CULP INC Q3 FY2025 earnings call

• Restructuring in the Mattress Fabrics segment is largely complete, with the Canadian facility production stopped and equipment relocated. It has a preferred manufacturing and sourcing supply chain model.
• Achieved sequential improvement in operating results despite macro industry sales pressure, driven by mattress fabrics restructuring. Near breakeven consolidated adjusted EBITDA for the quarter.
• Growing market share potential, especially in mattress fabrics and sewn mattress covers. Product development and innovation are key drivers, with investments in equipment, processes, and product styling.
• Impact of tariffs and trade regulations on supply chain, with global production footprint providing country of origin optionality. Little exposure to tariff impacts on Mexico or Canada.
• Hospitality contract fabric business showing stronger demand, with sales up year-over-year and sequentially, and new product collections and window treatments expanding.

For the Mattress Fabrics segment, sales in the third quarter were $28.6 million, down 4.6% year-over-year and 4.8% sequentially. Operating loss for the quarter was $433,000, a significant improvement from prior periods. For the Upholstery Fabrics segment, sales were $23.6 million, down 22.3% year-over-year and 7.8% sequentially. Hospitality contract sales within upholstery fabrics were significantly higher, representing 40% of upholstery fabrics total sales for the quarter.

• Expect continued industry sales pressure. Consolidated net sales for Q4 expected to show year-over-year growth and remain relatively flat sequentially, driven by mattress fabrics growth offset by residential upholstery pressure.
• Anticipate continued sequential improvement in adjusted EBITDA, with mattress fabrics profitability improving in Q4, setting foundation for return to consolidated operating income in fiscal 2026. Assumes no further meaningful tariff impacts.

• Macro industry sales pressure continuing to affect results.
• Uncertainty around tariffs and trade regulations impacting supply chain and sales.
• Customer consolidation in the mattress industry, though viewed as potentially positive but requiring navigation.

Q: About change in guidance and return to profitability, clarify timeline.

A: Committed to returning to profitability at current demand levels, with adjustments to set foundation for profitable year in 2026.

Q: Market share growth in Mattress Fabrics and Upholstery?

A: Tommy Bruno mentions continued market share growth in fabric and cover business, new customers and programs. Mary Beth Hunsberger talks about segmented approach in upholstery, targeting value and affluent customers, and growth in hospitality contract business.

Q: Incremental $1 million savings from restructuring, when and how it hits results?

A: $1 million savings on personnel and professional fees starts annualizing in Q4, with additional synergistic efficiency projects expected to yield up to $2 million annualized savings in fiscal '26.

Q: Tariffs impact and Culp's position?

A: Global production footprint provides country of origin optionality. On mattress side, can shift production quickly; on upholstery, can pass price increases. Little exposure to Mexico/Canada tariffs, committed to price action on China supply chain.

Q: Customer consolidation in mattress industry, risk or opportunity?

A: Viewed as net positive, as Culp's design, innovation, and flexible platform fare well with larger suppliers in the industry.