Loss Narrows; 1Q Margins Improve as Top Line Remains Pressured
After Wednesday’s close, Culp Inc. reported a 1Q24 EPS loss of $0.27, beating our $0.36 loss estimate and its 1Q23 $0.47 LPS. Revenues missed expectations and residential demand challenged. The balance sheet remains strong. The Mattress Fabric (CHF) segment delivered a markedly improved margin, reporting a gross margin of 6.8%, up from negative 0.1% a year ago and better than our estimate of 2.6%. Its operating loss narrowed from $2.9 million a year ago to $1.4 million, again better than our estimate. The Upholstery Fabric (CUF) segment expanded gross margin to 19.2% from 12.5% a year ago, despite a significant decline in revenue. Its operating income rose to $3.9 million from $3.6 million a year ago, modestly better than our estimate. CUF results exclude $517 million in restructuring for ceasing Haiti cut-and-sew. Revenues remain pressured, each segment missing our estimates. CHF was roughly flat Y/Y but missed our estimate by $1.2 million. CUF fell 17.5% Y/Y and missed our estimate by $2.6 million. We include a tabular summary of the quarterly results within, showing the adjustments to derive as reported and as adjusted operating incomes. However, due to Culp’s complex and negative tax position, management chose not to adjust its EPS. Accordingly, our EPS presentation conforms to Culp’s and is only as reported. The release provided limited guidance: 2Q24 sales comparable to 2Q23, better in CHF but down Y/Y in CUF. 2Q24 operating loss guided to $(2.2) million to $(2.6) million, much better than $(11.9) million in 2Q23. Guidance suggests that our current 2Q24 estimate will decline, yet CHF continues to improve. Management is confident in the long term. We will formally update our earnings estimates following the conference call at 11:00 am, which may provide more color. Estimates in the right-hand column are unrevised, as of now.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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