CULP Culp Inc

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): September 04, 2024

 

 

Culp, Inc.

(Exact name of Registrant as Specified in Its Charter)

 

 

North Carolina			1-12597	56-1001967
(State or Other Jurisdiction of Incorporation)			(Commission File Number)	(IRS Employer Identification No.)
1823 Eastchester Drive
High Point, North Carolina				27265
(Address of Principal Executive Offices)				(Zip Code)

 

Registrant’s Telephone Number, Including Area Code: 336 889-5161

 

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock, par value $0.05 per share		CULP		The New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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This report and the exhibits attached hereto contain “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. 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,” “will,” “may,” “should,” “could,” “potential,” “continue,” “target,” “predict”, “seek,” “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, restructuring actions, production levels, new product launches, sales, profit margins, profitability, operating (loss) income, capital expenditures, working capital levels, cost savings (including, without limitation, anticipated cost savings from restructuring actions), income taxes, SG&A or other expenses, pre-tax (loss) 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, restructuring and restructuring-related charges, expenses, and/or credits, 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 recent coronavirus pandemic, 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. Also, our success in diversifying our supply chain with reliable partners to effectively service our global platform could affect our operations and adversely affect our financial results. Finally, the future performance of our business also depends on our ability to successfully restructure our mattress fabric operations and return the segment to profitability. 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.

 

Many of these factors are macroeconomic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this report and the exhibits attached

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hereto as anticipated, believed, estimated, expected, intended, planned or projected. The forward-looking statements included in this report and the exhibits attached hereto are made only as of the date of of this report. Unless required by United States federal securities laws, we neither intend nor assume any obligation to update these forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations. 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 or financial results.

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Item 2.02 – Results of Operations and Financial Condition

On September 4, 2024, we issued a news release to announce our financial results for our first quarter ended July 28, 2024. A copy of the news release is attached hereto as Exhibit 99.1.

The information set forth in this Item 2.02 of this Current Report, and in Exhibit 99.1, is intended to be “furnished” under Item 2.02 of Form 8-K. Such information shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.

The news release contains adjusted income statement information for the three month periods ending July 28, 2024, and July 30, 2023, respectively, which disclose adjusted loss from operations, a non-U.S. GAAP performance measure that eliminates items which are not expected to occur on a recurring or regular basis. For the three month period ending July 28, 2024, these items include, as applicable for the period presented, restructuring related charges and restructuring expense associated with the gradual discontinuation of the mattress fabrics manufacturing operations in Quebec, Canada, the process of selling the facility located in Quebec, Canada, and the relocation of certain equipment from Quebec, Canada, to Stokesdale, North Carolina; restructuring expense associated with consolidation of the mattress fabrics sewn cover operation in Haiti from two buildings into one building; and restructuring expense associated with the rationalization of the upholstery fabrics finishing operation located in Shanghai, China. For the three month period ending July 30, 2023, these items include, as applicable for the period presented, restructuring related charges and restructuring expense associated with the discontinued production of cut and sewn upholstery kits in Ouanaminthe, Haiti. The company has included this adjusted information in order to show operational performance excluding the effects of items not expected to occur on a recurring or regular basis. Details of these calculations and a reconciliation to information from our U.S. GAAP financial statements are set forth in the news release. Management believes this presentation aids in the comparison of financial results among comparable financial periods. Management uses adjusted income statement information in evaluating the financial performance of our overall operations and business segments. Also, adjusted income statement information is used as a performance measure in our incentive-based executive compensation program. We note, however, that this adjusted income statement information should not be viewed in isolation or as a substitute for loss from operations calculated in accordance with U.S. GAAP.

The news release contains disclosures about our net cash, which is a non-U.S. GAAP liquidity measure that we define as cash and cash equivalents (which we sometimes refer to as “cash”) plus investments that are available to fund operations minus the total amount of outstanding borrowings under our lines of credit or other debt instruments. Details of these calculations and a reconciliation to information from our U.S. GAAP financial statements are set forth in the news release. We believe this non-GAAP measure is useful to investors as it provides a way to compare our cash position across periods on a consistent basis, regardless of the impact of financing activities. Net cash should not be viewed in isolation by investors and should not be used as a substitute for GAAP measures of liquidity.

The news release contains disclosures about free cash flow, a non-U.S. GAAP liquidity measure that we define as net cash (used in) provided by operating activities, less cash capital expenditures and any payments on vendor-financed capital expenditures, plus any proceeds from sale of property, plant, and equipment, plus proceeds from note receivable, plus proceeds from the sale of investments associated with our rabbi trust, less the purchase of investments associated with our rabbi trust, and plus or minus the effects of foreign currency exchange rate changes on cash and cash equivalents, in each case to the extent any such amount is incurred during the period presented. Details of these calculations and a reconciliation to information from our U.S. GAAP financial statements are set forth in the news release. Management believes the disclosure of free cash flow provides useful information to investors because it measures our available cash flow for potential debt repayment, stock repurchases, dividends, additions to cash and investments, or other corporate purposes. We note, however, that not all of the company’s free cash flow is available for discretionary spending, as we may have mandatory debt payments and other cash requirements that must be deducted from our cash available for future use. In operating our business, management uses free cash flow to make decisions about what commitments of cash to make for operations, such as capital expenditures (and possible financing arrangements for these expenditures), purchases of inventory or supplies, SG&A expenditure levels, compensation, and other commitments of cash, while still allowing for adequate cash to meet known future commitments for cash, such as debt repayment, and also for making decisions about dividend payments and share repurchases.

The news release contains disclosures about our Adjusted EBITDA, which is a non-U.S. GAAP performance measure that reflects net (loss) income excluding income tax expense (benefit), net interest income, and restructuring expense or credit and restructuring related charges or credits, as well as depreciation and amortization expense, and stock-based compensation expense. This measure also excludes other non-recurring charges and credits associated with our business, if and to the extent any such amount is incurred during the period presented. Details of these calculations

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and a reconciliation to information from our U.S. GAAP financial statements are set forth in the news release. We believe presentation of Adjusted EBITDA is useful to investors because earnings before interest income and expense, income taxes, depreciation and amortization, and similar performance measures that exclude certain charges from earnings, are often used by investors and financial analysts in evaluating and comparing companies in our industry. We note, however, that such measures are not defined uniformly by various companies, with differing expenses being excluded from net income to calculate these performance measures. For this reason, Adjusted EBITDA should not be viewed in isolation by investors and should not be used as a substitute for net income (loss) calculated in accordance with GAAP, nor should it be used for direct comparisons with similarly titled performance measures reported by other companies. Use of Adjusted EBITDA as an analytical tool has limitations in that this measure does not reflect all expenses that are necessary to fund and operate our business, including funds required to pay taxes, service our debt, and fund capital expenditures, among others. Management uses Adjusted EBITDA to help it analyze the company’s earnings and operating performance, by excluding the effects of expenses that depend upon capital structure and debt level, tax provisions, and non-cash items such as depreciation, amortization and stock-based compensation expense that do not require immediate uses of cash.

The news release contains disclosures about return on capital employed for both the entire company and for individual business segments. We define return on capital employed as adjusted operating income (loss) (measured on a trailing twelve-month basis) divided by average capital employed (excluding intangible assets related to acquisitions at the divisional level only). Adjusted operating income (loss) excludes certain charges or credits that are not expected to occur on a recurring or regular basis, if applicable for the period presented. Average capital employed is calculated over rolling five fiscal periods, depending on which quarter is being presented. Details of these calculations and a reconciliation to information from our U.S. GAAP financial statements are set forth in the news release. We believe return on capital employed is an accepted measure of earnings efficiency in relation to capital employed, but it is a non-U.S. GAAP performance measure that is not defined or calculated in the same manner by all companies. This measure should not be considered in isolation or as an alternative to net income (loss) or other performance measures, but we believe it provides useful information to investors by comparing the adjusted operating income (loss) we produce to the net asset base used to generate that income (loss). Also, adjusted operating income (loss) on a trailing twelve-months basis does not necessarily indicate results that would be expected for the full fiscal year or for the following twelve months. We note that, particularly for return on capital employed measured at the segment level, not all assets and expenses are allocated to our operating segments, and there are assets and expenses at the corporate (unallocated) level that may provide support to a segment’s operations and yet are not included in the assets and expenses used to calculate that segment’s return on capital. Thus, the average return on capital employed for the company’s segments will generally be different from the company’s overall return on capital employed. Management uses return on capital employed to evaluate the company’s earnings efficiency and the relative performance of its segments.

Item 7.01 Regulation FD Disclosure

On September 4, 2024, we posted a restructuring presentation to our website at https://culpinc.gcs-web.com/ (the "Restructuring Presentation"). A copy of the Restructuring Presentation is furnished as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated into this Item 7.01 by reference. We expect to use the Restructuring Presentation from time to time, in whole or in part, and possibly with modifications, in connection with presentations to investors, analysts, and others.

The information contained in the Restructuring Presentation is summary information that should be considered within the context of the company's filings with the Securities and Exchange Commission ("SEC") and other public announcements the company may make by press release or otherwise from time to time. The Restructuring Presentation speaks only as of the date of this Current Report on Form 8-K. We undertake no duty or obligation to publicly update or revise the information contained in the Restructuring Presentation, including, without limitation, any targets, estimates, goals, or other forward-looking statements, although we may do so from time to time. Any such updating may be made through the filing of other reports or documents with the SEC, through press releases, or through other public disclosure.

The Restructuring Presentation contains statements intended as "forward-looking statements" that are subject to the cautionary statements about forward-looking statements set forth on page 2 of the Restructuring Presentation. By furnishing the information contained in this Current Report on Form 8-K, including Exhibit 99.2, we make no admission as to the materiality of any such information.

The information in this Current Report on Form 8-K, including Exhibit 99.2, is being furnished and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),

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or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference to such filing.

Item 9.01 (d) – Exhibits

 

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EXHIBIT INDEX

 

Exhibit Number		Exhibit
99.1		News Release dated September 4, 2024
99.2		Restructuring Presentation
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

 

		CULP, INC. (Registrant)
		By:	/s/ Kenneth R. Bowling
			Chief Financial Officer
			(principal financial officer and principal accounting officer)

 

 

Dated September 4, 2024

 

 

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CULP ANNOUNCES RESULTS FOR FIRST QUARTER FISCAL 2025, HIGHLIGHTED BY

A 14.2% SEQUENTIAL INCREASE IN SALES AND STABLE CASH POSITION;

PROVIDES UPDATE ON RESTRUCTURING AND IMPROVED FINANCIAL OUTLOOK

 

 

HIGH POINT, N.C. (September 4, 2024) ─ Culp, Inc. (NYSE: CULP) (together with its consolidated subsidiaries, “CULP”) today reported financial and operating results for the first quarter ended July 28, 2024.

 

Fiscal 2025 First Quarter Financial Highlights

 

- 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%

 

- 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

 

- Non-GAAP loss from operations of $(4.1) million (see reconciliation table on page 12)

- Operating performance for the quarter affected by manufacturing inefficiencies primarily

related to the significant restructuring activity underway in the mattress fabrics segment

 

- 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

 

- 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.

 

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

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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.

 

First Quarter Fiscal 2025 Results versus First Quarter Fiscal 2024 Results

 

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Business Segment Highlights

 

Mattress Fabrics Segment (“CHF”)

 

 

 

 

Upholstery Fabrics Segment (“CUF”)

 

 

 

 

 

Balance Sheet, Cash Flow, and Liquidity

 

 

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Conference Call

 

Culp, Inc. will hold a conference call to discuss financial results for the fiscal 2025 first quarter on Thursday, September 5, 2024, at 9:00 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 September 5, 2024.

 

Investor Relations Contact

 

Ken Bowling, Executive Vice President, Chief Financial Officer, and Treasurer:

(336) 881-5630

krbowling@culp.com

 

About the Company

 

Culp, Inc. is one of the largest marketers of mattress fabrics for bedding and upholstery fabrics for residential and commercial furniture in North America. 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. 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,” “will,” “may,” “should,” “could,” “potential,” “continue,” “target,” “predict”, “seek,” “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, restructuring actions, production levels, new product launches, sales, profit margins, profitability, operating (loss) income, capital expenditures, working capital levels, cost savings (including, without limitation, anticipated cost savings from restructuring actions), income taxes, SG&A or other expenses, pre-tax (loss) 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, restructuring and restructuring-related charges, expenses, and/or

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credits, 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 recent coronavirus pandemic, 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. Also, our success in diversifying our supply chain with reliable partners to effectively service our global platform could affect our operations and adversely affect our financial results. Finally, the future performance of our business also depends on our ability to successfully restructure our mattress fabric operations and return the segment to profitability. 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.

 

Many of these factors are macroeconomic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this release as anticipated, believed, estimated, expected, intended, planned or projected. The forward-looking statements included in this release are made only as of the date of this report. Unless required by United States federal securities laws, we neither intend nor assume any obligation to update these forward-looking statements for any reason after the date of this release to conform these statements to actual results or to changes in our expectations. 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 or financial results.

 

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CULP, INC.

CONSOLIDATED STATEMENTS OF NET LOSS

FOR THE THREE MONTHS ENDED JULY 28, 2024, AND JULY 30, 2023

Unaudited

(Amounts in Thousands, Except for Per Share Data)

 

		THREE MONTHS ENDED
		Amount												Percent of Sales
		(1)				(1)
		July 28,				July 30,				% Over				July 28,				July 30,
		2024				2023				(Under)				2024				2023
Net sales		$	56,537			$	56,662				(0.2	)%			100.0	%			100.0	%
Cost of sales (1)			(51,461	)			(49,577	)			3.8	%			91.0	%			87.5	%
Gross profit			5,076				7,085				(28.4	)%			9.0	%			12.5	%
Selling, general and administrative    expenses			(9,296	)			(9,829	)			(5.4	)%			16.4	%			17.3	%
Restructuring expense (2) (3)			(2,631	)			(338	)			678.4	%			4.7	%			0.6	%
Loss from operations			(6,851	)			(3,082	)			122.3	%			(12.1	)%			(5.4	)%
Interest expense			(28	)			—				100.0	%			(0.0	)%			—
Interest income			262				345				(24.1	)%			0.5	%			0.6	%
Other (expense) income			(404	)			96				(520.8	)%			(0.7	)%			0.2	%
Loss before income taxes			(7,021	)			(2,641	)			165.8	%			(12.4	)%			(4.7	)%
Income tax expense (4)			(240	)			(701	)			(65.8	)%			(3.4	)%			(26.5	)%
Net loss		$	(7,261	)		$	(3,342	)			117.3	%			(12.8	)%			(5.9	)%
Net loss per share - basic		$	(0.58	)		$	(0.27	)			114.8	%
Net loss per share - diluted		$	(0.58	)		$	(0.27	)			114.8	%
Average shares outstanding-basic			12,470				12,332				1.1	%
Average shares outstanding-diluted			12,470				12,332				1.1	%

 

 

Notes

 

(1) See page 12 for a Reconciliation of Selected Income Statement Information to Adjusted Results for the three months ending July 28, 2024, and July 30, 2023.

 

(2) During the three-month period ending July 28, 2024, restructuring expense of $2.6 million represents $2.5 million and $132,000, related to the mattress fabrics and upholstery fabrics segments, respectively. The $2.6 million of restructuring expense represents (i) $1.9 million related to the gradual discontinuation of operations and the process of selling the manufacturing facility located in Quebec, Canada, which includes $875,000 of additional depreciation related to the shortening of useful lives of equipment, employee termination benefits of $539,000, lease termination costs of $264,000, impairment charges and losses on the disposal of equipment totaling $95,000, and other associated costs of $90,000; (ii) $470,0000 related to the consolidation of two leased facilities at our mattress cover operation located in Ouanaminthe, Haiti, which includes lease termination costs of $406,000, employee termination benefits of $48,000, and other associated costs of $16,000; (iii) $167,000 of other associated costs related to the relocation of certain equipment from the mattress fabrics manufacturing facility located in Quebec, Canada to the U.S. facility located in Stokesdale, North Carolina; and (iv) $132,000 related to reducing costs within our upholstery fabrics segment which includes employee termination benefits of $102,000 and other associated costs of $30,000.

 

(3) Restructuring expense of $338,000 for the three-month period ending July 30, 2023, relates to the discontinuation of production of cut and sewn upholstery kits at our facility located in Ouanaminthe, Haiti and represents an impairment charge of $237,000 related mostly to certain machinery and equipment and $101,000 for employee termination benefits.

 

(4) Percent of sales column for income tax expense is calculated as a percent of loss before income taxes.

 

 

 

 

---

 

 

CONSOLIDATED BALANCE SHEETS

JULY 28, 2024, JULY 30, 2023, AND APRIL 28, 2024

Unaudited

(Amounts in Thousands)

 

		Amounts
		(Condensed)				(Condensed)												(Condensed)
		July 28,				July 30,				Increase (Decrease)								* April 28,
		2024				2023				Dollars				Percent				2024
Current assets
Cash and cash equivalents		$	13,472			$	16,812				(3,340	)			(19.9	)%		$	10,012
Short-term investments - rabbi trust			954				791				163				20.6	%			903
Accounts receivable, net			21,587				22,612				(1,025	)			(4.5	)%			21,138
Inventories			41,668				43,817				(2,149	)			(4.9	)%			44,843
Short-term note receivable			268				252				16				6.3	%			264
Current income taxes receivable			532				202				330				163.4	%			350
Assets held for sale			607				—				607				100.0	%			—
Other current assets			3,590				3,578				12				0.3	%			3,371
Total current assets			82,678				88,064				(5,386	)			(6.1	)%			80,881
Property, plant & equipment, net			30,476				34,929				(4,453	)			(12.7	)%			33,182
Right of use assets			4,483				7,466				(2,983	)			(40.0	)%			6,203
Intangible assets			1,782				2,158				(376	)			(17.4	)%			1,876
Long-term investments - rabbi trust			7,089				7,204				(115	)			(1.6	)%			7,102
Long-term note receivable			1,394				1,661				(267	)			(16.1	)%			1,462
Deferred income taxes			528				476				52				10.9	%			518
Other assets			709				944				(235	)			(24.9	)%			830
Total assets		$	129,139			$	142,902				(13,763	)			(9.6	)%		$	132,054
Current liabilities
Line of credit - China			4,017				—				4,017				100.0	%		-
Accounts payable - trade			26,540				26,468				72				0.3	%			25,607
Accounts payable - capital expenditures			56				257				(201	)			(78.2	)%			343
Operating lease liability - current			1,565				2,558				(993	)			(38.8	)%			2,061
Deferred compensation - current			954				791				163				20.6	%			903
Deferred revenue			1,600				1,026				574				55.9	%			1,495
Accrued expenses			6,097				6,615				(518	)			(7.8	)%			6,726
Accrued restructuring			633				10				623			N.M.					—
Income taxes payable - current			759				526				233				44.3	%			972
Total current liabilities			42,221				38,251				3,970				10.4	%			38,107
Operating lease liability - long-term			2,219				2,994				(775	)			(25.9	)%			2,422
Income taxes payable - long-term			2,180				2,710				(530	)			(19.6	)%			2,088
Deferred income taxes			6,449				5,864				585				10.0	%			6,379
Deferred compensation - long-term			6,946				6,966				(20	)			(0.3	)%			6,929
Total liabilities			60,015				56,785				3,230				5.7	%			55,925
Shareholders' equity			69,124				86,117				(16,993	)			(19.7	)%			76,129
Total liabilities and shareholders'    equity		$	129,139			$	142,902				(13,763	)			(9.6	)%		$	132,054
Shares outstanding			12,470				12,344				126				1.0	%			12,470

 

* Derived from audited financial statements.

 

 

 

 

 

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CULP, INC.

SUMMARY OF CASH AND DEBT

JULY 28, 2024, JULY 30, 2023, AND APRIL 28, 2024

Unaudited

(Amounts in Thousands)

 

		Amounts
		July 28,				July 30,				April 28,
		2024				2023				2024*
Cash:
Cash and cash equivalents		$	13,472			$	16,812			$	10,012
Less Debt:
Line of credit - China			4,017				—				—
Net Cash Position		$	9,455			$	16,812			$	10,012

 

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CULP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED JULY 28, 2024, AND JULY 30, 2023

Unaudited

(Amounts in Thousands)

 

		THREE MONTHS ENDED
		Amounts
		July 28,				July 30,
		2024				2023
Cash flows from operating activities:
Net loss		$	(7,261	)		$	(3,342	)
Adjustments to reconcile net loss to net cash used in    operating activities:
Depreciation			1,581				1,635
Non-cash inventory credit			(268	)			(717	)
Amortization			99				96
Stock-based compensation			176				322
Deferred income taxes			60				(86	)
Gain on sale of equipment			(4	)			(270	)
Non-cash restructuring expense			1,643				237
Foreign currency exchange loss (gain)			45				(372	)
Changes in assets and liabilities:
Accounts receivable			(445	)			2,112
Inventories			3,458				1,792
Other current assets			(221	)			(526	)
Other assets			90				(134	)
Accounts payable			884				(2,353	)
Deferred revenue			105				(166	)
Accrued restructuring			640				10
Accrued expenses and deferred compensation			(478	)			(2,311	)
Income taxes			(310	)			(362	)
Net cash used in operating activities			(206	)			(4,435	)
Cash flows from investing activities:
Capital expenditures			(501	)			(513	)
Proceeds from the sale of equipment			37				294
Proceeds from note receivable			90				60
Proceeds from the sale of investments (rabbi trust)			229				780
Purchase of investments (rabbi trust)			(187	)			(247	)
Net cash (used in) provided by investing activities			(332	)			374
Cash flows from financing activities:
Proceeds from line of credit - China			4,010				—
Net cash provided by financing activities			4,010				—
Effect of foreign currency exchange rate changes on cash and cash equivalents			(12	)			(91	)
Increase (decrease) in cash and cash equivalents			3,460				(4,152	)
Cash and cash equivalents at beginning of year			10,012				20,964
Cash and cash equivalents at end of year		$	13,472			$	16,812
Free Cash Flow (1)		$	(550	)		$	(4,152	)

 

(1) See next page for Reconciliation of Free Cash Flow for the three months ending July 28, 2024, and July 30, 2023.

 

 

 

 

 

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CULP, INC.

RECONCILIATION OF FREE CASH FLOW

FOR THE THREE MONTHS ENDED JULY 28, 2024, AND JULY 30, 2023

Unaudited

(Amounts in Thousands)

 

		THREE MONTHS ENDED
		Amounts
		July 28,				July 30,
		2024				2023
A) Net cash used in operating activities		$	(206	)		$	(4,435	)
B) Minus: Capital expenditures			(501	)			(513	)
C) Plus: Proceeds from the sale of equipment			37				294
D) Plus: Proceeds from note receivable			90				60
E) Plus: Proceeds from the sale of investments (rabbi trust)			229				780
F) Minus: Purchase of investments (rabbi trust)			(187	)			(247	)
G) Effects of foreign currency exchange rate changes on cash and cash equivalents			(12	)			(91	)
Free Cash Flow		$	(550	)		$	(4,152	)

 

 

 

 

 

 

---

CULP, INC.

STATEMENTS OF OPERATIONS BY SEGMENT

FOR THE THREE MONTHS ENDED JULY 28, 2024, AND JULY 30, 2023

Unaudited

(Amounts in Thousands)

 

		THREE MONTHS ENDED
		Amounts												Percent of Total Sales
		July 28,				July 30,				% Over				July 28,				July 30,
Net Sales by Segment		2024				2023				(Under)				2024				2023
Mattress Fabrics		$	28,076			$	29,222				(3.9	)%			49.7	%			51.6	%
Upholstery Fabrics			28,461				27,440				3.7	%			50.3	%			48.4	%
Net Sales		$	56,537			$	56,662				(0.2	)%			100.0	%			100.0	%
Gross (Loss) Profit														Gross Margin
Mattress Fabrics		$	(326	)		$	1,994				(116.3	)%			(1.2	)%			6.8	%
Upholstery Fabrics			5,518				5,270				4.7	%			19.4	%			19.2	%
Total Segment Gross Profit			5,192				7,264				(28.5	)%			9.2	%			12.8	%
Restructuring Related Charge (1)			(116	)			(179	)			(35.2	)%			(0.2	)%			(0.3	)%
Gross Profit		$	5,076			$	7,085				(28.4	)%			9.0	%			12.5	%
Selling, General and Administrative    Expenses by Segment														Percent of Sales
Mattress Fabrics		$	3,223			$	3,393				(5.0	)%			11.5	%			11.6	%
Upholstery Fabrics			3,806				3,941				(3.4	)%			13.4	%			14.4	%
Unallocated Corporate Expenses			2,267				2,495				(9.1	)%			4.0	%			4.4	%
Selling, General and Administrative    Expenses		$	9,296			$	9,829				(5.4	)%			16.4	%			17.3	%
(Loss) Income from Operations    by Segment														Operating Margin
Mattress Fabrics		$	(3,549	)		$	(1,398	)			153.9	%			(12.6	)%			(4.8	)%
Upholstery Fabrics		$	1,712			$	1,328				28.9	%			6.0	%			4.8	%
Unallocated Corporate Expenses		$	(2,267	)		$	(2,495	)			(9.1	)%			(4.0	)%			(4.4	)%
Total Segment Loss from          Operations			(4,104	)			(2,565	)			60.0	%			(7.3	)%			(4.5	)%
Restructuring Related Charge (1)			(116	)			(179	)			(35.2	)%			(0.2	)%			(0.3	)%
Restructuring Expense (1)			(2,631	)			(338	)			678.4	%			(4.7	)%			(0.6	)%
Loss from Operations		$	(6,851	)		$	(3,082	)			122.3	%			(12.1	)%			(5.4	)%
Return on Capital Employed (ttm) (2)
Mattress Fabrics			(14.6	)%			(25.4	)%			(42.5	)%
Upholstery Fabrics			70.5	%			18.2	%			287.4	%
Unallocated Corporate		N.M.				N.M.				N.M.
Consolidated			(16.3	)%			(28.6	)%			(43.0	)%
Capital Employed (3)
Mattress Fabrics		$	56,410			$	61,056				(7.6	)%
Upholstery Fabrics			6,906				12,357				(44.1	)%
Unallocated Corporate			5,171				4,086				26.6	%
Consolidated		$	68,487			$	77,499				(11.6	)%
Depreciation Expense by Segment
Mattress Fabrics (4)		$	2,297			$	1,455				57.9	%
Upholstery Fabrics			159				180				(11.7	)%
Depreciation Expense		$	2,456			$	1,635				50.2	%

 

 

Notes

 

(1) See page 12 for a Reconciliation of Selected Income Statement Information to Adjusted Results for the three months ending July 28, 2024, and July 30, 2023.

 

(2) See pages 14 through 17 for calculation of Return on Capital Employed by Segment for the trailing twelve months ending July 28, 2024, and July 30, 2023, and a reconciliation to information from our U.S. GAAP financial statements.

(3) The capital employed balances are as of July 28, 2024, and July 30, 2023.

 

(4) During the three-month period ending July 28, 2024, depreciation expense for the mattress fabrics segment included additional depreciation expense related to the shortening of useful lives of equipment associated with the gradual discontinuation of operations regarding our manufacturing facility located in Quebec, Canada. The amount of additional depreciation expense was $875,000 and was classified as restructuring expense.

 

 

 

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CULP, INC.

RECONCILIATION OF SELECTED INCOME STATEMENT INFORMATION TO ADJUSTED RESULTS

FOR THREE MONTHS ENDED JULY 28, 2024, AND JULY 30, 2023

Unaudited

(Amounts in Thousands)

 

		As Reported								Adjusted Results
		July 28,								July 28,
		2024				Adjustments				2024
Net sales		$	56,537				—			$	56,537
Cost of sales (1)			(51,461	)			116				(51,345	)
Gross profit			5,076				116				5,192
Selling, general and administrative    expenses			(9,296	)			—				(9,296	)
Restructuring expense (2)			(2,631	)			2,631				—
Loss from operations		$	(6,851	)			2,747			$	(4,104	)

 

Notes

 

(1) During the three-month period ending July 28, 2024, cost of sales included a restructuring related charge totaling $116,000 for losses on the disposal of obsolete inventory related to the gradual discontinuation of operations at our manufacturing facility located in Quebec, Canada.

 

(2) During the three-month period ending July 28, 2024, restructuring expense of $2.6 million represents $2.5 million and $132,000, related to the mattress fabrics and upholstery fabrics segments, respectively. The $2.6 million of restructuring expense represents (i) $1.9 million related to the gradual discontinuation of operations and the process of selling the manufacturing facility located in Quebec, Canada, which includes $875,000 of additional depreciation related to the shortening of useful lives of equipment, employee termination benefits of $539,000, lease termination costs of $264,000, impairment charges and losses on the disposal of equipment totaling $95,000, and other associated costs of $90,000; (ii) $470,0000 related to the consolidation of two leased facilities at our mattress cover operation located in Ouanaminthe, Haiti, which includes lease termination costs of $406,000, employee termination benefits of $48,000, and other associated costs of $16,000; (iii) $167,000 of other associated costs related to the relocation of certain equipment from the mattress fabrics manufacturing facility located in Quebec, Canada to the U.S. facility located in Stokesdale, North Carolina; and (iv) $132,000 related to reducing costs within our upholstery fabrics segment which includes employee termination benefits of $102,000 and other associated costs of $30,000.

 

 

		As Reported								Adjusted Results
		July 30,								July 30,
		2023				Adjustments				2023
Net sales		$	56,662				—			$	56,662
Cost of sales (1)			(49,577	)			179				(49,398	)
Gross profit			7,085				179				7,264
Selling, general and administrative    expenses			(9,829	)			—				(9,829	)
Restructuring expense (2)			(338	)			338				—
Loss from operations		$	(3,082	)			517			$	(2,565	)

 

 

Notes

(1) During the three-months ended July 30, 2023, cost of sales included a restructuring related charge totaling $179,000 for the markdowns of inventory related to the discontinuation of production of cut and sewn upholstery kits at the company's facility in Ouanaminthe, Haiti.

 

(2) Restructuring expense of $338,000 for the three-month period ending July 30, 2023, relates to the discontinuation of production of cut and sewn upholstery kits at our facility located in Ouanaminthe, Haiti and represents an impairment charge of $237,000 related mostly to certain machinery and equipment and $101,000 for employee termination benefits.

 

 

 

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CULP, INC.

CONSOLIDATED STATEMENTS OF ADJUSTED EBITDA

FOR THE TWELVE MONTHS ENDED JULY 28, 2024, AND JULY 30, 2023

Unaudited

(Amounts in Thousands)

 

		Quarter Ended				Quarter Ended				Quarter Ended				Quarter Ended				Trailing 12 Months
		October 29,				January 28,				April 28,				July 28,				July 28,
		2023				2024				2024				2024				2024
Net loss		$	(2,424	)		$	(3,188	)		$	(4,865	)		$	(7,261	)		$	(17,738	)
Income tax expense			516				1,027				805				240				2,588
Interest income, net			(282	)			(284	)			(252	)			(234	)			(1,052	)
Depreciation expense			1,617				1,646				1,623				1,581				6,467
Restructuring (credit) expense			144				(50	)			204				2,631				2,929
Restructuring related charge (credit)			(78	)			(61	)			—				116				(23	)
Amortization expense			97				98				99				99				393
Stock based compensation			163				262				168				176				769
Adjusted EBITDA		$	(247	)		$	(550	)		$	(2,218	)		$	(2,652	)		$	(5,667	)
% Net Sales			(0.4	)%			(0.9	)%			(4.5	)%			(4.7	)%			(2.5	)%
		Quarter Ended				Quarter Ended				Quarter Ended				Quarter Ended				Trailing 12 Months
		October 30,				January 29,				April 30,				July 30,				July 30,
		2022				2023				2023				2023				2023
Net loss (1)		$	(12,173	)		$	(8,968	)		$	(4,681	)		$	(3,342	)		$	(29,164	)
Income tax expense			1,150				286				798				701				2,935
Interest income, net			(79	)			(196	)			(239	)			(345	)			(859	)
Depreciation expense			1,719				1,739				1,619				1,635				6,712
Restructuring expense			615				711				70				338				1,734
Restructuring related charge			98				—				—				179				277
Amortization expense			109				109				115				96				429
Stock based compensation			313				322				258				322				1,215
Adjusted EBITDA (1)		$	(8,248	)		$	(5,997	)		$	(2,060	)		$	(416	)		$	(16,721	)
% Net Sales			(14.1	)%			(11.4	)%			(3.4	)%			(0.7	)%			(7.3	)%
% Over (Under)			(97.0	)%			(90.8	)%			7.7	%			537.5	%			(66.1	)%

 

 

(1) Net loss and adjusted EBITDA for the quarter ended October 30, 2022, and the twelve-month period ending July 30, 2023, includes a non-cash charge totaling $5.2 million, which represents a $2.9 million charge for the write down of inventory to its net realizable value associated with the mattress fabrics segment and $2.3 million related to markdowns of inventory estimated based on the company's policy for aged inventory for both the mattress and upholstery fabrics segments.

 

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CULP, INC.

RETURN ON CAPITAL EMPLOYED BY SEGMENT

FOR THE TWELVE MONTHS ENDED JULY 28, 2024

Unaudited

(Amounts in Thousands)

 

	Adjusted Operating     (Loss) Income
	Twelve Months Ended			Average Capital			Return on Avg. Capital
	July 28, 2024 (1)			Employed (2)			Employed (3)
Mattress Fabrics	$	(8,996	)	$	61,649			(14.6	)%
Upholstery Fabrics		6,170			8,746			70.5	%
Unallocated Corporate		(9,346	)		4,178		N.M.
Consolidated	$	(12,172	)	$	74,574			(16.3	)%
Average Capital Employed	As of the three Months July 28, 2024													As of the three Months April 28, 2024													As of the three Months January 28, 2024
	Mattress			Upholstery			Unallocated							Mattress			Upholstery			Unallocated							Mattress			Upholstery			Unallocated
	Fabrics			Fabrics			Corporate			Total				Fabrics			Fabrics			Corporate			Total				Fabrics			Fabrics			Corporate			Total
Total assets (4)	$	66,713			31,763			30,663			129,139			$	72,060			32,629			27,365			132,054			$	75,572			38,085			28,341			141,998
Total liabilities		(10,303	)		(24,857	)		(24,855	)		(60,015	)			(9,803	)		(25,370	)		(20,752	)		(55,925	)			(8,234	)		(32,201	)		(20,767	)		(61,202	)
Subtotal	$	56,410		$	6,906			5,808		$	69,124			$	62,257		$	7,259			6,613		$	76,129			$	67,338		$	5,884		$	7,574		$	80,796
Cash and cash equivalents		—			—			(13,472	)		(13,472	)			—			—			(10,012	)		(10,012	)			—			—			(12,585	)		(12,585	)
Short-term investments - Rabbi Trust		—			—			(954	)		(954	)			—			—			(903	)		(903	)			—			—			(937	)		(937	)
Current income taxes receivable		—			—			(532	)		(532	)			—			—			(350	)		(350	)			—			—			(476	)		(476	)
Long-term investments - Rabbi Trust		—			—			(7,089	)		(7,089	)			—			—			(7,102	)		(7,102	)			—			—			(7,083	)		(7,083	)
Deferred income taxes - non-current		—			—			(528	)		(528	)			—			—			(518	)		(518	)			—			—			(531	)		(531	)
Line of credit - China		—			—			4,017			4,017				—			—			—			—				—			—			—			—
Deferred compensation - current		—			—			954			954				—			—			903			903				—			—			937			937
Accrued restructuring								633			633				—			—			—			—				—			—			—			—
Income taxes payable - current		—			—			759			759				—			—			972			972				—			—			1,070			1,070
Income taxes payable - long-term		—			—			2,180			2,180				—			—			2,088			2,088				—			—			2,072			2,072
Deferred income taxes - non-current		—			—			6,449			6,449				—			—			6,379			6,379				—			—			6,177			6,177
Deferred compensation non-current		—			—			6,946			6,946				—			—			6,929			6,929				—			—			6,856			6,856
Total Capital Employed	$	56,410		$	6,906		$	5,171		$	68,487			$	62,257		$	7,259		$	4,999		$	74,515			$	67,338		$	5,884		$	3,074		$	76,296

 

 

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CULP, INC.

RETURN ON CAPITAL EMPLOYED BY SEGMENT - CONTINUED

FOR THE TWELVE MONTHS ENDED JULY 28, 2024

Unaudited

(Amounts in Thousands)

	As of the three Months October 29, 2023													As of the three Months Ended July 30, 2023
	Mattress			Upholstery			Unallocated							Mattress			Upholstery			Unallocated
	Fabrics			Fabrics			Corporate			Total				Fabrics			Fabrics			Corporate			Total
Total assets (4)	$	75,924			35,082			31,154			142,160			$	72,286			37,592			33,024			142,902
Total liabilities		(14,739	)		(23,758	)		(20,035	)		(58,532	)			(11,230	)		(25,235	)		(20,320	)		(56,785	)
Subtotal	$	61,185		$	11,324		$	11,119		$	83,628			$	61,056		$	12,357		$	12,704		$	86,117
Cash and cash equivalents		—			—			(15,214	)		(15,214	)			—			—			(16,812	)		(16,812	)
Short-term investments - Rabbi Trust		—			—			(937	)		(937	)			—			—			(791	)		(791	)
Current income taxes receivable		—			—			(340	)		(340	)			—			—			(202	)		(202	)
Long-term investments - Rabbi Trust		—			—			(6,995	)		(6,995	)			—			—			(7,204	)		(7,204	)
Deferred income taxes - non-current		—			—			(472	)		(472	)			—			—			(476	)		(476	)
Deferred compensation - current		—			—			937			937				—			—			791			791
Accrued restructuring		—			—			—			—				—			—			10			10
Income taxes payable - current		—			—			998			998				—			—			526			526
Income taxes payable - long-term		—			—			2,055			2,055				—			—			2,710			2,710
Deferred income taxes - non-current		—			—			5,663			5,663				—			—			5,864			5,864
Deferred compensation non-current		—			—			6,748			6,748				—			—			6,966			6,966
Total Capital Employed	$	61,185		$	11,324		$	3,562		$	76,071			$	61,056		$	12,357		$	4,086		$	77,499
	Mattress			Upholstery			Unallocated
	Fabrics			Fabrics			Corporate			Consolidated
Average Capital Employed (2)	$	61,649		$	8,746		$	4,178		$	74,574

Notes

 

 

(1) See last page of this presentation for calculation.

 

(2) Average capital employed was computed using the five quarterly periods ending July 28, 2024, April 28, 2024, January 28, 2024, October 29, 2023, and July 30, 2023.

 

(3) Return on average capital employed represents the twelve months operating (loss) income as of July 28, 2024, divided by average capital employed. Average capital employed does not include cash and cash equivalents, short-term and long-term investments – Rabbi Trust, income taxes receivable and payable, accrued restructuring, line of credit - China, noncurrent deferred income tax assets and liabilities, and current and non-current deferred compensation.

 

 

(4) Intangible assets are included in unallocated corporate for all periods presented and therefore, have no effect on capital employed and return on capital employed for our mattress fabrics and upholstery fabrics segments.

 

 

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CULP INC.

RETURN ON CAPITAL EMPLOYED BY SEGMENT

FOR THE TWELVE MONTHS ENDED JULY 30, 2023

Unaudited

(Amounts in Thousands)

 

 

	Adjusted Operating  (Loss) Income
	Twelve Months Ended			Average  Capital			Return on Avg. Capital
	July 30, 2023 (1)			Employed (2)			Employed (3)
Mattress Fabrics	$	(17,159	)	$	67,685			(25.4	)%
Upholstery Fabrics		2,781			15,283			18.2	%
Unallocated Corporate		(10,434	)		3,862		N.M.
Consolidated	$	(24,812	)	$	86,830			(28.6	)%
Average Capital Employed	As of the three Months Ended July 30, 2023													As of the three Months Ended April 30, 2023													As of the three Months Ended January 29, 2023
	Mattress			Upholstery			Unallocated							Mattress			Upholstery			Unallocated							Mattress			Upholstery			Unallocated
	Fabrics			Fabrics			Corporate			Total				Fabrics			Fabrics			Corporate			Total				Fabrics			Fabrics			Corporate			Total
Total assets (4)	$	72,286			37,592			33,024			142,902			$	75,494			39,127			37,562			152,183			$	75,393			39,817			35,388			150,598
Total liabilities		(11,230	)		(25,235	)		(20,320	)		(56,785	)			(11,387	)		(29,638	)		(22,078	)		(63,103	)			(9,511	)		(24,367	)		(23,216	)		(57,094	)
Subtotal	$	61,056		$	12,357		$	12,704		$	86,117			$	64,107		$	9,489		$	15,484		$	89,080			$	65,882		$	15,450		$	12,172		$	93,504
Cash and cash equivalents		—			—			(16,812	)		(16,812	)			—			—			(20,964	)		(20,964	)			—			—			(16,725	)		(16,725	)
Short-term investments - Rabbi Trust		—			—			(791	)		(791	)			—			—			(1,404	)		(1,404	)			—			—			(2,420	)		(2,420	)
Current income taxes receivable		—			—			(202	)		(202	)			—			—			—			—				—			—			(238	)		(238	)
Long-term investments - Rabbi Trust		—			—			(7,204	)		(7,204	)			—			—			(7,067	)		(7,067	)			—			—			(7,725	)		(7,725	)
Deferred income taxes - non-current		—			—			(476	)		(476	)			—			—			(480	)		(480	)			—			—			(463	)		(463	)
Deferred compensation - current		—			—			791			791				—			—			1,404			1,404				—			—			2,420			2,420
Accrued restructuring		—			—			10			10				—			—			—			—				—			—			—			—
Income taxes payable - current		—			—			526			526				—			—			753			753				—			—			467			467
Income taxes payable - long-term		—			—			2,710			2,710				—			—			2,675			2,675				—			—			2,648			2,648
Deferred income taxes - non-current		—			—			5,864			5,864				—			—			5,954			5,954				—			—			6,089			6,089
Deferred compensation - long-term		—			—			6,966			6,966				—			—			6,842			6,842				—			—			7,590			7,590
Total Capital Employed	$	61,056		$	12,357		$	4,086		$	77,499			$	64,107		$	9,489		$	3,197		$	76,793			$	65,882		$	15,450		$	3,815		$	85,147

 

 

 

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CULP INC.

RETURN ON CAPITAL EMPLOYED BY SEGMENT - CONTINUED

FOR THE TWELVE MONTHS ENDED JULY 30, 2023

Unaudited

(Amounts in Thousands)

 

	As of the three Months Ended October 30, 2022													As of the three Months Ended July 31, 2022
	Mattress			Upholstery			Unallocated							Mattress			Upholstery			Unallocated
	Fabrics			Fabrics			Corporate			Total				Fabrics			Fabrics			Corporate			Total
Total assets (4)	$	78,366			44,934			38,330			161,630			$	90,842			51,053			38,595			180,490
Total liabilities		(9,895	)		(26,108	)		(23,519	)		(59,522	)			(11,934	)		(30,762	)		(23,799	)		(66,495	)
Subtotal	$	68,471		$	18,826		$	14,811		$	102,108			$	78,908		$	20,291		$	14,796		$	113,995
Cash and cash equivalents		—			—			(19,137	)		(19,137	)			—			—			(18,874	)		(18,874	)
Short-term investments - Rabbi Trust		—			—			(2,237	)		(2,237	)
Current income taxes receivable		—			—			(510	)		(510	)			—			—			(798	)		(798	)
Long-term investments - Rabbi Trust		—			—			(7,526	)		(7,526	)			—			—			(9,567	)		(9,567	)
Deferred income taxes - non-current		—			—			(493	)		(493	)			—			—			(546	)		(546	)
Deferred compensation - current		—			—			2,237			2,237				—			—			—			—
Accrued restructuring		—			—			33			33				—			—			—			—
Income taxes payable - current		—			—			969			969				—			—			587			587
Income taxes payable - long-term		—			—			2,629			2,629				—			—			3,118			3,118
Deferred income taxes - non-current		—			—			5,700			5,700				—			—			6,007			6,007
Deferred compensation - long-term		—			—			7,486			7,486				—			—			9,528			9,528
Total Capital Employed	$	68,471		$	18,826		$	3,962		$	91,259			$	78,908		$	20,291		$	4,251		$	103,450
	Mattress			Upholstery			Unallocated
	Fabrics			Fabrics			Corporate			Consolidated
Average Capital Employed (2)	$	67,685		$	15,283		$	3,862		$	86,830

 

Notes

 

(1) See last page of this presentation for calculation.

 

(2) Average capital employed was computed using the five quarterly periods ending July 30, 2023, April 30, 2023, January 29, 2023, October 30, 2022, and July 31, 2022.

 

(3) Return on average capital employed represents the last twelve months operating (loss) income as of July 30, 2023, divided by average capital employed. Average capital employed does not include cash and cash equivalents, short-term and long-term investments – Rabbi Trust, accrued restructuring, income taxes receivable and payable, noncurrent deferred income tax assets and liabilities, and current and non-current deferred compensation.

 

(4) Intangible assets are included in unallocated corporate for all periods presented and therefore, have no effect on capital employed and return on capital employed for our mattress fabrics and upholstery fabrics segments.

 

 

 

 

 

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CULP INC.

CONSOLIDATED STATEMENTS OF ADJUSTED OPERATING (LOSS) INCOME

FOR THE TWELVE MONTHS ENDED JULY 28, 2024, AND JULY 30, 2023

Unaudited

(Amounts in Thousands)

 

		Quarter Ended
																		Trailing 12
																		Months
		10/29/2023				01/28/2024				04/28/2024				07/28/2024				07/28/2024
Mattress Fabrics		$	(936	)		$	(1,582	)		$	(2,929	)		$	(3,549	)		$	(8,996	)
Upholstery Fabrics			1,391				2,092				975				1,712				6,170
Unallocated Corporate			(2,628	)			(2,361	)			(2,090	)			(2,267	)			(9,346	)
Operating loss		$	(2,173	)		$	(1,851	)		$	(4,044	)		$	(4,104	)		$	(12,172	)
		Quarter Ended
																		Trailing 12
																		Months
		10/30/2022				1/29/2023				4/30/2023				7/30/2023				7/30/2023
Mattress Fabrics		$	(9,002	)		$	(4,229	)		$	(2,530	)		$	(1,398	)		$	(17,159	)
Upholstery Fabrics			262				(420	)			1,611				1,328				2,781
Unallocated Corporate			(2,478	)			(2,423	)			(3,038	)			(2,495	)			(10,434	)
Operating loss		$	(11,218	)		$	(7,072	)		$	(3,957	)		$	(2,565	)		$	(24,812	)
% Over (Under)			(80.6	)%			(73.8	)%			2.2	%			60.0	%			(50.9	)%

 

 

-END-

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Logo Positioning for the Future Culp Restructuring Plan – September 2024

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Forward Looking Statements This presentation 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. 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,” “will,” “may,” “should,” “could,” “potential,” “continue,” “target,” “predict”, “seek,” “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, restructuring actions, production levels, new product launches, sales, profit margins, profitability, operating (loss) income, capital expenditures, working capital levels, cost savings (including, without limitation, anticipated cost savings from restructuring actions), income taxes, SG&A or other expenses, pre-tax (loss) 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, restructuring and restructuring-related charges, expenses, and/or credits, 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 recent coronavirus pandemic, 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. Also, our success in diversifying our supply chain with reliable partners to effectively service our global platform could affect our operations and adversely affect our financial results. Finally, the future performance of our business also depends on our ability to successfully restructure our mattress fabric operations and return the segment to profitability. 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. Many of these factors are macroeconomic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this presentation as anticipated, believed, estimated, expected, intended, planned or projected. The forward-looking statements included in this presentation are made only as of the date of this presentation. Unless required by United States federal securities laws, we neither intend nor assume any obligation to update these forward-looking statements for any reason after the date of this presentation to conform these statements to actual results or to changes in our expectations. 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 or financial results.

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Financial and Business Implications of Restructuring Plan RESTRUCTURING ACTIONS 1. Consolidate CHF North American Fabric Operations Wind Down and Close Operations in Quebec, Canada Move Knitting and Finish Capacity to Stokesdale, NC Optimize Capacity and Overhead in North America in One Facility (NC) 2. Transition Mattress Fabric Damask Weaving Operation to Sourcing Model 3. Consolidate Haiti Cut & Sew Operations into One Facility 4. Reduce CHF workforce by approximately 240 people (35% of segment total workforce) 5. Restructure Upholstery Fabrics (CUF) Finishing Operation in China 6. Reduce Unallocated Corporate and Shared Service Expenses RESTRUCTURING OUTCOMES Projected Cost Savings 1. $10-11 million in annualized cost and productivity savings, primarily via mattress segment COGS $5.1 million total restructuring & related charges with $3.0 million cash charges primarily from: • Severance • Restructuring • Relocation of Equipment • Wind-Down of Canadian Operation Close to $1.0 million reduction in annualized unallocated corporate/shared services savings Projected Proceeds from Asset Sales & Other 1. Anticipate $9-10 million of after-tax proceeds from sale of owned Canadian Faciality 2. Anticipate approximately $2.0 million from sale of excess equipment and termination of Haiti building lease § Offset against cash restructuring expense 3 CULP

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Steps and Timing of Restructuring: Measuring Success FISCAL Q1 25 (MAY – JULY 2024) FISCAL Q2 25 (AUGUST – OCTOBER 2024) SECOND HALF FISCAL 25 (NOVEMBER 2024 – APRIL 2025) Major restructuring actions announced in early May Communicated phased closure of Canadian mattress fabrics facility to affected employees, customers, vendors, and Canadian regulatory authorities Initiated and completed negotiation of severance and stay bonus agreements Engaged broker to sell Canadian real estate Worked with supply partners on transition of damask SKUs Preliminary moving and optimizing Stokesdale facility floor space for relocation of Canadian knitting and finishing equipment Completed consolidation of Haiti operations into one building Completed restructuring of upholstery fabric(CUF) finishing operation in China Negotiated termination of Haiti building lease in early Q2 (expected to generate $250,000 cash during FY25 Q4) Market and show Canadian real estate during Q2 Discontinue production at Canadian mattress fabrics facility by end of Q2 Complete transition of Damask SKUs with supply partners by end of Q2 Make continued progress with relocation of knitting and finishing equipment to Stokesdale Early stages of operational improvements for plant and equipment consolidation Complete relocation of equipment to Stokesdale Complete sale of excess equipment Estimated completion for sale of Canadian real estate (timing dependent upon buyer interest / market conditions) Further progress on operational improvements from plant and equipment consolidation

 

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Liquidity, Access to Capital are Strengthened Total Liquidity As of 7/28/2024 (in millions) Cash $13.5 ABL Availability 19.2 China Credit Line Availability 0.0 Total Liquidity $32.7 Estimated Proceeds from Canadian Real Estate Sale $10.0 Total Liquidity Including Future Real Estate Sale Proceeds* $42.7 *Hypothetical pro forma assuming sale of Canadian real estate based on estimated net proceeds of $10 million (current estimates are approximately $9.0 to $10.0 million, net of all taxes and commissions). Timing and amount of actual proceeds currently unknown and may differ from hypothetical. BALANCE SHEET IMPACT § Cash and access to liquidity remains solid § Expect to utilize some borrowing during fiscal 2025 to fund restructuring activity and worldwide working capital to grow business ($4.0 million in borrowings outstanding under China credit line as of 7/28/20024) § Expect to maintain positive net cash position and fund approximately $2.0 million of cash restructuring costs with proceeds from the sale of excess manufacturing equipment and proceeds from a building lease termination in Haiti § Eventual proceeds from sale of Canadian facility enhances balance sheet § Cost actions to dramatically lower expected operating and cash burn at current low sales levels to ride out industry softness § Restructuring and balance sheet actions allow for continued investment in the business to benefit consolidated company in market recovery 5 CULP

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Restructuring Puts CHF on Path to Segment Breakeven Hypothetical pro forma model of projected annualized savings on CHF profitability post-restructuring, assuming the same level of sales from fiscal 2024 (model is before any corporate allocation at segment level) Projected annualized cost and productivity savings of approximately $9.5 million (CHF only) Post restructuring, mattress fabrics segment expected to return to positive operating income sometime in the third quarter of fiscal 2025 CHF 2017 2021 2022 2023 2024 Pro Forma* Revenue $ 190.8 $ 157.7 $ 152.2 $ 111.0 $ 116.4 Gross Profit $ $ 43.1 $ 23.9 $ 16.5 $ (6.7) $ 6.3 Revenue Gross Profit $ $ 116.4 $ 6.3 Gross Profit % 23% 15% 11% -6% 5% Restructuring Savings New Gross Profit $ New Gross Profit % $ 9.5 $ 15.8 13.6% * Reflects FY 2024 CHF results restated as a hypothetical pro forma with estimated cost and productivity savings from CHF restructuring actions included. This is a hypothetical model only – it is not intended as guidance/projections. Also, this model does not include any allocation of corporate costs at segment level. ** Estimated restructuring savings for CHF segment only.

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Mattress Fabrics: Current Industry Demand Near Previous Recession (2009) Bottom Levels Current level of domestic unit production of 18 million units near 2009 recession levels Unique factors affecting current cycle Post Covid stimulus, at home demand pull forward Supply chain challenges and cost pressures in addition to labor shortage Pressures on lower end consumer discretionary spending due to inflation Figure 6 Annual U.S. Produced mattress Unit volume trends – Below Pre-Pandemic Levels 26 24 22 20 18 16 14 21 21 22 22 24 23 22 20 18 19 19 20 20 21 22 24 23 24 23 24 25 20 19 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 note: Annual unit volume date is composed of reported and projected U.S. Produced mattress shipments and does not include imported mattress shipments or U.S.-Produced of imported stationary foundations. 2022 annual unit volume data, for U.S.-produced mattresses, may not equal the summed total of quarterly unit volume data, for 2022, due to ISPA`s quarterly data restatement. 2021 annual unit volume data, for U.S.-Produced mattresses, may not equal the summed total of quarterly unit volume data, for 2021, due to ISPA`s annual data restatements. Source: International Sleep Products Association, KeyBanc Capital Markets Inc.

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Restructuring of Mattress Fabrics Segment Strengthened leadership team focused on profitable growth Leverage long history of success within the bedding industry Drive operating efficiencies: Optimize manufacturing and sourcing capabilities for customer reactivity and improved cost advantage Phased wind down and closure of fabric formation facility in Canada and consolidation of manufacturing and sourcing capabilities to USA, Turkey and Asia Consolidate cut and sew operations on Haiti / Dominican Republic border to one facility Diligent focus on production scheduling and quality management Invest in high ROI, quick payback capital projects to drive cost savings New commercial approach including: Strong focus on winning new market position as customer innovation cycle increases New product introductions priced in line with current costs to improve profit Restructured and energized sales team Customer, product, and design segmentation including a focused selling strategy and significant SKU rationalization, especially in damask weaving Establishment of an open line to balance custom design work with curated fabric offerings where volumes warrant Continued focus on new product placements and growing market position CHF Manufacturing & Sourcing Locations Post-Restructuring USA Turkey China Vietnam Haiti

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Solidly Profitable Upholstery Fabrics Segment With Key Initiatives Underway to Accelerate Performance Leading position in a fragmented market Asset light model to maintain flexibility and product profit performance Growing innovative performance products LiveSmart® performance brand LiveSmart Evolve®, performance plus recycled fibers Nanobionic® wellness-focused technology Growing Hospitality segment Targeting >25% of normalized sales with higher margin Expanding capacity of roller shades within Read Window Products Drive operating efficiencies Cut & Sew platform restructuring completed in both Haiti and Asia Improved Read Window operations Lower inventory markdown expense Accelerating Segment Performance

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What Gives CULP Confidence in Restructuring Plan / Recovery? Key Success Factors Experienced leadership team focused on profitable growth Successfully navigated significant restructuring of CUF beginning in early 2000’s Solid balance sheet and available liquidity Strong relationships with key customers and long-term suppliers Emphasis on design creativity and product innovation Strategic and optimized manufacturing and global sourcing platform Market position improving with solid placements priced in line with current costs Year-over-year sales growth (FY24) in CHF, as well as solid sequential sales growth in Q1 FY25, in very difficult demand environment

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v3.24.2.u1

Document And Entity Information	Sep. 04, 2024
Cover [Abstract]
Document Type	8-K
Amendment Flag	false
Document Period End Date	Sep. 04, 2024
Entity Registrant Name	Culp, Inc.
Entity Central Index Key	0000723603
Entity Emerging Growth Company	false
Entity File Number	1-12597
Entity Incorporation, State or Country Code	NC
Entity Tax Identification Number	56-1001967
Entity Address, Address Line One	1823 Eastchester Drive
Entity Address, City or Town	High Point
Entity Address, State or Province	NC
Entity Address, Postal Zip Code	27265
City Area Code	336
Local Phone Number	889-5161
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Common stock, par value $0.05 per share
Trading Symbol	CULP
Security Exchange Name	NYSE

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