Culp(US:CULP)2025-12-12 16:37Financial Performance - Consolidated net sales for the second quarter of fiscal 2026 decreased by 4.4% to $53.2 million compared to $55.7 million in the same period last year, with bedding sales increasing by 2.3% and upholstery sales decreasing by 12.3%[186]. - Gross profit for the second quarter of fiscal 2026 was $5.8 million, a decrease of 3.5% from $6.0 million in the prior year, while gross profit for the first half increased by 17.6% to $13.0 million[191]. - Loss before income taxes improved by 28.0% to $(4.1) million in the second quarter of fiscal 2026, compared to $(5.7) million in the same period last year, and $(3.0) million for the first half, an improvement of 76.7% from $(12.7) million[193]. - The company recorded a net loss of $(4.3) million for the second quarter of fiscal 2026, a 23.7% improvement from $(5.6) million in the same quarter last year[185]. Cash and Liquidity - Cash and cash equivalents increased to $10.7 million as of November 2, 2025, up from $5.6 million as of April 27, 2025, primarily due to net borrowings of $5.3 million[200]. - The company suspended its quarterly cash dividend to preserve capital and manage liquidity, with no dividend payments made during the first half of fiscal 2026[286]. - Cash totaled $10.7 million as of November 2, 2025, an increase of $5.1 million from $5.6 million as of April 27, 2025, primarily due to net borrowings and proceeds from property sales[279]. Sales and Market Trends - The company anticipates potential demand improvement in the bedding market driven by product replacement cycles, despite ongoing market headwinds[187]. - Upholstery sales faced challenges, with a year-over-year decline of 16.6% in the first half of fiscal 2026, reflecting broader market softness[186]. - The company anticipates continued sales pressure in the bedding market due to macroeconomic challenges but sees potential for improvement driven by product replacement cycles[209]. Segment Performance - Bedding net sales increased by 2.3% to $30.8 million in Q2 FY2026 compared to $30.0 million in Q2 FY2025[207]. - Upholstery net sales decreased by 12.3% to $22.4 million in Q2 FY2026 compared to $25.6 million in Q2 FY2025, with a 16.6% decline for the first half of FY2026[223]. - Gross profit for the bedding segment rose to $3.1 million, a 26.9% increase from $2.4 million in Q2 FY2025, with a gross profit margin improvement of 200 basis points to 10.1%[210]. - Upholstery gross profit fell to $3.6 million in Q2 FY2026, down 16.3% from $4.3 million in Q2 FY2025, with a gross margin decrease of 80 basis points to 16.1%[227]. Restructuring and Operational Changes - The restructuring initiatives completed in fiscal 2025 contributed to improved gross profit margins, with bedding gross profit increasing by 185.4% in the first half of fiscal 2026[191]. - The company expects to enhance its operating profile through additional restructuring and integration initiatives, including consolidating upholstery distribution and reducing facility footprint in China[195]. - The company is consolidating U.S. upholstery distribution operations to enhance profitability, with completion expected in FY2026[230]. - Restructuring expenses for the three months ended November 2, 2025, totaled $1.4 million, with significant contributions from employee termination benefits and facility consolidation costs[251]. Inventory and Receivables - As of November 2, 2025, accounts receivable for the bedding segment increased by 8.2% to $11.2 million compared to $10.4 million a year earlier, reflecting longer payment trends[213]. - Inventory for the bedding segment rose by 18.1% to $34.5 million as of November 2, 2025, driven by strategic sourcing and rising production costs[216]. - Accounts receivable decreased by $1.7 million, or 7.6%, to $20.6 million as of November 2, 2025, reflecting a 4.4% decline in net sales[288]. - Inventory increased by $4.8 million, or 10.7%, to $49.9 million as of November 2, 2025, due to strategic sourcing and rising costs[290]. Tax and Interest - The effective income tax rate for the first half of fiscal 2026 was adversely affected by the mix of earnings, resulting in an income tax expense of $1.6 million[196]. - The effective income tax rate for the six-month period ended November 2, 2025, was (53.2)%, significantly higher than (1.5)% for the same period in 2024[262]. - The company incurred a consolidated pre-tax loss of $(3.0) million in the first half of fiscal 2026, an improvement from a loss of $(12.7) million in the same period of fiscal 2025[269]. - Interest expense increased by 563.3% to $(199,000) for the three months ended November 2, 2025, compared to $(30,000) in the same period of fiscal 2025, due to increased borrowings[242]. Foreign Currency and Market Risks - The company is facing inflationary pressures that could adversely affect operating results, with rising costs for raw materials and tariffs impacting pricing structures[304]. - The company is exposed to market risk from changes in foreign currency values for subsidiaries in Canada, China, and Vietnam[314]. - A natural hedge is maintained by balancing assets and liabilities in local currencies of subsidiaries[314]. - A significant portion of the company's imports purchased outside the U.S. are denominated in U.S. dollars[314]. - A 10% change in exchange rates as of November 2, 2025, would not materially affect the company's results of operations or financial position[314].