# Culp Inc: Form 10-Q for the period ended Jan 26, 2025

- Company: [Culp Inc](/companies/culp.md) (CIK 723603)
- Form: 10-Q
- Filed: 2025-03-07
- Accepted by EDGAR: Mar 7, 2025, 10:07 ET
- Period: 2025-01-26
- Accession: 0000950170-25-035191
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/723603/000095017025035191/culp-20250126.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/723603/000095017025035191/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2025-01-26.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-10-28 to 2025-01-26 | $52.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2024-04-29 to 2025-01-26 | $164.5m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2024-10-28 to 2025-01-26 | $45.9m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2024-04-29 to 2025-01-26 | $147.1m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2024-10-28 to 2025-01-26 | $6.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2024-04-29 to 2025-01-26 | $17.4m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2024-10-28 to 2025-01-26 | $8.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2024-04-29 to 2025-01-26 | $27.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2024-10-28 to 2025-01-26 | −$3.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2024-04-29 to 2025-01-26 | −$16.1m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-10-28 to 2025-01-26 | $63.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2024-04-29 to 2025-01-26 | $121.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-10-28 to 2025-01-26 | $446.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2024-04-29 to 2025-01-26 | $635.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-10-28 to 2025-01-26 | −$4.1m | us-gaap:ProfitLoss |
| Net income | 9 months, 2024-04-29 to 2025-01-26 | −$17.0m | us-gaap:ProfitLoss |
| Diluted EPS | 3 months, 2024-10-28 to 2025-01-26 | −$0.33 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2024-04-29 to 2025-01-26 | −$1.36 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-10-28 to 2025-01-26 | −$0.33 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2024-04-29 to 2025-01-26 | −$1.36 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-10-28 to 2025-01-26 | 12,559,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2024-04-29 to 2025-01-26 | 12,514,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2024-04-29 to 2025-01-26 | −$9.4m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2024-04-29 to 2025-01-26 | $2.4m | us-gaap:PaymentsToAcquireProductiveAssets |
| Cash and equivalents | at 2025-01-26 | $5.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2025-01-26 | $85.3m | us-gaap:AssetsCurrent |
| Total assets | at 2025-01-26 | $127.6m | us-gaap:Assets |
| Current liabilities | at 2025-01-26 | $50.6m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2025-01-26 | $67.9m | us-gaap:Liabilities |
| Shareholders' equity | at 2025-01-26 | $59.6m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 67,624 characters.

The following analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes and other exhibits included elsewhere in this report.

### General

Our fiscal year is the 52 or 53-week period ending on the Sunday closest to April 30. The nine months ended January 26, 2025, and January 28, 2024, both represent 39-week periods.

Our operations are classified into two business segments: mattress fabrics and upholstery fabrics.

#### Mattress Fabrics

The mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers. Currently, we have a mattress fabrics manufacturing operation located in Stokesdale, North Carolina, and a sewn mattress cover operation located in Ouanaminthe, Haiti.

On April 29, 2024 (the first quarter of fiscal 2025), our board of directors made a decision to (1) consolidate the company's North American mattress fabrics operations, including a gradual discontinuation of operations and sale of the company's manufacturing facility located in Quebec, Canada; (2) move a portion of the knitting and finishing capacity from the company's manufacturing facility located in Quebec, Canada, to the company's manufacturing facility located in Stokesdale, North Carolina; (3) transition the mattress fabrics segment's weaving operation to a strategic sourcing model through the company's long standing supply partners; and (4) consolidate the company's sewn mattress cover operation located in Ouanaminthe, Haiti, from two leased facilities into one building and reduce other operating expenses at this location; and (5) reduce unallocated corporate expenses and shared service expenses. See Note 10 of the consolidated financial statements for further details regarding our restructuring activities.

#### Upholstery Fabrics

The upholstery fabrics segment develops, sources, manufactures, and sells fabrics primarily to residential, commercial, and hospitality furniture manufacturers. We have upholstery fabric operations located in Shanghai, China, and Burlington, North Carolina. During the fourth quarter of fiscal 2024, we established a wholly owned subsidiary, Culp Fabrics Vietnam Company Ltd., with an administrative office located in Ho Chi Minh City, Vietnam, for the purpose of enhancing our strategic sourcing capabilities and to further diversify our supply chain in Asia.

Additionally, Read Window Products, LLC (“Read”), a wholly owned subsidiary with operations located in Knoxville, Tennessee, and Burlington, North Carolina (established during the first quarter of fiscal 2025 within an existing upholstery fabrics facility), provides window treatments and sourcing of upholstery fabrics and other products, as well as related measuring and installation services, to customers in the hospitality and commercial markets. 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. Cost of sales for each business segment includes costs to develop, manufacture, and/or source our products, including costs such as raw material and finished good purchases, direct and indirect labor, overhead, and incoming freight charges. Unallocated corporate expenses primarily represent compensation and benefits for certain executive officers and their support staff, all costs associated with being a public company, amortization of intangible assets, and other miscellaneous expenses.

#### Results of Operations

*(dollars in thousands)*

|  | Three Months Ended January 26, 2025 | January 28, 2024 | Change |
| --- | ---: | ---: | ---: |
| Net sales | $52,253 | $60,418 | (13.5)% |
| Gross profit | 6,347 | 7,703 | (17.6)% |
| Gross margin | 12.1% | 12.7% | (60)bp |
| Selling, general, and administrative expenses | 8,579 | 9,493 | (9.6)% |
| Restructuring expense (credit) | 1,655 | (50) | N.M. |
| Loss from operations | (3,887) | (1,740) | 123.4% |
| Operating margin | (7.4)% | (2.9)% | (450)bp |
| Loss before income taxes | (3,680) | (2,161) | 70.3% |
| Income tax expense | 446 | 1,027 | (56.6)% |
| Net loss | (4,126) | (3,188) | 29.4% |

*(dollars in thousands)*

|  | Nine Months Ended January 26, 2025 | January 28, 2024 | Change |
| --- | ---: | ---: | ---: |
| Net sales | $164,464 | $175,804 | (6.5)% |
| Gross profit | 17,414 | 22,737 | (23.4)% |
| Gross margin | 10.6% | 12.9% | (230)bp |
| Selling, general, and administrative expenses | 27,235 | 29,366 | (7.3)% |
| Restructuring expense | 6,317 | 432 | N.M. |
| Loss from operations | (16,138) | (7,061) | 128.6% |
| Operating margin | (9.8)% | (4.0)% | (580)bp |
| Loss before income taxes | (16,396) | (6,710) | 144.4% |
| Income tax expense | (635) | (2,244) | (71.7)% |
| Net loss | (17,031) | (8,954) | 90.2% |

#### Net Sales

Overall, our consolidated net sales for the third quarter of fiscal 2025 decreased by 13.5% compared with the same period a year ago, with mattress fabrics sales decreasing 4.6% and upholstery fabrics sales decreasing 22.3%. Our consolidated net sales for the first nine months of fiscal 2025 decreased by 6.5% compared with the same period a year ago, with mattress fabrics sales decreasing 4.2% and upholstery fabrics sales decreasing 8.8%.

We continue to see sales in key areas of our business impacted by macroeconomic and market conditions outside of our control. The year-over-year decrease in net sales for our mattress fabrics segment for both the third quarter and the first nine months of fiscal 2025 was driven primarily by continuing demand weakness in the domestic bedding industry and was also impacted by fewer shipping days due to weather-related disruptions. The year-over-year decrease in net sales for our upholstery fabrics segment for both the third quarter and the first nine months of fiscal 2025 was driven primarily by persistent softness in the home furnishings industry. Sales for the third quarter also reflect a related order reduction from a significant customer to better align its inventory with the low demand environment, as well as fewer shipping days due to weather-related disruptions. Despite what remains a challenging landscape across the industries in which we compete, we have made significant investments and enhancements to our production platform and go-to-market strategies that we believe will generate opportunities to increase sales and market share when overall business conditions ultimately improve.

See the Segment Analysis section below for further details.

#### Loss Before Income Taxes

Overall, our loss before income taxes for the third quarter of fiscal 2025 was $(3.7) million, compared with loss before income taxes of $(2.2) million for the prior-year period, while our loss before income taxes for the first nine months of fiscal 2025 was $(16.4) million, compared with loss before income taxes of $(6.7) million for the prior-year period.

Loss before income taxes for both the third quarter and the first nine months of fiscal 2025, as compared to the prior-year periods, was negatively affected by lower sales and by manufacturing inefficiencies primarily related to the significant restructuring activity underway that mostly related to the mattress fabrics segment, along with a restructuring and restructuring related charge of $2.3 million during the third quarter of fiscal 2025, as compared to a restructuring and restructuring related credit of $(111,000) during the third quarter of fiscal 2024, and a restructuring and restructuring related charge of $7.8 million during the first nine months of fiscal 2025, as compared to a restructuring related charge of $472,000 during the first nine months of fiscal 2024.

See the Segment Analysis section below for further details.

#### Income Taxes

We recorded income tax expense of $635,000, or (3.9%) of loss before income taxes, for the nine-month period ended January 26, 2025, compared with income tax expense of $2.2 million, or (33.4%) of loss before income taxes, for the nine-month period ended January 28, 2024.

Our consolidated effective income tax rates for the first nine months of fiscal 2025 and 2024 were both adversely affected by the mix of earnings between our U.S. operations and foreign subsidiaries, as our taxable income stems mostly from our operations located in China, which has a higher income tax rate than the U.S. In addition, during the first nine months of fiscal 2025 and the first nine months of 2024, we incurred pre-tax losses associated with our U.S. operations for which an income tax benefit was not recorded due to a full valuation allowance applied against our U.S. net deferred income tax assets. The income tax charge associated with the full valuation allowance applied against our U.S. net deferred income tax assets was higher during the first nine months of fiscal 2025 compared with the first nine months of fiscal 2024, as our $(16.8) million U.S. pre-tax loss incurred during the first nine months of fiscal 2025 was greater than the $(11.3) million U.S. pre-tax loss incurred during the first nine months of fiscal 2024.

During the first nine months of fiscal 2025, we incurred a greater consolidated pre-tax loss totaling $(16.4) million compared with $(6.7) million during the first nine months of fiscal 2024. 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 the first nine months of fiscal 2024, as compared with the first nine months of fiscal 2025.

Refer to Note 15 of the consolidated financial statements for further details regarding our provision for income taxes.

#### Liquidity

As of January 26, 2025, our cash and cash equivalents (collectively, “cash”) totaled $5.3 million, which represents a decrease of $4.7 million compared with cash of $10.0 million as of April 28, 2024. This decrease was primarily attributable to (i) net cash used in operating activities totaling $9.4 million, and (ii) capital expenditures totaling $2.4 million, partially offset by (iii) net borrowings from our lines of credit totaling $5.4 million and (iv) proceeds from the sale of equipment of $1.5 million.

Our net cash used in operating activities was $9.4 million during the first nine months of fiscal 2025, an increase of $3.4 million compared with net cash used in operating activities of $6.0 million during the first nine months of fiscal 2024. This trend mostly reflects (i) a significant decrease in cash earnings, (ii) an increase in inventory purchases to maintain an appropriate level during the company's restructuring activities, as described below in the section titled “—Segment Analysis—Mattress Fabrics Segment—Restructuring Activities,” and (iii) an increase in accounts receivable primarily due to longer payment trends related to a higher sales mix with customers with longer credit terms, partially offset by higher accounts payable due to an increase in inventory purchases from significant vendors who extended their payment terms during the first nine months of fiscal 2025 compared with the first nine months fiscal 2024.

As of January 26, 2025, we had outstanding borrowings totaling $5.4 million under a line of credit agreement associated with our operations located in China.

### Segment Analysis

#### Mattress Fabrics Segment

*(dollars in thousands)*

|  | Three Months Ended January 26, 2025 | January 28, 2024 | Change |
| --- | ---: | ---: | ---: |
| Net sales | $28,642 | $30,021 | (4.6)% |
| Gross profit | 2,743 | 1,520 | 80.5% |
| Gross profit margin | 9.6% | 5.1% | 450bp |
| Selling, general, and administrative expenses | 3,176 | 3,102 | 2.4% |
| Restructuring expense | 1,647 | — | 100.0% |
| Loss from operations | (433) | (1,582) | (72.6)% |
| Operating margin | (1.5)% | (5.3)% | 380bp |

*(dollars in thousands)*

|  | Nine Months Ended January 26, 2025 | January 28, 2024 | Change |
| --- | ---: | ---: | ---: |
| Net sales | $86,792 | $90,619 | (4.2)% |
| Gross profit | 4,862 | 5,997 | (18.9)% |
| Gross profit margin | 5.6% | 6.6% | (100)bp |
| Selling, general, and administrative expenses | 9,880 | 9,913 | (0.3)% |
| Restructuring expense | 6,148 | — | 100.0% |
| Loss from operations | (5,018) | (3,916) | 28.1% |
| Operating margin | (5.8)% | (4.3)% | (150)bp |

#### Net Sales

Mattress fabrics sales decreased 4.6% in the third quarter of fiscal 2025 compared to the prior-year period. Mattress fabrics sales decreased 4.2% in the first nine months of fiscal 2025 compared to the first nine months of fiscal 2024.

The sales declines in the mattress fabrics segment stem primarily from what remains a muted demand environment across the domestic mattress market driven by macroeconomic uncertainty among consumers and its impacts on residential real estate markets and discretionary spending. However, during the quarter we continued to execute on a variety of significant measures designed to align our manufacturing costs and capacity with the slower buying activity evident across the mattress industry. As planned, we completed the vast majority of the restructuring initiatives in our mattress fabrics segment announced earlier in fiscal 2025, including the closure of our Canadian manufacturing operations and related consolidation of equipment and resources. As a result, we believe we are now better positioned to service customers in the U.S. market through our vertical, textiles-forward facility in North Carolina. See “—Restructuring Activities” below for further details. Moving forward, we expect the current general economic and consumer uncertainty to present challenges, but we believe our execution on plans to restructure our platform and refine our go-to-market strategies should position our mattress fabrics segment for sales momentum and market share gains when the macroeconomic fundamentals begin to shift and provide the necessary foundation for a recovery cycle in the mattress industry.

The potential ongoing geopolitical disruptions related to conflicts in Ukraine and the Middle East, as well as the potential impact of future tariffs, depend on factors beyond our control and we cannot reasonably estimate the impact of these items on our mattress fabrics segment. Moreover, we note that if these situations worsen and shipping disruptions occur or new tariffs are imposed on our products, the impact on our operations and/or on our suppliers, customers, consumers, and the global economy could adversely affect our financial performance.

#### Gross Profit, Selling, General & Administrative Expenses, and Loss from Operations

Loss from operations was $433,000 for the third quarter of fiscal 2025, compared to loss from operations of $1.6 million for the third quarter of fiscal 2024. Loss from operations was $5.0 million for the first nine months of fiscal 2025, compared to loss from operations of $3.9 million for the first nine months of fiscal 2024.

Loss from operations for both the third quarter and the first nine months of fiscal 2025, as compared to the prior-year periods, was impacted by lower sales and manufacturing inefficiencies primarily related to the above-referenced restructuring activities. However, with nearly all of the restructuring initiatives now completed, we are beginning to see the cost savings and efficiency improvements anticipated from those initiatives positively impact our results. See “—Restructuring Activities” below for further details.

Looking ahead, we enter our fourth quarter a more streamlined business, with greater operating efficiencies, a lower fixed cost and SG&A expense structure, and an agile, global production platform with domestic, nearshore and offshore locations. Moreover, we continue to explore the viability of additional strategic actions to enhance profitability under the current soft market conditions and better leverage any tailwinds flowing from an eventual recovery.

#### Restructuring Activities

On April 29, 2024 (first quarter of fiscal 2025), our board of directors made a decision to (1) consolidate the company's North American mattress fabrics operations, including a gradual discontinuation of operations and sale of the company's manufacturing facility located in Quebec, Canada; (2) move a portion of the knitting and finishing capacity from the company's manufacturing facility located in Quebec, Canada, to the company's manufacturing facility located in Stokesdale, North Carolina; (3) transition the mattress fabrics segment's weaving operation to a strategic sourcing model through the company's long standing supply partners; (4) consolidate the company's sewn mattress cover operation located in Ouanaminthe, Haiti, from two leased facilities into one building and reduce other operating expenses at this location; and (5) reduce unallocated corporate expenses and shared service expenses.

As of the end of the third quarter of fiscal 2025, production at our facility located in Quebec, Canada has been discontinued and we have entered into a conditional contract for the sale of the facility, subject to due diligence and other conditions. The consolidation of our sewn mattress cover operations located in Haiti was completed during the first quarter of fiscal 2025. For fiscal 2025, these actions are expected to result in restructuring and restructuring related charges of approximately $8.5 million, of which approximately $5.3 million is expected to be cash expenditures. The $8.5 million of estimated restructuring and restructuring related charges represents approximately $8.3 million and $155,000 associated with the mattress fabrics and upholstery fabrics segments, respectively.

The $8.5 million of estimated restructuring and restructuring related charges associated with our mattress fabrics segment represents (i) associated costs of $3.3 million mostly related to relocating equipment from our facility in Quebec, Canada to our facility in Stokesdale, North Carolina, (ii) additional depreciation expense related to the shortening of useful lives of equipment associated with the gradual discontinuance of our operations located in Canada noted above totaling $1.3 million, (iii) employee termination benefits of $1.4 million, (iv) $1.5 million related to losses on disposal and valuation of inventory, and (v) lease termination costs of $849,000, partially offset by net gains on the disposal of equipment totaling $42,000. These restructuring and restructuring related charges exclude any expected gain from the sale of the Canadian facility, which is expected to ultimately reduce the amount of the restructuring charges incurred. Based on changes in business and current unfavorable economic conditions related to the home furnishings and bedding industries, it is possible that the above estimates provided by management to determine restructuring and restructuring related charges incurred during fiscal 2025 could be materially different from our actual results, and therefore could adversely affect the success of this restructuring plan.

The above-referenced conditional agreement for the sale of our Canadian facility includes a purchase price of $15.5 million CAD ($10.8 million USD as of January 26, 2025) contingent on the satisfaction of certain due diligence and closing conditions. Assuming the completion of the transaction, the company currently expects the proceeds from the sale (net of all taxes and commissions) to exceed the amount of cash restructuring charges incurred.

The following summarizes the restructuring and restructuring related charges for the mattress fabrics segment for the three-month and nine-month periods ended January 26, 2025:

*(dollars in thousands)*

|  | Three Months Ended January 26, 2025 | Nine Months Ended January 26, 2025 |
| --- | ---: | ---: |
| Additional depreciation expense for shortened useful lives of equipment | $— | $1,339 |
| Employee termination benefits | 176 | 1,326 |
| Lease termination costs | — | 849 |
| Other associated costs | 1,504 | 2,676 |
| Loss on disposal, valuation, and markdowns of inventory | 624 | 1,509 |
| Net gain on disposal of equipment | (33) | (42) |
| Restructuring expense and restructuring related charges (1) (2) | $2,271 | $7,657 |

I-37

(1) Of the total $2.3 million restructuring and restructuring related charges, $1.8 million and $624,000 were classified within restructuring expense and cost of sales, respectively, in the Consolidated Statement of Net Loss for the three-month period ended January 26, 2025.

(2) Of the total $7.7 million restructuring and restructuring related charges, $6.2 million and $1.5 million were classified within restructuring expense and cost of sales, respectively, in the Consolidated Statement of Net Loss for the nine-month period ended January 26, 2025.

Refer to Note 10 of the consolidated financial statements for further details.

#### Segment assets

Segment assets consist of accounts receivable; inventory; property, plant, and equipment; right of use assets; and assets held for sale:

*(dollars in thousands)*

|  | January 26, 2025 | January 28, 2024 | April 28, 2024 |
| --- | ---: | ---: | ---: |
| Accounts receivable | $11,607 | $11,463 | $10,003 |
| Inventory | 31,377 | 27,925 | 27,671 |
| Property, plant & equipment | 24,210 | 32,263 | 31,472 |
| Right of use assets | 200 | 1,798 | 1,627 |
| Assets held for sale | 2,214 | — | — |
|  | $69,608 | $73,449 | $70,773 |

Refer to Note 14 of the consolidated financial statements for disclosures regarding determination of our segment assets.

#### Accounts Receivable

As of January 26, 2025, accounts receivable increased by $144,000, or 1.3%, compared with January 28, 2024. This increase in accounts receivable is mostly due to longer payment trends during the third quarter of fiscal 2025 compared with the third quarter of fiscal 2024, as we experienced a higher sales mix with customers with longer credit terms. Accordingly, days’ sales outstanding increased to 37 days for the third quarter of fiscal 2025, as compared to 35 days for the third quarter of fiscal 2024.

As of January 26, 2025, accounts receivable increased by $1.6 million, or 16.0%, compared with April 28, 2024. This trend reflects an increase in net sales for the the third quarter of fiscal 2025 compared with the fourth quarter of fiscal 2024. Net sales for the third quarter were $28.6 million, an increase of $2.9 million, or 11.2%, compared with net sales of $25.8 million during the fourth quarter of fiscal 2024. In addition, the increase in accounts receivable was due to longer payment trends during the third quarter of fiscal 2025 compared with the fourth of fiscal 2024, as we experienced a higher sales mix with customers with longer credit terms. Accordingly, days’ sales outstanding increased to 37 days for the third quarter of fiscal 2025, as compared to 35 days for the fourth quarter of fiscal 2024.

#### Inventory

As of January 26, 2025, inventory increased by $3.5 million, or 12.4%, compared with January 28, 2024. In connection with the restructuring activity described above in “Restructuring Activities,” this trend represents an increase in finished goods inventory to accommodate customers while the weaving operation was transitioned to a strategic sourcing model and knitting and finishing capacity was relocated from the manufacturing facility in Quebec, Canada, to our facility in Stokesdale, North Carolina. This increase in finished goods inventory was partially offset by lower raw material purchases related to the gradual discontinuation of operations at the company's manufacturing facility located in Quebec, Canada, as described above in “Restructuring Activities”.

As of January 26, 2025, inventory increased by $3.7 million, or 13.4%, compared with April 28, 2024. This trend reflects the effect of the restructuring activity described in the preceding paragraph. In addition, the increase in inventory represents an increase in net sales of $2.9 million, or 11.2%, during the third quarter of fiscal 2025, as compared with the fourth quarter of fiscal 2024.

Inventory turns were 3.4 for the third quarter of fiscal 2025, as compared with 4.0 for the third quarter of fiscal 2024 and 3.6 for the fourth quarter of fiscal 2024.

#### Property, Plant, & Equipment

During fiscal 2024 and continuing through the third quarter of fiscal 2025, property, plant, and equipment has steadily decreased due to reduced capital spending stemming from current unfavorable macro-economic conditions within the home furnishings and bedding industries, as well as the actions taken as described above in “Restructuring Activities.”

The $24.2 million as of January 26, 2025, represents property, plant, and equipment of $23.0 million, $221,000, and $973,000 located in the U.S., Canada, and Haiti, respectively. The $32.3 million as of January 28, 2024, represents property, plant, and equipment of $21.9 million, $9.8 million, and $600,000 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.

#### Right of Use Assets

During fiscal 2024 and continuing through the third quarter of fiscal 2025, right of use assets have steadily decreased due to rent expense incurred over the terms of the existing lease agreements. In addition, in connection with the restructuring activity described above in “Restructuring Activities,” right of use assets (i) decreased due to the termination of an agreement to lease a facility located in Ouanaminthe, Haiti, and (ii) shortened the period of use associated with two leased facilities located in Quebec, Canada.

The $200,000 as of January 26, 2025, represents a right of use asset in Haiti. The $1.8 million as of January 28, 2024, represents right of use assets of $1.2 million and $604,000 located in Haiti and Canada, respectively. The $1.6 million as of April 28, 2024, represents right of use assets of $1.1 million and $545,000 located in Haiti and Canada, respectively.

#### Assets Held for Sale

As of January 26, 2025, and in connection with actions described above in “Restructuring Activities,” we classified a building and certain equipment relating to our Canadian operations in Quebec, Canada, as held for sale. Refer to Note 8 of the consolidated financial statements for further details.

#### Upholstery Fabrics Segment

#### Net Sales

*(dollars in thousands)*

|  | Three Months Ended January 26, 2025 |  | January 28, 2024 |  | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Non-U.S. Produced | $20,291 | 86% | $28,425 | 94% | (28.6)% |
| U.S. Produced | 3,320 | 14% | 1,972 | 6% | 68.4% |
| Total | $23,611 | 100% | $30,397 | 100% | (22.3)% |

*(dollars in thousands)*

|  | Nine Months Ended January 26, 2025 |  | January 28, 2024 |  | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Non-U.S. Produced | $68,000 | 88% | $77,187 | 91% | (11.9)% |
| U.S. Produced | 9,672 | 12% | 7,998 | 9% | 20.9% |
| Total | $77,672 | 100% | $85,185 | 100% | (8.8)% |

Upholstery fabrics sales decreased 22.3% in the third quarter of fiscal 2025 compared to the prior-year period. Upholstery fabrics sales decreased 8.8% in the first nine months of fiscal 2025 compared to the first nine months of fiscal 2024. While we were encouraged to see sales growth in certain channels of our upholstery fabrics segment during the quarter, the continued sluggish demand in our residential business driven by what remains a weakened home furnishings industry drove these year-over-year declines in overall sales in the segment. The impacts of this market dynamic were particularly acute in our residential business due to resulting lower ordering activity from a significant customer as it managed its inventory levels to better align with the soft industry demand. We were able to achieve sales increases in other areas of our residential business during the quarter and we saw growth trends in the luxury and value residential product channels. Moreover, market conditions and customer demand in our hospitality/contract business are more robust and we saw growth across all channels in that business, including Read, during the quarter.

The potential ongoing geopolitical disruptions related to conflicts in Ukraine and the Middle East, as well as the potential impact of future tariffs, depend on factors beyond our control and we cannot reasonably estimate the impact of these items on our upholstery fabrics segment. Moreover, we note that if these situations worsen and shipping disruptions occur or new tariffs are imposed on our products, the impact on our operations and/or on our suppliers, customers, consumers, and the global economy could adversely affect our financial performance.

#### Gross Profit, Selling, General & Administrative Expenses, and Income from Operations

*(dollars in thousands)*

|  | Three Months Ended January 26, 2025 | January 28, 2024 | Change |
| --- | ---: | ---: | ---: |
| Gross profit | $4,228 | $6,122 | (30.9)% |
| Gross margin | 17.9% | 20.1% | (220)bp |
| Selling, general, and administrative expenses | 3,549 | 4,030 | (11.9)% |
| Restructuring expense (credit) | 8 | (50) | N.M. |
| Income from operations | 679 | 2,092 | (67.5)% |
| Operating margin | 2.9% | 6.9% | (400)bp |

*(dollars in thousands)*

|  | Nine Months Ended January 26, 2025 | January 28, 2024 | Change |
| --- | ---: | ---: | ---: |
| Gross profit | $14,061 | $16,780 | (16.2)% |
| Gross margin | 18.1% | 19.7% | (160)bp |
| Selling, general, and administrative expenses | 11,056 | 11,969 | (7.6)% |
| Restructuring expense | 169 | 432 | (60.9)% |
| Income from operations | 3,005 | 4,811 | (37.5)% |
| Operating margin | 3.9% | 5.6% | (170)bp |

Income from operations was $679,000 for the third quarter of fiscal 2025, compared to $2.1 million for the third quarter of fiscal 2024. Income from operations was $3.0 million for the first nine months of fiscal 2025, compared to income from operations of $4.8 million for the first nine months of fiscal 2024.

The declines in upholstery fabrics profitability for the third quarter and the first nine months of fiscal 2025, as compared to the prior-year periods, primarily reflect lower sales, which were offset somewhat by lower SG&A expense and lower fixed costs during both periods. However, the actions we completed during the first quarter of fiscal 2025 to restructure our upholstery fabrics finishing operation in China and optimize our Asian platform continue to positively impact our operating performance (see “—Restructuring Activities—Shanghai, China—Upholstery Fabrics Finishing Operation” below). Despite the difficult demand environment in our residential business and resulting lower sales bases during our third quarter and first nine months of fiscal year 2025, these cost-structure and operational enhancements were instrumental in our ability to achieve profitability in each of those sales-pressured periods while also maintaining the service levels our customers rely upon and expect.

Looking ahead, we expect sales in our residential business to continue to be challenged by the muted conditions in the home furnishings industry and for that dynamic to impact profitability until macroeconomic conditions improve. However, our lower fixed cost and SG&A expense structure should allow us to better navigate the difficult environment in our residential fabrics business and leverage the more robust demand we are seeing in our hospitality/commercial fabrics business. In addition, we believe that there are other meaningful opportunities to increase operational efficiency and reduce cost across our business, and we plan to continue pursuing measures to optimize our platform.

#### Restructuring Activities

#### Shanghai, China

#### Upholstery Fabrics Finishing Operation

During the fourth quarter of fiscal 2024, we closed our upholstery fabrics finishing operation in Shanghai, China, to align with demand trends and further leverage our strategic supply relationships to meet customer finishing needs. This restructuring activity was completed during the first quarter of fiscal 2025 and resulted in cumulative restructuring and restructuring related charges totaling $218,000.

#### Ouanaminthe, Haiti

#### Cut and Sew Upholstery Fabrics Operation

During the third quarter of fiscal 2023, Culp Upholstery Fabrics - Haiti, Ltd. ("CUF Haiti") entered into an agreement to terminate a lease agreement associated with one facility, and in turn moved the production of upholstery cut and sewn kits to another existing facility leased by Culp Home Fashions - Haiti, Ltd. ("CHF Haiti") during the fourth quarter of fiscal 2023. Both CUF Haiti and CHF Haiti are indirect wholly owned subsidiaries of the company. During the first quarter of fiscal 2024, demand for upholstery cut and sewn kits declined more than previously anticipated, resulting in the strategic action to discontinue the production of upholstery cut and sewn kits in Haiti. This restructuring activity was completed during the third quarter of fiscal 2024 and resulted in cumulative restructuring and restructuring related charges of $1.3 million.

The following summarizes our restructuring expense (credit) and restructuring related charge (credit) for all restructuring activities for the upholstery fabrics segment for the three months ended January 26, 2025, and January 28, 2024:

|  |  |  |
| --- | ---: | ---: |
|  | (1) | (2) |
|  | Three Months Ended | Three Months Ended |
| (dollars in thousands) | January 26, 2025 | January 28, 2024 |
| Other associated costs | $8 | $— |
| Gain on sale of equipment | — | (50) |
| Gain on disposal of inventory | — | (61) |
| Restructuring expense (credit) and restructuring related credit (3) (4) | $8 | $(111) |

(1) The $8,000 relates to our U.S. upholstery fabrics operations under the Fiscal 2025 Restructuring Plan, which is described more fully in Note 10 of the consolidated financial statements.

(2) The total $(111,000) is related to the closure of our upholstery cut and sewn kits operation located in Ouanaminthe, Haiti, as described above.

(3) The total $8,000 was recorded within restructuring expense in the Consolidated Statement of Net Loss for the three-month period ended January 26, 2025.

(4) Of the $(111,000) total, $(50,000) and $(61,000) were recorded within restructuring expense (credit) and cost of sales, respectively, in the Consolidated Statement of Net Loss for the three-month period ended January 28, 2024.

The following summarizes our restructuring expense and restructuring related charges for all restructuring activities for the upholstery fabrics segment for the nine months ended January 26, 2025, and January 28, 2024:

|  |  |  |
| --- | ---: | ---: |
|  | (1) | (2) |
|  | Nine Months Ended | Nine Months Ended |
| (dollars in thousands) | January 26, 2025 | January 28, 2024 |
| Employee termination benefits | $102 | $103 |
| Impairment loss - equipment | — | 329 |
| Other associated costs | 67 | — |
| Loss on disposal and markdowns of inventory | — | 40 |
| Restructuring expense and restructuring related charge (3) (4) | $169 | $472 |

I-41

(1) Of the $169,000, $155,000 relates to our U.S. upholstery fabrics operations under the Fiscal 2025 Restructuring Plan, which is described more fully in Note 10 of the consolidated financial statements. In addition, the $169,000 includes $14,000 related to the closure of our upholstery fabrics finishing operation located in Shanghai, China, as described above.

(2) The total $472,000 related to the closure of our upholstery cut and sewn kits operation located in Ouanaminthe, Haiti, as described above.

(3) The total $169,000 was recorded within restructuring expense in the Consolidated Statement of Net Loss for the nine-month period ending January 26, 2025.

(4) Of the $472,000 total, $432,000 and $40,000 were recorded within restructuring expense and cost of sales, respectively, in the Consolidated Statement of Net Loss for the nine-month period ended January 28, 2024.

#### Segment Assets

Segment assets consist of accounts receivable; inventory; property, plant, and equipment; and right of use assets:

*(dollars in thousands)*

|  | January 26, 2025 | January 28, 2024 | April 28, 2024 |
| --- | ---: | ---: | ---: |
| Accounts receivable | $11,552 | $12,223 | $11,135 |
| Inventory | 17,222 | 18,952 | 17,172 |
| Property, plant & equipment | 1,117 | 1,155 | 1,125 |
| Right of use assets | 2,647 | 2,345 | 1,952 |
|  | $32,538 | $34,675 | $31,384 |

Refer to Note 14 of the consolidated financial statements for disclosures regarding determination of our segment assets.

#### Accounts Receivable

As of January 26, 2025, accounts receivable decreased by $671,000, or 5.5%, as compared with January 28, 2024. This decrease in accounts receivable was due to a decline in net sales of 22.3% during the third quarter of fiscal 2025 compared with the third quarter of fiscal 2024, as described in the section above titled "Segment Analysis-Upholstery Fabrics-Net Sales." The decrease in accounts receivable due to the decline in net sales was mostly offset by longer payment trends during the third quarter of fiscal 2025 compared with the third quarter of fiscal 2024, due to a higher sales mix with customers with longer credit terms. Additionally, a timing difference in cash receipts from certain significant customers during the last week of the third quarter of fiscal 2024 relative to cash receipts during the third quarter of fiscal 2025 also affected our accounts receivable. Accordingly, days’ sales outstanding for this segment increased to 42 days for the third quarter of fiscal 2025, compared with 31 days for the third quarter of fiscal 2024.

As of January 26, 2025, accounts receivable increased by $417,000, or 3.7%, compared with April 28, 2024. This increase in accounts receivable is mostly due to longer payment trends during the third quarter of fiscal 2025 compared with the fourth quarter of fiscal 2024, as we experienced a higher sales mix with customers with longer credit terms. Accordingly, days’ sales outstanding for this segment increased to 42 days for the third quarter of fiscal 2025, compared with 37 days for the fourth quarter of fiscal 2024.

#### Inventory

As of January 26, 2025, inventory decreased by $1.7 million, or 9.1%, compared with January 28, 2024. This decrease in inventory primarily represents the decrease in net sales during the third quarter of fiscal 2025 compared with the prior-year period, as described in the above section titled "Segment Analysis-Upholstery Fabrics-Net Sales."

As of January 26, 2025, inventory remained flat compared with April 28, 2024. This trend reflects net sales for the third quarter of fiscal 2025 of $23.6 million, which remained flat as compared with net sales of $23.8 million for the fourth quarter of fiscal 2024.

Inventory turns were 4.2 for the third quarter of fiscal 2025, compared with 5.1 for the third quarter of fiscal 2024 and 4.4 for the fourth quarter of fiscal 2024.

#### Property, Plant, & Equipment

As of January 26, 2025, property, plant, and equipment remained relatively flat compared with January 28, 2024, and April 28, 2024, respectively. This trend is mainly due to a reduced level of capital spending commensurate with current unfavorable macro-economic conditions within the home furnishings industry.

The $1.1 million as of January 26, 2025, represents property, plant, and equipment of $1.0 million and $83,000 located in the U.S. and China, respectively. The $1.2 million as of January 28, 2024, represents property, plant, and equipment of $1.1 million and $134,000 located in the U.S. and China, respectively. The $1.1 million as of April 28, 2024, represents property, plant, and equipment of $1.0 million and $120,000 located in the U.S. and China, respectively.

#### Right of Use Assets

As of January 26, 2025, right of use assets increased compared with January 28, 2024, and April 28, 2024, respectively. This increase represents the renewal of certain lease agreements associated with our operations located in China totaling $1.9 million, partially offset by rent expense incurred over the terms of the existing respective lease agreements.

The $2.6 million as of January 26, 2025, represents right of use assets of $1.9 million and $764,000 located in China and U.S., respectively. The $2.3 million as of January 28, 2024, represents right of use assets of $944,000 and $1.4 million located in China and 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.

#### Consolidated Other Income Statement Categories

*(dollars in thousands)*

|  | Three Months Ended January 26, 2025 | January 28, 2024 | % Change |
| --- | ---: | ---: | ---: |
| SG&A expenses | $8,579 | $9,493 | (9.6)% |
| Interest expense | (63) | — | 100.0% |
| Interest income | 255 | 284 | (10.2)% |
| Other (income) expense | (15) | 705 | N.M. |

*(dollars in thousands)*

|  | Nine Months Ended January 26, 2025 | January 28, 2024 | % Change |
| --- | ---: | ---: | ---: |
| SG&A expenses | $27,235 | $29,366 | (7.3)% |
| Interest expense | (121) | — | 100.0% |
| Interest income | 761 | 911 | (16.5)% |
| Other expense | 898 | 560 | 60.4% |

#### Selling, General, and Administrative Expenses ("SG&A")

The decrease in selling, general, and administrative expenses during the third quarter and the first nine months of fiscal 2025, as compared to the third quarter and first nine months of fiscal 2024, is primarily due to (i) lower incentive compensation that mostly relates to annual bonuses reflecting unfavorable financial results in relation to pre-established performance targets; (ii) lower employee compensation due to the company's restructuring activities described in the section titled "- Segment Analysis-Mattress Fabrics Segment-Restructuring Activities"; and (iii) lower professional and consulting fees.

#### Interest Expense

Interest expense mostly represents our borrowings totaling $5.4 million under our lines of credit agreement associated with our operations located in China.

#### Interest Income

The decreases in interest income are due to lower average cash balances during the third quarter and first nine months of fiscal 2025, compared with the third quarter and first nine months of fiscal 2024.

#### Other (Income) 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, Canada, and Vietnam.

The change in other income (expense) during the third quarter and first nine months of fiscal 2025, compared with prior-year periods, were due mostly to changes in the foreign currency exchange rates applied against our balance sheet accounts denominated in Chinese Renminbi to determine the corresponding U.S. dollar financial reporting amounts. During the third quarter of fiscal 2025, we reported a foreign currency exchange gain associated with our operations located in China totaling $305,000, compared with a foreign currency exchange loss of $(290,000) during the third quarter of fiscal 2024. During the first nine months of fiscal 2025, we reported a foreign currency exchange gain associated with our operations located in China totaling $74,000, compared with a foreign currency exchange gain of $389,000 during the first nine months of fiscal 2024.

The $74,000 foreign currency exchange gain related to our operations in China was mostly non-cash and was partially offset by $23,000 of income tax expense, which will increase our income tax payments and withholding tax payments associated with future earnings and profits repatriated from our operations located in China to the company's U.S. parent. The income tax expense of $23,000 was associated with taxable foreign currency exchange gains based on more favorable foreign currency exchange rates applied against balance sheet accounts denominated in U.S. dollars to determine the corresponding Chinese Renminbi local currency amounts. The foreign currency exchange rate gains (losses) related to our U.S. dollar denominated balance sheet accounts associated with our operations located in China are considered taxable income or tax deductible, as we incur income tax expense (benefit) and pay income taxes in China's local currency.

#### Income Taxes

#### Effective Income Tax Rate

We recorded income tax expense of $635,000, or (3.9%) of loss before income taxes, for the nine-month period ended January 26, 2025, compared with income tax expense of $2.2 million, or (33.4%) of loss before income taxes, for the nine-month period ended January 28, 2024.

Our effective income tax rates for the nine-month periods ended January 26, 2025, and January 28, 2024, were based upon the estimated effective income tax rate applicable for the full year after giving effect to any significant items related specifically to interim periods. When calculating the annual estimated effective income tax rates for the nine-month periods ended January 26, 2025, and January 28, 2024, we were subject to loss limitation rules. These loss limitation rules require any taxable loss associated with our U.S. or foreign operations to be excluded from the annual estimated effective income tax rate calculation if it was determined that no income tax benefit could be recognized during the current fiscal year. The effective income tax rate can be affected over the fiscal year by the mix and timing of actual earnings from our U.S. operations and foreign subsidiaries located in China, Canada, Haiti, and Vietnam versus annual projections, as well as changes in foreign currency exchange rates in relation to the U.S. dollar.

The following schedule summarizes 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 for the nine-month periods ended January 26, 2025, and January 28, 2024:

|  | January 26, 2025 | January 28, 2024 |
| --- | ---: | ---: |
| U.S. federal income tax rate | 21.0% | 21.0% |
| U.S. valuation allowance | (26.2) | (42.0) |
| Tax effects of local currency foreign exchange gain | 0.7 | 3.8 |
| Uncertain income tax positions | 4.3 | (0.1) |
| Withholding taxes associated with foreign jurisdictions | (1.5) | (8.1) |
| Captial expenditure deduction - Quebec Canada | (1.1) | — |
| Foreign income tax rate differential | (0.8) | (5.2) |
| Stock-based compensation | (0.4) | (2.9) |
| Other | 0.1 | 0.1 |
|  | (3.9)% | (33.4)% |

Our consolidated effective income tax rates for the first nine months of fiscal 2025 and 2024 were both adversely affected by the mix of earnings between our U.S. operations and foreign subsidiaries, as our taxable income stems mostly from our operations located in China, which has a higher income tax rate than the U.S. In addition, during the first nine months of fiscal 2025 and the first nine months of 2024, we incurred pre-tax losses associated with our U.S. operations, for which an income tax benefit was not recorded due to a full valuation allowance applied against our U.S. net deferred income tax assets. The income tax charge associated with the full valuation allowance applied against our U.S. net deferred income tax assets was higher during the first nine months of fiscal 2025 compared with the first nine months of fiscal 2024, as our $(16.8) million U.S. pre-tax loss incurred during the first nine months of fiscal 2025 was greater than the $(11.3) million U.S. pre-tax loss incurred during the first nine months of fiscal 2024.

During the first nine months of fiscal 2025, we incurred a greater consolidated pre-tax loss totaling $(16.4) million, compared with $(6.7) million during the first nine months of fiscal 2024. 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 the first nine months of fiscal 2024, as compared with the first nine months of fiscal 2025.

#### U.S. Valuation Allowance

We evaluate the realizability of our U.S. net deferred income tax assets to determine if a valuation allowance is required. We assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not” standard, with significant weight being given to evidence that can be objectively verified. 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 January 26, 2025, we evaluated the realizability of our U.S. net deferred income tax assets to determine if a full valuation allowance was required. 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 from 2022 through 2024, and we currently expect significant U.S. pre-tax losses to continue during fiscal 2025. 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.

Based on our assessments as of January 26, 2025, January 28, 2024, and April 28, 2024, valuation allowances against our net deferred income tax assets pertain to the following:

*(dollars in thousands)*

|  | January 26, 2025 | January 28, 2024 | April 28, 2024 |
| --- | ---: | ---: | ---: |
| U.S. federal and state net deferred income tax assets | $23,962 | $19,162 | $19,674 |
| U.S. capital loss carryforward | 2,330 | 2,330 | 2,330 |
|  | $26,292 | $21,492 | $22,004 |

#### Undistributed Earnings

We assess whether the undistributed earnings from our foreign subsidiaries will be reinvested indefinitely or eventually distributed to our U.S. parent company and whether we are required to record a deferred income tax liability for those undistributed earnings from foreign subsidiaries that will not be reinvested indefinitely. As of January 26, 2025, we assessed the liquidity requirements of our U.S. parent company and determined that our undistributed earnings and profits from our foreign subsidiaries would not be reinvested indefinitely and would eventually be distributed to our U.S. parent company. The conclusion reached from this assessment was consistent with prior reporting periods.

As a result of the 2017 Tax Cuts and Jobs Act, a U.S. corporation is allowed a 100% dividend received deduction for earnings and profits received from a 10% owned foreign corporation. Therefore, a deferred income tax liability will be required only for unremitted withholding taxes associated with earnings and profits generated by our foreign subsidiaries that will ultimately be repatriated to the U.S. parent company. As a result, as of January 26, 2025, January 28, 2024, and April 28, 2024, we recorded a deferred income tax liability of $5.1 million, $4.7 million, and $4.8 million, respectively.

#### Uncertain Income Tax Positions

An unrecognized income tax benefit for an uncertain income tax position can be recognized in the first interim period if the more-likely-than-not recognition threshold is met by the end of the reporting period, or is effectively settled through examination, negotiation, or litigation, or the statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. If it is determined that any of the above conditions occur regarding our uncertain income tax positions, an adjustment to our unrecognized income tax benefit will be recorded at that time.

As of January 26, 2025, January 28, 2024, and April 28, 2024, we had a total of $1.4 million, $1.2 million, and $1.3 million, respectively, of gross unrecognized income tax benefits, of which the entire amount was classified as income taxes payable – long-term in the accompanying Consolidated Balance Sheets. As of January 26, 2025, the unrecognized tax benefit would favorably affect income tax expense in future periods by $1.4 million.

Our gross unrecognized income tax benefit of $1.4 million as of January 26, 2025, relates to income tax positions for which significant change could occur within the next year if the statute of limitations for relevant taxing authorities to examine and challenge the tax position expires.

#### Income Taxes Paid

The following table sets forth taxes paid by jurisdiction:

*(dollars in thousands)*

|  | Nine Months Ended January 26, 2025 | Nine Months Ended January 28, 2024 |
| --- | ---: | ---: |
| United States Transition Tax Payment | 665 | 499 |
| China Income Taxes, Net of Refunds | 1,566 | 1,803 |
| Canada - Income Taxes, Net of Refunds | (219) | 468 |
|  | $2,012 | $2,770 |

#### Future Liquidity

Based on the restructuring plan approved by our board of directors on April 29, 2024, the timing and success of the closure of our Canadian operation, along with the sale of associated real estate, could have a significant effect on (i) the amount and timing of when and if fiscal 2025 income tax payments will be required; (ii) the amount and timing of withholding tax payments to the Canadian government associated with the repatriation of earnings and profits to the U.S. parent; and (iii) the respective tax rates that will be applied on the sale of equipment. Accordingly, we believe we cannot provide a reasonable estimate of our fiscal 2025 income tax payments associated with our Canadian operation at this time.

Currently, we are projecting annual cash income tax payments of approximately $1.8 million associated with our operations located in China. 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.

Currently, we 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 our existing U.S. federal net operating loss carryforwards totaling $69.0 million as of April 28, 2024. As of January 26, 2025, we will be required to pay a U.S. federal transition tax payment, in accordance with the 2017 Tax Cuts and Jobs Act, of $831,000 by August 15, 2025.

### Liquidity and Capital Resources

#### Liquidity

#### Overall

Currently, our sources of liquidity include cash and cash equivalents (collectively, "cash"), cash flow from operations, and amounts available under our revolving credit lines. As of January 26, 2025, we believe our cash of $5.3 million and the current availability under our revolving credit lines totaling $23.2 million will be sufficient to fund our foreseeable business needs, restructuring activities, capital expenditures, commitments, and contractual obligations. Refer to Note 11 of the consolidated financial statements for further information regarding our revolving credit lines.

As of January 26, 2025, our cash totaled $5.3 million, which represents a decrease of $4.7 million compared with cash of $10.0 million as of April 28, 2024. This decrease was mostly due to (i) net cash used in operating activities totaling $9.4 million, and (ii) capital expenditures totaling $2.4 million, partially offset by (iii) net borrowings from our lines of credit totaling $5.4 million and (iv) proceeds from the sale of equipment of $1.5 million.

Our net cash used in operating activities was $9.4 million during the first nine months of fiscal 2025, an increase of $3.4 million compared with net cash used in operating activities of $6.0 million during the first nine months of fiscal 2024. This trend mostly reflects (i) a significant decrease in cash earnings, (ii) an increase in inventory purchases to maintain an appropriate level during the company's restructuring activities, as described above in the section titled “—Segment Analysis—Mattress Fabrics Segment—Restructuring Activities,” and (iii) an increase in accounts receivable primarily due to longer payment trends related to a higher sales mix with customers with longer credit terms, partially offset by an increase in accounts payable due to an increase in inventory purchases with significant vendors who extended their terms during the first nine months of fiscal 2025 compared with the first nine months fiscal 2024.

As of January 26, 2025, we had outstanding borrowings totaling $5.4 million under lines of credit associated with our operations located in China.

The income taxes we pay also affect our liquidity. See the above section titled “Income Taxes Paid” for further detail.

Our cash balance may be adversely affected by factors beyond our control, such as (i) recent customer demand trends affecting net sales, (ii) supply chain disruptions, (iii) higher interest rates and inflation, (iv) the imposition of tariffs and other trade restrictions, and (v) geopolitical events (including conflicts in Ukraine and the Middle East). These factors could cause delays in receipt of payment on accounts receivable and could increase cash disbursements due to rising prices.

#### By Geographic Area

A summary of our cash by geographic area follows:

*(dollars in thousands)*

|  | January 26, 2025 | January 28, 2024 | April 28, 2024 |
| --- | ---: | ---: | ---: |
| United States | $1,037 | $2,816 | $2,912 |
| China | 4,032 | 9,138 | 6,554 |
| Canada | 64 | 259 | 371 |
| Haiti | 125 | 363 | 86 |
| Vietnam | 13 | — | 81 |
| Cayman Islands | 8 | 9 | 8 |
|  | $5,279 | $12,585 | $10,012 |

#### Common Stock Repurchase Program

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. 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.

We did not repurchase any shares of common stock during the nine-month periods ended January 26, 2025, or January 28, 2024, respectively.

As of January 26, 2025, $3.2 million is available for additional repurchases of our common stock.

#### Dividends

On June 29, 2022, our board of directors announced the decision to suspend the company’s quarterly cash dividend, believing that preserving capital and managing our liquidity were 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 the first nine months of fiscal 2025, fiscal 2024, and fiscal 2023.

#### Working Capital

#### Operating Working Capital

Operating working capital (the total of accounts receivable and inventories, less accounts payable-trade, less accounts payable-capital expenditures, and less deferred revenue) was $37.9 million as of January 26, 2025, compared with $39.0 million as of January 28, 2024, and $38.5 million as of April 28, 2024. Operating working capital turnover was 5.8 during the third quarter of fiscal 2025, compared with 5.9 during the third quarter of fiscal 2024 and 5.8 during the fourth quarter of fiscal 2024.

#### Accounts Receivable

Accounts receivable was $23.2 million as of January 26, 2025, a decrease of $527,000, or 2.2%, compared with $23.7 million as of January 28, 2024. This decrease in accounts receivable represents a decline in net sales of 13.5% during the third quarter of fiscal 2025 compared with the third quarter of fiscal 2024, as described in the section titled "Executive Summary-Net Sales". The decrease in accounts receivable due to the decline net sales was mostly offset by longer payment trends during the third quarter of fiscal 2025 compared with the third quarter of fiscal 2024, as we experienced a higher sales mix with customers with longer credit terms as well as a timing difference in cash receipts from certain significant customers associated with upholstery fabrics segment during the last week of the third quarter of fiscal 2024 relative to cash receipts during the third quarter of fiscal 2025. Accordingly, days’ sales outstanding increased to 39 days for the third quarter of fiscal 2025, compared with 33 days for the third quarter of fiscal 2024.

Accounts receivable was $23.1 million as of January 26, 2025, an increase of $2.0 million, or 9.6%, compared with $21.1 million as of April 28, 2024. This trend was due to an increase in net sales during the third quarter of fiscal 2025, as compared to the fourth quarter of fiscal 2024. Net sales for the third quarter of fiscal 2025 were $52.3 million, an increase of $2.7 million, or 5.5%, compared with $49.5 million for the fourth quarter of fiscal 2024. In addition, the increase in accounts receivable was due to longer payment trends during the third quarter of fiscal 2025 compared with the fourth quarter of fiscal 2024, as we experienced a higher sales mix with customers with longer credit terms in both the mattress and upholstery fabrics segments. Accordingly, days’ sales outstanding increased to 39 days for the third quarter of fiscal 2025, compared with 36 days for the fourth quarter of fiscal 2024.

#### Inventory

Inventory was $48.6 million as of January 26, 2025, compared with $46.9 million and $44.8 million as of January 28, 2024, and April 28, 2024, respectively. This increase primarily represents purchases of inventory needed maintain an appropriate level of inventory during the company's Fiscal 2025 Restructuring Plan as described above in the section titled “—Segment Analysis — Mattress Fabrics Segment — Restructuring Activities".

Inventory turns were 3.8 for the third quarter of fiscal 2025, as compared with 4.5 for the third quarter of fiscal 2024 and 3.9 for the fourth quarter of fiscal 2024.

#### Accounts Payable - Trade

As of January 26, 2025, accounts payable - trade was $32.7 million, which represents an increase compared with $29.7 million and $25.6 million as of January 28, 2024, and April 28, 2024, respectively. This trend mostly represents an increase in inventory purchases from significant vendors who extended credit terms during fiscal 2025, as compared with fiscal 2024.

#### Financing Arrangements

Currently, we have revolving credit agreements with banks for our U.S parent company and our operations located in China. As of January 26, 2025, we had outstanding borrowings totaling $5.4 million under our lines of credit related to our operations located in China. Our loan agreements require, among other things, that we maintain compliance with certain financial covenants. As of January 26, 2025, we were in compliance with these financial covenants.

Refer to Note 11 of the consolidated financial statements for further disclosure regarding our revolving credit agreements.

#### Capital Expenditures and Depreciation

#### Overall

Capital expenditures on a cash basis during the first nine months of fiscal 2025 totaled $2.4 million, compared with $3.2 million during the first nine months of fiscal 2024. These levels of capital spending reflect reduced capital spending during the current unfavorable macro-economic conditions within the home furnishings and bedding industries.

Depreciation expense was $5.6 million for the first nine months of fiscal 2025, compared with $4.9 million for the same period a year ago, and was mostly related to our mattress fabrics segment for both periods. In addition, for the first nine months of fiscal 2025, depreciation expense for the mattress fabrics segment included $1.3 million of additional depreciation expense related to the shortening of useful lives of equipment associated with the closure of our manufacturing facility located in Quebec, Canada. This

$1.3 million of additional depreciation expense was classified as restructuring expense in the Consolidated Statement of Net Loss for the nine-month period ended January 26, 2025.

For the remainder of fiscal 2025, our capital spending will be centered on capital projects that will increase efficiencies and improve the quality of our products. Funding for capital expenditures is expected to be from cash provided by operating activities.

#### Accounts Payable – Capital Expenditures

As of January 26, 2025, we had amounts due regarding capital expenditures totaling $439,000 that pertained to outstanding vendor invoices, none of which were financed. The total amount outstanding of $439,000 is required to be paid based on normal credit terms.

#### Purchase Commitments – Capital Expenditures

As of January 26, 2025, we had open purchase commitments to acquire equipment for our mattress fabrics segment totaling $600,000.

### Critical Accounting Policies and Recent Accounting Developments

As of January 26, 2025, there were no changes in our significant accounting policies or the application of those policies from those reported in our Annual Report on Form 10-K for the year ended April 28, 2024.

Refer to Note 2 of the consolidated financial statements for recently adopted and issued accounting pronouncements, if any, since the filing of our Form 10-K for the year ended April 28, 2024.

### Contractual Obligations

There were no significant or new contractual obligations since those reported in our Annual Report on Form 10-K for the year ended April 28, 2024.

### Inflation

Any significant increase in our raw material costs, utility/energy costs, and general economic inflation could have a material adverse impact on the company because competitive conditions may limit our ability to pass significant operating cost increases on to customers.

During fiscal 2024 and continuing through the third quarter of fiscal 2025, raw material costs started to decline due to slowing global demand; however, the cost of labor remained challenging during fiscal 2024 and continuing through the third quarter of fiscal 2025.

Inflationary pressures also affected consumer spending during fiscal 2024 and continuing through the third quarter of fiscal 2025, causing a slowdown in business in both the mattress industry and the residential home furnishings industry. This slowdown has caused reduced demand from producers of home furnishings for our mattress fabrics and residential upholstery fabrics products during fiscal 2024 and continuing through the third quarter of fiscal 2025.

We are unable to predict how long these trends will last, or to what extent inflationary pressures may affect the economic and purchasing cycle for home furnishing products (and therefore affect demand for our products) over the short and long term.

## Market risk

As filed, 2,237 characters.

#### Interest Rates

We are exposed to market risk from changes in interest rates on our revolving credit agreements.

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 the Federal Reserve Bank of New York's secured overnight fund rate (SOFR), as defined in the Amended Agreement. The interest rate under the Amended Agreement as of January 26, 2025, was 5.8%. As of January 26, 2025, there were no outstanding borrowings under the Amended Agreement.

Effective 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 at the time of borrowing, which represents 2.95%. There were outstanding borrowings under this agreement totaling $4.0 million as of January 26, 2025.

On November 5, 2024, we entered into an unsecured credit agreement with another 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 at the time of borrowing, which represents 2.60%. There were outstanding borrowings under this agreement totaling $1.4 million as of January 26, 2025.

#### 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. 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. 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 January 26, 2025, would not have materially affected our results of operations or financial position.

## Controls and procedures

As filed, 1,390 characters.

As of January 26, 2025, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of such date, in all material respects, to ensure that information required to be disclosed in the reports filed by us and submitted under the Exchange Act is recorded, processed, summarized, and reported as and when required, and that these disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed in reports filed by us under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, in a manner to allow timely decisions regarding the required disclosure.

During the quarter ended January 26, 2025, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 4,188 characters.

Except as set forth below, there have not been any material changes to our risk factors during the three months ended January 26, 2025, from the risk factors disclosed in Item 1A “Risk Factors” of the company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on July 12, 2024, for the fiscal year ended April 28, 2024.

**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.**

Many of our products are manufactured or sourced outside of the United States. The U.S. government has imposed certain tariffs on imports from various countries, including China, where a significant amount of our products is produced. Recently, the U.S. government significantly increased tariffs on imports from China, and has indicated a willingness to impose additional tariffs on imports from China and other countries. Any tariffs that result in increased costs of imported products and materials could require us to increase prices to our domestic customers. Moreover, if other countries enact retaliatory tariffs in response to U.S. trade policy, our sales, and the economy in general, may be adversely affected. 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.

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. Material changes in these policies could increase our tax obligations, require us to source materials from different regions, or increase prices to customers, which could adversely affect sales. Any significant change in U.S. trade or tax policy related to imported products could have a material adverse effect on our business and financial results.

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. In May of 2019, the U.S. Department of Commerce imposed punitive anti-dumping measures against China mattress imports to address violations of trade regulations. Despite the imposition of these duties, if China producers move their production out of China, which we believe has already occurred, they may continue to engage in unfair competition in violation of trade regulations between the U.S. and other countries, or there may be a potential risk of illegal transshipments of mattress products into the United States, which involves circumventing the imposed duties by falsely claiming that mattresses are products of a particular country of origin to avoid paying higher duties. 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 anti-dumping duties on mattress imports from countries other than China. 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. Department of Commerce can effectively limit the dumping of low-priced imports into the U.S. market.

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.

II-1

Filed Mar 7, 2025.
Source: SEC EDGAR, the filing index for accession 0000950170-25-035191. Last ingested by Listed: Oct 24, 2026, 14:55 ET. No prices; not investment advice.