Culp, Inc. Price & Performance (CULP)

As we start, let me state that this morning's call will contain forward looking statements about the business financial condition and prospects of the Culp. Forward looking statements are statements that include projections, expectations or beliefs about future events or results or otherwise are not statements of historical fact. Actual performance of the Culp could differ materially from that indicated by the forward looking statements because of various risks and uncertainties. These risks and uncertainties are described in our regular SEC filings including the company's most recent filings on Form 10 ks and Form 10 Q. Additional risks and uncertainties that we do not know about or that we currently consider to be immaterial may also affect our business operations and financial results. You are cautioned not to place undue reliance on forward looking statements made today and each such statement speaks only as of today. We undertake no obligation to update or revise forward looking statements. In addition, during this call, the company will be discussing non GAAP financial measurements. A reconciliation of these non GAAP financial measurements to the most directly comparable GAAP financial measurement is included in the tables to press release included as an exhibit to the company's eight ks filed yesterday and posted on the company's website at culp.com Culp.

A slide presentation on the company's restructuring plan is also available on the company's website as part of the webcast of today's call. I will now turn the call over to Ive Culp Culp, President and Chief Executive Officer of Kulp. Please go ahead. Thank you, Drew. Good morning and thank you to everyone for joining us today. Mary Beth Hansberger, President of our Upholstery Fabrics business and Tommy Bruno, President of our Mattress Fabrics business. I'll begin the call with some detailed comments and as mentioned in [indiscernible] We have posted an updated slide presentation to our Investor Relations website that covers information on the progress of our current restructuring plan, primarily focused on our Mattress Fabric segment, which I'm very pleased to say is now substantially complete. Ken will then review the financial results for the quarter And after that, I'll briefly discuss our business outlook for the fourth quarter of fiscal twenty twenty five and we will answer some questions. Despite continued macro sales pressure, we achieved further sequential improvement in our operating results for the quarter. Driven largely by the positive effects of our mattress fabrics restructuring activity. Also continue to see increasing potential to grow our market share.

Particularly with new business opportunities for mattress fabrics, and sewn mattress covers. We remain very confident in the future of our two business segments. Especially considering the competitive advantages generated from our now more streamlined cost structure along with our agile manufacturing and sourcing platform, and market leading design and innovation capabilities. Ultimately, all supported by an eventual market recovery. Looking at our Mattress Fabric segment, Mattress Fabric segment specifically, continue to improve our operating performance with the 58.3% sequential reduction in operating loss despite lower sales for the quarter. This builds on the 70.7% sequential reduction in operating loss we reported in the second quarter. We also achieved near breakeven consolidated adjusted EBITDA for the quarter. Was a $1,100,000 improvement sequentially and as compared to last quarter, [indiscernible] with $3,400,000 less in sales, due to industry weakness and fewer shipping days, due to holiday closures and some weather related disruption. We are pleased that our current restructuring initiatives within the Mattress Fabric segment are largely complete. As we stopped production at our Canadian Mattress Fabrics manufacturing facility, and finalized the relocation of certain knitting and finishing equipment to our facility in Stokesdale, North Carolina near the end of the quarter.

More details of the steps and timing of this restructuring plan are shown in the supplemental deck we posted on our Investor Relations website. With the completion of this initiative, we have a preferred manufacturing and sourcing supply chain model for mattress fabrics. Featuring an improved and efficient USA location in North Carolina for fabrics and a right sized cut and sew platform in Haiti located on the Northeast Dominican Republic As I mentioned last quarter, our near shore platform also includes recently installed quilting equipment. And an additional service offering to our customers. To put the full scope of the Restructured Mattress Fabrics platform in context, our consolidated North American and nearshore capacity is complemented by our strong supply chain operations in Asia as well as a long term supplier relationship in Turkey for high volume fabric supply. Also, we entered into a conditional agreement for the sale of our Canadian facility during the quarter. Contingent on the satisfaction of customary due diligence. And we are working to close this transaction in the upcoming months. Assuming completion, we currently anticipate receiving between $6,000,000 and $8,000,000 in cash proceeds net of all taxes which we plan to use to pay off outstanding borrowings and further bolster our liquidity.

So I think it's important to pause here and remind everyone on the call that the focus of this restructuring plan was to transform our business model and return to profitability at the current weakened home furnishings industry level. While also building a more efficient platform to support our growth. Our team has worked hard to execute on our restructuring plans. And they are beginning to generate the savings and efficiency improvements we anticipated. Along with higher margins on our product lines of knits, wovens and sun covers. As we execute on this initiative over the last three quarters, the general economic uncertainty consumer sentiment and macro demand levels have only worsened. As difficult as that seems, we are not deterred we are encouraged that our business is trending towards positive consolidated adjusted EBITDA which excludes restructuring and related charges as we move towards the end of fiscal twenty twenty five and we are focused on achieving sustained profitability and growth. In fiscal twenty twenty six. Illustrating the macro industry pressure, our consolidated sales for the third quarter were down sequentially due to ongoing weakness in the home furnaces and bedding industries and as expected specific pressure on residential upholstery fabric sales.

That was exacerbated by some unique inventory adjustments from a large While we have a strong relationship and steady place with this customer, the quarterly timing of its lower purchases from us has distorted year over year and sequential comparisons by quarter. However, when considered annually, the volume of fabric purchases from this customer is in line current industry demand and indicative of our solid position. In fiscal year 'twenty four, Q3 was the peak of purchase for this customer compared to this year's Q3, where we are seeing what we expect to be the slowing tail of the inventory adjustment. It is our understanding and expectation that we will see the final significant impact of this inventory realignment in our fourth quarter. Regardless of the ongoing pressure in the resident upholstery industry, we are confident that our solid market position flexible global platform and innovative product portfolio will position us for growth in our upholstery fabric segment once market conditions improve. Outside of pressure from certain specific customers, we are growing our business sequentially. And we are effectively gaining new opportunities by segmenting our products and our sales strategies, to focus on new placements with mid to upper price point furniture as well as the value price segment.

We're also pleased with our product and SKU placements across the board. With manufacturing customers generated by positive reactions at both the most recent High Point Furniture market and the interwoven fabric show. We are developing diverse, consumer focused and innovative product lines we are diligent in presenting our customers with varied supply chain strategies. With uncertainty around tariffs and trade regulations, it's important to offer supply chain optionality to customers And we are doing that by developing products via our extensive Asia operations, with increased focus in Vietnam while also considering options in other regions, to enable a preferred response. Outside of the tough residential demand environment, we see stronger demand in our higher margin hospitality contract fabric business, with both year over year sequential increases in sales for the third quarter. Sales for this business represented 40% of Upholstery Fabrics total sales for the quarter. And we are realizing increased potential with a diverse range of commercial fabrics and window treatment products. Breaking down our hospitality contract business further, we are very excited about our new on trend collection of fabrics that is currently being presented to our customers. This collection's fresh new constructions and color stories are being received well for new projects that will have longer lifespans and higher margins compared to residential fabric placements.

And with window treatments, we continue to expand our capacity for drapery and roller shades with new hotel brand standards being added to our portfolio each quarter. Hospitality contract portion of our upholstery fabrics segment is an important part of our diversification strategy. And we believe it should drive solid long term growth moving forward. Above all, we remain pleased with the Upholstery Fabric segments continuing profitability. All supported by our Asset Light platform. The actions we have taken over the last year to rationalize our finishing operation and improve our supply chain are lowering our manufacturing costs for upholstery fabrics which gives us confidence to navigate our business through a variety of economic environments. So as I look ahead, there are few major themes developing for Culp as we manage our business. And first, I again want to reiterate our commitment to return the company to profitability in the current low demand environment. In some cases, we are seeing macro demand levels at the lowest they have been in years. With industry volume demand seemingly falling each quarter. Nevertheless, as displayed on Slide 11 of the restructuring deck, we continue making our operational adjustments focusing on the things we can control such as cost and efficiency improvements that allowed us to approach near breakeven adjusted EBITDA in Q3 with further improvement expected in Q4.

And positioning us for sustained profitability heading into fiscal twenty twenty six. Of course, assuming no significant further worsening, industry sales levels. In Q3, we took new cost saving that we expect will generate annualized savings of approximately $1,000,000 Note that these actions are in addition to the cost saving measures we are part of our restructuring it's another $1,000,000 in annualized savings on top of the $10,000,000 to $11,000,000 in annualized savings expected from the restructuring. We are also targeting further significant strategic actions to synergize and create more cost and that we expect will impact fiscal twenty twenty six and beyond. We are assessing all options and we'll provide more information when we make a final decision on those plans. The second major developing theme in our business is the disruption occurring with tariffs and global trade issues. Historically at Culp, Culp always been focused on providing a flexible and agile supply chain across our businesses to support our customers. This time will be no different. Although the continual changes to policy and timing are creating much uncertainty within the market, We have heard many projects and customers speak to delays while dealing with a changing import environment That has led to some acute sales pressure and deferred product launches that at a minimum could impact Q4 sales.

For mattress fabrics products, we are now well positioned with the Bolt USA platform for fabric production, finishing and distribution complemented by various supply partners in Turkey and Asia. For cotton ton mattress cover products, we have a strategy utilizing our production in Haiti on the border of The Dominican Republic which is currently protected by the hope Health Act for tariff free treatment. And we also have Asia supply chains in both Vietnam and China. For upholstery, we have a strong Asia presence with strengthening Vietnam supply options for both fabrics and sewn kits. And we also continue assessing various options in other parts of the world. Notably, only approximately 30% of our China produced fabrics shipped to a U. S. A. Destination. So we have some protection currently from rising tariffs. For window treatments, we have a growing capacity in The USA with drapery and roller shades. There is no clear or foolproof strategy for balancing the rapidly evolving trade regulation with our aggressive cost profile. However, we believe our global production footprint provides customers with preferred and viable country of origin optionality and speed to market to navigate what is expected to remain a fluid regulatory landscape.

Importantly, we have very little exposure to tariff impacts on Mexico or Canada, we are committed to taking price action as needed any cost pressure we see on our China Supply chain. From a big picture perspective, tariffs can certainly affect consumer sentiment, we believe our supply chain agility gives Culp a competitive advantage to pivot our platform near term to hedge against tariff pressure and supply our customers with continuity. A third major theme is our firm belief that a major driver has success in both of our businesses is product development and innovation. Design and creativity has long been hallmarks for KOL. And we believe an excellent product offering along with prioritized customer service is a must Our view of innovation is that can be it can include investments in new equipment, processes, product styling or other areas and our team remains focused on all of these fronts. In the last year, we have not only innovated through our revamped supply chain, as I just discussed, We've also added specific equipment to improve the knitting process and manufacturing, as well as to efficiently monitor and precisely control the dosing On the product side, we are excited about the addition of quilted mattress covers in our near shore cut and throw operations as well as the recently announced joint strategic development with Precision Fabrics for flame retardant NIP products that offer improved styling and also function for mattress covers.

We're also in the beginning phase of a mattress accessory product launch and we're increasing brand standards and window treatments and we are excited about the overall improved styling we see across both of our segments. We have a truly entrenched focus on design and sales strategies we are pleased by customer reactions to new fabrics and upholstery, both residential and commercial as well as mattress fabrics. Innovation in process and product is helping enhance our market share Plant seeds for our future, especially when marketing additions improve. Another major trend we are seeing in our business is the general customer consolidation occurring downstream of us. Especially in the mattress industry. It seems that through these pressured industry conditions and the environment, is more ripe for consolidation. Without knowing the future, we believe these trends lean positive for Kalt. As we've discussed, we are a large supplier with sophisticated compliance focused and geographically diversified supply chain strategies. And an emphasis on product design and innovation. We believe these capabilities favor us to service large customers we are focused on targeting these opportunities while concurrently supporting all of our customers. We have repositioned our valued sales team members in both businesses to segment today's market and focus on making Colt the preferred supplier with product and customer service.

So in closing, despite the ongoing macroeconomic headwinds, tariff uncertainty and industry consolidation, We believe we are well positioned in both businesses with strong customer relationships and agile manufacturing and sourcing capabilities. We are confident that our actions to optimize the cost platform our mattress fabrics segment will enable us to return to profitability post restructuring even at currently depressed demand levels. I'd like to thank our team for continuing to diligently focus controlling what we can control and taking the critical steps to position our business for profitability and growth as we head into fiscal twenty twenty six. Before I turn the call over to Ken, I do want comment on the second press release we issued yesterday regarding Bill Tyson. Joining our Culp Board of Directors. We are excited about Bill's new and important role as he brings a wealth of knowledge and experience that will benefit the company and our shareholders. Welcome, Bill. So with that, I'll turn the call over to Ken. Will review the financial results for the quarter. And our view of the outlook we provided as we look ahead to the fourth quarter of fiscal twenty twenty five. Thanks, Ive. Here are the financial highlights for the third quarter.

We continue to face a challenged demand environment. Net sales were 52,300,000.0 down 13.5% compared with the prior year period. The company reported long term operations of $3,900,000 which included $2,300,000 in restructuring expense and related charges of which $2,000,000 was cash. This compares to a loss from operations of $1,700,000 for the prior year period, which included $111,000 in restructuring and related credits. Adjusted loss from operations was 1,600,000.0 compared with an adjusted loss from operations of $1,900,000 for the prior year period. Notably, the $1,600,000 adjusted operating loss was sequentially improved as compared to Q2's $2,600,000 adjusted operating loss even on $3,400,000 less in sequential sales. I'll comment in more detail on divisional sales and operating performance in a moment. Net loss for the third quarter was $4,100,000 or $0.33 per diluted share compared with a net loss of $3,200,000 or $0.26 per diluted share for the prior year period. Our overall adjusted operating performance for the third quarter was supported by improved operating efficiencies resulting from the mattress Fabric segment's restructuring initiatives, lower fixed cost and lower SG and A. Adjusted EBITDA for the last twelve month period ending Q3 was a negative $6,300,000 as compared to a negative three point However, adjusted EBITDA for the third quarter was close to breakeven at a negative 123,000 which was a sequential improvement compared to adjusted EBITDA of a negative $1,300,000 for the second quarter again, despite $3,400,000 in lower sales.

The effective income tax rate for the third quarter this year was a negative 12.1% compared with a negative 47.5% for the same period a year ago. Our effective income tax rate for earnings between our U. S. And foreign subsidiaries With an operating loss in The U. S, a significant operating loss in Canada due to the restructuring effort, and taxable income mostly from China, which has a higher income tax rate compared to The U. S. Expected cash income tax payments for this fiscal year will not be given at this time due to the restructuring effort. Incur any income taxes in The U. S. On a cash basis for the foreseeable future due to our existing U. S. Federal net operating loss carryforwards totaling almost $70,000,000 as of the last fiscal year end. Now let's take a look at the business segments. For the mattress fabrics segment, sales for the third quarter were $28,600,000 down 4.6% compared with last year's third quarter. Sequentially, sales were down 4.8% compared with the prior quarter. [indiscernible] year over year sales were affected by ongoing weakness in the domestic mattress industry, we believe CHF is outperforming the industry average and is growing its market position through investments in manufacturing platform product diversification and design innovation.

Sequentially, sales were negatively affected by fewer billing days due to holiday closures and weather events during the quarter that did not affect the prior quarter. Operating loss for the quarter was 433,000 compared with an operating loss of $1,600,000 a year ago and compared with an operating loss of 1,000,000 for the prior quarter. The improvement in operating performance was driven by the impacts of CHS restructuring initiatives, including improved operating efficiencies, and lower fixed costs. For the Upholstery Fabric segment, sales for the third quarter were 23,600,000.0 down 22.3% compared to prior year period. Sequentially, sales were down 7.8% compared with the prior quarter.

Sales for CUS Residual Fabric business were lower than 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 home furnishings industry and weather related disruptions. Sales for our hospitality contract business including Reed Windows, were significantly higher compared to the prior year period and slightly higher sequentially. Income from operations for the quarter was $679,000 dollars compared with income from operations of $2,100,000 a year ago and compared with income from operations of $615,000 for the prior quarter. Operating performance for the quarter was affected by lower sales, partially offset by lower fixed cost lower SG and A and a more favorable China foreign currency exchange rate. Now I'll turn to the balance sheet. We reported $5,300,000 in total cash and $5,400,000 outstanding debt under our China credit lines as of the end of the third quarter giving us a net debt position of $105,000 The outstanding debt was primarily used in connection with restructuring activities the timing of payables in connection with the Chinese New Year holiday, and to fund worldwide working capital.

Cash flow from operations and free cash flow were negative $9,400,000 and a negative [indiscernible] respectively for the first nine months of this fiscal year. Our year to date cash flow from operations was primarily affected by operating losses including $4,200,000 in non recurring cash charges related to the restructuring plan that is now largely complete partially offset by a source of cash from lower working capital. Our free cash flow was also primarily impacted by operating losses as well as planned strategic investments and capital expenditures mostly related to the mattress fabric segment partially offset by a source of cash from lower working capital, proceeds from a note receivable and sale of equipment. Capital expenditures for the first nine months of this fiscal year were $2,400,000 down from $3,200,000 for the first nine months of last fiscal year. Based on current expectations, capital spending for this fiscal year is projected to be approximately $3,000,000 to 3,500,000.0 and we'll center mostly on maintenance CapEx and quick payback projects that will increase efficiency and improve quality, especially for the mattress fabric [indiscernible] Based on current expectations, depreciation for this fiscal year is expected to be approximately $5,500,000 With respect to liquidity, as of the end of the third quarter, had approximately $28,500,000 consisting of $5,300,000 in cash and $23,200,000 in borrowing availability, under our domestic credit facility.

The company's existing and future borrowings under our domestic credit facility and foreign credit facilities during this fiscal year relate to our restructuring activities, the timing of payments to vendors ahead of the Chinese New Year holiday and to fund worldwide working capital to grow the business. Importantly, given these objectives, our outstanding borrowings could again exceed our available cash at the end of the fourth quarter resulting in a net debt position as we await the sale of our Canadian facility. However, when the sale of our Canadian facility is complete, we intend to use the expected $6,000,000 to $8,000,000 in cash proceeds to retire outstanding borrowings and further strengthen our liquidity position. We did not repurchase any shares during the first nine months of this fiscal year, leaving $3,200,000 available under our current share repurchase program. Despite the current share repurchase authorization, we do not expect any during the fourth quarter as we remain focused on preserving liquidity and being positioned to support future growth opportunities. With that, I'll turn the call over to Ive to discuss the general outlook for the fourth quarter and we will then take your questions. It Thank you, Ken.

Due to the ongoing macroeconomic and increasing tariff uncertainty, we expect continued industry sales pressure only provided limited financial guidance at this time. [indiscernible] expect our consolidated net sales for the fourth quarter to show some growth year over year. And to remain relatively flat sequentially. The year over year growth is driven by an expected increase in the mattress fabric segment offset by ongoing pressure on residential upholstery fabric sales to weak industry demand and impact from the timing of the Chinese New Year holiday, this year falls entirely in our fourth quarter. We currently expect continued sequential improvement in adjusted EBITDA, which is expected to be in the range of $120,000,000 to $200,000,000 to $300,000,000 to $300,000,000 to $300,000,000 to $300,000,000 We currently expect continued sequential improvement in adjusted EBITDA, excludes restructuring and related charges, With further improvement in mattress fabrics profitability in the fourth quarter, providing a foundation for a return to consolidated operating income in fiscal twenty twenty six. These expectations reflect certain assumptions regarding our business and trends, the projected impact of the restructuring actions and ongoing market headwinds. Importantly, our expectations also assume no further meaningful impacts from tariffs and trade negotiations. So with all that, we'll now take your questions.

We will now begin the question and answer session. First question comes from Brian Gordon with Water Tower Research.

Please go ahead.

Hey, good morning, everyone. So if my first question would be sort of about the change in guidance. And so my understanding from what you said this morning and from the press release would be that at current demand levels, you're now kind of expecting early first quarter, maybe first half at the latest for return to profitability? Just want to clarify this.

Yes, sir. That's right, Brian. That's how we're talking about it. And we just are maybe as I touched in the script, we are we're committed to returning profitability at whatever demand levels we see. That just means we have to do more to get there. And the levels have gotten somewhat worse Hopefully, it's temporary while this uncertainty that's going on right now. We're going to make the adjustments to to set a foundation for next year to be a profitable sustainable, profitable year. That's the plan.

Great, great. So it sounds like I'm switching gears a little bit here. So it sounds like you guys are definitely gaining market share with mattress. And with hospitality and contract side of the business. Could you talk a little bit about that and maybe then also what you're seeing from a market share perspective? With upholstery in general? Yes. Brian, thank you. It's a good question.

And Mary Beth and Tommy are both here with me. So I'll let them speak to some of that directly. But I do think it's important the way you phrased that question, The restructuring project we have going on in Mattress Fabrics certainly is reducing some capacity the places we want to reduce it. But none of what we did there was ever intended not to grow the business. So I think you're picking up way we're phrasing it right, we do believe we're gaining share in our mattress that in both businesses, but certainly specifically in mattress the restructuring we're doing is making us better making us more streamlined, making us more efficient. [indiscernible] that is a very positive thing and it's at the end of it here, we're pretty bullish on what that's going to deliver for us. But let me pivot to Tommy and he can tell you what he sees high level on his and then Mary Beth can do same for upholstery both residential and [indiscernible] Hey, Brian, it's Tommy. From my perspective, we're seeing hey, good morning. From my perspective, what we're seeing is continued market share growth in both our fabric business and growth in our cover business.

So despite the challenging environment, unit environment, in the mattress industry, We're seeing continued growth with existing customers and we're actually working on projects with new customers, which are new share for us.

So I think the same puts and takes of programs that are that are going end of life and then new programs that come from those the January Las Vegas furniture market.

Kind of in our numbers in Q4 a little bit.

We're seeing that those new programs are strong and we had a great Vegas market showing. We feel very good about the new programs that we're launching. The only impact for us is how do those mattresses sell once they once they're launched with our customers.

So just to follow-up there, So it's not just with existing customers, it sounds like there are potentially some new wins in there? As well?

Yes, sir. That's correct. Yiv had mentioned we had some new capabilities that that we talked about with our quilting [indiscernible] And we've won some new share there. Some of which is launching now and then some new share that's launching in Q4 going into Q1 And then additionally, just some new opportunities based on some of the tariff uncertainty where folks like our preferred platform and are leaning in and we're we're quickly getting to market with some of those opportunities as well.

Excellent. Great. Thank you.

Sure. Hey, Brian. It's Marybeth. I'll talk to you a little bit about hey, about upholstery. Let's start with residential. There's so many things going on in that space. If we think prior to the election, we had some bankruptcies and financial really focused at the low end. And then earlier in this year, of course, we started to see tariffs and thinking about the impact that's going to have. At the same time, interest rates haven't moved a lot, certainly not enough to trigger any big move in housing turnover, which is the biggest predictor of furniture sales. So what that leaves us with is a really soft industry where we feel like going forward, the high cost of living going to really pressure the low end. And the popularity of remodeling is going to fall more in the slightly more affluent customer base. So in light of all of this, we really segmented our approach to the upholstery industry where we do have a very targeted strategy to that value customer. Where we're looking at very price sensitive, very specific construction and how do we meet the needs of those customers along with some realignment of our sales force to put some good experience with those customers.

And then on the more affluent side, we have so much to offer. That's where we can really showcase our broad for That's where we rely on our U. S. Based design staff, which have over one hundred years of collective experience And we just really can innovate and provide on trend, really interesting products for our customers that are design focused.

There we also benefit from our innovation center at Congdon Yards here in High Point.

And our new branding assets that we unveiled in 2024. So in those ways, we can really target those affordable luxury type customers that we have. We've also seen a lot of success with Culp. So really excited about new opportunities there. And then I'll pivot to contract hospitality. So that's usually the flip side of residential and we do continue to see that the focus on travel for the consumer is continuing much as it did post COVID. We don't really foresee that changing, although certainly the tariff have had an impact on some projects. We are seeing some customers take a pause as they sort through what the tariffs mean to them. But we are really pleased with some new you think about the major hotel conglomerates, Hilton, IHG and Choice, We have we are brand standards for a number of conglomerates. And many of those relationships are new in the last six months. [indiscernible] a lot of opportunity, but certainly we're not immune to to what's happening to our industry with tariffs.

Yes.

No, thank you for that update. It's particularly exciting to see the growth on the hospitality side. It's something like 40% of the business now you noted in the press release. Kind of looking forward, do you see that level continuing as growth returns to the industry kind of more generally?

I do. I mean, we obviously are planning and working towards a regrowth of the residential side, but our focus is largely on the contract hospitality space. And we do expect that to continue to be a growing portion of our Great. Thanks. And Brian, I think I just maybe cap off their comments a little bit. I would add what's neat about it, they're really executing in a very difficult market. And they are winning Tommy and Mary Beth both and their businesses are winning opportunity in a tough pressured environment. And if you combine that with the innovation they have [indiscernible] innovating their supply chain to be tariff preference and innovating with style and function there is a lot of opportunity. It's sometimes hard to see it on the face of the pressure, where I sit, I can clearly see it and there's so much opportunity. I'm just proud of the way their businesses are executing. It's it'll be a day it really shows through and we're excited about that.

Yes, no, definitely. It's I mean, clearly with the macro headwinds, it's challenging, but what is exciting, I think, is the share gains that you guys have been able to generate. Across both of the segments and how residential and the poultry side too.

Yes, sir. Thank you.

So I want to pivot though a little bit to some of the restructuring. So if we look back at the completed. But you've mentioned two things on the call this morning and on the press release that I kind of want to dig into a little bit. First is that incremental $1,000,000 that you guys announced. I was hoping that you could talk a little bit more about what that involves and when the impacts might start hitting the results. Brian, thank you. Good Good question. And we tried to lay that out. I know we there's some some speak to more that's coming and we could talk about that too. But the initial restructuring that saves $10,000,000 to $11,000,000 is primarily focused on mattress fabrics. That's complete. The only thing left to do there is to sell the facility as we noted in the release, we're under contract on that. Pushing hard to get that done. It's in the upcoming months, we expect to have that finished and that will be the cherry on the sunday of the restructuring project. But the operational portion of that is done. The $1,000,000 that we're calling out in the press release is an additional savings on personnel.

Some personnel we have and it's professional fees that we utilize. So that savings starts annualized in Q4. We'll carry through into next year. And then we noted here that we're looking at some other streamlined opportunities will be on top of both of those. So I hope that's answering your question at least at the high level.

Okay. So the $1,000,000 we'll start seeing that kicking in the fourth quarter?

Yes, sir.

And so I know you're saying it's a little bit early, but could you talk about what this additional restructuring might entail, both in terms of like what are you guys looking at, across the business and timing and magnitude if any of that's available at this point? [indiscernible] thanks for the question. It's a little bit of we're formalizing the plans on that. What I can tell you about it and what makes me excited about this is Tommy and Marybeth as they're running their businesses are really doing well and they're really synergized together. And so what we're finding within NCOB is there are places where we can synergize between the divisions and share some resources. And we find ways to take cost out that way. So I wouldn't call the next steps we're going to take is restructuring projects. They are synergistic efficiency projects. And they're finding them. They're finding them as they're working together in their businesses And Brian, I think these we're talking up to $2,000,000 of additional savings that we'll start to implement annualized basis in fiscal twenty twenty six.

Okay. That is My apologies. So is this kind of more like something that you're expecting to see in the first half?

Well, I mean, we'll start those projects in the first half for sure. And these are not these aren't restructuring projects that have a lot of cost of cash to do. These are things that we just think are very synergistic for the businesses. And so the faster we can get them executed moving, the faster we can generate some of the savings. So I mean, we certainly see them fully implemented Mary Beth, probably by the back half of the year. And some maybe some early year help Brian, but it's a $2,000,000 up to $2,000,000 annualized kind of number.

Okay, excellent. Thank you. I've I want to ask a little bit though additionally about the tariffs and what the potential opportunities are there for you? Because I think it's well, so first, kind of what percentage of production right now would be affected by tariffs. And obviously, there is a lot of volatility there. On the policy side.

But then how does this position Culp Culp particular to maybe potentially gain share Yes. Good question. And tariffs is top of mind for everyone these days. And as I said in the script, there really is no foolproof strategy. So I don't want pretend that I have a silver bullet that can solve all this. But what I do believe and is part of ingrained in our culture is we focus on supply optionality. We want to supply our customers for continuity. We want to be available to them where they want be sold. Because of that, innate culture for us, we have multi ways to shift our production.

So we talked about in upholstery fabrics with Mary Beth's business, Really only about 30% of our business now is tariff impacted coming from China.

We're doing all we can to relocate that and we're very focused Southeast Asia and working on opportunities. But we're designing around that. Takes a little time, because there are things that are placed and have to be structured. But we're dealing with that. And what we can't move will pass the price, Brian. So we're not anticipating impact to Colt from tariffs. On the mattress side of business, go ahead, I'm sorry. So I was going to follow-up on that. Is that going to be more of like a surcharge or how are you actually thinking about handling any of these tariffs?

We'll do that on the upholstery side through Your price.

It will be a price increase.

Okay.

And then Brian on the mattress side of the business and Tommy and I have talked a lot about this. We We can move that faster. We just have a lot of it's cut and sew. We just we have cut and sew operations in other parts of the world. In our Haiti location, it's a tariff free strategy. So it's just a matter of positioning materials to be able to sell them meet the customer demand. And so maybe there's some short term pressure If your things in transit get tariffed and that's kind of the herky jerky nature of this that's catching us, but within a month or six weeks lead time, we can have something moved and sourced somewhere else. That could impact when it arrives and when you bill it. When we generate the revenue, but we can help our customers around these tariff impacts. At least what we know today, what's being tariff today, we can work around them and be preferred and offer customers better opportunities with our cost structure. So it's a really positive Terrors are not positive, but our ability to react to them is positive.

Got it. One final question, I think for this morning. When you're looking at consolidation, especially in the mattress side, do you see it more in terms of like risk to the business or more in terms of opportunities for the business? [indiscernible] Brian, just to make sure I understand your question. The consolidation we see going on, which there's a lot, there's been some big moves several in the last six months or so. Is that a do we how do we see that as a challenge or an advantage for Is that the question? Exactly, exactly. That's the question.

Okay. Hey, Brian, it's Tommy. Yes, the consolidation for us, we believe is a net positive As Ive mentioned in the script, we are a large provider of fabric and mattress covers in the industry. Design and innovation capabilities and our flexible platform fare well with the larger suppliers in the mattress industry. For us, we think it's a net positive. We obviously have to work through those dynamics in order to reap that benefit. But that is a focal point for us.

Great. Thank you. And that's all that I have for this morning. So good luck with [indiscernible] Thank you, Brian. We appreciate it. Thanks for all your support.

This concludes our question and answer session. I would like to turn the conference back over to Ife Culp for any closing remarks.

Thank you, sir. Again, thank you to everyone for your participation and your interest in Culp. And we certainly look forward to updating you on our progress in the next quarter.

The conference has now concluded. [indiscernible]