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Culp, Inc. Reports Financial & Operating Results for Third Quarter

March 6, 2024  by HFBusiness Staff in Business Strategy, Industry   

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 short-term 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.