Culp, Inc.

Good morning and welcome to the CULP first quarter fiscal 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. 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.

Thank you. Good morning, and welcome to the CULP conference call to review the company's results for the first quarter of fiscal 2026. 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. Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations and financial results. 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 measurement is included in the tables to the press release, included as an exhibit to the company's 8K files yesterday, and posted on the company's website at cult.com. The investor relations presentation 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.

Thank you, Drew, and good morning, and thank you to everyone for joining us today and for your interest in our company. With me on the call is Ken Bolling, our Chief Financial Officer. Tommy Bruno and Mary Beth Hunsberger are not on the call today as they are fully engaged in their respective roles as Chief Commercial Officer and Chief Operations Officer, both of which are going exceedingly well. I will begin the call with some detailed comments, and as mentioned in the introduction, we have posted a slide presentation to our website that provides some information that is supplemental to what we will speak about today. That slide presentation is simply entitled First Quarter FY26 Supplemental Information. Ken will then review the financial results for the quarter, and after that, I will briefly review our business outlook for the remainder of fiscal 26, and we will take some questions. Looking at our performance for the first quarter, the key takeaway from our perspective is that we were able to build on the momentum we had to close out last fiscal year and realize improvement in our operating results, despite not only the depressed demand across the home furnishings industry that we're all too familiar with at this point, but also the continuing challenges from tariffs and the uncertain global trade environment. Even with these two significant headwinds, we were able to achieve substantial double-digit improvement at both the gross profit and operating lines during the quarter, particularly due to our streamlined betting segment. An improvement of that nature in this market and macroeconomic environment is a testament to the effective work of the CULT team over the last year. Throughout fiscal 25 and into fiscal 26, we made tremendous strides to successfully transform our Culp Home Fashions mattress fabrics business, which following the integration of our two former divisions, we now call our bedding segment. I'm impressed with how our team was able to execute on the comprehensive restructuring effort, including the closure and pivoting of production at a long-term manufacturing facility in Canada to our owned U.S. facility and some external strategic partners, while also making sure that our customer service levels remained the highest priority. I think it's important to emphasize that we're certainly not yet where we want to be from an operating and profitability standpoint and where we believe we ultimately will be. But our improving trend tells us that we're doing a good job of controlling and influencing the things we can in an unmistakably tough industry environment. The actions and gross profit impacts of our fiscal 25 North American betting consolidation and restructuring project are summarized on pages 8 and 9 of the supplemental presentation that is now available on our website. Before we take a closer look at our results for the quarter, I'd like to take a moment to focus on some interesting data and market commentary out there regarding activity in the bedding industry published by the International Sleep Products Association and others, which we've included on page 13 and 14 of the supplemental presentation. While the industry is obviously still in a down cycle, this information effectively shows how long the industry has been running below historic unit levels in the current cycle, and correspondingly, how much pent-up demand may be building to support an industry recovery in the future. Some analysts who closely follow the market appear to be of the mind the demand for mattresses is finally close to bottoming out, and the demand may be set to increase due to cyclical factors such as product replacement cadence and growth and household formation. To some degree, this information and commentary align with our own thoughts on the general direction of the mattress market, given the low activity levels we've seen over the last several years. However, As I've already mentioned, we are making the changes and updates to our business that are necessary to return Culp to profitability in this current demand environment. We will be pleased when the market recovers, but we are not counting on that. We are just working to get ourselves even better positioned to strongly capitalize on any recovery. This industry data also indicates to us that we've been able to win market share and gain a larger piece of the available mattress business by leveraging our competitive advantages in scale, product development and innovation, and the ability to use our global platform to value engineer products and offer better supply chain solutions to customers. With our Canada restructuring mostly behind us, we have competitive, stylish and innovative offerings in knits, wovens, cut and sewn covers and some bedding accessory products. Despite the historically low industry volume, and ongoing tariff fluidity, our betting segment was able to grow sales sequentially versus last quarter and comp sales year over year. Moreover and notably, with our newly streamlined platform in place, we achieved double digit gross margins in the betting quarter compared to negative gross profit in the prior year period. We also expect that our betting segment margins will continue to improve with sequential sales growth and normalize at a much higher range and particularly once the price increases we've initiated to mitigate tariff costs and also right size margins in certain areas become effective for the majority of the second quarter. Turning to culp upholstery fabrics, which we will now just refer to as our upholstery segment, soft market conditions across the home furnishings industry driven by muted consumer spending and housing market trends continue to impact that part of our business, especially on the residential upholstery side. The global trade and tariff situation continues to add more complexity to this business during the quarter due to the primarily Asian supply concentration that the residential upholstery industry has gravitated to in the last few decades. The historically high and temporary tariffs on China-produced imports last spring, which again reached over 150%, basically shut down our residential upholstery orders and shipments for over a month. Rather than absorb these cost increases for which we had no realistic time to plan, we simply did not ship any containers from China to the USA and waited for tariff rates to reduce to a more commercially reasonable level. The delayed effects of that pause in activity, along with the general market uneasiness and hesitancy that all these tariff changes and negotiations have created, significantly dampened sales in our first quarter of fiscal 26. We do have the ability company-wide to navigate tariff fluidity, and a snapshot of our global footprint is shown on a map on page 15 of the supplemental presentation. It has long been a hallmark of Colt to have options in our supply chain, and that advantage was definitely supportive to our betting performance this quarter. We have tremendous flexibility in our supply chain to service betting customers strategically and from multiple locations. Likewise, our global platform has the strength in upholstery as well, but the pace and ever-changing tariff rates in April and May were extremely challenging to the industry. With time to react, we can manage upholstery tariffs effectively and with strength, and we will continue to keep our ear to the ground and balance our production to best serve our customers. Sales in our upholstery segment were also challenged during the quarter, by an uneven year-over-year comparison caused by a large residential fabric customer's decision to focus most of its purchasing in the front half of last year, including a notable one-time buying uptick in last year's first quarter. We think this issue is now pretty much behind us, as we expect a more even purchasing cadence from that customer this year, and for sales comparisons to smooth out in the second quarter and the rest of fiscal 26th. Despite the challenges mentioned in residential upholstery, demand in the higher margin channels of our upholstery segment, hospitality and commercial, remained relatively solid, and those products comprised almost 40% of our total upholstery segment sales for the quarter. These channels are less directly impacted by discretionary consumer spending and housing market trends, given their focus on upholstery fabric for furniture, window treatments, and related applications in hotel, theater, office, retail, and other commercial settings. Moreover, the supply chains in these channels are less Asia-centric, although we are seeing some of our customers' projects and building plans impacted by the current tariff environment. As a final, bigger picture note on tariffs, they've obviously been a disruption to our overall business, whether it's actual tariff rates on our imported items or delays on customer projects. Again, though, when we can manage through changes with appropriate warning and time, we believe the disruption can actually become a competitive advantage for us. We've also made solid progress on an initiative we announced last quarter, the integration of our two former divisions into a unified, cult-branded business. We've internally named this activity Project Blaze, and our work should provide a significant boost to the operating profile of our business overall. and also help us better navigate the difficult residential upholstery demand and tariff environments. This project supports the two industry sales channels we target, but also allows us to move to a shared cost and talent model. Under the leadership of Tommy Bruno as Chief Commercial Officer and Mary Beth Hunsberger as Chief Operations Officer, we are becoming more streamlined in sharing best practices across products, resources, processes, technology, and supply chains. A summarized scope of this work by major project is contained on pages 10 and 11 of our supplemental deck. The transition of upholstery operations at our lease facility in Burlington, North Carolina, to a shared management model within our Stokesdale, North Carolina location is underway, and we expect the anticipated cost and efficiency benefits of that move to begin to manifest in our second quarter results, with the majority of the benefits supporting the second half of this fiscal year. Additionally, we recently announced internally a similar transition in our upholstery segment's reed window business, via which we are consolidating and shuttering operations at a lease facility in Tennessee into a more cost-effective shared management platform within our own Stokesdale location, along with outsourcing to some valued domestic partners. This move should begin to positively affect our results in the third quarter as we reduce lease and manufacturing costs accordingly. Once fully implemented, these integration actions, together with the price increases I previously mentioned, that are going into effect in our betting segment, beginning in the second quarter to mitigate tariffs and rationalize margins in some areas, are expected to generate at least $6 million in annualized cost and efficiency enhancements, which are additive to the $10 to $11 million of annualized benefits expected from last year's restructuring initiatives. Once again, the schedule and impacts of all these actions are summarized on the table on slide 11 in our supplemental deck. The Culp team has clearly not been sitting on its hands and waiting for the market to turn around. We are executing our strategies to become a leaner and more unified company that is prepared to thrive in a variety of market conditions, and we are very well poised for an eventual and general market recovery. We have best-in-class innovative products and a strong U.S. manufacturing base with well-established nearshore and offshore platforms that together give us what we believe is a growing competitive advantage in the market, particularly if customers continue to look for supply chain alternatives and geographic diversity in the current trade and tariff landscape. And as I mentioned in our press release, our highest priorities at Culp are to get back to sustained operating profitability and reduce debt, regardless of any improvement in market conditions. And we believe that we are well on our way to doing so. I'm encouraged by our progress, the talent we have leading our two segments, and the opportunities I believe we have to grow revenue and increase our operating performance. I'll now turn it over to Ken to provide more detail on our first quarter financial performance.