CULP - Earnings call transcript Q2 2021

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Operator

Please standby we are about to begin. Good day and welcome to Culp's Second Quarter 2021 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introduction, I'd like to turn the call over to Ms. Dru Anderson. ma'am. ahead go Please

Dru Anderson

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

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

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

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

the of in webcast or go ahead, over today's available information, to that call. Culp. on non-GAAP Executive Please the directly In A X-K comparable with that, the call, is call most culp.com Officer press company's in addition, measurement these at during the and supporting GAAP Chief With website the will also and part an reconciliation yesterday either on this be Iv as posted financial company as the to to presentation slide summary sir. is exhibit financial financial to release the company's tables turn now of filed the of included of financial Culp, company's measurements. non-GAAP measurements President the I the website discussing included will

Iv Culp

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

to We be will then happy questions. some take

quarter our We platform. are of which reflects second pleased our tireless strength resilience in around our efforts the the fiscal with the global world performance strong associates and of XXXX, and

continue our we As these times. navigate to uncertain way through

employees, remains safety suppliers the and our priority we serve. the and health customers, of communities top Our

are performance for ways ability strong fabrics demand an mattress home indicates Upholstery chain. increased segment. our service new consumer products in and continued pleased very We as than the stable both incredibly satisfy top to innovative global recovery of throughout environment, enhanced on drive supply are with Fabrics in as safety virtually working our practices well the expected increase platform our Its proud evolving while our we of our focus business. this the team's needs the to line customers faster Overall, our of deliver integrating with also and and

We are products both customers. innovative with gains new are market also well and as from benefiting resonating share existing our

consistent and of for generate increase. announce allocation This Board to consecutive that and with pleased shareholders. financial value are to We our Based we strong our the million. total our operating increase eighth marking Directors Additionally, to income quarter for further increased the cash sequential expectations. with delivered consistent its first and investments capital excellent the a significant our our year, the approved with in of our strategy quarterly of X% our is cash liquidity, $XX.X strengthened reached we improvement as compared in sheet flow half first the dividend commitment performance balance year on

We the during year. second also investing of half expect capital continue the expenditures working capital in planned and to

with relating recent maintain of But decided repurchase our to we COVID-XX new allocation capital strategically remain taking is during subscribed surge pandemic, on to the in factor which measures the considerations shutdown at in The capital governmental plan suspension based website. into to utilization. including it's disciplined our working cases allocation the to have also our are we current uncertainty strategic this share environment. and a our capital approach Additionally, decisions posted strategy, and time. for are on we're ongoing a certainly to positioned consideration respect These

managing COVID-XX both allocation organically conservative us believe on terms also is be may and it we But to aggressive Our in is that themselves, appropriately allows opportunistic otherwise. short-term growth current capital uncertainty. present to opportunities of approach and

is As and always, we evaluate facts strategy based continually on a this circumstances. current

their - Looking from non-fabric customers’ to could primarily as is ability their demand ahead, supply meet chain components, challenged by scheduled as fabric of our delay our delivery - to constraints related orders some labor which being shortages, divisions. temporarily well

duration ongoing the in unknown. Additionally, of COVID-XX pandemic the remains impact

for become We are review that range call we growth. competitively I'll near-term that on will are to confident continued COVID-XX well will for stronger results industry half demand current the then share Culp who our headwinds. optimistic both second turn our these of and a based quarter. prepared ability to we believe in are the additional market macroeconomic Barring trends are scenarios and we over and strong and the opportunities a for financial company, positioned fiscal for weather deliver of shutdowns, Ken, results pre we XXXX. now were We financially will we the

Ken Bowling

Iv. Thanks

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

the the strong go somewhat as was into the a for million included financial the effective per of to of quarter, were came was the expense, same the exchange a to year in second or rate our expenses $XX.X and On compared rate with $X.XX quarter, in foreign the fiscal quarter. compared operations divisions second operations the tax by at SG&A lower operations exchange expense sales ago. income quarter foreign the in prior compared The Iv same sales share from year, earnings fluctuations as just Net of The will was $X.XX The for expenses. for by in the rate XX.X% for more continuing XX.X% higher performance $XX,XXX Here percent year in Canada, share pretax $X.X tax are mix $X.X highlights of with this year as by primarily sales to subsidiaries from actual pretax timing Net compared of income our basis XX.X% tax up year marketing current have T&E company period which income had continuing year the period. last XX.X%, to with China, million the with Federal million, affected On operations Both quarter ago. the rate higher continuing $XXX,XXX compared second moment. on income related reported U.S. divisional mentioned, mostly basis, effective which of a period. other operation and affected $X.X income other rate. a per included performance from incentive total period for for detail million This associated fluctuations prior located net expense. operations income second diluted compared diluted the $X.X foreign with compensation continuing well offset U.S. higher which rate XX.X% China. due unstable the million, fiscal year over in from or for operations from I is a of SG&A crude and only income quarter a

the was based million X.X% XX know our - of the of fourth adjusted as third of range quarter effective XX% sales. income fiscal the ahead to today. we for second rest of months this year that we to of will $XX.X XX% the year, of or rate this end Looking consolidated year the fiscal tax in facts the be estimate of on quarters Trailing and fiscal EBITDA this

take let’s two our at look a segments. Now business

second For year’s a income the $X.X million to a Mattress Fabrics year the operating segment ago. year was quarter with compared quarter. sales X.X% were last Operating $XX ago, an up XX.X% income million $X.X compared with XX.X% million margin of with for compared

maximizing absorption performance operating benefit and fixed from from improved second improved resulting efficiencies cost and our higher reflects the for production capacity. Our primarily operating quarter sales fully the

performance China offset by affected materially with the compared expenses. for $XX.X with were over $X.X sales X.X% by some fluctuations, lower sales compared rate year Operating year million the X.X% mix, of operating the For quarter margin XX.X% ago. Operating was on million income foreign year. in quarter spending unfavorable well and somewhat Fabrics segment, the marketing income an impacts for as as was a T&E Upholstery ago, million with exchange prior up $X.X second a

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

from million million of quarterly free and operations on fiscal incurred cash million spent were six million the flow $X of For and months $XX.X this first and year, Cash we $X.X respectively. expenditures $XX.X regular flow dividends. capital

from six half For working reflects for attention first $X.X during with the the million cash year flow million year-over-year year of the and flow months This operations improvement compared $X.X period. the cash year. respectively of free capital the management prior the first and of focus on

the pleased available to expenditures second cash investments period. in quarter, not sheet planned working and full we're the under by and repurchase will any approved by that is important did capital Board with our note our fortified March cash balance strong capital and program second the million strategic position of While The share XXXX. shares during position going our extremely half the leaving $X repurchase be company in year. the this It affected into

disclosed, call the share of during As that, economic over company year the back to suspended COVID-XX. With quarter program turn Iv. given the fiscal repurchase uncertainty I'll to the previously the last fourth temporarily related

Iv Culp

Ken. Thanks

mattress the second eight by growth start operating both Mattress the for momentum the with and were chain Fabrics strength Asia of and on business. fabrics Turkey generated encouraged and and first strong especially last covers product global built enabled in and attention Fabrics our Mattress during quarter me dedicated for flexibility well and during by our the the cover demand current sourcing and our income matters our quarter. segment Canada, to Let utilizing our and supply the sewn fabrics us sales global of We to Haiti, customers. the and fabric cover strategy sewn weeks operations as manufacturing customers. We driven States, as the The need United and serve the for mattress support

the continued fresh mattress are driven continue and pleased This with the by growth We to of trend cover COVID new mattress with we innovative growth also our for bedding the with pre and now ongoing space is collaboratively exceeding trend existing cover and customers demand levels. develop sewn business boxed products. work in to

us cover advantage production rapidly to cover strategic of to and capabilities integrated demands changing align ability provide with the Haiti supporting sewn in customers. product our with offerings in innovative from provide Our Asia fabric our vertical U.S., sewn a

produce and wellness was including sustainability protection expansion specialty to include enhancing quarter, during about capacity expanding covers. additional related options building We're and our sewn completed our other also product anti-microbial and developments in to innovation, Additionally, the Haiti our excited finish properties. for ability second ongoing features providing

opportunities showcasing have for the through of also travel through virtual, innovation continued Home services, limitation. to Fashions, rendering our which collaboration We products support Culp us our in our Re.Imagine design with continue remain and our XD pleased the customers face allowed

Our customers. and and the strengthened before our time, have began capabilities position search that design virtual since pandemic with these

We our in fiscal in quarter America the expect available resulting equipment of increased that additional investment fourth will fabric be from XXXX. our North capacity in

the the our of turn business by countries. U.S. that imposed recent also benefit industry imports from duties seven Department from on domestic believe will mattress mattress in preliminary We Commerce anti-dumping and

on despite to ongoing environmental uncertainty we sustainability. commitment Additionally, our the focus to these relating continued to pandemic, have

to we second status have ongoing other Barring our shutdowns reflects execute for are fabrics additional achieved which in across effort now XXXX. customers supply chain our and material operations. our believe fiscal increase raw we mattress strategy production of positioned fabric, We disruption in half share sustainable significant market landfill-free of than during our well to or both facilities the manufacturing our U.S. promote in

Fabrics Upholstery the growth the business to for upholstery second attention We with some our turn quarter. segment. pleased solid were me the let Now fabrics also very in

period, our to business platform on meet to upholstery saw Vietnam overall our by and including cut from and sew comfort. capabilities long-term the quickly Asia, in to the increase driven compared in and in at-home sales supplier Through our and Our respond focus demand we our prior-year market primarily a customers were increase experience expanded our the significant relationships, in stable, the consumer increased residential able share. upsurge strong

backlog also have We business, in demand ongoing trends reflecting historically generated this business. residential favorable strong our for the upholstery

Our line trends. our LiveSmart line continued Evolve performance plus LiveSmart of to stain-resistant as favorable demand performance fabrics, highly fabrics, well durable, of experience sustainability as

and to technology evolution. mildew the LiveSmart new well our Ultra, step bacteria product also This anti-microbial been has line from launched We recently fabric received next in and performance LiveSmart mold, odor-causing our recent ion brand features finish it the protect silver showings. in

focused these are LiveSmart growth. brand products are residential LiveSmart of building umbrella. performance drivers and fabrics on lines performance under product strong promoting our our our important We These

affected Our Window quarter. installation by the hospitality pressures business These COVID-XX that leisure travel also and Products, lingering Read the industries. treatment affect to disruption our during remained and under window continued business, the ongoing pressure

While first leisure and our affect in business hospitality business as continue relatively hospitality the will this sales remained near-term. to disruption we the stable that expect for the compared in in quarter,

exchange prior-year compared operating our fluctuations, we well of impact by solid to affected while Additionally, quarter mix. improvement saw the as period sales income XXXX, were unfavorable quarter as in from China first rate results sequential compared our materially some as the second fiscal to

will second margin quarter. during the pressures, operating these these affect continue expect quarter. third were in encouraged factors operating to We our our income Despite we solid the by

demand. by We ability business in in encouraged this backlog confident to and the meet are are historically our our strong residential upholstery

general then residential disruption take additional business and will discuss expect year We the or now to shutdowns in fiscal customers’ our pandemic-related any for performance the upholstery quarter our the absent will strong Ken this questions. for continue, third fourth and chain. some to material supply we outlook

Ken Bowling

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

unforeseen may connection Although subject the with in pandemic. to changes that arise

Mattress products, operating each in market share We income ongoing to third of and are by facing the continuing be year-over-year as and comparable to home for the as and the opportunities prior-year and sales rate period, operations well segment China, with strength encouraged demand execution our for to expects Fabrics Fabrics segment our customer its chain strategy we associated product-driven with sales in ongoing this relating for located the its quarter exchange supply the furnishing constraints, factors fiscal Considering continued fluctuations growth. of year Upholstery rebound headwinds strong foreign mix.

fiscal we be Mattress additional the of expectations, in for We including last million knit Based expenditures year. $X also dramatically that, now segment quarter, year the for Fabrics that your $X.X be $X expected million With amortization questions. is for capital Depreciation expected million last fiscal and fiscal this operating the year quarter compared to fourth to fiscal expects current the $X sales to machines improved now be for investment and of to income are range. our both mentioned take quarter approximately segments as for fourth will this on we to million this year. in

Operator

with And Raymond James. [Operator is Please first Instructions] Bobby our ahead. question Griffin go

Bobby Griffin

first talk I just to commentary guess I So, about here. before want

referenced a backlog remarks momentum mattress level pull and through record I in very the good good So and think in and here you backlog. a prepared

driving been then top-line when roughly of issue just is timing in help is and the momentum a - some or just in anything year-over-year? that commentary the the or just comparable the there dots connect there hurting So sales be type conservative else or general So maybe currency between that maybe guidance? the is have conservatism me there or that might

Iv Culp

that can and if by And question. break certainly then for thanks division, commentary. to. give Bobby chime and a you in Ken that's down okay, you it good thank asking Yes, I'll I'll you

our to remember really seasonality all being with shutdowns the some mattress and weaker fabrics quarter, our in across have is there a generally holiday normally just you side, On QX, locations.

in mattress in for you also which year-over-year, the as Canada U.S., And and what have we're is We point to QX improved with. I I would fabrics Haiti. significantly very happy that in yes side

our more if On the historically upholstery side, on that so the materials some sales remain high. chains, customers like headwinds say the residential Generally and some supply for backlog, that and the for business, them of rise for material capacity prepared. up better really ship and little There for which upside does currently, our I little your certainly that would are for business businesses, for we side, of for a bit there's cleaning that get then both the capacity sides have we business. to fabric raw improve, more both could at customer customers a our business maybe

upside an you'd is add QX to feel there. that Ken be to that that to So free like. ifX could the

Ken Bowling

covered year-over-year you seasonality have continue we'll there at No, it face think the the of those that the factors. the of and I are part all, the I to and course that on looking it is think to upholstery key headwinds side, - we're improvement

Iv Culp

And in is continuing well of upholstery rebound very we some mattress being are bit a just Bobby of quarter it's third headwinds generally cautious to the in uncertainty. fabrics, story a

Bobby Griffin

your products. taking your out. other chains, mattresses industry the production efficiency within we then how chains issues, Okay, non-fabric seems on stuff. and supply okay, at, that's guys the up is levels historical helpful. throughput getting mean ramped I back verse like business supply close you where look have And more from is to look you then But the it normal and at side, back when related

Iv Culp

couple significant of on Asia, Haiti, that global you options side, in really strategic did last Yes, really gets and in over build by expenditure Canada work, our a capital we both U.S. back years, mattress some world-class platform, think to the the and the if really complemented Turkey.

And the So, that we're that more with perform. really the through volume platform. better it, will we pleased run

built will platform a efficiently volume. that have with We thrive

the sales see efficiency start the quite is to with side. going - to so our does a And fabrics us that And rebound. in keep bit our help expectation we’ll that mattress

Bobby Griffin

you'd some price anything still? And currency you have happening passed Okay. related in to has is Have make going the changes done. that or China any to forward guys been yet adjustments? Maybe

Iv Culp

Yes, I'll time to a And shown exchange we these Over related rates. this tee I'll foreign bit. case let Boyd impacts, have primarily to as speak just up little it that. currency the in China

For there sure if offset to our prices you do timeline always we do of adjust may best our things to to are then we are costs we Boyd some our within business about to continued pressures, and to that? and that. And speak you have But do have that. thinking how adjust China your

Boyd Chumbley

and Iv when appropriate. right and always exactly movement, And a you that's and when yes, know monitor more where a necessary currency and we take see we always significant consideration rapid more no, Yes in that actions business. periods our is is there

now. we're price considerations all adjustments things that And considering. will evaluating and So, that right be of we were one the

Operator

Rodriguez Please Our Marco Instructions] go is ahead. Markets. with next question [Operator Capital Stonegate

Marco Rodriguez

guess, it one to to there first, specifically a prior do follow-up relates in the as to want here I and I question fabrics, of on mattress the seasonality. the guidance regard

you the this come me working how or or was about that And historically, QX? you has little saw of of as down if was two you a how are sort pull think color all thinking can kind X%. shopping names about from that? about in and we how seasonality on, your above But shutdowns the kind pent-up of want saw layer quarters in, if of kind growth for the the maybe kind that already provide QX/QX you or then revenue should and kind what impacted you that that, what of the you thoughts perhaps more of guys can, can perhaps been on to Just demand of expectation, demand guys get during nobody forward

Iv Culp

that off we But Okay fabrics just do my And tailwinds the a think let significant little about Ken bit with forward. thought finish me of it start towards have look think - segment in mattress how let we here. business. I'll and presence have, about we

touching are you see already that might some coming. have that on that Some we be and happened,

the was the at impacted a certain, recovery, faster by so focus business by the than COVID-XX. that doubt is strong And for sales expected for level generated home no

protected is or throughout health. on fabric share. that, our and headwinds and So our on on calendar on tailwind are us a things it focus optimistic capacity that the that night year your fabric want in mattresses. will certainly for there a values, gives that a that market top we're sewn the think that could Haiti, gains furniture environment, will some difference. really that we lot there's through we we've top unique of of a in home are innovation, a And there's we winning done XXXX. of have getting updating product excited covers comfort sleep. for But in fabric a that, market just in and about side cover. sewn forward both We're upgrading and share make new healthier whether formation - And will a come make anti-dumping going of we're well more People There's be But difference. focus come

So has pandemic. rising with all tide there is lifted tailwinds of that have boats the a lifted kind

want to in year. carry context details for and you give this you how share So of I'm may we're our really about so market general gains to trends. any that's so in product forward to share more thinking - QX guidance but general thinking tailwind you're want lift strategy that, about the Marco Ken, around QX into driven if past confident our next market fall

Ken Bowling

Yes Ken. Marco, this is

it's you I quarter year-over-year. from back the at that toward at pivot in we now more think the couple to when second had we've of as the improvement as we look quarters, the first the past lows year, - mean look half a I sequential

of, is of seasonality just an the we're at that at growth But reason we fabrics issue. going. the is look mattress And doesn't course, to that's impact that seasonality part sequential the going when be for the significant. that when at keep said But we why year-over-year so, look looking

And that very course, quarter, of fourth about continued level, of we for going both And rough the both that. to business last improvements fourth And we're quarter. compared a year, we're to we dramatic to as excited on the so, look course very encouraged sides. then businesses, quarter see into see

So - got, But definitely of take as pivot to and what continue have a it's a it's situation. year-over-year continue obviously to we we we've the half performance year. performances in second

Marco Rodriguez

share that versus then a Can or share can getting And talk about sort behind in the fabrics terms that? your - a increasing about talk the for maybe of what of competitors color market you bit main and are what from gains, your you why drivers market mattress here of that customer you minute. to you're sort why little feedback

Iv Culp

Marco finish on driven well is we product of we're and sure, first, pandemic thank we have Yes you, and COVID-XX innovation, dedicated working any some issues good two this to for put into from emphasis question. strategy cover. before I There fabric lot time see a a things

innovative backed really preferred up China, believe very you especially as a with into then, focus American Culp top So robust strong winning North and chain, a then in strategy. and platform, and supply space covers that's being really if in with we growing we an product mattress And bed able the a of capital of global on advantage. just to them the Haiti, that now to of layer cover finish have model take designing box fabrics

places. share So two service guess are across I board. And design we're into new the us it's its really think I really about factors what market and driving excited

by. box having that for with roll lines But it that new call So everyone space new we XXXX. legacy some out in games exciting that year calendar also our business the is it's we're intrigued in will product

Marco Rodriguez

if have, potential capacity volumes terms just efficiency share next gross on the in - should to that that in above where I'm bought can maybe QX, the you investments low a the issues were in capital reset quite and margin business saw great. bit and the operating volumes is you also maybe come XXXX the through put in then saw to have into you've around the Have here you the the anti-dumping XXXX? you XX% pickup that made before that next helped performance also the you're that gross that comment all additional margin wondering the And system those obviously you you new in margin year. of

Ken Bowling

Marco, and jump Yes let Iv me start in. can I’ll you

for able think a little the I touched sales. mean, maximum, years. helped. certain set moving I take we really bit take be made over certainly products to made and able locations, the to on changes that that Iv the in getting to I it’s that's structural has - move. of been able increase different that to maximize mean, that us improvements I given all this the we've ago, up being to advantage this mean,

- be beyond. was the look I those the third to we we going factor quarter. But and So in - definitely fourth to as as that think are as look we a second forward, forward, quarter contribute the improvement in obviously

the remember I of part as but - we've what margin, I've as described question second and as Now, we where where is far that, the don't as gross just the me to is are I improvements really all that made. at far today mean

that So add don't or? anything I to know, want Iv to you

Iv Culp

quarter we that $X got done Haiti completed did that expenditure we had additional on last North for addition million capital in and to our expansion quarter. America. we we That's said Yes, an equipment second fabric forming fixed a announced

opportunities to and…. is our for sure So for in we're platform, sure, we nod want on. some a And is to the margin and there that I to is about Ken, our then talk opportunity available just what do further see guess opportunities to improve organic our making it. capital more making expansion. I definitely put keep we allocation it strategies Because so volume come

Ken Bowling

Yes.

Iv Culp

There is improve. opportunity to

Ken Bowling

gives think gives increased us that I that we the will and - equipment. Yes, ramp us mean, the out talked $X to to one flexibility also that equipment point I efficient million to It our old related capacity, more new, the certainly about, us give for trade flexibility up the down. to other investment but production

that demand. our nimble, to strategic BXB, provide more far a effort or all that us customer so, as And give be be can part is more for of anything as ready

come efficiency again that going we've will - movements all to we're So the all those made, those future. investment play, make, in and the all the contribute into that

Marco Rodriguez

of of one sense have far real your thinking to quick do a the those if and supply in that customers, and squeeze more the as constraints When they you kind to any if you side the environment, can back fabrics Understood, lines, they're supply I will? of constraints, question on outside more normalized as just where timeframe upholstery past fabrics. sort what be will speaking

Boyd Chumbley

Macro And there's on this I so fully higher significantly progress capacity that meet progress that Boyd. level coming made, the the underway, going capacity made, There a wins stream. just see place is is to are quarter of this or and industry. throughout of being think is demand. another think new and being I lot impacts of probably are is take Yes, There to taking to to

the has staffing But and the phone. been hiring I difficult the as supply and some training. and on things, component also, side, constraints are constraints such think of there part both

held of is probably So bit that's forward during this the that to of throughput. back a kind issue current that's quarter. another some carry And going

from see customers our certainly on some we're that that capacity, is in coming stream. more think capacity regard. hear to going steady that improvement We I So

in quarter, going So But more just look we'll in quarter, that and take more time. think, then I a much to little certainly fourth probably see, at another regard. improvement it's

Operator

there time. further are And Instructions] no questions at this [Operator

Iv Culp

interest quarter. participation in day. great Thank and next Culp. thanks you your everyone to again you, your forward updating We Have in progress our a Operator. to for look And

Operator

Thank this your And you concludes today's participation. call. for

You now may disconnect.

Culp (CULP) 4 Dec 202021 Q2 Earnings call transcript