What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-14 · 33 added, 25 removed, 49 unchanged (54% of the section changed)

13 unchanged sentences

and Manhattan Toy Europe Limited in the infant, toddler and juvenile products segment within the consumer products industry.

The infant, toddler and juvenile products segment consists of infant and toddler bedding and blankets, bibs, disposables, toys and feeding products.

The infant, toddler and juvenile products segment consists of infant and toddler bedding, diaper bags, bibs, disposables, toys and feeding products.

The Company’s products are marketed under Company-owned trademarks, under trademarks licensed from others and as private label goods.

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RESULTS OF OPERATIONS

The following table contains the results of operations for the three-month periods ended June 30, 2024 and July 2, 2023 and the dollar and percentage changes for those periods (in thousands, except percentages):

The following table contains the results of operations for the three- and six-month periods ended September 29, 2024 and October 1, 2023 and the dollar and percentage changes for those periods (in thousands, except percentages):

Three-Month Periods Ended

June 30, 2024

Six-Month Periods Ended

September 29,

Net sales by category:

Bedding, blankets and accessories

Bedding and diaper bags

Bibs, toys and disposable products

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Other (expense) income - net

Income tax (benefit) expense

Net income (loss)

Income tax expense

% of net sales

Sales decreased to $16.2 million for the three months ended June 30, 2024, compared with $17.1 million for the three months ended July 2, 2023, a decrease of $911,000, or 5.3%.

Sales of bedding, blankets and accessories increased by $678,000, and sales of bibs, toys and disposable products decreased by $1.6 million.

The decline in sales is primarily due to a major retailer reducing inventory levels and the loss of a program at another major retailer.

Sales increased to $24.5 million for the three months ended September 29, 2024, compared with $24.1 million for the three months ended October 1, 2023, an increase of $331,000, or 1.4%.

Sales of bedding and diaper bags increased by $2.2 million, and sales of bibs, toys and disposable products decreased by $1.9 million.

Sales increased due to the Acquisition, which generated net sales of $3.4 million of bedding and diaper bags, partially offset by a decline in net sales of bibs, toys and disposable products, due to the loss of a program at a major retailer.

Sales decreased to $40.7 million for the six months ended September 29, 2024, compared with $41.3 million for the six months ended October 1, 2023, a decrease of $580,000, or 1.4%.

Sales of bedding and diaper bags increased by $2.9 million due to the Acquisition and sales of bibs, toys and disposable products decreased by $3.5 million, primarily due to a major retailer reducing inventory levels and the loss of a program at another major retailer.

Gross Profit:

Gross profit decreased in amount by $776,000 and decreased from 27.7% of net sales for the three-month period ended July 2, 2023 to 24.5% of net sales for the three-month period ended June 30, 2024.

The reduction in gross profit relates to the timing of purchases, causing an unfavorable change in the absorption of costs into inventory.

Gross profit increased in amount by $361,000 and increased from 27.3% of net sales for the three-month period ended October 1, 2023 to 28.4% of net sales for the three-month period ended September 29, 2024.

This increase is considered to be materially consistent with the prior period and resulted from minor changes in product mix offset by increases in rent at our Compton facility.

Gross profit decreased in amount by $415,000 and decreased from 27.5% of net sales for the six-month period ended October 1, 2023 to 26.9% of net sales for the six-month period ended September 29, 2024.

The decrease is considered to be materially consistent with the prior period and relates to an increase in rent at our Compton facility.

Marketing and Administrative Expenses:

Marketing and administrative expenses increased by $217,000 and increased from 23.6% of net sales for the three-month period ended July 2, 2023 to 26.3% of net sales for the three-month period ended June 30, 2024.

The current year period includes $244,000 associated with the closure of the Company’s subsidiary in the United Kingdom and $116,000 in costs associated with the Baby Boom Acquisition.

Marketing and administrative expenses increased by $1.4 million and increased from 16.7% of net sales for the three-month period ended October 1, 2023 to 22.3% of net sales for the three-month period ended September 29, 2024.

The current year period includes $788,000 in acquisition costs as well as increased marketing and administrative costs associated with the Acquisition.

Marketing and administrative expenses increased by $1.6 million and increased from 19.6% of net sales for the six-month period ended October 1, 2023 to 23.9% of net sales for the six-month period ended September 29, 2024.

The current year period includes $244,000 associated with the closure of the Company’s subsidiary in the United Kingdom and $903,000 in costs associated with the Acquisition.

Income Tax Expense:

The Company’s provision for income taxes is based upon an estimated annual effective tax rate (“ETR”) from continuing operations of 21.8% for the three-month period ended June 30, 2024, as compared with an estimated annual ETR from continuing operations of 21.5% for the three-month period ended July 2, 2023.

As a result of the consideration of the relevant information regarding the state portion of its income tax provision, the Company did not record a discrete reserve for unrecognized tax liabilities during the three-month period ended June 30, 2024, and recorded a discrete reserve for unrecognized tax liabilities of $5,000 during the three-month period ended July 2, 2023 in the unaudited condensed consolidated statements of operations.

The Company also recorded discrete income tax charges of $20,000 and $27,000 during the three months ended June 30, 2024 and July 2, 2023, respectively, to reflect the effects of the tax shortfalls arising from the forfeiture and expiration of stock options and the vesting of non-vested stock.

The ETR on continuing operations and the discrete income tax charges and benefits set forth above resulted in an overall provision for income taxes of 16.6% and 27.7% for the three-month periods ended June 30, 2024 and July 2, 2023, respectively.

The Company’s provision for income taxes is based upon an estimated annual effective tax rate (“ETR”) from continuing operations of 22.4% for the six-month period ended September 29, 2024, as compared with an estimated annual ETR from continuing operations of 21.6% for the six-month period ended October 1, 2023.

As a result of the consideration of the relevant information regarding the state portion of its income tax provision, the Company recorded discrete reserves for unrecognized tax liabilities of $3,000 and $20,000 during the three-month period ended September 29, 2024 and October 1, 2023, respectively, and $3,000 and $25,000 during the six-month period ended September 29, 2024, and October 1, 2023, respectively, in the unaudited condensed consolidated statements of income.

The Company also recorded discrete income tax charges of $14,000 and $16,000 during the three months ended September 29, 2024 and October 1, 2023, respectively, and $34,000 and $43,000 during the six-month periods ended September 29, 2024 and October 1, 2023, respectively, to reflect the effects of the tax shortfalls and excess tax benefits arising from the forfeiture and expiration of stock options and the vesting of non-vested stock.

The ETR on continuing operations and the discrete income tax charges and benefits set forth above resulted in an overall provision for income taxes of 27.3% and 24.0% for the six-month periods ended September 29, 2024 and October 1, 2023, respectively.

Although the Company does not anticipate a material change to the ETR from continuing operations for the remainder of fiscal year 2025, several factors could impact the ETR, including variations from the Company’s estimates of the amount and source of its pre-tax income, and the actual ETR for the year could differ materially from the Company’s estimates.

FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities increased from $6.3 million for the three-month period ended July 2, 2023 to $8.0 million for the three-month period ended June 30, 2024.

The increase in the current year was partially the result of an increase in inventory in the current year that was $2.6 million lower than the increase in the prior year and an increase in accounts payable in the current year that was $542,000 higher than the increase in the prior year.

This increase was partially offset by a decrease in accounts receivable in the current year that was $435,000 lower than the decrease in the prior year and a $688,000 decrease in net income from the prior year to the current year.

Net cash used in investing activities decreased from $355,000 in the prior year to $284,000 in the current year.

The decrease in the current year is due to a decrease of $71,000 in capital expenditures for property, plant and equipment.

Net cash used in financing activities, which were primarily associated with net repayments under the revolving line of credit, increased by $484,000 from the prior year to the current year.

As of June 30, 2024, the balance on the revolving line of credit was $1.5 million, there was no letter of credit outstanding and $17.6 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

Net cash provided by operating activities increased from $4.7 million for the six-month period ended October 1, 2023 to $7.1 million for the six-month period ended September 29, 2024.

The increase in the current year was partially the result of an increase in accounts payable in the current year that was $4.0 million higher than the decrease in the prior year and an increase in accrued liabilities in the current year that was $1.2 million higher than the increase in the prior year.

This increase was partially offset by a decrease in accounts receivable in the current year that was $710,000 lower than the decrease in the prior year and a $1.6 million decrease in net income from the prior year to the current year.

Net cash used in investing activities increased from $51,000 in the prior year to $16.9 million in the current year.

The increase in the current year is primarily due to the $16.4 payment made in the current year to complete the Acquisition.

Net cash used in financing activities was $4.5 million for the six-month period ended October 1, 2023 compared with $10.9 million in cash provided by financing activities for the six-month period ended September 29, 2024.

The Company incurred net borrowings under its revolving line of credit of $8.3 million and a term loan of $8.0 million that did not occur in the prior period, such borrowings primarily being required to fund the Acquisition.

As of September 29, 2024, the balance on the revolving line of credit was $13.1 million, there was no letter of credit outstanding and $13.6 million was available under the revolving line of credit based on the Company’s eligible accounts receivable and inventory balances.

To reduce its exposure to credit losses and to enhance the predictability of its cash flow, the Company assigns the majority of its trade accounts receivable to CIT under factoring agreements.

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If such a termination or limitation occurs, then 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 unaudited condensed consolidated statements of operations, amounted to $74,000 and $67,000 for the three-month periods ended June 30, 2024 and July 2, 2023, respectively.

Factoring fees, which are included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, amounted to $94,000 and $92,000 for the three-month periods ended September 29, 2024 and October 1, 2023, respectively, and amounted to $168,000 and $159,000 for the six-month periods ended September 29, 2024 and October 1, 2023, respectively.

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

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis