1Q Preview: Losses Slowing; Looking for Signs of Recovery in Mattress Fabrics
Culp will report its 1QFY24 results after market close on Wednesday, August 30, and host its conference call on Thursday, August 31 at 11:00 am. We estimate the 1QFY24 loss at $0.36 per share, in line with consensus, and total 1QFY24 revenues of $60.5 million, above consensus of $60.2 million. The focus remains on the recovery of the Culp Home Fashions segment (CHF), its mattress Fabrics business. We forecast CHF revenues to be up Y/Y ($30.5 million versus $29.4 million) and roughly flat sequentially. Importantly, we estimate an improved CHF gross margin and lower operating losses. The recently filed and ongoing anti-dumping investigation may benefit Culp’s mattress fabrics business long term. To the extent that duties on mattress imports shift manufacturing to on-shore or near-shore locations, Culp’s opportunity improves. In the near term, we observe that mattress imports over the past quarter ticked slightly higher, suggesting an improved end-demand picture and/or an abating inventory overhang. Accordingly, we posit that CHF is positioned to deliver a positive surprise versus consensus. End-demand is at or beyond the trough. Operationally, management has had another quarter to rationalize unprofitable SKUs. Industry upholstery demand remains challenged by economic conditions and the post-COVID surge. For Culp Upholstery Fabrics (CUF), its upholstery fabrics segment, we estimate 1QFY24 revenues will be down ~10% versus 1QFY23 and down 2% versus 4QFY23. Recent reports from several public furniture manufacturers suggest that consumer demand may have bottomed but that a broad recovery, so far, has been tentative.Culp operates three segments: mattress fabrics, which markets primarily knitted and woven fabrics, as well as sewn covers made from those fabrics, which are used in the production of bedding products; upholstery fabrics, which markets a variety of fabric products that are used principally in the production of residential and commercial upholstered furniture, as well as window treatment products and installation services for customers in the hospitality and commercial industries; and home accessories, which markets a variety of bedding accessories and home goods directly to consumers and businesses through global e-commerce and business-to-business sales channels.
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