Introducing Research Coverage on Culp, Inc.: Covering the Recovering Furniture and Mattress Market
18 March 2021
- 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.
- 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.
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|52 Week Range:||$5.28 - $17.88|
|Avg. Daily Vol. (30 day):||48,600|
|Shares Out / Float (MM):||12.3 / 10.2|
|Market Cap (MM):||$191|
|Shares Short / % of float:||19,300 /-0.16%|
|Debt to Equity Ratio:||0|
|Revenue TTM (MM):||$268|