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3QFY24 Operating Income Beats Lowered Estimates

After the close on Wednesday, Culp reported a 3QFY24 operating loss of $1.7 million, which was better than our estimate of a loss of $2.2 million. Consolidated sales were $60.4 million, roughly in line with our $60 million published estimate. Culp continues to battle weak demand in both of its Culp Home Fashions (CHF, aka mattress fabrics) and Culp Upholstery Fabrics (CUF) segments. Results in the CHF segment were below our lowered expectations. Sales were $30 million, while the operating loss was $1.5 million. We estimated revenue of $31 million and an operating loss of $0.8 million. CUF segment results beat our forecast, with $30.4 million in sales and an operating profit of $2.1 million. We estimated sales of $29 million and $1.5 million in operating income. Culp remains focused on driving efficiencies and rightsizing its manufacturing base to match demand, most notably in its CHF segment, which has significant fixed assets. We expect more color on the demand environment and Culp’s response on today’s 11:00 am ET call. Guidance will force our 4Q estimates lower. A return to operating profitability, which had been expected by 4QFY24, will be delayed until FY25. We will publish new estimates after the call. 3Q GAAP EPS was a loss of $0.26, below our estimate of ($0.22) and consensus of ($0.19); it included ~$0.01 in restructuring-related credit. The EPS variance versus estimates sits mostly in Culp’s large and hypothesized income tax expense and in other income/(expense), which is dominated by currency exchange rate fluctuation with China and Canada. EPS is now a less important metric for investors than is progress toward consistent and positive consolidated operating income.