer & Licensed brands
Established business relationship with diversified retailers
Used licensed brands to generate more than half sales
Complied with industrial trend to develop online store
Offered customized service to satisfy users’ requirement
Online & Customized Service
Economic Scale
Produced various products with increasing demands
Higher growth margin and lower costs

19. s O W T SWOT Analysis License expiration of Disney
The sluggish industry
Decreasing number of employees
Low market share O
License expiration of Disney
Currency & cost fluctuation
Competition within the industry
Bankruptcy of Toys R Us
Diversified consumer & licensed brands
Online shopping & Customized products
Employee loyalty
No substitute W
More licensed brands & Consumer
International market expansion T

20. Financial Analysis

21. Financial Analysis
Crown Crafts has experienced downturn in Sales, but gross margin is increasing
Data Source: CRWS K

22. Financial Analysis DuPont Analysis Revenue Breakdown
Crown Crafts is changing its revenue segment composition
DuPont Analysis
2013
2014
2015
2016
2017
Tax Burden (NI/EBT)
63.7%
61.7%
62.4%
63.6%
63.3%
Interest Burden (EBT/EBIT)
99.1%
99.7%
99.3%
99.6%
101.1%
Operating Margin (EBIT/Revenue)
10.3%
11.5%
10.7%
12.8%
13.2%
Asset Turnover (Revenue/Ave. Total Asset)
1.8
1.6
1.3
Equity Multiplier (Ave. Total Asset/ Ave. Total Equity)
1.3　
ROE
15.1%　
16.8%
15.1%
17.2%
14.1%
Revenue Breakdown
2013
2014
2015
2016
2017
Bedding, blankets and accessories
$55,677
$58,332
$64,038
$59,020
$42,381
% of Net Sales
71.0%
71.8%
74.5%
70.0%
64.2%
Bibs, bath and disposable products
$22,739
$22,962
$21,940
$25,322
$23,597
29.0%
28.2%
25.5%
30.0%
35.8%
Total net sales
$78,416
$81,294
$85,978
$84,342
$65,978
Data Source: CRWS K

23. Valuation

24. Valuation | Comparable Companies Analysis
Industry Classification: Apparel and Accessories (Infant’s apparel)
Market Cap: 4,647m
EBITDA margin: 15.2%
Gross margin: 43.1%
P/E ratio: 19.1x
EV/EBITDA: 10.4x
Carter’s Inc.
Industry classification: Home furnishings (Baby and Toddler furniture accessories) Textile, Apparel and Accessories
Market Cap: 802m
EBITDA margin: 5.7%
Gross margin: 23.8%
P/E ratio: 26.3x
EV/EBITDA: 8.5x
Dorel Industries Inc.
Industry Classification: Apparel retail
Market Cap: 2,045m
EBITDA margin: %
Gross margin: 37.8%
P/E ratio: 16.6x
EV/EBITDA: 9.2x
Children’s place Inc.
Crown Crafts, Inc
Crown Crafts’ s implied share price is $9.07
Industry Classification: Accessories, Infant’s Apparel, Textiles (Linens and Bedding)
Market Cap: 65.9m
EBITDA margin: 14.4%
P/E ratio: 13.1x
Gross margin: 29.3%
Industry clasification:Prepared and Preserved Foods
Grain Mill Products
Edible Oils
Sauces And Salad Dressings
Bread and Bakery Products
Bread, Biscuits and Cookies
Organic Foods
Frozen Foods
Dairy Products and Eggs
Etc.
EV/EBITDA
Financial Metric
Implied EV
Equity Value
Implied share price
8.5
9.3
79.3
91.2
$9.07

25. Valuation | Financial Projection
Driving Factor Analysis
Sales Driving Factor
Cost Driving Factor
Favorable
Factor
Offers innovative products to align with the changing preference of customers.
Acquired online bedding retailer Carousel Designs to broaden its sales channel, and $7.7million revenue of the subsidiary will benefit the financial statement
Favorable
Factor
Strong desire to control cost
Make good use of experts of the acquired Carousel Designs.
Cut distribution cost through online channel
Adverse
Factor
Declining birth rate
Continuing sluggish retail environment
Parents’ moving to concept of a “naked crib”
Second largest customer Toys R Us filed for bankruptcy.
License agreements with Disney would expire on Dec 31,2017
Adverse
Factor
RMB is appreciating against us dollar
Increase cost of raw material
Data Source: CRWS K

26. Valuation | Discounted Cash Flow Analysis
$6.22 from DCF and price range from $5.74 to $6.89 with changes in key assumptions
Unlevered Free Cash Flow Projection
Enterprise Value
($ in thousand)
WACC
Beta calculated from regression
Size premium
WACC is 14.89%
5-year CAGR 9.89%
Perpetuity Growth Rate
Considering GDP growth rate and the industry situation, set the perpetuity growth rate as 2.5%
Capital Structure
Debt-free company
Cost of equity
Perpetuity Growth rate
Enterprise Value $ 54,607,000
$6.89
WACC
$6.22
Implied Share Price $6.22
(Current $6.55)
$5.74

27. Recommendation

28. HOLD $5.74 ~ $9.07 Recommendation Decline in the whole industry sales
More M&A deals in the industry leading to larger market share, employment cut-off and lower labor cost
Positive outlook of the online business segment from the Company’s acquisition of an Ecommerce subsidiary
$5.74 ~
$9.07
Implied share price
(Current $6.55)
Decline in the whole industry sales
Rising cost of raw materials
Volatile revenue and profit margin
HOLD

29. Thank you!
Q&A