Culp Announces Results for Third Quarter Fiscal 2019
Fiscal 2019 Third Quarter Highlights
-
Net sales were
$77.2 million , down 9.5 percent over the prior year period, with mattress fabrics segment sales down 27.1 percent and upholstery fabrics segment sales up 2.3 percent. -
Net sales for the company’s new business segment,
Culp Home Accessories, were$4.4 million , with no comparable prior-year sales. Culp Home Accessories includes eLuxury, Culp’s e-commerce and finished products business offering bedding accessories and home goods direct to consumers and businesses. -
Pre-tax income was
$4.3 million , compared with$7.5 million for the prior-year period. Excluding restructuring and related charges and credits and other non-recurring items resulting in a net charge of approximately$769,000 , pre-tax income was$5.0 million for the third quarter of fiscal 2019. (See reconciliation tables on page 8). -
Net income (GAAP) attributable to
Culp, Inc. shareholders was$3.2 million , or$0.25 per diluted share, compared with a net loss of$748,000 , or$0.06 per diluted share, in the prior-year period. -
Adjusted net income (non-GAAP) attributable to
Culp, Inc. shareholders was$3.3 million , or$0.27 per diluted share, compared with$5.2 million , or$0.42 per diluted share, in the prior-year period. (See reconciliation tables on page 8). -
The company’s financial position reflected total cash and investments
of
$40.0 million and no debt. (See summary of cash and investments table on page 7).
Fiscal 2019 Year to Date Highlights
-
Net sales were
$225.7 million , down 8.1 percent over the prior year, with mattress fabrics segment sales down 26.5 percent and upholstery fabrics segment sales up 7.2 percent. -
Net sales for the company’s new business segment,
Culp Home Accessories, were$11.8 million since theJune 2018 investment date in eLuxury, with no comparable prior-year sales to date. -
Pre-tax income was
$10.5 million , compared with$20.4 million for the prior-year period. Excluding restructuring and related charges and credits and other non-recurring items of approximately$2.2 million , pre-tax income was$12.7 million for the year to date period. (See reconciliation tables on page 9). -
Net income (GAAP) attributable to
Culp, Inc. shareholders was$7.0 million , or$0.56 per diluted share, compared with net income of$8.2 million , or$0.65 per diluted share, in the prior-year period. -
Adjusted net income (non-GAAP) attributable to
Culp, Inc. shareholders was$8.7 million , or$0.69 per diluted share, compared with$14.2 million , or$1.12 per diluted share in the prior-year period. (See reconciliation tables on page 9).
Financial Outlook
-
The projection for the fourth quarter of fiscal 2019 is for overall
sales to be slightly down compared to the same period last year.
Pre-tax income is expected to be in the range of
$4.2 million to $4.9 million . Pre-tax income for the fourth quarter of fiscal 2018 was$6.5 million . - Free cash flow for fiscal 2019 is expected to be comparable to last year’s results, even with significant headwinds in the mattress fabrics segment.
Overview
For the third quarter ended
The company reported net income (GAAP) attributable to
Commenting on the results,
“We continue to believe the domestic mattress industry will ultimately
benefit from relief sought under U.S. trade laws to address the
low-priced imported mattresses from
“Importantly, we have the financial strength to support our growth strategy, and we believe Culp is well positioned for the long term with our expanded product offering, new sales channels, and a highly competitive global manufacturing platform,” said Saxon.
Mattress Fabrics Segment
Sales for this segment were
“Our mattress fabric sales for the third quarter of fiscal 2019 were affected by the significant ongoing disruptions surrounding the mattress industry,” said Iv Culp, chief operating officer and president of Culp’s mattress fabrics division. “With the high volume of low-priced imported mattresses, the industry has been dealing with a significant amount of excess inventory, which affected demand for mattress fabric and sewn covers from our customers during the quarter. Additionally, our third quarter sales were affected by weather disruptions and the usual seasonal slowdown for the holidays, compounded by the weak retail and e-commerce sales environment.
“In spite of the challenges we faced, our operating performance showed
sequential improvement in the third quarter. With the substantial
investments in our platform, we have efficient production and
distribution capabilities that provide a full complement of mattress
fabrics and sewn covers, with the flexibility to adapt to evolving
customer needs. We are especially pleased with the continued progress
for CLASS, our mattress cover business with repetitive production
capabilities in
“Culp also had a very favorable showing at the recent
“Looking ahead, we believe the anti-dumping measures against Chinese
importers will ultimately benefit our customers and our business. Import
activity appears to be slowing, and some customers are beginning to
alter supply chains away from
Upholstery Fabrics Segment
Sales for this segment were
“Our upholstery fabrics business delivered a solid performance for the
third quarter, in line with our expectations,” noted
“Culp enjoyed strong acceptance for our recent fabric showings with customers in December. Our ‘performance’ line of highly durable, stain-resistant fabrics continues to be very popular with both existing and new customers. Our product-driven strategy and ability to reach more customers and new end-user markets have served us well in today’s global marketplace.
“Our operating income for the third 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 are confident in our ability to deliver another solid performance in fiscal 2019,” added Chumbley.
Culp Home Accessories Segment
The company is now reporting financial and operating results for a new
business segment, known as Culp Home Accessories, which includes the
operations of eLuxury, Culp’s e-commerce and finished products business
offering bedding accessories and home goods. Sales for this segment were
“Since investing in eLuxury, we have worked hard to establish
Balance Sheet
“We have continued to maintain a strong financial position throughout
fiscal 2019, despite the ongoing challenges we’ve faced in the mattress
fabrics business,” added
Dividends and Share Repurchases
The company also announced that the board of directors has approved the
payment of a quarterly cash dividend of
The company repurchased approximately 124,000 shares during the third
quarter of fiscal 2019, with a total of approximately 160,000 shares
repurchased during the first nine months of fiscal 2019, leaving
Since
Financial Outlook
Commenting on the outlook for the fourth quarter of fiscal 2019, Bowling remarked, “We expect overall sales to be slightly down compared with the fourth quarter of last year.
“We expect sales, operating income and margins in our mattress fabrics segment to show sequential improvement over the third quarter, but to be moderately down compared with the fourth quarter of fiscal 2018 due to the continuing headwinds associated with Chinese imported mattresses.
“In our upholstery fabrics segment, we expect sales to be slightly up compared with the fourth quarter last year. Operating income and margins are also expected to be slightly up 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 Culp Home Accessories segment, we expect sales to be slightly up compared with the third quarter of fiscal 2019. We expect an operating loss for the fourth quarter, with sequential improvement compared with the third quarter of fiscal 2019.
“Considering these factors, the company expects to report pre-tax income
for the fourth fiscal quarter of 2019 in the range of
“Based on our current projection, 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 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” and “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.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 | Nine Months Ended | ||||||||||||
| January 27, 2019 |
January 28, 2018 |
January 27, 2019 |
January 28, 2018 |
||||||||||
| Net sales | $ | 77,226,000 | $ | 85,310,000 | $ | 225,705,000 | $ | 245,541,000 | |||||
| Income before income taxes | $ | 4,262,000 | $ | 7,516,000 | $ | 10,485,000 | $ | 20,416,000 | |||||
| Net income (loss) attributable to Culp, Inc. | $ | 3,154,000 | $ | (748,000 | ) | $ | 7,044,000 | $ | 8,211,000 | ||||
| Net income (loss) attributable to Culp, Inc. per share: | |||||||||||||
| Basic | $ | 0.25 | $ | (0.06 | ) | $ | 0.56 | $ | 0.66 | ||||
| Diluted | $ | 0.25 | $ | (0.06 | ) | $ | 0.56 | $ | 0.65 | ||||
| Average shares outstanding: | |||||||||||||
| Basic | 12,438,000 | 12,436,000 | 12,488,000 | 12,425,000 | |||||||||
| Diluted | 12,465,000 | 12,436,000 | 12,593,000 | 12,626,000 | |||||||||
|
CULP, INC. Summary of Cash and Investments January 27, 2019, January 28, 2018, and April 29, 2018 (Unaudited) (Amounts in Thousands) |
|||||||||
| Amounts | |||||||||
| January 27, 2019 |
January 28, 2018 |
April 29, 2018* |
|||||||
| Cash and cash equivalents | $ | 26,418 | $ | 22,428 | $ | 21,228 | |||
| Short-term investments - Available for Sale | - | 2,472 | 2,451 | ||||||
| Short-term investments - Held-To-Maturity | 13,544 | 17,206 | 25,759 | ||||||
| Long-term investments - Held-To-Maturity | - | 13,625 | 5,035 | ||||||
| Total cash and investments | $ | 39,962 | $ | 55,731 | $ | 54,473 | |||
| *Derived from audited financial statements. | |||||||||
| CULP, INC. Reconciliation of Selected Income Statement Information to Adjusted Results For Three Months Ended January 27, 2019 (Unaudited) |
||||||||||||
| (Amounts in Thousands) | As Reported January 27, 2019 |
Adjustments |
January 27, 2019 Adjusted Results |
|||||||||
| Gross Profit (1) | $ | 14,123 | $ | 514 | $ | 14,637 | ||||||
| Selling, general, and administrative expenses (3) | 10,038 | (469 | ) | 9,569 | ||||||||
| Restructuring credit (2) | (214 | ) | 214 | - | ||||||||
| Income from operations | 4,299 | 769 | 5,068 | |||||||||
| Income before income taxes | 4,262 | 769 | 5,031 | |||||||||
| Income taxes (4) | 1,225 | 593 | 1,818 | |||||||||
| Net income | 3,060 | 176 | 3,236 | |||||||||
| Net loss attributable to non-controlling interest | 94 | - | 94 | |||||||||
| Net income attributable to Culp Inc. common shareholders | $ | 3,154 | $ | 176 | $ | 3,330 | ||||||
|
Net income attributable to Culp Inc. common shareholders per share- diluted |
$ | 0.25 | $ | 0.01 | $ | 0.27 | ||||||
|
(1) |
The $514 represents restructuring related charges for other operating costs associated with our closed Anderson, SC upholstery fabrics plant facility. |
|||||||||||
|
(2) |
The $214 restructuring credit represents a $362 gain on the sale of a building and land associated with our closed Anderson, SC upholstery fabrics plant facility, partially offset by a charge of $148 for employee termination benefits. |
|||||||||||
|
(3) |
The $469 represents a non-recurring charge associated with the accelerated vesting of certain stock-based compensation agreements. Of this $469 non-recurring charge, $429 and $40 pertain to unallocated corporate expenses and a restructuring related charge associated with our closed Anderson, SC upholstery fabrics plant facility. |
|||||||||||
|
(4) |
The $593 income tax benefit represents provisional adjustments associated with the Tax Cuts and Jobs Act (TCJA) enacted on December 22, 2017. |
|||||||||||
| CULP, INC. Reconciliation of Selected Income Statement Information to Adjusted Results For Three Months Ended January 28, 2018 (Unaudited) |
|||||||||||
| (Amounts in Thousands) |
As Reported January 28, 2018 |
Adjustments |
January 28, 2018 Adjusted Results |
||||||||
| Gross Profit | $ | 17,603 |
$ |
- |
$ | 17,603 | |||||
| Selling, general, and administrative expenses | 9,959 | - | 9,959 | ||||||||
| Income from operations | 7,644 | - | 7,644 | ||||||||
| Income before income taxes | 7,516 | - | 7,516 | ||||||||
| Income taxes (1) | 8,208 | (5,939 | ) | 2,269 | |||||||
| Net (loss) income | $ | (748 | ) | $ | 5,939 | $ | 5,191 | ||||
| Net (loss) income per share - diluted | $ | (0.06 | ) | $ | 0.48 | $ | 0.42 | ||||
| (1) The $5.9 million income tax charge represents provisional adjustments associated with the TCJA enacted on December 22, 2017. | |||||||||||
|
CULP, INC. Reconciliation of Selected Income Statement Information to Adjusted Results For Nine Months Ended January 27, 2019 (Unaudited) |
||||||||||||
| (Amounts in Thousands) | As Reported January 27, 2019 |
Adjustments |
January 27, 2019 Adjusted Results |
|||||||||
| Gross Profit (1) | $ | 38,008 | $ | 2,508 | $ | 40,516 | ||||||
| Selling, general, and administrative expenses (3) | 28,174 | (558 | ) | 27,616 | ||||||||
| Restructuring credit (2) | (825 | ) | 825 | - | ||||||||
| Income from operations | 10,659 | 2,241 | 12,900 | |||||||||
| Income before income taxes | $ | 10,485 | $ | 2,241 | $ | 12,726 | ||||||
| Income taxes (4) | 3,407 | 593 | 4,000 | |||||||||
| Net income | 6,969 | 1,648 | 8,617 | |||||||||
| Net loss attributable to non-controlling interest | 75 | - | 75 | |||||||||
| Net income attributable to Culp Inc. common shareholders | $ | 7,044 | $ | 1,648 | $ | 8,692 | ||||||
|
Net income attributable to Culp Inc. common shareholders per share - diluted |
$ | 0.56 | $ | 0.13 | $ | 0.69 | ||||||
|
(1) |
The $2.5 million represents a restructuring related charge of $1.6 million for inventory markdowns and $784 for other operating costs associated with our closed Anderson, SC upholstery fabrics plant facility and $159 for employee termination benefits and other operational reorganization costs associated with our mattress fabrics segment. |
|||||||||||
|
(2) |
The $825 restructuring credit represents a $1.5 million gain on the sale of property, plant, and equipment associated with our closed Anderson, SC upholstery fabrics plant facility, partially offset by a charge of $661 for employee termination benefits. |
|||||||||||
|
(3) |
The $558 consists of a non-recurring charge totaling $469 that was associated with the accelerated vesting of certain stock-based compensation agreements. Of this $469 non- recurring charge, $429 and $40 pertain to unallocated corporate expenses and a restructuring related charge associated with our closed Anderson, SC upholstery fabrics plant facility. Additionally, the $558 consists of a non-recurring charge of $89 for employee termination benefits and operational reorganization costs associated with our mattress fabrics segment. |
|||||||||||
|
(4) |
The $593 income tax benefit represents provisional adjustments associated with the Tax Cuts and Jobs Act (TCJA) enacted on December 22, 2017. |
|||||||||||
| CULP, INC. Reconciliation of Selected Income Statement Information to Adjusted Results For Nine Months Ended January 28, 2018 (Unaudited) |
||||||||||
| (Amounts in Thousands) | As Reported January 28, 2018 |
Adjustments |
January 28, 2018 Adjusted Results |
|||||||
| Gross Profit | $ | 49,873 | $ | - | $ | 49,873 | ||||
| Selling, general, and administrative expenses | 28,876 | - | 28,876 | |||||||
| Income from operations | 20,997 | - | 20,997 | |||||||
| Income before income taxes | 20,416 | - | 20,416 | |||||||
| Income taxes (1) | 11,956 | (5,939 | ) | 6,017 | ||||||
| Net Income | $ | 8,211 | $ | 5,939 | $ | 14,150 | ||||
| Net income per share – diluted | $ | 0.65 | $ | 0.47 | $ | 1.12 | ||||
| (1) The $5.9 million income tax charge represents provisional adjustments associated with the TCJA enacted on December 22, 2017. | ||||||||||
View source version on businesswire.com: https://www.businesswire.com/news/home/20190227005842/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