Culp to take steps to achieve profitability in upholstery fabrics
04 Sep '08
5 min read
With our woven fabrics expansion and the completion of the B&H acquisition, Culp is now positioned with a large and modern, vertically integrated manufacturing platform in all major product categories of the mattress fabrics industry. Our strategic focus in mattress fabrics continues to be on providing our customers with outstanding delivery performance, quality and innovative fabrics."
Upholstery Fabrics Segment: Sales for this segment, which include both fabric and cut and sewn kits, were $23.8 million, a 17 percent decline compared with $28.7 million in the first quarter of fiscal 2008. Total fabric yards sold, which exclude fabric used in cut and sewn kits, declined by 16.9 percent, while average selling prices were up 3.5 percent compared with the first quarter of fiscal 2008.
Upholstery fabrics sales reflect substantially lower demand industry wide, as well as continued very weak demand for U.S. produced upholstery fabrics, driven by consumer preference for leather and suede furniture and other imported furniture and fabrics.
Sales of non-U.S. produced fabrics were $17.4 million in the first quarter, down eight percent over the prior year period, while sales of U.S. produced fabrics were $6.3 million, down 35 percent from the first quarter of fiscal 2008. Operating loss for the upholstery fabrics segment for the first quarter of fiscal 2009 was $1.4 million compared with operating income of $450,000 for the same period a year ago.
Saxon added, "While we expected industry conditions for upholstery fabrics to be extremely challenging for the first quarter of fiscal 2009, they have proven to be more severe than we initially expected.
The uncertain economy, housing crisis and high energy costs have continued to significantly influence consumer demand for furniture and have adversely affected Culp's upholstery fabric sales for both U.S.-produced and non U.S.-produced goods.
In response to this environment and our first quarter results, we are immediately putting into operation a profit improvement plan in the upholstery fabrics business, including the following major actions:
• Implementing a modest price increase on certain upholstery fabrics during the second fiscal quarter; and wherever possible, obtaining price concessions from suppliers on certain high volume items where we could not increase our selling prices.
• Implementing a 20 percent reduction in selling, general and administrative expenses, totaling approximately $2.0 million on an annual basis. This initiative was completed by the end of August 2008.
• Consolidating our China operations into fewer facilities and reducing excess manufacturing capacity, which will lower costs by about $2.0 million on an annual basis. These actions, which will be implemented over the next five months, are expected to result in a pre-tax charge during the second and third quarters of approximately $3.9 million, of which $3.5 million reflects non-cash charges for fixed assets.
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