Culp(CULP) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q3 2025 were $52.3 million, down 13.5% compared to the prior year period [40] - The company reported a loss from operations of$ 3.9 million, which included $2.3 million in restructuring expenses [40] - Adjusted loss from operations was$ 1.6 million, an improvement from $1.9 million in the prior year period [40] - Consolidated adjusted EBITDA for the quarter was close to breakeven at a negative$ 123,000, a sequential improvement from negative $1.3 million in Q2 [42] Business Line Data and Key Metrics Changes - Mattress fabrics segment sales were$ 28.6 million, down 4.6% year-over-year and 4.8% sequentially [43] - Operating loss for the mattress fabrics segment was $433,000, improved from a loss of$ 1.6 million a year ago [44] - Upholstery fabrics segment sales were $23.6 million, down 22.3% year-over-year and 7.8% sequentially [45] - Hospitality contract business sales increased significantly year-over-year and slightly sequentially, contributing to 40% of upholstery fabrics total sales for the quarter [21] Market Data and Key Metrics Changes - Consolidated sales for Q3 were down due to ongoing weakness in the home furnishings and bedding industries [16] - Specific pressure on residential upholstery fabric sales was noted, exacerbated by inventory adjustments from a large customer [17] - The hospitality contract portion of the upholstery fabrics segment is expected to drive solid long-term growth [22] Company Strategy and Development Direction - The company is focused on returning to profitability despite a challenging demand environment, with operational adjustments aimed at cost and efficiency improvements [24] - A restructuring plan has been largely completed, with expected annualized savings of$ 10 million to $11 million [25] - The company is targeting further strategic actions to create more cost and operating efficiencies across its businesses [26] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving sustained profitability and growth in fiscal 2026, assuming no significant worsening in industry sales levels [24] - The company anticipates continued industry sales pressure due to macroeconomic factors and tariff uncertainties [55] - Management expects consolidated net sales for Q4 to show some year-over-year growth, driven by the mattress fabrics segment [55] Other Important Information - The company has entered into a conditional agreement for the sale of its Canadian facility, expecting to receive between$ 6 million and $8 million in cash proceeds [14] - The company reported a net debt position of$ 105,000 as of the end of Q3 [49] - Capital expenditures for the first nine months of the fiscal year were $2.4 million, projected to be approximately$ 3 million to $3.5 million for the entire fiscal year [51] Q&A Session Summary Question: Change in guidance regarding profitability - Management confirmed expectations for a return to profitability in early fiscal 2026, despite current demand levels [60][62] Question: Market share growth in mattress and hospitality segments - Management indicated continued market share growth in both mattress and hospitality segments, with new customer projects underway [63][67] Question: Additional restructuring savings - Management discussed an additional$ 1 million in annualized savings expected to start in Q4, related to personnel and professional fees [84][86] Question: Impact of tariffs on production - Management noted that only about 30% of upholstery fabrics are tariff impacted, with strategies in place to mitigate these effects [99][100] Question: Consolidation in the mattress industry - Management views industry consolidation as a net positive, providing opportunities for growth and service to larger customers [106][109]