Culp, Inc. Reports Operating Results for First Quarter

September 5, 2024  by Karen Parrish in Business Strategy, Industry   

Fiscal 2025 First Quarter Financial Highlights

• Consolidated net sales of $56.5 million
  - up 14.2% compared sequentially to last quarter
  - sequentially, upholstery fabrics segment sales up 19.7% and inventory down 4.6%, mattress fabrics segment sales up 9.0% and inventory down 8.6%
• Year-over-year and sequential operating improvement in upholstery fabrics segment

- segment operating income of $1.7 million, up 28.9% year-over-year and 75.6%         sequentially

- segment operating margin of 6.0% for the quarter

• GAAP consolidated loss from operations of $(6.9) million (includes $2.7 million in restructuring expense and related charges)

- Non-GAAP loss from operations of $(4.1) million

- Operating performance for the quarter affected by manufacturing inefficiencies primarily related to the significant restructuring activity underway in the mattress fabrics segment

• $13.5 million in cash, $4.0 million in outstanding borrowings used to fund worldwide working capital and restructuring initiatives

- Stable net cash position of $9.5 million (see reconciliation table on page 8), with

only $560,000 use of cash since end of fiscal 2024 despite significant restructuring      activity

Financial Outlook

• Due to the significant restructuring activity underway, the company is only providing limited financial guidance at this time.

- Consolidated net sales for second quarter expected to be flat sequentially

- As a result of the restructuring initiatives, currently expect to return to near break-even adjusted EBITDA (excluding restructuring and related charges) in the second quarter of fiscal 2025, and to return to positive consolidated adjusted operating income (excluding restructuring and related charges) in the third quarter of fiscal 2025.

• 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 restructuring actions and ongoing external headwinds.

Iv Culp, President and Chief Executive Officer of Culp, Inc., said, "Our sales results for the first quarter reflected strong sequential improvement as compared to the fourth quarter of last fiscal year, with mattress fabrics sales up 9.0% and upholstery fabrics sales up 19.7%. While we continue to experience challenged macro industry conditions, our sequential sales growth was better than expected, and year-over-year consolidated sales were flat despite the overall industry weakness.

"Our upholstery fabrics segment also delivered a significant improvement in operating income, both year-over-year and sequentially, with 6.0% operating margins for the quarter. The strategic actions we have taken in this segment are working, as we have reduced our cost structure while maintaining and enhancing our ability to grow sales.”

“However, as expected, operating performance for our mattress fabrics segment was pressured by manufacturing inefficiencies primarily related to our significant restructuring activity. While this negatively and disproportionately affected operating performance for the quarter, our use of cash was minimal, with our net cash position only $560,000 lower as compared to the end of fiscal 2024. We are pleased that both segments reduced inventory from the end of fiscal 2024 despite the strong sequential increase in sales.”

"We are also encouraged by the progress of our restructuring initiatives. While mattress fabrics operating results are being pressured by these actions in the first half of the fiscal year, especially in the first quarter, we believe we are on schedule to deliver our targeted improvement outcomes, including a return to near break-even adjusted EBITDA in the second quarter and a return to positive consolidated adjusted operating income in the third quarter.”

“The restructuring is a significant undertaking that impacts people, plant consolidations, equipment relocation, and process improvements, but with it, we are successfully lowering our cost structure despite weak demand. We are extremely thankful for our dedicated employees as they execute our plan to return to profitable operating results post-restructuring.”

"Looking ahead, we are encouraged by (1) our solid and improving market positions in both businesses; (2) our consistently profitable upholstery fabrics business; (3) expected further improvement in our hospitality fabrics and Read Window businesses; and (4) the steady progress we are making to restructure our mattress fabrics business.”

“We anticipate industry conditions may remain pressured during fiscal 2025, although we also believe there is some stabilizing of industry trends. We expect the strategic actions we are taking will position us for a return to profitability at current demand levels and further growth opportunities as market conditions improve," added Culp.

Restructuring Update
The restructuring plan announced on May 1, 2024, primarily focused on the company's mattress fabrics segment, is progressing as planned. The consolidation of the company's sewn mattress cover operation in Haiti was completed during the first quarter, and the consolidation of the company's North American mattress fabrics operation is well underway (including the phased wind-down and closure of its manufacturing facility in Canada and move of certain knitting and finishing equipment to its facility in North Carolina).

The company still expects to generate $10.0 - $11.0 million in annualized savings and operating improvements after the restructuring initiatives are fully implemented by the end of the calendar year, with most of the restructuring benefit realized during the second half of fiscal 2025.

In addition, based on restructuring activities that have been completed along with updated estimates on those that remain in process, the company now expects to incur total restructuring and restructuring-related costs and charges of $5.1 million in fiscal 2025, of which $3.0 million is now expected to be cash expenditures. The company expects to fund approximately $2.0 million of the cash costs with proceeds from the sale of excess manufacturing equipment and proceeds from a building lease termination in Haiti.

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 reduce the amount of the restructuring charges incurred. The company is actively marketing and showing the real estate, and currently anticipates receiving approximately $9.0 to $10.0 million in cash proceeds (net of all taxes and commissions) from its eventual sale.

Conference Call

A replay of the conference call 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 September 5, 2024.