Q4 2021 Culp Inc Earnings Call
[music].
Yeah.
Okay.
Good day, I'm, asking could you Culp fourth quarter 2021 earnings Conference call. Today's call is being recorded at this time for opening remarks, and introductions I would like to turn the call over to Mr. Anderson. Please go ahead ma'am.
Thank you good morning, and welcome to the Culp Conference call to review the company's results for the fourth quarter and 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 forward. Looking statements are 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 uncertainties. These risks and uncertainties are described in our regular SEC filings, including the company's most recent filings on form 10-K and 10-Q.
You are cautioned not to place undue reliance on forward looking statements made today and each such statement speaks 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 measurements 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 web site at Culp Dot com.
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.
I will now turn the call over to his Culp, President and Chief Executive Officer of Culp. Please go ahead Sir.
Good morning, and thank you all for joining us today.
I would like to move to the Culp quarterly conference call with analysts and investors.
With me on the call today are Ken bowling, our Chief Financial Officer, and Boyd Chumbley President of our upholstery fabrics business.
I will begin the call with some opening comments.
Ken will then review the financial results for the quarter and the full year on.
I will then update you on the strategic actions in each of our operating segments and on.
After that Ken will review, our first quarter and fiscal 2022 full year business outlook.
We will then be happy to take your questions.
We are pleased to have delivered a strong fourth quarter with dramatic sales growth across both of our divisions and consolidated operating income in line with expectations.
Despite some ongoing headwinds we ended a tumultuous year with strength and momentum.
Demand remained strong during the quarter as consumer focus on the home continued and our robust global platform utilizing our manufacturing and sourcing capabilities across 6 countries and our long term supplier relationships enable us to service the surge in demand for fabric and sewn covers from both new.
New and existing customers.
For the full year, we overcame tremendous adversity to deliver strong growth in sales and operating performance compared to the prior year.
On our company's solid foundation stable supply chain and spirit of innovation helped us to successfully weather. The initial pandemic related downturn on our business at the end of last fiscal year and.
And capitalize on market share opportunities throughout fiscal 2021.
The exceptional execution by both divisions during this challenging operating environment strengthened our customer relationships and generated positive momentum to start fiscal 2022.
In addition to our improved sales and operating performance our cash flow for the year and our balance sheet remains strong we.
We ended the fiscal year was $46.9 million and total cash and investments and no outstanding debt.
Our existing Haiti operations to perform very well from a mattress fabric segment during fiscal 2021.
As previously reported we acquired the remaining 50% ownership interest in our former non consolidated joint venture in Haiti during the fourth quarter and we are now the sole owner with full control of this mattress cover operation.
With respect to this acquisition, we reported a gain from bargain purchase totaling $819000.
We are also happy to announce on additional expansion to our Haiti operations to include a third facility.
This new building will be dedicated to production of cut and sewn upholstery kits <unk>.
Construction began during the fourth quarter and is expected to be complete during the second quarter of fiscal 2022.
The new facility will primarily support committed demand from an existing customer of the upholstery fabrics division.
We believe this move will enhance our speed to market provide growth opportunities and mitigate some risk for our upholstery fabrics business with nearshore capabilities that complement our already strong Asian platform.
Importantly, we finished the year as a stronger company, both operationally and financially thanks to the extraordinary efforts and resilience of our associates around the world.
We are extremely proud of their hard work adaptability and perseverance in the face of unique challenges and uncertainties we.
We are grateful for their unwavering dedication and tremendous accomplishment during this challenging time.
Looking ahead, we are entering fiscal 2022 with a positive outlook from our business we.
We are proud of our ability to absorb the significant increase in demand during fiscal 2021.
We are even more pleased about the outlook that supports our continued growth during fiscal 2022.
We also believe our hospitality business will begin to see improvement as conditions normalize in the travel and leisure industry.
Heading into the first quarter, we are faced with some continued near term pressures in both divisions relating to ongoing customer capacity limitations, primarily due to supply chain disruption or non fabric components and labor shortages as.
As well as increasing raw material and freight costs and foreign currency fluctuations in China and Canada.
We do expect that most of these headwinds are temporary and will be mitigated to some extent by recent price on a recent pricing actions.
<unk> taken by both divisions, all of which were affected by May 1.
Despite these challenges we believe our business will continue its solid and improved performance during fiscal 2022.
We will maintain our focus on innovation and we will emphasize efforts to increase on market share and make progress on ESG initiatives throughout the year.
On the innovation front, we are excited to advance the tremendous synergies developing contain our 2 businesses by combining our design innovation and sales team for both divisions into a shared space at our new innovation campus in downtown High point North Carolina.
This design driven space, we'll pull our top creative talent together to support collaboration across divisions and provide an everyday space to gather meet with customers develop new products and showcase our technologies and innovations from fabric to sewn cover.
I am extremely proud of our company's accomplishments in fiscal 2021, and I am confident that we are well positioned to deliver value for our customers employees and our shareholders in fiscal 2022 and beyond.
I will now turn the call over to Ken who will review the financial results for the quarter and the full year. Thanks, Steve as mentioned earlier on the call. We have posted slide presentations to our Investor Relations website.
That cover key performance measures. We have also posted our capital allocation strategy. As a reminder, we present our results on both a GAAP and non-GAAP basis, we believe the non-GAAP presentation better reflects performance of the business as we compare our financial results among comparable financial periods.
A reconciliation of the non-GAAP adjustments and the most directly comparable GAAP measurements is included in the tables on our press release.
And in the tables at the back of the summary financial information presentation on our website.
Here are the financial highlights for the fourth quarter net.
Net sales were $79.1 million up 67% compared to the prior year period, both divisions had a strong sales performance for the quarter. It will go into more detail on divisional operation performance in a moment. The company reported income from continuing operations of $1.6 million compared with a loss from continuing operations of $18 million for the <unk>.
Prior year period, which included $13.7 million of noncash asset impairment charges.
Non-GAAP net income from continuing operations for the fourth quarter was 1.4 million or <unk> 11 per diluted share, which excludes an $819000 gain on bargain purchase associated with associated with our fourth quarter acquisition of the remaining 50% ownership interest in our former unconsolidated joint venture <unk>.
And in Haiti, as well as $742000 on certain income tax adjustments for the quarter.
This compares with a non-GAAP net loss from continuing operations of $5.3 million or <unk> 43 per diluted share for the prior year period, which excludes $13.7 million in noncash asset impairment charges and $2.8 million and income tax expense.
The current quarter of the current quarter was affected by operating inefficiencies incurred in connection with servicing the surge in demand in our mattress fabrics business, along with higher freight and raw material costs unfavorable foreign exchange rate fluctuations and higher SG&A expenses due primarily to increased incentive compensation costs.
On a percentage of sales basis total SG&A came in at 12, 8% compared to 15, 5% for the same period a year ago.
For fiscal 2021, net sales were $299.7 million up 17% as compared to the previous year.
Income from containing operations for fiscal 2021 was $12.1 million compared with a loss from continuing operations of 7.6 million from the prior year, which included $13.7 million of noncash asset impairment charges.
Non-GAAP net income from continuing operations for fiscal 2021 was $7.3 million or <unk> 59 per diluted share, which excludes the $819000 gain on bargain purchase I mentioned earlier as well as $4.9 million in income tax expense for the year.
This also includes $2.2 million and other expense relating primarily to foreign exchange rate fluctuations associated with our operations in China.
Notably the foreign exchange charges included in the other expense line item for this fiscal year are mostly non cash and are mostly offset by income tax deductible foreign exchange losses associated with our China operations.
Non-GAAP net income from continuing operations for the prior fiscal year was $1.2 million or <unk> 10 per diluted share, which excludes $13.7 million in noncash asset impairment charges I mentioned earlier as well as $1..3 main income tax expense. It also includes 900 in 2000 and other expense.
The current year was affected by the same factors I noted earlier for the fourth quarter, particularly the unfavorable foreign exchange rate fluctuations and higher SG&A expenses due primarily to increased incentive compensation costs.
On a percentage of sales basis total SG&A came in at 12, 6% compared to 13, 4% from the prior year from.
On a 12 months adjusted EBITDA for this fiscal year was $18.5 million or 6.2% of net sales compared to $13.8 million or 5.4% of net sales for last fiscal year the.
The effective income tax rate for the fourth quarter of this fiscal year was 36, 6% compared with 12, 2% for the same period a year ago. The.
The increase in the company's effective income tax rate for the fourth quarter for fiscal 2021 is mostly due to the significant U S pretax loss during the fourth quarter of fiscal 2020 that stem from the economic uncertainty and disruption caused by the COVID-19 global pandemic.
The effective income tax rate for the full fiscal 2020 year was 77% compared with 43, <unk> 43, 7% from the prior year.
Income tax expense for this fiscal year includes an $8.5 million noncash income tax charge to record a full valuation allowance against the company's U S. Net deferred income tax assets.
Partially offset by a $3.6 million noncash income tax benefit that was associated with the retroactive U S. Treasury record regulations enacted during the first quarter of fiscal 2021 regarding the guilty tax provisions of the recent income tax Reform Act.
The prior fiscal year included $1.9 million of guilty that did not reoccur in fiscal 'twenty 2021 due to this recent change in guilty tax regulations.
As a reminder, the company's effective income tax rate is affected over the fiscal year by the mix and timing of actual earnings from our U S operations.
And our foreign subsidiaries located in China, and Canada, which have higher income tax rate rates as compare to the U S federal income tax rate.
Looking ahead to next fiscal year, we currently estimate that our consolidated effective income tax rate for the first quarter will be in the 30% to 35% range based on the facts, we know today.
Now, let's take a look at our business segments for the mattress fabrics segment sales for the fourth quarter were $42.9 million up 84% compared with last year's fourth quarter, which was impacted by the COVID-19 pandemic on.
Operating income for the quarter was $2.3 million compared with an operating income loss operating loss of $2.8 million a year ago.
With an operating income margin of 5.3% compared with a negative 11, 8% a year ago.
Our operating performance for the quarter, so dramatically improved as compared to prior year period was affected by several factors, we were able to meet the extraordinary increase in customer demand during the quarter, but in doing so we incurred considerable operating inefficiencies to satisfy the surge.
We were also pressured by increased raw material price freight costs and unfavorable foreign currency fluctuations in China and Canada.
Notably, although we announced a price increase during the fourth quarter to help mitigate higher freight and raw material costs. This action did not take effect until the beginning of fiscal 2022 resulted in a temporary cost price lag that affected our operating performance for the quarter.
For the upholstery fabrics segment sales for the fourth quarter were $36.1 million up 50% over the prior year, which was impacted by the COVID-19 pandemic.
Operating income for the quarter was $2.6 million compared with <unk> 5 million a year ago with an operating income margin of 7.2% compared with 2% a year ago.
Our improved operating performance for the fourth quarter, primarily reflects the significant increase in sales for our residential business.
Offset somewhat by unfavorable shine, a foreign exchange rate fluctuations and reduced demand in our upholstery and our hospitality business.
Here are the balance sheet highlights as of the end of the year, we reported $46.9 million on total cash and investments and no outstanding borrowings up from our $38.7 million net cash position as of the end of last fiscal year.
We also generated cash flow from operations of $21.5 million and free cash flow of $14.4 million for the year compared with cash flow from operations of $5 million on free cash flow of $1.5 million from the prior year.
This year over year improvement reflects higher earnings and a focused attention on working capital management throughout this fiscal year.
During this fiscal year, we spent $6.7 million in capital expenditures and 892000 and acquisition related investments.
We also returned $5.3 million to shareholders through our regular quarterly dividends.
We are very pleased with our strong balance sheet going into the first quarter of fiscal 2022 on.
On March 2nd of this year the board of directors reinstated the company's share repurchase plan, which was previously suspended last April due to the economic uncertainty related to COVID-19 pandemic.
The company did not repurchase any shares during the fourth quarter of this fiscal year with that I'll turn the call back over to you.
Thanks, Ken I will begin with the mattress fabrics business.
We were energized about significant growth.
And top line performance for the mattress fabrics segment during the fourth quarter.
Our increase in sales of 84% year over year.
Compared to the prior year period, as well as our top line growth for the full fiscal year, 20% year over year.
It was driven by the ongoing consumer focus on home environment and market share gains across a diversified group of new and existing customers, including further growth in our sewn mattress cover business.
Our fabric to cover model as well as our onshore nearshore and offshore supply chain strategy.
Is preferred.
The strength and flexibility of our global manufacturing and sourcing operations in the U S, Canada, Haiti Asia and Turkey.
Enabled us to support strong demand trends and serve the needs of our mattress fabric and cover customers during the fourth quarter and throughout fiscal 2021.
We also continued to benefit from our innovation focus and our virtual design capabilities, including our re not imagine culp home fashions 3 D rendering services.
Which allowed us to strengthen our position with customers and capitalize on market share opportunities.
In addition, we believe the domestic mattress industry and in turn our business continued to realize some benefits during the fourth quarter from the preliminary antidumping duties imposed on October 2020 by the U S Department of Commerce on mattress imports from 7 countries.
We are cautiously optimistic that this tailwind will continue during fiscal 2022.
As we look ahead into fiscal 2022, we're excited about the expanding depth and expertise of our team with additional engineering and innovation development experience.
The importance of mattress product performance has grown exponentially in recent years and we believe this added knowledge is an important factor in maintaining our competitive advantage.
We're also excited about our recent introduction of our new mattress fabric Chill pack.
By Repreve.
That combines cooling technology with our sustainability focus and reflects our commitment to developing products that are better for the environment.
Although there are lingering pressures heading into fiscal 2022, we believe we are well positioned in mattress fabrics to gain market share and we expect our solid top line performance to continue and improved profitability levels during the year.
We have the ability to leverage our creative designs innovative products digital marketing strategies and global production capabilities to enhance our leadership position and sustained culp competitive advantage.
I'll now turn for a few comments on the upholstery fabrics segment.
We are very pleased by the strong growth in sales during the fourth quarter up 50% year over year.
For the full fiscal year up 14% year over year.
We successfully navigated the significant headwinds, we were facing going into the quarter, including customer supply chain constraints and container availability as well as the impact of Chinese new year.
To deliver better than expected results.
We executed well on our product driven strategy and benefited from the strength and flexibility of our platform in Asia, including our stable long term supplier relationships and our expanded cut and sew capabilities in Vietnam.
Our growth for the fourth quarter and for fiscal 2021 year was driven by strong industry demand in our residential business as well as the benefits of market share gains and product innovation.
This growth was partially offset by lower sales for our hospitality business, which remained under pressure due to pandemic related disruptions affecting the travel on leisure industries.
Our highly durable stain resistant live smart performance fabrics as well as our lives smart evolve performance plus sustainability fabrics are important drivers of growth on our residential business. These.
These product lines continue to experience strong demand trends amidst consumer desire for cleanability ease of maintenance and environmentally conscious products.
Looking ahead, we are confident in our strong backlog and our ability to meet the ongoing demand.
We believe our recent price increase at the end of the fourth quarter will help offset the ongoing China foreign exchange fluctuations.
We are also excited to be expanding our capacity for cotton on upholstery kits with a new production facility in Haiti, which is expected to be completed during the second quarter of fiscal 2022.
And while we do expect that certain near term headwinds wins, including rising freight from raw material cost may temporarily pressure our business during fiscal 2022.
We are confident in our ability to navigate these headwinds and believe our business is well positioned on a long term.
We're also cautiously optimistic that pent up demand for travel and leisure activities will benefit our hospitality business, although the timing of this does remain uncertain.
Above all we remain focused on providing innovative products that meet the changing demands of our valued customers.
And now Ken will discuss the general outlook for the first quarter.
First quarter and full fiscal year 2022, and we will then take some questions Ali.
Although subject to uncertainties, we are encouraged by the execution of our product driven strategy and the continued strength and demand for home furnishing products as well as our expanding market share reached we expect sales for the first quarter of fiscal 2022 to increase approximately 20% compared to the prior year period, and we expect our consolidated operating income for the.
Quarter to be significantly improved as compared to the prior year period, and as compared to the fourth quarter of fiscal 2021.
For the full fiscal 2022 year, we expect net sales to continue to increase moderately and consolidated operating income to increase significantly as compared to fiscal 2021.
Notably our expectations for the first quarter and full fiscal 2022 year are based on information that is available at the time of this webcast presentation and reflect certain assumptions by management regarding our business and trends the outlook assumes there'll be no further pandemic related shutdowns and no material changes in freight and on.
While material costs foreign currency exchange rates recent consumer trends or other circumstances beyond the companys control.
Additionally, based on current expectations capital expenditures for fiscal 2022 are expected to be in the 9 million to $10 million range, our capital investments will focus on our ongoing strategy of maintenance Capex.
Centered in our mattress fabrics business as well as spending in our upholstery fabrics business with investments in read Windows, and our new Haiti startup at the corporate level Capex spending will include investments in it infrastructure and security as well as our new innovation campus.
In high point, North Carolina, depreciation and amortization expected to be approximately $7.5 million to $8 million for fiscal 2022 with that we'll now take your questions.
Thank you. So if you would like to ask a question. Please press star 1.
Okay. So we will take our first question from Bob <unk>.
Walter Tomo Research. Please go ahead your line is open.
Good morning.
Good morning, Ken.
Congratulate momentum and so on.
On a strong strong quarter on nice rebound.
Couple of questions if I could.
You talked you showed that that really good sales growth can you.
Can you give us some feeling of how thats going to continue going forward.
And what gives you yes, sir opening.
Yes, Sir thank you Budd.
Yes, we talked about in the release I think I commented on we mentioned on the script and on the credit releases to dramatic sales increase we saw on Q4.
I think about that certainly.
In order to admittedly, it's against a weaker quarter last year, and we have continued or continuing to see focus on the home is a safe place on many consumers are seeing home as a worthy place for upgraded spent so thats good for our business our pandemic backlogs on our customers are strong.
And really all of our customers are.
Our C and strong backlog, which creates significant tailwind for us.
That's more Nat I think going forward in both businesses that we touched on a lot are flourishing innovation in products and processes.
What that means.
New products new developments it means cutting so development around the world to robust sales mix, that's really I think growing our market penetration in both mattress fabrics and upholstery fabrics. So we see.
Our strong year on I guess, it's important we are forecasting a moderate sales growth.
For all of 2022, but that's on a backdrop of significant sales growth last year. So were absorbed the growth we've had and now we're going to continue growing which gives us quite a bit of optimism.
Well lets drill down a little bit into that.
You talk about 20% in the in the first quarter on.
How does that how does that split out between.
On our Culp home fashions, and culp upholstery fabric strategy.
Are they about equal in terms of radio growth average.
1 better than the other in Europe.
The Crystal ball.
Yes, Budd this is Ken I think when you look at the first quarter I think there is a little bit more up upward trend for upholstery fabrics as compared to mattress fabric. Both of them are doing quite well, but I think as we go into the first quarter Theres, a little bit more growth opportunity for upholstery fabrics as comparative metrics.
And then both of them relatively moderate going forward in Qs 2.3 and 4.
Yeah, Yeah, exactly yes, I think yes, I think by the end of the year, you're kind of pan out to a nice moderate increase for both of them.
And Reed you talked about.
More on were positive on I think everybody can kind of understand that.
Are you seeing any green shoots on early on in hospitality that gives you.
From some comfort there.
Yes, Budd this is Boyd and we start certainly have started seeing an improvement in the order rates and the backlogs building in the hospitality area started seeing that in fourth quarter, but.
Certainly believe it will be progressive leasing some better business as we go forward into this year as travel has begun to return and I think expectations would be that travel will be.
The driver of some more robust sales in that hospitality segment as we go through this year.
Okay. Thank you bought a couple of other things on on the on the sales growth on <unk> looks like on interesting innovation.
Do you have got an exclusive on that how are you doing that.
And that being in mattress fabrics job I don't remember.
On sustainability.
Innovation in mattress fabrics, which seems to me the first 1 so that's that's actually pretty exciting.
You had some early wins.
And that fabric, Josh amongst some of your mattress.
Our customers.
Yes, good question, but we definitely believe companywide, we think post pandemic there will be a continued focus on sustainability offerings. So we're working really hard on that we've had tremendous success with lyft smart evolve on the.
Upholstery fabrics side of the business and I think jointly we had on a press release recently, we've we've already with our offerings have already saved like 63 million bottles water bottle. So we're.
Drilled with that there is some mattress development already in there we are using some generic as a generic from recyclable product in our mattress fabric offerings, but still sensors and other step, adding sustainability and also cooling and obviously cooling has been a story of the mattress business for some time and to be able to work.
Both of those things the performance product plus sustainability, we think is a real real win for the business. It's a partnership just like evolve.
We use unify our repreve and <unk> also uses unified repreve.
<unk> a great partner of ours, and we do have an exclusive lead on shield from a period of time to get that launched to the market.
With our marketing efforts on ours, we think <unk> will be.
A strong candidate for top of mattress.
We're quite excited about that.
Okay.
Net.
I know there on when I get it.
From a from plants.
But 1 of.
Our focus on our mattress.
Mattress margins.
And with an 84% growth in revenues I can understand how active you had to be during the quarter on now with all that was going on.
Both outside of the home furnishing flow, but even in the home furnishings world with follow on with other kinds of disruptions.
I'm sure that had an impact can you give us a feel of where margins will go on.
Forwarding.
What's your comfort to be able to this.
So anyway.
Okay.
Well, let me just but it was just a little bit just to explain more which we covered on the release it wasn't extraordinary sales lift on the mattress fabric side, 84% and we're proud to have absorbed debt.
Although we admitted to some inefficiencies in doing so so we had and are having market share wins and we wanted to start with that first and foremost.
To gain that business, we had to react immediately and not always optimize.
And our best manufacturing geography.
So yes, there were pressures with currency freight material pricing and all of that had a lag with our own price increase so our price increase is now effective for the whole fiscal year, starting may 1 and.
And we've guided significant margin improvement for the whole fiscal year and Ken you may want to add to that or any color to no assets.
That's exactly right I mean, we did we did get pressure in the fourth quarter and we've got the price increase.
And so we are we are seeing or expecting some significant improvement.
As we go on in the first quarter on beyond especially on the.
Mattress fabric side, and we've always said about our mattress fabric business, our expectation is to be a double digit operating income margin business.
Our expectation for 2022 is to start approaching net.
Not going to commit to getting there in Q1 are immediately but thats our target.
Gotcha, Okay, just on a few modeling questions if I could.
Your tax rate, you gave us sort of between 30% and 35% to use for Q1, Ken how do we think about the whole year on is there a much.
Is your Crystal ball give us any feeling of what you should look at any of the quarters specifically.
But I would say that.
That's good for Q1 and the rest of the year based on the facts. We know today as I've said on the prepared remarks, our tax rate can be affected by the mix of income between the U S and China and Canada, but based on what we see today, we feel good about that.
Of course, what comes out of Washington will depend on the future. We don't think that will affect our fiscal year. We don't think so, but we'll wait and see but right now I think 30% to 35 will be good for Q1 and the rest of the year.
Okay, and as we look at currency.
Fourth quarter, you had the $819000 gain the other part of that bump.
Bucket was $157000.
Was that all currency was that on all currency impact from what was the currency impact on the fourth quarter and what does that look like going forward I know that Joe.
Tough on the call.
You mean in other expense for the quarter.
Sure.
Yes, yes, well.
If you remember.
We were just getting killed all throughout the year I think I've said in Q3, we had we had it in other expense.
We had been hit like $1.5 million of non cash.
Yeah actually in the fourth quarter.
February and March actually flip back around and weakened owing to a strengthened in April pretty much wipe. It out. So when you look at Q4, we actually were favorable somewhat that's why the other expense was more normal as compared to the other quarters.
I'd say going forward since our fiscal year. The day rate has strengthened a little bit I think.
Maybe weaken a little bit so.
I don't know, but it's 1 net really depends on what's going on I mean, there is interest rate talk out there.
<unk>.
What happens with the dollar on all of that so right now, we're just and even the <unk>.
We get.
Our reports from various banks in there they are all over the place. So we're hoping that it will stay steady.
Where do you today, so we can plan accordingly, but.
We'll just have to wait and see.
Okay and last from a capital expenditures of 9 to 10 million, how does that breakout quarter by quarter.
It's pretty.
It's pretty consistent when you look at it may be a little bit frontloaded.
As we look at the year.
Whereas last year was more back loaded, but I would say a little bit frontloaded as compared to kind of spread evenly over the year.
Oh.
Okay.
Didn't know if he would get us.
More of the capital expended there or so.
New design centers.
What would change the.
The cadence of that.
Yes, I mean, that's definitely projects that would cause the first half to be to be higher.
Gotcha, Okay, well. Thank you very much for the guidance for the quarter and it was good to see a little bit more.
The outlook for the full year that I think that somewhat.
New for you on I Hope you all continue to do that and continue to update us on that as the quarters from the year progresses, but.
From a nice performance thank.
Thank you very much.
Thank you bonus, but kind of a good day.
Thank you. So we will now take our next question from Anthony <unk> at Sidoti <unk> Co. Please go ahead. Your line is open.
Good morning, guys. Thanks for taking my question. So I would say so let me just touch.
Follow up about that new facility in Haiti.
You guys have an expectation as far as the costs from new facility.
How much of your upholstery business, you think will come out of that facility this fiscal year.
I'm going to Anthony this is Jeff. Thanks for the question, we are really excited about the opportunity.
For Haiti for upholstery kits, but it is important to note that we are really still strong with our Asian platform. <unk> is not intended to replace that it's a complement but I wanted to pivot to board and let him talk a bit more about it.
He is he's champion and this for us but it is really important we note debt. It's not meant to be a replacement is to get us on offshore and near shore strategy.
John Thank you Evan.
Add to that Anthony just as if this fed here we built.
I believe that establishing a upholstery cut and sew facility in Haiti really does establish our overall global platform for cut and sew for upholstery.
And gives us a nearshore option to complement the already strong Asia platform that we have and of course, it does provide some risk mitigation as well.
It's also enabling us to handle that.
The east increased demand for cutting so that we're experiencing as part of the overall demand surge that we're seeing in the upholstery fabrics business. So in terms of just your question of how much of our business for this fiscal year.
It will be we're not the operations not starting up until.
Late second quarter.
And then there will be a scale up so it's not going to be a significant portion for this fiscal year, but we will start seeing.
Output and part of it is growth output.
Coming from that Haiti operation during the fiscal year.
Okay. Thank you for that.
Far as fast I mean is there.
Maybe you guys could quantify that or is that anything.
Significantly on that to think of us from a cost of getting that facility up and running.
Yes, its really 2 components.
The cost of the lease of the facility and then you've got some capex, which is part of the Capex plan that I described earlier, so we don't disclose that but it's.
It's not significant but it's an investment that we feel was.
It will overtime certainly be.
A nice payback.
And 1 that we can put behind us in the first year and get rolling.
Got it alright, thanks, so much for that and then.
Could you quantify the extent of the price increases in place from.
And then.
How that will impact margins in the first quarter.
Yeah, Anthony this is Kent again.
Don't really disclose that I think that what we've tried to do is.
Is.
But forecasting significant improvement in Q1, obviously those price increases are in effect on both sides and so.
Thats certainly, helping our performance in the first quarter and beyond.
But it's.
Price increases that were.
Strategically done to to overcome currency.
Freight and raw material changes that debt, we knew of as of the time on the price increase.
Got it okay. Thanks.
More questions from me.
As far as labor available cash.
So what are you guys seeing.
With respect people on operations.
And.
With respect to your customers.
Well.
Yes, Anthony Thank you this is <unk>.
I think.
The costs that we think about that we're seeing the most impact today is probably right.
I believe that we at least for now offset most of our material.
Increases with our.
Price increases were watching currency closely freight is 1 that we're experiencing.
Experience on some.
Some rising cost with them on to your point labor in the U S is definitely a challenge for US too and we are we do have some jobs were trying to fill which is why though that we're so bullish on our global platform.
We have we have options on each business.
We're not we're not any shortage of supply of our products. So we can meet the demand and we talk about meeting the demand with strength and that's how we look at it but it does mean, we need to flex our muscles globally, more and you'll be able to offset any labor challenges. We may have here, we are doing enormous efforts to our human.
Hours department to engage our employees more to look at tweaks to jobs, where we need to adjust pay rates and everything we can to make sure. We're staffed well I wouldn't call. It any any major concern, but we do want to keep our eyes on that labor ball.
At least on the short term.
Got it okay. Thank you and then last question from me here. So you talked about.
We serve.
Hospitality.
Can you talk about the margins that you have in hospitality versus residential.
T cells.
Yes, Anthony this is Boyd and typically in that segment of our business that does carry somewhat higher margins, so that will be a assess.
Assist to us as we see the hospitality business that will start to come back from the.
The impacts of the pandemic, but yes just.
In general that that business does carry a somewhat higher margins.
Then in our other business.
Got it.
Alright, well thank you on best of luck.
Thank you Ryan Thanks Nancy.
Thank you. So we will now take our next question from Michael Rodriguez Stonegate Capital markets. Please go ahead. Your line is open.
Hi, Good morning, everybody. Thank you for taking my questions.
Good morning America.
Good morning, guys. Most of the big topics have been discussed already and answered. So just a couple quick follow ups.
Wondering if you guys can maybe talk a little bit more about the new product line with free fabric.
Bob.
Can you just maybe discuss the factor or the Genesis of that I understand that you work with that supplier for some time, but just kind of hard.
<unk>.
Launch kind of balance and what are sort of day expectations Youre thinking about in terms of that line.
Yes, Thank you Mark Great question.
We've had such great success with mid smart evolved on the upholstery side and so when we.
Coming out of the pandemic on our recent Showtime and furniture market. We're just seeing continued interest in that product line. So it was fairly natural for us to start thinking about how we could get that.
Sustainability story more branded on the mattress side now <unk> smart evolve in upholstery, what's special about that interest performance story offering enhanced cleanability plus sustainability. So on the mattress side, we wanted to find that performance plus as well and so we have a cooling story.
Sustainability and the reason cooling so important is just in our business today on the mattress side, we do a lot of.
<unk> work with cooling mattress fabrics, whether they'd be.
On very special high tech cooling yarn or face change materials that we apply in a finished and so having this with unify repreve.
As a more economical way of applying cooling it's inherent in the yard. So it's no treatment and then also assets sustainability story. So we think it's right at the heart of our consumers are paying attention to.
And we just we're trying to get more active with our branding on the mattress side as well and we think this is.
A really nice win we're just launching it we're only in the beginning phases of relative to the market.
But we think with our exclusive lead we can have some fun with this.
Later this year.
Understood got it.
And then in terms of the.
Supply chain disruptions in debt or non fiber related I know we've discussed this.
A few quarters here now and there's obviously the expectation that it continues here on the near term as far as a potential headwind can you maybe kind of give us a sense as far as your best estimate our best read as far as when that.
Sort of normalize if you will.
Yes, that's a good question on I think I'm going to speak for a minimum of mattress side and I'll, let Boyd make some comments on the policy side to be sure. He gives you the full expert opinion.
I think what I hear mostly from the mattress on the business. It gets better every week and every month so.
Our biggest challenge there has been some from allocations on our customers have been wrestling with.
We hear it gets better every month, so I think with them.
Late this quarter or our second quarter on I think our expectation is to be more normal there with supply will be good for that side of the business.
Paul you might speak to what Youre seeing from a policy. So I think it's very similar on the upholstery side of the business.
So here that there is steady improvement in terms of availability.
What's occurring so I think the expectations there are.
Well that by the end of the quarter there'll be <unk>.
Considerable improvement there maybe not completely.
Resolved, but certainly a lot of improvement throughout the quarter.
Thanks, I appreciate that.
Then in terms of your expectations for cash flow from operations for the for the fiscal year can you kind of give us a sense as far as harvest on a ramp.
Is there an expectation that youre going to build cash this year.
Yes, Marco it's good question I think when you when you look at.
We've got we've got this significant increase in earnings which will help.
The.
The working capital I think from the standpoint of where we are with respect to inventory. Obviously, we want to make sure that we have enough inventory on hand to meet our customer needs. So that will be a focus.
I think.
As far as Capex.
Uses of cash on the Capex side.
We are increasing our capex this year as compared to last.
So I would say right now based on what we know will probably based on that.
Based on on the projections, our cash will be pretty consistent.
This time next year versus now based on what we know today.
So.
I would look at it that way with the increased Capex of course, we will continue paying the dividend.
And.
And those factors and so I would say pretty consistent year over year.
Understood.
That's all I have I really appreciate your time guys. Thanks.
Thank you Mark on Smucker.
So that is all the questions that we have at the moment, so I'd like to turn the call back over to the speakers for any additional or closing remarks.
Thanks, operator, and again, thank you to everyone for your participation and your interest in call. We look forward to updating you on our progress next quarter average.
Good day.
Yeah.
Okay.
This concludes today's call. Thank you for your participation you may now disconnect.
Okay.
[music].
Sure.
[music].
Yes.
[music].
Yes.
Okay.
Sure.
[music].
Yes.
[music].
Yeah.
[music].
[music].
[music].