Culp(US:CULP)2025-09-11 14:02Financial Data and Key Metrics Changes - Net sales for the first quarter were $50.7 million, down from $56.5 million in the prior year period, primarily due to market softness and tariff-related shipment pauses [21][22] - Gross profit improved to $7.2 million or 14.3% of sales, compared to $5.1 million or 9% of sales in the prior year, reflecting a 530 basis point increase driven by restructuring benefits [21][22] - Operating income was $1.6 million, a significant improvement from a loss of $6.9 million in the prior year [21][22] - Net loss for the quarter was $231,000 or $0.02 per diluted share, compared to a net loss of $7.3 million or $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 at $2.9 million or 10.5% of sales, a significant improvement from a negative gross profit in the prior year [24] - Upholstery segment sales were $22.6 million, down approximately 20% from $28.5 million in the prior year, with gross profit at $4.3 million or 18.9% of sales, down from $5.5 million or 19.4% [25][26] Market Data and Key Metrics Changes - The bedding industry is still in a down cycle, but analysts suggest that 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 significantly impacted sales during the quarter [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 fiscal 2026 [31][32] - Project Blaze aims to unify operations and share resources across divisions, which is expected to enhance overall business performance [16][18] - The company is strategically positioned to capitalize on market recovery by maintaining flexibility in its supply chain and not limiting production capacity [42][43] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the ongoing challenges from tariffs and market conditions but remains optimistic about gaining market share and improving profitability [9][31] - The company expects adjusted EBITDA results to range from near breakeven to slightly positive for the second quarter, with continued improvements anticipated throughout fiscal 2026 [31][32] Other Important Information - The company reported $11.1 million in total cash and $18.1 million in outstanding debt, maintaining a net debt position of $7.1 million [26][28] - Capital expenditures were reduced to $179,000 for the quarter, reflecting a focus on managing costs and efficiency [29] Q&A Session Summary Question: Are all known tariff impacts accounted for in your initiatives? - Management indicated that they have adjusted pricing and operations to mitigate tariff impacts, and they feel confident in their current strategies [34][35] Question: What is the elasticity of pricing in the current market? - Management acknowledged the competitive nature of the market but emphasized the need to pass on costs to maintain profitability [37] Question: How does the current market downturn compare to past cycles? - Management noted that while down cycles are common, the current downturn has been prolonged, but they are confident in a future recovery [40][42] Question: Will the company be able to meet increased demand with the existing cost structure? - Management assured that they have not limited capacity and can grow as demand increases, leveraging existing cost structures for better margins [43][44] Question: What is the estimated market value of real estate and the future use of NOLs? - Management provided a net book value of $12 million for real estate, with an estimated market value of $40 to $45 million, and discussed the potential future benefits of NOLs once profitability is achieved [45][46]