Q1 2024 Culp Inc Earnings Call

Good morning, and welcome to the Culp, Inc. First quarter fiscal 2024 earnings conference call.

All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then here. After today's presentation, there will be an opportunity to ask questions to ask a question. Please press Star then one.

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I would now like to turn the conference over to drew Anderson. Please go ahead.

Thank you good morning, and welcome to the Culp Conference call to review the company's results for the first quarter of fiscal 2024.

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 Form 10-Q.

Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial. They also affect our business operations and financial results.

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 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 Culp.

Dot com.

I will now turn the call over to Ed Culp, President and Chief Executive Officer of Culp. Please go ahead, yes.

Thank you drew and good morning, everyone and thank you for joining us today.

I'd like to welcome you to the Culp quarterly conference call with analysts and investors.

With me on the call are Ken Bowling, Chief Financial Officer, Boyd Chumbley, President of our upholstery fabrics business and Tommy Bruno President of our mattress fabrics business.

So today I'll begin the call with some detailed comments, including a discussion of key points and topics for the quarter and for both businesses as well as priorities as we look ahead.

After that Ken will review the financial results for the quarter and I will then briefly review our business outlook for the second quarter of fiscal 'twenty four and we will then take your questions.

Regarding the current state of our business and the overall furniture embedding industries I want to review some overriding themes, we discussed last quarter and details from critical actions, we are continuing to execute within both businesses.

I will also expand on our comments with a few important points with illustrate where copper is today.

Number one we are encouraged by our better than expected operating improvement for the quarter, both sequentially and year over year, despite the ongoing industry malaise and demand softness within the two industries we service.

Number two we remain excited about the progress of our comprehensive transformation within our CHF mattress fabrics business and we are pleased to be gaining market position in the face of some contraction in the domestic mattress industry.

Number three.

The market conditions are also a pressure in the residential home furnishings industry. Our upholstery fabrics business has remained profitable despite these pressures and.

And demand remains quite solid and our growing hospitality business.

And number four we are continuing our diligent focus on prudent financial management, including maintaining a strong balance sheet and ensuring a strategic level of working capital.

Unknown Executive: Good morning and welcome to the Culp Inc. 1st quarter of fiscal 2020 for earnings conference call. All participants will be in the listen only mode.

Yeah.

So go into theme number one our results for the first quarter reflects a better than expected operating performance, both sequentially and year over year, even as industry demand remained soft, especially in residential home furnishings.

Unknown Executive: Should you need assistance? Please signal a conference specialist by pressing star, then zero. After today's presentation, there will be an opportunity to ask questions. To ask the question, please press star, then one. To adore your question, please press star, then two.

However, our operating performance improved despite pressure on sales due to internal improvements within both businesses.

The strong sequential and year over year improvement in our mattress fabrics business, a 45% improvement sequentially and a 52% improvement year over year was supported by the rollout of new fabric and cover placements during the period.

Unknown Executive: Please note, this event is being regarded.

As we've commented for some time now these new programs are priced in line with current raw material and operational costs and we expect these new programs to grow Culp home fashions market position in fiscal 'twenty four.

The operating improvement and the CHF business was also driven by our ongoing focus on operational efficiencies and cost reduction initiatives across our locations and I will expand more on this shortly.

I do want to emphasize the mattress fabrics sales for the quarter were flat compared to the prior year period, which is a solid performance in the face of difficult industry conditions, and certainly refract reflects our growing position in the market.

For the upholstery fabric segment, we saw operational improvements in fixed cost savings along with solid demand in our hospitality contract fabric business and improvement for read window.

But as expected sales within our residential fabrics business were lower as compared to the first quarter of last fiscal year, which notably was a strong quarter due to a lift in sales following pandemic related shutdowns in China.

And the quick recovery that the upholstery furniture industry was experiencing at that time.

Our sales for residential fabrics. This quarter, we're certainly affected by the ongoing softness in the home furnishings industry and shifting consumer spending trends following the pandemic stay at home search.

Dru Anderson: I would now like to go on the conference over to Dru Anderson. Please go ahead. Thank you.

While we do understand that the furniture and bedding environment remains challenged we will continue to manage the aspects of our business we can control.

Dru Anderson: Good morning and welcome to the Culp conference call to review the company's results for the first quarter of fiscal 2020 for work. As we start, let me state that this morning's call will continue forward-looking statements about the business, financial condition, and prospects of the company. Forward-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 uncertainties.

Necessary steps to withstand current market conditions and position our business for renewed growth.

As detailed in earlier quarters, we have made platform changes to our cut and sew profile on both mattress fabrics and upholstery.

Dru Anderson: These risks and uncertainties are described in our regular SEC filings, including the company's most recent filings on form 10K and form 10Q. Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations and financial results. Your caution 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.

And the cost benefits from these adjustments are coming to bear.

We are also focused on managing our operational efficiencies across our fabric platforms.

Dru Anderson: In addition, during this call, the company will be discussing non-gap financial measurements. A reconciliation of these non-gap financial measurements to the most directly comparable gap financial measurements is included in the tables to the press release, included as an exhibit to the company's 8K file yesterday and posted on the company's website at cult.com.

And therefore lowering overall costs.

Beyond Q1, we believe our continuing recovery will be led by our mattress fabric segment, while our execution of a comprehensive transformation plan is laying the foundation for steady improvement.

Robert Culp: I will now turn the call over to if cult president and chief executive officer of cult. Please go ahead if. Thank you Drew and good morning everyone and thank you for joining us today. I would like to welcome you to the Cult Quarterly Conference call with analyst and investors. With me on the call are Ken Bowling, chief financial officer, Boyd Schumley, president of our poll street fabrics business and Tommy Bruno, president of our mattress fabrics business.

I'll expand much more on the mattress fabrics transformation plan momentarily, but our sequential and year over year operating improvement reflect some of these initiatives, we have undertaken internally to manage our business.

Robert Culp: So today I'll begin the call with some detailed comments including a discussion of key points and topics for the quarter and for both businesses as well as priorities as we look ahead. After that Ken will review the financial results for the quarter and I will then briefly review our business outlook for the second quarter of fiscal 24 and we will then take your questions. Regarding the current state of our business and the overall furniture embedding industries, I want to review some overriding themes we discussed last quarter and detail some critical actions we are continuing to execute within both businesses. I will also expand on our comments with a few important points to illustrate where cult is today. Beryl Bugatch.

Robert Culp: Number one, we are encouraged by our better than expected operating improvement for the quarter, both sequentially and year-over-year, despite the ongoing industry malaise and demand softness within the two industries we service. Number two, we remain excited about the progress of our comprehensive transformation within our CHF mattress fabric's business, and we are pleased to be gaining market position in the face of some contraction into domestic mattress industry. Number three, although market conditions are also pressuring the residential home furnishings industry, our policy fabrics business has remained profitable despite these pressures, and demand remains quite solid in our growing hospitality business.

While the challenging industry environment is expected to continue for some time, our market position is strong and improving and we believe we are poised for a considerably better second half of fiscal 'twenty, four and Thats November to April by the calendar.

With a return to operating profitability in this fiscal year.

Regardless of the current demand backdrop, we expect continued progress in improving our operating results.

But we understand the speed of our recovery may be affected by overall industry trends.

We would like to see some macro tailwind to allow recovery to happen quicker.

We are well prepared for the long term and our strong leadership teams innovative product offerings creative designs and a resilient global manufacturing and sourcing platform will support us into the future, especially when the environment improves.

Robert Culp: And number four, we are continuing our diligent focus on prudent financial management, including maintaining a strong balance sheet and ensuring a strategic level of working capital. So going to theme number one, our results for the first quarter reflected better than expected operating performance, both sequentially and year-over-year, even as industry demand remains soft, especially in residential home furnishings. However, our operating performance improved despite pressure on sales due to internal improvements within both businesses.

The second important thing to expand on is the business transformation update within Culp home fashions, our mattress fabrics segment under the leadership of the Division President Tommy Bruno along with his restructured management team.

Our transformation plan focuses on long term improvement in every facet of the business, including quality sales marketing and operational processes supply chain optimization employee engagement and organizational management structure.

Robert Culp: The strong sequential and year-over-year improvement in our mattress fabrics business, a 45% improvement sequentially, and a 52% improvement year-over-year, was supported by the rollout of new fabric and cover placements during the period. As we have commented for some time now, these new programs are priced in line with current raw material and operational costs, and we expect these new programs to grow call-pone fashion's market position in fiscal 24. The operating improvement in the CHF business was also driven by our ongoing focus on operational efficiencies and cost reduction initiatives across our locations, and I will expand more on this shortly.

As we said we believe CHF improvement is our best short term opportunity for recovery and growth from our current levels.

Tommy and the CHF management team remain focused on operational excellence.

As well as balancing our product mix to proper volumes and steady run schedules.

Even after our previous cost saving adjustment to our domestic North Carolina cut and sew capabilities.

We continue with our robust global platform, featuring manufacturing and sourcing capabilities in six countries.

The U S Canada, Turkey.

China and Vietnam.

Robert Culp: I do want to emphasize that mattress fabric sales for the quarter were flat compared to the prior year period, which is a solid performance in the face of difficult industry conditions and certainly reflect our growing position in the market. For the grocery fabric segment, we saw operational improvements and fixed cost savings along with solid demand in our hospitality contract fabric business and improvement for Reed Window. But as expected, sales within our residential fabrics business were lower as compared to the first quarter of last year, which notably was a strong quarter due to a lift in sales following pandemic-related shutdowns in China, and the quick recovery that the all-speed furniture industry was experiencing at that time.

Our combination of onshore nearshore and offshore options provide our mattress fabric and sewn cover customers with the agility and value they need for their business.

Combining this platform with our expertise in design and product innovation, we are making excellent progress for sustainable improvement in fiscal 'twenty four.

Overall as we've mentioned the domestic mattress industry is experiencing experiencing significant contraction.

With industry reports showing aggregate reductions of 10% in dollars and 20% in units through the first six months of calendar 'twenty three.

But notably again CHF revenue over the same general period has remained flat.

Indicating that CHF has made gains with customers in a difficult market environment.

Robert Culp: Our sale for residential fabrics this quarter were certainly affected by the ongoing self-ness in the home furnishings industry, and shifting consumer spending trends following the pandemic stay-at-home surge. While we do understand that the furniture embedding environment remains challenged, we will continue to manage the aspects of our business we can't control, taking necessary steps to withstand current market conditions and position our business for renewed growth, as detailed in earlier quarters, we have made platform changes to our cut and so profile in both mattress fabric and a poultry, and the cost benefits from these adjustments are coming to there.

While the mattress industry slowness may remain for some period, we still expect to improve our performance through new programs and improved operations.

A recovery in CHF is not fully dependent on the industry environment and.

And assuming our sales volumes in fiscal 'twenty, four do not materially fall below the prior year.

We expect to see significant progress with steady sustainable improvement in CHF this year and beyond.

The third important theme is the continued profitability of culp upholstery fabrics.

I've detailed just now a lot of excitement about CHF, but is equally as important to note the steady performance of C. U S.

Robert Culp: We are also focused on managing our operational efficiencies across our fabric platforms, and therefore lowering overall costs. Beyond Q1, we believe our continuing recovery will be led by our mattress fabric segment, where our execution of a comprehensive transformation plan is laying the foundation for study improvement. I'll expand much more on the mattress fabric transformation plan momentarily, but our sequential and year-over-year operating improvement reflects some of these initiatives we have undertaken internally to manage our business.

Division, President and Boyd Chumbley and a strong leadership team have managed effectively and the most in the midst of abnormal tumultuous times.

<unk> has maintained profitability with a focus on improving operational efficiencies and proactively taking strategic actions to reduce our cost structure to align with demand levels.

We'll also always supporting our customers with our flexible global platform.

I believe the U S has best in class and servicing our customers and our design and product excellence combined with an effective global platform as.

<unk> led the way.

Robert Culp: While the position is strong and improving, and we believe we are poised for a considerably better second half of fiscal 24, and that's November to April by the calendar, with a return to operating profitability in this fiscal year. Regardless of the current demand backdrop, we expect continued progress in improving our operating results, but we understand the speed of our recovery may be affected by overall industry trends. We would like to see some macro tailwinds to allow recovery to happen quicker. We are well prepared for the long term, and our strong leadership teams, innovative product offerings, creative designs, and a resilient global manufacturing and sourcing platform will support us into the future, especially when the environment improves.

Our improved operating costs within <unk> began with the restructuring of our cut and sew, possibly kit platform in China during the second quarter of last fiscal year.

And then continued with the rationalization of our upholstery cut and sew platform in Haiti near the end of last fiscal year.

We took further action in Haiti, this quarter to discontinue production of cut and sewn upholstery kept at this location based on demand softness.

This step further reduce the <unk> cost structure and avoids losses that would have otherwise been incurred.

While allowing this business to continue to support customers through its strong Asian supply chain.

Notably through these actions and other improvements in operational efficiencies.

<unk> has been effective in lowering its overall cost levels to remain profitable in the face of reduced demand.

Just one quick aside I do want to again reiterate that while we have discontinued production of upholstery cut and sew kits in Haiti, our Haiti cut and sew platform for mattress covers remains an integral part of our strategic plan.

Robert Culp: The second important thing to expand on is the business transformation update within Colton Fashion's, our mattress fabric segment, under the leadership of the division president Tommy Bruno, along with his restructured management team. Our transformation plan focuses on long-term improvement in every path to the business, including quality, sales, marketing, and operational processes, supply chain optimization, employee engagement, and organizational management structure. As we said, we believe CHF improvement is our best short-term opportunity for recovery and growth from our current levels.

Now turning back to see U S. We are also adjusting our global platform for the fabrics portion of our upholstery fabrics business.

As we look to provide options within our supply chain in China, Vietnam and multiple other new countries.

Customer service is a hallmark for call and a diversified platform provides improved risk management and a more stable supply base.

Of note, our hospitality contract business accounted for 33% of segment sales for the first quarter.

Robert Culp: Tommy and the CHF management team remain focused on operational excellence, as well as balancing our product mix to proper volumes and steady run schedules. Even after our previous cost-saving adjustment to our domestic North Carolina Cut and Sew capabilities, we continue with a robust global platform featuring manufacturing and sourcing capabilities in six countries, the U.S., Canada, Turkey, Haiti, China, and Vietnam. Our combination of onshore, near-shore, and offshore options provide our mattress fabric and sewing cover customers with the agility and value they need for their business.

This percentage is higher than normal due to lower residential sales. It does reflect the ongoing solid performance of our hospitality contract business as well as importance to our overall strategy of product diversification for this segment.

While the tough demand environment may continue for some time culp upholstery fabrics remains well positioned for the long term with a scalable global platform and innovative product offerings, including our popular portfolio of live smart performance products.

And our new product technologies.

We are also beginning to see increases in newly written fabric orders.

Robert Culp: Combining this platform with our expertise and design and product innovation, we are making excellent progress for sustainable improvement in fiscal 24. Overall, as we've mentioned, the domestic mattress industry is experiencing significant contraction, with industry reports showing aggregate reductions of 10% in dollars and 20% in units through the first six months of calendar 23. But notably again, CHF revenue over the same general period has remained flat, indicating that CHF has made gains with customers in a difficult market environment.

And we believe we will see the benefit from this in the second half of fiscal 'twenty four.

Similar to the first quarter. We also expect the upholstery fabric segment, we will continue to benefit call through the remainder of fiscal 'twenty four with improved inventory management, a solid hospitality contract fabric business improvement and our read window business and a rationalized cut and sew platform.

And lastly, I'll skip to the fourth theme, which is constant focus on prudent financial management, including maintaining a strong balance sheet and ensuring a strategic level of working capital.

Robert Culp: While the mattress industry's loan is may remain for some period, we still expect to improve our performance through new programs and improved operations. Our recovery in CHF is not fully dependent on the industry environment. And assuming our sales volumes in fiscal 24 do not materially fall below the prior year, we expect to see significant progress with steady, sustainable improvement in CHF this year and beyond.

I am very pleased with the management team for its continued effort in maintaining our cash and total liquidity position.

We ended the quarter was $16 $8 million in cash and no outstanding borrowings and we had total liquidity of $42 $3 million, consisting of cash and borrowing borrowing availability under our domestic credit facility.

We are continuing to carefully manage inventory against current demand levels and we are strategically investing in our business.

Robert Culp: The third important theme is the continued profitability of culpable poultry fabrics. I've detailed just now a lot of excitement about CHF, but it is equally as important to note the steady performance of CUF. Division President Boyd Chumbley and his strong leadership team have managed effectively in the midst of abnormal tumultuous times. CUF has maintained profitability with the focus on improving operational efficiencies, and proactively taking strategic action to reduce our cost structure to align with demand levels, while also always supporting our customers with our flexible global platform.

I have repeatedly through my remarks mentioned the softness within our industry and that has been most evident to us by several recent closures within the furniture industry.

And remember this is on the heels of several bankruptcies, we witnessed in the last year as well.

We are seeing some suppliers competitors and customers endure financial difficulty and it gives us more appreciation for our financial stability and its importance to our future.

We are managing accounts receivable effectively and we do not have any material exposure with respect to the recent closures.

Robert Culp: I believe CUF has best in class in servicing our customers and our design and product excellence combined with an effective global platform has led the way. Our improved operating costs within CUF began with the destruction of our cut and sew up poultry kit platform in China during the second quarter of last fiscal year, and then continued with the rationalization of our upholstery cut and sew platform in Haiti near the end of last fiscal year.

I am grateful to our credit teams and divisional management for how we conduct core business with the lens towards the future and careful partner selection.

We fully recognize that the management of <unk> strong balance sheet is a critical initiative.

And we believe we are well positioned to focus on investing and optimizing our global manufacturing platform.

And growing profitable sales.

Robert Culp: We took further action in Haiti this quarter to discontinue production of cut and sew up poultry kits at this location, based on demand softness. This step further reduced the CUF cost structure and avoids losses that would have otherwise been incurred, while allowing this business to continue to support customers through its strong Asian supply chain. Notably through these actions and other improvements in operational efficiencies, CUF has been effective in lowering its overall cost levels to remain profitable in the face of reduced demand.

I'll now turn the call over to Ken who will review the financial results for the quarter.

Then ill briefly review the outlook for the second quarter of this fiscal year, Ken. Thanks, Nick here are the financial highlights for the first quarter, starting with consolidated results net sales were $56 7 million down nine 5%.

Compared with the prior year periods, driven almost entirely by a decline in upholstery fabric sales.

The company reported a loss from operations of $3 1 million, which included 517000 in mostly noncash restructuring related charges associated with the discontinued production of cut and sewn upholstery kits in Haiti during the quarter as we have discussed earlier.

Robert Culp: There's one quick aside, I do want to again reiterate that while we have discontinued production of upholstery cut and sew kits in Haiti, our Haiti cut and sew platform from mattress covers remains an integral part of our strategic plan. Now turning back to CUF, we are also adjusting our global platform for the fabrics portion of our poultry fabrics business. As we look to provide options within our supply chain in China, Vietnam, and multiple other new countries. Customer service is a hallmark for call and a diverse platform provides improved risk management and more stable supply.

Excluding this 517000 adjusted loss from operations for the quarter was $2 6 million.

A better than expected improvement as compared with a loss from operations of $4 7 million for the prior year period, and a loss from operations of $4 million for the fourth quarter of last fiscal year.

Net loss for the first quarter was $3 3 million or <unk> 27 per diluted share.

Paired with a net loss of $5 7 million or <unk> 47 per diluted share for the prior year period.

Robert Culp: Today's. Of note, our hospitality contract business accounted for 33% of segment sales for the first quarter. While this percentage is higher than normal due to lower residential sales, it does reflect the ongoing solid performance of our hospitality contract business, as well as its importance to our overall strategy of product diversification for this segment. While the tough demand environment may continue for some time, Culp opposed to Fabric means well positioned for the long term with a scalable global platform and innovative product offerings, including our popular portfolio of live smart performance products and our new product technologies.

Net loss for the quarter included the 517000 restructuring related charges I just mentioned.

Our overall operating performance for the first quarter as compare to the prior year period was positively affected by improved margins on new products.

Improvement in operating efficiencies and lower overhead costs in both segments, a higher contribution from hospitality fabrics in the <unk> window business.

And a more favorable foreign exchange rate associated with China.

This year over year improvement in operating performance was partially offset by margin pressures due to lower sales and higher SG&A expense.

SG&A expense was higher than last year due to increased compensation expense, mostly related to wage inflation and higher incentive compensation accruals.

Robert Culp: We are also beginning to see increases in newly written fabric orders. And we believe we will see the benefit from this in the second half of fiscal 24. Similar to the first quarter, we also expect the Epochie Fabric segment will continue to benefit Culp through the remainder of fiscal 24 with improved inventory management, a solid hospitality contract fabric business, improvement in our read window business, and a rationalized cut and sew platform.

Professional fees and increased sampling expense driven by new product rollouts in both businesses.

Importantly, with regard to SG&A expense as business conditions improve and demand for new products rise. We believe that we will get significant leverage from the increased sales.

Adjusted EBITDA for the period was close to breakeven at negative $416000 as compared to adjusted EBITDA of negative $2 7 million for the prior year period.

Robert Culp: And lastly, I'll skip to the fourth theme, which is constant focus on prudent financial management, including maintaining the strong balance sheet and ensuring a strategic level of working capital. I'm very pleased with the management team for its continued effort in maintaining our cash and total liquidity position. We enter the quarter with $16.8 million in cash and no outstanding borrowings and we add total liquidity of $42.3 million, consisting of cash and borrowing availability under our domestic credit facility.

The effective impact income tax rate for the first quarter of this fiscal year was a negative 26, 5% compared with a negative 18, 7% for the same period a year ago.

Our effective income tax rate for the quarter was impacted by the company's mix of earnings between our U S and foreign subsidiaries with an operating loss in the U S. While China, Canada generated income that was taxed at higher rate as compared to the U S.

Our cash income tax payments totaled $1, one <unk> for the first quarter of this fiscal year.

Robert Culp: We are continuing to carefully manage inventory against current demand levels and we are strategically investing in our business. I have repeatedly through my remarks mentioned the softness within our industries. And that has been most evident to us by several recent closures within the furniture industry. And remember, this is on the heels of several bankruptcies we witnessed in the last year as well. We are seeing some suppliers, competitors and customers endure financial difficulty.

And based on current expectations. We currently plan for cash income tax payments of approximately $3 2 million for the entire fiscal 'twenty four year <unk>.

Importantly, our estimated cash income tax payments for fiscal 'twenty four are management's current projections only and can be affected by a variety of factors over the course of the year.

Now, let's take a look at our business segments.

For the mattress fabrics segment sales for the first quarter were $29 2 million down 5% compared with last year's first quarter outperforming overall industry trends.

Robert Culp: And it gives us more appreciation for our financial stability and its importance to our future. We are managing accounts receivable effectively and we do not have any material exposure with respect to the recent closures. I am grateful to our credit teams and the visual management for how we conduct cults business with a lens towards the future and careful partners' election. We fully recognize that the management of cults strong balance sheet is a critical initiative and we believe we are well positioned to focus on investing and optimizing our global manufacturing platform and growing profitable sales.

Operating loss for the quarter was $1 4 million, a 52% improvement compared to an operating loss of $2 9 million a year ago.

This operating improvement was driven by new placements price in line with current cost improvements in operating efficiencies and lower costs, resulting from the restructuring and rationalization of this segment's mattress cover platform initiated last fiscal year offset somewhat by higher SG&A expense.

For the upholstery fabrics segment sales for this first quarter were $27 4 million down 17, 4% over the prior year period.

Which was strong which was a strong quarter due to a lift in sales following pandemic related shutdowns in China.

Kenneth Bowling: I will now turn the call over to Ken who will review the financial results for the quarter and then I will briefly review the outlook for the second quarter of this fiscal year. Ken, thanks.

Sales for our resident residential fabric business for the quarter were affected by ongoing softness in the residential home furnishings industry.

However, demand remained solid and our poultry and our hospitality contract business during the first quarter with sales for this business accounted for approximately 33% of the upholstery fabrics segment's total sales.

Kenneth Bowling: Here are the financial highlights for the first quarter. Starting with consolidated results, net sales are 56.7 million down 9.5 percent compared with the prior period driven almost entirely by a decline in opposed to fabric sales. The company reported a loss of operations of 3.1 million, which included 517,000 and mostly non-cast restructions related charges associated with the discontinued production of cut and stone of poultry kits and Haiti during the quarter, as it discussed earlier.

Operating income and operating margin for the quarter were $1 3 million and four 8%, a 145% and 320 basis point improvement respectively compared with the prior year period. This operating performance was positive positively affected by a higher contribution from hospitality fabric.

Kenneth Bowling: Excluding this 517,000, adjusted loss of operations for the quarter was 2.6 million, a better than expected improvement compared to the loss of operations of 4.7 million for the prior period and the loss of operations of 4 million for the fourth quarter of last fiscal year. Net loss for the first quarter was 3.3 million or 27 cents per deluded share compared to the net loss of 5.7 million or 47 cents per deluded share for the prior period.

And read window business lower cost, resulting from the restructuring of this segment's cut and sew platforms through in earlier periods.

And a more favorable foreign exchange rate associated with this segment's operations in China as well as other operational improvements.

These factors were partially offset by lower residential fabric sales and higher SG&A during the period.

Now I'll turn to the balance sheet, we reported $16 8 million and total cash and no outstanding debt as of the end of the first quarter.

Kenneth Bowling: Net loss for the quarter included the 517,000 restructuring related charges I just mentioned. Our overall operating performance for the first quarter as compared to prior period was positively affected by improved margins on new products, improvement in operating efficiencies and lower overhead costs in both segments, a higher contribution from hospitality fabric in the Reed window business, and a more favorable foreign exchange rate associated with China. This year over year improvement in operating performance partially offset by margin pressures due to lower sales and higher SGNA expense.

Cash flow from operations and free cash flow were negative $4 4 million and negative $4 2 million respectively for the first three months of this fiscal year.

Our cash flow from operations and free cash flow during the period were affected by an operating loss and investments in working capital and capital expenditures most related to the mattress fabrics transformation plan.

Capital expenditures for the first three months of this fiscal year were $513000.

Based on our current expectations capital spending for this fiscal year as projected the minimum range of $5 million to $6 million and will center most of our maintenance Capex and quick payback projects focused on improving quality and efficiency in our mattress fabrics business.

Kenneth Bowling: SGNA expense was higher than last year due to increased compensation expense, most related to wage inflation and higher incentive compensation or pools, higher professional fees, and increased sampling expense driven by new product rollouts in both businesses. Importantly, with regard to SGNA expense, as business conditions improve and demand for new products rise, we believe that we'll get significant leverage from the increased sales. Adjusted EBDIB for the period was close to break even at negative 416,000, as compared to adjusted EBDIB negative 2.7 million for the prior year period.

Based on current expectations depreciation for this fiscal year is expected to be approximately $7 million.

With respect to liquidity as of the end of the first quarter, we had $42 3 million consisting of $16 8 million of total cash and $25 5 million and borrowing.

Availability under our asset base domestic credit facility.

Borrowing availability under this facility is based on a calculation using certain of the company's accounts receivable and inventory determined on a monthly basis.

Kenneth Bowling: The effective income tax rate for the first quarter of this fiscal year was a negative 26.5%, compared with a negative 18.7% for the same period a year ago. Our effective income tax rate for the quarter was impacted by the company's mix of earnings between our U.S, and foreign subsidiaries, with an operating loss in the U.S., while China and Canada generated income that was taxed at higher rate as compared to the U.S. Our cash income tax payments total 1.1 man for the first quarter of this fiscal year, and based on current expectations, we currently plan for cash income tax payments for approximately 3.2 million for the entire fiscal 24 year. Importantly, our estimated cash income tax payments for fiscal 24 are management's current projections only and can be affected by our variety of factors over the course of the year.

The company did not repurchase any shares during the first quarter of this fiscal year, leaving $3 $2 million available under our current share repurchase program.

Despite the current share repurchase authorization, we do not expect any activity during the second quarter. This fiscal year as we remain focused on preserving liquidity and being positioned to support future growth opportunities.

With that I'll turn the call over to <unk> to discuss the general outlook for the second quarter of this fiscal year and then we'll take your questions.

Thank you Ken.

Due to the continued volatility in the macro environment.

We are violently limited financial guidance for the second quarter of fiscal 'twenty four.

We expect consolidated net sales for the second quarter to be comparable to the second quarter of fiscal 'twenty three driven by further improvement in the mattress fabrics segment, but offset by lower residential upholstery fabric sales.

Kenneth Bowling: Now let's take a look at our business segment. For the mattress fabric segment sales for the first quarter were 29.2 million, down 0.5% compared to last year's first quarter, outperforming overall industry trends. Operating loss for the quarter was 1.4 million, a 52% improvement compared to an operating loss of 2.9 million a year ago. This operating improvement was driven by new placements priced in line with current costs, improvements in operating efficiencies, and lower costs resulting from the restructuring and rationalization of this segment's mattress cover platform.

We expect a consolidated operating loss for the second quarter of fiscal 'twenty for that in the range of $2 two to $2 $6 million.

A significant improvement compared to the 11 $9 million operating loss for the prior year period.

We still include approximately $6 million relating to certain inventory impairment charges loss of some inventory closeout sales and greater than normal inventory markdowns.

Again, I will comment that we believe we are poised for a considerably better second half performance with a return to operating profitability this fiscal year.

Kenneth Bowling: Initiate last fiscal year, offset somewhat by higher SGNA expense, for the opposing fabric segment sales for this first quarter were 27.4 million down 17.4% over the prior period, which was a strong quarter due to a list of sales following pandemic related shutdowns in China. Sales for our residential fabric business for the quarter were affected by ongoing softness in the residential home furnishings industry. However, the man remains solid in our postry in our hospitality contract business during the first quarter was sales for this business accounted for approximately 33% of the opposing fabric segments total sales.

Finally, we will continue to be laser focused on prudent financial management with the goal of always maintaining a strong balance sheet, especially with regard to ensuring strategic balance in our working capital.

We are optimistic about <unk> future and we know the financial stability is paramount to our success.

So with that we will now take questions.

We will now begin the question and answer session.

To ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone please pick up.

Before pressing the keys.

Kenneth Bowling: Operating income and operating margin for the quarter were 1.3 million and 4.8%, 145% and 320 basis point improvement respectively compared with the prior period. This operating performance was positively affected by a higher contribution from hospitality fabrics and re-lindo business, lower cost resulting from the restructuring of this segment's cut and so platforms during earlier periods, and a more favorable foreign exchange rate associated with this segment's operations in China, as well as other operational improvements. These factors were partially offset by our lower residential fabric sales and higher SNA during the period.

But anytime you question has been answered from you would like to withdraw your question. Please press Star then two.

Our first question comes from Anthony maybe Pinsky Brooks Sidoti and company. Please go ahead.

Good morning, and thank you for taking the questions. So first just a quick comment.

Perfect job of maintaining a strong balance sheet and.

Certainly nice to see solid gross profit gains here in the quarter.

So firstly.

Yeah sure. So first question here for CHF. So you mentioned that new placements are in line with current costs and Thats great to hear so I guess for the quarter can you give us a just kind of a rough breakdown between pricing and unit volumes.

Kenneth Bowling: Now it turns to balance sheet. We reported 16.8 million total cash and no outstanding debt as of the end of the first quarter. Cash flow from operations and free cash flow were negative 4.4 million and negative 4.2 million respectively for the first three months of this fiscal year. Our cash flow from operations and free cash flow during the period were affected by an operating loss and investments in working capital and capital expenditures most related to the mattress fabric transformation plan.

Would love to hear your thoughts on that.

Yes, yes, yes, Anthony I mean.

I think we've mentioned this before I mean, we.

We price new products to capture the cost in that that pricing flow throughout the year. I mean, obviously, we we were right in line with sales and units were close as well so really.

Kenneth Bowling: Capital expenditures for the first three months of this fiscal year were 513,000 dollars. Based on current expectations capital spending for this fiscal year has projected the minimum range of 5 to 6 million and will center mostly on maintenance catbacks and quick payback projects focused on improving quality and efficiency in our mattress fabrics business. Based on current expectations depreciation for this fiscal year has been expected to be approximately 7 million. With respect to liquidity, as of the end of the first quarter, we had 42.3 million consisting of 16.8 million total cash and 25.5 million in borrowing availability under our asset based domestic credit facility.

Wasn't a big difference at all.

Can still kind of both sides.

We were building in the mattress fabrics business, Anthony and you hopefully you hear our excitement as we talked about the business, it's such a such a strong turnaround thats underway and we're growing dollars and units were a unit.

Unit driven company. So we're not going to have success without also growing the units. So we're doing both.

Got you understood okay. Okay.

Okay. So I mean.

So before Covid I mean, the gross margin of CHF was in the mid teens at even higher in prior years, so given the transformation underway.

Do you think it's reasonable that you could get back to at least double digit segment margins sometime this fiscal year.

Kenneth Bowling: Borrowing availability under this facility is based on a calculation using certain of the company's accounts receivable and inventory determined on a monthly basis. The company did not repurchase any shares during the first quarter of this fiscal year leaving 3.2 million dollars available under our current share of repurchased program.

Well, Anthony we I'll, let I'll, let Tom you made some comments what he has seen.

Kenneth Bowling: Despite the current share of repurchase authorization, we do not expect any activity during the second quarter of this fiscal year as we remain focused on preserving liquidity and being positioned to support future growth opportunities.

Won't be as ball to tell you exactly when that's going to happen but.

All of the Investor information that we're putting out to our new deck.

Sort of a minimum standard for our expectation in the CHF business is double digit operating income percent.

And we certainly have every intention of being at that NR.

Intermediate future now, whether we can get all the way to double digit profitability.

Robert Culp: With that, I'll turn the car over to you to discuss a general outlook for this second quarter of this fiscal year and then we'll take your questions if. Thank you, Ken. Due to the continued volatility in the macro-environment. We are predominantly limited financial guidance for the second quarter of fiscal 24. We expect consolidated net sales for the second quarter to be comparable to the second quarter of fiscal 23, driven by further improvement in the mattress fabric segment, but offset by lower residential of post-refabric sales.

In this fiscal year.

TBD, but we are expecting to return to consult to profitability both in the division and consolidated in this year.

Tom anything you would add is you are just going through the process no I think that's a good representation of the improvement I think Anthony we expect it to be sequentially higher quarter over quarter.

And with the objective of getting back to historical profitability rates.

Okay that sounds good.

Robert Culp: We expect consolidated operating loss for the second quarter of fiscal 24, that is in a range of $2.2 to $2.6 million, a significant improvement compared to the $11.9 million operating loss for the prior year period, which did include approximately $6 million relating to certain inventory impairment charges, losses from inventory closed out sales, and greater than normal inventory markdowns. Again, I will comment that we believe we are poised for a considerably better second half performance, with a return to operating profitability this fiscal year.

And then for COF.

The residential obviously.

As you called out is softer.

But are you seeing any notable customers moving away from coal for US is just.

You're just seeing that customers are just ordering less across the board now.

I'll, let boyd speak to that question Anthony.

Yes, Anthony no, we're really not seeing any dramatic changes in our customer base.

This was more of just an overall industry demand.

Robert Culp: Finally, we will continue to be laser focused on prudent financial management, with the goal of always maintaining a strong balance sheet, especially with regard to ensuring strategic balance and our working capital. We are optimistic about Culp's future, and we know that financial stability is paramount to our success.

Situation that we're being impacted with and of course, we have to remember too that for this quarter.

We were comparing to an abnormally high or first quarter of last year due to the <unk>.

Unknown Executive: So for that, we will now take questions.

Pandemic so.

The extreme pandemic induced swings in demand over the last several years have made year over year comparisons difficult so but no to answer your question don't see that we're having any.

Unknown Executive: We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speaker phone, please pick up hand-fit before pressing the keys. If at any time your question has been addressed, and you would like to withdraw your question, please press star then two.

Any changes in our in our customer mix in any significant way. This is more just industry wide.

<unk> depression at the moment and Anthony as Boyd Boyd has worked here with cult for almost 40 years and.

And we've seen our shares of ups and downs in the residential furniture business over many many times and we always think.

Anthony Lebiedzinski: Our first question comes from Anthony Levy-Zinski with Cedody and Company, please go ahead. Good morning, and thank you for taking the questions. So first, just a quick comment, the overall perfect job of maintaining a strong balance sheet, and certainly nice to see solid girls' profit gains here in the quarter. So first question here, for first CHF, so you mentioned that new placements are in line with current costs, and that's great to hear.

Typically bears itself out we gain market position in times like this.

Typically when the Time's passed we found ourselves in better position and this is no different we believe on our side, we are actually gaining market position now and.

And we think its fully driven by just a slowness in the current industry and supply chains are adjusting.

New products are being rolled out on the floor.

Anthony Lebiedzinski: So I guess for the quarter, can you give us just kind of a rough breakdown between pricing and unit volumes would love to hear your thoughts on that? Yeah, Anthony, I mean, I think we've mentioned this before. I mean, we priced new products to capture the cost, and that price seems close throughout the year. I mean, obviously we were right in line with sales, and units were close as well, so really wasn't a big difference at all, pretty consistent with both sides.

Remember, we skipped about a year of new intros in that business for a little bit of no one needed relaunched retail so as that starts to happen, we're pretty optimistic about where it's going to go and we noted in our script that we are now starting to see new written orders gradually increase so we are seeing optimism as we look past <unk>.

Looking past second quarter, but we do see those sales levels starting to pick back up.

That's great to hear.

And then last question before I turn the call over to others.

I guess.

Probably a question for Ken.

So inventory management that has certainly been a nice source of cash so nice job with that so do you think you can further reduce inventories.

Anthony Lebiedzinski: We were building in the mattress fabric business, Anthony, and hopefully you hear our excitement as we talk about the business, such a strong turnaround that's underway, and we're growing dollars in units. We're a unit driven company, so we're not going to have to success without also growing units. So we're doing both. Got you. I understood. Okay.

How about cash flow so how should we think about that.

Yes Anthony.

As we look to.

Grow the business on both sides both teams have done.

Over the last six quarters, they've done a remarkable job of getting inventory down and really meeting demand and so as we proceed ahead into the next quarters. Our focus is going to be on growing the business and and as we said in the prepared remarks balancing inventory with sales and thats that we preach that error.

Robert Culp: Okay, so before COVID, the gross margin of CHF was in the midteens, and even higher in prior years, so given the transformation underway, do you think it's reasonable that you could get back to at least double-digit segment margins sometime this fiscal year? Well, Anthony, I'll let Tommy make some comments to what he's seen. The problem won't be as bold to tell you exactly when that's going to happen. But in our all the investor information that we're putting out through our new deck, you know, sort of a minimum standard for our expectation in the CHF business is double digit operating income percent.

Good day so.

Is there some opportunity to continue to maximize efficiencies and inventory probably some but right now we've got to make sure. We've got the right amount of inventory on hand to support growth and so but that said we're going to <unk>.

Very careful about balancing both as we grow the business.

Robert Culp: And we certainly have every intention of being at that in our intermediate future. Now whether we can get all the way to double digit profitability in this fiscal year, TBD, but we are expecting to return to consult to profitability both in the division and consolidate it in this year. Tommy, anything you would add as you're just going through the process? No, I think that's a good representation of the improvement. I think Anthony, we expected to be sequentially higher quarter over quarter and with the objective of getting back to historical profitability rates. Okay, that sounds good.

Understood. Okay, well, thank you very much and best of luck.

Thank you Anthony have a great day happy weekend.

Likewise.

Our next question comes from Brian <unk>.

With water Tower research. Please go ahead.

Hi, Good morning. Thank you for taking my questions first I just want to comment that Joe.

It's been a very tumultuous time for.

Everybody.

Congratulations on keeping that.

Financial condition called Globe pretty strong.

From these times.

Thank you.

Yes.

You're welcome thank you.

Boyd Chumbley: And then for CUF, you know, the residential obviously, as you call that, is softer. But then I, are you seeing any, you know, notable customers moving away from culpores is just, is that interesting that customers are just ordering less across the board now? I'll let Boyd speak to that question, Anthony. Yes, Anthony, no, we're really not seeing any dramatic changes in our customer base. I think this is more just an overall industry demand situation that we're being impacted with.

Okay.

I guess the first question is you talk about the improvements in <unk>.

And I guess I would love to get some.

All are on that maybe anecdotally what you done what you talk about some of the operational cost efficiencies do you have some examples of what that was.

As you maybe put some color to the numbers overall.

Yes, I'll, let Tom speak to that.

But because he is living at PS live.

And we're happy to have him here with us in the office and not on the plant floor, we got them at a prime out for a minute that Tommy wants you to touch on anything that from your standpoint, yes, sure, but it's really for us.

Boyd Chumbley: And of course, we have to remember, too, that for this quarter, we were comparing to an abnormally high first quarter of last year due to the pandemic. So, you know, the extreme pandemic and due swings in demand over the last several years have made year over year comparisons difficult. So, but no, to, to answer your question, don't see that we're having any, any changes in our, in our customer mix and any significant way.

Moving our gross profit is really a combination of working on our mix working on improving previous programs that werent costs are in line with the market conditions through Covid.

Is it related to operational efficiencies, we continue to really push our supply chain for best cost position on raw materials as well as continuous improvement.

Our quality and manufacturing efficiency initiatives in Stoke sailing in Canada.

Boyd Chumbley: This is more just industry wide demand depression at the moment. And Anthony is boy, Boyd has worked here with Colt from us 40 years. And we've seen our shares of ups and downs in the residential furniture business over many, many times. And we always think and it has typically bear it itself out, we gain market position in times like this. And typically when these times pass, we find ourselves in better position.

Other initiatives, we're doing is making sure that we're really leveraging our global platform for efficiency and profitability and balancing those together with our manufacturing assets.

Okay.

Tommy.

Can you kind of maybe characterize the importance of that.

Pricing more important than the operational efficiencies how do you what's the relative mix between the two.

Boyd Chumbley: And this is no different. We believe on our side, we're actually gaining market position now. And we think it's fully driven by just the slowest and the current industry. And supply chains are adjusting new products are being rolled on the floor. Remember, we skipped about a year of new intros in that business for a little bit, if no one needed a relaunch retail. So, that starts to happen. We're pretty optimistic about where it's going to go.

Yes, that's a really I don't want to take the easy way out of this question I would say that they are equally important but because we had some programs that werent profitable that we had to re.

Re shift away.

But we also have opportunities through.

A challenging COVID-19 environment to really engage and drive operational improvement as the macro environment and raw materials opportunities of.

Have come along.

Boyd Chumbley: And we noted in our script that we are now starting to see new written orders gradually increase. So we are seeing optimism as we look past, probably looking past second quarter, but we do see those days levels starting to pick back up.

So we're focused equally on both of them.

And so do we think about it is 50 50 kind of improvement you get 50% of the.

The improved gross margin from pricing and 50%.

From pricing that you can finally get a hold of.

Unknown Executive: That's great to hear.

Either through new programs or.

Anthony Lebiedzinski: And then, you know, last question before I turn the call over to others.

Realigning previously in price.

Kenneth Bowling: I guess probably a question for Ken. So inventory management that has certainly been a nice source of cash. So nice job with that. So do you think you can further reduce inventories? How about cash flow? How should we think about that? Yeah, Anthony, that's, I mean, as we look to you know, grow the business on both sides. I mean, we both teams have done, if you look over the last six quarters, they've done a remarkable job of getting inventory down and really meeting demand.

Unprofitably premium price programs and 50% through operational efficiencies.

Yes, Sir I would characterize it as 50 50.

And what I get excited about from.

What Tom is working on.

I agree, it's both half and half.

Better pricing and better cost cost improvement.

What makes me excited.

<unk> is the business is gradually picking up.

And we're doing that internally by gaining market position.

Kenneth Bowling: And so as we proceed ahead into the next quarters, you know, our focus is going to be on growing the business. And as we said in the prepared remarks, you know, balancing inventory with sales. And that's that we preach that every day. So is there some opportunity to continue to maximize efficiencies in inventory? Probably some, but right now that we've got to make sure we've got the right amount of inventory on hand to support growth. And so, but that said, we're going to be very careful about balancing both as we grow the business. Understood. Okay.

We've been around this mattress business for some time and we know.

Our position is strong and we're going to have periods, where.

Demand is going to be really high we just hope that we will start to turn a little bit to our favor and having all of these operational improvements in place will benefit us so much more when that happens and I think something he said is really important to realize.

We always want to leverage our strong global options, that's kind of always be important and if we get the right product priced and manufacturing them in the right places.

So the right things for U S REIT things for Canada, right things for Asia, right things for Haiti, That's where we really have the ability when the cylinders are firing to generate strong profit.

Anthony Lebiedzinski: Well, thank you very much and the best of luck. Thank you, Anthony. Have a great day. Happy weekend. So, yeah. Likewise.

<unk>.

Budd Bugatch: Our next question comes from Bob Gagg with Water Power Research. Please go ahead.

Really good work being done.

And being prepared for the turnaround.

Budd Bugatch: Good morning. Thank you for taking my questions. First, I just want to comment that I know it's been a very tumultuous time for everybody. Congratulations on keeping the financial condition is called pretty strong, making it through these times. Thank you. I guess you're welcome. And thank you. I guess the first question is you talk about the improvements in in CHF. And I guess I would love to get some color on that.

Okay.

Turning to see U S.

Readers embedded within <unk>.

And you said the agreed for this quarter it looks like about a third of Jos.

The revenues, so somewhere around $9 million.

How does that compare to last year for read in there in the first quarter, what was the ASP and partially.

Yes, Budd this is boy and.

Last year first quarter, we were around 25% for that.

That's the total hospitality business.

Budd Bugatch: Maybe anecdotally, what you've done, what you talk about some of the operational cost efficiencies. Do you have some examples of what, what that was? And maybe put some colors and numbers on that. Yeah, I'll let Tommy speak to that, but because he's living it. He's living it. We're happy to have him here with us in the office and not on the plant floor. We got him. We had to prime out from that if that Tommy wants you to touch on anything from your standpoint.

Our total sales, which is the way we.

Characterize that.

25% last year versus 33% this year.

And in that vintage was gaining throughout the year last fiscal year.

And so then.

On that basis and reach gross margin.

How would you characterize that versus the fleet margin the average margins.

Budd Bugatch: Yeah, sure, but it's really a for us, proving our gross profit is really a combination of working on our mix, working on improving previous programs that weren't cost it in line with the market conditions through COVID. As a related to operational efficiencies, we continue to really push our supply chain for best cost position on raw materials, as well as continuous improvement quality and manufacturing efficiency initiatives in Stokesdale and in Canada. Other initiatives we're doing is making sure that we're really leveraging our global platform for efficiency and profitability and balancing those together with our manufacturing assets.

Yes. This is Ken.

A critical point that we made was read had dramatic improvement year over year from last year in fact.

We were at a loss last year now were making money.

Margin is comparable to the overall margin right now for <unk>.

Obviously, we want to continue to grow both as we make progress over the coming quarters.

We're just.

Excited that that business has really improved and really contributing this year.

Okay, that's great and turning a little bit to the future now and I know that guidance for the second quarter in the midst of robo very uncertain macro environments.

Budd Bugatch: And Tommy, what can you kind of maybe characterize the importance of that with pricing more important than the operational efficiencies? What's the relative mix between the two? Yeah, that's a really, I don't want to take the easy way out of this question. I would say that they're equally important, but because we had some programs that weren't profitable, that we had to reshift away, but we also have opportunities through a challenging COVID environment to really engage and drive operational improvement as the macro environment and raw materials opportunities have come along.

That's helpful and we appreciate what you did give but if you also did say.

Looking to make operating profitability.

For the second half of the year and I'm trying to make sure I understand is that do you think you'll be operating profitable for all of the second half of the year or do you think you'll be operating profitable for the entire year based upon the improvements that youre seeing in the second half of the year.

Yes, the way in fact, yes. Thank you Budd good question and the way the way we're talking about that is.

Certainly we aren't because we're coming from the first couple of quarters, we are forecasting operating profitability for the entire year, but we do believe somewhere in that back half of our year.

Budd Bugatch: So we're focused equally on both of them. And so do we think about it as 50-50 kind of improvement? You get 50% of the improved growth margin from pricing and 50% from pricing that you can finally get a hold of or get either through new programs or re-lining previously unprofitably through price programs and 50% through operational efficiencies? Yes, sir. I would characterize it as 50-50. And what I get excited about, bud, from what Tommy's working on, I agree.

I'll have marks in a quarter that will turn to consolidated operating profitability.

We don't know if its going to be the end of third going to fourth but somewhere in the second half and a lot of that we aren't dependent to keep sequentially improving on the macro demand.

But if that happens faster will turn faster, but even with that if demand at current levels. We will have a quarter in the back half that turns profitable most likely towards the end of the year Budd.

Budd Bugatch: It's both half and half, better pricing and better cost improvement. What makes me excited watching it is the business is gradually picking up. And we're doing that internally by gaining market position. We've been around this mattress business for some time and we know our position is strong and we're going to have periods where demand is going to be really high. We just hope that we'll start to turn a little bit to our favor and having all these operational improvements in place will benefit us so much more when that happens.

And so even if it does not sufficiently to make the second half overall profitable, but just in the particular quarter in which we reach operating profitability.

Well first of all we're now we hope we hope your first statements rapid Thats, where today, we're saying, we're not saying for the whole second half, we're saying we will turn to profitability in the second half.

Second half, Okay, and look farther down the road so now.

Going from.

Near term intermediate term, Joe a little bit of a longer term you continue dual June confidence and comfort with longer term and I think if I got your message to even stronger now than it.

Budd Bugatch: And I think something he said is really important to realize. We always want to leverage our strong global options. That's going to always be important. And if we get the right product priced and manufacturing them in the right places. So the right things for US, right things for Canada, right things for Asia, right things for Haiti. That's where we really have the ability when the cylinders start firing to generate strong profit. So really, really good work being done and being prepared for the turnaround.

It might have been even in the past calls.

Can you kind of give us a framing of what that looks like tell us tell us what we should think Quebec success, when you get to success.

Success on a longer term.

Yes, certainly, but thank you for picking up on that we are we certainly understand that.

We're in a tough period, we're recovering from even tougher period, but theres a lot of confidence and all of us as its executive management that we see we see brighter times for the business and we see where we're positioned we see our innovative products and the platform we have the service customers.

Budd Bugatch: OK, turning to CUF, read is embedded within CUF. I think that's and you said the greed for this quarter looked like about the third of the revenue. So somewhere around $9 million for read. How did that compare to last year for read in the in the first quarter? What was that comparisonally? Yeah, but this is boy and last year, first quarter, we were around 25% or that hospital, that's the total hospitality business as a total sales, which is the way we, you know, characterize that.

And we know that our industry is that generally over our history been a stable slow growing industry, we haven't been used to these.

And downs that we've had the last two to three years, that's been that's taken a toll on our our results, but as we get some stability and the teams that we have in place operating both divisions are really.

Budd Bugatch: So 25% last year versus 33% this year. And and that finish was gaining throughout the year last year, I see. And so then on that basis and read a gross margin, how would you characterize that versus the fleet margin, the average margin and CUF? F. Yeah, but this is a kid. You know, as we, the critical point that we made was read had dramatic improvement year over year from last year. In fact, you know, we were, we were at a loss last year.

Confidence inspiring.

So when we look out in the.

Beyond 24% to $25 26, I mean, we're back to double digit operating incomes and.

Mattress fabrics.

High single digit operating income percentages in upholstery fabrics, now and we'd like to go past that but that's our first target to recover too and.

I guess it depends on your horizon of medium to long term, but we would see that happening in our medium term as we look out for.

Forward.

Okay. So that gets us to the to the margin side of that and then in terms of the topline you think you can match the industry's slow growing low to mid single digit kind of growth over time top line.

Yes, Sir yes, Sir I mean, ideally in our best days and we hope we can grow faster than the industry growth that's always our goal.

Budd Bugatch: Now we're making money. The margin is, is, is comparable to the overall margin right now for CUF. Obviously, we want to continue to grow both as we make progress over the coming quarters. But, we're just excited that, that business has really improved and, and really contributing this year. Okay, that's great.

I don't see why we can't but we certainly will stay with industry pace and see that steady growth.

Okay.

And last for me the other thing that I noticed during the quarter was SG&A was a little bit heavier than what we were looking for and operating expenses a little bit heavier maybe you could give us some color as to what we why that might have been and what we should expect as we go down the road.

Budd Bugatch: And turning a little bit to the future now, and I know that guidance for the second quarter in the midst of a very uncertain macro environments. It's been tough and we appreciate what you did give. But if you also did say you're looking to make operating profitability for the second half of the year, and I'm trying to make sure I understand, is that you think you'll be operating profitable for all of the second half of the year or you think you'll be operating profitable for the entire year based upon the improvements that you're seeing in the second half of the year.

Yes. This is Ken.

We've listed some some of the reasons for the higher obviously <unk> wage inflation was a part of it.

We did have some higher.

Incentive compensation accrual keep in mind, we're coming off of a very very tough year in our the way. We're looking at this year a significant improvement. So we've got some some opportunity. There. We also have some professional fees that.

Budd Bugatch: Yeah, the way, yeah, thank you, but good question. And the way the way we're talking about that is. Certainly, we aren't, because we're coming from the first couple quarters, we aren't forecasting operating profitability for the entire year. But we do believe somewhere in that back half of our year will have months and a quarter that will turn to consolidate operating profitability. We don't know if it's going to be the end of third, going to fourth, but somewhere in the second half.

Various professional fees and also and this is something that both divisions had to contend with sampling expansion people forget about that but this time last year, we didn't have a hardly any new programs and now both teams are dealing with new great opportunities and new Rollouts and so the sampling expense was higher so all of those.

Budd Bugatch: And a lot of that, we aren't dependent to keep substantially improving on the macro demand. But if that happens faster, we'll turn faster. But even with a demand of current levels, we will have a quarter and a back half that turns profitable most likely towards the end of the year by. And so even if it does not sufficiently to make the second half overall profitable, but, but just in the particular quarter in which we reach operating profitability.

Reasons kind of.

Impacted all three the corporate account our corporate expansion individuals'. What we're excited about is that we've talked about this in the prepared remarks as we grow the business. We've got our SG&A level right now is supporting our activities in our business models as we grow sales were.

To have significant leverage opportunity too to bank a lot of that profitability and so both SG&A and fixed costs. So we've got everything ready to go we just need that lift in sales to get that leverage.

And is there an order of magnitude on the sampling costs that youre willing to share and does that go into isn't that go into gross margin chaplain costs would be fabric you create or do you do you take those.

Budd Bugatch: Yeah, that's what that's what now we hope that we hope your first statements are right, but that's where today we're saying we're not saying for the whole second half we're saying we'll turn to profitability in the second half.

Sample costs.

Budd Bugatch: Okay, and looking farther down the road. So that's going from the near term, intermediate terms, a little bit longer term, you continue to exude confidence and comfort longer term. And I think that if I got your message to even stronger now than it might have been even in some of the past calls. Can you kind of give us a framing of what that looks like? Tell us tell us what we should think about success when you get to success in the longer term.

Isolate and then make sure that showing up in SG&A and operating as much.

Hey, Bob the way that we characterize our sampling cost is really as a part of our launches. So it's really a part of our commercial process of sampling, creating doing all the development and design work relative to the new programs.

Okay. So it's not just not just the cost of the <unk> produced for the samples.

Producer might be send out to your clients put it Scott.

The wages.

Caution side over there for the team to develop those.

Budd Bugatch: Yeah, certainly, but I thank you for picking up on that. We are certainly we certainly understand that we're in a tough period or recovering from a even tougher period, but there is a lot of confidence in all of us as executive management that we see. We see brighter times for the business, we see where we're positioned, we see our innovative products and the platform we have to service customers. And we know that our industry is a generally over our history, been a stable slow growing industry.

It's all the costs from sampling design and launch preparation.

That winds up in operating expense is that right, yes, Sir yes.

Okay. Thank you Alex again, congratulations on navigating through well.

Challenging period, there is some in Europe some in the industry.

Well, they're not there anymore to do that thank you very.

Very much.

Have a good weekend.

You too.

This concludes our question and answer session I would like to turn the call back over to Paul for any closing remarks.

Budd Bugatch: We haven't been used to these ups and downs that we've had the last two, three years. That's been that's taken a toll on our our results. But as we get to some stability and the teams that we have in place operating both visions are really confidence inspiring. So when we look out in the. Beyond 24 and the 25, 26. We're back to double digit operating incomes and mattress fabrics and high single digit operating income percentages and upholstery fabrics.

Thank you 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.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Budd Bugatch: Now, and we'd like to go past that, but that's our first target to recover to. And, you know, I guess the depends on your horizon of medium, the long term, but we would see that happening in our medium term, as we look out forward. Okay, so that gets us to the margin side of that. And then in terms of the top line, you think you can match the industry's slow growing low to mid single digit kind of growth over time, top line.

Budd Bugatch: Yes, sir, yes, sir. I mean, ideally in our best days and we hope we can grow faster than the industry grows. That's always our goal. And I don't see why we can't, but we certainly will stay with industry pace and see that steady growth.

Budd Bugatch: Okay. All right.

Kenneth Bowling: And last for me, the other thing that I noticed in the quarter was SGNA was a little bit heavier than what we were looking for and operating trenches a little bit heavier. Maybe you can give us some colors to what we why that might have been and what we should expect as we go down the road. Yeah, but this is Ken. If we listed some some of the reasons for the higher, obviously, bragent wage inflation was a part of it.

Yes.

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Kenneth Bowling: We did have have some higher incentive compensation or cool, you know, keep in mind we're coming off of a very, very tough year and our way we're looking at this year is significant improvement. So we've got some some opportunity there. We also have some professional fees that, you know, just various professional fees and also, and this is something that both divisions had to contend with the stamping expense and people forget about that.

Yes.

Okay.

Kenneth Bowling: But, you know, this time last year, we didn't have any part of any new programs. And now both teams are dealing with new great opportunities and new row outs as though the sampling expense was higher. So all those reasons kind of impacted all three, the corporate account or corporate expense and the visuals. What we're excited about is that, you know, we've talked about this in the prepare remarks as we grow the business, we've got our SGNA level right now is supporting our activities and our business models.

Yes.

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Kenneth Bowling: As we grow sales, we're going to have significant leverage opportunity to to bank a lot of that profitability. And so both that both SGNA and fixed costs. So we've got everything ready to go. We just need that lift and sales to get that leverage. And is there an order of magnitude on the sampling costs that you're willing to share? And is that don't, doesn't that go into gross margin sampling costs would be fabric you create or do you take that those that sample costs that you, you know, isolate and then make sure that showing up in SGNA and operating expense.

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Kenneth Bowling: Hey, but the way that we characterize our sampling cost is really as a part of our launches. So it's really a part of our commercial process of sampling, creating, doing all the development and design work relative to the new programs. Okay, so it's not just the, not just the cost of the fire review produced for the samples, the producer may be sent out to your clients, but it's not, it's the wages and the costs inside of there for the team to develop. Please. It's all the cause from sampling, design, and launch preparations. And that winds up an operating expense. Is that right? Yes, sir. Yes. Okay.

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Budd Bugatch: Thank you. I look again. Congratulations on navigating through a challenging period. There's some in the industry that well, they're not there anymore to do that. Thank you very much. Thank you, bud.

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Unknown Executive: Have a good weekend. You too.

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Unknown Executive: This concludes the question and answer session.

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Good morning, and welcome to the Culp, Inc. First quarter fiscal 2024 earnings conference call.

Participants will be in a listen only mode should you need assistance. Please signal our conference specialist by pressing Star then zero.

After todays presentation, there will be an opportunity to ask questions.

Ill ask a question. Please press Star then one to withdraw your question. Please press Star then two please.

Please note this event is being recorded.

I'd now like to turn the conference over to Jill Anderson. Please go ahead.

Thank you good morning, and welcome to the Culp Conference call to review the company's results for the first quarter of fiscal 2024.

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.

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 Form 10-Q.

Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations and financial results.

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 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 Culp.

Dot com.

I will now turn the call over to Ed <unk>, President and Chief Executive Officer of Paul. Please go ahead.

Thank you drew and good morning, everyone and thank you for joining us today.

I'd like to welcome you to the Culp quarterly conference call with analysts and investors.

With me on the call are Ken Bowling, Chief Financial Officer, Boyd Chumbley, President of our upholstery fabrics business and Tommy Bruno President of our mattress fabrics business.

So today I'll begin the call with some detailed comments, including a discussion of key points and topics for the quarter and for both businesses as well as priorities as we look ahead.

After that Ken will review the financial results for the quarter.

I will then briefly review our business outlook for the second quarter of fiscal 'twenty four and we will then take your questions.

Regarding the current state of our business and the overall furniture embedding industries I want to review some overriding themes, we discussed last quarter and detail. Some critical actions, we are continuing to execute within both businesses.

I will also expand on our comments with a few important points that illustrate where copper is today.

Number one.

We are encouraged by our better than expected operating improvement for the quarter, both sequentially and year over year, despite the ongoing industry malaise and demand softness within the two industries we service.

Number two we remain excited about the progress of our comprehensive transformation within our CHF mattress fabrics business and we are pleased to be gaining market position in the face of some contraction in the domestic mattress industry.

Number three although market conditions are also pressuring the residential home furnishings industry. Our upholstery fabrics business has remained profitable despite these pressures and.

And demand remains quite solid and our growing hospitality business.

And number four we are continuing our diligent focus on prudent financial management, including maintaining a strong balance sheet and ensuring a strategic level of working capital.

So going to theme number one our results for the first quarter reflects a better than expected operating performance, both sequentially and year over year, even as industry demand remained soft, especially in residential home furnishings.

However, our operating performance improved despite pressure on sales due to internal improvements within both businesses.

The strong sequential and year over year improvement in our mattress fabrics business, a 45% improvement sequentially and a 52% improvement year over year was supported by the rollout of new fabric and cover placements during the period.

Robert Culp: I would like to count the call back over to if called for any closing remarks. Thank you, officer. 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.

As we've commented for some time now these new programs are priced in line with current raw material and operational costs and we expect these new programs to grow Culp home fashions market position in fiscal 'twenty four.

The operating improvement and the CHF business was also driven by our ongoing focus on operational efficiencies and cost reduction initiatives across our locations and I will expand more on this shortly.

I do want to emphasize the mattress fabrics sales for the quarter were flat compared to the prior year period, which is a solid performance in the face of difficult industry conditions, and certainly refract reflects our growing position in the market.

For the upholstery fabrics segment, we saw operational improvements in fixed cost savings along with solid demand in our hospitality contract fabric business and improvement for read window.

But as expected sales within our residential fabrics business were lower as compared to the first quarter of last fiscal year, which notably was a strong quarter due to a lift in sales following pandemic related shutdowns in China.

And the quick recovery that the upholstery furniture industry was experiencing at that time.

Our sales for residential fabrics. This quarter, we're certainly affected by the ongoing softness in the home furnishings industry and shifting consumer spending trends following the pandemic stay at home search.

While we do understand that the furniture and bedding environment remains challenged we will continue to manage the aspects of our business we can control.

Unknown Executive: The conference has now concluded. Thank you for attending today's presentation.

Unknown Executive: You may now disconnect.

Necessary steps to withstand current market conditions and position our business for renewed growth.

As detailed in earlier quarters, we have made platform changes to our cut and sew profile on both mattress fabrics and upholstery.

Unknown Executive: Anthony Lebiedzinski, Dru Anderson, Anthony Lebiedzinski, Dru Anderson, Anthony Lebiedzinski, Dru Anderson, Anthony Lebiedzinski, Dru Anderson, Anthony Lebiedzinski, Dru Anderson, Anthony Lebiedzinski, Dru Anthony Lebiedzinski, Dru Anthony Lebiedzinski, Dru Anderson, Kenneth Bowling, Robert Culp, Boyd Culp, Boyd Chumbley, Anthony Lebiedzinski, Dru Anderson, Kenneth Bowling, Robert Culp, Boyd Anthony Lebiedzinski, Dru Anderson, Kenneth Bowling, Robert Culp, Boyd Chumbley, Anthony Lebiedzinski, Dru Anderson, Kenneth Bowling, Anthony Lebiedzinski, Dru Anderson, Kenneth Bowling, Robert Culp, Boyd Chumbley, Anthony Lebiedzinski, Anthony Lebiedzinski, Dru Anderson, Kenneth Bowling, Good morning and welcome to the Culp Inc.

And the cost benefits from these adjustments are coming to bear.

We are also focused on managing our operational efficiencies across our fabric platforms.

Unknown Executive: 1st quarter of fiscal 2020 for earnings conference calls. All participants will be in the listen only mode. Should you need assistance? Please signal a conference specialist by pressing star, then zero. After today's presentation, there will be an opportunity to ask questions. To ask the questions, please press star, then one. To adore your question, please press star, then two. Please note this event is being regarded.

And therefore lowering overall costs.

Beyond Q1, we believe our continuing recovery will be led by our mattress fabric segment, while our execution of a comprehensive transformation plan is laying the foundation for steady improvement.

Dru Anderson: I would now like to go on the conference over to Dru Anderson. Please go ahead. Thank you. Good morning and welcome to the Culp Conference call to review the company's results for the first quarter of fiscal 2020 for work. As we start, let me state that this morning's call will continue 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.

I'll expand much more on the mattress fabrics transformation plan momentarily, but our sequential and year over year operating improvement reflects some of these initiatives, we have undertaken internally to manage our business.

Dru Anderson: 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 10K and form 10Q. Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations and financial results. Your caution not to place undue reliance on forward-looking statements made today and each such statement speaks only as of today.

Dru Anderson: We undertake no obligation to update or to revise forward-looking statements. In addition, during this call, the company will be discussing non-gap financial measurements. A reconciliation of these non-gap financial measurements to the most directly comparable gap financial measurements is included in the tables to the press release, included as an exhibit to the company's 8K file yesterday and posted on the company's website at cult.com.

Robert Culp: I will now turn the call over to if cult president and chief executive officer of cult. Please go ahead if. Thank you Drew and good morning everyone and thank you for joining us today. I would like to welcome you to the Cult Quarterly Conference call with analysts and investors. With me on the call are Ken Bowling, chief financial officer, Boyd Schumley, president of our poll street fabrics business and Tommy Bruno, president of our mattress fabrics business.

While the challenging industry environment is expected to continue for some time, our market position is strong and improving and we believe we are poised for a considerably better second half of fiscal 'twenty, four and Thats November to April by the calendar.

With a return to operating profitability in this fiscal year.

Regardless of the current demand backdrop, we expect continued progress in improving our operating results.

But we understand the speed of our recovery may be affected by overall industry trends.

We would like to see some macro tailwind to allow recovery to happen quicker.

We are well prepared for the long term and our strong leadership teams innovative product offerings creative designs and a resilient global manufacturing and sourcing platform will support us into the future, especially when the environment improves.

The second important thing to expand on is the business transformation update within Culp home fashions, our mattress fabrics segment under the leadership of Division President and Tommy Bruno along with his restructured management team.

Robert Culp: So today I'll begin the call with some detailed comments including a discussion of key points and topics for the quarter and for both businesses as well as priorities as we look ahead. After that, Ken will review the financial results for the quarter and I will then briefly review our business outlook for the second quarter of fiscal 24 and we will then take your questions. Regarding the current state of our business and the overall furniture embedding industries, I want to review some overriding themes we discussed last quarter and detail some critical actions we are continuing to execute within both businesses.

Our transformation plan focuses on long term improvement in every facet of the business, including quality sales marketing and operational processes supply chain optimization employee engagement and organizational and management structure.

Robert Culp: I will also expand on our comments with a few important points to illustrate where cult is today. Boyd Chumbley. Number one, we are encouraged by our better than expected operating improvement for the quarter, both sequentially and year-over-year, despite the ongoing industry malaise and demand softness within the two industries we service. Number two, we remain excited about the progress of our comprehensive transformation within our CHF mattress fabric business. And we are into domestic mattress industry.

Robert Culp: Number three, although market conditions are also pressuring the residential home furnishings industry, our policy fabrics business has remained profitable despite these pressures, and demand remains quite solid in our growing hospitality business. And number four, we are continuing our diligent focus on prudent financial management, including maintaining a strong balance sheet and ensuring a strategic level of working capital. So going to theme number one, our results for the first quarter reflected better than expected operating performance, both sequentially and year-over-year, even as industry demand remains soft, especially in residential home furnishings.

As we said we believed CHF improvement as our best short term opportunity for recovery and growth from our current levels.

Tommy in the CHF management team remain focused on operational excellence.

Robert Culp: However, our operating performance improved despite pressure on sales due to internal improvements within both businesses. The strong sequential and year-over-year improvement in our mattress fabrics business, a 45% improvement sequentially, and a 52% improvement year-over-year, was supported by the rollout of new fabric and cover placements during the period. As we have commented for some time now, these new programs are priced in line with current and fiscal 24. The operating improvement in the CHF business was also driven by our ongoing focus on operational efficiencies and cost reduction initiatives across our locations, and I will expand more on this shortly.

As well as balancing our product mix to proper volumes and steady run schedules.

Even after our previous cost saving adjustment to our domestic North Carolina cut and sew capabilities.

We continue with our robust global platform, featuring manufacturing and sourcing capabilities in six countries.

The U S Canada, Turkey.

China and Vietnam.

Robert Culp: I do want to emphasize that mattress fabric fails for the quarter were flat compared to the prior year period, which is a solid performance in the face of difficult industry conditions, and certainly reflect reflects our growing position in the market. For the poultry fabric segment, we saw operational improvements and fixed cost savings along with solid demands in our hospitality contract fabric business and improvement for read window. But as expected, sales within our residential fabrics business were lower as compared to the first quarter of last year, which notably was a strong quarter due to a lift in sales following pandemic-related shutdowns in China, and the quick recovery that the upholstery furniture industry was experiencing at that time.

Our combination of onshore nearshore and offshore options provide our mattress fabric and sewn cover customers with the agility and value they need for their business.

Combining this platform with our expertise in design and product innovation, we are making excellent progress for sustainable improvement in fiscal 'twenty four.

Overall as we've mentioned the domestic mattress industry is experiencing experiencing significant contraction.

With industry reports showing aggregate reductions of 10% in dollars and 20% in units through the first six months of calendar 'twenty three.

But notably again CHF revenue over the same general period has remained flat.

Indicating that CHF has made gains with customers in a difficult market environment.

Robert Culp: Our sale for residential fabrics this quarter were certainly affected by the ongoing softness in the home furnishings industry, and shifting consumer spending trends following the pandemic stay at home surge. While we do understand that the furniture and vetting environment remains challenged, we will continue to manage the aspects of our business we can control, taking necessary steps to withstand current market conditions, and position our business for renewed growth, as detailed in earlier quarters, we have made platform changes to our cut-and-so profile in both mattress fabrics and a poultry, and the cost benefits from these adjustments are coming to there.

While the mattress industry slowness may remain for some period, we still expect to improve our performance through new programs and improved operations. However.

A recovery in CHF is not fully dependent on the industry environment and.

And assuming our sales volumes in fiscal 'twenty, four do not materially fall below the prior year.

We expect to see significant progress with steady sustainable improvement in CHF this year and beyond.

The third important theme is the continued profitability of culp upholstery fabrics.

I've detailed just now a lot of excitement about CHF, but is equally as important to note the steady performance of <unk>.

Robert Culp: We are also focused on managing our operational efficiencies across our fabric platforms and therefore lowering overall costs. Beyond Q1, we believe our continuing recovery will be led by our mattress fabric segment, where our execution of a comprehensive transformation plan is laying the foundation for study improvement. I'll expand much more on the mattress fabric transformation plan momentarily, but our sequential and year-over-year operating improvement reflects some of these initiatives we have undertaken internally to manage our business.

Division, President and Boyd Chumbley and a strong leadership team have managed effectively and the most in the midst of abnormal tumultuous times.

<unk> has maintained profitability with a focus on improving operational efficiencies and proactively taking strategic actions to reduce our cost structure to align with demand levels.

We'll also always supporting our customers with our flexible global platform.

I believe the U S has best in class in servicing our customers and our design and product excellence combined with an effective global platform as.

Robert Culp: While the challenging industry environment is expected to continue for some time, our market position is strong and improving, and we believe we are poised for a considerably better second half of fiscal 24, and that's November to April by the calendar, with a return to operating profitability in this fiscal year. Regardless of the current demand backdrop, we expect continued progress in improving our operating results, but we understand the speed of our recovery may be affected by overall industry trends.

<unk> led the way.

Our improved operating costs within <unk> began with the restructuring of our cut and sew, possibly kit platform in China during the second quarter of last fiscal year.

And then continued with the rationalization of our upholstery cut and sew platform in Haiti near the end of last fiscal year.

We took further action in Haiti, this quarter to discontinue production of cut and sewn upholstery kept at this location based on demand softness.

This step further reduce the <unk> cost structure and avoids losses that would have otherwise been incurred.

Robert Culp: We would like to see some macro tailwinds to allow recovery to happen quicker. We are well prepared for the long term, and our strong leadership teams, innovative product offerings, creative designs, and a resilient global manufacturing and sourcing platform will support us into the future, especially when the environment improves.

While allowing this business to continue to support customers through its strong Asian supply chain.

Notably through these actions and other improvements in operational efficiencies.

<unk> has been effective in lowering its overall cost levels to remain profitable in the face of reduced demand.

Just one quick aside I do want to again reiterate that while we have discontinued production of upholstery cut and sew kits in Haiti, our Haiti cut and sew platform from mattress covers remains an integral part of our strategic plan.

Robert Culp: The second important thing to expand on is the business transformation update within Culpham Fashions, our mattress fabric segment, under the leadership of the Division President Tommy Bruno, along with his restructured management team. Our transformation plan focuses on long-term improvement in every path to the business, including quality, sales, marketing, and operational processes, supply chain optimization, employee engagement, and organizational management structure. As we said, we believe CHF improvement is our best short-term opportunity for recovery and growth from our current levels.

Now turning back to <unk>. We are also adjusting our global platform for the fabrics portion of our upholstery fabrics business.

As we look to provide options within our supply chain in China, Vietnam and multiple other new countries.

Customer service is a hallmark for call and a diversified platform provides improved risk management and a more stable supply base.

Of note, our hospitality contract business accounted for 33% of segment sales for the first quarter.

Robert Culp: Tommy and the CHF management team remain focused on operational excellence, as well as balancing our product mix to proper volumes and steady runs schedules. Even after our previous cost-saving adjustment to our domestic North Carolina cut-and-so capabilities, we continue with a robust global platform featuring manufacturing and sourcing capabilities in six countries, the U.S., Canada, Turkey, Haiti, China, and Vietnam. Our combination of all-shore, near-shore, and offshore options provide our mattress fabric and sound cover customers with the agility and value they need for their business.

While this percentage is higher than normal due to lower residential sales. It does reflect the ongoing solid performance of our hospitality contract business as well as importance to our overall strategy of product diversification for this segment.

While the tough demand environment may continue for some time.

Upholstery fabrics remains well positioned for the long term with a scalable global platform and innovative product offerings, including our popular portfolio of live smart performance products.

And our new product technologies.

We are also beginning to see increases in newly written fabric orders.

Robert Culp: Combining this platform with our expertise in design and product innovation, we are making excellent progress for sustainable improvement in fiscal 24. Overall, as we've mentioned, the domestic mattress industry is experiencing significant contraction, with industry reports showing aggregate reductions of $10% and $20% in units through the first six months of calendar 23. But notably, again, CHF revenue over the same general period has remained flat, indicating that CHF has made gains with customers in a difficult market environment.

And we believe we will see the benefit from this in the second half of fiscal 'twenty four.

Robert Culp: While the mattress industry's loan is may remain for some period, we still expect to improve our performance through new programs and improved operations. Our recovery in CHF is not fully dependent on the industry environment. And assuming our sales volumes in fiscal 24 do not materially fall below the prior year, we expect to see significant progress with steady, sustainable improvement in CHF this year and beyond.

Similar to the first quarter. We also expect the upholstery fabric segment will continue to benefit costs through the remainder of fiscal 'twenty four with improved inventory management, a solid hospitality contract fabric business improvement and our read window business and our rationalized cut and sew platform.

And lastly, I'll skip to the fourth theme, which is constant focus on prudent financial management, including maintaining a strong balance sheet and ensuring a strategic level of working capital.

I am very pleased with the management team for its continued effort in maintaining our cash and total liquidity position.

We ended the quarter was $16 $8 million in cash and no outstanding borrowings and we had total liquidity of $42 $3 million, consisting of cash and borrowing borrowing availability under our domestic credit facility.

We are continuing to carefully manage inventory against current demand levels and we are strategically investing in our business.

Robert Culp: The third important theme is the continued profitability of culpable poultry fabrics. I've detailed just now a lot of excitement about CHF, but it is equally as important to note the steady performance of CUF. Division President Boyd Chamley and his strong leadership team have managed effectively in the midst of abnormal tumultuous times. CUF has maintained profitability with the focus on improving operational efficiencies, and proactively taking strategic action to reduce our cost structure to align with demand levels, while also always supporting our customers with our flexible global platform.

I have repeatedly through my remarks mentioned the softness within our industries and that has been most evident to us by several recent closures within the furniture industry.

And remember this is on the heels of several bankruptcies, we witnessed in the last year as well.

We are seeing some suppliers competitors and customers endure financial difficulty and it gives us more appreciation for our financial stability and its importance to our future.

We are managing accounts receivable effectively and we do not have any material exposure with respect to the recent closures.

Robert Culp: I believe CUF has best in class in servicing our customers and our design and product excellence combined with an effective global platform has led the way. Our improved operating costs within CUF began with the restructuring of our cut and sew poultry kit platform in China during the second quarter of last fiscal year, and then continued with the rationalization of our poultry cut and sew platform in Haiti near the end of last fiscal year.

I am grateful to our credit teams and divisional management for how we conduct comps business with the lens towards the future and careful partner selection.

We fully recognize that the management of <unk> strong balance sheet is a critical initiative.

And we believe we are well positioned to focus on investing and optimizing our global manufacturing platform and growing profitable sales.

Robert Culp: We took further action in Haiti this quarter to discontinue production of cut and sewed poultry kits at this location based on demand softness. This step further reduces the CUF's cost structure and avoids losses that would have otherwise been incurred while allowing this business to continue to support customers through its strong Asian supply chain. Notably through these actions and other improvements in operational efficiencies, CUF has been effective in lowering its overall cost levels to remain profitable in the face of reduced demand.

I'll now turn the call over to Ken who will review the financial results for the quarter and then ill briefly review the outlook for the second quarter of this fiscal year, Ken. Thanks, Nick here are the financial highlights for the first quarter, starting with consolidated results net sales were $56 7 million down nine 5%.

Compared with the prior year period, driven almost entirely by a decline in upholstery fabric sales.

The company reported a loss from operations of $3 1 million, which included 517000 in mostly noncash restructuring related charges associated with the discontinued production of cut and sewn upholstery kits in Haiti during the quarter as we have discussed earlier.

Robert Culp: There's one quick aside, I do want to again reiterate that while we have discontinued production of a poultry cut and sewed kits in Haiti, our Haiti cut and sew platform from mattress covers remains an integral part of our strategic plan. Now turning back to CUF, we are also adjusting our global platform for the fabrics portion of our poultry fabrics business. As we look to provide options within our supply chain in China, Vietnam, and multiple other new countries.

Excluding this 517000 adjusted loss from operations for the quarter was $2 6 million a better than expected improvement as compared with a loss of operations of $4 7 million for the prior year period.

The loss from operations of $4 million for the fourth quarter of last fiscal year.

Net loss for the first quarter was $3 3 million or <unk> 27 per diluted share compared with a net loss of $5 7 million or <unk> 47 per diluted share for the prior year period.

Robert Culp: Customer service is a hallmark for coal and a diversified platform provides improved risk management and more stable supply. Today's. Of note, our hospitality contract business account for 33% of segment sales for the first quarter. While this percentage is higher than normal due to lower residential sales, it does reflect the ongoing solid performance of our hospitality contract business, as well as its importance to our overall strategy of product diversification for this segment.

Net loss for the quarter included the 517000 restructuring related charges I just mentioned.

Our overall operating performance for the first quarter as compared to prior year period was positively affected by improved margins on new products.

Improvement in operating efficiencies and lower overhead costs in both segments a higher contribution.

Attribute from hospitality fabrics, and the re window business and a more favorable foreign exchange rate associated with China.

Robert Culp: While the tough demand environment may continue for some time, Culp opposed to fabrics means well positioned for the long term with a scalable global platform and innovative products offerings, including our popular portfolio of live smart performance products and our new product technology. We are also beginning to see increases in newly written fabric orders, and we believe we will see the benefit from this in the second half of fiscal 24. Similar to the first quarter, we also expect the Apple Street fabric segment will continue to benefit Culp through the remainder of fiscal 24 with improved inventory management, a solid hospitality contract fabric business, improvement in our read window business, and a rationalized cut and sew platform.

This year over year improvement in operating performance was partially offset by margin pressures due to lower sales and higher SG&A expense.

SG&A expense was higher than last year due to increased compensation expense, mostly related to wage inflation and higher incentive compensation accruals.

Professional fees and increased sampling expense driven by new product rollouts in both businesses.

Importantly, with regard to SG&A expense as business conditions improve and demand for new products rise. We believe that we will get significant leverage from the increased sales.

Adjusted EBITDA for the period was close to breakeven at negative $416000 as compared to adjusted EBITDA of negative $2 7 million for the prior year period.

Robert Culp: And lastly, I'll skip to the fourth theme, which is constant focus on prudent financial management, including maintaining the strong balance sheet and ensuring a strategic level of working capital. I'm very pleased with the management team for its continued effort in maintaining our cash and total liquidity position. We enter the quarter with $16.8 million in cash and no outstanding borrowings, and we had total liquidity of $42.3 million, consisting of cash and borrowing availability under our domestic credit facility.

The effective impact income tax rate for the first quarter of this fiscal year was a negative 26, 5% compared with a negative 18, 7% for the same period a year ago our.

Our effective income tax rate for the quarter was impacted by the company's mix of earnings between our U S and foreign subsidiaries with an operating loss in the U S. While China, Canada generated income that was tax at higher rate as compared to the U S.

Our cash income tax payments totaled $1 1 million for the first quarter of this fiscal year <unk>.

Robert Culp: We are continuing to carefully manage inventory against current demand levels, and we are strategically investing in our business. I have repeatedly through my remarks, mentioned the softness within our industries, and that has been most evident to us by several recent closures within the furniture industry. And remember, this is on the heels of several bankruptcies we witnessed in the last year as well. We are seeing some suppliers, competitors, and customers endure financial difficulty, and it gives us more appreciation for our financial stability and its importance to our future.

And based on current expectations. We currently plan for cash income tax payments of approximately $3 2 million for the entire fiscal 'twenty four year <unk>.

Importantly, our estimated cash income tax payments for fiscal 'twenty four are management's current projections only and can be affected by a variety of factors over the course of the year.

Now, let's take a look at our business segments.

For the mattress fabrics segment sales for the first quarter were $29 2 million down 5% compared to last year's first quarter outperforming overall industry trends.

Operating loss for the quarter was $1 4 million, a 52% improvement compared to an operating loss of $2 9 million a year ago.

Robert Culp: We are managing accounts receivable effectively, and we do not have any material exposure with respect to the recent closures. I am grateful to our credit teams and the visual management for how we conduct Culp's business with a lens towards the future and careful partners' election. We fully recognize that the management of Culp's strong balance sheet is a critical initiative, and we believe we are well positioned to focus on investing and optimizing our global manufacturing platform and growing profitable sales.

This operating improvement was driven by new placements price in line with current cost improvements in operating efficiencies and lower costs, resulting from the restructuring and rationalization of this segment's mattress cover platform initiated last fiscal year offset somewhat by higher SG&A expense.

For the upholstery fabrics segment sales for this first quarter were $27 4 million down 17, 4% over the prior year period.

Which was strong which was a strong quarter due to a lift in sales following pandemic related shutdowns in China.

Kenneth Bowling: I will now turn the call over to Ken, who will review the financial result of the quarter, and then I will briefly review the outlook of the second quarter of this fiscal year. Ken, thanks. Here are the financial highlights for the first quarter. Starting with consolidated results, net sales are 56.7 million, down 9.5%, compared with the prior period, driven almost entirely by a decline in opposed to fabric sales. The company reported a loss of operations of 3.1 million, which included 517,000 and mostly non-cast restructions related charges, associated with the discontinued production of cut and stone of poultry kits and Haiti during the quarter, as it discussed earlier.

Sales for our resident residential fabric business for the quarter were affected by ongoing softness in the residential home furnishings industry. However.

However, demand remains solid in our poultry and our hospitality contract business during the first quarter with sales for this business accounted for approximately 33% of the upholstery fabric segment's total sales.

Operating income and operating margin for the quarter were $1 3 million and four 8%, a 145% and 320 basis point improvement respectively compared with the prior year period. This operating performance was positive positively affected by a higher contribution from hospitality fabric.

Kenneth Bowling: Excluding this 517,000, adjusted loss of operations for the quarter was 2.6 million, a better than expected improvement has compared with the loss of operations of 4.7 million for the prior period, and the loss of operations of 4 million for the fourth quarter of last fiscal year. Net loss for the first quarter was 3.3 million or 27 cents per diluted share, compared with the net loss of 5.7 million or 47 cents per diluted share for the prior period.

And read window business lower cost, resulting from the restructuring of this segment's cut and sew platforms through an earlier period.

And a more favorable foreign exchange rate associated with the statements of operations in China as well as other operational improvements.

These factors were partially offset by a lower residential fabric sales and higher SG&A during the period.

Now I'll turn to the balance sheet, we reported $16 8 million and total cash and no outstanding debt as of the end of the first quarter.

Kenneth Bowling: Net loss for the quarter included the 517,000 restructuring related charges, I just mentioned. Our overall operating performance for the first quarter, as compared to prior period, was positively affected by improved margins on new products, improvement in operating efficiencies and lower overhead costs in both segments, a higher contribution from hospitality fabric and the red window business, and a more favorable foreign exchange rate associated with China. This year over year improvement in operating performance was partially offset by margin pressures due to lower sales and higher SGN expense.

Cash flow from operations and free cash flow were negative $4 4 million and negative $4 2 million respectively for the first three months of this fiscal year.

Our cash flow from operations and free cash flow during the period were affected by an operating loss and investments in working capital and capital expenditures most related to the mattress fabrics transformation plan.

Capital expenditures for the first three months of this fiscal year were $513000.

Based on our current expectations capital spending for this fiscal year is projected to be in the range of $5 million to $6 million and most center, mostly on maintenance Capex and quick payback projects focused on improving quality and efficiency in our mattress fabrics business.

Kenneth Bowling: SGN expense was higher than last year due to increased compensation expense, most related to wage inflation and higher compensation or pools, higher professional fees, and increased sampling expense driven by new product rowouts in both businesses. Importantly, with regard to SGNA expense, as business conditions improve and demand for new products rise, we believe that will get significant leverage from the increased sales. Adjusted EBDIB for the period was close to break even at negative 416,000, as compared to adjusted EBDIB negative 2.7 million for the prior year period.

Based on current expectations depreciation for this fiscal year is expected to be approximately $7 million.

With respect to liquidity as of the end of the first quarter, we had $42 3 million consisting of $16 8 million of total cash and $25 5 million and borrowing.

Availability under our asset base domestic credit facility.

Borrowing availability under this facility is based on a calculation using certain of the company's accounts receivable and inventory determined on a monthly basis.

Kenneth Bowling: The effective income tax rate for the first quarter of this fiscal year was a negative 26.5%, compared with a negative 18.7% for the same period a year ago. Our effective income tax rate for the quarter was impacted by the company's mix of earnings between our US and foreign subsidiaries with an operating loss in the US, while China and Canada generated income that was taxed at higher rate as compared to the US.

The company did not repurchase any shares during the first quarter of this fiscal year, leaving $3 $2 million available under our current share repurchase program.

Despite the current share repurchase authorization, we do not expect any activity during the second quarter. This fiscal year as we remain focused on preserving liquidity and being positioned to support future growth opportunities.

With that I'll turn the call over to <unk> to discuss the general outlook for the second quarter of this fiscal year and then we'll take your questions.

Kenneth Bowling: Our cash income tax payments total 1.1 million for the first quarter of this fiscal year, and based on current expectations, we currently plan for cash income tax payments for approximately 3.2 million for the entire fiscal 24 year. Importantly, our estimated cash income tax payments for fiscal 24 are management's current projections only and can be affected by our variety of factors over the course of the year.

Thank you can do.

Due to the continued volatility in the macro environment.

We're providing only limited financial guidance for the second quarter of fiscal 'twenty four.

We expect consolidated net sales for the second quarter to be comparable to the second quarter of fiscal 'twenty three driven by further improvement in the mattress fabrics segment, but offset by lower residential upholstery fabric sales.

Kenneth Bowling: Now, let's take a look at our business segment. For the mattress fabric segment sales for the first quarter were 29.2 million, down 0.5%, compared to last year's first quarter, outperforming overall industry trends. Operating loss for the quarter was 1.4 million, a 52% improvement compares an operating loss to 2.9 million a year ago. This operating improvement was driven by new placements, price and land with current costs, improvements in operating deficiencies, and lower costs resulting from the restructuring and rationalization of this segment's mattress cover platform.

We expect consolidated operating loss for the second quarter of fiscal 'twenty for that as a range of $2 two to $2 $6 million.

A significant improvement compared to the 11 $9 million operating loss for the prior year period.

Which did include approximately $6 million relating to certain inventory impairment charges lots of some inventory closeout sales and greater than normal inventory markdowns.

Again, I will comment that we believe we are poised for a considerably better second half performance with a return to operating profitability this fiscal year.

Kenneth Bowling: In this year's last fiscal year, offsets somewhat by higher SGN expense, for the opposing fabric segment sales for this first quarter were 27.4 million, down 17.4% over the prior period, which was a strong quarter due to a list of sales following pandemic related shutdowns in China. Sales for our residential fabric business for the quarter were affected by ongoing softness in the residential home furnishings industry. However, the man remains solid in our poultry in our hospitality contract business during the first quarter was sales for this business accounted for approximately 33% of the opposing fabric segments total sales.

Finally, we will continue to be laser focused on prudent financial management with the goal of always maintaining a strong balance sheet, especially with regard to ensuring strategic balance in our working capital.

We are optimistic about <unk> future and we know that financial stability is paramount to our success.

So with that we will now take questions.

We will now begin the question and answer session.

To ask a question you May press Star then one on your Touchtone phone if youre using a speakerphone please pick up.

Before pressing the keys.

Kenneth Bowling: Operating income and operating margin for the quarter were 1.3 million and 4.8%, 145% and 320 basis point improvement respectively compared with the prior year period. This operating performance was positively affected by a higher contribution from hospitality fabrics and re-lindo business, lower costs resulting from the restructuring of this segment's cut and so platforms during earlier periods, and a more favorable foreign exchange rate associated with this segment's operations in China as well as other operational improvements. These factors were partially offset by our lower residential fabric sales and higher SNA during the period.

But anytime you question has been addressed from you would like to withdraw your question. Please press Star then two.

Our first question comes from Anthony maybe Pinsky Brooks Sidoti and company. Please go ahead.

Good morning, and thank you for taking the questions. So first just a quick comment.

A perfect job of maintaining a strong balance sheet and.

Certainly nice to see solid gross profit gains here in the quarter.

So firstly.

Yes sure. So first question here for CHF. So you mentioned that new placements are in line with current costs and Thats great to hear so I guess for the quarter can you give us just kind of a rough breakdown between pricing and unit volumes.

Kenneth Bowling: Now it turns to balance sheet. We reported 16.8 million in total cash and no outstanding debt as of the end of the first quarter. Cash flow from operations and free cash flow were negative 4.4 million and negative 4.2 million respectively for the first three months of this fiscal year. Our cash flow from operations and free cash flow during the period were affected by an operating loss and investments in working capital and capital expenditures most related to the mattress fabric transformation plan.

Would love to hear your thoughts on that.

Yes, yes, yes, Anthony I mean.

I think we've mentioned this before I mean, we.

We price new products to capture the cost that.

That pricing flow throughout the year I mean, obviously, we we were right in line with sales and units were close as well so really.

Kenneth Bowling: Capital expenditures for the first three months of this fiscal year were 513 thousand dollars. Based on current expectations capital spending for this fiscal year has projected the minimum range of 5 to 6 million and will center mostly on maintenance cap ex and quick payback projects focused on improving quality and efficiency in our mattress fabric business. Based on current expectations depreciation for this fiscal year is expected to be approximately 7 million. With respect to liquidity as of the end of the first quarter we had 42.3 million consisting of 16.8 million total cash and 25.5 million in borrowing availability under our asset based domestic credit facility.

It wasn't a big difference at all pretty can still combos we.

We were building in the mattress fabrics business, Anthony and you hopefully you hear our excitement as we talked about the business, it's such a such a strong turnaround thats underway and we're growing dollars and units.

Or a unit driven company. So we're not going to have success without also growing units. So we're doing both.

Got you understood Okay.

So I mean, so before Covid I mean, the gross margin of CHF was in the mid teens at even higher in prior years, so given the transformation underway.

Do you think it's reasonable that you could get back to at least double digit segment margins sometime this fiscal year.

Kenneth Bowling: Borrowing availability under this facility is based on a calculation using certain of the company's accounts receivable and inventory determined on a monthly basis. The company did not repurchase any shares during the first quarter of this fiscal year leaving $3.2 million available under our current share repurchase program. Despite the current share repurchase authorization we do not expect any activity during the second quarter of this fiscal year as we remain focused on preserving liquidity and being positioned to support future growth opportunities.

Well, Anthony we I'll, let I'll, let Tom you made some comments what he has seen probably.

It won't be as bold to tell you exactly when that's going to happen, but all.

All the investor information that we're putting out through our new deck.

Sort of a minimum standard for our expectation in the CHF business is double digit operating income percent.

And we certainly have every intention of being at that in our intermediate.

Intermediate future now, whether we can get all the way to double digit profitability.

Robert Culp: With that I'll turn the car over to you to discuss the general outlook for this second quarter of this fiscal year and then we'll take your questions. If thank you Ken. Due to the continued volatility in the macro-environment We are overwhelmingly limited financial guidance for the second quarter of fiscal 24. We expect consolidated net sales for the second quarter to be comparable to the second quarter of fiscal 23, driven by further improvement in the mattress fabric segment, but offset by lower residential of post-refabric sales.

In this fiscal year.

TBD, but we are expecting to return to consult to profitability both in the division and consolidated in this year.

Tom anything you would add as you are just going through the process No I think that's a good representation of the improvement I think Anthony we expect it to be sequentially higher quarter over quarter.

And with the objective of getting back to historical profitability rates.

Okay that sounds good.

Robert Culp: We expect consolidated operating loss for the second quarter of fiscal 24, that is in the range of $2.2 to $2.6 million, a significant improvement compared to the $11.9 million operating loss for the prior year period. We should include approximately $6 million relating to certain inventory impairment charges, losses from inventory closed out sales, and greater than normal inventory markdowns. Again, I will comment that we believe we are poised for a considerably better second half performance, with a return to operating profitability this fiscal year.

And then for COF.

The residential obviously as you called out is softer.

But are you seeing any notable customers moving away from copper or is it just.

Just seeing that customers are just ordering less across the board now.

I'll, let boyd speak to that question Anthony.

Yes, Anthony no, we're really not seeing any dramatic changes in our customer base.

I think this is more just an overall industry demand.

Robert Culp: Finally, we will continue to be laser focused on prudent financial management, with the goal of always maintaining a strong balance sheet, especially with regard to ensuring strategic balance and our working capital. We are optimistic about Culp's future, and we know that financial stability is paramount to our success.

Situation that we're being impacted with and of course, we have to remember too that for this quarter.

We're comparing to an abnormally higher first quarter of last year due to the.

Pandemic so.

The extreme pandemic induced swings in demand over the last several years have made year over year comparisons difficult so but no to answer your question don't see that we're having any.

Unknown Executive: So with that, we will now take questions. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you're using a speaker phone, please pick up handset before pressing the keys. If at any time your question has been addressed, then you would like to withdraw your question please press star then two.

Any changes in our in our customer mix in any significant way. This is more just industry wide demand depression at the moment and Anthony as Boyd Boyd has worked here of whats called for almost 40 years and.

And we've seen our shares of ups and downs in the residential furniture business over many many times and we always think.

Anthony Lebiedzinski: Our first question comes from Anthony Libby-Zinski with Cibility and Company. Please go ahead. Good morning and thank you for taking the questions. So first, just a quick comment, the overall perfect job of maintaining a strong balance sheet and certainly nice to see solid growth profit gains here in the quarter. So first question here for CHF, so you mentioned that new placements are in line with current costs and that's great to hear.

Typically bears itself out we gain market position in times like this and typically when these times past, we found ourselves in better position and this is no different we believe on our side, we are actually gaining market position now.

And we think its fully driven by just a slowness in the current industry and supply chains are adjusting.

New products are being rolled out on the floor.

Anthony Lebiedzinski: So I guess for the quarter, can you give us a rough breakdown between pricing and unit volumes? We would love to hear your thoughts on that. Yeah, Anthony, I think we've mentioned this before. We priced new products to capture the cost and that pricing flows throughout the year. I mean, obviously we were right in line with sales and units were close as well. So really wasn't a big difference at all. Pretty consistent.

Remember, we skipped about a year of new intros in that business for a little bit as no one needed relaunched retail so as that starts to happen, we're pretty optimistic about where it is going to go and we noted in our script that we are now starting to see new written orders gradually increase so we are seeing optimism as we look past <unk>.

Looking past second quarter, but we do see those sales levels starting to pick back up.

That's great to hear.

And then last question before I turn the call over to others.

I guess.

Really a question for Ken.

So inventory management that has certainly been a nice source of cash so nice job with that so do you think you can further reduce inventories.

Anthony Lebiedzinski: We were building in the mattress fabric business, Anthony, and hopefully you hear our excitement as we talk about the business such a strong turnaround that's underway and we're growing dollars in units. I mean, we're a unit driven company, so we're not going to have to access without also growing units. So we're doing both. Got you. Understood. Okay. So before COVID, I mean, the gross margin of CHF was in the mid teens and even higher and higher years.

How about cash flow so how should we think about that.

Yes Anthony.

As we look to <unk>.

Grow the business on both sides both teams have done.

Over the last six quarters, they've done a remarkable job of getting inventory down and really meeting demand and so as we proceed ahead into the next quarters. Our focus is going to be on growing the business and and as we said in the prepared remarks balancing inventory with sales net that we preach that every.

Anthony Lebiedzinski: So given the transformation underway, do you think it's reasonable that you could get back to at least double-digit segment margins sometime this fiscal year? Well, Anthony, I'll let Tommy make some comments to what he's seen. The problem won't be as bold to tell you exactly when that's going to happen, but in our all the investor information that we're putting out through our new deck, you know, sort of a minimum standard for our expectation in the CHF business is double digit operating income percent, and we certainly have every intention of being at that in our intermediate future.

Day so.

Is there some opportunity to continue to maximize efficiencies and inventory probably some but right now we've got to make sure. We've got the right amount of inventory on hand to support growth and so but that said we're going to be.

Very careful about balancing both as we grow the business.

Understood. Okay, well, thank you very much and best of luck.

Thank you Anthony have a great day happy weekend.

Anthony Lebiedzinski: Now, whether we can get all the way to double digit profitability in this fiscal year, TBD, but we are expecting to return to consult to profitability, both in the division and consolidate it in this year. Tommy, anything you would add as you're just going through the process? No, I think that's a good representation of the improvement. I think Anthony, we expected to be sequentially higher quarter over quarter, and with the objective of getting back to historical profitability rates.

Likewise.

Our next question comes from Brian <unk> with water Tower Research. Please go ahead.

Good morning. Thank you for taking my questions first I just want to comment that Joe.

I know it's been a very.

Tumultuous time for sure.

For everybody.

Congratulations on keeping the.

Financial condition called the globe pretty strong.

Through these times.

Thank you.

Anthony Lebiedzinski: Okay, that sounds good. And then for CUF, you know, the residential, obviously, as you call that, is softer. But I, are you seeing any notable customers moving away from culpores is just, is that interesting that customers are just ordering less across the board now? I'll let Boyd speak to that question, Anthony. Yes, Anthony. No, we're really not seeing any dramatic changes in our customer base. I think this is more just an overall industry demand situation that we're being impacted with.

Yes.

You're welcome thank you.

I guess the first question is you talk about the improvements in <unk>.

Hey, Jack.

And I guess I would love to get some.

Color on that maybe anecdotally what you done what you talk about some of the operational cost efficiencies do you have some examples of what.

Or maybe put some color to the numbers.

Yes, I'll, let Tom speak to that.

But because he's living at PS live.

We're happy to have him here with us from the office and not on the plant floor, we got them.

I'm out for a minute, but Tom you want to touch on anything that from your standpoint, yes, sure, but it's really a key for us.

Anthony Lebiedzinski: And of course, we have to remember too that for this quarter, we were comparing to an abnormally high first quarter of last year due to the pandemic. So, you know, the extreme pandemic and due swings and demand over the last several years have made year over year comparisons difficult. So, but no, to, to answer your question, don't see that we're having any, any changes in our, in our customer mix and any significant way.

Proving our gross profit is really a combination of working on our mix working on improving previous programs that werent cost are in line with the market conditions through Covid.

As it related to operational efficiencies, we continue to really push our supply chain for best cost position on raw materials as well as continuous improvement.

Quality and manufacturing efficiency initiatives in Stoke scale and in Canada.

Anthony Lebiedzinski: This is more just industry wide demand depression at the moment. And Anthony is boy, boyd has worked here with culp from us 40 years. And we've seen our shares of ups and downs in the residential furniture business over many, many times. And we always think and has typically buried itself out, we gain market position in times like this. And typically when these times pass, we find ourselves in better position. And this is no different.

Other initiatives, we're doing is making sure that we're really leveraging our global platform for efficiency and profitability and balancing those together with our manufacturing assets.

Okay.

Tommy.

Can you kind of maybe characterize the importance of that pricing more important than the operational efficiencies.

The relative mix between the two.

Anthony Lebiedzinski: We believe on our side, we're actually gaining market position now. And we think it's fully driven by just the slowest and the current industry. And supply chains are adjusting new products are being rolled on the floor. Remember, we skipped about a year of new intros in that business for a little bit, if no one needed a relaunch retail. So, that starts to happen. We're pretty optimistic about where it's going to go.

Yes, that's a really I don't want to take the easy way out of this question I would say that they are equally important but because we had some programs that werent profitable that we had to re.

<unk> shift away.

But we also have opportunities through.

The challenging COVID-19 environment to really engage and drive operational improvement as the macro environment and raw materials opportunities of.

Have come along.

Anthony Lebiedzinski: And we noted in our script that we are now starting to see new written orders gradually increase. So, we are seeing optimism as we look past, probably looking past second quarter, but we do see those days levels starting to pick back up. That's great to hear. And then, you know, last question before I turn the call over to others. I guess probably a question for Ken. So inventory management that has certainly been a nice source of cash.

So we're focused equally on both of them.

And so do we think about them is $50 50 kind of improvement you get 50% of the.

The improved gross margin from pricing and 50% from.

From pricing that you can finally get a hold of it yet.

Either through new programs or.

Realigning previously in private.

Unprofitably price programs and 50% through operational efficiencies.

Yes, Sir I would characterize it as 50 50.

Anthony Lebiedzinski: So nice job with that. So do you think you can further reduce inventories? How about cash flow? How should we think about that? Yeah, Anthony, that's, I mean, as we look to you know, grow the business on both sides. I mean, we both teams have done a, if you look over the last six quarters, they've done a remarkable job of getting inventory down and, and really meeting demands. And so as we proceed ahead into the next quarters, you know, our focus is going to be on growing the business.

And what I get excited about but from.

What Tom is working on.

I agree, it's both half and half.

Better pricing and better cost cost improvement.

What makes me excited.

<unk> is the business is gradually picking up.

And we're doing that internally by gaining market position.

We've been around this mattress business for some time and we know.

Our position is strong and we're going to have periods, where.

Anthony Lebiedzinski: And, and as we said in the prepared remarks, you know, balancing inventory with sales. And that's that we preach that every day. So is there some opportunity to continue to maximize efficiencies in inventory? Probably some, but right now that we've got to make sure we've got the right amount of inventory on hand to support growth. And so, but that said, we're going to be very careful about balancing both as we grow the business. Understood. Okay. Well, thank you very much. And the best of luck. Thank you, Anthony. Have a great day. Happy weekend. So, yeah.

Demand is going to be really high we just hope that will start to turn a little bit to our favor and having all of these operational improvements in place will benefit us so much more when that happens and I think something he said is really important to realize.

We always want to leverage our strong global options, that's kind of always be important and if we get the right product priced and manufacturing them in the right places.

So the right things for U S REIT things for Canada, right things for Asia, right things for Haiti, That's where we really have the ability when the cylinders are firing to generate strong profit.

<unk>.

Budd Bugatch: Likewise. Our next question comes from about the gadget with water tower research. Please go ahead. How good morning. Thank you for taking my questions. First, I just want to comment it. I know it's been a very tumultuous time for everybody. Congratulations on keeping the financial condition. They're called pretty strong. Make it through these times. Thank you. You're welcome. And thank you. I guess the first question is you talk about the improvements in in CHF.

Really good work being done.

And being prepared for the turnaround.

Okay.

Turning to see U S.

Readers embedded within <unk>.

And you said the agreed for this quarter it looks like about a third or so.

The revenues, so somewhere around $9 million.

For Reed, how does that compare to last year for read in there in the first quarter, what was the ASP and partially.

Yes, Budd this is boy and.

Last year first quarter, we were around 25% for that.

Budd Bugatch: And I guess I would love to get some color on that. Maybe anecdotally, what you've done, what you talk about some of the operational cost efficiencies. Do you have some examples of what, what that was? And maybe put some colors and numbers on that. Yeah. I'll let Tommy speak to that. But because he's living it. He's living it. We're happy to have him here with us in the office and not on the plant floor.

That's the total hospitality business.

Our total sales, which is the way we.

Characterize that.

25% last year versus 33% this year.

And in that vintage was gaining throughout the year last fiscal year.

And so then.

On that basis and reach gross margin.

Budd Bugatch: We got him. We had to prime out from that. But Tommy wants you to touch on anything from your standpoint. Yeah, sure. But it's really a for us, improving our gross profit is really a combination of working on our mix, working on improving previous programs that weren't going to cost it in line with the market conditions through COVID. As a related to operational efficiencies, we continue to really push our supply chain for best cost position on raw materials, as well as continuous improvement quality and manufacturing efficiency initiatives in Stokesdale and in Canada.

How would you characterize that versus the fleet margin than the average margin.

Yes. This is Ken.

The critical point that we made was read had dramatic improvement year over year from last year in fact.

We were at a loss last year now were making money.

<unk> is is comparable to the overall margin right now for <unk>.

Obviously, we want to continue to grow both as we make progress over the coming quarters, but we're just excited that that business has really improved and really contributing this year.

Budd Bugatch: Other initiatives we're doing is making sure that we're really leveraging our global platform for efficiency and profitability and balancing those together with our manufacturing assets. And Tommy, what can you kind of maybe characterize the importance of that? It was pricing more important than the operational efficiencies. What's the relative mix between the two? Yeah, that's a really, I don't want to take the easy way out of this question. I would say that they're equally important, but because we had some programs that weren't profitable, that we had to reshift away, but we also have opportunities through a challenging COVID environment to really engage and drive operational improvement as the macro environment and raw materials opportunities have come along.

Okay, that's great and turning a little bit to the future now and I know that the guidance for the second quarter in the midst drove a very uncertain macro environments been tougher than we appreciate what you did give but if you also did say you.

Looking to make operating profitability.

For the second half of the year and I'm trying to make sure I understand is that do you think you'll be operating profitable for all of the second half of the year or do you think you'll be operating profitable for the entire year based upon the improvement that youre seeing in the second half of the year.

Yes, the way Brad Yes. Thank you Bob Good question and the way the way, we're talking about that as well.

Certainly we aren't because we're coming from the first couple of quarters. We are forecasting an operating profitability for the entire year, but we do believe somewhere in that back half of our year. We will have marks in a quarter that will turn to consolidated operating profitability.

Budd Bugatch: So, we're focused equally on both of them. And so, do we think about it as 50, 50 kind of improvement? You get 50% of the improved growth margin from pricing and 50% from pricing that you can finally get a hold of or get either through new programs or re-lining previously unprofitably price programs and 50% through operational efficiencies? Yes, sir, I would characterize it as 50, 50. And what I get excited about, bud, from what Tommy's working on, I agree, it's both half and half, you know, better pricing and better cost improvement.

We don't know if its going to be the end of third going to fourth but somewhere in the second half and a lot of that we aren't dependent to keep sequentially improving on the macro demand.

But if that happens faster will turn faster, but even with that if demand at current levels. We will have a quarter in the back half that turns profitable most likely towards the end of the year Budd.

And so even if it does not sufficiently to make the second half overall profitable, but just in the particular quarter in which we reach operating profitability.

Budd Bugatch: What makes me excited watching it is the business is gradually picking up. We are, and we're doing that internally by gaining market position. We've been around this mattress business for some time and we know our position is strong and we're going to have periods where demand is going to be really high. We just hope that we'll start to turn a little bit to our favor and having all these operational improvements in place will benefit us so much more when that happens.

Vessel now we hope we hope your first statements rapid Thats, where today, we're saying, we're not saying for the whole second half, we're saying we will turn to profitability in the second half.

Second half okay.

And looking farther down the road so now going from the.

Near term intermediate term, Joe a little bit of a longer term you continue to June .

Confidence and comfort with longer term and I think that if I got your message to even stronger now than it.

Budd Bugatch: And I think something he said is really important to realize, we always want to leverage our strong global options. That's going to always be important. And if we get the right product priced and manufacturing them in the right places, so the right things for U.S., right things for Canada, right things for Asia, right things for Haiti, that's where we really have the ability when the cylinders start firing to generate strong profit.

It might have been even in the past calls.

Can you kind of give us a framing of what that looks like tell us tell us what we should think Quebec success, when you get to success.

Success on a longer term.

Yes, certainly, but thank you for picking up on that we are we certainly understand that.

We're in a tough period, we're recovering from a b, even tougher period, but theres a lot of confidence and all of us as an executive management that we see we see brighter times for the business and we see where we're positioned we see on our innovative products and the platform we have the service customers.

Budd Bugatch: So really good work being done and being prepared for the turnaround. Turning to CUF, Reed is embedded within CUF, and you said the Reed for this quarter looked like about the third of the revenue, so somewhere around $9 million for Reed. How did that compare to last year for Reed in the first quarter? What was that comparison like? Yeah, bud, this is Bowie. And last year, first quarter, we were around 25% or that's the total hospitality business, as a total sales, which is the way we characterise that.

And we know that our industry is that generally over our history been a stable slow growing industry, we haven't been used to these.

And downs that we've had the last two to three years, that's been that's taken a toll on our our results, but as we get some stability and the teams that we have in place operating both divisions are really.

Budd Bugatch: So 25% last year versus 33% this year. And that finish was gaining throughout the year last year. I see. And so then on that basis, and Reed's gross margin, how would you characterise that versus the fleet margin, the average margin and CUF? F. Yeah, but this is again, you know, as we, the critical point that we made was read had dramatic improvement year over year from last year. In fact, you know, we were, we were at a loss last year.

Confidence inspiring.

So when we look out in the.

Beyond 24% to $25 26, I mean, we're back to double digit operating incomes and.

Mattress fabrics.

High single digit operating income percentages in upholstery fabrics, now and we'd like to go past that but that's our first target to recover too and.

I guess the <unk>.

Depends on your horizon of medium to long term, but we would see that happening in the in our medium term as we look out.

Forward.

So that gets us to the margin side of that and then in terms of the topline you think you can match the industry's slow growing.

Low to mid single digit kind of growth over time top line.

Yes, Sir yes, Sir.

Daily and our best days, and we hope we can grow faster than the industry growth that's always our goal.

Budd Bugatch: Now we're making money. The margin is, is, is comparable to the overall margin right now for CUF. Obviously, we want to continue to grow both as we make progress over the coming quarters. But we're just excited that that business has really improved and really contributing this year. Okay, that's great. And turning a little bit to the future now, and I know that guidance for the second quarter in the midst of a very uncertain macro environments.

I don't see why we can't but we certainly will stay with industry pace and see that steady growth.

Okay.

And last for me the other thing that I've noticed during the quarter was SG&A was a little bit heavier than what we were looking for and operating expenses a little bit heavier maybe you could give us some color as to what we why that might have been and what we should expect as we go down the road.

Yes. This is Ken.

We've listed some some of the reasons for the higher obviously <unk> wage inflation was a part of it.

Budd Bugatch: It's been tough and we appreciate what you did give. But if you also did say you're looking to make operating profitability for the second half of the year, and I'm trying to make sure I understand, is that you think you'll be operating profitable for all of the second half of the year or you think you'll be operating profitable for the entire year based upon the improvements that you're seeing in the second half of the year.

We did have some higher.

Incentive compensation accrual keep in mind, we're coming off of a very very tough year in our the way. We're looking at this year a significant improvement. So we've got some some opportunity. There. We also have some professional fees that.

Budd Bugatch: Yeah, the way, yeah, thank you, but good question. And the way the way we're talking about that is certainly we aren't because we're coming from the first couple quarters. We aren't forecasting operating profitability for the entire year. But we do believe somewhere in that back half of our year will have months and a quarter that will turn to consolidate operating profitability. We don't know if it's going to be the end of third, going to fourth, but somewhere in the second half and a lot of that, we aren't dependent to keep substantially improving on the macro demand.

Various professional fees and also and this is something that both divisions had to contend with sampling expansion people forget about that but this time last year, we didn't have a hardly any new programs and now both teams are dealing with new great opportunities and new Rollouts and so the sampling expense was higher so all of those.

Budd Bugatch: But if that happens faster, we'll turn faster. But even without a demand of current levels, we will have a quarter and a back half that turns profitable, most likely towards the end of the year by. And so even if it does not sufficiently to make the second half overall profitable, but just in the particular quarter in which we reach operating profitability. Yeah, that's what that's what now we hope that we hope your first statements, right?

Reasons kind of.

Impacted all three the corporate account our corporate expansion of individuals. What we're excited about is that we've talked about this in the prepared remarks as we grow the business. We've got our SG&A level right now is supporting our activities in our business models as we grow sales were good.

To have significant leverage opportunity too to bank a lot of that profitability and so both SG&A and fixed costs. So we've got everything ready to go we just need that lift in sales to get that leverage.

And is there an order of magnitude on the sampling cost that youre willing to share and does that go and doesn't that go into gross margin Chaplin costs would be fabric you create or do you do you take those.

Budd Bugatch: But that's where today we're saying we're not saying for the whole second half. We're saying we'll turn to profitability in the second half. Okay, and looking farther down the road, so that's going from the near term, intermediate terms, a little bit longer term. You continue to exude confidence and comfort longer term. And I think that if I got your message to even stronger now that it might have been even in some of the past calls.

Sample costs.

Isolate and then make sure that showing up in SG&A and operating expense.

Hey, Bob the way that we characterize our sampling cost is really as a part of our launches. So it's really a part of our commercial process of sampling, creating doing all the development and design work relative to new programs.

Okay. So it's not just not just the cost of the <unk> produced for the samples.

Budd Bugatch: Can you kind of give us a framing of what that looks like? Tell us what we should think about success when you get to success in a longer term. Yeah, certainly, but I thank you for picking up on that. We are certainly, we certainly understand that we're in a tough period, we're recovering from a even tougher period, but there's a lot of confidence in all of us as executive management that we see.

Producer might be send out to your clients.

The wages.

Caution side over there for the team to develop those.

There's no chance of it.

All the costs from sampling design and launch preparation and that winds up in operating expense is that right, yes, Sir yes.

Budd Bugatch: We see brighter times for the business, we see where we're positioned, we see our innovative products and the platform we have to service customers. And we know that our industry is a generally over our history, been a stable, slow growing industry. We haven't been used to these ups and downs that we've had the last two, three years. That's been, that's taken a toll on our, our results. But as we get to some stability and the teams that we have in place operating both visions are really confidence inspiring.

Okay. Thank you Alex again, congratulations on navigating through a challenging period. There is some in Europe some in the industry.

Well they are not there anymore to do that.

Thank you very much.

Thank you Bob Hangry weekend Youtube.

This concludes our question and answer session I would like to turn the call back over to Paul for any closing remarks.

Thank you 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.

Budd Bugatch: So when we look out in the Beyond 24 and 25, 26. I mean, we're back to double digit operating incomes and mattress fabrics and high single digit operating income percentages and upholstery fabrics. Now, and we'd like to go past that, but that's our first target to recover to. And you know, I guess the depends on your horizon of medium, the long term, but we would see that happening in our medium term as we look out forward.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Budd Bugatch: Okay, so that gets us to the margin. And then in terms of the top line, you think you can match the industries slow growing low to mid single digit kind of growth over time top line. Yes, sir, yes, sir. I mean, ideally, in our best days, and we hope we can grow faster than the industry grows. That's always our goal. And I don't see why we can't, but we certainly will stay with industry pace and see that steady growth.

Budd Bugatch: All right, and last for me, the other thing that I noticed in the quarter was SGNA was a little bit heavier than what we were looking for and operating trenches a little bit heavier. Maybe you can give us some colors to what we why that might have been and what we should expect as we go down the road. Yeah, but this is Ken that if we listed some some of the reasons for the higher obviously bragent wage inflation was a part of it.

Budd Bugatch: We did have have some higher incentive compensation or cool, you know, keep in mind, we're coming off of a very, very tough year and our the way we're looking at this year significant improvement. So we've got some some opportunity there. We also have some professional fees that, you know, just various professional fees and also, and this is something that both divisions had to continue with the stamping expense and people forget about that.

Budd Bugatch: But, you know, this time last year, we didn't have any hard any new programs. And now both teams are dealing with new great opportunities and new row outs to spell the stamping expense was higher. So all those reasons kind of impacted all three the corporate account or corporate expense and the visuals. What we're excited about is that, you know, we've talked about this in the prepare remarks as we grow the business we've got our SGNA level right now is supporting our activities and our business models as we grow sales.

Budd Bugatch: We're going to have significant leverage opportunity to to bank a lot of that profitability. And so both that both SGNA and fixed costs. So we've got everything ready to go. We just need that lift and spells to get that leverage. And is there an order of magnitude on the sampling costs that you're willing to share and is that going, isn't that going to gross margin sampling costs would be fabric you create or do you take that those that sample costs that you can isolate and then make sure that showing up in SGNA and operating expense.

Budd Bugatch: Hey, but the way that we characterize our sampling cost is really as a part of our launches. So it's really a part of our commercial process of sampling creating doing all the development and design work relative to the new programs. Okay, so it's not just the not just the cost of the fire review produced for the samples you produce may be sent out to your clients, but it's that it's the wages and the cost inside of there for the team to develop.

Budd Bugatch: Please. It's all the calls from sampling, design, and launch preparations. And that winds up and operating expense, is that right? Yes, sir? Yes. Okay. Thank you. I look again. Congratulations on navigating through a challenging period. There are some in the industry that are not there anymore to do. Thank you very much. Thank you, Bud. Have a good weekend. You too.

Robert Culp: This concludes the question and answer session. I would like to count the call back over to if call for any closing remarks. Thank you, Oscar. 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.

Unknown Executive: The conference is now concluded. Thank you for attending, please,