Culp Rallies in Turnaround Bid

Quinn Halford, Don Hogsett, June 25, 2007

Climbing back on track after a restructuring and a shift to a global manufacturing platform, fabric producer Culp slashed its fourth-quarter loss 97% to a virtually break-even $40,000 and pushed sales higher by 3.5%, to $73.2 million, reversing a years-long string of declines under steady pressure from low-cost imports.

Frank Saxon, ceo, said Culp expects a profit of $0.08 to $0.12 per share, excluding already announced restructuring costs, during the current first fiscal quarter.

In addition to stronger sales, margins widened substantially, more than offsetting higher operating costs. Average gross margin improved by 360 basis points, or 3.6 percentage points, to 14.3% from 10.7% one year ago. Stated in terms of cash, gross margin dollars shot up by 37.7%, to $10.4 million from $7.6 million.

But costs climbed higher too, rising by 140 basis points, or 1.4 percentage points, to 10.6% of sales from 9.2% last year. In absolute dollars, costs rose 20.3%, to $7.8 million from $6.5 million. But still Culp recorded an operating profit of $4.2 million, bounding back from a year-before loss of $5.1 million.

Culp had restructuring costs of $1.8 million, less than half the $3.7 million it cost in last year's fourth quarter to continue moving some manufacturing off-shore.

Increasingly driving the turnaround at Culp is the mattress fabrics unit that has become the company's core business, outpacing the upholstery fabrics operation that once defined the company.

Mattress fabric sales raced ahead by 57.9% during the closing quarter, to $38.1 million from $24.1 million a year ago. And profits in the segment jumped up by 92.7%, to $3.9 million from $2.0 million the preceding year.

But the upholstery operation continued to slide, with sales falling off by 24.6%, to $35.1 million from $46.6 million, a shortfall of $11.5 million in just one quarter. Operating profits in upholstery fell by 24.3%, to $863,000 from $1.1 million.

For all of 2006, Culp sales slipped by 4.0%, to $250.5 million from $261.1 million in the prior year period, while the company recorded a sharply narrowed loss of $1.3 million from $11.8 million in 2005.

Culp. Inc.

Qtr. 4/29 (x000) 2006 2005 % change
a. Fourth quarter results include $1.8 million in restructuring costs, down 51.5% from $3.7 million during the same perioda year ago; $60,000 in interest income, up 25.0% from $48.000 last year; $166,000 in miscellaneous expenses, down 9.2% from $152,000 last year; and an income tax benefit of $145,000 vs. $1.5 million last year.
b. 12-month results include $3.5 million in restructuring costs, down 65.6% from $10.3 million in 2005; $207,000 in interest income, up 64.3% from $126,000 last year; $68,000 in miscellaneous expenses, down 89.3% from $634,000 last year; and an income tax benefit of $1.7 million vs. $8.1 million in 2005.
Sales $73,196 $70,718 3.5
Oper. income (EBIT) 2,653 1,109 139.2
Net income (40)a (1,534)a
Per share (diluted) (0.00) (0.13)
Average gross margin 14.3% 10.7%
SG&A expenses 10.6% 9.2%
12 months
Sales $250,533 $261,101 -4.0
Oper. income (EBIT) 4,175 (5,080)
Net income (1,316)b (11,796)b
Per share (diluted) (0.11) (1.02)
Average gross margin 12.5% 9.1%
SG&A expenses 10.8% 11.1%

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