Culp, Inc. (CULP) is a leading marketer of mattress fabrics and upholstery fabrics for residential and commercial furniture. The company has a rich history spanning over five decades, during which it has weathered various industry cycles and adapted to changing market dynamics. As Culp navigates the current challenges facing both the mattress and home furnishings industries, the company's strategic initiatives and innovative product offerings position it for long-term success.
Business Overview and History Culp, Inc. was founded in 1967 and is headquartered in High Point, North Carolina. The company operates two business segments: Mattress Fabrics and Upholstery Fabrics. In its early years, Culp focused primarily on manufacturing and selling upholstery fabrics. However, the company expanded its reach in the 1980s by entering the mattress fabrics market, diversifying its product portfolio and customer base.
Over the decades, Culp has established a strong reputation for its innovative product designs, reliable sourcing capabilities, and superior customer service. The company's global manufacturing and sourcing footprint has evolved to include operations in the United States, Canada, China, Haiti, and Vietnam, enabling it to effectively service its diverse customer base and adapt to changing market conditions.
Throughout its history, Culp has faced various challenges, including increased competition from low-cost foreign producers, particularly in China. In 2019, the U.S. Department of Commerce imposed anti-dumping duties on mattress imports from China to address violations of trade regulations. However, Culp continued to encounter issues with low-priced imports that moved production to other countries to circumvent the duties.
The company's resilience was further tested in fiscal year 2020 when it experienced significant losses, with a net loss of $28.7 million. This was driven by a $13.6 million charge for unusual items, including asset impairment charges and restructuring expenses. The COVID-19 pandemic also had a significant impact on the company's operations and financial performance during this period.
Despite these challenges, Culp has remained committed to innovation and diversifying its product offerings and customer base. The company has continued to invest in its design and manufacturing capabilities, working to develop new and differentiated products for its customers in the mattress and upholstery industries. This focus on innovation and adaptation has been a key factor in Culp's ability to navigate industry challenges and position itself for future growth.
Financial Performance and Ratios Over the past three fiscal years, Culp's financial performance has been mixed, reflecting the challenging industry conditions. In the fiscal year ended April 30, 2020, the company reported net sales of $256.17 million and a net loss of $28.67 million, which included significant one-time charges related to asset impairments and restructuring activities.
In the subsequent fiscal year, Culp's net sales rebounded to $294.84 million, and the company reported a net loss of $3.21 million, demonstrating its ability to adapt and improve its operating performance despite the ongoing industry challenges.
For the most recent fiscal year ended April 30, 2022, Culp reported net sales of $234.93 million and a net loss of $31.52 million, as the company continued to navigate the volatile market conditions.
Key financial ratios for Culp over the past three fiscal years are as follows:
Fiscal Year Ended April 30: 2020 2021 2022 Gross Margin 15.8% 16.6% 4.6% Operating Margin -2.6% 0.2% -12.1% Net Profit Margin -11.2% 1.1% -13.4% Return on Assets -13.3% 1.5% -19.0% Return on Equity -22.1% 2.5% -26.0% Current Ratio 3.78 2.33 3.29 Debt-to-Equity Ratio 0.33 0.07 0.09
These financial ratios highlight the challenges Culp has faced, particularly in terms of profitability and return on capital, as the company has navigated the volatile industry conditions. However, the company's strong liquidity position, as evidenced by its healthy current ratio, suggests that it has the financial flexibility to weather the current storm and invest in strategic initiatives to drive long-term growth.
Liquidity Culp's liquidity position remains strong, as evidenced by its healthy current ratio of 1.68 in the most recent period. This indicates that the company has sufficient short-term assets to cover its short-term liabilities. Additionally, the company's low debt-to-equity ratio of 0.04 suggests that Culp maintains a conservative capital structure, providing financial flexibility to navigate challenging market conditions and invest in growth opportunities.
As of the most recent reporting period, Culp had $5.28 million in cash and $23.20 million available under its domestic credit facility. The company's quick ratio stands at 0.72, indicating a solid ability to meet short-term obligations with its most liquid assets.
Segment Performance and Restructuring Efforts Culp's two business segments, Mattress Fabrics and Upholstery Fabrics, have experienced varying levels of performance in recent years. The Mattress Fabrics segment has faced significant headwinds, with sales declining from $90.62 million in the first nine months of fiscal 2024 to $86.79 million in the same period of fiscal 2025. This segment's operating performance has also been impacted, with the division reporting an operating loss of $5.02 million in the first nine months of fiscal 2025, compared to a loss of $3.92 million in the same period of fiscal 2024.
To address the challenges in the Mattress Fabrics segment, Culp has undertaken a comprehensive restructuring plan that includes the consolidation of its North American mattress fabrics operations, the closure of its manufacturing facility in Quebec, Canada, and the relocation of certain production capabilities to its facility in Stokesdale, North Carolina. The company has also transitioned its mattress fabrics weaving operation to a strategic sourcing model and consolidated its sewn mattress cover operations in Haiti.
These restructuring initiatives are expected to generate annualized cost savings of $10 million to $11 million, which, combined with the company's focus on product innovation and supply chain optimization, should position the Mattress Fabrics segment for improved profitability in the coming years. The restructuring plan is expected to result in charges of approximately $8.5 million for fiscal 2025, of which $8.3 million is associated with the mattress fabrics segment.
In contrast, Culp's Upholstery Fabrics segment has maintained profitability despite the challenging industry conditions. The segment's sales declined from $85.19 million in the first nine months of fiscal 2024 to $77.67 million in the same period of fiscal 2025. However, the division reported operating income of $3.00 million for the first nine months of fiscal 2025, compared to $4.81 million in the same period of fiscal 2024, demonstrating the resilience of its business model.
Within the Upholstery Fabrics segment, Culp has seen strong performance in its hospitality and commercial fabric business, which accounted for approximately 40% of the segment's sales in the most recent quarter. The company's focus on innovative product design, strategic sourcing, and diversification of its customer base has enabled the Upholstery Fabrics segment to weather the storm better than its Mattress Fabrics counterpart.
During the fourth quarter of fiscal 2024, Culp closed its upholstery fabrics finishing operation in Shanghai, China, to align with demand trends and leverage its strategic supply relationships. This restructuring activity was completed in the first quarter of fiscal 2025 and resulted in cumulative charges of $218,000. The company also discontinued the production of upholstery cut and sewn kits at its facility in Ouanaminthe, Haiti, during the first quarter of fiscal 2024 due to declining demand, which resulted in cumulative charges of $1.3 million.
Recent Performance and Outlook In the third quarter of fiscal 2025, Culp reported consolidated net sales of $52.25 million, down 13.5% year-over-year. The decrease in revenue was driven by ongoing weakness in the domestic mattress industry and home furnishings industry, as well as fewer shipping days due to weather-related disruptions. The company reported a net loss of $4.13 million for the quarter.
Despite the ongoing macroeconomic and industry challenges, Culp remains cautiously optimistic about its future prospects. The company's restructuring efforts in the Mattress Fabrics segment, coupled with its strong position in the Upholstery Fabrics business, are expected to provide a foundation for improved financial performance in the coming years.
For the fourth quarter of fiscal 2025, Culp expects consolidated net sales to show some year-over-year growth, driven by an anticipated increase in the Mattress Fabrics segment, offset by continued pressure on residential upholstery fabric sales. The company anticipates continued sequential improvement in its adjusted EBITDA, which excludes restructuring and related charges. Culp expects further improvements in the Mattress Fabrics segment's profitability in the current fiscal year, providing a path to a return to consolidated operating income in fiscal 2026, assuming no significant further deterioration in industry sales levels.
Notably, Culp is targeting additional strategic actions to create more cost and operating efficiencies across its businesses, which are expected to impact fiscal 2026 and beyond. These initiatives are anticipated to generate up to $2 million in additional annualized savings.
Risks and Challenges Culp's business operations and financial performance face several key risks and challenges, including:
1. Macroeconomic and Industry Conditions: The company's performance is heavily influenced by the overall health of the home furnishings and bedding industries, which have been impacted by factors such as inflationary pressures, rising interest rates, and changing consumer spending patterns.
2. Supply Chain Disruptions: Culp's global manufacturing and sourcing footprint exposes it to various supply chain challenges, including the potential for tariffs, trade policy changes, and logistical disruptions. However, the company notes that only approximately 30% of its China-produced fabrics ship to a U.S. destination, providing some insulation from tariff impacts.
3. Customer Concentration: A significant portion of Culp's sales is derived from a limited number of large customers, particularly in the Mattress Fabrics segment, making the company vulnerable to changes in these customers' purchasing patterns.
4. Competitive Landscape: Culp operates in highly competitive markets, where it faces competition from both domestic and international manufacturers, as well as potential new entrants.
5. Regulatory Compliance: The company's operations are subject to various environmental, health, and safety regulations, which could result in compliance costs and potential liabilities.
Despite these challenges, Culp's long-standing industry experience, diversified business model, and strategic initiatives position the company to navigate the current environment and capitalize on future growth opportunities.
Conclusion Culp, Inc. (CULP) is a well-established player in the mattress fabrics and upholstery fabrics markets, with a history of adapting to industry changes and weathering various cycles. The company's strategic restructuring efforts, focus on innovation, and diversified customer base provide a solid foundation for long-term growth, even as it navigates the current macroeconomic and industry headwinds.
While Culp's financial performance has been impacted by the challenging market conditions, the company's strong liquidity position, coupled with its commitment to operational efficiency and product development, suggest that it is well-positioned to capitalize on future opportunities as the industry landscape stabilizes. The company's focus on returning to profitability through operational adjustments, cost savings measures, and leveraging its flexible global platform and innovative product portfolio demonstrates a clear strategic direction.
Investors should closely monitor Culp's progress in executing its strategic initiatives, including the restructuring of its Mattress Fabrics segment and the growth of its higher-margin hospitality and commercial upholstery business. The company's ability to drive sustainable profitability in the coming years, particularly as it targets a return to consolidated operating income in fiscal 2026, will be crucial in determining its long-term success in the competitive home furnishings and bedding industries.