Culp's (CULP) Q1 Earnings Beat Estimates, Revenues Miss
Culp, Inc. CULP reported mixed results for first-quarter fiscal 2024 (ended Jul 30), wherein its bottom line surpassed the Zacks Consensus Estimate while the net sales missed the same.
On a year-over-year basis, the net sales declined but the adjusted loss improved. The decline in net sales was driven by dismal performance in all its business segments (mainly Upholstery Fabrics segment) attributable to soft housing market and ongoing macroeconomic environment. On the other hand, the adjusted loss contracted due to the reduction in the cost of sales and increase in interest income.
Moreover, the company is consistently focusing on its net sales and margin growth in Mattress Fabrics and Upholstery Fabrics segments through various strategic initiatives. The company expects the metrics to recover notably in the next two-three years as the market seems to normalize.
Shares of Culp gained 4.21% in the after-hours trading session on Aug 30. The investors’ sentiments are most likely to have been boosted due to the positive long-term segmental outlook.
Inside the Numbers
In the fiscal first quarter, the adjusted loss of 24 cents per share was narrower than the Zacks Consensus Estimate of adjusted loss per share of 35 cents. Culp reported an adjusted loss per share of 47 cents in the prior-year quarter.
Net sales of $56.7 million missed the consensus estimate of $59.7 million by 5%. Also, the metric decreased 9.5% from the year-ago figure of $62.6 million.
Culp, Inc. Price, Consensus and EPS Surprise
Culp, Inc. price-consensus-eps-surprise-chart | Culp, Inc. Quote
The gross margin was up 590 basis points (bps) year over year to 12.5%. Adjusted selling, general and administrative expenses, as a percent of net sales, increased 310 bps to 17.3% from the prior-year quarter. Operating loss as a percentage of net sales expanded to 5.4% from 7.6% year over year.
Segment Details
Mattress Fabrics: Sales in the segment totaled $29.2 million, down 0.5% year over year. Operating loss decreased to $1.4 million from $2.9 million a year ago. The segment’s operating margin improved to (4.8)% from (9.9)% in the prior-year period. Favorable customer gains backed the uptrend, partially offset by the uncertain macro environment and housing market softness.
Upholstery Fabrics: Sales at the segment amounted to $27.4 million, down 17.4% year over year. The segment registered an operating profit of $1.3 million, up from $0.5 million reported in the prior-year period. Operating margin was up 320 bps to 4.8% on a year-over-year basis. The top line declined because the prior year’s value was boosted by a lift in sales following pandemic-related shutdowns in China. The margin expansion is attributed to high contribution from hospitality fabrics and the Read Window business, low restructuring costs, and other operational improvements, partially offset by lower residential fabric sales and higher selling, general and administrative expenses.
Financial Highlights
As of Jul 30, 2023, the company had cash and cash equivalents of $16.8 million compared with $21 million at fiscal 2023 end. As of the first quarter of fiscal 2024, the company has no outstanding long-term debt.
During the fiscal first quarter of 2024, net cash used in operating activities was $4.4 million against net cash provided by operating activities of $5.3 million in the prior-year quarter. The company generated a negative free cash flow of $4.2 million versus a free cash flow of $4.5 million a year ago.
Second-Quarter Fiscal 2024 Outlook
Culp expects the consumer spending and demand patterns to be quite likely affected by the ongoing macroeconomic conditions. Nonetheless, the company is positioned well to overcome the uncertain market conditions with strategic initiatives, notably the transformation strategy in the Mattress Fabrics segment.
For the quarter, Culp expects total net sales to be comparable with the prior-year quarter. The company expects total operating loss to range within $2.2-$2.6 million compared with the operating loss of $11.9 million reported in the prior-year period.
Long-Term Outlook
For the Mattress Fabrics segment, the company expects sales to range within $160-$165 million and the operating margin to be within 9-10%.
For the Upholstery Fabrics segment, it anticipates sales to be approximately $145 million and the operating margin to range between 7% and 8%.
Zacks Rank
Culp currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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