CULP ANNOUNCES RESULTS FOR FIRST QUARTER FISCAL 2025, HIGHLIGHTED BY A 14.2% SEQUENTIAL INCREASE IN SALES AND STABLE CASH POSITION; PROVIDES UPDATE ON RESTRUCTURING AND[...]

CULP ANNOUNCES RESULTS FOR FIRST QUARTER FISCAL 2025, HIGHLIGHTED BY

A 14.2% SEQUENTIAL INCREASE IN SALES AND STABLE CASH POSITION;

PROVIDES UPDATE ON RESTRUCTURING AND IMPROVED FINANCIAL OUTLOOK

HIGH POINT, N.C. (September 4, 2024) ─ Culp, Inc. (NYSE: CULP) (together with its consolidated subsidiaries, "CULP") today reported financial and operating results for the first quarter ended July 28, 2024.

Fiscal 2025 First Quarter Financial Highlights

- up 14.2% compared sequentially to last quarter

- sequentially, upholstery fabrics segment sales up 19.7% and inventory down 4.6%,

mattress fabrics segment sales up 9.0% and inventory down 8.6%

- segment operating income of $1.7 million, up 28.9% year-over-year and 75.6% sequentially

- segment operating margin of 6.0% for the quarter

- Non-GAAP loss from operations of $(4.1) million (see reconciliation table on page 12)

- Operating performance for the quarter affected by manufacturing inefficiencies primarily

related to the significant restructuring activity underway in the mattress fabrics segment

- Stable net cash position of $9.5 million (see reconciliation table on page 8), with only

$560,000 use of cash since end of fiscal 2024 despite significant restructuring activity

Financial Outlook

- Consolidated net sales for second quarter expected to be flat sequentially

- As a result of the restructuring initiatives, currently expect to return to near break-even

adjusted EBITDA (excluding restructuring and related charges) in the second quarter of

fiscal 2025, and to return to positive consolidated adjusted operating income (excluding

restructuring and related charges) in the third quarter of fiscal 2025.

Iv Culp, President and Chief Executive Officer of Culp, Inc., said, "Our sales results for the first quarter reflected strong sequential improvement as compared to the fourth quarter of last fiscal year, with mattress fabrics sales up 9.0% and upholstery fabrics sales up 19.7%. While we continue to experience challenged macro industry conditions, our sequential sales growth was better than expected, and year-over-year consolidated sales were flat despite the overall industry weakness.

"Our upholstery fabrics segment also delivered a significant improvement in operating income, both year-over-year and sequentially, with 6.0% operating margins for the quarter. The strategic actions we have taken in this segment are working, as we have reduced our cost structure while maintaining and enhancing our ability to grow sales. However, as expected, operating performance for our mattress

fabrics segment was pressured by manufacturing inefficiencies primarily related to our significant restructuring activity. While this negatively and disproportionately affected operating performance for the quarter, our use of cash was minimal, with our net cash position only $560,000 lower as compared to the end of fiscal 2024. We are pleased that both segments reduced inventory from the end of fiscal 2024 despite the strong sequential increase in sales.

"We are also encouraged by the progress of our restructuring initiatives. While mattress fabrics operating results are being pressured by these actions in the first half of the fiscal year, especially in the first quarter, we believe we are on schedule to deliver our targeted improvement outcomes, including a return to near break-even adjusted EBITDA in the second quarter and a return to positive consolidated adjusted operating income in the third quarter. The restructuring is a significant undertaking that impacts people, plant consolidations, equipment relocation, and process improvements, but with it, we are successfully lowering our cost structure despite weak demand. We are extremely thankful for our dedicated employees as they execute our plan to return to profitable operating results post-restructuring.

"Looking ahead, we are encouraged by (1) our solid and improving market positions in both businesses; (2) our consistently profitable upholstery fabrics business; (3) expected further improvement in our hospitality fabrics and Read Window businesses; and (4) the steady progress we are making to restructure our mattress fabrics business. We anticipate industry conditions may remain pressured during fiscal 2025, although we also believe there is some stabilizing of industry trends. We expect the strategic actions we are taking will position us for a return to profitability at current demand levels and further growth opportunities as market conditions improve," added Culp.

Restructuring Update

The restructuring plan announced on May 1, 2024, primarily focused on the company's mattress fabrics segment, is progressing as planned. The consolidation of the company's sewn mattress cover operation in Haiti was completed during the first quarter, and the consolidation of the company's North American mattress fabrics operation is well underway (including the phased wind-down and closure of its manufacturing facility in Canada and move of certain knitting and finishing equipment to its facility in North Carolina).

The company still expects to generate $10.0 - $11.0 million in annualized savings and operating improvements after the restructuring initiatives are fully implemented by the end of the calendar year, with most of the restructuring benefit realized during the second half of fiscal 2025.

In addition, based on restructuring activities that have been completed along with updated estimates on those that remain in process, the company now expects to incur total restructuring and restructuring-related costs and charges of $5.1 million in fiscal 2025, of which $3.0 million is now expected to be cash expenditures. The company expects to fund approximately $2.0 million of the cash costs with proceeds from the sale of excess manufacturing equipment and proceeds from a building lease termination in Haiti.

These restructuring and restructuring-related costs and charges exclude any gain on the sale of real estate, the amount and timing of which is currently unknown but which will ultimately reduce the amount of the restructuring charges incurred. The company is actively marketing and showing the real estate, and currently anticipates receiving approximately $9.0 to $10.0 million in cash proceeds (net of all taxes and commissions) from its eventual sale.

First Quarter Fiscal 2025 Results versus First Quarter Fiscal 2024 Results

Business Segment Highlights

Mattress Fabrics Segment ("CHF")

Upholstery Fabrics Segment ("CUF")

Balance Sheet, Cash Flow, and Liquidity

Conference Call

Culp, Inc. will hold a conference call to discuss financial results for the fiscal 2025 first quarter on Thursday, September 5, 2024, at 9:00 a.m. Eastern Time. A live webcast of this call can be accessed on the "Upcoming Events" section on the investor relations page of the company's website, www.culp.com. A replay of the webcast will be available for 30 days under the "Past Events" section on the investor relations page of the company's website, beginning at 2:00 p.m. Eastern Time on September 5, 2024.

Investor Relations Contact

Ken Bowling, Executive Vice President, Chief Financial Officer, and Treasurer:

(336) 881-5630

[email protected]

About the Company

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

Forward Looking Statements

This release contains "forward-looking statements" within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934). Such statements are inherently subject to risks and uncertainties that may cause actual events and results to differ materially from such statements. Forward-looking statements are statements that include projections, expectations, or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often but not always characterized by qualifying words such as "expect," "believe," "will," "may," "should," "could," "potential," "continue," "target," "predict", "seek," "anticipate," "estimate," "intend," "plan," "project," and their derivatives, and include but are not limited to statements about expectations, projections, or trends for our future operations, strategic initiatives and plans, restructuring actions, production levels, new product launches, sales, profit margins, profitability, operating (loss) income, capital expenditures, working capital levels, cost savings (including, without limitation, anticipated cost savings from restructuring actions), income taxes, SG&A or other expenses, pre-tax (loss) income, earnings, cash flow, and other performance or liquidity measures, as well as any statements regarding dividends, share repurchases, liquidity, use of cash and cash requirements, borrowing capacity, investments, potential acquisitions, restructuring and restructuring-related charges, expenses, and/or

credits, future economic or industry trends, public health epidemics, or future developments. There can be no assurance that we will realize these expectations or meet our guidance, or that these beliefs will prove correct.

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

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

CULP, INC.

CONSOLIDATED STATEMENTS OF NET LOSS

FOR THE THREE MONTHS ENDED JULY 28, 2024, AND JULY 30, 2023

Unaudited

(Amounts in Thousands, Except for Per Share Data)

Notes

(1) See page 12 for a Reconciliation of Selected Income Statement Information to Adjusted Results for the three months ending July 28, 2024, and July 30, 2023.

(2) During the three-month period ending July 28, 2024, restructuring expense of $2.6 million represents $2.5 million and $132,000, related to the mattress fabrics and upholstery fabrics segments, respectively. The $2.6 million of restructuring expense represents (i) $1.9 million related to the gradual discontinuation of operations and the process of selling the manufacturing facility located in Quebec, Canada, which includes $875,000 of additional depreciation related to the shortening of useful lives of equipment, employee termination benefits of $539,000, lease termination costs of $264,000, impairment charges and losses on the disposal of equipment totaling $95,000, and other associated costs of $90,000; (ii) $470,0000 related to the consolidation of two leased facilities at our mattress cover operation located in Ouanaminthe, Haiti, which includes lease termination costs of $406,000, employee termination benefits of $48,000, and other associated costs of $16,000; (iii) $167,000 of other associated costs related to the relocation of certain equipment from the mattress fabrics manufacturing facility located in Quebec, Canada to the U.S. facility located in Stokesdale, North Carolina; and (iv) $132,000 related to reducing costs within our upholstery fabrics segment which includes employee termination benefits of $102,000 and other associated costs of $30,000.

(3) Restructuring expense of $338,000 for the three-month period ending July 30, 2023, relates to the discontinuation of production of cut and sewn upholstery kits at our facility located in Ouanaminthe, Haiti and represents an impairment charge of $237,000 related mostly to certain machinery and equipment and $101,000 for employee termination benefits.

(4) Percent of sales column for income tax expense is calculated as a percent of loss before income taxes.

CONSOLIDATED BALANCE SHEETS

JULY 28, 2024, JULY 30, 2023, AND APRIL 28, 2024

Unaudited

(Amounts in Thousands)

* Derived from audited financial statements.

CULP, INC.

SUMMARY OF CASH AND DEBT

JULY 28, 2024, JULY 30, 2023, AND APRIL 28, 2024

Unaudited

(Amounts in Thousands)

CULP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED JULY 28, 2024, AND JULY 30, 2023

Unaudited

(Amounts in Thousands)

(1) See next page for Reconciliation of Free Cash Flow for the three months ending July 28, 2024, and July 30, 2023.

CULP, INC.

RECONCILIATION OF FREE CASH FLOW

FOR THE THREE MONTHS ENDED JULY 28, 2024, AND JULY 30, 2023

Unaudited

(Amounts in Thousands)

CULP, INC.

STATEMENTS OF OPERATIONS BY SEGMENT

FOR THE THREE MONTHS ENDED JULY 28, 2024, AND JULY 30, 2023

Unaudited

(Amounts in Thousands)

Notes

(1) See page 12 for a Reconciliation of Selected Income Statement Information to Adjusted Results for the three months ending July 28, 2024, and July 30, 2023.

(2) See pages 14 through 17 for calculation of Return on Capital Employed by Segment for the trailing twelve months ending July 28, 2024, and July 30, 2023, and a reconciliation to information from our U.S. GAAP financial statements.

(3) The capital employed balances are as of July 28, 2024, and July 30, 2023.

(4) During the three-month period ending July 28, 2024, depreciation expense for the mattress fabrics segment included additional depreciation expense related to the shortening of useful lives of equipment associated with the gradual discontinuation of operations regarding our manufacturing facility located in Quebec, Canada. The amount of additional depreciation expense was $875,000 and was classified as restructuring expense.

CULP, INC.

RECONCILIATION OF SELECTED INCOME STATEMENT INFORMATION TO ADJUSTED RESULTS

FOR THREE MONTHS ENDED JULY 28, 2024, AND JULY 30, 2023

Unaudited

(Amounts in Thousands)

Notes

(1) During the three-month period ending July 28, 2024, cost of sales included a restructuring related charge totaling $116,000 for losses on the disposal of obsolete inventory related to the gradual discontinuation of operations at our manufacturing facility located in Quebec, Canada.

(2) During the three-month period ending July 28, 2024, restructuring expense of $2.6 million represents $2.5 million and $132,000, related to the mattress fabrics and upholstery fabrics segments, respectively. The $2.6 million of restructuring expense represents (i) $1.9 million related to the gradual discontinuation of operations and the process of selling the manufacturing facility located in Quebec, Canada, which includes $875,000 of additional depreciation related to the shortening of useful lives of equipment, employee termination benefits of $539,000, lease termination costs of $264,000, impairment charges and losses on the disposal of equipment totaling $95,000, and other associated costs of $90,000; (ii) $470,0000 related to the consolidation of two leased facilities at our mattress cover operation located in Ouanaminthe, Haiti, which includes lease termination costs of $406,000, employee termination benefits of $48,000, and other associated costs of $16,000; (iii) $167,000 of other associated costs related to the relocation of certain equipment from the mattress fabrics manufacturing facility located in Quebec, Canada to the U.S. facility located in Stokesdale, North Carolina; and (iv) $132,000 related to reducing costs within our upholstery fabrics segment which includes employee termination benefits of $102,000 and other associated costs of $30,000.

Notes

(1) During the three-months ended July 30, 2023, cost of sales included a restructuring related charge totaling $179,000 for the markdowns of inventory related to the discontinuation of production of cut and sewn upholstery kits at the company's facility in Ouanaminthe, Haiti.

(2) Restructuring expense of $338,000 for the three-month period ending July 30, 2023, relates to the discontinuation of production of cut and sewn upholstery kits at our facility located in Ouanaminthe, Haiti and represents an impairment charge of $237,000 related mostly to certain machinery and equipment and $101,000 for employee termination benefits.

CULP, INC.

CONSOLIDATED STATEMENTS OF ADJUSTED EBITDA

FOR THE TWELVE MONTHS ENDED JULY 28, 2024, AND JULY 30, 2023

Unaudited

(Amounts in Thousands)

(1) Net loss and adjusted EBITDA for the quarter ended October 30, 2022, and the twelve-month period ending July 30, 2023, includes a non-cash charge totaling $5.2 million, which represents a $2.9 million charge for the write down of inventory to its net realizable value associated with the mattress fabrics segment and $2.3 million related to markdowns of inventory estimated based on the company's policy for aged inventory for both the mattress and upholstery fabrics segments.

CULP, INC.

RETURN ON CAPITAL EMPLOYED BY SEGMENT

FOR THE TWELVE MONTHS ENDED JULY 28, 2024

Unaudited

(Amounts in Thousands)

CULP, INC.

RETURN ON CAPITAL EMPLOYED BY SEGMENT - CONTINUED

FOR THE TWELVE MONTHS ENDED JULY 28, 2024

Unaudited

(Amounts in Thousands)

Notes

(1) See last page of this presentation for calculation.

(2) Average capital employed was computed using the five quarterly periods ending July 28, 2024, April 28, 2024, January 28, 2024, October 29, 2023, and July 30, 2023.

(3) Return on average capital employed represents the twelve months operating (loss) income as of July 28, 2024, divided by average capital employed. Average capital employed does not include cash and cash equivalents, short-term and long-term investments - Rabbi Trust, income taxes receivable and payable, accrued restructuring, line of credit - China, noncurrent deferred income tax assets and liabilities, and current and non-current deferred compensation.

(4) Intangible assets are included in unallocated corporate for all periods presented and therefore, have no effect on capital employed and return on capital employed for our mattress fabrics and upholstery fabrics segments.

CULP INC.

RETURN ON CAPITAL EMPLOYED BY SEGMENT

FOR THE TWELVE MONTHS ENDED JULY 30, 2023

Unaudited

(Amounts in Thousands)

CULP INC.

RETURN ON CAPITAL EMPLOYED BY SEGMENT - CONTINUED

FOR THE TWELVE MONTHS ENDED JULY 30, 2023

Unaudited

(Amounts in Thousands)

Notes

(1) See last page of this presentation for calculation.

(2) Average capital employed was computed using the five quarterly periods ending July 30, 2023, April 30, 2023, January 29, 2023, October 30, 2022, and July 31, 2022.

(3) Return on average capital employed represents the last twelve months operating (loss) income as of July 30, 2023, divided by average capital employed. Average capital employed does not include cash and cash equivalents, short-term and long-term investments - Rabbi Trust, accrued restructuring, income taxes receivable and payable, noncurrent deferred income tax assets and liabilities, and current and non-current deferred compensation.

(4) Intangible assets are included in unallocated corporate for all periods presented and therefore, have no effect on capital employed and return on capital employed for our mattress fabrics and upholstery fabrics segments.

CULP INC.

CONSOLIDATED STATEMENTS OF ADJUSTED OPERATING (LOSS) INCOME

FOR THE TWELVE MONTHS ENDED JULY 28, 2024, AND JULY 30, 2023

Unaudited

(Amounts in Thousands)

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