Culp Announces First Quarter Results for Fiscal 2007.HIGH POINT, N.C. -- Culp, Inc. (NYSE NYSE See: New York Stock Exchange : CFI CFI abbr. cost, freight, and insurance ) today reported financial and operating results for the first quarter ended July July: see month. 30, 2006. Overview For the three months ended July 30, 2006, net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight were $62.6 million compared with $62.3 million a year ago. The company reported net income of $132,000, or $0.01 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, for the first quarter of fiscal 2007, compared with a net loss of $3.9 million, or $0.34 per diluted share, for the first quarter of fiscal 2006. The financial results for the first quarter of fiscal 2007 included $985,000, or $0.08 per diluted share, in restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). and related charges, after taxes. Excluding these charges, net income for the first fiscal quarter was $1.1 million, or $0.09 per diluted share. The financial results for the first quarter of fiscal 2006 include after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. restructuring and related charges of $3.3 million, or $0.29 per diluted share. Excluding these charges, net loss for the first fiscal quarter of 2006 was $628,000, or $0.05 per diluted share. (A reconciliation of the net income (loss) and net income (loss) per share has been set forth on Page 5.) Robert Robert, Henry Martyn 1837-1923. American army engineer and parliamentary authority. He designed the defenses for Washington, D.C., during the Civil War and later wrote Robert's Rules of Order (1876). Noun 1. G. Culp, III, chairman of the board and chief executive officer of Culp, Inc., said, "We are off to a good start for fiscal 2007. We are pleased with our overall year-over-year quarterly sales gain. These improved results reflect the benefits of Culp's transition to a more marketing-oriented company focused on product innovation and changing customer needs. As a result of our strategic initiatives over the last two years in both the mattress fabrics and upholstery upholstery, general term for household fittings, hangings, curtains, cushions, and covers. It refers to stuffed, padded, and spring-cushioned furniture, such as chairs and sofas, or to the usually decorative materials and fabrics that cover them. fabrics businesses, we have achieved improved profitability in each operating segment. We are encouraged by the progress we have made, and continue to make, as we adapt to a leaner and more agile business model." Mattress Fabrics Segment Mattress fabric (known as mattress ticking ticking a coat color pigmentation pattern in which hairs of one color are distributed in small groups throughout the background color, e.g. Australian cattle dog. Called also speckling. ) sales for the first quarter were $21.8 million, a 4.7 percent decline compared with $22.9 million for the first quarter of fiscal 2006. On a unit volume basis, total yards sold decreased by 5.6 percent compared with the first quarter of fiscal 2006. This trend reflects a decline in demand for printed ticking, a less popular category. However, sales of knitted knit v. knit or knit·ted, knit·ting, knits v.tr. 1. To make (a fabric or garment) by intertwining yarn or thread in a series of connected loops either by hand, with knitting needles, or on a ticking continued to increase, reflecting changing customer demand. Although prices on the key product lines have trended lower, the average selling price The average sales price of goods or commodities. Especially used in the retail sector and technology distribution. of $2.30 per yard for mattress ticking for the first quarter of fiscal 2007 was slightly higher than the average selling price for the first quarter last year, due to the shift in product mix to increased sales of substantially higher priced knitted ticking. Operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. for this segment was $1.9 million, or 8.5 percent of sales, compared with $1.4 million, or 5.9 percent of sales, for the prior-year period. "We showed significant improvement in our operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: over the same period a year ago, reflecting the productivity gains from our $10.0 million capital project implemented over the past 18 months. We also continue to see higher sales and profits in knitted ticking, and we expect this product line to represent a higher percentage of our mattress ticking business in fiscal 2007. We are experiencing a growing trend with our customers to use more knits on the top of the mattress and woven A woven is a cloth formed by weaving. It only stretches in the Bias directions (between the warp and weft directions), unless the threads are elastic. Woven cloth usually frays at the edges, unless measures are taken to counter this, such as the use of pinking shears or hemming. jacquards on the sides. Culp is well positioned to benefit from this trend and we will continue to focus on offering the right product mix to meet customer demand." Upholstery Fabrics Segment Sales for this segment were $40.7 million, a 3.3 percent increase compared with $39.4 million in the first quarter of fiscal 2006. Total yards sold increased by 6.3 percent, while average selling prices were 3.9 percent lower compared with the first quarter of fiscal 2006. Sales of upholstery fabrics reflect significantly higher sales of non-U non-U adj. Chiefly British Not characteristic of the upper class, especially in language usage. [non- + U2. .S. produced fabrics, but continued soft demand industry wide for U.S. produced fabrics, driven by consumer preference for leather and suede furniture and other imported fabrics, including an increasing amount of cut and sewn sewn v. A past participle of sew. sewn Verb a past participle of sew Adj. 1. kits. Sales of non-U.S. produced fabrics were $23.5 million in the first quarter, up 103 percent over the prior year period, while sales of U.S. produced fabrics were $17.2 million, down 38 percent from the first quarter of fiscal 2006. Operating income for the upholstery fabrics segment for the first quarter of fiscal 2007 was $1.6 million compared with an operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. of $380,000 for the same period a year ago. These results reflect continued strong growth in sales and profits of non-U.S. produced fabrics, significantly lower U.S. manufacturing fixed costs fixed costs, n.pl the costs that do not change to meet fluctuations in enrollment or in use of services (e.g., salaries, rent, business license fees, and depreciation). and variances, and lower selling, general and administrative expenses. Culp remarked, "We are pleased with the favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. trends in our upholstery fabrics segment as we experienced a modest year-over-year quarterly sales gain and an improved operating profit Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. for this segment. These results were driven by the sales of non-U.S. produced fabrics, which have continued to show strong growth trends. Sales of non-U.S. produced upholstery fabrics surpassed sales of U.S. produced upholstery fabrics for the first time. Our customers have continued to aggressively source fabrics produced outside the U.S. and we believe Culp is well positioned to benefit from this growing demand. The ongoing focus of this business will be on the development of new products based on understanding our customer's needs. Additionally, we will continue to vigorously pursue opportunities to expand our capabilities and improve our performance to customers in our China operation. "With respect to our U.S. upholstery fabric operations, the improved operating margins demonstrate the aggressive steps we have taken to reduce our manufacturing complexities and improve our cost structure," added Culp. "We continue to focus on creating a sustainable business A business is sustainable if it has adapted its practices for the use of renewable resources and holds itself accountable for the environmental and human rights impacts of its activities. model that will support the lower customer demand for U.S. produced fabrics. After several years of consolidation activities, Culp has now become a more market driven company with fewer fixed assets fixed assets npl → activo sg fijo fixed assets npl → immobilisations fpl fixed assets fix npl → and substantially less operating risk Operating risk The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is created by operating leverage. Also called business risk. going forward. We believe we have made considerable progress toward reaching our target operating model Operating Model is a term that is used in many contexts. In essence an operating model describes how an organization operates across both business and technology domains. The Operating Model describes what is important for the organization. and enhancing our competitive position." Balance Sheet "Maintaining a strong balance sheet will continue to be an important priority for Culp in fiscal 2007," added Culp. "At the end of the first fiscal quarter, our balance sheet reflects $8.4 million in cash and cash equivalents. Long-term debt Long-Term Debt Loans and financial obligations lasting over one year. Notes: For example debts obligations such as bonds and notes which have maturities greater than one year would be considered long-term debt. now stands at $47.3 million compared with $50.6 million a year ago. As of July 30, 2006, we also have $2.5 million in assets held for sale, which we expect will be sold in fiscal 2007. Additionally, as previously noted, our capital spending capital spending Spending for long-term assets such as factories, equipment, machinery, and buildings that permits the production of more goods and services in future years. plans for fiscal 2007 are modest and not expected to exceed $2.0 million." Outlook Commenting on the outlook for the second quarter of fiscal 2007, Culp remarked, "While we are encouraged by the progress we have made, the sluggish retail home furnishings furnishings the extra type or quantity of hair on the head, tail, ears or legs, specified for a particular breed. For example, the feathers in setters, the beard in Bearded collies, the eyebrows in Schnauzers. market is significantly affecting our business and the industry in general. Overall, we expect our second quarter sales to be approximately 10 percent lower than sales for the second quarter of fiscal 2006. We expect sales in our mattress ticking segment will show a slightly greater decline than the 4.7 percent decline we had in the first quarter. Operating income in this segment, however, is expected to improve over the same period last year due to our growing knitted ticking business and the benefits from our recent capital project. In the upholstery fabrics segment, we expect continued growth in sales of fabrics produced outside the U.S., although not at the same rate as the previous two quarters. However, sales of domestically produced upholstery fabrics will continue to reflect very weak demand, resulting in an estimated 10 to 15 percent overall segment decline year-over-year. Even with sharply lower U.S. sales, we believe the upholstery fabric segment's operating results for the second quarter will show improvement due to higher sales and profitability in our non-U.S. operations, lower manufacturing fixed costs and variances in our U.S. operations, and reduced selling, general and administrative expenses. As a result, we expect to report an operating profit in upholstery fabrics in our second quarter, although at a lower operating margin than the first quarter of fiscal 2007. This compares with an operating loss of $69,000 for the second quarter of fiscal 2006. "Considering these factors, we expect the company to report second quarter results in the range of $0.05 to 0.08 per diluted share, excluding restructuring and related charges. 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, the company's progress with respect to restructuring activities for our domestic upholstery fabrics operations and the impact of raw material costs." The company estimates that restructuring and related charges of approximately $500,000 ($310,000 net of taxes, or $0.03 per diluted share) will be incurred during the second fiscal quarter. Including the restructuring and related charges, the company expects to report net income for the second fiscal quarter in the range of $0.02 to $0.05 per diluted share. (A reconciliation of the projected net income per share calculation has been set forth on Page 5.) In closing, Culp remarked, "Culp is moving forward in fiscal 2007 with a number of difficult steps behind us and a leaner structure on which to operate more profitably. While the marketplace remains very challenging, we believe we are pursuing the right strategies to further enhance the leadership positions we enjoy in both of our operating segments. We are realizing the full benefits of the capital project in the mattress ticking segment and are encouraged by the growth trends in our knitted ticking business. Our non-U.S. produced upholstery fabric business, including our China platform, continues to gain momentum and we are aggressively pursuing opportunities for extending our global market reach and capabilities. With the strategic steps we have taken in our U.S. upholstery fabric operations, we have created a better model to sustain our domestic operations and continue to meet current customer demand. Our primary objective is to restore Culp to profitability in fiscal 2007 and position the company for growth over the long term in today's global marketplace." 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 forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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 char·ac·ter·ize tr.v. character·ized, character·iz·ing, character·iz·es 1. To describe the qualities or peculiarities of: characterized the warden as ruthless. 2. by qualifying words such as "expect," "believe," "estimate," "plan" and "project" and their derivatives derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. , 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 disposable income Portion of an individual's income over which the recipient has complete discretion. To assess disposable income, it is necessary to determine total income, including not only wages and salaries, interest and dividend payments, and business profits, but also , and general economic conditions. Decreases in these economic indicators Economic indicators The key statistics of the economy that reveal the direction the economy is heading in; for example, the unemployment rate and the inflation rate. 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 Erode (ĕrōd`), city (1991 urban agglomeration pop. 361,755), Tamil Nadu state, S India, on the Kaveri River. The city is located in a cotton-growing region, and its industries include cotton ginning and the manufacture of transport equipment. demand for the company's products. 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 United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . Also, economic and political instability instability /in·sta·bil·i·ty/ (-stah-bil´i-te) lack of steadiness or stability. detrusor 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 Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. .
CULP, INC.
Condensed Financial Highlights
(Unaudited)
Three Months Ended
July 30, July 31,
2006 2005
--------------- ---------------
Net sales $ 62,585,000 $ 62,340,000
Net income (loss) $ 132,000 $ (3,941,000)
Net income (loss) per share:
Basic $ 0.01 $ (0.34)
Diluted $ 0.01 $ (0.34)
Net income (loss) per share,
diluted, excluding restructuring
and related charges(1) $ 0.09 $ (0.05)
Average shares outstanding:
Basic 11,672,000 11,551,000
Diluted 11,770,000 11,551,000
(1) Excludes restructuring and related charges of $1.2 million
($985,000 or $0.08 per diluted share, after taxes) for the first
quarter of fiscal 2007. Excludes restructuring and related charges of
$5.3 million ($3.3 million, or $0.29 per diluted share, after taxes)
for the first quarter of fiscal 2006.
CULP, INC.
Reconciliation of Net Income (Loss) as Reported to
Pro Forma Net Income (Loss)
(Unaudited)
Three Months Ended
July 30, July 31,
2006 2005
--------------- ---------------
Net income (loss), as reported $ 132,000 $ (3,941,000)
Restructuring and related charges,
net of income taxes 985,000 3,313,000
--------------- ---------------
Pro forma net income (loss) $ 1,117,000 $ (628,000)
=============== ===============
Reconciliation of Net Income (Loss) Per Share as Reported
to Pro Forma Net Income (Loss) Per Share
(Unaudited)
Three Months Ended
July 30, July 31,
2006 2005
-------------- ---------------
Net income (loss) per diluted share $ 0.01 $ (0.34)
Restructuring and related charges,
net of income taxes 0.08 0.29
-------------- --------------
Net income (loss) per diluted
share, adjusted $ 0.09 $ (0.05)
============== ==============
Reconciliation of Projected Range of Net Income Per Share to
Projected Range of Pro Forma Net Income Per Share
(Unaudited)
Three Months
Ending
October 29,
2006
Projected range of net income per diluted share $0.02 - 0.05
Projected restructuring and related charges,
net of income taxes 0.03
------------
Projected range of pro forma net income
per diluted share $0.05 - 0.08
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