Culp(CULP) - 2026 Q1 - Quarterly Report

Part I - Financial Statements Item 1. Financial Statements This section presents the company's unaudited consolidated financial statements for the three months ended August 3, 2025 Consolidated Statements of Net Loss 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 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 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 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 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 Provides detailed explanations of accounting policies and specific financial statement items 1. Basis of Presentation 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] - The three months ended August 3, 2025, and July 28, 2024, represent 14-week and 13-week periods, respectively[28] 2. Significant Accounting Policies 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] - ASU 2023-09 (Improvements to Income Tax Disclosures) is effective for fiscal 2026 and will materially impact disclosures[31] - ASU 2024-03 (Expense Disaggregation Disclosures) is effective for fiscal 2028, and the company is evaluating its impact[32][33] 3. Allowance for Doubtful Accounts 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] 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 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] - 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][40] 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 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][273] 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 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] - 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][52][55] 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 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][57] - Another note receivable of $1.4 million is outstanding from the termination of a lease in Haiti, due by December 31, 2029[58][59][61] 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 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] - 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] 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 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 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][67][68] - A strategic transformation announced April 24, 2025, will combine bedding and upholstery segments into one Culp-branded business and consolidate facilities[69][70] 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 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][76][79] - 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][93] 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 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][95] - 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][99] 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 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] 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 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][106] 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 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][118] - The One Big Beautiful Bill Act (OBBBA) did not impact the effective tax rate due to the existing full U.S. valuation allowance[117][250] - 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][252] 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 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][130] - Performance-based restricted stock units are granted to senior executives, measured by fair market value using Monte Carlo simulation for market-based components[131][132] - Compensation expense for time-based restricted stock units was $153,000 for the quarter, with $392,000 remaining unrecognized[141][142] 17. Leases 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] 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 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] 19. Statutory Reserves 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][149] - The statutory surplus reserve fund is non-distributable except during liquidation but can be used for business expansion or converted into share capital[149] 20. Common Stock Repurchase Program 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][153] - As of August 3, 2025, $3.2 million remains available for additional common stock repurchases[153] Cautionary Statement Concerning Forward-Looking Information 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][155] - Key factors influencing future performance include housing starts, consumer tastes, trade policy, and the success of restructuring initiatives[155] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides an in-depth analysis of financial condition, operational results, and strategic initiatives 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][159] - The bedding segment manufactures fabrics and covers, while the upholstery segment sources and sells fabrics to furniture manufacturers[160][162] - Strategic transformations include consolidating North American operations and combining bedding and upholstery activities into one Culp-branded business[161][163] Executive Summary Summarizes key financial results, including sales, gross profit, and liquidity for the quarter Consolidated Results of Operations 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 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] - Upholstery sales were impacted by weakness in the residential furniture market and tariff-related challenges[168] - The company is positioned for market share gains due to its diversified production platform offering supply chain optionality[169] Gross Profit 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][172] - Bedding gross profit increased by $3.3 million, while upholstery gross profit decreased by $1.2 million[171] Income (Loss) Before Income Taxes 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] - Operating performance benefited from a more efficient bedding segment and a $3.5 million restructuring credit from the sale of the Canada facility[175] - Further cost benefits are expected in Q2 and Q3 fiscal 2026 from the integration of upholstery and window business operations[176] Income Taxes 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] - 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] - Haitian operations' pre-tax losses of $(362,000) did not receive an income tax benefit due to a 0% income tax rate[178] 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] - Net cash used in operating activities increased to $(695,000), reflecting increased inventory and decreased accounts payable[182][183] - Outstanding borrowings under lines of credit totaled $18.1 million as of August 3, 2025[184] Segment Analysis Provides a detailed performance review of the bedding and upholstery segments Bedding Segment 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][189] - Gross profit significantly improved to $2.9 million from a loss of $(326,000), driven by cost reductions from restructuring[192][193] - Inventory increased by $9.8 million (38.9%) to $35.1 million, reflecting a transition to strategically source mattress fabrics[197] 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 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] - Profitability decreased primarily due to lower sales; cost benefits from consolidating the Read Window business are expected in Q3 fiscal 2026[210][211] - Accounts receivable decreased by $3.3 million (28.9%) and inventory decreased by $1.4 million (8.4%), reflecting lower net sales[214][217][218] 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 Analyzes other key line items on the consolidated income statement Selling, General, and Administrative Expenses ("SG&A") 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][229] 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) 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][232] - Restructuring expense of $349,000 was incurred for the strategic transformation, with estimated cumulative charges of $2.2 million[234] Restructuring Credit (Expense) | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | | :-------------------- | :------------- | :------------ | | Restructuring credit (expense) | $3,508 | $(2,631) | Interest Expense 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] Interest Expense | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | Change (%) | | :-------------------- | :------------- | :------------ | :--------- | | Interest expense | $(183) | $(28) | 553.6% | Interest Income 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] Interest Income | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | Change (%) | | :-------------------- | :------------- | :------------ | :--------- | | Interest income | $235 | $262 | (10.3)% | Other Expense 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] Other Expense | Metric (in Thousands) | August 3, 2025 | July 28, 2024 | Change (%) | | :-------------------- | :------------- | :------------ | :--------- | | Other expense | $531 | $404 | 31.4% | Income Taxes 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] - The One Big Beautiful Bill Act (OBBBA) did not impact the effective tax rate due to the existing full U.S. valuation allowance[248][250] - 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] 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 Assesses the company's liquidity position, capital resources, and working capital management 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] - Net cash used in operating activities increased to $(695,000), primarily due to increased inventory and decreased accounts payable[262] - Cash balance may be adversely affected by low customer demand, increased tariffs, and supply chain disruptions[264] By Geographic Area 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 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][267] 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] Consolidated Basis - Working Capital 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] - Accounts receivable decreased by $3.2 million (14.8%) to $18.4 million, reflecting lower net sales[270] - Inventory increased by $8.4 million (20.3%) to $50.1 million, driven by strategic sourcing and rising costs/tariffs[273] - Accounts payable decreased to $24.3 million, primarily due to decreased consumer demand and timing of vendor payments[276] Financing Arrangements 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] 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] Capital Expenditures and Depreciation 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] - Depreciation expense was $1.1 million, down from $1.6 million in the prior year[281] - Fiscal 2026 capital spending is projected to be comparable to fiscal 2025, focusing on efficiency and future growth[283] Critical Accounting Policies and Recent Accounting Developments 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] Contractual Obligations 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] 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] - New tariffs have increased upward pressure on raw material costs; price increases were initiated in Q2 fiscal 2026 to mitigate these impacts[287][288] - Persistent inflationary pressures curtailed consumer spending in fiscal 2023-2025, leading to lower demand[289] Item 3. Quantitative and Qualitative Disclosures About Market Risk Outlines the company's exposure to interest rate and foreign currency market risks Interest Rates 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] - 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][293][294] Foreign Currency 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] - A 10% change in exchange rates as of August 3, 2025, would not have materially affected results of operations or financial position[296] Item 4. Controls and Procedures 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] - No material changes in internal control over financial reporting occurred during the quarter ended August 3, 2025[298] Part II - Other Information Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] 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 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] Item 6. Exhibits 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] 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]