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"Our mattress fabrics segment continued to reduce its operating loss, building on the prior quarter improvement, and we also achieved near break-even consolidated adjusted EBITDA for the quarter, even with lower sequential sales. We are pleased that our restructuring initiatives within the mattress fabrics segment are mostly finished. The team has worked hard to execute on our plans and they are beginning to generate the savings and efficiency improvements we anticipated.

"Additionally, we entered into an agreement for the sale of our Canadian mattress fabrics facility during the quarter, and we are working to close this transaction in the upcoming months. Assuming completion, we intend to use the cash proceeds to pay off outstanding borrowings and further bolster our liquidity.

"Our consolidated sales for the third quarter were down sequentially, largely due to ongoing weakness in the home furnishings industry and, as expected, specific pressure on residential upholstery fabric sales that was exacerbated by some unique inventory adjustments from a large customer. Sales were also pressured in both segments by fewer shipping days due to holiday closures and weather-related disruptions during the quarter. However, we noted stronger demand in our upholstery fabrics hospitality/contract business, with both year-over-year and sequential increases in sales for the third quarter. Despite the tough residential demand environment, we remain pleased with this segment's continuing profitability, supported by our asset-light and flexible global platform.

"Looking ahead at the various and ongoing macro-economic headwinds, including increasing tariff uncertainty, as well as industry consolidation, we believe we are well positioned in both businesses with strong customer relationships and a variety of agile manufacturing and sourcing options. We are confident that our actions to optimize the cost platform in our mattress fabrics segment will enable us to return to profitability post-restructuring, even at currently depressed demand levels.

"Moreover, we took new and additional cost saving actions in the third quarter related to labor and professional fees that we expect will generate annual savings of approximately $1.0 million. We are also targeting further strategic actions to synergize and create more cost and operating efficiencies across our businesses going forward. Our management team continues to diligently focus on controlling what we can control and taking the critical steps to position our business for profitability as we head into fiscal 2026," added Culp.

Restructuring Update

The restructuring plan announced on May 1, 2024, primarily focused on the company's mattress fabrics segment, was substantially complete as of the end of the third quarter. The company still expects to generate $10.0 - $11.0 million in annualized savings and operating improvements following the restructuring, with most of the benefits beginning to be realized during the fourth quarter of fiscal 2025.

Based on completed restructuring activities, along with remaining restructuring estimates primarily related to limited ongoing building maintenance in Canada, the company now expects to incur total restructuring and restructuring-related costs and charges of $8.5 million in fiscal 2025, of which $5.3 million is now expected to be cash expenditures. The company still expects to fund close to $1.8 million of the cash costs with proceeds from the sale of excess manufacturing equipment and proceeds from a building lease termination in Haiti.

These restructuring and restructuring-related costs and charges exclude any gain on the sale of owned real estate in Canada, the amount and precise timing of which is currently unknown, which would ultimately reduce the total amount of charges incurred. The company has entered into a conditional agreement for the sale of the Canadian real estate, contingent on the satisfaction of certain due diligence and closing conditions. Assuming completion of the transaction, the company currently anticipates receiving approximately $6.0 to $8.0 million in cash proceeds (net of all taxes and commissions).

Third Quarter Fiscal 2025 Results versus Third Quarter Fiscal 2024 Results

• Net sales were $52.3 million, down 13.5 percent compared with the prior-year period, with mattress fabrics sales down 4.6 percent and upholstery fabrics sales down 22.4 percent.

• Loss from operations was $(3.9) million (which included $2.3 million in restructuring expense and related charges during the period), compared with a loss from operations of $(1.7) million for the prior-year period (which included $111,000 in restructuring and related credits during the period).

• Adjusted loss from operations was $(1.6) million, compared with an adjusted loss from operations of $(1.9) million for the prior-year period. (See reconciliation table on page 15). Adjusted operating performance as compared to the third quarter of fiscal 2024 was supported by improved operating efficiencies resulting from the mattress fabrics segment's restructuring initiatives, lower fixed costs, and lower SG&A.

• Net loss was $(4.1) million, or $(0.33) per diluted share, compared with a net loss of $(3.2) million, or $(0.26) per diluted share, for the prior-year period. The effective tax rate for the third quarter was negative (12.1) percent, reflecting the company’s mix of taxable income between its U.S. and foreign jurisdictions during the period.

Business Segment Highlights

Mattress Fabrics Segment ("CHF")

• Sales for this segment were $28.6 million for the third quarter, down 4.6 percent compared with sales of $30.0 million in the third quarter of fiscal 2024. Sequentially, sales were down 4.8 percent compared with sales of $30.1 million for the second quarter of fiscal 2025.

• While year-over-year sales were pressured by ongoing weakness in the domestic mattress industry, the company believes CHF is outperforming the industry average and is growing its market position through investments in manufacturing platform flexibility, product diversification, and design innovation. Sequentially, sales were negatively affected by fewer billing days due to holiday closures and weather events during the third quarter that did not affect the second quarter.

• Operating loss was $(433,000) for the third quarter, compared to an operating loss of $(1.6) million in the prior-year period and compared to an operating loss of $(1.0) million for the second quarter of fiscal 2025. The improvement in operating performance for the quarter, as compared to both the prior-year and sequential periods, was driven by the impacts of CHF's restructuring initiatives, including improved operating efficiencies and lower fixed costs.

Upholstery Fabrics Segment ("CUF")

• Sales for this segment were $23.6 million for the third quarter, down 22.3 percent compared with sales of $30.4 million in the third quarter of fiscal 2024. Sequentially, sales were down 7.8 percent compared with sales of $25.6 million for the second quarter of fiscal 2025.

• Sales for CUF's residential fabrics business were lower than the prior-year period and lower sequentially. As expected, year-over-year and sequential sales were pressured by lower orders from a significant customer to adjust its inventory to align with soft industry demand. Year-over-year sales were also pressured by demand weakness in the home furnishings industry and weather-related disruptions.

• Sales for CUF's hospitality/contract business (including Read Window) were significantly higher compared to the prior-year period and slightly higher sequentially. Sales from CUF’s hospitality/contract business accounted for approximately 40 percent of CUF's total sales during the third quarter.

• Operating income was $679,000 for the third quarter, compared to operating income of $2.1 million for the third quarter of fiscal 2024 and compared to operating income of $615,000 for the second quarter of fiscal 2025. Operating performance for the third quarter of fiscal 2025, as compared to the prior-year period, was affected by lower sales, partially offset by lower fixed costs, lower SG&A, and a more favorable foreign currency exchange rate associated with CUF's operations in China.

Balance Sheet, Cash Flow, and Liquidity

• As of January 26, 2025, the company reported $5.3 million in total cash and $5.4 million in outstanding debt under its China credit facilities. The outstanding debt was primarily used in connection with restructuring activities, the timing of the Chinese new year holiday, and to fund worldwide working capital.

• Cash flow from operations and free cash flow were negative $(9.4) million and negative $(10.1) million, respectively, for the first nine months of fiscal 2025. (See reconciliation table on page 12 of this press release.) The company’s cash flow from operations and free cash flow during the first nine months of fiscal 2025 were primarily affected by operating losses, including $4.2 million in non-recurring cash restructuring charges, and, with respect to free cash flow, planned strategic investments in capital expenditures mostly related to the mattress fabrics segment, partially offset by lower working capital.

• Capital expenditures for the first nine months of fiscal 2025 were $2.4 million, down from $3.2 million for the first nine months of fiscal 2024. The company continues to strategically manage capital investments, focusing on projects that will increase efficiency and improve quality, especially for the mattress fabrics segment.

• As of January 26, 2025, the company had approximately $28.5 million in liquidity consisting of $5.3 million in cash and $23.2 million in borrowing availability under the company's domestic credit facility.

• The company intends to continue utilizing some borrowings under its domestic and foreign credit facilities during fiscal 2025 in connection with its restructuring activities and to fund worldwide working capital to grow the business. Assuming completion of the sale of the company's Canadian real estate, the company intends to use the expected $6.0 million to $8.0 million in cash proceeds to retire outstanding borrowings.

Financial Outlook

• Due to macro-economic and increasing tariff uncertainty, the company expects continued industry sales pressure and is only providing limited financial guidance at this time.
  - Consolidated net sales for the fourth quarter expected to show some growth year-over-year (and expected to remain flat sequentially), with an expected increase in the mattress fabrics segment, offset by ongoing pressure on residential upholstery fabric sales due to weak industry demand and impact from the timing of the Chinese new year holiday (which this year falls entirely in the fourth quarter).
  - Currently expect continued sequential improvement in adjusted EBITDA (excluding restructuring and related charges), with further improvement in mattress fabrics profitability in the fourth quarter; and a foundation for a return to consolidated operating income in fiscal 2026.

• The company’s expectations are based on information available at the time of this press release and reflect certain assumptions by management regarding the company’s business and trends, the projected impact of restructuring actions, and ongoing market headwinds. The company's expectations also assume no further meaningful impacts from tariffs and trade negotiations.

Conference Call

Culp, Inc. will hold a conference call to discuss financial results for the fiscal 2025 third quarter on Thursday, March 6, 2025, at 9:00 a.m. Eastern Time. A live webcast of this call can be accessed on the "Upcoming Events" section on the investor relations page of the company’s website, www.culp.com. A replay of the webcast will be available for 30 days under the "Past Events" section on the investor relations page of the company’s website, beginning at 2:00 p.m. Eastern Time on March 6, 2025.

About the Company

Culp, Inc. is one of the largest marketers of mattress fabrics for bedding and upholstery fabrics for residential and commercial furniture in North America. The company markets a variety of fabrics to its global customer base of leading bedding and furniture companies, including fabrics produced at Culp’s manufacturing facilities and fabrics sourced through other suppliers. Culp has manufacturing and sourcing capabilities located in the United States, China, Haiti, Turkey, and Vietnam.

Forward Looking Statements

This release contains "forward-looking statements" within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934). Such statements are inherently subject to risks and uncertainties that may cause actual events and results to differ materially from such statements. Forward-looking statements are statements that include projections, expectations, or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often but not always characterized by qualifying words such as "expect," "believe," "will," "may," "should," "could," "potential," "continue," "target," "predict", "seek," "anticipate," "estimate," "intend," "plan," "project," and their derivatives, and include but are not limited to statements about expectations, projections, or trends for our future operations, strategic initiatives and plans, restructuring actions, production levels, new product launches, sales, profit margins, profitability, operating (loss) income, capital expenditures, working capital levels, cost savings (including, without limitation, anticipated cost savings from restructuring actions), income taxes, SG&A or other expenses, pre-tax (loss) income, earnings, cash flow, and other performance or liquidity measures, as well as any statements regarding dividends, share repurchases, liquidity, use of cash and cash requirements, ending cash balances and cash positions, borrowing capacity, investments, potential acquisitions, cash and non-cash restructuring and restructuring-related charges, expenses, and/or credits, net proceeds from restructuring related asset dispositions, future economic or industry trends, public health epidemics, or future developments. There can be no assurance that we will realize these expectations or meet our guidance, or that these beliefs will prove correct.

Factors that could influence the matters discussed in such statements include the level of housing starts and sales of existing homes, demand for home furnishings products, consumer confidence, trends in disposable income, and general economic conditions. Decreases in these economic indicators could have a negative effect on our business and prospects. Likewise, increases in interest rates, particularly home mortgage rates, and increases in consumer debt or the general rate of inflation, could affect us adversely. The future performance of our business depends in part on our success in conducting and finalizing acquisition negotiations and integrating acquired businesses into our existing operations. Changes in consumer tastes or preferences toward products not produced by us could erode demand for our products. Changes in tariffs or trade policy, including changes in U.S. trade enforcement priorities, or changes in the value of the U.S. dollar versus other currencies, could affect our financial results because a significant portion of our operations are located outside the United States. Strengthening of the U.S. dollar against other currencies could make our products less competitive on the basis of price in markets outside the United States, and strengthening of currency in China can have a negative impact on our sales of products produced there. In addition, because our foreign operations use the U.S. dollar as their functional currency, changes in the exchange rate between the local currency of those operations and the U.S dollar can affect our reported profits from those foreign operations. Also, economic or political instability in international areas could affect our operations or sources of goods in those areas, as well as demand for our products in international markets. The impact of public health epidemics on employees, customers, suppliers, and the global economy, such as the recent coronavirus pandemic, could also adversely affect our operations and financial performance. In addition, the impact of potential asset impairments, including impairments of property, plant, and equipment, inventory, or intangible assets, as well as the impact of valuation allowances applied against our net deferred income tax assets, could affect our financial results. Increases in freight costs, labor costs, and raw material prices, including increases in market prices for petrochemical products, can also significantly affect the prices we pay for shipping, labor, and raw materials, respectively, and in turn, increase our operating costs and decrease our profitability. Also, our success in diversifying our supply chain with reliable partners to effectively service our global platform could affect our operations and adversely affect our financial results. Finally, the future performance of our business also depends on our ability to successfully restructure our mattress fabric operations and return the segment to profitability. Further information about these factors, as well as other factors that could affect our future operations or financial results and the matters discussed in forward-looking statements, is included in Item 1A "Risk Factors" in our most recent Form 10-K and Form 10-Q reports filed with the Securities and Exchange Commission.

Many of these factors are macroeconomic in nature and are, therefore, beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results, performance or achievements may vary materially from those described in this release as anticipated, believed, estimated, expected, intended, planned or projected. The forward-looking statements included in this release are made only as of the date of this report. Unless required by United States federal securities laws, we neither intend nor assume any obligation to update these forward-looking statements for any reason after the date of this release to conform these statements to actual results or to changes in our expectations. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations or financial results.