Culp Reports Improved 2QFY24
Culp, Inc. issued results for its 2QFY24 on Monday, December 4 after market close. Revenue and operating profit were better for the just-reported quarter than those posted in 2QFY23 and our estimates, bolstering management’s contention that it would deliver—and investors would witness—sequential quarterly improvements in operating profitability for the balance of FY24. Management also noted its belief of posting positive consolidated operating profitability by 4QFY24. All the while, Culp’s financial condition is solid. Culp remains debt-free with moderating inventories. This ensures its future despite the near-term home furnishings environment, which remains challenging and trapped between the twin effects of a punk housing market and the furniture and home furnishings demand surge, post-early COVID, that keeps a lid on demand now. The consolidated revenue comparisons were modestly better than last year and our estimate. Moreover, the consolidated operating income (loss) results were significantly better than last year and respectably better than our estimates. Our variance analyses are shown in Figures 1 and 2. For Culp’s Upholstery Fabrics segment (CUF), its reported 19.7% gross margin for 2QFY24 was impressive and CUF’s highest second fiscal quarter gross margin since 2019 (before the pandemic). Improvements made by moving cut-and-sew production from China to Vietnam and working through excess inventories suggest that this improvement should persist. For Culp’s Mattress Fabrics segment (CHF), the 2QFY24 return to upper single-digit gross margin confirms materialization of management’s forecast for CHF’s operating improvement from better pricing and better efficiencies. Management’s goal to deliver double-digit operating margins for CHF again (ultimately), seemingly out-of-bounds and unlikely several quarters ago, now seems attainable. Management will host its 2QFY24 earnings conference call at 11:00 am ET today. We will refresh and publish new estimates after the call.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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