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Culp margins up, sales down

By Furniture Today Staff -- Furniture Today, March 2, 2003

High Point — Textile major Culp Inc. reported a sharp increase in gross margin in its third quarter ended Jan. 26, although sales were down 12.5% to $79.3 million.

The company said its gross margin was up from 14.9% a year ago to 18.3%, excluding restructuring-related charges, its highest third-quarter gross margin in 15 years.

Net income in the quarter was $1.7 million, up from $170,000 in the same quarter a year ago.

Third-quarter sales in the upholstery segment, which includes Culp Decorative Fabrics, Culp Velvets/Prints and Culp Yarn, were $55.9 million, down 15.1% from $65.8 million in last year's comparable quarter.

In the mattress ticking segment (Culp Home Fashions), third-quarter sales were $23.4 million, down 5.6% from $24.8 million last year.

"Our strategic focus is on improving the profitability of our sales mix, increasing margins and return on invested capital, and generating free cash flow," said Rob Culp III, chief executive officer.

The company reported an increase in its third-quarter cash position to $38.5 million, up from $10.4 million a year ago, after repayment of $12.3 million in debt during the first nine months of its fiscal year.

"With the build-up in our cash position," Culp said, "we intend to further strengthen our balance sheet by prepaying an additional $12.7 million in debt during the fourth quarter. As a result, we will reduce our long-term debt by a total of $25 million in fiscal 2003, a significant accomplishment."

In the past year, Culp has exited the wet flock business, closed a plant in Tennessee, and reduced by about half the number of SKUs of its less-profitable finished goods.

For the nine months, the company reported sales of $248.8 million, down 9% from $273.5 million the previous year. Excluding restructuring and related charges and the cumulative effect of an accounting change, Culp said net income for the nine months was $5.1 million, compared with $447,000 last year. With the charges, Culp had a net loss of $28.2 million, compared to a net loss of $1.9 million in last year's nine months.

Culp Inc.
Earnings per share are fully diluted, and all figures in parentheses are loses or declines.
Quarter ended 1/26	2003	2002	Change
(a) Includes a $354,000 pretax credit for the reversal of a restructuring charge. (b) Based on average shares outstanding of 11.7 million in the 2003 quarter, 11.3 million in the 2002 quarter, 11.4 million in the 2003 nine months and 11.2 million in the 2002 nine months. (c) Includes pretax restructuring charges of $13 million in the 2003 nine months and $1.3 million in the 2002 nine months and income tax benefits of $2.8 million in the 2003 nine months and $956,000 in the 2002 nine months. The 2003 nine months also includes a $24.2 million extraordinary charge, the cumulative effect of an accounting change.
Sales	$79,292,000	$90,618,000	(12.5%)
Operating income	3,990,000	2,470,000	61.5%
Net income	(a)1,667,000	170,000	880.6%
Earnings per share(b)	0.14	0.02	600.0%
9 months ended 1/26	2003	2002	Change
Sales	$248,753,000	$273,481,000	(9.0%)
Operating income	11,669,000	6,016,000	94.0%
Net income(c)	(28,159,000)	(1,855,000)	—
Earnings per share(b)	(2.46)	(0.17)	—

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