CULP

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How CULP rewrote its risk factors

10-K ITEM 1A · FY2025 → FY2026

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New in FY2026

Fiscal 2026, 2025, and 2024 comprised 53-week, 52-week, and 52-week periods, respectively.
We refer to the year ended May 3, 2026 as “fiscal 2026,” the year ended April 27, 2025 as “fiscal 2025” and the year ended April 28, 2024 as “fiscal 2024.” Our operations are classified into two reportable segments: bedding and upholstery.
On April 24, 2025, the company announced a strategic transformation of its operating model to combine certain activities within the bedding and upholstery segments and create one integrated Culp-branded business.
This strategic transformation was completed by the end of fiscal 2026.
Bedding The bedding segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers.
Currently, we have a bedding manufacturing operation located in Stokesdale, North Carolina, and a sewn mattress cover operation located in Ouanaminthe, Haiti.
In the first quarter of fiscal 2025, our board of directors made a decision to: (1) consolidate the company's North American bedding operations, including the closure and sale of the company's manufacturing facility and related land (collectively referred to as the "Property") located in Quebec, Canada; (2) move a portion of the knitting and finishing capacity from the company's Property located in Quebec, Canada to the company's manufacturing facility located in Stokesdale, North Carolina; (3) transition the bedding 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.
See Note 10 to the consolidated financial statements for further details regarding these restructuring activities.
All the above restructuring activities were completed as of April 30, 2025.
See Notes 7 and 8 to the consolidated financial statements for further details regarding the sale of the Property and determination of fair value.
Upholstery The upholstery segment develops, sources, manufactures, and sells fabrics primarily to residential, commercial, and hospitality furniture manufacturers.
As of May 3, 2026, we had upholstery operations located in Stokesdale, North Carolina, and Shanghai, China, as well as a wholly-owned subsidiary, Culp Fabrics Vietnam Limited, which has an administrative office and showroom located in Ho Chi Minh City, Vietnam.
Our Vietnam office enhances our strategic sourcing capabilities and further diversifies our supply chain in Asia, while our recently added showroom facilitates better product exposure with our growing customer base there.
During fiscal 2026, as part of the strategic transformation noted above, we closed a leased upholstery facility located in Burlington, North Carolina, and transitioned its distribution activities to a shared management model within our owned facility located in Stokesdale, North Carolina.
Our Stokesdale, North Carolina facility had historically been operated solely by our bedding segment.
Additionally, the upholstery segment includes Read Window Products LLC (“Read”), a wholly-owned subsidiary that 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's operations were previously conducted at a leased facility in Knoxville, Tennessee, and also within a leased upholstery facility in Burlington, North Carolina, but these operations were moved to our Stokesdale, North Carolina, facility in fiscal 2026 as part of the strategic transformation noted above.
Executive Summary Consolidated Results of Operations Twelve Months Ended (dollars in thousands) May 3, 2026 April 27, 2025 Change Net sales $ 203,482 $ 213,237 (4.6 )% Gross profit 25,160 25,067 0.4 % Gross profit margin 12.4 % 11.8 % bp Selling, general, and administrative expenses 34,668 35,705 (2.9 )% Restructuring credit (expense) 2,323 (7,739 ) (130.0 )% Loss from operations (7,185 ) (18,377 ) (60.9 )% Operating margin (3.5 )% (8.6 )% (510 ) bp Loss before income taxes (8,285 ) (18,711 ) (55.7 )% Income tax expense 1,926 391.3 % Net loss (10,211 ) (19,103 ) (46.5 )% Net Sales Our consolidated net sales decreased by 4.6% in fiscal 2026 compared with a year ago, with bedding net sales increasing 2.4% and upholstery net sales decreasing 12.5%.
The increase in net sales in our bedding business was driven by higher demand for our products in the fourth quarter, particularly for sewn mattress covers.
Higher sales for the year were partially offset by lower sales for the first nine months of fiscal 2026 due to muted demand across the bedding industry and related challenges from weaker consumer spending and broader macroeconomic pressures.
Despite the market headwinds, we continue to see customers recognize the strategic value of our global footprint and strong U.S. manufacturing capabilities, particularly as the current trade and tariff environment drives increased scrutiny of supply chain cost structure and reliability.
The decline in net sales in our upholstery business primarily reflects softness in the home furnishings market and its impact on residential upholstery demand, driven largely by depressed housing market trends.
In addition, broader macroeconomic pressures have dampened project activity in the commercial and hospitality fabric markets we serve.
These factors, as well as incremental pressure on customer demand resulting from ongoing tariff volatility and rising oil prices, affected upholstery sales in fiscal 2026.
While the markets we serve continue to face near-term challenges, we believe we are well positioned for future growth.
The recent restructuring of our bedding platform, along with the completion of several additional initiatives in our upholstery segment during the second half of fiscal 2026 (including the integration of our U.S. upholstery distribution and window treatment operations and the consolidation of our production footprint in China), is expected to strengthen our market position and operating foundation.
Gross Profit Our consolidated gross profit was flat in fiscal 2026 compared with a year ago, with bedding gross profit increasing by 34.9% and upholstery gross profit decreasing by 17.9%.
Gross profit margin improved 60 basis points, from 11.8% in fiscal 2025 to 12.4% in fiscal 2026.
Overall gross profitability for the year benefited from the efficiencies and cost reductions we have generated from completion of our fiscal 2025 restructuring and fiscal 2026 integration initiatives, but was adversely affected by lower sales volumes and unfavorable foreign exchange impacts related to our China upholstery operations.
Loss Before Income Taxes Overall, our consolidated loss before income taxes was $8.3 million for fiscal 2026, compared with a loss before income taxes of $18.7 million for the same period a year ago.
Operating performance for fiscal 2026, as compared to the prior year, improved as a result of lower restructuring and restructuring-related expenses in fiscal 2026, with a $1.4 million restructuring credit in fiscal 2026, as compared to $9.4 million in restructuring and restructuring-related expenses in fiscal 2025.
The restructuring and restructuring-related charges in fiscal 2025 were driven by the fiscal 2025 restructuring primarily associated with our bedding segment, while the restructuring credit in fiscal 2026 was driven by a gain on sale in connection with the sale of our Canadian property as part of the fiscal 2025 restructuring.
The restructuring credit in fiscal 2026 was partially offset by restructuring and restructuring related charges associated with our fiscal 2026 integration initiatives.
Beyond the positive impact from lower restructuring and restructuring-related charges, lower sales and other factors adversely affected our operating performance during fiscal 2026, but we benefited throughout the year from the lower costs and efficiencies resulting from our recently restructured bedding manufacturing platform.
Our operating performance also benefited from our additional actions to reduce selling, general and administrative expenses and implement price increases to mitigate tariff impacts.
Further, the integration of our domestic upholstery distribution and Read window treatment operations into our owned North Carolina facility, along with the reduction of our facility footprint in China, began to yield some benefits during the second half of fiscal 2026.
Income Taxes We recorded income tax expense of $1.9 million, or (23.2)% of loss before income taxes, for fiscal 2026, compared with income tax expense of $392,000, or (2.1)% of loss before income taxes, for fiscal 2025.
Our consolidated effective income tax rates during fiscal 2026 and fiscal 2025 were adversely affected by the mix of earnings between our U.S. operations and foreign subsidiaries.
During fiscal 2026, our taxable income stemmed from our operations located in China and a gain on sale of Property located in Canada during fiscal 2026 (See Notes 8 and 10 of the consolidated financial statements for further details), which jurisdictions have higher income tax rates than the U.S.
During fiscal 2025, our taxable income stemmed from our operations located in China, partially offset by a pre-tax loss incurred in Canada due to our restructuring activities during fiscal 2025.

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Gone since FY2025

Fiscal 2025, 2024, and 2023 each included 52- weeks periods.
We refer to the year ended April 27, 2025 as “fiscal 2025,” the year ended April 28, 2024 as “fiscal 2024” and the year ended April 30, 2023 as “fiscal 2023.” Our operations are classified into two reportable segments: mattress fabrics and upholstery fabrics.
On April 24, 2025, the company announced a strategic transformation of its operating model that will combine certain activities within the mattress fabrics and upholstery fabrics business segments and become a more integrated Culp-branded business.
Mattress Fabrics The mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers.
Currently, we have a mattress fabric manufacturing operation located in Stokesdale, North Carolina, and a sewn mattress cover operation located in Ouanaminthe, Haiti.
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 the closure and sale of the company's manufacturing facility and related land (collectively referred to as the "Property") located in Quebec, Canada; (2) move a portion of the knitting and finishing capacity from the 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.
See Note 10 to the consolidated financial statements for further details regarding the restructuring activities announced on May 1, 2024.
All the above restructuring activities related to the May 1, 2024, announcement have been completed, including the sale of the Property located in Quebec, Canada, effective April 30, 2025.
See Note 8 located in the notes to the consolidated financial statements for further details regarding the sale of the Property.
During the last half of fiscal 2023, we rationalized our domestic cut and sewn cover platform, which included the termination of agreements to lease two facilities located in High Point, North Carolina, and moved our R&D and prototyping capabilities from these facilities to our facility located in Stokesdale, North Carolina.
Upholstery Fabrics The upholstery fabrics segment develops, sources, manufactures, and sells fabrics primarily to residential, commercial, and hospitality furniture manufacturers.
As of April 27, 2025, we had 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 Limited, 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.
On April 24, 2025, we announced as part of our strategic transformation noted above, that we will close our leased facility located in Burlington, North Carolina, and transition its production and distribution activities utilizing a shared management model within our owned facility located in Stokesdale, North Carolina.
Our Stokesdale, North Carolina facility has historically been solely operated by our mattress fabrics segment.
We expect this transition to be substantially completed by December 31, 2025.
During fiscal 2023, Culp Upholstery Fabrics - Haiti, Ltd. entered into an agreement to terminate a lease agreement for a facility located in Ouanaminthe, Haiti, and relocated a scaled down upholstery cut and sewn kits operation into our existing mattress cover facility also located in Ouanaminthe, Haiti.
During the first quarter of fiscal 2024, demand for upholstery cut and sewn kits declined more than previously anticipated, resulting in a strategic action to discontinue production of upholstery cut and sewn kits in Haiti.
See Note 10 of the consolidated financial statements for further details regarding this restructuring plan.
Additionally, Read Window Products, LLC (“Read”), a wholly owned subsidiary with operations located in Knoxville, Tennessee, and our upholstery fabrics facility located in Burlington, North Carolina, provide 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.
The activities located at our Burlington, North Carolina, facility will transition to our facility located in Stokesdale, North Carolina, as part of our integration and shared management initiative noted above.
Executive Summary Our Chief Operating Decision Maker ("CODM") is our Chief Executive Officer ("CEO"), who regularly reviews the financial results of the company on a consolidated and business segment basis for the purpose of evaluating financial and operating performance, allocation of resources to the individual segments noted above, and determining executive compensation.
Accordingly, our CODM reviews certain financial metrics that include net sales and (loss) income from operations before unallocated corporate expenses and other items that are not expected to occur on a regular basis (i.e., restructuring activities), as well as: (i) cost of sales, (ii) gross profit, (iii) selling, general, and administrative expenses, including unallocated corporate expenses, (iv) assets used in operations, which generally include accounts receivable, inventory, property, plant, and equipment, right of use assets, and assets held for sale; and (v) capital spending.
Unallocated corporate expenses primarily represent compensation and benefits for certain executives and their support staff, all costs associated with being a public company, amortization of intangible assets, and other miscellaneous expenses.
Consolidated Results of Operations Twelve Months Ended (dollars in thousands) April 27, 2025 April 28, 2024 Change Net sales $ 213,237 $ 225,333 (5.4 )% Gross profit 25,067 27,939 (10.3 )% Gross profit margin 11.8 % 12.4 % (60 ) bp Selling, general, and administrative expenses 35,705 38,611 (7.5 )% Restructuring expense 7,739 N.M.
Loss from operations (18,377 ) (11,308 ) 62.5 % Operating margin (8.6 )% (5.0 )% bp Loss before income taxes (18,711 ) (10,770 ) 73.7 % Income tax expense 3,049 (87.1 )% Net loss (19,103 ) (13,819 ) 38.2 % Net Sales Our consolidated net sales decreased by 5.4% in fiscal 2025 compared with a year ago, with mattress fabric net sales decreasing 2.1% and upholstery fabric net sales decreasing 8.8%.
The decrease in net sales in our mattress fabrics business was driven by lower sales for the first nine months of fiscal 2025 due to pressure from muted demand across the industry and related challenges from weaker consumer spending and housing market trends.
In the fourth quarter of fiscal 2025, sales for the segment improved compared to the prior-year fourth quarter, driven in part by new business with larger customers and an emphasis on targeted areas within the mattress fabrics and cut and sewn covers segments.
The decrease in net sales in our upholstery fabrics business was primarily attributable to the pressure on residential furniture fabric sales from continued demand deterioration in the home furnishings industry driven by a challenging macroeconomic environment and its impacts on consumer discretionary spending and home sales.
Sales in our upholstery fabrics business in fiscal 2025 were also negatively affected by the market uncertainty stemming from the global trade negotiations and tariff-related actions in the fourth quarter.
Loss Before Income Taxes Overall, our consolidated loss before income taxes was $(18.7) million for fiscal 2025, compared with loss before income taxes of $(10.8) million for the prior year.
Operating performance for fiscal 2025, as compared to the prior year, decreased as a result of the decline in net sales described above and was significantly impacted by restructuring and restructuring-related expenses totaling approximately $9.4 million, compared to approximately $676,000 in fiscal 2024.
Operating performance in fiscal 2025 benefited from consistent operating improvement during the year in the mattress fabrics segment driven by the fixed cost and efficiency benefits derived from the Fiscal 2025 restructuring, the upholstery fabrics segment’s ability to generate profitability despite a low-revenue environment in the residential home furnishings market throughout the year and tariff-related challenges in the fourth quarter, and lower inventory markdowns in the fourth quarter resulting from a change in accounting estimate which aligned our markdown policy for finished goods inventory with current market trends and product life cycles.
Income Taxes We recorded income tax expense of $392,000, or (2.1)% of loss before income taxes, for fiscal 2025, compared with income tax expense of $3.0 million, or (28.3)% of loss before income taxes, for fiscal 2024.
Our negative consolidated effective income tax rates during fiscal 2025 and fiscal 2024 were caused by the mix of earnings between our U.S. operations and foreign subsidiaries, as our taxable income stemmed from our operations located in China during fiscal 2025 and both our operations located in China and Canada during fiscal 2024, which jurisdictions have higher income tax rates than the U.S.
In addition, we applied a full valuation allowance against our U.S. deferred income tax assets during both fiscal 2025 and fiscal 2024.
Consequently, an income tax benefit was not recognized for the pre-tax losses associated with our U.S. operations totaling $(18.4) million and $(18.6) million that were incurred during fiscal 2025 and fiscal 2024, respectively.
Lastly, our negative consolidated effective income tax rates were also caused by pre-tax losses associated with our Haitian operations, which are not currently subject to income tax.
As a result, an income benefit was not recognized for the pre-tax losses associated with our Haitian operations totaling $(1.6) million and $(2.1) million that were incurred during fiscal 2025 and fiscal 2024, respectively.
During fiscal 2025, we incurred a significantly higher consolidated pre-tax loss of $(18.7) million, compared with a significantly lower pre-tax loss of $(10.8) million incurred during fiscal 2024.

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Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2025 ↗, FY2026 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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