Exhibit 99(a)
Culp Announces First Quarter Results for Fiscal 2008
HIGH POINT, N.C.--(BUSINESS WIRE)--Aug. 28, 2007--Culp, Inc.
(NYSE: CFI) today reported financial and operating results for the
first quarter ended July 29, 2007.
Overview
For the three months ended July 29, 2007, net sales were $65.2
million, up 4.2 percent compared with $62.6 million a year ago. The
company reported net income of $851,000, or $0.07 per diluted
share, for the first quarter of fiscal 2008, compared with net income
of $132,000, or $0.01 per diluted share, for the first quarter of
fiscal 2007. The financial results for the first quarter of fiscal
2008 included $624,000, or $0.05 per diluted share, in restructuring
and related charges, after taxes. Excluding these charges, net income
for the first fiscal quarter was $1.5 million, or $0.12 per diluted
share. The first quarter fiscal 2008 results reflect a significantly
higher tax rate due primarily to higher taxable income from the
company's U.S. operations compared with the prior year period. The
financial results for the first quarter of fiscal 2007 include
after-tax restructuring and related charges of $985,000, or $0.08 per
diluted share. Excluding these charges, net income for the first
fiscal quarter of 2007 was $1.1 million, or $0.09 per diluted share.
(A reconciliation of net income and net income per share has been set
forth on Page 6.)
Frank Saxon, chief executive officer of Culp, Inc., said, "We are
off to an encouraging start for the first quarter of fiscal 2008 with
overall higher sales and improved profitability compared with the same
period last year. Our performance primarily reflects the significant
gains made in our mattress fabrics business. The acquisition of the
mattress fabrics product line of International Textile Group, Inc.'s
Burlington House Division ("ITG"), acquired at the end of the third
quarter of fiscal 2007, has furthered our growth strategy in this
segment. The upholstery fabrics segment continued to face significant
industry-wide challenges during the quarter. However, with our China
platform and the aggressive restructuring of our U.S. upholstery
fabric operations, we believe we are now better positioned to meet
these challenges, remain profitable and benefit from any upturn in
overall demand."
Mattress Fabrics Segment
Mattress fabric (known as mattress ticking) sales for the first
quarter were $36.5 million, a 67 percent increase compared with $21.8
million for the first quarter of fiscal 2007. This trend reflects the
incremental sales related to the company's acquisition of ITG's
mattress fabrics product line and organic growth. Mattress fabric
sales represented over 56 percent of total company sales. On a unit
volume basis, total yards sold increased by 58 percent compared with
the first quarter of fiscal 2007. The average selling price of $2.44
per yard for the first quarter of fiscal 2008 increased six percent
over the same period a year ago, reflecting a shift in product mix
toward more knitted fabrics. Operating income for this segment was
$3.8 million, or 10.3 percent of sales, compared with $1.9 million, or
8.5 percent of sales, for the prior-year period. These operating
results also include transition costs of approximately $500,000
incurred during the first quarter of fiscal 2008.
"The mattress fabrics business continues to be a bright spot for
Culp with sales up 67 percent over the same period a year ago, "said
Saxon. "The bedding industry has remained strong in spite of the
ongoing issues in the housing industry, primarily due to a steady
replacement business. The integration of the additional production and
sales has gone well, and we have been pleased with our customer
retention rate following the ITG acquisition. We have also experienced
meaningful organic growth, especially with knitted ticking, which is a
growing product category and has a higher average selling price. The
results for the quarter were affected by modestly higher raw material
costs and the strengthening of the Canadian currency as compared to
the same period last year. For fiscal 2008, we are focused on
maintaining our high level of execution and service for our customers,
effectively managing an increased amount of working capital and
pursuing opportunities to enhance our leadership position in the
mattress fabrics industry."
Upholstery Fabrics Segment
Sales for this segment, which include both fabric and cut and sewn
kits, were $28.7 million, a 30 percent decline compared with $40.7
million in the first quarter of fiscal 2007. Total fabric yards sold
declined by 38 percent, while average selling prices were the same as
for the first quarter of fiscal 2007. Sales of cut and sewn kits were
up significantly over the same period last year. Upholstery fabrics
sales reflect very weak demand industry wide, as well as continued
soft demand for U.S. produced upholstery 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 $18.9 million in the first quarter, down 20
percent over the prior year period, while sales of U.S. produced
fabrics were $9.8 million, down 43 percent from the first quarter of
fiscal 2007. Operating income for the upholstery fabrics segment for
the first quarter of fiscal 2008 was $450,000 compared with $1.6
million for the same period a year ago.
Saxon remarked, "The results for the upholstery fabrics segment
reflect the very difficult operating environment for the retail
furniture industry. Discretionary consumer spending for furniture
continues to be very soft due to a slowing economy, weak housing
market and high energy prices. Likewise, demand for upholstery fabrics
has continued to decline, especially for U.S. produced fabrics. While
our non-U.S. operations now account for over 65 percent of all
upholstery fabric sales, those sales have also been affected by the
overall weak demand.
"Considering the tough market conditions, we were pleased to
report a profitable performance in upholstery fabrics, primarily
driven by our non-U.S. operations. We have significantly improved our
cost structure with substantially lower U.S. manufacturing costs and
lower selling, general and administrative expenses for the first
quarter of fiscal 2008, which were down 14 percent from the fourth
quarter of fiscal 2007. We have also reduced our inventory levels in
the upholstery fabrics segment by almost $10 million, or 31 percent,
since the first quarter of fiscal 2007. In addition, we are encouraged
by the favorable trends we are seeing in fabric placements with many
customers for the upcoming furniture market in October.
"We are excited about our progress in China and today we have a
substantial wholly-owned operation with over 450 associates. In fiscal
2008, our focus will be on improving gross profit from our U.S.
manufacturing operations, developing differentiated products, building
upon our capabilities in the China platform and improving our supply
chain performance," said Saxon.
Balance Sheet
"Maintaining a strong balance sheet will continue to be an
important priority for Culp in fiscal 2008," added Saxon. "At the end
of the first fiscal quarter, our balance sheet reflected $9.0 million
in cash and cash equivalents. Total debt and outstanding balances on
our lines of credit were $38.6 million compared with $47.3 million a
year earlier. During the first quarter of fiscal 2008, we prepaid $2.2
million in long term debt scheduled for payment in March 2008. We also
prepaid an additional $1.0 million in early August. Our debt to
capital ratio has improved significantly and was 32 percent at the end
of the first quarter, compared with 39 percent a year earlier. As of
July 29, 2007, we also had $1.9 million in assets held for sale, which
we expect will be sold in fiscal 2008."
Outlook
Commenting on the outlook for the second quarter of fiscal 2008,
Saxon remarked, "We believe our mattress fabrics segment will continue
to perform well, however, we see little indication for a meaningful
change in the trends in our upholstery fabrics segment. Overall, we
expect our second quarter sales to be slightly higher than the second
quarter of last year.
We expect sales in our mattress fabrics segment to be up 50 to 55
percent for the second quarter. Operating income in this segment is
also expected to improve substantially compared with the prior year
period due to higher sales volume, full production schedules and the
completion of the ITG integration.
"In our upholstery fabrics segment, we expect sales to be down
approximately 20 to 25 percent for the second quarter, due primarily
to lower sales of U.S. produced fabrics. We believe the upholstery
fabric segment's operating results will reflect a small operating
profit with continued solid gross profit margins in our non-U.S.
produced business and lower selling, general and administrative
expenses as compared to the first quarter of the current fiscal year.
We are estimating approximately $450,000 of restructuring and related
charges during the second fiscal quarter for the continued operating
costs of closed U.S. facilities. However, these charges will continue
to decline over the course of fiscal 2008, as these facilities are
sold and as leases expire. At this point, we estimate that we will
incur an additional $200,000 of restructuring and related charges over
the second half of fiscal 2008 for previously announced restructuring
initiatives."
"Considering these factors, we expect the company to report net
income in the second quarter in the range of $0.12 to $0.15 per
diluted share, excluding restructuring and related charges for
previously announced restructuring initiatives. The second quarter
fiscal 2008 results will reflect a significantly higher tax rate
compared to the previous year due primarily to higher taxable income
from the company's U.S. operations compared with the prior year
period. 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," said Saxon.
The company estimates that restructuring and related charges of
approximately $450,000 ($293,000 net of taxes, or $0.02 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 $0.10 to
$0.13 per diluted share. (A reconciliation of the projected net income
per share calculation has been set forth on Page 6.)
In closing, Saxon remarked, "We are optimistic about Culp's
prospects for fiscal 2008. We are beginning to benefit from the
important strategic decisions made and implemented during the past few
years. Most of the difficult, yet necessary, restructuring moves in
upholstery fabrics are now behind us. The ITG acquisition has
significantly enhanced our solid competitive position in mattress
fabrics. As a result, Culp enters fiscal 2008 a leaner, more efficient
operation with leadership positions in both of our operating segments.
Mattress fabrics will be the key driver of our growth in fiscal 2008.
While our upholstery fabrics business is being affected by the
extremely challenging conditions in the furniture industry, we believe
we have the right strategy in place to meet these challenges and take
advantage of the opportunities presented. Our China platform has
positioned Culp to be competitive in a changing marketplace and to be
a leader in our industry. We are now the sole U.S. supplier of velvet
fabrics and believe we can continue to maintain a U.S. upholstery
fabrics operation that supports customer demand. Overall, we remain
confident in our ability to execute our strategy and deliver value to
both our customers and shareholders."
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. The company's
level of success in integrating its recent acquisition and in
capturing and retaining sales to customers related to the acquisition
will affect the company's ability to meet its sales and profit goals.
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 29, July 30,
2007 2006
----------- -----------
Net sales $65,230,000 $62,585,000
Income before income taxes $ 1,311,000 $ 129,000
Net income $ 851,000 $ 132,000
Net income per share:
Basic $ 0.07 $ 0.01
Diluted $ 0.07 $ 0.01
Income before income taxes, excluding
restructuring and related charges(a) $ 2,286,000 $ 1,298,000
Net income, excluding restructuring and
related charges(a) $ 1,475,000 $ 1,117,000
Net income per share, diluted, excluding
restructuring and related charges(a) $ 0.12 $ 0.09
Average shares outstanding:
Basic 12,583,000 11,672,000
Diluted 12,728,000 11,770,000
(a) Excludes restructuring and related charges of $975,000 ($624,000
or $0.05 per diluted share, after taxes) for the first quarter of
fiscal 2008. 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. (See reconciliation on the following
page)
CULP, INC.
Reconciliation of Income before income taxes as Reported to Pro Forma
Income before income taxes
(Unaudited)
Three Months Ended
------------------------
July 29, July 30,
2007 2006
----------- -----------
Income before income taxes, as reported $ 1,311,000 $ 129,000
Restructuring and related charges 975,000 1,169,000
----------- -----------
Pro forma income before income taxes $ 2,286,000 $ 1,298,000
=========== ===========
Reconciliation of Net Income as Reported to Pro Forma Net Income
(Unaudited)
Three Months Ended
------------------------
July 29, July 30,
2007 2006
----------- -----------
Net income, as reported $ 851,000 $ 132,000
Restructuring and related charges, net of
income taxes 624,000 985,000
----------- -----------
Pro forma net income $ 1,475,000 $ 1,117,000
=========== ===========
Reconciliation of Net Income Per Share as Reported to Pro Forma Net
Income Per Share
(Unaudited)
Three Months Ended
------------------------
July 29, July 30,
2007 2006
----------- -----------
Net income per diluted share $ 0.07 $ 0.01
Restructuring and related charges, net of
income taxes 0.05 0.08
----------- -----------
Pro forma net income per diluted share $ 0.12 $ 0.09
=========== ===========
Reconciliation of Projected Range of Net Income Per Share to Projected
Range of Pro Forma Net Income Per Share
(Unaudited)
Three Months Ending
October 28, 2007
------------------------
Projected range of net income per diluted
share $0.10 - $0.13
Projected restructuring and related charges,
net of income taxes 0.02
------------------------
Projected range of pro forma net income per
diluted share $0.12 - $0.15
========================
CONTACT: Culp, Inc.
Investor Contact:
Kenneth R. Bowling, 336-881-5630
Chief Financial Officer
or
Media Contact:
Kenneth M. Ludwig, 336-889-5161
Senior Vice President,
Human Resources