Release Date: June 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Culp Inc (CULP, Financial) reported consistent and continued operating profits in its upholstery fabric business, with significant year-over-year improvement despite tough industry conditions.
- The company has a strong product innovation and product placements in both segments, positioning it for higher sales growth as macro conditions improve.
- Culp Inc (CULP) maintained a solid balance sheet with a $10 million cash position at the end of the fourth quarter, reflecting prudent financial management.
- The restructuring plan is expected to result in $10 million to $11 million in annualized cost and productivity savings, with additional savings from reductions in corporate and shared services.
- The company has strong long-term partnerships with customers and vendors, and an emphasis on product innovation, which is leading to an improving market position.
Negative Points
- Net sales for the fourth quarter were down 19.4% compared to the prior year period, reflecting ongoing macroeconomic headwinds and weak industry demand.
- Culp Inc (CULP) reported a net loss of $4.9 million for the fourth quarter, slightly higher than the net loss of $4.7 million in the prior year period.
- The mattress fabrics segment experienced operating inefficiencies and lower sales, contributing to an operating loss of $2.9 million for the quarter.
- The upholstery fabric segment saw a 22.6% decline in sales for the fourth quarter, driven by weakening residential home furnishing sales and the timing of the Chinese New Year holiday.
- The company expects industry conditions to remain pressured for some time, with macro demand challenges anticipated to continue into fiscal 2025.
Q & A Highlights
Q: When the restructuring was first announced in May, it was mentioned that the bulk of the $8 million should be booked in the first quarter of 2025. Do you have any update on the timing of the cash and non-cash components of these charges?
A: (Robert Culp, President, CEO, Director) We expect the bulk of the charges, both non-cash and cash, to impact the first half of fiscal 2025. We are pushing to complete this as quickly as possible while balancing customer service and equipment transition.
Q: Do you have any update on the expected magnitude and timing of the cost savings over the second half of fiscal 2025? Should we expect a $2 million to $3 million improvement by Q4?
A: (Kenneth Bowling, CFO, EVP, Treasurer) The benefits will start coming into play in the second half of fiscal 2025. The exact timing will depend on the progress of the restructuring efforts.
Q: For mattress fabrics, you have a long-term goal of an operating income target of 9% to 10% in two to three years. How much of that target do you expect to reach through the current restructuring activity?
A: (Robert Culp, President, CEO, Director) The restructuring actions are aimed at getting us back to breakeven or small profitability without any change in demand. The growth path to the 9% to 10% target will depend on revenue growth, driven by product placements and macroeconomic improvements.
Q: Regarding the consolidation of production in the Stokesdale facility, what percentage of the equipment from Quebec is being moved to North Carolina versus being sold?
A: (Thomas Bruno, EVP of Culp Home Fashions) We will be selling 100% of our Damaska weaving assets from Quebec and moving roughly half of our knitting and finishing assets to Stokesdale. The equipment will be moved over the end of the third into the fourth calendar quarter.
Q: Can you provide more details on the expected proceeds from the sale of real estate and equipment?
A: (Kenneth Bowling, CFO, EVP, Treasurer) We expect $10 million to $12 million from the sale of real estate and $2.5 million from the sale of equipment. This estimate is based on appraisals and consultations with our broker and tax partners.
Q: How are you managing the potential delays and increased costs in shipping, especially from Asia?
A: (Boyd Chumbley, President - Culp Upholstery Fabrics Division) We have experienced some delays and increased transit times, but we have successfully managed through this by adjusting our supply chain and logistics planning. There has been no significant disruption to deliveries.
Q: What are you hearing from your customers regarding demand, especially around promotional periods like Memorial Day?
A: (Robert Culp, President, CEO, Director) Sales are becoming very promotional and holiday-driven. We have seen some lift in sales conditions from the Memorial Day holiday, combined with our efforts to place and win new business.
Q: How are new product introductions impacting margins, and what percentage of fiscal year 2025 revenues will come from these new placements?
A: (Thomas Bruno, EVP of Culp Home Fashions) The restructuring is allowing us to rationalize our SKUs and move to better profitability. We are about halfway to our objective on the portion of the business that will be manufactured in North America.
Q: Can you provide more details on the hospitality and contract business, which accounted for 38% of upholstery fabric sales in Q4?
A: (Boyd Chumbley, President - Culp Upholstery Fabrics Division) This segment has remained solid throughout FY24, and backlogs are increasing. We have initiated a capacity expansion for the roller shade category of our window treatments business, expected to come on stream in Q2 of this year.
Q: How did you arrive at the $10 million to $12 million estimate for the sale of the Canadian facility?
A: (Kenneth Bowling, CFO, EVP, Treasurer) This estimate is based on appraisals and consultations with our broker and tax partners. We hope to complete the sale before the end of the calendar year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
