Culp, Inc. (CULP) Q1 2022 Earnings Report, Transcript and Summary

Good morning. And welcome to the Culp, Inc. First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Dru Anderson. Please go ahead.

Thank you. Good morning. And welcome to the Culp conference call to review the company’s results for the first quarter of fiscal 2022. As we start, let me state that this morning’s call will contain forward-looking statements about the business, financial condition and prospects of the company. Forward-looking statements are statements that include projections, expectations or beliefs about future events or results, or otherwise, are not statements of historical fact. The actual performance of the company could differ materially from that indicated by the forward-looking statements, because of various risks and uncertainties. These risks and uncertainties are described in our regular SEC filings, including the company’s most recent filings on Form 10-K and 10-Q. You are cautioned not to place undue reliance on forward-looking statements made today and each such statement speaks only as of today. We undertake no obligation to update or to revise forward-looking statements. In addition, during this call, the company will be discussing non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the most directly comparable GAAP financial measurements is included in either the tables to the press release included as an exhibit to the company’s 8-K filed yesterday and posted on the company’s website at culp.com. A slide presentation with supporting summary financial information is also available on the company’s website as part of the webcast of today’s call. With that, I will now turn the call over to Iv Culp, President and Chief Executive Officer of Culp. Please go ahead, sir.

Good morning and thank you for joining us today. I would like to welcome you to the Culp quarterly conference call with analysts and investors. With me on the call today are Ken Bowling, our Chief Financial Officer; and Boyd Chumbley, President of our Upholstery Fabrics Business. I will begin the call today with some opening comments and Ken will then review the financial results for the quarter. I will then update you on the strategic actions in each of our operating segments, and after that, Ken will review our second quarter and fiscal 2022 full year business outlook. We will then be happy to take your questions. Well, first quarter, we are very pleased to report a solid start to fiscal 2022, with overall sales and operating income in line with expectations, and sales reaching their highest first quarter level since fiscal 2003. Our results reflect strong topline growth driven by higher demand for both our mattress and residential upholstery fabric products. In each of our businesses, we executed our product-driven strategy, with a continued emphasis on design creativity and innovation. We also have benefited from our expanded market reach and the continued resilience of our flexible global platform. Despite supply chain disruption and pressures on profitability, we are passionately dedicated to servicing the needs of our customers and both of our divisions have excelled in using our robust platform and long-term supplier relationship to make sure that we meet our customer commitments. We believe this is an advantage for Culp, as customer service is more important than ever in the face of supply chain disruption. While we are optimistic about the ongoing strength of our sales trends, we do continue to navigate headwinds relating to rising freight and raw material cost, labor shortages, our customer supply chain constraints for non-fabric components and other pandemic-related challenges. Our previously implemented price increases for both of our businesses did help to offset certain inflationary pressures and foreign currency fluctuations to some extent during the first quarter. But with freight, raw material and labor costs continuing to rise, we are now taking further pricing action via surcharges in both businesses during the second quarter to assist in covering these rapidly increasing costs. Despite these challenges, we continue to invest in our business and expand our capacity. With our diversified manufacturing and sourcing capabilities, along with our innovative products and digital design strategies, we expect to have additional opportunities to capture market share with new and existing customers. We are also excited about the September opening of our new innovation campus in downtown High Point, North Carolina, which will bring together our most innovative and creative minds and foster collaboration among our businesses. We believe this will be a transformative space for Culp and allow us to share best ideas across our divisions and better showcase our whole expensive product lines to our customers. Importantly, we have the financial strength to support our business in the current environment and we believe we are well-positioned for continued growth as market conditions evolve. We also remain grateful for the extraordinary efforts and resilience of our associates all around the world. We are extremely proud of their hard work, their adaptability and their dedication in the face of ongoing challenges. I’ll now turn the call over to Ken who will review the financial results for the quarter.

Thanks, Iv. As mentioned earlier on the call, we have posted slide presentations through our Investor Relations website that cover key performance measures. We have also posted our Capital Allocation Strategy. Here are the financial highlights for the first quarter. Net sales were $83 million, up 29% compared to the prior year period. Iv will go into more detail on divisional operations in a moment. The company reported income from operations of $3.3 million, up 76% compared with income from operations of $1.9 million for the prior year period. Net income for the first quarter was $2.3 million or $0.18 per diluted share, compared with a net loss of $2.7 million or $0.22 per diluted share for the prior year period, which included a $3.7 million non-cash net income tax charge. Excluding this income tax charge non-GAAP adjusted net income for the first quarter of last year was $1 million or $0.08 per diluted share. The current quarter reflected an impressive sales performance for both divisions, but our overall operating performance was affected by several headwinds, namely higher freight and raw material cost, labor shortages and unfavorable foreign exchange rate fluctuations, among other factors. I will comment on divisional performance in a moment. Trailing 12 months adjusted EBITDA was $20 million or 6.3% of net sales, compare with $12 million or 4.8% of net sales for the same period last year, reflecting a year-over-year improvement of 66%. Consolidated return on capital for the trailing 12-month period was 15.5%. The effective income tax rate for the first quarter of this fiscal year was 28.7%, compared with 283.7% for the same period a year ago. Our effective income tax rate during the first quarter of this fiscal year was affected by the mix of taxable income that is mostly earned by our foreign operations located in China and Canada, which have higher income tax rates than the U.S. Income tax expense during the first quarter of last fiscal year was significantly higher than the current quarter because of the $3.7 million net income tax charge, I mentioned earlier. Looking ahead to the rest of this fiscal year, we currently estimate that our consolidated effective income tax rate for the second quarter will be approximately 30% based on the facts we know today. Additionally, we are currently projecting cash income tax payments of approximately $4.2 million for fiscal 2022. Importantly, our estimated cash income tax payments for this fiscal year are management’s current projections only and can be affected over the year by actual earnings from our foreign subsidiaries located in China, Canada and Haiti versus annual projections, as well as changes in the foreign exchange rates associated with our China operations in relation to the U.S. dollar. Now let’s take a look at our business segments. For the mattress fabric segment, sales for the first quarter were $43.1 million, up 19% compared to last year’s first quarter, which was impacted by the COVID-19 pandemic. Operating income for the quarter was $3.6 million, compared with operating income of $1.8 million a year ago, with an operating income margin for the quarter of 8.4%, compared with 5.1% a year ago, an increase of 330 basis points. Our improved operating performance for the first quarter as compared the first quarter of last year, primarily reflects a solid in sales somewhat offset by increased raw material prices, freight costs, unfavorable foreign currency fluctuations in Canada and China, and inefficiency due to labor shortages in the U.S. and Canada. As compared to the fourth quarter of last year’s 5.3% operating income margin, our improved operating performance was primarily driven by a favorable product mix and the price increase implemented during the first quarter to help cover expected inflationary pressures. But our results were further affected by operating inefficiencies due to labor shortages and additional increases in freight and raw material costs, particularly during the second half of the quarter. We are implementing a surcharge during the second quarter to help offset these pressures, while also continuously working to control costs. Notably, the surcharge will not take effect until midway through the quarter, resulting in a temporary cost price lag that will affect our operating performance during the period. Return on capital for the trailing 12-month period for mattress fabrics was 19.6%. For upholstery fabric segment, sales for the first quarter were $40 million, up 41% over the prior year, which was impacted by the COVID-19 pandemic. Operating income for the quarter was $2.3 million, compared with $2.1 million a year ago, with an operating income margin of 5.7%, compared with $7.5% a year ago, a decrease of 180 basis points. Despite our topline growth, operating performance for the first quarter as compared to the first quarter of last year and also compared to the fourth quarter of last year’s 7.2% operating income margin was negatively affected by the dramatic increase in freight costs and by lower sales in our Read Window Products business, as well as startup cost in our new Haiti facility. Our operating performance as compared to the first quarter of last year was also pressured by foreign currency fluctuations in China. Notably, our previously implemented price increase has helped offset foreign currency exchange rate fluctuations to some extent, as intended, but we are implementing an additional freight surcharge during the second quarter to help cover the continued rise in freight costs. We also began to see a growing project backlog in our Read Window Products business during the first quarter, but given the typically longer term timeframe for project installations, which often range for six months to nine months, there is a temporary lag between the impact of the pandemic-related disruption and improved results for this business. Return on capital for the three-month and 12-month period for the upholstery fabs segment was an impressive 74.3%. Here are the balance sheet highlights. We reported $44 million in total cash and investments, and no outstanding borrowings as of the end of the quarter, compared with $47.4 million in total cash and investments and no outstanding debt at the end of the prior year period. We generated cash flow from operations of $1.6 million and negative free cash flow was $782,000 for the first three months of the year, compared with cash flow from operations of $10.6 million and free cash flow of $10 million for the same period last year. As we continue to invest in our business, our cash flow from operations and free cash flow during the first quarter were affected by increased inventory purchases due to higher sales, capital expenditures including expenditures for machinery, equipment and IT investments, as well as expenditures related to our new innovation campus, incentive bonus compensation and payments for the new building lease associated with our Haiti upholstery presto operation. During the first quarter, we invested $2.5 million in the business to capital expenditures and payments associated with our new building lease in Haiti. We paid $1.4 million in regular quarterly dividends and spent $723,000 on share repurchases. While we are very pleased with our solid balance sheet going into the second quarter, it is important to note that we will continue to utilize our cash for strategic investments in working capital, planned capital expenditures and investments in Haiti with a significant portion that’s been taken place during the second quarter. The company repurchased approximately 49,000 shares of common stock during the first quarter of the year and repurchased approximately 48,000 additional shares through August 31st, leaving approximately 3.6 million available under our current share repurchase program. With that, I’ll turn the call back over to Iv.

Thank you, Ken. I will begin with a mattress fabrics business. We were encouraged by the strong level of sales for this business during the first quarter. Our topline performance up 19% compared to last year and up 11% compared to the pre-pandemic first quarter of fiscal 2020 was driven by the continued strength of our product offerings and was supplemented by the price increase implemented during the first quarter that help offset certain inflationary pressures. Additionally, demand trends for sewn mattress covers remained strong and our on-shore, near-shore and off-shore supply chain strategy, as well as our fabric-to-cover model, continued to provide a preferred platform that gives customers the agility and value they need for their business. As we look ahead, we expect that current inflationary conditions, labor shortages and other near-term headwinds will continue to impact the mattress fabrics business during fiscal 2022. We are confident in our ability to navigate these challenges. As mentioned earlier, we are adding a surcharge during the second quarter to help offset inflationary -- more inflationary pressures, while also working diligently to control costs. If demand trends remain strong, we believe this business is well positioned for the long-term. We have a supply chain to continue meeting our customer commitments and we expect to continue increasing our operating income margin towards the end of the fiscal year as we benefit from innovative products, creative designs, digital marketing strategies, pricing actions and eventual mitigation of costs. Now I’ll turn to the upholstery fabric segment. We were also pleased by the continued strong growth and sales for this business as well during the first quarter, up 41% compared with the prior year period and up 26% compared with the pre-pandemic first quarter of fiscal 2020. The growth in upholstery fabrics was driven by a significant increase in our residential business compared to last year and was also supplemented by a price increase that was effective during the quarter. We continue to benefit from growth in our market reach, the flexibility of our Asian platform and the success of our product innovation strategy, including the ongoing popularity of our LiveSmart portfolio of products. We are especially encouraged by popular LiveSmartEvolve products, which offer both performance and sustainability. We believe that consumer desire for products with a sustainability focus will only gain more traction as we move beyond the COVID-19 pandemic. However, our hospitality business particularly Read Window Products remained under significant pressure in the first quarter from the ongoing COVID-19 disruption that continues to affect the travel and leisure industry. Looking ahead, we remain encouraged by the strong backlog in our residential upholstery business, reflecting continued favorable demand and attraction to our innovative products. We are also pleased to begin seeing some rebound in demand for hospitality fabrics and we have built our largest project backlog since the beginning of fiscal 2019 in Read Window Products. Although, as Ken mentioned, the timeframe for project installations in this business can range from six months to nine months. So there’s an expected lag between the backlog and the corresponding results. We do expect that near-term headwinds, including rising freight and labor costs, customer supply chain constraints and ongoing pandemic-related disruptions, such as quarantine and shutdown requirements currently affecting our sourcing partners in Vietnam may temporarily pressure upholstery business during the year. However, with our flexible Asian platform and the upcoming addition of our new Haiti platform, as well as our long-term supplier relationships and our product-driven strategy, we are very confident in our ability to navigate these challenges. We believe we are well positioned to sustain and enhance our competitive advantage over the long-term as we continue to deliver innovative products that meet the needs of our customers. I’ll now turn back to Ken to discuss the general outlook for the second quarter and fiscal 2022 full year and we will then take some questions.

Although subject to uncertainties, we are encouraged by the execution of our product-driven strategy and the resilience of our global platform, as well as our expanding market reach. The financial outlook we are providing for the second quarter of this fiscal year is a sequential comparison to the first quarter, rather than a comparison to the prior year period due to the current inflationary pressures and volatility that were not present during the prior period. We expect our sales and consolidated operating income for the second quarter of this fiscal year to be comparable to the first quarter of this fiscal year, with an expected consistent performance for our mattress fabrics business and an expected improvement in operating margins for our upholstery fabrics business. For the full fiscal year, we expect net sales to continue to increase moderately with a projected increase between 8% to 12% and consolidated operating income to increase significantly with a projected increase between 20 to 25% in each case as compared to last fiscal year. The projected year-over-year improvement in our consolidated operating income most relates to our expected improvement in operating performance by our mattress fabric segment. Notably, our expectations for the second quarter and the full fiscal 2022 year are based on the information that is available at the time of this webcast presentation and reflect certain assumptions by management regarding our business and trends. Additionally, based on current expectations, capital expenditures for this fiscal year are expected to be in the $10 million to $10.5 million range. Our capital investments will focus on our ongoing strategy of maintenance CapEx centered in our mattress fabrics business, as well as spending in our upholstery fabrics business with investments in Read Windows and our new Haiti startup. At the corporate level, CapEx spending will include investments in IT infrastructure and security, as well as our new innovation campus in High Point, North Carolina. Depreciation and amortization is expected to be approximately $7.5 million to $8 million for fiscal 2022. With that, we’ll now take your questions.

[Operator Instructions] Our first question today comes from Anthony Lebiedzinski with Sidoti & Company.

Yes. Good morning, guys. Thank you for taking my questions. So, certainly, impressive results even with all the cost headwinds that are out there. So, I guess, first, I just wanted to ask about the pricing actions that you took in the quarter. How much was pricing a benefit? How much of a benefit was pricing in the first quarter? Just so we could get a handle on the unit volume growth versus pricing?

Yeah. Anthony, this is Ken. On a consolidated basis, and keep in mind that, the price increases kind of came in at different times during the quarter. So it was about 2.5% impact for the quarter versus the total increase in sales?

Got it. Okay. All right. That’s very helpful. Okay. And then, can you talk about a very strong backlog that’s reference in the residential upholstery business, how should we think about that in the -- as far as the expectation for that backlog to turn into revenue?

Yes. Anthony, this is Boyd. And we continue to see strong demand in the residential side of our business and the backlogs today remain in relatively -- relative to even pre-pandemic remain in good levels, very good levels. We have seen the backlogs -- our backlogs come down from the peak, as our output has been able to align with the demand. But we still have very strong backlogs in that business. The industry still is reporting extended backlogs, and in many cases, our manufacturers are reporting -- still having record backlogs. So backlog in residential continues to be strong and certainly supports that going forward into this fiscal year. And as mentioned earlier, the in our hospitality business, we are seeing increasing orders coming in in the hospitality area as fab has started to return. In the Read Window Products business, those backlogs are up now to levels that we haven’t seen in a couple of years. So there is a lag time between those orders coming in and when that’ll be realized in sales as those projects get installed. But that certainly is we’re optimistic about what we’re seeing in the backlogs for really all segments of our business.

Anthony, this is Iv. I want to just to tack on a bit to what Boyd was saying, a little bit of a nuance. It’s important for everyone to understand about the residential upholstery backlogs. We still have, as Boyd mentioned, very healthy backlogs. But what you should know is because of our strong supply chain, and the network and the flexibility of our platform, we’re absorbing that backlog and actually shipping product to customers. So having a crazy extended backlog, which we hear about a lot in the industry is not positive. We want a strong backlog that we’re actually shipping and pulling through demand, and we’re seeing that start to happen. So while we love the backlog we have, we want it to be manageable and our supply chains allowed us to get into a very manageable place that’s encouraging for us in service standpoint, because we are passionate about servicing customers, meeting commitments and that’s what we’re doing in both businesses, especially proud of what Boyd and his team have done on the residential upholstery side.

All right. Well, thanks a lot, Iv and Boyd for that detailed explanation. So as far as labor shortages, obviously, it’s an issue that’s prevalent throughout many different businesses. Can you talk about the steps you’re taking to minimize the impact of that?

Yeah. Anthony, that’s a really good question. I would say for the mattress fabrics business, which is primarily a North American supply chain for us, at least by percentage, that’s where we see the most labor challenges. But we’re doing a lot of things internally to engage our employees more effectively, to recruit employees more effectively and just try to build our business. That does come with some wage pressure. Although, I will tell you, if we can get a more stable workforce, we can offset so many other costs of training and things of that nature. So I don’t worry about wage costs. We just -- we need to do to get a stable labor force. And then on top of that, haven’t our flexible platform. And remember, in mattress fabrics, we operate across six countries, either through our own facilities or through supply chain partners. So we just have to be prepared to move items to where we can get them and that’s part of the strategy forever. And that’s part of -- that’s inherent strategy of the business. We will use it more in times like this to just flex our muscle, and again, be sure we’re meeting our customer commitments through our very robust supply chain.

Okay. Well, thank you very much. That’s all I have today and best of luck.

Thank you.

Thank you, Anthony.

Yeah.

Our next question comes from Budd Bugatch with Water Tower Research.

Oh! Good morning, Iv. Good morning, Ken. Good morning, Boyd. Congratulations to you and your team. Just…

Good morning, Bud.

…navigating these challenging times. I just want to make sure I understand when you looked at the inflation and the uncertainties, is there any way you can rank them for us and give us what are the most pressing problems and maybe put some colors from quantification on it?

Yeah. Bud I’ll start and Boyd can certainly jump in. I think it’s really when you look by division. I think that on the upholstery side, when you look at, I guess, a sequential look, freight is a huge issue. Freight has been one that’s been pressuring us, really starting last year and really gotten worse. On the poultry side, we’re not dealing with the same labor pressure as the mattress. But freight certainly on the upholstery side has been a big factor. I think from mattress fabrics, its raw material prices. Those have been steadily increasing labor, obviously, is a big issue as we continue to try to hire folks and not only hire and keep them higher. But those are the -- it’s various pressures, but when you kind of define it by division, those are the ones that kind of rise to the top.

And the -- in the raw materials in mattress is it primarily foam worst or what is the raw material that’s given you the biggest issue?

Yeah. I would just clarify a bit what Ken said. For sure the most concerning go-forward on the mattress side is labor, but raw materials to Ken’s point, that’s -- that would be more of a customer challenge and that would impact our delivery to customer. When we say raw materials, we mean more yarns, laminates, different finishing things we need to run our products. So there is definitely a rising material cost to us coming in. But I would put that in there behind labor as a go-forward concern.

Okay. And when you put your freight surcharge and what are your surcharges? Is that a temporary surcharge or do you think it’s going to become a permanent surcharge or will you wrap that into a price increase that becomes permanent? How do you -- how do we think about that?

Yeah. Bud, this is Boyd. And I think with the volatility we have seen in the freight pricing and particularly the just extreme acceleration or increase in rates there. We thought that the surcharge was the way to go, because there’s just a lot of uncertainty around what will happen from here. So it could become longer term just depending on where those freight rates remain. And again, there’s a high degree of uncertainty as to how that will play out. So we’re -- with the surcharge we’re poised to react in whatever way it might play out from here and that’s really the reason we decided to approach it in that manner.

Yeah. I think, Bud, this is Iv. I will attack on Boyd comments. He’s exactly right. Both businesses have already done a price increase to offset some of the pressure. We just felt like without knowing where it’s going and seeming to be changing almost every week, a surcharge is more appropriate for the second action that we can pass on what was appropriate, not too much, not too little and to be able to react either way. I would want you to know that, besides, we’re not just passing on every increase we get, we’re also trying to do a lot of work by shifting our supply chains and then trying to do a lot to mitigate our incoming costs. So our intention not to pass everything on, we just want to pass on what’s appropriate and then be able to react. We have to do more, we’ll do more, if we can pull some of that back, we’ll pull it back only when it was appropriate. So it’s -- there’s a lot of nuance to and just trying to figure out the right mix.

Okay. And I was trying to understand if there’s -- I know containers have been a big issue, and particularly, I guess, in the goods coming from Asia and going back. Are you seeing any change in that condition at all? The container prices and the container availability changing at all, is it getting better or worse? How are you seeing in recent weeks?

I would describe it, Bud, as it has continued to be upward pressure in the most recent weeks on pricing availability, we haven’t for our moves of containers to our North American distribution points. We haven’t had too much difficulty and availability to this point are creating disruption. But certainly the costs have continued to escalate in the most current week.

Okay. Just a couple of modeling questions, if I could. Can you had said, I think, if I got it right, that the tax rate that you’re projecting or pending for the second quarter is 30%. Is that -- did I hear that correct?

Yeah. Yeah.

That’s correct.

And you normally have a 35% have it for the year. What are you thinking it’s going to be? Is it still 35% overall or…

I think…

… and just the 35%...

Well, yeah, we had projected the last quarter that be in the 35% area. We came in at 28.7% this time. So I think based on what we know today and based on the mix of what we see, we’re saying approximately 30% should hold for the year -- second quarter, as well as the year.

Second quarter and for the balanced third quarter and fourth quarter as well.

Correct.

Okay. And you said I think CapEx $10 million to $10.5 million and the second quarter was going to…

Correct.

…heavy, did you put a number in the second quarter or did I missed it?

No. We did not. I will just say that, a sizable portion of that’s going to be in the second quarter. We spent $1.9 or rounded up to $2 million in the first quarter. We’re guiding $10 million to $10.5 million. So, I would say, that you’re probably going to be -- at least by the end of the second quarter, you’re probably going to be at least well over half spent for sure.

Two of the significant projects come online in Q2.

Correct.

Between Congdon Yards, our innovation campus and Haiti for CUF.

Correct.

So a lot happened in 1Q.

I understand and congratulations on that and condolences to the people of Haiti for what they’ve had to go through. You -- I think you put out a release and fortunately, you were not impacted in your geography. But Haiti comes on at the end of the second quarter you think or since still...

Yeah. The third facility that we have there for upholstery got and so comes online in the second quarter. And yeah, but I would say, thanks -- just thank you for the comments about Haiti. We are significant distance from that earthquake region, but certainly just a terrible thing for the country of Haiti and we’re doing quite a bit here from the humanitarian side to do a lot of donation to that country. It’s beautiful country, terrific people that want to work and want opportunity. So we’re thrilled to be there. it’s a special place for us and an important part of the future for Culp.

Understood and appreciate your efforts on their behalf. And last for me, just talk about the mattress units side and what the impact has been now that we’ve gone through the second round of the anti-dumping. We’re seeing anti-mattress units imported every month. But what are you seeing is coming for your business, because you -- it’s a little complicated, a little more complicated for Culp, because now you’ve got the cut and sewn, so we can’t quite figure out what the unit side looks like. Can you give us a feeling of how that looks just in terms of mattress units or yardage units or some way to frame that in terms of some color?

Yes. It’s a good question, Bud and you’re right, trying to follow the anti-dumping numbers is choppy at best. I think it has definitely been impacted some in the last short-term period from dump [ph] shortages and other things that have maybe forced some importing that wouldn’t be normal. We see optimism on units and what we see is so much investment being done from new pharma companies, new fulfillment companies, new setups to deliver mattresses in North America. So for us, we’re very optimistic with our fabric yards and cut and sewn covers. I think we see a strong demand and we would expect over the longer term to go back to the sales levels we were in our strong days. There’s a good recovery that we think will have happened over the medium- to long-term. So I am confident…

I think -- I’m sorry. Go ahead.

So we are confident with the units.

And did you see that in the second quarter with the units? If you measure it and I’m sure you look at it kind of differently than we have to pleased you get to see some numbers we don’t get to see?

In the first quarter -- in our first quarter?

Yes, sir. In the quarter that just ended. Yes, sir.

Yeah. So we are seeing…

Yeah.

… very definitely, definitely strong news, especially on cut and sewn covers.

Yeah.

And then continuing building uniform myth.

Yeah.

So, there’s a mix there. But, yes, units, both fabric and covers are increasing.

And last just reacting to one of the things you said, you’re seeing new -- are you seeing new startups and like, I remember the days when we had the digitally native brand explosion with a lot of the marketing companies, are you seeing that again? Are we seeing more of those develop. I thought we saw a retracement on some of those?

Yeah. I’m not seeing a new mattress brands. I’m just seeing more infrastructure for supplying the current brands. I don’t -- I might have seen an explosion of new in-consumer items. I’m not seeing that. I am just seeing -- more focus on delivering it here.

And is any of that the anti-dumping country companies coming to the states…

Yeah. We heard as -- we hear rumors of that all the time. How for sure that will be it. At the end of the day is, I guess, a similar question, but we do hear rumors of that.

And that’s an opportunity as well as a potential challenge for Culp, right?

It’s a -- I would see as an opportunity, because it’s important to note, you know this, anti-dumping is on the mattress. It’s not relative to components, like fabric or covers. But what we would do in that case, if that was an option for new companies here looking for mattress covers, we could still flex our muscles in both Haiti and Asia, to deliver covers here to be assembled to the mattress. It actually makes it much easier for us to find the end customer of ours versus two years ago where we’re having to try to chase that all around the world. So much better to have a supply chain -- find supply chain where we know where to deliver the product.

Great. Okay. That’s terrific. Well, good luck on the balance of the second quarter and the balance of the year.

Thank you, Bud.

Thanks, Bud.

[Operator Instructions] Our next question comes from Marco Rodriguez with Stonegate Capital Markets.

Good morning, everyone. Thank you for taking my questions.

Good morning, Marco.

Good morning, Marco.

Hi. I was wondering if is to kind of follow up on some of the line of questioning when it comes to the price increases and the surcharges. Just wondering if you could provide any sort of customer feedback you’re receiving? Just trying to get a sense, I know some of this stuff is contractual, but kind of wondering, if you have some kind of color on customer sentiment if there’s like significant pushback or these are things that are happening across multiple industries so it’s kind of just been an accepting of these increases?

Marco, this is Boyd. And I can speak from the upholstery fabrics side of the business. And certainly this is industry-wide pressures that are occurring. So the same pressures that we have been under our customers have faced in multiple ways as well. So where no one likes price increases there certainly an understanding in the marketplace today that these steps are necessary. So in -- for that reason, we’re not seeing significant pushback, because it’s understood as to what’s happening throughout the industry today and that these steps are really something that are necessary. So not too much pushback.

Yeah. I think Boyd said that really well. Marco, it’s Iv. I will add some little color there too. Pick up the mattress side same comments, no one is surprised by it. Certainly none of our customers like it. But I do think we’ve done a good job passing on what’s appropriate at the right timeframe, not necessarily immediately, usually with some lag that now might not be perfect all the time for quarterly results, it is the right strategy for the long-term view of the business. So I think it’s been generally accepted well, as well as these things could be added.

Got it. And then just following up on a question from the prior caller, in terms of the unit sales, or the unit movements on the mattress fabric side, I was wondering, maybe if you could perhaps frame it from a growth rate perspective, if you have that information here in this last quarter from your more -- shall we call it traditional mattresses versus the bed in the box?

Yeah. We don’t always break it out that way, Marco, because we -- when we sell covers, it’s also fueling our fabric supply as well, so...

Yeah. Yeah. And Marco I will jump in there too. This product mix it goes a long way when you look at our sales from quarter-to-quarter and with covers versus yards or fabric, it’s very difficult to -- even on both sides, you can’t really nail down on a per unit. So we just look at an in total. We know that as Iv said earlier, knit -- we had strong growth in knits, we had strong growth in covers. So from the standpoint of unit growth, for sure, there, we got the benefit of the price increase as well. But I think it’s difficult to quantify, but we would say that we got -- again, we’ve seen it again, there were significant unit growth and we got the benefit of the price increase as well.

And we’ve seen from an industry standpoint, we’re seeing growth, traditional retail and e-commerce. So we see growth across the whole chain. I don’t see a stronger one or the other. It’s both, which is good for Culp. We have ability to sell through both channels.

Got it. Very helpful. And then coming back to one of the comments you made on the prepared remarks in your call about on the upholstery fabric side, I believe you called out LiveSmartEvolve fabric that has a sustainability hook, if you will. Is that using the same sort of yarn that, I believe it was prior call, where you had a cooling type fabric that also had a sustainability angle?

Yes, Marco. That’s exactly right. We -- LiveSmartEvolve is actually was first before the other products called ChillSense. And what we’ve done in both businesses is look for combining performance with sustainability. So LiveSmartEvolve combined stain performance, stain proof, stain treatable fabrics, along with sustainability, recyclable products and then ChillSense combines cooling with that same sustainability. So each business has a different view of what performance means. But we do think there’s so much momentum around a sustainability type product line and we’re pushing that hard in both divisions.

Got it. And are you seeing a pickup in demand for the sustainability aspect versus more traditional fabrics, if you will?

Yeah. Marco, this is Boyd. And certainly, as Iv mentioned, our Evolve product on the upholstery side. Yes, we -- it was one of the leaders in our first quarter in terms of growth that we’re seeing. So sustainability is certainly resonating with the consumer and is also seeing to receive very good and strong response at the retail level. So without a doubt our products that include the sustainability component are certainly one of our fastest growing product categories right now.

Got it. And last quick question for me, I don’t know if I missed this on the call, but the share repurchases, what were the average prices you purchased that and if maybe you can discuss briefly, the drivers behind those recent purchases?

Yeah. Marco, this is Ken. I think the second part of that, we’ve always said that we would be out there at opportunistic prices. And so, as the stock was trailing down, we felt it was time for Culp to jump in. As far as an average, I think, it’s -- I don’t have an average in front of me, but it -- we’re -- we’ve been in the $13 to $15, $16 range throughout the period, more toward the $15 to $13 range. So it’s been an average of share repurchases. So I’d say -- I’d kind of catch it like that.

Got it. Very helpful. Thank you guys for your time. I appreciate it.

Thank you, Marco.

Thank you.

Thanks.

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

Thank you very much, and again, thanks to everyone for your participation and your interest in Culp. We do look forward to updating you on our progress next quarter. Have a great day.

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