Culp, Inc. Q2 FY2026 earnings call

1. Restructuring Initiatives: Completed restructuring in fiscal '25 including consolidating North American bedding ops, closing and selling Canada facility, expanding U.S. knitting/finish capacity, consolidating Haiti cut and sew, reducing bedding workforce by ~35%, rationalizing China upholstery finishing, and reducing SG&A. Expect ~$11M annualized cost savings. 2. Integration and Cost Reductions: Project Blaze to integrate divisions, transitioning U.S. upholstery distribution/window treatment to owned campus in NC, expecting ~$3.5M annualized savings. Implemented price adjustments in bedding to address tariffs, expecting ~$2.5M annualized margin improvement starting in late Q2. 3. Inventory Management: Rightsized inventory, recognizing noncash impairments in Q2, focusing on turning aged inventory into cash and filling warehouse with strategic inventory.

Bedding Segment: Second quarter sales were $30.8 million, up ~10% sequentially from the first quarter and up over 2% compared to the prior year period. The restructured cost platform drove a gross profit of $3.1 million (10.1% of sales), a 200 basis point improvement from the prior year period. Upholstery Segment: Second quarter sales were $22.4 million, sequentially flat with the first quarter and down approximately 12% compared to the prior year period. Gross profit in the upholstery segment was $3.6 million (16.1% of sales), down from $4.3 million (16.9% of sales) in the prior year period.

1. Expect steady consolidated sales in Q3 and remainder of fiscal '26, with higher expectations for bedding. 2. Cost and efficiency benefits to drive improving gross profit, lower SG&A, resulting in continued significant improvement in operating loss and near breakeven to positive adjusted EBITDA for Q3. 3. Anticipate ~$4.7M from sale of Canada facility possibly received earlier, and will aggressively manage liquidity and capex to prioritize free cash flow.

1. Tariff Volatility: Unpredictable tariff changes in regions like Turkey and Haiti, with a lag of ~60 days to adjust strategies or pass on prices. 2. Macro Conditions: Persistent low consumer confidence, housing market challenges, and industry-wide softness affecting sales across segments.

Q: I was encouraged to see the free cash flow breakeven and the use from cash from operations -- the cash used from operations being cut in half. So all the work you're doing is starting to come through, and I'm just trying to get a feel for where we are in the realization of all these cost savings.

A: Robert Culp said it's coming in different phases, with the Canada facility sale helping this year, price adjustments for tariffs starting to impact in late Q2, and new tariffs' surcharges effective in late Q3 and Q4. Fiscal '27 expected to be a clean position.

Q: Is there any way -- have you done any math on what the incremental margin would be on the next point of sales growth? So as sales start to move up, what would be the contribution margin from that incremental point of sales?

A: Ken Bowling said they've got significant buildup leverage in ability to capitalize on sales growth, with SG&A fixed and ability to retain incremental sales dollars based on current platform.

Q: Can you give us a feel for when were those new tariffs in Turkey and Haiti implemented? And when do you think you'll be able to benefit from whatever mitigation efforts you put in place for them?

A: Robert Culp said tariffs in Turkey and Haiti changed suddenly, with a lag of ~60 days to adjust strategies or pass on prices; starting to see some neutralization of Asian tariffs but timing remains an issue.