Culp(US:CULP)2021-12-09 16:00Part I - Financial Information Presents Culp, Inc.'s comprehensive financial data, including statements, management analysis, market risks, and controls Financial Statements Presents Culp, Inc.'s unaudited consolidated financial statements, including income, balance, and cash flow statements, for specified periods Consolidated Statements of Net Income (Loss) Details the company's net sales, gross profit, operating income, and net income (loss) for the specified periods Consolidated Statements of Net Income (Loss) (Unaudited, in Thousands) | Metric | Three Months Ended Oct 31, 2021 | Three Months Ended Nov 1, 2020 | Six Months Ended Oct 31, 2021 | Six Months Ended Nov 1, 2020 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $74,561 | $76,851 | $157,608 | $141,315 | | Gross profit | $10,727 | $14,261 | $23,226 | $24,162 | | Income from operations | $1,640 | $4,518 | $4,958 | $6,401 | | Net income (loss) | $851 | $2,384 | $3,101 | $(349) | | Net income (loss) per share - diluted | $0.07 | $0.19 | $0.25 | $(0.03) | Consolidated Balance Sheets Provides a snapshot of the company's assets, liabilities, and shareholders' equity at specific fiscal dates Consolidated Balance Sheet Highlights (Unaudited, in Thousands) | Metric | Oct 31, 2021 | Nov 1, 2020 | May 2, 2021 | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $16,956 | $45,288 | $37,009 | | Inventories | $63,781 | $47,726 | $55,917 | | Total current assets | $128,750 | $139,950 | $143,207 | | Total assets | $209,325 | $202,776 | $214,080 | | Total current liabilities | $55,923 | $54,103 | $61,232 | | Total liabilities | $80,871 | $75,525 | $85,074 | | Total shareholders' equity | $128,454 | $127,251 | $129,006 | Consolidated Statements of Cash Flows Summarizes cash flows from operating, investing, and financing activities, showing changes in cash and equivalents Consolidated Cash Flow Highlights (Unaudited, in Thousands) | Metric | Six Months Ended Oct 31, 2021 | Six Months Ended Nov 1, 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(1,328) | $22,703 | | Net cash used in investing activities | $(14,222) | $(6,299) | | Net cash used in financing activities | $(4,501) | $(41,001) | | Decrease in cash and cash equivalents | $(20,053) | $(24,502) | | Cash and cash equivalents at end of period | $16,956 | $45,288 | Notes to Consolidated Financial Statements Offers detailed explanations of accounting policies, business combinations, revenue recognition, and other financial statement context * Effective February 1, 2021, the company acquired the remaining 50% ownership interest in Class International Holdings, Ltd. (CIH) for a total consideration of $2.7 million, including $1.7 million fair value of previously held interest, resulting in a bargain purchase gain of $819,000333538 Disaggregated Revenue by Segment (Six Months Ended Oct 31, 2021, in Thousands) | Segment | Products transferred at a point in time | Services transferred over time | Total Net Sales | | :--- | :--- | :--- | :--- | | Mattress Fabrics | $83,941 | $— | $83,941 | | Upholstery Fabrics | $69,705 | $3,962 | $73,667 | | Total | $153,646 | $3,962 | $157,608 | * The effective income tax rate for the six months ended October 31, 2021, was 30.3%, a significant change from 109.5% in the prior year, primarily due to a different mix of earnings and the non-recurrence of a valuation allowance charge118120 * During the first half of fiscal 2022, the company repurchased 121,688 shares of common stock for $1.8 million, with $3.2 million remaining available for future repurchases as of October 31, 2021191 * Dividend payments totaled $2.7 million in the first half of fiscal 2022, representing quarterly payments of $0.11 per share, with the board approving a $0.115 per share dividend on December 1, 2021193 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses financial performance, sales trends, profitability impacts, and liquidity for the second quarter and first half of fiscal 2022 Results of Continuing Operations Analyzes the company's net sales, gross profit, and net income performance for Q2 and H1 FY2022 compared to prior periods Q2 FY2022 vs Q2 FY2021 Performance (in Thousands) | Metric | Q2 FY2022 | Q2 FY2021 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $74,561 | $76,851 | (3.0)% | | Gross profit | $10,727 | $14,261 | (24.8)% | | Income from operations | $1,640 | $4,518 | (63.7)% | | Net income | $851 | $2,384 | (64.3)% | H1 FY2022 vs H1 FY2021 Performance (in Thousands) | Metric | H1 FY2022 | H1 FY2021 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $157,608 | $141,315 | 11.5% | | Gross profit | $23,226 | $24,162 | (3.9)% | | Income from operations | $4,958 | $6,401 | (22.5)% | | Net income (loss) | $3,101 | $(349) | N.M. | * Operating performance in Q2 FY2022 was materially affected by lower sales, higher freight, raw material, and labor costs, unfavorable foreign exchange rates, and start-up costs for the new Haiti facility212 Segment Analysis Examines the performance of Mattress Fabrics and Upholstery Fabrics segments, highlighting sales drivers and profitability changes Mattress Fabrics Segment Performance - Q2 (in Thousands) | Metric | Q2 FY2022 | Q2 FY2021 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $40,883 | $40,030 | 2.1% | | Income from operations | $3,139 | $4,382 | (28.4)% | | Operating margin | 7.7% | 10.9% | (320)bp | * Upholstery fabrics sales in Q2 were primarily driven down by lower residential business sales due to COVID-19-related shutdowns of sourcing partners and customers in Vietnam256 Upholstery Fabrics Segment Performance - Q2 (in Thousands) | Metric | Q2 FY2022 | Q2 FY2021 | % Change | | :--- | :--- | :--- | :--- | | Net sales | $33,678 | $36,821 | (8.5)% | | Income from operations | $1,028 | $3,287 | (68.7)% | | Operating margin | 3.1% | 8.9% | (580)bp | Liquidity and Capital Resources Assesses the company's cash position, operating cash flow, capital expenditures, and debt status * Cash and investments totaled $36.6 million as of October 31, 2021, a decrease from $46.9 million as of May 2, 2021217310 * Net cash used in operating activities was $1.3 million for H1 FY2022, a reversal from $22.7 million provided in H1 FY2021, primarily due to increased inventory and decreased accounts payable219312 * Projected capital expenditures for fiscal 2022 are expected to be between $10.3 million and $10.7 million, primarily for the mattress fabrics segment338 * As of October 31, 2021, there were no outstanding borrowings under any of the company's revolving credit agreements222332 Quantitative and Qualitative Disclosures About Market Risk Identifies exposure to interest rate and foreign currency risks, and strategies for mitigation * The company is exposed to interest rate risk through its U.S. revolving credit agreement, based on a variable spread over LIBOR, but had no outstanding borrowings as of October 31, 2021346 * Foreign currency market risk arises from operations in Canada and China, which the company attempts to mitigate by maintaining a natural hedge through balancing local currency assets and liabilities347 Controls and Procedures Confirms the effectiveness of disclosure controls and procedures, with no material changes to internal controls * Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of October 31, 2021348 * No material changes in internal control over financial reporting occurred during the quarter ended October 31, 2021349 Part II - Other Information Covers legal proceedings, risk factors, equity security sales, and required exhibits Legal Proceedings Reports no material changes to the company's legal proceedings during the three months ended October 31, 2021 * No material changes to legal proceedings were reported for the quarter ended October 31, 2021351 Risk Factors States no material changes to the company's identified risk factors during the three months ended October 31, 2021 * No material changes to risk factors were reported for the quarter ended October 31, 2021352 Unregistered Sales of Equity Securities and Use of Proceeds Details common stock repurchases during Q2 FY2022 and remaining authorization under the repurchase program Issuer Purchases of Equity Securities (Q2 FY2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Aug 2 - Sep 5, 2021 | 62,908 | $14.15 | | Sep 6 - Oct 3, 2021 | 10,094 | $13.69 | | Oct 4 - Oct 31, 2021 | — | — | | Total | 73,002 | $14.09 | * As of October 31, 2021, approximately $3,248,094 remained available for future share repurchases under the company's authorized program354 Exhibits Lists all exhibits filed as part of the Form 10-Q report, including certifications and XBRL data files