Culp sees flat earnings, plans to purchase China ticking producer

Ticking, upholstery and sewn cover supplier Culp Inc. reported relatively flat net income of $5 million in the first quarter of fiscal 2018, which ended July 30.

Earnings per diluted share were $0.40, compared with $0.43 in the first quarter of fiscal 2017.

Net sales were down slightly at $79.5 million, a 1.4% dip compared with the prior-year quarter. Mattress fabric sales declined 4.2% and upholstery fabric sales rose 3.2%.

Pretax income was $6.7 million, compared with $8.5 million in the exceptionally strong first quarter of 2017, the company said.

Culp said its financial position remained strong with total cash and investments of $51.7 million and $5 million outstanding on the company’s line of credit as of July 30, for a net cash position of $46.7 million.

The company paid a regular quarterly cash dividend of $0.08 per share and a special cash dividend of $0.21 per share during the quarter, totaling $3.6 million. Since June 2011, the company has returned a total of approximately $50 million to shareholders in the form of regular quarterly and special dividends and share repurchases.

Culp also announced it has signed a nonbinding letter of intent to acquire a mattress fabric manufacturer in China. Culp said the acquisition will help it expand non-North American ticking sales, as well as be a source of low-cost ticking for existing markets. Culp currently has operations in Canada, China, Haiti and the United States. Its China-produced upholstery fabrics accounted for 95% of that segment’s sales in the first quarter.

“Our sales were in line with expectations for the first quarter of fiscal 2018,” said Frank Saxon, Culp president and chief executive officer. “During the quarter, our performance was affected by an uncertain and weak retail environment for home furnishings and other market disruptions specifically related to the mattress industry. … Our strategic focus on creative designs, innovation and exceptional customer service continues to drive both businesses with a diverse product offering that meets changing customer style trends.”

Commenting on the performance of the mattress fabric segment, Iv Culp, division president, said: “We have been working through a period of major transition across our manufacturing operations. We completed the move of the majority of our knitting equipment to a new location in North Carolina during the quarter. At the same time, we relocated our entire mattress cover operation, CLASS, to a new facility during the last month of the quarter. Both of these significant moves created more disruption to our production process than we had anticipated, especially in a weaker sales environment. … We remain on schedule with our joint venture mattress cover production facility in Haiti. … We expect to commence customer production activities in October.

“Looking ahead, we see continued uncertainty in the mattress industry that could affect short-term demand trends and our operating performance. We also expect some continued impact on operating efficiencies in the second quarter related to the equipment relocations and production changes that occurred at the end of the first quarter. … Importantly, Culp has a solid competitive position across all product categories, from fabric to sewn covers.”

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