Introducing Research Coverage on Culp, Inc.: Covering the Recovering Furniture and Mattress Market

Key Points

  • With this report, we introduce coverage of Culp, Inc., a market leader in two textile platforms: mattress fabrics and upholstery fabrics. Culp manufactures, sources, and supplies fabrics and cut-and-sewn covers primarily for upholstery and mattress manufacturers. We began studying Culp soon after its 1983 IPO.
  • For investors, three relevant tenets of Culp’s strategy are: 1) innovation; 2) service; and 3) a balanced and disciplined approach for capital use and deployment.
  • Culp’s demonstrated ability to respond to changes in the economy and its market—shown again most recently with the successful divestiture of eLuxury during the early onset of COVID-19—is evidence that Culp will likely maintain its strong market position for the foreseeable future..
  • In the recap of its most recently reported quarter, F3Q21, management delivered mid-teens revenue growth, mid-single-digit operating margin, and maintained its strong balance sheet with ~$51 million in cash and investments with no outstanding funded debt..
  • During COVID-19, Culp continued to declare and pay its quarterly dividend and upped it by $0.005 per share to $0.11 in early December 2020. Culp had re-initiated its dividend in mid-2012 and has increased it every year since. In addition, the Board recently re-authorized a share repurchase program, which Culp plans to execute opportunistically.
  • With COVID-19, home furnishings companies witnessed increasing consumer demand for comfort, wellness, and a focus on their homes that has spurred spending on home furniture and mattresses..
  • Culp will likely benefit from the antidumping investigation of mattress imports, which recently resulted in meaningful duties being imposed on imported mattresses from China and seven other targeted countries.

Our Insights

Key Opportunities

  • Culp’s recent acquisition of the remaining interest in its Haitian joint venture positions it well for continued growth of its cut-and-sewn mattress cover business.
  • The domestic mattress industry will almost assuredly benefit from the antidumping process now being examined by the US Department of Commerce.
  • LiveSmart® is an example of Culp’s innovation in upholstery fabrics—an innovation that continues to grow and develop.
  • Culp’s virtuous business cycle begins with innovation and superior customer service.
  • Culp’s financial disclosure demonstrates its high regard for its shareholder stakeholders.
  • Culp’s disciplined and balanced approach to capital use and deployment is a priority.

Potential Near-Term and Longer-Term Challenges

  • Supply chains were stretched for much of 2020 and into early 2021.
  • Additional stimulus checks may spur near-term demand but when does normalcy return?
  • Currency fluctuations can and do, from time to time, meaningfully impact reported results.
  • Chinese New Year causes issues with seasonality of results.