Credit buoys Culp profits

Don Hogsett, Staff Staff, June 28, 2004

Fourth-fiscal-quarter profits at decorative fabrics producer Culp Inc. rose 14.1 percent, to $3.7 million from $3.3 million last year, fueled entirely by a $1 million restructuring credit as the company got back some of the $13 million in restructuring costs it spent a year ago.

Excluding the one-time, pre-tax credit, operating profits at the company slipped 2.6 percent, to $5.7 million from $5.9 million a year ago.

Culp sales declined 5.8 percent, to $85.1 million from $90.4 million, as steep drops in decorative fabrics, velvets and prints, and yarn offset an increase in mattress ticking.

Acting as a drag, Culp Decorative fabric sales fell 14.8 percent, to $31.5 million from $37 million a year ago. Culp velvets and prints declined a further 5 percent, to $25.4 million from $26.8 million; and the Culp Yarn business tumbled 42.6 percent, to $1 million from $1.8 million last year. The only business making a positive move during the closing quarter was mattress ticking, where sales jumped 9.4 percent, to $27.2 million from $24.9 million.

"Our fourth-quarter performance reflects lower-than-expected sales of upholstery fabrics," said Robert Culp III, CEO."This segment continues to face demand pressure from both the current consumer preference for leather furniture as well as competition from imported fabrics, including cut-and-sew kits."

Like many other U.S. textiles suppliers feeling the pinch, the company is looking for offshore production, said Culp. "To enhance our competitive position, we are aggressively pursuing offshore sourcing initiatives, including the development of our China operations. As a result, we are significantly increasing sales of upholstery fabrics produced outside of the company's U.S. manufacturing plants," stated the company.

On the plus side, Culp noted, the company has substantially strengthened its balance sheet. After pre-paying $25 million of senior notes during the third quarter, "our long-term debt now stands at $50.5 million, compared with $76 million a year ago. Notably, we have reduced our long-term debt by a total of $86 million over the past four years. As a result, our long-term debt-to-capital ratio improved to 33 percent at the end of fiscal 2004 compared with 44.4 percent a year ago. As such, we have considerably improved our financial position and have greater financial flexibility to pursue our strategic initiatives," Culp stated.

Culp Inc.

Qtr. 5/2 (x000) 2004 2003 %chg
a-Fourth-quarter results include a restructuring credit of $1 million, compared with $25,000 during the same period a year ago; interest income of $20,000, compared with $182,000 last year; and miscellaneous expense of $220,000 versus $160,000 last year
b-12-month results include a restructuring credit of $1 million versus restructuring expense of $13 million during the 2003 fourth quarter; a $1.7 million charge stemming from the early retirement of debt; interest income of $376,000 versus $596,000 the preceding year; miscellaneous expense of $750,000 versus $805,000 the prior year; and income-tax expense of $3.6 million, compared with a year-before tax credit of $1.6 million.
Sales $85,148 $90,406 -5.8
Oper. income (EBIT) 5,713 5,864 -2.6
Net income 3,733a 3,272a 14.1
Per share (diluted) 0.32 0.28 14.3
Average gross margin 18.4% 17.9%
SG&A expenses 11.7% 11.4%
12 months 2004 2003 %chG
Sales 318,116 339,646 -6.3
Oper. income (EBIT) 17,303 17,533 -1.3
Net income 7,220b (24,887)b
Per share (diluted) 0.61 (2.17)b
Average gross margin 18.3% 17.0%
SG&A expenses 12.9% 11.8%

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