CULP INC

Culp operates in the mattress fabrics and upholstery fabrics markets for bedding, residential, commercial, and hospitality furniture applications in North America. The bedding industry has experienced weakness in domestic mattress sales since the second half of fiscal 2022, with industry reports reflecting significant unit contraction and historically low volume, driven by inflationary pressures and related uncertainty affecting consumer spending, especially for mattress products in the low to mid-range price points. Industry reports indicate that these factors, along with price increases driven by recent tariff-related actions, are expected to continue affecting the bedding industry into fiscal 2027. The residential and commercial upholstery market depends on consumer and business demand for furniture products, which is subject to variations in the general economy, including current inflationary pressures affecting consumer spending and declines in consumer confidence. In the hospitality market, travel and leisure spending has been challenged by ongoing global volatility, tariffs, and inflation, causing hotel and resort properties to be reluctant to start new projects or delay planned projects. The sourcing of components and fully assembled furniture from overseas continues to play a major role in the furniture industry, with the largest source for imported upholstery continuing to be China, while China and Vietnam serve as the largest sources for fully assembled furniture.

The company competes in a business driven by fashion and product performance, differentiating itself through a sustained focus on creativity and product innovation, excellent and dependable service, and a supply chain that provides sourcing optionality across a variety of jurisdictions. The company is one of the largest marketers of mattress fabrics for bedding and upholstery fabrics for residential, commercial, and hospitality furniture and other applications in North America. The residential furniture industry has been consolidating for several years, resulting in fewer, but larger, customers for marketers of upholstery fabrics, and intense price competition continues to be an important consideration for both residential and commercial furniture.

The company generates revenue by marketing a variety of fabrics to a global customer base of leading bedding and furniture companies, including fabrics produced at its own manufacturing facilities and fabrics sourced through other suppliers. Revenue is transactional in nature, derived from the sale of fabrics in roll form, sewn mattress covers, cut and sewn kits, and window treatment products with installation services. The company's operations are classified into two operating segments for reporting purposes: bedding and upholstery.

The bedding segment manufactures and markets bedding and sewn mattress covers to bedding manufacturers, including woven jacquard fabrics, knitted fabrics, and some converted fabrics. Bedding segment sales constituted 57% of total net sales for fiscal 2026, compared with 53% for fiscal 2025. The company has emphasized fabrics that have broad appeal at prices generally ranging from $2.00 to more than $18.00 per yard. The bedding segment operates a fabric manufacturing facility in Stokesdale, North Carolina, and a leased facility in Ouanaminthe, Haiti, on the Dominican Republic border. Following the Fiscal 2025 restructuring, the company closed its manufacturing plant in St. Jerome, Quebec, Canada, and transitioned its woven jacquard fabric operations to a strategic sourcing model primarily utilizing a long-standing supply partner in Turkey. The bedding segment also sources some knitted fabrics, certain converted fabric products, and sewn mattress covers using its China platform, and sources sewn mattress covers from a strategic supply relationship in Vietnam.

The upholstery segment markets fabrics for residential, commercial, and hospitality furniture, and includes window treatment products and installation services through its Read Window Products business, including roller and solar shades, drapery, roman shades and top treatments, hardware, and top-of-mattress soft goods. Upholstery segment sales totaled 43% of total net sales for fiscal 2026, compared with 47% for fiscal 2025. The company has emphasized fabrics that have broad appeal at prices generally ranging from $5.00 to $15.00 per yard. The upholstery segment operates two facilities in Shanghai, China, and sources unfinished and finished fabrics, as well as cut and sewn kits, from a limited number of strategic suppliers in China, Vietnam, and Turkey. The segment also fabricates window treatment products at the company's facility in Stokesdale, North Carolina, and uses a limited number of strategic suppliers in the U.S. and Mexico for window treatment fabrication. In fiscal 2024, the company established an administrative office in Ho Chi Minh City, Vietnam, for enhancing sourcing capabilities and further diversifying its supply chain in Asia, and in fiscal 2026 added a showroom in Ho Chi Minh City, Vietnam.

At the beginning of fiscal 2025, Culp announced and initiated the Fiscal 2025 restructuring, which included the consolidation of North American bedding operations, including a gradual discontinuation and closure of the manufacturing plant in Quebec, Canada, and the incorporation of knitting and finishing capacity into the Stokesdale, North Carolina facility; transitioning the bedding segment's internal weaving operation to a strategic sourcing model; consolidating the Haiti sewn mattress cover operation into one building; restructuring the upholstery finishing operation in China; and reducing unallocated corporate and shared services expenses with targeted annualized savings of $1.5 million ¹. Since inception, cumulative restructuring and restructuring-related charges totaled $5.3 million ², including a restructuring credit of $(3.4) million ³ in fiscal 2026 related to the sale of the Quebec facility, $8.7 million ⁴ of charges during fiscal 2025, $7.2 million ⁵ of cash charges, and a $(1.9) million ⁶ non-cash restructuring credit. At the end of fiscal 2025, the company announced and initiated a strategic transformation combining its two operating divisions into a single integrated business, which included closing leased facilities in Burlington, North Carolina, and Knoxville, Tennessee, and reducing the upholstery facility footprint in China from three to two facilities during fiscal 2026. Since inception of this integration, restructuring and restructuring-related charges totaled $2.7 million ⁷, of which $676,000 ⁸ were incurred in fiscal 2025 and $2.0 million ⁹ in fiscal 2026, including approximately $1.4 million ¹⁰ in cash costs and $1.3 million ¹¹ in non-cash charges.

Total net sales for fiscal 2026 were $203.5 million ¹², compared to $213.2 million ¹³ in fiscal 2025 and $225.3 million ¹⁴ in fiscal 2024. Bedding segment sales were $116.6 million ¹⁵ in fiscal 2026, $113.9 million ¹⁶ in fiscal 2025, and $116.4 million ¹⁷ in fiscal 2024. Upholstery segment sales were $86.9 million ¹⁸ in fiscal 2026, $99.3 million ¹⁹ in fiscal 2025, and $108.9 million ²⁰ in fiscal 2024.

The company continues to diversify its sourcing strategies to develop additional geographic options to service customers, including developing strategic supplier relationships in Vietnam for additional sourcing of cut and sewn kits beginning in late fiscal 2019, and in Turkey for additional sourcing of fabric products beginning in fiscal 2022. The company established an administrative office in Ho Chi Minh City, Vietnam, in fiscal 2024 for enhancing sourcing capabilities and further diversifying its supply chain in Asia, and added a showroom in Ho Chi Minh City, Vietnam, in fiscal 2026 to facilitate better product exposure with a growing customer base there. The company also continues to expand marketing efforts to sell upholstery products in countries other than the U.S., including the Chinese local market.

The company's integration of its two operating divisions into a single integrated business is designed to optimize operational agility, further streamline costs and processes, and increase responsiveness to customer needs and market trends. This integration includes increased centralization and collaboration among previously division-specific functions and departments, the transition of duties of certain key division leadership roles to a company-wide scope, and the consolidation of certain upholstery and window treatment operations into a shared management model within the owned Stokesdale, North Carolina facility. The integration actions were completed by the end of fiscal 2026.

The Fiscal 2025 restructuring was designed to reduce costs, improve asset utilization, and drive performance and profitable growth, with targeted annualized savings of $1.5 million ²¹ from reducing unallocated corporate and shared services expenses. The restructuring included cost efficiency, throughput and quality improvements via optimization of volume and equipment in the bedding operation in Stokesdale, North Carolina, and consolidating the Haiti sewn mattress cover operation into one building to significantly reduce operating expenses at that location.

The company's supply chain posture includes operating production and distribution facilities in North Carolina, Shanghai, China, and Ouanaminthe, Haiti, and sourcing fabrics and cut and sewn kits from other manufacturers located primarily in China, Vietnam, and Turkey. The company closed its manufacturing plant in Quebec, Canada, and transitioned its bedding weaving operations to a strategic sourcing model primarily utilizing a long-standing supply partner in Turkey. The company also closed leased facilities in Burlington, North Carolina, and Knoxville, Tennessee, and reduced its upholstery facility footprint in China from three to two facilities during fiscal 2026. The company has made capital expenditures over the past 12 fiscal years to consolidate production facilities, modernize knit and weaving equipment, enhance finishing capabilities, and expand capacity, resulting in increased manufacturing efficiency and reductions in operating costs.

The filing does not disclose specific R&D spending levels, capital expenditure plans, share repurchase authorization amounts, or dividend policy figures.

The bedding industry has experienced weakness in domestic mattress sales since the second half of fiscal 2022, with industry reports reflecting significant unit contraction and historically low volume, driven by inflationary pressures and related uncertainty affecting consumer spending. Industry reports indicate that these factors, along with price increases driven by recent tariff-related actions, are expected to continue affecting the bedding industry into fiscal 2027. In the hospitality market, travel and leisure spending has been challenged by ongoing global volatility, tariffs, and inflation, causing hotel and resort properties to be reluctant to start new projects or delay planned projects. Significant challenges in the commercial real estate market following the COVID-19 pandemic and its impact on remote work trends have adversely affected commercial sales to some extent in recent years.

The company faces risks from changes in tariffs or trade policy, including changes in U.S. trade enforcement priorities, and litigation is ongoing as to whether businesses that paid tariffs that were invalidated by the U.S. Supreme Court in February 2026 may receive or retain refunds for those tariffs, which could be significant. Economic or political instability in international areas could affect operations or sources of goods, as well as demand for products in international markets. Increases in freight costs, labor costs, and raw material prices, including increases in market prices for petrochemical products, can significantly affect operating costs and decrease profitability.

The bedding industry has experienced significant unit contraction and historically low volume since the second half of fiscal 2022, driven by inflationary pressures and tariff-related price increases expected to continue affecting the industry into fiscal 2027. Changes in tariffs or trade policy, including ongoing litigation regarding refunds for tariffs invalidated by the U.S. Supreme Court in February 2026, could be significant and affect financial results. Economic or political instability in international areas, particularly in China, Vietnam, Haiti, and Turkey where the company operates or sources products, could disrupt operations or supply chains. Increases in freight costs, labor costs, and raw material prices, including market prices for petrochemical products, can significantly increase operating costs and decrease profitability. The company's success in diversifying its supply chain with reliable partners and achieving expected cost savings from restructuring programs, as well as returning the restructured bedding business to profitability, are critical to future performance.

Management's message emphasizes the company's position as one of the largest marketers of mattress fabrics for bedding and upholstery fabrics in North America, with a strategy focusing on creative design and product innovation, a strong multi-faceted and flexible global manufacturing and sourcing platform, solid long-term customer and vendor relationships, and reliable service. The key strategic priorities emphasized for the period ahead include the integration of the two operating divisions into one unified Culp-branded business to optimize operational agility, further streamline costs and processes, and increase responsiveness to customer needs and market trends, as well as continuing to diversify sourcing strategies to develop additional geographic options to service customers. Management also highlights the completion of the Fiscal 2025 restructuring actions, which were designed to reduce costs, improve asset utilization, and drive performance and profitable growth, with targeted annualized savings of $1.5 million ²² from reducing unallocated corporate and shared services expenses.