Culp, Inc. (CULP) on Q4 2021 Results - Earnings Call Transcript
Dru Anderson: Thank you. Good morning, and welcome to the Culp conference call to review the company's results for the fourth quarter and fiscal 2021. As we start, let me state that this morning's call will contain forward-looking statements about the business, financial condition and prospects of the company. Forward-looking statements are statements that include projections, expectations or beliefs about future events or results, or otherwise are not statements of historical fact. The actual performance of the company could differ materially from that indicated by the forward-looking statements because of various risks and uncertainties.
Iv Culp: Good morning, and thank you all for joining us today. I would like to welcome you to the Culp quarterly conference call with analysts and investors. With me on the call today are Ken Bowling, our Chief Financial Officer; and Boyd Chumbley, President of our Upholstery Fabrics business. I will begin the call with some opening comments, and Ken will then review the financial results for the quarter and the full year. I will then update you on the strategic actions in each of our operating segments. And after that, Ken will review our first quarter and fiscal 2022 full year business outlook. We will then be happy to take your questions. We are pleased to have delivered a strong fourth quarter with dramatic sales growth across both our divisions and consolidated operating income in line with expectations. Despite some ongoing headwinds, we ended a tumultuous year with strength and momentum. Demand remained strong during the quarter as consumer focus on the home continued in our robust global platform, utilizing our manufacturing and sourcing capabilities across six countries and our long term supplier relationships, enabled us to service the surge in demand for fabric and sewn covers from both new and existing customers. For the full year, we overcame tremendous adversity to deliver strong growth in sales and operating performance compared to the prior year. Our company's solid foundation, stable supply chain and spirit of innovation, helped us to successfully weather the initial pandemic related downturn in our business at the end of last fiscal year and capitalize on share opportunities throughout fiscal 2021.
Ken Bowling: Thanks, Iv. As mentioned earlier on the call, we have posted slide presentations to our Investor Relations Web site that cover key performance measures. We have also posted our capital allocation strategy. As a reminder, we present our results on both a GAAP and non-GAAP basis. We believe the non-GAAP presentation better reflects performance of the business as we compare our financial results among comparable financial periods. A reconciliation of the non-GAAP adjustments to the most directly comparable GAAP measurement is included in the tables in our press release and in the tables at the back of the summary financial presentation on our Web site. Here are the financial highlights for the fourth quarter. Net sales were $79.1 million, up 67% compared to the prior year period. Both the business had a strong sales performance for the quarter. Iv will go into more detail on divisional operational performance in a moment. The company reported income from continuing operations of $1.6 million compared with a loss of continuing operations of $18 million for the prior year period, which included $13.7 million in noncash asset impairment charges. Non-GAAP net income from continuing operations for the fourth quarter was $1.4 million or $0.11 per diluted share, which excludes an $819,000 gain on bargain purchase associated with our fourth quarter acquisition of the remaining 50% ownership interest in our former unconsolidated joint venture located in Haiti as well as $742,000 in certain income tax adjustments for the quarter. This compares with a non-GAAP net loss from continuing operations of $5.3 million or $0.43 per diluted share for the prior year period, which excludes $13.7 million in noncash asset impairment charges and $2.8 million in income tax expense. The current quarter was affected by operating inefficiencies incurred in connection with servicing the surge in demand in our mattress fabrics business, along with higher freight and raw material costs, unfavorable foreign exchange rate fluctuations and higher SG&A expenses due primarily to increased incentive compensation costs. On a percent of sales basis, total SG&A came in at 12.8% compared to 15.5% for the same period a year ago.
Iv Culp: Thanks, Ken. I will begin with the mattress fabrics business. We were energized by significant growth and top line performance for the mattress fabrics segment during the fourth quarter. Our increase in sales of 84% year-over-year compared to the prior year period, as well as our top line growth for the full fiscal year of 20% year-over-year was driven by the ongoing consumer focus on the home environment and market share gains across a diversified group of new and existing customers, including further growth in our sewn mattress cover business. Our fabric to cover model as well as our onshore, nearshore and offshore supply chain strategy is preferred. The strength and flexibility of our global manufacturing and sourcing operations in the US, Canada, Haiti, Asia and Turkey, enabled us to support strong demand trends and serve the needs of our mattress fabric and cover customers during the fourth quarter and throughout fiscal 2021. We also continue to benefit from our innovation focus and our virtual design capabilities, including our re.imagined Culp Home Fashions 3D rendering services, which allowed us to strengthen our position with customers and capitalize on market share opportunities. In addition, we believe the domestic mattress industry, and in turn, our business continue to realize some benefits during the fourth quarter from the preliminary antidumping duties imposed in October 2020 by the US Department of Commerce on mattress and imports from seven countries. We are cautiously optimistic that this tailwind will continue during fiscal 2022. As we look ahead into fiscal 2022, we are excited about the expanding depth and expertise of our team with additional engineering and innovation development experience. The importance of mattress product performance has grown exponentially in recent years and we believe this added knowledge is an important factor in maintaining the competitive advantage. We are also excited about a recent introduction of our new mattress fabric ChillSense powered by REPREVE that combines cooling technology with a sustainability focus, and reflects our commitment to developing products that are better for the environment. Although there are lingering pressures heading into fiscal 2022, we believe we are well positioned in mattress fabrics to gain market share. And we expect our solid top line performance to continue at improved profitability levels during the year. We have the ability to leverage our creative designs, innovative products, digital marketing strategies and global production capabilities to enhance our leadership position and sustain Culp's competitive advantage. I'll now turn for a few comments on the upholstery fabrics segment. We were very pleased by the strong growth in sales during the fourth quarter, up 50% year-over-year and for the full fiscal year, up 14% year-over-year. We successfully navigated the significant headwinds we were facing going into the quarter, including customer supply chain constraints and container availability, as well as the impact of Chinese New Year to deliver better than expected results. We executed well on our product driven strategy and benefited from the strength and flexibility of our platform in Asia, including our stable, long term supplier relationships and our expanded cut and sew capabilities in Vietnam. Our growth for the fourth quarter and for fiscal 2021 year was driven by strong industry demand in our residential business, as well as the benefits of market share gains and product innovation. This growth was partially offset by lower sales for our hospitality business, which remained under pressure due to pandemic related disruptions affecting the travel and leisure industries. Our highly durable stain-resistant LiveSmart performance fabrics, as well as our LiveSmart Evolve performance plus sustainability fabrics are important drivers of growth in our residential business. These product lines continue to experience strong demand trends amidst consumer desire for cleanability, ease of maintenance and environmentally conscious products. Looking ahead, we are confident in our strong backlog and our ability to meet the ongoing demand. We believe our recent price increase at the end of the fourth quarter will help offset the ongoing China foreign exchange fluctuations. We are also excited to be expanding our capacity for cut and sewn upholstery kits with a new production facility in Haiti, which is expected to be completed during the second quarter of fiscal 2022. And while we do expect that certain near term headwinds, including rising freight and raw material costs, may temporarily pressure our business during fiscal 2022, we are confident in our ability to navigate these headwinds and believe our business is well positioned for the long term. We are also cautiously optimistic that pent up demand for travel and leisure activities will benefit our hospitality business although the timing of this does remain uncertain. Above all, we remain focused on providing innovative products that meet the changing demands of our valued customers. And now Ken will discuss the general outlook for the first quarter and full fiscal year 2022, and we'll then take some questions.
Ken Bowling: Although subject to uncertainties, we are encouraged by the execution of our product driven strategy and the continued strength of demand for home furnishing products, as well as our expanding market share reach. We expect sales for the first quarter of fiscal 2022 to increase approximately 20% compared to the prior year period, and we expect our consolidated operating income for the quarter to be significantly improve as compared to the prior year period and as compared to the fourth quarter of fiscal 2021. For the full fiscal 2022 year, we expect net sales to continue to increase moderately and consolidated operating income to increase significantly as compared to fiscal 2021. Notably, our expectations for the first quarter and full fiscal 2022 year are based on information that is available at the time of this webcast presentation and reflects certain assumptions by management regarding our business and trends. The outlook assumes there will be no further pandemic related shutdowns and no material changes in freight and raw material costs, foreign currency exchange rates, recent consumer trends or other circumstances beyond the company's control. Additionally, based on current expectations, capital expenditures for fiscal 2022 are expected to be in the $9 million to $10 million range. Our capital investments will focus on our ongoing strategy of maintenance CapEx, centered in our mattress fabrics business, as well as spending in our upholstery fabrics business with investments in Read Windows and our new Haiti startup. At the corporate level, CapEx spending will include implements in IT infrastructure and security, as well as our new innovation campus in High Point, North Carolina. Depreciation and amortization is expected to be approximately $7.5 million to $8 million for fiscal 2022. With that, we'll now take your questions.
Operator:
