Culp, Inc. Releases Fourth Quarter and Fiscal Year Results

July 2, 2023  by HFBusiness Staff in Business Strategy, Industry   

Fiscal 2023 Fourth Quarter Financial Summary

~ Net sales for the fourth quarter of fiscal 2023 were $61.4 million, up 7.9 percent compared with the prior-year period, with mattress fabrics sales up 3.1 percent and upholstery fabrics sales up 13.1 percent. Sequentially, net sales were up 17.0 percent compared with the third quarter of fiscal 2023, with mattress fabrics sales up 24.3 percent and upholstery fabrics sales up 10.4 percent.

~ Loss from operations for the quarter was $(4.0) million, as compared with loss from operations of $(5.4) million for the prior-year period and loss from operations of $(7.8) million for the third quarter of fiscal 2023 (which included $711,000 in restructuring expense).

~ Net loss was $(4.7) million, or $(0.38) per diluted share, compared with a net loss of $(6.0) million, or $(0.49) per diluted share, for the prior-year period. The effective tax rate for the fourth quarter was negative (20.6) percent, reflecting the company’s mix of taxable income between its U.S. and foreign jurisdictions during the period.

~ The company maintained a solid balance sheet, with total cash of $21.0 million and no outstanding borrowings as of April 30, 2023, up sequentially from total cash of $16.7 million as of the end of the third quarter.

Fiscal 2023 Full Year Financial Summary

~ Net sales for fiscal 2023 were $234.9 million, down 20.3 percent from the prior year, with mattress fabrics sales down 27.1 percent and upholstery fabrics sales down 13.1 percent.

~ Loss from operations for fiscal 2023 was $(28.5) million, compared with income from operations of $678,000 for the prior year.

~ The loss from operations for fiscal 2023 includes approximately $9.9 million relating to certain inventory impairment charges, losses from inventory close out sales, inventory markdowns, and restructuring expense and related charges during the period.

~ Net loss was $(31.5) million, or $(2.57) per diluted share, compared with net loss of $(3.2) million, or $(0.26) per diluted share, for the prior year. The effective tax rate for fiscal 2023 was negative (11.0) percent, reflecting the company’s mix of taxable income between its U.S. and foreign jurisdictions during the period.

~ Cash flow from operations and free cash flow were $7.8 million and $6.9 million, respectively, for fiscal 2023, compared with cash flow from operations and free cash flow of negative $(17.4) million and negative $(24.3) million, respectively, for the prior fiscal year. (See reconciliation table at the back of this press release.)

Financial Outlook

~ CULP achieved sequential and year-over-year improvement in its operating results for the fourth quarter of fiscal 2023 and remains well-positioned for the long term, especially with the transformation strategy underway in its mattress fabrics division. However, current macro conditions affecting consumer spending and demand trends are likely to continue for some period.

Due to the continued volatility in the macro environment, the company is providing only limited financial guidance for the first quarter of fiscal 2024. The company’s consolidated net sales for the first quarter are expected to be slightly lower compared to the first quarter of fiscal 2023, due mostly to current softness in the residential home furnishings industry, as well as some slowing of demand and the timing of additional new program launches in the mattress fabrics segment. Despite the sales pressure, the company expects a consolidated operating loss (loss from operations) for the first quarter of fiscal 2024 that is in the range of $(3.5) to $(4.0) million, a solid improvement compared to the $(4.7) million operating loss for the prior-year period.|

~ 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.

Commenting on the results, Iv Culp, president and chief executive officer of Culp, Inc., said, "Our sales and operating results for the fourth quarter were better than expected, with solid improvement despite ongoing demand softness in the domestic mattress and residential home furnishings industries.”

“The strong sequential improvement in our mattress fabrics segment was driven primarily by the roll out of new customer programs during the period, which were priced in line with current costs and are expected to grow this segment's market position in fiscal 2024.”

“The mattress fabrics business also began to benefit from some improvement in operational efficiencies and cost reduction initiatives across our locations. For the upholstery fabrics segment, demand remained solid in our hospitality/contract business, and our residential fabrics business improved due to a seasonal pick up following third-quarter shutdowns for the Chinese New Year holiday, as well as a non-recurring payment relating to newly negotiated terms with a customer.”

Culp continued, "We are especially pleased with our continued focus on cash generation and working capital management, including inventory reductions, throughout the quarter. We ended the year with a higher cash position than the prior year, with $21.0 million in cash and no outstanding borrowings. We also generated cash flow from operations of $7.8 million and free cash flow of $6.9 million for fiscal 2023, a significant improvement compared to the prior fiscal year.”

"We continue to diligently manage the aspects of our business we can control, taking necessary steps to withstand current market challenges and position our business for renewed growth. In our mattress fabrics segment, we are executing on our comprehensive business transformation plan, laying the foundation for steady, sequential improvement in this business with new leadership and a restructured management team.”

“While the pace of this improvement could be affected by recovery in the overall macroeconomic environment, we believe we are gaining market share with new program rollouts, and we are optimistic about additional program launches expected during calendar 2023. In our upholstery fabrics segment, the residential home furnishings industry remains under pressure due to shifting consumer spending trends and inflation affecting overall consumer spending.”

“However, for fiscal 2024, we expect to benefit from improved inventory management, a solid hospitality/contract fabric business, improvement in our Read Window business, and a rationalized cut and sew platform.”

Culp concluded, "Fiscal 2023 was a difficult year, but we navigated the challenges and maintained our balance sheet strength. Our strong balance sheet allows us to focus on investing in our global manufacturing platform and growing profitable sales. We are especially thankful for the hard work and perseverance of our associates around the world in executing our product-driven strategy and meeting the needs of our customers this year.”

“While we expect demand softness in the mattress and residential home furnishings industries will continue, our market position is strong, and we are diligently focused on achieving sustainable improvement and returning to profitability in fiscal 2024. We are well positioned for the long term, and our innovative product offerings, creative designs, and global manufacturing and sourcing platform will support us into the future, especially when market conditions improve," added Culp.