HIGH POINT, N.C.--(BUSINESS WIRE)--Culp, Inc. (NYSE: CULP) today announced that it will provide an online, real-time webcast and rebroadcast of its third quarter fiscal 2024 conference call on Thursday, March 7, 2024, at 11:00 a.m. ET. During this call, Culp will review the company’s financial and operating results for the third quarter ended January 28, 2024. A press release announcing these results will be issued after the close of market trading on Wednesday, March 6, 2024. The live webcast of Culp’s co ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 29, 2023 Commission File No. 1-12597 CULP, INC. (Exact name of registrant as specified in its charter) NORTH CAROLINA 56-1001967 (State or other jurisdiction of incorporation or other organization) 1823 Eastchester Drive | Large accelerated | filer | ☐ | Accelerated | filer | ☐ | | --- | --- | --- | -- ...

Culp, Inc. (NYSE:CULP) Q2 2024 Results Conference Call December 5, 2023 11:00 AM ET Company Participants Dru Anderson - Investor Relations Iv Culp - President and Chief Executive Officer Ken Bowling - Chief Financial Officer Boyd Chumbley - President of Upholstery Fabrics Tommy Bruno - President of Mattress Fabrics Conference Call Participants Budd Bugatch - Water Tower Research Anthony Lebiedzinski - Sidoti Operator Good day. And welcome to the Culp, Inc. Second Quarter Fiscal 2024 Earnings Conference Call ...

Part I - Financial Information [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Culp, Inc. reported a Q1 FY24 net loss of $3.3 million on $56.7 million net sales, showing improved profitability despite reduced assets and negative operating cash flow [Consolidated Statements of Net Loss](index=3&type=section&id=Consolidated%20Statements%20of%20Net%20Loss) Q1 FY24 saw a 9.5% decrease in net sales, but gross profit increased by 71.6% to $7.1 million, narrowing the net loss to $(3.3) million and improving EPS to $(0.27) Consolidated Statements of Net Loss (Q1 FY24 vs Q1 FY23) | Metric | Three Months Ended July 30, 2023 (in thousands) | Three Months Ended July 31, 2022 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $56,662 | $62,604 | -9.5% | | Gross profit | $7,085 | $4,128 | +71.6% | | Loss from operations | $(3,082) | $(4,738) | -35.0% | | Net loss | $(3,342) | $(5,699) | -41.4% | | Net loss per share - diluted | $(0.27) | $(0.47) | -42.6% | [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) As of July 30, 2023, total assets decreased to $142.9 million, primarily due to reduced inventories, while total liabilities and shareholders' equity also declined Key Balance Sheet Items (in thousands) | Account | July 30, 2023 | July 31, 2022 | April 30, 2023 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $16,812 | $18,874 | $20,964 | | Inventories | $43,817 | $63,749 | $45,080 | | Total current assets | $88,064 | $112,073 | $95,516 | | Total assets | $142,902 | $180,490 | $152,183 | | Total current liabilities | $38,251 | $41,682 | $44,020 | | Total liabilities | $56,785 | $66,495 | $63,103 | | Total shareholders' equity | $86,117 | $113,995 | $89,080 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Q1 FY24 saw $4.4 million cash used in operating activities, a reversal from prior year, with investing activities providing $0.4 million, resulting in a $4.2 million decrease in cash Cash Flow Summary (in thousands) | Activity | Three Months Ended July 30, 2023 | Three Months Ended July 31, 2022 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(4,435) | $5,309 | | Net cash provided by (used in) investing activities | $374 | $(758) | | Net cash used in financing activities | $0 | $(161) | | (Decrease) increase in cash and cash equivalents | $(4,152) | $4,324 | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, revenue by segment, significant inventory reduction, upholstery fabrics restructuring, credit facility status, and a full valuation allowance on U.S. deferred tax assets - The company's operations are classified into two segments: **mattress fabrics** and **upholstery fabrics**. Revenue is primarily recognized from the sale of products at a point in time[32](index=32&type=chunk)[34](index=34&type=chunk) - In Q1 FY24, the company initiated a restructuring to discontinue the production of upholstery cut and sew kits in Haiti, resulting in a total charge of **$517,000**, comprising **$338,000** in restructuring expenses and **$179,000** in inventory markdowns recorded in cost of sales[62](index=62&type=chunk)[63](index=63&type=chunk) - As of July 30, 2023, the company had a **$35.0 million** asset-based revolving credit facility with **no outstanding borrowings** and **$25.5 million** in available borrowing capacity[67](index=67&type=chunk)[76](index=76&type=chunk) - Due to a recent history of significant cumulative U.S. pre-tax losses, the company maintained a **full valuation allowance of $19.6 million** against its U.S. net deferred income tax assets as of July 30, 2023[108](index=108&type=chunk)[109](index=109&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=41&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes Q1 FY24 sales decline to industry softness, improving operating loss to $(3.1) million, and maintains solid liquidity despite negative operating cash flow Overall Results of Operations (in thousands) | Metric | Q1 FY2024 | Q1 FY2023 | Change | | :--- | :--- | :--- | :--- | | Net sales | $56,662 | $62,604 | (9.5)% | | Gross profit | $7,085 | $4,128 | 71.6% | | Gross margin | 12.5% | 6.6% | +591bp | | Loss from operations | $(3,082) | $(4,738) | (35.0)% | | Net loss | $(3,342) | $(5,699) | (41.4)% | - The decrease in net sales was driven by a **17.4% decline** in the upholstery fabrics segment, while the mattress fabrics segment's sales were nearly flat (**-0.5%**)[160](index=160&type=chunk) - Cash and cash equivalents decreased by **$4.2 million** during the quarter to **$16.8 million**, primarily due to **$4.4 million** in cash used for operating activities[171](index=171&type=chunk) [Segment Analysis](index=45&type=section&id=Segment%20Analysis) Mattress Fabrics improved profitability with operating loss narrowing to $(1.4) million despite flat sales, while Upholstery Fabrics' sales declined 17.4% but operating income more than doubled to $1.3 million Segment Performance (in thousands) | Segment | Metric | Q1 FY2024 | Q1 FY2023 | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Mattress Fabrics** | Net Sales | $29,222 | $29,371 | (0.5)% | | | Loss from Operations | $(1,398) | $(2,921) | (52.1)% | | **Upholstery Fabrics** | Net Sales | $27,440 | $33,233 | (17.4)% | | | Income from Operations | $1,328 | $542 | 145.0% | [Liquidity and Capital Resources](index=57&type=section&id=Liquidity%20and%20Capital%20Resources) The company ended Q1 FY24 with $16.8 million cash and $31.1 million available credit, no outstanding borrowings, and a significant inventory reduction, with no stock repurchases or dividends expected - The company believes its current cash of **$16.8 million** and available credit of **$31.1 million** are sufficient to fund foreseeable business needs[238](index=238&type=chunk) - Inventory decreased significantly by **$19.9 million (31.3%)** compared to the prior year, reflecting management's efforts to align stock levels with demand and promotional programs[252](index=252&type=chunk) - The company did not repurchase any shares in Q1 FY24 and has **$3.2 million** remaining under its authorization. No repurchases are expected through at least Q2 FY24[246](index=246&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=63&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces minimal interest rate risk due to no outstanding borrowings and manages foreign currency risk from Canadian and Chinese subsidiaries with no material impact expected - The company is exposed to interest rate risk on its U.S. revolving credit facility, which is based on the SOFR rate. As of July 30, 2023, there were **no outstanding borrowings**[271](index=271&type=chunk)[272](index=272&type=chunk) - Foreign currency risk exists for subsidiaries in Canada and China. The company uses the U.S. dollar as the functional currency for these operations and believes a **10% change** in exchange rates would not materially affect results[274](index=274&type=chunk) [Controls and Procedures](index=63&type=section&id=Item%204.%20Controls%20and%20Procedures) The CEO and CFO concluded disclosure controls were effective as of July 30, 2023, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were **effective** as of July 30, 2023[275](index=275&type=chunk) - No changes occurred during the quarter that have **materially affected**, or are reasonably likely to materially affect, the company's internal control over financial reporting[276](index=276&type=chunk) Part II - Other Information [Legal Proceedings](index=64&type=section&id=Item%201.%20Legal%20Proceedings) No material changes to legal proceedings were reported for the three months ended July 30, 2023, compared to the prior Annual Report - No **material changes** to legal proceedings were reported for the quarter[278](index=278&type=chunk) [Risk Factors](index=64&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported for the three months ended July 30, 2023, compared to the prior Annual Report - No **material changes** to risk factors were reported for the quarter[279](index=279&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=64&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not repurchase any equity securities in Q1 FY24, with approximately $3.2 million remaining available for future repurchases Issuer Purchases of Equity Securities | Period | Total Number of Shares Purchased | Approximate Dollar Value of Shares that May Yet Be Purchased | | :--- | :--- | :--- | | May 1, 2023 to July 30, 2023 | 0 | $3,248,094 | [Exhibits](index=65&type=section&id=Item%206.%20Exhibits) The report includes various exhibits, notably CEO and CFO certifications and Inline XBRL data files - Exhibits filed with the report include CEO and CFO certifications (**31.1, 31.2, 32.1, 32.2**) and the Cover Page Interactive Data File (**104**)[283](index=283&type=chunk)[285](index=285&type=chunk)

CHIP 2 This presentation 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. Further, forward looking statements are intended to speak only as of the date on ...

Culp, Inc. (NYSE:CULP) Q1 2024 Earnings Conference Call August 31, 2023 11:00 AM ET Company Participants Dru Anderson - IR Robert Culp - President & CEO Ken Bowling - CFO Tommy Bruno - President, Mattress Fabrics Boyd Chumbley - President, Upholstery Fabrics Conference Call Participants Anthony Lebiedzinski - Sidoti & Company Budd Bugatch - Water Tower Research Operator Good morning, and welcome to the Culp, Inc. First Quarter Fiscal 2024 Earnings Conference Call. [Operator Instructions] Please note, this e ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 1O-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended April 30, 2023 Commission File No. 1-12597 1823 Eastchester Drive, High Point, North Carolina (Address of principal executive offices) 27265 (zip code) (336) 889-5161 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: connection with its Annual Meeting of S ...

This presentation contains adjusted income statement information for the three-month period ending April 30, 2023, which discloses adjusted loss from operations, a non-GAAP performance measure that eliminates items which are not expected to occur on a recurring or regular basis. These include, for the period presented, restructuring expense associated with the consolidation of certain leased facilities in Ouanaminthe, Haiti, during the fourth quarter of fiscal 2023. The company has included this adjusted in ...

Culp, Inc. (NYSE:CULP) Q4 2023 Earnings Conference Call June 29, 2023 11:00 AM ET Company Participants Dru Anderson - IR Iv Culp - President & CEO Ken Bowling - CFO Tommy Bruno - President, Mattress Fabrics Boyd Chumbley - President, Upholstery Fabrics Conference Call Participants Anthony Lebiedzinski - Sidoti & Company Rexford Henderson - Water Tower Research Operator Good day, and welcome to the Culp, Inc. Fourth Quarter Fiscal 2023 Earnings Conference Call. All participants will be in listen-only mode. [ ...

Part I - Financial Statements This part contains the unaudited consolidated financial statements and related notes for Culp, Inc [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Culp, Inc., including statements of net loss, comprehensive loss, balance sheets, cash flows, and shareholders' equity for the periods ended January 29, 2023, and January 30, 2022 [Consolidated Statements of Net (Loss) Income](index=3&type=section&id=Consolidated%20Statements%20of%20Net%20%28Loss%29%20Income) This section details the company's net sales, gross profit, and net loss for the three and nine months ended January 29, 2023, compared to prior periods Three Months Ended January 29, 2023 vs. January 30, 2022 (Amounts in Thousands) | Metric | Jan 29, 2023 | Jan 30, 2022 | Change | Change (%) | | :--------------------------------- | :----------- | :----------- | :------- | :--------- | | Net sales | $52,523 | $80,291 | $(27,768) | -34.6% | | Gross profit | $2,093 | $9,110 | $(7,017) | -77.0% | | (Loss) income from operations | $(7,783) | $1,103 | $(8,886) | N.M. | | Net loss | $(8,968) | $(289) | $(8,679) | N.M. | | Net loss per share - basic | $(0.73) | $(0.02) | $(0.71) | N.M. | Nine Months Ended January 29, 2023 vs. January 30, 2022 (Amounts in Thousands) | Metric | Jan 29, 2023 | Jan 30, 2022 | Change | Change (%) | | :--------------------------------- | :----------- | :----------- | :------- | :--------- | | Net sales | $173,508 | $237,899 | $(64,391) | -27.1% | | Gross profit | $4,008 | $32,336 | $(28,328) | -87.6% | | (Loss) income from operations | $(24,451) | $6,061 | $(30,512) | N.M. | | Net (loss) income | $(26,839) | $2,812 | $(29,651) | N.M. | | Net (loss) income per share - basic | $(2.19) | $0.23 | $(2.42) | N.M. | [Consolidated Statements of Comprehensive (Loss) Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20%28Loss%29%20Income) This section presents the comprehensive loss for the three and nine months ended January 29, 2023, reflecting other comprehensive income/loss components Comprehensive (Loss) Income (Amounts in Thousands) | Period | Jan 29, 2023 | Jan 30, 2022 | | :--------------------------------- | :----------- | :----------- | | Three Months Ended | $(8,926) | $(486) | | Nine Months Ended | $(26,850) | $2,754 | [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, including assets, liabilities, and shareholders' equity as of January 29, 2023 Consolidated Balance Sheet Highlights (Amounts in Thousands) | Metric | Jan 29, 2023 | Jan 30, 2022 | May 1, 2022 | | :-------------------------- | :----------- | :----------- | :---------- | | Total current assets | $93,040 | $130,450 | $107,176 | | Total assets | $150,598 | $211,567 | $177,563 | | Total current liabilities | $36,368 | $59,222 | $32,556 | | Total liabilities | $57,094 | $84,833 | $58,062 | | Total shareholders' equity | $93,504 | $126,734 | $119,501 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the cash flows from operating, investing, and financing activities for the nine months ended January 29, 2023 Cash Flow Highlights (Nine Months Ended, Amounts in Thousands) | Metric | Jan 29, 2023 | Jan 30, 2022 | | :------------------------------------------ | :----------- | :----------- | | Net cash provided by (used in) operating activities | $4,583 | $(12,369) | | Net cash used in investing activities | $(1,937) | $(6,876) | | Net cash used in financing activities | $(322) | $(6,016) | | Increase (decrease) in cash and cash equivalents | $2,175 | $(25,229) | | Cash and cash equivalents at end of period | $16,725 | $11,780 | [Consolidated Statements of Shareholders' Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity) This section details changes in shareholders' equity, including common stock, capital in excess of par value, and accumulated earnings Shareholders' Equity Highlights (Amounts in Thousands) | Metric | Jan 29, 2023 | May 1, 2022 | | :--------------------------------- | :----------- | :---------- | | Common Stock | $616 | $611 | | Capital contributed in excess of par value | $43,992 | $43,143 | | Accumulated earnings | $48,875 | $75,715 | | Accumulated other comprehensive income | $21 | $32 | | Total Shareholders' Equity | $93,504 | $119,501 | - **Net loss** significantly impacted **accumulated earnings**, with a **$(8,968) thousand** **loss** in the quarter ended January 29, 2023[18](index=18&type=chunk) - **Stock-based compensation** contributed **$887 thousand** to **capital in excess of par value** for the nine months ended January 29, 2023[15](index=15&type=chunk)[18](index=18&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed notes explaining the basis of presentation, significant accounting policies, and specific financial statement line items [1. Basis of Presentation](index=10&type=section&id=1.%20Basis%20of%20Presentation) This section describes the basis for the unaudited condensed consolidated financial statements, including normal recurring adjustments and a prior period reclassification - The **financial statements** are unaudited and include normal recurring adjustments[25](index=25&type=chunk) - A **$1.4 million** non-cash inventory charge was reclassified in the prior period's Consolidated Statement of Cash Flows, without affecting **net cash used in operating activities**[26](index=26&type=chunk) - The nine-month periods ended January 29, 2023, and January 30, 2022, each represent **39-week periods**[27](index=27&type=chunk) [2. Significant Accounting Policies](index=10&type=section&id=2.%20Significant%20Accounting%20Policies) This section confirms no changes in significant accounting policies or their application and no material effect from recently issued accounting pronouncements - **No changes** in **significant accounting policies** or their application as of January 29, 2023[28](index=28&type=chunk) - **No recently adopted accounting pronouncements** during the first nine months of fiscal 2023[29](index=29&type=chunk) - **No new recent accounting pronouncements** are expected to have a **material effect** on consolidated financial statements[30](index=30&type=chunk) [3. Allowance for Doubtful Accounts](index=10&type=section&id=3.%20Allowance%20for%20Doubtful%20Accounts) This section details the decrease in the allowance for doubtful accounts and the company's assessment of customer credit risk Allowance for Doubtful Accounts Activity (Nine Months Ended, Amounts in Thousands) | Metric | Jan 29, 2023 | Jan 30, 2022 | | :------------------------ | :----------- | :----------- | | Beginning balance | $292 | $591 | | Provision for bad debts | $33 | $86 | | Write-offs, net of recoveries | $(72) | $(34) | | Ending balance | $253 | $643 | - **No credit loss** was recorded for a significant **mattress fabrics** customer that filed for Chapter 11 in June 2022, as payments were received in full[32](index=32&type=chunk) - **No credit loss** was recorded for another significant **mattress fabrics** customer that filed for Chapter 11 in January 2023, as most receivables were paid, and **no material loss** is expected on the remainder[33](index=33&type=chunk)[35](index=35&type=chunk) [4. Revenue from Contracts with Customers](index=12&type=section&id=4.%20Revenue%20from%20Contracts%20with%20Customers) This section disaggregates revenue by segment and explains the increase in deferred revenue from upfront customer deposits for services - Operations are classified into two segments: **mattress fabrics** (fabrics and mattress covers) and **upholstery fabrics** (fabrics, window treatments, installation services, soft goods)[36](index=36&type=chunk) Deferred Revenue Activity (Nine Months Ended, Amounts in Thousands) | Metric | Jan 29, 2023 | Jan 30, 2022 | | :--------------------------------- | :----------- | :----------- | | Beginning balance | $520 | $540 | | Revenue recognized on contract liabilities | $(3,496) | $(2,276) | | Payments received for services not yet rendered | $4,406 | $2,254 | | Ending balance | $1,430 | $518 | Disaggregated Revenue by Segment (Three Months Ended, Amounts in Thousands) | Segment | Jan 29, 2023 | Jan 30, 2022 | | :---------------- | :----------- | :----------- | | Mattress Fabrics | $24,697 | $38,439 | | Upholstery Fabrics | $27,826 | $41,852 | | **Total Net Sales** | **$52,523** | **$80,291** | Disaggregated Revenue by Segment (Nine Months Ended, Amounts in Thousands) | Segment | Jan 29, 2023 | Jan 30, 2022 | | :---------------- | :----------- | :----------- | | Mattress Fabrics | $80,299 | $122,380 | | Upholstery Fabrics | $93,209 | $115,519 | | **Total Net Sales** | **$173,508** | **$237,899** | [5. Inventories](index=14&type=section&id=5.%20Inventories) This section explains the significant decrease in total inventories due to lower sales and substantial non-cash inventory charges, particularly in mattress fabrics Inventories (Amounts in Thousands) | Category | Jan 29, 2023 | Jan 30, 2022 | May 1, 2022 | | :--------------- | :----------- | :----------- | :---------- | | Raw materials | $9,623 | $12,964 | $13,477 | | Work-in-process | $3,164 | $4,679 | $4,237 | | Finished goods | $34,840 | $55,490 | $48,843 | | **Total** | **$47,627** | **$73,133** | **$66,557** | - **Non-cash inventory charges** totaled **$6.3 million** for the first nine months of fiscal 2023, including a **$2.9 million** write-down for **mattress fabrics**, **$3.3 million** for aged inventory markdowns, and **$98,000** for the exit of Shanghai operations[44](index=44&type=chunk) - The **mattress fabrics** segment's **net sales declined by 35.8%** in Q2 FY23, leading to a **gross margin of (8.7%)** and a **$2.9 million** inventory write-down due to decreased consumer spending and excess customer inventory[46](index=46&type=chunk) [6. Intangible Assets](index=16&type=section&id=6.%20Intangible%20Assets) This section details the slight decrease in total intangible assets due to amortization and confirms no impairment despite significant declines in mattress fabrics sales Intangible Assets (Amounts in Thousands) | Category | Jan 29, 2023 | Jan 30, 2022 | May 1, 2022 | | :---------------------- | :----------- | :----------- | :---------- | | Tradename | $540 | $540 | $540 | | Customer relationships, net | $1,411 | $1,711 | $1,636 | | Non-compete agreement, net | $395 | $471 | $452 | | **Total** | **$2,346** | **$2,722** | **$2,628** | - **Customer relationships** are amortized on a straight-line basis over **9 to 17 years**, with a **weighted average amortization period of 5.0 years** as of January 29, 2023[52](index=52&type=chunk)[54](index=54&type=chunk) - Despite a **34.4% decline** in **mattress fabrics net sales** and a **significant decrease** in **gross margin to (9.1%)** for the first nine months of fiscal 2023, **no impairment** was determined for the segment's long-lived asset group (**$37.8 million** carrying amount)[59](index=59&type=chunk)[60](index=60&type=chunk) [7. Accrued Expenses](index=18&type=section&id=7.%20Accrued%20Expenses) This section highlights the decrease in total accrued expenses, primarily driven by a reduction in other accrued expenses Accrued Expenses (Amounts in Thousands) | Category | Jan 29, 2023 | Jan 30, 2022 | May 1, 2022 | | :----------------------------------- | :----------- | :----------- | :---------- | | Compensation, commissions and related benefits | $3,571 | $3,426 | $4,248 | | Other accrued expenses | $3,130 | $5,020 | $3,584 | | **Total** | **$6,701** | **$8,446** | **$7,832** | [8. Upholstery Fabrics Segment Restructuring Activities](index=18&type=section&id=8.%20Upholstery%20Fabrics%20Segment%20Restructuring%20Activities) This section details the restructuring activities in the upholstery fabrics segment, including the closure of Shanghai operations and consolidation in Haiti, incurring significant charges - Closed the Shanghai, China cut and sew **upholstery fabrics** operation in Q2 FY23, incurring **$713,000** in **restructuring expense** and related charges[62](index=62&type=chunk) - Consolidated Haiti's cut and sew production into an existing facility in Q3 FY23, recording **$711,000** in **restructuring expense**, including **$434,000** for **lease termination** and **$277,000** for **leasehold improvement impairment**[63](index=63&type=chunk)[65](index=65&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk) Restructuring Expense and Related Charges (Nine Months Ended January 29, 2023, Amounts in Thousands) | Category | Amount | | :------------------------------------------ | :----- | | Lease termination costs | $481 | | Employee termination benefits | $468 | | Impairment loss - leasehold improvements and equipment | $357 | | Loss on disposal and markdowns of inventory | $98 | | Other associated costs | $20 | | **Total** | **$1,424** | [9. Lines of Credit](index=22&type=section&id=9.%20Lines%20of%20Credit) This section describes the updated U.S. revolving credit facility and renewed China line of credit, noting no outstanding borrowings and compliance with covenants - Entered into a Second Amended and Restated Credit Agreement (ABL Credit Agreement) on January 19, 2023, establishing a **$35.0 million** **asset-based revolving credit facility** (**ABL Facility**) maturing on January 19, 2026[76](index=76&type=chunk)[77](index=77&type=chunk)[80](index=80&type=chunk) - Borrowings under the **ABL Facility** bear interest at an annual rate equal to daily simple **SOFR** plus **150-175 basis points**, or **50-75 basis points** above base rate, depending on excess availability[79](index=79&type=chunk) - As of January 29, 2023, there were **no outstanding borrowings** under any lines of credit, and the company had **$23.0 million** in **available borrowings** under the ABL Agreement[86](index=86&type=chunk)[87](index=87&type=chunk) - The RMB **40 million** (**$5.9 million** USD) **unsecured credit agreement** for China operations was renewed on November 24, 2022, extending its expiration to November 24, 2023[88](index=88&type=chunk)[89](index=89&type=chunk) [10. Fair Value](index=25&type=section&id=10.%20Fair%20Value) This section categorizes fair value measurements into a three-level hierarchy, detailing recurring measurements for rabbi trust investments and non-recurring measurements for a Haiti right of use asset - **Fair value hierarchy** consists of **Level 1** (quoted prices in active markets), **Level 2** (observable inputs other than Level 1), and **Level 3** (unobservable inputs)[94](index=94&type=chunk) Assets Measured at Fair Value on a Recurring Basis (Jan 29, 2023, Amounts in Thousands) | Asset | Level 1 | Total | | :-------------------------- | :------ | :---- | | U.S. Government Money Market Fund | $9,364 | $9,364 | | Growth Allocation Mutual Funds | $508 | $508 | | Moderate Allocation Mutual Fund | $85 | $85 | | Other | $188 | $188 | - A **right of use asset** in Haiti, classified as held for sale, was recorded at its **fair value of $2.0 million** using **Level 3** inputs due to **significant unobservable inputs** and assumptions related to the Lessee's credit characteristics, payment terms, and location in a foreign country[107](index=107&type=chunk)[108](index=108&type=chunk) [11. Net (Loss) Income Per Share](index=28&type=section&id=11.%20Net%20%28Loss%29%20Income%20Per%20Share) This section reports a significant increase in basic and diluted net loss per share, with unvested common stock excluded from diluted EPS due to antidilutive effects Net (Loss) Income Per Share (Amounts in Thousands, Except Per Share Data) | Metric | Jan 29, 2023 (3 Months) | Jan 30, 2022 (3 Months) | Jan 29, 2023 (9 Months) | Jan 30, 2022 (9 Months) | | :--------------------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Net (loss) income per share - basic | $(0.73) | $(0.02) | $(2.19) | $0.23 | | Net (loss) income per share - diluted | $(0.73) | $(0.02) | $(2.19) | $0.23 | | Weighted average common shares outstanding, basic | 12,299 | 12,212 | 12,272 | 12,249 | | Weighted average common shares outstanding, diluted | 12,299 | 12,212 | 12,272 | 12,341 | - During Q3 FY23, **22,053 shares** of **unvested common stock** were excluded from diluted EPS due to **antidilutive effect** from decreased stock price, and **87,433 shares** were excluded due to **net loss**[109](index=109&type=chunk) [12. Segment Information](index=28&type=section&id=12.%20Segment%20Information) This section provides detailed financial information for the mattress fabrics and upholstery fabrics segments, highlighting declines in sales, gross profit, and segment assets - The company's operations are classified into two business segments: **mattress fabrics** and **upholstery fabrics**, with the latter including Read Window Products LLC[113](index=113&type=chunk) Segment Net Sales and Gross (Loss) Profit (Amounts in Thousands) | Segment | Jan 29, 2023 (3 Months) | Jan 30, 2022 (3 Months) | Jan 29, 2023 (9 Months) | Jan 30, 2022 (9 Months) | | :---------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | **Net Sales:** | | | | | | Mattress Fabrics | $24,697 | $38,439 | $80,299 | $122,380 | | Upholstery Fabrics | $27,826 | $41,852 | $93,209 | $115,519 | | **Gross (Loss) Profit:** | | | | | | Mattress Fabrics | $(1,237) | $3,164 | $(7,330) | $16,106 | | Upholstery Fabrics | $3,330 | $5,946 | $11,436 | $16,230 | Segment Assets (Amounts in Thousands) | Segment | Jan 29, 2023 | Jan 30, 2022 | May 1, 2022 | | :------------------- | :----------- | :----------- | :---------- | | Mattress Fabrics | $74,208 | $100,780 | $91,093 | | Upholstery Fabrics | $38,536 | $65,715 | $50,044 | | **Total Segment Assets** | **$112,744** | **$166,495** | **$141,137** | Capital Expenditures (Nine Months Ended, Accrual Basis, Amounts in Thousands) | Segment | Jan 29, 2023 | Jan 30, 2022 | | :------------------- | :----------- | :----------- | | Mattress Fabrics | $612 | $2,828 | | Upholstery Fabrics | $465 | $815 | | Unallocated Corporate | $75 | $1,330 | | **Total** | **$1,152** | **$4,973** | [13. Income Taxes](index=35&type=section&id=13.%20Income%20Taxes) This section explains the effective income tax rate, impacted by U.S. pre-tax loss and a full valuation allowance, and details deferred tax liabilities for foreign earnings - **Effective income tax rate** for the nine months ended January 29, 2023, was **(9.5%)** of **loss before income taxes**, compared to **48.4%** of **income before income taxes** for the prior-year period[122](index=122&type=chunk) - A **full valuation allowance of $18.071 million** was applied against U.S. **net deferred income tax assets** as of January 29, 2023, due to a history of **significant cumulative U.S. taxable losses**[127](index=127&type=chunk)[129](index=129&type=chunk) - A **deferred income tax liability of $4.1 million** was recorded as of January 29, 2023, for **unremitted withholding taxes** associated with foreign subsidiaries' earnings expected to be repatriated[131](index=131&type=chunk) Income Taxes Paid by Jurisdiction (Nine Months Ended, Amounts in Thousands) | Jurisdiction | Jan 29, 2023 | Jan 30, 2022 | | :---------------------------------------------------- | :----------- | :----------- | | United States Transition Tax Payment | $265 | $266 | | China Income Taxes, Net of Refunds | $1,680 | $2,036 | | China - Withholding Taxes Associated With Earnings and Profits Distributed to the U.S. | — | $487 | | Canada - Income Taxes, Net of Refunds | $(9) | $256 | | **Total** | **$1,936** | **$3,045** | [14. Stock-Based Compensation](index=37&type=section&id=14.%20Stock-Based%20Compensation) This section outlines the company's equity incentive plan, types of stock-based awards, and associated compensation expenses for executives and directors - As of January 29, 2023, **224,369 shares** were **available for future equity-based grants** under the 2015 Equity Incentive Plan[138](index=138&type=chunk) - **Performance-based restricted stock units** for senior executives are measured using the Monte Carlo simulation model for market-based **total shareholder return** and closing price for performance-based components[139](index=139&type=chunk) - **Compensation expense** for time-based restricted stock units was **$634,000** for the nine months ended January 29, 2023, with **$1.0 million** remaining **unrecognized**, expected to be recognized over **1.7 years**[151](index=151&type=chunk)[152](index=152&type=chunk) - **Compensation expense** for common stock awards to outside directors was **$251,000** for the nine months ended January 29, 2023[155](index=155&type=chunk) [15. Leases](index=43&type=section&id=15.%20Leases) This section details the company's operating lease arrangements, including right of use assets, lease liabilities, and operating lease expense Operating Lease Balances (Amounts in Thousands) | Metric | Jan 29, 2023 | Jan 30, 2022 | May 1, 2022 | | :------------------------------ | :----------- | :----------- | :---------- | | Right of use assets | $8,913 | $16,595 | $15,577 | | Operating lease liability - current | $2,785 | $3,295 | $3,219 | | Operating lease liability – noncurrent | $4,399 | $7,848 | $7,062 | - **Operating lease expense** for the nine months ended January 29, 2023, was **$2.9 million**, compared to **$2.8 million** in the prior-year period[160](index=160&type=chunk) Operating Lease Key Metrics (As of January 29, 2023) | Metric | Value | | :-------------------------- | :-------- | | Weighted average lease term | 3.9 years | | Weighted average discount rate | 3.69 % | [16. Commitments and Contingencies](index=45&type=section&id=16.%20Commitments%20and%20Contingencies) This section addresses legal proceedings, capital expenditure commitments, and open purchase commitments, with no material adverse effects expected - **Legal proceedings** are **not expected to have a material adverse effect** on financial position, results of operations, or cash flows[162](index=162&type=chunk) - **Accounts payable for capital expenditures** totaled **$25,000** as of January 29, 2023[163](index=163&type=chunk) - **Open purchase commitments** for **mattress fabrics** equipment totaled **$738,000** as of January 29, 2023[164](index=164&type=chunk) [17. Statutory Reserves](index=45&type=section&id=17.%20Statutory%20Reserves) This section explains that the China subsidiary has met its statutory surplus reserve fund requirement, eliminating the need for further transfers from net income - The China subsidiary's **statutory surplus reserve fund** reached **$4.3 million** as of January 29, 2023, meeting the **50% registered capital** requirement[165](index=165&type=chunk)[166](index=166&type=chunk) - The China subsidiary is **no longer required to transfer 10%** of its **net income** to the **statutory surplus reserve fund**[165](index=165&type=chunk) - The **statutory surplus reserve fund** is **non-distributable** other than during liquidation but can be used for business expansion or converted into share capital[166](index=166&type=chunk) [18. Common Stock Repurchase Program](index=47&type=section&id=18.%20Common%20Stock%20Repurchase%20Program) This section details the board-authorized common stock repurchase program, noting no repurchases during the period and remaining available funds - Board authorized a **$5.0 million** **common stock repurchase program** in March 2020[169](index=169&type=chunk) - **No shares were repurchased** during the nine months ended January 29, 2023[170](index=170&type=chunk) - **$3.2 million** remains **available for additional repurchases** as of January 29, 2023[170](index=170&type=chunk) [19. Dividend Program](index=47&type=section&id=19.%20Dividend%20Program) This section explains the suspension of the quarterly cash dividend to preserve capital and manage liquidity amidst macroeconomic conditions - **Quarterly cash dividend suspended** on June 29, 2022, to preserve capital and manage liquidity[171](index=171&type=chunk) - **No dividend payments** were made during the first nine months of fiscal 2023[171](index=171&type=chunk) - **Dividend payments** totaled **$4.1 million** during the nine months ended January 30, 2022[172](index=172&type=chunk) [Cautionary Statement Concerning Forward-Looking Information](index=48&type=section&id=Cautionary%20Statement%20Concerning%20Forward-Looking%20Information) This statement highlights that the report contains forward-looking information subject to risks and uncertainties that may cause actual results to differ materially - The report contains **forward-looking statements** subject to **risks and uncertainties** that may cause actual results to differ materially[174](index=174&type=chunk) - **Key factors** influencing **forward-looking statements** include **housing starts**, **consumer confidence**, **disposable income**, **interest rates**, **inflation**, acquisitions, consumer tastes, tariffs, exchange rates, economic/political instability, public health epidemics, **goodwill/intangible asset impairments**, and **freight/labor/raw material costs**[175](index=175&type=chunk) - The company disclaims any duty to update or alter **forward-looking statements** to reflect changes in expectations, assumptions, or circumstances[174](index=174&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=49&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a detailed discussion of the company's financial condition and results of operations for the three and nine months ended January 29, 2023 [General](index=49&type=section&id=General) This section outlines the company's fiscal year, business segments, and recent restructuring activities - The company's fiscal year ends on the Sunday closest to April 30, with the reported nine-month periods representing **39-week periods**[178](index=178&type=chunk) - Operations are classified into two business segments: **mattress fabrics** (Stokesdale, NC; Quebec, Canada; Ouanaminthe, Haiti) and **upholstery fabrics** (Shanghai, China; Burlington, NC; Ouanaminthe, Haiti; Read Window Products, LLC in Knoxville, TN)[178](index=178&type=chunk)[179](index=179&type=chunk)[180](index=180&type=chunk) - **Restructuring activities** include rationalization of U.S.-based **mattress fabrics** cut and sew platform and consolidation of **upholstery** cut and sewn kit production in Haiti[179](index=179&type=chunk)[180](index=180&type=chunk) [Executive Summary](index=49&type=section&id=Executive%20Summary) This summary defines how operating performance is evaluated and identifies key components of cost of sales and unallocated corporate expenses - **Operating performance** is evaluated based on (loss) income from operations before certain unallocated corporate expenses[181](index=181&type=chunk) - **Cost of sales** includes raw material, finished goods purchases, direct/indirect labor, overhead, and incoming freight charges[181](index=181&type=chunk) - Unallocated corporate expenses primarily cover executive compensation, public company costs, and amortization of intangible assets[181](index=181&type=chunk) [Results of Operations](index=49&type=section&id=Results%20of%20Operations) This section presents a consolidated overview of the company's net sales, gross profit, operating income, and net income for the reported periods Consolidated Results of Operations (Three Months Ended, Amounts in Thousands) | Metric | Jan 29, 2023 | Jan 30, 2022 | Change (%) | | :--------------------------------- | :----------- | :----------- | :--------- | | Net sales | $52,523 | $80,291 | (34.6)% | | Gross profit | $2,093 | $9,110 | (77.0)% | | Gross margin | 4.0 % | 11.3 % | (730)bp | | Selling, general, and administrative expenses | $9,165 | $8,007 | 14.5% | | Restructuring expense | $711 | — | 100.0% | | (Loss) income from operations | $(7,783) | $1,103 | N.M. | | Operating margin | (14.8)% | 1.4 % | (1620)bp | | (Loss) income before income taxes | $(8,682) | $995 | N.M. | | Income tax expense | $286 | $1,284 | (77.7)% | | Net (loss) income | $(8,968) | $(289) | N.M. | Consolidated Results of Operations (Nine Months Ended, Amounts in Thousands) | Metric | Jan 29, 2023 | Jan 30, 2022 | Change (%) | | :--------------------------------- | :----------- | :----------- | :--------- | | Net sales | $173,508 | $237,899 | (27.1)% | | Gross profit | $4,008 | $32,336 | (87.6)% | | Gross margin | 2.3 % | 13.6 % | (1130)bp | | Selling, general, and administrative expenses | $27,133 | $26,275 | 3.3% | | Restructuring expense | $1,326 | — | 100.0% | | (Loss) income from operations | $(24,451) | $6,061 | N.M. | | Operating margin | (14.1)% | 2.5 % | (1660)bp | | (Loss) income before income taxes | $(24,507) | $5,445 | N.M. | | Income tax expense | $2,332 | $2,633 | (11.4)% | | Net (loss) income | $(26,839) | $2,812 | N.M. | [Net Sales](index=50&type=section&id=Net%20Sales) This section analyzes the significant decrease in consolidated net sales, driven by reduced consumer demand and excess customer inventory in both segments - Overall **net sales decreased by 34.6%** for Q3 FY23 and **27.1%** for the first nine months of FY23 compared to prior-year periods[184](index=184&type=chunk) - **Mattress fabrics sales decreased 35.8%** (Q3 FY23) and **34.4%** (9 months FY23) due to a slowdown in consumer demand and excess inventory held by manufacturers and retailers[184](index=184&type=chunk)[185](index=185&type=chunk) - **Upholstery fabrics sales decreased 33.5%** (Q3 FY23) and **19.3%** (9 months FY23) due to reduced demand for residential products and high inventory levels[184](index=184&type=chunk)[186](index=186&type=chunk) - Pricing and surcharge actions partially offset **net sales decreases**, increasing **mattress fabrics sales** by approximately **1.3%** (Q3 FY23) and **3.0%** (9 months FY23), and **upholstery fabrics sales** by **1.7%** (Q3 FY23) and **2.9%** (9 months FY23)[185](index=185&type=chunk)[186](index=186&type=chunk) [Income Before Income Taxes](index=50&type=section&id=Income%20Before%20Income%20Taxes) This section details the significant loss before income taxes, primarily due to lower sales, operating inefficiencies, inflationary pressures, and restructuring charges - **Loss before income taxes** was **$(8.7) million** for Q3 FY23 and **$(24.5) million** for the first nine months of FY23, compared to income of **$1.0 million** and **$5.4 million**, respectively, in the prior-year periods[188](index=188&type=chunk) - **Operating performance** was negatively affected by lower sales, operating inefficiencies due to reduced volumes and holiday shutdowns, labor challenges, **inflationary pressures**, and **restructuring charges**[189](index=189&type=chunk) - Additional pressures for the nine-month period included increased employee training costs, quality issues in **mattress fabrics**, **inventory write-downs**, and **restructuring charges** from the Shanghai facility closure[189](index=189&type=chunk) [Income Taxes](index=52&type=section&id=Income%20Taxes_MD%26A) This section explains the effective income tax rate on a pre-tax loss, impacted by U.S. losses and a full valuation allowance, with most taxable income from foreign operations - **Income tax expense** was **$2.3 million** for the nine months ended January 29, 2023, on a **pre-tax loss** of **$(24.5) million**, resulting in an **effective income tax rate of (9.5%)**[191](index=191&type=chunk) - The **effective tax rate** was negatively affected by a **significantly higher pre-tax loss** from U.S. operations (**$(28.8) million**) and a **full valuation allowance** against U.S. **net deferred income tax assets**[192](index=192&type=chunk) - Almost all taxable income was earned by foreign operations in China and Canada, which have higher income tax rates than the U.S[192](index=192&type=chunk) [Liquidity](index=52&type=section&id=Liquidity) This section highlights the increase in cash and cash equivalents, primarily driven by net cash provided by operating activities due to inventory reductions - **Cash and cash equivalents** totaled **$16.7 million** as of January 29, 2023, an **increase of $2.2 million** from May 1, 2022[194](index=194&type=chunk) - **Net cash provided by operating activities** was **$4.6 million** for the first nine months of fiscal 2023, a **$17.0 million** **increase** compared to **net cash used in operating activities** of **$12.4 million** in the prior-year period[195](index=195&type=chunk) - The **increase** in **operating cash flow** reflects inventory reductions, improved alignment of inventory purchases with demand, and promotional programs[195](index=195&type=chunk) - **No outstanding borrowings** existed under the company's lines of credit as of January 29, 2023[196](index=196&type=chunk) [Dividend Program](index=52&type=section&id=Dividend%20Program) This section reiterates the suspension of the quarterly cash dividend to preserve capital and manage liquidity in response to macroeconomic conditions - The board of directors **suspended the quarterly cash dividend** on June 29, 2022, to preserve capital and manage liquidity[197](index=197&type=chunk) - **No dividend payments** were made during the first nine months of fiscal 2023[197](index=197&type=chunk) - **Dividend payments** totaled **$4.1 million** during the first nine months of fiscal 2022[198](index=198&type=chunk) [Common Stock Repurchases](index=52&type=section&id=Common%20Stock%20Repurchases) This section confirms no common stock repurchases during the period and details the remaining available funds under the authorized program - **No common stock repurchases** were made during the first nine months of fiscal 2023[201](index=201&type=chunk) - **$3.2 million** remains **available for additional repurchases** under the **$5.0 million** authorization[201](index=201&type=chunk) - The company does not expect to repurchase any shares through at least the fourth quarter of fiscal 2023[201](index=201&type=chunk) [Segment Analysis](index=54&type=section&id=Segment%20Analysis) Both the Mattress Fabrics and Upholstery Fabrics segments experienced significant declines in net sales and profitability due to ongoing macroeconomic challenges, reduced consumer demand, and high customer inventory levels [Mattress Fabrics Segment](index=54&type=section&id=Mattress%20Fabrics%20Segment) The Mattress Fabrics segment faced a significant decline in net sales and profitability, with sales decreasing 35.8% in Q3 FY23 and 34.4% for the first nine months of FY23 Mattress Fabrics Segment Performance (Amounts in Thousands) | Metric | Jan 29, 2023 (3 Months) | Jan 30, 2022 (3 Months) | Change (%) | Jan 29, 2023 (9 Months) | Jan 30, 2022 (9 Months) | Change (%) | | :------------------------------------------ | :---------------------- | :---------------------- | :--------- | :---------------------- | :---------------------- | :--------- | | Net sales | $24,697 | $38,439 | (35.8)% | $80,299 | $122,380 | (34.4)% | | Gross (loss) profit | $(1,237) | $3,164 | (139.1)% | $(7,330) | $16,106 | (145.5)% | | Gross profit margin | (5.0)% | 8.2 % | (1320)bp | (9.1)% | 13.2 % | (2230)bp | | (Loss) income from operations | $(4,229) | $364 | N.M. | $(16,151) | $7,115 | N.M. | | Operating margin | (17.1)% | 0.9 % | (1800)bp | (20.1)% | 5.8 % | (2590)bp | - **Profitability** was pressured by lower sales, operating inefficiencies, labor challenges, higher raw material costs, **$2.9 million** in **inventory write-downs**, **$2.6 million** in closeout sales losses, and **$1.0 million** in aged inventory markdowns[209](index=209&type=chunk) - The segment completed the rationalization of its U.S.-based cut and sewn cover platform, discontinuing higher-cost on-shore production and closing two leased facilities in High Point, NC[210](index=210&type=chunk) [Net Sales](index=54&type=section&id=Mattress%20Fabrics%20Segment%20-%20Net%20Sales) This section analyzes the significant decrease in Mattress Fabrics net sales, attributed to a slowdown in consumer demand and excess inventory - **Mattress fabrics sales decreased 35.8%** in Q3 FY23 and **34.4%** in the first nine months of FY23, primarily due to a slowdown in consumer demand in the domestic mattress industry[203](index=203&type=chunk)[204](index=204&type=chunk) - The slowdown is attributed to **inflationary pressures**, a shift in demand from home goods to travel/leisure, and excess inventory held by mattress manufacturers and retailers[204](index=204&type=chunk) - Pricing and surcharge actions partially offset the **sales decrease**, contributing approximately **1.3%** to **net sales** in Q3 FY23 and **3.0%** in the first nine months of FY23[204](index=204&type=chunk) [Gross Profit, Selling, General & Administrative Expenses, and Operating Income](index=54&type=section&id=Mattress%20Fabrics%20Segment%20-%20Gross%20Profit%2C%20Selling%2C%20General%20%26%20Administrative%20Expenses%2C%20and%20Operating%20Income) This section examines the decreased profitability of the Mattress Fabrics segment due to lower sales, operating inefficiencies, labor challenges, and inventory charges - **Profitability decreased** in Q3 FY23 due to lower sales, operating inefficiencies from reduced volumes and holiday shutdowns[208](index=208&type=chunk) - For the first nine months of FY23, **profitability** was further impacted by labor challenges, increased employee training costs, quality issues, higher raw material costs, and **significant inventory charges** (**$2.9M** write-down, **$2.6M** closeout losses, **$1.0M** markdowns)[209](index=209&type=chunk) - The company completed the rationalization of its U.S.-based cut and sewn cover platform, moving R&D to Stokesdale, NC, and discontinuing higher-cost on-shore production[210](index=210&type=chunk) [Segment assets](index=56&type=section&id=Mattress%20Fabrics%20Segment%20-%20Segment%20assets) This section details the Mattress Fabrics segment assets including accounts receivable, inventory, and property, plant & equipment Mattress Fabrics Segment Assets (Amounts in Thousands) | Asset | Jan 29, 2023 | Jan 30, 2022 | May 1, 2022 | | :-------------------------- | :----------- | :----------- | :---------- | | Accounts receivable | $8,314 | $17,617 | $9,865 | | Inventory | $28,757 | $39,544 | $39,028 | | Property, plant & equipment | $34,661 | $39,913 | $38,731 | | Right of use assets | $2,476 | $3,706 | $3,469 | | **Total** | **$74,208** | **$100,780** | **$91,093** | - **Accounts receivable decreased by $9.3 million** (**52.8%**) YoY and **$1.6 million** (**15.7%**) QoQ, reflecting **decreased net sales** and faster cash collections[214](index=214&type=chunk)[215](index=215&type=chunk) - **Inventory decreased by $10.8 million** (**27.3%**) YoY and **$10.3 million** (**26.3%**) QoQ, driven by lower purchases, **$3.9 million** in non-cash charges, and promotional programs[216](index=216&type=chunk) - **Property, plant, and equipment**, and **right of use assets decreased** due to reduced capital spending, rent expense, and lease terminations/reductions[220](index=220&type=chunk)[222](index=222&type=chunk) [Upholstery Fabrics Segment](index=58&type=section&id=Upholstery%20Fabrics%20Segment) The Upholstery Fabrics segment experienced a significant decline in net sales, decreasing 33.5% in Q3 FY23 and 19.3% for the first nine months of FY23, primarily due to reduced demand for residential products and high customer inventory Upholstery Fabrics Segment Performance (Amounts in Thousands) | Metric | Jan 29, 2023 (3 Months) | Jan 30, 2022 (3 Months) | Change (%) | Jan 29, 2023 (9 Months) | Jan 30, 2022 (9 Months) | Change (%) | | :------------------------------------------ | :---------------------- | :---------------------- | :--------- | :---------------------- | :---------------------- | :--------- | | Net sales | $27,826 | $41,852 | (33.5)% | $93,209 | $115,519 | (19.3)% | | Gross profit | $3,330 | $5,946 | (44.0)% | $11,436 | $16,230 | (29.5)% | | Gross margin | 12.0 % | 14.2 % | (220)bp | 12.3 % | 14.0 % | (170)bp | | (Loss) income from operations | $(420) | $2,446 | (117.2)% | $383 | $5,739 | (93.3)% | | Operating margin | (1.5)% | 5.8 % | (730)bp | 0.4 % | 5.0 % | (460)bp | - **Profitability decreased** due to lower residential sales, operating inefficiencies in Haiti, and labor/inflation affecting the Read business, partially offset by favorable foreign exchange rates in China and cost reductions from restructuring[228](index=228&type=chunk) - **Restructuring activities** included closing the Shanghai, China cut and sew operation (**$713,000** in charges) and consolidating Haiti cut and sew production (**$711,000** in charges), totaling **$1.424 million** for the nine months ended January 29, 2023[232](index=232&type=chunk)[233](index=233&type=chunk)[237](index=237&type=chunk) [Net Sales](index=58&type=section&id=Upholstery%20Fabrics%20Segment%20-%20Net%20Sales) This section analyzes the significant decrease in Upholstery Fabrics net sales, primarily due to reduced demand for residential products and high inventory levels - **Upholstery fabrics sales decreased 33.5%** in Q3 FY23 and **19.3%** for the first nine months of FY23, primarily due to reduced demand for residential products and high inventory levels[223](index=223&type=chunk)[224](index=224&type=chunk) - The **decrease** was partially offset by higher sales in the hospitality/contract fabric business and pricing/surcharge actions (**1.7%** in Q3 FY23, **2.9%** in 9 months FY23)[224](index=224&type=chunk) - The company expects high inventory levels and a slowdown in new retail business to continue affecting demand for its residential business[225](index=225&type=chunk) [Gross Profit, Selling, General & Administrative Expenses, and Operating Income](index=60&type=section&id=Upholstery%20Fabrics%20Segment%20-%20Gross%20Profit%2C%20Selling%2C%20General%20%26%20Administrative%20Expenses%2C%20and%20Operating%20Income) This section examines the decreased profitability of the Upholstery Fabrics segment due to lower sales and operating inefficiencies, partially offset by foreign exchange rates - **Profitability decreased** in Q3 FY23 due to lower residential sales, operating inefficiencies in Haiti, and labor/inflation affecting the Read business[228](index=228&type=chunk) - These pressures were partially offset by a **significantly more favorable foreign exchange rate** in China and lower costs from the Q2 FY23 restructuring in China[228](index=228&type=chunk) - For the first nine months of FY23, **profitability** was also affected by **$2.3 million** in inventory markdowns due to aged inventory policy[229](index=229&type=chunk) [Restructuring Activities](index=60&type=section&id=Upholstery%20Fabrics%20Segment%20-%20Restructuring%20Activities) This section details the restructuring activities in the Upholstery Fabrics segment, including the closure of Shanghai operations and consolidation in Haiti, incurring significant charges - In Q2 FY23, the Shanghai, China cut and sew operation was closed, resulting in **$713,000** in **restructuring expense** and related charges[232](index=232&type=chunk) - In Q3 FY23, the company consolidated Haiti's cut and sew upholstery kit production into an existing facility, incurring **$711,000** in **restructuring expense**[233](index=233&type=chunk)[237](index=237&type=chunk) Restructuring Expense and Related Charges (Nine Months Ended January 29, 2023, Amounts in Thousands) | Category | Amount | | :------------------------------------------ | :----- | | Lease termination costs | $481 | | Employee termination benefits | $468 | | Impairment loss - leasehold improvements and equipment | $357 | | Loss on disposal and markdowns of inventory | $98 | | Other associated costs | $20 | | **Total** | **$1,424** | [Segment Assets](index=62&type=section&id=Upholstery%20Fabrics%20Segment%20-%20Segment%20Assets) This section provides an overview of the Upholstery Fabrics segment assets including accounts receivable, inventory, and right of use assets Upholstery Fabrics Segment Assets (Amounts in Thousands) | Asset | Jan 29, 2023 | Jan 30, 2022 | May 1, 2022 | | :-------------------------- | :----------- | :----------- | :---------- | | Accounts receivable | $12,927 | $21,381 | $12,361 | | Inventory | $18,870 | $33,589 | $27,529 | | Property, plant & equipment | $1,794 | $2,018 | $2,030 | | Right of use assets | $2,995 | $8,727 | $8,124 | | Assets held for sale | $1,950 | — | — | | **Total** | **$38,536** | **$65,715** | **$50,044** | - **Accounts receivable decreased by $8.5 million** (**39.5%**) YoY, reflecting **decreased net sales** and faster cash collections, with days' sales outstanding declining to **38 days**[240](index=240&type=chunk) - **Inventory decreased by $14.7 million** (**43.8%**) YoY and **$8.7 million** (**31.5%**) QoQ, due to lower purchases, **$2.4 million** in non-cash charges, and promotional programs[243](index=243&type=chunk)[244](index=244&type=chunk) - **Right of use assets decreased by $5.7 million** (**65.7%**) YoY and **$5.1 million** (**63.1%**) QoQ, primarily due to rent forgiveness, and lease terminations in China and Haiti[249](index=249&type=chunk) [Other Income Statement Categories](index=64&type=section&id=Other%20Income%20Statement%20Categories) This section analyzes changes in SG&A expenses, interest income, and other expenses, influenced by prior-year adjustments, investment liquidations, and foreign exchange rates Other Income Statement Categories (Amounts in Thousands) | Metric | Jan 29, 2023 (3 Months) | Jan 30, 2022 (3 Months) | Change (%) | Jan 29, 2023 (9 Months) | Jan 30, 2022 (9 Months) | Change (%) | | :-------------------------------- | :---------------------- | :---------------------- | :--------- | :---------------------- | :---------------------- | :--------- | | SG&A expenses | $9,165 | $8,007 | 14.5 % | $27,133 | $26,275 | 3.3 % | | Interest income | $196 | $214 | (8.4)% | $292 | $347 | (15.9)% | | Other expense | $1,095 | $322 | 240.1% | $348 | $963 | (63.9)% | - **SG&A expenses increased** due to the absence of change in estimate adjustments recorded in Q3 FY22 that lowered incentive compensation[254](index=254&type=chunk) - **Interest income decreased** due to the liquidation of short-term and corporate bond investments in Q4 FY22, partially offset by increased market interest rates in FY23[255](index=255&type=chunk) - **Other expense increased** in Q3 FY23 due to a **$757,000** **foreign exchange loss** from Chinese Renminbi, but **decreased** for the nine-month period due to a **$425,000** **foreign exchange gain**[257](index=257&type=chunk)[258](index=258&type=chunk) [Income Taxes](index=66&type=section&id=Income%20Taxes_MD%26A) This section explains the effective income tax rate on a pre-tax loss, impacted by U.S. losses and a full valuation allowance, with most taxable income from foreign operations - **Effective income tax rate** for the nine months ended January 29, 2023, was **(9.5%)** of **loss before income taxes**, compared to **48.4%** of **income before income taxes** in the prior-year period[260](index=260&type=chunk) - The consolidated **effective income tax rate** was negatively affected by a **significantly higher pre-tax loss** from U.S. operations (**$(28.8) million**) and a **full valuation allowance** against U.S. **net deferred income tax assets**[263](index=263&type=chunk)[266](index=266&type=chunk) - Projected annual **cash income tax payments** are approximately **$3.2 million** for fiscal 2023, with minimal U.S. income taxes expected due to U.S. federal **net operating loss carryforwards** and immediate expensing of capital expenditures[271](index=271&type=chunk)[272](index=272&type=chunk) - Required annual U.S. federal **transition tax payments** are **$499,000** for FY24, **$665,000** for FY25, and **$831,000** for FY26[273](index=273&type=chunk) [Future Liquidity](index=70&type=section&id=Future%20Liquidity) This section projects future cash income tax payments and outlines the impact of U.S. federal net operating loss carryforwards and capital expensing - The company projects annual **cash income tax payments** of approximately **$3.2 million** for fiscal 2023, compared with **$3.1 million** for fiscal 2022[271](index=271&type=chunk) - Minimal U.S. income taxes are expected on a cash basis during fiscal 2023 due to immediate expensing of U.S. capital expenditures and existing U.S. federal **net operating loss carryforwards**[272](index=272&type=chunk) - Annual U.S. federal **transition tax payments** are scheduled for FY 2024 (**$499,000**), FY 2025 (**$665,000**), and FY 2026 (**$831,000**)[273](index=273&type=chunk) [Liquidity and Capital Resources](index=70&type=section&id=Liquidity%20and%20Capital%20Resources) This section provides a comprehensive overview of the company's liquidity, capital resources, working capital management, and the impact of macroeconomic factors [Overall](index=70&type=section&id=Liquidity%20and%20Capital%20Resources%20-%20Overall) This section details the company's liquidity sources, including cash, operating cash flow, and available credit, deemed sufficient for foreseeable business needs - **Sources of liquidity** include **$16.7 million** in cash, **cash flow from operations**, and **$28.9 million** available under **revolving credit lines**, which are believed to be **sufficient for foreseeable business needs**[274](index=274&type=chunk) - Cash **increased by $2.2 million** to **$16.7 million** as of January 29, 2023, primarily due to **$4.6 million** in **net cash provided by operating activities**[275](index=275&type=chunk) - **Net cash provided by operating activities** was **$4.6 million** for the first nine months of fiscal 2023, an **increase of $17.0 million** compared to the prior-year period, mainly due to inventory reduction and improved alignment of purchases with demand[276](index=276&type=chunk) [By Geographic Area](index=72&type=section&id=Liquidity%20and%20Capital%20Resources%20-%20By%20Geographic%20Area) This section presents the distribution of cash and investments across various geographic regions Cash and Investments by Geographic Area (Amounts in Thousands) | Region | Jan 29, 2023 | Jan 30, 2022 | May 1, 2022 | | :------------- | :----------- | :----------- | :---------- | | United States | $9,658 | $12,351 | $4,430 | | China | $6,114 | $8,838 | $9,502 | | Canada | $700 | $454 | $267 | | Haiti | $244 | $557 | $341 | | Cayman Islands | $9 | $10 | $10 | | **Total** | **$16,725** | **$22,210** | **$14,550** | - The total balances for January 29, 2023, and May 1, 2022, solely represent cash, as short-term investments were liquidated in Q4 FY22[281](index=281&type=chunk) [Common Stock Repurchase Program](index=72&type=section&id=Liquidity%20and%20Capital%20Resources%20-%20Common%20Stock%20Repurchase%20Program) This section details the status of the common stock repurchase program, including available funds and future repurchase plans - The board authorized a **$5.0 million** **common stock repurchase program** in March 2020[282](index=282&type=chunk) - **No shares were purchased** during the first nine months of fiscal 2023, leaving **$3.2 million** **available for additional repurchases**[283](index=283&type=chunk) - The company does not expect to repurchase any shares through at least the fourth quarter of fiscal 2023[283](index=283&type=chunk) [Dividend Program](index=72&type=section&id=Liquidity%20and%20Capital%20Resources%20-%20Dividend%20Program) This section explains the suspension of the quarterly cash dividend to preserve capital and manage liquidity - The board of directors **suspended the quarterly cash dividend** on June 29, 2022, to preserve capital and manage liquidity[284](index=284&type=chunk) - **No dividend payments** were made during the first nine months of fiscal 2023[284](index=284&type=chunk) - **Dividend payments** totaled **$4.1 million** during the nine months ended January 30, 2022[285](index=285&type=chunk) [Working Capital](index=72&type=section&id=Liquidity%20and%20Capital%20Resources%20-%20Working%20Capital) This section analyzes changes in operating working capital, accounts receivable, inventory, and accounts payable - **Operating working capital** was **$44.9 million** as of January 29, 2023, a **significant decrease** from **$64.9 million** in January 2022 and **$67.7 million** in May 2022[287](index=287&type=chunk)[288](index=288&type=chunk) - **Accounts receivable decreased by $17.8 million** (**45.5%**) YoY to **$21.2 million**, reflecting **decreased net sales** and faster cash collections, with days' sales outstanding falling to **34 days** from **44 days**[289](index=289&type=chunk) - **Inventory decreased by $25.5 million** (**34.9%**) YoY to **$47.7 million**, driven by lower purchases, **$6.2 million** in non-cash charges, and promotional programs[291](index=291&type=chunk) - **Accounts payable - trade decreased by $24.2 million** (**51.7%**) YoY to **$22.5 million**, reflecting the **significant decline** in **net sales**[293](index=293&type=chunk) [Financing Arrangements](index=74&type=section&id=Liquidity%20and%20Capital%20Resources%20-%20Financing%20Arrangements) This section describes the company's revolving credit agreements and compliance with financial covenants - The company has **revolving credit agreements** for its U.S. parent company and China operations to support short-term cash needs, mitigate foreign currency risk, and repatriate earnings[295](index=295&type=chunk) - As of January 29, 2023, there were **no outstanding borrowings** associated with these **revolving credit agreements**[296](index=296&type=chunk) - The company was in compliance with all financial covenants as of January 29, 2023[297](index=297&type=chunk) [Capital Expenditures and Depreciation](index=76&type=section&id=Liquidity%20and%20Capital%20Resources%20-%20Capital%20Expenditures%20and%20Depreciation) This section outlines capital expenditures, depreciation expense, and open purchase commitments - **Capital expenditures** on a cash basis were **$1.6 million** during the first nine months of fiscal 2023, a reduction from **$5.3 million** in the prior-year period, reflecting current macroeconomic conditions[299](index=299&type=chunk) - **Depreciation expense** remained consistent at **$5.2 million** for both the first nine months of fiscal 2023 and 2022, primarily related to the **mattress fabrics** segment[300](index=300&type=chunk) - **Open purchase commitments** for **mattress fabrics** equipment totaled **$738,000** as of January 29, 2023[302](index=302&type=chunk) [Critical Accounting Policies and Recent Accounting Developments](index=76&type=section&id=Liquidity%20and%20Capital%20Resources%20-%20Critical%20Accounting%20Policies%20and%20Recent%20Accounting%20Developments) This section confirms no material changes in significant accounting policies or the impact of recent accounting pronouncements - **No changes** in **significant accounting policies** or their application as of January 29, 2023[303](index=303&type=chunk) - **No recently adopted or issued accounting pronouncements** are expected to have a **material effect**[303](index=303&type=chunk) [Contractual Obligations](index=76&type=section&id=Liquidity%20and%20Capital%20Resources%20-%20Contractual%20Obligations) This section states that no significant new contractual obligations have been reported since the last annual report - **No significant or new contractual obligations** have been reported since the annual report on Form 10-K for the year ended May 1, 2022, other than those disclosed in Note 9[304](index=304&type=chunk) [Inflation](index=76&type=section&id=Liquidity%20and%20Capital%20Resources%20-%20Inflation) This section discusses the adverse impact of significant increases in raw material, utility, energy, and labor costs due to general economic inflation - **Significant increases** in raw material, utility/energy, and labor costs, along with general economic **inflation**, have adversely impacted the company, with limited ability to pass these costs to customers[305](index=305&type=chunk) - **Inflationary pressures** began affecting consumer spending in the second half of fiscal 2022 and continued through the first nine months of fiscal 2023[305](index=305&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=77&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to market risks, specifically from changes in interest rates and foreign currency exchange rates [Interest Rates](index=77&type=section&id=Interest%20Rates) This section details the company's exposure to interest rate risk on its revolving credit agreements, with rates tied to SOFR and Chinese government benchmarks - The company is exposed to **market risk** from changes in **interest rates** related to its **revolving credit agreements**[307](index=307&type=chunk) - The U.S. ABL Credit Agreement's **interest rate** is calculated using an applicable margin over the Federal Reserve Bank of New York's secured overnight fund rate (**SOFR**)[308](index=308&type=chunk) - **No outstanding borrowings** existed under either the U.S. or China **revolving credit agreements** as of January 29, 2023[308](index=308&type=chunk)[309](index=309&type=chunk) [Foreign Currency](index=77&type=section&id=Foreign%20Currency) This section describes the company's foreign currency market risk exposure through its Canadian and Chinese subsidiaries and efforts to maintain a natural hedge - The company is exposed to **market risk** from changes in the value of **foreign currencies** for its subsidiaries in Canada and China[310](index=310&type=chunk) - A **natural hedge** is maintained by balancing assets and liabilities denominated in the local currencies of these subsidiaries[310](index=310&type=chunk) - A **10% change** in exchange rates as of January 29, 2023, would **not have materially affected** the company's results of operations or financial position[310](index=310&type=chunk) [Item 4. Controls and Procedures](index=77&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting - The company's **disclosure controls and procedures** were evaluated and deemed effective as of January 29, 2023[311](index=311&type=chunk) - **No material changes** in **internal control over financial reporting** occurred during the quarter ended January 29, 2023[312](index=312&type=chunk) Part II - Other Information This part includes other information such as legal proceedings, risk factors, equity sales, and exhibits [Item 1. Legal Proceedings](index=78&type=section&id=Item%201.%20Legal%20Proceedings) This section confirms no material changes to legal proceedings during the quarter, with existing details in the annual Form 10-K report - **No material changes** to **legal proceedings** during the three months ended January 29, 2023[314](index=314&type=chunk) - **Legal proceedings** are disclosed in the company's annual report on Form 10-K[314](index=314&type=chunk) [Item 1A. Risk Factors](index=78&type=section&id=Item%201A.%20Risk%20Factors) This section confirms no material changes to risk factors during the quarter, with existing details in the annual Form 10-K report - **No material changes** to **risk factors** during the three months ended January 29, 2023[315](index=315&type=chunk) - **Risk factors** are disclosed in Item 1A of the company's annual report on Form 10-K[315](index=315&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=78&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports no common stock repurchases during the period and details the remaining authorization under the repurchase plan Issuer Purchases of Equity Securities (October 31, 2022, to January 29, 2023) | 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 | | :------------------------------------ | :------------------------------- | :--------------------------- | :----------------------------------------------------------------- | :--------------------------------------------------------------------------------- | | October 31, 2022 to December 4, 2022 | — | — | — | $3,248,094 | | December 5, 2022 to January 1, 2023 | — | — | — | $3,248,094 | | January 2, 2023 to January 29, 2023 | — | — | — | $3,248,094 | | **Total** | **—** | **—** | **—** | **$3,248,094** | - In March 2020, the board of directors approved an authorization to acquire up to **$5.0 million** of **common stock**[317](index=317&type=chunk) [Item 6. Exhibits](index=79&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q report, including interactive data files and officer certifications - Exhibits include the Cover Page Interactive Data File (Inline XBRL), First Amendment to Second Amended and Restated Credit Agreement, and certifications from the CEO and CFO[319](index=319&type=chunk) [Signatures](index=80&type=section&id=Signatures) This section confirms the official signing of the report by the company's Executive Vice President and Chief Financial Officer and Vice President of Finance - The report was signed on March 9, 2023, by Kenneth R. Bowling (EVP and CFO) and Thomas B. Gallagher, Jr. (VP of Finance)[323](index=323&type=chunk)