Company Overview and History
Culp, Inc. (CULP) is a leading manufacturer and distributor of mattress fabrics and upholstery fabrics, serving a diverse customer base across the residential, commercial, and hospitality industries. The company has a rich history spanning over five decades, during which it has weathered various industry challenges and emerged as a resilient player in the textile manufacturing landscape.
Founded in 1967 and headquartered in High Point, North Carolina, Culp began as a textile manufacturer specializing in upholstery fabrics for the furniture industry. The company has strategically expanded its operations over the years, diversifying its product offerings and establishing a global footprint. In the early 2000s, Culp made a significant move into the mattress fabric market, acquiring several manufacturers and integrating their operations to become a leading supplier of mattress fabrics in North America.
Around 2010, Culp further diversified by establishing its Read Window Products business, which provides window treatments and other related products to the hospitality and commercial industries. This segment has become an integral part of the company’s upholstery fabrics business. Culp has faced various challenges throughout its history, including the global financial crisis in the late 2000s, which led to a decline in demand for home furnishings. The company responded by implementing cost-cutting measures and streamlining its operations to weather the downturn.
Recent Challenges and Restructuring
In recent years, Culp has faced headwinds in its mattress fabrics segment, as industry-wide challenges, including fluctuating consumer demand and supply chain disruptions, have impacted the company’s financial performance. To address these challenges and position the company for long-term success, Culp announced a comprehensive restructuring plan in April 2024, primarily focused on its mattress fabrics operations.
The restructuring plan includes the consolidation of Culp’s North American mattress fabrics operations, the gradual discontinuation of operations and the sale of its manufacturing facility in Quebec, Canada, and the transition of its damask weaving business to a strategic sourcing model. These actions are expected to result in significant cost savings and improved operational efficiency, positioning the mattress fabrics segment to return to profitability even without a market recovery.
Specifically, the restructuring plan involves moving a portion of the knitting and finishing capacity from the Quebec facility to the company’s Stokesdale, North Carolina facility. Additionally, CULP plans to consolidate the sewn mattress cover operation in Haiti from two leased facilities into one building while also reducing other operating expenses at this location. The company expects these strategic restructuring initiatives, once fully implemented, will enable the mattress fabrics segment to operate more efficiently and profitably with a lower level of fixed costs, even at currently depressed sales levels.
Upholstery Fabrics Segment Performance
Culp’s upholstery fabrics segment, on the other hand, has remained a bright spot for the company, delivering solid financial performance and maintaining a strong market position. The segment’s diverse product portfolio, including residential and hospitality/commercial offerings, as well as the strategic expansion of its Read Window business, have all contributed to its success.
In the first quarter of fiscal 2025, Culp reported a 3.7% year-over-year increase in upholstery fabrics sales, with the hospitality/commercial business accounting for approximately 33% of the segment’s total sales. The company’s ability to leverage its Asian manufacturing platform and long-standing supplier relationships has been a key driver of this performance, allowing it to navigate the challenging macroeconomic conditions more effectively.
The upholstery fabrics segment generated income from operations of $1.71 million for the quarter, up from $1.33 million in the same period last year. The improvement in profitability was driven by higher sales, lower fixed costs, and lower selling, general, and administrative expenses, partially offset by higher freight costs.
In the fourth quarter of fiscal 2024, CULP rationalized its upholstery fabrics finishing operation in Shanghai, China to align with current demand trends and further leverage the company’s strategic supply relationships. This restructuring activity was completed in the first quarter of fiscal 2025 and resulted in cumulative restructuring and related charges of $218,000.
Financials and Liquidity
Culp’s financial position remains stable, with a net cash position of $9.5 million as of the end of the first quarter of fiscal 2025. The company’s liquidity has been further strengthened by the anticipated proceeds from the sale of its Canadian facility, which are expected to range between $9 million to $10 million after taxes.
For the most recent fiscal year (2024), Culp reported revenue of $234.93 million, with a net loss of $31.52 million. Operating cash flow for the year was $7.80 million, with free cash flow of $5.70 million. In the most recent quarter (Q1 2025), revenue was $56.54 million, with a net loss of $7.26 million. Operating cash flow for the quarter was negative $206,000, with negative free cash flow of $707,000.
The company’s debt-to-equity ratio stands at 0.08, indicating a relatively low level of leverage. Culp has $13.47 million in cash and $19.2 million available under its domestic revolving credit facility. The company also has $4 million in outstanding borrowings under its China credit line. The current ratio is 1.96, and the quick ratio is 0.97, suggesting a relatively healthy short-term liquidity position.
Segment Performance
The mattress fabrics segment experienced a 3.9% decrease in net sales during the first quarter of fiscal 2025 compared to the prior year period, reflecting reduced demand due to weakness in the domestic mattress industry driven by a challenging macroeconomic environment affecting consumer discretionary spending and housing markets. This segment reported a loss from operations of $3.55 million for the quarter, compared to a loss of $1.40 million in the prior year period. The operating performance was negatively impacted by manufacturing inefficiencies primarily related to the significant restructuring activities underway, as well as the lower sales volumes.
Overall, CULP’s consolidated net sales for the first quarter of fiscal 2025 were flat compared to the prior year period, with the mattress fabrics segment decrease of 3.9% offset by the 3.7% increase in the upholstery fabrics segment. The company reported a consolidated loss before income taxes of $7.02 million for the quarter, compared to a loss of $2.64 million in the same period last year, primarily due to the manufacturing inefficiencies and restructuring charges in the mattress fabrics segment, partially offset by the improved performance in the upholstery fabrics business.
Risks and Challenges
Culp faces several risks and challenges in its operating environment. The company’s exposure to global macroeconomic and geopolitical factors, such as fluctuations in consumer demand, supply chain disruptions, and volatile raw material and freight costs, could continue to impact its financial performance. Additionally, the successful execution of the restructuring plan, including the timely closure of the Canadian facility and the transition to a sourcing model for its damask weaving business, will be crucial in determining the long-term viability of the mattress fabrics segment.
The home furnishings and bedding industries have been facing challenging macroeconomic conditions, including reduced consumer spending and housing market weakness, which have pressured demand for CULP’s products. However, the company believes it is gaining market share in both its mattress fabrics and upholstery fabrics segments.
Management Strategy and Outlook
Despite these challenges, Culp’s management team remains committed to navigating the company through this transformative period. The strategic actions taken, including the restructuring initiatives and the continued focus on its upholstery fabrics segment, are designed to position Culp for long-term growth and profitability.
For the second quarter of fiscal 2025, CULP expects consolidated net sales to be comparable to the first quarter. The company currently expects to return to near breakeven adjusted EBITDA, excluding restructuring and related charges, in the second quarter of fiscal 2025. CULP expects to return to positive consolidated adjusted operating income, excluding restructuring and related charges, in the third quarter of fiscal 2025.
The company expects the total restructuring-related charges to be $5.1 million, of which $3 million are expected to be cash charges. CULP anticipates funding approximately $2 million of the cash restructuring costs with proceeds from the sale of excess manufacturing equipment and a building lease termination in Haiti.
CULP’s restructuring plan is expected to result in $10 million to $11 million in annualized cost and productivity savings, mostly from the mattress fabrics division, and close to $1 million in annualized savings from reductions in unallocated corporate and shared services.
Conclusion
In conclusion, Culp, Inc. (CULP) is a well-established textile manufacturer undergoing a significant restructuring to address the challenges in its mattress fabrics segment. While the company faces near-term headwinds, its diversified product portfolio, global manufacturing capabilities, and strategic initiatives provide a solid foundation for future success. The company’s upholstery fabrics segment continues to perform well, partially offsetting the challenges in the mattress fabrics business.
With a stable financial position, ongoing restructuring efforts, and expectations of returning to profitability in the coming quarters, Culp is positioning itself for long-term growth and improved operational efficiency. However, the success of these initiatives will depend on the company’s ability to execute its restructuring plan effectively and navigate the challenging macroeconomic environment.
Investors should closely follow Culp’s progress as it navigates this transformative period and positions itself for long-term growth and shareholder value creation. The company’s ability to achieve its projected cost savings, return to profitability, and capitalize on potential market share gains will be key factors in determining its future success.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.