While mattress fabric sales increased by 2.1 percent, that gain was offset by a 8.5 percent drop in upholstery fabric sales compared to second quarter 2020.
“Our results for the second quarter reflected lower-than-expected sales, primarily for our upholstery fabrics segment,” said Iv Culp, president and CEO of Culp, Inc. “Several external factors affected our sales results for the quarter, particularly COVID-related shutdowns in Vietnam and customer supply chain constraints for non-fabric components, while profitability remained pressured in both of our businesses by the continued rapid rise in freight, raw material, and labor costs.”
Sales for the mattress segment were $40.9 million for the second quarter, up from $40.0 million in the second quarter of fiscal 2021. But while Culp saw an increase in mattress fabric sales, those numbers were still impacted by supply chain issues.
“While mattress fabrics sales for the second quarter were in line with our expectations, revenue was affected somewhat by our customers’ supply chain constraints for non-fabric components and existing inventory levels for mattress fabrics and covers,” said Sandy Brown, president of the company’s mattress fabrics division. “This caused our customers to temporarily delay taking some orders and push some new product launches into subsequent quarters while working through these limitations. However, we expect these pressures will be alleviated over the medium term.”
Upholstery sales were $33.7 million for the second quarter, down from $36.8 million in the second quarter of fiscal 2021. Shutdowns in Vietnam, which lasted longer than expected, impacted upholstery demand, as did labor shortages in the United States and supply chain disruptions for components.
“Our second-quarter results were disappointing, largely driven by lower sales in our residential business due to COVID-19-related shutdowns of our sourcing partners and customers in Vietnam throughout most of the quarter,” said Boyd Chumbley, president of the company’s upholstery fabrics division.
The home textile company’s operating income dipped significantly, too, from $4.5 million during the same quarter last year to $1.6 million this year.
“Our operating performance for the second quarter of fiscal 2022 was primarily affected by the lower sales in our residential business, as well as higher freight and raw material costs, start-up costs for our new Haiti facility, unfavorable foreign currency fluctuations in China, and lower contribution from our Read Window Products business,” Chumbley said. “We implemented a freight surcharge during the second quarter to help offset rising freight costs, but due to the continued rapid increase in operating costs and raw material costs, we are instituting an additional price increase during the third quarter to help cover a portion of these inflationary pressures.”
One bright spot in upholstery came in hospitality/contract orders. Chumbley said that industry has begun to rebound after pandemic shutdowns, increasing demand for hospitality-grade fabrics.
Net income was $851,000, or $0.07 per diluted share, compared with net income of $2.4 million, or $0.19 per diluted share, for the prior-year period. The company’s financial position reflected total cash and investments of $36.6 million and no outstanding borrowings as of Oct. 31, 2021.
Culp announced a 5 percent increase in its quarterly cash dividend to 11.5 cents per share, starting in the third quarter of fiscal 2022. At an annual indicated dividend of 46 cents per share, the yield is 4.34 percent, based on the Dec. 1 closing stock price of $10.61 per share. This is the company’s ninth straight year of increasing its annual dividend.
Culp also repurchased 73,002 shares of common stock during the second quarter of fiscal 2022, leaving approximately $3.2 million available under the company’s share repurchase program.
CEO’s Take: The CEO said the company is implementing pricing changes during the third quarter to offset inflationary pressure. Culp also will open a new facility in Haiti in the third quarter, which will increase capacity for cut-and-sewn upholstery kits. He believes those two factors will help the company reach its long-term goals.
“As market conditions evolve, Culp is well-positioned for the long term, and we are confident in our ability to improve our market reach,” he added. “Notably, if we meet our expectations for the third and fourth quarters, then for the full fiscal 2022 year, we will sustain the significant sales gains we have achieved as compared to pre-COVID sales levels of fiscal 2020.”