News Release Details

Fiscal 2024 Third Quarter Financial Summary

• Net sales for the third quarter of fiscal 2024 were $60.4 million, up 15.0 percent compared with the prior-year period, with mattress fabrics sales up 21.6 percent, and upholstery fabrics sales up 9.2 percent.
• Gross margin for the third quarter of fiscal 2024 was 12.7%, compared with 4.0% for the third quarter of fiscal 2023.
• Loss from operations was $(1.7) million (which included $111,000 in restructuring and related credits during the period), compared with a loss from operations of $(7.8) million for the prior-year period (which included $711,000 relating to certain restructuring expenses during the period).
• Net loss was $(3.2) million, or $(0.26) per diluted share, compared with a net loss of $(9.0) million, or $(0.73) per diluted share, for the prior-year period. The effective tax rate for the third quarter was negative (47.5) percent, reflecting the company’s mix of taxable income between its U.S. and foreign jurisdictions during the period.
• The company maintained a solid financial position, with its balance sheet reflecting $12.6 million of total cash and no outstanding borrowings as of January 28, 2024. Total liquidity as of January 28, 2024, was $38.8 million (consisting of $12.6 million in cash and $26.2 million in borrowing availability under the company's domestic credit facility).

CEO Commentary

Commenting on the results, Iv Culp, president and chief executive officer of Culp, Inc., said, “We are pleased to report continued year-over-year and sequential improvement in our consolidated sales and operating performance for the third quarter. Both of our core business segments reported increased revenue year-over-year, which is impressive considering the challenging demand environment in the bedding and furniture industries. Additionally, our consolidated operating performance for the quarter was better than our revised outlook announced on January 17, 2024, due to stronger improvement in our upholstery fabrics segment.

"Culp upholstery fabrics achieved a year-over-year increase in residential sales for the first quarterly period since the end of last fiscal year, driven by both the timing of the Chinese New Year holiday and some improvement during the quarter in customer demand for residential fabric products. While this increase in residential sales was offset somewhat by lower sales in our hospitality/contract business due partly to weather-related events in January and shortterm supply chain issues that affected Read Window, overall demand remains solid for our hospitality/contract business. Also, our upholstery fabrics segment once again saw a significant improvement in operating performance, driven primarily by higher sales, a more profitable mix of sales, and fixed cost savings.

"In our mattress fabrics segment, we continued our significant year-over-year improvement in sales and operating performance, driven largely by a focus on new fabric and cover placements that are priced with proper margins and in line with current raw material costs. However, the sequential results for this segment, as compared to the second quarter, reflect ongoing market weakness in the bedding industry, as well as internal efficiency issues primarily related to the start-up and production of certain new products and costs for these program launches that occurred during the quarter.

“We maintained our solid balance sheet during the quarter, with a continued focus on prudent financial management, while allowing for critical capital expenditures and ensuring a strategic level of working capital to support the needs of our businesses. We ended the quarter with $12.6 million in cash, no outstanding borrowings, and $26.2 million in borrowing availability under our domestic credit facility.

“As we enter the fourth quarter, we continue to implement improvement initiatives within our mattress fabrics segment to support future profitable sales growth and enhance operating efficiencies. We are diligently focused on winning new placements to drive revenue and increase margins, and we are optimistic about mid-to-long term growth potential for this business. However, while we knew the timing of Chinese New Year would be an impact on quarterly revenue, the industry demand backdrop in both of our businesses has deteriorated further than expected during the first few weeks of the fourth quarter, especially in our upholstery fabrics segment.

"We remain confident in our market position in both of our businesses, but to maintain our sequential progress, we need some macro-industry and end-consumer support. Also, the internal inefficiencies relating to the start up and production of certain new products in mattress fabrics during the third quarter will also affect operating performance during the fourth quarter. As a result of these challenges, we now expect that our return to consolidated operating profitability will be delayed into fiscal 2025.

"In the face of various ongoing macro-economic headwinds, our attention is on managing the aspects of our business we can control. With the uncertainty of consumer demand in the near term, we are also evaluating strategic actions to adjust and right-size our global platform to align with current demand levels, while still supporting our valued customers. Importantly, we remain well positioned for the long term with our solidly performing upholstery fabrics business and a recovering mattress fabrics business. We are committed to taking steps to position our business for renewed profitability in fiscal 2025, and we are confident in our ability to leverage our competitive advantages, including our innovative product offerings, creative designs, global manufacturing and sourcing platform, and solid financial management, to support our future growth, especially when market conditions improve," added Culp.

Business Segment Highlights

Mattress Fabrics Segment (“CHF”) Summary

• Sales for this segment were $30.0 million for the third quarter, up 21.6 percent compared with sales of $24.7 million in the third quarter of fiscal 2023.
• The higher sales, as compared to the prior-year period, were primarily driven by new fabric and sewn cover placements that are priced in line with current costs.
• Operating loss was $(1.6) million for the third quarter, a significant improvement compared to the $(4.2) million operating loss in the prior-year period. This reduction in losses was driven by higher sales, coming mostly from better pricing and a more favorable product mix. These factors were partially offset by production inefficiencies relating to the start up of certain new product launches, as well as higher SG&A business investments during the period.

Upholstery Fabrics Segment (“CUF”) Summary

• Sales for this segment were $30.4 million for the third quarter, up 9.2 percent compared with sales of $27.8 million in the third quarter of fiscal 2023.
• Sales for CUF's residential fabric business were higher than the prior-year period, driven by improved residential home furnishing sales, as well as the timing of the Chinese New Year holiday (which this year fell primarily in the fourth quarter, rather than the third quarter).
• Sales for CUF's hospitality/contract business were moderately lower than the prior-year period due primarily to the impact of winter weather events and short-term supply chain issues that affected production in our Read Window business, as well as some impact from increased construction costs affecting demand for new and ongoing hospitality/contract projects. Sales for the hospitality/contract business accounted for approximately 26 percent of CUF's total sales during the quarter.
• Operating income was $2.1 million for the third quarter, up significantly compared with an operating loss of $(420,000) in the third quarter of fiscal 2023. Operating margin for the third quarter was 6.9 percent, again a significant improvement compared to the prior-year period. Operating performance for the third quarter was positively affected by higher sales volume; a more profitable mix of sales; a more favorable foreign exchange rate associated with CUF's operations in China; and lower fixed costs resulting from the previous restructuring of CUF's cut and sew platforms. These factors were partially offset by higher SG&A business investments during the period.

Balance Sheet, Cash Flow, and Liquidity

• As of January 28, 2024, the company reported $12.6 million in total cash and no outstanding debt.
• Cash flow from operations and free cash flow were negative $(6.0) million and negative $(8.2) million, respectively, for the first nine months of fiscal 2024. (See reconciliation table at the back of this press release.) As expected, the company’s cash flow from operations and free cash flow during the period were affected by operating losses and planned strategic investments in capital expenditures mostly related to the CHF transformation plan.
• Capital expenditures for the first nine months of fiscal 2024 were $3.2 million. The company continues to manage capital investments, focusing on projects that will increase efficiencies and improve quality, especially for the CHF segment.
• As of January 28, 2024, the company had approximately $38.8 million in liquidity, consisting of $12.6 million in total cash and $26.2 million in borrowing availability under the company's domestic credit facility.

Share Repurchases

The company did not repurchase any shares during the third quarter of fiscal 2024, leaving approximately $3.2 million available under the current share repurchase program as of January 28, 2024. Despite the current share repurchase authorization, the company does not expect to repurchase any shares during the fourth quarter of fiscal 2024.

Financial Outlook

• Due to the uncertainty in the macro-environment, the company is only providing financial guidance for the fourth quarter of fiscal 2024. The company’s consolidated net sales for the fourth quarter are expected to be lower as compared to the fourth quarter of fiscal 2023. This is due partly to the timing of the Chinese New Year holiday (which this year falls primarily in the fourth quarter, as compared to the third quarter last year), as well as weakness in the industry demand environment that is expected to pressure sales in both of the company's business segments, especially in the residential upholstery fabrics business. The company also expects a consolidated operating loss (loss from operations) for the fourth quarter of fiscal 2024 that is comparable to the fourth quarter of fiscal 2023.
• The company’s expectations are based on information available at the time of this press release and reflect certain assumptions by management regarding the company’s business and trends and the projected impact of the ongoing headwinds.

Conference Call

Culp, Inc. will hold a conference call to discuss financial results for the third quarter of fiscal 2024 on March 7, 2024, at 11:00 a.m. Eastern Time. A live webcast of this call can be accessed on the “Upcoming Events” section on the investor relations page of the company’s website, www.culp.com. A replay of the webcast will be available for 30 days under the “Past Events” section on the investor relations page of the company’s website, beginning at 2:00 p.m. Eastern Time on March 7, 2024.

About the Company

Culp, Inc. is one of the world’s largest marketers of mattress fabrics for bedding and upholstery fabrics for residential and commercial furniture. The company markets a variety of fabrics to its global customer base of leading bedding and furniture companies, including fabrics produced at Culp’s manufacturing facilities and fabrics sourced through other suppliers. Culp has manufacturing and sourcing capabilities located in the United States, Canada, China, Haiti, Turkey, and Vietnam.

Forward Looking Statements

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, projections, or trends for our future operations, strategic initiatives and plans, production levels, new product launches, sales, profit margins, profitability, operating income, capital expenditures, working capital levels, cost savings, 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 dividends, share repurchases, liquidity, use of cash and cash requirements, borrowing capacity, investments, potential acquisitions, future economic or industry trends, public health epidemics, or future developments. There can be no assurance that we will realize these expectations or meet our 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, including changes in U.S. trade enforcement priorities, 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 the United States. Strengthening of the U.S. dollar against other currencies could make our products less competitive on the basis of price in markets outside the United States, and strengthening of currencies in Canada and China can have a negative impact on our sales of products produced in those places. In addition, because our foreign operations use the U.S. dollar as their functional currency, changes in the exchange rate between the local currency of those operations and the U.S dollar can affect our reported profits from those foreign operations. Also, economic or political instability in international areas could affect our operations or sources of goods in those areas, as well as demand for our products in international markets. The impact of public health epidemics on employees, customers, suppliers, and the global economy, such as the global coronavirus pandemic currently affecting countries around the world, could also adversely affect our operations and financial performance. In addition, the impact of potential asset impairments, including impairments of property, plant, and equipment, inventory, or intangible assets, as well as the impact of valuation allowances applied against our net deferred income tax assets, could affect our financial results. Increases in freight costs, labor costs, and raw material prices, including increases in market prices for petrochemical products, can also significantly affect the prices we pay for shipping, labor, and raw materials, respectively, and in turn, increase our operating costs and decrease our profitability. Finally, our success in diversifying our supply chain with reliable partners to effectively service our global platform could affect our operations and adversely affect our financial results. Further information about these factors, as well as other factors that could affect our future operations or financial results and the matters discussed in forward-looking statements, is included in Item 1A “Risk Factors” in our most recent Form 10-K and Form 10-Q reports filed with the Securities and Exchange Commission. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations and financial results.