Based on unaudited preliminary results and current estimates, Culp Inc. expects net sales of about $58 million for the second quarter of fiscal 2023, and a consolidated operating loss in the range of $11.7 to $12.2 million for the second quarter.
The loss includes about $5 million in inventory impairment charges, as well as loss on the sale of raw material and finished goods inventory associated with the company’s mattress fabrics segment.
The loss also accounts for approximately $1 million in higher-than-normal inventory markdowns associated with the company’s residential upholstery fabrics business, and about $700,000 in restructuring charges related to the upholstery fabric segment’s cut-and-sew platform in China, where the company has closed one of its leased facilities.
These projected results reflect a consolidated operating loss for the quarter that is greater than the company’s previously announced expectations comparable to the operating loss for the first quarter of fiscal 2023. The company also expects to end the quarter with a higher cash position than the first quarter of fiscal 2023, with approximately $19 million in cash and investments and no outstanding borrowings.
“The revised expectations for the second quarter of fiscal 2023 reflect continued demand weakness, particularly for our mattress fabrics segment, along with inventory impacts within both segments,” said Iv Culp, president and chief executive officer. “The ongoing industry softness due to macro-economic pressures and changes in consumer spending, combined with inflationary pressures and our customers’ increased desire for new product offerings to roll out at the consumer level, has led us to take inventory markdowns and impairment charges on unproductive and overvalued inventory.
“In our upholstery fabrics segment, we also took action to restructure and rationalize our China cut-and-sew platform, resulting in the closure of one of our leased facilities,” Culp continued. “While these decisions will result in a higher operating loss for the second quarter, we believe having the financial impact behind us will position us for improvement during the second half of fiscal 2023.”
The High Point, North Carolina-based company expects to report financial and operating results for the second quarter of fiscal 2023 early next month.
“The current business environment remains challenging, but our team is continuing its diligent focus on free cash flow and generating cash through working capital management, including ongoing inventory reductions, as well as reducing costs and improving efficiencies,” Culp said. “Above all, we remain focused on meeting the demands of our valued customers. We remain optimistic about Culp’s future as the macro environment improves, and we believe we are taking the necessary steps to improve profitability going forward.”
