In early September, Culp Inc. (CFI) reported results for its fiscal 1Q09, which included lower net sales of $59.3M compared to $65.2M in the year-ago period, but still managed a profit per diluted share of $0.06 ($781K) versus $0.07 ($851K) in the year-ago period. Excluding restructuring charges, 1Q09 profits were $1M or $0.08 versus $1.5M or $0.12 in the year-ago period. In mid-August, Culp acquired the knitted mattress fabrics operation of Bodet & Horst to provide the Company with improved supply logistics, vertical integration, and improved customer service. The acquisition was financed by $11M in unsecured senior notes with no principal payments due for three years.

CEO Frank Saxon commented that the retail climate and furniture industry is "as difficult as we have seen in many years," and 1Q09 results were driven by performance in the mattress fabrics (ticking) business which countered a greater than expected loss in the upholstery fabrics business. Mattress ticking sales for 1Q09 declined by 2.7% to $35.6M while upholstery fabric sales slid by 17% to $23.8M, as compared to the year-ago period. Unit sales of mattress ticking decreased 4.7%, which was partially offset by a 2.1% rise in the average selling price. The unit sales of upholstery fabrics decreased 16.9%, compared to a 3.5% increase in the average selling price.

Culp is implementing a profit improvement plan in response to the challenging retail climate and furniture industry, overall economic uncertainties, and the continued housing slump which includes the following actions: modest price increases for select upholstery fabrics during 2Q09, negotiating price concessions from suppliers for high-volume materials, a 20% cut in SG&A expenses (completed at the end of August 2008), and consolidating China manufacturing facilities to decrease excess manufacturing capacity. The last two cost-cutting initiatives are expected to save a total of $4M annually in expenses, with the reduction in manufacturing capacity being implemented over the next five months – resulting in an expected pre-tax charge of $3.2M ($2.9M non-cash) in 2Q09

Despite the current economic and furniture industry challenges, the CEO is cautiously optimistic on Culp's future prospects based on less competition (e.g. former public company Quaker Fabric went bankrupt in 2007), an expanding customer base for upholstery fabrics, operational improvements to domestic manufacturing facilities, and continued benefits from the ongoing profit improvement plan.