Culp Announces Results for First Quarter Fiscal 2020
Fiscal 2020 First Quarter Highlights
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Net sales were
$74.8 million , up 4.7 percent over the prior year, with mattress fabrics sales up 12.5 percent and upholstery fabrics sales down 7.6 percent. Net sales for home accessories were$4.3 million , with no full period of comparable prior-year sales as a result of theJune 22, 2018 , investment in eLuxury.
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Pre-tax income was
$2.8 million , compared with$1.9 million for the prior-year period. The results for the first quarter of fiscal 2019 included restructuring and related charges of$2.0 million related to the company’s closure of theAnderson, South Carolina , production facility. Excluding these charges, pre-tax income for the first quarter of fiscal 2019 was$4.0 million . (See reconciliation tables on page 7).
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Net income attributable to
Culp, Inc. shareholders was$1.3 million , or$0.11 per diluted share, compared with net income of$957,000 , or$0.08 per diluted share, in the prior-year period. The results for the first quarter of 2019 include the restructuring and related charges noted above.
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The company’s financial position reflected total cash and investments of
$44.2 million and outstanding borrowings totaling$925,000 as ofAugust 4, 2019 , for a net cash position of$43.3 million . (See summary of cash and investments table on page 6).
-
Cash flow from operations and free cash flow were
$2.0 million and$986,000 , respectively, compared with cash flow used in operations and free cash flow of$(1.9 million) and$(4.6 million) , respectively, for the prior-year period. (See reconciliation table on page 8).
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The company announced a quarterly cash dividend of
$0.10 per share, payable in October.
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The company’s Board of Directors has approved additional share repurchases up to a total of
$5.0 million .
Financial Outlook
-
The projection for the second quarter of fiscal 2020 is for overall sales to be comparable to the same period last year. Pre-tax income for the second quarter of fiscal 2020 is expected to be in the range of
$3.2 million to $3.8 million . Pre-tax income for the second quarter of fiscal 2019 was$4.3 million , which included a net benefit of$543,000 in restructuring and related charges and credits and other non-recurring items. Excluding these charges, pre-tax income for the second quarter of fiscal 2019 was$3.7 million .
- Free cash flow for fiscal 2020 is expected to be comparable to last year’s results, even with an uncertain geopolitical environment.
First Quarter Fiscal 2020 Financial Results
For the first quarter ended
The company reported net income attributable to
The effective income tax rate for the first quarter of fiscal 2020 was 59.1 percent compared with 46.5 percent for the same period a year ago. The increase in the company’s effective income tax rate reflects the continued shift in mix of taxable income that is now mostly earned by the company’s foreign operations located in
Commenting on the results,
“In each of our businesses, we executed our product-driven strategy with a relentless emphasis on design creativity and product innovation. With the support of our flexible and growing global platform, we are confident we can sustain our strong competitive advantage and respond to the changing demand trends of our diverse customer base. Importantly, we have the financial strength to pursue our growth strategy,” added Saxon.
Mattress Fabrics Segment
Mattress fabrics sales for the first quarter were
“We were energized by the return to a positive sales trend for mattress fabrics for the first quarter of fiscal 2020,” said Iv Culp, president and chief operating officer of
“While we were pleased with our top-line growth, our operating performance was affected by several factors during the first quarter of fiscal 2020. We experienced temporary lower demand for our more profitable knitted products as customers absorbed existing excess inventory, resulting in reduced production schedules. We also incurred certain employee-related costs that were higher than expected. In spite of these challenges, we believe business conditions are stabilizing and will result in improved profitability going forward, as we continue to rationalize production in the most cost-effective locations. Further, our sustainable manufacturing platform with enhanced capacity and distribution capabilities continues to provide the flexibility and scalability necessary to serve our customers in a changing global environment.
“We also remain committed to product innovation as we strive to deliver a favorable product mix of mattress fabrics and sewn covers. As a firm acknowledgement of the evolving trends in bedding and mattresses, we have established a dedicated innovation team to ensure we are developing and offering the latest technologies and forward-looking products for our customers. At the same time, we are enhancing our design capabilities with an expanded creative team to complement our innovation strategy.
“Looking ahead, we are optimistic that the mattress industry is improving and is benefiting from the anti-dumping measures against the Chinese importers and the continued sell-through of excess inventory. We have a compelling business model supported by creative designs, innovative products, and an efficient global platform with the ability to provide the latest product offerings from fabric to sewn covers. We look forward to the opportunities ahead for our mattress fabrics business in fiscal 2020,” said
Upholstery Fabrics Segment
Sales for this segment were
“Our upholstery fabrics sales were in line with expectations for the first quarter of fiscal 2020,” noted
“In spite of these challenges, we aggressively pursued our product-driven strategy and remained focused on the diversification of our customer base. We are continuing to make progress with Read Window Products (RWP), our window treatment and installation services business, which has supported our ability to expand our reach in the hospitality market. We are optimistic about the future contribution from RWP as we grow this business. We also continue to see favorable demand trends from our residential furniture customers for our popular line of highly durable, stain-resistant, LiveSmart® performance fabrics. Notably, we recently extended this brand with the introduction of LiveSmart Evolve™, a new line of fabrics featuring the same performance technology combined with recycled fibers to deliver a sustainable textile product. The LiveSmart Evolve™ launch has been well received in recent showings and affirms Culp’s ongoing commitment to environmental responsibility. Above all, we continue to focus on product innovation and creative designs that meet the changing demands of our customers.
“Our improved operating performance for the first quarter of fiscal 2020 reflects a favorable product mix and a better currency exchange rate than we experienced a year ago. While additional tariffs took effect during the quarter, we have worked closely with our customers to make adjustments in response to these new tariffs. We are also pleased with the efficient scale-up of operations of our strategic partner relationships in
“Looking ahead, the uncertainties surrounding additional proposed tariffs and the associated geopolitical risks make it difficult to forecast the potential impact on our business. However, we are closely monitoring the situation, and we will enact appropriate responses as needed. Despite these current challenges, we believe
Culp Home Accessories Segment
Sales for this segment, which include the operation of eLuxury, Culp’s e-commerce and finished products business offering bedding accessories and home goods, totaled
Commenting on the results,
Balance Sheet
“Maintaining a strong financial position remains one of Culp’s top priorities for fiscal 2020,” added
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 2020, leaving
Since
Financial Outlook
Commenting on the outlook for the second quarter of fiscal 2020, Bowling remarked, “We expect overall sales to be comparable to the second quarter of last year.
“We expect mattress fabrics sales to be slightly up compared with the second quarter of fiscal 2019, and operating income and margins are expected to be moderately up as compared with the previous year’s second quarter.
“In our upholstery fabrics segment, we expect sales to be comparable to the same period last year. Operating income and margins are expected to be slightly higher compared with the same period a year ago. However, our projections are contingent upon any potential additional tariffs that could be imposed in the future and could therefore affect our operating costs.
“In our home accessories segment, we expect second quarter sales to be considerably down as compared with the second quarter of fiscal 2019, as we refine our strategies and focus on higher margin products. We expect an operating loss for the quarter, but with meaningful improvement as compared to the first quarter of fiscal 2020.
“Considering these factors, the company expects to report pre-tax income for the second fiscal quarter of 2020 in the range of
“Based on our current budget, capital expenditures for fiscal 2020 are now expected to be in the
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 that may cause actual events and results to differ materially from such statements. 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 to reflect any changes in management’s expectations or any change in the assumptions or circumstances on which such statements are based, whether due to new information, future events, or otherwise. 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,” “anticipate,” “estimate,” “plan,” “project,” and their derivatives, and include but are not limited to statements about expectations for our future operations, production levels, new product launches, 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 or liquidity measures, as well as any statements regarding potential acquisitions, future economic or industry trends, or future developments. There can be no assurance that the company will realize these expectations, meet its guidance, or that these beliefs will prove correct.
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. 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. The future performance of our business depends in part on our success in conducting and finalizing acquisition negotiations and integrating acquired businesses into our existing operations. Changes in consumer tastes or preferences toward products not produced by us could erode demand for our products. Changes in tariffs or trade policy, or 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
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CULP, INC.
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Three Months Ended |
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August 4,
|
July 29,
|
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Net sales |
$ |
74,847,000 |
$ |
71,473,000 |
|
|
Income before income taxes |
$ |
2,842,000 |
$ |
1,948,000 |
|
|
Net income attributable to Culp, Inc. |
$ |
1,338,000 |
$ |
957,000 |
|
|
Net income per share: |
|
|
|||
|
Basic |
$ |
0.11 |
$ |
0.08 |
|
|
Diluted |
$ |
0.11 |
$ |
0.08 |
|
|
Average shares outstanding: |
|
|
|||
|
Basic |
|
12,399,000 |
|
12,510,000 |
|
|
Diluted |
|
12,410,000 |
|
12,600,000 |
|
|
Summary of Cash and Investments
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Amounts |
||||||
|
August 4,
|
July 29,
|
April 28,
|
||||
|
Cash and cash equivalents |
$ |
44,236 |
$ |
8,593 |
$ |
40,008 |
|
Short-term investments - Held-To-Maturity |
|
- |
|
30,756 |
|
5,001 |
|
Total cash and investments |
$ |
44,236 |
$ |
39,349 |
$ |
45,009 |
|
|
|
|
|
|||
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*Derived from audited financial statements. |
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Reconciliation of Selected Income Statement Information to Adjusted Results
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As Reported |
August 4, 2019 |
|||||||||
|
August 4, |
(1) |
Adjusted |
||||||||
|
2019 |
Adjustments |
Results |
||||||||
|
Net Sales |
$ |
74,847 |
|
$ |
- |
|
$ |
74,847 |
|
|
|
Cost of Sales |
|
61,482 |
|
|
- |
|
|
61,482 |
|
|
|
Gross Profit |
|
13,365 |
|
|
- |
|
|
13,365 |
|
|
|
|
|
|
|
|
||||||
|
Selling, general, and administrative expenses |
|
10,711 |
|
|
- |
|
|
10,711 |
|
|
|
Restructuring credit (1) |
|
(35 |
) |
|
35 |
|
|
- |
|
|
|
Income from operations |
|
2,689 |
|
|
35 |
|
|
2,654 |
|
|
|
|
|
|
|
|
||||||
|
Interest expense |
|
9 |
|
|
- |
|
|
9 |
|
|
|
Interest income |
|
(249 |
) |
|
- |
|
|
(249 |
) |
|
|
Other expense |
|
87 |
|
|
- |
|
|
87 |
|
|
|
Income before income taxes |
$ |
2,842 |
|
$ |
35 |
|
$ |
2,807 |
|
|
|
|
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(1) The $35 restructuring credit represents employee termination benefits associated with the closure of our Anderson, SC plant facility. |
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| Reconciliation of Selected Income Statement Information to Adjusted Results For Three Months Ended July 29, 2018 (Unaudited) |
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As Reported |
July 29, 2018 |
|||||||||
|
July 29, |
(1) |
Adjusted |
||||||||
|
2018 |
Adjustments |
Results |
||||||||
|
Net Sales |
$ |
71,473 |
|
$ |
- |
|
$ |
71,473 |
|
|
|
Cost of Sales (1) |
|
60,914 |
|
|
(1,565 |
) |
|
59,349 |
|
|
|
Gross Profit |
|
10,559 |
|
|
(1,565 |
) |
|
12,124 |
|
|
|
|
|
|
|
|
||||||
|
Selling, general, and administrative expenses |
|
8,033 |
|
|
- |
|
|
8,033 |
|
|
|
Restructuring expense (1) |
|
451 |
|
|
(451 |
) |
|
- |
|
|
|
Income from operations |
|
2,075 |
|
|
(2,016 |
) |
|
4,091 |
|
|
|
|
|
|
|
|
||||||
|
Interest expense |
|
20 |
|
|
- |
|
|
20 |
|
|
|
Interest income |
|
(150 |
) |
|
- |
|
|
(150 |
) |
|
|
Other expense |
|
257 |
|
|
- |
|
|
257 |
|
|
|
Income before income taxes |
$ |
1,948 |
|
$ |
(2,016 |
) |
$ |
3,964 |
|
|
|
|
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(1) The $1.6 million adjustment for cost of sales represents a restructuring related charge for inventory markdowns. The $451 restructuring charge represents employee termination benefits. These charges are associated with the closure of our Anderson, SC plant facility. |
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Reconciliation of Free Cash Flow
|
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Three Months
|
Three Months
|
|
|
Net cash provided by (used in) operating activities |
$ 2,023 |
$ (1,936) |
|
Minus: Capital Expenditures |
(935) |
(757) |
|
Plus: Proceeds from the sale of property, plant, and equipment |
209 |
- |
|
Minus: Investment in unconsolidated joint venture |
- |
(100) |
|
Minus: Payments on vendor-financed capital expenditures |
- |
(1,412) |
|
Minus: Purchase of long-term investments (Rabbi Trust) |
(259) |
(302) |
|
Effect of exchange rate changes on cash and cash equivalents |
(52) |
(114) |
|
Free Cash Flow |
$ 986 |
$ (4,621) |
View source version on businesswire.com: https://www.businesswire.com/news/home/20190905005924/en/
Source:
Investor Contact:
Kenneth R. Bowling
Chief Financial Officer
336-881-5630
Media Contact:
Teresa A. Huffman
Vice President, Human Resources
336-889-5161