Culp, Inc.

Q1 2022 Earnings Conference Call

9/2/2021

spk07: Good morning and welcome to the CULP, Inc. First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Drew Anderson. Please go ahead.
spk00: Thank you. Good morning and welcome to the CULP conference call to review the company's results for the first quarter of fiscal 2022. 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 Form 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 the tables The press release included is an exhibit to the company's 8K filed yesterday and posted on the company's website at Culp.com. A slide presentation with supporting summary financial information is also available on the company's website as part of the webcast of today's call. With that, I will now turn the call over to Yves Culp, President and Chief Executive Officer of Culp. Please go ahead, sir.
spk02: Good morning, and thank you 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'll begin the call today with some opening comments, and Ken will then review the financial results for the quarter. I will then update you on the strategic actions in each of our operating segments, And after that, Ken will review our second quarter and fiscal 2022 full-year business outlook. We will then be happy to take your questions. With first quarter, we are very pleased to report a solid start to fiscal 2022 with overall sales and operating income in line with expectations and sales reaching their highest first quarter level since fiscal 2003. Our results reflect strong top-line growth driven by higher demand for both our mattress and residential upholstery fabric products. In each of our businesses, we executed our product-driven strategy with a continued emphasis on design creativity and innovation. We also benefited from our expanded market reach and the continued resilience of our flexible global platform. Despite supply chain disruption and pressures on profitability, we are passionately dedicated to servicing the needs of our customers, and both of our divisions have excelled in using our robust platform and long-term supply relationships to make sure that we meet our customer commitments. We believe this is an advantage for Colt, as customer service is more important than ever in the face of supply chain disruption. While we are optimistic about the ongoing strength of our sales trends, We do continue to navigate headwinds relating to rising freight and raw material costs, labor shortages, our customer supply chain constraints for non-fiber components, and other pandemic-related challenges. Our previously implemented price increases for both of our businesses did help to offset certain inflationary pressures and foreign currency fluctuations to some extent during the first quarter. But with freight, raw material, and labor costs continuing to rise, we are now taking further pricing action via surcharges in both businesses during the second quarter to assist in covering these rapidly increasing costs. Despite these challenges, we continue to invest in our business and expand our capacity. With our diversified manufacturing and sourcing capabilities, along with our innovative products and digital design strategies, We expect to have additional opportunities to capture market share with new and existing customers. We are also excited about the September opening of our new innovation campus in downtown High Point, North Carolina, which will bring together our most innovative and creative minds and foster collaboration among our businesses. We believe this will be a transformative space for CULT and allow us to share best ideas across our divisions and better showcase our full, expansive product lines to our customers. Importantly, we have the financial strength to support our business in the current environment, and we believe we are well positioned for continued growth as market conditions evolve. We also remain grateful for the extraordinary efforts and resilience of our associates all around the world. We are extremely proud of their hard work, their adaptability, and their dedication in the face of ongoing challenges. I'll now turn the call over to Ken, who will review the financial results for the quarter.
spk05: Thanks, Yves. As mentioned earlier on the call, we have posted slide presentations to our investor relations website that cover key performance measures. We have also posted our capital allocation strategy. Here are the financial highlights for the first quarter. Net sales were $83 million, up 29% compared to the prior year period. Yves will go into more detail on the visual operations in a moment. The company reported income from operations of $3.3 million, up 76% compared with income from operations of $1.9 million for the prior year period. Net income for the first quarter was $2.3 million, or 18 cents per diluted share, compared with a net loss of $2.7 million, or 22 cents per diluted share, for the prior year period, which included a $3.7 million non-cash net income tax charge. Excluding this income tax charge, non-GAAP adjusted net income for the first quarter of last year was $1 million, or $0.08 per diluted share. The current quarter reflected an impressive sales performance for both divisions, but our overall operating performance was affected by several headwinds, namely higher freight and raw material costs, labor shortages, and unfavorable foreign exchange rate fluctuations, among other factors. I'll comment on divisional performance in a moment. Trailing 12 months adjusted EBITDA was 20 million or 6.3% of net sales compared with 12 million or 4.8% of net sales for the same period last year, reflecting a year-over-year improvement of 66%. Consolidated return on capital for the trailing 12-month period was 15.5%. The effective income tax rate for the first quarter of this fiscal year was 28.7% compared with 283.7% for the same period a year ago. Our effective income tax rate during the first quarter of this fiscal year was affected by the mix of taxable income that is mostly earned by our foreign operations located in China and Canada, which have higher income tax rates than the U.S. Income tax expense during the first quarter of last fiscal year was significantly higher than the current quarter because of the $3.7 million net income tax charge I mentioned earlier. Looking ahead to the rest of this fiscal year, we currently estimate that our consolidated effective income tax rate for the second quarter will be approximately 30% based on the facts we know today. Additionally, we are currently projecting cash income tax payments of approximately $4.2 million for fiscal 2022. Importantly, our estimated cash income tax payments for this fiscal year are management's current projections only. and can be affected over the year by actual earnings from our foreign subsidiaries located in China, Canada, and Haiti versus annual projections, as well as changes in the foreign exchange rates associated with our China operations in relation to the U.S. dollar. Now let's take a look at our business segments. For the mattress fabric segment, sales for the first quarter were 43.1 million, up 19% compared with last year's first quarter, which was impacted by the COVID-19 pandemic. Operating income for the quarter was $3.6 million, compared with operating income of $1.8 million a year ago, with an operating income margin for the quarter of 8.4%, compared with 5.1% a year ago, an increase of 330 basis points. Our improved operating performance for the first quarter, as compared to the first quarter last year, primarily reflects a solid increase in sales, somewhat offset by increased raw material prices, freight costs, unfavorable foreign currency fluctuations in Canada and China, and inefficiencies due to labor shortages in the US and Canada. As compared to the fourth quarter of last year's 5.3% operating income margin, our improved operating performance was primarily driven by a favorable product mix and the price increase implemented during the first quarter to help cover expected inflationary pressures, but our results were further affected by operating inefficiencies due to labor shortages and additional increases in freight and raw material costs, particularly during the second half of the quarter. We are implementing a surcharge during the second quarter to help offset these pressures while also continuously working to control costs. Notably, the surcharge will not take effect until midway through the quarter, resulting in a temporary cost price lag that will affect our operating performance during the period. Return on capital for the trailing 12-month period for mattress fabrics was 19.6%. For our post-fabric segment, sales for the first quarter were $40 million, up 41% over the prior year, which was impacted by the COVID-19 pandemic. Operating income of the quarter was $2.3 million compared with $2.1 million a year ago, with an operating income margin of 5.7% compared with 7.5% a year ago, a decrease of 180 basis points. Despite our top-line growth, operating performance for the first quarter, as compared to the first quarter of last year, and also compared to the fourth quarter of last year's 7.2% operating income margin, was negatively affected by the dramatic increase in freight costs and by lower sales in our Reed Windows products business, as well as startup costs in our new Haiti facility. Our operating performance, as compared to the first quarter of last year, was also pressured by foreign currency fluctuations in China. Notably, Our previously implemented price increase has helped offset foreign currency exchange rate fluctuations to some extent, as intended, but we are implementing an additional freight surcharge during the second quarter to help cover the continued rise in freight costs. We also began to see growing project backlog in our re-window products business during the first quarter, but given the typically longer-term timeframe for project installations, which can often range from six to nine months, There is a temporary lag between the impact of the pandemic-related destruction and improved results for this business. Return on capital for the 12-month career for the upholstery segment was an impressive 74.3%. Here are the balance sheet highlights. We reported $44 million in total cash and investments and no outstanding borrowings as of the end of the quarter, compared with $47.4 million in total cash and investments and no outstanding debt at the end of the prior year period. We generated cash flow from operations of $1.6 million and negative free cash flow of $782,000 for the first three months of the year, compared with cash flow from operations of $10.6 million and free cash flow of $10 million for the same period last year. As we continue to invest in our business, our cash flow from operations and free cash flow during the first quarter were affected by increased inventory purchases due to higher sales, capital expenditures, including expenditures from machinery, equipment, and IT investments, as well as expenditures related to our new innovation campus, incentive bonus compensation, and payments for the new building lease associated with our Haiti upholstery cut and sew operation. During the first quarter, we invested 2.5 million in the business through capital expenditures and payments associated with our new building lease in Haiti. We paid 1.4 million in regular 40 dividends and spent 723,000 on share repurchases. While we are very pleased with our solid balance sheet going into the second quarter, it is important to note that we will continue to utilize our cash for strategic investments in working capital, planned capital expenditures, and investments in Haiti, with a significant portion of that spending taking place during the second quarter. The company repurchased approximately 49,000 shares of common stock during the first quarter of the year and repurchased approximately 48,000 additional shares through August 31st. leaving approximately 3.6 million available under our current share repurchase program. With that, I'll turn the call back over to you.
spk02: Thank you, Ken. I will begin with the mattress fabrics business. We were encouraged by the strong level of sales for this business during the first quarter. Our top-line performance, up 19% compared to last year, and up 11% compared to the pre-pandemic first quarter of fiscal 2020. was driven by the continued strength of our product offerings, and was supplemented by the price increase implemented during the first quarter that helped offset certain inflationary pressures. Additionally, demand trends for the stone mattress covers remain strong, and our onshore, nearshore, and offshore supply chain strategy, as well as our fabric to cover model, continue to provide a preferred platform that gives customers the agility and value they need for their business. As we look ahead, we expect that current inflationary conditions, labor shortages, and other near-term headwinds will continue to impact the mattress fabrics business during fiscal 2022. But we are confident in our ability to navigate these challenges. As mentioned earlier, we are adding a surcharge during the second quarter to help offset more inflationary pressures while also working diligently to control costs. As demand trends remain strong, we believe this business is well positioned for the long term. We have the supply chain to continue meeting our customer commitments, and we expect to continue increasing our operating income margins towards the end of the fiscal year as we benefit from innovative products, creative designs, digital marketing strategies, pricing actions, and eventual mitigation of costs. Now I'll turn to the upholstery fabric segment. We were pleased by the continued strong growth in sales for this business as well during the first quarter, up 41% compared with the prior year period and up 26% compared with the pre-pandemic first quarter of fiscal 2020. The growth in upholstery fabrics was driven by a significant increase in our residential business compared to last year and was also supplemented by a price increase that was effective during the quarter. We continued to benefit from growth in our market reach the flexibility of our Asian platform, and the success of our product innovation strategy, including the ongoing popularity of our LiveSmart portfolio of products. We are especially encouraged by our popular LiveSmart Evolve products, which offer both performance and sustainability. We believe the consumer desire for products with a sustainability focus will only gain more traction as we move beyond the COVID-19 pandemic. However, our hospitality business, particularly Reed Window Products, remained under significant pressure in the first quarter from the ongoing COVID-19 disruption that continues to affect the travel and leisure industries. Looking ahead, we remain encouraged by the strong backlog in our residential upholstery business, reflecting continued favorable demand and attraction to our innovative product. We are also pleased to begin seeing some rebounding demand for hospitality fabrics, and we have built our largest project backlog since the beginning of fiscal 2019 in reed window products. Although, as Ken mentioned, the timeframe for project installations in this business can range from six to nine months, so there's an expected lag between the backlog and the corresponding results. We do expect that near-term headwinds, including rising freight and labor costs, customer supply chain constraints, and ongoing pandemic-related disruptions such as quarantine and shutdown requirements currently affecting our sourcing partners in Vietnam, may temporarily pressure our poultry business during the year. However, with our flexible Asian platform and the upcoming addition of our new Haiti platform, as well as our long-term supplier relationship and our product-driven strategy, we are very confident in our ability to navigate these challenges. We believe we are well positioned to sustain and enhance our competitive advantage over the long term as we continue to deliver innovative products that meet the needs of our customers. I'll now turn back to Ken to discuss the general outlook for the second quarter and fiscal 22 full year, and we will then take some questions.
spk05: Although subject to uncertainties, we are encouraged by the execution of our product-driven strategy and the resilience of our global platform, as well as our expanding market reach. The financial outlook we are providing for the second quarter of this fiscal year is a sequential comparison to the first quarter rather than a comparison to the prior year period due to the current inflationary pressures and volatility that were not present during the prior year period. We expect our sales and consolidated operating income for the second quarter of this fiscal year to be comparable to the first quarter of this fiscal year with an expected consistent performance for our mattress fabrics business and an expected improvement in operating margins for our postage fabrics business. For the full fiscal year, we expect net sales to continue to increase moderately with a projected increase between 8% to 12% and consolidated operating income to increase significantly with a projected increase between 20% to 25% in each case as compared to last fiscal year. The projected year-over-year improvement in our consolidated operating income mostly relates to our expected improvement in operating performance by our mattress fabric segment. Notably, our expectations for the second quarter and the full fiscal 2022 year are based on the information that is available at the time of this webcast presentation and reflect certain assumptions by management regarding our business and trends. Additionally, based on current expectations, capital expenditures for this fiscal year are expected to be in the $10 to $10.5 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 is expected to be approximately $7.5 to $8 million for fiscal 2022. With that, we'll now take your questions.
spk07: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. Our first question today comes from Anthony Lebedzinski with Stododian Company.
spk01: Yes, good morning, and thank you for taking the questions. So certainly impressive results even with all the cost headwinds that are out there. So I guess, you know, first I just wanted to ask about the, you know, pricing actions that you took in the quarter last You know, how much of a benefit was pricing in the first quarter, just so we could get a handle on, you know, unit volume growth versus pricing?
spk05: Yeah, Anthony, this is Ken. You know, on a consolidated basis, and keep in mind that the price increases kind of came in at different times during the quarter. So it was about 2.5% impact. for the quarter versus the total increase in sales.
spk01: Got it. Okay. All right. That's very helpful. Okay. And then, you know, can you talk about the strong backlog that was referenced in the, you know, residential upholstery business? You know, how should we think about that in the, you know, as far as, you know, the expectation for that backlog to turn into revenue? Yeah.
spk04: Yes, Anthony, this is Boyd. And we continue to see strong demand in the residential side of our business. And the backlogs today remain in relatively relative to even pre-pandemic remain in good levels, very good levels. We have seen the backlogs, our backlogs come down from the peak as our output has been able to align with the demand. But we still have very strong backlogs in that business. The industry still is reporting extended backlogs. And in many cases, our manufacturers are reporting still having record backlogs. So backlog in residential continues to be strong and certainly supports that going forward into this fiscal year. And as mentioned earlier, in our hospitality business, we are seeing increasing orders coming in in the hospitality area as travel has started to return. In the Reed Window Products business, those backlogs are up now to levels that we haven't seen in a couple of years. So there is a lag time between those orders coming in and when that will be realized in sales as those projects get installed. But that certainly is we're optimistic about what we're seeing in the backlogs for really all segments of our business.
spk02: Anthony, this is Eve. I wanted just to tack on a bit to what Boyd was saying. A little bit of a nuance that's important for everyone to understand about the residential upholstery backlogs. We still have, as Boyd mentioned, very healthy backlogs. But what you should know is because of our strong supply chain and the network and the flexibility of our platform, we're absorbing that backlog and actually shipping product to customers. So having a crazy extended backlog, which we hear about a lot in the industry, is not positive. We want a strong backlog that we're actually shipping and pulling through demand, and we're seeing that start to happen. So while we love the backlog we have, we want it to be manageable. And our supply chain has allowed us to get it to a very manageable place that's encouraging for us in the service standpoint because we're passionate about servicing customers, meeting commitments, and that's what we're doing in both businesses, but especially proud of what Boyd and his team have done on the residential upholstery side.
spk01: All right. Well, thanks a lot, Is, and Boyd, for that. detailed explanation. So as far as labor shortages, obviously it's an issue that's prevalent throughout many different businesses. Can you talk about the steps that you're taking to try to minimize the impact of that?
spk02: Yeah, Anthony, that's a really good question. I would say for the mattress fabrics business, which is primarily a North American supply chain for us, at least by a percentage, That's where we see the most labor challenges. So we're doing a lot of things internally to engage our employees more effectively, to recruit employees more effectively, and just try to build our business. That does come with some wage pressure, although I will tell you, if we can get a more stable workforce, we can offset so many other costs of training and things of that nature. So I don't worry about Wage costs, we need to do what we need to do to get stable labor force. And then on top of that, having our flexible platform. And remember, in Mattress Fabrics, we operate across six countries, either through our own facilities or through supply chain partners. So we just have to be prepared to move items to where we can get them. And that's part of the strategy forever. That's an inherent strategy of the business. We'll use it more in times like this. to just flex our muscle and, again, be sure we're meeting our customer commitments through our very robust supply chain.
spk01: Okay. Well, thank you very much. That's all I had, and best of luck. Thank you. Thank you, Anthony. Yep.
spk07: Our next question comes from Bud Bugach with Water Tower Research.
spk06: Good morning, Eve. Good morning, Ken. Good morning, Boyd. Congratulations to you and your team for navigating these challenging times. I just want to make sure I understand when you looked at the inflation and the uncertainties, is there any way you can rank them for us and give us what are the most pressing problems and maybe put some color or some quantification on that?
spk05: Yeah, but I'll start, and Boyd can certainly jump in. I think it's really when you look by division, I think that on the upholstery side, when you look at, I guess, a sequential look, freight is a huge issue. Freight has been one that's been pressuring us really starting last year and has really gotten worse. You know, on the upholstery side, we're not dealing with the same labor pressure as the mattress side, but freight certainly on the upholstery side has been a big factor. I think for mattress fabrics, it's raw material prices. You know, those have been steadily increasing. Labor, obviously, is a big issue as we continue to try to hire folks and not only hire them, keep them hired. But those are the, you know, it's various pressures, but when you kind of define it by division, those are the ones that kind of rise to the top.
spk06: And in the raw materials in mattresses, is it primarily foam? Where is the What's the raw material that's given you the biggest issue?
spk02: Yeah, I would just clarify a bit of what Ken said. For sure, the most concerning go-forward on the mattress side is labor. But raw materials, to Ken's point, that would be more of a customer challenge, and that would impact our delivery to a customer. When we say raw materials, we mean more yarns, laminates, materials. different finishing things we need to run our products. So there is definitely a rising material cost to us coming in. But I would put that secondary behind labor as a go-forward concern. Okay.
spk06: And when you put your freight surcharge in, when I hear surcharges, is that a temporary surcharge, or do you think it's going to become a permanent surcharge, or will you wrap that into a price increase that becomes permanent? How do we think about that?
spk04: Yeah, Bud, this is Boyd. And I think with the volatility we have seen in the freight pricing and particularly the just extreme acceleration or increase in rates there, we thought that the surcharge was the way to go because it's just a lot of uncertainty around what will happen from here. So it could become longer term just depending on where those freight rates remain. And again, there's a high degree of uncertainty as to how that will play out. So we're with a surcharge, we're poised to react in whatever way it might play out from here. And that's really the reason we decided to approach it in that manner.
spk02: Yeah, I think this is about tech on the boys comments. He's exactly right. Both businesses have already done a price increase to offset some of the pressure. We just felt like without knowing where it's going, and seeming to be changing almost every week. A surcharge is more appropriate for this second action so we can pass on what was appropriate, not too much, not too little, and then be able to react either way. I would want you to know that besides, we're not just passing on every increase we get. We're also trying to do a lot of work by shifting our supply chains and then trying to do a lot to mitigate our incoming costs. So our intention is not to pass everything on. We just want to pass what's appropriate and then be able to react. If we have to do more, we'll do more. If we can pull some of that back, we'll pull it back, only when it was appropriate. So it's a lot of nuance, too, and just trying to figure out the right mix.
spk06: Okay. And I was trying to understand if there's – I know containers have been a big issue in particular, I guess, in the goods coming from Asia and Going back, are you seeing any change in that condition at all? Are the container prices and the container availability changing at all? Is it getting better or worse? How are you seeing it in the recent weeks?
spk04: I would describe it, Bud, as it has continued to be upward pressure in the most recent weeks on pricing. Availability, we haven't for our customers moves of containers to our North American distribution points. We haven't had too much difficulty in availability to this point or creating disruption, but certainly the costs have continued to escalate in the most current weeks.
spk06: Okay. Just a couple of modeling questions, if I could. Ken, you had said, I think, if I got it right, that The tax rate that you're projecting or pending for the second quarter is 30%. Is that correct? That's correct. And you normally have a 35%. How about for the year? What are you thinking it's going to be? Is it still 35% overall?
spk05: Well, yeah, we had projected the last quarter to be in the 35% area. We came in at 28.7% this time. So I think based on what we know today and based on the mix of what we see, we're saying approximately 30% should hold for the year, second quarter as well as the year. Second quarter is for the balanced third and fourth quarter as well?
spk06: Correct. Okay. And you said, I think, CapEx 10 to 10.5 million, and the second quarter was going to be heavy. Did you put a number to the second quarter? If you did, I missed it.
spk05: No, we did not. I'll just say that a sizable portion of that is going to be in the second quarter. You know, we spent – 1.9 or rounded up to 2 million in the first quarter. We're guiding 10 to 10 and a half. I would say that you're probably going to be at least by the end of the second quarter, you're probably going to be at least well over half spent for sure.
spk02: Two of the significant projects come online in Q2.
spk04: Correct.
spk02: Between Condon Yards, our innovation campus, and Haiti for CUF.
spk06: Correct.
spk02: A lot happened.
spk06: I understand and congratulations on that and condolences to the people of Haiti for what they've had to go through. I think you put out a release and fortunately you were not impacted in your geography. But Haiti comes on at the end of the second quarter, you think? Yes, sir.
spk02: The third facility that we have there for upholstery cut and sew comes online in the second quarter. And yeah, but I would say thank you for the comments about Haiti. We are significant distance from that earthquake region, but certainly just a terrible thing for the country of Haiti. And we're doing quite a bit here from a humanitarian side to do a lot of donation to that country. It's a beautiful country, terrific people that want to work and want opportunities. So we're thrilled to be there. It's a special place for us and an important part of the future for CULT.
spk06: Understood, and appreciate your efforts on their behalf. And last for me, just to talk about the mattress unit side and what the impact has been now that we've gone through the second round of the anti-dumping. We're seeing iTrack mattress units imported every month, but what are you seeing is coming for your business because it's a little more complicated for Culp because now you've got the cut and sew, so we can't quite figure out what the unit side looks like. Can you give us a feeling of how that looks just in terms of mattress units or yardage units or some way to frame that in terms of some color?
spk02: Yeah, it's a good question, Bud, and you're right. Trying to follow the anti-dumping numbers is choppy at best. I think it has definitely been impacted some in the last short-term period from foam shortages and other things that have maybe forced some importing that wouldn't be normal. We see optimism on units. What we see is so much investment being done from new foam companies, new fulfillment companies new setups to deliver mattresses in North America. So for us, we're very optimistic both on fabric yards and cut-and-sew covers. I think we see a strong demand, and we would expect over the longer term to go back to the sales levels we were in our strong days. There's a good recovery that we think will happen over the medium to long term.
spk06: I'm sorry, go ahead. We're confident with the units. And did you see that in the second quarter with the units? If you measure it, I'm sure you look at it kind of differently than we have to because you get to see some numbers we don't get to see. In our first quarter? Yes, sir, in the quarter that just ended. Yes, sir.
spk02: Yeah, so we are seeing very definitely, definitely strong use, especially on cut-and-sew covers. And then continuing building – Units on knits. So there's a mix there, but, yes, units both fabric and covers are increasing.
spk06: And, Lance, just reacting to one of the things you said, you're seeing new – are you seeing new startups? And, like, I remember in the days when we had the digitally native brand explosion with a lot of the marketing companies. Are you seeing that again? Are we seeing more of those develop? I thought we saw – a retracement on some of those.
spk02: Yeah, I'm not seeing new mattress brands. I'm just seeing more infrastructure for supplying the current brands. I'm not seeing an explosion of new in-consumer items. I'm not seeing that. I just see more focus on delivering it here.
spk06: And is any of that the anti-dumping country companies coming to the states? Yes.
spk02: Yes, but we hear rumors of that all the time. How for sure that will be at the end of the day is, I guess, still in question. But we do hear rumors of that.
spk06: And that's an opportunity as well as a potential challenge for Culp, right?
spk02: I would see it as an opportunity because, you know, it's important to know this. Anti-dumping is on the mattress. It's not relative to components like fabric or covers. But what we would do in that case, if that – If that was an option for new companies here looking for mattress covers, we could still flex our muscles in both Haiti and Asia to deliver covers here to be assembled in a mattress. It actually makes it much easier for us to find the end customer of ours versus two years ago where we were having to try to chase that all around the world. So much better to have a final supply chain where we know where to deliver the product.
spk06: Great. Okay, that's terrific. Well, good luck on the second quarter and the balance of the year. Thank you, Bud. Thanks, Bud.
spk07: And again, if you have a question, please press star, then 1. Our next question comes from Marco Rodriguez with Stonegate Capital Markets.
spk03: Good morning, everyone. Thank you for taking my questions. Good morning, Marco. Good morning. I was wondering if, just to kind of follow up on some of the line of questioning when it comes to the price increases and the surcharges, just wondering if you could provide any sort of customer feedback you're receiving, just trying to kind of get a sense. I know some of this stuff is contractual, but kind of wondering if you have some kind of color on customer sentiment, if there's like significant pushback or, you know, these are things that are happening across multiple industries. So it's kind of just an accepting of these increases.
spk04: Marco, this is Boyd, and I can speak from the upholstery fabrics side of the business. And certainly this is industry wide pressures that are occurring. So the same pressures that we have been under, our customers have faced in multiple ways as well. So where no one likes price increases, there's certainly an understanding in the marketplace today that these steps are necessary. So for that reason, we're not seeing significant pushback because it's understood as to what's happening throughout the industry today and that these steps are really something that are necessary. So not too much pushback.
spk02: Yeah, I think Boyd said that really well. Marco, it's Eve. I'll add just a little color there, too. Pick up the mattress side. Same. Same comments. No one is surprised by it. Certainly none of our customers like it. But I do think we've done a good job passing on what's appropriate at the right time frame. Not necessarily immediately, usually with some lag. That might not be perfect all the time for quarterly results. It is the right strategy for the long-term view of the business. So I think I think it's been generally accepted well, as well as these things could be.
spk03: Got it. And then just following up on a question from the prior caller, in terms of the unit sales or the unit movements on the mattress fabric side, I was wondering maybe if you could perhaps frame it from a growth rate perspective, if you have that information here in this last quarter from your more, shall we call it traditional mattresses versus the bed-in-the-box
spk02: Yeah, we don't always break it out that way, Marco, because when we sell covers, it's also fueling our fabric supply as well.
spk05: Yeah, and Marco, I'll jump in there too. Product mix goes a long way when you look at our sales from quarter to quarter. And with covers versus yards of fabric, it's very difficult to, even on both sides, you can't really nail down a per unit product. So we just look at it in total. We know that, as Yves said earlier, you know, nits, we had strong growth in nits. We had strong growth in covers. So from the standpoint of unit growth, for sure there, we got the benefit of the price increase as well. But, you know, I think it's difficult to quantify, but we would say that we got, you know, again, saying it again, there was significant unit growth, and we got the benefit of the price increase as well.
spk02: And we've seen from an industry standpoint, we're seeing growth at traditional retail and e-commerce. So we see growth across the whole chain. I don't see it stronger one or the other. It's both, which is good for Culp. We have abilities to sell through both channels.
spk03: That is very helpful. And then coming back to one of the comments you made on the prepared remarks in your call about on the upholstery fabric side, I believe you You called out LiveSmart Evolve fabric that has a sustainability hook, if you will. Is that using the same sort of yarn that I believe it was on a prior call where you had a cooling type fabric that also had a sustainability angle?
spk02: Yes, Marco. That's exactly right. LiveSmart Evolve actually was first before the other products called ChillSense. What we've done in both businesses is look for combining performance with sustainability. LiveSmart Evolve combines stain performance, stain proof, stain treatable fabrics along with sustainability, recyclable products. Then ChillSense combines cooling with that same sustainability. Each business has a different view of what performance means, but we do think there's so much momentum around a sustainability type product line. So we're pushing that hard in both divisions.
spk03: Got it. And are you seeing a pickup in demand for the sustainability aspect versus your more traditional fabrics, if you will?
spk04: Yeah, Marco, this is Boyd. And certainly, as Yves mentioned, our evolved product on the upholstery side Yes, it was one of the leaders in our first quarter in terms of growth that we're seeing. So sustainability is certainly resonating with the consumer and is also seeming to receive very good and strong response at the retail level. So without a doubt, our products that include the sustainability component are certainly one of our fastest growing product categories right now.
spk03: Got it. And last quick question for me. I don't know if I missed this on the call, but the share repurchases, what were the average prices you purchased that? And if maybe you can discuss briefly the drivers behind those recent purchases.
spk05: Yeah, Marco, this is Ken. I think the second part of that, you know, we've always said that we would be out there at opportunistic prices. And so As the stock was trailing down, we felt it was time for Culp to jump in. As far as an average, I don't have an average in front of me, but we've been in the $13 to $15, $16 range throughout the period, more toward the $15 to $13 range. It's been an average of... share repurchases. So I'd say I'd kind of couch it like that.
spk03: Got it. Very helpful. Thank you guys for your time. I appreciate it. Thank you, Marco. Thank you. Thanks.
spk07: This concludes our question and answer session. I'd like to turn the call back over to Yves Culp for any closing remarks.
spk02: Thank you very much. And again, thanks to everyone for your participation and your interest in Culp. We do look forward to updating you on our progress next quarter. Have a great day.
spk07: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

-

-