Earnings Call Transcript
CULP INC (CULP)
Earnings Call Transcript - CULP Q1 2022
Operator, Operator
Good morning and welcome to the Culp, Inc. First Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Dru Anderson. Please go ahead.
Dru Anderson, President
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.
Iv Culp, CEO
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 relationships 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 costs, labor shortages, 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 extensive 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.
Ken Bowling, CFO
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 costs, 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, compared 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 28.7% 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 that 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 to the first quarter of last year primarily reflects solid 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 operating income of $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 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 time frame for project installations, which often range from 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 fabrics 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 facility. 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.
Iv Culp, CEO
Thank you, Ken. I will begin with the 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 helped 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 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 in 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 the 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.
Ken Bowling, CFO
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, Operator
Our first question today comes from Anthony Lebiedzinski with Sidoti & Company.
Anthony Lebiedzinski, Analyst
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?
Ken Bowling, CFO
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 a 2.5% impact for the quarter versus the total increase in sales?
Anthony Lebiedzinski, Analyst
Got it. Okay. All right. That’s very helpful. Can you discuss the strong backlog mentioned in the residential upholstery business and what our expectations should be for that backlog converting into revenue?
Boyd Chumbley, President of Upholstery Fabrics Business
Yes, we continue to see strong demand in the residential side of our business, and our backlogs remain in good levels compared to even pre-pandemic times. Although our backlogs have decreased from their peak as our output has aligned with demand, they still remain very strong. The industry is reporting extended backlogs, and many of our manufacturers are still experiencing record backlogs. Therefore, the backlog in residential continues to be robust and supports our outlook for this fiscal year. Additionally, in our hospitality business, we are seeing an increase in orders as fabrication has begun to return. In the Read Window Products sector, backlogs are climbing to levels we haven't seen in a couple of years. There is a lag time between when those orders come in and when they will be reflected in sales as the projects are installed, but we are optimistic about the backlogs across all segments of our business.
Iv Culp, CEO
Anthony, this is Iv. I want to just 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.
Anthony Lebiedzinski, Analyst
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?
Iv Culp, CEO
Anthony, that's a great question. For our mattress fabrics business, which largely relies on a North American supply chain, we face the most labor challenges. However, we are implementing various strategies to better engage and recruit employees to strengthen our operations. This situation does create some wage pressure, but I believe that if we can establish a more stable workforce, we can mitigate many other costs associated with training and similar expenses. Therefore, I am not overly concerned about wage costs; our focus is on creating a stable labor force. Additionally, we have a flexible platform in place. In the mattress fabrics sector, we operate in six countries, either through our own facilities or with supply chain partners. This flexibility allows us to move items where needed, which is a fundamental aspect of our strategy. During challenging times like these, we will leverage this flexibility to ensure we meet customer commitments through our strong supply chain.
Anthony Lebiedzinski, Analyst
Okay. Well, thank you very much. That’s all I have today and best of luck.
Ken Bowling, CFO
Thank you.
Iv Culp, CEO
Thank you, Anthony.
Boyd Chumbley, President of Upholstery Fabrics Business
Yeah.
Operator, Operator
Our next question comes from Budd Bugatch with Water Tower Research.
Budd Bugatch, Analyst
Oh! Good morning, Iv. Good morning, Ken. Good morning, Boyd. Congratulations to you and your team. Just 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 color from quantification on it?
Ken Bowling, CFO
Yeah. I’ll start and Boyd can certainly jump in. When you look at the upholstery division, freight is a significant issue that has been affecting us since last year and has worsened. On the mattress side, we’re not facing the same labor pressures, but freight remains a major factor in upholstery. For mattress fabrics, the prices of raw materials have been steadily increasing, and labor continues to be a challenge as we strive to hire and retain employees. These are various pressures, but when we break it down by division, those are the key issues that stand out.
Budd Bugatch, Analyst
What is the main raw material causing you the most issues with mattresses, particularly foam or something else?
Iv Culp, CEO
I would like to clarify what Ken mentioned. On the mattress side, the main concern moving forward is labor, but regarding raw materials, that's more of a customer challenge that affects our delivery. When we refer to raw materials, we are talking about yarns, laminates, and various finishing items necessary for our products. We are definitely seeing an increase in material costs, but I would consider that to be secondary to labor as our primary concern going forward.
Budd Bugatch, Analyst
Okay. Can you clarify what your freight surcharge is? Is it temporary, or do you expect it to become permanent? Will you incorporate it into a permanent price increase? How should we approach this?
Boyd Chumbley, President of Upholstery Fabrics Business
Yeah, this is Boyd. Given the volatility we've observed in freight pricing, especially the significant increase in rates, we believed that implementing a surcharge was the best approach. There is considerable uncertainty about future developments, so this surcharge could become a longer-term strategy depending on the stability of freight rates. The situation remains unpredictable, and our decision to adopt this approach allows us to respond flexibly to potential changes.
Iv Culp, CEO
I agree with Boyd's comments. He's absolutely correct. Both parts of our business have already implemented price increases to help alleviate some of the pressure. However, given the uncertainty around future trends, we believe a surcharge is a more suitable response as it allows us to adjust appropriately. It's important to note that we're not simply passing on every cost increase; we're actively working on adjusting our supply chains and taking measures to manage our incoming costs. Our goal is to pass on only what is necessary, and we are prepared to adapt as needed. If we need to increase further, we will do so; conversely, if we can reduce our prices, we will only do that when it makes sense. There's a lot of complexity involved, and we are focused on finding the right balance.
Budd Bugatch, Analyst
I was trying to understand if there’s any change regarding the issues with containers, especially with goods coming from Asia. Are you noticing any shifts in the situation? Are container prices and availability improving or worsening? What trends have you observed in recent weeks?
Ken Bowling, CFO
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 in availability to this point or creating disruption. But certainly the costs have continued to escalate in the most current week.
Budd Bugatch, Analyst
Okay. I have a couple of modeling questions. You mentioned that the tax rate you're projecting for the second quarter is 30%. Did I hear that correctly?
Iv Culp, CEO
Yeah. Yeah.
Ken Bowling, CFO
That’s correct.
Budd Bugatch, Analyst
And you normally have a 35% tax rate for the year. What are you thinking it’s going to be? Is it still 35% overall or…
Iv Culp, CEO
Well, we had projected last quarter that we would be in the 35% range. This time, we came in at 28.7%. Based on what we know today and the mix we see, we're indicating that approximately 30% should be maintained for the second quarter and for the year.
Budd Bugatch, Analyst
Second quarter and for the balance third quarter and fourth quarter as well.
Iv Culp, CEO
Correct.
Budd Bugatch, Analyst
Okay. And you said I think CapEx is $10 million to $10.5 million and the second quarter was going to…
Iv Culp, CEO
Correct.
Budd Bugatch, Analyst
… heavy, did you put a number in the second quarter or did I miss it?
Iv Culp, CEO
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 well over half spent by the end of the second quarter for sure.
Boyd Chumbley, President of Upholstery Fabrics Business
Two of the significant projects come online in Q2.
Budd Bugatch, Analyst
Correct.
Boyd Chumbley, President of Upholstery Fabrics Business
Between Congdon Yards, our innovation campus and Haiti for CUF.
Budd Bugatch, Analyst
Correct.
Boyd Chumbley, President of Upholstery Fabrics Business
So a lot happened in 1Q.
Budd Bugatch, Analyst
I understand, and I want to congratulate you while also expressing my condolences to the people of Haiti for what they have endured. You issued a release, and luckily, you were not affected in your area. However, do you think Haiti will be operational by the end of the second quarter?
Iv Culp, CEO
The third facility we have for upholstery is coming online in the second quarter. I appreciate your comments about Haiti. We are quite far from the earthquake region, but it's still a tragic situation for the country. We are actively contributing from a humanitarian perspective with donations to Haiti. It’s a beautiful country with amazing people who are eager to work and seek opportunities. We're excited to be there; it holds a special significance for us and plays an important role in Culp's future.
Budd Bugatch, Analyst
Thank you for your comments regarding Haiti. Now, could you discuss the situation with mattress units and what the impact has been following the second round of anti-dumping measures? We're observing anti-dumping mattress units being imported each month. However, it seems a bit more complex for Culp due to the cut and sewn aspect, making it challenging to fully understand the unit dynamics. Can you provide some insight into how this looks in terms of mattress units, yardage units, or another way to better illustrate the situation?
Iv Culp, CEO
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 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…
Budd Bugatch, Analyst
I’m sorry. Go ahead.
Iv Culp, CEO
So we are seeing very definitely, definitely strong news, especially on cut and sewn covers.
Budd Bugatch, Analyst
Yeah.
Iv Culp, CEO
And then continuing building uniform myths.
Budd Bugatch, Analyst
Yeah.
Iv Culp, CEO
So, there’s a mix there. But, yes, units, both fabric and covers are increasing.
Budd Bugatch, Analyst
Are you noticing new startups emerging? I remember when we experienced a surge of digitally native brands along with many marketing companies. Are we seeing a resurgence of that trend? I thought we had observed a decline in some of those.
Iv Culp, CEO
I’m not noticing any new mattress brands. Instead, I see increased infrastructure to support the existing brands. While I may have expected a surge of new consumer items, that's not what I'm observing. The focus seems to be more on improving delivery processes.
Budd Bugatch, Analyst
And is any of that anti-dumping country companies coming to the states…
Iv Culp, CEO
Yeah. We hear rumors of that all the time. How sure that will be it. At the end of the day, is I guess a similar question, but we do hear rumors of that.
Budd Bugatch, Analyst
And that’s an opportunity as well as a potential challenge for Culp, right?
Iv Culp, CEO
I see this as an opportunity because it's important to note that anti-dumping applies to mattresses, not to components like fabric or covers. If that becomes an option for new companies looking for mattress covers, we can leverage our capabilities in both Haiti and Asia to provide covers that can be assembled onto the mattresses. This actually makes it much easier for us to reach our end customers compared to two years ago when we had to chase them all over the world. It's far better to have a supply chain where we know how to deliver our products.
Budd Bugatch, Analyst
Great. Okay. That’s terrific. Well, good luck on the balance of the second quarter and the balance of the year.
Iv Culp, CEO
Thank you, Bud.
Ken Bowling, CFO
Thanks, Bud.
Operator, Operator
Our next question comes from Marco Rodriguez with Stonegate Capital Markets.
Marco Rodriguez, Analyst
Good morning, everyone. Thank you for taking my questions.
Iv Culp, CEO
Good morning, Marco.
Ken Bowling, CFO
Good morning, Marco.
Marco Rodriguez, Analyst
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 acceptance of these increases?
Boyd Chumbley, President of Upholstery Fabrics Business
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 is certainly an understanding in the marketplace today that these steps are necessary. So 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.
Iv Culp, CEO
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.
Marco Rodriguez, Analyst
Got it. Following up on a question from the previous caller, regarding unit sales or movements in mattress fabric, I was wondering if you could provide a growth rate perspective on the last quarter for your traditional mattresses compared to the bed in a box.
Iv Culp, CEO
We don’t always break it out that way, Marco, because when we sell covers, it’s also supporting our fabric supply as well, so...
Ken Bowling, CFO
The product mix significantly influences our sales from quarter to quarter, and comparing covers to yards or fabric is challenging. We focus on the overall picture. As I mentioned earlier, we experienced strong growth in both knits and covers. While it's hard to measure precisely on a per unit basis, we can confidently say that we saw substantial unit growth, and we also benefited from the price increase.
Iv Culp, CEO
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 the ability to sell through both channels.
Marco Rodriguez, Analyst
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?
Iv Culp, CEO
Yes, Marco. That’s exactly right. LiveSmartEvolve was actually introduced before our other product, ChillSense. In both businesses, we have focused on merging performance with sustainability. LiveSmartEvolve includes stain-resistant, stain-proof, and stain-treatable fabrics alongside recyclable products, while ChillSense incorporates cooling with a similar sustainability focus. Each business interprets performance differently, but we believe there is significant momentum for sustainable product lines, and we are strongly advancing this initiative in both divisions.
Marco Rodriguez, Analyst
Got it. And are you seeing a pickup in demand for the sustainability aspect versus more traditional fabrics, if you will?
Boyd Chumbley, President of Upholstery Fabrics Business
Yes, Marco, this is Boyd. As I mentioned, our Evolve product in the upholstery category was one of the leaders in growth during our first quarter. Sustainability is resonating with consumers and has received a strong response at the retail level. Undoubtedly, our products that incorporate sustainability are among our fastest-growing categories right now.
Marco Rodriguez, Analyst
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?
Ken Bowling, CFO
Yeah, Marco, this is Ken. Regarding the second part of your question, we've always stated that we would buy at opportunistic prices. As the stock was declining, we believed it was the right time for Culp to take action. While I don’t have the exact average in front of me, we’ve been buying shares in the range of $13 to $15 or $16, leaning more towards the $13 to $15 range. That reflects our average for share repurchases. So, that's how I would summarize it.
Marco Rodriguez, Analyst
Got it. Very helpful. Thank you guys for your time. I appreciate it.
Iv Culp, CEO
Thank you, Marco.
Boyd Chumbley, President of Upholstery Fabrics Business
Thank you.
Ken Bowling, CFO
Thanks.
Operator, Operator
This concludes our question-and-answer session. I’d like to turn the call back over to Iv Culp for any closing remarks.
Iv Culp, CEO
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.
Operator, Operator
The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.