CULP - Earnings call transcript Q3 2018

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Operator

Good day, everyone, and welcome to the Culp’s Third Quarter 2018 Earnings Conference. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Dru Anderson. Please go ahead ma’am.

Dru Anderson

you. Thank welcome for conference fiscal the and the to XXXX. the results company's third to morning, call Culp review Good quarter of

will of the As this the me let company. financial contain call business, prospects we about forward-looking and state condition statements start, morning's that

or risks historical the and regular could XX-K These are events fact. filings, performance the recent that company The forward-looking materially about uncertainties statements statements described by are from including XX-Q. most otherwise various statements are of indicated projections, expectations and uncertainties. actual or Forward-looking beliefs because not company's differ that or and Form include future results statements of Form risks in SEC filings our on of the

reliance and today. this statements statements. undue You to on no forward-looking each forward-looking statement of as are or morning, cautioned We only undertake update speaks obligation made to revise such not to place

go will financial company's call, company's In the culp.com. is yesterday financial non-GAAP at summary these financial Frank also Saxon, and the a GAAP today's company President addition, included on and posted and as measurements. filed this website of to measurement financial as sir. be with performance Executive schedule charts that, during additional measurements directly discussing ahead, comparable I to reconciliation non-GAAP X-K Please are With call. A the presentation most of the slide the the to turn available over A call supporting website the of on information part webcast will Officer. now Chief

Frank Saxon

will with today. Ken Chief to the review brief With you comments results then analysts I that, our sales the review will business outlook. each operating everyone call conference quarter highlighted everyone and on to than quarter. We’ll strong the call of financial the was businesses. morning and our investors. in happy some and financial both After third then like begin and Financial pleased I’ll to Good strategic today quarter on businesses. call you welcome our higher And for with quarterly actions for be thank joining performance Dru. is Ken by of the then I’ll our you, update us with are the for Ken questions. and Officer. fourth we Bowling, Thank the me take Culp expected would

that strong in in Our challenging Chinese a improvement ordering marketplace to the sales February of solid entirely weather-related customers of holiday year. were Sales year-over-year spite year, disruptions. exceptionally in mattress more as last this fabric as showed ahead in occurred upholstery fabrics of oppose many Year New were January

provide continue that For of our both product diverse and meets of customers. our mix businesses, creativity innovation the and changing a drive we demands to product

cash debt, will $XX opportunities including acquisitions. in Importantly, over we call have build continued and who turn strong with which review the upon financial for position to our results strategic flexibility on I’ll the to investments capitalize million and provides no Ken, almost to the financial quarter. new growth now

Ken Bowling

Frank. Thanks

cover to call, website on posted our strategy. capital performance We’ve our earlier key allocation we have presentations slide Investor the to mentioned posted As measures. Relations also

the million, Pre-tax compared financial was Pre-tax a ago. year. are income prior year for period. $XX.X margin third Here year with compared Net X.X% the sales X.X% the third quarter million, up with the prior income $X.X were X.X% XX% highlights with the for compared quarter. up was

XXXX with includes Jobs or for charge $XXX,XXX million net quarter share Act the or $X.X Tax reform. $X.XX per associated which diluted the diluted was $X.XX tax and Cuts Our share, loss or per a

$X.XX net discuss share. minute. income year’s tax share. or in third will or a million fiscal to a per tax income Last Excluding I our this $X.XX charge million detail little net diluted diluted for in quarter reform, $X.X reform more was was $X.X per

last year’s period position XX% a $XX.X or XX million Annualized income same adjusted consolidated return a year with jurisdiction. ago. included XX.X% million Trailing with million for an was on EBITDA tax year Importantly, months $X.X reversal of capital compared XX% with associated net foreign was of a uncertain a the compared $XX.X sales ago.

on absorption the from same take at for fabrics let’s $X.X currency $X.X business sales income customers driver, Since mattress was rate. two third our businesses. year beginning $XX exchange Annualized income many cost of Year $XX.X were prior for with unfavorable year. as by was of was provide for of Now The the of our an the return million has on for this strengthened XX%. $X.X million income more as main a Operating margin almost will minute. about upholstery The XX% business up New X%. capital with last benefit compared that million. million operating return May, We margin sales the on Frank year’s fabrics Chinese plant offset of quarter. Yuan shutdowns. year quarter ago compared fabrics with from in ago. sales half color X.X% will the moved Annualized Operating China more upholstery Operating up was XX%, year. which with were estimate year year’s advance gain, the fabric higher up of million growth last a the the X.X% XX.X% a later. fiscal Frank look mattress was sales partially was X.X% last third capital quarter, is pressure sales comment in last on compared a coming $X.X was the the for over million forward income timing

balance the highlights. sheet are Here

and year outstanding end up quarter, the investments, no million in cash on total a third and our credit balance $XX.X we $XX.X of reported lines from million of of As ago.

of million $X repurchased financed under million first million $XX.X company dividends. $X.X far nine For and the so CapEx, this including current year program. leaving fiscal on any repurchase the The vendor fiscal available has spent months we payments year, on this not shares purchase,

of a spend impact few the tax Now on reform. let minutes me

areas associated As share deferred charge capital tax from profits change during on the reform. tax vision for based result projections the million U.S. company’s quarter the mandatory the actual This projected period and other among taxes to $X.X allowed will the The $X.X $X.XX for a provisional a the million. deemed to effective and of results. reduction net tax rate. undistributed We to amount by the date. on income of income this paid by U.S. XX% foreign includes provisional for were estimates $X.X to was company’s that capital the subsidiaries measurement will the fiscal expenditures, of be the impacted our for charge affected earnings beyond versus related consolidated estimates to be charge range one quarter Estimates million enactment the mentioned per extend not tax SEC, year working We make with provision company’s estimate XX%. this will years. in the repatriation this for of determine million year $X.X and the income, or based taxable in income required which repatriation earlier, is over These X of the annual diluted recorded fourth

tax our be the connection we year, will XX%. are estimate reform. estimates to next rates with XX% to rate of ahead revisions provisional range income fiscal that made subject These consolidated in a Looking to tax effective our to,

as of repatriation in offset utilize to tax the NOLs of tax reform order credits. elected Importantly, use our out in we our fully part foreign to tax mandatory

next U.S. lower As a with income. corporate expenditures that, call capital income in fiscal expected NOLs to fiscal over I’ll and to XXXX This resort facts all turn the fact know year rate the taxable $X back coupled paid to cash result, U.S. have on XXXX Frank. With ability a minimal the we taxes approximately fiscal U.S. based million we today. against in to expense circumstances and is apply immediately cash, tax

Frank Saxon

mattress to in weather with marketplace, and Thanks quarter, ability higher Ken. our of our solid this of execute the strategy than These performance a spite plant disruptions sales. third related an operating had near results holiday closures occurred financial I’ll reflect end and additional with some seasonal We fabrics. that business in expected quarter. the, uncertain start

other we sales our throughout drivers New trends industry new fiscal outperform mattress reported product fabric of sales of this programs And to year. strong mattress covers continued and rollouts performance. have were key

the included significant we of which operations manufacturing a well Quebec. with and capital to of With projects completion started have operating equipment efficiencies period following behind Our major North results. us, chain improvement relocations operations, American performed enhancements our improvement realize projects in supply Carolina transformation and our favorable and across facility greater capital North in

platform strong we our our with pleased continuous value will across are initiatives We progress that remain improvement focused global further enhance Culp’s on proposition. and

solid sales quarter. profit with on pleased also a cover for mattress operation a CLASS, the performance We of are with contribution the third and

including with share in to We increased fast traditional and sales to customer business, have market both continued base. markets, growing a customers the box gain bed this in new

new facility Haiti and cost remain further capacity cover production enhances in Our North existing to mattress business Carolina complements and production our our our competitive. expand class ability in

design-driven we from commenced our by production the product diversification expected to more at and Supply being markets. brand line of to And gradually have accessory Culp bedding a including ship line Las customer We we products, mattress with protectors, and In bedding offered directly strategy, pads started Haiti. recently to its the to add products This Comfort under capacity product bedding demand. highly category. some new retailers introduce recent Company meet stylized, Vegas line the accessory new launched plan accessories to name

potential expect new are fiscal about next growth We sales begin the and area for in early innovative year. excited this to

fabrics. upholstery to turn I’ll Now

China pressure We’re solid despite achieved quarter, fabrics the very exchange than with and profits. pleased unfavorable currency significant performance rates. expected for strong profitability higher from the financial We with the third upholstery sales

We stain-resistant continue performance LiveSmart of to durable, fabrics. our sales trends line highly with see positive

heading these [ph] the marketing produced strong more the encouraged we efforts and innovative focused by as results furniture are market customer the hypoid fabrics, spring. and placements featuring Our have April into manufacturers are favorable

Additionally, this to Year upholstery year. the Many meet plant of in occurred fabrics of shipments January business anticipated demand. in customers were February which into in heading in Chinese New moving advance forward the entirely were order shutdowns our holiday, stronger

this slow production with the expect fourth in third While China. February the quarter, of sales this the higher pushed we disruption quarter will for somewhat down our pace in

of fabrics growth continue hospitality sales for sales addition In customers, designed the have to market. from our solid residential improved we in market to

diversify hospitality to continue we the for opportunities our market base, we growth customer offers As significant Culp. believe

pursuing product your innovation core in then and fourth Ken take capabilities we’ll Culp’s will that review outlook substantial our area this would now platform. actively the complement and product are broaden opportunities questions. quarter global strengths design, a of We acquisition for the and

Ken Bowling

be year. to fiscal of sales overall with the expect comparable last fourth quarter We the

we fourth be year, down some slightly show seeing in sales mattress are Chinese realize investments. with in million quarter exchange fabrics Year last last quarter the and million. quarter mattress modest the for We sales of strategic quarter improvement same even period fabrics softness $X.X over to In was fiscal to continuing China income previous year upholstery impact to demand the to expect income expected the business and segment’s fourth trends. $X compared from $X factors, income operating for these with in fourth we Operating over are upholstery fourth the more last although New due efficiencies the will business, as expected expect our ago, believe for primarily capital income margins continue unfavorable comparable to expect We our fourth we results, rate with currency be Pre-tax covers. fabrics quarter currency, higher holiday. pre-tax be a margins we slightly to the year’s million. year’s Considering to our year, report from range

capital expenditures the for is flow, and level plus the year, payments, working fiscal projects to capital mattress XXXX, $X growth million fabrics. for around regard even $X Looking compensation. amortization last year depreciation improvement Full year, mostly comparable we capital. modest to and $XX.X of related projection vendor-financed anticipated to to spend expenditures expected the at are fiscal the full year for including cash with With in million expect and stock-based additional million good be for fiscal another

take year, next be $X capital your expect to million to fiscal we to ahead million. the now $X With questions. range Looking in will that, of expenditures we

Operator

go [Operator Bobby to with Raymond We’ll Griffin Instructions]. first James.

Bobby Griffin

good on Hi, quarter. taking morning my thank and questions for congrats a guys, good you

Frank Saxon

Thank you, Bobby.

Ken Bowling

Bob. Thanks

Bobby Griffin

can each want and growth of the other? to give segment overview you last talk nice what areas upholstery how for would Frank, just of a of been would to hospitality about those you business us it’s couple just hospitality; now? I area at then do quarters. the in first of an are relate the in an target acquisition, if And look what you you areas kind maybe

Frank Saxon

hotel for are we currently hotel, the hospitality only hotel think in of in That the lobby. think the and area hotel, be fabrics participating room we treatments; and the chairs, in et fabric fabric the is benches the the, of and motel main in cetera. the you the the could utilization we’re chairs window targeting. the currently area that’s biggest when Sure, are The upholstery sofas, area in chairs, of in is

big also Our bed next in wraps every area and hotel skirts is and room. bed used

perfectly for volume platform around the China; upholstery the core the with are individual in of room employees main XXX we’re hotel this main bigger fabrics our the that capabilities for almost treatments have some China creativity, the targeting operations lobbies product draperies So, areas global forcing window window in near with expand an just our to is And, fits for lobbies. and acquisition we Shanghai. design, course chairs strength, the in and Culp’s treatments. from But is area there

perfectly So, the are to pursue we this market. suited area hospitality of

Bobby Griffin

Okay, touching cost with share could in there cost, foreign us China the a the about from I that help standpoint? estimate what modeling well, to just of then is is any appreciate upholstery amount there as in segment you there the currency on dominated And at us detail.

Frank Saxon

I’m sales most $XX we million local not, maybe is in in of in in to million have of our upholstery do sum say get $XX to to -- are $XXX little, you is fabrics. fabric upholstery area the total, back currency U.S. million There there dollars, the denominated know going China;

Bobby Griffin

to. some operating of of of just where some that hitting referring perspective, was, currency you’re right, the along have can these income? try the top-line think I That’s model I’ll more been cost drags we in raw, to

Frank Saxon

sales sales less than we of you are disclosed XX% we XX% consistently our disclosed of as produce sales little our and in China. of U.S. produced would fabrics in XX% China our our say, in one our Well over are produced upholstery about plant.

Bobby Griffin

we Okay, that… think

Frank Saxon

significant, currency. perspective So, maybe in fact so some you gives it’s that of the, the

Ken Bowling

those All too. in operating expenses are RMD

Frank Saxon

the currency. is Yes. in All of local sales RMB, cost

Bobby Griffin

to would that. switch Okay just want very helpful, then to I mattress that’s lastly And quick. that helpful, appreciate real be

you you this guys As or us now we cut-and-sew where well. more update continue using guys trend us give cut-and-sew guess I through color your do the, of the one portion to the fabric? the of Can what guess bedding you somebody of just a portion, whole also then use little maybe you of aspect the opportunities a what the see as a does kind fabric I in you of what or box right are doing on and standpoint aspect from covering on, process and the margin or cover and do else’s business you

Frank Saxon

for great sure, customer customer, customers, When be box a is it most a and be Okay to our opted fabric. a out quicker but supplier cut-and-sew the case be the the little we’ve at North Haiti of a at higher the for company for the got fabric they covers in one covers In and or cost. same. cover, really the for solution our of case, currently have but bed Culp’s it China we utilizes and a most a production we by traditional time, delivery of that solutions Carolina was customers not today started it want cover the Culp’s

do that’s our but customers the one to the it that in right, emphasize doing vendor a it you’re So, better without Bobby, realize fabric of all have is want it the to and increasingly and use That the cut-and-sew. I supplier their the and mean sales that. presentations course chain fabric we we lot seems exactly fabric, certainly goal Culp will people’s of

Bobby Griffin

congrats appreciate I jump again quarter. And you. on detail in the I’ll the queue. Thank and back the

Ken Bowling

Okay.

Frank Saxon

Thanks Bobby.

Operator

We’ll Markets. Marco Instructions]. Stonegate move next Capital [Operator to Rodriguez with

Marco Rodriguez

Good my questions. morning guys, you thank taking for

Ken Bowling

Good morning.

Frank Saxon

morning Good Marco.

Marco Rodriguez

profiles of Hey versus on the us the type fabrics? of questions guys, of follow-up other you business, business. that the business wanted remind one your hospitality I kind margin Can hospitality upholstery to the prior down for

Frank Saxon

our this margins margins. of reasons are gross we in residential double the really one Yes, hospitality the area also like is

a margin that the is far in it by we all toady. have highest So, opportunity

margin obviously is platform, question, really reason it from it’s but of bed window high focus profile. of from big like fabrication Hence the delivery is bed in may earlier want marketplace upholstery another fabrics the fabrics, of done for fabric is treatments, on be pocket it installation it States. skirts, up overseas, China very the while not market in customers. U.S- the things we are follow be for opportunity other And a wraps and lot cycle, thing that part, on based that our residential of United customers it market. for is much very Now this I on is the to use growth the these U.S. is for volume all of a the literally plenty It’s the desired obviously all fabric, the fabrics, do quick by all the in

I think that, that to So, change. industry -- we don’t we're see going trend

Marco Rodriguez

Understood that’s very helpful.

that is if is window a be bed specific general somewhat kind customer the are that more of, function function and all the there a end just of market you treatments than or product going of so there will? customized I’m to most skirts, So, hotels motels assuming just

Frank Saxon

cetera And is screaming or part get skirts, get, of generating hotel the treatments reasons; standards each from first, right And maybe they and all the That’s really secondly, back a there project. owner tend Macro. customized. And there a always his window even change revenue. are to last new bed be major though the is hotel are et two to customized brand renovation the

upholstery the one is do day. the lead they of being just our our next today Culp reason we is ship issues successful were, not, times. the everything In So, fabrics one in industry of

very with to desirable a it’s doing feature So, Culp. business

I be time source While, industry today; we’re window quicker going that issue that, it believe to able produce something is is that don’t on to window do and to an treatments. lead long it treatment, too well takes the

shortening So, to will better help believe total that with able I service each our certainly the our businesses we today. be and to is one focus chain other to times. will do customer be we U.S, in control lead And design of China the think offer we our those do supply like of of from

Marco Rodriguez

guys Chinese year-over-year I you say I half the confirm, And of million happened million Got heard about to standpoint, the because a advance million revenue from orders, happening so on heard it increase think of that I you, means pull that that I of you that’s $X helpful. upholstery, remarks, your will? was just New prepared $X that thought and forward if you Year $X when I’m had assuming you

Frank Saxon

what third, in quarter. talking well the about In we’re is, third

sales the Year. quarter to almost Third about going was key orders up be of $X to Macro, are in being too is, there at Chinese time pulled XX%, were the sales slightly the saying gap we’re million you when guidance up, due up. half New But look

reverse. totally currency to of And you performance if drastic see improved we’re when going profitability X.X point going we fiscal fourth at see of this anything like standpoint combine the are the this too, with the an sales business pleased exchange movement story. rate that of to occurred, not it’s it’s in kind don’t And X.X. a we So, it from believe could took the growth given the on forward. just that all We of strengthening we year two China operating good on very it’s

Marco Rodriguez

could got types entering far and if we’re maybe here And mattress expectations have of mattress discuss be you’re to are versus year different then different here, those a fabrics mattress Got could bit as be mattress a that see pads to calendar helpful? entering the and kind you switching you be the also your gears new you you’ve drivers could here more for then fabrics, you’re drivers lines some are there will, fabrics you. your what nuance mattress as you product covers mattress talk now guys if three pads, going sort if affect the little to that of and protectors any markets if the of overwriting and may seeing of

Frank Saxon

highest that Okay, correlated factor. one historically business mattress I may of think, growth. been closely people seems been regression GDP have well to first correlation has There do analysis of, a the be number a to of be all the

look bodes So we this us that the the GDP and obviously growing U.S. for year. Canada as well in with

on So, we the about pretty wages feel rising about with the backdrop. so feel and good income that, we feel that about good et economic cetera the good consumer discretionary rise

Now distributed, as to all having now the believe probably well delayed is heard being for tax pick industry. started calendar going shortly it We as start they’ve year, you that, in refund up said that that’s the been somewhat. very

innerspring, look which to of CLASS at box, is the be our many mattress lot covers. in think does a those from the and more also I of bodes the share that’s as which the bed market by when a on also for hybrid hybrids driven growth being There covers. foam well seems business, mattress trend, you well a in the new cover as shift require mattresses two going mattresses

mattress and put for cover positive we cut-and-sew forward that’s capacity expanded also business. also reason our we look think trend in it’s we’ve why So, enough key and the as a

really As us. it’s we’re that a new protectors, far mattress and pads area very process, very, as early for in

contribution a year. expect next fiscal I So, wouldn’t lot of

products lot We’re learning market. marketplace. the of a gain our just that is capabilities well market that certainly uses also fabrics. are Most we will in already year, with it’s shouldn’t of and probably can half impact as grow similar all reason produced the with retailers of make of market. the platform player China knitted there, be China, But, those packaged they with in a segment that that not learn we first talking of but produced related and are fit and we next business we in the why no our and there products It

additional for well as mattresses, to really fit area. of supplement the business kind well hospitality fabric So, with area residential core an market our like mattress seems to our it fit

Marco Rodriguez

you maybe is if and and the you, Got might pads they, there? expectations there of different far as at help looking growth be opportunity us as if are size kind a concerned the if you rate protectors and

Frank Saxon

in lot done think of right that, being our on I we too there the putting and early there. business water, probably just certainly a now is toe

you to we’ll, know may the synergies segment, of efforts of that but area. most for like certainly of, is in some the be of us. but year plenty with to several a Again years not develops there, hospitality privately are color for As players to us market the that more good held, fabric time, And add industry. smaller as all really excellent we’ll certainly another market. in growth mattress the but another opportunity next opportunity there that over size a lot our over But of

Marco Rodriguez

Got guys you time. very most you, Thank of for helpful. your that’s

Frank Saxon

you. thank Okay,

Operator

questions remarks. [Operator conference any for I’ll the Instructions]. back And there closing you are no to at turn further all this time.

Frank Saxon

Culp. look for and Okay, participation progress guys operator quarter. to thank on a next update We interest you day. our in good thank today you forward your the and Have you

Operator

us. Thank today’s conclude all for will that again joining And you conference.

Culp (CULP) 1 Mar 182018 Q3 Earnings call transcript