Culp(CULP) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for the third quarter 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] - Net loss for the third quarter was $4.1 million or $0.33 per diluted share, compared to a net loss of $3.2 million or $0.26 per diluted share for the prior year [41] - Adjusted EBITDA for the third quarter was close to breakeven at a negative $123,000, a sequential improvement from negative $1.3 million in the second quarter [42] Business Line Data and Key Metrics Changes - Mattress fabrics segment sales were $28.6 million, down 4.6% year-over-year and down 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 down 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 - The company faced ongoing weakness in the home furnishings and bedding industries, impacting sales [16] - Specific pressure on residential upholstery fabric sales was noted due to 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 [24] - A restructuring plan aimed at transforming the business model and improving efficiency is largely complete [15] - The company is targeting further strategic actions to create cost and operating efficiencies across its businesses [26] - Emphasis on product development and innovation is seen as a key driver for success [32] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving sustained profitability and growth in fiscal 2026 [16] - The company anticipates continued industry sales pressure due to macroeconomic factors and tariff uncertainties [55] - Management expects consolidated net sales for the fourth quarter to show some year-over-year growth, driven by the mattress fabrics segment [55] Other Important Information - The company is under contract for the sale of its Canadian facility, expecting to receive between $6 million and $8 million in cash proceeds [14] - The company has a net debt position of $105,000 as of the end of the third quarter [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 fiscal year [51] Q&A Session Summary Question: Clarification on guidance and return to 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 fabrics and hospitality segments, with new customer projects underway [63][67] Question: Details on additional restructuring savings - Management discussed an additional $1 million in annualized savings related to personnel and professional fees, expected to start in Q4 [84][86] Question: Impact of tariffs on production and strategy - 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 leveraging their capabilities [106][109]