Exhibit 99(a)
Culp Announces Results for Second Quarter Fiscal 2008
HIGH POINT, N.C.--(BUSINESS WIRE)--Nov. 28, 2007--Culp, Inc.
(NYSE: CFI) today reported financial and operating results for the
second quarter and six months ended October 28, 2007.
Overview
For the three months ended October 28, 2007, net sales were $64.3
million, up 9.0 percent compared with $59.0 million a year ago. The
company reported net income of $1.6 million, or $0.12 per diluted
share, for the second quarter of fiscal 2008, compared with net income
of $812,000, or $0.07 per diluted share, for the second quarter of
fiscal 2007. The financial results for the second quarter of fiscal
2008 included $503,000, or $0.04 per diluted share, in restructuring
and related charges, after taxes. Excluding these charges, net income
for the second fiscal quarter was $2.1 million, or $0.16 per diluted
share. The second quarter fiscal 2008 results reflect a significantly
lower tax rate due primarily to the effect of the strengthening of the
Canadian currency during the quarter on estimated Canadian taxable
income. The financial results for the second quarter of fiscal 2007
included $232,000, or $0.02 per diluted share, in restructuring and
related charges, after taxes. Excluding these charges, net income for
the second quarter of fiscal 2007 was $1,044,000, or $0.09 per diluted
share. (A reconciliation of net income and net income per share has
been set forth on Page 6.)
For the six months ended October 28, 2007, the company reported
net sales of $129.6 million compared with $121.6 million for the same
period a year ago, an increase of 7.0 percent. Net income for the
first six months of fiscal 2008 was $2.4 million, or $0.19 per diluted
share, compared with $946,000, or $0.08 per diluted share, for the
same period last year. Excluding restructuring and related charges,
net income for the first six months of fiscal 2008 was $3.5 million,
or $0.28 per diluted share. 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.
Frank Saxon, chief executive officer of Culp, Inc., said, "We
delivered a solid performance in the second quarter of fiscal 2008
during what has continued to be a challenging retail environment for
the furniture industry. Our year over year sales gains and
profitability improvement reflect continued growth in our mattress
fabrics segment. While our upholstery fabrics sales have been affected
by very difficult industry conditions, our China platform and lower
operating cost structure have positioned us to operate more
efficiently during the downturn, remain profitable on lower volumes
and benefit from any upturn in demand. Additionally, we were pleased
with the significant improvement in cash flow from operations during
the first half of this year."
Mattress Fabrics Segment
Mattress fabric (known as mattress ticking) sales for the second
quarter were $36.0 million, a 53 percent increase compared with $23.5
million for the second quarter of fiscal 2007. This trend reflects the
incremental sales related to the company's acquisition of ITG's
mattress fabrics product line in January 2007 and some organic growth.
Mattress fabric sales represented 56 percent of total company sales
for the quarter. On a unit volume basis, total yards sold increased by
48 percent compared with the second quarter of fiscal 2007. The
average selling price of $2.39 per yard for the second quarter of
fiscal 2008 was four percent higher than the same period a year ago,
reflecting a shift in product mix toward more knitted fabrics.
Operating income for this segment was $3.9 million, or 10.8 percent of
sales, compared with $2.5 million, or 10.5 percent of sales, for the
prior-year period.
"Culp's mattress fabrics business continued to build momentum with
sales up more than 53 percent over the same period a year ago," said
Saxon. "The mattress industry has consistently outperformed other home
furnishings categories, even with the recent downturn in the housing
market. The strong demand for mattresses has been primarily driven by
a steady replacement business. Culp has continued to enjoy excellent
customer relationships and we have benefited from a favorable customer
retention rate following the ITG acquisition. With the integration of
the ITG business completed, we are now fully realizing the benefits of
the additional sales and more efficient production. Knitted ticking,
which has a higher average selling price, continues to be a high
growth product category for Culp. The results for the quarter were
affected by modestly higher raw materials costs and increased Canadian
operating costs due to the strengthening of the Canadian currency as
compared with 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 build upon 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 $28.3 million, a 20 percent decline compared with $35.5
million in the second quarter of fiscal 2007. Total fabric yards sold
declined by 25 percent, while average selling prices were
approximately three percent higher than the second 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 furniture and fabrics. Sales of non-U.S.
produced fabrics were $16.9 million in the second quarter, down 18
percent over the prior year period, while sales of U.S. produced
fabrics were $11.4 million, down 24 percent from the second quarter of
fiscal 2007. Operating income for the upholstery fabrics segment for
the second quarter of fiscal 2008 was $201,000 compared with $393,000
for the same period a year ago.
Saxon remarked, "The results for the upholstery fabrics segment
mirror the challenging operating environment across the retail
furniture industry. The uncertain economy, depressed housing market
and high energy prices are all adversely affecting consumer spending
for furniture. Likewise, overall demand for upholstery fabrics has
continued to decline. While our non-U.S. operations now account for 60
percent of all upholstery fabric sales, those sales have also been
affected by the weak demand.
"We were pleased to report another profitable quarter in
upholstery fabrics in this very difficult operating environment,
primarily driven by our non - US operations. We have improved our cost
structure with substantially lower U.S. manufacturing costs and lower
selling, general and administrative (SG&A) expenses for the second
quarter of fiscal 2008. SG&A expenses were down $1.0 million, or
26 percent, from the same period a year ago. We continue to take steps
to lower our costs and keep them in line with demand in this business.
We have also reduced our inventory levels in the upholstery fabrics
segment by almost $10 million, or 32 percent, since the second quarter
of fiscal 2007.
"We continue to be excited about our progress in China and the
business model we have developed over the last several years," Saxon
added. "With the excellent product values we are now offering from our
China platform, we are aggressively pursuing top line growth,
especially given the challenging near term industry outlook. In
addition, our focus for fiscal 2008 is on improving gross profit
in our U.S. operations, developing differentiated products and
improving our supply chain performance.
Balance Sheet
"Strengthening our financial position is an important area of
focus in fiscal 2008," added Saxon. "At the end of the second fiscal
quarter, our balance sheet reflected $16.8 million in cash and cash
equivalents, representing substantial improvement in cash flow from
operations, which was approximately $10 million for the year to date
period. This performance is due to increased profitability and
significant improvement in working capital management. Total debt was
$39 million at the end of the second quarter compared with $47 million
a year earlier. Our debt to capital ratio has improved significantly
and was 32 percent at the end of the second quarter, compared with 37
percent a year earlier.
"After the end of the second quarter, we prepaid an additional
$4.3 million on our term notes principal payment that is due in March
2008. Originally, this principal payment was $19.8 million. The
company has now prepaid a total of $11.5 million over the last eight
months, leaving only $8.3 million of this principal payment due in
March 2008. Currently, the company has sufficient funds available to
make this remaining principal payment in March 2008," added Saxon.
Outlook
Commenting on the outlook for the third quarter of fiscal 2008,
Saxon remarked, "We believe our mattress fabrics segment will continue
to perform well; however, we do not expect to see any near-term relief
from the challenges facing the upholstery fabrics segment. Overall, we
expect our third quarter sales to be slightly higher than the third
quarter of last year.
"We expect sales in our mattress fabrics segment to be up
approximately 30 to 35 percent for the third quarter. The third
quarter of fiscal 2007 included $1.0 million in incremental sales
related to the company's acquisition of ITG's mattress fabrics product
line, completed on January 22, 2007. Operating income in this segment
is also expected to improve substantially compared with the prior year
period due to higher sales and the completion of the ITG integration.
"In our upholstery fabrics segment, we expect sales to be down
approximately 15 to 20 percent for the third quarter, due mostly to
lower sales of U.S. produced fabrics. We believe the upholstery fabric
segment's operating results will reflect approximately breakeven
results due primarily to lower sales and weak gross profits in our
U.S. operations. However, we still expect continued solid gross profit
margins in our non-U.S. produced business and substantially lower
selling, general and administrative expenses as compared to the third
quarter of the prior year. We are estimating approximately $500,000 of
restructuring and related charges during the third fiscal quarter due
primarily to employee termination benefits and operating costs of
closed U.S. facilities. At this point, we estimate that we will incur
an additional $200,000 of restructuring and related charges during the
fourth fiscal quarter for previously announced restructuring
initiatives.
"Considering these factors, we expect the company to report net
income in the third quarter in the range of $0.07 to $0.11 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, some internal changes are still
underway within the company and foreign currency fluctuations may
continue. 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 $500,000 ($415,000 net of taxes, or $0.03 per diluted
share) will be incurred during the third fiscal quarter. Including the
restructuring and related charges, the company expects to report net
income for the third fiscal quarter in the range of $0.04 to $0.08 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 making sound progress so far
in fiscal 2008 as we execute our strategy and build upon the
leadership positions we enjoy in both of our operating segments. Our
mattress fabrics business will continue to be the key driver of our
growth in fiscal 2008. We have significantly enhanced our competitive
position in mattress fabrics with the successful integration of the
ITG purchase and are excited about the incremental value and synergies
this acquisition is bringing to Culp. Our upholstery fabrics business
is being affected by the extremely challenging conditions in the
furniture industry; however, we believe we are well positioned to both
withstand the current downturn and report better results as conditions
improve. Our China platform provides a sustainable business model for
Culp to compete effectively in upholstery fabrics and grow this
business again. Overall, we are pleased with our progress and remain
focused on achieving profitable growth over the long term."
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 Six Months Ended
-------------------------------------------------
October 28, October 29, October 28, October 29,
2007 2006 2007 2006
----------- ----------- ------------ ------------
Net sales $64,336,000 $59,040,000 $129,566,000 $121,625,000
Income before income
taxes $ 1,459,000 $ 757,000 $ 2,770,000 $ 888,000
Net income $ 1,554,000 $ 812,000 $ 2,405,000 $ 946,000
Net income per
share:
Basic $ 0.12 $ 0.07 $ 0.19 $ 0.08
Diluted $ 0.12 $ 0.07 $ 0.19 $ 0.08
Income before income
taxes, excluding
restructuring and
related charges(1) $ 1,991,000 $ 1,121,000 $ 4,276,000 $ 2,421,000
Net income per
share, diluted,
excluding
restructuring and
related charges(1) $ 0.16 $ 0.09 $ 0.28 $ 0.19
Average shares
outstanding:
Basic 12,635,000 11,686,000 12,609,000 11,679,000
Diluted 12,809,000 11,689,000 12,776,000 11,682,000
(1)Excludes restructuring and related charges of $532,000
($503,000 or $0.04 per diluted share, after taxes) for the second
quarter of fiscal 2008. Excludes restructuring and related charges of
$1.5 million ($1.1 million, or $0.09 per diluted share, after taxes)
for the first six months of fiscal 2008.
Excludes restructuring and related charges of $364,000 ($232,000
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.
CULP, INC.
Reconciliation of Income before Income Taxes as Reported to Pro Forma
Income before Income Taxes
(Unaudited)
Three Months Ended Six Months Ended
----------------------- -----------------------
October 28, October 29, October 28, October 29,
2007 2006 2007 2006
----------- ----------- ----------- -----------
Income before income
taxes, as reported $ 1,459,000 $ 757,000 $ 2,770,000 $ 888,000
Restructuring and
related charges $ 532,000 $ 364,000 $ 1,506,000 $ 1,533,000
----------- ----------- ----------- -----------
Pro forma income
before income taxes $ 1,991,000 $ 1,121,000 $ 4,276,000 $ 2,421,000
=========== =========== =========== ===========
Reconciliation of Net Income as Reported to Pro Forma Net Income
(Unaudited)
Three Months Ended Six Months Ended
----------------------- -----------------------
October 28, October 29, October 28, October 29,
2007 2006 2007 2006
----------- ----------- ----------- -----------
Net income as reported $ 1,554,000 $ 812,000 $ 2,405,000 $ 946,000
Restructuring and
related charges, net
of income taxes $ 503,000 $ 232,000 $ 1,126,000 $ 1,218,000
----------- ----------- ----------- -----------
Pro forma net income $ 2,057,000 $ 1,044,000 $ 3,531,000 $ 2,164,000
=========== =========== =========== ===========
Reconciliation of Net Income Per Share as Reported to
Pro Forma Net Income Per Share
(Unaudited)
Three Months Ended(1) Six Months Ended(1)
----------------------- -----------------------
October 28, October 29, October 28, October 29,
2007 2006 2007 2006
----------- ----------- ----------- -----------
Net income, per
diluted share, as
reported $ 0.12 $ 0.07 $ 0.19 $ 0.08
Restructuring and
related charges, net
of income taxes $ 0.04 $ 0.02 $ 0.09 $ 0.10
----------- ----------- ----------- -----------
Net income per diluted
share, adjusted $ 0.16 $ 0.09 $ 0.28 $ 0.19
=========== =========== =========== ===========
(1)Per share numbers have been rounded
Reconciliation of Projected Range of Net Income Per Share
to Projected Range of Pro Forma Net Income Per Share
(Unaudited)
Three Months Ending
January 27, 2008
-----------------------
Projected range of net income per diluted
share $0.04 - $0.08
Projected restructuring and related charges,
net of income taxes 0.03
-----------------------
Projected range of pro forma net income per
diluted share $0.07 - $0.11
=======================
CONTACT: Culp, Inc.
Investor & Media Contact:
Kenneth R. Bowling, 336-881-5630
Chief Financial Officer