Q1 2021 Culp Inc Earnings Call
Yeah.
[music].
Good day, everyone and welcome to Copes first quarter 2021 earnings conference call.
Under the today's call is being recorded at this time for opening introduction I'd like to turn the call over to Mr. Anderson. Please go ahead.
Thank you good morning, and welcome to the call Conference call to review the company's results for the first quarter fiscal 2021.
We start let me state that this morning's call will contain forward looking statements about the business financial condition and prospects at the company.
Forward looking statements or statements that include projections expectations or beliefs about future events or results or otherwise you're not statements of historical fact.
The actual performance of the company could differ materially from that indicated by the forward looking statements because of various risks and uncertainty.
These risks and uncertainties are described in our regular SEC filings, including the company's most recent filings on form 10-K and form 10-Q.
You are cautioned not to place undue reliance on forward looking statements made today and each had statements speak only as of today.
We undertake no obligation to update or to revise forward looking statements.
In addition, during this call the company will be discussing non-GAAP financial measurements, a reconciliation of these non-GAAP financial measurements to the most directly comparable GAAP financial measurement is included in either the tables to the press release included as an exhibit to the company's 8-K filed yesterday and posted on the company's website at called.
Dotcom.
Sure in the slide presentation with supporting summary financial information that is also available on the company's website as part of the webcast of today's call.
With respect to certain forward looking income tax information the comparable GAAP and reconciling information is not available without unreasonable effort and its significance is similar to the significance of historical income tax rate information, which is available in the slide presentation with supporting summary financial information that is also on.
The company's website as part of a webcast of today's call.
With that I'll now turn the call over to as called President and Chief Executive Officer of calls. Please go ahead Sir.
[noise] Prince drew and good morning, thanks, everyone for joining us today.
I would like to welcome you to the Cold quarterly conference call with analysts and investors.
With me on the call today are Tskhinvali, our Chief Financial Officer convoys Chumley, President of our mattress fabrics business.
Well begin the call some brief comments and Ken will then review the financial results for the quarter.
I will then update you on the strategic actions in each of our operating segments.
So that Kevin will review, our second quarter fiscal 2021 business outlook. He will then be happy to take your questions.
As we continue to navigate our way through these uncertain times Weve remained focused on the health and safety burn employees customers suppliers, Dan the communities we serve.
I'm incredibly thankful parents, whose hard work agility and commitment to safety.
I'm proud of our leadership team for a bad thing and efficiently managing through this challenging environment.
We are pleased that both of our mattress fabrics and upholstery fabric segments, so better than expected increases in orders and shipments during the quarter, particularly during the last two weeks.
We're especially pleased with the strong sequential improvement compared with the end of the fourth quarter going from a significant pre tax loss the profitability.
We believe these trends are primarily being driven by serves a consumer focus on the home environment and overall comfort leading to an increase proportion of discretionary spending moving toward some persons.
Although the ongoing in Paris and duration of the cover 19 Pemex is unknown.
We are cautiously optimistic the business will continue if sells a turn in the second quarter fiscal 2021.
We are confident in our products every strategy strong management team and solid financial position will enable us to captured market share as we continue to demonstrate the resilience and strategic advantage of our global platform and stable sequentially.
Our balance sheet remains strong as evidenced by significantly improved liquidity, let's compare to prepare the nickel level at the end of fiscal 2023rd quarter.
We're also pleased to have maintained our quarterly dividends two houses period as disruption.
Now maintained and increase our annual dividends for eight consecutive fiscal years, reinforcing our confidence in the company's future and our commitment to generating value for shareholders.
We're excited about the continued sequential improvement we expect for the second quarter and look forward to the opportunities ahead in fiscal 2021.
I'll now turn the call over to Kim who will review financial results for the quarter. Thank you as mentioned earlier on the call. We have posted a slide presentation score Investor Relations website, because the key performance measures. We've also posted our capital allocation strategy.
I also want to note that as the result of the sale of the luxury during the fourth quarter last year. The financial results for the home accessories segment are excluded from the reported financial performance of are considered operations and presented as a discontinued operation in our consolidated financial statements.
Here are the finance route highlights for the first quarter, which included 13 weeks compared with 14 weeks for the prior year period.
Net sales were 64.5 million down 8.8% compared with the prior year period.
On a pre tax basis. The company reported income from continuing operations of 1.5 million compared with pre tax income from continuing operations of 3.5 million for the first quarter of last year.
The current quarter was affected by the continued disruption from the coven 19 pandemic as well as significant inventory reductions in manufacturing inefficiencies associated associated with the dramatic ramp up in operations for a mattress fabric segment.
Partially offsetting this pressure was lower as she may expenses, due primarily to lower compensation expense and reduce spending on professional fees and travel and entertainment.
Net loss from continuing operations with 2.7 may enter 22 cents per diluted share for the first quarter, which included a 3.7 million net income tax charge that I'll discuss in more detail shortly.
Compared with net income from continuing operations of 1.8 million or 14 cents per diluted share for the prior year period.
Adjusted net income from continuing operations non gap was $1 million were eight cents per diluted share. This excludes the 3.7 million net income tax charge, which consist of a 7.2 million non cash income tax charge.
To record a pool valuation allowance against the company's U.S. net deferred income tax assets.
Partially offset by a 3.5 million noncash income tax benefit, resulting from the reestablishing of certain U.S. federal net operating loss carry forwards in connection with the US treasuries regulations enacted during the first quarter. This fiscal year regarding the global intangible low tax income for deal.
The tax provisions.
Adjusted net income from continuing operations for the prior year period was $2 million or 16 cents per diluted share.
This excludes a $229000 income tax charge, which represents the company's estimated guilty impact incurred through the first quarter of last fiscal year.
Our effective income tax rate for the first quarter. This fiscal year was 283.7% compared with 48.9% to the same period a year ago. This significant increase in the company's effective income tax rate reflects the impact of the new guilty regulations I just mentioned.
The adjusted effective income tax rate and non-GAAP measures for the first quarter, which excludes the items I mentioned earlier late into the new guilty regulations was 41.5% compared with 42.2% for the same period a year ago.
Importantly, the enactment of the new guilty regulations as expected the benefit or could it be going forward and the company does not expect to pay any material amount of USA compacts through a number of years based on the facts, we know today.
Looking ahead to the rest of this fiscal year. We currently estimate that our consolidated effective income tax rate on a year to date GAAP basis will be substantially lower than the rate for the first quarter. This fiscal year end the year to date non-GAAP adjusted unit effective income tax rate, which would exclude the net charge discussed earlier will be Tom.
Bubble to the adjusted tax rate for the first quarter this fiscal year.
As a reminder, the effective income tax rate can be affected over the fiscal year by the future mix and timing of actual earnings from our us operations and foreign subsidiaries located in China in Canada.
Trailing 12 months adjusted EBITDA as of the into first quarter of this fiscal year was 12 million were 4.8% of sales.
Now, let's take a look at our business segments for mattress fabrics segment sales were 36.1 million down 7.1% compared with last year's first quarter, which included an extra week.
Excluding this extra week sales for the first quarter were comparable to the sales for the first quarter last year based on average sales per week, notably sales increased sequentially by approximately 60% from the fourth quarter last fiscal year two the first quarter this fiscal year.
Operating income for the quarter was 1.8 million compared with 2.6 million a year ago with operating income margin of 5.1% compared with 6.7% a year ago.
While we were energized by the sequential growth in sales and improving business conditions. Our operating performance was negatively affected by manufacturing inefficiencies associated with the dramatic ramp up in operations as well as significant inventory reductions. This was partially offset by lower ASP DNA expenses. Despite these challenges.
We believe business conditions are stabilizing and will result in improved profitability going forward barring additional disruptions related to the pandemic.
For upholstery fabric segment sales for the first quarter were 28.4 million down 11% over the prior year, which included which concluded an extra week.
Excluding this extra week sales for the first quarter were down approximately 4% compared with the first quarter last year based on average sales per week.
Operating income for the quarter was 2.1 million compared with 2.9 billion a year ago with operating income margin of 7.5 per cent compared with 9% a year ago.
Operating performance was primarily affected by the decline in sales in connection with the disruption of the colder 19 pandemic.
Partially offset by lower SNA expenses.
During the balance sheet highlights.
We reported 47.4 billion, a total cash and investments and no outstanding borrowings as of the of the quarter up from our 38.7 million net cash position as of the end of last fiscal year.
During the first quarter, we incurred $500000 and capital expenditures and spent 1.3 million in regular dividends.
Cash flow from operations and free cash flow over 10.6 million and 10 million, respectively, compared with cash flow from operations of free cash flow of to me at a 1 million respectively for the prior year period.
This year over year increase was due primarily to improve working capital management, especially related to inventory.
The company did not repurchase any shares in first quarter, leaving five being available under the share repurchase program approved by the board in March 2020.
As previously disclosed the company has temporarily suspended the share repurchase program given the economic uncertainty related so the 19 with that I'll turn the call back over to you.
Thank you Ken I'll start with a mattress fabrics segment.
The beginning in the quarter was materially affected by the virus.
So we experienced a greater than anticipated increase in demand beginning in mid May is government restrictions in the third the customers in retail stores resumed operations.
This increase continued throughout the quarter across all product offerings, including our class mattress cover business approximating three pandemic levels at quarter end.
We returned to all of our previously per load workers and rapidly extended production schedules to meet this growing demand.
As a result sales increased by approximately 60% from the fourth quarter fiscal 2020 to the first quarter of fiscal 23 one.
During this uncertain environment, you continue to manage our business with a firm focused on creative designs innovative products and customer service.
These efforts are supported by the strength of our global manufacturing and sourcing operations, including the US, Canada, Haiti, Asia, and Turkey, which provide us with flexible production and distribution capabilities to adapt to changing customer needs.
We're also excited about our ongoing developments and product innovation, including continued opportunities through our reimagine call from Crashers Afridi image rendering service.
Additionally, demand trends the mattress covers remain favorable driven by ongoing growth in the box studies space and we continue to work collaboratively with new and existing customers to develop fresh and innovative products.
We haven't efficient level platform that allows us to maximize our full supply chain for these commerce from fabric to finish cover in the us Haiti and Asia.
We do expect our building expansion in Haiti to be completed during the second quarter, which will provide additional capacity and enhance our ability to produce uncovers in North America.
Looking ahead, we recognize that the disruption and economic uncertainty from the cover 19 pandemic may continue to affect our business, but we are encouraged by recent demand trends and believe we are well positioned to exceed our strategy and increased market share as conditions improve.
We have now decided to invest $4 million and additional net machines to expand our capacity in North America to support our future growth.
Finally, we expected to domestic mattress industry and in turn our business, we will benefit if their success from the recent anti dumping.
Duty petitions filed with US International Trade Commission and US Department of Commerce against seven countries from vision unfair trade practices.
We look forward to the opportunities ahead for our master centered business in fiscal 2021.
Now I'll turn to our cost to fabric segment.
The disruption from the cover 19 pandemic continues to affect our upholstery sales and operating results for the first quarter fiscal 2021.
We began the quarter slowly with the gradual increase in orders and shipments beginning in mid may as customers in retail store started three open.
Swift upturn during the month of June and further acceleration in the quarter.
We returned to all of our previously furloughed workers to meet this rapid increase in demand.
Also our strong platform in Asia, including our current capabilities in Vietnam, and our stable supply chain has allowed us to respond quickly and meet the needs of our customers.
We were pleased with the improvement throughout the quarter and demand increased and most of our businesses, including our residential upholstery business, which features our popular lines of this mark to lift smart evolve performance fabrics.
We have benefited from our ability to continue representing our products for customers to our innovative virtual showcase presentations.
Also our strong product placements with customers prior to the cover 19 operate have advanced heart recovery as business conditions improve.
Our hospitality business was pressured cover 19 disruption during the first quarter due to ongoing disruption in the travel and leisure industries.
However, the blend our products are window treatment and installation services business was less affected and provided a meaningful contribution due to the existing project orders already in progress prior to the virus outbreak as relative emphasis on vacation club properties.
While we remain pleased with the diversification offered by this business. We recognize that the continued impassive cover 90 may negatively affected at least in the short term as it remains uncertain motor hotels and other hospitality bilious for undertake new refurnishing projects in the current environment.
Looking ahead, the ongoing uncertainty surrounding the cover 19 endemic make it difficult to forecast the potential impact on our business.
However, we are encouraged by the strong sales trends experienced and less believes that the first quarter as well as trends adjusting increases and consumer discretionary spending on home furnishings.
Ken will now discuss the general outlet for the second quarter fiscal 2021, and then we will take your questions.
At this time due to continued economic impact of the coding 19 pandemic and the lack of visibility as to a duration or ultimate impact we are providing only limited financial guidance for fiscal 2021.
Although subject to unforeseen changes that may arise as the pandemic and its economic impact continue to unfold. We are encouraged by improving business conditions, we expect sales and operating income for the second quarter. This fiscal year to be materially improved. This compares to the first quarter, but not reaching the performance achieved in just the.
As of last year, which was especially strong quarter for the upholstery fabric segment.
Based on current expectations, including the $4 million investment in additional knit machines in our mattress fabrics business that you have mentioned earlier capital expenditures for this fiscal year now expect to be in the eight and a half to $9 million range.
Depreciation and amortization expect to be approximately 7 million for this fiscal year.
With that we will now take your questions.
Ladies and gentlemen for any questions. Please join the queue by pressing star one your telephone keypad you just make sure you functions to adopt allow us to receive that signal.
And that star one for any questions and first from Raymond James We have Bobby Griffin.
So from what everybody appreciate taking my questions all I tend to circle back.
Overall, our maybe your comments about demand trended during the quarter. It looks like you saw from reloadable pick up throughout the quarter on both segments, but let me talk a little bit about what you. What you saw in August continued to build versus July in June or what are the expectations of kind of what are you going from customers about labor day and what what.
The markets where before.
Yes, Thank you Bobby for sure and you're right really bits of similar refrain in both businesses for.
Q1, starting slow and and finishing very strong over the last eight weeks and continues to escalate throughout the quarter.
So far we're pointing to we're seeing a material sequential improvement going into Q2, so we see those trends.
Continuing to go we have strong.
Backlog of orders to produce in both businesses. So we're optimistic on both sides on the sales side of it.
Labor day, typically is a very strong holiday in the natural side for us and we expect that to be pretty good.
I know a lot of our big Big customer service not so much rolled out new products as or just trying to fuel more success on the product starting on the floor and I think it should be in our opinion looks like you're going to holiday selling season.
Do you think the tight one concern I pad you think the tight inventory situation could negatively impact the holiday or is it pretty much everybody across the space in the same inventory.
Standpoint, so you know consumers will be expecting a little bit higher lead times than normal.
Yes, I don't know I know the answer to that Bobby how will impact.
Doesn't seem like we're seeing on any.
Slowdown or consumer pressure for furnishings product so.
Sorry, I can't speak to everyone's inventory position I know that were turning things very quick as evidenced by our inventory management and.
Cash generation and things is flowing through a very clear as our health and don't expect an impact to the selling season.
You know our customers have been spoiled over time to get things on demand.
I think the industry satellite to power behind it and certainly with our capacity and others.
I think the catch up can happen.
I don't think it should deal the holiday selling season.
Okay. All if they stay in this kind of elevated demand environment like we're talking about hearing you mentioned trends.
And your strong August how long you think it takes for coal and coke facilities to kind of get back to normal efficiency I mean I.
I understand it takes time to bring people backing the plants and get things working you know backup to this three pandemic type efficiency.
Yes, we should any of these three point of that in Q1 and that you remember we were born from pretty much a standstill on both businesses with a lot of people into our lower plants running a very small aperture to keep up with demand that was there, but as I went through the quarter that busier everyone handbag today, we're running at what we.
Consider to be very good efficiencies, we have a little bit of javelin because there's so many priorities and we're pushing different things, but I will say today are not let's turn to avoid comment for upholstery worth today, we're at efficiencies, we want to be and should be much improved for Q2 on our manufacturing efficiencies, both we agree with upholstery.
Yes, there by the company the as we're looking at our supply base.
On through a period, where we have had to sail backup rapidly, but I think the power supply chain right now is that exists decision.
That is back to.
Pre code was levels of output and really don't see constraints.
Supply chain as we look at here.
Okay, Okay, and then I guess lastly, Kang low when we talk understanding that you know it's tough to predict bought four but we've got to on tax on the before his commentary. If you know if demand stays at kind of the levels were seeing which is a little too tough to predict but a good chance you know sales could surprise further to the upside and be close to last.
Here and maybe to start to grow again year over year.
Yeah as far as against Q2.
Yes, I mean, if you're seeing what seems like you may change that picked up again further in August you know understanding that they can change in September October and it's tough to predict but if the August trends continue their opportunity for you know the sales too surprising and maybe even grover's to see of last year.
Yeah, Bobby I think Thats fair I think that.
Where we're being cautious as we as we as we look out just because of the unknowns.
As we've said August this is Dan.
He has been strong.
But.
We're we're optimistic I mean, it is there's certainly a chance it could surprise on the on the on the upside for sure, but we're just which has so many unknowns out there is this we're being cautious.
Okay, well I appreciate all the details thanks for answering my questions and I'll get back in Q.
Thank you bye bye.
And we'll move on to Marco Rodriguez with Stonegate.
Good morning, guys. Thank you for taking my questions.
From our available.
Hey.
Follow up on some of the gross margin comments and discussion on mattress fabrics.
In Q1 is there anyway that you might be able to quantify the inefficiencies you saw there and that impact on your on your margins.
Yes, Mark.
I appreciate the question is just real difficult given.
The all those groups that we had the jump through and the bringing people back.
Getting people back end or I mean, it was a significant impact I think also to just the.
The the process around the dramatic decrease in inventory you know that.
The way we account for that that pressured results do but it was just a very difficult time in the first part of a quarter now granted things improve in June July, but it's very difficult to quantify but it was a significant impact for sure.
Got it understood.
And then in terms of you guys, bringing your your efficiencies back if I heard the response for the prior question. It sounded like operationally, you're you're back to normal. If you will so first off just want to kind of confirmed that that is the case itself and then also if you can maybe talk a little bit Bob.
Where your inventory levels are now you sounded like the supply chains. Okay. So are you going to be seen a dramatic increase in inventories or is it.
So just very difficult to kind of.
Build that up for the coming demand just given that quick turns you need to you need to come through.
Yes, Mark Thanks, this a bit of and now I'll touch base, yes. The answer is yes in both businesses we are.
Those decisions or bill to operate vast with more demand being rebuilt certainly a mattress fabrics. We've done some much capital spending over the last four to five years are real success comes when we have solid orders flowing through our facilities.
Really in both businesses now we have both operating.
Full scale.
Both internally and using our global platform. So really excited about what that can do the Harris our long term had a chance to show. The success. We can have them. We have strong throughput so that will be positive inventories and let cantona to today inventories are really proud of where they are.
But we need you need to build them back gradually just to support business. There. So we're not expediting and doing some things that would impact our efficiency.
We do not expect.
In summary to inventories to be in lockstep as sales increase beyond expenses to jump dramatically, although we do need to add some inventory just to provide better service to our customers.
Yes, Mark Thats exactly right and too.
As I mentioned in my notes, we had a very strong start to the year with respect to free cash flow and a lot of Atlas.
So you tied to the inventory reductions in Ziv said the challenge for the goal is obviously be prepared and meet our customer needs but.
We will require some working capital going forward now obviously, we're going to pay special attention to make sure that rebalance that need with with the cash flow but.
That was very strong star, but we will need to invest going forward, but at a better control pace.
Got it and then in terms of the expansion into mattress fabrics of 4 million that you'll be investing for additional net machines.
As well as the additional just overall capex spend for fiscal 2001, we maybe talk a little bit about the cadence of the spend there and when you say tenant machines will be in net producing.
Yeah sure Marco Good question. We've just recently made that decision and it's really a bullish statement for us to expand our north American capacity, we have terrific near capacity really in multiple countries, you asked Canada, Turkey, and Asia, and we're just or.
In some opportunities we don't intend to reduce our global footprint. We just continue to boost our north American footprint. Some our expectation is that those machines can be in an operating.
Towards the very sale into the fiscal year, So probably February and March next year will be our term loan to have those in the money not a huge impact.
This fiscal year other than the spin, but certainly a great future opportunity for us as we look out in between two and past.
Yes, Mark as you as you as you saw the financing we have $500000 of Capex. This quarter, obviously, where we are projected to be eight and a half nine so we've got more spending to do but if it's going to be back loaded second third and fourth quarter.
But as things ramp up.
But.
We got to a break started Q1, but we will need to fund those expenses.
Starting in Q2 three four.
Understood and then last quick question for me on the upholstery fabric side.
Can you talk about these a little bit more color on the virtual showcases I mean, how those than preceding has been sort of met your guys expectations or theres still some learning curve issues that need to be gone further.
Yes partner and this is Boyd and I wouldn't tell you that.
That whole platform is really exceeded our expectations we have been.
Very pleased with how our customers have reacted to the.
David into a more virtual and online.
Representation in presentation of our fabric.
We've done this the.
A.
During the video platform as well as.
Utilizing them online.
Our tool.
So part of our virtual.
Presentation of our fabric.
The the reaction we've gotten has just been.
Very very positive.
I believe that this will become a.
Part of what we're doing on a more permanent basis.
That we will see this type of.
Representation of our products and into method for doing so will become a normal art of of how we do this going forward is assist very effective and.
We've received exceptional feedback I think we certainly learned a lot through the process that has continued to develop and in Hanson and I'm sure. We'll there'll be some further steps forward with that but it's been a us significant new who for us that we thanks for the important for those for the long term.
Very helpful. Thank you guys I fully appreciate the time.
Thanks, Mark Crumpacker Center.
And with no further questions you would like to turn the floor back to management for any additional or closing remarks.
Thank you operator and again, thank you for your participation and your interest in call. We look forward to opt to updating you on our progress much corner.
So when that does conclude our call for today, we do thanks for joining US you may now disconnect.
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[music].
Good day, everyone and welcome to <unk> first quarter 2021 earnings conference call.
Today's call is being recorded at this time.
Oh, Okay Mr. Anderson. Please go ahead.
Thank you good morning, and welcome to the called Conference call to review the company's results for the first quarter fiscal 2021.
As we start let me state that this morning's call will contain forward looking statements about the business financial condition and prospects of the company.
We're looking statements or statements that include projections expectations or beliefs about future events or results or otherwise are not statements of historical fact.
The actual performance of the company could differ materially from that indicated by the forward looking statements because of various risks and uncertainty.
These risks and uncertainties are described in our regular FCC filings, including the company's most recent filings on form 10-K and form 10-Q.
You are cautioned not to place undue reliance on forward looking statements made today and each such statements speak only as of today.
We undertake no obligation to update or revise forward looking statements.
In addition, during this call the company will be discussing non-GAAP financial measurements, a reconciliation of these non-GAAP financial measurements to the most directly comparable GAAP financial measurement is included in either the tables to the press release included as an exhibit to the company's 8-K filed yesterday and posted on the company's website at <unk>.
Dotcom.
Or in the slide presentation with supporting summary financial information that is also available on the company's website as part of the webcast of today's call.
With respect to certain forward looking income tax information the comparable GAAP and reconciling information is not available without unreasonable effort and its significance is similar to the significance of historical income tax write information, which is available in the slide presentation with supporting summary financial information that is also.
On the company's website as part of a webcast of today's call.
With that I'll now turn the call ever to have called President and Chief Executive Officer of called please go ahead Sir.
Hi, Andrew Good morning, Thanks, everyone for joining us today.
I would like to welcome you to the Cold quarterly conference call analyst and Investor.
With me on the call today are controlling our chief financial Officer, and Board Chumley, perhaps in the more mattress fabrics business.
Well begin the call. These comments and Ken will then review the financial results for the quarter.
I will then update you on the strategic actions in each of our operating segment.
After that getting more of your second quarter fiscal 2021 business outlook. We will then be happy to take your questions.
As we continue to navigate our way isn't uncertain times.
Remains focused on the health concerns keep our employees customer suppliers and the communities we serve.
I'm incredibly cycle current whose hard work agility and commitment to safety.
And I'm proud of our leadership team for adapting and efficiently managing through this challenging environment.
We are pleased the bulk of our mattress fabrics and upholstery fabric segments, so better than expected increases in orders and shipments during the quarter, particularly during the last eight weeks.
We're especially pleased but the strong sequential improvement compared with the end of the fourth quarter going from a significant pre tax law the profitability.
We believe these trends are primarily being driven by certain consumer focused on the home environment and overall comfort leading to an increase proportion of discretionary spending moving toward comparisons.
Although the ongoing in Paris and duration of the cover 19 for Internet is long no.
We are cautiously optimistic the business will continue at 1000 to turn in the second quarter fiscal 2021.
We are confident that are a prototype and strategy strong management team and solid financial position will enable us to capture market share as we continue to demonstrate the resilience and strategic advantage of our global platform and stable sequentially.
Our balance sheet remains strong as evidenced by a significant good liquidity as compared to pre pandemic level at the end of fiscal 2023rd quarter.
We're also pleased to have maintained our quarterly dividend throughout this period of disruption.
Now maintained and increase our annual dividend for eight consecutive fiscal years reinforcing our confidence in the company's future and our commitment to generating value for our shareholders.
We're excited about the continued sequential improvement we expect for the second quarter and look forward to the Oscars ahead in fiscal 2021.
I'll now turn the call over to Kim who will review financial results for the quarter. Thank you as mentioned earlier on the call. We're post is why presentations to our Investor Relations website. The cover key performance measures.
We've also posted our capital allocation strategy.
I also want to know that as the result of the sale will be luxury during the fourth quarter last year. The financial results for the home accessories segment are excluded from the reported financial performance of our container in operations and presented as a discontinued operation in our consolidated financial statements.
Here are the finance route highlights for the first quarter, which included 13 weeks compared with 40 weeks for the prior year period.
Net sales were 64.5 million down 8.8% compared with the prior year period.
On a pre tax basis, the company reported income from continuing operations of 1.5 million.
Compared with pre tax income from continuing operations of 3.5 million for the first quarter of last year.
The current quarter was affected by the continued disruption from the co. The 19 pandemic as well as significant inventory reductions and manufacturing inefficiencies associated associated with the dramatic ramp up operations for a mattress fabric segment.
Partially offsetting this pressure with lower asking the expenses due primarily to lower compensation expense and reduced spending on professional fees and travel and entertainment.
Net loss from continuing operations with 2.7 may enter 22 cents per diluted share for the first quarter, which included a 3.7 billion net income tax charge that I'll discuss in more detail shortly.
Compared with net income from continuing operations of 1.8 million was 14 cents per diluted share for the prior year period.
Adjusted net income from continuing operations non gap with $1 million were eight cents per diluted share. This excludes the 3.7 million net income tax charge, which consists of a 7.2 million non cash income tax charge.
To record a full valuation allowance against the company's U.S. net deferred income tax assets.
Partially offset by 3.5 million noncash income tax benefit, resulting from the reestablishing of certain U.S. federal net operating loss carry forwards in connection with the US treasuries regulations enacted during the first quarter. This fiscal year regarding the global in tangible ROE tax income or Gil.
The tax provisions.
Adjusted net income from continuing operations for the prior year period was $2 million or 16 cents per diluted share.
This excludes a $229000 income tax charge, which represents the company's estimated guilty impact incurred through the first quarter of last fiscal year.
Second income tax rate for the first quarter. This fiscal year was 283.7 per cent compared with 48.9% for the same period a year ago. This significant increase in the company's effective income tax rate reflects the impact of the new guilty regulation I just mentioned.
The adjusted effective income tax rate and non-GAAP measures for the first quarter, which excludes the items I mentioned earlier late into the new guilty regulations was 41.5% compared with 42.2% for the same period a year ago.
Importantly, the enactment of the new guilty regulations is expected to benefit our liquidity going forward and the company does not expect to take any material amount of net income tax for a number of years based on the facts we know today.
Looking ahead to the rest of this fiscal year. We currently estimate that our consolidated effective income tax rate on a year to date GAAP basis.
We'll be substantially lower than the race to the first quarter. This fiscal year end the year to date non-GAAP adjusted in effective income tax rate, which would exclude the net charge discussed earlier will be comparable to the adjusted tax rate for the first quarter this fiscal year.
As a reminder, the effective income tax rate can be affected over the fiscal year by the future mix and timing of actual earnings from our U.S. operation and Ford subsidiaries located in China in Canada.
Trailing 12 month adjusted EBITDA as of the into first quarter of this fiscal year was 12 million 4.8% of sales.
Now, let's take a look at our business segments for mattress fabrics segment sales were 36.1 million down 7.1% compare last year's first quarter, which included an extra week.
Excluding this extra week sales for the first quarter were comparable to the sales for the first quarter last year.
So on average sales per week, notably sales decreased sequentially by approximately 60% from the fourth quarter last fiscal year first quarter of this fiscal year.
Operating income for the quarter with 1.8 million compared with 2.6 million year ago, with operating income margin of 5.1% comparable to 6.7% a year ago.
While we were energized by the sequential growth in sales and improving business conditions. Our operating performance was negatively affected by manufacturing inefficiencies associated with the dramatic ramp up in operations as well as significant inventory reductions. This was partially offset by lower assay in a expenses. Despite these challenges.
We believe business conditions are stabilizing and will result in improved profitability going forward barring a digital disruption related to the pandemic.
For upholstery fabric segment sales for the first quarter were 28.4 million down 11% over the prior year, which included which concluded an extra week.
Excluding this extra week sales for the first quarter were down approximately 4% compared with the first quarter last year based on average sales per week.
Operating income for the quarter was 2.1 million compared with 2.9 billion a year ago was operating income margin of 7.5 per cent compared with 9% a year ago.
Operating performance was primarily affected by the decline in sales in connection with disruption of the colder 19 pandemic.
Partially offset by lower estimate expenses.
During the balance sheet highlights.
We reported 47.4 being a total cash and investments and no outstanding borrowings as of the of the quarter up from our 38.7 million net cash position as of the end of last fiscal year.
During the first quarter, we incurred $500000 and capital expenditures and spent 1.3 million in regular dividends.
Cash flow from operations and free cash flow were 10.6 million and 10 million, respectively, compared with cash flow from operations of free cash flow of to me at a 1 million respectively for the prior year period.
This year over year increase was due primarily to improve working capital management, especially related to inventory.
The company did not repurchase any shares in first quarter, leaving five main available under the share repurchase program approved by the board in March 2020.
As previously disclosed the company has temporarily suspend the share repurchase program given the economic uncertainty related so the 19 with that I'll turn call back over to you.
Thank you Ken I'll start with a mattress fabrics segment.
Well begin in the quarter was materially affect us out of our.
Where we experienced a greater than anticipated increase in demand beginning in mid may as government restrictions in the third customers and retail stores resumed operations.
This increase continued throughout the quarter across all product offerings, including our class mattress cover business approximating pre pandemic levels at quarter end.
We returned to all of our previously carload workers and rapidly extended production schedules to meet this growing demand.
As a result sales increased by approximately 60% from the fourth quarter fiscal 2020 sort of first quarter fiscal 23 one.
During this uncertain environment will continue to manage our business with a firm focused on creative designs innovative products and customer service.
These efforts are supported by the strength of our global manufacturing and sourcing operations, including the U.S., Canada, Haiti, Asia, and Turkey, which provide us with flexible production and distribution capabilities to adapt to changing customer needs.
We're also excited about are ongoing development and product innovation, including continued opportunities through our re imagined call pump Crashers Afridi image rendering service.
Additionally, demand trends the mattress covers remain favorable driven by ongoing growth and the box studies space and to continue to work collaboratively with new and existing customers to develop fresh innovative products.
We had an efficient level platform that allows us to maximize our full supply chain for these commerce.
Robert to finish cover in the U.S., Haiti and Asia.
We do expect our building expansion in Haiti to be completed during the second quarter, which will provide additional capacity and enhance our ability to produce uncovers in North America.
Looking ahead, we recognize that the disruption and economic uncertainty from the cover 19 pandemic may continue to affect our business, but we are encouraged by recent demand trends and believe we are well positioned to execute our strategy and increased market share as conditions improve.
We have now decided to invest $4 million, an additional net machines to expand our capacity in North America to support our future growth.
Finally, we expect that the domestic mattress industry and in turn our business will benefit if their success from the recent anti dumping.
Duty petitions filed with the U.S. International Trade Commission and US Department of Commerce again, seven countries from division unfair trade practices.
We look forward to the opportunities ahead for our mattress fabric business in fiscal 2021.
Now I'll turn to our upholstery fabric segment.
The disruption from the cover 19 pandemic continue to expect our upholstery sales and operating results for the first quarter fiscal 2021.
We began the quarter slowly with the gradual increase on orders and shipments beginning in mid may as customers and retail store started three open.
Swift upturn during the month of June and further acceleration in the quarter.
We returned to all of our previously furloughed workers to meet this rapid increase in demand.
Also our strong platform in Asia, including marketing so capabilities in Vietnam, and our stable supply chain has allowed us to respond quickly and meet the needs of our customers.
We were pleased with the improvement throughout the quarter demand increased and most of our businesses, including our residential upholstery business, which features our popular lines of this mark let smart evolve performance fabrics.
We have benefited from our ability to continue recovered in our products for customers to our innovative virtual showcase presentations.
Also our strong product placements with customers prior to the cover 19 operate for the past our recovery as business conditions improve.
Our hospitality business was pressured cover 19 disruption during the first quarter due to ongoing disruption in the travel and leisure industries.
However, the window products, our window treatment and installation services business was less affected and provided a meaningful contribution due to the existing project orders already in progress prior to the virus outbreak as relative emphasis on vacation club properties.
While we remain pleased with the diversification offered by this business. We recognize that the continued impassive cover 90 may negatively affected at least in the short term as it remains uncertain, whether hotel and other hospitality values for undertake new refurnishing projects in the current environment.
Looking ahead, the ongoing uncertainty surrounding the cover 19 endemic make it difficult to forecast the potential impact on our business.
However, we are encouraged by the strong sales trends experienced during the last couple weeks for the first quarter as well as trends adjusting increases and consumer discretionary spending on home furnishings.
Ken will now discuss the general outlet for the second quarter fiscal 2021, and then we will take your questions.
At this time due to the continued economic impact of the Coburn 19, pandemic and the lack of visibility as to the duration or ultimate impact we are providing only limited financial guidance for fiscal 2021.
Although subject to unforeseen changes that may arise as the pandemic and its economic impact continue to unfold. We are encouraged by improving business conditions, we expect sales and operating income for the second quarter. This fiscal year to be materially improved as compared to the first quarter, but not reaching the performance achieved in the second quarter.
Last year, which wasn't especially strong quarter, because upholstery fabric segment.
Based on current expectations, including the 4 million dollar investment in additional knit machines in our mattress fabrics business that you have mentioned earlier capital expenditures for this fiscal year now expects to be in the eight and a half $9 million range.
Appreciate and amortization expect to be approximately 7 million for this fiscal year.
With that we will now take your questions.
Ladies and gentlemen for any questions. Please join the queue by pressing star one your telephone keypad you just make sure your mute functions turnoff allows to receive that signal.
Star one for any questions first from Raymond James We have Bobby Griffin.
Good morning, everybody appreciate taking my questions.
Turning to circle back.
Overall, our maybe your comments about the man trended during the quarter. It looks like you saw in one of a notable pick up throughout the quarter on both segments, but when we talk a little bit about what you. What you saw in August continue to build for song July in June and well what are the expectation will kind of what are you going from customers about labor day and will work with them.
Markets looking for.
Yes. Thank you Bobby for sure you're right really bits of similar refine and both businesses score.
Q1, starting slow and finishing very strong over the last eight weeks and continue to kind of escalate throughout the quarter.
So far we're pointing to we're seeing a material sequential improvement going into Q2, so we see those trends.
Continuing to go we had strong.
Backlogs of orders to produce in both businesses. So we're optimistic on both sides on the sales side of it.
Labor day typically they are very strong holiday in the natural side for us and we expect that to be pretty good.
So a lot of our big big customers have not so much rolled out new products are there just trying to fuel more successful methodic starting on the floor and I think it should be in our opinion looks like you're going to holiday selling season.
Do you think the tight one concern I pad you think the tight inventory situation could negatively impact the holiday or is it pretty much everybody across the space in the same inventory standpoint, so consumers will be expecting a little bit higher lead times than normal.
Yes, I don't know I know the answer to that Bobby how will impact.
It doesn't seem like Rusty and any.
Slowdown or consumer pressure for furnishings product so.
No I sort of tempted to everyone's inventory position I know that were turning things very quick as evidenced by our inventory management and.
Cash generation and things is flowing through very quick.
I will help and don't expect an impact to the selling season.
You know our customers have been spoiled over time to get things on demand.
I think the industry has got a lot of power behind that and certainly with our capacity and others.
I think the catch up can happen.
I don't think it should be level holiday selling season.
Okay, and if we stay in this kind of elevated demand environment like we're talking about here you mentioned trends.
Continued strong August how long you think it takes for coal and coke facilities to kind of get back to normal efficiency I mean.
Understand it.
Takes time to bring people backing the plants and get things working you know backup to this clean pandemic type efficiency.
Yes, we should I mean, we pointed that in Q1 and that you remember we were born from pretty much of spans fill in both businesses with a lot of people want our lower plants running a very small aperture to keep up with demand that was there, but as I went through the quarter that busier, everyone handbag today and we're running at what.
We consider to be very good efficiencies, we have a little bit of javelin because there's so many priorities and we're pushing different things, but I will say today and look some of that void comment for upholstery work today. We're at officials as we want to be and should be much improved for Q2 on our manufacturing efficiencies, but would you agree with upholstery.
Oh, yes data about the I think the as we're looking at our supply base.
Through a period, where we have had.
Failed backup rapidly, but I think the in power supply chain right now is that exist decision.
That is back to.
Pre code with levels of output and really don't see from sprint.
Last thing as we look at here.
Okay, Okay, and I guess last week, Ken Lowe when we talk understanding that you know, it's tough to predict walk for but we've got to unpack summer before his commentary.
You know if demand stays at kind of the levels were seeing which is a little too tough to predict but a good chance you know sales could surprise further to the upside and be close to last year and maybe to start to grow again year over year.
Yeah as far as against Q2.
Yes, I mean, if you're seeing what seems like you know trends have picked up again further in August I.
Understanding that they can change in September October and it's tough to predict but if the August trends continue their opportunity for the sales too surprising and maybe even grover's to fee of last year.
Yeah, Bobby I think Thats fair.
I think that.
You know, where we're being cautious as we as we as we look out just because of the unknowns.
As Dave said August this is Ben.
Has been strong.
But.
Where we're optimistic I mean, it is certainly a chance it could surprise on the on the on the upside for sure, but we're just which is still many unknowns out there is this we're being cautious.
Okay, well I appreciate all the details thanks for answering my questions and I'll get back in Q.
Thank you bye bye.
And we'll move on to Marco Rodriguez with Stonegate.
Good morning, guys. Thank you for taking my questions.
In March.
Hey, I wanted to follow up on some of the gross margin comments and discussion on mattress fabrics.
In Q1 is there anyway that you might be able to quantify the inefficiencies you saw there and that impact on your on your margins.
Yeah Mark.
I appreciate the question is just real difficult given.
The all the who said we had the jump through and the bringing people back.
Getting people back end or I mean, it was a significant impact I think also to just.
You know the into the process around the dramatic decrease in inventory you know that.
The way, we account for that that pressured results through but it was just a very difficult time in the first part of the quarter now granted things improve in June July, but it's very difficult to quantify but it was a significant impact for sure.
Got it understood.
And then in terms of you guys, bringing your your efficiency back if I heard the response from the prior question it sounded like operationally, you're you're back to normal. If you will so first off just want to kind of confirmed that that is the case itself and then also keeping maybe talk a little bit about.
Where are your inventory levels are now it sounded like the supply chains. Okay. So are you going to be seen a dramatic increase in inventories or is it.
It's very difficult to kind of.
Build that up for the coming demand just given the quick turns you need to you need to come through.
Yes, Mark Thanks, it's a bit of and I'll I'll touch base. Yeah answer is yes in both businesses we are.
This is not bill to operate.
Asked when more demand we rebuild certainly the massive fabric has done some much capital spending over the last four to five years are real success comes when we have solid orders flowing through our facilities.
Really in both businesses now we have both operating.
Full scale on Burke internally and using our global platform. So really excited about what that can do we arent for a long time had a chance to show. The success. We can have them. We have strong throughput so that will be positive inventories and I'll, let ken fulfillment to today inventories.
There are really proud of why they are but we need to build them back gradually just to support business better. So we're not expediting and doing some things that would impact our efficiency.
But we do not a threat.
In summary to inventories to be in lockstep as sales increase the on expenses to jump dramatically, although we do need to add some inventory just to provide better service to our customers.
Yes, Mark Thats exactly right into as I mentioned in my notes, we had a very strong start to the year with respect from free cash flow and a lot of that was.
So you tied to the inventory reductions in units we have said.
Challenge for the goal is obviously be prepared and meet our customer need but.
We will require some working capital going forward now obviously, we're going to pay special attention to make sure that we balance that need with with the cash flow but.
That was very strong start, but we will need to invest going forward, but at a better control pace.
Got it and then in terms of the expansion at the mattress fabrics, a 4 million that you'll be investing for additional net machines.
As well as the additional just overall capex spend for fiscal 2001 can you maybe talk a little bit about the cadence of the spend there and when you think that machines will be in them and producing.
Yes sure Marco Good question, we just recently made that decision and it's really a bullish statement for us to expand our north American capacity, we have terrific near capacity really in multiple countries Us Canada.
Turkey, and Asia, and we just are seeing some opportunities we don't intend to reduce our global footprint. We just continue to boost our north American footprint. Some our expectation is that those machines can be in an operating.
Towards the very sale into the fiscal year, So probably February and March next year will be our timeline to have those into money not a huge impact.
This fiscal year other than the spin, but certainly a great future opportunity for us as we look out in the 22 and path.
Yeah Barclays you as you as you saw the financial we have $500000 of Capex. This quarter, obviously, where we are projected to be eight and a half nine so we've got more spending to do but it it's going to be back loaded second third fourth quarter, but.
But as things ramp up.
But.
We got to a break started Q1, but we will need to fund those expenses.
Starting in Q2 three four.
Understood and a lot. So question for me on the upholstery fabric side can you talk about these are little bit more color on the virtual showcases I mean, how those than preceding had been sort of met your guys expectations or or there's still some learning curve issues that need to be gone further.
Yes, Mark on this as Boyd and I would tell you that.
That whole platform is really exceeded our expectations we have been.
Very pleased with how our customers have reacted to.
David into a more virtual and online.
Representation in the presentation of our fabric.
Done this via a.
During the video platform as well as.
Utilizing them online virtually.
So with bought or virtual.
Presentation of our fabric.
The the reaction we've gotten has just been.
Very very positive.
You know I believe that this will be.
A.
Part of what we're doing on a more permanent basis.
That we will see this type of a representation of our products and the method for doing though will become a normal part of of how we do this going forward is is this very effective and.
We receive exceptional feedback I think we certainly learned a lot through that process that has continued to develop and in Hanson and I'm sure. We'll there'll be some further steps forward with that but it's been a us significant new food for us that we face for the important for this for the long term.
Very helpful. Thank you guys I fully appreciate the time.
Thanks, Mark up markers center.
And with no further questions that you would like to turn the floor back to management for any additional or closing remarks.
[noise]. Thank you operator and again, thank you for your participation and your interest in call. We look forward to on the updating you on our progress mats corner.
That does conclude our call for today, we do thanks for joining US you may now disconnect.