[Part I - Financial Statements](index=3&type=section&id=Part%20I%20-%20Financial%20Statements) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the company's unaudited consolidated financial statements for the three months ended August 3, 2025 [Consolidated Statements of Net Loss](index=4&type=section&id=Consolidated%20Statements%20of%20Net%20Loss) Details the company's net sales, gross profit, operating income, and net loss for the recent quarter Consolidated Statements of Net Loss | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | Change (%) | | :-------------------- | :------------- | :------------ | :--------- | | Net sales | $50,691 | $56,537 | -10.3% | | Gross profit | $7,228 | $5,076 | 42.4% | | Income (loss) from operations | $1,617 | $(6,851) | -123.6% | | Net loss | $(231) | $(7,261) | -96.8% | | Net loss per share - basic | $(0.02) | $(0.58) | -96.6% | [Consolidated Statements of Comprehensive Loss](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Loss) Outlines the comprehensive loss, including net loss and unrealized gains on investments Consolidated Statements of Comprehensive Loss | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | | :-------------------- | :------------- | :------------ | | Net loss | $(231) | $(7,261) | | Unrealized holding gain on investments, net of tax | $142 | $80 | | Comprehensive loss | $(89) | $(7,181) | [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) Provides a snapshot of the company's assets, liabilities, and shareholders' equity at the end of the period Consolidated Balance Sheets | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | April 27, 2025 | | :-------------------- | :------------- | :------------ | :------------- | | Total current assets | $88,891 | $82,678 | $83,534 | | Total assets | $126,414 | $129,139 | $123,370 | | Total current liabilities | $47,903 | $42,221 | $46,964 | | Total liabilities | $68,767 | $60,015 | $65,730 | | Total shareholders' equity | $57,647 | $69,124 | $57,640 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Summarizes cash movements from operating, investing, and financing activities during the quarter Consolidated Statements of Cash Flows | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | | :-------------------- | :------------- | :------------ | | Net cash used in operating activities | $(695) | $(206) | | Net cash provided by (used in) investing activities | $986 | $(332) | | Net cash provided by financing activities | $5,154 | $4,010 | | Increase in cash and cash equivalents | $5,465 | $3,460 | | Cash and cash equivalents at end of period | $11,094 | $13,472 | [Consolidated Statements of Shareholders' Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) Details the changes in shareholders' equity resulting from net loss and other equity-related activities Consolidated Statements of Shareholders' Equity | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | | :-------------------- | :------------- | :------------ | | Total Shareholders' Equity (end of period) | $57,647 | $69,124 | | Net loss | $(231) | $(7,261) | | Stock-based compensation | $156 | $176 | | Unrealized gain on investments | $142 | $80 | [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Provides detailed explanations of accounting policies and specific financial statement items [1. Basis of Presentation](index=11&type=section&id=1.%20Basis%20of%20Presentation) The financial statements include all necessary recurring adjustments for fair presentation - The unaudited condensed consolidated financial statements include all necessary normal recurring adjustments for fair presentation[27](index=27&type=chunk) - The three months ended August 3, 2025, and July 28, 2024, represent **14-week and 13-week periods**, respectively[28](index=28&type=chunk) [2. Significant Accounting Policies](index=11&type=section&id=2.%20Significant%20Accounting%20Policies) Outlines key accounting policies and the impact of new accounting standards - No changes in significant accounting policies as of August 3, 2025; business segments were renamed to **bedding and upholstery**[29](index=29&type=chunk) - ASU 2023-09 (Improvements to Income Tax Disclosures) is effective for fiscal 2026 and will **materially impact disclosures**[31](index=31&type=chunk) - ASU 2024-03 (Expense Disaggregation Disclosures) is effective for fiscal 2028, and the company is **evaluating its impact**[32](index=32&type=chunk)[33](index=33&type=chunk) [3. Allowance for Doubtful Accounts](index=13&type=section&id=3.%20Allowance%20for%20Doubtful%20Accounts) Details the changes in the allowance for doubtful accounts based on customer credit risk - The allowance for doubtful accounts **increased to $723,000** as of August 3, 2025, from $413,000 as of July 28, 2024, based on credit risk assessment of customers[35](index=35&type=chunk) Allowance for Doubtful Accounts | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | | :-------------------- | :------------- | :------------ | | Beginning balance | $651 | $356 | | Provision for bad debts | $65 | $57 | | Write-offs, net of recoveries | $7 | $0 | | Ending balance | $723 | $413 | [4. Revenue from Contracts with Customers](index=13&type=section&id=4.%20Revenue%20from%20Contracts%20with%20Customers) Discloses revenue recognition policies and disaggregates revenue by type - The company's primary performance obligations include the sale of **bedding and upholstery products**, and customized fabrication/installation services for window treatments[38](index=38&type=chunk) - Deferred revenue, primarily from customer deposits and licensing fees, **increased to $485,000** as of August 3, 2025, from $422,000 as of April 27, 2025[39](index=39&type=chunk)[40](index=40&type=chunk) Revenue by Type | Revenue Type (in Thousands) | August 3, 2025 | July 28, 2024 | | :-------------------------- | :------------- | :------------ | | Products transferred at a point in time | $48,820 | $53,541 | | Services transferred over time | $1,871 | $2,996 | | Total net sales | $50,691 | $56,537 | [5. Inventories](index=14&type=section&id=5.%20Inventories) Provides a breakdown of inventory components and explains significant changes - Inventories **increased by $8.4 million (20.3%)** from July 28, 2024, to August 3, 2025, due to strategic sourcing of mattress fabrics with longer lead times and rising costs/tariffs[43](index=43&type=chunk)[273](index=273&type=chunk) Inventories by Type | Inventory Type (in Thousands) | August 3, 2025 | July 28, 2024 | April 27, 2025 | | :---------------------------- | :------------- | :------------ | :------------- | | Raw materials | $5,698 | $7,076 | $5,733 | | Work-in-process | $3,374 | $1,876 | $2,747 | | Finished goods | $41,037 | $32,716 | $40,829 | | Total Inventories | $50,109 | $41,668 | $49,309 | [6. Intangible Assets](index=16&type=section&id=6.%20Intangible%20Assets) Details the composition of and changes to intangible assets, including impairment charges - The Read tradename was **fully impaired in Q4 fiscal 2025**, resulting in a **$540,000 charge** due to a strategic business transformation[46](index=46&type=chunk) - Customer relationships and non-compete agreements are amortized over 9-17 years and 15 years, respectively; **no impairment was found** for the Bedding Asset Group as of August 3, 2025[47](index=47&type=chunk)[52](index=52&type=chunk)[55](index=55&type=chunk) Intangible Assets | Intangible Asset (in Thousands) | August 3, 2025 | July 28, 2024 | April 27, 2025 | | :------------------------------ | :------------- | :------------ | :------------- | | Tradename | $0 | $540 | $0 | | Customer relationships, net | $659 | $960 | $734 | | Non-compete agreement, net | $206 | $282 | $226 | | Total Intangible Assets | $865 | $1,782 | $960 | [7. Notes Receivable](index=18&type=section&id=7.%20Notes%20Receivable) Describes outstanding notes receivable from asset sales and lease terminations - A note receivable of **$4.8 million USD** (6.6 million CAD) is outstanding from the sale of the Quebec, Canada facility, due by April 30, 2026[56](index=56&type=chunk)[57](index=57&type=chunk) - Another note receivable of **$1.4 million** is outstanding from the termination of a lease in Haiti, due by December 31, 2029[58](index=58&type=chunk)[59](index=59&type=chunk)[61](index=61&type=chunk) Future Principal Payments on Notes Receivable | Fiscal Year | Future Principal Payments (in Thousands) | | :---------- | :------------------------------------- | | 2026 | $5,088 | | 2027 | $330 | | 2028 | $360 | | 2029 | $360 | | 2030 | $240 | | Total Undiscounted | $6,378 | | Less: Unearned Interest Income | $(196) | | Present Value of Note Receivable | $6,182 | [8. Assets Held for Sale](index=22&type=section&id=8.%20Assets%20Held%20for%20Sale) Reports on assets classified as held for sale and related gains or impairment charges - During Q1 fiscal 2026, the company sold property in Quebec, Canada, recognizing a **$4.0 million gain** classified as restructuring credit[64](index=64&type=chunk) - Equipment in the U.S. with a carrying value of $296,000 was impaired to its fair value of $40,000, resulting in a **$256,000 impairment charge** in Q1 fiscal 2026[64](index=64&type=chunk) Assets Held for Sale | Asset Category (in Thousands) | August 3, 2025 | July 28, 2024 | April 27, 2025 | | :---------------------------- | :------------- | :------------ | :------------- | | Bedding - U.S. | $40 | $357 | $0 | | Bedding - Haiti | $0 | $250 | $0 | | Bedding - Canada | $0 | $0 | $2,177 | | Total Assets Held for Sale | $40 | $607 | $2,177 | [9. Accrued Expenses](index=24&type=section&id=9.%20Accrued%20Expenses) Provides a breakdown of major components within accrued expenses Accrued Expenses | Accrued Expense (in Thousands) | August 3, 2025 | July 28, 2024 | April 27, 2025 | | :----------------------------- | :------------- | :------------ | :------------- | | Compensation, commissions and related benefits | $3,360 | $3,310 | $2,534 | | Other accrued expenses | $2,490 | $2,787 | $2,799 | | Total Accrued Expenses | $5,850 | $6,097 | $5,333 | [10. Restructuring Activities](index=24&type=section&id=10.%20Restructuring%20Activities) Details the financial impact of ongoing restructuring and strategic transformation initiatives - Restructuring activities announced May 1, 2024, are completed; a **$4.0 million gain** from the sale of the Quebec facility was recorded as restructuring credit in Q1 fiscal 2026[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk) - A strategic transformation announced April 24, 2025, will **combine bedding and upholstery segments** into one Culp-branded business and consolidate facilities[69](index=69&type=chunk)[70](index=70&type=chunk) Restructuring Charges | Restructuring Charge (in Thousands) | August 3, 2025 | July 28, 2024 | | :---------------------------------- | :------------- | :------------ | | Additional depreciation expense | $22 | $875 | | Employee termination benefits | $(4) | $689 | | Lease Termination Costs | $62 | $670 | | Facility consolidation and relocation expenses | $52 | $251 | | Net (gain) loss on sale and impairment of property, plant, and equipment | $(3,747) | $95 | | Other Associated Costs | $107 | $51 | | Loss on disposal and markdowns of inventory | $0 | $116 | | Restructuring (credit) expense and restructuring related charge | $(3,508) | $2,747 | [11. Lines of Credit](index=27&type=section&id=11.%20Lines%20of%20Credit) Summarizes the company's various credit facilities, terms, and available borrowings - The U.S. ABL Facility term was **extended to June 12, 2028**, with a maximum principal of **$30.0 million**[75](index=75&type=chunk)[76](index=76&type=chunk)[79](index=79&type=chunk) - As of August 3, 2025, available borrowings under the U.S. Credit Agreement totaled **$17.6 million**, and the company was in compliance with all financial covenants[86](index=86&type=chunk)[93](index=93&type=chunk) Lines of Credit | Line of Credit (in Thousands) | August 3, 2025 | July 28, 2024 | April 27, 2025 | | :---------------------------- | :------------- | :------------ | :------------- | | Wells Fargo - U.S. revolving line of credit | $7,025 | $0 | $4,600 | | Agricultural Bank of China - revolving line of credit | $4,031 | $4,017 | $3,988 | | Agricultural Bank of China - supplier financing arrangements | $2,780 | $0 | $2,751 | | Agricultural Bank of China - working capital loan | $2,919 | $0 | $0 | | Bank of China - working capital loan | $1,390 | $0 | $1,375 | | Total Lines of Credit | $18,145 | $4,017 | $12,714 | [12. Fair Value](index=31&type=section&id=12.%20Fair%20Value) Discloses the fair value hierarchy and measurements for financial assets and liabilities - The company uses a **fair value hierarchy (Level 1, 2, 3)** to classify assets and liabilities based on observability of inputs[94](index=94&type=chunk)[95](index=95&type=chunk) - Investments in the rabbi trust for the deferred compensation plan totaled **$7.1 million** as of August 3, 2025, with accumulated unrealized gains of $292,000[98](index=98&type=chunk)[99](index=99&type=chunk) Fair Value of Assets | Asset (in Thousands) | August 3, 2025 (Level 1) | July 28, 2024 (Level 1) | April 27, 2025 (Level 1) | | :------------------- | :----------------------- | :---------------------- | :----------------------- | | U.S. Government Money Market Fund | $5,568 | $6,823 | $5,682 | | Growth Allocation Mutual Funds | $894 | $756 | $808 | | S&P 500 Index Fund | $340 | $212 | $275 | | Other | $308 | $252 | $282 | | Total | $7,110 | $8,043 | $7,047 | [13. Net Loss Per Share](index=35&type=section&id=13.%20Net%20Loss%20Per%20Share) Provides the calculation of basic and diluted net loss per share - Basic and diluted net loss per share were both **$(0.02)** for the three months ended August 3, 2025, compared to **$(0.58)** for the prior year[7](index=7&type=chunk) Net Loss Per Share Calculation | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | | :-------------------- | :------------- | :------------ | | Weighted average shares outstanding, basic | 12,570 | 12,470 | | Weighted average shares outstanding, diluted | 12,570 | 12,470 | | Antidilutive effect from net loss incurred | 90 | 137 | [14. Segment Information](index=35&type=section&id=14.%20Segment%20Information) Presents financial data for the company's operating segments, bedding and upholstery - Business segments were renamed to **'bedding' and 'upholstery'** to better reflect product offerings, with performance evaluated on net sales and gross profit[104](index=104&type=chunk)[106](index=106&type=chunk) Segment Performance | Segment (in Thousands) | Net Sales (Aug 3, 2025) | Net Sales (Jul 28, 2024) | Gross Profit (Aug 3, 2025) | Gross Profit (Jul 28, 2024) | | :--------------------- | :---------------------- | :----------------------- | :------------------------- | :-------------------------- | | Bedding | $28,046 | $28,076 | $2,942 | $(326) | | Upholstery | $22,645 | $28,461 | $4,286 | $5,518 | | Total | $50,691 | $56,537 | $7,228 | $5,076 | Segment Assets | Segment Assets (in Thousands) | August 3, 2025 | July 28, 2024 | April 27, 2025 | | :---------------------------- | :------------- | :------------ | :------------- | | Bedding Total Assets | $67,469 | $65,391 | $69,430 | | Upholstery Total Assets | $26,288 | $30,459 | $30,972 | | Total Segment Assets | $93,757 | $95,850 | $100,402 | [15. Income Taxes](index=41&type=section&id=15.%20Income%20Taxes) Explains the components of income tax expense and the effective tax rate - The effective income tax rate was significantly affected by the mix of earnings from U.S. and foreign operations and a **full valuation allowance** against U.S. deferred tax assets[114](index=114&type=chunk)[118](index=118&type=chunk) - The One Big Beautiful Bill Act (OBBBA) **did not impact the effective tax rate** due to the existing full U.S. valuation allowance[117](index=117&type=chunk)[250](index=250&type=chunk) - A full valuation allowance is maintained against U.S. net deferred income tax assets due to a **history of significant U.S. pre-tax losses**[121](index=121&type=chunk)[252](index=252&type=chunk) Income Tax Expense | Metric | August 3, 2025 | July 28, 2024 | | :----- | :------------- | :------------ | | Income tax expense | $1,369 | $240 | | Effective income tax rate | 120.3% | (3.4)% | [16. Stock-Based Compensation](index=45&type=section&id=16.%20Stock-Based%20Compensation) Details the company's equity incentive plan and related compensation expenses - The Amended and Restated 2015 Equity Incentive Plan authorizes an additional **960,000 shares**, with 669,853 shares available for future grants[129](index=129&type=chunk)[130](index=130&type=chunk) - Performance-based restricted stock units are granted to senior executives, measured by fair market value using **Monte Carlo simulation** for market-based components[131](index=131&type=chunk)[132](index=132&type=chunk) - Compensation expense for time-based restricted stock units was **$153,000** for the quarter, with $392,000 remaining unrecognized[141](index=141&type=chunk)[142](index=142&type=chunk) [17. Leases](index=48&type=section&id=17.%20Leases) Discloses information about the company's operating leases, including assets and liabilities - Operating lease expense was **$735,000** for the three months ended August 3, 2025, with a weighted average remaining lease term of **2.82 years**[146](index=146&type=chunk) Lease Balances | Lease Metric (in Thousands) | August 3, 2025 | July 28, 2024 | April 27, 2025 | | :-------------------------- | :------------- | :------------ | :------------- | | Right of use assets | $5,162 | $4,483 | $5,908 | | Operating lease liability - current | $2,209 | $1,565 | $2,394 | | Operating lease liability – long-term | $1,995 | $2,219 | $2,535 | [18. Commitments and Contingencies](index=50&type=section&id=18.%20Commitments%20and%20Contingencies) States management's assessment of the potential impact of legal proceedings and claims - Management believes current legal proceedings and claims will **not have a material adverse effect** on the company's financial position or results[147](index=147&type=chunk) [19. Statutory Reserves](index=50&type=section&id=19.%20Statutory%20Reserves) Describes the statutory reserve requirements for the company's China subsidiary - The China subsidiary's statutory surplus reserve fund reached its **50% registered capital requirement** ($4.0 million), ending the mandatory 10% net income transfer[148](index=148&type=chunk)[149](index=149&type=chunk) - The statutory surplus reserve fund is **non-distributable** except during liquidation but can be used for business expansion or converted into share capital[149](index=149&type=chunk) [20. Common Stock Repurchase Program](index=50&type=section&id=20.%20Common%20Stock%20Repurchase%20Program) Provides an update on the company's stock repurchase program activity - The board authorized a **$5.0 million** common stock repurchase program in March 2020; no shares were repurchased during the quarter[151](index=151&type=chunk)[153](index=153&type=chunk) - As of August 3, 2025, **$3.2 million remains available** for additional common stock repurchases[153](index=153&type=chunk) [Cautionary Statement Concerning Forward-Looking Information](index=53&type=section&id=Cautionary%20Statement%20Concerning%20Forward-Looking%20Information) Warns that forward-looking statements are subject to various risks and uncertainties - The report contains forward-looking statements subject to risks that may cause actual results to differ materially, including economic indicators, tariffs, and geopolitical instability[154](index=154&type=chunk)[155](index=155&type=chunk) - Key factors influencing future performance include housing starts, consumer tastes, trade policy, and the **success of restructuring initiatives**[155](index=155&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=55&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Provides an in-depth analysis of financial condition, operational results, and strategic initiatives [General](index=55&type=section&id=General) Provides an overview of the company's business segments and recent strategic transformations - The first quarter of fiscal 2026 was a **14-week period**, compared to a 13-week period in the prior year[158](index=158&type=chunk)[159](index=159&type=chunk) - The bedding segment manufactures fabrics and covers, while the upholstery segment sources and sells fabrics to furniture manufacturers[160](index=160&type=chunk)[162](index=162&type=chunk) - Strategic transformations include consolidating North American operations and **combining bedding and upholstery activities** into one Culp-branded business[161](index=161&type=chunk)[163](index=163&type=chunk) [Executive Summary](index=56&type=section&id=Executive%20Summary) Summarizes key financial results, including sales, gross profit, and liquidity for the quarter [Consolidated Results of Operations](index=56&type=section&id=Consolidated%20Results%20of%20Operations) Presents a high-level overview of the company's consolidated performance metrics Consolidated Results of Operations | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | Change (%) | | :-------------------- | :------------- | :------------ | :--------- | | Net sales | $50,691 | $56,537 | (10.3)% | | Gross profit | $7,228 | $5,076 | 42.4% | | Gross profit margin | 14.3% | 9.0% | 530bp | | Income (loss) from operations | $1,617 | $(6,851) | (123.6)% | | Net loss | $(231) | $(7,261) | (96.8)% | [Net Sales](index=56&type=section&id=Net%20Sales) Analyzes the drivers behind the year-over-year decrease in consolidated net sales - Consolidated net sales **decreased by 10.3%** year-over-year, with bedding sales flat and upholstery sales down **20.4%**[166](index=166&type=chunk) - Upholstery sales were impacted by **weakness in the residential furniture market** and tariff-related challenges[168](index=168&type=chunk) - The company is positioned for market share gains due to its **diversified production platform** offering supply chain optionality[169](index=169&type=chunk) [Gross Profit](index=56&type=section&id=Gross%20Profit) Explains the significant increase in consolidated gross profit and margin - Consolidated gross profit **increased by $2.1 million (42.4%)** to $7.2 million, driven by cost reductions and efficiency gains in the bedding segment[171](index=171&type=chunk)[172](index=172&type=chunk) - Bedding gross profit **increased by $3.3 million**, while upholstery gross profit decreased by $1.2 million[171](index=171&type=chunk) [Income (Loss) Before Income Taxes](index=58&type=section&id=Income%20(Loss)%20Before%20Income%20Taxes) Details the substantial improvement in pre-tax income compared to the prior year - Income before income taxes was **$1.1 million**, a significant improvement from a loss of **$(7.0) million** in the prior-year period[174](index=174&type=chunk) - Operating performance benefited from a more efficient bedding segment and a **$3.5 million restructuring credit** from the sale of the Canada facility[175](index=175&type=chunk) - Further cost benefits are expected in Q2 and Q3 fiscal 2026 from the **integration of upholstery and window business operations**[176](index=176&type=chunk) [Income Taxes](index=58&type=section&id=Income%20Taxes) Analyzes the factors contributing to the high effective income tax rate - Income tax expense was **$1.4 million (120.3% effective rate)**, compared to $240,000 ((3.4%) effective rate) in the prior-year period[177](index=177&type=chunk) - The effective tax rate was adversely affected by the mix of earnings from U.S. operations (pre-tax losses) and foreign subsidiaries, and a **full valuation allowance** against U.S. deferred tax assets[178](index=178&type=chunk) - Haitian operations' pre-tax losses of **$(362,000)** did not receive an income tax benefit due to a 0% income tax rate[178](index=178&type=chunk) [Liquidity](index=58&type=section&id=Liquidity) Summarizes the company's cash position and key cash flow activities - Cash and cash equivalents **increased by $5.5 million to $11.1 million**, primarily due to net borrowings on lines of credit and asset sales[181](index=181&type=chunk) - Net cash used in operating activities increased to **$(695,000)**, reflecting increased inventory and decreased accounts payable[182](index=182&type=chunk)[183](index=183&type=chunk) - Outstanding borrowings under lines of credit totaled **$18.1 million** as of August 3, 2025[184](index=184&type=chunk) [Segment Analysis](index=60&type=section&id=Segment%20Analysis) Provides a detailed performance review of the bedding and upholstery segments [Bedding Segment](index=60&type=section&id=Bedding%20Segment) Analyzes the bedding segment's flat sales but significantly improved profitability - Net sales were **flat year-over-year** due to low consumer demand and tariff uncertainty, despite growth in knit fabric product lines[188](index=188&type=chunk)[189](index=189&type=chunk) - Gross profit **significantly improved to $2.9 million** from a loss of $(326,000), driven by cost reductions from restructuring[192](index=192&type=chunk)[193](index=193&type=chunk) - Inventory **increased by $9.8 million (38.9%)** to $35.1 million, reflecting a transition to strategically source mattress fabrics[197](index=197&type=chunk) Bedding Segment Performance | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | Change (%) | | :-------------------- | :------------- | :------------ | :--------- | | Net sales | $28,046 | $28,076 | (0.1)% | | Gross profit (loss) | $2,942 | $(326) | N.M. | | Gross profit margin | 10.5% | (1.2)% | N.M. | [Upholstery Segment](index=64&type=section&id=Upholstery%20Segment) Discusses the decline in the upholstery segment's sales and profitability - Sales **declined 20.4%** due to muted residential demand, global trade uncertainty, and an uneven comparison from a large customer's prior-year purchasing[205](index=205&type=chunk) - Profitability decreased primarily due to lower sales; cost benefits from consolidating the Read Window business are expected in **Q3 fiscal 2026**[210](index=210&type=chunk)[211](index=211&type=chunk) - Accounts receivable **decreased by $3.3 million (28.9%)** and inventory **decreased by $1.4 million (8.4%)**, reflecting lower net sales[214](index=214&type=chunk)[217](index=217&type=chunk)[218](index=218&type=chunk) Upholstery Segment Performance | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | Change (%) | | :-------------------- | :------------- | :------------ | :--------- | | Net Sales | $22,645 | $28,461 | (20.4)% | | Gross profit | $4,286 | $5,518 | (22.3)% | | Gross margin | 18.9% | 19.4% | (50)bp | [Consolidated - Other Income Statement Categories](index=68&type=section&id=Consolidated%20-%20Other%20Income%20Statement%20Categories) Analyzes other key line items on the consolidated income statement [Selling, General, and Administrative Expenses ("SG&A")](index=68&type=section&id=Selling%2C%20General%2C%20and%20Administrative%20Expenses%20(%22SG%26A%22)) Details the slight decrease in SG&A expenses despite a longer reporting period - SG&A expenses **slightly decreased by 1.9%** due to lower net sales and cost reduction initiatives, partially offset by the longer 14-week period[227](index=227&type=chunk)[229](index=229&type=chunk) SG&A Expenses | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | Change (%) | | :-------------------- | :------------- | :------------ | :--------- | | SG&A expenses | $9,119 | $9,296 | (1.9)% | [Restructuring Credit (Expense)](index=70&type=section&id=Restructuring%20Credit%20(Expense)) Explains the significant restructuring credit recorded in the quarter - A **$3.9 million restructuring credit** was recorded, primarily from a **$4.0 million gain** on the sale of the Quebec, Canada facility[231](index=231&type=chunk)[232](index=232&type=chunk) - Restructuring expense of **$349,000** was incurred for the strategic transformation, with estimated cumulative charges of $2.2 million[234](index=234&type=chunk) Restructuring Credit (Expense) | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | | :-------------------- | :------------- | :------------ | | Restructuring credit (expense) | $3,508 | $(2,631) | [Interest Expense](index=71&type=section&id=Interest%20Expense) Highlights the substantial increase in interest expense due to higher borrowings - Interest expense **increased significantly** due to higher borrowings under line of credit agreements in the U.S. and China[237](index=237&type=chunk) Interest Expense | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | Change (%) | | :-------------------- | :------------- | :------------ | :--------- | | Interest expense | $(183) | $(28) | 553.6% | [Interest Income](index=71&type=section&id=Interest%20Income) Notes the decrease in interest income resulting from lower cash balances - Interest income **decreased** due to lower average cash balances in Q1 fiscal 2026 compared to the prior year[238](index=238&type=chunk) Interest Income | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | Change (%) | | :-------------------- | :------------- | :------------ | :--------- | | Interest income | $235 | $262 | (10.3)% | [Other Expense](index=71&type=section&id=Other%20Expense) Attributes the increase in other expense to unfavorable foreign currency exchange rates - The increase in other expense was primarily due to less favorable foreign currency exchange rates, resulting in a **$189,000 foreign currency exchange rate loss**[240](index=240&type=chunk) Other Expense | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | Change (%) | | :-------------------- | :------------- | :------------ | :--------- | | Other expense | $531 | $404 | 31.4% | [Income Taxes](index=71&type=section&id=Income%20Taxes) Provides a detailed analysis of the effective tax rate and income taxes paid - The effective tax rate was significantly impacted by the mix of earnings from U.S. operations (pre-tax losses) and foreign subsidiaries, and a **full valuation allowance** against U.S. deferred tax assets[249](index=249&type=chunk) - The One Big Beautiful Bill Act (OBBBA) **did not impact the effective tax rate** due to the existing full U.S. valuation allowance[248](index=248&type=chunk)[250](index=250&type=chunk) - A full valuation allowance is maintained against U.S. net deferred income tax assets due to a **history of significant U.S. pre-tax losses**[252](index=252&type=chunk) Income Tax Expense | Metric | August 3, 2025 | July 28, 2024 | | :----- | :------------- | :------------ | | Income tax expense | $1,369 | $240 | | Effective income tax rate | 120.3% | (3.4)% | Income Taxes Paid | Income Taxes Paid (in Thousands) | August 3, 2025 | July 28, 2024 | | :------------------------------- | :------------- | :------------ | | China Income Taxes, Net of Refunds | $46 | $561 | | Canada - Income Taxes, Net of Refunds | $0 | $0 | | Total | $46 | $561 | [Liquidity and Capital Resources](index=77&type=section&id=Liquidity%20and%20Capital%20Resources) Assesses the company's liquidity position, capital resources, and working capital management [Overall](index=77&type=section&id=Overall) Outlines the company's primary sources of liquidity and key cash flow drivers - Current liquidity sources include **$11.1 million in cash**, cash flow from operations, and **$17.6 million available** under the U.S. revolving credit line[260](index=260&type=chunk) - Net cash used in operating activities increased to **$(695,000)**, primarily due to increased inventory and decreased accounts payable[262](index=262&type=chunk) - Cash balance may be adversely affected by low customer demand, **increased tariffs**, and supply chain disruptions[264](index=264&type=chunk) [By Geographic Area](index=78&type=section&id=By%20Geographic%20Area) Presents a breakdown of cash and cash equivalents by geographic location Cash and Cash Equivalents by Geography | Geographic Area (in Thousands) | August 3, 2025 | July 28, 2024 | April 27, 2025 | | :----------------------------- | :------------- | :------------ | :------------- | | United States | $510 | $2,472 | $151 | | China | $9,229 | $10,462 | $4,723 | | Canada | $1,316 | $326 | $701 | | Haiti | $17 | $141 | $38 | | Vietnam | $15 | $62 | $8 | | Cayman Islands | $7 | $9 | $8 | | Total | $11,094 | $13,472 | $5,629 | [Common Stock Repurchase Program](index=78&type=section&id=Common%20Stock%20Repurchase%20Program) Confirms no share repurchase activity during the quarter - **No shares were repurchased** during Q1 fiscal 2026 or Q1 fiscal 2025; **$3.2 million remains available** for repurchases[266](index=266&type=chunk)[267](index=267&type=chunk) [Dividends](index=78&type=section&id=Dividends) Notes the continued suspension of the quarterly cash dividend - The company **suspended its quarterly cash dividend** on June 29, 2022, to preserve capital, with no payments made in fiscal 2023-2026[268](index=268&type=chunk) [Consolidated Basis - Working Capital](index=78&type=section&id=Consolidated%20Basis%20-%20Working%20Capital) Analyzes the key changes in operating working capital components - Operating working capital was **$43.7 million** as of August 3, 2025, up from $35.1 million as of July 28, 2024[269](index=269&type=chunk) - Accounts receivable **decreased by $3.2 million (14.8%)** to $18.4 million, reflecting lower net sales[270](index=270&type=chunk) - Inventory **increased by $8.4 million (20.3%)** to $50.1 million, driven by strategic sourcing and rising costs/tariffs[273](index=273&type=chunk) - Accounts payable **decreased to $24.3 million**, primarily due to decreased consumer demand and timing of vendor payments[276](index=276&type=chunk) [Financing Arrangements](index=80&type=section&id=Financing%20Arrangements) Confirms compliance with financial covenants related to credit agreements - Outstanding borrowings under line of credit agreements totaled **$18.1 million**, with the company in compliance with all financial covenants[277](index=277&type=chunk) [Leases](index=80&type=section&id=Leases) References the detailed disclosure of lease obligations in the financial statement notes - Lease obligations are detailed in Note 17, including a **five-year maturity schedule**[279](index=279&type=chunk) [Capital Expenditures and Depreciation](index=80&type=section&id=Capital%20Expenditures%20and%20Depreciation) Discusses the reduction in capital spending and provides future projections - Cash capital expenditures **decreased to $179,000** from $501,000 in the prior year, reflecting reduced spending[280](index=280&type=chunk) - Depreciation expense was **$1.1 million**, down from $1.6 million in the prior year[281](index=281&type=chunk) - Fiscal 2026 capital spending is projected to be **comparable to fiscal 2025**, focusing on efficiency and future growth[283](index=283&type=chunk) [Critical Accounting Policies and Recent Accounting Developments](index=82&type=section&id=Critical%20Accounting%20Policies%20and%20Recent%20Accounting%20Developments) Confirms no changes to significant accounting policies during the period - No changes in significant accounting policies as of August 3, 2025; refer to Note 2 for recent accounting pronouncements[284](index=284&type=chunk) [Contractual Obligations](index=82&type=section&id=Contractual%20Obligations) States that there have been no significant changes to contractual obligations - There were **no significant or new contractual obligations** since the last Annual Report on Form 10-K[285](index=285&type=chunk) [Inflation](index=82&type=section&id=Inflation) Discusses the adverse impact of inflation and tariffs on costs and consumer demand - Rising raw material, energy, and labor costs could **adversely affect operating results** as market dynamics limit price increases[286](index=286&type=chunk) - New tariffs have increased upward pressure on raw material costs; **price increases were initiated in Q2 fiscal 2026** to mitigate these impacts[287](index=287&type=chunk)[288](index=288&type=chunk) - Persistent inflationary pressures **curtailed consumer spending** in fiscal 2023-2025, leading to lower demand[289](index=289&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=83&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Outlines the company's exposure to interest rate and foreign currency market risks [Interest Rates](index=83&type=section&id=Interest%20Rates) Details the company's exposure to variable interest rates on its credit agreements - The U.S. revolving credit agreement has a variable interest rate based on SOFR (**6.11%** as of August 3, 2025), with **$7.0 million outstanding**[291](index=291&type=chunk) - Chinese credit agreements have variable interest rates based on the China Loan Prime Rate (**2.6%** as of August 3, 2025), with total outstanding balances of **$8.3 million USD**[292](index=292&type=chunk)[293](index=293&type=chunk)[294](index=294&type=chunk) [Foreign Currency](index=83&type=section&id=Foreign%20Currency) Assesses the company's exposure to fluctuations in foreign currency exchange rates - The company is exposed to foreign currency risk but attempts to maintain a **natural hedge** by balancing assets and liabilities in local currencies[296](index=296&type=chunk) - A **10% change in exchange rates** as of August 3, 2025, would not have materially affected results of operations or financial position[296](index=296&type=chunk) [Item 4. Controls and Procedures](index=83&type=section&id=Item%204.%20Controls%20and%20Procedures) Confirms the effectiveness of disclosure controls and procedures as of the quarter-end - Disclosure controls and procedures were evaluated and **deemed effective** as of August 3, 2025, ensuring timely and accurate reporting[297](index=297&type=chunk) - **No material changes** in internal control over financial reporting occurred during the quarter ended August 3, 2025[298](index=298&type=chunk) [Part II - Other Information](index=85&type=section&id=Part%20II%20-%20Other%20Information) [Item 1. Legal Proceedings](index=85&type=section&id=Item%201.%20Legal%20Proceedings) Confirms no material changes to legal proceedings during the quarter - **No material changes** to legal proceedings during the three months ended August 3, 2025[299](index=299&type=chunk) [Item 1A. Risk Factors](index=85&type=section&id=Item%201A.%20Risk%20Factors) States that no material changes to risk factors occurred during the quarter - **No material changes** to risk factors during the three months ended August 3, 2025[300](index=300&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=85&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Reports no stock repurchase activity and the remaining authorization under the program - **No shares were purchased** under the common stock repurchase program during the reported period[301](index=301&type=chunk) Common Stock Repurchase Program Activity | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :----- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :------------------------------------------------------------------------------------- | | April 28, 2025 to June 1, 2025 | — | — | — | $3,248,094 | | June 2, 2025 to June 29, 2025 | — | — | — | $3,248,094 | | June 30, 2025 to August 3, 2025 | — | — | — | $3,248,094 | | Total | — | — | — | $3,248,094 | [Item 5. Other Information](index=85&type=section&id=Item%205.%20Other%20Information) Discloses no adoption or termination of trading arrangements by directors or officers - **No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements** were adopted or terminated by directors or officers during the quarter[304](index=304&type=chunk) [Item 6. Exhibits](index=86&type=section&id=Item%206.%20Exhibits) Lists the exhibits filed as part of the Form 10-Q report - Exhibits include **certifications from the CEO and CFO** (31.1, 31.2, 32.1, 32.2) and various Inline XBRL documents[307](index=307&type=chunk) [Signatures](index=87&type=section&id=Signatures) Provides the official signatures authorizing the filing of the report - The report was signed by **Kenneth R. Bowling (EVP & CFO)** and **Ronald S. Chandler (VP & Corporate Controller)** on September 12, 2025[311](index=311&type=chunk)

Core Insights - The article discusses the limitations of AI-generated earnings call insights and emphasizes the lack of editorial review, which may affect the accuracy and completeness of the information provided [1] Group 1 - The earnings call insights are compilations of transcripts and content available on the Seeking Alpha website [1] - The insights are generated by an AI tool, which has inherent limitations [1] - There is no guarantee regarding the accuracy, completeness, or timeliness of the earnings call insights [1]

Group 1 - The company is responsible for the development of transcript-related projects [1] - The company publishes thousands of quarterly earnings calls per quarter [1] - The company is continuing to grow and expand its coverage [1]

Financial Data and Key Metrics Changes - Net sales for the first quarter were $50.7 million, down from $56.5 million in the prior year period, primarily due to market softness and tariff-related shipment pauses [21][22] - Gross profit improved to $7.2 million or 14.3% of sales, compared to $5.1 million or 9% of sales in the prior year, reflecting a 530 basis point increase driven by restructuring benefits [21][22] - Operating income was $1.6 million, a significant improvement from a loss of $6.9 million in the prior year [21][22] - Net loss for the quarter was $231,000 or $0.02 per diluted share, compared to a net loss of $7.3 million or $0.58 per diluted share in the prior year [22] Business Line Data and Key Metrics Changes - Bedding segment sales were $28 million, flat compared to the previous year, with gross profit at $2.9 million or 10.5% of sales, a significant improvement from a negative gross profit in the prior year [24] - Upholstery segment sales were $22.6 million, down approximately 20% from $28.5 million in the prior year, with gross profit at $4.3 million or 18.9% of sales, down from $5.5 million or 19.4% [25][26] Market Data and Key Metrics Changes - The bedding industry is still in a down cycle, but analysts suggest that demand may be close to bottoming out, with potential for recovery driven by product replacement and household formation [8][9] - The upholstery segment faced challenges due to high tariffs on imports from China, which significantly impacted sales during the quarter [11][12] Company Strategy and Development Direction - The company is focused on restructuring and integration initiatives to improve operating efficiency and profitability, with expectations for sequential sales growth throughout fiscal 2026 [31][32] - Project Blaze aims to unify operations and share resources across divisions, which is expected to enhance overall business performance [16][18] - The company is strategically positioned to capitalize on market recovery by maintaining flexibility in its supply chain and not limiting production capacity [42][43] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the ongoing challenges from tariffs and market conditions but remains optimistic about gaining market share and improving profitability [9][31] - The company expects adjusted EBITDA results to range from near breakeven to slightly positive for the second quarter, with continued improvements anticipated throughout fiscal 2026 [31][32] Other Important Information - The company reported $11.1 million in total cash and $18.1 million in outstanding debt, maintaining a net debt position of $7.1 million [26][28] - Capital expenditures were reduced to $179,000 for the quarter, reflecting a focus on managing costs and efficiency [29] Q&A Session Summary Question: Are all known tariff impacts accounted for in your initiatives? - Management indicated that they have adjusted pricing and operations to mitigate tariff impacts, and they feel confident in their current strategies [34][35] Question: What is the elasticity of pricing in the current market? - Management acknowledged the competitive nature of the market but emphasized the need to pass on costs to maintain profitability [37] Question: How does the current market downturn compare to past cycles? - Management noted that while down cycles are common, the current downturn has been prolonged, but they are confident in a future recovery [40][42] Question: Will the company be able to meet increased demand with the existing cost structure? - Management assured that they have not limited capacity and can grow as demand increases, leveraging existing cost structures for better margins [43][44] Question: What is the estimated market value of real estate and the future use of NOLs? - Management provided a net book value of $12 million for real estate, with an estimated market value of $40 to $45 million, and discussed the potential future benefits of NOLs once profitability is achieved [45][46]

Financial Data and Key Metrics Changes - Net sales for Q1 FY 2026 were $50.7 million, down from $56.5 million in the prior year, primarily due to market softness and tariff-related shipment pauses [21] - Gross profit increased to $7.2 million (14.3% of sales) from $5.1 million (9% of sales) year-over-year, reflecting a 530 basis point improvement driven by restructuring benefits [21] - Operating income for the quarter was $1.6 million, compared to a loss of $6.9 million in the prior year [21] - Net loss was $231,000 ($0.02 per diluted share), significantly improved from a net loss of $7.3 million ($0.58 per diluted share) in the prior year [22] Business Line Data and Key Metrics Changes - Bedding segment sales were $28 million, flat compared to the previous year, with gross profit improving to $2.9 million (10.5% of sales) from a loss of $326,000 (-1.2% of sales) [24] - Upholstery segment sales decreased by approximately 20% to $22.6 million from $28.5 million, with gross profit at $4.3 million (18.9% of sales), down from $5.5 million (19.4% of sales) [25][26] Market Data and Key Metrics Changes - The home furnishings industry remains in a down cycle, but analysts suggest that mattress demand may be close to bottoming out, with potential for recovery driven by product replacement and household formation [8][9] - The upholstery segment faced challenges due to high tariffs on imports from China, which temporarily halted shipments and impacted sales [11][12] Company Strategy and Development Direction - The company is focused on restructuring and integration initiatives to improve operating efficiency and profitability, with expectations for sequential sales growth throughout FY 2026 [31] - Project Blaze aims to unify operations and share resources across divisions, enhancing overall operational efficiency [16] - The company is strategically positioned to capitalize on market recovery by maintaining capacity and leveraging competitive advantages in supply chain management [19][44] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the ongoing challenges from tariffs and market conditions but expresses confidence in the company's ability to navigate these issues and improve profitability [9][31] - The company anticipates sequential growth in sales and adjusted EBITDA results moving towards breakeven or slightly positive for Q2 FY 2026 [31] - Management emphasizes the importance of maintaining flexibility in operations to adapt to changing market demands [43] Other Important Information - The effective income tax rate for Q1 FY 2026 was 120.3%, influenced by the gain on the sale of the Canadian manufacturing facility [23] - The company reported $11.1 million in cash and $18.1 million in outstanding debt, maintaining a net debt position of $7.1 million [26][28] Q&A Session Summary Question: Are all known tariff impacts accounted for in your initiatives? - Management believes they can take tariffs off the immediate worry list, having adjusted pricing and operations to manage the current environment effectively [35] Question: What is the pricing elasticity in the current market? - Management acknowledges the competitive nature of the business but is working to pass through necessary price increases to cover tariffs and improve margins [37] Question: How far along is the realization of the $18 million in initiatives? - Management indicates that the $10-$11 million from the previous year's restructuring is fully implemented, while other initiatives will impact the back half of FY 2026 [38][39] Question: How does the current market dip compare to past downturns? - Management notes that while down cycles are common, the current period has been prolonged, but they remain confident in a market recovery [40][42] Question: Will the company be able to meet demand if it turns? - Management asserts that they have not limited capacity and can grow as needed, leveraging existing resources to meet potential demand increases [43][44] Question: What is the estimated market value of real estate and the future use of NOLs? - The net book value of the real estate is approximately $12 million, with an estimated market value of $40-$45 million, while NOLs will provide future tax benefits once profitability is achieved [45][46]

Financial Data and Key Metrics Changes - Net sales for the first quarter were $50.7 million, down from $56.5 million in the prior year, primarily due to market softness and tariff-related shipment pauses [21] - Gross profit increased to $7.2 million or 14.3% of sales, compared to $5.1 million or 9% of sales in the prior year, reflecting a 530 basis point improvement driven by restructuring initiatives [21] - Operating income was $1.6 million, a significant recovery from a loss of $6.9 million in the prior year [21] - Net loss for the quarter was $231,000 or $0.02 per diluted share, compared to a net loss of $7.3 million or $0.58 per diluted share in the prior year [22] Business Line Data and Key Metrics Changes - Bedding segment sales were $28 million, flat compared to the previous year, with gross profit improving to $2.9 million or 10.5% of sales from a negative $326,000 or negative 1.2% [24] - Upholstery segment sales were $22.6 million, down approximately 20% from $28.5 million in the prior year, with gross profit at $4.3 million or 18.9% of sales, down from $5.5 million or 19.4% [25][26] Market Data and Key Metrics Changes - The home furnishings industry continues to experience depressed demand, with challenges from consumer spending and housing market trends impacting both business segments [10][11] - Despite the downturn, there are indications of pent-up demand in the mattress market, with analysts suggesting that demand may be close to bottoming out [8][9] Company Strategy and Development Direction - The company is focused on restructuring and integration initiatives to improve operational efficiency and profitability, with expectations for sequential sales growth throughout fiscal 2026 [31][32] - Project Blaze aims to unify the two former divisions into a single Culp-branded business, enhancing operational capabilities and cost efficiencies [16][18] - The company is strategically positioned to leverage its global supply chain and manufacturing flexibility to navigate tariff challenges and capitalize on market recovery [19][12] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the ongoing challenges from tariffs and a low demand environment but remains optimistic about gaining market share and improving profitability [31][32] - The company expects adjusted EBITDA results to range from near breakeven to slightly positive for the second quarter, with continued improvements anticipated throughout the fiscal year [31] - Management emphasizes the importance of not waiting for market recovery but instead making proactive adjustments to enhance profitability [42] Other Important Information - The company reported $11.1 million in total cash and $18.1 million in outstanding debt, maintaining a net debt position of $7.1 million [26] - Capital expenditures were reduced to $179,000 for the quarter, reflecting a strategic focus on managing capital and operational efficiency [29] Q&A Session Summary Question: Are all known tariff impacts accounted for in your initiatives? - Management indicated that they have adjusted pricing and operational strategies to mitigate tariff impacts, and they feel confident in their current position regarding tariffs [35][36] Question: What is the elasticity of pricing in the current market? - Management acknowledged the competitive nature of the industry but emphasized the need to pass on costs to maintain profitability, while being fair and aggressive in pricing strategies [37] Question: How does the current market downturn compare to past cycles? - Management noted that while down cycles are common, the current downturn has been prolonged since 2020, but they remain confident in a future recovery [40][42] Question: Will the company be able to meet increased demand with the existing cost structure? - Management assured that they have not limited capacity and can grow as needed, indicating significant cost leverage available when demand increases [43][44] Question: What is the estimated market value of real estate and the future use of NOLs? - The net book value of real estate is approximately $12 million, with an estimated market value of $40 to $45 million, and NOLs will provide future tax benefits once profitability is achieved [45][46]

Financial Data and Key Metrics Changes - Net sales for the first quarter were $50.7 million, down from $56.5 million in the prior year, primarily due to market softness and tariff-related shipment pauses [21] - Gross profit increased to $7.2 million or 14.3% of sales, compared to $5.1 million or 9% of sales in the prior year, reflecting a 530 basis point improvement [21] - Operating income was $1.6 million, a significant recovery from a loss of $6.9 million in the prior year [21] - Net loss for the quarter was $231,000 or $0.02 per diluted share, compared to a net loss of $7.3 million or $0.58 per diluted share in the prior year [22] Business Line Data and Key Metrics Changes - Bedding segment sales were $28 million, flat compared to the previous year, with gross profit improving to $2.9 million or 10.5% of sales from a negative $326,000 or negative 1.2% [24] - Upholstery segment sales were $22.6 million, down approximately 20% from $28.5 million in the prior year, with gross profit at $4.3 million or 18.9% of sales, down from $5.5 million or 19.4% [25] Market Data and Key Metrics Changes - The home furnishings industry continues to experience depressed demand, impacting both bedding and upholstery segments [5][12] - Analysts suggest that mattress demand may be close to bottoming out, with potential for recovery driven by product replacement and household formation [9] Company Strategy and Development Direction - The company is focused on restructuring and integration initiatives to improve operating efficiency and profitability, with expectations for sequential sales growth throughout fiscal 2026 [30] - Project Blaze aims to unify operations and share best practices across divisions, enhancing overall business performance [16] - The company is strategically managing its supply chain to navigate tariff challenges and maintain competitive advantages [13][19] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the ongoing challenges from tariffs and market conditions but remains optimistic about gaining market share and improving profitability [10][19] - The company expects adjusted EBITDA results to range from near breakeven to slightly positive for the second quarter of fiscal 2026, with continued improvements anticipated throughout the year [30] Other Important Information - The company reported $11.1 million in total cash and $18.1 million in outstanding debt, maintaining a net debt position of $7.1 million [26] - Capital expenditures were reduced to $179,000 for the quarter, reflecting a focus on managing capital and operational efficiency [28] Q&A Session Summary Question: Are all known tariff impacts accounted for in current initiatives? - Management indicated that they have adjusted pricing and operations to mitigate tariff impacts, and they are currently able to perform and grow margins despite the challenges [34][35] Question: What is the current pricing elasticity in the market? - Management noted that while pricing is challenging, they are being fair yet aggressive in adjusting prices to cover tariffs and improve margins [36] Question: How far along is the company in realizing the $18 million in initiatives? - Management stated that the $10 to $11 million from the previous year's restructuring is expected to fully impact fiscal 2026, while other initiatives will contribute in the latter half of the year [37][38] Question: How does the current market dip compare to past downturns? - Management described the current prolonged downturn as unusual but expressed confidence in the eventual recovery of the market [39][40] Question: How will the company handle potential increased demand in the future? - Management emphasized that they have not limited capacity and can grow it as needed, allowing for significant cost leverage when demand increases [41][42] Question: What is the estimated market value of the company's real estate and the status of federal NOLs? - Management confirmed the net book value of real estate is around $12 million, with an estimated market value of $40 to $45 million, and noted that federal NOLs will provide future tax benefits once profitability is achieved [43][44]

Company Overview - Culp, Inc is a major North American marketer of mattress and upholstery fabrics with global manufacturing in the US, China, Haiti, and Vietnam[6] - Culp's fiscal year 2025 revenue was $213.2 million[7] - The bedding segment accounts for 53% of Culp's fiscal 2025 revenue, while the upholstery segment accounts for 47%[8] Market Position and Strategy - Culp holds a 20-25% market share in the $500-600 million domestic mattress fabric and cover market[10] - Culp holds an 8-10% market share in the $1.5-$2.5 billion domestic upholstery fabric market[13] - Restructuring actions completed in fiscal year 2025 are projected to yield $10 to $11 million in annualized cost savings and efficiency gains[21] - Additional integration actions in fiscal year 2026 are expected to generate ~$6 million in total annualized additional benefits[32] - Pricing initiatives in fiscal year 26 are expected to generate ~$2.5 million annualized margin improvement in bedding segment[32] Liquidity and Financial Health - As of August 3, 2025, Culp's total liquidity was $28.7 million, including cash and availability from credit lines[15] - Estimated proceeds from a Canadian real estate sale will add $3 million to liquidity, bringing the total to $31.7 million[15] - Culp has U S Federal NOL carryforwards totaling ~$88.1 million as of April 27, 2025[16] Market Outlook - The mattress industry may be nearing the end of a period of low demand[35] - UBS forecasts 4% growth in mattress industry sales in 2026 and 8% growth in 2027[40]

Group 1 - Culp, Inc. reported a quarterly loss of $0.02 per share, outperforming the Zacks Consensus Estimate of a loss of $0.12, and showing improvement from a loss of $0.37 per share a year ago, resulting in an earnings surprise of +83.33% [1] - The company posted revenues of $50.69 million for the quarter ended July 2025, missing the Zacks Consensus Estimate by 11.84%, and down from $56.54 million in the same quarter last year [2] - Culp shares have declined approximately 22.5% year-to-date, contrasting with the S&P 500's gain of 10.7% [3] Group 2 - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The trend of estimate revisions for Culp was mixed prior to the earnings release, resulting in a Zacks Rank 3 (Hold), indicating expected performance in line with the market [6] - The current consensus EPS estimate for the upcoming quarter is -$0.09 on revenues of $54.32 million, and for the current fiscal year, it is $0.01 on revenues of $214.13 million [7] Group 3 - The Textile - Home Furnishing industry, to which Culp belongs, is currently ranked in the top 5% of over 250 Zacks industries, suggesting a favorable outlook for stocks within this sector [8]

[CULP ANNOUNCES FIRST QUARTER FISCAL 2026 RESULTS](index=1&type=section&id=CULP%20ANNOUNCES%20FIRST%20QUARTER%20FISCAL%202026%20RESULTS) Culp, Inc. reports Q1 FY2026 financial results, highlighting improved profitability and operational efficiency despite market challenges [Fiscal 2026 First Quarter Financial Highlights](index=1&type=section&id=Fiscal%202026%20First%20Quarter%20Financial%20Highlights) Culp, Inc. reported a decrease in consolidated net sales but significant improvements in gross profit and operating income for Q1 FY2026, driven by restructuring benefits. The company reduced its net loss significantly compared to the prior year Consolidated Financial Performance (Q1 FY2026 vs. Q1 FY2025) | Metric | Q1 FY2026 | Q1 FY2025 | Change (YoY) | | :-------------------------- | :---------- | :---------- | :----------- | | Net Sales | $50.7 million | $56.5 million | (10.3%) | | Gross Profit | $7.2 million | $5.1 million | 42.4% | | Gross Profit Margin | 14.3% | 9.0% | +530 bps | | Operating Income (Loss) | $1.6 million | $(6.9) million | (123.6%) | | Non-GAAP Operating Loss | $(1.9) million | $(4.1) million | (53.7%) | | Net Loss | $(231) thousand | $(7.3) million | (96.8%) | | Diluted EPS | $(0.02) | $(0.58) | (96.6%) | | Adjusted EBITDA | $(1.1) million | $(2.7) million | (59.3%) | [Management Commentary](index=1&type=section&id=Management%20Commentary) Management emphasized the effectiveness of restructuring initiatives in improving operating performance despite a challenging market. They anticipate further cost and efficiency benefits from ongoing division integration and recent price increases, aiming for approximately $6 million in annual enhancements. The company is focused on returning to profitability and reducing net debt - Restructuring initiatives completed last year led to substantial double-digit improvement at both gross profit and operating levels[3](index=3&type=chunk) - Ongoing integration of former divisions (upholstery operations transition, Read Window operations transition) and recent price increases are expected to generate approximately **$6 million of additional cost and efficiency enhancements annually**[4](index=4&type=chunk)[6](index=6&type=chunk) - Highest priorities are to return CULP to profitability and reduce the current net debt position, leveraging size and scale advantages to win market share, particularly in bedding[7](index=7&type=chunk)[8](index=8&type=chunk) [Financial Outlook](index=2&type=section&id=Financial%20Outlook) Due to macroeconomic uncertainty and the fluid global trade and tariff environment, the company is providing only limited forward guidance. Expectations are based on current information, projected impacts of restructuring/integration, and market headwinds, assuming no further significant tariff impacts - Limited forward guidance provided due to macro-economic uncertainty and fluid global trade and tariff environment[9](index=9&type=chunk) - Expectations reflect management's assumptions regarding business and industry trends, projected impact of restructuring and integration initiatives, ongoing market headwinds, and no further meaningful impacts from tariffs and trade negotiations[9](index=9&type=chunk) [Fiscal 2026 First Quarter Business Segment Highlights](index=2&type=section&id=Fiscal%202026%20First%20Quarter%20Business%20Segment%20Highlights) Following the integration of its former divisions, Culp now reports its businesses as Bedding and Upholstery segments. SG&A expenses are managed on a consolidated basis, and segment-level operating performance is no longer reported - The company's two formerly separate divisions, Culp Home Fashions and Culp Upholstery Fabrics, are now referred to as Bedding and Upholstery segments[10](index=10&type=chunk) - Selling, general and administrative (SG&A) expenses are now managed on a consolidated basis, and segment-level operating performance will no longer be reported[10](index=10&type=chunk) [Bedding Segment](index=2&type=section&id=Bedding) The Bedding segment maintained flat sales and significantly improved gross profit in a low-demand market, driven by a restructured cost platform and market share gains - Sales in the Bedding segment were **$28.0 million** for the first quarter, generally flat compared with the prior-year period, despite a low-demand market, as the segment continued to win market share with larger customers[12](index=12&type=chunk) - The newly-restructured cost platform drove gross profit of **$2.9 million**, or **10.5% of sales**, a significant improvement from the prior year period's negative **$(326) thousand**, or negative **(1.2%) of sales**[12](index=12&type=chunk)[13](index=13&type=chunk) - The company expects sequential sales growth throughout the year and anticipates cost and efficiency benefits, along with price increases, to drive EBITDA (adjusted) from near breakeven to slightly positive for Q2 FY2026, with operating performance and profitability improving sequentially thereafter[11](index=11&type=chunk) [Upholstery Segment](index=3&type=section&id=Upholstery) The Upholstery segment experienced a sales decline due to market softness, high tariffs, and uneven prior-year comparisons, resulting in reduced gross profit - Sales in the Upholstery segment were **$22.6 million** for the first quarter, down approximately **20%** compared with **$28.5 million** in the prior-year period[17](index=17&type=chunk) - The decline was driven by market softness, historically high tariffs on China-produced products (which grounded residential upholstery order flow for ~5 weeks), and an uneven year-over-year comparison due to a large customer's purchasing concentration in the prior year[17](index=17&type=chunk) - Gross profit was **$4.3 million**, or **18.9% of sales**, down from **$5.5 million**, or **19.4% of sales**, in the prior year period, largely due to lower comparable sales[17](index=17&type=chunk) [Balance Sheet, Cash Flow, and Liquidity](index=3&type=section&id=Balance%20Sheet,%20Cash%20Flow,%20and%20Liquidity) As of August 3, 2025, Culp maintained $11.1 million in cash and $18.1 million in outstanding debt. The company had $28.7 million in total liquidity. Cash flow from operations was negative, but adjusted free cash flow was positive due to proceeds from asset sales. Capital expenditures decreased significantly - As of August 3, 2025, the Company maintained **$11.1 million** in total cash and **$18.1 million** in outstanding debt under its credit facilities, including **$2.8 million** in supplier financing[17](index=17&type=chunk) - Total liquidity was approximately **$28.7 million**, consisting of **$11.1 million** in cash and **$17.6 million** in borrowing availability under its domestic credit facility[17](index=17&type=chunk) - Cash flow from operations was negative **$(695) thousand** for Q1 FY2026, primarily driven by operating losses partially offset by favorable working capital. Adjusted free cash flow was **$311 thousand**[17](index=17&type=chunk) [Conference Call Information](index=3&type=section&id=Conference%20Call) Culp, Inc. will host a conference call on September 11, 2025, at 9:00 a.m. ET to discuss Q1 FY2026 financial results, with a live webcast and replay available on the company's investor relations website - Culp, Inc. will hold a conference call to discuss financial results for the first quarter of its fiscal year 2026 on Thursday, September 11, 2025, at 9:00 a.m. Eastern Time[15](index=15&type=chunk) - A live webcast and replay will be available on the 'Investor Relations' page of the Company's website, www.culp.com[15](index=15&type=chunk) [About the Company](index=3&type=section&id=About%20the%20Company) Culp, Inc. is a leading marketer of mattress and upholstery fabrics in North America, serving global bedding and furniture companies. The company has manufacturing and sourcing capabilities in the U.S., China, Haiti, Turkey, and Vietnam - Culp, Inc. is one of the largest marketers of mattress fabrics for bedding and upholstery fabrics for residential, commercial, and hospitality furniture and other applications in North America[16](index=16&type=chunk) - The Company markets a variety of fabrics to its global customer base of leading bedding and furniture companies[16](index=16&type=chunk) - Culp has manufacturing and sourcing capabilities located in the United States, China, Haiti, Turkey, and Vietnam[16](index=16&type=chunk) [Investor Relations Contact](index=3&type=section&id=Investor%20Relations%20Contact) Contact information for Culp, Inc.'s Executive Vice President, Chief Financial Officer, and Treasurer, Ken Bowling, is provided for investor relations inquiries - Investor Relations Contact: Ken Bowling, Executive Vice President, Chief Financial Officer, and Treasurer[17](index=17&type=chunk) - Contact details: (336) 881-5630, krbowling@culp.com[17](index=17&type=chunk) [Forward Looking Statements](index=4&type=section&id=Forward%20Looking%20Statements) This section contains cautionary statements regarding forward-looking information, highlighting inherent risks and uncertainties that could cause actual results to differ materially from projections. It lists various factors, including economic conditions, consumer trends, trade policies, and operational challenges, that could influence future performance. The company does not undertake to update these statements - This release contains 'forward-looking statements' inherently subject to risks and uncertainties that may cause actual events and results to differ materially[18](index=18&type=chunk) - Factors influencing statements include housing starts, demand for home furnishings, consumer confidence, economic conditions, interest rates, tariffs, trade policy, and operational challenges like supply chain diversification and integration efforts[19](index=19&type=chunk) - The forward-looking statements are made only as of the date of this report, and the company does not assume any obligation to update them unless required by federal securities laws[21](index=21&type=chunk) [Financial Statements](index=6&type=section&id=Financial%20Statements) This section presents Culp, Inc.'s consolidated financial statements, including net loss, balance sheets, cash flows, and segment performance for Q1 FY2026 [Consolidated Statements of Net Loss](index=6&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20NET%20LOSS) The consolidated statement of net loss shows a significant reduction in net loss for Q1 FY2026 compared to the prior year, driven by improved gross profit and a restructuring credit, despite a decrease in net sales Consolidated Statements of Net Loss (Three Months Ended August 3, 2025 vs. July 28, 2024) (Amounts in Thousands) | Metric | August 3, 2025 | July 28, 2024 | % Over (Under) | % of Sales (2025) | % of Sales (2024) | | :-------------------------------- | :------------- | :------------ | :------------- | :---------------- | :---------------- | | Net sales | $50,691 | $56,537 | (10.3)% | 100.0% | 100.0% | | Cost of sales | (43,463) | (51,461) | (15.5)% | 85.7% | 91.0% | | Gross profit | 7,228 | 5,076 | 42.4% | 14.3% | 9.0% | | Income (loss) from operations | 1,617 | (6,851) | (123.6)% | 3.2% | (12.1)% | | Net loss | $(231) | $(7,261) | (96.8)% | (0.5)% | (12.8)% | | Net loss per share - diluted | $(0.02) | $(0.58) | (96.6)% | | | [Consolidated Balance Sheets](index=7&type=section&id=CONSOLIDATED%20BALANCE%20SHEETS) The consolidated balance sheet shows a slight decrease in total assets and total liabilities from the prior year, with an increase in current assets and current liabilities. Cash and cash equivalents decreased year-over-year but increased significantly from the previous quarter Consolidated Balance Sheets (Amounts in Thousands) | Metric | August 3, 2025 | July 28, 2024 | April 27, 2025 | | :-------------------------------- | :------------- | :------------ | :------------- | | **Assets:** | | | | | Cash and cash equivalents | $11,094 | $13,472 | $5,629 | | Total current assets | $88,891 | $82,678 | $83,534 | | Property, plant & equipment, net | $23,552 | $30,476 | $24,836 | | Total assets | $126,414 | $129,139 | $123,370 | | **Liabilities:** | | | | | Lines of credit - current | $11,120 | $4,017 | $8,114 | | Total current liabilities | $47,903 | $42,221 | $46,964 | | Total liabilities | $68,767 | $60,015 | $65,730 | | **Equity:** | | | | | Shareholders' equity | $57,647 | $69,124 | $57,640 | [Consolidated Statements of Cash Flows](index=8&type=section&id=CONSOLIDATED%20STATEMENTS%20OF%20CASH%20FLOWS) For Q1 FY2026, cash flow from operating activities remained negative, but cash provided by investing activities turned positive due to proceeds from asset sales. Financing activities provided a significant cash inflow, leading to an overall increase in cash and cash equivalents Consolidated Statements of Cash Flows (Three Months Ended August 3, 2025 vs. July 28, 2024) (Amounts in Thousands) | Metric | August 3, 2025 | July 28, 2024 | | :-------------------------------------- | :------------- | :------------ | | Net cash used in operating activities | $(695) | $(206) | | Net cash provided by (used in) investing activities | $986 | $(332) | | Net cash provided by financing activities | $5,154 | $4,010 | | Increase in cash and cash equivalents | $5,465 | $3,460 | | Cash and cash equivalents at end of period | $11,094 | $13,472 | [Statements of Net Sales and Gross Profit by Segment](index=9&type=section&id=STATEMENTS%20OF%20NET%20SALES%20AND%20GROSS%20PROFIT%20BY%20SEGMENT) The Bedding segment maintained flat sales with significant gross profit improvement, while the Upholstery segment saw a substantial sales and gross profit decline. Overall consolidated gross profit increased significantly despite lower net sales Net Sales by Segment (Three Months Ended August 3, 2025 vs. July 28, 2024) (Amounts in Thousands) | Segment | August 3, 2025 | July 28, 2024 | % Over (Under) | % of Total Sales (2025) | % of Total Sales (2024) | | :-------- | :------------- | :------------ | :------------- | :---------------------- | :---------------------- | | Bedding | $28,046 | $28,076 | (0.1)% | 55.3% | 49.7% | | Upholstery | $22,645 | $28,461 | (20.4)% | 44.7% | 50.3% | | **Net Sales** | **$50,691** | **$56,537** | **(10.3)%** | **100.0%** | **100.0%** | Gross Profit (Loss) by Segment (Three Months Ended August 3, 2025 vs. July 28, 2024) (Amounts in Thousands) | Segment | August 3, 2025 | July 28, 2024 | % Over (Under) | Gross Margin (2025) | Gross Margin (2024) | | :-------- | :------------- | :------------ | :------------- | :------------------ | :------------------ | | Bedding | $2,942 | $(326) | N.M. | 10.5% | (1.2)% | | Upholstery | $4,286 | $5,518 | (22.3)% | 18.9% | 19.4% | | **Total Segment Gross Profit** | **$7,228** | **$5,192** | **39.2%** | **14.3%** | **9.2%** | [Reconciliations of Non-GAAP Financial Measures](index=10&type=section&id=RECONCILIATIONS%20OF%20NON-GAAP%20FINANCIAL%20MEASURES) This section provides reconciliations of various non-GAAP financial measures, including net debt, adjusted free cash flow, adjusted operating results, and adjusted EBITDA, offering a clearer view of the company's underlying financial performance by excluding certain non-recurring or non-cash items [Reconciliation of Net Debt](index=10&type=section&id=RECONCILIATION%20OF%20NET%20DEBT) This section details the company's net debt position, reconciling cash and cash equivalents with total debt Net Debt Position (Amounts in Thousands) | Metric | August 3, 2025 | July 28, 2024 | April 27, 2025 | | :---------------------- | :------------- | :------------ | :------------- | | Cash and cash equivalents | $11,094 | $13,472 | $5,629 | | Total debt | $(18,145) | $(4,017) | $(12,714) | | **Net (debt) cash position** | **$(7,051)** | **$9,455** | **$(7,085)** | [Reconciliation of Adjusted Free Cash Flow](index=10&type=section&id=RECONCILIATION%20OF%20ADJUSTED%20FREE%20CASH%20FLOW) This section reconciles net cash used in operating activities with capital expenditures and asset sale proceeds to derive adjusted free cash flow Adjusted Free Cash Flow (Three Months Ended August 3, 2025 vs. July 28, 2024) (Amounts in Thousands) | Metric | August 3, 2025 | July 28, 2024 | | :------------------------------------------ | :------------- | :------------ | | Net cash used in operating activities | $(695) | $(206) | | Capital expenditures | $(179) | $(501) | | Free Cash Flow | $(874) | $(707) | | Proceeds from the sale of buildings and equipment | $966 | $37 | | **Adjusted Free Cash Flow** | **$311** | **$(550)** | [Reconciliation of Selected Income Statement Information to Adjusted Results](index=11&type=section&id=RECONCILIATION%20OF%20SELECTED%20INCOME%20STATEMENT%20INFORMATION%20TO%20ADJUSTED%20RESULTS) This section adjusts reported income statement figures for restructuring credits and expenses to provide a clearer view of underlying operating performance Adjusted Operating Results (Three Months Ended August 3, 2025) (Amounts in Thousands) | Metric | As Reported (Aug 3, 2025) | Adjustments | Adjusted Results (Aug 3, 2025) | | :-------------------------------- | :------------------------ | :---------- | :----------------------------- | | Net sales | $50,691 | — | $50,691 | | Gross profit | $7,228 | — | $7,228 | | Restructuring credit | $3,508 | $(3,508) | — | | **Income (loss) from operations** | **$1,617** | **$(3,508)** | **$(1,891)** | Adjusted Operating Results (Three Months Ended July 28, 2024) (Amounts in Thousands) | Metric | As Reported (Jul 28, 2024) | Adjustments | Adjusted Results (Jul 28, 2024) | | :-------------------------------- | :------------------------ | :---------- | :----------------------------- | | Net sales | $56,537 | — | $56,537 | | Gross profit | $5,076 | $116 | $5,192 | | Restructuring expense | $(2,631) | $2,631 | — | | **Loss from operations** | **$(6,851)** | **$2,747** | **$(4,104)** | - The restructuring credit for Q1 FY2026 primarily represented a **$4.0 million gain** from the sale of the Canadian manufacturing facility, partially offset by charges related to operating model transformation[38](index=38&type=chunk) [Reconciliation of Adjusted EBITDA](index=12&type=section&id=RECONCILIATION%20OF%20ADJUSTED%20EBITDA) This section reconciles net loss to adjusted EBITDA, accounting for non-cash and non-recurring items to reflect operational profitability Adjusted EBITDA (Quarter Ended August 3, 2025 vs. July 28, 2024) (Amounts in Thousands) | Metric | August 3, 2025 | July 28, 2024 | | :-------------------------- | :------------- | :------------ | | Net loss | $(231) | $(7,261) | | EBITDA | $2,292 | $(5,575) | | Restructuring expense (credit) | $(3,508) | $2,631 | | Restructuring related expense | — | $116 | | Stock based compensation | $156 | $176 | | **Adjusted EBITDA** | **$(1,060)** | **$(2,652)** | | % Net Sales | (2.1)% | (4.7)% | - Trailing 12 Months Adjusted EBITDA as of August 3, 2025, was **$(1,947) thousand**, showing an improvement from **$(5,667) thousand** in the prior trailing 12 months[42](index=42&type=chunk)