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CULP INC (CULP)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 FY2024 revenue was $49.5M, down 19.4% YoY; GAAP diluted EPS was $(0.39). Gross margin fell to 10.5% and operating margin to (8.6)%, reflecting broad demand weakness and inefficiencies in Mattress Fabrics .
  • Management reiterated an aggressive restructuring plan targeting $10–$11M annualized savings, with most benefits in 2H FY2025; expects a return to positive monthly operating income in 2H FY2025 and sequentially higher Q1 FY2025 sales vs Q4 FY2024 .
  • Liquidity remained solid: $10.0M cash and $32.5M total liquidity; FY2024 free cash flow was $(10.8)M, with capex of $3.7M tied to CHF transformation .
  • Upholstery Fabrics remained profitable in Q4 (operating income $0.98M; 4.1% margin) with hospitality/contract at ~38% of segment sales; Mattress Fabrics posted a Q4 operating loss of $(2.9)M amid industry pressures .
  • Street consensus from S&P Global was unavailable at time of analysis; estimate comparisons could not be made (S&P Global data unavailable).

What Went Well and What Went Wrong

What Went Well

  • Upholstery Fabrics delivered Q4 operating income of $0.98M and a 4.1% margin; excluding a prior-year one-time payment, margins would have improved YoY .
  • Management advanced restructuring milestones (Haiti consolidation; China upholstery finishing rationalization) and reiterated $10–$11M annualized savings with a path to positive monthly operating income in 2H FY2025 .
  • CEO emphasized strong customer and supplier support and highlighted product innovation and placements positioning both segments for recovery: “these strategic steps do not limit our ability to grow the business… optimize our global mix of manufacturing capabilities and long-term sourcing partners” .

What Went Wrong

  • Consolidated Q4 revenue fell 19.4% YoY to $49.5M, driven by macro headwinds and order timing; Mattress Fabrics sales declined 16.1%, Upholstery Fabrics down 22.6% .
  • Gross margin compressed to 10.5% and operating margin to (8.6)% as Mattress Fabrics suffered lower volumes and operating inefficiencies; GAAP net loss widened slightly to $(4.9)M .
  • Cash flow from operations and FY2024 free cash flow were negative ($(8.2)M and $(10.8)M), pressured by losses and strategic capex for CHF transformation .

Financial Results

Consolidated Performance vs Prior Year and Prior Quarters

MetricQ4 2023Q2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$61.426 $58.725 $60.418 $49.528
Gross Margin (%)11.2% 13.5% 12.7% 10.5%
Operating Income ($USD Millions)$(4.027) $(2.239) $(1.740) $(4.248)
Operating Margin (%)(6.6)% (3.8)% (2.9)% (8.6)%
Net Income ($USD Millions)$(4.681) $(2.424) $(3.188) $(4.865)
Diluted EPS ($USD)$(0.38) $(0.19) $(0.26) $(0.39)
Effective Tax Rate (%)(20.6)% (27.0)% (47.5)% (19.8)%

Segment Breakdown – Q4 FY2024

Segment MetricQ4 2023Q4 2024
Mattress Fabrics Sales ($USD Millions)$30.696 $25.750
Mattress Gross Margin (%)1.9% 1.1%
Mattress Operating Income ($USD Millions)$(2.530) $(2.929)
Upholstery Fabrics Sales ($USD Millions)$30.730 $23.778
Upholstery Gross Margin (%)20.5% 20.6%
Upholstery Operating Income ($USD Millions)$1.611 $0.975
Hospitality Mix (% of CUF Sales)~26% (Q3 context) ~38%

KPIs and Balance Sheet

KPIValue
Cash ($USD Millions)$10.0 (Apr 28, 2024)
Liquidity ($USD Millions)$32.5 (cash + credit availability)
FY2024 Free Cash Flow ($USD Millions)$(10.826)
FY2024 Capex ($USD Millions)$3.711
Inventories ($USD Millions)$44.843 (Apr 28, 2024)
Adj. EBITDA (TTM, $USD Millions)$(3.431) (TTM to Apr 28, 2024)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Q4 FY2024 Net SalesQ4 FY2024~19% YoY decline; Op loss $(4.2)–$(4.7)M (May 1 update) Actual: $49.5M; Op loss $(4.248)M In line with range
Consolidated Net SalesQ1 FY2025N/AModerately higher sequentially vs Q4 FY2024 New/Directional
Monthly Operating Income2H FY2025N/AExpect positive monthly operating income post-restructuring New/Directional
Annualized SavingsPost-Restructuring$10–$11M $10–$11M (reiterated) Maintained
Cash Restructuring CostsFY2025 (majority 1H)~$2.5M cash ~$2.5M cash (majority 1H FY2025) Maintained
Real Estate ProceedsFY2025$10–$12M net $10–$12M net (actively marketing) Maintained

Earnings Call Themes & Trends

TopicQ2 FY2024 (Dec 2023)Q3 FY2024 (Mar 2024)Q4 FY2024 (Jun 2024)Trend
Macro demand (bedding/home)Sequential improvement, but soft residential; confidence in positioning YoY growth continued, but early Q4 deterioration in demand; delayed profitability Weak demand and order timing pressured Q4; believe Q4 revenue is “bottom point” Worsened in early 2024; stabilizing expected
Mattress Fabrics operationsTransformation underway; margin/pricing better Efficiency issues from new launches; segment improved YoY Restructuring central; Canada closure; move equipment to NC; damask sourcing Aggressive restructuring
Upholstery Fabrics performanceProfitable; improved mix, FX, lower fixed costs Solid; hospitality ~26% sales; winter weather impacts Profitable; hospitality ~38% mix; margins resilient Improving mix; hospitality stronger
Supply chain/freightLower freight costs aided Q2 margins Read Window short-term issues Asia routing delays + cost escalation but below ’21/’22 peaks; manageable Manageable but elevated costs
Restructuring executionN/APlan announced May 1; $10–$11M savings Q4 call detailed timeline and charges; benefits 2H FY2025 On track
Liquidity and cash$15.2M cash; no debt $12.6M cash; no debt $10.0M cash; $32.5M liquidity; expect YE FY2025 cash > FY2024 Adequate, improving post sales

Management Commentary

  • CEO on restructuring rationale: “The announced adjustments, once fully implemented, will enable us to grow more efficiently and profitably with a lower level of fixed costs… optimize our global mix of manufacturing capabilities and long-term sourcing partners” .
  • CFO on liquidity and outlook: “We reported $10 million in total cash and no outstanding debt… we do intend to utilize some borrowings… Importantly, we still expect to maintain a positive net cash position” .
  • CEO on near-term trajectory: “We believe our fiscal 2024 fourth quarter revenue levels represented a bottom point for Culp… we remain committed to delivering sustainable results” .

Q&A Highlights

  • Restructuring charges timing: Majority (cash and non-cash) expected in 1H FY2025; significant portion in Q1; some drift into Q2 .
  • Savings ramp: Annualized benefits to begin in 2H FY2025; magnitude depends on project timing .
  • Asset moves: 100% of Quebec damask weaving assets to be sold; roughly half of knitting/finishing assets moved to Stokesdale, NC; equipment moves by late Q3/early Q4 calendar .
  • Demand signals: Promotional holiday boosts (e.g., Memorial Day) noted; ongoing effort to win placements at better margins .
  • Hospitality strength: Backlogs increasing; roller shade capacity expansion in NC to support growth .
  • Freight/logistics: Asia rerouting added ~2 weeks transit; costs up but below ’21/’22; deliveries managed without significant disruption .
  • Real estate proceeds breakdown: ~$10–$12M real estate plus ~$2.5M equipment sales .

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 FY2024 EPS and revenue was unavailable at time of analysis due to provider limitations; as a result, we cannot assess beats/misses vs consensus (S&P Global data unavailable).
  • Based on company guidance and actuals, Q4 results were broadly “in line” with May 1 outlook ranges (sales down ~19% YoY; operating loss $(4.2)–$(4.7)M; actual operating loss $(4.248)M) .

Key Takeaways for Investors

  • Restructuring is the central catalyst: execution milestones are progressing, with $10–$11M annualized savings targeted and positive monthly operating income expected in 2H FY2025; watch for quarterly updates and asset sale progress .
  • Upholstery Fabrics is a stabilizer: profitable with resilient margins and increasing hospitality mix; likely to underpin near-term cash generation and margin profile .
  • Mattress Fabrics is the swing factor: demand normalization plus sourcing/footprint changes should alleviate losses; monitor efficiency gains and product placements .
  • Liquidity runway is adequate: $32.5M liquidity and anticipated real estate/equipment proceeds provide flexibility through restructuring; temporary borrowing usage expected .
  • Near-term trading setup: sequential Q1 FY2025 sales improvement and restructuring updates may drive sentiment; absence of consensus estimates limits beat/miss optics (focus on operating loss trajectory and margin recovery) .
  • Medium-term thesis: lower fixed-cost base, optimized sourcing, and product innovation should enhance operating leverage into an eventual demand recovery; Upholstery’s steady profitability reduces overall volatility .
  • Risks: macro discretionary softness, freight/logistics costs, execution timing for asset relocation/sale, and operating inefficiencies could delay margin inflection .