CULP INC SEC 10-K Report

CULP INC, a leading manufacturer of mattress and upholstery fabrics, has released its Form 10-K report for fiscal 2025. The report provides a comprehensive overview of the company's financial performance, business operations, strategic initiatives, and the challenges it faces in the current market environment. The company has undertaken significant restructuring efforts to enhance operational efficiency and align its business model with evolving market conditions.

Financial Highlights

• Net Sales: $213.2 million, a decrease of 5.4% from the previous year due to lower demand in both mattress and upholstery fabrics segments.
• Gross Profit: $25.1 million, representing a gross profit margin of 11.8%, down from 12.4% in the prior year, reflecting lower sales and increased restructuring expenses.
• Loss from Operations: $(18.4) million, a 62.5% increase in loss compared to the previous year, primarily due to restructuring expenses and decreased sales.
• Net Loss: $(19.1) million, increased by 38.2% from the previous year, impacted by restructuring costs and a challenging macroeconomic environment.
• Net Loss Per Share - Basic and Diluted: $(1.53), compared to $(1.11) in the previous year, reflecting the increased net loss.

Business Highlights

• Revenue Segments: The company's operations are divided into two main segments: mattress fabrics and upholstery fabrics. In fiscal 2025, mattress fabrics accounted for 53% of total net sales, while upholstery fabrics made up 47%.
• Geographical Performance: The United States remains the largest market, contributing 67.4% of total net sales in fiscal 2025. Other significant regions include North America (excluding the USA) at 15.4% and the Far East and Asia at 14.3%.
• Sales Units: The mattress fabrics segment experienced a 2.1% decrease in net sales, while the upholstery fabrics segment saw an 8.8% decline, reflecting challenges in consumer spending and housing market trends.
• New Production Launches: The company completed a restructuring plan in fiscal 2025, which included consolidating North American mattress fabrics operations and transitioning to a strategic sourcing model for weaving operations.
• Future Outlook: The company anticipates continued pressure on consumer spending and housing market trends, which may impact sales. However, the completion of the Fiscal 2025 restructuring is expected to provide operational flexibility and efficiency improvements.
• Operational Efficiency: The Fiscal 2025 restructuring led to significant fixed cost reductions and efficiency gains, particularly in the mattress fabrics segment, which improved operating performance despite challenging market conditions.
• Strategic Sourcing: The transition to a strategic sourcing model for the mattress fabrics segment's weaving operations is expected to enhance competitiveness and value for customers.
• Market Trends: The company is focusing on winning market share and generating sales growth in the mattress fabrics business, leveraging expanded U.S. production capabilities and strategic sourcing relationships in Turkey, Vietnam, and China.

Strategic Initiatives

• Strategic Transformation: The company announced a strategic transformation to integrate its mattress and upholstery fabrics segments into a more cohesive Culp-branded business. This includes closing the Burlington, North Carolina facility and consolidating operations into the Stokesdale, North Carolina facility.
• Restructuring Activities: The company completed restructuring activities, including the sale of its Quebec, Canada property, and transitioned its mattress fabrics segment to a strategic sourcing model.
• Capital Management: The company did not pay any dividends during fiscal 2025, 2024, or 2023, following the suspension of its quarterly cash dividend program in June 2022 to preserve capital. The company also did not repurchase any shares of its common stock during fiscal 2025 and 2024, despite having an authorization to acquire up to $5.0 million of its common stock. As of April 27, 2025, $3.2 million was available for additional repurchases. The company had outstanding borrowings of $12.7 million under its line of credit agreements and maintained compliance with financial covenants.
• Future Outlook: The company plans to complete the transition of its upholstery fabrics operations to the Stokesdale facility by December 31, 2025, as part of its strategic transformation. It anticipates that the restructuring will lead to cost savings and operational improvements. The company expects to record a gain from the sale of its Quebec property in the first quarter of fiscal 2026. Additionally, the company is focused on maintaining liquidity through cash flow from operations, proceeds from asset sales, and available credit lines to support its business needs and restructuring activities.

Challenges and Risks

• Global Supply Chains: Culp faces significant challenges due to its reliance on global supply chains, particularly in China, Vietnam, and Turkey. The ongoing global trade negotiations and related tariff and import control measures have impacted industry pricing and supply chain dynamics, which may continue to pressure demand for the company's products.
• Macroeconomic and Market Risks: Continued economic uncertainty, inflationary pressures, and geopolitical events such as the Russia/Ukraine war and conflicts in the Middle East could negatively affect sales and earnings. The company also faces intense competition from low-cost foreign producers, which has led to deflationary pressures on product prices and challenges in passing increased operating costs to customers.
• Operational Risks: Potential disruptions from political instability, natural disasters, and public health concerns, particularly in regions where Culp operates, such as Haiti and China, pose significant risks. The company is also exposed to risks related to increased tariffs and changes in U.S. trade policy, which could affect the cost and availability of imported products.
• Strategic and Operational Initiatives: Management has identified several strategic initiatives to address these challenges, including the restructuring plan completed in fiscal 2025 to reduce costs and improve asset utilization. The integration of the company's operating divisions into a single business aims to optimize operational agility and streamline costs. However, there is no assurance that these initiatives will be successful or that the costs will not outweigh the benefits.
• Technology and Innovation: The company is investing in technology and innovation to enhance its competitive position, but increased dependence on information technology systems comes with risks of cybersecurity breaches and data leaks.
• Market Risks: Culp is exposed to market risks, including fluctuations in foreign currency exchange rates, which can affect financial results due to the company's significant operations outside the U.S. Strengthening of the U.S. dollar could make Culp's products less competitive internationally, and changes in currency values could impact sales and profitability. The company also faces risks related to interest rate increases, which could raise borrowing costs and affect liquidity.

SEC Filing: CULP INC [ CULP ] - 10-K - Jul. 11, 2025