Updating Estimates on Culp, Inc. after 2Q22 Report



KEY POINTS
  • With this note, we are updating and refreshing our forward estimates for Culp – following its 2Q22 earnings report, issued Wednesday, December 1st after the market close, and management’s conference call, conducted the next morning.
  • As we suggested in our note, issued on December 2nd, it seemed unlikely that anyone should have been surprised by some of the difficulties that Culp faced during 2Q22. If the phrase “supply chain” had not been in common use before spring 2021, it certainly is now. Currently, supply chain, inflation, and a new Covid variant each continue to be top of mind for many Americans. For reader convenience, we include our variance analysis as Tables 1 & 2.
  • Most notable, in our view, in the aftermath of Culp’s report are the following: (1) Despite the disappointment of revenues and earnings versus management’s initial expectations, the company navigated the various challenges reasonably well in that it maintained profitability; (2) The company has a global platform for offshoring and near-shoring fabric and kits that balances the needs of its manufacturing customers and balances its capital deployment; (3) Culp’s balance sheet and financial condition remains strong, with zero debt and and an increased quarterly cash dividend; and (4) Despite withdrawing specific guidance, management did provide a directional view about its 3rd and 4th quarter. It also evinced optimism about the long-term future.
  • Our estimates are summarized in the "Estimates and Valuation" table and shown in detail with our income statements, balance sheet, and cash flow models below.
  • We have studied and observed Culp for many years and witnessed the company adapt to and navigate difficult macroeconomic conditions. We do not, however, recall a time when we thought that the company was positioned better than it is today. Today, the company’s global platform in both segments positions it to serve its customers consistently and profitably. Its new Innovation Campus allows it to reach its manufacturing customers in a way that was not available to it in times past. And its commitment to innovation can continue to play an important part for new fabric solutions to keep abreast and ahead of industry and fashion trends in the home furnishings industry.

ESTIMATES AND VALUATION

With this note, we are updating and refreshing our forward estimates for Culp – following its 2Q22 earnings report, issued Wednesday, December 1st after the market close, and management’s conference call, conducted the next morning.

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