Release Date: December 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Culp Inc (CULP, Financial) reported a sequential improvement in sales and operating performance from its mattress fabric segment, with sales increasing by 7.1% compared to the first quarter of fiscal '25.
- The company is making significant progress with its restructuring plan, which is expected to be largely complete by the third quarter, aiming to return to profitability.
- Culp Inc (CULP) is expanding its North American capacity with strong supply chain operations in Asia, including Vietnam and Turkey, enhancing its global manufacturing and sourcing capabilities.
- The hospitality contract fabric business, representing 35% of total sales, remained solid, with increased potential in commercial fabrics and window treatments.
- The restructuring plan is projected to generate $10 to $11 million in annualized cost and productivity savings, primarily from the mattress fabrics division.
Negative Points
- Culp Inc (CULP) experienced a 5% decline in consolidated year-over-year revenue for the second quarter, with worsening conditions in the upholstery fabric segment.
- The residential upholstery fabrics business faced accelerated softness, leading to lower-than-expected sales performance.
- The restructuring process has caused inefficiencies, negatively impacting the mattress fabrics operating performance during the second quarter.
- The company reported a net loss of $5.6 million for the second quarter, compared to a net loss of $2.4 million in the prior year period.
- Culp Inc (CULP) anticipates continued pressure on sales and significant restructuring activity, providing limited financial guidance for the upcoming quarters.
Q & A Highlights
Q: Is Culp Inc gaining market share in the mattress industry despite current headwinds?
A: Yes, Culp Inc is gaining market share in the mattress industry. Thomas Bruno, Executive Vice President of Culp Home Fashions, noted that the company is seeing strategic placements and stable run rates on new programs, which are contributing to growth despite a challenging macro environment.
Q: How does the company view the contraction in the upholstery segment, and what factors are influencing this?
A: Robert Culp, President and CEO, explained that the contraction is partly due to customers adjusting inventory levels after an aggressive build-up in Q1. Mary Beth Hunsberger, President of the Culp Upholstery Fabric Division, added that while there was initial enthusiasm, the industry recovery is now expected to be delayed, leading to inventory normalization.
Q: Can you elaborate on the performance of the contract and hospitality segment?
A: Mary Beth Hunsberger highlighted that the hospitality segment is performing well, driven by a strong pipeline of hotel projects and brand standards. This growth is offsetting declines in the office furniture segment, which has been impacted by changes in work environments post-COVID.
Q: What are the expected economic impacts of the restructuring on the mattress business?
A: Kenneth Bowling, CFO, stated that the restructuring is expected to generate at least $10 million in annualized savings. The company anticipates improved profitability and significant operating leverage as sales grow, leveraging the current platform's fixed costs and SG&A.
Q: How is Culp Inc preparing for potential increased tariffs under the new administration?
A: Robert Culp emphasized the company's flexible supply chain strategy, which includes a strong US presence and options in Vietnam. Thomas Bruno noted that the mattress segment is well-insulated with US-based capabilities and nearshore operations, while Mary Beth Hunsberger mentioned the upholstery segment's asset-light model and global supplier relationships, allowing for nimble adjustments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
