Q3 2025 Culp Inc Earnings Call
Anthony Lebiedzinski, Dru Anderson, Kenneth Bowling, Robert Culp, Boyd Chumbley,
Anthony Lebiedzinski, Dru Anderson, Kenneth Bowling, Robert Culp, Boyd Chumbley, Tommy Bruno,
Speaker Change: Good day, and welcome to the Culp Inc. 3rd quarter of fiscal 2025 earnings conference hall. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question you may press star than one on your telephone keypad. To withdraw your question, please press star than two. Please note this event is being recorded. I would now like to turn the conference over to Dru Anderson. Please go ahead.
Dru Anderson: Thank you. Good morning, and welcome to the Culp conference call to review the company's results through the third quarter of fiscal 2025.
Speaker Change: As we start, let me state that this morning's call will contain fluid looking statement about the business, financial condition, and prospects of the company.
Speaker Change: Forward-looking statements are statements that include projections, expectations, or beliefs about future events or results, or otherwise are not statements of historical fact.
Speaker Change: The actual performance of the company could differ materially from that indicated by the forward-looking statement because of various risks and uncertainties.
Speaker Change: These risks and uncertainties are described in our regular SEC filings, including the company's most recent filings on form 10K and form 10Q.
Speaker Change: 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.
Speaker Change: You will caution not to place undue reliance on forward-looking statements made today, and each such statement speaks only as up today. We undertake no obligation to update or revise forward-looking statements.
Speaker Change: In addition, during this call, the company will be discussing non-GAAP financial measurements.
Speaker Change: A reconciliation of these non-GAAP financial measurements to the most directly comparable GAAP financial measurement 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.
[inaudible]
Speaker Change: A slide presentation on the company's restructuring plan is also available on the company's website as part of the webcast of today's call.
Speaker Change: I will now turn the call over to Iv Culp, President and Chief Executive Officer of Culp. Please go ahead.
Speaker Change: Thank you, Dru, and good morning and thank you to everyone for joining us today. I would like to welcome you to the quarterly conference call with analysts and investors.
Speaker Change: With me on the call are Ken Bowling, Archie Financial Officer, Mary Beth Hunsberger, President of our Opulstree Fabrics Business, and Tommy Bruno, the President of our Mattress Fabrics Business.
Speaker Change: I'll begin the call with some detailed comments and as mentioned in the introduction, we have posted an updated slide presentation to our investor relations website.
Speaker Change: The covers information on the progress of our current restructuring plan, primarily focused on our mattress fabric segment, which I'm very pleased to say is now substantially complete.
Speaker Change: Ken will then review the financial results for the quarter, and after that I'll briefly discuss our business outlook for the fourth quarter, fiscal 25, and we will answer some
Speaker Change: Despite continued macro industry sales pressure, we achieved further sequential improvement and our operating results for the quarter.
Speaker Change: Driven largely by the positive effects of our mattress fabrics restructuring activity.
Speaker Change: We also continue to see increasing potential to grow our market share.
Speaker Change: particularly with new business opportunities for mattress fabrics and sewn mattress covers.
Speaker Change: We remain very confident in the future of our two business segments.
Speaker Change: especially considering the competitive advantages generated from our now more streamlined cost structure, along with our agile, manufacturing, and sourcing platform, and market leading design and innovation capabilities.
Ultimately all supported by an eventual market recovery.
Speaker Change: Look at our mattress fabric segment specifically, we continue to improve our operating performance with the 58.3% sequential reduction and operating loss despite lower sales for the quarter.
Speaker Change: This bill is on the 70.7% sequential reduction and operating loss we reported in the second quarter.
Speaker Change: We also achieved near-break even consolidated adjusted EVA DAW for the quarter.
Speaker Change: This was a $1.1 million improvement sequentially and it's compared to last quarter, even with 3.4 million less than sales due to industry weakness and fewer shipping days due to holiday closures and some weather-related disruption.
Speaker Change: We are pleased that our current restructuring initiatives within the mattress fabric segment are largely complete. As we stop production at our Canadian mattress fabrics, manufacturing facility, and finalize the relocation of certain knitting and finishing equipment to our facility in Stokesdale, North Carolina, near the end of the quarter.
Speaker Change: More details of the steps and timing of this restructuring plan are shown in a supplemental deck we posted on our investor relations website.
Speaker Change: With the completion of this initiative, we have a preferred manufacturing and sourcing supply chain model for mattress fabrics.
Speaker Change: Featured and Improved and Efficient USA Location in North Carolina for Fabrics.
Speaker Change: and a right-sized, cut-and-so platform in Haiti located on the northeast of the Dominican Republic border.
Speaker Change: As I mentioned last quarter, our near-shore platform also includes recently installed quilting equipment, which opens new product opportunities for the mattress segment, and an additional service offering to our customers.
Speaker Change: to put the full scope of the Restructured Matters Fabrics platform and context.
Our Consolidated North American and Near Shore Capacity.
Speaker Change: is complemented by our strong supply chain operations in Asia, including a growing base for fabrics and cut-and-some covers in Vietnam, as well as a long-term supplier relationship in Turkey for high-volume fabric supply.
Speaker Change: Also, we entered into a conditional agreement for the sale of our Canadian facility during the quarter, contingent on the satisfaction of customary due diligence.
Speaker Change: and we are working to close this transaction in the upcoming months.
Speaker Change: Assuming completion, we currently anticipate receiving between $6 million and $8 million in cash proceeds, net of all taxes.
Speaker Change: which we plan to use to pay off outstanding borrowings and further bolster our liquidity.
Speaker Change: So I think it's important to pause here and remind everyone on the call that the focus of this Restruction Plan was to transform our business model and return to profitability at the current weekend home furnishings industry level.
Speaker Change: while also building a more efficient platform to support our growth.
Speaker Change: Our team has worked hard to execute on our restructuring plans and they are beginning to generate the savings and efficiency improvements we anticipated.
Speaker Change: along with higher margins on our product lines of MIPS, Woven's, and some covers.
Speaker Change: As we execute on this initiative over the last three quarters, the general economic uncertainty, consumer sentiment and macro demand levels have only worsened.
Speaker Change: As difficult as that seems, we are not deterred, and we are encouraged that our business is trending towards positive, consolidated, adjusted EBITDA, which excludes restriction in related charges as we move towards the end of fiscal 25.
Speaker Change: and we are focused on achieving sustained profitability and growth in fiscal 2026.
Speaker Change: Illustrating the macro industry pressure are consolidated sales to the third quarter. We're down sequentially due to ongoing weakness in the home furnishings and betting industries and as expected, specific pressure on residential upholstery fabric sales.
Speaker Change: that was exacerbated by some unique inventory adjustments from a large customer.
Speaker Change: While we have a strong relationship and steady placements with this customer, the quarterly timing of its lower purchases from us has distorted year-over-year and sequential comparisons
Speaker Change: However, when considered annually, the volume of fabric purchases from this customer is in line with current industry demand and indicative of our solid position.
Speaker Change: and Fiscal Year 24, Q3 was the peak of purchases for this customer compared to this year's Q3, where we are seeing what we expect to be the slowing tail of the inventory adjustment.
Speaker Change: It is our understanding and expectation that we will see the final significant impact of this inventory realignment in our fourth quarter.
Speaker Change: Regardless of the ongoing pressure in the residential poultry industry, we are confident that our solar market position, flexible global platform, and innovative product portfolio.
Speaker Change: Will position us for growth in our poultry fire big segment, once market conditions improve.
Speaker Change: Outside of pressure from certain specific customers, we are growing our business sequentially [inaudible]
Speaker Change: and we are effectively gaining new opportunities by segmenting our products and our sales strategies.
Speaker Change: to focus on all new placements with mid to upper price point furniture, as well as the value price segment.
Speaker Change: We are also pleased with our product and skew placements across the board with manufacturing customers to generate about positive reactions.
Speaker Change: at both the most recent high-point furniture market and the interwoven fabric show.
Speaker Change: We're developing diverse consumer-focused and innovative product lines, and we are diligent in presenting our customers with varied supply chain strategies.
Speaker Change: with uncertainty around tariffs and trade regulations, is important to offer supply chain optionality to customers.
Speaker Change: and we are doing that by developing products, BRI, extensive Asia operations with increased focus in Vietnam while also considering options in other regions to enable a preferred response.
Speaker Change: Outside of the tough residential demand environment, we see stronger demand in our higher margin, hospitality, contract, fabric business.
Speaker Change: with both year-to-year and sequential increases in sales for the third quarter.
Speaker Change: Sales for this business represented 40% of the Pulsary Fabrics total sales for the quarter.
Speaker Change: and we are realizing increased potential with a diverse range of commercial fabrics and window treatment products.
Speaker Change: Breaking down our hospitality contract business further, we are very excited about our new on-chain collection of fabrics that is currently being present to our customers.
Speaker Change: Discollections, fresh new constructions and color stories are being received well for new projects that will have longer lifespans and higher margins compared to residential fabric placements.
Speaker Change: and with window treatments we continue to expand our capacity for drapery and roller shades with new hotel brand standards being added to our portfolio each quarter.
Speaker Change: The hospitality contract portion of our poultry fabric segment is an important part of our diversification strategy.
Speaker Change: and we believe it should drive solid long-term growth moving forward.
Speaker Change: Above all, we remain pleased with the compulsory fabric segments continuing profitability.
All supported by our asset light platform.
Speaker Change: The actions we have taken over the last year to rationalize our finishing operation and improve our supply chain, our lowering our manufacturing calls for repulsed sheet fabrics.
Speaker Change: which gives us confidence to navigate our business through a variety of economic environments.
Speaker Change: So as I look ahead, there are a few major themes developing for Culp as we manage our business.
Speaker Change: and first I again want to reiterate our commitment to return the company to profitability in the current low demand environment.
Speaker Change: In some cases, we are seeing macro-demand levels at the lowest they have been in years, with industry volume demand seemingly falling each quarter.
Speaker Change: Nevertheless, as displayed on site 11 of the restructuring deck, we continue making our operational adjustments.
Speaker Change: Boxing on the things we can control, such as cost and efficiency improvements, that allowed us to approach near break even adjusted eb.inq3, with further improvement expected in Q4, and position enough for sustained profitability heading into fiscal 2026.
Speaker Change: of course, assuming no significant further worsening in industry sales levels.
Speaker Change: In Q3, we took new cost-saving actions related to labor and professional fees that we expect and will generate annualized savings approximately $1 million.
Speaker Change: Mark, note that these actions are in addition to the call saving measures we are part of our restructuring plan.
Speaker Change: So it's another $1 million in annual <expletive> savings on top of the $10 to $11 million in annual <expletive> savings expected from the restructuring.
Speaker Change: We are also targeting further significant strategic actions to synergize and create more cost and operating deficiencies across our businesses going forward. Then we expect one-packed fiscal 26 and beyond.
Speaker Change: We are assessing all options to provide more information we make a final decision on those plans.
Speaker Change: The second major developing theme in our business is the disruption occurring with tariffs in global trade issues.
Speaker Change: Historically, Culp, we have always been focused on providing a flexible and agile supply chain across our businesses to support our customers.
This time will be no different.
Speaker Change: Although the continual changes to policy and timing are creating much uncertainty within the market.
Speaker Change: We've heard many projects and customers speak to delays while dealing with a changing import environment, and that has led to some acute sales pressure and deferred product launches that at a minimum could impact Q4 sales.
Speaker Change: from Matchers Fabrics Products, we are now well positioned with the bolstered USA platform for fabric production, finishing and distribution, complemented by various supply partners in Turkey and Asia.
Speaker Change: for Cut and Son mattress cover products. We have a strategy utilizing our near-shore production and Haiti on the border of the Dominican Republic, which is currently protected by the Hope Health Health Act for Terra-free Treatment.
Speaker Change: and we also have Asia supply chains in both Vietnam and China.
Speaker Change: For a pollster, we have a strong Asia presence with strengthening Vietnam supply options for both fabrics and some kids, and we also continue assessing various options in other parts of the world.
Speaker Change: Notably, only approximately 30% of our China-produced fabrics ship to a USA destination.
So, we have some protection currently from rising tariffs.
Speaker Change: For window treatments, we have a growing capacity in the USA with drapery and roller shades.
Speaker Change: There is no clear or foolproof strategy for balancing the rapidly evolving trade regulation with our aggressive cost profile.
Speaker Change: However, we believe our global production footprint provides customers with preferred and viable country of origin optionality and speed to market to navigate what is expected to remain a fluid regulatory landscape.
Speaker Change: Unfortunately, we have very little exposure to tariff impacts on Mexico or Canada, and we are committed to taking price action as needed for any cost pressure we see on our China supply chain.
Speaker Change: From a big picture perspective, tariffs can certainly affect consumer sentiment, but we believe our supply chain agility gives Culp a competitive advantage to pivot our platform near-term, to hedge against tariff pressure, and supply our customers with continuity.
Speaker Change: The third major theme is our firm belief that a major driver of success in both of our businesses is product development and innovation.
Speaker Change: Design and Creativity have long been hallmarks for Culp, and we believe an excellent product offering, along with prior task customer service, is a must.
Speaker Change: Our view of innovation is that it can include investments in new equipment, processes, products styling, or other areas, and our team remains focused on all of these fronts.
Speaker Change: In the last year, we had not only innovated through our revamped supply chain as I just discussed.
Speaker Change: We've also added specific equipment to improve the knitting process and manufacturing, as well as to efficiently monitor and precisely control the dosing of our finishing attitudes.
Speaker Change: On the products side, we are excited about the addition of quilted mattress covers and our near-shore cut and toe operations, as well as the recently announced joint strategic development with precision fabrics.
Speaker Change: of patented FRNLA for flame retardant net products that all for improved styling and also a function for mattress covers.
Speaker Change: We're also in the beginning phase of a mattress accessory product launch.
and we are increasing brand standards and window treatments.
Speaker Change: and we are excited about the overall improved styling we see across both of our segments.
Speaker Change: We have a truly entrenched focus on design and sales strategies, and we are pleased by customer reactions to new fabrics and a poultry, but residential and commercial, as well as mattress fabrics.
Speaker Change: Innovation and process and product is helping enhance our market share plant seeds for our future, especially when marketing additions improve.
Thank you.
Speaker Change: Another major trend we are seeing in our business is the general customer consolidation occurring downstream of us, especially in the mattress industry.
Speaker Change: It seems that through these pressured industry conditions, and the environment is more ripe for consolidation. Thank you very much for your time.
Speaker Change: Without knowing the future, we believe these trends lean positive for Culp. As we discuss, we are a large supplier with sophisticated compliance focused and geographically diversified to platform strategies.
and an emphasis on product design and innovation.
Speaker Change: We believe these capabilities favor us the service large customers and we are focused on targeting these opportunities while concurrently supporting all of our customers.
Speaker Change: We have repositioned our valued sales team members in both businesses to segment today's market and focus on making Culp a preferred supplier of product and customer service.
So I'm closing.
Speaker Change: Despite the ongoing macroeconomic headwinds, tariff uncertainty and industry consolidation, we believe we are well positioned in both businesses with strong customer relationships and agile manufacturing and sourcing capabilities.
Speaker Change: We are confident that our actions to optimize the cost platform and our mattress fabric segment will enable us to return to profitability, post-restructuring, even at currently depressed demand levels.
Speaker Change: I'd like to thank our team for continuing to diligently focus on controlling what we can control.
Speaker Change: and taking the critical steps to position our business for profitability and growth as we head into fiscal 2026.
Speaker Change: Before I turn the call over to Ken, I do want to comment on the second press release we issued yesterday regarding Bill Tyson joining our Colt Board of Directors.
Speaker Change: We are excited about Bill's new and important role as he brings a wealth of knowledge and experience that will benefit the company and our shareholders. Welcome, Bill.
Speaker Change: So with that, I'll turn the call over to Ken. We will review the financial results for the quarter and our view the outlook we provide as we look ahead to the fourth quarter of fiscal 2025.
Ken: Thanks, If. Here are the financial highlights for the third quarter. We continue to face a challenge demand environment. Net cells were 52.3 million, down 13.5% compared with prior year period.
Ken: of which two million was cash, this compares to a loss of operations of 1.7 million for the prior period which included 11,000 in restructuring and related credits.
Ken: Ajusted Law Some Operations was 1.6 million, comparable to an Adjusted Law Some Operations was a 1.9 million for the prior period.
Ken: Notably, the 1.6-managested operating loss was sequentially improved as compared to Q2's 2.6-managested operating loss, even on 3.4 million less in sequential sales.
Ken: I'll comment on more detail on the visual sales and operating performance in a moment.
Ken: Netloss of the third quarter was 4.1 man or 33 cents per diluted share, comparable to net loss of 3.2 man or 26 cents per diluted share for the prior period.
Ken: Our overall adjusted operating performance for the third quarter was supported by improved operating efficiencies, resulting from the mattress fabric segments restruction initiatives, lower fixed cost, and lower SGNA.
Ken: The Justity Bedop for the last 12 month period in the Q3 was a negative 6.3 million as compared to a negative 3.3 million for the same prior year period.
Ken: However, adjusted EBITDA for the third quarter was close to break even at a negative $123,000, which was a sequential improvement compared to the adjusted EBITDA of a negative $1.3 million for the second quarter, again, despite $3.4 million in lower sales.
Ken: The effective income tax rate for the third quarter of this fiscal year with a negative 12.1% can pair with a negative 47.5% for the same period of year ago.
Ken: Our effective income tax rate for the quarter continues to be impacted by the company's mix of earnings between our U.S. and foreign subsidiaries.
Ken: Expected Cash Income Tax Payments for this discourse would not be given at this time due to the restructuring effort.
Ken: Due to our existing U.S. Federal Net Operating-Lost Care Force, tolling almost 70 million.
as of the last fiscal year end.
Ken: Well, your over-yourself is affected by ongoing weakness in the domestic mattress industry. We believe CHF is outperforming the industry average and is growing its market position through investments in manufacturing platform flexibility, product diversification, and design innovation.
Ken: Sequentially, sales were negatively affected by fewer building days due to holiday closures and weather events during the quarter that did not affect the prior quarter.
Ken: Operating loss of the quarter was $433,000, compared with an operating loss of 1.6 million a year ago, and compared with an operating loss of $1 million for the prior quarter.
Ken: The improvement in operating performance was driven by the impacts of CHS Restruction Initiatives, including improved operating efficiencies and lower fixed costs.
Ken: Sales for CUF's residential fabric business were lower than prior period and low or sequentially. As expected, year-over-year and sequential sales were pressured by lower orders from a significant customer to adjust its inventory to align with soft industry demand.
Ken: You're over yourselves. We're also pressured by the man weakness in the home furnishings industry and weather related disruptions.
Ken: Sales for a hospitality contract business, including read windows, were significantly higher compared to prior period and slightly higher sequentially.
Ken: Income from operations for the quarter with 679,000, compared with the income from operations of 2.1 million a year ago, and compared with the income from operations of 615,000 for the prior quarter.
Ken: Operating Performance for the recorder was affected by lower sales, partially offset by lower fixed costs, lower SGNA, and a more fabled shine of <expletive> and currency exchange rate.
Ken: Now I'll turn to the balance sheet. We reported 5.3 million total cash and 5.4 million outstanding debt under our China credit lines as of the end of the third quarter giving us a net debt position of 105,000.
Ken: The outstanding debt was primarily used in connection with destruction activities, the timing of payables in connection with the Chinese New Year holiday, and the fun worldwide working capital.
Ken: Cashof's operations in free cash flow were a negative 9.4 million and a negative 10.1 million respectively for the first time months of this fiscal year.
Ken: Are you to date cash open operations with primary effected by operating losses, including 4.2 million non-recurring cash charges related to the Restruction Plan that is now largely completed partially offset by a source of cash from lower working capital.
Ken: Our free cash flow was also primarily impacted by operating losses, as well as plans for teaching investments in capital expenditures, most related to the mattress average segment, partially offset by a source of cash from lower working capital, proceeds from a note receivable and sale of equipment.
Ken: Capital expenditures for the first time months of this fiscal year, but 2.4 million, down from 3.2 million for the first time months of last fiscal year.
Ken: Based on current expectations, capital spending for this fiscal year is subject to be approximately three to three point five million, and will center mostly on maintenance cap-backs and quick payback projects that will increase efficiency and improve quality, especially for the Mattress Fabric Segment.
Ken: Based on current expectations, the depreciation for this fiscal year is expected to be approximately 5.5 million.
Ken: With respect to liquidity, as of the end of the third quarter, we had approximately 28.5 men consisting of 5.3 men in cash and 23.2 men in bar and availability under our domestic credit facility.
[inaudible]
Ken: The company's existing and future borrowings under our domestic and foreign credit facilities during this discrete year relate to our restructuring activities, the timing of payments to vendors ahead of the Chinese New Year holiday, and the fun worldwide working capital to grow the business.
Ken: Importantly, given these objectives, our outstanding barons could again exceed our available cash at the end of the fourth quarter, resulting in a net debt position as we await the sale of our Canadian facility.
Ken: However, when the sale of our Canadian facility is complete, we intend to use the expected six million to eight million in cash proceeds to retire outstanding borrowings and further strengthen our liquidity position.
Ken: We did not repurchase any shares during the first nine months of this fiscal year, leaving 3.2 to be available under our current share repurchase program.
Ken: Despite the current share repurchase authorization, we do not expect any activity during the fourth quarter as we remain focused on preserving equity and being positioned to support future growth opportunities.
Ken: with that I'll turn the call over to you to discuss the general outlook for the fourth quarter and we will then take your questions.
Due to the ongoing macroeconomic and increasing tear from certainty.
Ken: We expect continued industry sales pressure or only provided limited financial guidance at this time.
Ken: We expect our consolidated net sale for the fourth quarter to show some growth year over year and remain relatively flat sequentially.
Ken: The year-over-year growth has driven by an expected increase in the mattress fabric segment, offset by ongoing pressure on residential poultry fabric sales due to weak industry demand and, in fact, from the timing of the Chinese New Year holiday, which is your fault entirely in our fourth quarter.
Ken: We currently expect continued sequential improvement in the adjusted EBITDA, which excludes restriction and related charges, with further improvement in mattress fabrics profitability in the fourth quarter, providing a foundation for a return to consolidated operating income in fiscal 2026.
Ken: These expectations reflect certain assumptions regarding our business and trends, the projected impact of the restructuring actions, and ongoing market headwinds. Importantly, our expectations also assume no further meaningful impacts from tariffs and trade negotiations.
So with all that, we'll now take your questions.
The End of The End of The End of The End
Speaker Change: We will now begin the question and answer session. To ask a question you may press star than one on your telephone keypad.
Ken: If you are using a speaker phone, please pick up your hand set 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. At this time we will pause momentarily to assemble our roster. Thank you for your time.
Speaker Change: First question comes from Brian Gordon with Water Tower Research. Please go ahead.
Speaker Change: Current demand levels, you're now kind of expecting early, you know, first quarter, maybe first half at the latest, for return to profitability, just want to clarify this.
Speaker Change: Yes, sir, that's right, Brian . That's how we're talking about it and we just are, maybe as I touched in the script, we're here.
Speaker Change: We're committed to returning to profitability at whatever demand levels we see. And that just means we have to do more to get there. And the levels have gotten somewhat worse. Hopefully it's temporary while there's uncertainty that's going on right now, but we're going to make the adjustments. Let's go.
Speaker Change: To set a foundation for next year to be a profitable, sustainable, profitable year, that's the plan.
Great, great. So...
Speaker Change: It sounds like switching gears a little bit here. So it sounds like you guys are definitely gaining market share with Mattress and with the hospitality and contract side of the business.
Speaker Change: Could you talk a little bit about that and maybe then also what you're seeing from a market share perspective with a poll street in general?
Speaker Change: Yeah, Brian , thank you. It's a good question. And Mary Beth and Tommy are both here with me, so I'll let them speak to some of that directly. But I do think it's important the way you phrase that question. The restructuring project we have going on in mattress fabrics.
Speaker Change: Certainly is reducing some capacity in the places we want to reduce it. But none of what we did there was ever intended not to grow the business. So I think you're picking up.
Speaker Change: The way we're phrasing it right, we do believe we're gaining share in our mattress in both businesses, but certainly specifically in mattress, the restructuring we're doing is making us better, making us more streamlined, making us more efficient.
Speaker Change: So that is a very positive thing, and it's at the end of it here, we're pretty bullish on what that's going to deliver for us. But let me pivot to Tommy, and you can tell you what he sees, high level on his industry, and then Mary Beth can do same for a poultry, but residential and contract.
Tommy: From my perspective, what we're seeing is continued market share growth in both our fabric business and growth in our cover business.
Tommy: So, despite the challenging environment, unit environment in the mattress industry, we're seeing continued growth of existing customers and we're actually working on projects with new customers which are new share for us.
Tommy: that are going end of life and then new programs that come from the January Las Vegas furniture market.
Tommy: or kind of in our numbers in Q4 a little bit and we're seeing that those new programs are strong and we had a great Vegas market showing.
Tommy: So we feel very good about the new programs that are launching. The only impact for us is how do those matches just sell once they're launched with our customers?
Speaker Change: So just to follow up there. So it's not just with existing customers. It sounds like there are potentially some new wins in there as well. Yes, sir. That's correct. If it mentioned, we had some new capabilities that that we talked about with our quilting in Haiti.
Speaker Change: and we've won some new share there, some of which is launching now, and then some new share that's launching in Q4 going into Q1.
Speaker Change: and then additionally just some new opportunities based on some of the tariff uncertainty where folks like our preferred platform and are leaning in and we're quickly getting to market with some of those opportunities as well.
Excellent. Great. Thank you.
Sure.
Speaker Change: Hey, Brian , it's Mary Beth. I'll talk to you a little bit about, hey, about a poultry. Let's start with residential. There's,
You know, so many things going on in that space.
if we think prior to the election we had.
Speaker Change: some bankruptcies and financial disruptions with major players like big lots and cons and bad cock that were.
are really focused at the low end. [inaudible]
Speaker Change: and then earlier this year, of course, we started to see tariffs and thinking about the impact that that's going to have. At the same time, interest rates haven't moved a lot, certainly not enough to trigger any big move in housing turnover, which is the biggest predictor of furniture sales.
Speaker Change: So what that leaves us with is a really soft industry.
Speaker Change: where we feel like going forward the high cost of living is going to really pressure the low end.
and the popularity of remodeling.
Speaker Change: is going to fall more in the slightly more affluent customer base.
Speaker Change: So in light of all of this, we really segmented our approach to the upholstery industry.
Speaker Change: where we do have a very targeted strategy to that value customer, where we're looking at very price-sensitive, very specific constructions, and how do we meet the needs of those customers?
Speaker Change: along with some realignment of our sales force to put some good experience with those customers.
and then on the more affluent side.
Speaker Change: We have so much to offer. That's where we can really showcase our broad variety of products that we're able to produce. That's where we rely on our US based design staff, which has over 100 years of collective experience.
Speaker Change: and we just really can innovate and provide on-trend really interesting products for our customers that are design focused.
Speaker Change: There we also benefit from our Innovation Center at Condon Yards here at Highpoint and our new branding assets that we unveiled in 2024, so in those ways we can really target those affordable luxury type customers that we have.
Speaker Change: We've also seen a lot of success with introductions to customers we have not historically sold, so really excited about new opportunities there, and then I'll pivot to contract hospitality.
Speaker Change: We are seeing some customers take a pause as they sort through what the tariffs mean to them.
Speaker Change: but we are really pleased with some new partnerships we have, so we think about the major hotel conglomerates.
Speaker Change: Milton, IHG, and Choice. We have, we are brand standards for a number of properties within each of those three conglomerates and many of those relationships are new in the last
Thank you. Bye.
Speaker Change: a lot of opportunities, but certainly we're not immune to, you know, what's happening to our industry with Tara.
Speaker Change: Yeah, no, thank you for that update. It's particularly exciting to see the growth on the hospitality side. It's something like 40% of the business now you noted in the press release.
Speaker Change: Kind of looking forward. Do you see that level continuing as a growth returns to the industry kind of more generally?
Speaker Change: I do mean we obviously are planning and working towards a regrowth of the residential side but our focus is largely on the contract hospitality space and we do expect that to continue to be a growing portion of our business.
Speaker Change: Great. Thanks. Brian , I think I'll just make the cap off their comments a little bit. I would add...
Speaker Change: What's neat about it, they're really executing in a very difficult market and that they are winning Tommy Murray best both and their businesses are winning opportunity in a tough pressured environment and if you combine that with the innovation they have
Speaker Change: by innovating their supply chain to be tariff preference and innovating with style and function.
Speaker Change: There is a lot of opportunity. It's sometimes hard to see it on the face of the pressure, but where I sit I can clearly see it and there's so much opportunity. I'm just proud of the way their businesses are executing. It will be a day it really shows through and we're excited about that.
Speaker Change: Yeah, no, definitely. I'm clearly with the macro headwinds. It's challenging, but what is exciting, I think, is the share gains that you guys have been able to generate across both of the segments and hospitality and residential and the poultry side too.
Yes, sir. Thank you
Speaker Change: So I want to pivot though a little bit to some of the restructuring.
Speaker Change: So if we look back at their first wave of the restructuring that you guys know, that's mostly completed but you've mentioned two things on the call this morning and on the press release that I kind of wanted to dig into a little bit.
Speaker Change: Brian , thank you. Good question and we tried to lay that out. I know there's some some speak to more that's coming and we can talk about that too but the initial restructuring that saves $10 to $11 million.
is primarily focused on mattress fabrics, that's complete.
Speaker Change: The only thing left to do there is to sell the facility.
Speaker Change: and as we noted in the release, we're under contract on that, pushing hard to get that done. It's an in the upcoming months we expect to have that finish and that will be the cherry on the Sunday of the restructuring project. But the operational portion of that is done.
Speaker Change: The $1 million that we're calling out in the press release is an additional savings on personnel. It's some personnel we have and it's professional fees that we utilize. So that saving starts and realized in Q4 and we'll carry it through in the next year.
Speaker Change: and then we noted here that we're looking at some other streamlined opportunities that will be on top of both of those.
Speaker Change: So I hope that's answering your question at least at the high level.
Speaker Change: Okay, so the $1 million, we'll start seeing that kicking in in the fourth quarter.
Yes sir.
and Inserves.
Speaker Change: I know you're saying it's a little bit early, but could you talk about, you know, what this additional restructuring might entail, both in terms of like, what do you guys be looking at across the business and, you know, timing and magnitude, if any of that's available at this point?
Speaker Change: Yeah, Brian , I know. Thanks for the question. It's a little bit of a formalizing the plans on that. What I can tell you about it and what makes me excited about this is.
Speaker Change: Tommy and Mary Beth as they run in their businesses are really doing well and they're really synergized together. And so what we're finding within Culp is there are places where we can synergize between the divisions and share some resources.
Speaker Change: and we found ways to take cost out that way. So I wouldn't call the next steps we're going to take as restructuring projects. They are synergistic efficiency projects.
Speaker Change: and they're finding them. They're finding them as they're working together in their businesses. And Brian , I think these...
Speaker Change: We're talking up to $2 million of additional savings that will start to implement annualized spaces and in fiscal 26.
Speaker Change: Wow. Okay, that is exciting and definitely looking forward to hearing more as you kind of announce that.
[inaudible]
Thank you. Bye.
of my parties.
Speaker Change: So is this kind of more like something that you're expecting to see in the first half?
Well, I mean, we'll start those projects.
Speaker Change: in the first half for sure. And these aren't, again, these aren't restructuring projects that have a lot of cost of cash to do. These are things that we just think are very synergistic for the businesses. And so the faster we can get them executed moving, the faster we can generate.
Speaker Change: some of the savings. So, I mean, we certainly see, I'm fully implemented, Mary Beth probably by the back half of the year, and maybe some early year help, Brian , but it's a two million dollar annualized kind of number.
Speaker Change: Okay, excellent. Thank you. I want to ask a little bit, though, additionally about the tariff and what the potential opportunities are there for you, because I think it's...
Dr. Culp.
Speaker Change: Well, so first, you know, kind of what percentage of a production right now would be affected by tariffs, you know, and obviously there is a lot of volatility there on the policy side. But then, you know, how does this position cope in particular to maybe potentially gain share?
Speaker Change: Yeah, good question. And Terrace is top of mind for everyone these days. And as I said in the script, there really is no foolproof strategy. So I don't want to pretend that I have a silver bullet that can
Speaker Change: Solve all this, but what I do believe is part of ingrained in our culture here.
So because of that,
Speaker Change: and Nate Culture for us, we have multi ways to shift our production. So, we talked about in upholstery fabrics with Mary Beth's business.
Speaker Change: Really only about 30% of our business now is tariff impacted coming from China.
Speaker Change: We're doing all we can to relocate that and we're very focused in Southeast Asia and working on opportunities but we're designing around that takes a little time because there are things that are placed and they have to be structured but we're dealing with that and what we can't move will [inaudible]
Speaker Change: to pass the price, Brian , so we're not anticipating impact to Culp from tariffs.
Speaker Change: on the mattress. Go ahead, I'm sorry. I was going to follow up on that. Is that going to be more of like a surcharge or how are you actually thinking about handling any of these tariffs?
Speaker Change: Brian , we'll do that on the upholstery side through price, so it will be a price increase.
Okay.
Speaker Change: and then Brian on the mattress side of the business and Tommy and I've talked a lot about this, we...
Speaker Change: We can move that faster. We just have a lot of it's cutting so, we just we have cutting so operations in all the parts of the world in our Haiti location. It's a terra-free strategy. So it's just a matter of position and materials to be able to sew them to meet the customer demand. And so maybe there's some short-term pressure.
Thank you.
Speaker Change: You know, if you're things in transit get tariffed, and that's kind of the turkey jerky nature of this that's...
Catching us, buddy.
Speaker Change: Within a month or six weeks' lead time, we can have something moved and source it somewhere else. That could impact when it arrives and when you bill it and when we do interwrite the revenue, but we can help our customers around these tariffs.
Speaker Change: Impact. At least what we know today, what's being tariff today, we can work around them and be preferred and offer customers better opportunities with our call structure.
Speaker Change: So it's a really positive, cares are not positive, but our ability to react to them is positive.
Speaker Change: God it. One final question I think for this morning. When you're looking at consolidation, especially in the mattress side, do you see it more in terms of like risk to the business or more in terms of opportunities for the business?
Speaker Change: Yeah, so Brian , just to make sure I don't tell you a question, the consolidation we see going on, which...
Speaker Change: There's a lot. There's been some big moves several in the last six months or so. How do we see that as a challenge or an advantage recall? Is that the question? Exactly, that's the question.
Okay, Brian , it's Tommy.
Speaker Change: Yes, the consolidation for us, we believe, is a net positive, as I've mentioned in the script. We are a large provider of fabrics and mattress covers in the industry.
Speaker Change: and our design and innovation capabilities in our flexible platform fare well with the larger suppliers in the mattress industry. So for us, we think it's in that positive. We obviously have to work through those dynamics in order to reap that benefit, but that is a focal point for us.
Speaker Change: Great, thank you, and that's all that I have for this morning, so good luck with the quarter.
Speaker Change: This concludes our question and answer session. I would like to turn the conference back over to if Culp for any closing remarks.
Speaker Change: Thank you, sir. And again, thank you to everyone for your participation in your interest in Culp, and we certainly look forward to updating you on our progress in the next quarter. Have a great day.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.