CROWN CRAFTS INC 10-Q

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For a discussion of market risks that could affect the Company, refer to the risk factors disclosed in Item 1A. of Part 1 of the Company’s annual report on Form 10-K for the year ended March 29, 2020. INTEREST RATE RISK Although the Company could have an exposure to interest rate risk related to its floating rate debt, there was no balance outstanding on its floating rate debt as of June 28, 2020. COMMODITY RATE RISK The Company sources its products primarily from foreign contract manufacturers, with the largest concentration being in China. The Company’s exposure to commodity price risk primarily relates to changes in the prices in China of cotton, oil and labor, which are the principal inputs used in a substantial number of the Company’s products. In addition, although the Company pays its Chinese suppliers in U.S. dollars, an arbitrary strengthening of the rate of the Chinese currency versus the U.S. dollar could result in an increase in the cost of the Company’s finished goods. There is no assurance that the Company could timely respond to such increases by proportionately increasing the prices at which its products are sold to the Company’s customers. MARKET CONCENTRATION RISK The Company’s financial results are closely tied to sales to its top two customers, which represented approximately 62% of the Company’s gross sales in fiscal year 2020. In addition, 40% of the Company’s gross sales in fiscal year 2020 consisted of licensed products, which included 30% of sales associated with the Company’s license agreements with affiliated companies of the Walt Disney Company. The Company’s results could be materially impacted by the loss of one or more of these licenses.