Culp Doubles Loss

Kristine Ellis, Don Hogsett, September 20, 2004

Hurt by one less week of sales and thinning margins, decorative fabrics producer Culp Inc. recorded a first fiscal quarter loss of $1.1 million, more than twice the size of a year-before deficit of $411,000.

Due to the shorter fiscal quarter this year, overall sales dropped 7.9 percent, to $67.8 million from $73.7 million last year. But leveling out the playing field, said CEO Robert Culp III, the top-line shortfall was less severe.

“Considering one less week's sales, our average weekly sales for the first fiscal quarter of 2005 were $5.2 million compared with $5.3 million in the prior-year period, a decrease of less than 1 percent,” said Culp.

Culp pointed out, “The first fiscal quarter of our fiscal year is typically the slowest period for Culp and the furniture industry with scheduled plant-vacation shutdowns. The seasonal slowdown, combined with the continued weakness in consumer demand for furniture throughout the summer, accounted for this modest drop. We believe our competitive position is strong, and we are excited about the growth opportunities in our mattress-ticking business and our offshore sourcing.”

As Culp moved production overseas, sales of sourced-upholstery fabrics more than doubled over the same period last year, the company reported.

Sales of upholstery fabrics declined 9.8 percent, to $41.9 million from $46.5 million last year. Notably hard hit was the decorative-fabrics business, where sales tumbled 19.2 percent, to $23.9 million from $29.6 million a year ago. On the plus side, sales of Culp velvets and prints increased 6.8 percent, to $18 million from $16.8 million last year.

But losses in the upholstery-fabrics operation increased 52.4 percent, to $2.6 million from $1.7 million last year.

In mattress ticking, sales declined 4.7 percent, to $26 million from $27.2 million during the 13-week period this year, compared with last year's 14-week first quarter. But measured on an average weekly basis, sales improved 2.7 percent, to $2 million from $1.9 million. “This increase is especially noteworthy considering our customers' recent transition to one-sided mattresses, which utilize one-third less fabric,” the company reported.

Operating profits in the mattress-ticking business fell 30 percent, to $2.9 million from $4.1 million, hurt by one less week of sales and inventory markdowns.

Assaying the ticking business, Culp said, “We are seeing positive trends in our mattress-ticking business and continue to make gains with key customers,” In a big plus, he added, “Unlike upholstery fabrics, the mattress-fabric business is not being threatened by Asian imports because of the relatively low average price points and labor content and the just-in-time delivery requirements of this business.”

Culp Inc.

Qtr. 8/1 (x000) 2004 2003 % change
a-First quarter results include restructuring costs of $75,000, included as a part of cost of goods sold; a restructuring credit of $138,000; interest income of $27,000, down 77.9 percent from $122,000 during the same period a year ago; miscellaneous expense of $214,000, down 10.5 percent from $239,000 during the prior-year period; and an income tax benefit of $542,000, compared with a year before income tax benefit of $241,000.
Sales $67,849 $73,676 -7.9
Oper. Income (EBIT) (605) 962 --
Net income (1,052)a (411)a --
Per share (diluted) (0.09) (0.04) --
Average gross margin 12.8% 15.6% --
SG&A expenses 13.7% 14.3% --

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