Exhibit 99(a)
Culp Announces Second Quarter Fiscal 2005 Results
HIGH POINT, N.C.--(BUSINESS WIRE)--Nov. 23, 2004--Culp, Inc.
(NYSE:CFI) today reported financial and operating results for the
fiscal 2005 second quarter and six months ended October 31, 2004.
Highlights for the second quarter include:
-- Strategic plan announced in October expected to realize over
$14 million in annual savings
-- Restructuring actions underway to consolidate domestic
capacity
-- Continued expansion of offshore manufacturing and sourcing
capabilities, with sales of these upholstery fabrics up 143
percent over the same period last year
-- Long-term debt-to-capital ratio of 34.1 percent compared with
43.7 percent a year ago
Overview
For the three months ended October 31, 2004, net sales were $75.4
million compared with $82.7 million a year ago. The company reported a
net loss of $4.2 million, or $0.36 per diluted share, for the second
quarter of fiscal 2005 compared with net income of $3.1 million, or
$0.27 per diluted share, for the second quarter of fiscal 2004. The
financial results for the second quarter of fiscal 2005 include $7.5
million, or $0.41 per diluted share, in restructuring and related
charges and goodwill impairment. Excluding these charges, net income
for the second fiscal quarter was $505,000, or $0.04 per diluted
share. (A reconciliation of the net income (loss) and net income
(loss) per share calculations has been set forth on Page 5.)
For the six months ended October 31, 2004, the company reported
net sales of $143.3 million compared with $156.4 million for the same
period a year ago. The first six months of fiscal 2005 included 26
weeks versus 27 weeks for the same period of fiscal 2004. Net loss for
the first six months of fiscal 2005 was $5.2 million, or $0.45 per
diluted share, compared with net income of $2.7 million, or $0.23 per
diluted share, for the same period last year. Excluding restructuring
and related charges and goodwill impairment, net loss for the first
six months of fiscal 2005 was $589,000, or $0.05 per diluted share.
Robert G. Culp, III, chairman of the board and chief executive
officer of Culp, Inc., said, "As we previously announced, our results
for the second fiscal quarter reflect lower demand for our
domestically produced upholstery fabrics, a difficult pricing
environment for mattress fabrics and raw material price increases.
Given the ongoing challenges in our industry, we recognize the need to
move the company forward and take more aggressive steps to effectively
position Culp in today's global marketplace. We believe our recently
announced strategy for reconfiguring Culp's manufacturing operations
will ultimately make us a more efficient producer and marketer of
upholstery and mattress fabrics."
Mattress Fabrics Segment
Mattress fabric (known as mattress ticking) sales were $26.9
million compared with $26.8 million for the second quarter of fiscal
2004. Operating income for this segment was $2.7 million, or 10.0
percent of sales, compared with $4.2 million, or 15.9 percent of
sales, for the prior-year period. Operating margins in this segment
were affected by industry-wide pricing pressures, as well as higher
raw material costs and inventory mark-downs related to certain
customer start-up programs.
"We are realizing meaningful gains with key customers and believe
we have a significant advantage with our globally competitive cost
structure in mattress ticking," noted Culp. "However, we have faced
some recent challenges in achieving our target operating margins.
Therefore, as previously announced, we have identified significant
cost reduction opportunities with respect to our mattress ticking
operations. We are consolidating these operations into two plants
(Quebec, Canada and Stokesdale, North Carolina), which will involve
relocating ticking manufacturing equipment from an upholstery fabric
facility and purchasing faster and more efficient looms to replace
certain older equipment. These activities are already underway as
planned with minimal disruption to our current production schedule,
and we anticipate they will be completed by August 2005. We are
confident that this capital project and the expected $4.5 million in
savings will further enhance our competitive position and allow us to
better serve our customers."
Upholstery Fabrics Segment
Sales for this segment were $48.5 million, a 13.3 percent decline
compared with $55.9 million in the second quarter of fiscal 2004.
Operating income was $216,000, or 0.4 percent of sales, compared with
$3.5 million, or 6.2 percent of sales for the same period a year ago.
Sales of upholstery fabrics reflect continued soft demand industrywide
for U.S. produced fabrics and the absence of a seasonal recovery that
typically occurs in the fall. Additionally, the current consumer
preference for leather furniture is affecting the overall demand for
upholstery fabrics.
Culp said, "We believe our previously announced plans to
consolidate our U.S. manufacturing facilities will allow us to reduce
costs and improve our profitability in the upholstery fabrics segment.
Additionally, we believe this reconfiguration will more efficiently
utilize our domestic operations, especially for our promotional,
commercial fabric and make-to-order businesses. As planned, the
implementation of this consolidation is already in progress and we are
pleased with the transition we have experienced so far in our plants.
At the same time, we are aggressively pursuing our strategy to source
upholstery fabrics that we do not manufacture in the U.S. Sales of
upholstery fabrics produced outside of our U.S. manufacturing plants,
which include the popular micro-denier suedes as well as fabrics
produced at our China facility, accounted for 14.4 percent of Culp's
overall upholstery fabric sales during the quarter, compared with 5.1
percent for the same period a year ago. We believe that blending
efficient domestic manufacturing with a well executed offshore
manufacturing and sourcing strategy allows us to meet the changing
demands of our customers.
Balance Sheet
"Maintaining a strong balance sheet and carefully managing our
working capital continue to be top priorities for Culp during this
period of transition," Culp added. "At the end of the second fiscal
quarter, our balance sheet reflects $16.5 million in cash and cash
equivalents. Long-term debt stands at $51.2 million and our long-term
debt-to-capital ratio is 34.1 percent compared with 43.7 percent a
year ago. Our solid financial position provides us with the
flexibility to pursue our strategic initiatives."
Outlook
Commenting on the business outlook, Culp remarked, "The third
quarter is typically a slower period for our overall business as a
result of traditional holiday plant shutdowns. For the current
quarter, we expect mattress ticking sales will approximate the third
quarter sales last year and expect the operating income margin in this
segment to approximate the margin of 10.0 percent reported for the
second quarter of this year. With respect to the upholstery fabrics
segment, the outlook remains uncertain for a recovery in demand for
domestically produced upholstery fabrics. For the third quarter,
upholstery fabrics segment sales are expected to decrease slightly
more than the second quarter decline of 13.3 percent. We expect this
sales decline and the related underutilization of U.S. capacity,
combined with the raw material price increases we are experiencing,
will result in an operating loss for this segment. Given these trends
and the current industry dynamics, we expect to report a net loss in
the range of $0.06 to $0.10 per share diluted, excluding previously
announced restructuring and related charges, with the actual results
depending primarily on the level of demand throughout the quarter."
The company estimates that restructuring and related charges of
approximately $7.0 million ($4.4 million, net of taxes, or $0.38 per
diluted share) will be incurred during the third fiscal quarter.
Including the restructuring and related charges, the company expects
to report a net loss for the third fiscal quarter of $0.44 to $0.48
per diluted share. (A reconciliation of the projected net loss per
share calculation has been set forth on page 5.)
Culp added, "We are developing the growth opportunities that are
available in the market as a result of our offshore manufacturing and
sourcing capabilities. Over the next year we will also focus on our
initiatives to reduce our costs, increase our asset utilization in the
company's U.S. upholstery fabric operations and improve our
profitability. We are excited about the opportunities ahead for Culp
and believe the restructuring plans, once completed, will complement
our offshore capabilities and provide us with the right platform to
compete more effectively in today's global economy. Our core
strengths, including design creativity, exceptional customer service
and financial soundness, provide us with confidence that we will reach
our objectives."
About the Company
Culp, Inc. is one of the world's largest marketers of mattress
fabrics for bedding and upholstery fabrics for furniture. The
company's fabrics are used principally in the production of bedding
products and residential and commercial upholstered furniture.
This release contains statements that may be deemed
"forward-looking statements" within the meaning of the federal
securities laws, including the Private Securities Litigation Reform
Act of 1995 (Section 27A of the Securities Act of 1933 and Section 27A
of the Securities and Exchange Act of 1934). Such statements are
inherently subject to risks and uncertainties. Further,
forward-looking statements are intended to speak only as of the date
on which they are made. Forward-looking statements are statements that
include projections, expectations or beliefs about future events or
results or otherwise are not statements of historical fact. Such
statements are often but not always characterized by qualifying words
such as "expect," "believe," "estimate," "plan" and "project" and
their derivatives, and include but are not limited to statements about
the company's future operations, production levels, sales, SG&A or
other expenses, margins, gross profit, operating income, earnings or
other performance measures. Factors that could influence the matters
discussed in such statements include the level of housing starts and
sales of existing homes, consumer confidence, trends in disposable
income, and general economic conditions. Decreases in these economic
indicators could have a negative effect on the company's business and
prospects. Likewise, increases in interest rates, particularly home
mortgage rates, and increases in consumer debt or the general rate of
inflation, could affect the company adversely. In addition,
strengthening of the U.S. dollar against other currencies could make
the company's products less competitive on the basis of price in
markets outside the United States. Also, economic and political
instability in international areas could affect the company's
operations or sources of goods in those areas, as well as demand for
the company's products in international markets. Finally,
unanticipated delays or costs in executing restructuring actions could
cause the cumulative effect of restructuring actions to fail to meet
the objectives set forth by management. Other factors that could
affect the matters discussed in forward-looking statements are
included in the company's periodic reports filed with the Securities
and Exchange Commission.
CULP, INC.
Condensed Financial Highlights
(Unaudited)
Three Months Ended Six Months Ended
------------------------ --------------------------
October 31, November 2, October 31, November 2,
2004 2003 2004 2003
----------- ----------- ------------ ------------
Net sales $75,406,000 $82,731,000 $143,255,000 $156,407,000
Net income
(loss) $(4,193,000) $ 3,146,000 $ (5,245,000) $ 2,735,000
Net income
(loss) per
share:
Basic $ (0.36) $ 0.27 $ (0.45) $ 0.24
Diluted $ (0.36) $ 0.27 $ (0.45) $ 0.23
Net income
per share,
diluted,
excluding
restructuring
and related
charges and
goodwill
impairment(a) $ 0.04 $ 0.27 $ (0.05) $ 0.23
Average shares
outstanding:
Basic 11,549,000 11,524,000 11,548,000 11,519,000
Diluted 11,549,000 11,774,000 11,548,000 11,718,000
(a) Excludes restructuring and related charges and goodwill impairment
of $7.5 million ($4.7 million or $0.41 per diluted share, after
taxes) for the second quarter of fiscal 2005. Excludes
restructuring and related charges and goodwill impairment of $7.5
million ($4.7 million or $0.40 per diluted share, after taxes) for
the first six months of fiscal 2005.
Reconciliation of Net Income (Loss) as Reported to
Pro Forma Net Income (Loss)
(Unaudited)
Three Months Ended Six Months Ended
------------------------ --------------------------
October 31, November 2, October 31, November 2,
2004 2003 2004 2003
----------- ----------- ------------ ------------
Net income
(loss), as
reported $(4,193,000) $ 3,146,000 $ (5,245,000) $ 2,735,000
Restructuring
and related
charges and
goodwill
impairment,
net of income
taxes 4,698,000 0 4,656,000 0
----------- ----------- ------------ ------------
Pro forma net
income (loss) $ 505,000 $ 3,146,000 $ (589,000) $ 2,735,000
=========== =========== ============ ============
Reconciliation of Net Income (Loss) Per Share as Reported to
Pro Forma Net Income (Loss) Per Share
(Unaudited)
Three Months Ended Six Months Ended
------------------------ --------------------------
October 31, November 2, October 31, November 2,
2004 2003 2004 2003
----------- ----------- ------------ ------------
Net income (loss)
per share,
as reported $ (0.36) $ 0.27 $ (0.45) $ 0.24
Restructuring
and related
charges and
goodwill
impairment,
net of income
taxes 0.41 0.00 0.40 0.00
Effect of
rounding (0.01) 0.00 0.00 0.00
----------- ----------- ------------ ------------
Pro forma net
income (loss)
per share $ 0.04 $ 0.27 $ (0.05) $ 0.24
=========== =========== ============ ============
Culp Inc.
Reconciliation of Projected Range of Net Loss Per Share
to Projected Range of Pro Forma Net Loss Per Share
(Unaudited)
Three Months
Ending
January 30,
2005
--------------
Projected range of net loss per diluted share $(0.44)-$(0.48)
Projected restructuring and related charges,
net of income taxes 0.38
--------------
Projected range of pro forma net loss per
diluted share $(0.06)-$(0.10)
==============
CONTACT: Culp, Inc., High Point
Investor Contact:
Kathy J. Hardy, 336-888-6209
or
Media Contact:
Kenneth M. Ludwig, 336-889-5161