Culp, Inc. Announces Restructuring Plan with Updated Outlook

May 2, 2024  by HFBusiness Staff in Business Strategy, Industry   

• Consolidating the company’s North American mattress fabrics operations, including a phased wind-down and closure of the company’s manufacturing plant in Quebec, Canada, and moving knitting and finishing capacity from this plant to the company’s facility in Stokesdale, North Carolina;
• Improving efficiency and through-put by optimizing volume and equipment in the company’s mattress fabrics operation in Stokesdale, North Carolina, to reduce costs and improve quality;
• Transitioning the mattress fabrics segment’s weaving operation to a strategic sourcing model through the company’s long standing supply partners, enhancing competitiveness and value for customers;
• Consolidating the company’s Haiti sewn mattress cover operation (which is located on the Dominican Republic/Haiti border) into one building and significantly reducing operating expenses at that location;
• Restructuring the company’s upholstery fabrics finishing operation in China to align with current demand and continuing to leverage strategic supply relationships; and
• Reducing unallocated corporate and shared services expenses with targeted annualized savings of $1.5 million.

The implementation of these restructuring actions will begin immediately and is expected to be mostly completed by the end of the calendar year.

Iv Culp, president and chief executive officer of Culp, Inc., said, “Our industry faces unprecedented challenges, including macro-economic headwinds pressuring consumer discretionary spending and housing markets, as well as changes in consumer spending patterns. Through the third quarter of fiscal 2024, we were pleased with the sequential improvement we were making in a tough demand environment, especially the approximately 20.0 percent year-over-year revenue growth in our mattress fabrics segment during both the second and third quarter of the fiscal year.”

“However, the industry demand backdrop in both of our businesses experienced significant deterioration during the fourth quarter of fiscal 2024, with much of our customer base advising of sales declines of at least 20 percent. These challenges have reduced demand for our products, resulting in excess capacity and an unsustainable cost structure at current volume levels within our mattress fabrics business.”

“With no ascertainable catalysts that might be expected to drive industry recovery in the near term, we now believe the operating environment will remain pressured for some time. As a result, we are taking aggressive action to bring our manufacturing costs and capacity in line with current and expected demand trends. Importantly, the changes we are making to remove redundancies and transition to a more agile model will not hinder our ability to grow our business going forward, but they will enable us to grow more efficiently and profitably with a lower level of fixed assets.”

“Overall, these restructuring actions will reduce the number of associates in our mattress fabrics segment by approximately 240 people, representing around 35 percent of the segment’s total workforce. By taking these steps, we believe we can substantially reduce our fixed costs without materially impacting our top-line sales and without sacrificing our ability to support our customers, grow our business, and maintain our competitive advantage. We also believe these steps will enable us to optimize resources, improve quality, leverage our strong global strategic partnerships, bolster our balance sheet, and ensure a solid foundation for accelerated growth. We are diligently focused on returning our business to profitability, while growing our innovative product portfolio to enhance customer and shareholder value.”

“Although these are very difficult decisions, they are necessary steps for CULP to ensure a sustainable business model and return to profitability in this lower demand environment. We sincerely regret the impact on our affected employees, but we remain confident in the company’s future,” added Culp.

Financial Impact
In total, the restructuring plan is expected to generate $10.0 - $11.0 million in annualized cost savings and operating improvements when fully implemented by the end of the calendar year, with most of the resulting benefit realized during the second half of the fiscal year.

The company expects to incur restructuring and restructuring-related costs and charges of approximately $8.0 million, of which $2.6 million are anticipated to be incurred in the first quarter of fiscal 2025, and the remainder are expected to be incurred over the course of fiscal 2025. This includes approximately $2.5 million in cash costs, the majority of which are anticipated to be incurred in the first half of fiscal 2025.

The company expects to fund these cash costs with the sale of manufacturing equipment. These restructuring and restructuring-related costs and charges exclude any gain on the sale of real estate, the amount and timing of which is currently unknown, but which will ultimately be recorded within restructuring expense and will reduce the amount of the restructuring charges incurred.

The company currently anticipates receiving at least $10.0 to $12.0 million in cash proceeds (net of all taxes and commissions) from the sale of real estate under the restructuring plan. Assuming the completion of all of these restructuring actions and the sale of associated real estate by the end of fiscal 2025, the company currently projects its cash and cash equivalents as of the end of fiscal 2025 to be higher than its cash and cash equivalents as of the end of fiscal 2024.

Updated Financial Outlook for the Fourth Quarter of Fiscal 2024
In addition, the company is updating its previously stated financial outlook for the fourth quarter of fiscal 2024. Due to further weakness in industry demand, the company’s consolidated net sales for the fourth quarter are now expected to be approximately 19.0 percent lower as compared to the fourth quarter of fiscal 2023.

The company also now expects a consolidated operating loss (loss from operations) for the fourth quarter of fiscal 2024 in the range of $(4.2) million to $(4.7) million. Additionally, the company expects to end the fiscal year with approximately $10.0 million in cash and cash equivalents and no outstanding borrowings. The financial results for the fourth quarter and full fiscal 2024 year will be released on or about June 26, 2024.