Release Date: September 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sequential sales growth with Mattress Fabrics up 9% and Upholstery Fabrics up 19.7%.
- Significant improvement in Upholstery Fabrics operating income with 6% operating margins.
- Strong market position driven by innovative styling and a robust global supply chain.
- Effective restructuring plan expected to deliver $10-$11 million in annualized cost savings.
- Positive outlook for returning to near breakeven adjusted EBITDA in Q2 and positive adjusted operating income in Q3.
Negative Points
- Net sales were flat year-over-year, reflecting ongoing industry weakness.
- Reported a loss from operations of $6.9 million, including $2.7 million in restructuring charges.
- Operating performance pressured by manufacturing inefficiencies due to restructuring activities.
- Net loss of $7.3 million, or $0.58 per diluted share, compared to a net loss of $3.3 million in the prior year.
- Continued challenging macro industry conditions expected to persist throughout fiscal 2025.
Q & A Highlights
Highlights of Culp Inc (CULP, Financial) Q1 2025 Earnings Call
Q: Given the very strong sequential growth that you guys had, how does that play out across both the Upholstery and mattress segments?
A: Mary Hunsberger, President of Upholstery Fabrics, noted a strong rebound from Q4, with May and June being particularly strong, though July saw some weakness. Thomas Bruno, EVP of Culp Home Fashions, mentioned consistency through July into August and expects sequential growth throughout the year.
Q: Could you talk a little bit about where the savings from that original $8 million estimate for the restructuring are coming from?
A: Kenneth Bowling, CFO, explained that the savings are primarily from lower fixed costs due to the closure of the Canadian plant, consolidating operations, and outsourcing the damaged line. The restructuring costs were reduced from $8 million to $5.1 million due to reclassification of certain expenses, lower-than-expected equipment and inventory write-downs, and lower employee termination costs.
Q: How will the restructuring change the business model for CHF in terms of in-house production versus strategic sourcing?
A: Robert Culp, CEO, emphasized that the restructuring aims to reduce costs and lower the breakeven point. The company will adopt an asset-light model for its domestic business, leveraging a dedicated partner for sourcing. The cut-and-sew business will utilize low labor cost strategies in Asia and Haiti, while maintaining significant manufacturing capabilities in North Carolina for circular units.
Q: Can you provide more color on what's driving the growth of the hospitality business and where you see it going from here?
A: Mary Hunsberger highlighted that the hospitality industry is booming, especially in mid-price range and extended stay hotels. Culp has a new portfolio of products designed for this market and has expanded its roller shade capacity, capturing significant market share.
Q: How should investors think about the impact of the restructuring on margins and the economics of the business?
A: Robert Culp explained that the restructuring will significantly reduce costs and lower the breakeven point, making the business more agile. The asset-light model will help navigate variable business conditions and political risks, while maintaining robust manufacturing capabilities for quick-ship services.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
