Culp, Inc. (NYSE: CULP), a leading marketer of mattress fabrics and upholstery fabrics, has reported its financial results for the fourth quarter and fiscal year 2024, showcasing its resilience in the face of ongoing macroeconomic challenges. Despite the tough industry conditions, the company has taken decisive actions to realign its operations and position itself for long-term success.
For the full fiscal year 2024, Culp reported net sales of $225.3 million, down 4.1% from the prior year. The company's net loss for the year was $13.8 million, or $1.11 per diluted share. While the top-line performance was impacted by weaker demand, Culp's operating performance improved significantly compared to the prior year, with the loss from operations narrowing to $11.3 million, down from $28.5 million in the previous fiscal year.
The company's cash flow from operations for fiscal 2024 was a negative $8.2 million, while free cash flow was a negative $10.8 million, reflecting the impact of operating losses and strategic investments in capital expenditures related to the company's restructuring initiatives.
Culp's fourth-quarter results were in line with the company's expectations, with net sales declining 19.4% year-over-year to $49.5 million. The company reported a loss from operations of $4.2 million in the quarter, which included $204,000 in restructuring expenses. Net loss for the quarter was $4.9 million, or $0.39 per diluted share.
Business Overview
Culp's operations are divided into two main segments: Mattress Fabrics and Upholstery Fabrics.
Mattress Fabrics Segment:
For the full fiscal year 2024, the Mattress Fabrics segment reported net sales of $116.4 million, up 4.8% from the prior year. However, the segment's performance was impacted by weaker demand in the fourth quarter, with sales declining 16.1% year-over-year to $25.8 million. The segment's operating loss for the year was $6.8 million, a significant improvement from the $18.7 million operating loss in the prior year.Upholstery Fabrics Segment:
The Upholstery Fabrics segment reported net sales of $109.0 million for fiscal 2024, down 12.1% from the previous year. In the fourth quarter, the segment's sales declined 22.6% year-over-year to $23.8 million. However, the segment's operating income for the full year was $5.8 million, a substantial improvement compared to the $2.0 million operating income in the prior year.Restructuring Initiatives
In response to the challenging industry conditions, Culp announced a comprehensive restructuring plan in May 2024, primarily focused on its Mattress Fabrics segment. The key elements of the plan include:
1. Closing the company's mattress fabric weaving, knitting, and finishing facility in Canada and consolidating production into the Stokesdale, North Carolina facility. 2. Transitioning the company's damask weaving business to a sourcing model with a long-term manufacturing partner. 3. Consolidating the company's operations in Haiti into a smaller footprint with a single facility.
These actions are expected to result in annualized cost and productivity savings of $10 million to $11 million, mostly within the Mattress Fabrics segment, as well as an additional $1 million to $1.5 million in savings from reductions in unallocated corporate and shared services.
Culp anticipates incurring approximately $8 million in restructuring and related charges, with only $2.5 million in cash charges, the majority of which are expected to be incurred in the first half of fiscal 2025. The company plans to fund these cash charges primarily through the sale of excess manufacturing equipment and expects to receive $10 million to $12 million in after-tax proceeds from the sale of its Canadian facility.
Outlook
Looking ahead to fiscal 2025, Culp expects industry conditions to remain pressured, but the company believes its fourth-quarter fiscal 2024 revenue levels represented a bottom point. The company has seen some increased sales activity following the Memorial Day holiday in the Mattress Fabrics segment, and the improved market position in both business segments is driving sequential sales growth into the first quarter of fiscal 2025.
While the company is not providing specific financial guidance for the first quarter due to the ongoing restructuring activities, Culp expects its consolidated net sales for the first quarter to be moderately higher sequentially compared to the fourth quarter of fiscal 2024. The company plans to update progress on its restructuring initiatives each quarter and expects to return to positive operating income on a monthly basis sometime in the second half of fiscal 2025.
Culp's management team remains focused on executing the restructuring plan, strengthening the company's balance sheet, optimizing operations and cost structure, and supporting its customers. The company is also committed to continuing to win new placements with its innovative product portfolio, positioning it for profitable growth opportunities as market conditions improve.
Liquidity
As of the end of fiscal 2024, Culp reported $10 million in total cash and no outstanding debt. The company's total liquidity, including $22.5 million in borrowing availability under its domestic and foreign credit facilities, stood at $32.5 million.
The company's cash flow from operations and free cash flow were negative $8.2 million and negative $10.8 million, respectively, for fiscal 2024, reflecting the impact of operating losses and strategic investments in capital expenditures related to the restructuring plan.
Looking ahead, Culp expects capital spending for fiscal 2025 to be approximately $4.5 million, focused on maintenance CapEx and quick payback projects. The company also anticipates utilizing some borrowings under its domestic and foreign credit facilities during fiscal 2025 to support its restructuring activities and fund working capital for growth.
Assuming the completion of all restructuring actions and the sale of associated real estate by the end of fiscal 2025, Culp currently projects its cash position at the end of fiscal 2025 to be higher than the $10 million in cash reported at the end of fiscal 2024.
Conclusion
Culp has demonstrated its resilience in the face of challenging industry conditions, taking decisive actions to realign its operations and position the company for long-term success. The comprehensive restructuring plan, focused on the Mattress Fabrics segment, is expected to generate significant cost savings and improve the company's profitability, even in the current depressed demand environment.
While industry conditions are expected to remain pressured in the near term, Culp's management team is confident in the company's ability to navigate these headwinds and capitalize on growth opportunities as market conditions improve. With a solid balance sheet, strategic manufacturing and sourcing capabilities, and a focus on innovation and customer relationships, Culp is well-positioned to deliver sustainable results and enhance value for its shareholders over the long term.