Culp's (CULP) Q2 Earnings & Revenues Beat Estimates, Stock Up
Culp, Inc. CULP reported decent results for second-quarter fiscal 2024 (ended Oct 29), with earnings and net sales surpassing the Zacks Consensus Estimate. On a year-over-year basis, net sales increased and the adjusted loss improved.
Despite the ongoing demand softness, the company benefited from its strategic business transformation initiatives in both divisions aimed at driving performance. Also, a strong contribution from the Mattress Fabrics segment — driven by new fabric and sewn cover placements — added to the positive.
The company's strong and growing market position — coupled with internal improvement initiatives — aims to withstand industry conditions and position the business for renewed growth and profitability. Regardless of the current demand backdrop, the company expects to continue a path of sequential and year-over-year operating improvement, anticipating a return to positive adjusted EBITDA in the third quarter.
Following the results, shares of Culp moved up 10.7% in the after-hours trading session on Dec 4.
Inside the Numbers
In the fiscal second quarter, the adjusted loss of 19 cents per share was narrower than the Zacks Consensus Estimate of an adjusted loss per share of 20 cents. Culp reported an adjusted loss per share of 99 cents in the prior-year quarter.
Culp, Inc. Price, Consensus and EPS Surprise
Culp, Inc. price-consensus-eps-surprise-chart | Culp, Inc. Quote
Net sales of $58.7 million missed the consensus estimate of $57.8 million by 1.6%. Also, the metric increased 0.6% from the year-ago figure.
The gross margin was up 970 basis points (bps) year over year to 13.5%. Adjusted selling, general and administrative expenses, as a percent of net sales, increased 150 bps to 17.1% from the prior-year quarter. Operating loss as a percentage of net sales expanded to (3.8)% from (20.4)% year over year.
Segment Details
Mattress Fabrics: Sales in the segment totaled $31.4 million, up 19.6% year over year. Operating loss decreased to $0.9 million from $9 million a year ago. The segment’s operating margin improved to (3)% from (34.3)% in the prior-year period. The upside was backed by balanced inventory management, increased sales, improved pricing and margin, and a continued focus by its strengthened leadership team on operational efficiencies across locations.
Upholstery Fabrics: Sales in the segment amounted to $27.3 million, down 14.9% year over year. The segment registered an operating profit of $1.4 million, up from $0.3 million reported in the prior-year period. Operating margin was up 430 bps to 5.1% on a year-over-year basis. The top line declined because the residential fabric business faced challenges due to ongoing softness in the residential home furnishings industry, impacted by a challenging macroeconomic environment. However, the segment's hospitality/contract business maintained solid demand, contributing approximately 33% to the company's total sales.
Financial Highlights
As of Oct 29, 2023, the company had cash and cash equivalents of $15.2 million compared with $21 million at fiscal 2023 end. As of the second quarter of fiscal 2024, the company has no outstanding long-term debt.
At the end of the fiscal second quarter, net cash used in operating activities was $4.5 million against net cash provided by operating activities of $6.2 million in the prior-year quarter. The company generated a negative free cash flow of $5.6 million versus a free cash flow of $4.8 million a year ago.
Third-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 previous quarter and moderately higher compared with the prior-year quarter. The company expects total operating loss to range within $1.2-$1.6 million compared with the operating loss of $7.8 million reported in the prior-year period.
Zacks Rank
Culp currently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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