Culp's (CULP) Q3 Earnings Miss Estimates, Revenues Beat
Culp, Inc. CULP reported mixed third-quarter fiscal 2024 (ended Jan 28) results, with earnings missing the Zacks Consensus Estimate and net sales surpassing the same. On a year-over-year basis, net sales increased and the adjusted loss improved.
Despite the ongoing demand softness, the company benefited from strong contributions from both of its core business segments. Improved pricing and margin also contributed to the positive.
CULP plans to enhance its mattress fabrics segment to boost sales and improve efficiency. The company aims to win new placements to drive revenues and increase margins despite the anticipated impact of the Chinese New Year on its fourth-quarter revenues. However, the industry demand deteriorated more than expected, especially in the upholstery fabrics segment.
Inside the Numbers
In the fiscal third quarter, the company reported an adjusted loss of 26 cents per share, which was wider than the Zacks Consensus Estimate of 16 cents. Culp reported an adjusted loss of 68 cents in the prior-year quarter.
Net sales of $60.4 million surpassed the consensus estimate of $59 million by 2.5% and increased 15% from the year-ago quarter’s figure.
Culp, Inc. Price, Consensus and EPS Surprise
Culp, Inc. price-consensus-eps-surprise-chart | Culp, Inc. Quote
The gross margin was up 870 basis points (bps) year over year to 12.7%. Adjusted selling, general and administrative expenses, as a percentage of net sales, declined 170 bps to 15.7% from the prior-year quarter’s figure.
Total operating loss was $1.7 million compared with $7.8 million reported in the prior-year quarter. The company expected consolidated operating loss to be in the range of $1.2-$1.6 million. Operating loss, as a percentage of net sales, improved to (2.9)% from (14.8)% year over year.
Segment Details
Mattress Fabrics (CHF): Sales in the segment totaled $30 million, up 21.6% year over year. The upside was backed by higher sales compared with the prior-year period’s figure. This was primarily driven by new fabric and sewn cover placements that are priced in line with current costs.
Operating loss narrowed to $1.6 million from $4.2 million a year ago. The improvement can be attributed to higher sales, primarily from better pricing and a more favorable product mix. The segment’s operating margin improved to (5.3)% from (17.1)% in the prior-year period.
Upholstery Fabrics (CUF): Sales in the segment amounted to $30.4 million, up 9.2% year over year. The top line increased due to higher sales in CUF's residential fabric business, propelled by improved residential home furnishing sales and the timing of the Chinese New Year holiday, which fell primarily in the fourth quarter rather than the third quarter.
The segment registered an operating profit of $2.1 million against an operating loss of $0.4 million reported in the prior-year period. Operating margin was up 540 bps to 6.9% on a year-over-year basis. The margin expansion can be attributed to higher sales volume, a more profitable mix of sales, a more favorable foreign exchange rate associated with CUF's operations in China and lower fixed costs resulting from the previous restructuring of CUF's cut and sew platforms.
Financial Highlights
As of Jan 28, 2024, the company had cash and cash equivalents of $12.6 million compared with $21 million at the fiscal 2023 end. As of the third quarter of fiscal 2024, the company has no outstanding long-term debt.
At the end of the fiscal third quarter, net cash used in operating activities was $6 million against net cash provided by operating activities of $4.6 million in the prior-year quarter. The company generated a negative free cash flow of $8.2 million versus a positive free cash flow of $2.5 million a year ago.
Fourth-Quarter Fiscal 2024 Outlook
For the quarter, Culp expects total net sales to be lower compared with the prior-year quarter’s figure. This is partly due to the timing of the Chinese New Year holiday. The weakness in the industry demand environment is expected to dent sales in both of Culp's business segments, particularly in the residential upholstery fabrics business.
The company expects total operating loss to be comparable with the prior-year quarter’s levels.
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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