Exhibit 99(a)
Culp Announces First Quarter Results for Fiscal 2006
HIGH POINT, N.C.--(BUSINESS WIRE)--Aug. 31, 2005--Culp, Inc.
(NYSE: CFI) today reported financial and operating results for the
first quarter ended July 31, 2005.
Overview
For the three months ended July 31, 2005, net sales were $62.3
million, compared with net sales of $67.8 million a year ago. The
company reported a net loss of $3.9 million, or $0.34 per diluted
share, for the first quarter of fiscal 2006, compared with a net loss
of $1.1 million, or $0.09 per diluted share, for the first quarter of
fiscal 2005. The financial results for the first quarter of fiscal
2006 include after-tax restructuring and related charges of $3.3
million, or $0.29 per diluted share. Excluding these charges, the net
loss for the first fiscal quarter was $628,000, or $0.05 per diluted
share. Excluding after-tax restructuring and related charges and
credits of approximately $42,000, the net loss for the first quarter
of fiscal 2005 was unchanged at $1.1 million, or $0.09 per diluted
share. (A reconciliation of the net loss and net loss per share
calculations has been set forth on Page 5.)
Commenting on the company's results for the first quarter of
fiscal 2006, Robert G. Culp, III, chief executive officer of Culp,
Inc., said, "At the beginning of the quarter, we had ambitious
strategic plans in place, as previously announced, for our operating
segments - mattress ticking and upholstery fabrics, which includes
both U.S. and offshore operations. We are pleased with how much we
accomplished during the quarter with respect to these operational
initiatives as we continue to adapt to the rapidly changing furniture
and bedding markets. While we are not yet profitable in the upholstery
fabrics segment, it is gratifying to see the improvement in operating
results for the first quarter on a year-over-year basis. Although the
transition to a leaner and more agile business model is affecting our
financial performance, we believe we are taking the right steps to be
competitive and position the company for growth over the long term in
today's global marketplace."
Mattress Fabrics Segment
Mattress fabric (known as mattress ticking) sales were $22.9
million in the first quarter of fiscal 2006, an 11.7 percent decline
compared with $26.0 million for the first quarter of fiscal 2005,
reflecting soft demand industry-wide. Operating income for this
segment was $1.4 million, or 5.9 percent of sales, compared with $2.9
million, or 11.2 percent of sales, in the first quarter of fiscal
2005. Operating margins in this segment were affected by lower unit
sales, costs related to the start-up of the company's capital project
announced last October, and lower average selling prices principally
related to the damask product line. This pricing trend reflects the
ongoing shift mattress manufacturers are making to less expensive
common border ticking, which is the fabric that goes on the side of
mattresses and box springs. The average selling price for mattress
ticking declined by 4.2 percent for the first quarter of fiscal 2006
compared with the prior year's quarter. On a unit volume basis, total
yards sold declined by 7.5 percent over the same time. However,
excluding the less popular printed ticking category, total yards sold
were only down about one percent compared with the prior year's
quarter.
"Mattress ticking continues to be a very solid part of Culp's
business and we are taking aggressive steps to improve our competitive
position," added Culp. "We are in the final stages of our $7.0 million
capital project for this segment designed to improve our globally
competitive cost structure. During the first quarter, we completed the
building expansion and weaving machine installation at our Stokesdale,
North Carolina, plant as well as the installation and full operation
of the new weaving machines at our Quebec, Canada, facility. We are
ramping up production at the Stokesdale plant during the second
quarter. By the end of October 2005, we expect to have completed the
transition of a significant portion of our production from a higher
cost upholstery fabric weaving plant to our two mattress ticking
facilities. While these changes have affected our results during the
last three quarters, we believe that once this project is fully
implemented, Culp will be well positioned to substantially improve
operating margins in our mattress ticking business."
Upholstery Fabrics Segment
Sales for this segment were $39.4 million in the first quarter of
fiscal 2006, a 5.9 percent decline compared with $41.9 million in the
first quarter of fiscal 2005. Total yards sold were down 7.0 percent,
while average selling prices were about 1.0 percent higher than the
same period a year ago. Sales for the quarter continued to reflect
significantly lower demand industry-wide for U.S. produced upholstery
fabrics. The current consumer preference for leather and suede
furniture and customer selection of other imported fabrics, including
cut and sewn kits, are driving this trend. The lower sales of U.S.
produced fabrics were offset to a large degree by higher sales of
offshore produced fabrics. Operating loss for this segment was
$380,000, compared with an operating loss of $2.6 million for the same
period a year ago, reflecting higher gross profit in the offshore
produced business and substantially lower selling, general and
administrative expenses.
"With respect to our U.S. operations, we continued to take very
aggressive actions to bring our U.S. manufacturing costs and capacity
in line with current demand trends," Culp noted. "During the first
quarter we initiated and completed the consolidation of our two velvet
production facilities into our Anderson, South Carolina, plant.
Additionally, we consolidated a finished goods distribution center and
our design center into other Culp facilities, resulting in lower
operating costs and the sale of these two buildings for approximately
$3.0 million. Further, we combined our sales, design and customer
service activities for Culp Decorative Fabrics and Culp
Velvets/Prints, the two divisions within the upholstery fabrics
segment, resulting in a more unified approach for our customers. With
these actions and others, we reduced our selling, general and
administrative expenses in this segment by 34.1 percent when compared
with the first quarter last year.
"Earlier this month, we announced a plan to reduce the company's
U.S. yarn manufacturing operations in order to lower costs and
facilitate more yarn innovation by strategically aligning with key
suppliers. As a result of these consolidations and earlier
restructuring actions, the book value of our U.S. based upholstery
fabric fixed assets is projected to be $17 million by the end of the
second quarter of fiscal 2006, compared with approximately $52 million
at the end of fiscal 2004, just 18 months ago. While we believe it is
important to produce some level of upholstery fabrics in the U.S. to
support our customers' domestic fabric requirements, we remain
committed to taking whatever additional steps are necessary to achieve
profitable U.S. upholstery fabric operations.
"With respect to our non-U.S. operations in this segment, we are
pleased with the positive trends during the quarter," added Culp.
"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, were more than twice
the amount for the same quarter last year. These fabrics accounted for
30 percent of Culp's overall upholstery fabric sales during the first
quarter of fiscal 2006, up from five percent two years ago during the
first quarter of fiscal 2004. Customer response has been favorable and
we are excited about the innovative products at excellent values that
we are now able to offer. Our introduction of new offshore-produced
fabrics at the Showtime fabric market in July was well received, and
we anticipate strong placements with manufacturers at the fall
furniture market. Overall, our offshore-produced business is
profitable and represents a significant growth opportunity for Culp."
New Financing
The company also announced changes to its current bank financing
agreement due to expire on August 31, 2005. Under the agreement, the
term of the company's credit facility has been extended by one year.
This amended credit facility in the amount of $8.0 million remains
unsecured. The company has also received a commitment to provide a
long term mortgage on its corporate headquarters for approximately
$4.0 million with an expected closing by the end of October 2005.
Outlook
Commenting on the outlook for the second quarter of fiscal 2006,
Culp continued, "We are pleased with our progress to date in executing
the strategic changes underway in our operations. However, we do
anticipate a continued decline in our overall sales. While mattress
ticking sales have picked up somewhat in the early part of the second
quarter, we expect this segment will show lower sales than a year ago.
Operating income margin in this segment is expected to improve from
the first quarter of fiscal 2006 due to a higher absolute sales level
and the benefits from our capital project. In the upholstery fabrics
segment, we expect continued significant growth in sales of fabrics
produced outside the U.S. However, we believe demand for domestically
produced upholstery fabrics will show a sharp decline, resulting in a
year-over-year decline in overall upholstery fabrics segment sales as
the industry faces weak consumer demand. Even with lower sales, we
believe this segment's operating results will approximate breakeven
for the second quarter due to the profitability in our offshore
produced business and the substantial cost reductions in our U.S.
operations.
"Considering these factors, we expect the company to report
earnings in the range of a net loss of $0.03 to net income of $0.03
per diluted share in the second fiscal quarter, excluding previously
announced restructuring and related charges. This is management's best
estimate at present, recognizing that future financial results are
difficult to predict because the upholstery fabrics industry is
undergoing a dramatic transition and many internal changes are
underway within the company. The actual results will depend primarily
upon the level of demand throughout the quarter, the company's
progress with respect to restructuring activities for our domestic
upholstery fabrics operations, and the continuing implementation of
our capital project in mattress ticking."
The company estimates pre-tax restructuring and related charges of
approximately $6.6 million will be incurred during the second fiscal
quarter. These charges are primarily related to the company's
previously announced plan for the reduction of its yarn manufacturing
operations. Including these charges, the company expects to report a
net loss for the first fiscal quarter of $0.38 to $0.32 per diluted
share. (A reconciliation of the projected net loss per share
calculation has been set forth on Page 5.)
In closing, Culp remarked, "Our primary focus for fiscal 2006 is
to restore Culp to profitability. While we are still in a period of
transition, the strategic moves we have made in our U.S. upholstery
fabric operations are already making a positive difference. Our
offshore produced upholstery fabric business, including our China
platform, is showing strong and profitable growth trends and we are
excited about the opportunities for extending our market reach and
capabilities. We have strengthened our competitive position in
mattress ticking and look forward to realizing the benefits of the
capital project in this segment. We believe we have the right strategy
in place that is being implemented aggressively."
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. Changes in consumer
tastes or preferences toward products not produced by the company
could erode demand for the company's products. 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
--------------------------
July 31, August 1,
2005 2004
----------- -----------
Net sales $62,340,000 $67,849,000
Net loss $(3,941,000) $(1,052,000)
Net loss per share:
Basic $ (0.34) $ (0.09)
Diluted $ (0.34) $ (0.09)
Net loss per share, diluted, excluding
restructuring and related charges
(credits)(a) $ (0.05) $ (0.09)
Average shares outstanding:
Basic 11,551,000 11,547,000
Diluted 11,551,000 11,547,000
(a) Excludes restructuring and related charges of $5.3 million ($3.3
million or $0.29 per diluted share, after taxes) for the first quarter
of fiscal 2006. Excludes restructuring credit of $63,000 ($42,000 or
$0.00 per diluted share, after taxes) for the first quarter of fiscal
2005.
CULP, INC.
Reconciliation of Net Loss as Reported to Pro Forma Net Loss
(Unaudited)
Three Months Ended
--------------------------
July 31, August 1,
2005 2004
----------- -----------
Net loss, as reported $(3,941,000) $(1,052,000)
Restructuring and related charges
(credits), net of income taxes 3,313,000 (42,000)
----------- -----------
Pro forma net loss $ (628,000) $(1,094,000)
=========== ===========
Reconciliation of Net Loss Per Share as Reported
to Pro Forma Net Loss Per Share
(Unaudited)
Three Months Ended
--------------------------
July 31, August 1,
2005 2004
----------- -----------
Diluted net loss per share $ (0.34) $ (0.09)
Restructuring and related charges
(credits), net of income taxes 0.29 --
----------- -----------
Diluted net loss per share, adjusted $ (0.05) $ (0.09)
=========== ===========
Reconciliation of Projected Range of Net Loss Per Share to
Projected Range of Pro Forma Net Loss Per Share
(Unaudited)
Three Months
Ending
October 30,
2005
-------------
Projected range of net loss per diluted share $(0.38)-(0.32)
Projected restructuring and related charges,
net of income taxes 0.35
-------------
Projected range of pro forma net loss per diluted
share $(0.03)- 0.03
=============
CONTACT: Culp Inc., High Point
Investor:
Kathy J. Hardy, 336-888-6209
or
Media:
Kenneth M. Ludwig, 336-889-5161