Earnings Call Transcript - CULP Q3 2023

Operator, Operator

Good morning, and welcome to the Culp, Inc. Third Quarter Fiscal Year 2023 Earnings Conference Call. All participants will be in a listen-only mode today. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded today. 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 third quarter of fiscal 2023. 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 Form 10-Q. Additional risks and uncertainties that we do not presently know about or that we currently consider to be immaterial may also affect our business operations and financial results. 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 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 measurement is included in 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. 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. I will now turn the call over to Iv Culp, President and Chief Executive Officer of Culp. Please go ahead, sir.

Iv Culp, President and CEO

Good morning, and thank you for joining us today. I would like to welcome you to the quarterly conference call with analysts and investors. With me on the call today are Ken Bowling, Chief Financial Officer; and Boyd Chumbley, President of our Upholstery Fabrics business. A few housekeeping items. First, I want to let you all know that Tommy Bruno, President of our Mattress Fabrics business is unable to join us on the call today as he is traveling and working on the business, but we do plan to have him join us next quarter. I also want to point out that we have not posted our usual investor presentation or capital allocation strategy deck on our website as we are preparing a new refreshed investor presentation and improvement roadmap, which we expect to share within the next few weeks. Lastly, I want to quickly thank our 1,400 employees around the world for their dedication and hard work over these challenging times. Our culture at Culp is special, and we are really proud of our associates. We are also grateful to have been awarded the HEARTS Award from the Dallas Market Center and Accessories Resource Team with a nomination from the International Textile Alliance. We are honored to be recognized for our heart-based leadership. I'll now begin the call with some opening comments, including a discussion of key themes for the quarter and priorities as we look ahead. After that, Ken will review the financial results for the quarter, and I'll then review our business outlook for the fourth quarter, and we'll then take some questions. So, when we think about the third quarter, there are really three major themes: number one, current weak demand within the two industries we service; number two is our focus on maintaining a strong balance sheet and managing our cash position; and number three, the transformation within our CHF Mattress Fabrics business. Regarding theme one, on the demand side, our sales and operating results for the quarter reflect the continued weakness in the domestic mattress and residential home furnishings industries, especially related to unit volume. With sales at these levels, it is a very tough environment for Culp to thrive despite our market gains. We are a unit-driven company. And in the absence of solid furniture and bedding units being sold within the industry, it is challenging for us to run our facilities and manage our supply chain efficiently. And there's certainly much to complain about regarding macro conditions and inflationary pressures affecting consumer spending, those are things that are out of our control and that are definitely pressuring demand. But it goes deeper than that for Culp and the impacts are different by business segment. Our Upholstery Fabrics segment has experienced a continued lag in residential business due to high inventory levels that are still being worked through and managed at manufacturers and retailers. We expect that could take a few more months to normalize. On our Mattress Fabrics segment, this business seems to be caught in a temporary industry malaise, with some reports of mattress unit sales currently down as much as 25%. Within this tough demand backdrop, we are controlling what we can control in managing our business, including making strategic adjustments and working to expand our market position. We believe the slack will come out of the supply chain at some point and macro conditions will stabilize. When that occurs, we are extremely well positioned and expect much better results. Now let me turn to theme two, which is continuing to manage a strong balance sheet and manage our cash position. This is one of the main things we can control, and I am very pleased with our management teams in both of our businesses for their diligence in maintaining our solid financial position. We have done an excellent job with inventory reductions with a favorable cash impact of $18.2 million since the end of the third quarter of last fiscal year. We have also managed accounts receivable effectively by improving our terms with key customers and navigating three major bankruptcies without any material impact. Additionally, we have generated positive cash flow for the first nine months of this fiscal year, a significant improvement compared to last year, and we now expect to end this fiscal year with a cash level comparable to the end of last fiscal year. This is outstanding cash management and preservation in the face of very challenging times. Importantly, we also have no outstanding debt, and we have entered into a new asset-based revolving credit facility that enhances our liquidity position if we ever need it. We fully recognize that management of Culp's strong balance sheet is paramount to our future success. The third key theme for us, both for the quarter and as we look ahead is the business transformation underway in Culp Home Fashions, our Mattress Fabrics segment. This certainly falls within the scope of areas we can control, and we recognize that CHF Mattress Fabrics is the business that needs our most immediate attention. This is where we believe the majority of our value exists in what we think is our best opportunity for growth from current levels. Our CHF Mattress Fabrics business is executing the transformation plan in every facet of the business, from processes to people. This business possesses a rich history with an excellent reputation and a strong global platform. While our market position remains solid, we have struggled through extremely volatile demand periods over the last two years, and we have needed better cost control and pricing as well as better overall discipline. We are in the process of transforming those areas, among others, under the leadership of new division President, Tommy Bruno. And we believe that engaging in this holistic business improvement strategy will position us to emerge even stronger when conditions normalize. I am overwhelmingly pleased with the new leadership under Tommy as he brings an ideal mix of energy, strategic thinking and experience in the mattress industry. In Tommy's short time with CHF, and as reflected in our numerous recent announcements to trade publications and on our social media channels, we have already made excellent progress with getting the right people in the right places, including new managers in sales, customer service, operations and manufacturing. We are focusing on production efficiency, quality management and balancing our product mix to proper volume SKUs and steady run schedules. We have an intensive focus on improving our operational excellence. We are also noting now some raw material price improvement, although as we previously disclosed, we are still lagging somewhat in our price cost structure for existing products. Some good news is we are winning new business and gaining market position and our new opportunities are priced in line with current market costs. It was also very encouraging to see the activity level at the January Las Vegas market. The industry has previously been in a cycle of deferring new product introductions, which affects our unit volume. So, we were pleased to see many new products and innovations presented at this market, featuring Culp mattress fabrics and sewn covers that are launching throughout calendar 2023. Looking ahead, we expect all of these elements will be the building blocks for steady sequential improvement in CHF business, though notably the pace of our improvement will be dictated by overall macro industry demand. We are working diligently to regain profitability in fiscal 2024 and we do expect that CHF Mattress Fabrics will lead that recovery. Regarding our Upholstery Fabrics business, despite the elevated inventory levels affecting demand for our residential fabric products, we remain well positioned for the long term with our scalable global platform and innovative product offerings, including the popular portfolio of LiveSmart performance products. Our Upholstery Fabrics business has generally been more stable over the last two years in market volatility, supported in part by our hospitality contract business over the last year following its recovery from COVID impact. Hospitality contract accounted for approximately 30% of the segment sales for the third quarter. And while this percentage is higher than normal due to lower residential sales, it does reflect the ongoing solid performance of our hospitality contract business as well as the importance to our overall strategy of product diversification for this segment. We also took some action during the quarter to align our upholstery cut and sew platform in Haiti with current demand trends. While this did result in some restructuring charges, we were able to accomplish this adjustment without sacrificing our ability to support customers and grow our cut and sew business. Ken is going to go into more detail on this in his review of divisional performance, but I'm pleased that we will have a go-forward annualized savings from this action, and we will recoup a majority of our prepaid rent costs over time. Also, I want to be very clear that we still view Haiti as a critical nearshore location for Culp. We have a strong mattress cover platform running in Haiti, and we expect Haiti to be an important part of the company's future for cut and sewn mattress kits and covers. I'll now turn the call over to Ken who will review the financial results for the quarter, and then I'll come back and review the outlook for the fourth quarter of this fiscal year. Ken?

Ken Bowling, CFO

Thanks, Iv. As mentioned earlier on the call, we have posted a slide presentation to our Investor Relations website to cover certain summary financial information, and we will also post a new investor presentation in the upcoming weeks. Here are the financial highlights for the third quarter. Net sales were $52.5 million, down 34.6% compared with the prior-year period. The company reported a loss from operations of $7.8 million compared with income from operations of $1.1 million for the prior-year period. The loss from operations for the quarter includes $711,000 in restructuring expense relating to the rationalization of the upholstery fabric cut and sew platform in Haiti that Iv mentioned earlier. I'll comment in more detail on divisional sales and operating performance in a moment, including more on this rationalization. Net loss for the third quarter was $9 million or $0.73 per diluted share compared with a net loss of $289,000 or $0.02 per diluted share for the prior-year period. Our overall operating performance for the third quarter was primarily affected by operating inefficiencies due to lower sales and holiday shutdowns affecting both of our businesses, operating inefficiencies in our Upholstery Fabric segment's cut and sew facility in Haiti and in our Read Window Products business and restructuring charges associated with our Upholstery Fabrics segment. Overall performance for the third quarter was also affected by $1.1 million in other expenses, up from $322,000 for the prior-year period due primarily to unfavorable foreign exchange rates associated with our operations in China. Notably, performance for the nine-month year-to-date period was favorably affected by foreign exchange rates associated with our China operations. SG&A expense for the quarter was also higher than the prior-year period due mostly to last year's reversal of accrued bonus and accrued stock compensation expense during the period. The effective income tax rate for the third quarter of this fiscal year was a negative 3.3% compared with 129% for the same period a year ago. Our effective income tax rate for the third quarter of this fiscal year was affected by the company's mix of earnings between our U.S. and foreign subsidiaries. Our cash income tax payments totaled $1.9 million for the first nine months of this fiscal year and we currently expect cash income tax payments of $3.1 million for the entire fiscal 2023 year. Importantly, our estimated cash income tax payments for this fiscal year are management's current projections only and can be affected by a variety of factors over the course of the year. Now let's take a look at our business segments. For the Mattress Fabrics segment, sales for the third quarter were $24.7 million, down 35.8% compared with last year's third quarter and down 5.8% compared sequentially with the second quarter of this fiscal year. Sales for the quarter were pressured by reduced demand with mattress industry analysis reflecting significant unit contraction. The impact of this industry softness was heightened as mattress manufacturers took longer-than-normal holiday shutdowns, resulting in fewer billing days. Manufacturers and retailers also continued to work through excess inventory, delaying the timing of shipments and new product rollouts. Although we did begin the rollout of some new customer programs near the end of the quarter. These new programs are priced in line with current market costs, and we expect to benefit as they expand across more sales channels and retail floors and as additional new product rollouts launch during this calendar year. Operating loss for the quarter was $4.2 million compared with operating income of $364,000 a year ago. Our operating performance for the third quarter this year was primarily pressured by operating inefficiencies driven by lower sales volume and holiday shutdowns across both of our mattress fabrics locations. For the Upholstery Fabrics segment, sales for the third quarter were $27.8 million, down 33.5% over the prior year, which was the segment's strongest quarterly sales performance since 2006. Sequentially, sales for the Upholstery Fabrics segment were down 13.5% compared with the second quarter of this fiscal year. Sales for the residential upholstery fabric products remained under pressure during the quarter by reduced demand, driven by high inventory levels for the residential home furnishings industry. This pressure is expected to continue through at least the first quarter of next fiscal year as retailers and manufacturers work through their inventory positions. Demand remained solid in our hospitality business during the third quarter with sales for our hospitality contract business accounted for approximately 30% of the Upholstery Fabrics segment's total sales. Operating loss for the quarter was $420,000 compared with income from operations of $2.4 million a year ago. Our operating performance for the third quarter of this fiscal year as compared to the prior-year period was mostly pressured by lower residential sales as well as operating inefficiencies in this segment's Haiti cut and sew facility and in its Read Window Products business. These pressures were partially offset by a significantly more favorable foreign exchange rate associated with this segment's operations in China as well as lower costs resulting from the restructuring of this segment's cut and sew platform in China during the prior quarter. Based on demand trends and customer sentiment, we began a rationalization and consolidation of our cut and sew upholstery kit platform in Haiti near the end of the third quarter. This restructuring aligns our capacity and cost with current demand levels for upholstery kits, while still allowing us to support our customers and scale for additional capacity if conditions improve. The adjustment will be completed during the fourth quarter of this fiscal year and includes terminating a lease and relocating into an existing mattress cover facility. We expect annualized savings of approximately $1.5 million from this initiative and we will recoup $2.4 million in prepaid rent expense over the next 6.5 years. Now I'll turn to the balance sheet. We reported $16.7 million in cash and no outstanding debt as of the end of the third quarter. This compares with $14.6 million in cash and investments and no debt as of the end of last fiscal year. Cash flow from operations and free cash flow were $4.6 million and $2.5 million, respectively, for the first nine months of this fiscal year as compared with cash flow from operations and free cash flow of a negative $12.4 million and negative $18.5 million, respectively, for the first nine months of last fiscal year. Our cash flow from operations and free cash flow during the first nine months of this fiscal year were favorably affected by working capital management, namely reductions in inventory. Importantly, since the end of the third quarter of last fiscal year, inventory reduction has contributed $18.2 million to the company's cash position. Consistent with our focus on inventory, we are tightly managing our capital spending with emphasis on business-critical projects only. Capital expenditures through the first three quarters of this fiscal year were $1.6 million compared with $5.3 million for the same period last year. For the full fiscal year, we expect capital expenditures to be in the range of $2.5 million to $2.8 million. We also completed the closing of a new three-year asset-based revolving credit facility of up to $35 million. Borrowing availability under this new facility is based on a calculation using certain of the company's accounts receivable and inventory determined on a monthly basis. While we do not currently foresee a need to borrow, we are pleased that as compared to our prior facility, this new facility gives us enhanced liquidity and more flexibility with minimal financial covenants as we continue to navigate a difficult environment. The company did not pay any dividends during the third quarter of this fiscal year following the suspension of our quarterly cash dividend on our common stock earlier in the year. The company also did not repurchase any shares during the third quarter of this fiscal year, leaving $3.2 million available under our current share repurchase program. Despite the current share repurchase authorization, we do not expect any activity during the fourth quarter of this fiscal year, and we remain focused on preserving liquidity and being positioned to support future growth opportunities. With that, I'll turn the call over to Iv to discuss the general outlook for the fourth quarter of this fiscal year, and then we will take your questions. Iv?

Iv Culp, President and CEO

Thank you, Ken. Due to the continued volatility in the macro environment, we have provided only limited sequential financial guidance for the fourth quarter of this fiscal year. We expect net sales for the fourth quarter to be moderately higher as compared to the $52.5 million in net sales for the third quarter of this fiscal year, driven largely by strong sales improvement in the Mattress Fabrics segment, and comparable sales performance in the Upholstery Fabrics segment. We expect to consolidate an operating loss for the fourth quarter of this fiscal year that is meaningfully lower to the $7.8 million operating loss for the third quarter of this fiscal year. We also expect our cash position as of the end of the fourth quarter of this fiscal year to remain comparable to the $14.6 million at the end of last fiscal year. And now I know some of you are wondering what we mean by meaningfully lower operating loss for the fourth quarter as compared sequentially to the third quarter, and here's what we can say about that. We have found these uncertain times, it is very challenging to give precise guidance. What we believe is that we have come off of our bottom, and we are starting to improve, specifically related to the CHF Mattress Fabrics segment. As mentioned earlier, revenue has been a challenge in the macro environment, but we have reason for some optimism as we go forward. We are starting to see the product wins we had previously disclosed, and we believe we are gaining market share in both businesses, but the most recovery is in CHF Mattress Fabrics, with new business placed at proper margins and based on actual costing. So, the pace of our recovery will be dictated by the recovery in the macro environment. We expect to improve our business sequentially and organically via market position, but we need some macro tailwinds for recovery to happen quicker. We are certainly committed to achieving a sustainable sequential improvement and regaining profitability during fiscal 2024. Importantly, as we weather the current challenges, we will continue to be laser-focused on prudent financial management with the goal of always maintaining a strong balance sheet, especially with regard to ensuring a strategic balance in our working capital. We are optimistic about Culp's future, and we know that financial stability is paramount to our success. So, with that, we'll be happy to take some questions.

Operator, Operator

We will now begin the question-and-answer session. And our first question here will come from Anthony Lebiedzinski with Sidoti & Company. Please go ahead.

Anthony Lebiedzinski, Analyst

Yes, good morning, gentlemen, and thank you for taking the questions. So, first, a nice job with maintaining a solid balance sheet in this difficult operating environment. So that's a quick comment from me. As far as my questions, so with the raw material costs moderating and just overall, it seems like stabilization and some cost trends. What would you say is your confidence level as far as your ability to maintain pricing at these levels?

Iv Culp, President and CEO

Thank you for the question, Anthony. We've experienced significant inflationary pressure on raw materials over the last few years, and we struggled to pass on those costs effectively. However, we're finally reaching a point with new products where we can address the price lag. In our business, we typically introduce new products frequently to adjust for raw material fluctuations, but recent years have seen a lack of introductions, which has hindered our ability to respond and manage pricing effectively. I'm not concerned about deflation in raw material prices that would require us to adjust our pricing. We're now focused on launching new products to ensure fair margins in the market, and it's great to see progress in this area as we have at least stabilized standard costs.

Anthony Lebiedzinski, Analyst

Thank you for the explanation. It seems you're optimistic about the pipeline of new products and mentioned new customer programs as well. Ken, you noted in your remarks that you observed this late in the quarter. Could you elaborate on that and provide some examples of new customer programs or products that you are particularly excited about?

Iv Culp, President and CEO

Yes. I believe both CHF Mattress Fabrics and CUF Upholstery Fabrics are showing positive trends in their market positions. However, we need to focus on improving in the Mattress Fabrics segment. I'm not downplaying the importance of Upholstery Fabrics, which has been more stable. The growth we're experiencing is primarily in Mattress Fabrics, and we were particularly excited about developments at the Las Vegas market. In previous earnings calls, I mentioned our successful product positioning with traditional bedding retailers and bed-in-the-box customers, but rollouts have faced delays. Products scheduled to launch in January 2022 were postponed to the summer and then again to January 2023. At the recent Las Vegas market, many of the products we had been preparing to ship finally began to go out, and we are starting to see success with those deliveries to our customers, with more planned throughout the year. The industry is working hard to introduce new products, both in traditional bedding and bed-in-box categories. We understand that this process won’t happen overnight, and things must be staggered. We believe the industry's overall momentum will greatly benefit us. We intend to grow our position and market share organically, but we will need some external support to expedite that growth. We anticipate that support will come at some point, allowing us to grow even more quickly.

Anthony Lebiedzinski, Analyst

Yes, absolutely. And hopefully, that momentum from the Vegas market continues at the high point market for you. No, I may have missed this. Did you comment on as far as the growth rate for the hospitality segment? Just wondering how that's fared in the quarter?

Ken Bowling, CFO

Yes, Anthony, this is Ken. We commented on the 30% of the Upholstery Fabrics business, but we did not comment on the growth rate. But I mean, it was definitely more stable than the residential part. I mean residential was under significant pressure. Hospitality was probably in line with last year.

Anthony Lebiedzinski, Analyst

Got you. Okay. All right. And then last question. So, Ken, you talked about the CapEx, obviously, being down because you're looking to conserve cash. So just wondering, how much of that has been are you deferring to next year? I mean, typically, you guys spend somewhere around $6 million to $7 million; at least the last couple of years, you've done that type of CapEx spending. So, how much of the CapEx do you think you'll need to catch up whether in fiscal '24 or fiscal '25?

Ken Bowling, CFO

Yes, Anthony, that's a great question. I mean, obviously, this year, we have been focused on preserving cash and really just prioritizing every project. That said, we've tried to certainly maintain our maintenance level CapEx as much as we can, as much as we could, and we continue to address that in the fourth quarter. I think looking ahead, we've always said maintenance CapEx is in that $4 million to $5 million range. We're in the process now of looking at those projects for next year and prioritizing. But at the same time, we've made it clear to the divisions that they need to earn and they need to be in a position where being able to justify those CapEx. But at the same time, we also agree and understand that we have to maintain the equipment. So that's going to be a delicate balance as we go into next year.

Anthony Lebiedzinski, Analyst

Got it. All right. Well, thank you very much, and best of luck.

Iv Culp, President and CEO

Thank you, Anthony. Have a great day.

Operator, Operator

And our next question will come from Rexford Henderson with Water Tower Research. Please go ahead.

Rexford Henderson, Analyst

Good morning, and thank you for taking my call. I want to congratulate you on your balance sheet management; it's impressive to see how well you've handled it in such a challenging environment. I have a couple of questions. Iv, you mentioned your goal of returning to profitability in fiscal 2024. Could you clarify if you mean for the entire year or for specific periods later in the year? Additionally, what criteria are you using to assess that profitability—are you referring to EBIT, EBITDA, or net income?

Iv Culp, President and CEO

Well, Rex, great question. Thanks for calling that out. We've talked kind of over and over to the prepared remarks about sequential improvement. And we know we're digging out of a hole in some ways. And yes, we would love to have profitability for the whole year. We would love that. But, again, some of it is going to depend on what kind of tailwind we can get in just general demand. We are going to manage our margins and our sales better this year; no question. And we're going to grow our market position. We need some tailwind. So, I think the way I'm looking at it is we know the first half of the year is not likely to rebound in a great way, but we can control our sequential improvement in those quarters. And then, I will have every expectation that we should be moving towards breakeven and then to some profitability later in the year. It's how we look at it.

Ken Bowling, CFO

Yes, that's correct. As we look ahead to 2024, we recognize that reaching profitability will take some time. However, we anticipate breaking through to profitability at an EBIT level in the second half of the year. It will require some patience, and we're not providing specific guidance on profitability for the entire year at this moment. What we can say is that at some point in fiscal year 2024, we expect to be profitable on an EBIT basis.

Iv Culp, President and CEO

And Rex, I'll just say, I mean, that's what we think. I would love it if there would just be some lift in the business that could help us go faster with the sales reductions that we're dealing with that come so much from the macro environment. It just makes it challenging. We are buying our time because we know when that gets normalized, it can happen for us faster. So, it's not evil of us to think that's going to happen and to try to predict it, but man, it would be fun if it would go a little quicker.

Rexford Henderson, Analyst

Yes, sure. Let me ask more about the Mattress Fabrics business, which has been operating at a loss this year. You're transforming that business and achieving efficiencies with new products and better pricing through those products. How much additional volume will you need to make this segment profitable? Can you provide guidance on what it takes to return that business to profitability on the top line?

Iv Culp, President and CEO

Good question. You're absolutely right to focus on this. This is a key area that we believe holds significant value for our company, and we have a strong history to build upon. We're making remarkable progress every day under Tommy Bruno's leadership. His extensive knowledge of all aspects of the business is making a substantial impact. There's a strong push for operational excellence, improving personnel, efficiency, quality, costs, and pricing. As a result, we are reducing our break-even revenue rate. We are indeed seeing some positive trends with costs stabilizing, which means it will require less volume to achieve profitability compared to the challenges faced during COVID and inflation. I can't specify a precise break-even point, but we are set to be more profitable now. We don't need to rely solely on volume for profit; we can also enhance profitability through operational improvements. Once we achieve some sales, it will further strengthen our position. I hope that provides some clarity for you.

Rexford Henderson, Analyst

Okay. That's useful. What I'm hearing is that I don't need to model sales volumes from 2019, 2020, or even 2022 to return to profitability; you believe we can achieve that at a level below those figures.

Ken Bowling, CFO

Yes, this is Ken. That's exactly right. With all the enhancements we've made, we'll be able to achieve comparable results with less activity than before. All the different projects we have going on right now are contributing to our ability to not require as much as we did previously.

Iv Culp, President and CEO

But I want to reiterate, Rex, that those are really good questions. As we look ahead to the next 12 to 24 months, we don't anticipate any sales pressure. We have plenty of potential to grow our sales from our current levels. We have operated at much higher levels in the past and can reach those again. I want to emphasize that we plan to achieve this growth organically. It would be quicker if we received some support from the overall market conditions. However, we are not aiming to maintain a lower operational level; we aspire to return to our previous performance. Predicting this is quite challenging.

Rexford Henderson, Analyst

Okay. All right. And I guess this is something we've talked about in the past, but can you kind of recap what you're seeing in China with the workforce and operating environment there? Are you comfortable? Are you seeing any imminent risk to your operations in China at all? Give us some confidence that things are going smoothly there.

Boyd Chumbley, President of Upholstery Fabrics

Sure, Rex. This is Boyd. I'll address a few points regarding China. Firstly, we noticed some positive effects following the change in China's COVID policy in December, which benefited both our associates and our supply chain by reducing disruption and uncertainty. This was very encouraging. Additionally, we've just gone through the Chinese New Year period, which typically slows business during this time, but we've observed that the supply chain has returned to normal and is functioning well after the holidays. We're pleased with that. Overall, I'd say the supply chain is operating effectively. We are continuing to diversify our global platform and will remain focused on this goal. As you know, we've diversified to Vietnam and Haiti, and we are also expanding in Turkey. We intend to move forward with these expansions and are taking steps to do so more aggressively in the upcoming fiscal year. While China is performing well and we don't anticipate any issues, I believe it's wise for our business to keep pursuing a diversification strategy as we have initiated.

Rexford Henderson, Analyst

All right. Well, thank you for taking my call again, and good luck.

Iv Culp, President and CEO

Thank you, Rex. Have a great day.

Operator, Operator

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

Iv Culp, President and CEO

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

Operator, Operator

The conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect your lines.