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Edited Transcript of CFI earnings conference call or presentation 30-Nov-18 4:00pm GMT

Q2 2019 Culp Inc Earnings Call

High Point Dec 6, 2018 (Thomson StreetEvents) -- Edited Transcript of Culp Inc earnings conference call or presentation Friday, November 30, 2018 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dru L. Anderson

Corporate Communications, Inc. - SVP and Principal

* Franklin N. Saxon

Culp, Inc. - Vice Chairman, President & CEO

* Kenneth R. Bowling

Culp, Inc. - Senior VP, CFO, Treasurer & Corporate Secretary

* Robert G. Culp

Culp, Inc. - COO & President of Culp Home Fashions Division

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Conference Call Participants

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* John Allen Baugh

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Marco Andres Rodriguez

Stonegate Capital Markets, Inc., Research Division - Director of Research & Senior Research Analyst

* Robert Kenneth Griffin

Raymond James & Associates, Inc., Research Division - Senior Research Associate

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Presentation

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Operator [1]

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Good day, and welcome to the Culp Second Quarter 2019 Earnings Conference Call. Today's call is being recorded.

At this time for opening remarks and introductions, I would like to turn the call over to Ms. Dru Anderson. Please go ahead.

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Dru L. Anderson, Corporate Communications, Inc. - SVP and Principal [2]

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Thank you. Good morning, and welcome to the Culp conference call to review the company's results for the second quarter of fiscal 2019.

As we start, let me state that this morning's call will contain forward-looking statements about the business, financial condition and prospects of the company. Forward-looking statements are statements that include projections, expectations or beliefs about future events or results or otherwise are not statements of historical fact.

The actual performance of the company could differ materially from that indicated by the forward-looking statements because of various risks and uncertainties. These risks and uncertainties are described in our regular SEC filings, including the company's most recent filings on Form 10-K and Form 10-Q.

You are cautioned not to place undue reliance on forward-looking statements made this morning, and each such statement speaks only as of today. We undertake no obligation to update or to revise forward-looking statements.

In addition, during this call, the company will be discussing non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the most directly comparable GAAP financial measurements is included as a schedule to the company's 8-K filed yesterday and posted on the company's website at culp.com.

A slide presentation with supporting summary financial information and additional performance charts are also available on the company's website as part of the webcast to today's call.

I will now turn the call over to Frank Saxon, Vice Chairman and Chief Executive Officer. Please go ahead, sir.

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Franklin N. Saxon, Culp, Inc. - Vice Chairman, President & CEO [3]

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Thank you, Dru. Good morning, everyone, and thank you for joining us today. I would like to welcome you to the Culp quarterly conference call with analysts and investors. With me on the call today is Ken Bowling, our Chief Financial Officer; and Iv Culp, our Chief Operating Officer and President of our mattress fabrics business.

I'll begin the call with some brief comments, and then Ken will review the financial results for the quarter. I will then update you on the strategic actions in each of our segments. After that, Ken will review our third quarter business outlook and then we'll be glad to answer your questions.

As expected, our results for the second quarter reflect the ongoing challenges facing the bedding industry, related to those significant increase of low-priced imported mattresses from China. We believe the recent petition approved under U.S. trade laws to address this situation will ultimately be favorable for the domestic mattress industry.

However the high volume of imports continued to affect our major customers during the second quarter, which reduced demand for our mattress fabrics and mattress covers.

Our upholstery fabric business had a solid performance for the second quarter, with a meaningful contribution from Read Window Products, which was acquired in April of 2018.

While we are experiencing considerable headwinds with respect to the mattress industry, we are optimistic that we'll begin to see improvement in our quarterly results during the fourth quarter of this fiscal year, as preliminary duties are expected to be announced and put in place. We will continue to execute on our product-driven strategy as we expand our reach into new markets. We are excited about the potential growth opportunities for Read Window in the hospitality space, and for eLuxury, Culp's e-commerce business, offering bedding accessories and home goods direct to consumers. Above all, we remain focused on offering creative designs and innovative products that meet the changing demands of our diverse customer base.

Importantly, we have continued to generate strong free cash flow, especially during the second quarter, and return funds to shareholders through another quarterly dividend increase and share repurchases. These decisions reflect our confidence in Culp's future.

We have the financial strength to support our business in this current environment, and we are well positioned for continued growth as the market conditions evolve.

I'll now turn the call over to Ken, who will review the financial results for the quarter.

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Kenneth R. Bowling, Culp, Inc. - Senior VP, CFO, Treasurer & Corporate Secretary [4]

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Thank you, Frank. As mentioned earlier on the call, we have posted slide presentations to our Investor Relations website to cover key performance measures. We have also posted our capital allocation strategy.

Here are the highlights for the second quarter. Net sales were $77 million, down 4.6% compared to the prior year. Pretax income for the second quarter was $4.3 million compared with $6.2 million last year. Pretax income margin was 5.6% compared with 7.6% a year ago.

The financial results for the second quarter included a net benefit of approximately $443,000 (sic) [$543,000] in restructuring and related charges and credits and other nonrecurring items due mostly to the closure of our Anderson, South Carolina production facility. Excluding this net credit, pretax income for the second quarter was $3.7 million.

With respect to SG&A expenses, unallocated corporate expenses were down 25% compared to the prior year period due mostly to lower incentive compensation expenses and lower professional fees. Net income attributable to Culp, Inc. shareholders for the quarter was $3 million or $0.23 per diluted share compared with $4 million or $0.32 per diluted share last year.

Trailing 12 months adjusted EBITDA was $30.1 million or 9.7% of LTM sales. Consolidated return on capital was 18.4%.

Now let's take a look at our 2 businesses. For mattress fabrics segment, sales were $42 million, down 14% compared to last year's second quarter. Operating income was $2.9 million compared with $6.6 million a year ago, with operating income margin of 7% compared with 13.5% a year ago. Our operations for the second quarter were affected by the significant decrease in demand caused by the growth in Chinese imported mattresses. Despite this pressure, we were still able to achieve a 7% operating margin, which reflects the significant investment and operational improvements we have made in this business over the past several years.

With regard to eLuxury, the current annual run rate for sales is approximately $12 million with minimal operating income contribution. Return on capital for mattress fabrics was 23.6%.

For the upholstery fabrics segment, sales for the second quarter were $35 million, up 9% over the prior year due primarily to the contribution from Read Window Products. Operating income was $2.7 million for the quarter compared with $2.4 million for the same period last year. Operating income margin was 7.8% compared with 7.4% last year. Our operating performance for the second quarter was in line with expectations, and we did benefit from a more favorable currency exchange rate in China. However, this gain was partially offset by the unfavorable impact of tariffs implemented during the quarter.

With the closure of our Anderson, South Carolina operation early in the second quarter, we incurred approximately $270,000 in restructuring and related expenses. Notably, we sold the related equipment for approximately $1.3 million, and we are actively pursuing the sale of the physical plant.

For Read Window Products, the current annual run rate per sales is approximately $11 million to $12 million with operating income margin slightly higher than the overall operating income margin for this segment as a whole. Return on capital for the upholstery fabrics business continue to be impressive, coming in at 57%.

Here are the balance sheet highlights. Despite the headwinds we are facing in our mattress fabrics business, we have maintained a strong financial position through the first half of this year and are generating strong free cash flow. We reported $41.5 million in total cash and investments and no debt.

During the first 6 months of this fiscal year, we have spent $3.5 million on capital expenditures, including vendor-financed payments, funded $12.1 million for acquisitions and related expenses and returned $3.1 million to shareholders in regular dividends and share repurchases. We expect continued strong free cash flow in the second half of this fiscal year.

The company repurchased approximately 37,000 shares during the first 6 months of this fiscal year, leaving $4.2 million available under the share repurchase program approved by the board in June of 2016. Since the end of this quarter, we have repurchased an additional 19,000 shares, leaving approximately $3.8 million available under our repurchase program.

With that, I'll turn the call back over to Frank.

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Franklin N. Saxon, Culp, Inc. - Vice Chairman, President & CEO [5]

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Thank you, Ken. I will start with our mattress fabrics segment. Our mattress fabric sales for the second quarter of fiscal 2019 reflect the ongoing disruptions and uncertainties surrounding the mattress industry. We were pleased to see sequential sales growth over the first quarter. However, imported mattresses entering the United States from China have continued to significantly disrupt the domestic mattress business.

In anticipation of both increased tariffs on mattresses and the anti-dumping petition that was approved by the United States International Trade Commission on November 1, we believe that a number of companies and retailers accelerated orders and promotions of low-cost imported mattresses. As a result, we experienced continued lower demand for fabric and sewn covers from our customers during the quarter.

The second quarter marked the first full quarter to include the operations of eLuxury. We are very excited about this important new sales channel for Culp and the opportunity to participate in the growing e-commerce direct-to-consumer space. We are working hard to develop and create innovative bedding accessory items to be marketed through this exciting platform. New products have already been developed within Culp's global manufacturing platform, and inventories being prepared for product launches in the near term.

We believe eLuxury enhances our strong value proposition. And we expect to see favorable growth trends from this business category as we move into the new calendar year.

Looking ahead, we do see ongoing challenges in the mattress industry that will continue to affect short-term demand trends and our operating performance.

While we are pleased to see the anti-dumping petition approved on November 1 and we are beginning to see some positive developments, it is uncertain when demand trends will return to more normal levels. We believe the expected punitive measures against Chinese importers will be significant and will ultimately benefit our customers and our business beginning sometime in our fourth quarter. Once this uncertainty is behind us, we expect our mattress fabrics sales and operating performance will improve during the fourth quarter of this fiscal year.

In spite of the challenges we're facing, we have a solid core business and strong competitive position across all product categories from fabric to sewn covers. We look forward to the opportunities ahead to expand our market reach with complementary products and new sales channels, especially as the mattress industry begins to stabilize.

Now I'll turn to the upholstery fabrics segment. We are pleased with our upholstery fabrics sales performance in the second quarter as we met expectations with a 9% sales growth over the second quarter of last year. These results reflect our ability to offer creative designs and a wide array of innovative products to a diverse customer base with higher sales to customers in both residential and hospitality markets.

Importantly, these trends reflect the meaningful contribution from Read Window in the hospitality market. We are excited about the additional growth opportunities for this expanded offering of window treatments and the potential for additional acquisitions in this space.

We had another successful showing at the October furniture market in High Point, which, for the first time, had a hospitality section, where we featured our complete line of products, including window treatments. Our performance line of upholstery fabrics was again well-received in this market, and we continue to see favorable demand trends and strong placements with customers.

Additionally, our LiveSmart performance fabrics brand were recently featured on The Learning Channel television program, Make This Place Your Home. Our product-driven strategy and ability to reach more customers and new end-user markets is a distinct competitive advantage for Culp in today's marketplace.

Looking ahead, the potential for additional tariffs in 2019 and the associated geopolitical risk remains uncertain at this point. We continue to monitor the situation and the related impact on our business. And if additional tariffs are implemented, we will determine an appropriate response.

Despite these uncertainties, we believe Culp is very well positioned to benefit from an uptick in demand for home furnishings and more stable market conditions.

Ken will now review the outlook for the third quarter, and then we'll take your questions.

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Kenneth R. Bowling, Culp, Inc. - Senior VP, CFO, Treasurer & Corporate Secretary [6]

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We expect overall sale to be down approximately 7% compared with the third quarter of last year. We expect sales, operating income and margins in our mattress fabrics segment to show sequential improvement, but to be significantly lower than the third quarter of last fiscal year due primarily to the continued significant growth in Chinese imported mattresses. Assuming the mattress industry relief materializes under U.S. trade laws, we expect to see more normalized trends during the fourth quarter of this fiscal year that are more in line with the prior year.

In our upholstery fabrics segment, we expect sales to be slightly up compared with a strong third quarter last year due to the timing of the Chinese New Year. Operating income and margins are also expected to be slightly up compared with the same period a year ago. However, our projections are contingent upon any potential additional tariffs that could be imposed effective January 1, 2019, and could therefore affect our operating costs.

Considering these factors, we expect to report pretax income for the third fiscal quarter in the range of $4.6 million to $5.4 million, excluding any restructuring and related charges and credits and other nonrecurring charges. Pretax income for last year's third quarter was $7.5 million. Our performance for the fourth quarter of this fiscal year is currently expected to be more in line with the results achieved during the fourth quarter of last fiscal year.

Based on our current budget, capital expenditure this fiscal year are now expected to be in the $6 million to $6.5 million range, as we have moved to a more maintenance level of capital expenditures. Additionally, given the strong free cash flow achieved in the second quarter and the current outlook, free cash flow for this fiscal year is expected to be improved over last year's results, even with the significant headwinds we are facing in our mattress fabrics segment.

With that, we'll now take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from John Baugh with Stifel.

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John Allen Baugh, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [2]

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I wondered if we could walk down the path of the 25% tariff. And give us some sense if that's what we're looking at for the next 12 months-plus, how that impacts your business, or I guess on the furniture side?

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Franklin N. Saxon, Culp, Inc. - Vice Chairman, President & CEO [3]

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Good morning, John. The 25% tariff you're referring to, we've got 10% already, which we implemented in September. And the current, I guess, position from the administration is an additional 15% as of January 1. If that were to be put in place on the furniture side, we will do exactly what we did with the first 10%, and that is we will increase prices. And we are benefiting from a weaker currency, so the price increase to be equal, we didn't have to give a price increase for the full 10% because we did benefit from some currency. But would plan to do the same thing we did with the 10%, we will raise prices.

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John Allen Baugh, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [4]

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And Frank, what position -- where are you competitively -- one of your competitors done so far with the 10% -- where are they sourcing their fabric from? Are they in the same boat and doing the same thing? Or is there some other country sourcing where you've got an issue?

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Franklin N. Saxon, Culp, Inc. - Vice Chairman, President & CEO [5]

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That's really -- let me -- just really a couple of questions there, John. The first one is our competitors that are sourcing fabrics from China, which is really 90% of the upholstery fabrics come from China, there's no other meaningful country in the world where upholstery fabrics come from. So they are all have increased prices as well. The domestic producers, of which there is a few, also have raised prices recently, we hear, and due to some raw material increases or other reasons. So we are not out there raising prices by ourselves. And I would expect that the other folks importing from China would continue to have to increase prices. They'd have to. The second part of the question is there's really -- I mean, we've looked at this -- we've looked at it a long time, and we've continued, especially looked more detailed over the last 6 months, is there any other place where we could source upholstery fabrics or our consumers might go to source upholstery fabrics in the world? And whether it's Indonesia, whether it's Turkey, whether it's South Korea, Taiwan, India, none of which are competitive with China even with a 25% duty. So that gives us -- and we are in touch with a lot of players in those areas. And so I don't think it's a risk that the business moves from China on the 25%, yes.

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John Allen Baugh, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [6]

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And then, Frank, for -- you touched on bedding, can you give me a sense of the amount of fabric? You said 90%, I think, of the imports are coming from China. What percentage of all upholstery we were consuming in this country, upholstery fabrics, is coming from domestic producers as a percentage?

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Franklin N. Saxon, Culp, Inc. - Vice Chairman, President & CEO [7]

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I would say 10%. I mean, our back of the envelope, there is no public data available. We think of it, it's 90-10. And then there is a minuscule amount coming from other countries. Some come from Turkey, some from Indonesia, but they're really not significant. Unfortunately, China wiped out the domestic industry last decade.

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John Allen Baugh, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [8]

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Yes. And then on bedding, there's so much noise with the volumes impacting your business there. I'm curious because we hear the high end of bedding is certainly strong, and I know you're not as well positioned there. But if we were to somehow get a picture of the rest of your bedding business, exclusive of this low-end impact on the volume, what does it look like? How is Culp doing in terms of product mix and price per yard? Whatever color you could give would be great.

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Robert G. Culp, Culp, Inc. - COO & President of Culp Home Fashions Division [9]

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Yes, John, this is Iv. Thank you. I'll take that one and I want to recircle back a little bit to your question on tariffs. And just one thing that we should add from a bedding standpoint is while the tariff are somewhat damaging and are tough on our upholstery side, and renegotiating prices in some of those challenges have a cost, some of that plays really well to us on the mattress fabrics side and the mattress covers side, because we are able to expand our mattress cover business into some of that China location because mattress covers aren't, today, in the Section 301 tariffs. Now who knows what the future holds in any of that, but today, it's enabling us to really expand our cut-and-sew business quite a bit into China and add that to the third leg of our cut-and-sew business. But to answer your question more directly, if we really do, it might be a misconception, but we are pretty well positioned from low to high. Our design, our innovation and our business will be targeted towards all levels of bedding. We don't really just target lower ends, but that's been what's been so disrupted this year because of some of the inventories that's been built up. And just a lot of disruption at retail as well. So I think we'll be well positioned for both. For us, high-end bedding helps companies that make mattresses, because mattress is still very high. And when we make high-end fabrics, it's better for us, price point-wise, but it is not the same lift as a mattress company is going to get by selling a bed and multi-thousand dollars. Our fabric is still going to be in the $7, $8, $9, $10 range. We're not going to be able to -- it's not such a dramatic shift for us in fabric to generate it. But we need both to be strong, both medium to low end and medium to high.

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John Allen Baugh, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [10]

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Okay. That's extremely helpful. And I guess, as I think about bedding and moving forward, is your expectation, Iv, that we'll start to, what, see different behavior even before? Are numbers announced maybe mid, late February because of fear that a number will be announced and they could be retroactive? Or would the expectation be that you really wouldn't see orders and/or shipments flowing through until -- after that? I'm trying to get a sense for how much the fourth quarter might benefit from the dumping rate announcement?

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Robert G. Culp, Culp, Inc. - COO & President of Culp Home Fashions Division [11]

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Yes, the expectation, again, this is Iv. Thank you, John. The expectation we have is that the percentage is going to be significant, and everyone that we talk to and that we consult with feels like it's fairly certain. I know that's not -- we can't guarantee, but it does feel fairly certain. And most of that seems to be lining up with the calendar year. So we have, for sure, seen many companies reestablishing supply chains to domestic production. And we're working on really an inordinate amount of projects for that end. And for us, we have a really strong platform with our fabric production, combined with cut-and-sew now in U.S., Haiti and in China, all 3 really gearing up very strong. And so we can't guarantee we're going to win. All these places that we sure are working in a lot of them. And it feels pretty certain that end of our fiscal year should be back to some of the business we've been used to.

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John Allen Baugh, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [12]

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Okay. And then finally, on SSB. I know that they've got deep-pocketed parent company funds. But we also know they're not doing terribly well, although they did make an acquisition, so presumably they have access to capital. A simple question is do we need to worry at all about that receivable? What are you seeing out of that particular important customer?

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Robert G. Culp, Culp, Inc. - COO & President of Culp Home Fashions Division [13]

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I mean, we have not been worried about that. We -- that is a critical customer for us and one that we really like to do business with. We haven't been worried about it, John. We -- I like a lot of things about how they approach the business, and I think their acquisition looks smart. We really believe that the best way forward is a combination of B2B with B2C, which we are fully embracing here at Culp, too. So we expect that both of their channels to be something that we truthfully target heavy going forward. That's a strategic customer for us.

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Kenneth R. Bowling, Culp, Inc. - Senior VP, CFO, Treasurer & Corporate Secretary [14]

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And John, this is Ken, I mean, we monitor that account very closely, and we certainly share, we watch the news and in contact with them. So it's an account we are very in touch with and on top of.

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John Allen Baugh, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [15]

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And Ken, there has been no change in their payment pattern behavior, I assume?

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Kenneth R. Bowling, Culp, Inc. - Senior VP, CFO, Treasurer & Corporate Secretary [16]

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No. No. No.

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Operator [17]

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Let's go to Bobby Griffin with Raymond James.

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Robert Kenneth Griffin, Raymond James & Associates, Inc., Research Division - Senior Research Associate [18]

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Frank, at first I want to follow back up on the upholstery side of things. And you mentioned you guys have started to pass through some of the price increases for the 10% tariffs. What have you heard from your customers those price increases are having? What have you heard -- how those price increases are having an impact on demand? Is there any type of color you can you give us maybe on your unit volume or your yardage. Help us think about how the things are going go for you.

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Franklin N. Saxon, Culp, Inc. - Vice Chairman, President & CEO [19]

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Yes, I mean, that's what we'd all, Bob, exactly what we are concerned about and have been, but we are not seeing it yet. Backlogs, orders, you see, I mean, still are pretty good. We are not -- people are worried about that, but we are not seeing it yet. Business is decent.

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Robert Kenneth Griffin, Raymond James & Associates, Inc., Research Division - Senior Research Associate [20]

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So the upholstery growth we're seeing, obviously, some of it is benefiting from the acquisitions but when you look at just of pure yardage numbers, your yardages are still showing growth, is that correct?

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Franklin N. Saxon, Culp, Inc. - Vice Chairman, President & CEO [21]

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Yes. And remember, it's a little cloudy because we've got our Anderson, South Carolina plant sales related to that, that are down and are phasing out. But if you would exclude those, then we are growing in our China-produced fabrics. And we feel pretty good now. I mean, with the innovation, the creativity, the performance line, I mean, all feels pretty good to us right now even with the tariffs.

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Robert Kenneth Griffin, Raymond James & Associates, Inc., Research Division - Senior Research Associate [22]

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Okay. That's helpful. I really appreciated that. And then maybe I was hoping to maybe get a little bit more color on how the integration is going with Read Window Products. Have you made -- have you been able to push some of the Culp China fabrics into that platform as we talked about before in the past? If not, maybe kind what's the timing on that?

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Franklin N. Saxon, Culp, Inc. - Vice Chairman, President & CEO [23]

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Yes. The Read Window acquisition we're very pleased with. They're performing a little better than expected from the beginning with -- on their margins, sales are pretty much as expected. The integration is going well. We've got a fabulous team there. Customers had been really excited about Culp's expanded product offerings, and we've been calling on all the major flags and key other customers, and it's going very well. You also, second part of your question, is what are the key synergies over the long term, which is to use Culp fabric in the window treatments. Read Window, when we bought them, it was using no Culp fabrics. It was buying from other suppliers. That's going to take a few years to get it in place, but we've started already. We have some products, which are getting great -- our first introductions are getting great receptions. They're not actually in sales yet, but the first ones are out in the market, it had been shown to customers and we're getting great reception to them. So that will evolve quarter-by-quarter, and I feel very good about achieving results on that particular synergy. And of course, that will bode well, Bobby, when and if we get another acquisition. We already have those products in the pipeline for the hospitality market.

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Robert G. Culp, Culp, Inc. - COO & President of Culp Home Fashions Division [24]

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And Bobby, this is Iv. I would add one thing about what Frank was saying there, too, he may have said it and not hear him, but you had asked about what those China fabrics, specifically on -- maybe in some cases, yes, but we also can do those products from our North American locations as well. So it's sort of a trend throughout the company with both Read and eLuxury and several were adopted and conducted in lots of really good ways, taking our fabrics from just the old traditional way of selling manufacturers to find the new ways to get our products further downstream. A lot of good things happening the cost of company that regard.

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Franklin N. Saxon, Culp, Inc. - Vice Chairman, President & CEO [25]

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I mean, we are going to see more synergy among our businesses. We're clearly seeing that. And one of Iv's really initiatives in his new role is to maximize that synergy. We've got so many capabilities and strengths among our now our various platforms. And it seems there's lots of opportunities everywhere we look. I think we're going to see more of that exactly like this opportunity, where, in this case, the great goods are made at our Canadian facility, which is part of CHF. We do digital printing on them and sell them, so through the Read Window Products channel. And the second example we're doing, we're developing several key products for Culp produced for eLuxury. All of this is going to take a little time, though, but we are seeing increasing synergies among our businesses.

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Robert Kenneth Griffin, Raymond James & Associates, Inc., Research Division - Senior Research Associate [26]

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Okay. And then, I guess, lastly for me on mattresses. One, can you maybe refresh us a little bit on how the concentration of that business is among the big 4 players, maybe as a percentage of sales or something to help us think about that breakout of business? And then also assuming we do get some help here from anti-dumping and the volume does return, production capabilities under the kind of coverings business, how do you guys look to capture some of that return and volume here to the U.S.?

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Robert G. Culp, Culp, Inc. - COO & President of Culp Home Fashions Division [27]

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Bobby, yes, I think you kind of have to look a little bit back and a little bit forward to your question. For sure, for a long time, we have been well-entrenched with the big 4, and that has, for a long time, been a big part of the mattress industry. I know we have seen numbers where those big 4 are 60%, maybe even 70% of the business, have been in the past. But that's changing so much and so rapidly because there's so many new entrants. And I think even some of us, as close in the industry as we are, haven't grasp how many beds were coming in and being installed against the market that we were really targeting, the customers that we were -- not restricted to sell, but that was just sort of the market we were in. I think we're kind of our eyes are being opened to how many opportunities are ahead of us, seeing how much diversification of product we have, the platform we have with cut-and-sew and how we can target so many new customers. So our customer list is much longer, much bigger than it was previously. And that's exciting for us as we think about where we can take products going forward.

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Robert Kenneth Griffin, Raymond James & Associates, Inc., Research Division - Senior Research Associate [28]

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Are those big 4 today still -- I mean, the last time I look into the filings there, plus 45% plus around 50% of beddings sales. Is that exposure still at the same level today?

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Robert G. Culp, Culp, Inc. - COO & President of Culp Home Fashions Division [29]

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Yes, I think, they're still, obviously, in today's environment, and they should also, I assume they will get a lift, too, with some protective measures they could place on imports. And they also, those companies are getting very smart in the kind of products they're designing and developing and how they're looking at their new sales strategy. So I think that's probably still fair, Bobby, that I mean, they're certainly critically important to us, those big 4, no doubt, we have to keep a very strong focus on.

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Robert Kenneth Griffin, Raymond James & Associates, Inc., Research Division - Senior Research Associate [30]

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Okay. I appreciate all the detail. Best of luck moving forward and the continued strength of integrating the businesses together.

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Robert G. Culp, Culp, Inc. - COO & President of Culp Home Fashions Division [31]

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Thank you.

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Operator [32]

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(Operator Instructions) Next we'll go to Marco Rodriguez with Stonegate Capital Markets.

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Marco Andres Rodriguez, Stonegate Capital Markets, Inc., Research Division - Director of Research & Senior Research Analyst [33]

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Just a couple of quick follow-ups. I am not sure if I caught this or not, but did you provide a revenue contribution in the quarter for eLuxury and then also for Read?

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Kenneth R. Bowling, Culp, Inc. - Senior VP, CFO, Treasurer & Corporate Secretary [34]

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No, we just -- Marco, we just gave the annual run rate on sales and operating income contribution.

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Marco Andres Rodriguez, Stonegate Capital Markets, Inc., Research Division - Director of Research & Senior Research Analyst [35]

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Okay. I apologize, I guess I missed that. What were those numbers?

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Kenneth R. Bowling, Culp, Inc. - Senior VP, CFO, Treasurer & Corporate Secretary [36]

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It was 20 -- approximately $20 million for eLuxury, and $11 million to $12 million for Read Windows. That was sales and on the operating income, we said the margin for Read Windows was going to be slightly or higher than the overall upholstery fabrics margin, and then our operating income contribution for eLuxury was going to be minimal this -- for the annual run rate.

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Marco Andres Rodriguez, Stonegate Capital Markets, Inc., Research Division - Director of Research & Senior Research Analyst [37]

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Got you. And maybe if you could talk a little bit about eLuxury, just kind of what is the performance you kind of saw over here on Black Friday, Cyber Monday? Was it kind of in expectations? Or just how you kind of saw that?

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Robert G. Culp, Culp, Inc. - COO & President of Culp Home Fashions Division [38]

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Yes, I think that's been fun for us, new for us to experience consumer sales around Black Friday, Cyber Monday, and I was very busy. We have a lot of excitement about these holidays, and hopefully it will carry through the holiday season. More excited looking out because we're in the process right now, a lot of building the pipeline is underway today, with a lot of our new products and things that we're designing, both with fabrics and other products and finished products. So I would feel even more excited about next year this time and these holiday seasons when all of our items are up on the site and for sale. I think it's fun to see those peak sale periods, and this one was good. I would expect next ones to be even better.

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Franklin N. Saxon, Culp, Inc. - Vice Chairman, President & CEO [39]

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Marco, another synergy in that line is that, I didn't mentioned earlier, is it relates to eLuxury is we're taking the mattress pads that eLuxury makes, which is about half of those sales, and we've got a big initiative to sell them into the hospitality market on a B2B basis. And that's in the works now as another type of cross-synergy between our businesses.

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Robert G. Culp, Culp, Inc. - COO & President of Culp Home Fashions Division [40]

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Yes, I think, Frank, is right. We really have a lot of dots to connect throughout the company, and it's just taken us a little bit of time in figuring out where to put those pieces together. But that's a great one.

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Marco Andres Rodriguez, Stonegate Capital Markets, Inc., Research Division - Director of Research & Senior Research Analyst [41]

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Got you. And in regard to the comments on these new products that you've been developing and the inventory that you're building up here for these launches on eLuxury. I'm assuming that there's no issue from a capacity standpoint. And then also maybe you can talk a little bit about timing as far as when these products might be launched and what you might be kind of looking at?

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Robert G. Culp, Culp, Inc. - COO & President of Culp Home Fashions Division [42]

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Yes, well we have already put a few select items on the site. We have some finished products we developed. We are selling some upholstery fabrics by the yard in concert with the TLC show that aired. A lot of these products we are making through our China platform, and these are items not impacted today by any Section 301 duties. So it's a little bit of the time line of development, production and then you're dealing with the China lead time of shipping. So again, it's somewhat what really starts to gear up less to be hitting the websites towards our fourth quarter, but probably more substantial in real selling and profits in next fiscal year.

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Marco Andres Rodriguez, Stonegate Capital Markets, Inc., Research Division - Director of Research & Senior Research Analyst [43]

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Got you. And last quick question is kind of a housekeeping item. Now with eLuxury full quarter in, obviously Read for a couple of quarters here now, SG&A running around $10 million, excluding onetime items, is that a good run rate to look at for you guys going forward? Or are there additional things you might be looking to add or take out?

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Kenneth R. Bowling, Culp, Inc. - Senior VP, CFO, Treasurer & Corporate Secretary [44]

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Well, I think, Marco, it's Ken. I think when you look at the addition of both new businesses and the impact on SG&A, I mean, when you look at the second quarter and projecting forward, I think that it's pretty representative of where we were going to be, maybe just a little bit higher going forward. But I think that with the mix of all that, it is probably safe to say second quarter is a good parameter of were to look to in the future, I guess.

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Operator [45]

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And it does appear we have no further questions in the queue at this time. I'd like to turn the conference back over to our speakers for any additional or closing remarks.

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Franklin N. Saxon, Culp, Inc. - Vice Chairman, President & CEO [46]

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Okay. Thank you. One last comment I want to make for everybody is that I want to be sure that everybody hears how confident and optimistic we are about our future. We raised the dividend for the seventh consecutive year, we're repurchasing shares and we have a strong balance sheet to weather the current short-term situation. But we are very confident and optimistic as we look ahead at all the opportunities ahead of us. So with that, I just want to say thank you again for participating in the Culp call, and we look forward to updating you next quarter.

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Operator [47]

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Thank you. And again, ladies and gentlemen, that does conclude today's call. We thank everyone for their participation. You may now disconnect.