Culp(US:CULP)2023-12-05 20:02Financial Data and Key Metrics Changes - Consolidated net sales for the second quarter were $58.7 million, up 0.6% year-over-year [6] - The company reported a loss from operations of $2.2 million, significantly improved from a loss of $11.9 million in the prior year [6] - Net loss for the quarter was $2.4 million or $0.19 per diluted share, compared to a net loss of $12.2 million or $0.99 per diluted share in the prior year [6] - Adjusted EBITDA was close to breakeven at negative $247,000, compared to negative $8.2 million for the prior year [54] Business Line Data and Key Metrics Changes - Upholstery Fabrics segment sales were $27.3 million, down 14.9% year-over-year, affected by softness in the residential home furnishings industry [7] - Operating income for the Upholstery Fabrics segment was $1.4 million, up from $262,000 in the prior year, with an operating margin of 5.1% [7] - Mattress Fabrics segment sales were $31.4 million, up 19.6% year-over-year, driven by new fabric placements and better pricing [21] - Operating loss for the Mattress Fabrics segment was $936,000, a 90% improvement from a loss of $9 million a year ago [21] Market Data and Key Metrics Changes - The company noted ongoing softness in the residential home furnishings industry but indicated solid demand in the hospitality contract business, which accounted for approximately 33% of Upholstery Fabrics segment sales [7][19] - The domestic mattress industry remains pressured by demand softness, but the company believes it is outperforming industry trends [21] Company Strategy and Development Direction - The company is focused on a comprehensive transformation within its mattress fabrics business, aiming for long-term improvements in quality, sales, and operational processes [52] - The company is maintaining a strong balance sheet and ensuring appropriate working capital while making strategic capital investments, particularly in the mattress fabric segment [3][5] - The company aims to return to consolidated operating profitability by the end of the fiscal year, with expectations for improved performance in the second half of fiscal '24 [4][23] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about seeing the bottom in residential home furnishings upholstery fabric sales, attributing this to normalized inventory levels [10] - The company expects to continue sequential and year-over-year operating improvements without relying on macro industry tailwinds [4] - Management highlighted the importance of operational improvements and customer gains as key drivers for future performance [11][12] Other Important Information - The company ended the quarter with $15.2 million in cash and no outstanding borrowings, with total liquidity of $41.4 million [5][22] - Capital expenditures for the fiscal year are projected to be in the range of $5 million to $6 million, focusing on maintenance and efficiency improvements [22] Q&A Session Summary Question: What is the outlook for residential home furnishings and upholstery fabric sales? - Management believes they have seen the bottom in residential home furnishings upholstery fabric sales due to normalized inventory levels [10] Question: How is the company managing its SG&A expenses? - SG&A expenses are up due to investments in the business, but management expects to achieve positive leverage as sales rise [33][45] Question: What is the timeframe for returning to double-digit operating margins? - Management indicated they are still in the middle of a transformation process and expect steady improvement towards historical results over time [32]