Culp Announces Results for Second Quarter Fiscal 2020
Board of Directors Authorizes Five Percent Increase in Quarterly Cash Dividend
Fiscal 2020 Second Quarter Highlights
-
Net sales were
$72.6 million , down 5.7 percent over the prior year, with mattress fabrics sales down 4.7 percent, upholstery fabrics sales down 3.2 percent, and home accessories sales down 31.5 percent.
-
Pre-tax income was
$4.1 million , compared with$4.3 million for the prior-year period. The results for the second quarter of last year were$3.7 million excluding restructuring and related charges and credits and other non-recurring items resulting in a net benefit of approximately$543,000 . (See reconciliation table on page 8).
-
Net income attributable to
Culp, Inc. shareholders was$2.3 million , or$0.19 per diluted share, compared with net income of$2.9 million , or$0.23 per diluted share, in the prior-year period. The results for the second quarter of fiscal 2019 include the restructuring and related charges and credits and other non-recurring items noted above.
-
The company’s financial position reflected total cash and investments of
$47.2 million and outstanding borrowings totaling$925,000 as ofNovember 3, 2019 , for a net cash position of$46.3 million . (See summary of cash and investments table on page 7).
-
The company announced a five percent increase in its quarterly cash dividend to an annualized
$0.42 per share, commencing in the third quarter of fiscal 2020. Notably, this is the company’s seventh straight year of increasing its annual dividend.
-
Cash flow from operations and free cash flow for the first six months of fiscal 2020 were
$8.2 million and$5.6 million , respectively, compared with cash flow from operations and free cash flow of$6.6 million and$3.6 million , respectively, for the prior-year period. (See reconciliation table on page 7).
Financial Outlook
-
The projection for the third quarter of fiscal 2020 is for overall sales to be comparable to the same period last year. Pre-tax income for the third quarter of fiscal 2020 is expected to be in the range of
$3.2 million to $3.8 million . Pre-tax income for the third quarter of fiscal 2019 was$4.3 million , which included a net charge of approximately$769,000 in restructuring and related charges and credits and other non-recurring items. Excluding these charges, pre-tax income for the third quarter of fiscal 2019 was$5.0 million .
- The company’s performance for the fourth quarter of fiscal 2020 is currently expected to be significantly better than the results achieved in the fourth quarter of fiscal 2019, and as a result, the company’s performance for the second half of fiscal 2020 is currently expected to be better than the results achieved during the second half of fiscal 2019.
- Free cash flow for fiscal 2020 is expected to be comparable to last year’s results, even with continued uncertainty in the geopolitical environment.
Second Quarter Fiscal 2020 Financial Results
For the second quarter ended
The company reported net income attributable to
The effective income tax rate for the second quarter of fiscal 2020 was 46.2 percent compared with 29.8 percent for the same period a year ago. The increase in the company’s effective income tax rate reflects a significant increase in the company’s Global Intangible Low Taxed Income (GILTI) Tax, which represents a U.S. income tax on the company’s foreign earnings. The continued shift in mix of taxable income that is mostly earned by the company’s foreign operations located in
Commenting on the results,
“In each of our businesses, we are maintaining our product-driven emphasis with an unwavering commitment to product innovation and creative designs. With the support of our 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 plans and to continue returning funds to our shareholders. We are proud to announce another dividend increase commencing in the third quarter, marking our seventh consecutive year of increasing the annual dividend,” added Saxon.
Mattress Fabrics Segment
Mattress fabrics sales for the second quarter were
“Our results for the second quarter of fiscal 2020 reflect changing market dynamics as the mattress industry attempts to recover from the turmoil surrounding the influx of Chinese imports and the subsequent anti-dumping measures,” said Iv Culp, president and chief operating officer of
“We delivered an improved operating performance for the second quarter despite the modest decline in sales. Our recent investments in infrastructure and our focused efforts to rationalize both fabric and sewn cover production in the most cost-effective locations improved our operating efficiency. We also benefited from more favorable raw material prices compared with the second quarter last year.
“Our ability to offer a broad product mix with a relentless commitment to product innovation distinguishes
“Looking ahead, we believe
Upholstery Fabrics Segment
Sales for this segment were
“Our upholstery fabrics sales were in line with expectations for the second quarter of fiscal 2020,” noted
“We are satisfied with the execution of our plans during the second quarter, as we benefited from strong product innovation. We experienced favorable demand trends from our residential furniture customers for our popular line of highly durable, stain-resistant, LiveSmart® performance fabrics. Our recent introduction of LiveSmart Evolve™, a new line of fabrics featuring the same performance combined with recycled fibers, has been very well received as a product that fulfills the desires of environmentally conscious consumers. We are focused on promoting these brands and are pleased with the strong customer placements for these products following a successful October furniture market. We also recently launched a new outdoor product line, LiveSmart Outdoor™, which pairs performance with the ability to withstand the outdoor elements. This product line builds on the strength of our LiveSmart brand and has been well received at recent showings. Additionally, our overall sales reflect favorable growth trends with our hospitality customers, as we continued to expand our market reach into this segment. Read Window Products (RWP), our window treatment and installation services business, supports this strategy, and we are optimistic about the future contribution from RWP. We have also recently strengthened our creative team to further support our commitment to creating innovative products and creative designs that meet the changing demands of our customers.
“Our improved operating performance for the second quarter of fiscal 2020 reflects a more favorable product mix, due to the marketing success of our branded products and the diversification of our customer base to include more hospitality business. We also benefited from a more favorable currency exchange rate than we experienced a year ago.
“We have made supply chain adjustments and product engineering changes to mitigate the impact of recently imposed tariffs and to meet the needs of our customers. We continue to develop our strategic partner relationships in
“Going forward, while geopolitical uncertainties remain, we are optimistic about the opportunities for
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,” added
Dividends and Share Repurchases
The company also announced that the board of directors approved a five percent increase in the company’s quarterly cash dividend to
The company did not repurchase any shares during the second quarter of fiscal 2020, leaving
Since
Financial Outlook
Commenting on the outlook for the third quarter of fiscal 2020, Bowling remarked, “We expect overall sales to be comparable to the third quarter of last year.
“We expect mattress fabrics sales to be slightly down and operating income and margins to be moderately down, compared with the third quarter of fiscal 2019. The third quarter is a traditionally slower sales period and is affected by the loss of multiple weeks of production and distribution for our CLASS cover business as a result of government-mandated holiday shutdowns in
“For the fourth quarter of fiscal 2020, we currently expect sales to increase slightly and operating income and margins to be significantly up as compared to the fourth quarter of fiscal 2019. We anticipate benefits from a return to strong growth for our CLASS cover business, continued improvement in overall industry conditions, and improved operating efficiencies across all product lines. As a result, we expect sales for the second half of fiscal 2020 to be comparable to sales for the second half of fiscal 2019, and operating income and margins for the period are expected to be moderately higher as compared with the second half of the prior year.
“In our upholstery fabrics segment, we expect third quarter sales and operating income and margins to be comparable to the same period last year. Similarly, for the second half of fiscal 2020, we also expect sales and operating income and margins to be comparable to the second half of fiscal 2019.
“In our home accessories segment, we expect third quarter sales to be slightly down compared to the third quarter of fiscal 2019, as we continue to 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 second quarter of fiscal 2020. For the fourth quarter, we expect operating performance to be near break-even.
“Considering these factors, as well as increased unallocated corporate expenses due primarily to higher incentive compensation expense as compared to the third quarter of fiscal 2019, the company expects to report pre-tax income for the third quarter of 2020 in the range of
“Based on our current budget, capital expenditures for fiscal 2020 are 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,” “intend,” “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
CULP, INC. |
||||||||||||
Condensed Financial Highlights |
||||||||||||
(Unaudited) |
||||||||||||
|
||||||||||||
|
Three Months Ended |
Six Months Ended |
||||||||||
|
November 3,
|
October 28,
|
November 3,
|
October 28,
|
||||||||
Net sales |
$ |
72,619,000 |
$ |
77,006,000 |
$ |
147,466,000 |
$ |
148,479,000 |
||||
Income before income taxes |
$ |
4,106,000 |
$ |
4,275,000 |
$ |
6,949,000 |
$ |
6,223,000 |
||||
Net income attributable to Culp, Inc. |
$ |
2,300,000 |
$ |
2,933,000 |
$ |
3,638,000 |
$ |
3,890,000 |
||||
Net income per share: |
|
|
|
|
||||||||
Basic |
$ |
0.19 |
$ |
0.23 |
$ |
0.29 |
$ |
0.31 |
||||
Diluted |
$ |
0.19 |
$ |
0.23 |
$ |
0.29 |
$ |
0.31 |
||||
Average shares outstanding: |
|
|
|
|
||||||||
Basic |
|
12,408,000 |
|
12,515,000 |
|
12,403,000 |
|
12,512,000 |
||||
Diluted |
|
12,408,000 |
|
12,551,000 |
|
12,413,000 |
|
12,612,000 |
||||
Summary of Cash and Investments |
|||||||||
November 3, 2019, October 28, 2018, and April 28, 2019 |
|||||||||
(Unaudited) |
|||||||||
(Amounts in Thousands) |
|||||||||
Amounts |
|||||||||
November 3,
|
October 28,
|
April 28,
|
|||||||
Cash and cash equivalents |
$ |
47,183 |
$ |
14,768 |
$ |
40,008 |
|||
Short-term investments - Held-To-Maturity |
|
- |
|
26,719 |
|
5,001 |
|||
Total cash and investments |
$ |
47,183 |
$ |
41,487 |
$ |
45,009 |
|||
|
|
|
|
||||||
*Derived from audited financial statements. |
|||||||||
Reconciliation of Free Cash Flow |
|||
For the Six Months Ended November 3, 2019 and October 28, 2018 |
|||
(Unaudited) |
|||
(Amounts in thousands) |
|||
|
|||
Six Months Ended
|
Six Months Ended
|
||
Net cash provided by operating activities |
$ 8,247 |
$ 6,600 |
|
Minus: Capital Expenditures |
(2,410) |
(2,096) |
|
Plus: Proceeds from the sale of property, plant, and equipment |
363 |
1,280 |
|
Minus: Investment in unconsolidated joint venture |
- |
(100) |
|
Minus: Payments on vendor-financed capital expenditures |
- |
(1,412) |
|
Minus: Purchase of long-term investments (Rabbi Trust) |
(479) |
(526) |
|
Effect of exchange rate changes on cash and cash equivalents |
(91) |
(169) |
|
Free Cash Flow |
$ 5,630 |
$ 3,577 |
|
Reconciliation of Selected Income Statement Information to Adjusted Results |
|||||||||||
For Three Months Ended November 3, 2019 |
|||||||||||
(Unaudited) |
|||||||||||
As Reported
|
Adjustments |
November 3,
|
|||||||||
Net Sales |
$ |
72,619 |
|
$ |
- |
$ |
72,619 |
|
|||
Cost of Sales |
|
58,516 |
|
|
- |
|
58,516 |
|
|
||
Gross Profit |
|
14,103 |
|
|
- |
|
14,103 |
|
|
||
|
|
|
|
|
|||||||
Selling, general, and administrative expenses |
|
10,120 |
|
|
- |
|
10,120 |
|
|
||
Restructuring credit |
|
- |
|
|
- |
|
- |
|
|
||
Income from operations |
|
3,983 |
|
|
- |
|
3,983 |
|
|
||
|
|
|
|
|
|||||||
Interest expense |
|
30 |
|
|
- |
|
30 |
|
|
||
Interest income |
|
(240 |
) |
|
- |
|
(240 |
) |
|||
Other expense |
|
87 |
|
|
- |
|
87 |
|
|||
Income before income taxes |
$ |
4,106 |
|
$ |
- |
$ |
4,106 |
|
|||
|
|
|
|
|
Reconciliation of Selected Income Statement Information to Adjusted Results |
|||||||||
For Three Months Ended October 28, 2018 |
|||||||||
(Unaudited) |
|||||||||
As Reported
|
Adjustments |
October 28,
|
|||||||
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 (2) |
|
10,103 |
|
|
(89 |
) |
|
10,014 |
|
Restructuring credit (3) |
|
(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 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 $89 represents employee termination benefits and other operational reorganization costs associated with our mattress fabrics segment. |
|||||||||
(3) The $1.1 million restructuring credit represents a $1.1 million gain for the sale of equipment partially offset by a charge of $63 for employee termination benefits associated with the closure of our Anderson, SC upholstery fabrics facility. |
|||||||||
Reconciliation of Selected Income Statement Information to Adjusted Results |
||||||||||
For Six Months Ended November 3, 2019 |
||||||||||
(Unaudited) |
||||||||||
As Reported
|
Adjustments |
November 3,
|
||||||||
Net Sales |
$ |
147,466 |
|
$ |
- |
|
$ |
147,466 |
|
|
Cost of Sales |
|
119,998 |
|
|
- |
|
|
119,998 |
|
|
Gross Profit |
|
27,468 |
|
|
- |
|
|
27,468 |
|
|
|
|
|
|
|
||||||
Selling, general, and administrative expenses |
|
20,831 |
|
|
- |
|
|
20,831 |
|
|
Restructuring credit (1) |
|
(35 |
) |
|
35 |
|
|
- |
|
|
Income from operations |
|
6,672 |
|
|
35 |
|
|
6,637 |
|
|
|
|
|
|
|
||||||
Interest expense |
|
39 |
|
|
- |
|
|
39 |
|
|
Interest income |
|
(490 |
) |
|
- |
|
|
(490 |
) |
|
Other expense |
|
174 |
|
|
- |
|
|
174 |
|
|
Income before income taxes |
$ |
6,949 |
|
$ |
35 |
|
$ |
6,914 |
|
|
|
||||||||||
(1) The $35 restructuring credit represents employee termination benefits associated with the closure of our Anderson, SC upholstery fabrics facility. |
|
|||||||||
Reconciliation of Selected Income Statement Information to Adjusted Results |
||||||||||
For Six Months Ended October 28, 2018 |
||||||||||
(Unaudited) |
||||||||||
As Reported
|
Adjustments |
October 28,
|
||||||||
Net Sales |
$ |
148,479 |
|
$ |
- |
|
$ |
148,479 |
|
|
Cost of Sales (1) |
|
124,594 |
|
|
(1,994 |
) |
|
122,600 |
|
|
Gross Profit |
|
23,885 |
|
|
(1,994 |
) |
|
25,879 |
|
|
|
|
|
|
|
||||||
Selling, general, and administrative expenses (2) |
|
18,136 |
|
|
(89 |
) |
|
18,047 |
|
|
Restructuring credit (3) |
|
(610 |
) |
|
610 |
|
|
- |
|
|
Income from operations |
|
6,359 |
|
|
(1,473 |
) |
|
7,832 |
|
|
|
|
|
|
|
||||||
Interest expense |
|
38 |
|
|
- |
|
|
38 |
|
|
Interest income |
|
(301 |
) |
|
- |
|
|
(301 |
) |
|
Other expense |
|
399 |
|
|
- |
|
|
399 |
|
|
Income before income taxes |
$ |
6,223 |
|
$ |
(1,473 |
) |
$ |
7,696 |
|
|
|
||||||||||
(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 Anderson, SC upholstery fabrics facility, as well as $159 for employee termination benefits and other operational reorganization costs associated with our mattress fabrics segment. |
|
|||||||||
(2) The $89 represents employee termination benefits and other operational reorganization costs associated with our mattress fabrics segment. |
||||||||||
(3) The $610 restructuring credit represents a $1.1 million gain for the sale of equipment partially offset by a charge of $513 for employee termination benefits associated with the closure of our Anderson, SC upholstery fabrics facility. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20191205005843/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