Culp(US:CULP)2025-07-11 17:19Part I Business Culp, Inc. is a leading North American marketer of mattress and upholstery fabrics, undergoing a significant restructuring in fiscal 2025 to enhance efficiency - Culp is one of the largest marketers of mattress and upholstery fabrics in North America, serving leading bedding and furniture companies globally15 Fiscal 2025 Restructuring Overview | Action | Description | | :--- | :--- | | NA Mattress Ops Consolidation | Phased wind-down and closure of the Quebec, Canada manufacturing plant, with knitting operations moved to Stokesdale, NC | | Weaving Operation Transition | Transitioned internal weaving to a strategic sourcing model, primarily with a partner in Turkey | | Haiti Consolidation | Consolidated the sewn mattress cover operation in Haiti into a single building to reduce expenses | | China Finishing Rationalization | Aligned the upholstery fabrics finishing operation in China with demand, leveraging supply relationships | | Corporate Expense Reduction | Targeted annualized savings of $1.5 million in unallocated corporate and shared services expenses | - The company incurred approximately $9.4 million in total restructuring and related costs in fiscal 202523 Net Sales by Segment (in Millions) | Segment | Fiscal 2025 | Fiscal 2024 | Fiscal 2023 | | :--- | :--- | :--- | :--- | | Mattress Fabrics | $113.9 (53%) | $116.4 (52%) | $111.0 (47%) | | Upholstery Fabrics | $99.3 (47%) | $108.9 (48%) | $123.9 (53%) | | Total | $213.2 (100%) | $225.3 (100%) | $234.9 (100%) | Net Sales by Geographic Area (FY2025) | Geographic Area | Sales (in thousands) | Percentage of Total | | :--- | :--- | :--- | | United States | $143,713 | 67.4% | | North America (Excl. USA) | $32,912 | 15.4% | | Far East and Asia | $30,586 | 14.3% | | All other areas | $6,026 | 2.8% | | Total | $213,237 | 100.0% | Risk Factors The company faces risks from economic uncertainty, intense competition, global supply chain issues, and activist shareholders - Economic uncertainty, inflationary pressures, and declines in consumer confidence negatively affect demand for furniture and bedding, which has adversely impacted sales and may continue to do so120121 - The business is highly competitive and fragmented, with significant competition from low-cost foreign producers, increasing deflationary price pressures and market share loss risks123124 - Increased U.S. tariffs on imports, especially from China, have compelled price increases and are likely to impact sales and gross margins, potentially affecting customer sales131132 - Significant reliance on foreign operations and sourcing, particularly in China and Turkey, exposes the company to supply chain disruptions, political instability, and regulatory changes136 - The company faces risks from activist shareholders, with an agreement made in June 2025 with 22NW, LP, including board appointments and a strategy committee formation164 - The company's two largest customers, Serta-Simmons Bedding and La-Z-Boy Incorporated, accounted for approximately 13% and 11% of consolidated net sales in fiscal 2025, with loss of either significantly impacting sales and earnings157 Unresolved Staff Comments The company reports that there are no unresolved staff comments from the SEC - None182 Cybersecurity The Board's Audit Committee oversees the company's cybersecurity risk management program, with no material incidents identified - The Board's Audit Committee has primary oversight responsibility for cybersecurity risks and receives quarterly presentations on the program190 - The company's cybersecurity strategy includes a security operations program, third-party risk management, an incident response plan, annual assessments by specialists, and security awareness training192 - The company has not identified any cybersecurity incidents that have materially affected or are reasonably likely to materially affect its business, results of operations, or financial condition189 Properties Culp owned or leased thirteen facilities as of FY2025, with restructuring leading to plant closures and consolidations - The company owns its primary manufacturing and distribution facilities in Stokesdale, North Carolina197 - As part of restructuring, the manufacturing facility in Quebec, Canada was closed and sold effective April 30, 2025201 - The company plans to close its leased facility in Burlington, North Carolina, and transition its activities to the owned facility in Stokesdale, North Carolina, as part of its segment integration strategy201 Legal Proceedings The company reports no legal proceedings that are required to be disclosed under this item - There are no material legal proceedings to which the company or its subsidiaries are a party200 Mine Safety Disclosure This item is not applicable to the company - Not applicable203 Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Culp, Inc.'s common stock trades on NYSE; dividends are suspended, and no shares were repurchased in fiscal 2025 - The company's quarterly cash dividend has been suspended since June 29, 2022, and no dividends were paid in fiscal 2025209 - No shares of common stock were repurchased during fiscal 2025, with approximately $3.2 million remaining available for future repurchases under the authorized program as of April 27, 2025208326 [RESERVED]](index=54&type=section&id=Item%206.%20%5BRESERVED%5D) This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations Consolidated net sales decreased to $213.2 million in fiscal 2025, resulting in a $19.1 million net loss due to restructuring and weak demand Consolidated Results of Operations (in thousands) | Metric | FY 2025 | FY 2024 | Change | | :--- | :--- | :--- | :--- | | Net sales | $213,237 | $225,333 | (5.4)% | | Gross profit | $25,067 | $27,939 | (10.3)% | | Loss from operations | $(18,377) | $(11,308) | 62.5% | | Net loss | $(19,103) | $(13,819) | 38.2% | - The increase in operating loss was significantly impacted by restructuring expenses, which totaled approximately $9.4 million in fiscal 2025 compared to $676,000 in fiscal 2024236 - Cash and cash equivalents decreased by $4.4 million to $5.6 million as of April 27, 2025, primarily due to $17.7 million in cash used for operating activities and $2.9 million in capital expenditures243 - As of April 27, 2025, the company had outstanding borrowings of $12.7 million under its line of credit agreements245 Segment Analysis - Mattress Fabrics Segment Mattress Fabrics net sales decreased 2.1% to $113.9 million, but operating loss improved due to restructuring cost reductions Mattress Fabrics Segment Performance (in thousands) | Metric | FY 2025 | FY 2024 | Change | | :--- | :--- | :--- | :--- | | Net sales | $113,906 | $116,370 | (2.1)% | | Gross profit | $7,936 | $6,289 | 26.2% | | Loss from operations | $(5,235) | $(6,845) | (23.5)% | - Operating performance improved due to fixed cost reductions and efficiency gains from the Fiscal 2025 restructuring, despite being significantly affected by $8.5 million in restructuring and related expenses for the segment253258 Mattress Fabrics Segment Assets (in thousands) | Asset | April 27, 2025 | April 28, 2024 | % Change | | :--- | :--- | :--- | :--- | | Accounts receivable | $10,576 | $10,003 | 5.7% | | Inventory | $33,293 | $27,671 | 20.3% | | Property, plant & equipment | $23,259 | $31,472 | (26.1)% | | Total segment assets | $69,430 | $70,773 | (1.9)% | Segment Analysis - Upholstery Fabrics Segment Upholstery Fabrics net sales fell 8.8% to $99.3 million due to market downturn, with operating income decreasing 29.9% Upholstery Fabrics Segment Performance (in thousands) | Metric | FY 2025 | FY 2024 | Change | | :--- | :--- | :--- | :--- | | Net sales | $99,331 | $108,963 | (8.8)% | | Gross profit | $18,752 | $21,690 | (13.5)% | | Income from operations | $4,057 | $5,787 | (29.9)% | - The decline in sales reflects a continued downturn in the home furnishings market and was exacerbated by tariff-related market uncertainty in the fourth quarter271 - As part of a strategic transformation, the company will close its leased facility in Burlington, NC, and transition activities to its owned facility in Stokesdale, NC, to streamline costs277 Liquidity and Capital Resources Liquidity weakened in fiscal 2025, with cash decreasing to $5.6 million due to operating activities and capital expenditures - Cash and cash equivalents decreased by $4.4 million, from $10.0 million at FYE 2024 to $5.6 million at FYE 2025318 - Net cash used in operating activities was $17.7 million, an increase of $9.5 million from the prior year, reflecting lower cash earnings and an increase in inventory purchases during restructuring319 - The company had outstanding borrowings of $12.7 million as of April 27, 2025, and available borrowings of $21.4 million under its domestic credit facility320508 - The dividend program remains suspended, and no shares were repurchased in fiscal 2025323326 Critical Accounting Estimates Critical accounting estimates include Inventory Valuation, Income Taxes Valuation Allowance, and Stock-Based Compensation, requiring significant judgment - For Inventory Valuation, management continually examines inventory for obsolescence, with a $1.7 million non-cash credit to cost of sales in Q4 FY2025 due to a change in accounting estimate for the finished goods markdown reserve350351 - For Income Taxes, the company recorded a full valuation allowance of $26.3 million against its U.S. net deferred tax assets as of April 27, 2025, concluding they are more-likely-than-not not fully realizable355305 - Stock-Based Compensation expense recognition requires significant judgment, including forecasting future financial results and using complex assumptions in valuation models for performance-based awards358359 Quantitative and Qualitative Disclosures about Market Risk The company is exposed to interest rate and foreign currency risks, with $12.7 million in variable-rate borrowings outstanding - The company is exposed to interest rate risk on its variable-rate credit agreements in the U.S. and China, with outstanding borrowings totaling $4.6 million under the U.S. facility and approximately $8.1 million under China facilities as of April 27, 2025366367368 - The company is exposed to foreign currency risk from its operations in Canada, China, and Vietnam, attempting to manage this risk through a natural hedge, and a 10% change in exchange rates is not expected to have a material impact371 Consolidated Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal 2025, with an unqualified auditor's opinion - The independent auditor, Grant Thornton LLP, issued an unqualified opinion on the consolidated financial statements373 Consolidated Balance Sheet Summary (in thousands) | | April 27, 2025 | April 28, 2024 | | :--- | :--- | :--- | | Total Current Assets | $83,534 | $80,881 | | Total Assets | $123,370 | $132,054 | | Total Current Liabilities | $46,964 | $38,107 | | Total Liabilities | $65,730 | $55,925 | | Total Shareholders' Equity | $57,640 | $76,129 | | Total Liabilities and Equity | $123,370 | $132,054 | Consolidated Statement of Net Loss Summary (in thousands) | | FY 2025 | FY 2024 | FY 2023 | | :--- | :--- | :--- | :--- | | Net Sales | $213,237 | $225,333 | $234,934 | | Gross Profit | $25,067 | $27,939 | $10,896 | | Loss from Operations | $(18,377) | $(11,308) | $(28,478) | | Net Loss | $(19,103) | $(13,819) | $(31,520) | | Net Loss Per Share | $(1.53) | $(1.11) | $(2.57) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no disagreements with its accountants on accounting or financial disclosure matters - There were no disagreements with accountants on accounting principles or financial disclosure594 Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of April 27, 2025 - Management concluded that disclosure controls and procedures were effective as of April 27, 2025596 - Management concluded that internal control over financial reporting was effective as of April 27, 2025, based on the COSO 2013 framework598 Other Information No directors or officers adopted or terminated Rule 10b5-1 trading arrangements in the fourth quarter of fiscal 2025 - No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement in the fourth quarter602 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not Applicable603 Part III Directors, Executive Officers, and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement - This information is incorporated by reference from the company's definitive Proxy Statement605 Executive Compensation Information regarding executive compensation is incorporated by reference from the company's definitive Proxy Statement - This information is incorporated by reference from the company's definitive Proxy Statement607 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the Proxy Statement, including equity compensation plan details - This information is incorporated by reference from the company's definitive Proxy Statement608 Equity Compensation Plan Information (as of April 27, 2025) | Plan Category | Securities to be issued upon exercise (a) | Weighted-average exercise price (b) | Securities remaining available for future issuance (c) | | :--- | :--- | :--- | :--- | | Approved by security holders | 846,119 | $ — | 668,353 | | Not approved by security holders | — | — | — | | Total | 846,119 | $ — | 668,353 | Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the Proxy Statement - This information is incorporated by reference from the company's definitive Proxy Statement613 Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's definitive Proxy Statement - This information is incorporated by reference from the company's definitive Proxy Statement615 Part IV Exhibits and Financial Statement Schedules This section lists the consolidated financial statements and all exhibits filed with the Form 10-K report - This section lists the consolidated financial statements and all exhibits filed with the Form 10-K618621 Form 10-K Summary The company indicates that no Form 10-K summary is provided - None623