Culp, Inc.

Good day, and welcome to the Culp, Inc. fourth quarter fiscal 2026 earnings conference call. All participants will be in a 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 a touch-tone 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.

Thank you. Good morning and welcome to the Culp conference call to review the company's results for the fourth quarter and fiscal 2026 year. 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 revise forward-looking statements. In addition, during this call, the company will be discussing non-GAAP financial measurement. A reconciliation of these non-GAAP financial measurements to the most directly comparable GAAP financial measurements is included in the tables to the press release included as an exhibit to the company's SCORM 8K filed yesterday with the SEC and posted on the company's website at culp.com. An 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 Iv Culp, President and Chief Executive Officer of Culp. Please go ahead.

Thank you, Drew, and good morning, everyone, and thank you for joining us today and for your interest in our company. With me on the call is Ken Bowling, our Chief Financial Officer. We would like to first wish everyone an upcoming happy July 4th weekend and the celebration of our country's 250th birthday. 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 our results and strategies. That slide presentation is simply entitled Fourth Quarter FY26 Supplemental Information. Ken will then review the financial results for the quarter and the full year. After that, I'll briefly review our business outlook as we turn the page to fiscal 2027. and we will finish up with some questions. The main headline for our fourth quarter performance is the momentum we are building in key areas of our business as we closed out the fiscal year and now move into fiscal 2027. We are highly encouraged by our ability to achieve overall sales growth for the fourth quarter, both sequentially and year over year, in what remains a difficult macro environment for everyone, competitors, customers, and suppliers alike in our bedding and upholstery markets. We were also pleased to deliver sequential improvement across several important measures, including gross profit, operating results and the bottom line. We fully recognize that we have a lot of work ahead of us to reach the level of financial performance we ultimately expect here at Culp. But our progress this quarter clearly demonstrates to us that we are moving in the right direction. We are quite optimistic that fiscal 27 can represent a turning of the corner for Culp. The many initiatives we have undertaken and completed over the last two years to restructure our operating platform, integrate our bedding and upholstery segments, and sharpen the commercial focus throughout our entire business are beginning to produce tangible results. Thanks to the execution of the Culp team and dedicated partners spread amongst the U.S., China, Turkey, Vietnam, and Haiti, we enter the new fiscal year, 2027, encouraged about our performance trends, both above and below the line. Notably, our actions are expected to translate into more than $20 million of annualized savings, efficiencies, and other benefits that should meaningfully improve our operating leverage as industry volumes recover and we continue to execute against strategic priorities. We've provided some illustrative detail regarding our sequential improvement and momentum to finish the year on pages eight and nine of the supplemental presentation posted on the website, as well as itemized details around the restructuring, integration and other important milestones we've recently reached. That's on pages five through seven of the presentation. Our betting business, which is the larger of our two segments, finished the year strong and was an important contributor to the overall progress we saw in the quarter. That business delivered double digit sales growth and a nearly 40% improvement in gross profit compared with the third quarter, reflecting the host of operational actions we have taken to streamline and add more agility to that business. Even against what remains a challenging industry backdrop, We were able to expand our betting top line through continued share gains with major customers throughout our target market and by driving innovation across our product categories. Our team's ability to innovate within product design and development is an area where we've always been an industry leader and our capacity to also follow through with commercial execution to translate innovation into profitable products was especially evident in our sewn mattress cover category during the quarter. We've been able to expand our sewn cover offerings and refine our ability to efficiently manufacture covers within both our offshore and our nearshore platforms in recent periods. By broadening the range of products we provide beyond just knitted fabrics, we are growing our relationships with targeted customers in a meaningful way, while also increasing our opportunity to capture a better revenue share of the total mattress unit. Put another way, our value add to each mattress unit is higher with some covers, and the more functionality we can provide our customers, the more we can drive higher revenue for Culp, which is an important part of our growth strategy. On page 17 of the supplemental presentation, you'll see a nice summary of some of our more notable product development successes over the years. across both of our main segments, and that includes our platform development for some mattress covers. I'd like to take a moment to focus on market conditions in bedding. Given the amount of speculation regarding the prolonged downturn in demand we've all seen in the industry for several years now, we've provided some details on these market trends with some good information published by the International Sleep Products Association on pages 19 through 21 of the supplemental presentation. You can see there that ISPA, which has a comprehensive data-centric view into market sentiment across the industry, given its advocate role, is currently forecasting that shipments may finally begin to improve some in 2027. We continue to align with the opinion that conditions are ripe for the betting market to begin a natural replacement cycle. Mattress replacement activity among consumers in the U.S. has remained below normalized levels for an extended period now relative to past purchasing cadences. And like many in our industry, we believe that dynamic should create an opportunity for some pent-up demand to drive market stabilization. While we intend to continue growing our market position in this current challenge industry environment, as we showed with our revenue growth for the quarter, Any material escalation in housing activity or consumer spending levels should only add fuel to our growth pace. With a more efficient global operating platform, expanded product portfolio, and greater ability to support customers across multiple price points and manufacturing locations, we believe our betting business is very well equipped to convert improved market activity into higher sales and profitability. Now I'll turn to our upholstery business, which is experiencing more challenging headwinds at the moment. Like betting, the upholstery market continued to face a difficult demand environment during the quarter. However, the residential furniture markets, which our upholstery business serves, are even more closely tied to home buying and consumer spending activity. And the hospitality furniture market we supply is heavily dependent on discretionary consumer spending on travel and leisure. all of which have been pressured and have impacted purchasing behavior as of late. In addition, the uncertainty stemming from geopolitical conflicts, including impacts on petrochemical prices, along with tariffs and inflation, have been attributed to greater caution among our customers as well as end consumers. We have added some illustrations regarding these housing and consumer spending trends on pages 22 through 24 of the supplemental presentation. Despite the headwinds from these macroeconomic factors, we were pleased to deliver sequential revenue growth and margin improvement in our upholstery business during the quarter. Additionally, we completed the final steps to integrate domestic operations within our bedding segment. Our U.S. upholstery operations are now fully relocated and integrated within our owned manufacturing in North Carolina that houses our domestic bedding operations. These moves generate some nice efficiencies and productivity gains, and our China upholstery operations are also now running more efficiently through a reduced facility footprint and an enhanced outsourcing model. At the same time, we've added more upholstery capabilities in Vietnam, including a new showroom to facilitate better product exposure with our growing customer base there. The integration of our upholstery business is an important part of our broader effort to streamline our platform, reduce complexity, and create a more flexible and efficient structure. While furniture demand remains below where we would like it to be, the actions we have taken to reduce cost, improve operating discipline, and bolster our Asian presence positions our upholstery business to participate more profitably with consumer spending in the furniture market as that begins to level back up. Additionally in upholstery, we are continuing to lean into product innovation and re-emphasizing our fashionable line of performance products led by our premier performance brand, LiveSmart. Performance features are becoming table stakes for upholstery fabrics these days, and Culp has a long history and a leadership position in this category. This too is an encouraging and important development as we enhance our market position going forward. Looking at the overall business from a high-level perspective, we completed a lot of heavy lifting across our bedding and our upholstery segments over the last two years. And we move into fiscal 27 as a stronger, focused, and more resilient company with what we believe are significant competitive advantages. The changes we've made to better align our cost structure, go-to-market strategies, pricing, and supply chain capabilities with the realities of the current market and the customer needs are beginning to bear more fruit. Today we offer customers an optimal menu of supply chain options in the home furnishings market. That includes multiple offshore options with dynamic U.S. and near shore locations to accommodate programs more dependent on market proximity. This regional diversity is particularly valuable in the current trade environment where customers are forced to continue to focus on tariff navigation. and we believe our hybrid strategy positions us well to convert any improvement in consumer demand into stronger operating performance. I want to reemphasize that our focus at Culp remains firmly on the areas within our control. While we cannot influence market conditions or consumer spending levels, we can be disciplined in how we execute operationally and manage our costs in our balance sheet. We view the improvement in our sales levels and financial results for the quarter as key success markers in these areas. Moreover, we made terrific progress in our initiative to reduce overall inventory with a $5 million favorable outcome in the quarter that Ken will review in more detail. We remain committed to our ultimate goals of returning the company to profitability independent of any changes in market conditions. while also reducing debt and creating value for our shareholders through sustained profitable growth. As I mentioned, while we're pleased to have completed our planned platform restructuring activities, I want to emphasize that we will not hesitate to make further adjustments to our model in fiscal 27 to achieve our performance goals if circumstances warrant. We have also implemented some new pricing actions across both segments of our business to keep pace with rising raw material costs from petrochemical and other supply chain pressures. Lastly, with respect to debt reduction, we are pleased to report that during the first quarter of fiscal 27, we have received approximately $7 million in IEPA tariff refunds that we were expecting following recent court rulings. These refunds should significantly reduce our debt levels and provide a meaningful benefit to our liquidity and financial flexibility as we move through the new year, as well as help counterbalance some of the elevated tariff expense we incurred in fiscal 26. With that, I'll now turn the call over to Ken.