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spk01: Good day, and welcome to the CULP's fourth quarter 2021 earnings conference call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Ms. True Anderson. Please go ahead, ma'am.
spk00: Thank you. Good morning, and welcome to the CULP conference call to review the company's results for the fourth quarter in fiscal 2021. As we start, let me state that this morning's call will contain forward-looking statements about the business, financial condition, and prospects of the company. Forward-looking statements are statements that include projections, expectations, or beliefs about future events or results, or otherwise are not statements of historical fact. The actual performance of the company could differ materially from that indicated by the forward-looking statements because of various risks and uncertainties. These risks and uncertainties are described in our regular SEC filings including the company's most recent filings on Form 10-K and 10-Q. You are cautioned not to place undue reliance on forward-looking statements made today, and each such statement speaks only as of today. We undertake no obligation to update or to revise forward-looking statements. In addition, during this call, the company will be discussing non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the most directly comparable GAAP financial measurements is included in either the tables to the press release, included as an exhibit to the company's 8K filed yesterday, and posted on the company's website at culp.com, or in the slide presentation with supporting summary financial information that is also available on the company's website as part of the webcast of today's call. I will now turn the call over to Yves Culp, President and Chief Executive Officer of Culp. Please go ahead, sir.
spk03: Good morning, and thank you all for joining us today. I would like to welcome you to the Culp quarterly conference call with analysts and investors. With me on the call today are Ken Bolling, our Chief Financial Officer, and Boyd Chumley, President of our Upholstery Fabrics business. I will begin the call with some opening comments, and Ken will then review the financial results for the quarter and the full year. I will then update you on the strategic actions in each of our operating segments. And after that, Ken will review our first quarter and fiscal 2022 full-year business outlook. We will then be happy to take your questions. We are pleased to have delivered a strong fourth quarter with dramatic sales growth across both our divisions and consolidated operating income in line with expectations. Despite some ongoing headwinds, we ended a tumultuous year with strength and momentum. Demand remained strong during the quarter as consumer focus on the home continued and our robust global platform utilizing our manufacturing and sourcing capabilities across six countries and our long-term supplier relationships enabled us to service the surge in demand for fabric and sewn covers from both new and existing customers. For the full year, we overcame tremendous adversity to deliver strong growth in sales and operating performance compared to the prior year. Our company's solid foundation, stable supply chain, and spirit of innovation helped us to successfully weather the initial pandemic-related downturn in our business at the end of last fiscal year and capitalize on market share opportunities throughout fiscal 2021. The exceptional execution by both divisions during this challenging operating environment strengthened our customer relationships and generated positive momentum to start fiscal 2022. In addition to our improved sales and operating performance, our cash flow for the year and our balance sheet remain strong. We ended the fiscal year with $46.9 million in total cash and investments and no outstanding debt. Our existing Haiti operations have performed very well for our mattress fabric segment during fiscal 2021. As previously reported, we acquired the remaining 50% ownership interest in our former unconsolidated joint venture in Haiti during the fourth quarter, and we are now the sole owner with full control of this mattress cover operation. With respect to this acquisition, we reported a gain from bargain purchase totaling $819,000. We are also happy to announce an additional expansion to our Haiti operations to include a third facility. This new building will be dedicated to production of cut and sewn upholstery kits. Construction began during the fourth quarter and is expected to be complete during the second quarter of fiscal 2022. The new facility will primarily support committed demand from an existing customer of the upholstery fabrics division. We believe this move will enhance our speed to market, provide growth opportunities and mitigate some risk for our upholstery fabrics business with near-shore capabilities that complement our already strong Asian platform. Importantly, we finished the year as a stronger company both operationally and financially, thanks to extraordinary efforts and resilience of our associates around the world. We are extremely proud of their hard work, adaptability, and perseverance in the face of unique challenges and uncertainties. We are grateful for their unwavering dedication and tremendous accomplishment during this challenging time. Looking ahead, we are entering fiscal 2022 with a positive outlook for our business. We are proud of our ability to absorb the significant increase in demand during fiscal 2021, and we are even more pleased about the outlook that supports our continued growth during fiscal 2022. We also believe our hospitality business will begin to see improvement if conditions normalize in the travel and leisure industry. Heading into the first quarter, we are faced with some continued near-term pressures in both divisions relating to ongoing customer capacity limitations, primarily due to supply chain disruption for non-fabric components and labor shortages, as well as increasing raw material and freight costs and foreign currency fluctuations in China and Canada. We do expect that most of these headwinds are temporary and will be mitigated to some extent by recent pricing actions taken by both divisions, all of which were effective by May 1. Despite these challenges, we believe our business will continue at solid and improved performance during fiscal 2022. We will maintain our focus on innovation, and we will emphasize efforts to increase our market share and make progress on ESG initiatives throughout the year. On the innovation front, we are excited to advance the tremendous synergies developing between our two businesses by combining our design, innovation, and sales team for both divisions into a shared space at our new innovation campus in downtown High Point, North Carolina. This design-driven space will pull our top creative talent together to support collaboration across divisions and provide an everyday space to gather, meet with customers, develop new products, and showcase our technologies and innovations from fabric to sewn cover. I am extremely proud of our company's accomplishments in fiscal 2021, and I am confident that we are well positioned to deliver value for our customers, employees, and our shareholders in fiscal 2022 and beyond. I'll now turn the call over to Ken, who will review the financial results for the quarter and the full year.
spk04: Thanks, Yves. As mentioned earlier on the call, we have posted slide presentations to our investor relations website that cover key performance measures. We've also posted our capital allocation strategy. As a reminder, we present our results on both a GAAP and non-GAAP basis. We believe the non-GAAP presentation better reflects performance of the business as we compare our financial results among comparable financial periods. A reconciliation of the non-GAAP adjustments to the most directly comparable GAAP measurement is included in the tables on our press release and in the tables at the back of the summary financial information presentation on our website. Here are the financial highlights for the fourth quarter. Net sales were $79.1 million, up 67% compared to the prior year period. Both divisions had a strong sales performance for the quarter. It will go into more detail on divisional operation performance in a moment. The company reported income from continuing operations of $1.6 million compared with a loss of continuing operations of $18 million for the prior year period, which included $13.7 million in non-cash asset impairment charges. Non-GAAP net income from continuing operations for the fourth quarter was $1.4 million, or 11 cents per diluted share, which excludes an $819,000 gain on bargain purchase associated with our fourth quarter acquisition, of the remaining 50% ownership interest in our former unconsolidated joint venture located in Haiti, as well as $742,000 in certain income tax adjustments for the quarter. This compares with a non-GAAP net loss from continuing operations of 5.3 million or 43 cents per diluted share for the prior year period, which excludes 13.7 million in non-cash asset impairment charges and 2.8 million in income tax expense. The current quarter was affected by operating inefficiencies incurred in connection with servicing the surge in demand in our mattress fabrics business, along with higher freight and raw material costs, unfavorable foreign exchange rate fluctuations, and higher SG&A expenses due primarily to increased incentive compensation costs. On a percent of sales basis, total SG&A came in at 12.8% compared to 15.5% for the same period a year ago. For fiscal 2021, net sales were 299.7 million, up 17% as compared to the previous year. Income from attending operations for fiscal 2021 was 12.1 million, compared with a loss from continuing operations of 7.6 million for the prior year, which included 13.7 million in non-cash asset impairment charges. Non-GAAP net income from continuing operations for fiscal 2021 was 7.3 million, or 59 cents per diluted share, which excludes the $819,000 gain on bargain purchase I mentioned earlier, as well as 4.9 million in income tax expense for the year. This also includes 2.2 million in other expense relating primarily to foreign exchange rate fluctuations associated with our operations in China. Notably, the foreign exchange charges included in the other expense line item for this fiscal year are mostly non-cash, and are mostly offset by income tax deductible foreign exchange losses associated with our China operations. Non-GAT net income continuing operations for the prior fiscal year was $1.2 million, or $0.10 per diluted share, which excludes the $13.7 million in non-cash asset impairment charges I mentioned earlier, as well as $1.3 million in income tax expense. It also includes $902,000 and other expenses. The current year was affected by the same factors I noted earlier for the fourth quarter, particularly the unfavorable foreign exchange rate fluctuations and higher SG&A expenses due primarily to increased incentive compensation costs. On a percent of sales basis, total SG&A came at 12.6% compared to 13.4% for the prior year. Travelling 12 months adjusted EBITDA for this fiscal year was 18.5 million or 6.2% of net sales compared to 13.8 million or 5.4% of net sales for last fiscal year. The effective income tax rate for the fourth quarter of this fiscal year was 36.6% compared with 12.2% for the same period a year ago. The increase in the company's effective income tax rate for the fourth quarter for fiscal 2021 is mostly due to the significant U.S. pre-tax loss during the fourth quarter of fiscal 2020 that stem from the economic uncertainty and disruption caused by the COVID-19 global pandemic. The effective income tax rate for the full fiscal 2020 year was 70.7% compared with 43.7% for the prior year. Income tax expense for this fiscal year includes an $8.5 million non-cash income tax charge to record a full valuation allowance against the company's U.S. net deferred income tax assets partially offset by a $3.6 million non-cash income tax benefit that was associated with the retroactive U.S. Treasury regulations enacted during the first quarter of fiscal 2021 regarding the guilty tax provisions of the recent Income Tax Reform Act. The prior fiscal year included $1.9 million of guilty that did not reoccur in fiscal 2021 due to this recent change in guilty tax regulations. As a reminder, the company's effective income tax rate is affected over the fiscal year by the mix and timing of actual earnings from our U.S. operations and our foreign subsidiaries located in China and Canada, which have higher income tax rates as compared to the U.S. federal income tax rate. Looking ahead to next fiscal year, we currently estimate that our consolidated effective income tax rate for the first quarter will be in the 30% to 35% range based on the facts we know today. Now let's take a look at our business segments. For the mattress fabric segment, sales for the fourth quarter, 42.9 million, up 84% compared with last year's fourth quarter, which was impacted by the COVID-19 pandemic. Operating income for the quarter was 2.3 million compared with an operating income loss, operating loss of 2.8 million a year ago, with an operating income margin of 5.3% compared with a negative 11.8% a year ago. Our operating performance for the quarter, though dramatically improved as compared to prior year period, was affected by several factors. We were able to meet the extraordinary increase in customer demand during the quarter, but in doing so, we incurred considerable operating inefficiencies to satisfy the service. We were also pressured by increased raw material prices, freight costs, and unfavorable foreign currency fluctuations in China and Canada. Notably, although we announced a price increase during the fourth quarter to help mitigate higher freight and raw material costs, this action did not take effect until the beginning of fiscal 2022, resulting in a temporary cost price lag that affected operating performance for the quarter. For the upholstery fabric segment, sales for the fourth quarter were $36.1 million, up 50% over the prior year, which was impacted by the COVID-19 pandemic. Operating income for the quarter was $2.6 million compared with $0.5 million a year ago, with an operating income margin of 7.2% compared with 2% a year ago. Our improved operating performance for the fourth quarter primarily reflects a significant increase in sales for our residential business, offset somewhat by unfavorable China foreign exchange rate fluctuations and reduced demand in our hospitality business. Here are the balance sheet highlights. As of the end of the year, we reported 46.9 million in total cash and investments and no outstanding borrowings, up from our 38.7 million net cash position as of the end of last fiscal year. We also generated cash flow from operations of 21.5 million and free cash flow of 14.4 million for the year, compared with cash flow from operations of 5 million and free cash flow of 1.5 million for the prior year. This year-over-year improvement reflects higher earnings and a focused attention on working capital management throughout this fiscal year. During this fiscal year, we spent 6.7 million in capital expenditures and 892,000 in acquisition-related investments. We also returned 5.3 million to shareholders through our regular quarterly dividends. We are very pleased with our strong balance sheet going into the first quarter of fiscal 2022. On March 2nd of this year, the Board of Directors reinstated the company's share repurchase plan, which was previously suspended last April due to the economic uncertainty related to COVID-19 pandemic. The company did not repurchase any shares during the fourth quarter of this fiscal year. With that, I'll turn the call back over to Yves.
spk03: Thanks, Ken. I will begin with the mattress fabrics business. We were energized by significant growth and top line performance for the mattress fabric segment during the fourth quarter. Our increase in sales of 84% year over year compared to the prior year period, as well as our top line growth for the full fiscal year, 20% year over year, was driven by the ongoing consumer focus on the home environment and market share gains across a diversified group of new and existing customers, including further growth in our sewn mattress cover business. Our fabric-to-cover model, as well as our onshore, nearshore, and offshore supply chain strategy is preferred. The strength and flexibility of our global manufacturing and sourcing operations in the US, Canada, Haiti, Asia, and Turkey enabled us to support strong demand trends and serve the needs of our mattress, fabric, and cover customers during the fourth quarter and throughout fiscal 2021. We also continue to benefit from our innovation focus and our virtual design capabilities, including our re.imagine Culp Home Fashions 3D rendering services, which allowed us to strengthen our position with customers and capitalize on market share opportunities. In addition, we believe the domestic mattress industry, and in turn our business, continue to realize some benefits during the fourth quarter from the preliminary anti-dumping duties imposed in October 2020 by the U.S. Department of Commerce on mattress imports from seven countries. We are cautiously optimistic that this tailwind will continue during fiscal 2022. As we look ahead into fiscal 2022, we are excited about the expanding depth and expertise of our team with additional engineering and innovation development experience. The importance of mattress product performance has grown exponentially in recent years, and we believe this added knowledge is an important factor in maintaining a competitive advantage. We're also excited about a recent introduction of our new mattress fabric, ChillSense, powered by Reprieve, that combines cooling technology with a sustainability focus and reflects our commitment to developing products that are better for the environment. Although there are lingering pressures heading into fiscal 2022, we believe we are well positioned in mattress fabrics to gain market share, and we expect our solid top line performance to continue at improved profitability levels during the year. We have the ability to leverage our creative designs, innovative products, digital marketing strategies, and global production capabilities to enhance our leadership position and sustain Culp's competitive advantage. I'll now turn for a few comments on the upholstery fabric segment. We were very pleased by the strong growth in sales during the fourth quarter, up 50% year-over-year, and for the full fiscal year, up 14% year-over-year. We successfully navigated the significant headwinds we were facing going into the quarter, including customer supply chain constraints and container availability, as well as the impact of Chinese New Year to deliver better than expected results. We executed well on our product driven strategy and benefited from the strength and flexibility of our platform in Asia, including our stable long-term supplier relationships and our expanded cut and sew capabilities in Vietnam. Our growth for the fourth quarter and for fiscal 2021 year was driven by strong industry demand in our residential business, as well as the benefits of market share gains and product innovation. This growth was partially offset by lower sales for our hospitality business, which remained under pressure due to pandemic-related disruptions affecting the travel and leisure industries. Our highly durable stain-resistant LiveSmart performance fabrics, as well as our LiveSmart Evolve performance plus sustainability fabrics, are important drivers of growth in our residential business. These product lines continue to experience strong demand trends amidst consumer desire for cleanability, ease of maintenance, and environmentally conscious products. Looking ahead, we are confident in our strong backlog and our ability to meet the ongoing demand. We believe our recent price increase at the end of the fourth quarter will help offset the ongoing China foreign exchange fluctuations We are also excited to be expanding our capacity for cut and sewn upholstery kits with a new production facility in Haiti, which is expected to be completed during the second quarter of fiscal 2022. And while we do expect that certain near-term headwinds, including rising freight and raw material costs, may temporarily pressure our business during fiscal 2022, we are confident in our ability to navigate these headwinds and believe our business is well positioned for the long term. We are also cautiously optimistic that pent-up demand for travel and leisure activities will benefit our hospitality business, although the timing of this does remain uncertain. Above all, we remain focused on providing innovative products that meet the changing demands of our valued customers. And now, Ken will discuss the general outlook for the first quarter and full fiscal year 2022, and we'll then take some questions.
spk04: Although subject to uncertainties, we are encouraged by the execution of our product-driven strategy and the continued strength of demand for home furnishing products, as well as our expanding market share reach. We expect sales for the first quarter of fiscal 2022 to increase approximately 20% compared to the prior year period, and we expect our consolidated operating income for the quarter to be significantly improved as compared to the prior year period and as compared to the fourth quarter of fiscal 2021. For the full fiscal 2022 year, we expect net sales to continue to increase moderately and consolidated operating income to increase significantly as compared to fiscal 2021. Notably, our expectations for the first quarter and full fiscal 2022 year are based on information that is available at the time of this webcast presentation and reflects certain assumptions by management regarding our business and trends. The outlook assumes there will be no further pandemic-related shutdowns and no material changes in freight and raw material costs, foreign currency exchange rates, recent consumer trends, or other circumstances beyond the company's control. Additionally, based on current expectations, capital expenditures for fiscal 2022 are expected to be in the $9 million to $10 million range. Our capital investments will focus on our ongoing strategy of maintenance CapEx, centered in our mattress fabrics business, as well as spending in our upholstery fabrics business with investments in Reed Windows and our new Haiti startup. At the corporate level, CapEx spending will include investments in IT infrastructure and security, as well as our new innovation campus in High Point, North Carolina. Depreciation and amortization expect to be approximately seven and a half to eight million for fiscal 2022. With that, we'll now take your questions.
spk01: Thank you. So, if you would like to ask a question, please press star 1. Okay, so we'll take our first question from Bud Bugach at Water Tower Research. Please go ahead. Your line is open.
spk06: Good morning, Yves. Good morning, Ken. Congratulations on a strong quarter and a nice rebound. A couple questions, if I could. You showed that really good sales growth. Can you give us some feeling of how that's going to continue going forward and what gives you that confidence?
spk03: Yes, sir. Thank you, Bud. Yes, we talked about in the release, I think I commented or we mentioned both in the script and in the printed release, it's a dramatic sales increase we saw in Q4. And, you know, I think about that certainly – You know, admittedly, it's against the weaker quarter last year, and we have continued or continue to see focus on the home as a safe place, and many consumers are seeing home as a worthy place for upgraded spend. So that's good for our business. Our pandemic backlogs and our customers are strong, and really all of our customers are, you know, are seeing strong backlogs, which creates significant tailwinds for us. But it's more than that, I think, going forward. both businesses that we touched on a lot are flourishing with innovation in products and processes. You know, that means new products, new developments. It means cut and sew development around the world. It's a robust sales mix that's really, I think, growing our market penetration in both mattress fabrics and upholstery fabrics. So we see, you know, a strong year. And I guess it's important, we're forecasting a moderate sales growth for all of 2022, but that's on a backdrop of significant sales growth last year. So we've absorbed the growth we've had, and now we're going to continue growing, which gives us quite a bit of optimism.
spk06: Well, let's go down a little bit into that. You talk about 20% in the first quarter. How does that split out between Culp Home Fashions and Culp Upholstery Fabrics? Are they about equal in terms of rate of growth, or is one better than the other in your crystal ball.
spk04: Yeah, Bud, this is Ken. I think when you look at the first quarter, I think there's a little bit more upward trend for upholstery fabrics as compared to mattress fabrics. Both of them are doing quite well, but I think as we go into the first quarter, there's a little bit more growth opportunity for upholstery fabrics as compared to mattress.
spk06: And then both of them relatively moderate going forward in Qs 2, 3, and 4?
spk04: Yeah, yeah, exactly. Yeah, I think by the end of the year, you kind of pan out to a nice moderate increase for both of them.
spk06: And for Reed, you talked about being more positive, and I think everybody can kind of understand that. Are you seeing any green shoots early on in hospitality that gives you some comfort there?
spk05: Yes, Bud, this is Boyd, and we certainly have started seeing an improvement in the order rates and the backlogs building in the hospitality area. Started seeing that in fourth quarter, but certainly believe that we'll be progressively seeing some better business as we go forward into this year. As travel has begun to return, and I think expectations would be that travel will be a driver of some more robust sales in that hospitality segment as we go through this year. Thank you, Boyd.
spk06: A couple of other things on the sales growth. ChillSense looks like an interesting innovation. Do you have an exclusive on that? How are you doing that? And that being in mattress fabrics, I don't remember a sustainability innovation in mattress fabrics. It seems to me that the first one... That's actually pretty exciting. Have you had some early wins in that fabric among some of your mattress customers?
spk03: Yeah, good question, Bud. We definitely believe company-wide we think post-pandemic there will be a continued focus on sustainability offerings. So we're working really hard on that. We've had tremendous success with LiveSmart Evolve on the – upholstery fabrics side of the business. And I think jointly, we had our press release recently, we've already, with our offerings, have already saved like 63 million bottles, water bottles. So we're thrilled with that. There is some mattress development already in there. We are using some generic, I say generic, some recyclable products in our mattress fabric offerings. But ChillSense is another step adding sustainability and also cooling. And obviously, cooling has been a story in the mattress business for some time. And to be able to work by both of those things, a performance product plus sustainability, we think is a real win for the business. It's a partnership, just like Evolve. We use Unify or Reprieve. ChillSense also uses Unify or Reprieve. which is a great partner of ours. And we do have an exclusive lead on ChillSense for a period of time to get that launched to the market. So with their marketing efforts and ours, we think ChillSense will be a strong candidate for top of mattress. You know, we're quite excited about that.
spk06: I know that I'm going to get questions from clients, The one issue that they're going to focus on are mattress margins. And with an 84% growth in revenues, I can understand how active you had to be during the quarter. And with all that was going on both outside of the home furnishings world, but even in the home furnishings world with foam and other kinds of disruptions, I'm sure that had an impact. Can you give us a feel of where margins will go on forward and what gives you comfort to be able to say that?
spk03: Well, let me just, but just a little bit, just to explain more, which we covered in the release. It was an extraordinary sales lift on the mattress fabric side, 84%. And we're proud to have absorbed it. Although we admitted to some inefficiencies in doing so. So, you know, we had and are having market share wins. And we wanted to service that first and foremost. So to gain that business, we had to react immediately and not always optimize in our best manufacturing geography. So, you know, we're pressures of currency, freight and material pricing, and all that had a lag with our own price increase. So our price increase is now effective for the whole fiscal year, starting May 1. And we've guided significant margin improvement for the whole fiscal year. And Ken, you may want to add to that or any color to it.
spk04: No, that's exactly right. I mean, we did get pressure in the fourth quarter, and we've got the price increase in effect. And so we're seeing or expecting some significant improvement as we go in the first quarter and beyond, especially in the mattress fabric side.
spk03: And we've always said about our mattress fabric business, our expectation is to be a double-digit operating income margin business. So our expectation for 2022 is to start approaching that. We're not going to commit to getting there in Q1 or immediately, but that's our target.
spk06: Yep. Good. Okay. Just a few modeling questions, if I could. Your tax rate, you gave us between 30 and 35% to use for Q1. Can, how do we think about the whole year, and is there much, can you, is your crystal ball giving us any feeling of what you should look at any of the quarters specifically?
spk04: But I would say that's good for Q1 and the rest of the year based on the facts we know today. You know, as I said in the prepared remarks, you know, our tax rate can be affected by the mix of income between the U.S. and China and Canada. But based on what we see today, we feel good about that. Of course, you know, what comes out of Washington will depend on the future tax. We don't think that will affect our fiscal year. We don't think so, but we'll wait and see. But right now, I think 30 to 35 would be good for Q1 and the rest of the year. Okay.
spk06: And as we look at currency, the fourth quarter, you had the $819,000 gain. The other part of that bucket was $157,000. Was that all currency? Was that an all currency impact? What was the currency impact in the fourth quarter? And what does that look like going forward? I know that's a tough one to call.
spk04: You mean, uh, in, in other expense for the quarter? Yes, sir. Yeah. Yeah. Well, you know, we, if you remember, um, we were just getting killed all throughout the year. I think I said in, in, in Q3 we had, we had it, uh, in other expense, we had, uh, we had been hitting like 1.5 million of, of non-cash, uh, yeah. Yeah. Actually, in the fourth quarter, February and March actually flipped back around and weakened only to strengthen in April to pretty much wipe it out. So when you look at Q4, we actually were favorable somewhat. That's why the other expense was more normal as compared to the other quarters. I'd say going forward, since our fiscal year, the rate has strengthened a little bit. I think it's maybe weakened a little bit. I don't know, but it's one that really depends on what's going on. I mean, there's interest rate talk out there and what happens with the dollar and all that. So right now we're just, and even the, you know, we get reports from various banks and they're all over the place. So we're hoping that it will stay steady for where it is today so we can plan accordingly, but we'll just have to wait and see.
spk06: Okay, and last for me, capital expenditures of $9 to $10 million, how does that break out quarter by quarter?
spk04: It's pretty consistent when you look at it. It may be a little bit front-loaded as we look at the year, whereas last year was more back-loaded. But I would say a little bit front-loaded as compared to kind of a spread evenly over the year.
spk06: Okay, because I didn't know if Haiti would get us more of the capital expended there or if the new design center would change the cadence of that.
spk04: Yeah, I mean, that's definitely projects that would cause the first half to be higher. Gotcha.
spk06: Okay, well, thank you very much for the guidance for the quarter, and it was good to see a little bit more of a outlook for the full year. I think that's somewhat new for you all and I hope you all continue to do that and continue to update us on that as the quarters and the year progresses. Nice performance and thank you very much. Thank you. Have a good day.
spk01: Thank you. We will now take our next question from Anthony. Please go ahead. Your line is open.
spk07: Good morning, and thank you for taking the question. So actually, first, let me just follow up about the new facility in Haiti. Do you guys have an expectation as far as the cost of the new facility and how much of your upholstery business you think will come out of that facility this fiscal year?
spk03: I'm going to – well, Anthony, this is Ev. Thanks for the question. We are really excited about the opportunity – for Haiti for upholstery kits, but it is important to note that we're really still strong with our Asian platform. Haiti is not intended to replace that. It's a compliment, but I want to pivot to Boyd and let him talk a bit more about it because he's championing this for us, but it is really important we note that it's not meant to be a replacement. It's to get us an offshore and a nearshore strategy. Boyd.
spk05: Thank you, Evan. I'll I'll add to that, Anthony. Yeah, just as Yves has said here, we believe that establishing a upholstery cut and sew facility in Haiti really does establish our overall global platform for cut and sew for upholstery and gives us a near-shore option to complement the already strong Asia platform that we have. And of course, it does provide some risk mitigation as well. It's also enabling us to handle the increased demand for cut and sew that we're experiencing as part of the overall demand surge that we're seeing in the upholstery fabrics business. So in terms of just your question of how much of our business for this fiscal year, it will be, you know, we're not, the operation is not starting up until late second quarter, and then there will be a scale up. So it's not going to be significant portion for this fiscal year but we will start seeing output and part of it is growth output coming from that Haiti operation during the fiscal year.
spk07: Okay thank you for that and you know as far as cost I mean is there any way you guys could quantify that or is that anything significant to think of as far as the cost of getting that facility up and running?
spk04: Yeah, it's really two components. It's the cost of the lease of the facility, and then you've got some CapEx, which is part of the CapEx plan that I described earlier. So we don't disclose that, but it's not significant, but it's an investment that we feel will, over time, certainly be a nice payback and one that we can put behind us in the first year and and get rolling.
spk07: Got it. All right. Well, thank you very much for that. And then could you quantify the extent of the price increases that you put in place for May 1st and then how that will impact margins in the first quarter?
spk04: Yeah. Anthony, this is Ken again. You know, we don't really disclose that. I think that what we've tried to do is, you know, by – forecasting significant improvement in Q1. Obviously, those price increases are in effect on both sides. And so that's certainly helping our performance in the first quarter and beyond. But it's price increases that were strategically done to overcome currency you know, freight and raw material changes that we knew of as of the time of the price increase.
spk07: Got it. Okay, thanks. A couple more questions from me. As far as, you know, labor availability and costs, I mean, what are you guys seeing there with respect to your own operation and with respect to your customers as well?
spk03: Yeah, Anthony, thank you. This is Irv. I think... The cost that we think about that we're seeing the most impact today is probably freight. I believe that we've, at least for now, offset most of our material increases with our price increases. We're watching currency closely. Freight is one that we're experiencing some rising costs with. And then to your point, labor in the U.S. is definitely a challenge for us too. And we do have some jobs we're trying to fill. Which is why, though, that we're so bullish on our global platform. Because we have options in each business where we're not in any shortage of supply of our products. So we can meet the demand. And we talk about meeting the demand with strength. And that's how we look at it. But it does mean we need to flex our muscles globally more and just be able to offset any labor challenges we may have here. We are doing enormous efforts to our human resource department to engage our employees more, to look at tweaks to jobs where we need to adjust pay rates and everything we can to make sure we're staffed well. I wouldn't call it any major concern, but we do want to keep our eyes on that labor ball, at least in the short term.
spk07: Got it. Okay. Thank you, Ava. And then, you know, last question for me here. So, you talked about the effect of research in hospitality. Can you talk about the margins that you have in hospitality versus residential piece of that business?
spk05: Yes, Anthony, this is Boyd. And, yeah, typically in that segment of our business, that does carry somewhat higher margins. So that will be a, you know, assist to us as we see the hospitality businesses start to come back from the impacts of the pandemic. But yeah, just in general, that business does carry somewhat higher margins than our other business. Got it. All right. Well, thank you and best of luck.
spk07: Thank you. Thanks, man.
spk01: Thank you. So we'll now take our next question from Marco Rodriguez at Stonegate Capital Markets. Please go ahead. Your line is open.
spk02: Good morning, everybody. Thank you for taking my questions. Good morning. Morning, guys. Most of the big topics have been discussed already and answered, so just a couple quick follow-ups. Wondering if you guys can maybe talk a little bit more about the new product line with the refabric. Can you just maybe discuss the factor or the genesis of that? I understand that you worked with that supplier for some time, but just kind of how did the product launch come about and what are sort of the expectations you're thinking about in terms of that line?
spk03: Yeah, thank you, Marco. Great question. We've had such great success with Live Smart Evolve on the upholstery side. And so when we come out of the pandemic and our recent showtime and furniture market, we're just seeing continued interest in that product line. So it was fairly natural for us to start thinking about how we could get that sustainability story more branded on the mattress side. Now, Back to Live Smart Evolve and Upholstery, what's special about that is its performance story offering enhanced cleanability plus sustainability. So on the mattress side, we wanted to find that performance plus as well. And so we have a cooling story plus sustainability. And the reason cooling is so important is just in our business today on the mattress side, we do a lot of work with cooling mattress fabrics, whether they be very special high-tech cooling yarns, or phase change materials that we apply to finish. And so having this with Unify Reprieve is a more economical way of applying cooling. It's inherent in the yarn, so it's no treatment. And then it also adds a sustainability story. So we think it's right at the heart of what consumers are paying attention to. And we're trying to get more active with our branding on the mattress side as well. And we think this is a a really nice win. We're just launching it. We're only in the beginning phases of rolling this to the market, but we think with our exclusive lead, we can have some fun with this later this year.
spk02: Understood. Got it. And then in terms of the supply chain disruptions that are non-fabric related, I know we've discussed this for a few quarters here now, and there's obviously the expectation that It continues here in the near term as far as a potential headwind. Can you maybe kind of give us a sense as far as your best estimate or best read as far as when that sort of normalized, if you will?
spk03: Yeah, it's a good question. I think I'm going to speak for a minute on the mattress side, and I'll let Boyd make some comments on the upholstery side to be sure he gives you the full expert opinion. I think what I hear mostly for the mattress side of the business, it gets better every week and every month. So I think our biggest challenge there has been some foam allocation that our customers have been wrestling with. And we hear it gets better every month. So I think within late this quarter or our second quarter, I think our expectation is to be more normal there with supply. We'll be good for that side of the business. Boyd, you may speak to what you're seeing from upholstery side.
spk05: I think it's very similar, Yves, on the upholstery side of the business. Also here that there is steady improvement in terms of availability that's occurring. So I think the expectations there are as well that by the end of the quarter, there'll be considerable improvement there. Maybe not completely resolved, but certainly a lot of improvement throughout the quarter.
spk02: Got it. Thanks. Appreciate that. And then in terms of your expectations for cash flow from operations for the fiscal year, can you kind of give us a sense as far as how that's going to ramp, and is there an expectation that you're going to build cash this year?
spk04: Yeah, Marco, that's a good question. I think when you look at, you know, we've got this significant increase in earnings, which will help the – You know, the working capital, I think from the standpoint of where we are with respect to inventory, obviously we want to make sure that we have enough inventory on hand to meet our customer needs. So that would be a focus. I think as far as, you know, CapEx, the uses of cash on the CapEx side, we are increasing our CapEx this year as compared to last. So I would say right now, based on what we know, we're probably, you know, based on the Based on the projections, our cash will be pretty consistent, you know, this time next year versus now, based on what we know today. So I would look at it that way. With the increased CapEx, of course, we'll continue paying the dividend and those factors. And so I would say pretty consistent year over year.
spk02: Understood. Well, that's all I have. I really appreciate your time, guys. Thanks.
spk03: Thank you, Marco.
spk01: Thank you. So that is all the questions that we have at the moment. So I'd like to turn the call back over to the speakers for any additional or closing remarks.
spk03: Thanks, Operator. And again, thank you to everyone for your participation and your interest and call. We look forward to updating you on our progress next quarter. Have a good day.
spk07: This concludes today's call.
spk06: Thank you for your participation. You may now disconnect.
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