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What changed in CULP INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of CULP INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+414 added−471 removedSource: 10-K (2024-07-12) vs 10-K (2023-07-14)

Top changes in CULP INC's 2024 10-K

414 paragraphs added · 471 removed · 285 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

98 edited+35 added−72 removed46 unchanged
Biggest changeThe timing of the Chinese National Holiday in October and, to a larger extent, the Chinese New Year (which occurs in January or February each year), now have a more significant impact on upholstery sales than the U.S. holiday periods, often causing sales to be higher in advance of these Chinese holiday periods and sometimes lower during or immediately following the same periods (although notably this trend for the Chinese New Year holiday did not occur during fiscal 2023, with sales lower in advance of the holiday due to high customer inventory and reduced consumer demand, followed by an uptick in sales after the holiday as customer inventory levels began to normalize).
Biggest changeOur manufacturing facilities in China close during Chinese National Holiday (in October) and the Chinese New Year (which occurs in January or February each year), often causing sales to be higher in advance of these Chinese holiday periods and sometimes lower during or immediately following the same periods.
In addition to “make to order” distribution, an inventory of select fabric patterns is held at our distribution facilities in Burlington and Shanghai from which our customers can obtain quick delivery of sourced fabrics through a program known as “Culp Express.” We also have distribution capabilities for our “Culp Express” program to local customers in Canada through our mattress fabrics distribution facility in Quebec, Canada.
In addition to “make to order” distribution, an inventory of select fabric patterns is held at our distribution facilities in Burlington and Shanghai from which our customers can obtain quick delivery of sourced fabrics through a program known as “Culp Express.” We also currently have distribution capabilities for our “Culp Express” program to local customers in Canada through our mattress fabrics distribution facility in Quebec, Canada.
Consumers are drawn to the mattress that is the most visually appealing when walking into a retail showroom or viewing mattress products online, so this design variation, together with price point delineation, helps our customers merchandise different looks at various price points. Fiber differentiation also plays an important part in design.
Consumers are often drawn to the mattress that is the most visually appealing when walking into a retail showroom or viewing mattress products online, so this design variation, together with price point delineation, helps our customers merchandise different looks at various price points. Fiber differentiation also plays an important part in design.
It is difficult to predict the extent to which any new rules or regulations would affect our business, but we would expect the effect on our operations to be similar to that for other manufacturers, particularly those in our industry. 11 We are periodically involved in environmental claims or litigation and requests for information from environmental regulators.
It is difficult to predict the extent to which any new rules or regulations would affect our business, but we would expect the effect on our operations to be similar to that for other manufacturers, particularly those in our industry. We are periodically involved in environmental claims or litigation and requests for information from environmental regulators.
We also provide development opportunities that support career growth and maintain a wide variety of programs to engage with our employees and promote overall wellness. We believe these efforts support all of our personnel in the workplace and elsewhere in their lives, which in turn promotes employee satisfaction and retention.
We also provide development opportunities that support career growth and maintain a wide variety of programs to engage 11 with our employees and promote overall wellness. We believe these efforts support all of our personnel in the workplace and elsewhere in their lives, which in turn promotes employee satisfaction and retention.
Knitted fabrics are produced at both the Stokesdale and St. Jerome facilities, while jacquard (damask) fabric is produced solely at the St. Jerome facility. The majority of our finishing and inspection processes for mattress fabrics are conducted at the Stokesdale plant, while the St. Jerome plant provides additional capacity and a second location for these processes.
Knitted fabrics are currently produced at both the Stokesdale and St. Jerome facilities, while jacquard (damask) fabric is produced solely at the St. Jerome facility. The majority of our finishing and inspection processes for mattress fabrics is currently conducted at the Stokesdale plant, while the St. Jerome plant provides additional capacity and a second location for these processes.
The use of new fabrics, creative designs, and special production finishes and technologies remains an important consideration for manufacturers 8 and marketers to distinguish their products at retail and to capitalize on changes in preferred colors, patterns, textures, and performance properties.
The use of new fabrics, creative designs, and special production finishes and technologies remains an important consideration for manufacturers and marketers to distinguish their products at retail and to capitalize on changes in preferred colors, patterns, textures, and performance properties.
We view such intellectual property, along with any unregistered copyrights, trademarks, service marks, trade names, domain names, trade dress, trade secrets, and proprietary technologies, as an important part of our business, and we seek to diligently protect, monitor, and defend, through appropriate action, against their unauthorized use. 14
We view such intellectual property, along with any unregistered copyrights, trademarks, service marks, trade names, domain names, trade dress, trade secrets, and proprietary technologies, as an important part of our business, and we seek to diligently protect, monitor, and defend, through appropriate action, against their unauthorized use. 13
In addition, under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (“CERCLA”), and analogous state statutes, liability can be imposed for the disposal of waste at sites targeted for cleanup by federal and state regulatory authorities. Liability under CERCLA is strict as well as joint and several. The U.S.
In addition, under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (“CERCLA”), and analogous state statutes, liability can be imposed for the disposal of waste at sites targeted for cleanup by federal and state regulatory authorities. Liability under CERCLA is strict as well as joint and several.
For additional segment information, including the geographic location of long-lived assets, see Note 18 in the consolidated financial statements. Back log Mattress Fabrics Segment The backlog for the mattress fabric segment is not a reliable predictor of future shipments because the majority of sales for the mattress fabrics segment are on a just-in-time basis.
For additional segment information, including the geographic location of long-lived assets, see Note 17 in the consolidated financial statements. Back log Mattress Fabrics Segment The backlog for the mattress fabric segment is not a reliable predictor of future shipments because the majority of sales for the mattress fabrics segment are on a just in time basis.
Our upholstery fabrics business has moved from one that relied on a large fixed capital base that is difficult to adjust to a more flexible and scalable marketer of upholstery fabrics that meets changing levels of customer demand and tastes.
Our upholstery fabrics business has moved from one that relied on a large fixed capital base that was difficult to adjust to a more flexible and scalable marketer of upholstery fabrics that meets changing levels of customer demand and tastes.
The mattress fabrics segment supplies the bedding industry, which produces mattress sets (mattresses, box springs, foundations and top of bed components) and bedding accessory products. The upholstery fabrics segment primarily supplies the residential furniture industry and, to a lesser extent, the commercial furniture industry.
The mattress fabrics segment supplies the bedding industry, which produces mattress sets (mattresses, box springs, foundations and top of bed components) and bedding accessory products. The upholstery fabrics segment primarily supplies the residential furniture industry and, to a lesser extent, the commercial and hospitality furniture industries.
Culp’s success is largely dependent on our ability to market fabrics and products with appealing designs and patterns, as well as performance properties such as cleanability, stain-resistance, cooling, sustainability, and health-related benefits.
Culp’s success is largely dependent on its ability to market fabrics and products with appealing designs and patterns, as well as performance properties such as cleanability, stain-resistance, cooling, sustainability, and health-related benefits.
Additionally, in fiscal 2022, the company held its first company-wide global giving initiative, with a program called “Share the Love.” The program involved employees in each of our geographic locations choosing a charitable endeavor to support, based on their knowledge of local cultural considerations and areas of need.
Additionally, in fiscal 2022, Culp began its first company-wide global giving initiative, with a program called “Share the Love.” The program involved employees in each of our geographic locations choosing a charitable endeavor to support, based on their knowledge of local cultural considerations and areas of need.
We are not aware of any efforts to organize any more of our employees, and we believe our employee relations are very good with both our unionized and non-unionized workforce. Our company-wide annual employee turnover rate was approximately 42% during the past fiscal year, compared to approximately 25% in the prior year.
We are not aware of any efforts to organize any more of our employees, and we believe our employee relations are very good with both our unionized and non-unionized workforce. Our company-wide annual employee turnover rate was approximately 43.5% during the past fiscal year, compared to approximately 42% in the prior year.
At the same time, we have maintained control of the most important “value added” aspects of our business, such as design, finishing, quality control, and logistics.
At the same time, we have maintained control or oversight of the most important “value added” aspects of our business, such as design, finishing, quality control, and logistics.
Over the past ten fiscal years, we made capital expenditures of approximately $67 million to consolidate our production facilities and to modernize both knit and weaving equipment, enhance and provide knit and woven finishing capabilities, and expand capacity. The result has been an increase in manufacturing efficiency and reductions in operating costs, as well as expanded product offerings and capacity.
Over the past ten fiscal years, we have made capital expenditures to consolidate our production facilities and to modernize both knit and weaving equipment, enhance and provide knit and woven finishing capabilities, and expand capacity. The result has been an increase in manufacturing efficiency and reductions in operating costs, as well as expanded product offerings and capacity.
We believe the success of our upholstery fabrics segment over the longer term is due largely to a business strategy that has included: 1) innovation in a low-cost environment, 2) speed-to-market execution, 3) consistent quality, 4) reliable service and lead times, and 5) increased recognition of and reliance on the Culp brand.
We believe the success of our upholstery fabrics segment over the longer term is due largely to a business strategy that has included: innovation in a low-cost environment, speed-to-market execution, consistent quality, reliable service and lead times, and increased recognition of and reliance on the Culp brand.
However, there can be no assurance that the costs associated with environmental matters will not increase in the future. Human C apital Our Employees As of the end of fiscal 2023, we employed 1,333 people, a decrease of 249 employees as compared to the end of the prior fiscal year.
However, there can be no assurance that the costs associated with environmental matters will not increase in the future. 10 Human C apital Our Employees As of the end of fiscal 2024, we employed 1,000 people, a decrease of 333 employees as compared to the end of the prior fiscal year.
From these locations, we market a variety of upholstery fabrics and cut and sewn kits sourced from third-party producers, mostly in China and Vietnam. We utilize these facilities for design, finishing, warehousing, quality control, and inspection operations related to these products. We previously produced cut and sewn fabric kits in Shanghai, China.
From these locations, we market a variety of upholstery fabrics and cut and sewn kits sourced from third-party producers, mostly in China and Vietnam. We utilize these facilities for design, prototyping, finishing, warehousing, quality control, and inspection operations related to these products.
Upholstery Fabrics Segment Upholstery fabrics segment sales totaled 53% of our sales for fiscal 2023, compared with 48% of for fiscal 2022. The company has emphasized fabrics that have broad appeal at “good” and “better” prices, generally ranging from $3.00 to $16.00 per yard.
Upholstery Fabrics Segment Upholstery fabrics segment sales totaled 48% of our sales for fiscal 2024, compared with 53% of for fiscal 2023. The company has emphasized fabrics that have broad appeal at “good” and “better” prices, generally ranging from $2.50 to $16.00 per yard.
Additionally, the growth in non-traditional sources for retail mattress sales, such as online e-commerce channels and wholesale warehouse clubs, has the potential to increase overall consumption of goods due to convenience and high traffic volume, which in turn results in higher turnover of product. Among fabric types, knitted fabrics have continued to increase in popularity.
Additionally, the growth in non-traditional sources for retail mattress sales, such as online e-commerce channels and wholesale warehouse clubs, has the potential to increase overall consumption of bedding products due to convenience and high traffic volume, which may result in higher turnover of product. Among fabric types, knitted fabrics have continued to increase in popularity.
Sales by Fiscal Year ($ in Millions) and Percentage of Total Company Sales Segment Fiscal 2023 Fiscal 2022 Fiscal 2021 Mattress Fabrics $ 111.0 47 % $ 152.2 52 % $ 157.7 53 % Upholstery Fabrics Non-U.S.-Produced 114.5 49 % 133.2 45 % 133.0 44 % U.S.-Produced 9.4 4 % 9.4 3 % 9.0 3 % Total Upholstery 123.9 53 % 142.6 48 % 142.0 47 % Total company $ 234.9 100 % $ 294.8 100 % $ 299.7 100 % Additional financial information about our operating segments can be found in Note 17 of the consolidated financial statements included in Item 8 of this report.
Sales by Fiscal Year ($ in Millions) and Percentage of Total Company Sales Segment Fiscal 2024 Fiscal 2023 Fiscal 2022 Mattress Fabrics $ 116.4 52 % $ 111.0 47 % $ 152.2 52 % Upholstery Fabrics Non-U.S.-Produced 98.4 44 % 114.5 49 % 133.2 45 % U.S.-Produced 10.5 4 % 9.4 4 % 9.4 3 % Total Upholstery 108.9 48 % 123.9 53 % 142.6 48 % Total company $ 225.3 100 % $ 234.9 100 % $ 294.8 100 % Additional financial information about our operating segments can be found in Note 17 of the consolidated financial statements included in Item 8 of this report.
This dynamic has mainly been due to short lead times demanded by mattress manufacturers and retailers, the customized nature of product lines, the relatively low direct labor content in mattresses, and strong brand recognition. Imports of bedding into the U.S. had been increasing gradually, but this trend significantly accelerated in fiscal 2018 and 2019, especially for lower-priced bedding.
This dynamic has mainly been due to short lead times demanded by mattress manufacturers and retailers, the customized nature of product lines, the relatively low direct labor content in mattresses, and strong brand recognition. Imports of bedding into the U.S. had been increasing gradually, but this trend accelerated significantly in recent years, especially for lower-priced and roll packed, boxed bedding.
(2) Of this amount $20.0 million, $26.9 million, and $28.1 million are attributable to shipments to China in fiscal 2023, 2022, and 2021, respectively. Sales attributed to individual countries are based upon the location that the company ships its products to for delivery to customers.
(2) Of this amount $18.3 million, $20.0 million, and $26.9 million are attributable to shipments to China in fiscal 2024, 2023, and 2022, respectively. Sales attributed to individual countries are based upon the location that the company ships its products to for delivery to customers.
Additionally, with the ongoing global trade dispute and other tensions between the U.S. and China, including the imposition of tariffs during fiscal 2019 and the possibility for additional tariffs on China imports, some of our customers began altering their supply chains away from China in late fiscal 2019.
Additionally, with the ongoing global trade dispute and other tensions between the U.S. and China, including the U.S. imposition of tariffs and the possibility for additional tariffs on China imports, some of our customers began altering their supply chains away from China in late fiscal 2019. This trend has continued in recent years, including in fiscal 2024.
We source unfinished and finished fabrics, as well as cut and sewn kits, from a limited number of strategic suppliers in China who are willing to commit significant capacity to meet our needs while working with our product development team located in China to meet the demands of our customers.
During fiscal 2024, we sourced unfinished and finished fabrics, as well as cut and sewn kits, from a limited number of strategic suppliers in China who are willing to commit significant capacity to meet our needs and work with our product development team located in China to meet the demands of our customers.
Through arrangements with major customers and in accordance with industry practice, we maintain a significant inventory of mattress fabrics at our distribution facility in Stokesdale (“make to stock”), so that products may be shipped to customers with short lead times and on a “just in time” basis.
Following the Fiscal 2025 restructuring, distribution from Canada will be eliminated. Through arrangements with major customers and in accordance with industry practice, we maintain a significant inventory of mattress fabrics at our distribution facility in Stokesdale (“make to stock”), so that products may be shipped to customers with short lead times and on a “just in time” basis.
On April 30, 2023, the portion of the upholstery fabric backlog with confirmed shipping dates prior to June 5, 2023, was $10.6 million, compared with $15.7 million as of the end of fiscal 2022 (for confirmed shipping dates prior to June 6, 2022).
On April 28, 2024, the portion of the upholstery fabric backlog with confirmed shipping dates prior to June 3, 2024, was $11.7 million, compared with $10.6 million as of the end of fiscal 2023 (for confirmed shipping dates prior to June 5, 2023).
Approximately 478 employees work in the United States, and 855 are employed in international locations. We employ the vast majority of our employees on a full-time basis. The hourly employees at our manufacturing facility in Canada (approximately 11% of our workforce) are represented by a local, unaffiliated union. The collective bargaining agreement for these employees expires on February 1, 2026.
We employ the vast majority of our employees on a full-time basis. The hourly employees at our manufacturing facility in Canada (approximately 14% of our workforce) are represented by a local, unaffiliated union. The collective bargaining agreement for these employees expires on February 1, 2026.
The mattress fabrics segments employed 759 people at fiscal year-end, a decrease of 186 employees, while the upholstery segment employed 543 people, a decrease of 60 employees from the prior year. The remaining employees comprise the company’s shared services functions.
The mattress fabrics segments employed 663 people at fiscal year-end, a decrease of 96 employees from the prior year, while the upholstery segment employed 305 people, a decrease of 238 employees from the prior year. The remaining employees comprise the company’s shared services functions.
Knitted fabric was initially used primarily on premium mattresses, but these products are now being placed increasingly on mattresses at mid-range to lower retail price points.
Knitted fabric was initially used primarily on premium mattresses, but these products are now being placed on more mattresses at mid-range to lower retail price points and nearly all roll-packed bedding.
Beginning in late fiscal 2019, we also developed strategic supplier relationships in Vietnam for additional sourcing of our cut and sewn kits, which has allowed us to begin adjusting our supply chains to meet customer demands in conjunction with ongoing trade disputes between the U.S. and China.
Beginning in late fiscal 2019, we also developed strategic supplier relationships in Vietnam for additional sourcing of our cut and sewn kits, which has allowed us to begin 7 adjusting our supply chains to meet customer demands.
These factors are expected to continue affecting the bedding industry during fiscal 2024. Until recently, the U.S. bedding industry has largely remained a North American-based business, with limited competition from imports.
These factors are expected to continue affecting the bedding industry into fiscal 2025. Until the last few years, the U.S. bedding industry largely remained a North American-based business, with limited competition from imports.
Our upholstery segment products also include window treatments and related products. 6 Mattress Fabrics Segment Mattress fabrics segment sales constituted 47% of our total net sales for fiscal 2023, compared with 52% for fiscal 2022. The company has emphasized fabrics that have broad appeal at prices generally ranging from $1.50 to more than $10.00 per yard.
Mattress Fabrics Segment Mattress fabrics segment sales constituted 52% of our total net sales for fiscal 2024, compared with 47% for fiscal 2023. The company has emphasized fabrics that have broad appeal at prices generally ranging from $1.60 to more than $10.00 per yard.
Net Sales by Ge ographic Area (dollars in thousands) Fiscal 2023 Fiscal 2022 Fiscal 2021 United States $ 165,807 70.6% $ 204,454 69.3% $ 217,473 72.6% North America (Excluding USA) (1) 29,756 12.7% 39,256 13.3% 32,925 11.0% Far East and Asia (2) 31,339 13.3% 43,015 14.6% 43,764 14.6% All other areas 8,032 3.4% 8,114 2.8% 5,558 1.9% Subtotal (International) $ 69,127 29.4% $ 90,385 30.7% $ 82,247 27.4% Total $ 234,934 100.0% $ 294,839 100.0% $ 299,720 100.0% (1) Of this amount, $24.9 million, $33.5 million, and $27.2 million are attributable to shipments to Mexico in fiscal 2023, 2022, and 2021, respectively.
Net Sales by Ge ographic Area (dollars in thousands) Fiscal 2024 Fiscal 2023 Fiscal 2022 United States $ 153,631 68.2% $ 165,807 70.6% $ 204,454 69.3% North America (Excluding USA) (1) 29,357 13.0% 29,756 12.7% 39,256 13.3% Far East and Asia (2) 36,334 16.1% 31,339 13.3% 43,015 14.6% All other areas 6,011 2.7% 8,032 3.4% 8,114 2.8% Subtotal (International) $ 71,702 31.8% $ 69,127 29.4% $ 90,385 30.7% Total $ 225,333 100.0% $ 234,934 100.0% $ 294,839 100.0% (1) Of this amount, $25.1 million, $24.9 million, and $33.5 million are attributable to shipments to Mexico in fiscal 2024, 2023, and 2022, respectively.
A large portion of our upholstery fabric products, as well as certain elements of our production processes, are being sourced from outside suppliers. Our facilities in China provide a base from which to access a variety of products, including certain fabrics (such as micro denier suedes and polyurethane fabrics) that are not produced anywhere within the U.S.
Our facilities in China provide a base from which to access a variety of products, including certain fabrics (such as micro denier suedes and polyurethane fabrics) that are not produced anywhere within the U.S.
Additionally, we continued to expand our design capabilities in fiscal 2019, launching new software and a library system for cataloging our products to drive marketing and enhance innovation.
In fiscal 2019, we expanded our design capabilities with the launch of a new software and a library system for cataloging our products to drive marketing and enhance innovation.
Upholstery Fabrics Segment In the upholstery fabrics market, we compete against a large number of companies, ranging from a few large manufacturers comparable in size to the company to small producers and converters (companies who buy and re-sell fabrics, but have no manufacturing).
Upholstery Fabrics Segment In the upholstery fabrics market, we compete against a large number of companies, ranging from a few large manufacturers comparable in size to Culp to small producers and converters (companies who buy and re-sell fabrics, but have no manufacturing). We believe our principal upholstery fabric competitors are Dorell Fabrics Co., Morgan Fabrics, Richloom Fabrics, Specialty Textile, Inc.
Using these design elements, they develop product offerings using ideas and materials that take both fashion trends and cost considerations into account to offer products designed to meet the needs of furniture manufacturers and ultimately the desires of consumers.
Using these design elements, they develop product offerings using ideas and materials that take both fashion trends and cost considerations into account to offer products designed to meet the needs of furniture manufacturers and ultimately the desires of consumers. Upholstery fabric designs are introduced at major fabric trade conferences that occur twice a year in the United States.
Culp Product Categories by Segment We market products in most categories of fabric that manufacturers currently use for bedding and furniture. We also market window treatment products to customers in the hospitality and commercial industries. The following table indicates the product lines within each segment, and, with respect to the fabric products, a brief description of their characteristics.
Product Categories by Segment We market products in most categories of fabric that manufacturers currently use for bedding and furniture. We also market window treatment products to customers in the hospitality and commercial industries.
We source some Culp-designed knitted fabrics, certain converted fabric products, and sewn mattress covers using our Culp China platform. We also source Culp-designed sewn mattress covers from a strategic supply relationship in Vietnam.
We source some knitted fabrics, certain converted fabric products, and sewn mattress covers using our Culp China platform.
We also conduct regular training programs with our management and employee leaders to inform and refresh their knowledge about company policies and procedures pertaining to employment and human capital. 12 Employee Recruitment, Development, Engagement, and Wellness We strive to attract, recruit, and retain employees through competitive compensation and benefit programs that are aligned with those of comparable industries and in the geographic areas where our facilities are located, and in compliance with local regulatory requirements.
Employee Recruitment, Development, Engagement, and Wellness We strive to attract, recruit, and retain employees through competitive compensation and benefit programs that are aligned with those of comparable industries and in the geographic areas where our facilities are located, and in compliance with local regulatory requirements.
The upholstery fabrics business markets a variety of fabric products that are used principally in the production of residential and commercial upholstered furniture, including sofas, recliners, chairs, loveseats, sectionals, sofa-beds, and office seating, as well as window treatment products and installation services for customers in the hospitality and commercial industries.
The upholstery fabrics business markets a variety of fabric products that are used in the production of residential and commercial upholstered furniture, including sofas, recliners, chairs, loveseats, sectionals, sofa-beds, and seating for offices, healthcare facilities, and other institutional uses, as well as fabric products that are used in the production of upholstered furniture for the hospitality industry, including seating for restaurants, hotels, and theaters.
We also source fabrics and cut and sewn kits from other manufacturers, located primarily in China, Vietnam, and Turkey, with substantially all of these products made specifically for Culp and created by Culp designers.
In fiscal 2024, we had active production facilities located in North Carolina; Tennessee; Quebec, Canada; Shanghai, China; and Ouanaminthe, Haiti. Culp also sources fabrics and cut and sewn kits from other manufacturers, located primarily in China, Vietnam, and Turkey, with substantially all of these products made specifically for Culp and created by Culp designers.
With the acquisition of Read Window Products at the end of fiscal 2018, this segment also markets window treatment products and installation services, including roller shades, drapery, hardware, and top-of-mattress soft goods, for customers in the hospitality and commercial industries. The upholstery fabrics segment currently operates two manufacturing facilities in Shanghai, China.
This segment also includes window treatment products and installation services through our Read Window Products business, including roller shades, drapery, hardware, and top-of-mattress soft goods, for customers in the hospitality and commercial industries. During fiscal 2024, the upholstery fabrics segment operated four facilities in Shanghai, China, including one manufacturing facility.
The trend in the upholstery fabrics industry to greater overseas competition and the entry of more converters has caused the upholstery fabrics industry to become substantially more fragmented in recent years, with lower barriers to entry. This has resulted in a larger number of competitors selling upholstery fabrics, with an increase in competition based on price.
(or STI), and ZhongWang Fabrics, plus a large number of smaller competitors (both manufacturers and converters). The trend in the upholstery fabrics industry to greater overseas competition and the entry of more converters has caused the upholstery fabrics industry to become substantially more fragmented in recent years, with lower barriers to entry.
Produ cts As described above, our products include mattress fabrics and upholstery fabrics, which are our two identified operating segments. These fabrics are sold in roll form and as sewn mattress covers by the mattress fabrics segment, and in roll form and as cut and sewn kits by the upholstery fabrics segment.
These fabrics are sold in roll form and as sewn mattress covers by the mattress fabrics segment, and in roll form and as cut and sewn kits by the upholstery fabrics segment. Our upholstery segment products also include window treatments and related products.
In addition, our bedding customers continue to face increasing competition from imports of finished beds, which indirectly compete with our mattress fabrics by replacing potential sales of our products to those customers.
In addition, our bedding customers continue to face increasing competition from imports of finished beds, which indirectly compete with our mattress fabrics as import producers generally do not purchase our fabrics.
Knitted fabric Various patterns and intricate designs produced on special-width circular knit machines utilizing a variety of synthetic and natural yarns. Knitted mattress fabrics have inherent stretching properties and spongy softness, which conforms well with layered foam packages. Sewn mattress covers Covers for bedding (primarily specialty beds), sewn from mattress fabrics produced by our facilities or sourced from others.
Knitted mattress fabrics have inherent stretching properties and spongy softness, which conforms well to layered foam packages. • Woven jacquards – Various patterns and intricate designs, woven on complex looms using a variety of synthetic and natural yarns. • Converted fabric – Suedes, pile, and embroidered fabrics, as well as other specialty type products, are sourced to offer diversity for higher-end mattresses. • Sewn mattress covers – Covers for bedding (primarily specialty beds), sewn from mattress fabrics produced by our facilities or sourced from others.
Other examples of employee engagement initiatives include: • Wellness sessions on various health-related topics • Meetings and video chats with senior management • The CulpVets program, which provides special recognition to military veterans • Employee awards and recognition programs These engagement efforts and programs are continually refined and updated to meet the evolving needs of our workforce.
Other examples of employee engagement initiatives include: • Interactive TeamTalk meetings, business strategy sessions, and video chat sessions with senior management • Policy Talk Tuesdays with managers and supervisors on company HR policies and benefits • CULPchat program soliciting employee feedback and communication • The CulpVets program, which provides special recognition to military veterans • Employee awards and recognition programs These engagement efforts and programs are continually refined and updated to meet the evolving needs of our workforce.
This strategic approach has allowed us to limit our investment of capital in fixed assets and control the costs of our products, while continuing to leverage our design and finishing expertise, industry knowledge, and important relationships. 4 After increasing in the two prior years, sales declined in fiscal 2020 due to the severe disruption from the COVID-19 pandemic during the fourth quarter.
This strategic approach has allowed us to limit our investment of capital in fixed assets and control the costs of our products, while continuing to leverage our design and finishing expertise, industry knowledge, and important relationships.
Copies of any materials we file or furnish with the SEC can also be obtained free of charge through the SEC’s website at www.sec.gov. The information included on our website is not incorporated by reference into this annual report or any other reports we file with, or furnish to, the SEC.
Copies of any materials we file or furnish with the SEC can also be obtained free of charge through the SEC’s website at www.sec.gov.
The fabrics are typically plain or small jacquard designs, with some being printed. These are sometimes referred to as microdenier suedes. Faux leathers Sueded or knitted base cloths which are overprinted with polyurethane, and composite products consisting of a base fabric that is coated with a top layer of polyurethane, which simulates the look and feel of leather.
These are sometimes referred to as microdenier suedes. • Faux leathers – Sueded or knitted base cloths which are overprinted with polyurethane, and composite products consisting of a base fabric that is coated with a top layer of polyurethane, which simulates the look and feel of leather. • Cut and sewn kits – Covers made from various types of upholstery fabrics and cut and sewn to specifications of furniture manufacturing customers for use on specific furniture frames.
This is due in part to the fact that a majority of bedding industry sales are replacement purchases, which are less volatile than sales based on economic growth and new household formations. During the second half of fiscal 2022 and throughout fiscal 2023, the bedding industry experienced weakness in domestic mattress sales, with industry reports reflecting significant unit contraction.
This is due in part to the fact that a larger share of bedding industry sales are replacement purchases, which are generally less volatile than sales based on economic growth and new household formations.
Additionally, beginning in fiscal 2022, we developed strategic supplier relationships in Turkey for additional sourcing of fabric products, providing further diversification in our supply chain. The majority of upholstery fabrics and materials used by our Read Window Products business to fabricate window treatments are customer-supplied.
Additionally, beginning in fiscal 2022, we developed strategic supplier relationships in Turkey for additional sourcing of fabric products, providing further diversification in our supply chain.
In this way, we have maintained our ability to provide furniture manufacturers with products from nearly every category of fabric for upholstered furniture and meet continually changing demand levels and consumer preferences. We have also implemented additional steps to grow net sales, including an emphasis on markets beyond residential furniture, such as the hospitality market.
In this way, we have maintained our ability to provide furniture manufacturers with products from nearly every category of fabric for upholstered furniture and meet continually changing demand levels and consumer preferences. Overview of Indu stry and Markets Culp markets products primarily to manufacturers and hospitality customers in four principal markets.
The result of this move was the discontinuation of our higher-cost on shore production capabilities, with the closure of two leased facilities in High Point during the third quarter.
The result of this move was the discontinuation of our higher-cost on shore production capabilities, with the closure of two leased facilities in High Point during the third quarter of fiscal 2023. This platform adjustment has allowed us to 3 generate cost savings by utilizing our lower-cost mattress cover production and sourcing capabilities in Haiti and Asia.
For example, our U.S. and Canadian locations held food drives for donations to local food banks, while Culp China’s facilities contributed to help cancer patients. Employees in Haiti made blankets in-house using Culp fabric and then donated them to a local orphanage and the local fire department.
In fiscal 2024, our U.S. locations held food drives for donations to local food banks, while Culp China’s facilities contributed to help a cancer patient and employees in Haiti donated toys to a local daycare facility.
Since 1997, our stock has been listed on the New York Stock Exchange and traded under the symbol “CFI” until July 13, 2017, at which time the Company’s ticker symbol changed to “CULP.” Our fiscal year is the 52- or 53-week period ending on the Sunday closest to April 30.
Since 1997, our stock has been listed on the New York Stock Exchange and trades under ticker symbol “CULP.” Our fiscal year is the 52- or 53-week period ending on the Sunday closest to April 30. Our executive offices are located in High Point, North Carolina. Culp maintains a corporate website at www.culp.com.
The following table sets forth our net sales by geographic area by amount and percentage of total net sales for the three most recent fiscal years.
Our largest customer in the upholstery fabrics segment is La-Z-Boy Incorporated, which accounted for approximately 12% of the company’s consolidated sales in fiscal 2024. 12 The following table sets forth our net sales by geographic area by amount and percentage of total net sales for the three most recent fiscal years.
The increase in our annual employee turnover compared to the prior fiscal year was driven mostly by the rationalization and restructuring our upholstery fabrics cut and sew operations in China and Haiti and our mattress fabrics cut and sew operation in the U.S.
The annual employee turnover in fiscal 2024 and fiscal 2023 has been higher than recent historical trends, driven mostly by the rationalization and restructuring of our upholstery fabrics cut and sew operations in China and Haiti during fiscal 2023; the rationalization of our mattress fabrics cut and sew operation in the U.S. during fiscal 2023 and in Haiti during fiscal 2024; and the discontinuation of our upholstery fabrics cut and sew operation in Haiti during the first quarter of fiscal 2024.
Our focused efforts to protect our financial strength have allowed us to maintain our position as a financially stable and trusted supplier of innovative fabrics to bedding and furniture manufacturers.
In addition, we place great emphasis on providing excellent and dependable service to our customers. Our focused efforts to protect our financial strength have allowed us to maintain our position as a financially stable and trusted supplier of innovative fabrics to bedding and furniture manufacturers. Our operations are classified into two operating segments — mattress fabrics and upholstery fabrics.
Mattress Fabrics Segment The mattress fabrics business and the bedding industry in general are slightly seasonal, with sales being the highest in early spring and late summer, with another peak in mid-winter.
Mattress Fabrics Segment The mattress fabrics business and the bedding industry in general are slightly seasonal, with sales being the highest in early spring and late summer, with another peak in mid-winter. In the U.S., customers often purchase mattresses during major U.S. holidays, in conjunction with retail store promotional events. However, these seasonality trends relate more to in-store retail sales.
Woven on less complicated looms using a variety of weaving constructions and primarily synthetic yarns. Velvets Soft fabrics with a plush feel. Woven or knitted in basic designs, using synthetic yarns that are yarn dyed or piece dyed. Suedes Fabrics woven or knitted using microdenier polyester yarns, which are piece dyed and finished, usually by sanding.
Woven on less complicated looms using a variety of weaving constructions and primarily synthetic yarns. • Velvets – Soft fabrics with a plush feel.
Our use of outside suppliers to source materials to produce mattress fabric and sewn covers makes the mattress fabrics segment vulnerable to price increases, delays, or production interruptions caused by problems within businesses that we do not control.
The mattress fabrics segment has generally not had significant difficulty in obtaining raw materials, apart from some delays experienced during the COVID-19 pandemic, which have since subsided. However, our use of outside suppliers to source materials makes the mattress fabrics segment vulnerable to price increases, delays, or production interruptions caused by problems within businesses that we do not control.
Additional safety and health programs are planned for the future. Customers and Sales Mattress Fabrics Segment Major customers for our mattress fabrics include leading bedding manufacturers such as Serta-Simmons Bedding (SSB), Tempur + Sealy International (TSI), Casper, Corsicana, Sleep Number, and Ashley Furniture. Our mattress fabrics customers also include many small and medium-size bedding manufacturers.
Customers and Sales Mattress Fabrics Segment Major customers for our mattress fabrics include leading bedding manufacturers such as Serta-Simmons Bedding (SSB), Tempur + Sealy International (TSI), Casper, Corsicana, Sleep Number, and Ashley Furniture. Our largest customer in the mattress fabrics segment is Serta Simmons Holdings, LLC, accounting for approximately 13% of the company’s consolidated sales in fiscal 2024.
Additionally, we fabricate a variety of window treatments, using mostly customer-supplied fabrics and materials, at our Read Window Products facility in Knoxville, Tennessee. Our upholstery fabrics facilities in China are located within the same industrial area in Shanghai.
Additionally, we market a variety of window treatments, using mostly customer-supplied fabrics and materials, fabricated at our Read Window Products facility in Knoxville, Tennessee, as well as by third-party suppliers.
Fabrics entering the U.S. from China and other low labor cost countries have resulted in increased price competition in the upholstery fabric and upholstered furniture markets. In general, the residential furniture industry has been consolidating for several years. The result of this trend is fewer, but larger, customers for marketers of upholstery fabrics.
In general, the residential furniture industry has been consolidating for several years. The result of this trend is fewer, but larger, customers for marketers of upholstery fabrics. Intense price competition continues to be an important consideration for both residential and commercial furniture.
Overview of Residential and C ommercial Furniture Industry Overall demand for our products depends upon consumer demand for furniture and bedding products, which is subject to variations in the general economy, including current inflationary pressures affecting consumer spending; declines in consumer confidence; the negative economic impact of potential additional surges of the coronavirus; and other geopolitical events, such as the ongoing Russia/Ukraine war.
Overall demand for our residential and commercial upholstery fabrics depends upon consumer and business demand for furniture products, which is subject to variations in the general economy, including current inflationary pressures affecting consumer spending and declines in consumer confidence.
The residential furniture market includes upholstered furniture sold to consumers for household use, including sofas, sofa-beds, chairs, recliners, and sectionals.
The residential furniture market includes upholstered furniture sold to consumers 4 for household use, including sofas, sofa-beds, chairs, recliners, and sectionals. The commercial furniture, fabrics, and window treatments market includes fabrics and window treatment products used for upholstered office seating sold primarily for use in offices, healthcare facilities, and other institutional settings; and window treatments for commercial application.
Distri bution Mattress Fabrics Segment Most of our mattress fabrics shipments originate from our facilities in Stokesdale, North Carolina, and we have additional distribution capabilities in Canada, China, and Haiti.
In recent years we have become more assertive in registering and defending copyrights for popular fabric patterns and taking steps to discourage the illegal copying of our proprietary designs. 8 Distri bution Mattress Fabrics Segment Most of our mattress fabrics shipments originate from our facilities in Stokesdale, North Carolina, and we currently have additional distribution capabilities in Canada, China, Haiti, and Turkey.
We also have R&D and prototyping capabilities for sewn mattress covers at our Stokesdale facility. In addition to the mattress fabrics and sewn covers manufactured by Culp, we have important supply arrangements in place that allow us to source mattress fabrics and sewn covers from strategic suppliers.
Jerome facility to a strategic sourcing model through the company’s long standing supply partners. See “—Fiscal 2025 Restructuring” for further details regarding the Fiscal 2025 restructuring. In addition to the mattress fabrics and sewn covers manufactured by Culp, we have important supply arrangements in place that allow us to source mattress fabrics and sewn covers from strategic suppliers.
No customers within the mattress fabrics segment accounted for more than 10% of the company's consolidated sales in fiscal 2023. Upholstery Fabrics Segment Our major customers for upholstery fabrics are leading manufacturers of upholstered furniture, including Ashley, Flexsteel, Kuka, La-Z-Boy (La-Z-Boy Residential and England), Southern Furniture Industries (Fusion and Southern Motion), Sudair, and Violino.
Upholstery Fabrics Segment Our major customers for upholstery fabrics are leading manufacturers of upholstered furniture, including Ashley Furniture, Flexsteel Home, Jonathan Louis, La-Z-Boy (La-Z-Boy Residential and England), Southern Furniture Industries (Fusion and Southern Motion), and Sudair Manufacturing. Major customers for the company’s fabrics for commercial furniture include Exemplis, HNI Corporation, Holiday Inn Club Vacations, and Marriott.
Window treatment products sold through our Read Window Products business are done on a “job order” basis, with manufactured products shipped directly from Read's manufacturing facility in Knoxville, Tennessee to the job installation site. 9 Sources and Availabil ity of Raw Materials Mattress Fabrics Segment Raw materials account for approximately 60%-70% of mattress fabric production costs.
However, following the Fiscal 2025 restructuring, distribution capabilities from Canada will be eliminated. Window treatment products sold through our Read Window Products business are done on a “job order” basis, with manufactured products shipped directly from Read's manufacturing facility in Knoxville, Tennessee to the job installation site.
These products include roller & solar shades, drapery, roman shades and top treatments, hardware products, and soft goods such as duvet covers, bed skirts, bolsters and pillows. 7 Manufacturing and Sourcing Mattress Fabrics Segment Our mattress fabrics segment operates three manufacturing plants, with one located in North Carolina (Stokesdale), one in St. Jerome, Quebec, Canada, and one in Ouanaminthe, Haiti.
Manufacturing and Sourcing Mattress Fabrics Segment Our mattress fabrics segment currently operates three manufacturing plants, with one located in North Carolina (Stokesdale), one in St. Jerome, Quebec, Canada, and one in Ouanaminthe, Haiti.
The sourcing of components and fully assembled furniture from overseas continues to play a major role in the furniture industry. By far, the largest source for these imports continues to be China. Imports of upholstery fabric, both in roll and in “kit” form, have also had a significant impact on the market for upholstery fabrics in recent years.
The sourcing of components and fully assembled furniture from overseas continues to play a major role in the furniture industry. The largest source for imported upholstery fabrics continues to be China, while China and Vietnam now serve as the largest sources for fully 5 assembled furniture.
It is uncertain if, when, and in what form, a mandatory carbon dioxide emissions reduction program may be enacted either through legislation or regulation. However, if enacted, this type of program could materially increase our operating costs, including costs of raw materials, transportation, and electricity.
However, if enacted, this type of program could materially increase our operating costs, including costs of raw materials, transportation, and electricity.
We also enhanced our digital project management platform, which allows us to work with customers from concept ideation and 3D 3 mapping to product life cycle management and final merchandising. In fiscal 2022, we expanded our leading-edge technology at our Canadian manufacturing facility with the addition of a sectional warper and lamination line.
In fiscal 2021, we invested in additional knit machines and other equipment to expand fabric capacity in North America, and we also enhanced our digital project management platform, which allows us to work with customers from concept ideation and 3D mapping to product life cycle management and final merchandising.
The terms “Read Window Products” and “Read” refer to our wholly-owned subsidiary, Read Window Products, LLC. Over view Culp manufactures, sources, and markets mattress fabrics and sewn covers used for covering mattresses and foundations and other bedding products; and upholstery fabrics, including cut and sewn kits, primarily used in the production of upholstered furniture.
The terms “Read Window Products” and “Read” refer to our wholly-owned subsidiary, Read Window Products, LLC. Overview Culp is one of the largest marketers of mattress fabrics for bedding and upholstery fabrics for residential, commercial, and hospitality furniture in North America.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWe continue to balance the risk of an electronic security breach resulting in the unauthorized release of confidential information with the cost to protect us against such a breach, and we have taken steps to ensure that losses arising from a breach would be covered in part by insurance that we carry, although the costs, potential monetary damages, and operational consequences of responding to cyber incidents and implementing remediation measures may be in excess of our insurance coverage or not covered at all by our insurance, and could have a material adverse effect on our operations and financial results to the extent losses are uninsured or exceed insurance recoveries and to the extent that such disruptions adversely impact our relationships with our customers or our business reputation.
Biggest changeWe continue to balance the risk of an electronic security breach resulting in the unauthorized release of confidential information with the cost to protect us against such a breach, and we have taken steps to obtain insurance coverage for potential losses arising from a breach, although the costs, potential monetary damages, and operational consequences of responding to cyber incidents and implementing remediation measures may be in excess of our insurance coverage or not covered at all by our insurance.
In January of 2023, we entered into a Second Amended and Restated Credit Agreement with respect to our domestic credit facility, which provides for a revolving credit facility up to a maximum principal amount of $35.0 million, secured by a lien on the company's assets.
In January 2023, we entered into a Second Amended and Restated Credit Agreement with respect to our domestic credit facility, which provides for a revolving credit facility up to a maximum principal amount of $35.0 million, secured by a lien on the company's assets.
While we saw an adverse impact from some of these measures due to the COVID-19 pandemic at the end of fiscal 2020 and the beginning of fiscal 2021, we experienced increased demand in our mattress fabrics segment and in the residential side of our upholstery fabrics segment for most of fiscal 2021, driven by greater consumer focus on the home environment and more discretionary spending being allocated to home furnishings in the face of travel restrictions and other pandemic-related factors.
While we saw an adverse impact from some of these factors due to the COVID-19 pandemic at the end of fiscal 2020 and the beginning of fiscal 2021, we experienced increased demand in our mattress fabrics segment and in the residential side of our upholstery fabrics segment for most of fiscal 2021, driven by greater consumer focus on the home environment and more discretionary spending being allocated to home furnishings in the face of travel restrictions and other pandemic-related factors.
However, future detentions could result in unexpected (i) delays or rejections of products scheduled for delivery to us, which could in turn affect the timing or our ability to delivery products to our customers; (ii) supply chain disruptions and increased operating costs; (iii) damage to our customer relationships; and/or (iv) negative publicity that harms our reputation, any of which could have a material impact on our business and negatively affect our ultimate financial results.
However, future detentions could result in unexpected (i) delays or rejections of products scheduled for delivery to us, which could in turn affect the timing or our ability to deliver products to our customers; (ii) supply chain disruptions and increased operating costs; (iii) damage to our customer relationships; and/or (iv) negative publicity that harms our reputation, any of which could have a material impact on our business and negatively affect our ultimate financial results.
Also, if supply chains are moved out of China to countries without anti-dumping duties and producers continue to supply low-priced imports in violation of U.S. trade laws, and if illegal transshipments are not monitored and enforcement is not effective to limit them, these shipments could have a material adverse effect on the company’s business, financial condition, results of operations or cash flows.
If supply chains are moved out of China to countries without anti-dumping duties and producers continue to supply low-priced imports in violation of U.S. trade laws, and if illegal transshipments are not monitored and enforcement is not effective to limit them, these shipments could have a material adverse effect on the company’s business, financial condition, results of operations or cash flows.
Interruptions in our ability to obtain raw materials or other required products or services from our outside suppliers on a timely and cost-effective basis, especially if alternative suppliers cannot be immediately obtained, could disrupt our production and damage our financial results. 18 Write-offs or write-downs of assets would result in a decrease in our earnings and shareholders’ equity.
Interruptions in our ability to obtain raw materials or other required products or services from our outside suppliers on a timely and cost-effective basis, especially if alternative suppliers cannot be immediately obtained, could disrupt our production and damage our financial results. Write-offs or write-downs of assets would result in a decrease in our earnings and shareholders’ equity.
There are also a number of trade regulations and duties currently in place to protect the U.S. textile industry against competition from low-priced foreign producers, such as those in China and Vietnam, but violations of these trade regulations and duties has had, and may in the future have, a material adverse effect on our operations.
There are also a number of trade regulations and duties currently in place to protect the U.S. textile industry against competition from low-priced foreign producers, such as those in China and Vietnam, but violations of these trade regulations and duties by foreign producers has had, and may in the future have, a material adverse effect on our operations.
However, this trend began to reverse during fiscal 2022, particularly during the second half of the year, as COVID-related travel and mask restrictions were lifted and consumers began to resume travel and leisure activities. We believe the trend of increased consumer discretionary spending on travel, leisure, and entertainment, and away from home goods, continued throughout fiscal 2023.
However, this trend began to reverse during fiscal 2022, particularly during the second half of the year, as COVID-related travel and mask restrictions were lifted and consumers began to resume travel and leisure activities. We believe the trend of increased consumer discretionary spending on travel, leisure, and entertainment, and away from home goods, continued throughout fiscal 2023 and 2024.
If we are unable to access additional credit at the levels we require, or the cost of credit is greater than expected, it could adversely affect our operating results or financial condition. Legal and Regulatory Risks We are subject to litigation and environmental regulations that could adversely affect our sales and earnings.
If we are unable to 20 access additional credit at the levels we require, or the cost of credit is greater than expected, it could adversely affect our operating results or financial condition. Legal and Regulatory Risks We are subject to litigation and environmental regulations that could adversely affect our sales and earnings.
Our available cash, cash equivalents, and cash flow from operations have been adequate to finance our operations and capital requirements in recent years. However, if we experience a sustained decline in 21 revenue, there may be periods in which we may require additional external funding to support our operations.
Our available cash, cash equivalents, and cash flow from operations have been adequate to finance our operations and capital requirements in recent years. However, if we experience a sustained decline in revenue, there may be periods in which we may require additional external funding to support our operations.
In addition to tariffs, the U.S. government considers other proposals for substantial changes to its trade and tax policies, which could include import restrictions, increased import tariffs, changes to or withdrawal from existing trade agreements, and border-adjustment taxes, among other possible measures.
In addition to tariffs, the U.S. government considers other proposals for substantial changes to its trade and tax policies, which could include import restrictions, changes to or withdrawal from existing trade agreements, and border-adjustment taxes, among other possible measures.
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 currencies in Canada and China could have a negative impact on our sales of products produced in those places.
Further, 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 currencies in Canada and China could have a negative impact on our sales of products produced in those places.
Economic downturns, increases in unemployment rates, and uncertainty about future health and economic prospects can affect consumer spending habits and demand for discretionary items, including home furnishings, which reduces the demand for our products and therefore can cause a decline in our sales and earnings.
Economic downturns, increases in unemployment rates, persistent inflation, and uncertainty about future health and economic prospects can affect consumer spending habits and demand for discretionary items, including home furnishings, which reduces the demand for our products and therefore can cause a decline in our sales and earnings.
For example, during the COVID-19 pandemic, China from time to time enforced broad lockdowns, which affected our ability to timely produce and ship products and affected the ability of our third-party suppliers and their supply chain to timely deliver products and materials.
For example, during the COVID-19 pandemic, China from time to time enforced broad lock-downs which affected our ability to timely produce and ship products and affected the ability of our third-party suppliers and their supply chain to timely deliver products and materials.
In addition, the level of housing starts, sales of existing homes, trends in disposable income, changes in interest rates (particularly home mortgage rates), and availability of consumer credit, can also affect our business.
In addition, the level of housing starts, sales of existing homes, declines in office occupancy rates, trends in disposable income, changes in interest rates (particularly home mortgage rates), and availability of consumer credit, can also affect our business.
Our business faces several risks associated with doing business in China We source a variety of fabrics, as well as cut and sewn upholstery kits and sewn mattress covers, from a limited number of strategic suppliers in China. We also operate two upholstery manufacturing facilities and two warehouse facilities in Shanghai, China.
Our business faces several risks associated with doing business in China We source a variety of fabrics, as well as cut and sewn upholstery kits and sewn mattress covers, from a limited number of strategic suppliers in China. We also operate four facilities in Shanghai, China.
In the upholstery fabrics segment, La-Z-Boy Incorporated accounted for approximately 15% of consolidated net sales during fiscal 2023, and several other large furniture manufacturers comprised a significant portion of sales.
In the upholstery fabrics segment, La-Z-Boy Incorporated accounted for approximately 12% of consolidated net sales during fiscal 2024, and several other large furniture manufacturers comprised a significant portion of sales.
Specifically with respect to sourcing products and raw materials from third-party suppliers in China, our ability to timely or successfully import such products or products made with such raw materials may be adversely affected by changes in U.S. laws. For example, the U.S.
In addition, with respect to sourcing products and raw materials from third-party suppliers in China, our ability to timely or successfully import such products or those made with such raw materials may be adversely affected by changes in U.S. laws.
These changes have caused us to rely on an extended supply chain and on a larger number of suppliers that we do not control, both of which are inherently subject to greater risks of delay or disruption.
These changes have caused us to rely on an extended supply chain and on a larger number of suppliers that we do not control, subjecting us to greater risks of delay or disruption.
As a result of inventory impairment assessments conducted during fiscal 2023, we incurred non-cash inventory charges totaling $5.8 million, which represents a $2.9 million impairment charge associated with our mattress fabrics segment; a total of $2.8 million related to markdowns of inventory in both segments that were estimated based on our policy for aged inventory; and $98,000 for the loss on disposal and markdowns of inventory related to the exit of our cut and sewn upholstery fabrics operation located in Shanghai, China.
The $5.8 million charge incurred in fiscal 2023 represents a $2.9 million impairment charge associated with our mattress fabrics segment; a total of $2.8 million related to markdowns of inventory in both segments that were estimated based on our policy for aged inventory; and $98,000 for the loss on disposal and markdowns of inventory related to the exit of our cut and sewn upholstery fabrics operation located in Shanghai, China.
Overall demand for our products depends upon consumer demand for furniture and bedding products, which is subject to cyclical variations in the general economy, including current inflationary pressures affecting consumer spending, declines in overall consumer confidence, recession and fears of recession, the negative economic impact of potential additional surges of the coronavirus, and other geopolitical events, such as the ongoing Russia/Ukraine war.
Overall demand for our products depends upon consumer demand for furniture and bedding products, which is subject to cyclical variations in the general economy, including current inflationary pressures affecting consumer spending, declines in overall consumer confidence, recession and fears of recession, and other geopolitical events, such as the ongoing Russia/Ukraine war and the armed conflict in the Middle East.
Because purchases of furniture and bedding products may be considered discretionary purchases for most individuals and businesses, demand for these products may be more easily influenced by economic trends than demand for other products.
Because purchases of furniture and bedding products may be considered discretionary purchases for most individuals and businesses, demand for these products are heavily influenced by economic trends.
None of our Chinese suppliers are located in the XUAR, and we prohibit our suppliers from doing business with or sourcing inputs from any company or entity that is restricted under U.S. or other applicable law.
None of our Chinese suppliers are located in the region targeted or are identified as restricted entities under these laws and regulations, and we prohibit our suppliers from doing business with or sourcing inputs from any company or entity that is in the region targeted or that restricted under U.S. or other applicable law.
We rely on outside sources for various products and services, including yarn and other raw materials, greige (unfinished) fabrics, finished fabrics, cut and sewn upholstery kits, sewn mattress covers, and services such as weaving and finishing.
We may have difficulty managing the outsourcing arrangements being used for products and services. We rely on outside sources for various products and services, including yarn and other raw materials, greige (unfinished) fabrics, finished fabrics, cut and sewn upholstery kits, sewn mattress covers, and services such as weaving and finishing.
Any tariffs that result in increased costs of imported products and materials could require us to increase prices to our domestic customers or, if we are unable to do so, result in lowering our gross margins on products sold. As a result, the tariffs could have a material adverse effect on our results of operations.
Any tariffs that result in increased costs of imported products and materials could require us to increase prices to our domestic customers. If we are unable to pass along these additional costs, our gross margins on products sold may be adversely affected. As a result, the tariffs could have a material adverse effect on our results of operations.
As of April 30, 2023, we had approximately $32.6 million in combined total borrowing availability under our domestic credit facility and our China credit facility.
As of April 28, 2024, we had approximately $32.5 million in combined total borrowing availability under our domestic credit facility and our China credit line.
Any of the risks associated with foreign operations and sources could cause unanticipated increases in operating costs or disruptions in business, which could have a negative impact on our ultimate financial results.
Any of the risks associated with foreign operations and sources could cause unanticipated increases in operating costs or disruptions in business, which could have a negative impact on our ultimate financial results. Recently, a confluence of factors has caused disruptions to international shipping, increasing costs and delaying shipments.
Our operations are subject to risks of unsettled political conditions, civil unrest or instability, public health concerns or pandemics, natural or man-made disasters, acts of war, terrorism, and the effects of climate change, any one of which could adversely affect our business and results of operations.
Also, the wide range of product offerings in our business can make it more difficult to differentiate our products through design, styling, finish, and other techniques. 14 Our operations are subject to risks of unsettled political conditions, civil unrest or instability, public health concerns or pandemics, natural or man-made disasters, acts of war, terrorism, and the effects of climate change, any one of which could adversely affect our business and results of operations.
The highly competitive nature of our business in each of our segments means we are constantly subject to the risk of losing market share, which would likely result in a loss or decrease our future sales and earnings.
In many cases, these fabrics are sourced from foreign suppliers who have a lower cost structure than the company. The highly competitive nature of our business in each of our segments means we are constantly subject to the risk of losing market share, which would likely result in a decrease in our future sales and earnings.
Our success in marketing our fabrics depends upon our ability to anticipate and respond in a timely manner to fashion trends in home furnishings. If we fail to identify and respond to these changes, our sales of these products may decline.
Our success in marketing our fabrics depends upon our ability to anticipate and respond in a timely manner to fashion trends in home furnishings.
We increasingly rely on technology systems and infrastructure. Additionally, we rely on third-party service providers in connection with the maintenance thereof and the execution of certain business processes. Greater dependence on technology systems heightens the risk of potential vulnerabilities from system failure and malfunction, breakdowns due to natural disasters, human error, unauthorized access, power loss, and other unforeseen events.
Greater dependence on technology systems heightens the risk of potential vulnerabilities from system failure and malfunction, breakdowns due to natural disasters, human error, unauthorized access, power loss, and other unforeseen events.
We are unable to predict how long these trends will last, or to what extent additional surges of the coronavirus or other geopolitical events may affect the economic and purchasing cycle for home furnishing products (and therefore affect demand for our products) over the short and long term.
We are unable to predict how long these trends will last, or to what extent macroeconomic or other geopolitical events may affect the purchasing cycle for home furnishing products. Demand for our products—and our results of operations—may be materially and adversely affected by macroeconomic trends that are beyond our control.
Data privacy breaches by employees and others with or without authorized access to our systems poses risks that sensitive data may be permanently lost or leaked to the public or other unauthorized persons. With the growing use and rapid evolution of technology, including internet selling, cloud-based computing and mobile devices, there are additional risks of unintentional data leaks.
Data privacy breaches by employees and others with or without authorized access to our systems poses risks that sensitive data may be permanently lost or leaked to the public or other unauthorized persons.
During fiscal 2023, the cost of raw materials began to decline during the first half of the year due to lower oil prices and slowing global demand, but the higher costs and lower availability of labor remained challenging throughout the year. Raw material costs were relatively stable during the second half of fiscal 2023.
During fiscal 2023 and fiscal 2024, the cost of raw materials declined due to lower oil prices and slowing global demand, but the higher costs and lower availability of labor remained challenging in both years.
A significant shortage, increased prices, or interruptions in the availability of these energy sources would increase the costs of producing and delivering products to our customers and would be likely to adversely affect our earnings. In many cases, we are not able to pass along the full extent of increases in our production costs to customers through price increases.
Higher prices for electricity, natural gas, and fuel increase our production and shipping costs. A significant shortage, increased prices, or interruptions in the availability of these energy sources would increase the costs of producing and delivering products to our customers and would be likely to adversely affect our earnings.
Additionally, changes in the value of the U.S. dollar versus other currencies can affect our financial results because a significant portion of our operations are located outside the United States.
Changes in the value of the U.S. dollar versus other currencies can affect our financial results because a significant portion of our operations are located outside the United States. We manage various operating activities at the local level and net sales, costs, assets and liabilities are denominated in both the local currency and the U.S. dollar.
During fiscal 2023, we were subjected to a limited number of such CBP detentions and were successful in submitting satisfactory supply chain evidence to result in the release of all such detained good by CBP. These detentions have not resulted in any material impact on our business, supply chain, customer relationships, or reputation.
During fiscal 2023 and early in fiscal 2024, we were subjected to a limited number of such detentions and were successful in submitting satisfactory supply chain evidence to result in the release of all such detained goods.
We have been a target of cybersecurity 20 attacks in the past, and while such attacks have not resulted in a material impact on our operations, business, customer relationships, or reputation, such attacks could in the future. In addition, we permit certain employees to work from home from time to time.
We have been a target of cybersecurity attacks in the past, and while such attacks have not resulted in a material impact on our operations, business, customer relationships, or reputation, we can provide no assurance that cybersecurity attacks or other cybersecurity related incidents will not have a material adverse impact on our business in the future.
We may not be able to recruit and retain key employees and skilled workers in a competitive labor market. If we cannot successfully recruit and retain key employees and skilled workers or if we experience the unexpected loss of those employees, our operations may be negatively affected.
If we cannot successfully recruit and retain key employees and skilled workers or if we experience the unexpected loss of those employees, our operations may be negatively affected. A shortage of qualified personnel, along with cost inflation, may require us to enhance our compensation in order to compete effectively in the hiring and retention of qualified employees.
These pressures continued during fiscal 2022, with further increases in raw material costs, particularly during the second half of the year, due to the continued rise in oil prices and a higher demand environment.
Rising oil prices, a higher demand environment, and labor shortages during fiscal 2022 caused raw material prices to increase, particularly during the second half of the year.
Bankruptcy Code, and on January 23, 2023, another major customer and its affiliates associated with our mattress fabrics segment filed pre-planned voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code.
For example, in recent years, two of our major customers associated with our mattress fabrics segment filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code.
In addition, changes in the political climate or trade policy of the United States, such as increased duties, tariffs, or U.S. restrictions on Chinese imports, such as the UFLPA, may adversely affect our business.
The Chinese economy poses additional risks to our business, including fluctuating rates of inflation and currency exchange rates, a declining labor force 16 participation rate, and rising employee wages. In addition, changes in the political climate or trade policy of the United States, such as increased duties, tariffs, or U.S. restrictions on Chinese imports, may adversely affect our business.
Any of the risks associated with our Chinese operations and sources could cause unanticipated increases in operating costs or disruptions in business, which could negatively affect our ultimate financial results. We may have difficulty managing the outsourcing arrangements being used for products and services.
Any of the risks associated with our Chinese operations and sources could cause unanticipated increases in operating costs or disruptions in business, which could negatively affect our ultimate financial results. Because a significant portion of our operations are located outside the U.S., we may be adversely affected by changes in the value of the U.S. dollar.
We currently have several customers that account for a substantial portion of our sales. In the mattress fabrics segment, several large bedding manufacturers have large market shares and comprise a significant portion of our mattress fabric sales.
In the mattress fabrics segment, several large bedding manufacturers have large market shares and comprise a significant portion of our mattress fabric sales, with Serta Simmons Holdings, LLC and its subcontractors accounting for approximately 13% of consolidated net sales in fiscal 2024.
See Notes 5, 7, and 9 of the consolidated financial statements for further details of our assessments of impairment, conclusions reached, and the performance of our quantitative tests. Write-offs and write-downs of our assets, including inventory, result in an immediate charge to our earnings, and can have a material adverse effect on our operating results and financial condition.
Actual write-downs and non-cash charges may exceed these amounts. Write-offs and write-downs of our assets, including inventory, result in an immediate charge to our earnings, and can have a material adverse effect on our operating results and financial condition.
Energy costs have varied significantly during recent fiscal years and remain a volatile element of our costs. Increases in energy costs could have a negative effect on our earnings. 19 Business difficulties or failures of large customers could result in a decrease in our sales and earnings.
In many cases, we are not able to pass along the full extent of increases in our production costs to customers through price increases. Energy costs have varied significantly during recent fiscal years and remain a volatile element of our costs. Increases in energy costs could have a negative effect on our earnings.
In addition, incorrect projections about the demand for certain products could cause the accumulation of excess raw material or finished goods inventory, which could lead to inventory mark-downs and decreases in earnings. Increasing dependence on information technology systems comes with specific risks, including cybersecurity breaches and data leaks, which could have an adverse effect on our business.
If we fail to identify and respond to these changes, our sales of these products may decline. 18 In addition, incorrect projections about the demand for certain products could cause the accumulation of excess raw material or finished goods inventory, which could lead to inventory mark-downs and decreases in earnings.
We compete with many other manufacturers of fabric, as well as converters who source fabrics from various producers and market them to manufacturers of furniture and bedding. In many cases, these fabrics are sourced from foreign suppliers who have a lower cost structure than the company.
Our business is highly competitive and fragmented, and we face significant competition from many competitors, both foreign and domestic. We compete with many other manufacturers of fabric, as well as converters who source fabrics from various producers and market them to manufacturers of furniture and bedding.
Our domestic and foreign operations are subject to risks of unsettled political conditions, civil unrest or instability, public health concerns or pandemics, natural or man-made disasters, acts of war, and terrorism. In addition, the effects of climate change and actions taken to combat climate change could exacerbate these risks, including by increasing the likelihood and severity of extreme weather events.
Moreover, the effects of climate change and actions taken to combat climate change could exacerbate these risks, including by increasing the likelihood and severity of extreme weather events.
Any of these risks, including without limitation civil unrest or instability in Haiti, China, or other countries where we operate, could cause disruption at our manufacturing or distribution facilities, or at the facilities of our suppliers and distribution channels, which could make servicing our customers more difficult and could reduce our sales, earnings, or both in the future. 16 Operational Risks Our business may be adversely affected by increased tariffs or other changes in U.S. trade policy related to imported products, as well as violations of existing trade policies.
If we miscalculate the resources we need to complete these strategic initiatives or fail to implement them effectively, our business and operating results could be adversely affected. Operational Risks Our business may be adversely affected by increased tariffs or other changes in U.S. trade policy related to imported products, as well as violations of existing trade policies.
During fiscal 2020, the U.S. mattress industry was affected by continued disruption relating to low-priced mattress imports that moved from China to other countries, which affected demand for our products. As a result, the U.S. Department of Commerce imposed anti-dumping duties on mattress imports from seven of these countries during fiscal 2021.
In response to low-priced mattress imports that moved out of China to other countries in an effort to circumvent U.S. duties, the U.S. Department of Commerce has imposed 15 anti-dumping duties on mattress imports from countries other than China.
Inflationary pressures also began to affect consumer spending during the second half of fiscal 2022 and continuing throughout fiscal 2023.
Inflationary pressures also began to affect consumer spending during the second half of fiscal 2022 and continued throughout fiscal 2023 and 2024. In addition, declines in the U.S. housing and commercial real estate markets in fiscal 2024 negatively impacted demand for furniture and bedding, reducing demand for our upholstery and mattress fabric products.
A shortage of qualified personnel, along with cost inflation, may require us to enhance our compensation in order to compete effectively in the hiring and retention of qualified employees. In addition, we are and will continue to be dependent upon our senior management team and other key personnel.
In addition, we are and will continue to be dependent upon our senior management team and other key personnel. Losing the services of one or more key members of our management team or other key personnel could adversely affect our operations.
We believe the domestic mattress industry and, in turn, our business, began to realize some benefits from these duties during the second half of fiscal 2021 and continuing into fiscal 2022 and fiscal 2023.
While we believe the domestic mattress industry and, in turn, our business, began to realize some benefits from these duties starting in 2021, low-priced imports continue to adversely affect our sales. We can offer no assurance that such trends will abate, nor can we offer assurance that the U.S.
We incurred non-cash inventory charges of $1.9 million and $882,000 during fiscal 2022 and 2021, respectively, which represent markdowns of inventory in both segments that were based on our policy of aged inventory.
As a result of inventory assessments, we incurred non-cash inventory charges during fiscal years 2024, 2023, and 2022 totaling $40,000, $5.8 million, and $1.9 million, respectively.
However, during fiscal 2022, our upholstery fabrics business was materially affected by COVID-19 related shutdowns of our sourcing partners and customers in Vietnam throughout most of the second quarter, and our operations in China were shut down during the last month of the fourth quarter of fiscal 2022 and continuing to some extent during the first month of fiscal 2023, which prevented us from shipping goods in both our residential upholstery fabrics business and our sewn mattress cover business.
In addition, public health concerns and pandemics have in the past, and may again disrupt our business. For example, during the COVID-19 pandemic, we temporarily shut down certain of our facilities, as did certain of our sourcing partners and customers, which prevented us from shipping goods in both our residential upholstery fabrics business and our sewn mattress cover business.
However, as a result of the UFLPA and WROs, products we import into the U.S. could be held for inspection by CBP based on a suspicion that such products or inputs used in such products originated from the XUAR or that they may have been produced by Chinese suppliers accused of participating in forced labor, pending our providing satisfactory evidence to the contrary.
However, as a result of these laws and regulations, products we import into the U.S. could be held for inspection by U.S. customs and border patrol based on a suspicion of noncompliance.
However, the pressures that affect raw material costs may drive additional increases in raw material prices in the future. Increases in energy costs increase our operating costs and could adversely affect earnings. Higher prices for electricity, natural gas, and fuel increase our production and shipping costs.
While the cost of raw materials and labor costs were relatively stable during fiscal 2024, the factors listed above, among other factors, may drive future increases in raw material prices, which may harm our results of operation. Increases in energy costs increase our operating costs and could adversely affect earnings.
However, if the negative economic impact of COVID-19 reemerges, or if another pandemic, recession or other major unexpected economic event occurs, we may not be able to collect amounts owed to us or such payment may only occur after significant delay. While we perform credit evaluations of our customers, those evaluations may not prevent uncollectible trade accounts receivable.
Unforeseen events may adversely affect our customers, causing them to delay, or cease, payments to us. For example, during the onset of the COVID-19 pandemic, some customers experienced cash flow challenges and requested extended payment terms. While we perform credit evaluations of our customers, those evaluations may not prevent uncollectible trade accounts receivable.
Removed
Loss of market share due to competition would result in declines in sales and could result in losses or decreases in earnings. Our business is highly competitive and fragmented, and we face significant competition from many competitors, both foreign and domestic.
Added
Partly in response to certain of these trends, in May 2024, we announced the implementation of a restructuring of our business pursuant to which we intend to consolidate our North American mattress fabrics operations and our sewn cover operation in Haiti in an effort to align capacity and cost structure with demand.
Removed
Also, the wide range of product offerings in our business can make it more difficult to differentiate our products through design, styling, finish, and other techniques. The global COVID-19 pandemic significantly and adversely affected, and may again adversely affect, our business, financial position, results of operations, and cash flows.
Added
However, we can offer no assurance that these efforts will achieve their intended effect or that the cost savings and other benefits we anticipate will be realized on the expected timeframe or at all. Loss of market share due to competition may result in declines in sales and could result in losses or decreases in earnings.
Removed
The COVID-19 pandemic negatively affected the global and U.S. economy, severely disrupted global supply chains, and created significant volatility and disruption in financial markets, all of which negatively affected the bedding and home furnishings industries, our customers and suppliers, and our business.
Added
In particular, in recent years the U.S. bedding industry—on which the mattress fabrics segment relies—has seen significant increases in competition from low-cost foreign producers, which has adversely affected demand for our products.
Removed
Many countries, including the countries in which we operate, as well as state and local governmental authorities, took various actions to mitigate the spread of COVID-19, including mandated closures of businesses, stay-at-home orders, quarantine and isolation requirements, travel restrictions, border closings, restrictions on public gatherings, social distancing measures, occupancy limits, and other safety measures.
Added
Our domestic and foreign operations are subject to risks of unsettled political conditions, civil unrest or instability in countries in which we operate, natural or man-made disasters, acts of war, and terrorism. As an example, we maintain an active production facility in Ouanaminthe, Haiti.
Removed
While these restrictions have now been lifted as conditions have improved, the restrictions adversely affected our business, results of operations, financial position, and cash flows. Due to government-mandated closure requirements near the end of March 2020, we shut down our facilities in Canada and Haiti for several weeks.
Added
Severe political instability in Haiti, along with recent natural disasters, has created a crisis in the country, subjecting our operations there to heightened risk. While operations at our production facility have not been directly affected, ongoing political and civil unrest in Haiti could cause manufacturing disruptions at our Haiti facility.
Removed
At the same time, we experienced a rapid decline in demand as customers and retail stores began closing or substantially 15 limiting their operations.
Added
Civil instability, public health concerns, natural disasters, acts of war, terrorism or other adverse events could cause disruption at our manufacturing or distribution facilities, or at the facilities of our suppliers and distribution channels.
Removed
We took a number of measures in response to the increasingly challenging market conditions, including, among other things, repurposing a portion of our available operations to produce face masks, bedding covers, and fabrics for healthcare operations and consumer health; reducing operating costs by implementing temporary salary reductions, making workforce adjustments to align with demand, suspending merit pay increases, and eliminating the cash compensation paid to our board of directors; aggressively reducing expenses, capital expenditures, and discretionary spending, and working with our vendors and landlords to negotiate temporary terms.
Added
The materialization of any of these risks could result in additional expense to us, limit our supply of necessary goods and raw materials, and otherwise affect our ability to meet the needs of our customers, and our results of operations may be materially adversely affected as a result.
Removed
We also took steps to safeguard the health of our employees, customers, and the communities we serve, including implementing detailed cleaning and disinfecting processes at our facilities, instituting temperature checks, adhering to social distancing and mask protocols, suspending non-essential travel, restricting visitors, providing remote work opportunities where possible, and offering on-site vaccination clinics to our employees, their families, and the general public.
Added
Our future success depends in part on our ability to successfully implement our strategic plan, including the Fiscal 2025 restructuring, and achieve our business strategies. We continue to focus on strategic initiatives designed improve our business and our results of operations.
Removed
We have continued to monitor and update these procedures, in accordance with CDC recommendations and other local laws and regulatory authorities, throughout the pandemic.
Added
On May 1, 2024, we announced a significant restructuring plan designed to reduce costs, improve asset utilization, and drive performance and profitable growth. This plan, which is being implemented primarily in the company’s mattress fabrics segment and, to a lesser extent, in its upholstery fabrics segment, includes consolidating operations, restructuring operations, and reducing expenses. See “Item 1.
Removed
While the COVID-19 pandemic continued to spread throughout the world during fiscal 2021, we did not experience additional closures of any of our operations, or any material closures of the operations of our suppliers, during the remainder of the fiscal year, following the initial shutdowns from the fourth quarter of fiscal 2020.
Added
Business—Fiscal 2025 Restructuring.” There can be no assurance that these or other future strategic initiatives will be successful to the extent we expect, or at all. Additionally, we are investing resources in these initiatives and the costs of the initiatives may outweigh their benefits.
Removed
In addition to these shutdowns, COVID-19 disruption affected our business during fiscal 2022, as well as the business of our customers and suppliers, due to employee absenteeism and labor shortages, pandemic-related effects on the availability and pricing of freight and raw material costs, and pandemic-related constraints on our customers’ capacity due to supply chain disruption for non-fabric components.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeJerome, Quebec, Canada Warehouse 46,113 2026 Ouanaminthe, Haiti Manufacturing 80,000 2025 (2)(3) Ouanaminthe, Haiti Manufacturing 40,000 2028 (2)(4) ● Upholstery Fabrics: Burlington, North Carolina Finished goods distribution 132,000 2028 Burlington, North Carolina Design center 13,750 2026 Knoxville, Tennessee Manufacturing and offices 37,700 2033 Shanghai, China Manufacturing, warehouse, offices 68,677 2024 Shanghai, China Manufacturing, warehouse, offices 89,857 2024 Shanghai, China Warehouse and offices 89,861 2024 Shanghai, China Warehouse 64,583 2024 (1) Includes all options to renew, except as noted in footnote 2 below.
Biggest changeJerome, Quebec, Canada Warehouse 46,113 (4) 2026 Ouanaminthe, Haiti Manufacturing 80,000 2025 (2) Ouanaminthe, Haiti Manufacturing 40,000 (5) 2028 (2) ● Upholstery Fabrics: Burlington, North Carolina Finished goods distribution 132,000 2028 Burlington, North Carolina Design center 13,750 2026 Knoxville, Tennessee Manufacturing and offices 37,770 2033 Shanghai, China Manufacturing, warehouse and offices 68,677 2024 Shanghai, China Warehouse and offices 89,857 2024 Shanghai, China Warehouse and offices 89,861 2024 Shanghai, China Warehouse 64,583 (6) 2024 (1) Includes all options to renew, except as noted in footnote 2 below.
Ft.) Expiration of Lease (1) ● Administrative: High Point, North Carolina Upholstery fabric division offices and corporate headquarters 36,643 2034 High Point, North Carolina Design and innovation campus, showrooms, and office space 21,261 2043 ● Mattress Fabrics: Stokesdale, North Carolina Manufacturing and headquarters office 299,163 Owned Stokesdale, North Carolina Distribution center 220,222 Owned St.
Ft.) Expiration of Lease (1) ● Administrative: High Point, North Carolina Upholstery fabric division offices and corporate headquarters 36,643 (3) 2034 High Point, North Carolina Design and innovation campus, showrooms, and office space 21,261 2043 ● Mattress Fabrics: Stokesdale, North Carolina Manufacturing and headquarters office 299,163 Owned Stokesdale, North Carolina Distribution center 220,222 Owned St.
This ability to source upholstery fabric is part of our long-term strategy to have a low-cost platform that is scalable, but not capital intensive. In the mattress fabrics segment, we believe we have sufficient capacity to meet current and expected demand trends.
This ability to source upholstery fabric is part of our long-term strategy to have a low-cost platform that is scalable, but not capital intensive. In the mattress fabrics segment, we believe we have sufficient capacity to meet current 23 and expected demand trends.
We also have the ability to source additional mattress fabrics from outside suppliers to further increase our ultimate output of finished goods. 23
We also have the ability to source additional mattress fabrics from outside suppliers to further increase our ultimate output of finished goods.
ITEM 2. P ROPERTIES As of the end of fiscal 2023 (April 30, 2023), we leased our corporate headquarters and a design and innovation campus located in High Point, North Carolina. In addition, we owned or leased thirteen facilities associated with our mattress and upholstery fabrics operations. The following is a list of our administrative and production facilities.
ITEM 2. P ROPERTIES As of the end of fiscal 2024 (April 28, 2024), we leased our corporate headquarters and a design and innovation campus located in High Point, North Carolina. In addition, we owned or leased thirteen facilities associated with our mattress and upholstery fabrics operations. The following is a list of our administrative and production facilities.
Removed
(3) Of this 80,000 square feet, approximately 40,000 square feet of this facility is currently being utilized by our upholstery fabrics segment to produce cut and sewn kits as part of our Haiti rationalization strategy that included the relocation our upholstery fabrics operation to our mattress fabrics facilities and the termination of a separately leased upholstery fabrics facility in Ouanaminthe, Haiti.
Added
Jerome, Quebec, Canada Manufacturing 202,500 (4) Owned St.
Removed
(4) Of this 40,000 square feet, approximately 15,000 square feet of this facility is currently being utilized by our upholstery fabrics segment to produce cut and sewn kits as part of our Haiti rationalization strategy that included the relocation of our upholstery fabrics operation to our mattress fabrics facilities and the termination of a separately leased upholstery fabrics facility in Ouanaminthe, Haiti.
Added
(3) As a result of the Fiscal 2025 restructuring, the company expects to reduce the square footage at this facility from 36,643 to approximately 19,000 by consolidating its corporate headquarters and executive offices into existing space within the design and innovation campus also located in High Point, North Carolina.
Added
(4) As announced on May 1, 2024, the company's board of directors made the decision to consolidate the company's North American mattress fabrics operations including a gradual discontinuation of operations and the sale of the company's manufacturing facility located in Quebec, Canada, and to exit the leased warehouse facility also located in Quebec, Canada.
Added
See Note 8 to the consolidated statements for additional details regarding our restructuring activities. (5) As a result of the Fiscal 2025 restructuring, the company made the decision to consolidate this 40,000 square foot facility into the already existing 80,000 square foot facility also located in Ouanaminthe, Haiti.
Added
See Note 8 to the consolidated statements for additional details regarding our restructuring activities. (6) As a part of the company's plan to restructure its upholstery fabrics finishing operation in Shanghai, China, it does not expect to renew the lease for this facility beyond the expiration of the current lease term ending December 31, 2024.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDuring fiscal 2022, dividend payments totaled $5.5 million, which represented quarterly dividend payments ranging from $0.11 per share to $0.115 per share. During fiscal 2021, dividend payments totaled $5.3 million, which represented quarterly dividend payments ranging from $0.105 per share to $0.11 per share.
Biggest changeAccordingly, we did not make any dividend payments during fiscal 2024 or fiscal 2023. During fiscal 2022, dividend payments totaled $5.5 million, which represented quarterly dividend payments ranging from $0.11 per share to $0.115 per share. Our board of directors has sole authority to determine if and when we will declare future dividends, and on what terms.
Sales of Unregistered Securities There were no sales of unregistered securities during fiscal 2023, 2022, or 2021. 26 Performance Comparison The following graph shows changes over the five fiscal years ending April 30, 2023, in the value of $100 invested in (1) the common stock of the company, (2) the Hemscott Textile Manufacturing Group Index reported by Standard and Poor’s, consisting of three companies in the textile industry, and (3) the Standard & Poor’s 500 Index.
Sales of Unregistered Securities There were no sales of unregistered securities during fiscal 2024, 2023, or 2022. 26 Performance Comparison The following graph shows changes over the five fiscal years ending April 28, 2024, in the value of $100 invested in (1) the common stock of the company, (2) the Hemscott Textile Manufacturing Group Index reported by Standard and Poor’s, consisting of three companies in the textile industry, and (3) the Standard & Poor’s 500 Index.
The graph assumes an initial investment of $100 at the end of fiscal 2018 and the reinvestment of all dividends during the periods identified. ITE M 6. [RESERVED] 27
The graph assumes an initial investment of $100 at the end of fiscal 2019 and the reinvestment of all dividends during the periods identified. ITE M 6. [RESERVED] 27
Canton, MA 02021 (800) 254-5196 (781) 575-2879 (Foreign shareholders) www.computershare.com/investor Stock Listing Culp, Inc. common stock is traded on the New York Stock Exchange (NYSE) under the symbol CULP. As of April 30, 2023, Culp, Inc. had approximately 3,239 shareholders based on the number of holders of record and an estimate of individual participants represented by security position listings.
Canton, MA 02021 (800) 254-5196 (781) 575-2879 (Foreign shareholders) www.computershare.com/investor Stock Listing Culp, Inc. common stock is traded on the New York Stock Exchange (NYSE) under the symbol CULP. As of April 28, 2024, Culp, Inc. had approximately 2,682 shareholders based on the number of holders of record and an estimate of individual participants represented by security position listings.
Dividends On June 29, 2022, our board of directors announced the decision to suspend the company’s quarterly cash dividend. We believed that preserving capital and managing our liquidity during fiscal 2023 was in the company’s best interest to support future growth and the long-term interests of our shareholders. Accordingly, we did not make any dividend payments during fiscal 2023.
Dividends On June 29, 2022 (fiscal 2023), our board of directors announced the decision to suspend the company’s quarterly cash dividend. We believed that preserving capital and managing our liquidity was in the company’s best interest to support future growth and the long-term interests of our shareholders.
Analyst Coverage These analysts cover Culp, Inc.: Sidoti & Company, LLC – Anthony Lebiedzinski Water Tower Research – Budd Bugatch, CFA 25 Dividends and Share Repurchases; Sales of Unregistered Securities Share Repurchases ISSUER PURCHASES OF EQUITY SECURITIES Period (a) Total Number of Shares Purchased (b) Average Price Paid per Share (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) January 30, 2023 to March 5, 2023 — $ — — $ 3,248,094 March 6, 2023 to April 2, 2023 — $ — — $ 3,248,094 April 3, 2023 to April 30, 2023 — $ — — $ 3,248,094 Total — $ — — $ 3,248,094 (1) In March 2020, our board of directors approved an authorization for us to acquire up to $5.0 million of our common stock.
Analyst Coverage The following analyst covers Culp, Inc.: Water Tower Research – Budd Bugatch, CFA 25 Dividends and Share Repurchases; Sales of Unregistered Securities Share Repurchases ISSUER PURCHASES OF EQUITY SECURITIES Period (a) Total Number of Shares Purchased (b) Average Price Paid per Share (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) January 29, 2024 to March 3, 2024 — $ — — $ 3,248,094 March 4, 2024 to March 31, 2024 — $ — — $ 3,248,094 April 1, 2024 to April 28, 2024 — $ — — $ 3,248,094 Total — $ — — $ 3,248,094 (1) In March 2020, our board of directors approved an authorization for us to acquire up to $5.0 million of our common stock.
Our board of directors has sole authority to determine if and when we will declare future dividends, and on what terms. We will continue to reassess our dividend policy each quarter. Future dividend payments will depend on earnings, capital requirements, financial condition, excess availability under our lines of credit, market and economic conditions, and other factors, including alternative investment opportunities.
We will continue to reassess our dividend policy each quarter. Future dividend payments will depend on earnings, capital requirements, financial condition, excess availability under our lines of credit, market and economic conditions, and other factors, including alternative investment opportunities.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

111 edited+54 added−82 removed27 unchanged
Biggest changeGross Profit and Operating Income Twelve Months Ended (dollars in thousands) April 30, 2023 May 1, 2022 Change Gross profit $ 17,733 $ 19,635 (9.7 )% Gross profit margin 14.3 % 13.8 % 50 bp Selling, general and administrative expenses 15,739 14,009 12.3 % Restructuring expense 1,396 — 100.0 % Income from operations 1,994 5,626 (64.6 )% Operating margin 1.6 % 3.9 % (230) bp The decrease in upholstery fabrics profitability for fiscal 2023, as compared to the prior year, primarily reflects lower residential sales; $2.5 million in markdowns of inventory based on our policy for aged inventory; operating inefficiencies in our cut and sew operation in Haiti due to reduced demand; and labor challenges and inflationary pressures affecting our Read business during the year.
Biggest changeAt this time, we cannot reasonably estimate the impact on our upholstery fabrics segment, but we note that if conditions worsen in any of these situations, including additional COVID-related shutdowns of our China operations or shipping disruptions related to wars in the Middle East, the impact on our operations, and/or on our suppliers, customers, consumers, and the global economy, could adversely affect our financial performance. 33 Gross Profit and Operating Income Twelve Months Ended (dollars in thousands) April 28, 2024 April 30, 2023 Change Gross profit $ 21,690 $ 17,733 22.3 % Gross profit margin 19.9 % 14.3 % 560 bp Selling, general and administrative expenses 15,903 15,739 1.0 % Restructuring expense 636 1,396 (54.4 )% Income from operations 5,787 1,994 190.2 % Operating margin 5.3 % 1.6 % 370 bp The increase in upholstery fabrics profitability for fiscal 2024, as compared to fiscal 2023, primarily reflects a more profitable mix of sales; better inventory management (i.e., in the prior fiscal year, operating performance was pressured by $2.5 million in markdowns of inventory based on our policy for aged inventory, while such markdowns were significantly lower in fiscal 2024); a more favorable foreign exchange rate in China; and lower fixed costs resulting from the previous restructuring of the upholstery fabrics cut and sew platform.
RISK FACTORS,” for a discussion of factors that may cause results to differ materially. General Our fiscal year is the 52 or 53-week period ending on the Sunday closest to April 30. Fiscal 2023, 2022, and 2021 each included 52- weeks periods. Our operations are classified into two business segments: mattress fabrics and upholstery fabrics.
RISK FACTORS,” for a discussion of factors that may cause results to differ materially. General Our fiscal year is the 52 or 53-week period ending on the Sunday closest to April 30. Fiscal 2024, 2023, and 2022 each included 52- weeks periods. Our operations are classified into two business segments: mattress fabrics and upholstery fabrics.
Common Stock Repurchases In March 2020, our board of directors approved an authorization for us to acquire up to $5.0 million of our common stock. Under the common stock repurchase program, shares may be purchased from time to time in open market transactions, block trades, through plans established under the Securities Exchange Act Rule 10b5-1, or otherwise.
Common Stock Repurchases In March 2020, our board of directors approved an authorization for us to acquire up to $5.0 million of our common stock. Under the common stock repurchase program, shares may be repurchased from time to time in open market transactions, block trades, through plans established under the Securities Exchange Act Rule 10b5-1, or otherwise.
This income tax expense of $355,000 was associated with taxable foreign exchange rate gains based on less favorable foreign currency exchange rates applied against balance sheet accounts denominated in U.S. dollars to determine the corresponding Chinese Renminbi local currency amounts.
This income tax expense of $541,000 was associated with taxable foreign exchange rate gains based on less favorable foreign currency exchange rates applied against balance sheet accounts denominated in U.S. dollars to determine the corresponding Chinese Renminbi local currency amounts.
Based on our assessment, we determined we still have a recent history of significant cumulative U.S. pre-tax losses, in that we experienced U.S. pre-tax losses during each of the last three fiscal years. In addition, we are currently expecting U.S. pre-tax losses to continue into fiscal 2024.
Based on our assessment, we determined we still have a recent history of significant cumulative U.S. pre-tax losses, in that we experienced U.S. pre-tax losses during each of the last three fiscal years. In addition, we are currently expecting U.S. pre-tax losses to continue into fiscal 2025.
Additionally, Read Window Products, LLC, a wholly-owned subsidiary with operations located in Knoxville, Tennessee, provides window treatments and sourcing of upholstery fabrics and other products, as well as measuring and installation services for Read’s products, to customers in the hospitality and commercial industries.
Additionally, Read Window Products, LLC (“Read”), a wholly owned subsidiary with operations located in Knoxville, Tennessee, provides window treatments and sourcing of upholstery fabrics and other products, as well as measuring and installation for Read’s products, to customers in the hospitality and commercial industries.
Restructuring Activities Second Quarter of Fiscal 2023 - China During the second quarter of fiscal 2023, we closed our cut and sew upholstery fabrics operation located in Shanghai, China, which included the termination of an agreement to lease a building.
Shanghai, China Cut and Sew Upholstery Fabrics Operation During the second quarter of fiscal 2023, we closed our cut and sew upholstery fabrics operation located in Shanghai, China, which included the termination of an agreement to lease a building.
Historical experience has shown that the most significant indicator that would require inventory markdowns is the age of the inventory and the planned discontinuance of certain fabric patterns. As a result, we provide inventory valuation markdowns based upon set percentages for inventory aging categories of six, nine, twelve, and fifteen-months that are determined based on historical experience and judgment.
Historical experience has shown that the most significant indicators that would require inventory markdowns are the age of the inventory and the planned discontinuance of certain fabric patterns. As a result, we provide inventory valuation markdowns based upon set percentages for inventory aging categories of six, nine, twelve, and fifteen-months that are determined based on historical experience and judgment.
Due to the uncertain and unpredictable nature of our estimates, actual results could differ from the estimates that were previously reported in our consolidated financial statements. As of April 30, 2023, we believe the following list represents our critical accounting estimates that have or are reasonably likely to have a material effect on our financial condition or results of operations.
Due to the uncertain and unpredictable nature of our estimates, actual results could differ from the estimates that were previously reported in our consolidated financial statements. As of April 28, 2024, we believe the following list represents our critical accounting estimates that have or are reasonably likely to have a material effect on our financial condition or results of operations.
Since the company operates in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, considering the effects of local tax law. As of April 30, 2023, we evaluated the realizability of our U.S. net deferred income tax assets to determine if a full valuation allowance was still required.
Since the company operates in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, considering the effects of local tax law. As of April 28, 2024, we evaluated the realizability of our U.S. net deferred income tax assets to determine if a full valuation allowance was still required.
Interest Expense Interest expense reflects our historically low level and short duration of borrowings outstanding. Interest Income The increase in interest income is due primarily to higher market interest rates earned during fiscal 2023, compared with fiscal 2022.
Interest Expense Interest expense reflects our historically low level and short duration of borrowings outstanding. Interest Income The increase in interest income is due primarily to higher market interest rates earned during fiscal 2024, as compared with fiscal 2023.
The determination of the inputs and complex assumptions used, and the application of the Monte Carlo valuation model, requires significant judgment by management and advice from an external advisor. We recorded $1.1 million, $1.1 million, and $1.3 million of compensation expense within selling, general, and administrative expense for our equity-based awards in fiscal 2023, 2022, and 2021, respectively.
The determination of the inputs and complex assumptions used, and the application of the Monte Carlo valuation model, requires significant judgment by management and advice from an external advisor. We recorded $915,000, $1.1 million, and $1.1 million of compensation expense within selling, general, and administrative expense for our equity-based awards in fiscal 2024, 2023, and 2022, respectively.
Financing Arrangements, Commitments and Contingencies, and Contractual Obligations Revolving Credit Agreements Currently, we have revolving credit agreements with banks for our U.S. parent company and our operations located in China. As of April 30, 2023, we did not have any outstanding borrowings associated with our revolving credit agreements.
Financing Arrangements, Commitments and Contingencies, and Contractual Obligations Revolving Credit Agreements Currently, we have revolving credit agreements with banks for our U.S. parent company and our operations located in China. As of April 28, 2024, we did not have any outstanding borrowings associated with our revolving credit agreements.
Our loan agreements require, among other things, that we maintain compliance with certain financial covenants. As of April 30, 2023, we were in compliance with these financial covenants. Refer to Note 10 of the consolidated financial statements for further disclosure regarding our revolving credit agreements.
Our loan agreements require, among other things that we maintain compliance with certain financial covenants. As of April 28, 2024, we were in compliance with these financial covenants. Refer to Note 10 of the consolidated financial statements for further disclosure regarding our revolving credit agreements.
Funding for capital expenditures is expected to be primarily from cash provided by operating activities. Handling Costs We record warehousing costs in SG&A expenses. These costs were $4.2 million during fiscal 2023 and $4.3 million during fiscal 2022.
Funding for capital expenditures is expected to be primarily from cash provided by operating activities. Handling Costs We record warehousing costs in SG&A expenses. These costs were $4.6 million during fiscal 2024 and $4.2 million during fiscal 2023.
Refer to Note 11 of the consolidated financial statements for additional disclosures regarding our assessments and conclusions reached regarding our valuation allowance as of April 30, 2023. Stock-Based Compensation We are required to recognize compensation expense for all stock-based compensation awards in the financial statements, with the cost measured at the grant date fair value.
Refer to Note 11 of the consolidated financial statements for additional disclosures regarding our assessments and conclusions reached regarding our valuation allowance as of April 28, 2024. 42 Stock-Based Compensation We are required to recognize compensation expense for all stock-based compensation awards in the financial statements, with the cost measured at the grant date fair value.
As of April 30, 2023, we assessed the liquidity requirements of our U.S. parent company and determined that our undistributed earnings from our foreign subsidiaries would not be reinvested indefinitely and therefore, would be eventually distributed to our U.S. parent company. The conclusion reached from our assessment is consistent with prior years.
As of April 28, 2024, we assessed the liquidity requirements of our U.S. parent company and determined that our undistributed earnings from our foreign subsidiaries would not be reinvested indefinitely and 37 therefore, would be eventually distributed to our U.S. parent company. The conclusion reached from our assessment is consistent with prior years.
As of April 30, 2023, there were no outstanding borrowings under our lines of credit. 40 The income taxes we pay also affect our liquidity. See the above section titled “ Income Taxes Paid ” of this Item 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION for further details.
As of April 28, 2024, there were no outstanding borrowings under our lines of credit. The income taxes we pay also affect our liquidity. See the above section titled “ Income Taxes Paid ” of this Item 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION for further details.
Adoption of New Accounting Pronouncements Refer to Note 1 of the consolidated financial statements for recently adopted accounting pronouncements for fiscal 2023. Recently Issued Accounting Standards Refer to Note 1 of the consolidated financial statements for recently issued accounting pronouncements for fiscal 2024 and beyond. 44
Adoption of New Accounting Pronouncements Refer to Note 1 of the consolidated financial statements for recently adopted accounting pronouncements for fiscal 2024. Recently Issued Accounting Standards Refer to Note 1 of the consolidated financial statements for recently issued accounting pronouncements for fiscal 2025 and beyond.
As a result, the principal differences between income tax expense at the U.S. federal income tax rate and the effective income tax rate reflected in the consolidated financial statements were more pronounced for fiscal 2022, as compared with fiscal 2023.
As a result, the principal differences between income tax expense at the U.S. federal income tax rate and the effective income tax rate reflected in the consolidated financial statements were more pronounced during fiscal 2024 compared with fiscal 2023.
During fiscal 2023 and fiscal 2022, we had income tax payments totaling $2.3 million and $3.1 million, respectively, which mostly represented income tax payments associated with our foreign operations located in China and Canada. Refer to Note 11 of the consolidated financial statements for further details regarding our provision for income taxes from operations.
During fiscal 2024 and fiscal 2023, we had income tax payments totaling $3.3 million and $2.3 million, respectively, which primarily represented income tax payments associated with our foreign operations located in China and Canada. Refer to Note 11 of the consolidated financial statements for further details regarding our provision for income taxes.
As of April 30, 2023, we had a $1.2 million total gross unrecognized income tax benefit that primarily relates to double taxation under applicable income tax treaties with foreign tax jurisdictions. At this time, significant change associated with this income tax benefit is not expected within the next fiscal year.
As of April 28, 2024, we had a $1.3 million total gross unrecognized income tax benefit that primarily relates to double taxation under applicable income tax treaties with foreign tax jurisdictions. At this time, a significant change associated with this income tax benefit is not expected within the next fiscal year.
Leases Refer to Note 12 of the consolidated financial statements for disclosure of our lease obligations, which includes a five-year maturity schedule. Capital Expenditures As of April 30, 2023, and May 1, 2022, we had total amounts due regarding capital expenditures totaling $56,000 and $473,000, respectively, which pertained to outstanding vendor invoices, none of which were financed.
Leases Refer to Note 12 of the consolidated financial statements for disclosure of our lease obligations, which includes a five-year maturity schedule. Capital Expenditures As of April 28, 2024, and April 30, 2023, we had total amounts due regarding capital expenditures totaling $343,000 and $56,000, respectively, which pertained to outstanding vendor invoices, none of which were financed.
Our judgments are often based on estimates that are derived from (i) forecasted financial information, (ii) assumptions on when certain taxable or deductible events will occur, and (iii) interpretation of complex income tax laws and regulations. As of April 30, 2023, we recorded a full valuation allowance against all our U.S. net deferred income tax assets totaling $18.7 million.
Our judgments are often based on estimates that are derived from (i) forecasted financial information, (ii) assumptions on when certain taxable or deductible events will occur, and (iii) interpretation of complex income tax laws and regulations. As of April 28, 2024, we recorded a full valuation allowance against all our U.S. net deferred income tax assets totaling $22.0 million.
Cost of sales in each business segment includes costs to develop, manufacture, or source our products, including costs such as raw material and finished good purchases, direct and indirect labor, overhead, and incoming freight charges.
Cost of sales for each segment includes costs to develop, manufacture, or source our products, including costs such as raw material and finished goods purchases, direct and indirect labor, overhead, and incoming freight charges.
Additionally, we currently do not expect to incur any income taxes in the U.S. on a cash basis during fiscal 2024 due to (i) the immediate expensing of U.S. capital expenditures, and (ii) our existing U.S. federal net operating loss carryforwards.
Currently do not expect to incur any income taxes in the U.S. on a cash basis during fiscal 2025 due to (i) the accelerated expensing of U.S. capital expenditures, and (ii) our existing U.S. federal net operating loss carryforwards.
Accordingly, as of April 30, 2023, we recorded a deferred income tax liability associated with our undistributed earnings from foreign subsidiaries of $4.2 million. Refer to Note 11 of the consolidated financial statements for additional disclosures regarding our deferred income tax liability associated with the undistributed earnings from our foreign subsidiaries.
Accordingly, as of April 28, 2024, we recorded a deferred income tax liability associated with our undistributed earnings from foreign subsidiaries of $4.8 million. Refer to Note 11 of the consolidated financial statements for additional disclosures regarding our deferred income tax liability associated with the undistributed earnings from our foreign subsidiaries.
Refer to Note 5 of the consolidated financial statements for additional disclosures regarding our assessments and conclusions reached regarding substantial losses resulting from the subsequent measurement of inventory. Income Taxes – Valuation Allowance We evaluate the realizability of our deferred income taxes to determine if a valuation allowance is required.
Refer to Note 4 of the consolidated financial statements for additional disclosures regarding our assessments and conclusions reached regarding the subsequent measurement of inventory. Income Taxes – Valuation Allowance We evaluate the realizability of our deferred income taxes to determine if a valuation allowance is required.
As a result, the principal differences between income tax expense at the U.S. federal income tax rate compared with the effective income tax rate reflected in the consolidated financial statements were more pronounced in fiscal 2022.
As a result, the principal differences between income tax expense at the U.S. federal income tax rate and the effective income tax rate reflected in the consolidated financial statements were more pronounced during fiscal 2024 compared with fiscal 2023.
As a result of the significant weight of this negative evidence, we believe it is more-likely-than-not that our U.S. net deferred income tax assets will not be fully realizable, and therefore we provided for a full valuation allowance against our U.S. net deferred income tax assets totaling $18.7 million as of April 30, 2023.
As a result of the significant weight of this negative evidence, we believe it is more-likely-than-not that our U.S. net deferred income tax assets will not be fully realizable, and therefore we provided for a full valuation allowance against our U.S. net deferred income tax assets totaling $22.0 million as of April 28, 2024.
Had these costs been included in cost of sales, gross profit would have been $6.7 million, or 2.8% of net sales, during fiscal 2023, and $31.8 million, or 10.8% of net sales, during fiscal 2022.
Had these costs been included in cost of sales, gross profit would have been $23.3 million, or 10.3% of net sales, during fiscal 2024, and $6.7 million, or 2.8% of net sales, during fiscal 2023.
As of April 30, 2023, we believe our cash of $21.0 million, cash flow from operations, and the current availability under our revolving credit lines totaling $32.6 million (Refer to Note 10 of the consolidated financial statements for further details) will be sufficient to fund our foreseeable business needs, capital expenditures, commitments, and contractual obligations.
As of April 28, 2024, we believe our cash of $10.0 million, cash flow from operations, and the current availability under our revolving credit lines totaling $22.5 million (Refer to Note 10 of the consolidated financial statements for further details) will be sufficient to fund our foreseeable business needs, capital expenditures, commitments, and contractual obligations.
Uncertain Income Tax Positions As of April 30, 2023, we had $1.2 million of total gross unrecognized tax benefits, which primarily relate to double taxation under applicable income tax treaties with foreign tax jurisdictions.
Uncertain Income Tax Positions As of April 28, 2024, we had $1.3 million of total gross unrecognized tax benefits, which primarily relate to double taxation under applicable income tax treaties with foreign tax jurisdictions.
While management believes that adequate markdowns for inventory have been made in the consolidated financial statements, significant unanticipated changes in demand or changes in consumer tastes and preferences could result in additional inventory markdowns in the future. 43 As of April 30, 2023, and May 1, 2022, the reserve for inventory markdowns was $11.8 million and $7.3 million, respectively.
While management believes that adequate markdowns for inventory have been made in the consolidated financial statements, significant unanticipated changes in demand or changes in consumer tastes and preferences could result in additional inventory markdowns in the future. As of April 28, 2024, and April 30, 2023, the reserve for inventory markdowns was $9.6 million and $11.8 million, respectively.
Our cash may be adversely affected by factors beyond our control, such as (i) customer demand trends, (ii) supply chain disruptions, (iii) rising interest rates and inflation, (iv) world events (including the Russian-Ukraine war), and (v) the continuing uncertainty associated with COVID-19.
Our cash balance may be adversely affected by factors beyond our control, such as (i) recent customer demand trends affecting sales, (ii) supply chain disruptions, (iii) rising interest rates and inflation, (iv) world events (including wars in Ukraine and the Middle East), and (v) the continuing uncertainty associated with COVID-19.
The $33.7 million as of April 30, 2023, represents property, plant, and equipment of $22.7 million, $10.4 million, and $608,000 located in the U.S., Canada, and Haiti, respectively.
The $31.5 million as of April 28, 2024, represents property, plant, and equipment of $21.5 million, $9.4 million, and $555,000 located in the U.S., Canada, and Haiti, respectively. The $33.7 million as of April 30, 2023, represents property, plant, and equipment of $22.7 million, $10.4 million, and $608,000 located in the U.S., Canada, and Haiti, respectively.
Working Capital Operating Working Capital Operating working capital (accounts receivable and inventories, less deferred revenue, accounts payable-trade, and accounts payable-capital expenditures) was $39.2 million as of April 30, 2023, compared with $67.7 million as of May 1, 2022. Operating working capital turnover was 4.6 during the fourth quarter of fiscal 2023 compared with 5.2 during the fourth quarter fiscal 2022.
Working Capital Operating Working Capital Operating working capital (accounts receivable and inventories, less deferred revenue, accounts payable-trade, and accounts payable-capital expenditures) was $38.5 million as of April 28, 2024, compared with $39.2 million as of April 30, 2023. Operating working capital turnover was 5.8 during the fourth quarter of fiscal 2024 compared with 4.6 during the fourth quarter fiscal 2023.
Mattress Fabrics The mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers. Currently, we have mattress fabric operations located in Stokesdale, North Carolina, and Quebec, Canada.
Mattress Fabrics The mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers. Currently, we have mattress fabric manufacturing operations located in Stokesdale, North Carolina, and Quebec, Canada. We also have a mattress cover operation located in Ouanaminthe, Haiti.
In accordance with the TCJA, we will be required to pay annual U.S. federal transition tax payments as follows: FY 2024 - $499,000; FY 2025- $665,000; and FY 2026 - $831,000. 2022 compared with 2021 For a comparison of our results of operations for the fiscal years ended May 1, 2022, and May 2, 2021, see “Part II, Item 7.
In accordance with the 2017 Tax Cuts and Jobs Act, we will be required to pay annual U.S. federal transition tax payments as follows: FY 2025- $665,000; and FY 2026 - $831,000. 38 2023 compared with 2022 For a comparison of our results of operations for the fiscal years ended April 30, 2023, and May 1, 2022, see “Part II, Item 7.
Despite this challenge, we believe our business is well positioned for the long term with our product-driven strategy and innovative product offerings, including our popular portfolio of LiveSmart® performance products, as well as our flexible Asian platform and our long-term supplier relationships.
Despite this challenge, we believe our business is well positioned for the long term with our product-driven strategy and innovative product offerings, including our popular portfolio of LiveSmart® performance products, supported by our flexible Asian platform and our long-term supplier relationships. We also believe overall demand remains solid for our hospitality/contract business.
(Loss) Income Before Income Taxes Overall, our consolidated loss before income taxes was $(28.4) million for fiscal 2023, compared with loss before income taxes of $(325,000) for the prior year.
Loss Before Income Taxes Overall, our consolidated loss before income taxes was $(10.8) million for fiscal 2024, compared with loss before income taxes of $(28.4) for the prior year.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended May 1, 2022, filed with the SEC on July 15, 2022.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our annual report on Form 10-K for the fiscal year ended April 30, 2023, filed with the SEC on July 14, 2023.
This trend mostly reflects (i) a reduction of inventory related to the significant decline in net sales, improved alignment of inventory purchases with current customer demand trends, and promotional programs to reduce aged raw materials and finished goods inventory; (ii) an abnormally high decrease in accounts payable due to the COVID-19 related shutdowns that affected our operations located in China during the fourth quarter of fiscal 2022, which decrease did not recur during fiscal 2023; (iii) annual incentive payments made during the first quarter of fiscal 2022 that did not recur during fiscal 2023, partially offset by (iv) an abnormally high decrease in accounts receivable due to COVID-19 related shutdowns that affected our operations located in China during the fourth quarter of fiscal 2022, which decrease did not recur during fiscal 2023, and (v) a decrease in net cash earnings during fiscal 2023 compared with fiscal 2022.
This trend primarily reflects (i) a significant decrease in inventory during fiscal 2023, which decrease did not recur during fiscal 2024 due to improved alignment of inventory purchases with customer demand trends and promotional programs to reduce aged raw materials and finished goods; (ii) a significant increase in accounts payable during fiscal 2023, related to an abnormally high decrease in accounts payable due to the COVID-19 related shutdowns that affected our operations located in China during the fourth quarter of fiscal 2022, that did not recur during fiscal 2023 or fiscal 2024; (iii) annual incentive payments made during the first quarter of fiscal 2024, which did not occur during the first quarter of fiscal 2023; and (iv) an increase in income tax payments (see Note 11 to the consolidated financial statements for tabular disclosure of income tax payments by jurisdiction); partially offset by (v) an increase in cash earnings during fiscal 2024 compared with fiscal 2023, and (vi) a decrease in accounts receivable during fiscal 2024, which reflects a 19.4% decrease in net sales during the fourth quarter of fiscal 2024, as compared to the fourth quarter of fiscal 2023.
This trend mostly reflects (i) a reduction of inventory related to the significant decline in net sales, improved alignment of inventory purchases with current customer demand trends, and promotional programs to reduce aged raw materials and finished goods inventory; (ii) an abnormally high decrease in accounts payable due to the COVID-19 related shutdowns that affected our operations located in China during the fourth quarter of fiscal 2022, which decrease did not recur in fiscal 2023; (iii) annual incentive payments made during the first quarter of fiscal 2022 that did not recur during fiscal 2023, partially offset by (iv) an abnormally high decrease in accounts receivable due to COVID-19 related shutdowns that affected our operations located in China during the fourth quarter of fiscal 2022, which such decrease did not recur in fiscal 2023, and (v) a decrease in net cash earnings during fiscal 2023 compared with fiscal 2022.
This trend primarily reflects (i) a significant decrease in inventory during fiscal 2023, which decrease did not recur during fiscal 2024 due to improved alignment of inventory purchases with customer demand trends and promotional programs to reduce aged raw materials and finished goods; (ii) a significant increase in accounts payable during fiscal 2023, related to an abnormally high decrease in accounts payable due to the COVID-19 related shutdowns that affected our operations located in China during the fourth quarter of fiscal 2022, that did not recur during fiscal 2023 or fiscal 2024; (iii) annual incentive payments made during the first quarter of fiscal 2024, which payments did not occur during the first quarter of fiscal 2023; and (iv) an increase in income tax payments (see Note 11 to the consolidated financial statements for tabular disclosure of income tax payments by jurisdiction); partially offset by (v) an increase in cash earnings during fiscal 2024 compared with fiscal 2023, and (vi) a decrease in accounts receivable during fiscal 2024, which reflects a 19.4% decrease in net sales during the fourth quarter of fiscal 2024, as compared to the fourth quarter of fiscal 2023.
However, due to a decline in demand for upholstery cut and sewn kits, we terminated the agreement to lease this new facility during the third quarter of fiscal 2023 and relocated a scaled-down upholstery cut and sew operation into our existing mattress cover facility also located in Ouanaminthe, Haiti, during the fourth quarter of fiscal 2023.
However, due to a significant decline in demand, we (i) terminated the agreement to lease this new facility during the third quarter of fiscal 2023, (ii) relocated a scaled down upholstery cut and sewn operation into our existing mattress cover facility located in Ouanaminthe, Haiti, during the fourth quarter of fiscal 2023, and (iii) thereafter discontinued the production of cut and sewn upholstery kits in Haiti during the first quarter of fiscal 2024 as a result of a further decline in demand.
U.S. federal and state income tax returns filed by us remain subject to examination for income tax years 2019 and subsequent. Canadian federal income tax returns filed by us remain subject to examination for income tax years 2019 and subsequent. Canadian provincial (Quebec) income tax returns filed by us remain subject to examination for income tax years 2019 and subsequent.
United States federal and state income tax returns filed by us remain subject to examination for income tax years 2019 and subsequent. Canadian federal income tax returns filed by us remain subject to examination for income tax years 2020 and subsequent.
We have upholstery fabric operations located in Shanghai, China, and Burlington, North Carolina. During the third quarter of fiscal 2022, we also commenced operation of a new leased facility in Ouanaminthe, Haiti dedicated to the production of cut and sewn upholstery kits.
During the third quarter of fiscal 2022, we commenced operation of a new leased facility in Ouanaminthe, Haiti, dedicated to the production of cut and sewn upholstery kits.
Fiscal Fiscal 2023 2022 Net sales 100.0 % 100.0 % Cost of sales (95.4 ) (87.8 ) Gross profit 4.6 12.2 Selling, general and administrative expenses (16.2 ) (12.0 ) Restructuring expense (0.6 ) — (Loss) income from operations (12.1 ) 0.2 Interest income 0.2 0.1 Other expense (0.2 ) (0.5 ) Loss before income taxes (12.1 ) (0.1 ) Income tax expense * (11.0 ) (888.0 ) Net loss (13.4 ) (1.1 ) * Calculated as a percentage of loss before income taxes. 31 2023 compared with 2022 Segment Analysis Mattress Fabrics Segment Twelve Months Ended (dollars in thousands) April 30, 2023 May 1, 2022 Change Net sales $ 110,995 $ 152,159 (27.1)% Gross (loss) profit (6,739 ) 16,458 (140.9)% Gross margin (6.1 )% 10.8 % (1690) bp Selling, general and administrative expenses 11,942 12,246 (2.5)% (Loss) income from operations (18,681 ) 4,212 N.M.
Fiscal Fiscal 2024 2023 Net sales 100.0 % 100.0 % Cost of sales (87.6 ) (95.4 ) Gross profit 12.4 4.6 Selling, general and administrative expenses (17.1 ) (16.2 ) Restructuring expense (0.3 ) (0.6 ) Loss from operations (5.0 ) (12.1 ) Interest expense — — Interest income 0.5 0.2 Other expense (0.3 ) (0.2 ) Loss before income taxes (4.8 ) (12.1 ) Income tax expense * (28.3 ) (11.0 ) Net loss (6.1 ) (13.4 ) * Calculated as a percentage of loss before income taxes. 30 2024 compared with 2023 Segment Analysis Mattress Fabrics Segment Twelve Months Ended (dollars in thousands) April 28, 2024 April 30, 2023 Change Net sales $ 116,370 $ 110,995 4.8 % Gross profit (loss) 6,289 (6,739 ) N.M.
Other Expense Management is required to assess certain economic factors to determine the currency of the primary economic environment in which our foreign subsidiaries operate. Based on our assessments, the U.S. dollar was determined to be the functional currency of our operations located in China and Canada. Other expense during fiscal 2023 decreased $916,000, or 67.4%, compared with fiscal 2022.
Management is required to assess certain economic factors to determine the currency of the primary economic environment in which our foreign subsidiaries operate. Based on our assessments, the U.S. dollar was determined to be the functional currency of our operations located in China, Canada, and Vietnam.
We will consider further adjustments to right-size and restructure our operations as necessary to align with current demand levels, as well as additional reasonable pricing actions as competitive conditions permit to further mitigate and manage inflation. Segment Assets Segment assets consist of accounts receivable, inventory, property, plant, and equipment, and right of use assets.
We will also consider further adjustments to right-size and restructure our operations as necessary to 31 align with current demand levels, as well as additional reasonable pricing actions as competitive conditions permit to further mitigate and manage inflation.
The $2.6 million as of April 30, 2023, represents right of use assets of $1.5 million and $1.1 million located in China and the U.S., respectively. The $8.1 million as of May 1, 2022, represents right of use assets of $3.7 million, $2.6 million, and $1.8 million located in China, Haiti, and the U.S., respectively.
The $2.0 million as of April 28, 2024, represents right of use assets of $1.3 million and $709,000 located in the U.S. and China, respectively. The $2.6 million as of April 30, 2023, represents right of use assets of $1.5 million and $1.1 million located in China and the U.S., respectively.
Notably, the potential ongoing impact of Russia’s invasion of Ukraine, as well as the economic and health effects from possible additional surges in the coronavirus, remain unknown and depend on factors beyond our control.
Notably, the potential ongoing geopolitical disruptions related to wars in Ukraine and the Middle East, as well as the economic and health effects from possible additional surges in the coronavirus, remain unknown and depend on factors beyond our control.
We believed that preserving capital and managing our liquidity during fiscal 2023 was in the company’s best interest to support future growth and the long-term interests of our shareholders. Accordingly, we did not make any dividend payments during fiscal 2023. During fiscal 2022, dividend payments totaled $5.5 million, which represented quarterly dividend payments ranging from $0.11 share to $0.115.
We believed that preserving capital and managing our liquidity was in the company’s best interest to support future growth and the long-term interests of our shareholders. Accordingly, we did not make any dividend payments during fiscal 2024 or fiscal 2023.
The following summarizes our restructuring expense and restructuring related charges that were associated with both of our restructuring activities noted above for fiscal 2023: 35 (dollars in thousands) 2023 Employee termination benefits $ 507 Lease termination costs 481 Impairment loss - leasehold improvements and equipment 357 Loss on disposal and markdowns of inventory 98 Other associated costs 51 Restructuring expense and restructuring related charges (1) $ 1,494 (1) Of the total $1.5 million, $1.4 million and $98,000 were recorded to restructuring expense and cost of sales, respectively, in the fiscal 2023 Consolidated Statement of Net Loss.
The following summarizes our restructuring expense and restructuring related charges from the restructuring activities noted above for the twelve months ending April 28, 2024, and April 30, 2023: (dollars in thousands) 2024 2023 Employee termination benefits $ 307 $ 507 Lease termination costs — 481 Impairment loss - leasehold improvements and equipment 329 357 Loss on disposal and markdowns of inventory 40 98 Other associated costs — 51 Restructuring expense and restructuring related charges (1)(2) $ 676 $ 1,494 (1) Of the total $676,000 for fiscal 2024, $636,000 and $40,000 were recorded within restructuring expense and cost of sales, respectively, in the Consolidated Statement of Net Loss for the twelve-month period ending April 28, 2024.
Additionally, the potential ongoing impacts of Russia’s invasion of Ukraine, as well as impacts from possible additional surges in the coronavirus, remain unknown and depend on factors beyond our knowledge or control. Either of these situations could cause disruption that could adversely affect our operations and financial performance.
Additionally, the potential ongoing geopolitical disruptions related to wars in Ukraine and the Middle East, as well as possible economic and health effects from additional surges in the coronavirus, remain unknown and depend on factors beyond our knowledge or control. These situations could cause disruption to global markets that could adversely affect our operations and financial performance.
The foreign exchange rate gains incurred on our U.S. dollar denominated balance sheet accounts associated with our operations located in China are considered taxable income, as we incur income tax expense and pay income taxes in China’s local currency.
The foreign exchange rate gains incurred on our U.S. dollar denominated balance sheet accounts associated with our operations located in China are considered taxable income, as we incur income tax expense and pay income taxes in China’s local currency. 36 Income Taxes Effective Income Tax Rate & Income Tax Expense We recorded income tax expense of $3.0 million, or (28.3)% of loss before income taxes, during fiscal 2024, compared with income tax expense of $3.1 million, or (11.0)% of loss before income taxes, during fiscal 2023.
By Geographic Area A summary of our cash by geographic area follows: April 30, May 1, (dollars in thousands) 2023 2022 United States $ 9,769 $ 4,430 China 10,669 9,502 Canada 281 267 Haiti 236 341 Cayman Islands 9 10 $ 20,964 $ 14,550 Dividend Program On June 29, 2022, our board of directors announced the decision to suspend the company's quarterly cash dividend.
By Geographic Area A summary of our cash by geographic area follows: April 28, April 30, (dollars in thousands) 2024 2023 United States $ 2,912 $ 9,769 China 6,554 10,669 Canada 371 281 Haiti 86 236 Vietnam 81 — Cayman Islands 8 9 $ 10,012 $ 20,964 39 Dividend Program On June 29, 2022 (fiscal 2023), our board of directors announced the decision to suspend the company’s quarterly cash dividend.
Executive Summary We evaluate the operating performance of our business segments based upon (loss) income from operations before certain unallocated corporate expenses and other items that are not expected to occur on a regular basis, such as restructuring expense and restructuring related charges.
Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows. Executive Summary We evaluate the operating performance of our business segments based upon (loss) income from operations before certain unallocated corporate expenses and other items that are not expected to occur on a regular basis.
The number of shares purchased and the timing of share purchases are based on working capital requirements, market and general business conditions, and other factors, including alternative investment opportunities. During fiscal 2023, we did not purchase any shares of common stock. As a result, as of April 30, 2023, $3.2 million is available for additional repurchases of our common stock.
The number of shares purchased and the timing of such purchases are based on working capital requirements, market and general business conditions, and other factors, including alternative investment opportunities. During fiscal 2024 and fiscal 2023, we did not repurchase any shares of our common stock.
The outcome of these income tax uncertainties is dependent upon various matters including tax examinations, legal proceedings, competent authority proceedings, changes in regulatory tax laws, or interpretations of those tax laws, or expiration of statutes of limitation.
The outcome of these income tax uncertainties is dependent upon various matters including tax examinations, legal proceedings, competent authority proceedings, changes in regulatory tax laws, or interpretations of those tax laws, or expiration of statutes of limitation. As a result of these inherent uncertainties, we cannot reasonably estimate the timing of payment on this amount, if any.
Our net cash provided by operating activities was $7.8 million during fiscal 2023, an increase of $25.2 million compared with net cash used in operating activities of $(17.4) million during fiscal 2022.
Our net cash used in operating activities was $8.2 million during fiscal 2024, a decrease of $16.0 million compared with net cash provided by operating activities of $7.8 million during fiscal 2023.
Results of Operations The following table sets forth certain items in our consolidated statements of net loss as a percentage of net sales.
As of April 28, 2024, there were no outstanding borrowings under our lines of credit. Results of Operations The following table sets forth certain items in our consolidated statements of net loss as a percentage of net sales.
Our net cash provided by operating activities was $7.8 million during fiscal 2023, an increase of $25.2 million compared with net cash used in operating activities of $(17.4) million during fiscal 2022.
Our net cash used in operating activities was $8.2 million during fiscal 2024, a decrease of $16.0 million compared with net cash provided by operating activities of $7.8 million during fiscal 2023.
(2) During fiscal 2023, we incurred a significantly higher consolidated pre-tax loss totaling $(28.4) million, compared with a much lower consolidated pre-tax loss totaling $(325,000) during fiscal 2022.
During fiscal 2024, we incurred a significantly lower consolidated pre-tax loss of $(10.8) million, compared with a significantly higher pre-tax loss of $(28.4) million incurred during fiscal 2023.
(dollars in thousands) April 30, 2023 May 1, 2022 % Change Accounts receivable $ 12,396 $ 9,865 25.7 % Inventory 25,674 39,028 (34.2 )% Property, plant & equipment 33,749 38,731 (12.9 )% Right of use assets 2,308 3,469 (33.5 )% Total mattress fabrics segment assets $ 74,127 $ 91,093 (18.6 )% Refer to Note 17 of the consolidated financial statements for disclosures regarding determination of our segment assets.
(dollars in thousands) April 28, 2024 April 30, 2023 % Change Accounts receivable $ 10,003 $ 12,396 (19.3 )% Inventory 27,671 25,674 7.8 % Property, plant & equipment 31,472 33,749 (6.7 )% Right of use assets 1,627 2,308 (29.5 )% Total mattress fabrics segment assets $ 70,773 $ 74,127 (4.5 )% Refer to Note 17 of the consolidated financial statements for disclosures regarding determination of our segment assets.
Income tax returns associated with our operations located in China are subject to examination for income tax year 2018 and subsequent.
Canadian provincial (Quebec) income tax returns filed by us remain subject to examination for income tax years 2020 and subsequent. Income tax returns associated with our operations located in China are subject to examination for income tax year 2019 and subsequent.
Produced 9,350 8 % 9,409 7 % (0.6 )% Total $ 123,939 100 % $ 142,680 100 % (13.1 )% Upholstery fabrics sales decreased 13.1% in fiscal 2023 compared to the prior year.
Produced 10,534 10 % 9,350 8 % 12.7 % Total $ 108,963 100 % $ 123,939 100 % (12.1 )% Upholstery fabrics sales decreased 12.1% in fiscal 2024 compared to the prior year.
We also incurred a significantly higher consolidated pre-tax loss totaling $(28.4) million during fiscal 2023, as compared with a much lower consolidated pre-tax loss totaling $(325,000) during fiscal 2022.
(3) During fiscal 2024, we incurred a significantly lower consolidated pre-tax loss of $(10.8) million, compared with a significantly higher pre-tax loss of $(28.4) million incurred during fiscal 2023.
As a result, days' sales outstanding for this segment increased to 37 days for the fourth quarter of fiscal 2023, up from 30 days for the fourth quarter of fiscal 2022. In addition, this increase reflects an increase in net sales during the fourth quarter of fiscal 2023 compared with the fourth quarter of fiscal 2022.
This led to an increase in days' sales outstanding to 37 days during the fourth quarter fiscal 2024, as compared with 33 days during the fourth quarter of fiscal 2023. Inventory The decrease in inventory reflects the decrease in net sales during the fourth quarter of fiscal 2024, as compared with the fourth quarter of fiscal 2023.
We will also continue our ongoing cost reduction efforts and will consider further adjustments to right-size and restructure our operations as necessary to align with current demand levels, while maintaining our ability to service our customers.
We will also continue our ongoing cost reduction efforts and will consider further adjustments to rationalize our operations as necessary to align with current demand levels, while maintaining our ability to service our customers. Restructuring Activities Ouanaminthe, Haiti During the third quarter of fiscal 2023, Culp Upholstery Fabrics Haiti, Ltd.
This decrease primarily relates to more favorable foreign currency exchange rates applied against our balance sheet accounts denominated in Chinese Renminbi to determine the corresponding U.S. dollar financial reporting amounts.
The $545,000 and $500,000 foreign exchange rate gains reported in fiscal 2024 and fiscal 2023 mostly relate to foreign currency exchange rates applied against our balance sheet accounts denominated in Chinese Renminbi to determine the corresponding U.S. dollar financial reporting amounts.
This trend reflects an increase in net sales during the fourth quarter of fiscal 2023 compared with the fourth quarter of fiscal 2022. Net sales for the fourth quarter of fiscal 2023 were $61.4 million, an increase of $4.5 million, or 7.9%, compared with net sales of $56.9 million during the fourth quarter of fiscal 2022.
Net sales for the fourth quarter of fiscal 2024 were $49.5 million, a decrease of $11.9 million, or 19.4%, compared with net sales of $61.4 million during the fourth quarter of fiscal 2023.
This strategic action, along with the further use of our Asian supply chain, was our response to declining consumer demand for cut and sewn products, by adjusting our operating costs to better align with the lower demand. As a result of this strategic action, we recorded restructuring expense and restructuring related charges totaling $713,000.
This strategic action, along with the further use of our Asian supply chain, was taken in order to adjust our operating costs to better align with the declining demand for cut and sewn products.
In addition, almost all of our taxable income during fiscal 2023 and fiscal 2022 was earned by our foreign operations located in China and Canada, which have higher income rates than the U.S.
Our negative consolidated effective income tax rates during fiscal 2024 and fiscal 2023 were caused by the mix of earnings between our U.S. operations and foreign subsidiaries, as our taxable income stems from our operations located in China and Canada, which have higher income tax rates than the U.S.
During fiscal 2023, we incurred a significantly higher pre-tax loss from our U.S. operations totaling $(33.5) million, compared with $(7.6) million for fiscal 2022. As a result, a significantly higher income tax benefit was not recognized due to a full valuation allowance being applied against our U.S. net deferred income tax assets during fiscal 2023, as compared with fiscal 2022.
In addition, we applied a full valuation allowance against our U.S. deferred income tax assets during both fiscal 2024 and fiscal 2023. Consequently, an income tax benefit was not recognized for the pre-tax losses associated with our U.S. operations totaling $(18.6) million and $(33.5) million that were incurred during fiscal 2024 and fiscal 2023, respectively.
Results of Operations Twelve Months Ended (dollars in thousands) April 30, 2023 May 1, 2022 Change Net sales $ 234,934 $ 294,839 (20.3 )% Gross profit 10,896 36,093 (69.8 )% Gross profit margin 4.6 % 12.2 % (760) bp Selling, general, and administrative expenses 37,978 35,415 7.2 % Restructuring expense 1,396 — 100.0 % (Loss) income from operations (28,478 ) 678 N.M Operating margin (12.1 )% 0.2 % (1230) bp Loss before income taxes (28,390 ) (325 ) N.M Income tax expense 3,130 2,886 8.5 % Net loss (31,520 ) (3,211 ) N.M Net Sales Our consolidated net sales decreased 20.3% in fiscal 2023 compared with a year ago, with mattress fabric net sales decreasing 27.1% and upholstery fabric net sales decreasing 13.1%.
Unallocated corporate expenses primarily represent compensation and benefits for certain executives and their support staff, all costs associated with being a public company, amortization of intangible assets, and other miscellaneous expenses. 28 Results of Operations Twelve Months Ended (dollars in thousands) April 28, 2024 April 30, 2023 Change Net sales $ 225,333 $ 234,934 (4.1 )% Gross profit 27,939 10,896 156.4 % Gross profit margin 12.4 % 4.6 % 780 bp Selling, general, and administrative expenses 38,611 37,978 1.7 % Restructuring expense 636 1,396 (54.4 )% Loss from operations (11,308 ) (28,478 ) (60.3 )% Operating margin (5.0 )% (12.1 )% (710 ) bp Loss before income taxes (10,770 ) (28,390 ) (62.1 )% Income tax expense 3,049 3,130 (2.6 )% Net loss (13,819 ) (31,520 ) (56.2 )% Net Sales Our consolidated net sales decreased 4.1% in fiscal 2024 compared with a year ago, with mattress fabric net sales increasing 4.8% and upholstery fabric net sales decreasing 12.1%.
Liquidity As of April 30, 2023, our cash and cash equivalents (“cash") totaled $21.0 million, an increase of $5.4 million, compared with $14.6 million as of May 1, 2022.
Liquidity As of April 28, 2024, our cash and cash equivalents (“cash") totaled $10.0 million, a decrease of $11.0 million compared with cash of $21.0 million as of April 30, 2023.
See the Segment Analysis located in the Results of Operations section below for further details. Income Taxes We recorded income tax expense of $3.1 million, or (11.0)% of loss before income taxes, for fiscal 2023, compared with income tax expense of $2.9 million, or (888.0)% of loss before income taxes, for fiscal 2022.
Income Taxes We recorded income tax expense of $3.0 million, or (28.3)% of loss before income taxes, for fiscal 2024, compared with income tax expense of $3.1 million, or (11.0)% of loss before income taxes, for fiscal 2023.
Our estimated cash income tax payments for fiscal 2024 are management’s current projections only and can be affected by actual earnings from our foreign subsidiaries located in China and Canada versus annual projections; changes in the foreign exchange rates associated with our operations located in China in relation to the U.S. dollar; the timing of when we will repatriate earnings and profits from China; and the timing of when significant capital projects will be placed into service, which determines the deductibility of accelerated depreciation.
This estimate is management's current projection only and can be affected by actual earnings versus annual projections, changes in the foreign exchange rates in relation to the U.S. dollar, and the timing of when we will repatriate earnings and profits from China to our U.S. parent.
Despite the current share repurchase authorizations, the company does not expect to repurchase any shares through at least the first quarter of fiscal 2024. During fiscal 2022, we repurchased 121,688 shares of our common stock at a cost of $1.8 million.
As a result, as of April 28, 2024, $3.2 million was available for additional repurchases of our common stock. Despite the current share repurchase authorization, the company does not expect to repurchase any shares through at least the first quarter of fiscal 2025.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+2 added−0 removed1 unchanged
Biggest changeAs of April 30, 2023, there were no outstanding borrowings under the Amended Agreement. Our revolving credit line associated with our operations located in China bears interest at a rate determined by the Chinese government at the time of borrowing.
Biggest changeThere were no borrowings outstanding under this agreement as of April 28, 2024. Our previously existing revolving credit agreement with another financial institution in China bears interest at a rate determined by the Chinese government at the time of borrowing, and is not directly determined by a published interest rate benchmark.
We try to maintain a natural hedge by keeping a balance of our assets and liabilities denominated in the local currency of our subsidiaries domiciled in Canada and China. However, there is no assurance that we will be able to continually maintain this natural hedge. Our foreign subsidiaries use the U.S. dollar as their functional currency.
We try to maintain a natural hedge by keeping a balance of our assets and liabilities denominated in the local currency of our subsidiaries domiciled in Canada, China, and Vietnam. However, there is no assurance that we will be able to continually maintain this natural hedge. Our foreign subsidiaries use the U.S. dollar as their functional currency.
Effective January 19, 2023, we entered into a second amended and restated U.S. revolving credit agreement (the "Amended Agreement") to establish an asset-based revolving credit facility that required interest to be charged at a rate (applicable interest rate of 6.3% as of April 30, 2023) calculated using an applicable margin over Federal Reserve Bank of New York's secured overnight fund rate (SOFR), as defined in the Amended Agreement.
Effective January 19, 2023, we entered into a second amended and restated U.S. revolving credit agreement (the "Amended Agreement") to establish an asset-based revolving credit facility that required interest to be charged at a rate calculated using an applicable margin over Federal Reserve Bank of New York's secured overnight fund rate (SOFR), as defined in the Amended Agreement.
A substantial portion of the company’s imports purchased outside the U.S. are denominated in U.S. dollars. A 10% change in the above exchange rates as of April 30, 2023, would not have materially affected our results of operations or financial position. 45
A substantial portion of the company’s imports purchased outside the U.S. are denominated in U.S. dollars. A 10% change in the above exchange rates as of April 28, 2024, would not have materially affected our results of operations or financial position. 43
As of April 30, 2023, there were no borrowings outstanding under our revolving credit agreement associated with our operations located in China. Foreign Currency We are exposed to market risk from changes in the value of foreign currencies for our subsidiaries domiciled in Canada and China.
There were no borrowings outstanding under this agreement as of April 28, 2024. Foreign Currency We are exposed to market risk from changes in the value of foreign currencies for our subsidiaries domiciled in Canada, China and Vietnam.
Added
The interest rate under the Amended Agreement as of April 28, 2204, was 6.81%. As of April 28, 2024, there were no outstanding borrowings under the Amended Agreement.
Added
Effective on March 20, 2024, we entered into an unsecured credit agreement with a financial institution in China denominated in RMB that requires interest to be charged at a rate based on the Loan Prime Rate ("LPR") in China minus 50 basis points (2.95% as of April 28, 2024).

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