Name: CULP INC Q2 2025 Earnings Call
Start: 2024-12-05T14:01:00.000Z

Executive Summary

Q2 FY25 saw consolidated net sales of $55.7M, down 5.2% YoY, with gross margin at 10.8% and GAAP operating loss of $(5.4)M; adjusted operating loss was $(2.6)M after $2.8M in restructuring charges .
Mattress Fabrics performance improved sequentially: sales +7.1% vs Q1 and operating loss reduced by 70.7%, while Upholstery remained profitable despite residential softness; management attributes gains to new placements and restructuring progress .
Guidance was effectively lowered: Q1 outlook called for positive adjusted operating income in Q3; Q2 reset targets to positive adjusted EBITDA for 2H FY25 and adjusted operating income “sometime in Q4,” with Q3 sales flat to slightly down sequentially (vs “flat” previously) .
Liquidity remained solid at quarter-end: cash $10.5M, China line borrowings $4.1M, net cash $6.5M; total liquidity ~$33.1M (cash + ABL availability) as restructuring continues to weigh on cash flow .
Potential stock catalysts: continued sequential CHF profitability improvement, closing of the Canadian facility sale (estimated $6–$8M proceeds), and delivery of 2H positive adjusted EBITDA—balanced by residential upholstery demand headwinds and the pushed-out adjusted operating income timeline .

What Went Well and What Went Wrong

What Went Well

Mattress Fabrics sequential turnaround: sales +7.1% QoQ (to $30.1M) and operating loss reduced to $(1.0)M; management emphasized share gains and strong product development in fabrics and sewn covers .
Upholstery Fabrics remained profitable: operating income of $615K despite industry weakness, with hospitality/contract steady at ~35% of segment sales .
Restructuring execution milestones: Canada knitting ceased end-September; damask weaving ended in November; Haiti sewn cover consolidation completed; equipment relocation to Stokesdale underway .
Quote: “We are optimizing our operations and cost structure… winning new placements with our innovative product portfolio” — Iv Culp, CEO .

What Went Wrong

Residential upholstery demand softened more than expected; a significant customer normalized inventories, pressuring Q2 and expected Q3 sales .
Consolidated margins and profitability remained strained: gross margin 10.8% (vs 13.5% YoY), GAAP operating loss $(5.4)M; manufacturing inefficiencies tied to restructuring weighed on results .
Guidance timing slipped: positive adjusted operating income moved from Q3 to “sometime in Q4”; Q3 sales outlook shifted from “flat” to “flat to slightly down” sequentially .
Analyst concern: tariff uncertainty and FX headwinds (China FX unfavorable in Q2, expected tailwind in Q3) add macro risk to trajectory .

Financial Results

Consolidated performance vs prior periods and YoY

Metric	Q2 FY24 (oldest)	Q1 FY25	Q2 FY25 (newest)
Revenue ($USD Millions)	$58.725	$56.537	$55.674
Gross Margin %	13.5%	9.0%	10.8%
GAAP Operating (Loss) ($USD Millions)	$(2.239)	$(6.851)	$(5.400)
GAAP Operating Margin %	(3.8)%	(12.1)%	(9.7)%
Adjusted Operating (Loss) ($USD Millions)	$(2.173)	$(4.104)	$(2.600)
Net Loss ($USD Millions)	$(3.188)	$(7.261)	$(5.644)
Net Loss per diluted share ($)	$(0.26)	$(0.58)	$(0.45)

Notes: Adjusted figures exclude restructuring and related charges allocated to cost of sales and restructuring expense sections .

Segment breakdown

Segment Metric	Q2 FY24 (oldest)	Q1 FY25	Q2 FY25 (newest)
Mattress Fabrics Sales ($USD Millions)	$31.377	$28.076	$30.074
Mattress Fabrics Gross Margin %	7.9%	(1.2)%	8.1%
Mattress Fabrics Operating (Loss) ($USD Millions)	$(0.936)	$(3.549)	$(1.037)
Upholstery Fabrics Sales ($USD Millions)	$27.348	$28.461	$25.600
Upholstery Fabrics Gross Margin %	19.7%	19.4%	16.9%
Upholstery Fabrics Operating Income ($USD Millions)	$1.391	$1.712	$0.615

KPIs and liquidity

KPI	Q2 FY24 (oldest)	Q1 FY25	Q2 FY25 (newest)
Cash ($USD Millions)	$15.214	$13.472	$10.531
China LOC Outstanding ($USD Millions)	$0.000	$4.017	$4.074
Net Cash Position ($USD Millions)	$15.214	$9.455	$6.457
Total Liquidity ($USD Millions)	N/A	$32.7 (cash+ABL)	$33.1 (cash+ABL)
Free Cash Flow ($USD Millions)	N/A	$(0.550) (3M)	$(3.423) (6M YTD)
Capital Expenditure ($USD Millions)	N/A	$0.501 (3M)	$1.578 (6M YTD)

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Consolidated Net Sales	Q3 FY25	Flat sequentially (from Q1 PR)	Flat to slightly down sequentially	Lowered
Adjusted EBITDA (ex-closing charges)	2H FY25	Near break-even in Q2 FY25; positive adjusted operating income in Q3 FY25	Positive adjusted EBITDA in 2H FY25	Clarified (shifted timing)
Adjusted Operating Income (ex-closing charges)	FY25	Positive in Q3 FY25	Return “sometime in Q4 FY25”	Lowered / delayed
Mattress Fabrics Profitability	Q3–Q4 FY25	Continued improvement implied	Continued sequential improvement each quarter	Maintained

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 FY25)	Current Period (Q2 FY25)	Trend
Restructuring execution	Haiti consolidation complete; Canada wind-down underway	Canada knitting ended; damask weaving ceased; relocation to Stokesdale nearing completion	Advancing
Mattress Fabrics share gains	Sequential sales +9%, improving market position	Sequential sales +7.1%; management: “we are growing our share”	Improving
Residential upholstery demand	Sequential strength; 6.0% margin	Accelerated softness; large customer inventory normalization	Weakening short-term
Hospitality/contract	~33% of CUF sales	~35% of CUF sales; solid	Strengthening mix
Tariffs/supply chain optionality	Risk factors noted	Management confident with US-centric mattress platform, near-shore covers, and Vietnam option	Mitigated by flexibility
FX (China)	Not highlighted	Unfavorable FX in Q2; expected favorable impact in Q3	Turning positive
Window treatments (Read Window)	Mentioned capacity expansion	Expanding blackout roller shades; profit improvement target	Improving
Liquidity and asset sale	Expect $9–$10M Canadian proceeds	Expect ~$6–$8M amid market/zoning shifts; charges up to $7.3M in FY25	Proceeds lower; charges higher

Management Commentary

Iv Culp (CEO) on quarter dynamics: “We remained encouraged with our strategic approach, our comprehensive restructuring process… in spite of the 5 percent decline in consolidated, year-over-year revenue… we believe we are outperforming the industry average” .
On Mattress Fabrics momentum: “Sales for this segment increased 7.1 percent… indicative of our growing market position… sequentially reduced its operating loss by 70.7 percent” .
On Upholstery pressures: “Significant temporary reduction in orders from a large customer… expected to affect sales during the third quarter” .
On execution: “We are optimizing our operations and cost structure… demonstrating quarter-by-quarter operating improvement in a tough macro environment” .
On restructuring charges and liquidity: cash restructuring costs expected $4.4M; Canadian real estate sale expected ~$6–$8M net proceeds .

Q&A Highlights

Mattress Fabrics share gains: management explicitly affirmed share growth and stable run rates; new programs in Q3–Q4 expected to support momentum .
Upholstery inventory normalization: residential softness prolonged; key customer inventory adjustment drove variability; normalization expected into spring season .
Hospitality vs office: hospitality strength (higher margin fabrics and window treatments) offset ongoing office seating weakness in contract channel .
Tariff preparedness: mattress platform moved into U.S.; near-shore covers provide duty/tariff-free fabric import and final cover assembly; Vietnam manufacturing provides optionality .
FX: China FX unfavorable in Q2; expected to be a tailwind in Q3 .

Estimates Context

Wall Street consensus estimates via S&P Global were unavailable at the time of this analysis; as such, we cannot quantify beats/misses versus consensus for Q2 FY25 [GetEstimates error].
Based on guidance changes (Q3 sales “flat to slightly down” sequentially and adjusted operating income moved from Q3 to Q4), sell-side models may need to reflect softer near-term revenue and a delayed profitability inflection .

Key Takeaways for Investors

Mattress Fabrics restructuring is driving tangible sequential improvement; continued quarter-over-quarter gains are the critical lever for consolidated profitability in 2H FY25 and FY26 .
Residential upholstery demand remains a headwind; watch for normalization at key accounts and mix shift toward hospitality/contract (now ~35% of CUF sales) to sustain segment profitability .
Guidance reset (adjusted operating income now targeted for Q4) reduces near-term expectations; delivery of “positive adjusted EBITDA” in 2H FY25 is the next milestone to track .
Liquidity is adequate to complete restructuring; a Canadian real estate sale ($6–$8M expected) would de-lever and bolster flexibility, but timing/proceeds carry execution risk .
Operational catalysts: completion of equipment relocation to Stokesdale, cost takeout realization, and ramp in blackout roller shades at Read Window could improve margins in both segments .
Macro watch items: tariff policy, FX volatility, and housing-linked demand trends; management’s diversified sourcing and near-shore platform mitigate some risks .
Near-term trading implication: sentiment likely hinges on sequential Mattress Fabrics profitability and evidence of achieving 2H adjusted EBITDA targets; any slippage vs the Q4 adjusted operating income goal could pressure the equity .

CULP INC (CULP)·Q2 2025 Earnings Summary