Culp(US:CULP)2023-09-07 16:00Part I - Financial Information Financial Statements 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 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 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 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 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 time3234 - 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 sales6263 - 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 capacity6776 - 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, 2023108109 Management's Discussion and Analysis of Financial Condition and Results of Operations 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 - 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 activities171 Segment Analysis 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 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 needs238 - 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 programs252 - 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 FY24246 Quantitative and Qualitative Disclosures About Market Risk 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 borrowings271272 - 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 results274 Controls and Procedures 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, 2023275 - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting276 Part II - Other Information Legal Proceedings 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 quarter278 Risk Factors 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 quarter279 Unregistered Sales of Equity Securities and Use of Proceeds 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 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)283285