Culp, Inc. (NYSE: CFI) today reported financial and operating
results for the fourth quarter and fiscal year ended April 29, 2007.
Overview
For the three months ended April 29, 2007, net sales were $73.2 million
compared with $70.7 million a year ago, an increase of 3.5 percent. The
company reported a net loss of $40,000, or $0.00 per diluted share, for
the fourth quarter of fiscal 2007, compared with a net loss of $1.5
million, or $0.13 per diluted share, for the fourth quarter of fiscal
2006. The financial results for the fourth quarter of fiscal 2007
include $1.8 million, or $0.14 per diluted share, in restructuring and
related charges, after taxes. Excluding these charges, net income for
the fourth quarter of fiscal 2007 was $1.8 million, or $0.14 per diluted
share. The financial results for the fourth quarter of fiscal 2006
included $3.2 million, or $0.27 per diluted share, in restructuring and
related charges, after taxes. Excluding these charges, net income for
the fourth quarter of fiscal 2006 was $1.7 million, or $0.14 per diluted
share. Included in the $1.7 million is an income tax benefit of
$661,000, or $0.06 per share, that reflects losses from the company's
U.S. operations combined with lower tax rates on income from foreign
sources.
For the fiscal year ended April 29, 2007, the company reported net sales
of $250.5 million, compared with $261.1 million for the same period a
year ago, a decrease of 4.0 percent. Net loss for fiscal 2007 was
$1.3 million, or $0.11 per diluted share, compared with a net loss of
$11.8 million, or $1.02 per diluted share, last year. Excluding
restructuring and related charges, net income for fiscal 2007 was
$3.8 million, or $0.32 per diluted share. Excluding restructuring and
related charges, net loss for fiscal 2006 was $438,000, or $0.04 per
diluted share. (A reconciliation of the net income (loss) and net income
(loss) per share has been set forth on Page 6.)
Frank Saxon, chief executive officer of Culp, Inc., said, "Our
fourth quarter performance marked a solid finish to a year of important
strategic and operational changes at Culp. These results reflect the
benefits of the aggressive steps we have taken this year to more
effectively position Culp in the global marketplace. Our mattress
fabrics business has progressed well with the addition of the mattress
fabrics product line of International Textile Group, Inc.’s
Burlington House Division ("ITG”),
acquired at the end of the third fiscal quarter. This transition has
gone well and we are excited about the significant opportunities ahead
for Culp in mattress fabrics. Although market conditions have continued
to be extremely challenging in upholstery fabrics, we have worked hard
to create a sustainable upholstery fabrics business model that will meet
current customer demand. Our China platform has significantly enhanced
our competitive position in the global marketplace. We believe we have
achieved a solid leadership position in both of our businesses and look
forward to the year ahead.” Mattress Fabrics Segment
Mattress fabrics (known as mattress ticking) sales for the fourth
quarter were $38.1 million, a 58 percent improvement compared with $24.1
million for the fourth quarter of fiscal 2006. These results include the
additional sales related to the company’s
acquisition of ITG’s mattress fabrics product
line completed during the third quarter of fiscal 2007, as well as some
organic growth. Mattress fabrics sales represented 52 percent of overall
sales for the fourth fiscal quarter. On a unit volume basis, total yards
sold increased by 45 percent compared with the fourth quarter of fiscal
2006. The average selling price of $2.45 per yard for mattress fabrics
for the fourth quarter of fiscal 2007 increased nine percent compared
with the fourth quarter of last year, reflecting a shift in product mix.
Operating income for this segment was $3.9 million, or 10.3 percent of
sales, compared with $2.0 million, or 8.4 percent of sales, for the
prior-year period, reflecting higher overall volume and full plant
utilization. These operating results also include ITG transition costs
of $740,000 incurred during the fourth quarter. For fiscal 2007,
mattress fabrics sales totaled 107.8 million, an increase of 15 percent
over fiscal 2006, and operating income was $10.8 million, up 57 percent
from $6.9 million in the prior year.
"Our mattress fabrics business was
exceptionally strong in the fourth quarter and accounted for more than
half of total company sales for the first time in Culp’s
history,” noted Saxon. "The
acquisition of ITG’s mattress fabrics product
line has enhanced our leadership position and we have been pleased with
our progress in integrating the additional production and sales.
Customer response has generally been favorable and we believe this
transaction provides the opportunity to increase Culp’s
annual sales in mattress fabrics by approximately $40 million. We were
also pleased to achieve improved operating margins in mattress fabrics
even with the transition costs during the fourth quarter. With the
integration now substantially complete, we are well positioned to
solidify the gains we have achieved and continue to build a sustained
level of execution and service for our customers.” Upholstery Fabrics Segment
Sales for this segment were $35.1 million, a 25 percent decline compared
with $46.6 million in the fourth quarter of fiscal 2006. Total yards
sold declined by 25 percent, while average selling prices were flat
compared with the fourth quarter of fiscal 2006. Sales of upholstery
fabrics reflect very weak overall industry demand as well as continued
soft demand industry wide for U.S. produced fabrics, driven by consumer
preference for leather-and suede-covered furniture and other imported
fabrics, including cut and sewn kits. Sales of U.S. produced fabrics
were $14.2 million, down 46 percent from the fourth quarter of fiscal
2006, while sales of non-U.S. produced fabrics were $20.9 million, up
three percent over the prior year period. Operating income for
the upholstery fabrics segment for the fourth quarter of fiscal 2007 was
$863,000 compared with $1.1 million for the same period a year ago. For
fiscal 2007, sales of upholstery fabrics were $142.7 million, a decline
of 15 percent compared with fiscal 2006. Operating income for the year
was $2.3 million, reversing the previous year’s
operating loss of $954,000. These results reflect higher gross profit on
non-U.S. produced fabrics, but continued low gross profit levels related
to sales of U.S. produced fabrics.
Saxon remarked, "Business conditions in the
retail furniture business have been extremely soft as a weak housing
market and higher gas prices are affecting consumer demand. Our
upholstery fabrics business mirrors the trends in the industry. With
respect to our U.S. operations, we believe we have taken the right steps
to reduce our operating costs and align our operations with current
demand. As of the end of fiscal 2007, we have only one remaining U.S.
upholstery fabrics plant in Anderson, South Carolina, which produces
velvets and a limited amount of decorative fabrics. Culp is now the only
U.S. company producing velvet fabrics for furniture manufacturers and we
believe the Anderson plant will continue to play an important role in
our upholstery fabrics business. The book value of our remaining U.S.
upholstery fabrics asset base is now $3.4 million. With our
restructuring activities substantially complete, we believe we now have
the appropriate U.S. manufacturing capacity to support current demand.
"Our non-U.S. operations accounted for 60
percent of upholstery fabrics sales for the fourth quarter compared with
43 percent a year ago. However, sales of non-U.S. fabrics also are
beginning to reflect the overall softness in the furniture industry. Our
China platform has continued to grow, although at a slower rate, and we
continue to identify potential opportunities as we expand our
capabilities. We believe Culp is well positioned to meet customer demand
when market conditions improve, with our strong focus on product
innovation, quality and global logistics,”
added Saxon.
Balance Sheet "One of our primary objectives for fiscal
2007 was to maintain a strong financial position as we continued to make
important strategic changes in our operations,”
added Saxon. "We are pleased with the
progress we made in improving our cash position and reducing debt. At
the end of fiscal 2007, our balance sheet reflected $10.2 million in
cash and cash equivalents even as we expanded our mattress fabrics
business. Total debt was $40.8 million compared with $47.7 million at
the end of fiscal 2006. During the fourth quarter and in May, we prepaid
a total of $6.2 million in long-term debt scheduled for payment in March
2008. Our debt to capital ratio has improved significantly and is now 35
percent, down from 40 percent at the end of last year. As of April 30,
2007, we also had $2.5 million in assets held for sale, which we expect
will be sold in fiscal 2008. Our capital spending plans for fiscal year
2008 are expected to be approximately $4.0 million and depreciation is
expected to be approximately $6.0 million.” Outlook
Commenting on the outlook for the first quarter of fiscal 2008, Saxon
said, "The current trends in our mattress
fabrics segment continue to be favorable, while business conditions
remain very soft in our upholstery fabrics segment due to weak retail
furniture demand and sharply lower demand for U.S. produced fabrics.
Overall, we expect our first quarter sales to be about the same as the
first quarter of last year. We expect sales in our mattress fabrics
segment to be up 55 to 60 percent for the first quarter, reflecting the
incremental ITG sales and some organic growth. Operating income in this
segment is also expected to improve substantially compared with the
prior year period due to higher sales volume, full production schedules
and the completion of the integration of the ITG business.
"In our upholstery fabrics segment, we expect
sales to be down approximately 30 to 35 percent for the first quarter,
with a modest decline in sales of non-US produced fabrics and sharply
lower sales of U.S. produced fabrics. We believe the upholstery fabric
segment’s operating results will reflect a
small operating loss due to lower sales and continued low gross profit
margins in U.S. produced fabrics. However, we are expecting continued
solid gross profit margins in our non-U.S. produced business and lower
selling, general and administrative expenses on a sequential basis for
this segment, as we have recently taken additional cost reduction
actions in this area.
"Considering these factors, we expect the
company to report net income in the first quarter in the range of $0.08
to $0.12 per diluted share, excluding restructuring and related charges
for previously announced restructuring initiatives. This is management's
best estimate at present, recognizing that future financial results are
difficult to predict because the upholstery fabrics industry is
undergoing a dramatic transition and many internal changes are still
underway within the company. The actual results will depend primarily
upon the level of demand throughout the quarter and the company's
progress with respect to restructuring activities," said Saxon.
The company estimates that restructuring and related charges for
previously announced restructuring initiatives of approximately $500,000
($375,000 net of taxes, or $0.03 per diluted share) will be incurred
during the first fiscal quarter. Including these restructuring and
related charges, the company expects to report results for the first
fiscal quarter in the range of net income of $0.05 to $0.09 per diluted
share. (A reconciliation of the projected net income per share
calculation has been set forth on Page 6.)
In closing, Saxon added, "We look forward to
the opportunities ahead for Culp in fiscal 2008. We believe we made
considerable progress over the past year in moving the company forward
in both business segments. With the addition of the ITG business we have
achieved a strong competitive position in mattress fabrics and this
business segment will be the key driver of Culp’s
growth for fiscal 2008. We have developed a growing global platform in
our upholstery fabrics business and will continue to enhance our
capabilities in China. With the aggressive strategic steps we have taken
in our U.S. upholstery fabric business, we have created a model to keep
our domestic capacity appropriately sized for the current business
environment. We are now focused on our position as the sole U.S.
manufacturer of velvet upholstery fabrics. As we begin fiscal 2008, we
are confident that Culp can approach both the opportunities and
challenges in today’s global marketplace from
a stronger position.
"Over the past several years, Culp has
undergone a difficult and challenging transformation in response to
fundamental changes in the marketplace. These changes were possible in
large part due to the dedicated and diligent efforts of our associates
who have been remarkably loyal and understanding during these
challenging times. With their commitment, we have taken the actions
necessary to ensure Culp’s position as a key
participant in today’s global marketplace,”
said Saxon.
About the Company
Culp, Inc. is one of the world’s largest
marketers of mattress fabrics for bedding and upholstery fabrics for
furniture. The company’s fabrics are used
principally in the production of bedding products and residential and
commercial upholstered furniture.
This release contains statements that may be deemed "forward-looking
statements” within the meaning of the federal
securities laws, including the Private Securities Litigation Reform Act
of 1995 (Section 27A of the Securities Act of 1933 and Section 27A of
the Securities and Exchange Act of 1934). Such statements are
inherently subject to risks and uncertainties. Further,
forward-looking statements are intended to speak only as of the date on
which they are made. Forward-looking statements are statements
that include projections, expectations or beliefs about future events or
results or otherwise are not statements of historical fact. Such
statements are often but not always characterized by qualifying words
such as "expect,” "believe,” "estimate,” "plan”
and "project” and
their derivatives, and include but are not limited to statements about
the company’s future operations, production
levels, sales, SG&A or other expenses, margins, gross profit, operating
income, earnings or other performance measures. Factors that
could influence the matters discussed in such statements include the
level of housing starts and sales of existing homes, consumer
confidence, trends in disposable income, and general economic conditions. Decreases in these economic indicators could have a negative effect
on the company’s business and prospects. Likewise,
increases in interest rates, particularly home mortgage rates, and
increases in consumer debt or the general rate of inflation, could
affect the company adversely. Changes in consumer tastes or
preferences toward products not produced or marketed by the company
could erode demand for the company’s products. The company’s level of success in
integrating its recent acquisition and in capturing and retaining sales
to customers related to the acquisition will affect the company’s
ability to meet its sales and profit goals. In addition,
strengthening of the U.S.
Dollar against other currencies could make the
company’s products less competitive on the
basis of price in markets outside the United States. Also,
economic and political instability in international areas could affect
the company’s operations or sources of goods
in those areas, as well as demand for the company’s
products in international markets. Finally, unanticipated delays
or costs in executing restructuring actions could cause the cumulative
effect of restructuring actions to fail to meet the objectives set forth
by management. Other factors that could affect the matters
discussed in forward-looking statements are included in the company’s
periodic reports filed with the Securities and Exchange Commission,
including the "Risk Factors”
section in the company’s most recent annual
report on Form 10-K.
CULP, INC. Condensed Financial Highlights (Unaudited)
Three Months Ended Fiscal Year Ended April 29, April 30, April 29, April 30, 2007
2006
2007
2006
Net sales
$73,196,000
$70,718,000
$250,533,000
$261,101,000
Net loss
$(40,000)
$(1,534,000)
$(1,316,000)
$(11,796,000)
Net loss per share:
Basic
$(0.00)
$(0.13)
$(0.11)
$(1.02)
Diluted
$(0.00)
$(0.13)
$(0.11)
$(1.02)
Net income (loss) per share, diluted, excluding restructuring and
related charges (1)
$0.14
$0.14
$0.32
$(0.04)
Average shares outstanding:
Basic
12,559,000
11,594,000
11,922,000
11,567,000
Diluted
12,559,000
11,594,000
11,922,000
11,567,000
(1) Excludes restructuring and related charges of $2.8 million
($1.8 million, or $0.14 per diluted share, after taxes) for the
fourth quarter of fiscal 2007. Excludes restructuring and related
charges of $8.4 million ($5.2 million, or $0.43 per diluted share,
after taxes) for fiscal 2007. Of the $2.8 million and $8.4
million, non-cash charges were $1.7 million and $4.2 million,
respectively.
Excludes restructuring and related charges of $4.7 million ($3.2
million, or $0.27 per diluted share, after taxes) for the fourth
quarter of fiscal 2006. Excludes restructuring and related charges
of $17.9 million ($11.4 million, or $0.98 per diluted share, after
taxes) for fiscal 2006. Of the $4.7 million and $17.9 million,
non-cash charges were $4.1 million and $13.0 million, respectively.
Reconciliation of Net Loss as Reported to Pro Forma Net
(Income) Loss(Unaudited)
Three Months Ended Fiscal Year Ended April 29, April 30, April 29, April 30, 2007
2006
2007
2006
Net loss, as reported
$(40,000)
$(1,534,000)
$(1,316,000)
$(11,796,000)
Restructuring and related charges, net of income taxes
1,821,000
3,184,000
5,160,000
11,358,000
Pro forma net income (loss)
$1,781,000
$1,650,000
$3,844,000
$(438,000)
Reconciliation of Net Loss Per Share as Reported toPro
Forma Net Income (Loss) Per Share(Unaudited)
Three Months Ended Fiscal Year Ended April 29, April 30, April 29, April 30, 2007
2006
2007
2006
Net loss, as reported
$(0.00)
$(0.13)
$(0.11)
$(1.02)
Restructuring and related charges, net of income taxes
0.14
0.27
0.43
0.98
Pro forma net income (loss) per share
$0.14
$0.14
$0.32
$(0.04)
Reconciliation of Projected Range of Net Income Per Share to Projected Range of Pro Forma Net Income Per Share (Unaudited)
Three Months Ending July 29, 2007
Projected range of net income per diluted share
$0.05 - $0.09
Projected restructuring and related charges, net of income taxes
0.03
Projected range of pro forma net income per diluted share
$0.08 - $0.12
