In its fiscal 2017 second quarter, textile and sewn-cover supplier Culp Inc. reported net income (using generally accepted accounting principles) of $4.5 million, an 18% increase compared with the same quarter of fiscal 2016.
High Point, North Carolina-based Culp Inc. produces sewn covers through a joint venture with Chicago-based A. Lava & Son called Culp-Lava Applied Sewn Solutions, or CLASS. CLASS’ current customers lean toward clean cover looks, often constructed with soft, textured knits.
Earnings per diluted share were $0.36, compared with $0.30 in the prior-year quarter.
The High Point, North Carolina-based company reported non-GAAP adjusted earnings of $5.9 million, or $0.47 per share, in its fiscal second quarter, which ended Oct. 30. The amount represents a 13.5% increase compared with the second quarter of 2016.
Adjusted earnings were calculated using estimated cash income tax expense for its foreign subsidiaries, according to the company. It currently does not incur cash income tax expense in the United States, and does not expect it for two to three more years, due to approximately $18 million in U.S. net operating loss carryforwards as of the end of fiscal 2016.
Culp’s pretax income was $7.2 million, a 16.5% increase compared with the second quarter of fiscal 2016.
Net sales in the quarter declined 2.1% to $75.3 million, with ticking sales up 0.2% to $45.5 million, and upholstery sales down 5.4% to $29.8 million, compared with the prior-year quarter.
At the quarter’s end, Culp had cash and cash equivalents—short-term investments and long- term investments held to maturity—totaling $47.4 million and no outstanding balance on the company’s credit line. The $47.4 million was achieved despite $10.6 million spent on capital expenditures and dividends in the first six months of this fiscal year, the company said.
“Overall, our second-quarter sales were slightly lower than the same quarter of last year, reflecting softness in the retail market for home furnishings,” said Frank Saxon, president and chief executive officer. “However, in spite of lower sales, we are pleased with the strong operating performance in both businesses, excellent free cash flow and high returns on capital. We have continued to drive product innovation and creativity, and leverage the strength of our efficient manufacturing platform, with favorable results. We have also realized the benefits of our recent capital improvement projects in the mattress fabrics business. Importantly, we have the financial strength to continue to make the strategic investments to enhance our operations and support our growth objectives.”
During the quarter, the company also announced an increase in its quarterly cash dividend, from $0.07 to $0.08 per share. Since June 2011, Culp has returned $44 million to shareholders in the form of regular quarterly and special dividends and share repurchases.
Iv Culp, president of the mattress fabrics division, said he is pleased with the division’s overall performance given challenging market conditions: “Our strategic focus on design creativity and innovation has been a key advantage in meeting changing customer demand with a diverse product offering, including mattress fabrics and covers, across all price points. … We are near completion with the latest expansion projects in our North Carolina facilities to enhance production capacity and significantly improve our distribution capabilities. … We are also making progress with our Canadian expansion project, including new equipment installations and enhanced finishing capabilities. Importantly, our new Canadian distribution platform, expected to commence operations in the fourth quarter of fiscal 2017, will allow us to ship directly to our customers in Canada.”
Culp’s sewn cover operation, CLASS, had a strong quarter, Iv Culp added. “We are also in the final planning stages for expanding our mattress-cover capacity with another production facility in a low-cost labor country.”
The company’s upholstery sales were impacted by “softer retail demand for residential furniture,” said Boyd Chumbley, president of upholstery. “However, in spite of the challenging sales environment, we are pleased with our overall operating performance. We have continued to drive innovation and creativity as we execute our product-driven strategy.”
Culp’s third-quarter outlook is for flat to slightly lower sales with pretax income in the range of $6.7 million to $7.3 million.
