Culp, Inc. Q4 FY2025 earnings call

• Restructuring in 2025: Completed a plan reducing fixed costs in mattress fabrics (facility closures/consolidations, asset-light sourcing for Damask fabrics) and upholstery fabrics (outsourcing finishing in China), realizing $10-11M annualized savings.
• Integration initiative (Project Blaze): Consolidating mattress and upholstery divisions, aiming for $3M annualized savings, with facility closures and shared management. Price increases of ~$2.5M annual benefit phasing in.
• Tariff impacts: Upholstery sales hit by China tariffs and low residential furniture demand; mattress fabrics grew share despite industry decline, benefiting from diversified manufacturing/sourcing.

Mattress fabrics segment: Q4 sales were $27.1 million, up 5.3% year-over-year; full-year sales were $113.9 million, down 2.1% year-over-year. Operating loss in Q4 was $217,000 compared to $2.9 million in the prior year, and full-year operating loss was $5.2 million vs. $6.8 million in fiscal 2024. Upholstery fabrics segment: Q4 sales were $21.7 million, down 8.9% year-over-year; full-year sales were $99.3 million, down 8.8% year-over-year. Operating income in Q4 was $1.1 million vs. $975,000 in the prior year, and full-year operating income was $4.1 million vs. $5.8 million in fiscal 2024.

• No specific financial guidance, but anticipate mattress fabrics growth, continued impact of restructuring savings, integration benefits phasing in Q2-Q4 2026, and price increases fully impacting after Q1 2026.

• Tariff uncertainty affecting upholstery sales and residential furniture demand.
• Macro-economic uncertainty impacting overall market demand.
• Dependence on China for upholstery fabric manufacturing with tariff and supply chain risks.

Q: Could you talk a little bit about the cadence of business across mattress residential upholstery and the commercial upholstery and fabrics side of the businesses?

A: Encouraged about mattress fabrics business with backlog and share gains; solid pipeline in hospitality upholstery; residential upholstery tough due to slow demand.

Q: Do you have any sense on sort of like how tariffs specifically have been impacting the end customer demand across your segments?

A: Prices pushed to consumers, but tariff uncertainty is one factor in a market with inflation/interest rate uncertainty.

Q: One of the things that you guys mentioned in the release was the change in your approach to inventory markdowns. Could you maybe explain a little bit what's going on there and how that impacted the quarter and how that might impact '26 as we move through the year?

A: Adjusted markdowns to align with pricing, generated $1.7M benefit in Q4; will balance markdowns with pricing going forward.

Q: Given the macro environment and given liquidity and cash flow projections at this point, how aggressive are you guys going to be on the debt paydown side?

A: Will pay down debt as quickly as possible, prioritizing working capital needs but aggressive on debt reduction when possible.

Q: What are the growth investments in terms of like new products and markets that you're going to be focused on prioritizing in '26?

A: Mattress fabrics, hospitality business (window treatments, fabrics), managing residential upholstery while focusing on growth areas.