Good day, and welcome to the Culp, Inc. Fourth Quarter Fiscal 2025 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Dru Anderson. Please go ahead.

Thank you. Good morning, and welcome to the Culp conference call to review the company's results for the fourth quarter and fiscal 2025. As we start, let me state that this morning's call will contain forward-looking statements about the business, financial condition and prospects of the company. Forward-looking statements are statements that include projections, expectations or beliefs about future events or results or otherwise are not statements of historical fact. The actual performance of the company could differ materially from that indicated by the forward-looking statements because of various risks and uncertainties. These risks and uncertainties are described in our regular SEC filings, including the company's most recent filings on Form 10-K and Form 10-Q. 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 and financial results. You are cautioned not to place undue reliance on forward-looking statements made today, and each such statement speaks only as of today. We undertake no obligation to update or revise forward-looking statements. In addition, during this call, the company will be discussing non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the most directly comparable GAAP financial measurements is included in the tables to the press release included as an exhibit to the company's 8-K filed yesterday and also posted on the company's website at culp.com. A slide presentation on the company's restructuring plan and related topics is also available on the company's website as part of the webcast of today's call. I will now turn the call over to Iv Culp, President and Chief Executive Officer of Call. Please go ahead.

Thank you, Dru, and good morning, and thank you to everyone for joining us today and for your interest in our company. I would like to welcome you to the Culp quarterly conference call with analysts and investors. With me on the call today are Ken Bowling, Chief Financial Officer; Mary Beth Hunsberger, who is now our Chief Operating Officer; and Tommy Bruno, now our Chief Commercial Officer. I'll begin the call with some detailed comments. And as mentioned in the introduction, we have posted a slide presentation to our Investor Relations website that covers information related to our restructuring plans and actions, along with some associated topics, which I will speak about in detail today. That slide presentation is entitled Positioning for the Future. Ken will then review the financial results for the quarter and the full year. After that, I'll briefly review our business outlook as we turn the page to fiscal 2026, and we will take some questions. Fiscal 2025 was a truly transformative year for Culp, marked by substantial efforts across the entire company to streamline our cost structure, maximize efficiency and facilitate long-term growth. Despite a challenging revenue environment across the industry and additional complexities from the ongoing tariff and global trade negotiations, we successfully implemented numerous measures that we expect to enhance our operating profile and position us to improve operating performance across a wide spectrum of demand scenarios. In addition, we believe that we are now even better positioned from a competitive standpoint to take advantage of any improvement in market conditions. I'm proud of our team for executing on what were a variety of unique initiatives during the year and doing so both according to our expected time lines and while remaining committed to doing what we do best, delivering the high…

Thanks, Iv. Here are the financial highlights for the fourth quarter. Net sales were $48.8 million and generally flat with our net sales in the prior year period of $49.5 million. The company reported a loss from operations of $2.2 million, which included $1.5 million in restructuring-related expenses as compared with a loss from operations of $4.2 million for the prior year period, which included $204,000 in restructuring expense. Non-GAAP operating loss for the fourth quarter was $704,000 as compared to a non-GAAP operating loss of $4 million for the prior year period. I'll comment in more detail on our segment sales and operating performance in a moment. Net loss for the fourth quarter was $2.1 million or $0.17 per diluted share compared with a net loss of $4.9 million or $0.39 per diluted share for the prior year period. Adjusted EBITDA for the fourth quarter was $559,000 compared to a negative $2.2 million in the prior year period. Our overall operating performance for the fourth quarter as compared to the prior year period benefited from continued momentum in the mattress fabrics operating performance, including significant improvement in operating loss from the prior year period driven by the cost and efficiency benefits derived from the restructuring plan. Operating performance also benefited from the continued profitability in the upholstery fabrics segment despite the lower revenue industry environment and tariff-related challenges I spoke to earlier and was also favorably impacted by lower inventory markdowns resulting from a change in our accounting estimates for finished goods inventory. For the full fiscal year, net sales were $213.2 million, down 5.4% compared to the previous year. Loss from operations for the full fiscal year was $18.4 million, which included $9.4 million in restructuring-related expenses compared with a loss from operations of $11.3 million for the…

Thank you, Ken. Due to the macroeconomic uncertainty and the fluid global trade environment that I previously mentioned, which pressured demand and resulted in suspended China shipments and minimal commercial flow for several weeks during the fourth quarter as well as the immediacy of tariff cost increases. We are not providing specific financial guidance and only limited annual guidance at this time. For fiscal '26, we anticipate year- over-year sales growth in our mattress fabrics business and for the sales pressure on the residential side of our upholstery business to continue. The cost and efficiency benefits of the recently completed restructuring plan are expected to continue to drive meaningful operating improvement as the year progresses, particularly as we move beyond the tariff-related sales and margin pressure impacting the first quarter. In addition, the fiscal '26 division integration initiative and related facility consolidation activity, along with the price increases I discussed, should further bolster operating performance, particularly as we get beyond first quarter. As Ken said, while we intend to continue to utilize borrowings if necessary under our credit facilities during fiscal '26, we will continue to aggressively manage liquidity and capital expenditures and prioritize free cash flow. Our expectations today are based on information available and reflect certain assumptions regarding our business and overall industry trends, the projected impact of restructuring and integration initiatives and ongoing tariff and market headwinds. Our expectations also assume no further meaningful changes from tariffs and trade negotiations. Thank you again for your time today. We appreciate your continued support and look forward to taking some questions. With that, I want to turn it back to the operator.

[Operator Instructions] First question today comes from Brian Gordon with Water Tower Research.

I guess first question, could you talk a little bit about the cadence of business across mattress residential upholstery and the commercial upholstery and fabrics side of the businesses?

Brian, you just mean the current cadence that we're seeing now?

Yes.

Yes. Well, kind of as we laid out in the script, I think we are pretty encouraged about mattress fabrics business. I think we've done some really nice job winning some share in both fabric and sun covers. And we see -- while not always linear like we want it to be, we see optimism and strength in the backlog for mattress fabrics and covers. I think we have a very solid pipeline in place on the hospitality side of our upholstery business, window treatments and fabrics. And again, some of those projects got delayed when the tariffs were at peak pressure, but the pipeline is there, and we're encouraged about that business. Residential upholstery has just been a slog. It's been tough through this demand cycle. We believe we're placing product very well. We just don't believe that things are turning at the retail floors at the level we want them to. So we're maybe a bit more muted on that portion of our business in the short term.

That makes sense. Do you have any sense on sort of like how tariffs specifically have been impacting the end customer demand across your segments?

Yes, it's a good question, Brian. It's funny. A lot of prices are being pushed through. We're going to be doing ours now. I think all prices that have been impacted from the suppliers to the manufacturers are just going straight to retail and being passed to the consumer. I'm not sure that tariff prices are driving consumer demand. I think there's so much uncertainty in the market where the inflation is, where interest rates are, tariffs are one piece of it, too. And it's just not top of mind for consumers today. I do also think on the furniture side, this season is typically a slower season anyway annually. So we just need to -- we're focused on getting through the summertime season and hoping that as we get to the fall, we see prices are pushed through, things are maybe normalized at least at the price level and the consumers will come back to the stores.

Yes. So I have a follow-up question, though, on the pricing actions. So you guys talked about $2.5 million in respect to that over the course of the year. What are the revenue assumptions though that are baked into those gains at this point?

Yes, it's a good question. We are not forecasting those revenue assumptions to get to $2.5 million are what we see today steady state. Obviously, that can be bolstered if things were to pick up, but we aren't banking on that. Those price increases are at steady-state revenue. And a lot of them -- a vast majority of those are on the mattress side that we see as we adjust our pricing in that business for fabrics and covers.

Okay. That makes sense. In terms of all the cost savings that you've outlined, and there's obviously several buckets. There's the restructuring that you first announced a year ago. There's the reorganization of the Project Blaze and then there are the price adjustments. If I try and think about how that's going to impact the bottom line quarter-by-quarter, if my arithmetic is right, we're going to see something like a gain of like maybe $2.5 million or so Q1 up to $4 million, maybe even $4 million plus by Q4. Is that logic right? Is that how we should be thinking about this?

You're speaking about the new actions or just the all actions combined...

All actions combined. Just trying to flip that to a quarterly benefit as we progress across '26.

Yes. I think you see in the -- in our fourth quarter, you see the start of the significant fixed cost reductions coming through from the mattress fabrics restructure. That should continue on pace. I mean that's done. We're really happy to have that behind us. The new actions we're talking about, the integration of the businesses and the warehouse consolidations and the price actions are all phasing in during Q2. So they start to impact Q2 and then they're probably very effective in Q3 and Q4.

Okay. And that's just timing...

We have leases that we have to exit. I mean -- so you start to generate some of the savings from those projects and from headcount reductions or consolidations that we may do to streamline. But when they're fully enact and done, it's the back half of the year.

Next question may be more for Ken. One of the things that you guys mentioned in the release was the change in your approach to inventory markdowns. Could you maybe explain a little bit what's going on there and how that impacted the quarter and how that might impact '26 as we move through the year?

Yes. Thanks, Brian, for the question. Yes, we -- it boiled down to -- we found that we were marking down our fabric for obsolescence too quickly in relation to the final price we were getting. I mean given the longer product life cycles, we're capable now of holding our full price a lot longer, which is great news for us because we're getting full value further down the road. And so that's a great testament to our fabric value. But in light of all this, we wanted to study our activity and make sure that we move our cadence of markdowns to better fit the actual prices we were getting. And so we looked at that, studied it and made some changes, and that generated a $1.7 million benefit in the quarter. Now looking ahead, we feel good about this. We feel it's the right decision, obviously, to get everything balanced. But looking ahead, that way going forward, we balance our markdowns with our pricing. We don't get ahead of ourselves and we don't get behind ourselves. So we can truly track things throughout the year and get a more consistent look at our performance and help us better manage our inventory.

Okay. That's very helpful. This is maybe another question for you, Ken. Given the macro environment and given liquidity and cash flow projections at this point, how aggressive are you guys going to be on the debt paydown side?

Brian, you know us, we are -- we will pay down the debt as quickly as we can. We've got -- obviously, we have the initiatives that we're funding. Priority, obviously, is getting -- making sure we have the working capital needs met around the world. That's always the highest priority. But any time we have a chance to pay down that debt, we will. And obviously, we've got -- with the new 3-year deal, we've got the flexibility to pull it as needed, but also we've got the flexibility to pay it off in both in the U.S. and China. So the answer to that is we will be as aggressive as we possibly can.

Brian, I might just stick in on Ken's tailgate him there. Some of the borrowings we have outstanding in China are just a good strategic play for us as we balance global working capital. They are, in some cases, some borrowings we just pulled because we could get it. It's a very low, very attractive rates. We can pay them back when we want, but we sometimes think in the uncertainty of the world, it's smart to just have some of that money available, especially as we operate our China business.

That's right.

Yes, certainly. I would agree with that. One final question maybe for you, Iv, and maybe for Tommy as well. What are the growth investments in terms of like new products and markets that you're going to be focused on prioritizing in '26? And where do you think, especially do you have the best opportunity to gain share? I mean it sounds like both hospitality and mattress on that side of the business would be maybe the bright spots for share gains.

Yes. We made a lot of comments in the script, Brian. The mattress fabric business, we have gone through a significant -- I mean, transformation is almost not strong enough word to change that model. We now have -- we have all the team we had with design and focus on product and a sales team, and we have a really preferred manufacturing model with a U.S. platform that's certainly desire today, complemented really well by global operations that can mitigate tariffs. We have ways to move that business to where customers want to be served. So -- and we've got a great platform for fabrics and for cut and sew covers. And we have deep relationships with strong customers, and we just believe there's opportunity for us to win share in a tough market. And then someday when that market performs better, we're really in a good spot. And just very happy about that, the mattress potential. Certainly not banking on a market recovery, but just thinking we have potential and we're building and planting a lot of seeds for the future. I think we're also excited a lot about the hospitality business. We have a great model. Our fabric -- sometimes I think investors don't realize how strong our fabric portfolio is to the hospitality market. We talk a lot about Read Window, and we're excited about draperies and roller shades and things like that. But the fabric piece of that business, we've got a new line. It's priced with better margins. It's just an exciting time to be in that space. Certainly got muted when everyone delayed some projects, but that's likely to be something we can be excited about looking forward. And then I don't mean to be too tough on our residential upholstery business because that's our foundation. We -- our company was founded on that. And we love that business. Our product line is as strong as it's been in a long time. I think we're placing it very well. We just don't see a lot of short-term demand in residential furniture. And we hope that changes. But -- and we're not going to stop doing it. We're just going to manage it cost appropriately and put resources through our new integration to the -- to where we think is growing right now. So I'm speaking for Tommy's commercial strategy, but that is where I think we're thinking. But we're not in any way trying to say we're not also working on residential upholstery because we are in a big way. We just are maybe thinking there's a lag for that recovery.

Yes. And that all certainly makes sense. And best of luck with the quarter.

Yes. Thank you, Brian. I appreciate your support, and we look forward to talking to you more.

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

Thank you, operator. And again, thank you for your participation and your interest in Culp. We appreciate everyone's time and look forward to updating you on our progress next quarter. Have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.