Culp Announces Results for Second Quarter Fiscal 2019
Board of Directors Authorizes Increase in Quarterly Cash Dividend
from
Fiscal 2019 Second Quarter Highlights
-
Net sales were
$77.0 million , down 4.6 percent over the prior year, with mattress fabrics segment sales down 13.6 percent and upholstery fabrics segment sales up 9.1 percent. -
Pre-tax income was
$4.3 million , compared with$6.2 million for the prior year period. Excluding restructuring and related charges and credits and other non-recurring items resulting in a net benefit of approximately$543,000 , pre-tax income was$3.7 million for the second quarter of fiscal 2019. (See reconciliation table on page 7). -
Net income was
$2.9 million , or$0.23 per diluted share, compared with net income of$4.0 million , or$0.32 per diluted share, in the prior year period. -
The company’s financial position reflected total cash and investments
of
$41.5 million and no debt. (See summary of cash and investments table on page 6). -
The company announced an 11 percent increase in its quarterly cash
dividend from
$0.09 to $0.10 per share, or$0.40 per share on an annualized basis, commencing in the third quarter of fiscal 2019.
Fiscal 2019 Year to Date Highlights
-
Net sales were
$148.5 million , down 7.3 percent over the prior year, with mattress fabrics segment sales down 18.6 percent and upholstery fabrics segment sales up 10.0 percent. -
Pre-tax income was
$6.2 million , compared with$12.9 million for the prior year period. Excluding restructuring and related charges and credits and other non-recurring items of approximately$1.5 million , pre-tax income was$7.7 million for the year to date period. (See reconciliation table on page 7). -
Net income was
$3.9 million , or$0.31 per diluted share, compared with net income of$9.0 million , or$0.71 per diluted share, in the prior year period.
Financial Outlook
-
The projection for the third quarter of fiscal 2019 is for overall
sales to be down approximately seven percent compared to the same
period last year. Pre-tax income is expected to be in the range of
$4.6 million to $5.4 million , excluding any restructuring and related charges and credits and other non-recurring charges. Pre-tax income for the third quarter of fiscal 2018 was$7.5 million . Our performance for the fourth quarter of fiscal 2019 is currently expected to be more in line with the results achieved during the fourth quarter of last fiscal year. - Given the strong free cash flow achieved in the second quarter and the current outlook, free cash flow for fiscal 2019 is expected to be improved over last year’s results, even with significant headwinds in the mattress fabrics segment.
Overview
For the second quarter ended
Commenting on the results,
“While we are experiencing considerable headwinds with respect to the mattress industry, we are optimistic that we will begin to see improvement in our quarterly results during the fourth quarter of the fiscal year. We will continue to execute on our product driven strategy as we expand our reach into new markets. We are excited about the potential growth opportunities for RWP in the upholstery fabrics business and for eLuxury, Culp’s e-commerce business offering bedding accessories and home goods direct to consumers, in our mattress fabrics business. Above all, we remain focused on offering creative designs and innovative products that meet the changing demands of a diverse customer base.
“Importantly, we have continued to generate strong free cash flow, especially during the second quarter, and return funds to shareholders through another quarterly dividend increase and share repurchases. These decisions reflect our confidence in Culp’s future. We have the financial strength to support our business in this current environment, and we are well positioned for continued growth as market conditions evolve,” said Saxon.
Mattress Fabrics Segment
Sales for this segment were
“Our mattress fabric sales for the second quarter of fiscal 2019 reflect
the ongoing disruptions and uncertainties surrounding the mattress
industry,” said Iv Culp, chief operating officer and president of Culp’s
mattress fabrics division. “We were pleased to see sequential sales
growth over the first quarter, however, imported mattresses entering
“The second quarter marked the first full quarter to include the
operations of eLuxury. We are excited about this important new sales
channel for
“Looking ahead, we see ongoing challenges in the mattress industry that
will continue to affect short-term demand trends and our operating
performance. While we were pleased to see the anti-dumping petition
approved, and we are beginning to see some positive developments, it is
uncertain when demand trends will return to more normal levels. We
believe the expected punitive measures against Chinese importers will
ultimately benefit our customers and our business. Once this uncertainty
is behind us, we expect our mattress fabrics sales and operating
performance will improve during the fourth quarter of this fiscal year.
In spite of the challenges we are facing, we have a solid core business
and a strong competitive position across all product categories from
fabric to sewn covers. We look forward to the opportunities ahead to
expand our market reach with complementary products and new sales
channels, especially as the mattress industry begins to stabilize,” said
Upholstery Fabrics Segment
Sales for this segment were
“We are pleased with our upholstery fabrics sales performance for
the second quarter, as we met our expectations with a solid 9.1 percent
growth over the second quarter last year,” noted
“Our operating performance for the second quarter of fiscal 2019 was
also in line with expectations. We were able to benefit from a more
favorable currency exchange rate in
“Looking ahead, the potential for additional tariffs in 2019 and
associated geopolitical risks remains uncertain. We continue to monitor
the situation and the related impact on Culp’s business, and if
additional tariffs are implemented, we will determine an appropriate
response. Despite these uncertainties, we believe
Balance Sheet
“Despite the headwinds we are facing in the mattress fabrics business,
we have maintained a strong financial position through the first half of
fiscal 2019, generating
Dividends and Share Repurchases
The company also announced that the board of directors approved an 11
percent increase in the company’s quarterly cash dividend from
The company repurchased approximately 37,000 shares during the first six
months of fiscal 2019, leaving
Since
Financial Outlook
Commenting on the outlook for the third quarter of fiscal 2019, Bowling remarked, “We expect overall sales to be down approximately seven percent compared with the third quarter of last year.
“We expect sales, operating income and margins in our mattress fabrics segment to show sequential improvement over the second quarter, but to be significantly lower than the third quarter of fiscal 2018, due primarily to the continued significant growth in Chinese imported mattresses. Assuming the bedding industry relief materializes under U.S. trade laws, we expect to see more normalized trends during the fourth quarter of fiscal 2019 that are more in line with the prior year.
“In our upholstery fabrics segment, we expect sales to be slightly up
compared with a strong third quarter last year due to the timing of the
“Considering these factors, the company expects to report pre-tax income
for the third fiscal quarter of 2019 in the range of
“Based on our current budget, capital expenditures for fiscal 2019 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.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 due to new information, future events
or otherwise.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 and integrating acquired businesses into our existing
operations.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 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
CULP, INC. Condensed Financial Highlights (Unaudited) |
||||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||||
October 28, 2018 |
October 29, 2017 |
October 28, 2018 |
October 29, 2017 |
|||||||||||||||
Net sales | $ | 77,006,000 | $ | 80,698,000 | $ | 148,479,000 | $ | 160,230,000 | ||||||||||
Income before income taxes | $ | 4,275,000 | $ | 6,159,000 | $ | 6,223,000 | $ | 12,900,000 | ||||||||||
Net income attributable to Culp, Inc. | $ | 2,933,000 | $ | 3,976,000 | $ | 3,890,000 | $ | 8,959,000 | ||||||||||
Net income per share: | ||||||||||||||||||
Basic | $ | 0.23 | $ | 0.32 | $ | 0.31 | $ | 0.72 | ||||||||||
Diluted | $ | 0.23 | $ | 0.32 | $ | 0.31 | $ | 0.71 | ||||||||||
Average shares outstanding: | ||||||||||||||||||
Basic | 12,515,000 | 12,440,000 | 12,512,000 | 12,420,000 | ||||||||||||||
Diluted | 12,551,000 | 12,580,000 | 12,612,000 | 12,613,000 |
Summary of Cash and Investments October 28, 2018, October 29, 2017, and April 29, 2018 (Unaudited) (Amounts in Thousands) |
||||||||||||||
Amounts | ||||||||||||||
October 28, 2018 |
October 29, 2017 |
April 29, 2018 * |
||||||||||||
Cash and cash equivalents | $ | 14,768 | $ | 15,739 | $ | 21,228 | ||||||||
Short-term investments - Available for Sale | -- | 2,478 | 2,451 | |||||||||||
Short-term investments - Held-To-Maturity | 26,719 | 4,015 | 25,759 | |||||||||||
Long-term investments - Held-To-Maturity | -- | 26,853 | 5,035 | |||||||||||
Total cash and investments | $ | 41,487 | $ | 49,085 | $ | 54,473 | ||||||||
*Derived from audited financial statements. |
CULP, INC. Adjusted Consolidated Statement of Operations For the Three Months Ended October 28, 2018 (Unaudited) |
|||||||||||||
As Reported October 28, 2018 |
Adjustments |
October 28, 2018 Adjusted Results |
|||||||||||
Net Sales | $ | 77,006 | $ | - | $ | 77,006 | |||||||
Cost of Sales (1) | 63,680 | (429 | ) | 63,251 | |||||||||
Gross Profit | 13,326 | (429 | ) | 13,755 | |||||||||
Selling, general, and administrative expenses (3) | 10,103 | (89 | ) | 10,014 | |||||||||
Restructuring credit (2) | (1,061 | ) | 1,061 | - | |||||||||
Income from operations | 4,284 | 543 | 3,741 | ||||||||||
Interest expense | 18 | - | 18 | ||||||||||
Interest income | (151 | ) | - | (151 | ) | ||||||||
Other expense | 142 | - | 142 | ||||||||||
Income before income taxes | $ | 4,275 | $ | 543 | $ | 3,732 | |||||||
(1) The $429 represents a restructuring related charge of $270 for other operating costs associated with our closed Anderson, SC, upholstery fabrics plant facility and a non-recurring charge of $159 for employee termination benefits and other operational reorganization costs associated with our mattress fabrics segment. |
|||||||||||||
(2) The $1.1 million restructuring credit represents a $1.1 million gain on sale of equipment, partially offset by a charge of $63 for employee termination benefits associated with the closure of our Anderson, SC, upholstery fabrics plant facility. | |||||||||||||
(3) The $89 represents employee termination benefits and other operational reorganization costs associated with our mattress fabrics segment. |
Adjusted Consolidated Statement of Operations For the Six Months Ended October 28, 2018 (Unaudited) |
|||||||||||||
As Reported October 28, 2018 |
Adjustments |
October 28, 2018 Adjusted Results |
|||||||||||
Net Sales | $ | 148,479 | $ | - | $ | 148,479 | |||||||
Cost of Sales (1) | 124,594 | (1,995 | ) | 122,599 | |||||||||
Gross Profit | 23,885 | (1,995 | ) | 25,880 | |||||||||
Selling, general, and administrative expenses (3) | 18,136 | (89 | ) | 18,047 | |||||||||
Restructuring credit (2) | (610 | ) | 610 | - | |||||||||
Income from operations | 6,359 | (1,474 | ) | 7,833 | |||||||||
Interest expense | 38 | - | 38 | ||||||||||
Interest income | (301 | ) | - | (301 | ) | ||||||||
Other expense | 399 | - | 399 | ||||||||||
Income before income taxes | $ | 6,223 | $ | (1,474 | ) | $ | 7,697 | ||||||
(1) The $2.0 million represents a restructuring related charge of $1.6 million for inventory markdowns and $270 for operating costs associated with the closure of our closed Anderson, SC, upholstery fabrics plant facility and a non-recurring charge of $159 for employee termination benefits and other operational reorganization costs associated with our mattress fabrics segment. | |||||||||||||
(2) The $610 million restructuring credit represents a $1.1 million gain on sale of equipment, partially offset by a charge of $513 for employee termination benefits associated with the closure of our Anderson, SC, upholstery fabrics plant facility. | |||||||||||||
(3) The $89 represents employee termination benefits and other operational reorganization costs associated with our mattress fabrics segment. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20181129005717/en/
Source:
Investor Contact:
Kenneth R. Bowling
Chief Financial Officer
336-881-5630
Media Contact:
Teresa A. Huffman
Vice President, Human
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