Producer Culp Turning Corner

Don Hogsett, July 3, 2006

Steering toward a turnaround in a sweeping overhaul of operations after years of being pounded by the rising tide of low-cost off-shore imports, fabric producer Culp parlayed stronger margins, lower costs and big gains in its core upholstery business into a small, but nonetheless dramatic, fourth-quarter operating profit of $1.1 million, climbing back from a year-before loss of $3.7 million.

Still weighed down by $3.7 million in restructuring costs to pay for the turnaround, Culp generated a sharply narrowed net loss of $1.5 million, down more than 80% from a year-before deficit of $7.7 million.

Starting to stabilize somewhat after a string of daunting double-digit losses, sales were off a more modest 4.7%, to $70.7 million from $74.2 million.

Driving much of the big improvement was a profit rebound in Culp's core upholstery fabrics business, which generated an operating profit of $1.1 million, reversing a $2.0 million loss in last year's closing quarter. Hacking away at costs while rebuilding upholstery margins, the business threw off a small profit during the fourth quarter despite a modest decline in sales, down 1.2% to $46.6 million from $47.2 million last year.

The smaller mattress ticking business remained solidly profitable, if not as much so as last year, throwing off an operating profit of $2.0 million, down 8.6% from $2.2 million.

Supporting the overall gain in operating profit, average gross margin recovered substantially, widening by 350 basis points, or 3.5 percentage points, to 10.7% from 7.2% a year ago. Gross margin dollars jumped up by 41.8%, to $7.6 million from $5.3 million.

Hacking away at overhead, Culp slashed expenses by 300 basis points, or 3.0 percentage points, to 9.2% of sales from 12.2% last year. That translated to a cash savings of $2.6 million, which fell straight to the bottom line.

Culp Inc.

Qtr. 4/30 (x000) 2006 2005 % change
a. Fourth-quarter results include $3.7 million in restructuring costs, down 54.3% from $8.1 million during the same period a year ago; interest income of $48,000, up 33.3% from $36,000 last year; miscellaneous expenses of $152,000, up 87.7% from $81,000 last year; and an income-tax benefit of $2.2 million, compared with $5.0 million a year ago.
b. 12-month results include restructuring costs of $10.3 million, down 1.0% from $10.4 million during 2005; interest income of $126,000, up 6.0% from $134,000 the prior year; miscellaneous expenses of $634,000, up 22.6% from $517,000 a year ago; and an income-tax benefit of $8.1 million, compared with $10.9 million the preceding year. 2005 results include a $5.1 million goodwill impairment charge.
Sales $70,718 $74,183 -4.7
Oper. income (EBIT) 1,109 (3,700)
Net income (1,534)a (7,730)a
Per share (diluted) (0.13) (0.67)
Average gross margin 10.7% 7.2%
SG&A expenses 9.2% 12.2%
12 months 2006 2005 %change
Sales 261,101 286,498 -8.9
Oper. income (EBIT) (5,086) (9,200)
Net income (11,796)b (17,852)b
Per share (diluted) (1.02) (1.55)
Average gross margin 9.1% 9.1%
SG&A expenses 11.1% 12.3%

First Quarter Segment Results

Sales 2006 2005 % change
Upholstery fabrics $46,616 $47,165 -1.2
Mattress ticking 24,102 27,018 -10.8
Operating Income 2006 2005 % change
Upholstery fabrics 1,140 (2,018)
Mattress ticking 2,032 2,223 -8.6

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