CULP - Earnings call transcript Q1 2021

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Operator

Good day, everyone, and welcome to Culp's First Quarter 2021 Earnings Conference Call. A quick reminder that today's call is being recorded. At this time, for opening or introduction, I'd like to turn the call over to Ms. Dru Anderson. Please go ahead.

Dru Anderson

you. Thank welcome for conference fiscal the and the to XXXX. the results company's first 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 each We today, statements undue You update on obligation forward-looking such statements. speaks today. of are to and cautioned undertake as no or only to made to forward-looking statement not revise place

call company summary in to the company's or A the as the Please on of Officer to posted most ahead, call. the call. respect non-GAAP that over of and presentation Executive the of discussing summary today's also the this With the during rate Culp. Iv be exhibit will I non-GAAP company's available press the will also today's slide on of financial supporting that the without certain to tables addition, GAAP significance to information, is comparable on directly effort. income now President significance GAAP measurements slide website with measurements. reconciling X-K tax with Culp, Chief culp.com at part And company's similar turn as part financial included to is is website and information filed supporting financial available financial company's yesterday is as information, tax measurement unreasonable and the of presentation information, not in website available financial the call, With webcast forward-looking that, income in go In an comparable is webcast included of is the information either the these the of which to the sir. release historical reconciliation the its

Iv Culp

you and you, will each Bowling, Culp thanks today. will to business that, will analysts I operating Officer; conference review our brief fiscal I our like and call Financial to with us to would I for begin and Chumbley, morning, you our Ken everyone review the joining Dru, welcome the outlook. Mattress quarter. business. Chief then Thank today comments, quarterly on Fabrics update on the call me some strategic will of then segments. the second President XXXX actions investors. quarter and results Ken are good the for and Boyd with the Ken call After in With our financial of

happy be questions. then your will to take We

I'm thankful As the uncertain and of focused we I'm remain team adapting and of hard serve. on for to efficiently we incredibly the we and continue suppliers communities and team's safety our navigate through our to commitment and proud this employees, times, customers, way our for challenging agility through safety, work, environment. health our managing these leadership

during fabrics both and upholstery weeks. particularly mattress orders We and X our the better-than-expected last increases pleased segments saw the in of are fabrics during shipments that quarter,

home spending of the focus are environment end of increased surge loss trends these on strong moving profitability. We significant from with proportion of pleased the to especially sequential to being compared driven a the going fourth furnishings. are overall pre-tax comfort, home leading quarter and consumer improvement by an We with the towards primarily discretionary a believe

the COVID-XX the cautiously continue optimistic fiscal solid are that business return and Although duration in XXXX. ongoing of its is will quarter we impact pandemic the the unknown, of second

strong strategy, the solid of enable product-driven our we and global financial resilience to position demonstrate our as the strategic in management confident and continue us market platform to are will team share supply chain. advantage capture and We stable

Our as to third the fiscal at as quarter. levels liquidity significantly compared remains by end of balance improved pre-pandemic our strong, sheet XXXX evidenced

our future are dividend We pleased dividend X this increased quarterly to years, our shareholders. and value now fiscal commitment confidence consecutive disruption. also in our our We've throughout of our to the have maintained maintained annual for generating period for reinforcing company's and

and the excited I'll now the ahead we the continued in for opportunities the fiscal who the look about will are quarter improvement review turn call to We for expect results sequential financial to quarter. Ken, second XXXX. forward over

Ken Bowling

Iv. Thanks,

the a website strategy. Relations posted allocation I presentations mentioned note to posted of call, on statements. fourth earlier financial a last eLuxury the of and want of excluded are discontinued our have slide that the performance in cover during from for measures. performance key our the the segment capital of financial as results also Accessories as the Investor quarter we sale As our also year, consolidated continuing that to operation result operations financial Home presented our We've reported

quarter, by year. prior income continuing with sales was for The financial XX million, down $XX.X operations were with reported from period. of the last compared XX pre-tax continued quarter weeks compared X.X% from year pandemic. pre-tax a basis, the compared first from million which year operations the quarter the On of weeks the income Net first are of current for Here period. with highlights the included the prior in COVID-XX affected the continuing disruption company $X.X million $X.X

just as well offsetting tax noncash lower Fabrics period. due from expense primarily continuing enacted $X.XX of the this income fiscal on first the Low reductions and Intangible net reduced the loss operations of last year which quarter the per impact regulation period income rate in expenses quarter year the from XX.X% significant net of $X.X the mentioned. to mentioned was associated pressure income $X.X with from during loss partially $X.XX operations, shortly, increase the professional was fees with which for the excludes to year inventory the items prior of ramp-up manufacturing tax million SG&A year against XX.X% the and a new tax $X net U.S. a was regulations our the effective a lower record continuing to income resulting operating per dramatic I compared net regarding assets diluted first net $X.XX Taxed net discuss share. compensation share. tax this Income Net quarter estimated Partially charge, first non-GAAP, incurred federal $X per ago. carryforwards Mattress income spending the first tax tax and the continuing significant per in excludes certain $X.X tax measures year. GILTI for the was was connection million or for charge charge, in of $X.XX prior for more diluted period first income fiscal by for continuing noncash GILTI of for income for tax from Adjusted this valuation operations I'll I company's The quarter, entertainment. with allowance with This income $XXX,XXX or detail and or share operations effective period As million non-GAAP of quarter, the year same XX.X% provisions. travel Adjusted was with that a excludes $X.X XXX.X% or million company's share Treasury's in year relating the This GILTI effective a the from inefficiencies the Global adjusted through benefit The $X.X impact consists the full reflects earlier rate tax a diluted rate U.S. which GILTI income same million segment. million for charge offset fiscal company's income and compared ago. regulations, income $X.X represents net compared deferred new This a income included reestablishing tax million million operations the diluted the or which U.S.

forward, tax expect of number for our based liquidity to material does facts Importantly, the the years is a any amount pay expected of of company know benefit enactment the GILTI new today. and income U.S. we the going regulations to on not

fiscal this discussed earlier, non-GAAP a charge tax the effective and rate adjusted our quarter be ahead year-to-date the lower of will year, the will substantially be the quarter we this the consolidated than would which of fiscal for currently on effective to adjusted basis net first year, income rest exclude income tax Looking GAAP fiscal the tax this to rate year-to-date the comparable rate, first estimate year. that for rate

the end U.S. Canada the or fiscal months million reminder, by the future effective first over from can year of X.X% and a quarter XX earnings actual subsidiaries income located was rate operations As as of in be the adjusted EBITDA and of foreign sales. Trailing affected and mix of year timing fiscal our this China of tax $XX

a take look business let's Now at segments. our

million, segment, $XX.X quarter, first compared sales extra which to week. an For were down last Mattress Fabrics X.X% included year's

extra for this with operating week, to compared based X.X% first last the approximately last by average on was Operating year sales year were $X.X sales year. with with the a ago fiscal first first for increased sales the week. for XX% quarter per year sales Excluding fourth sequentially comparable the quarter of the from quarter Notably, of X.X% the quarter this income ago. of to million year million income fiscal $X.X quarter a compared margin of

SG&A we going to performance growth in conditions was was improving profitability and as offset business partially reductions. affected sales as inventory pandemic. by This associated by stabilizing energized barring the manufacturing significant our challenges, were additional sequential are these believe in While well with negatively Despite up we disruption dramatic conditions, business operating will related by improved inefficiencies result and in operations the ramp forward, expenses. lower the

quarter segment, were i.e. prior week. the million, sales For extra which XX% for Upholstery the included our year, an over first down Fabrics $XX.X

with per compared $X.X Operating of year Excluding quarter on of the ago, the based performance last offset quarter sales first with a X% this connection income year COVID-XX week, were primarily for approximately the compared year by expenses. average million pandemic lower SG&A was Operating the affected million the compared partially in quarter margin was disruption a by sales sales decline X% extra for in income ago. week. operating down with $X.X of with with X.X% first the

of the highlights. balance of as outstanding sheet the million reported of cash of quarter, in our net up the $XX.X as fiscal the We end $XX.X and position and last cash investments from no end total year. million borrowings are Here

not in quarter, and million, incurred million capital from cash the $XXX,XXX did cash free of period. expenditures million prior year-over-year company flow year $X $X the capital operations from management, flow increase repurchase leaving related cash due shares by we spent under working repurchase was and the in improved million, any with $XX.X quarter, available $XX $X in first respectively, inventory. March XXXX. compared for approved $X.X Board free to million flow to regular dividends. the the flow were respectively, This Cash and and During first and share million primarily program especially in operations The

program to COVID-XX. previously related to the As company the With temporarily back the that, disclosed, suspended uncertainty call Iv. share given over the has turn economic repurchase I'll

Iv Culp

you, and beginning schedules a will throughout CLASS segment. We demand enlisted as demand. business, of workers levels and including the offerings, our returned the pre-pandemic in the continued was the all experienced quarter quarter all in increase Government This end. beginning previously production I we operations. virus, retail The this approximating product Fabrics rapidly restrictions Thank growing customers stores across mid-May Ken. and start of meet by quarter with cover Mattress greater-than-anticipated furloughed to increase our at affected where expanded materially mattress resumed

the XXXX. from fiscal result, to quarter XX% As approximately a fourth XXXX by of the first of increased quarter sales fiscal

strength During designs, efforts customer uncertain to a by changing our on us have manufacturing to including this supported innovative we and of adapt U.S., with the products global customer environment, capabilities which Canada, sourcing focus are service. operations, to and and Haiti, Asia distribution the business our creative Turkey, production with and provide needs. manage continued firm These flexible

reimagined our ongoing XD also excited innovation, about Fashions, Home Culp continued opportunities including are in our a product We image rendering service. through developments

customers covers ongoing Additionally, fresh the by remain to we driven bedding develop space, collaboratively products. for favorable, continue in to existing mattress innovative boxed and demand trends and and work with growth new

Haiti our quarter, these from in second building America. an chain U.S., have the to completed supply to platform in during which do enhance cover to fabric maximize We Asia. We expect North us and to will that global Haiti for efficient ability additional covers, covers produce finished be our expansion on and capacity allows provide in our full the

may pandemic positioned and encouraged the from the strategy conditions that economic recognize but recent we disruption well demand ahead, and share uncertainty are we as increased to are trends affect execute to continue market we believe COVID-XX business, Looking our and our improve. by

invest America We to to expand have growth. in now to capacity machines million our decided support additional our knit $X future in North

the in against petitions expect practices. we filed turn Commerce X International to U.S. in engage there industry XXXX. Trade business Mattress unfair our for domestic the our Department success ahead from Finally, forward will is trade business if anti-dumping for that opportunities Commission U.S. the mattress duty We and fiscal with countries and of the look benefit Fabrics recent

of as in further needs We orders segment. Now COVID-XX us this and the workers allowed our quarter. of returned reopen sales beginning I'll to acceleration quarter then operating results in Also, to our the Upholstery customers in and following turn has respond previously started the fiscal and We supply a and shipments increase in cut-and-sew quarter meet the to the stable The mid-May disruption and affect meet for began during in limit capabilities to quickly Fabrics all our by our our swift Vietnam the stores month upturn with in from to including chain and our demand. slowly of increase of Asia, first customers. the strong XXXX. retail continues rapid June gradual our platform furloughed upholstery

LiveSmart the lines most increased our and Residential business, We are performance quarter businesses, of which our fabrics. features as the pleased popular our Evolve improvement LiveSmart Upholstery with demand including of throughout in

from our improve. continue representing conditions Also, business benefited COVID-XX products prior to customers outbreak our advanced our virtual our to product through innovative placements ability showcase strong our customers have presentations. with recovery have for as We the

pressured Our hospitality quarter leisure disruption the COVID-XX travel first and disruption in by ongoing during due was the business the industries. to

treatment meaningful as existing window was Window Club services a to affected our virus and outbreak, orders contribution Products, less prior to his as the Vacation due Read emphasis on installation already progress However, business provided the project and in properties. well

that will While it diversification in recognize by offered other undertake whether of least we hotels remain the with in pleased affected, term, short hospitality continued we the negatively projects current new as the may impact remains venues and the business, uncertain at environment. this COVID-XX refurnishing

our Looking difficult business. surrounding ahead, COVID-XX it forecast the pandemic, impact the ongoing uncertainty to make potential the on

as and weeks quarter, trends the on first However, the encouraged spending last in quarter the now Ken experienced trends second consumer of we by sales increases suggesting will take are we home furnishings. discretionary during the your general the strong questions. will fiscal X of then as well XXXX, discuss outlook for

Ken Bowling

impact, At this are financial limited this the XXXX. pandemic the economic or of lack ultimate time, of due as and to to for COVID-XX the impact we only guidance duration visibility fiscal providing continued

are that and may continues the pandemic conditions. subject business Although unforeseen changes improving impact arise to unfold, its to we as economic by encouraged

the reaching quarter first With the performance the be investment operating our approximately the to last expected million million an earlier, compared in for now in fiscal in materially be and second knit of that Upholstery as income segment. now to Iv strong for including business range. questions. is additional the was year. the current year but fabrics expenditures be to for mattress that, of and which $X take Based on expectations, $X.X fiscal Fabrics amortization will year capital quarter, machines the million year, mentioned million Depreciation are quarter quarter $X especially We this in achieved to your expected this $X expect sales we for to this improved fiscal second not

Operator

Bobby James, first Griffin. we [Operator Instructions] And Raymond have from

Bobby Griffin

about And during it what looking the July segments. about back August? kind expectations of pickup bit from I to And can and are build It the just hearing a are Did is circle Labor you little market kind talk you maybe saw what like notable both customers the for? what looks versus how a saw in demand Day? you quarter. to the throughout trended in and of comments what quarter your continue about June? maybe on want you But

Iv Culp

you, Yes. Thank Bobby.

for of refrain continuing the strong escalate Really, quarter. last it's both similar and finishing the right. sure, a weeks starting throughout X For slow very in you're and over then kind businesses QX, to

as going sequential QX. pointing material a far, seeing improvement into So we're we're to,

So to trends we continuing see go. those

both orders have produce We to strong in backlogs businesses. of

is optimistic that we're I good. to side it. new our both products lot on we think of be, looks and success selling side floor, So the in in more expect not a very I the a good opinion, it on sides, of holiday trying fuel season. know just a is on products the strong typically, like as much sales us, been our holiday Labor mattress customers Day, big be and so on to they're already rolled for should the out

Bobby Griffin

had, tight Or one the could in much the the situation think same across you tight you holiday? concern Do inventory space think do -- I everybody is standpoint. inventory the the negatively pretty impact

than bit will lead be normal. expecting consumers a little times So higher

Iv Culp

I know. that, we're Bobby, doesn't slowdown answer Yes. like consumer will how any seem I seeing If in It for pressure don't furnishing's know to the impact. it products.

management certainly I position. to I to are And speak would we're quick. quick things don't season. know I as things the selling expect just everyone's very flowing So by that cash turning an can't impact through hope very and generation. and evidenced inventory inventory

I behind capacity think Our industry things it. the spoiled get it on got season. the think selling power I others, customers de-rail certainly, should lot And holiday can and think don't has with have a to our happen. I demand. been catch-up over And of time the

Bobby Griffin

it strong about it talking bring the mean, to normal things time takes if to this and get do Culp's here, environment August. back elevated back this we Culp efficiency? in mentioned facilities stay we're working understand for you And of to of long think continue people get I to trends How Okay. demand in kind takes like pre-pandemic-type plants you and I efficiency? back into kind up

Iv Culp

small pointed on were we're We a we to Yes. But a standstill got and that the with mean, and from went consider efficiencies. we in back. to there. through good with -- at much lot demand I that remember, came up QX. what running as Today, very output we of on going we pretty And very keep businesses busier, was should both furlough plants running be at everyone quarter you just people

a there I improved many juggling agree today, things. and for and priorities, manufacturing upholstery say different upholstery, have you because are turn with we're should much efficiencies be little the let's of comment our We that where pushing Boyd and so to for today bit efficiencies. on be we want But side? QX will Boyd to do

Boyd Chumbley

Iv, I do. Yes,

-- think to I here. our look position the good a a don't we've back supply come any we period as scale we're see ahead think really supply to looking I the the rapidly. as supply at is in have that and pre-COVID constraints we output, right is of now chain levels up base, But entire in had chain through where back

Bobby Griffin

Okay.

stays even last year-over-year? to to is close there sales the levels then year I we're some lastly, predict, admittedly we seeing, Ken, could unpack demand guess, grow it's kind forward -- predict surprise is forward, that tough commentary. again And If but Okay. of at when kind further a to talk and the start of to going maybe understanding we chance be upside the which to and of but tough

Ken Bowling

As far against as -- QX?

Bobby Griffin

seems predict. September, have to it XQ grow Yes. versus they trends could the continue, mean, just change I in last the for year. if that October, Understanding the maybe it's up August. of sales again trends surprise and even to and tough But further in opportunity like -- August picked it

Ken Bowling

I Bobby, think Yes. that's fair.

we being that cautious of out the unknowns. think we're look just I because as

But Iv still optimistic. we're it's for there, August said the just, just I cautious. unknowns a certainly could As But it's many just on we're has sure. surprise chance out there's mean, been we're being strong. -- it upside,

Operator

Rodriguez Stonegate. on with And we'll Marco to move

Marco Rodriguez

able is I any fabrics. you wanted saw there there gross impact comments of quantify In the that margins? QX, your follow-up you on to to margin way that mattress the inefficiencies and on discussion some on be might and

Ken Bowling

all back, the that's Yes, difficult, that a given have hoops order. I we the people in bringing through impact. the it and question. significant getting people -- Marco, just appreciate to -- was real I -- back the the jump mean, It's

a around we That in very also inventory. dramatic part way in pressured time quarter. account first of for the too, that, think the process the -- results just it but I too, that just decrease the difficult the was

improved was it's to things July, granted impact difficult in sure. for a Now, but significant quantify, very June it but and

Marco Rodriguez

I Understood. if like normal, to then your response bringing it question, sounded Got And if the you're in terms you you it. back heard back, of the prior guys will. efficiencies operationally, to

your to just I the then kind chain okay. are And a case can like you want of about sounded now? off, confirm levels first the maybe also, if that, bit supply is itself. inventory is little So that where talk It

you difficult a need so be going quick very the given to just is the coming demand up inventories? it's seeing are turns dramatic of for build that through? you So it Or kind to is in to come increase --

Iv Culp

built more much we've Yes, demand. We've built both the certainly is spending I'll Marco, thanks, with both best capital Yes. to I mattress X Iv, so over businesses In are fabrics. base. answer X are mean operate done in years. businesses, we is to last yes. touch this -- the and

now, facilities. global comes we success using internally full have real when through have both our solid platform. we both Our businesses in scale, orders Really both our operating flowing and

do. So really can excited about what that

We a have success show had a chance strong time, can have we we when throughput. haven't to long for the

of they gradually but back proud need Ken that business So them Inventories we to are I'll where are, that build to just Inventories. on positive. will support be And let too. touch really better.

we to provide to customers. some don't that impact be add inventory we expect just certainly and to our not to service jump not But So dramatically, it do inventory better our to expect some used things doing do efficiency. would need expediting increase. lockstep sales We although we're in -- as

Ken Bowling

the notes, inventory to with a meet but obviously And working Yes, our exactly tied goal capital the prepared cash for we the some free will as I mentioned in be two, require have was challenge had Iv And my right. customer Marco, said, that forward. to strong start needs, reductions. to of year that's is very and respect lot going a the we as flow. And

Now we going at attention obviously, sure with a pace. cash we're need to flow. will to but invest controlled pay make that that balance very we start, need to that special strong But the was but a going forward,

Marco Rodriguez

Got you there? it. And mattress overall spend you'll for expansion the additional think machines so $X investing then and then well at be 'XX. talk the bit knit the of additional as And the CapEx for when will in as million you fiscal cadence about little that be in Can knit terms a fabrics, spend maybe of the machines just producing?

Iv Culp

us Yes, our to a We capacity. sure. American that statement North for Marco, made good just and it's expand bullish really question. decision, recently have

Turkey we knit we really and we We to footprint Canada, We intend reduce global have And don't to Asia. our terrific just capacity American need footprint some. opportunities. countries; boost our just think multiple North in U.S., some seeing are

can the very towards Our that expectation of be the operating year. fiscal in and end those really is tail machines

opportunity for us out running. year to those 'XX than we So other Not look and our as past. great to future February probably in have timeline year this a will fiscal impact and and March spend, huge but certainly, next into be a

Ken Bowling

had -- projecting of you be Obviously, $X.X the we saw you to as financials, $X $XXX,XXX CapEx in this we're to million as million. Marco, Yes. quarter.

do. got So we But things to a ramp start But QX, quarter. expenses need those we've will fourth back-loaded it's going in and but great but X. starting spending some off up as X got in second, -- more to third fund we be QX, and to to

Marco Rodriguez

last And me. quick question Understood. for then

some maybe that bit mean, there they are Or On of there? those been expectations? provide issues the Can on have guys' met curve little Have still proceeding? you side. color how through did virtual showcases? sort be Fabrics Upholstery more the a your learning you going I

Boyd Chumbley

has and that Marco, Boyd. I And Yes, expectations. tell is really would platform our that you this exceeded whole

reacted representation has well a utilizing video a that received of We I our fabric. become what we doing our so will we're platform the lot online an and of have presentation basis part The just believe method this feedback become of doing virtual been pivoting learned for how our reaction normal with permanent we've been as pleased very, see effective, we've to of this virtual Zoom via customers to that online very our fabric. positive. gotten done and as this just We've very have presentation the of process. and we very going this the think through certainly a of on do type and a more will It's forward. a products how part representation will exceptional I we've more

with forward enhance. a for think significant for and been that And steps be going us to is the it's there'll have further for term. new to sure that, some important develop us but continued pool We we I'm long be

Operator

floor in I'd for the queue, like no with the questions closing And additional or any back further to turn management remarks. to

Iv Culp

your and your participation Culp. And quarter. in for you our on progress look We you forward to Thank again, you, updating thank interest next operator.

Operator

for our today. does do you We call us. that thank Gentlemen, for conclude joining

disconnect. may You now

Culp (CULP) 3 Sep 202021 Q1 Earnings call transcript