Culp Announces Results for First Quarter Fiscal 2018
Company Signs Letter of Intent for China Mattress Fabrics Acquisition
Fiscal 2018 First Quarter Highlights
-
Net sales were
$79.5 million , down 1.4 percent over the prior year, with mattress fabrics sales down 4.2 percent and upholstery fabrics sales up 3.2 percent. -
Pre-tax income was
$6.7 million , compared with$8.5 million for the prior year period, which was an exceptionally strong quarter. -
Net income was
$5.0 million , or$0.40 per diluted share, compared with net income of$5 .3 million, or$0.43 per diluted share, in the prior year period. -
The company’s financial position remained strong with total cash and
investments of
$51.7 million and$5.0 million outstanding on the company’s line of credit as of July 30, 2017, for a net cash position of$46.7 million . (See summary of cash and investments table on page 6.) -
The company paid a regular quarterly cash dividend of
$0.08 per share and a special cash dividend of$0.21 per share during the quarter, totaling$3.6 million . SinceJune 2011 , the company has returned a total of approximately$50 million to shareholders in the form of regular quarterly and special dividends and share repurchases. -
The company has signed a non-binding letter of intent to acquire a
mattress fabrics business located in
China .
Financial Outlook
-
The projection for the second quarter of fiscal 2018 is for overall
sales to be comparable to the same period last year. Pre-tax income is
expected to be in the range of
$5 .4 million to$6.1 million . Pre-tax income for the second quarter of fiscal 2017 was$7 .2 million. - The company’s performance for the second half of fiscal 2018 is currently expected to be more in line with the results achieved during the second half of last fiscal year, excluding any impact from acquisitions.
Overview
For the first quarter ended
Commenting on the results,
“Our strategic focus on creative designs, innovation and exceptional customer service continues to drive both businesses with a diverse product offering that meets changing customer style trends. To support this strategy, we have made significant investments in our mattress fabrics business with improved production and distribution capabilities that will enhance our ability to meet customer demand with outstanding service. We are also encouraged by the success of our customer diversification strategy in our upholstery fabrics business. Importantly, we have the financial strength to make the strategic investments to support our growth strategy, including acquisitions, and continue to return funds to our shareholders.”
Saxon added, “We are excited to announce the signing of a non-binding
letter of intent to acquire a mattress fabrics business in
Mattress Fabrics Segment
Mattress fabrics sales for the first quarter were
“Our sales for the first quarter reflect the ongoing uncertainties and
weakness in the mattress industry compared with market conditions a year
ago,” said Iv Culp, president of Culp’s mattress fabrics division.
“While our sales were lower, we continued to outperform overall mattress
industry sales trends. Our outstanding designs and innovative product
offering, backed by exceptional customer service, provide a strong
competitive advantage for
“In addition to the lower sales, our profitability and operating
performance were also affected by several other factors during the
quarter. As previously announced, we have been working through a period
of major transition across our manufacturing operations. We completed
the move of the majority of our knitting equipment to a new location in
“We remain on schedule with our previously announced joint venture
mattress cover production facility in
“Looking ahead, we see continued uncertainty in the mattress industry that could affect short-term demand trends and our operating performance. We also expect some continued impact on operating efficiencies in the second quarter related to the equipment relocations and production changes that occurred at the end of the first quarter. Overall, we expect to see solid improvement in our quarterly operating results as we move into the second half of fiscal 2018. We remain confident in our ability to execute our strategy with improved results, especially as the mattress industry begins to stabilize.
“Importantly,
Proposed Mattress Fabrics China Acquisition
“We have identified an attractive acquisition candidate in the mattress
fabrics business in
“We are excited about this opportunity as the proposed acquisition is
expected to establish a beachhead for our mattress fabrics business in
The company cautioned, however, that the current letter of intent is non-binding and remains subject to completion of due diligence, negotiation of a definitive purchase agreement, and other approvals, without which the acquisition will not occur.
Upholstery Fabrics Segment
Sales for this segment were
“Our upholstery fabrics sales were in line with expectations for the
first quarter of fiscal 2018, with slightly higher sales compared with a
strong first quarter sales performance a year ago,” noted
“Our creative designs and new product introductions continue to resonate with our global customer base. With our sustained focus on innovation, we have extended our market reach and expanded our sales with our latest offerings. Our ‘performance’ line of highly durable, stain-resistant upholstery fabrics has been well received by both traditional customers as well as new customers, with favorable sales trends. We also achieved meaningful sales growth in fabrics designed for the hospitality market, which accounted for a significantly higher percentage of our sales for the quarter. We are excited about the additional growth opportunities for this market as we focus on targeting a more diverse customer base. To further support this strategy, we are exploring potential acquisitions in the hospitality market that will complement our upholstery fabrics business, which is principally in the residential market.
“Our China platform supports our marketing efforts with the flexibility
to adapt to changing customer demand trends with a diverse product mix
of fabric styles and price points.
“Looking ahead, in spite of uncertain retail market conditions, we look
forward to the opportunities for our upholstery fabrics business in
fiscal 2018. We have the unique ability to leverage our flexible global
platform as we pursue our same product-driven strategy and identify new
customers. We believe
Balance Sheet
“Maintaining a strong financial position is one of Culp’s top priorities
for fiscal 2018,” added
“In line with our capital allocation strategy, the company paid a
Dividends and Share Repurchases
The company also announced that the Board of Directors approved the
payment of the company’s quarterly cash dividend of
The company did not repurchase any shares during the first quarter of
fiscal 2018, leaving
Since
Financial Outlook
Commenting on the outlook for the second quarter of fiscal 2018, Bowling remarked, “We expect overall sales to be comparable with the second quarter of last year.
“We expect sales in our mattress fabrics segment to be comparable with the second quarter in fiscal 2017. Operating income and margins are expected to be moderately lower compared to the same period a year ago, as we continue to face uncertain business conditions and work to return to normal operating efficiencies and production schedules.
“In our upholstery fabrics segment, we expect sales to be slightly higher as compared to the same time last year. Operating income and margins are expected to be slightly higher compared with the same period a year ago.
“Considering these factors, the company expects to report pre-tax income
for the second fiscal quarter of 2018 in the range of
“With respect to the full year, capital expenditures for fiscal 2018, including vendor financed payments, are currently expected to be comparable to the previous year and mostly related to additional improvement projects for mattress fabrics. Additionally, the company expects another good year of free cash flow, even with the expected level of capital expenditures and modest growth in working capital,” added Bowling.
About the Company
This release contains “forward-looking statements” within the meaning
of the federal securities laws, including the Private Securities
Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933
and Section 21E of the Securities and Exchange Act of 1934). Such
statements are inherently subject to risks and uncertainties. Further,
forward looking statements are intended to speak only as of the date on
which they are made, and we disclaim any duty to update such statements.
Forward-looking statements are statements that include projections,
expectations or beliefs about future events or results or otherwise are
not statements of historical fact. Such statements are often but
not always characterized by qualifying words such as “expect,”
“believe,” “estimate,” “plan” and “project” and their derivatives, and
include but are not limited to statements about expectations for our
future operations, production levels, sales, profit margins,
profitability, operating income, capital expenditures, working capital
levels, income taxes, SG&A or other expenses, pre-tax income, earnings,
cash flow, and other performance measures, as well as any statements
regarding potential acquisitions, future economic or industry trends or
future developments. Factors that could influence the matters discussed
in such statements include the level of housing starts and sales of
existing homes, consumer confidence, trends in disposable income, and
general economic conditions, as well as our success in finalizing
acquisition negotiations. Decreases in these economic indicators
could have a negative effect on our business and prospects. Likewise,
increases in interest rates, particularly home mortgage rates, and
increases in consumer debt or the general rate of inflation, could
affect us adversely. Changes in consumer tastes or preferences toward
products not produced by us could erode demand for our products. Changes
in the value of the U.S. dollar versus other currencies could affect our
financial results because a significant portion of our operations are
located outside
CULP, INC. |
||||||||
Condensed Financial Highlights |
||||||||
(Unaudited) | ||||||||
Three Months Ended |
||||||||
July 30, |
July 31, |
|||||||
2017 |
2016 |
|||||||
Net sales | $ | 79,533,000 | $ | 80,682,000 | ||||
Income before income taxes | $ | 6,742,000 | $ | 8,546,000 | ||||
Net income | $ | 4,984,000 | $ | 5,313,000 | ||||
Net income per share: | ||||||||
Basic | $ | 0.40 | $ | 0.43 | ||||
Diluted | $ | 0.40 | $ | 0.43 | ||||
Average shares outstanding: | ||||||||
Basic | 12,399,000 | 12,286,000 | ||||||
Diluted | 12,590,000 | 12,463,000 | ||||||
Summary of Cash and Investments |
||||||||||||||
(Unaudited) |
||||||||||||||
(Amounts in thousands) |
||||||||||||||
Amounts | ||||||||||||||
July 30, | July 31, | April 30, | ||||||||||||
2017 | 2016 | 2017* | ||||||||||||
Cash and cash equivalents | $ | 18,322 | $ | 45,549 | $ | 20,795 | ||||||||
Short-term investments | 2,469 | 2,434 | 2,443 | |||||||||||
Long-term investments (Held-To-Maturity) | 30,907 | - | 30,945 | |||||||||||
Total Cash and Investments | $ | 51,698 | $ | 47,983 | $ | 54,183 | ||||||||
* Derived from audited financial statements. | ||||||||||||||
Consolidated Adjusted Effective Income Tax Rate | ||||||||||||
For the Three Months Ended July 30, 2017, and July 31, 2016 | ||||||||||||
(Unaudited) | ||||||||||||
(Amounts in thousands) |
||||||||||||
THREE MONTHS ENDED | ||||||||||||
Amounts | ||||||||||||
July 30, | July 31, | |||||||||||
2017 | 2016 | |||||||||||
Consolidated Effective GAAP Income Tax Rate | (1) | 24.3 | % | 37.8 | % | |||||||
Non-Cash U.S. Income Tax Expense | (17.0 | )% | (19.6 | )% | ||||||||
Excess income tax benefits related to stock-based compensation |
8.2 | % | - | |||||||||
Other Non-Cash Foreign Income Tax Expense | - | (0.4 | )% | |||||||||
Consolidated Adjusted Effective Income Tax Rate | (2) | 15.5 | % | 17.8 | % | |||||||
(1) |
Calculated by dividing consolidated income tax expense by consolidated income before income taxes. |
|||||||||||
(2) |
Represents estimated cash income tax expense for our subsidiaries located in Canada and China divided by consolidated income before income taxes. |
|||||||||||
Reconciliation of Free Cash Flow | ||||||||
For the Three Months Ended July 30, 2017, and July 31, 2016 | ||||||||
(Unaudited) | ||||||||
(Amounts in thousands) |
||||||||
Three Months Ended | Three Months Ended | |||||||
July 30, 2017 | July 31, 2016 | |||||||
Net cash provided by operating activities | $ | 2,404 | $ | 6,199 | ||||
Minus: Capital Expenditures | (2,260 | ) | (3,139 | ) | ||||
Minus: Investment in unconsolidated joint venture | (489 | ) | - | |||||
Minus: Payments on vendor-financed capital expenditures | (1,250 | ) | - | |||||
Plus: Proceeds from the sale of long-term investments (Rabbi Trust) | 49 | - | ||||||
Minus: Purchase of long-term investments (Rabbi Trust) | (1,267 | ) | (559 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 90 | (4 | ) | |||||
Free Cash Flow | $ | (2,723 | ) | $ | 2,497 | |||
Reconciliation of Return on Capital | |||||||||
For the Three Months Ended July 30, 2017, and July 31, 2016 | |||||||||
(Unaudited) | |||||||||
(Amounts in thousands) |
|||||||||
Three Months Ended | Three Months Ended | ||||||||
July 30, 2017 | July 31, 2016 | ||||||||
Consolidated Income from Operations | $ | 6,964 | $ | 8,673 | |||||
Average Capital Employed (2) | 103,326 | 92,478 | |||||||
Return on Average Capital Employed (1) | 27.0 | % | 37.5 | % | |||||
Average Capital Employed | |||||||||
July 30, 2017 |
April 30, 2017 |
||||||||
Total assets | $ | 207,904 | $ | 205,634 | |||||
Total liabilities | (58,227 | ) | (57,004 | ) | |||||
Subtotal | $ | 149,677 | $ | 148,630 | |||||
Less: | |||||||||
Cash and cash equivalents | (18,322 | ) | (20,795 | ) | |||||
Short-term investments | (2,469 | ) | (2,443 | ) | |||||
Long-term investments - Held-to-Maturity | (30,907 | ) | (30,945 | ) | |||||
Long-term investments - Rabbi Trust | (6,714 | ) | (5,466 | ) | |||||
Deferred income taxes - non-current | (436 | ) | (419 | ) | |||||
Income taxes payable - current | 884 | 287 | |||||||
Income taxes payable - long-term | 487 | 467 | |||||||
Deferred income taxes - non-current | 4,253 | 3,593 | |||||||
Line of credit | 5,000 | - | |||||||
Deferred compensation | 6,769 | 5,520 | |||||||
Total Capital Employed | $ | 108,222 | $ | 98,429 | |||||
Average Capital Employed (2) | $ | 103,326 | |||||||
July 31, 2016 | May 1, 2016 | ||||||||
Total assets | $ | 183,360 | $ | 175,142 | |||||
Total liabilities | (51,925 | ) | (46,330 | ) | |||||
Subtotal | $ | 131,435 | $ | 128,812 | |||||
Less: | |||||||||
Cash and cash equivalents | (45,549 | ) | (37,787 | ) | |||||
Short-term investments | (2,434 | ) | (4,359 | ) | |||||
Long-term investments - Rabbi Trust | (4,611 | ) | (4,025 | ) | |||||
Income taxes receivable | - | (155 | ) | ||||||
Deferred income taxes - non-current | (1,942 | ) | (2,319 | ) | |||||
Income taxes payable - current | 358 | 180 | |||||||
Income taxes payable - long-term | 3,779 | 3,841 | |||||||
Deferred income taxes - non-current | 1,532 | 1,483 | |||||||
Line of credit | 7,000 | - | |||||||
Deferred compensation | 5,031 | 4,686 | |||||||
Total Capital Employed | $ | 94,599 | $ | 90,357 | |||||
Average Capital Employed (2) | $ | 92,478 | |||||||
Notes: | |||||||||
(1) |
Return on average capital employed represents operating income for the three month periods ending July 30, 2017 and July 31, 2016 times four quarters to arrive at an annualized value then divided by average capital employed. Average capital employed does not include cash and cash equivalents, short-term investments, long-term investments (Held-To-Maturity), long-term investments (Rabbi Trust), noncurrent deferred income tax assets and liabilities, income taxes receivable and payable, line of credit, and deferred compensation. |
||||||||
(2) |
Average capital employed used for three months ending July 30, 2017 was computed using two quarterly periods ending July 30, 2017 and April 30, 2017. |
||||||||
Average capital employed used for three months ending July 31, 2016 was computed using two quarterly periods ending July 31, 2016 and May 1, 2016. |
View source version on businesswire.com: http://www.businesswire.com/news/home/20170830006138/en/
Source:
Culp, Inc.
Investor Contact:
Kenneth R. Bowling, 336-881-5630
Chief
Financial Officer
or
Media Contact:
Teresa A. Huffman,
336-889-5161
Vice President, Human Resources