Executive Summary

Q2 FY26 revenue was $23.7M, down from $24.5M YoY, while diluted EPS rose to $0.11 from $0.08 as lower marketing and administrative expense drove operating leverage despite tariff-driven gross margin pressure (27.7% vs 28.4% YoY) .
Mix shifted: bedding/diaper bags declined by $1.6M YoY while bibs, toys, and disposable products increased by $0.8M YoY; management cited a major retailer program change and ongoing tariff pressure as key drivers .
Cost actions are accelerating: M&A integration reduced OpEx to 19.9% of sales (vs 22.3% YoY), and post-quarter the company began consolidating subsidiaries (Sassy and NoJo) to eliminate redundant back-office and IT contracts; detailed savings outlook to be clearer by late Q3 FY26/early Q4 FY26 (Feb–Mar) .
Dividend maintained at $0.08 per share (payable Jan 2, 2026), with management highlighting international growth in Sassy/Manhattan and ongoing diaper bag sourcing moves to mitigate China tariffs; no formal quantitative guidance provided .

What Went Well and What Went Wrong

What Went Well

Net income rose to $1.2M ($0.11 diluted EPS) from $0.9M ($0.08) YoY despite lower sales, driven by OpEx reductions and integration benefits: “we were able to grow the bottom line despite tariff costs” .
OpEx discipline: marketing and administrative expense fell by $0.7M and improved to 19.9% of sales vs 22.3% YoY, aided by prior-period acquisition costs rolling off, partially offset by higher advertising .
International momentum in toys (Sassy/Manhattan) with new distributors after the K+J show; CEO called it “one of the brighter spots,” with the Sassy ring stacker remaining the top-selling toy SKU .

What Went Wrong

Revenue contracted YoY with bedding/diaper bag weakness (-$1.6M), partly offset by bibs/toys/disposable (+$0.8M); one driver was fewer items in a program at a major retailer .
Gross margin compressed to 27.7% from 28.4% YoY due to higher China tariff costs; diaper bags remain challenged under the tariff regime .
Walmart channel for Manhattan Toy is “mixed” (select SKUs retained, others dropped), and advertising spend is taking time to convert to sales, implying slower-than-hoped payback .

Financial Results

Consolidated P&L vs prior quarters (GAAP)

Metric	Q4 FY2025 (Mar 30, 2025)	Q1 FY2026 (Jun 29, 2025)	Q2 FY2026 (Sep 28, 2025)
Net Sales ($M)	$23.227	$15.478	$23.695
Gross Profit ($M)	$4.244	$3.518	$6.571
Gross Margin (%)	18.3%	22.7%	27.7%
Income (Loss) from Operations ($M)	$(14.104)	$(1.199)	$1.863
Net Income (Loss) ($M)	$(10.787)	$(1.104)	$1.157
Diluted EPS ($)	$(1.04)	$(0.10)	$0.11

Notes: Q4 FY25 included a $13.8M non-cash goodwill impairment, which drove the GAAP loss; adjusted non-GAAP figures were also disclosed in Q4 FY25 for context .

Category mix YoY (Q2 FY26 vs Q2 FY25)

Category	YoY Change ($M)
Bedding & Diaper Bags	$(1.6)
Bibs, Toys & Disposable	+$0.8

Balance Sheet and KPIs

Metric	Q4 FY2025 (Mar 30, 2025)	Q1 FY2026 (Jun 29, 2025)	Q2 FY2026 (Sep 28, 2025)
Cash & Cash Equivalents ($M)	$0.521	$0.227	$0.810
Inventories ($M)	$27.800	$31.572	$32.582
Long-Term Debt ($M)	$16.512	$11.890	$14.352
Total Assets ($M)	$81.154	$76.023	$77.465
Shareholders’ Equity ($M)	$39.619	$37.869	$38.357

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY2026	None provided	None provided	Maintained (no formal guidance)
Margins	FY2026	None provided	None provided	Maintained (no formal guidance)
OpEx/Cost Actions	FY2026–FY2027	—	Consolidation of Sassy/NoJo back office and IT contracts; savings to phase as contracts expire; internal visibility by Feb–Mar (budgeting for FY2027)	New structural action (qualitative)
Dividend	Quarterly	$0.08 per share	$0.08 per share declared; payable Jan 2, 2026 (record Dec 12, 2025)	Maintained

No quantitative revenue/EPS guidance issued in the press release or on the call .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 FY25, Q1 FY26)	Current Period (Q2 FY26)	Trend
Tariffs and margin pressure	Q4 FY25: tariffs and close-outs compressed margins; $324K higher tariffs in Q4 . Q1 FY26: tariffs cited as primary factor in lower GM% (22.7%) and inventory strategy .	Tariffs continue to pressure gross margin (27.7% vs 28.4% YoY); diaper bags particularly impacted .	Persistent headwind; gradual mitigation via sourcing and pricing .
Cost actions/integration	FY25: cost reductions, M&A integration, warehouse plan .	OpEx at 19.9% (vs 22.3% YoY); post-quarter start of Sassy/NoJo consolidation to cut duplicate IT/admin .	Accelerating structural efficiency initiatives.
Product/category performance	Q1 FY26: Baby Boom added sales but toys declined; inventory shortages hit sales .	Bedding/diaper bags down $1.6M YoY; bibs/toys/disposable +$0.8M; retailer program change cited .	Mixed: softness in bedding/diaper bags offset by toys/disposable.
International expansion	FY25: building ecommerce and distribution capability .	Sassy/Manhattan international distribution growing; new distributors from K+J show; Europe strong .	Positive momentum.
Ecommerce/marketing	FY25: expanded ecommerce capabilities . Q1 FY26: higher advertising expense .	Manhattan Toy site well received; ad spend payback slower than hoped, but investment continues .	Steady investment, gradual traction.
Retail channel dynamics	FY25: retail environment challenging .	Walmart for Manhattan Toy is “mixed”; major retailer program had fewer items .	Selective SKU/channel rationalization.
Inventory/working capital	FY25 YE inventory $27.8M .	Inventory $32.6M; CEO comfortable given reset timing ahead of Chinese New Year .	Seasonally building; managed.
Diaper bag sourcing	—	Moving production from China to reduce costs; tariffs have “really hurt” the category .	Sourcing diversification underway.

Management Commentary

“While overall sales declined slightly during the quarter, we were able to grow the bottom line despite tariff costs continuing to pressure margins and overall profitability.” – Olivia Elliott, CEO .
“Marketing and administrative expenses [were] 19.9% of net sales… improvement is due to acquisition costs in the prior period, partially offset by increased advertising costs.” – Press release commentary .
On consolidation: “Consolidating the two subsidiaries into one… eliminate some duplicate positions [and] particularly a lot of IT costs… as contracts expire, we’ll be able to consolidate them.” – CEO .
On category mix: “The decrease in bedding and diaper bags was primarily due to a decrease in the number of items included in the program at a major retailer.” – CFO .
On international toys: “That was a big part of the increase at Sassy in the bibs and toy area… signing up some new distributors… Europe in general [is strong].” – CEO .

Q&A Highlights

Cost consolidation timing/savings: Subsidiary back-office/IT consolidation is underway; savings will phase as contracts roll off; internal view expected around Feb–Mar during FY27 budgeting (public quantitative targets not provided) .
Diaper bags: Category remains pressured by tariffs; the company is actively shifting sourcing out of China to reduce costs; design refreshes underway to improve retail appeal .
Channel and product: Manhattan Toy at Walmart is mixed (some SKUs retained, others replaced); Sassy ring stacker remains the top-selling toy; e-commerce website feedback is positive .
International: Growing distribution, particularly in Europe, with new partners post K+J show; optimism that the trend continues through FY26 .
Inventory: Management comfortable with inventory levels given retailer reset timing and seasonal build ahead of Chinese New Year .

Estimates Context

Wall Street consensus (S&P Global) for Q2 FY26 EPS and revenue was unavailable; no estimate count/means were returned. As a result, we cannot quantify beats/misses vs consensus this quarter (S&P Global) [Values retrieved from S&P Global].
Given the lack of formal guidance and limited sell-side coverage, estimate updates may focus on margin trajectory (tariff impact vs cost actions) and category mix (toys vs bedding/diaper bags) .

Key Takeaways for Investors

Profit resilience: Despite modest YoY sales decline and tariff pressure, EPS improved on OpEx control and integration benefits; watch for incremental margin gains as consolidation savings begin to flow through in late FY26/FY27 .
Mix shift: Toys/disposable strength is offsetting bedding/diaper bag weakness; category/retailer program dynamics remain a swing factor for near-term revenue .
Structural efficiency: Subsidiary consolidation and IT contract rationalization provide a multi-quarter cost tailwind; look for an internal savings view by late Q3/early Q4 FY26, a potential catalyst for sentiment .
Tariff and sourcing: Diaper bags remain tariff-sensitive; execution on sourcing diversification and pricing is critical to restoring category profitability .
International growth: Expanding Sassy/Manhattan distribution in Europe and selective channel placements underpin medium-term growth optionality .
Working capital: Inventory has seasonally built ahead of resets/Chinese New Year; monitor inventory turns and cash conversion as sales cadence normalizes .
Capital returns: Dividend maintained at $0.08 per share; balance sheet remains manageable with access to revolver capacity .

Appendix: Primary Source Details

8-K (Item 2.02) with Q2 FY26 results and Exhibit 99.1 press release (including full statements and balance sheet) .
Earnings call transcript (prepared remarks and full Q&A) .
Prior quarter press releases for Q1 FY26 and Q4 FY25 for trend analysis and context .

CROWN CRAFTS INC (CRWS)·Q2 2026 Earnings Summary