Culp sales slump, but profits rebound

Don Hogsett, June 16, 2003

Helped by sharply lower costs — and shucking off $9.1 million in restructuring costs that dogged the bottom line a year ago — decorative fabric producer Culp Inc. launched an earnings recovery during the fourth-quarter, recording a $3.3 million profit compared with a year-ago loss of $1.6 million.

But sales in the closing quarter, hampered by a soft economy and weak consumer spending, tumbled by 16.8 percent, to $90.2 million from $108.4 million last year.

Propping up the bottom line, and partially offsetting weaker margins, the fabric producer hacked away at costs, reducing its overhead by more than a fourth, or 27.5 percent, to $10.3 million from $14.2 million last year, generating a cash savings of $3.9 million.

The deep cuts in sales helped to ballast sharply eroding average gross margin, which contracted by 330 basis points, or 3.3 percentage points, to 17.9 percent from 21.2 percent last year.

Unable to control the bigger picture, said Robert G. Culp III, ceo, "our focus over the past year has been on identifying opportunities to operationally leverage our assets and become more efficient." A sweeping overhaul, said Culp, has led to "the reduction in fixed manufacturing costs as a result of plant consolidations and the improvement in our operating efficiencies."

Culp Inc.

Qtr. 4/27 (x000) 2003 2002 % chg
a-Fourth-quarter results include a $25,000 credit, a partial reversal of a previous restructuring charge, compared with $9.1 million in restructuring costs the year before; interest income of $182,000, compared with $77,000 a year ago; miscellaneous expenses of $160,000, compared with $718,000 last year; an income-tax provision of $1.2 million, vs. a year-before tax credit of $1.7 million.
b-12-month results include restructuring costs of $13.0, compared with $10.4 million in 2002; interest income of $596,000 vs. $176,000 last year; miscellaneous expenses of $805,000 vs. $1.4 million last year; an income-tax benefit of $1.6 million vs. $2.7 million last year; and a $24.2 million non-cash charge stemming from a change in accounting. The 2002 quarter included a $1.4 million goodwill amortization charge.
Sales $90,227 $108,397 -16.8
Oper. income (EBIT) 5,864 8,782 -33.2
Net income 3,272a (1,585)a
Per share (diluted) 0.28 (0.14)
Average gross margin 17.9% 21.2%
SG&A expenses 11.4% 13.1%
12 months 2003 2002 % chg
Sales 338,980 381,878 -11.2
Oper. income (EBIT) 17,533 14,798 18.5
Net income (24,887)b (3,440)b
Per share (diluted) (2.17) (0.31)
Average gross margin 17.0% 16.5%
SG&A expenses 11.8% 2.6%

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