Culp Announces Results for Third Quarter Fiscal 2025, Highlighted by Continued Improvement in Mattress Fabrics Operating Performance and Execution on Restructuring Initiatives

HIGH POINT, N.C.--(BUSINESS WIRE)--March 05, 2025-- 

Culp, Inc. $(CULP)$ (together with its consolidated subsidiaries, "CULP" or the "company") today reported financial and operating results for the third quarter ended January 26, 2025.

Fiscal 2025 Third Quarter Financial Highlights

   -- Consolidated net sales of $52.3 million - Down 6.1 percent compared 
      sequentially to last quarter, with mattress fabrics sales down 
 
   -- 4.8 percent and upholstery fabrics sales down 7.8 percent 
 
   -- Continued improvement in mattress fabrics operating performance, with a 
      58.3 percent sequential reduction in operating loss on lower sales 
      (following a 70.7 percent sequential reduction last quarter) 
 
   -- Continued profitability in upholstery fabrics segment in extremely 
      challenging industry environment 
 
   -- GAAP consolidated loss from operations of $(3.9) million (includes $2.3 
      million in restructuring expense and related charges) - Non-GAAP loss 
      from operations of $(1.6) million (see reconciliation table on page 15) - 
      Sequential reduction in consolidated operating loss despite lower sales, 
      driven primarily by positive impact of mattress fabrics restructuring, 
      including improved operating efficiencies, lower fixed costs, and lower 
      SG&A 
 
   -- Net loss of $(4.1) million, improved sequentially from a net loss of 
      $(5.6) million last quarter 
 
   -- Adjusted EBITDA for the period was close to break even at negative 
      $(123,000), a sequential improvement of approximately $1.1 million with 
      $3.4 million less in sales as compared to last quarter (see 
      reconciliation table on page 19) 
 
   -- Current mattress fabrics restructuring initiatives substantially 
      completed in January; also entered into a conditional agreement for the 
      sale of the Canadian real estate, contingent on the satisfaction of due 
      diligence and closing conditions - Currently expect to receive 
      approximately $6.0 million to $8.0 million in cash proceeds (net of all 
      taxes and commissions) from the real estate sale 
 
   -- $5.3 million in cash, $5.4 million in outstanding borrowings used to fund 
      worldwide working capital and restructuring initiatives 

Commenting on CULP's third quarter performance, Iv Culp, President and Chief Executive Officer, said, "Despite continued macro industry weakness, we achieved further sequential improvement in our operating results for the quarter, driven largely by the positive effects of our mattress fabrics restructuring activity. We also continue to see increasing potential to grow our market share, particularly with new business opportunities for mattress fabrics and sewn mattress covers. We remain very confident in the future of our two business segments, especially considering the competitive advantages generated from a more streamlined cost structure with an agile manufacturing and sourcing platform and our market-leading design and innovation capabilities, ultimately supported by an eventual market recovery.

"Our mattress fabrics segment continued to reduce its operating loss, building on the prior quarter improvement, and we also achieved near break-even consolidated adjusted EBITDA for the quarter, even with lower sequential sales. We are pleased that our restructuring initiatives within the mattress fabrics segment are mostly finished. The team has worked hard to execute on our plans and they are beginning to generate the savings and efficiency improvements we anticipated.

"Additionally, we entered into an agreement for the sale of our Canadian mattress fabrics facility during the quarter, and we are working to close this transaction in the upcoming months. Assuming completion, we intend to use the cash proceeds to pay off outstanding borrowings and further bolster our liquidity.

"Our consolidated sales for the third quarter were down sequentially, largely due to ongoing weakness in the home furnishings industry and, as expected, specific pressure on residential upholstery fabric sales that was exacerbated by some unique inventory adjustments from a large customer. Sales were also pressured in both segments by fewer shipping days due to holiday closures and weather-related disruptions during the quarter. However, we noted stronger demand in our upholstery fabrics hospitality/contract business, with both year-over-year and sequential increases in sales for the third quarter. Despite the tough residential demand environment, we remain pleased with this segment's continuing profitability, supported by our asset-light and flexible global platform.

"Looking ahead at the various and ongoing macro-economic headwinds, including increasing tariff uncertainty, as well as industry consolidation, we believe we are well positioned in both businesses with strong customer relationships and a variety of agile manufacturing and sourcing options. We are confident that our actions to optimize the cost platform in our mattress fabrics segment will enable us to return to profitability post-restructuring, even at currently depressed demand levels.

"Moreover, we took new and additional cost saving actions in the third quarter related to labor and professional fees that we expect will generate annual savings of approximately $1.0 million. We are also targeting further strategic actions to synergize and create more cost and operating efficiencies across our businesses going forward. Our management team continues to diligently focus on controlling what we can control and taking the critical steps to position our business for profitability as we head into fiscal 2026," added Culp.

Restructuring Update

The restructuring plan announced on May 1, 2024, primarily focused on the company's mattress fabrics segment, was substantially complete as of the end of the third quarter. The company still expects to generate $10.0 - $11.0 million in annualized savings and operating improvements following the restructuring, with most of the benefits beginning to be realized during the fourth quarter of fiscal 2025.

Based on completed restructuring activities, along with remaining restructuring estimates primarily related to limited ongoing building maintenance in Canada, the company now expects to incur total restructuring and restructuring-related costs and charges of $8.5 million in fiscal 2025, of which $5.3 million is now expected to be cash expenditures. The company still expects to fund close to $1.8 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 owned real estate in Canada, the amount and precise timing of which is currently unknown, which would ultimately reduce the total amount of charges incurred. The company has entered into a conditional agreement for the sale of the Canadian real estate, contingent on the satisfaction of certain due diligence and closing conditions. Assuming completion of the transaction, the company currently anticipates receiving approximately $6.0 to $8.0 million in cash proceeds (net of all taxes and commissions).

Third Quarter Fiscal 2025 Results versus Third Quarter Fiscal 2024 Results

   -- Net sales were $52.3 million, down 13.5 percent compared with the 
      prior-year period, with mattress fabrics sales down 4.6 percent and 
      upholstery fabrics sales down 22.4 percent. 
 
   -- Loss from operations was $(3.9) million (which included $2.3 million in 
      restructuring expense and related charges during the period), compared 
      with a loss from operations of $(1.7) million for the prior-year period 
      (which included $111,000 in restructuring and related credits during the 
      period). 
 
   -- Adjusted loss from operations was $(1.6) million, compared with an 
      adjusted loss from operations of $(1.9) million for the prior-year 
      period. (See reconciliation table on page 15). Adjusted operating 
      performance as compared to the third quarter of fiscal 2024 was supported 
      by improved operating efficiencies resulting from the mattress fabrics 
      segment's restructuring initiatives, lower fixed costs, and lower SG&A. 
 
   -- Net loss was $(4.1) million, or $(0.33) per diluted share, compared with 
      a net loss of $(3.2) million, or $(0.26) per diluted share, for the 
      prior-year period. The effective tax rate for the third quarter was 
      negative (12.1) percent, reflecting the company's mix of taxable income 
      between its U.S. and foreign jurisdictions during the period. 

Business Segment Highlights

Mattress Fabrics Segment ("CHF")

   -- Sales for this segment were $28.6 million for the third quarter, down 4.6 
      percent compared with sales of $30.0 million in the third quarter of 
      fiscal 2024. Sequentially, sales were down 4.8 percent compared with 
      sales of $30.1 million for the second quarter of fiscal 2025. 
 
   -- While year-over-year sales were pressured by ongoing weakness in the 
      domestic mattress industry, the company believes CHF is outperforming the 
      industry average and is growing its market position through investments 
      in manufacturing platform flexibility, product diversification, and 
      design innovation. Sequentially, sales were negatively affected by fewer 
      billing days due to holiday closures and weather events during the third 
      quarter that did not affect the second quarter. 
 
   -- Operating loss was $(433,000) for the third quarter, compared to an 
      operating loss of $(1.6) million in the prior-year period and compared to 
      an operating loss of $(1.0) million for the second quarter of fiscal 
      2025. The improvement in operating performance for the quarter, as 

      compared to both the prior-year and sequential periods, was driven by the 
      impacts of CHF's restructuring initiatives, including improved operating 
      efficiencies and lower fixed costs. 

Upholstery Fabrics Segment ("CUF")

   -- Sales for this segment were $23.6 million for the third quarter, down 
      22.3 percent compared with sales of $30.4 million in the third quarter of 
      fiscal 2024. Sequentially, sales were down 7.8 percent compared with 
      sales of $25.6 million for the second quarter of fiscal 2025. 
 
   -- Sales for CUF's residential fabrics business were lower than the 
      prior-year period and lower sequentially. As expected, year-over-year and 
      sequential sales were pressured by lower orders from a significant 
      customer to adjust its inventory to align with soft industry demand. 
      Year-over-year sales were also pressured by demand weakness in the home 
      furnishings industry and weather-related disruptions. 
 
   -- Sales for CUF's hospitality/contract business (including Read Window) 
      were significantly higher compared to the prior-year period and slightly 
      higher sequentially. Sales from CUF's hospitality/contract business 
      accounted for approximately 40 percent of CUF's total sales during the 
      third quarter. 
 
   -- Operating income was $679,000 for the third quarter, compared to 
      operating income of $2.1 million for the third quarter of fiscal 2024 and 
      compared to operating income of $615,000 for the second quarter of fiscal 
      2025. Operating performance for the third quarter of fiscal 2025, as 
      compared to the prior-year period, was affected by lower sales, partially 
      offset by lower fixed costs, lower SG&A, and a more favorable foreign 
      currency exchange rate associated with CUF's operations in China. 

Balance Sheet, Cash Flow, and Liquidity

   -- As of January 26, 2025, the company reported $5.3 million in total cash 
      and $5.4 million in outstanding debt under its China credit facilities. 
      The outstanding debt was primarily used in connection with restructuring 
      activities, the timing of the Chinese new year holiday, and to fund 
      worldwide working capital. 
 
   -- Cash flow from operations and free cash flow were negative $(9.4) million 
      and negative $(10.1) million, respectively, for the first nine months of 
      fiscal 2025. (See reconciliation table on page 12 of this press release.) 
      The company's cash flow from operations and free cash flow during the 
      first nine months of fiscal 2025 were primarily affected by operating 
      losses, including $4.2 million in non-recurring cash restructuring 
      charges, and, with respect to free cash flow, planned strategic 
      investments in capital expenditures mostly related to the mattress 
      fabrics segment, partially offset by lower working capital. 
 
   -- Capital expenditures for the first nine months of fiscal 2025 were $2.4 
      million, down from $3.2 million for the first nine months of fiscal 2024. 
      The company continues to strategically manage capital investments, 
      focusing on projects that will increase efficiency and improve quality, 
      especially for the mattress fabrics segment. 
 
   -- As of January 26, 2025, the company had approximately $28.5 million in 
      liquidity consisting of $5.3 million in cash and $23.2 million in 
      borrowing availability under the company's domestic credit facility. 
 
   -- The company intends to continue utilizing some borrowings under its 
      domestic and foreign credit facilities during fiscal 2025 in connection 
      with its restructuring activities and to fund worldwide working capital 
      to grow the business. Assuming completion of the sale of the company's 
      Canadian real estate, the company intends to use the expected $6.0 
      million to $8.0 million in cash proceeds to retire outstanding 
      borrowings. 

Financial Outlook

   -- Due to macro-economic and increasing tariff uncertainty, the company 
      expects continued industry sales pressure and is only providing limited 
      financial guidance at this time. - Consolidated net sales for the fourth 
      quarter expected to show some growth year-over-year (and expected to 
      remain flat sequentially), with an expected increase in the mattress 
      fabrics segment, offset by ongoing pressure on residential upholstery 
      fabric sales due to weak industry demand and impact from the timing of 
      the Chinese new year holiday (which this year falls entirely in the 
      fourth quarter). - Currently expect continued sequential improvement in 
      adjusted EBITDA (excluding restructuring and related charges), with 
      further improvement in mattress fabrics profitability in the fourth 
      quarter; and a foundation for a return to consolidated operating income 
      in fiscal 2026. 
 
   -- The company's expectations are based on information available at the time 
      of this press release and reflect certain assumptions by management 
      regarding the company's business and trends, the projected impact of 
      restructuring actions, and ongoing market headwinds. The company's 
      expectations also assume no further meaningful impacts from tariffs and 
      trade negotiations. 

Conference Call

Culp, Inc. will hold a conference call to discuss financial results for the fiscal 2025 third quarter on Thursday, March 6, 2025, 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 March 6, 2025.

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, 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, ending cash balances and cash positions, borrowing capacity, investments, potential acquisitions, cash and non-cash restructuring and restructuring-related charges, expenses, and/or credits, net proceeds from restructuring related asset dispositions, 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, demand for home furnishings products, 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 currency in China can have a negative impact on our sales of products produced there. 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

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