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Category: Stock Market and Culp
Date: 8 December 2019 Stock Price: $15.28 We take a look at the 2nd quarter earnings for the 2020 fiscal year for CULP, a manufacturer and supplier of mattress fabrics and sewn covers.
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About CULP
Culp, Inc. manufactures, sources, and markets mattress fabrics and sewn covers used for covering mattresses and foundations and other bedding products; and upholstery fabrics, including cut and sewn kits, primarily used in production of upholstered furniture. Our new home accessories segment is the company’s finished product and global e-commerce business that manufactures, sources, and markets bedding accessories and home goods directly to consumers and businesses. The company competes in a fashion-driven business, and we strive to differentiate ourselves by placing a sustained focus on product innovation and creativity. In addition, Culp places great emphasis on providing excellent and dependable service to our customers. Our focused efforts to protect our financial strength have allowed us to maintain our position as a financially stable and trusted supplier of innovative fabrics to bedding and furniture manufacturers, while also developing a new e-commerce platform to support sales of bedding accessories and specialty home goods to both consumers and business retailers.
Overview of CULP's 2nd quarter 2020 earnings report
The numbers we are interested in (for the quarter):
- Net sales: $72.619 million (down from $77.066 million from the same quarter of the previous year)
- Sales decreased by -5.7% over the last 12 months
- Cost of sales: $58.516 million (down from $68.680 million for the same quarter of the previous year)
- Cost of sales decreased -8.1% over the last 12 months
- Net income: $2.3million (down from $2.993 million for the same quarter of the previous year)
- Diluted earnings per share: $0.19 (down from $0.23 for the same quarter of the previous year)
- PE ratio: 20.1 (assuming the earnings per share this quarter is repeated for all quarters of the fiscal year)
- Diluted weighted-average shares outstanding: 12.408 million (up from 12.551 million for the same quarter of the previous year)
- Cash and cash equivalents: $47.183 million
- Cash and cash equivalents per share: $3.80
- Cash and cash equivalents makes up 24.8% of CULP's market capital
- Cash and cash equivalents makes up 20.4 % of CULP's total assets
- Trade receivable: $24.522 million
- Trade receivable makes up 10.6% of the CULP's total assets.
- Inventories: $55.288 million (up from $50.601 million for the same quarter of the previous year)
- Inventories makes up 23.8% of CULP's total assets
- Inventories grew by 9.2% over the last 12 months
- Stockholders equity in CULP: $161.520 million
- Stockholders equity per share: $13.01
- CULP's stock is trading at 1.17 times its stockholders equity per share which is outside the expected range of between 2 and 4 times that most firms tend to trade at
CULP's management commentary on their 2nd quarter 2020 results and earnings guidance
HIGH POINT, N.C.--(BUSINESS WIRE)--Dec. 5, 2019-- Culp, Inc. (NYSE: CULP) today reported financial and operating results for the second quarter ended November 3, 2019.
Commenting on the results, Frank Saxon, chairman and chief executive officer of Culp, Inc., said, “We are pleased with our performance for the second quarter of fiscal 2020. While we had a modest drop in overall sales compared with the prior-year period, we had an improved operating performance in both our mattress fabrics and upholstery fabrics businesses. We believe the domestic mattress industry is still working to stabilize from the disruption related to low-cost mattress imports from China, and the continuing variability in the market is evidenced in recent industry sales reports. We are monitoring the development and demand trends among our legacy mattress customers and the rapidly growing roll-packed (boxed) bedding segment. With our broad product mix and flexible manufacturing platform, we have been able to respond to these changing demand trends. Additionally, while our upholstery fabrics business has been affected by ongoing trade disputes and international tariffs, we were pleased with our ability to make supply chain adjustments to address these challenges and meet the needs of our customers. We also continued to refine our strategies for Culp Home Accessories, our finished products business, and we believe we are making progress in positioning this business for sequential improvement. We remain focused on leveraging this new online sales platform to expand our market reach with new products and customers.
“In each of our businesses, we are maintaining our product-driven emphasis with an unwavering commitment to product innovation and creative designs. With the support of our global platform, we are confident we can sustain our strong competitive advantage and respond to the changing demand trends of our diverse customer base. Importantly, we have the financial strength to pursue our growth plans and to continue returning funds to our shareholders. We are proud to announce another dividend increase commencing in the third quarter, marking our seventh consecutive year of increasing the annual dividend,” added Saxon.
Commenting on the results, Frank Saxon, chairman and chief executive officer of Culp, Inc., said, “We are pleased with our performance for the second quarter of fiscal 2020. While we had a modest drop in overall sales compared with the prior-year period, we had an improved operating performance in both our mattress fabrics and upholstery fabrics businesses. We believe the domestic mattress industry is still working to stabilize from the disruption related to low-cost mattress imports from China, and the continuing variability in the market is evidenced in recent industry sales reports. We are monitoring the development and demand trends among our legacy mattress customers and the rapidly growing roll-packed (boxed) bedding segment. With our broad product mix and flexible manufacturing platform, we have been able to respond to these changing demand trends. Additionally, while our upholstery fabrics business has been affected by ongoing trade disputes and international tariffs, we were pleased with our ability to make supply chain adjustments to address these challenges and meet the needs of our customers. We also continued to refine our strategies for Culp Home Accessories, our finished products business, and we believe we are making progress in positioning this business for sequential improvement. We remain focused on leveraging this new online sales platform to expand our market reach with new products and customers.
“In each of our businesses, we are maintaining our product-driven emphasis with an unwavering commitment to product innovation and creative designs. With the support of our global platform, we are confident we can sustain our strong competitive advantage and respond to the changing demand trends of our diverse customer base. Importantly, we have the financial strength to pursue our growth plans and to continue returning funds to our shareholders. We are proud to announce another dividend increase commencing in the third quarter, marking our seventh consecutive year of increasing the annual dividend,” added Saxon.
Financial Outlook
Ken Bowling, executive vice president and chief financial officer of Culp had the following to say regarding CULP's fiscal outlook.
“We expect mattress fabrics sales to be slightly down and operating income and margins to be moderately down, compared with the third quarter of fiscal 2019. The third quarter is a traditionally slower sales period and is affected by the loss of multiple weeks of production and distribution for our CLASS cover business as a result of government-mandated holiday shutdowns in Haiti and the timing of Chinese New Year. The impact of these seasonal shutdowns during this period is greater this year, as compared to the third quarter of fiscal 2019, because the CLASS sewn cover business is a more significant part of our current operations.
“For the fourth quarter of fiscal 2020, we currently expect sales to increase slightly and operating income and margins to be significantly up as compared to the fourth quarter of fiscal 2019. We anticipate benefits from a return to strong growth for our CLASS cover business, continued improvement in overall industry conditions, and improved operating efficiencies across all product lines. As a result, we expect sales for the second half of fiscal 2020 to be comparable to sales for the second half of fiscal 2019, and operating income and margins for the period are expected to be moderately higher as compared with the second half of the prior year.
“In our upholstery fabrics segment, we expect third quarter sales and operating income and margins to be comparable to the same period last year. Similarly, for the second half of fiscal 2020, we also expect sales and operating income and margins to be comparable to the second half of fiscal 2019.
“In our home accessories segment, we expect third quarter sales to be slightly down compared to the third quarter of fiscal 2019, as we continue to refine our strategies and focus on higher margin products. We expect an operating loss for the quarter, but with meaningful improvement as compared to the second quarter of fiscal 2020. For the fourth quarter, we expect operating performance to be near break-even."
- The projection for the third quarter of fiscal 2020 is for overall sales to be comparable to the same period last year. Pre-tax income for the third quarter of fiscal 2020 is expected to be in the range of $3.2 million to $3.8 million. Pre-tax income for the third quarter of fiscal 2019 was $4.3 million, which included a net charge of approximately $769,000 in restructuring and related charges and credits and other non-recurring items. Excluding these charges, pre-tax income for the third quarter of fiscal 2019 was $5.0 million.
- The company’s performance for the fourth quarter of fiscal 2020 is currently expected to be significantly better than the results achieved in the fourth quarter of fiscal 2019, and as a result, the company’s performance for the second half of fiscal 2020 is currently expected to be better than the results achieved during the second half of fiscal 2019.
- Free cash flow for fiscal 2020 is expected to be comparable to last year’s results, even with continued uncertainty in the geopolitical environment.
Ken Bowling, executive vice president and chief financial officer of Culp had the following to say regarding CULP's fiscal outlook.
“We expect mattress fabrics sales to be slightly down and operating income and margins to be moderately down, compared with the third quarter of fiscal 2019. The third quarter is a traditionally slower sales period and is affected by the loss of multiple weeks of production and distribution for our CLASS cover business as a result of government-mandated holiday shutdowns in Haiti and the timing of Chinese New Year. The impact of these seasonal shutdowns during this period is greater this year, as compared to the third quarter of fiscal 2019, because the CLASS sewn cover business is a more significant part of our current operations.
“For the fourth quarter of fiscal 2020, we currently expect sales to increase slightly and operating income and margins to be significantly up as compared to the fourth quarter of fiscal 2019. We anticipate benefits from a return to strong growth for our CLASS cover business, continued improvement in overall industry conditions, and improved operating efficiencies across all product lines. As a result, we expect sales for the second half of fiscal 2020 to be comparable to sales for the second half of fiscal 2019, and operating income and margins for the period are expected to be moderately higher as compared with the second half of the prior year.
“In our upholstery fabrics segment, we expect third quarter sales and operating income and margins to be comparable to the same period last year. Similarly, for the second half of fiscal 2020, we also expect sales and operating income and margins to be comparable to the second half of fiscal 2019.
“In our home accessories segment, we expect third quarter sales to be slightly down compared to the third quarter of fiscal 2019, as we continue to refine our strategies and focus on higher margin products. We expect an operating loss for the quarter, but with meaningful improvement as compared to the second quarter of fiscal 2020. For the fourth quarter, we expect operating performance to be near break-even."
CULP (NYSE: CULP) stock price history
The image below, obtained from Google, shows CULP's stock price history for the last 5 years. And its not been a very good time for CULP stockholders. 5 years ago the stock of CULP was trading at around $20.70 a stock and its currently trading at $15.28. Thats a loss of -26.2% suffered by CULP stockholders over the last 5 years.
The stock of CULP is trading at a lot closer to its 52 week low of $13.09 than it is to its 52 week high of $21.52 which to us is a clear indication that the short term sentiment and momentum of CULP's stock is negative.
The stock of CULP is trading at a lot closer to its 52 week low of $13.09 than it is to its 52 week high of $21.52 which to us is a clear indication that the short term sentiment and momentum of CULP's stock is negative.
CULP (NYSE: CULP) latest stock valuation
So based on CULP's latest earnings report and financial guidance for their 2020 fiscal year, what is our target price for CULP's stock? Our valuation models provide a target price (full value price) for CULP stock at $9.80 a stock.
We therefore believe the stock of CULP is overvalued.
We usually recommend that long term fundamental and value investors look to enter the stock at around 10% below our target (full value) price of $9.80 a stock. So a good entry point into the stock of CULP would be at $8.80 or below. We therefore expect the stock of CULP to continue its downward trend until it reaches levels closer to our target (full value) price in coming weeks and months.
We therefore believe the stock of CULP is overvalued.
We usually recommend that long term fundamental and value investors look to enter the stock at around 10% below our target (full value) price of $9.80 a stock. So a good entry point into the stock of CULP would be at $8.80 or below. We therefore expect the stock of CULP to continue its downward trend until it reaches levels closer to our target (full value) price in coming weeks and months.
Next earnings release of CULP
It is expected that CULP will release their 3rd quarter 2020 earnings report in early March 2020