News Release Details

HIGH POINT, N.C.--(BUSINESS WIRE)--Dec. 4, 2023-- Culp, Inc. (NYSE: CULP) (together with its consolidated subsidiaries, “CULP”) today reported financial and operating results for the second quarter ended October 29, 2023.

Fiscal 2024 Second Quarter Financial Summary

• Net sales for the second quarter of fiscal 2024 were $58.7 million, up 0.6 percent compared with the prior-year period, with mattress fabrics sales up 19.6 percent, and upholstery fabrics sales down 14.9 percent.
• Loss from operations was $(2.2) million, compared with a loss from operations of $(11.9) million for the prior-year period (which included $6.7 million relating to certain inventory impairment and other charges and restructuring and related expenses during the period).
• Net loss was $(2.4) million, or $(0.19) per diluted share, compared with a net loss of $(12.2) million, or $(0.99) per diluted share, for the prior-year period. The effective tax rate for the second quarter was negative (27.0) 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 $15.2 million of total cash and no outstanding borrowings as of October 29, 2023. Total liquidity as of October 29, 2023, was $41.4 million (consisting of $15.2 million in cash and $26.2 million in borrowing availability under the company's domestic credit facility).
• Adjusted EBITDA for the period was close to break even at negative $(247,000), as compared to adjusted EBITDA of negative $(8.2) million for the prior-year period.

CEO Commentary

Commenting on the results, Iv Culp, president and chief executive officer of Culp, Inc., said, “We are pleased to report both sequential and year-over-year improvement in our consolidated sales and operating performance for the second quarter, a solid outcome considering the challenging macro environment for furniture and bedding. These results, which were in line with our expectations, reflect the strategic business transformation initiatives underway in both divisions that are focused on driving performance despite ongoing demand softness. In our mattress fabrics segment, we are increasing sales and gaining market position with new fabric and sewn cover placements. This segment also achieved a 90 percent improvement in its operating results as compared to the prior-year period, and a 33 percent improvement as compared sequentially to the prior quarter. This performance was driven by balanced inventory management, higher sales, better pricing and margin, and an ongoing focus by our strengthened leadership team on operational efficiencies across our locations. For our upholstery fabrics segment, as expected, sales for residential fabrics were lower than the prior-year period due to demand softness affecting the home furnishings industry. However, demand remained solid in our hospitality/contract business. The segment also saw a significant improvement in operating performance, driven by better inventory management, fixed cost savings, and other operational improvements.

“Additionally, we continued our focus on prudent financial management, including maintaining a strong balance sheet and ensuring a strategic level of working capital. We ended the quarter with $15.2 million in cash and no outstanding borrowings. We believe we are well positioned, and we are strategically investing in our business, especially within our mattress fabrics segment, to support future profitable sales growth and further improve operating efficiencies.

“As we enter the third quarter, we acknowledge that the various external headwinds and pressures on consumer spending for furniture and bedding products may remain for some time. However, our market position is strong and growing, and we are diligently focused on internal improvement initiatives that will enable us to withstand these industry conditions and position our business for renewed growth and profitability. Regardless of the current demand backdrop, we expect to continue on a path of sequential and year-over-year operating improvement, including a return to positive adjusted EBITDA in the third quarter. We also believe we are poised to return to consolidated operating profitability by the end of the fiscal year. We are well positioned with our innovative product offerings, creative designs, resilient global manufacturing and sourcing platform, strong leadership teams, and focused financial management. These hallmarks of our business will support us into the future, especially when market conditions improve,” added Culp.

Business Segment Highlights

Mattress Fabrics Segment (“CHF”) Summary

• Sales for this segment were $31.4 million for the second quarter, up 19.6 percent compared with sales of $26.2 million in the second 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. While the domestic mattress industry remains pressured, CHF continues to make gains with customers in a difficult market environment.
• Operating loss was $(936,000) for the second quarter, a 90 percent improvement compared to the $(9.0) million operating loss in the prior-year period (which included $5.0 million relating to certain inventory impairment charges and losses from inventory close out sales). This substantial reduction in losses was driven by balanced inventory management, higher sales, better pricing and margins, and improvement in operating efficiencies. These factors were partially offset by higher SG&A business investments during the period.

Upholstery Fabrics Segment (“CUF”) Summary

• Sales for this segment were $27.3 million for the second quarter, down 14.9 percent compared with sales of $32.2 million in the second quarter of fiscal 2023.
• Sales for CUF's residential fabric business were affected by ongoing softness in the residential home furnishings industry, where demand remains pressured by a challenging macro-economic environment. Demand remained solid for CUF’s hospitality/contract business, with sales for this business accounting for approximately 33 percent of CUF's total sales.
• Operating income was $1.4 million for the second quarter, up significantly compared with $262,000 in the second quarter of fiscal 2023 (which included approximately $1.0 million in higher-than-normal inventory markdowns). Operating margin for the second quarter was 5.1 percent, again a significant improvement compared to the prior-year period. Operating performance for the second quarter was positively affected by better inventory management; lower fixed costs resulting from the previous restructuring of CUF's cut and sew platforms; lower freight costs; and a more favorable foreign exchange rate associated with CUF's operations in China. These factors were partially offset by lower residential fabric sales and higher SG&A business investments during the period.

Balance Sheet, Cash Flow, and Liquidity

• As of October 29, 2023, the company reported $15.2 million in total cash and no outstanding debt.
• Cash flow from operations and free cash flow were negative $(4.5) million and negative $(5.6) million, respectively, for the first six 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 six months of fiscal 2024 were $2.0 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 October 29, 2023, the company had approximately $41.4 million in liquidity, consisting of $15.2 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 second quarter of fiscal 2024, leaving approximately $3.2 million available under the current share repurchase program as of October 29, 2023. Despite the current share repurchase authorization, the company does not expect to repurchase any shares during the third quarter of fiscal 2024.

Financial Outlook

• CULP achieved sequential and year-over-year improvement in its sales and operating results for the second quarter of fiscal 2024. While the current macroeconomic conditions affecting consumer spending and demand trends are likely to continue for some period, the company remains well positioned, especially with the transformation strategy underway in its mattress fabrics division.
• Due to the uncertainty in the macro-environment, the company is only providing financial guidance for the third quarter of fiscal 2024. The company’s consolidated net sales for the third quarter are expected to be sequentially comparable to second quarter of fiscal 2024 and moderately higher as compared to the third quarter of fiscal 2023, even in the face of ongoing demand headwinds. The company expects a consolidated operating loss (loss from operations) for the third quarter of fiscal 2024 that is in the range of $(1.2) to $(1.6) million, sequentially improved from the previous quarter's results, and a significant improvement compared to the $(7.8) million operating loss for the prior-year period (which included $711,000 in restructuring expense).
• 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 second quarter of fiscal 2024 on December 5, 2023, 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 December 5, 2023.

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, disruption in our customers’ supply chains for non-fabric components may cause declines in new orders and/or delayed shipping of existing orders while our customers wait for other components, which could 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.