Financial Data and Key Metrics Changes - Consolidated net sales for Q2 were $53.2 million, a sequential improvement from $50.7 million in Q1, but a decline from $55.7 million in the prior year period [26] - Consolidated gross profit for the quarter was $5.8 million, or 10.9% of sales, compared to $6 million, or 10.8% of sales in the prior year [26] - SG&A expense for the quarter was $8.7 million, reflecting a 7% improvement compared to the prior year [27] - Loss from operations was $3.5 million, an improvement from a loss of $5.4 million in the prior year [27] - Adjusted EBITDA was negative $1 million, an improvement from negative $1.1 million in the prior year [28] Business Line Data and Key Metrics Changes - Bedding segment sales for Q2 were $30.8 million, up approximately 10% sequentially and over 2% year-over-year [30] - Gross profit in the bedding segment was $3.1 million, or 10.1% of sales, a 200 basis points improvement from the prior year [31] - Upholstery segment sales for Q2 were $22.4 million, flat sequentially but down approximately 12% year-over-year [31] - Gross profit in the upholstery segment was $3.6 million, or 16.1% of sales, down from $4.3 million, or 16.9% of sales in the prior year [31] Market Data and Key Metrics Changes - The home furnishings industry continues to face significant challenges, with low consumer confidence and high levels of unsold homes impacting sales [7][20] - The bedding market is showing signs of stabilization, with expectations for an increase in unit activity driven by historical product replacement cycles [19][20] - Upholstery business remains impacted by weak consumer sentiment and housing market conditions, particularly affecting lower and middle-income segments [21][22] Company Strategy and Development Direction - The company is focused on winning market share and adjusting its cost structure to achieve profitability in the current market cycle [8] - A comprehensive restructuring project has been completed, expected to yield approximately $11 million in annualized cost savings [14][18] - The integration of the bedding and upholstery divisions aims to create a unified Culp-branded business, enhancing operational efficiency [15][16] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the challenging demand environment for home furnishings but expects steady consolidated sales performance in the near term [36] - The company anticipates continued improvement in operating loss and near break-even to positive Adjusted EBITDA for Q3 [36] - Management remains cautious about the timing of market recovery but is positioning the company to capitalize on future demand increases [45][46] Other Important Information - The company has a net debt position of $7.6 million and continues to manage liquidity and capital expenditures aggressively [32][34] - The company is owed approximately $4.7 million from the sale of its Canada facility, expected to be received in Q3 [36] Q&A Session Summary Question: What is the realization status of the cost savings? - Management indicated that significant savings are being realized, with most expected to be fully realized by Q4 [41][44] Question: What will be the incremental margin on the next point of sales growth? - Management confirmed that there is built-up leverage to capitalize on any increase in sales, with fixed costs in place to retain a significant portion of incremental dollars [47][48] Question: What is the status of the new tariffs in Turkey and Haiti? - Management explained that recent tariff changes have created challenges, but the company is well-positioned to navigate these issues [49][50]

Financial Data and Key Metrics Changes - Net sales for Q1 FY 2026 were $50.7 million, down from $56.5 million in the prior year, primarily due to market softness and tariff-related shipment pauses [21] - Gross profit increased to $7.2 million (14.3% of sales) from $5.1 million (9% of sales) year-over-year, reflecting a 530 basis point improvement driven by restructuring benefits [21] - Operating income for the quarter was $1.6 million, compared to a loss of $6.9 million in the prior year [21] - Net loss was $231,000 ($0.02 per diluted share), significantly improved from a net loss of $7.3 million ($0.58 per diluted share) in the prior year [22] Business Line Data and Key Metrics Changes - Bedding segment sales were $28 million, flat compared to the previous year, with gross profit improving to $2.9 million (10.5% of sales) from a loss of $326,000 (-1.2% of sales) [24] - Upholstery segment sales decreased by approximately 20% to $22.6 million from $28.5 million, with gross profit at $4.3 million (18.9% of sales), down from $5.5 million (19.4% of sales) [25][26] Market Data and Key Metrics Changes - The home furnishings industry remains in a down cycle, but analysts suggest that mattress demand may be close to bottoming out, with potential for recovery driven by product replacement and household formation [8][9] - The upholstery segment faced challenges due to high tariffs on imports from China, which temporarily halted shipments and impacted sales [11][12] Company Strategy and Development Direction - The company is focused on restructuring and integration initiatives to improve operating efficiency and profitability, with expectations for sequential sales growth throughout FY 2026 [31] - Project Blaze aims to unify operations and share resources across divisions, enhancing overall operational efficiency [16] - The company is strategically positioned to capitalize on market recovery by maintaining capacity and leveraging competitive advantages in supply chain management [19][44] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the ongoing challenges from tariffs and market conditions but expresses confidence in the company's ability to navigate these issues and improve profitability [9][31] - The company anticipates sequential growth in sales and adjusted EBITDA results moving towards breakeven or slightly positive for Q2 FY 2026 [31] - Management emphasizes the importance of maintaining flexibility in operations to adapt to changing market demands [43] Other Important Information - The effective income tax rate for Q1 FY 2026 was 120.3%, influenced by the gain on the sale of the Canadian manufacturing facility [23] - The company reported $11.1 million in cash and $18.1 million in outstanding debt, maintaining a net debt position of $7.1 million [26][28] Q&A Session Summary Question: Are all known tariff impacts accounted for in your initiatives? - Management believes they can take tariffs off the immediate worry list, having adjusted pricing and operations to manage the current environment effectively [35] Question: What is the pricing elasticity in the current market? - Management acknowledges the competitive nature of the business but is working to pass through necessary price increases to cover tariffs and improve margins [37] Question: How far along is the realization of the $18 million in initiatives? - Management indicates that the $10-$11 million from the previous year's restructuring is fully implemented, while other initiatives will impact the back half of FY 2026 [38][39] Question: How does the current market dip compare to past downturns? - Management notes that while down cycles are common, the current period has been prolonged, but they remain confident in a market recovery [40][42] Question: Will the company be able to meet demand if it turns? - Management asserts that they have not limited capacity and can grow as needed, leveraging existing resources to meet potential demand increases [43][44] Question: What is the estimated market value of real estate and the future use of NOLs? - The net book value of the real estate is approximately $12 million, with an estimated market value of $40-$45 million, while NOLs will provide future tax benefits once profitability is achieved [45][46]