Culp Announces Revised Expectations, Anticipated Non-Cash Intangible Asset Impairment Charges, for Third Quarter Fiscal 2020
The home accessories segment, which sells bedding accessories and home goods directly to consumers and businesses, is expected to meet the company’s previously announced outlook for an improvement in operating loss for the third quarter. This progression reflects continued sequential improvement compared to the first and second quarters of fiscal 2020. However, in connection with the company’s quarterly assessment of the fair value of its acquisition-related contingent earnout consideration arrangement and the future outlook for this segment, management determined it was necessary to adjust the forecasted EBITDA performance relating to this recorded liability. This determination was based on slower than expected business improvement and updated assumptions on economic conditions in the e-commerce space, combined with the upcoming timeframe for determining the contingent earnout payment obligation. The adjustment resulted in a reversal of the full
Additionally, in accordance with Accounting Standards Codification (ASC) Topic 350, the company is required to assess its goodwill and other indefinite-lived intangible assets for impairment at the end of each fiscal year or between annual tests if events or changes in circumstances indicate the carrying value of the asset may not be recovered. As a result of the slower pace of growth for the home accessories segment and changes in future growth assumptions for this business based on current economic conditions in the e-commerce space, management determined that impairment indicators existed. Accordingly, this determination required an interim assessment of the goodwill and other intangible assets for the home accessories segment. Based on the initial assessment conducted, the company expects to record non-cash impairment charges of approximately
Commenting on the announcement, Iv Culp, chief executive officer of
The company is also updating its outlook for the fourth quarter of fiscal 2020, with current expectations for overall sales and profitability for the quarter to be slightly better than the results achieved in the fourth quarter of fiscal 2019. This projected outlook for the fourth quarter is adjusted from the previously announced outlook for overall performance to be significantly better than the prior year period. The company now projects mattress fabrics sales for the fourth quarter of fiscal 2020 to be slightly lower than the prior-year period. However, expectations are still for all three business segments to have improved profitability in the fourth quarter of fiscal 2020 as compared to the fourth quarter of fiscal 2019, assuming the coronavirus outbreak in
“Although we are disappointed with the third quarter financial results and revised expectations for the fourth quarter, the company remains well-positioned for the long term with our creative designs, innovative products, efficient global platform, and diversified sales channels, both domestically and in Asia,” said
The company expects to report its complete financial and operating results for the third quarter and fiscal 2020 in early March.
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
Reconciliation of Projected Pre-Tax Loss (GAAP) to |
||
Projected Adjusted Pre-Tax Income (non-GAAP) |
||
For Three Months Ended February 2, 2020 |
||
(Unaudited) |
||
(in thousands, rounded) |
||
|
February 2, 2020 |
|
Range of Projected Pre-Tax Loss (GAAP) |
$(5,400) – $(5,100) |
|
Gain on reversal of contingent consideration – earnout obligation |
6,100 |
|
Goodwill impairment (home accessories segment) (1) |
(11,200) |
|
Other intangible asset (trademark & tradename) impairment (home accessories segment) (1) |
(2,400) |
|
Range of Projected Adjusted Pre-Tax Income (non-GAAP) |
$2,200 - $2,500 |
|
(1) |
Based on initial impairment assessment for the home accessories segment. The company is in the process of finalizing the impairment analysis and expects it to be completed in time for the company’s third quarter earnings release. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20200218005520/en/
Source:
Kenneth R. Bowling
Chief Financial Officer
336-881-5630