HIGH POINT – In a move designed to reduce costs and establish a path to profitable growth, mattress and upholstery fabric supplier Culp is implementing a six-prong consolidation strategy that includes shuttering a factory in Canada and one in Haiti.

The plan primarily impacts Culp’s mattress fabric division, but also crosses over into its upholstery fabrics business. Culp said it will close one factory; reduce costs in its mattress fabrics operation in Stokesdale, N.C.; transition weaving of mattress fabric to a sourcing model; consolidate its Haiti sewn mattress cover into one building located on the border with the Dominican Republic; realign the upholstery fabric finishing operation in China to align with current demand; and reduce unallocated corporate and shared service expenses.

Implementation of the strategy will begin immediately and is expected to be completed by the end of the calendar year. Culp’s factory in Quebec will close, and two buildings in Haiti will be merged into one.

Iv Culp, president and CEO, told Furniture Today the changes are a “platform adjustment” and that the restructuring will set the company on the path to profitability.

“This restructuring gets us back to profitability,” he said. “At some point, the market will turn. It’s tough and heartbreaking to make these decisions, but it’s the right thing to do. We feel good, and we’re very confident in our market position. This will make us stronger.”

Pointing to the mattress industry’s challenging economic climate, Culp said the move to consolidate takes “some asset level off our backs.”

“I do see light; I am very confident in our team and very encouraged by our market position,” Culp said. “We just don’t see any obvious catalyst or anything to push the market. I don’t think the industry will see a tide rise until early 2025.”

The restructuring will impact about 240 employees, or 35% of Culp’s total employment.

At the end of fiscal 2023, Culp operated facilities in Stokesdale; Knoxville, Tenn.; Quebec; Shanghai; and in Haiti, a location the company acquired fully in 2021. The company also sources fabrics and cut-and-sewn kits from other manufacturers in China, Vietnam and Turkey.

“Our industry faces unprecedented challenges, including macro-economic headwinds pressuring consumer discretionary spending and housing markets, as well as changes in consumer spending patterns,” Culp said. “Through the third quarter of fiscal 2024, we were pleased with the sequential improvement we were making in a tough demand environment, especially the approximately 20% year-over-year revenue growth in our mattress fabrics segment during both the second and third quarter of the fiscal year.

“However, the industry demand backdrop in both of our businesses experienced significant deterioration during the fourth quarter of fiscal 2024, with much of our customer base advising of sales declines of at least 20%,” he said. “These challenges have reduced demand for our products, resulting in excess capacity and an unsustainable cost structure at current volume levels within our mattress fabrics business. With no ascertainable catalysts that might be expected to drive industry recovery in the near term, we now believe the operating environment will remain pressured for some time.”

The restructuring plan is expected to generate between $10 million and $11 million in annualized cost savings and operating improvements once fully implemented at the end of the calendar year. The company said the most resulting benefit will be realized during the second half of its fiscal year.

Culp expects to incur restructuring and restructuring-related costs and charges of about $8 million, $2.6 million of which are expected to be incurred in the first quarter of fiscal 2025. The remainder are expected to be incurred over the course of fiscal 2025.

To fund the charges, Culp plans to sell manufacturing equipment. In time, the company said it will sell associated real estate for an estimated $10 million to $12 million in cash proceeds from the transactions.

The company also updated its financial outlook for the fourth quarter of fiscal 2024 citing ongoing weakness in the industry. The company expects consolidated net sales for the quarter to be about 19% lower as compared with the fourth quarter of fiscal 2023. It also expects a consolidated operating loss in its fourth quarter in the range of $4.2 million to $4.7 million.

In its third quarter earnings report, the company narrowed its loss with a 15% increase in total sales to $60.4 million.

Culp expects to end the year with about $10 million in cash and cash equivalents and no outstanding debt. The company will release its fourth quarter and year-end earnings report on or about June 26.

“By taking these steps, we believe we can substantially reduce our fixed costs without materially impacting our top-line sales and without sacrificing our ability to support our customers, grow our business, and maintain our competitive advantage,” Culp said. “We also believe these steps will enable us to optimize resources, improve quality, leverage our strong global strategic partnerships, bolster our balance sheet, and ensure a solid foundation for accelerated growth. We are diligently focused on returning our business to profitability, while growing our innovative product portfolio to enhance customer and shareholder value.”

Culp said the company is “chipping away at market share.”

“We are a long-term player, and we’ve always made decisions to keep us stable,” he said. “We’re building a better, stronger company.”

See also:

• Culp Home Fashions taps retail veteran as director of product marketing
• Culp Home Fashions adds industry veterans for business development role

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