1Q22 Update: Operating Results Beat Estimate; Cost/Price Pressures Persist; Revenues Strong



KEY POINTS
  • Culp reported results for its fiscal 1Q22 on September 1, after the market close. On a consolidated basis, results beat our estimate for the major metrics: (1) sales, (2) operating income, and (3) earnings per share. A detailed comparison of 1Q22 versus 1Q21 versus our estimates is provided in the table following.
  • 1Q22 consolidated sales were $83.0 million, up 28.8% versus 1Q21. Though not shown in this note, 1Q22 consolidated sales were 17.4% higher than 1Q20 sales, the year before the pandemic. By our calculation, 1Q22 sales accounted for ~$0.03 improvement YOY in adjusted EPS.
  • 1Q22 total sales also beat our $77.4 million estimated sales and accounted for ~$0.01 EPS gain versus our estimate.
  • Similarly, income from operations (operating income) grew YOY to $3.3 million versus $1.9 million in 1Q21 and versus our $2.9 million estimate. 1Q22 operating margin was 4.0% versus 2.9% in 1Q21 and our 3.8% estimate. Again, we calculate the improved operating profit boosted the YOY EPS comparison by $0.07 and the beat to our estimate by ~$0.02.
  • The improved operating profit was aided by excellent expense control and the sales gain but offset by inflationary items that pressured gross margin. 
  • Consolidated EPS for 1Q22 was $0.18 versus non-GAAP (as adjusted) EPS of $0.08 in 1Q21 and versus our $0.13 estimate. The beat versus our estimate was aided by a lower-than-forecast tax rate (28.7% vs. 35%) that added ~$0.02 per share and lower-than-forecast other expense that accounted for ~$0.01 per share.
  • Drilling down by segment, Culp’s upholstery fabric (CUF) segment sales grew by 41.0% versus 1Q21 to ~$40.0 and by 25.5% versus 1Q20. CUF sales beat our $36.2 million estimate by ~$3.8 million. That said, due to the inflationary pressures, CUF operating profit missed our estimate by ~$450,000. The miss was entirely centered in gross margin as segment operating expenses appeared very well-controlled.
  • Culp’s mattress fabric segment (CHF) 1Q22 sales were ~$43.1 million, up 19.3% versus 1Q21 and 10.8% above 1Q20. Versus last year, CHF operating profit grew by ~96% to $3.6 million. CHF operating profit beat our estimate by ~$830,000. Irrespective, inflation also impacted CHF results.
  • Culp’s financial condition remains strong with cash and investments of ~$44.0 million and no outstanding borrowings as of quarter end. Reflecting some increased use of working capital, cash flow provided from operating activities was $1.6 million.
  • The company declared its $0.11 per share cash dividend and disclosed that it had purchased 48.6K shares during 1Q22 and an additional 47.8K shares since the end of the quarter through August 31.
  • In terms of forward guidance and noting uncertainties, management noted that it was encouraged by its product-driven strategy, expanding reach, and resilience of its global platform. It now expects 2Q22 consolidated sales and operating income to be comparable (flat) to 1Q22 results. While that is a moderation from earlier expectations, management further opined that it still expects net sales to continue to rise “moderately” (total fiscal 2022 sales gain on 8% to 12%) and 2022 consolidated operating income to increase “significantly,” by 20 to 25% versus 2021.
  • Last, we believe the recent tragic earthquake spared Culp’s operations in Haiti. Management is grateful for that and has spearheaded some efforts to help those in need. Its expansion is still due for completion at the end of 2Q22 or the beginning of 3Q22.

Culp reported results for its fiscal 1Q22 on September 1, after the market close. On a consolidated basis, results beat our estimate for the major metrics: (1) sales, (2) operating income, and (3) earnings per share. A detailed comparison of 1Q22 versus 1Q21 versus our estimates is provided in the table on page 2.

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