#Home Textiles
Culp announces results for fourth quarter and fiscal 2021
Fiscal 2021 Fourth Quarter Financial Summary(1)
• Net sales were $79.1 million, up 67 percent over the prior-year period, with mattress fabrics sales up 84 percent and upholstery fabrics sales up 50 percent compared with the fourth quarter of last year.
• Income from continuing operations (operating income) for the fourth quarter of fiscal 2021 was $1.6 million, compared with a loss from continuing operations of $(18.0) million for the prior-year period, which included $13.7 million in non-cash asset impairment charges.
• Net income from continuing operations (GAAP) for the fourth quarter of fiscal 2021 was $1.5 million, or $0.12 per diluted share, compared with net loss from continuing operations (GAAP) of $(16.2) million, or $(1.32) per diluted share, for the fourth quarter of fiscal 2020.
• Adjusted net income from continuing operations (non-GAAP) for the fourth quarter of fiscal 2021 was $1.4 million, or $0.11 per diluted share, compared with adjusted net loss from continuing operations (non-GAAP) of $(5.3) million, or $(0.43) per diluted share, for the prior-year period.(2) (See reconciliation table on page 17.)
• The company’s financial position as of the end of fiscal 2021 reflected total cash and investments of $46.9 million and no outstanding borrowings. This compares with a net cash position of $38.7 million as of the end of the prior year. (See summary of cash and investments table on page 12.)
• The company announced a quarterly cash dividend of $0.11 per share, payable in July. At an annual indicated dividend of $0.44 per share, the yield is 2.57 percent, based upon yesterday’s closing stock price of $17.14 per share.
1) During the fourth quarter of fiscal 2020, the company sold its majority ownership interest in eLuxury, LLC, resulting in the elimination of its home accessories segment. Accordingly, the financial results for this segment are excluded from the reported financial performance of the company’s continuing operations and are presented as a discontinued operation in the company’s consolidated financial statements.
(2) Adjusted net income from continuing operations for the fourth quarter of fiscal 2021 excludes an $819,000 gain on bargain purchase associated with the company’s fourth-quarter acquisition of the remaining fifty percent ownership interest in its former unconsolidated joint venture located in Haiti, as well as $742,000 in certain tax adjustments for the quarter. Adjusted net loss from continuing operations for the prior-year period excludes $13.7 million in non-cash asset impairment charges and $2.8 million in income tax expense. (See reconciliation table on page 17).
Fiscal 2021 Full Year Financial Summary(1)(3)
• Net sales were $299.7 million, up 17 percent compared with the prior year, with mattress fabrics sales up 20 percent and upholstery fabrics sales up 14 percent.
• Income from continuing operations (operating income) for fiscal 2021 was $12.1 million, compared with a loss from continuing operations of $(7.6) million for the prior year, which included $13.7 million in non-cash asset impairment charges.
• Net income from continuing operations (GAAP) was $3.2 million, or $0.26 per diluted share, which includes $2.2 million in other expense relating primarily to foreign exchange rate fluctuations associated with the company’s operations located in China. This compares with a net loss from continuing operations (GAAP) of $(11.2) million, or $(0.90) per diluted share, for the prior year, which included $902,000 in other expense.
• Adjusted net income from continuing operations (non-GAAP) for fiscal 2021 was $7.3 million, or $0.59 per diluted share, compared with adjusted net income from continuing operations (non-GAAP) of $1.2 million, or $0.10 per diluted share, for the prior year.(4) (See reconciliation table on page 18.)
• Cash flow from operations and free cash flow for fiscal 2021 were $21.5 million and $14.4 million, respectively, compared with cash flow from operations and free cash flow of $5.0 million and $1.5 million, respectively, for the prior year. (See reconciliation table on page 14.)
• Trailing twelve months adjusted EBITDA for fiscal 2021 was $18.5 million, or 6.2 percent of net sales, compared to $13.6 million, or 5.4 percent of net sales, for the prior year (See reconciliation table on page 19.)
• The company paid $5.3 million in dividends during fiscal 2021. In March 2021, the Board of Directors reinstated the company’s share repurchase program, which was previously suspended in April 2020 due to uncertainty surrounding the COVID-19 pandemic. There is $5.0 million available under the share repurchase program authorized by the Board of Directors in March 2020.
Financial Outlook
• Although subject to uncertainties, the company is encouraged by the execution of its product-driven strategy and continued strength in demand for home furnishing products, as well as its expanding market share reach.
• The company’s net sales for the first quarter of fiscal 2022 are expected to increase approximately 20 percent compared to the prior-year period.
• The company’s consolidated operating income (income from continuing operations) for the first quarter of fiscal 2022 is expected to be significantly improved as compared to the prior-year period and as compared to the fourth quarter of fiscal 2021.
• For the full fiscal 2022 year, the company expects net sales to continue increasing moderately and consolidated operating income to increase significantly, as compared to fiscal 2021.
(3) The fiscal 2021 year had 52 weeks compared to 53 weeks in fiscal 2020.
(4) Adjusted net income from continuing operations for fiscal 2021 excludes an $819,000 gain on bargain purchase associated with the company’s fourth-quarter acquisition of the remaining fifty percent ownership interest in its former unconsolidated joint venture located in Haiti, as well as $4.9 million in income tax expense for the year. Adjusted net income from continuing operations for the prior year excludes $13.7 million in non-cash asset impairment charges and $1.3 million in income tax expense. (See reconciliation table on page 18).
• The company’s expectations for the first quarter and the full fiscal 2022 year are based on information available at the time of this press release and reflect certain assumptions by management regarding the company’s business and trends. The outlook assumes there will be no further pandemic-related shutdowns and no material changes in freight and raw material costs, foreign currency exchange rates, recent consumer trends, or other circumstances beyond the company’s control.
Commenting on the results, Iv Culp, president and chief executive officer of Culp, Inc., said, “We are pleased to have delivered a strong fourth quarter, with dramatic sales growth across both our divisions and consolidated operating income in line with expectations. Despite some ongoing headwinds, we ended a tumultuous year with strength and momentum. Demand remained strong during the quarter as consumer focus on the home continued, and our robust global platform and long-term supplier relationships enabled us to service the surge in demand for fabric and sewn covers from both new and existing customers.
“For the full year, we overcame tremendous adversity to deliver strong growth in sales and operating performance compared to the prior year. Our company’s solid foundation and spirit of innovation helped us to successfully weather the initial pandemic-related downturn in our business at the end of fiscal 2020 and capitalize on market share opportunities throughout fiscal 2021. Our performance during fiscal 2021 reflects the advantage of our diversified manufacturing and sourcing capabilities, the stability of our supply chain, the strong appeal of our innovative product offerings, and the benefits of our digital design and marketing capabilities. The exceptional execution by both divisions during this challenging operating environment strengthened our customer relationships and generated positive momentum to start fiscal 2022.
“In addition to our improved sales and operating performance, our cash flow for the year and our balance sheet remained strong. We ended fiscal 2021 with $46.9 million in total cash and investments and no outstanding debt.
“Our existing Haiti operations have performed well for our mattress fabrics segment during fiscal 2021. As previously reported, we acquired the remaining fifty percent ownership interest in our former unconsolidated joint venture in Haiti during the fourth quarter, and we are now the sole owner with full control of this mattress cover operation. With respect to this acquisition, we reported a gain from bargain purchase totaling $819,000. We are also happy to announce an additional expansion to our Haiti operations to include a third facility. This new building will be dedicated to production of cut and sewn upholstery kits. Construction began during the fourth quarter and is expected to be complete during the second quarter of fiscal 2022. The new facility will primarily support committed demand from an existing customer of the upholstery fabrics division. We believe this move will enhance our speed to market, provide growth opportunities, and mitigate some risk for our upholstery fabrics business with near-shore capabilities that complement our strong Asian platform.
“Importantly, we finished the year as a stronger company both operationally and financially thanks to the extraordinary efforts and resilience of our associates around the world. We are extremely proud of their hard work, adaptability, and perseverance in the face of unique challenges and uncertainties. Our teams came together across divisions to service our customers and meet critical needs throughout the pandemic, while remaining diligent in their efforts to provide a safe environment for our employees, customers, business partners, and the communities we serve. We are grateful for their unwavering dedication and tremendous accomplishment during this challenging time.
“Looking ahead, we are entering fiscal 2022 with a positive outlook for our business. We are proud of our achievements to absorb the increase in demand during fiscal 2021, and we are even more pleased about the outlook for home furnishing demand trends that support our continued growth during fiscal 2022. We also believe our hospitality business will begin to see improvement as conditions normalize in the travel and leisure industry. Heading into the first quarter, we are faced with some continued near-term pressures in both divisions relating to ongoing customer capacity limitations, primarily due to supply chain disruption for non-fabric components and labor shortages, as well as increasing raw material and freight costs and ongoing foreign currency fluctuations in China and Canada. We expect that most of these headwinds are temporary and will be mitigated to some extent by recent pricing actions taken by both divisions.
“Despite these challenges, we believe our business will continue its solid and improved performance during fiscal 2022. We will maintain our focus on innovation and emphasize efforts to increase our market share and make progress on ESG initiatives throughout the year. On the innovation front, we are excited to advance the tremendous synergies developing between our two divisions by combining our design, innovation, and sales teams for both businesses into a shared space at our new innovation campus in downtown High Point, North Carolina. This design-driven space will pull our top creative talent together to support collaboration across divisions and provide an everyday space to gather, meet with customers, develop new products, and showcase our technologies and innovations from fabric to sewn cover. I am extremely proud of our company’s accomplishments in fiscal 2021, and I am confident that we are well-positioned to deliver value for our customers, employees, and shareholders in fiscal 2022 and beyond,” added Culp.
Segment Update
Mattress Fabrics Segment
Sales for this segment were $42.9 million for the fourth quarter, up 84 percent compared with sales of $23.4 million in the fourth quarter of fiscal 2020, which was impacted by the COVID-19 pandemic. For fiscal 2021, mattress fabric sales were $157.7 million, up 20 percent compared with $131.4 million in fiscal 2020.
“We were energized by the significant growth in top line performance for the mattress fabric segment during the fourth quarter,” said Sandy Brown, president of the company’s mattress fabrics division. “Our increase in sales compared to the prior-year period, as well as our top line growth for the full fiscal year, was driven by the ongoing consumer focus on the home environment, combined with our relentless focus on product innovation, creative designs, and our ability to service the increased demand through our strong global platform. We benefitted from market share gains across a diversified group of new and existing customers, including further growth in our sewn mattress cover business. Our fabric-to-cover model, as well as our on-shore, near-shore, and off-shore supply chain strategy, is proving to be a preferred platform for providing our mattress cover customers with the agility and value they need for their business.
“While we are pleased with our sales growth for the fourth quarter, our operating performance, though dramatically improved as compared to the prior-year period, was affected by several factors. We were able to meet the extraordinary increase in customer demand during the quarter, but in doing so we incurred considerable operating inefficiencies to satisfy this surge. Additionally, we were pressured by increased raw material prices, freight costs, and unfavorable foreign currency fluctuations in Canada and China. Notably, although we announced a price increase during the fourth quarter to help mitigate higher freight and raw material costs, this action did not take effect until the beginning of fiscal 2022, resulting in a temporary cost-price lag that affected our operating performance for the quarter.
“Our improved operating performance for fiscal 2021, as compared to the prior year, primarily reflects our solid increase in sales for the year, offset somewhat by the same factors that affected the fourth quarter, as well as disruption in our customers’ supply chains for non-fabric components.
“Although there are lingering pressures heading into fiscal 2022, we believe we are well positioned to gain market share, and we expect our solid top line performance to continue at improved profitability levels during the year. We have the ability to leverage our creative designs, innovative products, digital marketing strategies, and global production capabilities to enhance our leadership position and sustain Culp’s competitive advantage,” added Brown.
Upholstery Fabrics Segment
Sales for this segment were $36.1 million for the fourth quarter, up 50 percent compared with sales of $24.0 million in the fourth quarter of fiscal 2020, which was impacted by the COVID-19 pandemic. For fiscal 2021, upholstery fabric sales were $142.1 million, up 14 percent compared with $124.8 million in fiscal 2020.
“We were very pleased by the strong growth in sales and operating performance for the upholstery fabric segment during the fourth quarter and the fiscal 2021 year,” said Boyd Chumbley, president of the company’s upholstery fabrics division. “We successfully navigated the significant headwinds we were facing going into the quarter, including customer supply chain constraints and container availability, as well as the impact of the Chinese New Year holiday timing, to deliver better than expected results. We executed well on our product driven strategy and continued to benefit from the strength and flexibility of our platform in Asia, including our stable, long-term supplier relationships and our expanded cut and sew capabilities in Vietnam.
“Our growth for the fourth quarter and the fiscal 2021 year was driven by strong industry demand in our residential business, as well as the benefits of market share gains and product innovation with our popular LiveSmart® portfolio of products. This growth was partially offset by lower sales for our hospitality business, which remained under pressure due to pandemic-related disruptions affecting the travel and leisure industries.
“Our improved operating performance for the fourth quarter and fiscal 2021, as compared to the prior-year periods, reflects the significant increase in sales for our residential business, offset somewhat by unfavorable China foreign exchange rate fluctuations and reduced demand in our hospitality business.
“Looking ahead, we are encouraged by the continuing strong backlog in our residential upholstery business and the expected recovery in our hospitality segment. We are confident in our ability to meet this demand, and we believe our recent price increase at the end of the fourth quarter will help offset the ongoing China foreign exchange rate fluctuations. We are also excited to be expanding our capacity for cut and sewn upholstery kits with a new production facility in Haiti, which is expected to be completed during the second quarter of fiscal 2022. While we expect that certain near-term headwinds, including rising freight and raw material costs, may temporarily pressure our business during fiscal 2022, we are confident in our ability to navigate these headwinds and believe our business is well positioned for the long term. Above all, we remain focused on providing innovative products that meet the changing demands of our valued customers,” added Chumbley.
Balance Sheet
“We are pleased to end fiscal 2021 with a strong financial position,” added Ken Bowling, executive vice president and chief financial officer of Culp, Inc. “As of May 2, 2021, we reported $46.9 million in total cash and investments and no outstanding borrowings, up from our $38.7 million net cash position as of the end of fiscal 2020. We generated cash flow from operations of $21.5 million and free cash flow of $14.4 million for the year, compared with cash flow from operations of $5.0 million and free cash flow of $1.5 million for the prior year. (See reconciliation table on page 14.) This year-over-year improvement reflects higher earnings and a focused attention on working capital management throughout the year. During fiscal 2021, we spent $6.7 million in capital expenditures and $892,000 in acquisition-related expenses. We also returned $5.3 million to shareholder through regular quarterly dividends.”
Dividends and Share Repurchases
The company announced that its Board of Directors has approved the payment of a quarterly cash dividend of 11 cents per share. This compares with 10.5 cents per share paid for the same period last year, reflecting an increase of five percent. At an annual indicated dividend of 44 cents per share, the yield is 2.57 percent, based upon yesterday’s closing stock price of $17.14 per share. The next quarterly payment will be made on July 16, 2021, to shareholders of record as of July 9, 2021.
On March 2, 2021, the Board of Directors reinstated the company’s share repurchase plan, which was previously suspended in April 2020 due to economic uncertainty relating to the COVID-19 pandemic. The company did not repurchase any shares during the fourth quarter of fiscal 2021, leaving the full $5.0 million available under the share repurchase program approved by the Board in March 2020.
Results for Fourth Quarter and Fiscal 2021
