Via online business online marketing online business opportunities Culp Inc.: Recent Performance Does Not Inspire Confidence

Via  online business  online marketing  online business opportunities Culp Inc.: Recent Performance Does Not Inspire Confidence

Via online business online marketing online business opportunities

Via online business online marketing online business opportunitiesInvestment Thesis

Culp Inc. (CULP) is one of the largest marketers and manufacturers of fabrics for mattresses and furniture in North America. The company has seen sustained deterioration in its revenue and EBITDA over the past few years which has led to the stock price declining by ~50% over the past 2 years. Although the company is still paying a modest dividend, opportunities for growth do seem sparse and could be impacted by a slowing economy. We recommend that investors watch from the sidelines for now.

Source: Yahoo Finance

Via online business online marketing online business opportunitiesCompany Overview

The company manages an integrated manufacturing platform and distribution facilities in the US, Canada, Haiti and China. The company has several facilities in these geographies and claims to be one of the largest marketers of upholstery fabrics for furniture in North America.

Source: Investor presentation

The company was started as a family business in 1972 and went public in 1983. The company operates under two segments, mattress fabrics and upholstery fabrics and has been shifting its sales mix from the upholstery business to the mattress fabrics over the past two decades.

Source: Investor presentation

The company operates under several brands catering to a wide array of customers from economy-priced to luxury fabrics. The company has also been striving to grow its eCommerce business with themajority acquisition of eLuxury.

Source: Company website

Business Model Analysis

Customers: Although the end users are customers who want trendy designs of mattress fabrics, the main customers for CULP are mattress manufacturers and retailers who make sleep products. The company supplies to many of the top retailers listed in the chart below. The company has also started to target end consumers recently.

Source: Investor presentation

Channels: CULP sells its products via direct sales however, as noted previously, has looked to grow its eCommerce business. The company has a branded e-commerce platform where consumers can make orders for the product, check status, get billing, and make payments. It also sells through online marketplaces such as Amazon.

Production: The company assembles in-house design teams to build the products and manufactures them at its plants in the US, Canada, and China.

Other Highlights

  • 1,440 full-time employees
  • 13 manufacturing and distribution facilities

Via online business online marketing online business opportunitiesMarket Overview

The mattress fabric industry has seen decent growth in recent years with a minor blip in 2016-17. Obviously, the sale of these products are heavily tied to mattress sales which are a recession-proof item. These sales are driven by replacement cycles and house sales as people look to buy new mattresses usually when they move to a new house. The company has also claimed that US mattress producers will start to see higher growth as a result of anti-dumping duties on Chinese mattresses.

Source: Investor presentation

Source: Investor presentation

The industry is impacted by new trends in consumer and regulatory markets. Consumers prefer creative designs for new fabrics. Consumers are changing mattresses more frequently now than before increasing the uptake of new fabrics. The growth of e-commerce in this area also opens new opportunities for selling to the global audience.

The industry does face the risk of low returns due to low economic performance because bedding and furniture purchases are categorized as discretionary spending. The sale of mattresses depends on the level of disposable incomes, employment rate, consumer confidence, and housing.

Via online business online marketing online business opportunitiesGrowth Opportunities

CULP is leveraging growth through specialization. It is pursuing purpose-driven fashions with strong demand in the customer market. The company is also diversifying the customer mix by entering the hospitality market. The company is increasing its sales in new geographical markets with an online offering as mentioned previously. There is also a renewed focus on residential stationary furniture applications to expand sales.

Via online business online marketing online business opportunitiesFinancial Performance And Valuation

Historical Financial Performance

The company has exhibited declining top line and EBTIDA results in recent years along with deteriorating levels of profitability.

Source: CapitalIQ

A big part of the F19 revenue decline was due to the mattress fabric sales which saw a steep decline as depicted by the chart below.

Source: Investor presentation


The stock is currently trading at ~7.3x EBITDA which appears to be well below the peer group average as can be seen in the table below. This may lead investors to believe that the stock is undervalued however the sustained revenue and EBITDA declines discussed in the section above may warrant a discount compared to peers. In general, we expect a slowing economy to shift multiples downward in this entire industry.

Source: CapitalIQ

Via online business online marketing online business opportunitiesKey Risks

  • CULP’s major customers are Serta-Simmons Bedding, Tempur + Sealy International and Corsicana Bedding. The overall concentration of revenues amongst these customers is high and could lead to a significant decline in value should any of these customers decide to take their business elsewhere.
  • Although anti-dumping duties are expected to prop-up sales of US-produced mattresses, these items can be products in China at a much lower cost and lead to increased competition.
  • Beddings and upholstered furniture are subject to regular changes in consumer tastes and preferences. Innovative designs by competitors could reduce the market share and earnings of CULP.

Via online business online marketing online business opportunitiesConclusion

Recent financial performance does not inspire confidence in the company and the future outlook does not show a massive turnaround although there are some bright spots. We recommend investors to wait on the sidelines for now.

Disclosure:I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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