Exhibit 99(a)
Culp Announces First Quarter Results for Fiscal 2007
HIGH POINT, N.C.--(BUSINESS WIRE)--Aug. 28, 2006--Culp, Inc.
(NYSE: CFI) today reported financial and operating results for the
first quarter ended July 30, 2006.
Overview
For the three months ended July 30, 2006, net sales were $62.6
million compared with $62.3 million a year ago. The company reported
net income of $132,000, or $0.01 per diluted share, for the first
quarter of fiscal 2007, compared with a net loss of $3.9 million, or
$0.34 per diluted share, for the first quarter of fiscal 2006. The
financial results for the first quarter of fiscal 2007 included
$985,000, or $0.08 per diluted share, in restructuring and related
charges, after taxes. Excluding these charges, net income for the
first fiscal quarter was $1.1 million, or $0.09 per diluted share. 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, net loss for the first
fiscal quarter of 2006 was $628,000, or $0.05 per diluted share. (A
reconciliation of the net income (loss) and net income (loss) per
share has been set forth on Page 5.)
Robert G. Culp, III, chairman of the board and chief executive
officer of Culp, Inc., said, "We are off to a good start for fiscal
2007. We are pleased with our overall year-over-year quarterly sales
gain. These improved results reflect the benefits of Culp's transition
to a more marketing-oriented company focused on product innovation and
changing customer needs. As a result of our strategic initiatives over
the last two years in both the mattress fabrics and upholstery fabrics
businesses, we have achieved improved profitability in each operating
segment. We are encouraged by the progress we have made, and continue
to make, as we adapt to a leaner and more agile business model."
Mattress Fabrics Segment
Mattress fabric (known as mattress ticking) sales for the first
quarter were $21.8 million, a 4.7 percent decline compared with $22.9
million for the first quarter of fiscal 2006. On a unit volume basis,
total yards sold decreased by 5.6 percent compared with the first
quarter of fiscal 2006. This trend reflects a decline in demand for
printed ticking, a less popular category. However, sales of knitted
ticking continued to increase, reflecting changing customer demand.
Although prices on the key product lines have trended lower, the
average selling price of $2.30 per yard for mattress ticking for the
first quarter of fiscal 2007 was slightly higher than the average
selling price for the first quarter last year, due to the shift in
product mix to increased sales of substantially higher priced knitted
ticking. Operating income for this segment was $1.9 million, or 8.5
percent of sales, compared with $1.4 million, or 5.9 percent of sales,
for the prior-year period.
"We showed significant improvement in our operating margins over
the same period a year ago, reflecting the productivity gains from our
$10.0 million capital project implemented over the past 18 months. We
also continue to see higher sales and profits in knitted ticking, and
we expect this product line to represent a higher percentage of our
mattress ticking business in fiscal 2007. We are experiencing a
growing trend with our customers to use more knits on the top of the
mattress and woven jacquards on the sides. Culp is well positioned to
benefit from this trend and we will continue to focus on offering the
right product mix to meet customer demand."
Upholstery Fabrics Segment
Sales for this segment were $40.7 million, a 3.3 percent increase
compared with $39.4 million in the first quarter of fiscal 2006. Total
yards sold increased by 6.3 percent, while average selling prices were
3.9 percent lower compared with the first quarter of fiscal 2006.
Sales of upholstery fabrics reflect significantly higher sales of
non-U.S. produced fabrics, but continued soft demand industry wide for
U.S. produced fabrics, driven by consumer preference for leather and
suede furniture and other imported fabrics, including an increasing
amount of cut and sewn kits. Sales of non-U.S. produced fabrics were
$23.5 million in the first quarter, up 103 percent over the prior year
period, while sales of U.S. produced fabrics were $17.2 million, down
38 percent from the first quarter of fiscal 2006. Operating income for
the upholstery fabrics segment for the first quarter of fiscal 2007
was $1.6 million compared with an operating loss of $380,000 for the
same period a year ago. These results reflect continued strong growth
in sales and profits of non-U.S. produced fabrics, significantly lower
U.S. manufacturing fixed costs and variances, and lower selling,
general and administrative expenses.
Culp remarked, "We are pleased with the favorable trends in our
upholstery fabrics segment as we experienced a modest year-over-year
quarterly sales gain and an improved operating profit for this
segment. These results were driven by the sales of non-U.S. produced
fabrics, which have continued to show strong growth trends. Sales of
non-U.S. produced upholstery fabrics surpassed sales of U.S. produced
upholstery fabrics for the first time. Our customers have continued to
aggressively source fabrics produced outside the U.S. and we believe
Culp is well positioned to benefit from this growing demand. The
ongoing focus of this business will be on the development of new
products based on understanding our customer's needs. Additionally, we
will continue to vigorously pursue opportunities to expand our
capabilities and improve our performance to customers in our China
operation.
"With respect to our U.S. upholstery fabric operations, the
improved operating margins demonstrate the aggressive steps we have
taken to reduce our manufacturing complexities and improve our cost
structure," added Culp. "We continue to focus on creating a
sustainable business model that will support the lower customer demand
for U.S. produced fabrics. After several years of consolidation
activities, Culp has now become a more market driven company with
fewer fixed assets and substantially less operating risk going
forward. We believe we have made considerable progress toward reaching
our target operating model and enhancing our competitive position."
Balance Sheet
"Maintaining a strong balance sheet will continue to be an
important priority for Culp in fiscal 2007," added Culp. "At the end
of the first fiscal quarter, our balance sheet reflects $8.4 million
in cash and cash equivalents. Long-term debt now stands at $47.3
million compared with $50.6 million a year ago. As of July 30, 2006,
we also have $2.5 million in assets held for sale, which we expect
will be sold in fiscal 2007. Additionally, as previously noted, our
capital spending plans for fiscal 2007 are modest and not expected to
exceed $2.0 million."
Outlook
Commenting on the outlook for the second quarter of fiscal 2007,
Culp remarked, "While we are encouraged by the progress we have made,
the sluggish retail home furnishings market is significantly affecting
our business and the industry in general. Overall, we expect our
second quarter sales to be approximately 10 percent lower than sales
for the second quarter of fiscal 2006. We expect sales in our mattress
ticking segment will show a slightly greater decline than the 4.7
percent decline we had in the first quarter. Operating income in this
segment, however, is expected to improve over the same period last
year due to our growing knitted ticking business and the benefits from
our recent capital project. In the upholstery fabrics segment, we
expect continued growth in sales of fabrics produced outside the U.S.,
although not at the same rate as the previous two quarters. However,
sales of domestically produced upholstery fabrics will continue to
reflect very weak demand, resulting in an estimated 10 to 15 percent
overall segment decline year-over-year. Even with sharply lower U.S.
sales, we believe the upholstery fabric segment's operating results
for the second quarter will show improvement due to higher sales and
profitability in our non-U.S. operations, lower manufacturing fixed
costs and variances in our U.S. operations, and reduced selling,
general and administrative expenses. As a result, we expect to report
an operating profit in upholstery fabrics in our second quarter,
although at a lower operating margin than the first quarter of fiscal
2007. This compares with an operating loss of $69,000 for the second
quarter of fiscal 2006.
"Considering these factors, we expect the company to report second
quarter results in the range of $0.05 to 0.08 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 $500,000 ($310,000 net of taxes, or $0.03 per diluted
share) will be incurred during the second fiscal quarter. Including
the restructuring and related charges, the company expects to report
net income for the second fiscal quarter in the range of $0.02 to
$0.05 per diluted share. (A reconciliation of the projected net income
per share calculation has been set forth on Page 5.)
In closing, Culp remarked, "Culp is moving forward in fiscal 2007
with a number of difficult steps behind us and a leaner structure on
which to operate more profitably. While the marketplace remains very
challenging, we believe we are pursuing the right strategies to
further enhance the leadership positions we enjoy in both of our
operating segments. We are realizing the full benefits of the capital
project in the mattress ticking segment and are encouraged by the
growth trends in our knitted ticking business. Our non-U.S. produced
upholstery fabric business, including our China platform, continues to
gain momentum and we are aggressively pursuing opportunities for
extending our global market reach and capabilities. With the strategic
steps we have taken in our U.S. upholstery fabric operations, we have
created a better model to sustain our domestic operations and continue
to meet current customer demand. Our primary objective is to restore
Culp to profitability in fiscal 2007 and position the company for
growth over the long term in today's global marketplace."
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 or marketed 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, including the "Risk Factors" section in the
company's most recent annual report on form 10-K.
CULP, INC.
Condensed Financial Highlights
(Unaudited)
Three Months Ended
July 30, July 31,
2006 2005
--------------- ---------------
Net sales $ 62,585,000 $ 62,340,000
Net income (loss) $ 132,000 $ (3,941,000)
Net income (loss) per share:
Basic $ 0.01 $ (0.34)
Diluted $ 0.01 $ (0.34)
Net income (loss) per share,
diluted, excluding restructuring
and related charges(1) $ 0.09 $ (0.05)
Average shares outstanding:
Basic 11,672,000 11,551,000
Diluted 11,770,000 11,551,000
(1) Excludes restructuring and related charges of $1.2 million
($985,000 or $0.08 per diluted share, after taxes) for the first
quarter of fiscal 2007. 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.
CULP, INC.
Reconciliation of Net Income (Loss) as Reported to
Pro Forma Net Income (Loss)
(Unaudited)
Three Months Ended
July 30, July 31,
2006 2005
--------------- ---------------
Net income (loss), as reported $ 132,000 $ (3,941,000)
Restructuring and related charges,
net of income taxes 985,000 3,313,000
--------------- ---------------
Pro forma net income (loss) $ 1,117,000 $ (628,000)
=============== ===============
Reconciliation of Net Income (Loss) Per Share as Reported
to Pro Forma Net Income (Loss) Per Share
(Unaudited)
Three Months Ended
July 30, July 31,
2006 2005
-------------- ---------------
Net income (loss) per diluted share $ 0.01 $ (0.34)
Restructuring and related charges,
net of income taxes 0.08 0.29
-------------- --------------
Net income (loss) per diluted
share, adjusted $ 0.09 $ (0.05)
============== ==============
Reconciliation of Projected Range of Net Income Per Share to
Projected Range of Pro Forma Net Income Per Share
(Unaudited)
Three Months
Ending
October 29,
2006
Projected range of net income per diluted share $0.02 - 0.05
Projected restructuring and related charges,
net of income taxes 0.03
------------
Projected range of pro forma net income
per diluted share $0.05 - 0.08
============
CONTACT: Culp, Inc.
Investor Contact:
Kenneth R. Bowling, 336-881-5630
or
Media Contact:
Kenneth M. Ludwig, 336-889-5161