Exhibit 99(a)
Culp Announces Third Quarter Fiscal 2006 Results
HIGH POINT, N.C.--(BUSINESS WIRE)--March 1, 2006--Culp, Inc. (NYSE:CFI)
today reported financial and operating results for the fiscal 2006 third quarter
and nine months ended January 29, 2006.
Overview
For the three months ended January 29, 2006, net sales were $61.0 million
compared with $69.1 million a year ago. The company reported a net loss of $2.2
million, or $0.19 per diluted share, for the third quarter of fiscal 2006
compared with a net loss of $4.9 million, or $0.42 per diluted share, for the
third quarter of fiscal 2005. The financial results for the third quarter of
fiscal 2006 include $1.0 million, or $0.09 per diluted share, in restructuring
and related charges, after taxes. Excluding these charges, net loss for the
third fiscal quarter was $1.1 million, or $0.10 per diluted share. The results
for the third quarter of fiscal 2005 include after-tax restructuring and related
charges of $3.4 million, or $0.29 per diluted share. Excluding these charges,
net loss for the third fiscal quarter of 2005 was $1.5 million, or $0.13 per
diluted share. (A reconciliation of the net loss and net loss per share
calculations has been set forth on Page 6.)
For the nine months ended January 29, 2006, the company reported net sales
of $190.4 million compared with $212.3 million for the same period a year ago.
Net loss for the first nine months of fiscal 2006 was $10.3 million, or $0.89
per diluted share, compared with a net loss of $10.1 million, or $0.88 per
diluted share, for the same period last year. Excluding restructuring and
related charges, net loss for the first nine months of fiscal 2006 was $2.1
million, or $0.18 per diluted share. Excluding restructuring and related charges
and goodwill impairment, net loss for the first nine months of fiscal 2005 was
$2.1 million, or $0.18 per diluted share.
Robert G. Culp, III, chairman of the board and chief executive officer of
Culp, Inc., said, "We have continued to take aggressive steps to transition Culp
to a leaner and more agile business model in response to a dynamic global
marketplace. We have made solid progress through the first nine months of fiscal
2006 with respect to each of our operating segments - mattress ticking and
upholstery fabrics. While we have challenges ahead, we are already realizing the
benefits of our strategic initiatives and believe we are taking the necessary
steps to position Culp for success over the long term."
Mattress Fabrics Segment
Mattress fabric (known as mattress ticking) sales for the third quarter
were $22.7 million compared with $25.6 million for the third quarter of fiscal
2005. On a unit volume basis, total yards sold decreased by 11.8 percent
compared with the third quarter of fiscal 2005. This trend reflects overall
softness in industry sales of mattresses, and a decline in demand for the
printed ticking product line, which has become a less popular category. The
average selling price for mattress ticking was essentially unchanged for the
third quarter compared with the same period last year. Operating income for this
segment was $1.8 million, or 7.9 percent of sales, compared with $1.6 million,
or 6.2 percent of sales, for the prior-year period.
"Mattress ticking sales accounted for 37 percent of our business during the
third quarter and we demonstrated meaningful improvement in our operating
margins over the prior quarter and over the same period a year ago," noted Culp.
"These trends reflect the productivity gains from our capital project and we
expect to see some further margin improvement as we move closer to our target
productivity levels by the end of fiscal 2006. We believe that we have a strong
competitive position in the marketplace in mattress ticking."
Upholstery Fabrics Segment
Sales for this segment were $38.4 million, an 11.8 percent decline compared
with $43.5 million in the third quarter of fiscal 2005. Total yards sold
declined by 13.1 percent, while average selling prices were up 1.4 percent
compared with the third quarter of fiscal 2005. Sales of upholstery fabrics,
which accounted for 63 percent of overall sales, reflect continued soft demand
industrywide for U.S. produced fabrics, driven by consumer preference for
leather and suede furniture and other imported fabrics, including cut and sewn
kits. Sales of U.S. produced fabrics were $23.6 million, down 34 percent from
the third quarter of fiscal 2005, while sales of non-U.S. produced fabrics were
$14.7 million, up 89 percent over the prior year period. Operating loss for the
upholstery fabrics segment for the third quarter of fiscal 2006 was $1.6 million
compared with an operating loss of $2.0 million for the same period a year ago.
These results reflect significantly lower gross profit in U.S. operations versus
a year ago due to lower sales volumes and higher manufacturing variances as the
company has experienced transition issues related to moving its finishing and
yarn operations to outside suppliers and consolidating its velvet operations.
Offsetting the lower gross profit in this segment were lower selling, general
and administrative expenses, which were down 31 percent for the third quarter of
fiscal 2006 compared with the same period last year.
Culp remarked, "Our non-U.S. operations continue to report favorable growth
trends. Sales of upholstery fabrics produced outside our U.S. manufacturing
plants were up 89 percent year-over-year, and accounted for 38 percent of Culp's
upholstery fabric sales for the third quarter. Our most recent introductions of
offshore-produced fabrics were well placed at the Las Vegas furniture market in
late January, and we are seeing solid placements with customers for the spring
furniture market in High Point. We believe our non-U.S.-produced upholstery
fabrics business, with approximately 200 associates in our China operation,
represents a significant growth opportunity for Culp. We intend to expand our
capabilities and continue to build on our China platform as our customers source
more of their fabric requirements outside of the United States."
"With respect to our U.S. upholstery fabric operations, we remain focused
on our goal to develop a sustainable and profitable business model that will
support our customers' requirements," added Culp. "Since the beginning of fiscal
2006, we have worked diligently to revamp our U.S. upholstery fabric product
strategy by offering a more select group of attractively priced, high volume
decorative and velvet fabrics that are well packaged by color and coordination.
Along with this shift in product strategy, we have also taken aggressive steps
since the beginning of fiscal 2006 to reduce our U.S. manufacturing costs and
capacity and selling, general and administrative expenses. We consolidated two
velvet manufacturing operations, consolidated our finished goods distribution
and design centers and closed two of our three yarn manufacturing plants. In
addition, we are implementing the outsourcing of our decorative fabrics
finishing operation.
"Once our outsourcing initiative for finishing services is completed, which
is now expected by the end of April 2006, Culp will have three U.S.
manufacturing facilities operating in the upholstery fabrics segment - one for
velvet fabrics, one for decorative fabrics and one for specialty yarns. As a
result of these past restructuring actions, the book value of our U.S. based
upholstery fabrics fixed assets is projected to be about $13 million by the end
of fiscal 2006, compared with approximately $52 million at the end of fiscal
2004.
"Although we have taken very decisive actions and made considerable
progress in our U.S. operations, we are taking some additional steps to help us
to meet our objectives," added Culp. "During the fourth quarter of fiscal 2006,
we are dropping a number of lower volume products that do not fit our U.S.
operating model of more volume-oriented products. Also, we are discontinuing the
production of our U.S. produced printed upholstery fabrics due to the
substantial decline in sales of this product category. Sales of this category
accounted for 3.7 percent of our overall upholstery fabric sales through the
first nine months of fiscal 2006. These steps will allow us to further reduce
our U.S. manufacturing costs and move us closer to reaching our target operating
model."
Balance Sheet
"We have continued to carefully manage our balance sheet through this
period of transition," Culp noted. "As of January 29, 2006, our balance sheet
reflects $12.9 million in cash and cash equivalents compared with $5.1 million
at the end of fiscal 2005. We have a $7.5 million principal payment plus
interest due March 15, 2006 on our $50 million term loan, and will have no
additional principal payments on this loan due until March 15, 2007. We have
continued to closely monitor our inventory levels and have reduced them by $10.0
million, or 19 percent, since the end of the first quarter of fiscal 2006, all
in our upholstery fabrics segment."
Outlook
Commenting on the outlook for the remainder of the fiscal year ending April
30, 2006, Culp remarked, "We expect to see further progress with respect to the
many strategic initiatives that are underway at Culp. Overall, we anticipate a
similar year-over-year decline in sales as we had in the third quarter. We also
expect sales in our mattress ticking segment will show about the same
year-over-year decline as we had in the third quarter. Operating income margins
in this segment are expected to improve slightly over the same period last year
due to the benefits from our capital project. In the upholstery fabrics segment,
we expect continued growth in sales of fabrics produced outside the U.S.
However, we believe sales of domestically produced upholstery fabrics will
continue to reflect weak demand, resulting in a similar overall segment
year-over-year decline as we had in the third quarter. Even with lower U.S.
sales, we believe the upholstery fabric segment's operating results will show
substantial year-over-year improvement due to less manufacturing variances in
the U.S. and higher profitability in our non-U.S. operations. As a result, we
expect to report a modest operating loss in upholstery fabrics in our fourth
quarter, compared with an operating loss of $2.0 million for the same period of
2005.
"Considering these factors, we expect the company to report fourth quarter
results in the range of ($0.04) to $0.02 per diluted share, excluding
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 still 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 impact of raw material costs."
"The company estimates that restructuring and related charges of
approximately $1.0 million ($650,000, net of taxes, or $0.06 per diluted share)
will be incurred during the fourth fiscal quarter. Including the restructuring
and related charges, the company expects to report a net loss for the fourth
fiscal quarter in the range of ($0.10) to ($0.04) per diluted share. (A
reconciliation of the projected net loss per share calculation has been set
forth on Page 6.)
In closing, Culp remarked, "We remain focused on our primary objective to
restore Culp to profitability. The past year has been an important period of
transition and we have continued to make measurable progress. We are close to
realizing the full benefits of the capital project in the mattress ticking
segment and, as a result, have enhanced our cost-competitive position on a
global basis. Our non-U.S. produced upholstery fabric business, including our
China platform, is gaining momentum and we are continuing to expand our
capabilities and our global market reach. We believe the strategic steps we have
taken in our U.S. upholstery fabric business to revamp our product strategy and
substantially reduce operating costs and capacity will move us closer to our
goal of being profitable in this segment. Overall, we believe the fourth quarter
will continue to reflect the benefits of our efforts over the past year, and we
expect to see improved operating results over the same period last year."
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 Nine Months Ended
------------------------- ---------------------------
January 29, January 30, January 29, January 30,
2006 2005 2006 2005
----------- ----------- ------------ ------------
Net sales $61,035,000 $69,060,000 $190,383,000 $212,315,000
Net loss $(2,169,000) $(4,877,000) $(10,261,000) $(10,122,000)
Net loss per
share:
Basic $ (0.19) $ (0.42) $ (0.89) $ (0.88)
Diluted $ (0.19) $ (0.42) $ (0.89) $ (0.88)
Net loss per
share, diluted,
excluding
restructuring
and related
charges and
goodwill
impairment/a $ (0.10) $ (0.13) $ (0.18) $ (0.18)
Average shares
outstanding:
Basic 11,562,000 11,550,000 11,557,000 11,549,000
Diluted 11,562,000 11,550,000 11,557,000 11,549,000
/a Excludes restructuring and related charges of $1.7 million ($1.0
million, or $0.09 per diluted share, after taxes) for the third
quarter of fiscal 2006. Excludes restructuring and related
charges of $13.2 million ($8.2 million or $0.71 per diluted
share, after taxes) for the first nine months of fiscal 2006.
Excludes restructuring and related charges of $5.4 million ($3.4
million, or $0.29 per diluted share, after taxes) for the third
quarter of fiscal 2005. Excludes restructuring and related
charges and goodwill impairment of $12.9 million ($8.0 million or
$0.70 per diluted share, after taxes) for the first nine months
of fiscal 2005.
Reconciliation of Net Loss as Reported to Pro Forma Net Loss
(Unaudited)
Three Months Ended Nine Months Ended
------------------------- --------------------------
January 29, January 30, January 29, January 30,
2006 2005 2006 2005
------------ ----------- ------------ ------------
Net loss,
as reported $(2,169,000) $(4,877,000) $(10,261,000) $(10,122,000)
Restructuring
and related
charges, net
of income
taxes 1,041,000 3,387,000 8,174,000 4,850,000
Goodwill
impairment,
net of income
taxes -- -- -- 3,193,000
----------- ----------- ------------ ------------
Pro forma net
loss $(1,128,000) $(1,490,000) $ (2,087,000) $ (2,079,000)
=========== =========== ============ ============
Reconciliation of Net Loss Per Share as Reported to
Pro Forma Net Loss Per Share
(Unaudited)
Three Months Ended Nine Months Ended
------------------------- --------------------------
January 29, January 30, January 29, January 30,
2006 2005 2006 2005
------------ ----------- ------------ ------------
Net loss, as
reported $ (0.19) $ (0.42) $ (0.89) $ (0.88)
Restructuring
and related
charges, net
of income
taxes 0.09 0.29 0.71 0.42
Goodwill
impairment,
net of
income taxes -- -- -- 0.28
----------- ----------- ------------ ------------
Pro forma net
loss per share $ (0.10) $ (0.13) $ (0.18) $ (0.18)
=========== =========== ============ ============
Culp Inc.
Reconciliation of Projected Range of Net Loss Per Share
to Projected Range of Pro Forma Net Income (Loss) Per Share
(Unaudited)
Three Months
Ending
April 30,
2006
--------------
Projected range of net loss per diluted share $(0.10)-$(0.04)
Projected restructuring and related charges, net of
income taxes 0.06
--------------
Projected range of pro forma net income (loss) per
diluted share $(0.04)- $0.02
==============
CONTACT: Culp Inc., High Point
Investors: Kenneth R. Bowling, 336-881-5630
or
Media: Kenneth M. Ludwig, 336-889-5161