Good morning, and welcome to the Culp First Quarter Fiscal 2026 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 first quarter of fiscal 2026. 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 to 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 measurement is included in the tables to the press release included as an exhibit to the company's 8-K filed yesterday and posted on the company's website at culp.com. The Investor Relations presentation 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 Culp. 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. With me on the call is Ken Bowling, our Chief Financial Officer. Tommy Bruno and Mary Beth Hunsberger are not on the call today as they are fully engaged in their respective roles as Chief Commercial Officer and Chief Operations Officer, both of which are going exceedingly well. I will begin the call with some detailed comments. And as mentioned in the introduction, we have posted a slide presentation to our website that provides some information that is supplemental to what we will speak about today. That slide presentation is simply entitled First Quarter FY '26 Supplemental Information. Ken will then review the financial results for the quarter. And after that, I will briefly review our business outlook for the remainder of fiscal '26, and we will take some questions. Looking at our performance for the first quarter, the key takeaway from our perspective is that we were able to build on the momentum we had to close out last fiscal year and realize improvement in our operating results despite not only the depressed demand across the home furnishings industry that we're all too familiar with at this point, but also the continuing challenges from tariffs and the uncertain global trade environment. Even with these two significant headwinds, we were able to achieve substantial double-digit improvement at both the gross profit and operating lines during the quarter, particularly due to our streamlined bedding segment. An improvement of that nature in this market and macroeconomic environment is a testament to the effective work of the Culp team over the last year. Throughout fiscal '25 and into fiscal '26, we made tremendous strides to successfully transform our Culp Home Fashions…

Thanks, Iv. Here are the financial highlights for the first quarter. Net sales for the first quarter, which included an extra week, were $50.7 million compared to net sales in the prior year period of $56.5 million. The decline was driven primarily by the continued market softness and the tariff-driven pause in residential upholstery shipments that Iv discussed earlier. Gross profit for the quarter was $7.2 million or 14.3% of sales compared to prior year period gross profit of $5.1 million or 9% of sales. This year-over-year improvement of 530 basis points was driven primarily by the cost and efficiency benefits flowing from the restructuring initiatives in the bedding segment completed last year. Operating income for the quarter was $1.6 million compared with a loss from operations of $6.9 million for the prior year period. Adjusting for restructuring credits and expenses, including a net credit of approximately $3.5 million driven by a gain on the sale of our Canadian manufacturing facility, non-GAAP operating loss for the quarter was $1.9 million compared to prior year period's non-GAAP operating loss of $4.1 million. Net loss for the fourth quarter was $231,000 or $0.02 per diluted share compared with a net loss of $7.3 million or $0.58 per diluted share for the prior year period. EBITDA adjusted for the impacts of restructuring and related credits and expenses was a negative $1.1 million for the first quarter compared to negative $2.7 million in the prior year period. Our overall operating performance for the first quarter as compared to the prior year period benefited primarily from continued momentum in our bedding segment driven by the positive impacts of last year's restructuring initiatives in that area. Operating performance also benefited from the continued profitability in our upholstery segment despite the low revenue industry environment and tariff-related…

Thank you, Ken. Due to the market and macroeconomic uncertainty and the fluid global trade and tariff environment that we've talked about today, we are only providing limited forward guidance at this time. Despite what we anticipate to remain a low demand environment for home furnishings in the near term that pressures sales in both of our businesses, we currently expect sequential overall sales growth in the second quarter and throughout fiscal '26. We believe we are gaining market share with key customers that support this improvement. Moreover, we expect the cost and efficiency benefits of our multiple restructuring and division integration initiatives, along with the price increases I mentioned to drive adjusted EBITDA results in a range from near breakeven to slightly positive for the second quarter of fiscal '26. We also anticipate our operating performance and profitability to improve sequentially throughout the remainder of fiscal '26. As Ken spoke to, while we intend to continue to utilize borrowings as necessary under our credit facilities during fiscal '26, we will continue to aggressively manage liquidity and capital expenditures and prioritize free cash flow. And finally, please just note that our forward guidance and expectations are based on information available as of today and reflect certain assumptions regarding our business and overall industry trends, the projected impact of our restructuring and integration initiatives and ongoing market headwinds. Our expectations also assume no further meaningful impacts from tariffs and trade negotiations. Thank you again, and we'll now take some questions.

[Operator Instructions] The first question comes from Doug Lane with Water Tower Research.

Thank you for the commentary on tariffs. It's obviously been front and center in the news, particularly in your industry. Are you at the point now where all the known information on tariffs is out there and your initiatives, both from the cost side and the pricing side have captured that? Or is there still more actions to be taken based on the current news?

Hi, Doug. Good morning, this is Iv. Thank you for joining today. I appreciate the question. Yes, we did try to touch on tariffs a lot in our script. It has been a major talking point in the industry, as you referenced. I actually think that where we are today, we can, in some ways, take tariffs off of our immediate worry. It's certainly been very disruptive. And it's not so much the level of tariffs that have been applied as it is the variability and the changes to the tariffs. It's just been hard to plan and everyone's been dealing in some uncertainty. The only real major issue we had was when tariffs were up over 150% in China, and we just had to stop shipping, which we talked about was impactful to our first quarter here. But we have options. That's long been our strategy. We've adjusted our pricing. We have multiple manufacturing locations. We can pivot to best support our customers as we need to. And of course, I'm only speaking to what I know today, but to your direct question, as it is now, we've immersed the tariffs, and we are able to perform and grow our margins under this current environment.

That's good news. You mentioned part of your initiatives of pricing. What is the elasticity these days? Are you able to put the pricing through? Or is it too early to tell?

Well, Doug, we're certainly in competitive businesses. And there are certainly price levels that the markets will bear. But we have to be profitable, and we have to turn our business to profitability in this environment. We have options. Again, our supply chain allows us to be competitive across a myriad of different platforms. Prices are never easy to pass, but our customers understand the competitive landscape. And we're being fair but aggressive to get prices in to cover tariffs and to also rightsize margins. And we just have to do that with some discipline.

No. And the margin story is looking really good, that chart on Slide 9 showing the steady improvement in gross profits. Maybe could you give us a feel you have on Slide 11, a list of all the initiatives you've taken. And the total is $18 million. How far along are we in realizing that $18 million? And when do you think we'll fully realize that $18 million annual run rate?

Well, I can let Ken touch on some of this, too, but we've tried to schedule out as best we can. I know it's maybe -- it's good to talk about it in more details. The $10 million to $11 million was really a fiscal '25 initiative. So that primarily revolved around us closing our Canadian operations and relocating that business to the U.S. and to some strategic outsourced partners. That project is done. It should be fully implemented for fiscal '26. We should have an impact across the full year. So that's great. We did -- we got some of that in '25, but it's really a '26 impact. The other initiatives we talked about are pretty much back half impacts. We'll get those in Q3 and Q4, although some of the price increase that we speak to is a Q2 initiative. So I think it just -- a lot of it's in for '26 and all of it should be in for the back half.

Okay. That's helpful. I'm looking also at some of the market commentary that you referenced here. And I'm new to the company here, so I just maybe need a little bit of background on how would you compare this dip here post COVID, if you will, versus, say, The Great Recession back in the 2000s?

Yes. If you spend a long time in the textile industry, you get to talk about lots of ups and downs. It's one of the blessings and curses of my role in life. But I would say we had always been used to variability in the market. That's not abnormal. We have seen down cycles and up cycles. This current period, for whatever reason, seems to be protracted. It's not unusual to see downtimes, but typically will come back pretty quick. Ever since 2020, it's just been a protracted down cycle in the units, whether that's some pull forward compounded by people buying early when they're standing at home, then compounded by interest rates and now deferred purchases, whatever the reasons are, housing being slow, we just have seen a low cycle. The good news that we see is that we are in segments that while they're not necessities, people need and want to buy furniture, it's part of the lifestyle. So we know the business is going to come back, and we're confident that it will. What we just aren't willing to do is wait for it to come back. We're going to make our adjustments, get ourselves profitable in the current environment. And then when it does come back, we're just better prepared and leaner to capitalize even stronger on the recovery. So we know it's coming, Doug, but we just -- we're going to make moves, and we're not -- we can't wait for it.

No, you can't forecast when things turn. I mean you have the commentary from the research that you cited showing significant pent-up demand, people calling a turn in 2026, which, of course, may or may not happen. But what does that mean for Culp? Are you able to satisfy a turn in demand with your existing cost structure? Or will you have to begin to spend and chase the demand when it does come, assuming it does come in the next year or so?

Yes, a really good question. And what we have been very careful about, and we stressed this as we've done these restructuring initiatives. We have made changes to our platform very strategically, but we have not given up capacity. Now it doesn't mean it's all -- we don't have necessarily multiple plants duplicated in similar geographies. But across the globe, we have ways to grow capacity almost unlimited. With any type of planning or foresight, we can grow capacity. So we have not limited ourselves. And the real benefit to us is we think that there's a lot of upside leverage on the current base. So if we can increase the denominator, put some more fuel on the fire with revenue, we have a lot of cost leverage. We don't need to add back and margins can really go up. We're really encouraged as the market grows. But we're also very encouraged just as it is. We're going to grow the margins now. But when the fuel comes on, Doug, there's no limit for us. We got to plan it well and we got to strategize it well, but that's where the cost leverage really pays off.

That sounds encouraging for sure. And again, new to the story, I'm fascinated by some of these hidden assets that you have here, Ken. You mentioned a market value of real estate of $40 million to $45 million, and you've got federal NOLs of $88 million. How much of that real estate is on the books and how much of that is really not on the books? And then how are the NOLs going to play out going forward?

Yes, Doug, thanks. Good question. So regarding the real estate, I mean, we put in there our net book value for that asset is around $12 million. So you've got about $30-some million of excess room there. And again, the $40 million to $45 million is our estimate for the value, but we've had some similar sales around the area. So we feel good about that. So that property is stellar. It's in magnificent shape, and so we feel very good about that estimate. As far as the taxes, I mean, that's -- we continue to evaluate that each year. It's made up of obviously continued losses in the U.S. And so that will probably grow over time or will grow over time. And so it's just something that as of today, it's a benefit. Now as far as future use, when the time comes when we start being profitable in the U.S., that's when it will come into play. But that's an untapped value there that -- that's there available once we become profitable. And so it's a tremendous benefit for us going forward.

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

Thank you, Dru. And again, thank you for your participation and your interest in Culp, and we certainly look forward to updating everyone 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.