Culp, Inc. (NYSE:CULP) Q2 2020 Earnings Conference Call - Final Transcript

Dec 06, 2019 • 11:00 am ET

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Culp, Inc. (NYSE:CULP) Q2 2020 Earnings Conference Call - Final Transcript

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Q & A
Executive
Iv Culp

instead of just being a fabric where a fabric and a selling operation, which is getting more value to the customer and allowing us to participate more in the overall cost of the product.

Analyst
John Baugh

Got it. And then maybe an upholstery question here. Gross profit margins are terrific in the latest quarter and six months, I believe. And I think you elucidated a few reasons there, but I guess the question simply is how much of this is sustainable? How much of it repeats or can it even get stronger from here? You're doing this with, obviously, somewhat tepid volumes and all the tariff noise on top of it. So I'm curious as to what the longer-range gross margin outlook for upholstery might be.

Executive
Boyd Chumbley

Yes, John, and this is Boyd and the standpoint that it's associated with our product mix, which as you know, we are very focused on innovation and design and creativity that's a big focus and strategically for us from a product standpoint and from and so from that standpoint, I think this is sustainable in that we are seeing growing business in our performance category of product and as we've already spoken we are seeing growing percentage of our business in the hospitality segment.

So both of those things are contributing to the improved profitability from a mix standpoint. We also this quarter and in some other quarters, have benefited some from currency. Questions of where that goes from here, of course, but there was some benefit this quarter from that. So I think there's some combination of both, but we really feel good about the strategic focus on innovation, product direction that, that will continue to drive good profitability for us.

Analyst
John Baugh

And then maybe Ken, could you touch on, the inventories look like they're up fairly substantially and kind of what drove that? And sort of the next six months, what that number looks like?

Executive
Kenneth R. Bowling

Yes. John, they are up mainly, well, in two areas. One in our home fashions business and also eLuxury, the eLuxury side was a strategic increase to get ready for the holiday season with new products. So we're hoping that will be burned through here as we go through the second half. With regard to mattress fabrics, that's one that the team is focused on and dedicated to get it down in the third quarter. And so we're working on that, as we kind of rationalize our production schedules during the third quarter, but that's certainly high on the list of projects that we need to focus on as we go into the third quarter.

Analyst
John Baugh

Okay, got it. And then last question for you, or, Frank, could you refresh our memory on sort of where -- what price you were buying stock in that and what -- in that regard with the equity merge trading today. Thank you.

Executive
Franklin N. Saxon

John, I think in our capital allocation strategy, which we publish on the website, as you know, the highest priorities for us