Culp Announces Results for First Quarter Fiscal 2023

August 31, 2022 04:16 PM Eastern Daylight Time

HIGH POINT, N.C.--(BUSINESS WIRE)--Culp, Inc. (NYSE: CULP) (together with its consolidated subsidiaries, “CULP”) today reported financial and operating results for the first quarter ended July 31, 2022.

Fiscal 2023 First Quarter Financial Summary

Net sales were $62.6 million, down 24.6 percent compared to the prior-year period, with mattress fabrics sales down 31.8 percent and upholstery fabrics sales down 16.9 percent compared with the first quarter of last year.
Loss from operations was $(4.7) million, as compared with income from operations of $3.3 million for the prior-year period and as compared sequentially to a loss from operations of $(5.4) million for the fourth quarter of fiscal 2022.
Net loss was $(5.7) million, or $(0.47) per diluted share, compared with net income of $2.3 million, or $0.18 per diluted share, for the prior-year period. The effective tax rate for the first quarter was (18.7)% and was affected by the company’s mix of income between its U.S. and foreign jurisdictions during the period.

The company’s financial position reflected total cash and investments of $18.9 million and no outstanding borrowings as of July 31, 2022. (See summary of cash and investments table at the back of this press release.)

Cash flow from operations and free cash flow were $5.3 million and $4.5 million, respectively, for the first quarter of fiscal 2023, compared with cash flow from operations and free cash flow of $1.6 million and negative $(782,000), respectively, for the first quarter of fiscal 2022. (See reconciliation table at the back of this press release.)

Financial Outlook

The company continues to navigate a convergence of headwinds, including significant inflationary pressures impacting consumer spending, high inventory levels at manufacturers and retailers, a challenging labor market, and other macroeconomic uncertainties. Although CULP remains well-positioned over the long term with its product-driven strategy and flexible global platform, the current conditions are likely to continue pressuring results through at least the third quarter of fiscal 2023.
Due to the continued volatility in the macro environment, the company is providing only limited sequential financial guidance for the second quarter of fiscal 2023. The company’s net sales for the second quarter of fiscal 2023 are expected to be slightly down as compared to the first quarter of fiscal 2023. The company expects a consolidated operating loss (loss from operations) for the second quarter of fiscal 2023 that is comparable to the first quarter of fiscal 2023. The company also expects its cash position as of the end of the second quarter of fiscal 2023 to be somewhat lower than the end of the first quarter of fiscal 2023, but higher than the end of fiscal 2022.

The company’s expectations are based on information available at the time of this press release and reflect certain assumptions by management regarding the company’s business and trends and the projected impact of the ongoing headwinds.

Commenting on the results, Iv Culp, president and chief executive officer of Culp, Inc., said, “Our results for the first quarter reflected sequential improvement as compared to the fourth quarter of fiscal 2022. However, as expected, sales and operating performance remained significantly pressured by slowing consumer demand in both the domestic mattress industry and the residential home furnishings industry. The impact of this industry softness on demand for our products is exacerbated by an excess of retail and manufacturer inventory that continues to delay the timing of shipments and new product rollouts. Operating performance was also affected by continued inflationary pressures, as well as reoccurring labor challenges within our mattress fabrics business and our Read Window Products (“Read”) business that resulted in increased employee training costs and operating inefficiencies during the quarter. We also had additional costs associated with increasing capacity at our new upholstery fabrics cut and sew facility in Haiti.

“Despite the ongoing headwinds, we maintained an unrelenting focus on working capital management, including inventory reduction, throughout the quarter. We ended the quarter with a higher cash position than expected, with $18.9 million in cash and investments and no outstanding borrowings. We also generated cash flow from operations of $5.3 million and free cash flow of $4.5 million.

“We continued to execute our product-driven strategy in each of our businesses, with an emphasis on design creativity and innovation. Following the lifting of COVID-related restrictions in China, our facilities resumed operations at normalized capacity in June, and we utilized our global manufacturing and sourcing platform throughout the quarter to meet the evolving needs of our customers. We also continued to build capacity at our new upholstery fabrics cut and sew facility in Haiti during the quarter. This facility is now fully staffed, with its weekly production output increasing as its employees gain more training and experience. As a company, we are enthusiastic about growing our near shore capacity in Haiti, with two facilities for cut and sewn mattress covers and one facility for cut and sewn upholstery kits. We believe this platform provides our customers with the agility and value they need for their business.

“We also announced today that Tommy Bruno will join the mattress fabrics leadership team as Executive Vice President on September 6, 2022, and he is expected to assume the role of division president after Sandy Brown retires on December 31, 2022. Tommy joins us from Tempur + Sealy International, bringing extensive knowledge of the bedding industry from his work in a variety of roles with Tempur + Sealy and Comfort Revolution, as well as a wealth of experience across several disciplines, including financial, operations, strategy, and management. We are especially pleased that Tommy will have the opportunity to work with Sandy during a transition period through the end of the 2022 calendar year. He will also continue to benefit from her experience and deep company knowledge following the planned transition, as Sandy will continue to support the mattress fabrics division as a strategic advisor. We are extremely grateful for Sandy’s many years of leadership and dedicated service to CULP, and thankful for the ongoing role she will play in this business.

“Looking ahead, we expect the current economic environment will continue to affect consumer spending trends, resulting in ongoing industry softness that will affect our business through at least the third quarter of fiscal 2023. We are working diligently to generate cash, reduce costs, improve efficiencies, and retain talent in the face of these significant challenges, while also ensuring we can maintain our competitive advantages and meet the needs of our customers when conditions normalize. Importantly, we believe our market position remains solid with expected new placements and product development opportunities, and we remain optimistic about CULP’s future as the macro environment improves,” added Culp.

Segment Update

Mattress Fabrics Segment (“CHF”) Summary

Sales for this segment were $29.4 million for the first quarter, down 31.8 percent compared with sales of $43.1 million in the first quarter of fiscal 2022. Sequentially, sales were down 1.4 percent compared with sales of $29.8 million for the fourth quarter of fiscal 2022.

Operating performance for the first quarter was significantly pressured by operating inefficiencies due to lower sales volume; ongoing labor challenges, including inefficiencies due to hiring and training new employees; and higher raw material costs, among other factors. These pressures were offset slightly by lower SG&A for the quarter, due primarily to lower incentive compensation expense.

CHF remained focused on working capital management and cash generation throughout the quarter, reducing its inventory by $2.5 million (primarily through reductions in finished goods inventory), balancing its raw materials with production needs, and generating cash despite an operating loss for the quarter.

The CHF team executed its product-driven strategy, with an emphasis on innovation, design creativity, and personalized customer service. The business began to see the rollout of a few new product launches during the first quarter, and expects additional rollouts beginning at the start of the 2023 calendar year as our customers work through their existing inventories. However, the gains from these new product launches are currently being offset by industry weakness affecting demand for this segment’s traditional business.

Management is continuing its diligent focus on controlling costs, and, as previously announced, is implementing an additional targeted price increase on certain product lines during the second quarter to help offset the continued rise in raw material costs. The division is also moving and consolidating its domestic mattress cover cut and sew operation during the second quarter from its current location in High Point, North Carolina, to the CHF facility in Stokesdale, North Carolina, and is continuing to make workforce adjustments to align with demand conditions.

Upholstery Fabrics Segment (“CUF”) Summary

Sales for this segment were $33.2 million for the first quarter, down 16.9 percent compared with sales of $40.0 million in the first quarter of fiscal 2022, which was an exceptionally strong quarter for CUF. Sequentially, sales were up 22.4 percent compared with sales of $27.2 million for the fourth quarter of fiscal 2022, which was adversely affected by COVID-related shutdowns in China during the last month of the quarter.

Sales for CUF’s residential fabric business were pressured during the quarter by reduced demand, driven by a slowdown in new retail business for the residential home furnishings industry.

Top-line recovery continued in CUF’s hospitality business for the first quarter, with higher sales in the hospitality/contract fabric business compared to the prior-year period, although sales for Read were flat year-over-year primarily due to labor challenges affecting production output.

Operating performance for the first quarter, as compared to the prior-year period, was pressured by lower sales; labor challenges and inflationary pressures affecting the Read business; and additional employee training costs and operating inefficiencies in CUF’s new Haiti cut and sew facility as it continued to scale capacity to its full planned output level. Operating performance for the period was positively affected by a favorable foreign exchange rate associated with our operations in China. Notably, operating performance meaningfully improved as compared sequentially to the fourth quarter of fiscal 2022.

CUF continued to ramp up production at its new Haiti cut and sew facility during the quarter. This facility is now fully staffed, and its output per week continues to rise as employees gain more experience through extensive training that takes place over several months.

Despite changing consumer spending trends affecting the residential home furnishings industry, the CUF business remains well-positioned for the long term with its scalable global platform and innovative product offerings, including its popular portfolio of LiveSmart® performance products.

Balance Sheet

As of July 31, 2022, the company reported $18.9 million in total cash and investments and no outstanding debt. This compares with $14.6 million in total cash and investments and no outstanding debt as of the end of fiscal 2022.

Cash flow from operations and free cash flow were $5.3 million and $4.5 million, respectively, for the first three months of fiscal 2023, compared with cash flow from operations and free cash flow of $1.6 million and negative $(782,000), respectively, for the first three months of fiscal 2022. (See reconciliation table at the back of this press release.)

The company’s cash flow from operations and free cash flow during the first quarter of fiscal 2023 were favorably affected by working capital management, including an increase in accounts payable primarily associated with the company’s operations in China as COVID-related restrictions were lifted during the quarter; reductions in inventory; and lower capital expenditures.

Dividends and Share Repurchases

To preserve liquidity and support future growth opportunities, the company’s Board of Directors suspended the company’s quarterly cash dividend on its common stock in June of 2022.

The company did not repurchase any shares during the first quarter of fiscal 2023, leaving approximately $3.2 million available under the current share repurchase program as of July 31, 2022. Despite the current share repurchase authorization, the company does not expect to repurchase any shares during the second quarter of fiscal 2023.

Conference Call

Culp, Inc. will hold a conference call to discuss financial results for the first quarter of fiscal 2023 on September 1, 2022, at 11:00 a.m. Eastern Time. A live webcast of this call can be accessed on the “Upcoming Events” section on the investor relations page of the company’s website, www.culp.com. A replay of the webcast will be available for 30 days under the “Past Events” section on the investor relations page of the company’s website, beginning at 2:00 p.m. Eastern Time on September 1, 2022.

About the Company

Culp, Inc. is one of the world’s largest marketers of mattress fabrics for bedding and upholstery fabrics for residential and commercial furniture. The company markets a variety of fabrics to its global customer base of leading bedding and furniture companies, including fabrics produced at Culp’s manufacturing facilities and fabrics sourced through other suppliers. Culp has manufacturing and sourcing capabilities located in the United States, Canada, China, Haiti, Turkey, and Vietnam.

Forward Looking Statements

This release contains “forward-looking statements” within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934). Such statements are inherently subject to risks and uncertainties that may cause actual events and results to differ materially from such statements. Further, forward looking statements are intended to speak only as of the date on which they are made, and we disclaim any duty to update such statements to reflect any changes in management’s expectations or any change in the assumptions or circumstances on which such statements are based, whether due to new information, future events, or otherwise. Forward-looking statements are statements that include projections, expectations, or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often but not always characterized by qualifying words such as “expect,” “believe,” “anticipate,” “estimate,” “intend,” “plan,” “project,” and their derivatives, and include but are not limited to statements about expectations for our future operations, production levels, new product launches, sales, profit margins, profitability, operating income, capital expenditures, working capital levels, income taxes, SG&A or other expenses, pre-tax income, earnings, cash flow, and other performance or liquidity measures, as well as any statements regarding potential acquisitions, future economic or industry trends, public health epidemics, or future developments. There can be no assurance that we will realize these expectations or meet our guidance, or that these beliefs will prove correct.

Factors that could influence the matters discussed in such statements include the level of housing starts and sales of existing homes, consumer confidence, trends in disposable income, and general economic conditions. Decreases in these economic indicators could have a negative effect on our business and prospects. Likewise, increases in interest rates, particularly home mortgage rates, and increases in consumer debt or the general rate of inflation, could affect us adversely. The future performance of our business depends in part on our success in conducting and finalizing acquisition negotiations and integrating acquired businesses into our existing operations. Changes in consumer tastes or preferences toward products not produced by us could erode demand for our products. Changes in tariffs or trade policy, or changes in the value of the U.S. dollar versus other currencies, could affect our financial results because a significant portion of our operations are located outside the United States. Strengthening of the U.S. dollar against other currencies could make our products less competitive on the basis of price in markets outside the United States, and strengthening of currencies in Canada and China can have a negative impact on our sales of products produced in those places. Also, economic or political instability in international areas could affect our operations or sources of goods in those areas, as well as demand for our products in international markets. The impact of public health epidemics on employees, customers, suppliers, and the global economy, such as the global coronavirus pandemic currently affecting countries around the world, could also adversely affect our operations and financial performance. In addition, the impact of potential goodwill or intangible asset impairments could affect our financial results. Increases in freight costs, labor costs, and raw material prices, including increases in market prices for petrochemical products, can also significantly affect the prices we pay for shipping, labor, and raw materials, respectively, and in turn, increase our operating costs and decrease our profitability. Finally, disruption in our customers’ supply chains for non-fabric components may cause declines in new orders and/or delayed shipping of existing orders while our customers wait for other components, which could adversely affect our financial results. Further information about these factors, as well as other factors that could affect our future operations or financial results and the matters discussed in forward-looking statements, is included in Item 1A “Risk Factors” in our most recent Form 10-K and Form 10-Q reports filed with the Securities and Exchange Commission. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur.

CULP, INC. CONSOLIDATED STATEMENTS OF NET (LOSS) INCOME FOR THREE MONTHS ENDED JULY 31, 2022, AND AUGUST 1, 2021 Unaudited (Amounts in Thousands, Except for Per Share Data)

	THREE MONTHS ENDED
	Amount									Percent of Sales

	July 31,			August 1,			% Over			July 31,			August 1,
	2022			2021			(Under)			2022			2021
Net sales	$	62,604			83,047			(24.6	)%		100.0	%		100.0	%
Cost of sales		(58,476	)		(70,548	)		(17.1	)%		93.4	%		84.9	%
Gross profit		4,128			12,499			(67.0	)%		6.6	%		15.1	%
Selling, general and administrative expenses		(8,866	)		(9,181	)		(3.4	)%		14.2	%		11.1	%
(Loss) income from operations		(4,738	)		3,318			(242.8	)%		(7.6	)%		4.0	%
Interest income		17			74			(77.0	)%		0.0	%		0.1	%
Other expense		(82	)		(237	)		(65.4	)%		0.1	%		0.3	%
(Loss) income before income taxes		(4,803	)		3,155			(252.2	)%		(7.7	)%		3.8	%
Income tax expense (1)		(896	)		(905	)		(1.0	)%		(18.7	)%		28.7	%
Net (loss) income		(5,699	)		2,250			(353.3	)%		(9.1	)%		2.7	%

Net (loss) income per share - basic	$	(0.47	)	$	0.18		N.M.
Net (loss) income per share - diluted	$	(0.47	)	$	0.18		N.M.
Average shares outstanding-basic		12,238			12,313			(0.6	)%
Average shares outstanding-diluted		12,238			12,415			(1.4	)%

Notes
(1)	Percent of sales column for income tax expense is calculated as a % of (loss) income before income taxes.

CULP, INC. CONSOLIDATED BALANCE SHEETS JULY 31, 2022, AUGUST 1, 2021, AND MAY 1, 2022 Unaudited (Amounts in Thousands)

	Amounts
	(Condensed)		(Condensed)								(Condensed)
	July 31,		August 1,		Increase (Decrease)						* May 1,
	2022		2021		Dollars			Percent			2022
Current assets
Cash and cash equivalents	$	18,874		26,061		(7,187	)		(27.6	)%		14,550
Short-term investments - Held-To-Maturity		—		1,661		(1,661	)		(100.0	)%		—
Short-term investments - Available for Sale		—		9,698		(9,698	)		(100.0	)%		—
Accounts receivable		24,812		35,008		(10,196	)		(29.1	)%		22,226
Inventories		63,749		58,613		5,136			8.8	%		66,557
Current income taxes receivable		798		524		274			52.3	%		857
Other current assets		3,840		3,889		(49	)		(1.3	)%		2,986
Total current assets		112,073		135,454		(23,381	)		(17.3	)%		107,176
Property, plant & equipment, net		40,490		43,930		(3,440	)		(7.8	)%		41,702
Right of use assets		14,556		11,447		3,109			27.2	%		15,577
Long-term investments - Rabbi Trust		9,567		8,841		726			8.2	%		9,357
Intangible assets		2,534		2,910		(376	)		(12.9	)%		2,628
Long-term investments - Held-To-Maturity		—		6,629		(6,629	)		(100.0	)%		—
Deferred income taxes		546		455		91			20.0	%		528
Other assets		724		2,582		(1,858	)		(72.0	)%		595
Total assets	$	180,490		212,248		(31,758	)		(15.0	)%		177,563
Current liabilities
Accounts payable - trade		29,097		45,285		(16,188	)		(35.7	)%		20,099
Accounts payable - capital expenditures		346		48		298			620.8	%		473
Operating lease liability - current		3,126		2,727		399			14.6	%		3,219
Deferred revenue		1,368		694		674			97.1	%		520
Accrued expenses		7,158		9,950		(2,792	)		(28.1	)%		7,832
Income taxes payable - current		587		253		334			132.0	%		413
Total current liabilities		41,682		58,957		(17,275	)		(29.3	)%		32,556
Operating lease liability - long-term		6,160		6,665		(505	)		(7.6	)%		7,062
Income taxes payable - long-term		3,118		3,365		(247	)		(7.3	)%		3,097
Deferred income taxes		6,007		4,917		1,090			22.2	%		6,004
Deferred compensation		9,528		8,795		733			8.3	%		9,343
Total liabilities		66,495		82,699		(16,204	)		(19.6	)%		58,062
Shareholders' equity		113,995		129,549		(15,554	)		(12.0	)%		119,501
Total liabilities and shareholders' equity	$	180,490		212,248		(31,758	)		(15.0	)%		177,563
Shares outstanding		12,275		12,276		(1	)		(0.0	)%		12,229

* Derived from audited financial statements.

CULP, INC. SUMMARY OF CASH AND INVESTMENTS JULY 31, 2022, AUGUST 1, 2021, AND MAY 1, 2022 Unaudited (Amounts in Thousands)

	Amounts

	July 31,		August 1,		May 1,
	2022		2021		2022*
*Cash and Investments*
Cash and cash equivalents	$	18,874	$	26,061	$	14,550
Short-term investments - Available for Sale		—		9,698		—
Short-term investments - Held-To-Maturity		—		1,661		—
Long-term investments - Held-To-Maturity		—		6,629		—
Total Cash and Investments	$	18,874	$	44,049	$	14,550

* Derived from audited financial statements.

CULP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED JULY 31, 2022, AND AUGUST 1, 2021 Unaudited (Amounts in Thousands)

	THREE MONTHS ENDED
	Amounts
	July 31,			August 1,
	2022			2021
Cash flows from operating activities:
Net (loss) income	$	(5,699	)	$	2,250
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation		1,770			1,726
Amortization		105			121
Stock-based compensation		252			274
Deferred income taxes		(15	)		(323	)
Gain on sale of equipment		(64	)		—
Foreign currency exchange (gain) loss		(161	)		3
Changes in assets and liabilities:
Accounts receivable		(2,643	)		2,715
Inventories		2,644			(2,676	)
Other current assets		(955	)		(39	)
Other assets		21			(556	)
Accounts payable		9,338			2,723
Deferred revenue		848			154
Accrued expenses and deferred compensation		(413	)		(4,336	)
Income taxes		281			(465	)
Net cash provided by operating activities		5,309			1,571
Cash flows from investing activities:
Capital expenditures		(711	)		(1,953	)
Proceeds from the sale of equipment		166			—
Proceeds from the sale of short-term investments (Held to Maturity)		—			1,967
Purchase of short-term and long-term investments (Held to Maturity)		—			(5,973	)
Purchase of short-term investments (Available for Sale)		—			(4,031	)
Proceeds from the sale of long-term investments (rabbi trust)		23			—
Purchase of long-term investments (rabbi trust)		(236	)		(403	)
Net cash used in investing activities		(758	)		(10,393	)
Cash flows from financing activities:
Dividends paid		—			(1,356	)
Common stock repurchased		—			(723	)
Common stock surrendered for withholding taxes payable		—			(50	)
Payments of debt issuance costs		(161	)		—
Net cash used in financing activities		(161	)		(2,129	)
Effect of exchange rate changes on cash and cash equivalents		(66	)		3
Increase (decrease) in cash and cash equivalents		4,324			(10,948	)
Cash and cash equivalents at beginning of year		14,550			37,009
Cash and cash equivalents at end of period	$	18,874		$	26,061
Free Cash Flow (1)	$	4,485		$	(782	)

Reconciliation of Free Cash Flow (1):

	FY 2023			FY 2022
A) Net cash provided by operating activities	$	5,309			1,571
B) Minus: Capital Expenditures		(711	)		(1,953	)
C) Plus: Proceeds from the sale of equipment		166			—
D) Plus: Proceeds from the sale of long-term investments (rabbi trust)		23			—
E) Minus: Purchase of long-term investments (rabbi trust)		(236	)		(403	)
F) Effects of exchange rate changes on cash and cash equivalents		(66	)		3
Free Cash Flow	$	4,485			(782	)

CULP, INC. STATEMENTS OF OPERATIONS BY SEGMENT FOR THE THREE MONTHS ENDED JULY 31, 2022, AND AUGUST 1, 2021 Unaudited (Amounts in Thousands)

	THREE MONTHS ENDED
	Amounts									Percent of Total Sales
	July 31,			August 1,			% Over			July 31,			August 1,
Net Sales by Segment	2022			2021			(Under)			2022			2021
Mattress Fabrics	$	29,371			43,058			(31.8	)%		46.9	%		51.8	%
Upholstery Fabrics		33,233			39,989			(16.9	)%		53.1	%		48.2	%
Net Sales	$	62,604			83,047			(24.6	)%		100.0	%		100.0	%

Gross Profit										Gross Profit Margin
Mattress Fabrics	$	(37	)		6,795			(100.5	)%		(0.1	)%		15.8	%
Upholstery Fabrics		4,165			5,704			(27.0	)%		12.5	%		14.3	%
Gross Profit	$	4,128			12,499			(67.0	)%		6.6	%		15.1	%

Selling, General and Administrative Expenses by Segment										Percent of Sales
Mattress Fabrics	$	2,885			3,184			(9.4	)%		9.8	%		7.4	%
Upholstery Fabrics		3,622			3,437			5.4	%		10.9	%		8.6	%
Unallocated Corporate expenses		2,359			2,560			(7.9	)%		3.8	%		3.1	%
Selling, General and Administrative Expenses	$	8,866			9,181			(3.4	)%		14.2	%		11.1	%

(Loss) income from operations by Segment										Operating Income Margin
Mattress Fabrics	$	(2,921	)		3,611			(180.9	)%		(9.9	)%		8.4	%
Upholstery Fabrics		542			2,267			(76.1	)%		1.6	%		5.7	%
Unallocated corporate expenses		(2,359	)		(2,560	)		(7.9	)%		(3.8	)%		(3.1	)%
(Loss) income from Operations	$	(4,738	)		3,318			(242.8	)%		(7.6	)%		4.0	%

Return on Capital (1)
Mattress Fabrics		(2.9	)%		19.5	%		(114.9	)%
Upholstery Fabrics		19.6	%		75.9	%		(74.2	)%
Unallocated Corporate	N.M.			N.M.			N.M.
Consolidated		(7.1	)%		15.5	%		(145.8	)%

Capital Employed (1) (2)
Mattress Fabrics	$	78,908			75,548			4.4	%
Upholstery Fabrics		20,291			15,204			33.5	%
Unallocated Corporate		4,251			2,258			88.3	%
Consolidated	$	103,450			93,010			11.2	%

Depreciation Expense by Segment
Mattress Fabrics	$	1,568			1,521			3.1	%
Upholstery Fabrics		202			205			(1.5	)%
Depreciation Expense	$	1,770			1,726			2.5	%

Notes
(1)	See return on capital pages at the back of this presentation for calculations.
(2)	The capital employed balances are as of July 31, 2022, and August 1, 2021.

CULP, INC.

CONSOLIDATED STATEMENTS OF ADJUSTED EBITDA

FOR THE TWELVE MONTHS ENDED JULY 31, 2022, AND AUGUST 1, 2021

Unaudited

(Amounts in Thousands)

Quarter

Ended

Quarter

Ended

Quarter

Ended

Quarter

Ended

Trailing

12 Months

October 31,

January 30,

May 1,

July 31,

2021

2022

Net income (loss)

851

(289

)

(6,023

)

(5,699

)

(11,160

)

Income tax expense

444

1,284

253

896

2,877

Interest income, net

(59

)

(214

)

(26

)

(17

)

(316

)

Depreciation expense

1,745

1,732

1,791

1,770

7,038

Amortization expense

146

150

142

105

543

Stock based compensation

435

171

253

252

1,111

Adjusted EBITDA

3,562

2,834

(3,610

)

(2,693

)

% Net Sales

4.8

3.5

(6.3

(4.3

0.0

Quarter

Ended

Quarter

Ended

Quarter

Ended

Quarter

Ended

Trailing

12 Months

November 1,

January 31,

May 2,

August 1,

2020

2021

Net income

2,384

2,082

1,485

2,250

8,201

Income tax expense

1,613

899

857

905

4,274

Interest income, net

(59

)

(90

)

(36

)

(74

)

(259

)

Gain on bargain purchase

—

(819

)

—

(819

)

Depreciation expense

1,716

1,665

1,643

1,726

6,750

Amortization expense

117

115

116

121

469

Stock based compensation

348

292

485

274

1,399

Adjusted EBITDA

6,119

4,963

3,731

5,202

20,015

% Net Sales

8.0

6.3

4.7

6.3

% Over (Under)

(41.8

(42.9

(196.8

(151.8

(99.5

CULP, INC.

RETURN ON CAPITAL EMPLOYED BY SEGMENT

FOR THE TWELVE MONTHS END JULY 31, 2022

Unaudited

(Amounts in Thousands)

Adjusted

Operating (Loss) Income

Twelve Months

Average

Return on

Ended

Capital

Avg. Capital

July 31, 2022 (1)

Employed (3)

Employed (2)

Mattress Fabrics

(2,319

)

80,780

(2.9

Upholstery Fabrics

3,900

19,936

19.6

Unallocated Corporate

(8,959

)

3,567

N.M.

Total

(7,378

)

104,283

(7.1

Average Capital Employed

As of the three Months Ended July 31, 2022

As of the three Months Ended May 1, 2022

As of the three Months Ended January 30, 2022

Mattress

Upholstery

Unallocated

Mattress

Upholstery

Unallocated

Mattress

Upholstery

Unallocated

Fabrics

Corporate

Total

Fabrics

Corporate

Total

Fabrics

Corporate

Total

Total assets (4)

90,842

51,053

38,595

180,490

92,609

51,124

33,830

177,563

103,370

67,272

40,925

211,567

Total liabilities

(11,934

)

(30,762

)

(23,799

)

(66,495

)

(8,569

)

(25,915

)

(23,578

)

(58,062

)

(16,540

)

(45,596

)

(22,697

)

(84,833

)

Subtotal

78,908

20,291

14,796

113,995

84,040

25,209

10,252

119,501

86,830

21,676

18,228

126,734

Cash and cash equivalents

—

(18,874

)

(18,874

)

—

(14,550

)

(14,550

)

—

(11,780

)

(11,780

)

Short-term investments - Available-For-

Sale

—

(438

)

(438

)

Short-term investments - Held-To-

Maturity

—

(1,315

)

(1,315

)

Current income taxes receivable

—

(798

)

(798

)

—

(857

)

(857

)

—

(367

)

(367

)

Long-term investments - Held-To-Maturity

—

(8,677

)

(8,677

)

Long-term investments - Rabbi Trust

—

(9,567

)

(9,567

)

—

(9,357

)

(9,357

)

—

(9,223

)

(9,223

)

Deferred income taxes - non-current

—

(546

)

(546

)

—

(528

)

(528

)

—

(500

)

(500

)

Income taxes payable - current

—

587

—

413

—

240

Income taxes payable - long-term

—

3,118

—

3,097

—

3,099

Deferred income taxes - non-current

—

6,007

—

6,004

—

5,484

Deferred compensation

—

9,528

—

9,343

—

9,180

Total Capital Employed

78,908

20,291

4,251

103,450

84,040

25,209

3,817

113,066

86,830

21,676

3,931

112,437

CULP, INC.

RETURN ON CAPITAL EMPLOYED BY SEGMENT - CONTINUED

FOR THE TWELVE MONTHS ENDED JULY 31, 2022

Unaudited

(Amounts in Thousands)

As of the three Months Ended October 31, 2021

As of the three Months Ended August 1, 2021

Mattress

Upholstery

Unallocated

Mattress

Upholstery

Unallocated

Fabrics

Corporate

Total

Fabrics

Corporate

Total

Total assets (4)

97,390

55,862

56,073

209,325

96,846

55,187

60,215

212,248

Total liabilities

(18,818

)

(38,560

)

(23,493

)

(80,871

)

(21,298

)

(39,983

)

(21,418

)

(82,699

)

Subtotal

78,572

17,302

32,580

128,454

75,548

15,204

38,797

129,549

Cash and cash equivalents

—

(16,956

)

(16,956

)

—

(26,061

)

(26,061

)

Short-term investments - Available-

For -Sale

—

(9,709

)

(9,709

)

—

(9,698

)

(9,698

)

Short-term investments - Held-

To-Maturity

—

(1,564

)

(1,564

)

—

(1,661

)

(1,661

)

Current income taxes receivable

—

(613

)

(613

)

—

(524

)

(524

)

Long-term investments - Held-To-Maturity

—

(8,353

)

(8,353

)

—

(6,629

)

(6,629

)

Long-term investments - Rabbi Trust

—

(9,036

)

(9,036

)

—

(8,841

)

(8,841

)

Deferred income taxes - non-current

—

(452

)

(452

)

—

(455

)

(455

)

Income taxes payable - current

—

646

—

253

Income taxes payable - long-term

—

3,099

—

3,365

Deferred income taxes - non-current

—

4,918

—

4,917

Deferred compensation

—

9,017

—

8,795

Total Capital Employed

78,572

17,302

3,577

99,451

75,548

15,204

2,258

93,010

Mattress

Upholstery

Unallocated

Fabrics

Corporate

Total

Average Capital Employed (3)

80,780

19,936

3,567

104,283

Notes
(1)	See last page of this presentation for calculation.
(2)	Return on average capital employed represents the last twelve months operating income as of July 31, 2022, divided by average capital employed. Average capital employed does not include cash and cash equivalents, short-term investments Available-For-Sale, short-term and long-term investments Held-To-Maturity, long-term investments – Rabbi Trust, income taxes receivable and payable, noncurrent deferred income tax assets and liabilities, and deferred compensation.
(3)	Average capital employed was computed using the five quarterly periods ending July 31, 2022, May 1, 2022, January 30, 2022, October 31, 2021, and August 1, 2021.
(4)	Intangible assets are included in unallocated corporate for all periods presented and therefore, have no effect on capital employed and return on capital employed for our mattress fabrics and upholstery fabrics segments.

CULP INC.

RETURN ON CAPITAL EMPLOYED BY SEGMENT

FOR THE TWELVE MONTHS ENDED AUGUST 1, 2021

Unaudited

(Amounts in Thousands)

Adjusted

Operating Income (Loss)

Twelve Months

Average

Return on

Ended

Capital

Avg. Capital

August 1, 2021 (1)

Employed (3)

Employed (2)

Mattress Fabrics

13,564

69,590

19.5

Upholstery Fabrics

12,030

15,851

75.9

Unallocated Corporate

(12,082

)

1,905

N.M.

Total

13,512

87,347

15.5

Average Capital Employed

As of the three Months Ended August 1, 2021

As of the three Months Ended May 2, 2021

As of the three Months Ended January 31, 2021

Mattress

Upholstery

Unallocated

Mattress

Upholstery

Unallocated

Mattress

Upholstery

Unallocated

Fabrics

Corporate

Total

Fabrics

Corporate

Total

Fabrics

Corporate

Total

Total assets (4)

96,846

55,187

60,215

212,248

97,861

53,875

62,344

214,080

91,842

52,803

67,333

211,978

Total liabilities

(21,298

)

(39,983

)

(21,418

)

(82,699

)

(22,410

)

(38,709

)

(23,955

)

(85,074

)

(21,503

)

(38,061

)

(24,052

)

(83,616

)

Subtotal

75,548

15,204

38,797

129,549

75,451

15,166

38,389

129,006

70,339

14,742

43,281

128,362

Cash and cash equivalents

—

(26,061

)

(26,061

)

—

(37,009

)

(37,009

)

—

(35,987

)

(35,987

)

Short-term investments - Available-For-Sale

—

(9,698

)

(9,698

)

—

(5,542

)

(5,542

)

—

(5,548

)

(5,548

)

Short-term investments - Held-To-Maturity

—

(1,661

)

(1,661

)

—

(3,161

)

(3,161

)

—

(9,785

)

(9,785

)

Current income taxes receivable

—

(524

)

(524

)

—

Long-term investments - Held-To-Maturity

—

(6,629

)

(6,629

)

—

(1,141

)

(1,141

)

—

(512

)

(512

)

Long-term investments - Rabbi Trust

—

(8,841

)

(8,841

)

—

(8,415

)

(8,415

)

—

(8,232

)

(8,232

)

Deferred income taxes - non-current

—

(455

)

(455

)

—

(545

)

(545

)

—

(640

)

(640

)

Income taxes payable - current

—

253

—

229

—

1,129

Income taxes payable - long-term

—

3,365

—

3,326

—

3,325

Deferred income taxes - non-current

—

4,917

—

5,330

—

5,543

Deferred compensation

—

8,795

—

8,365

—

8,179

Total Capital Employed

75,548

15,204

2,258

93,010

75,451

15,166

(174

)

90,443

70,339

14,742

753

85,834

CULP INC.

RETURN ON CAPITAL EMPLOYED BY SEGMENT - CONTINUED

FOR THE TWELVE MONTHS ENDED AUGUST 1, 2021

Unaudited

(Amounts in Thousands)

As of the three Months Ended November 1, 2020

As of the three Months Ended August 2, 2020

Mattress

Upholstery

Unallocated

Mattress

Upholstery

Unallocated

Fabrics

Corporate

Total

Fabrics

Corporate

Total

Total assets (4)

83,667

46,837

72,272

202,776

79,016

41,239

64,332

184,587

Total liabilities

(21,628

)

(30,287

)

(23,610

)

(75,525

)

(14,444

)

(23,644

)

(20,630

)

(58,718

)

Subtotal

62,039

16,550

48,662

127,251

64,572

17,595

43,702

125,869

Cash and cash equivalents

—

(45,288

)

(45,288

)

—

(39,986

)

(39,986

)

Short-term investments - Available-For-Sale

—

(5,462

)

(5,462

)

—

(983

)

(983

)

Short-term investments - Held-To-Maturity

—

(5,005

)

(5,005

)

—

(5,092

)

(5,092

)

Current income taxes receivable

—

(782

)

(782

)

Long-term investments - Held-To-Maturity

—

(759

)

(759

)

—

(1,314

)

(1,314

)

Long-term investments - Rabbi Trust

—

(8,060

)

(8,060

)

—

(7,916

)

(7,916

)

Deferred income taxes - non-current

—

(645

)

(645

)

—

(593

)

(593

)

Income taxes payable - current

—

1,413

—

613

Income taxes payable - long-term

—

3,325

—

3,591

Deferred income taxes - non-current

—

6,089

—

5,311

Deferred compensation

—

8,000

—

7,869

Total Capital Employed

62,039

16,550

2,270

80,859

64,572

17,595

4,420

86,587

Mattress

Upholstery

Unallocated

Fabrics

Corporate

Total

Average Capital Employed (3)

69,590

15,851

1,905

87,347

Notes
(1)	See last page of this presentation for calculation.
(2)	Return on average capital employed represents the last twelve months operating income as of August 1, 2021, divided by average capital employed. Average capital employed does not include cash and cash equivalents, short-term investments Available-For-Sale, short-term and long-term investments Held-To-Maturity, long-term investments – Rabbi Trust, income taxes receivable and payable, noncurrent deferred income tax assets and liabilities, and deferred compensation.
(3)	Average capital employed was computed using the five quarterly periods ending August 1, 2021, May 2 2021, January 31, 2021, November 1, 2020, and August 2, 2020.
(4)	Intangible assets and goodwill are included in unallocated corporate for all periods presented and therefore, have no effect on capital employed and return on capital employed for our mattress fabrics and upholstery fabrics segments.

CULP INC.

CONSOLIDATED STATEMENTS OF ADJUSTED OPERATING INCOME (LOSS)

FOR THE TWELVE MONTHS ENDED JULY 31, 2022, AND AUGUST 1, 2021

Unaudited

(Amounts in Thousands)

Quarter Ended

Trailing 12

Months

10/31/2021

1/30/2022

5/1/2022

7/31/2022

Mattress Fabrics

3,139

364

(2,901

)

(2,921

)

(2,319

)

Upholstery Fabrics

1,028

2,446

(116

)

542

3,900

Unallocated Corporate

(2,527

)

(1,707

)

(2,366

)

(2,359

)

(8,959

)

Operating income

(loss)

1,640

1,103

(5,383

)

(4,738

)

(7,378

)

Quarter Ended

Trailing 12

Months

11/1/2020

1/31/2021

5/2/2021

8/1/2021

Mattress Fabrics

4,382

3,297

2,274

3,611

13,564

Upholstery Fabrics

3,287

3,863

2,613

2,267

12,030

Unallocated Corporate

(3,151

)

(3,123

)

(3,248

)

(2,560

)

(12,082

)

Operating income

4,518

4,037

1,639

3,318

13,512

% Over (Under)

(63.7

(72.7

(428.4

(242.8

(154.6

Contacts

Investor Contact:
Kenneth R. Bowling
Chief Financial Officer
336-881-5630

Media Contact:
Teresa A. Huffman
Chief Human Resources Officer
336-889-5161

Contacts

Contacts

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