Culp(CULP) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the fourth quarter, net sales were $48.8 million, generally flat compared to $49.5 million in the prior year period [25] - The company reported a loss from operations of $2.2 million, which included $1.5 million in restructuring-related expenses, compared to a loss of $4.2 million in the prior year [25] - Net loss for the fourth quarter was $2.1 million or $0.17 per diluted share, compared to a net loss of $4.9 million or $0.39 per diluted share for the prior year [26] - Adjusted EBITDA for the fourth quarter was $559,000 compared to a negative $2.2 million in the prior year [26] - For the full fiscal year, net sales were $213.2 million, down 5.4% compared to the previous year [27] Business Line Data and Key Metrics Changes - Mattress fabrics segment sales for the fourth quarter were $27.1 million, up 5.3% compared to the prior year [30] - Upholstery fabrics segment sales for the fourth quarter were $21.7 million, down 8.9% compared to the prior year [32] - Operating loss in the mattress fabrics segment for the quarter was $217,000, compared to an operating loss of $2.9 million in the prior year [31] - Operating income for the upholstery fabrics segment for the quarter was $1.1 million, compared to $975,000 in the prior year [33] Market Data and Key Metrics Changes - The mattress industry is experiencing a projected decline in overall sales, with a report indicating a decline in units of around 11% [11] - Demand trends in the furniture market segment for upholstery fabrics continue to be historically low, particularly on the residential side [12] - The hospitality and commercial markets for upholstery fabrics have remained relatively solid, constituting approximately 42% of total upholstery sales during the quarter [14] Company Strategy and Development Direction - The company has completed a restructuring plan aimed at reducing fixed costs and enhancing operational efficiency [9] - An integration initiative called Project Blaze is underway to unify the mattress and upholstery fabric divisions, expected to generate approximately $3 million in annualized savings [20] - The company is focusing on price increases in response to tariff impacts, with an expected annualized benefit of $2.5 million [21] Management's Comments on Operating Environment and Future Outlook - Management noted that the macroeconomic uncertainty and global trade environment have pressured demand, leading to suspended shipments from China [38] - The company anticipates year-over-year sales growth in the mattress fabrics business, while expecting continued sales pressure on the residential side of the upholstery business [38] - Management emphasized the importance of maintaining liquidity and capital expenditures while prioritizing free cash flow [39] Other Important Information - The effective income tax rate for the fourth quarter was 10.5%, compared to a negative 19.8% for the same period a year ago [28] - Cash flow from operations and free cash flow were negative $17.7 million and negative $17.1 million, respectively, for the full fiscal year [34] - The company extended its credit facility with Wells Fargo for an additional three years, providing liquidity and financing flexibility [23] Q&A Session Summary Question: Could you talk about the cadence of business across mattress, residential upholstery, and commercial upholstery? - Management expressed optimism about the mattress fabrics business and noted challenges in residential upholstery due to demand cycles [42][44] Question: How have tariffs specifically impacted end customer demand across segments? - Management indicated that while prices are being passed to consumers, tariffs are just one factor among many affecting consumer demand [46] Question: What are the revenue assumptions baked into the pricing gains? - Management clarified that the price increases are based on steady state revenue and are primarily on the mattress side [48] Question: Can you explain the change in approach to inventory markdowns? - Management noted that they adjusted their markdown strategy to better align with actual prices received, generating a $1.7 million benefit in the quarter [54] Question: How aggressive will the company be on debt pay down? - Management stated they will pay down debt as quickly as possible while ensuring working capital needs are met [56] Question: What growth investments will the company prioritize in 2026? - Management highlighted opportunities in the mattress fabric and hospitality markets, while also continuing to focus on residential upholstery [60][66]