Exhibit 99(a)
Culp Announces Second Quarter Results for Fiscal 2007
HIGH POINT, N.C.--(BUSINESS WIRE)--Dec. 6, 2006--Culp, Inc. (NYSE:
CFI) today reported financial and operating results for the fiscal
2007 second quarter and six months ended October 29, 2006.
Overview
For the three months ended October 29, 2006, net sales were $59.0
million compared with $67.0 million a year ago. The company reported
net income of $812,000, or $0.07 per diluted share, for the second
quarter of fiscal 2007 compared with a net loss of $4.2 million, or
$0.36 per diluted share, for the second quarter of fiscal 2006. The
financial results for the second quarter of fiscal 2007 include
$233,000, or $0.02 per diluted share, in restructuring and related
charges, after taxes. Excluding these charges, net income for the
second fiscal quarter was $1,045,000, or $0.09 per diluted share. The
results for the second quarter of fiscal 2006 include restructuring
and related charges of $3.8 million, or $0.33 per diluted share, after
taxes. Excluding these charges, net loss for the second fiscal quarter
of 2006 was $332,000, or $0.03 per diluted share. (A reconciliation of
the net income (loss) and net income (loss) per share calculations has
been set forth on Page 6.)
For the six months ended October 29, 2006, the company reported
net sales of $121.6 million compared with $129.3 million for the same
period a year ago. Net income for the first six months of fiscal 2007
was $946,000, or $0.08 per diluted share, compared with a net loss of
$8.1 million, or $0.70 per diluted share, for the same period last
year. Excluding restructuring and related charges, net income for the
first six months of fiscal 2007 was $2.2 million, or $0.19 per diluted
share. Excluding restructuring and related charges, net loss for the
first six months of fiscal 2006 was $960,000, or $0.08 per diluted
share.
Robert G. Culp, III, chairman of the board and chief executive
officer of Culp, Inc., said, "We are pleased with our solid execution
during a challenging period for the retail home furnishing industry.
While our top line results reflect the furniture industry slowdown and
related inventory correction, we continued to make progress in
improving our operating performance in both mattress ticking and
upholstery fabrics. The changes we have made in each of our operating
segments have enabled us to operate more efficiently, even on lower
volumes."
Mattress Fabrics Segment
Mattress fabric (known as mattress ticking) sales for the second
quarter were $23.5 million, a 2.1 percent decline compared with $24.0
million for the second quarter of fiscal 2006. On a unit volume basis,
total yards sold decreased by 7.9 percent compared with the second
quarter of fiscal 2006. This trend primarily 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 $2.28 per yard for mattress ticking for
the second quarter of fiscal 2007 was slightly higher than the average
selling price of $2.16 per yard for the second 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 $2.5
million, or 10.5 percent of sales, compared with $1.7 million, or
6.9 percent of sales, for the prior-year period.
Culp noted, "We showed significant improvement in our operating
performance in mattress ticking over the same period a year ago, with
operating income up approximately 48 percent and operating margins
over 10 percent for the first time in two years. These results reflect
solid productivity gains as we are now realizing the full benefits of
our $10.0 million capital project implemented over the past two years.
Demand for knitted ticking continues to grow as our customers are now
using more knits on the top of the mattress and woven jacquards on the
sides. We expect this product line, which carries a higher average
selling price, to represent a higher percentage of our mattress
ticking business in fiscal 2007. Overall, we are pleased with the
trends in our mattress ticking business in a challenging market
environment. We have continued to make steady progress with key
customers and believe we have further enhanced our solid competitive
position in mattress ticking."
Upholstery Fabrics Segment
Sales for this segment were $35.5 million, a 17.4 percent decline
compared with $43.0 million in the second quarter of fiscal 2006.
Total yards sold declined by 18.1 percent, while average selling
prices were down less than one percent compared with the second
quarter of fiscal 2006. Sales of upholstery fabrics reflect higher
sales of non-U.S. produced fabrics, and continued very weak 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 $20.6 million in the second quarter, up 65 percent over
the prior year period, while sales of U.S. produced fabrics were $14.9
million, down 51 percent from the second quarter of fiscal 2006.
Operating income for the upholstery fabrics segment for the second
quarter of fiscal 2007 was $393,000 compared with an operating loss of
$69,000 for the same period a year ago. These results reflect
significantly higher gross profit related to non-U.S. produced fabrics
and substantially lower gross profit related to U.S. produced fabrics.
Additionally, selling, general and administrative expenses were down
8.0 percent over the same period last year.
Culp said, "While we continued to see solid growth in sales of
non-U.S. produced upholstery fabrics, continued substantial weakness
in our U.S. business accounted for the overall segment sales decline
during the second quarter. Sales of our non-U.S. produced fabrics
represented 58 percent of total upholstery fabric sales for the second
quarter, compared with 29 percent a year ago. Culp has built an
industry-leading operation in China over the last three years designed
to accommodate the growing customer demand for products sourced
outside the U.S. We believe this wholly-owned platform is the key
driver of our future growth in upholstery fabrics. We are aggressively
expanding our capabilities in China with a strong focus on product
innovation, quality and global logistics. Culp now employs 450 people
and has five buildings totaling about 300,000 square feet located near
Shanghai, China.
"With respect to our U.S. operations, we have made considerable
progress in changing our product strategy, reducing our manufacturing
complexities and improving our cost structure," added Culp. "However,
the lower sales volumes are having a significant impact on our
expected operating results. Therefore, during the second quarter we
made the decision to further reduce our employment levels across our
remaining three U.S. manufacturing plants to more appropriately
support current demand. Currently, U.S. 'manufacturing' employment in
the upholstery fabrics segment is 320 people compared with 534 people
at the end of fiscal 2006 and 1,484 at the end of fiscal 2005. In
light of the continuing sharp declines in demand for U.S. produced
fabrics, we will continue to evaluate our domestic strategy and
production requirements. We remain committed to taking whatever
additional steps are necessary to achieve profitable U.S. upholstery
fabric operations, and the company could take additional restructuring
actions in the near future."
Balance Sheet
"Carefully managing our financial position is an important area of
focus in fiscal 2007," Culp noted. "At the end of the second fiscal
quarter, our balance sheet reflects $9.7 million in cash and cash
equivalents, unchanged from the amount at the end of fiscal 2006.
While we have built our inventories through the first six months of
fiscal 2007 in both operating segments, we are taking the necessary
steps to reduce these levels over the second half of this fiscal year.
As of October 29, 2006, we also have $1.6 million in assets held for
sale, which we expect will be sold over the next twelve months. Our
capital spending plans for fiscal 2007 are expected to approximate
$2.5 million, with $2.0 million already incurred for the year to date
period."
Outlook
Commenting on the outlook for the third quarter of fiscal 2007,
Culp remarked, "While we are encouraged by the substantial progress we
have made in the first half of this year, we see a continuation of the
slowdown in the retail furniture market as high gas prices, shaky
consumer confidence and a weaker housing market are adversely
affecting sales in the furniture industry. Additionally, we believe
there continue to be surplus inventories throughout the furniture
retail and manufacturing supply chain, as an increasing amount of
products are sourced from Asia with much longer lead times. Overall,
we expect our third quarter sales to be approximately 12 to 15 percent
lower than sales for the third quarter of fiscal 2006. We expect sales
in our mattress ticking segment will show about the same decline as
the 2.1 percent decline we had in the second quarter of fiscal 2007.
Operating income in this segment 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 the year-over-year growth rate is expected
to be considerably lower than the previous quarter. Sales of
domestically produced upholstery fabrics are expected to reflect very
weak demand, resulting in an estimated 15 to 20 percent overall
segment decline year-over-year. Due to the continued substantial
weakness in U.S. produced sales and a lower growth rate in non U.S.
produced sales, we believe the upholstery fabric segment's operating
results for the third quarter will show year-over-year improvement,
but will reflect a significant operating loss for the quarter.
Operating loss for the upholstery fabrics segment for the third
quarter of fiscal 2006 was $1.7 million.
"Considering these factors, we expect the company to report a net
loss in the third quarter in the range of ($0.06) to ($0.10) per
diluted share, excluding restructuring and related charges for
previously announced restructuring initiatives. 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 for
previously announced restructuring initiatives of approximately
$200,000 ($160,000 net of taxes, or $0.01 per diluted share) will be
incurred during the third fiscal quarter. Including these
restructuring and related charges, the company expects to report a net
loss for the third fiscal quarter in the range of ($0.07) to ($0.11)
per diluted share. (A reconciliation of the projected net loss per
share calculation has been set forth on Page 6.) This projected range
does not include additional charges that could be incurred in the
third quarter from any new restructuring initiatives.
In closing, Culp remarked, "While the furniture industry is going
through a very difficult cycle, we continue to move Culp forward and
believe we are taking the right steps to extend the leadership
positions we enjoy in both of our operating segments. The diversity of
our business is a key strength for Culp, with 75 percent of the
company's total sales from mattress fabrics and non-US produced
upholstery fabrics. We have built a solid competitive position in
mattress ticking and continue to expand our relationships with key
customers. Our non-U.S. produced upholstery fabrics are now the
driving force behind our upholstery fabrics business, and we are
aggressively expanding our capabilities and pursuing opportunities for
further innovation and expansion. We continue to evaluate our U.S.
upholstery fabric strategy and operations and believe we are making
progress toward creating a sustainable business model that will 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 Six Months Ended
------------------------- ---------------------------
October 29, October 30, October 29, October 30,
2006 2005 2006 2005
------------ ------------ ------------- -------------
Net sales $59,040,000 $67,006,000 $121,625,000 $129,348,000
Net income
(loss) $ 812,000 $(4,152,000) $ 946,000 $ (8,093,000)
Net income
(loss) per
share:
Basic $ 0.07 $ (0.36) $ 0.08 $ (0.70)
Diluted $ 0.07 $ (0.36) $ 0.08 $ (0.70)
Net income
(loss) per
share, diluted,
excluding
restructuring
and related
charges(1) $ 0.09 $ (0.03) $ 0.19 $ (0.08)
Average shares
outstanding:
Basic 11,686,000 11,559,000 11,679,000 11,555,000
Diluted 11,689,000 11,559,000 11,682,000 11,555,000
(1) Excludes restructuring and related charges of $365,000 ($233,000
or $0.02 per diluted share, after taxes) for the second quarter of
fiscal 2007. Excludes restructuring and related charges of $1.5
million ($1.2 million, or $0.10 per diluted share, after taxes) for
the first six months of fiscal 2007.
Excludes restructuring and related charges of $6.2 million ($3.8
million, or $0.33 per diluted share, after taxes) for the second
quarter of fiscal 2006. Excludes restructuring and related charges
of $11.5 million ($7.1 million, or $0.62 per diluted share, after
taxes) for the first six months of fiscal 2006.
CULP, INC.
Reconciliation of Net Income (Loss) as Reported
to Pro Forma Net Income (Loss)
(Unaudited)
Three Months Ended Six Months Ended
------------------------ ------------------------
October 29, October 30, October 29, October 30,
2006 2005 2006 2005
----------- ------------ ----------- ------------
Net income (loss), as
reported $ 812,000 $(4,152,000) $946,000 $(8,093,000)
Restructuring and
related charges, net
of income taxes 233,000 3,820,000 1,218,000 7,133,000
----------- ------------ ----------- ------------
Pro forma net income
(loss) $1,045,000 $ (332,000) $2,164,000 $ (960,000)
=========== ============ =========== ============
Reconciliation of Net Income (Loss) Per Share as Reported to
Pro Forma Net Income (Loss) Per Share
(Unaudited)
Three Months Ended(2) Six Months Ended(2)
----------------------- -----------------------
October 29, October 30, October 29, October 30,
2006 2005 2006 2005
----------- ----------- ----------- -----------
Net income (loss), per
diluted share, as
reported $ 0.07 $ (0.36) $ 0.08 $ (0.70)
Restructuring and
related charges, net
of income taxes 0.02 0.33 0.10 0.62
----------- ----------- ----------- -----------
Net income (loss) per
diluted share,
adjusted $ 0.09 $ (0.03) $ 0.19 $ (0.08)
=========== =========== =========== ===========
(2) Per share numbers have been rounded
Reconciliation of Projected Range of Net Loss Per Share
to Projected Range of Pro Forma Net Loss Per Share
(Unaudited)
Three Months Ending
January 28, 2007
----------------------
Projected range of net loss per diluted share $(0.07)-$(0.11)
Projected restructuring and related charges, net
of income taxes 0.01
----------------------
Projected range of pro forma net loss per
diluted share $(0.06)-$(0.10)
======================
CONTACT: Culp, Inc.
Investor Contact:
Kenneth R. Bowling
Vice President of Finance
336-881-5630
or
Media Contact:
Kenneth M. Ludwig
Senior Vice President, Human Resources
336-889-5161