CULP INC

Previous wording

Our fiscal year is the 52 or 53-week period ending on the Sunday closest to April 30. The company's three months ended August 3, 2025, and July 28, 2024, represent 14-week and 13-week periods, respectively. We refer to the three months ended August 3, 2025 as the "first quarter" and the three months ended July 28, 2024 as the "comparable quarter".

Current wording

Our fiscal year is the 52 or 53-week period ending on the Sunday closest to April 30. The company's six months ended November 2, 2025, and October 27, 2024, represent 27-week and 26-week periods, respectively. We refer to the three months ended November 2, 2025 as the "second quarter" and the three months ended October 27, 2024 as the "comparable quarter".

Previous wording

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

Current wording

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

Previous wording

Also, Read Window Products, LLC (“Read”), is a wholly owned subsidiary that operates a leased facility in Knoxville, Tennessee, which provides window treatments and sourcing of upholstery fabrics and other products, as well as related measuring and installation services, to customers in the hospitality and commercial markets. Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows. On April 24, 2025 (the fourth quarter of fiscal 2025), the company announced a strategic transformation of its operating model that will combine certain activities within the bedding and upholstery business segments and create one integrated Culp-branded business. As part of this strategic transformation, we will close our leased facilities operated by our upholstery segment located in Burlington, North Carolina and Knoxville, Tennessee and will transition their production and distribution activities to a shared management model within our owned facility located in Stokesdale, North Carolina, which has historically been solely operated by our bedding segment.

Current wording

Also, Read Window Products, LLC (“Read”), is a wholly owned subsidiary that provides window treatments and sourcing of upholstery fabrics and other products, as well as related measuring and installation services, to customers in the hospitality and commercial markets. Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows. On April 24, 2025 (the fourth quarter of fiscal 2025), the company announced a strategic transformation of its operating model that will combine certain activities within the bedding and upholstery business segments and create one integrated Culp-branded business. As part of this strategic transformation, we are closing our leased facilities operated by our upholstery segment located in Burlington, North Carolina, and Knoxville, Tennessee, and are currently transitioning their production and distribution activities to a shared management model within our owned facility located in Stokesdale, North Carolina, which has historically been solely operated by our bedding segment. Refer to Note 10 of the consolidated financial statements for further details regarding this restructuring activity.

Previous wording

Overall, our consolidated net sales for the first quarter of fiscal 2026 decreased by 10.3% compared with the same period a year ago, with bedding sales remaining flat and upholstery sales decreasing 20.4%.

Current wording

Overall, our consolidated net sales for the second quarter of fiscal 2026 decreased by (4.4)% compared with the same period a year ago, with bedding sales increasing by 2.3% and upholstery sales decreasing by (12.3)%. Our consolidated net sales for the first half of fiscal 2026 decreased by (7.4)%, compared with the same period a year ago, with bedding sales increasing by 1.1% and upholstery sales decreasing by (16.6)%.

Previous wording

We recorded income tax expense of $1.4 million, or 120.3% of income before income taxes, for the three-month period ended August 3, 2025, compared with income tax expense of $240,000, or (3.4%) of loss before income taxes, for the three-month period ended July 28, 2024.

Current wording

We recorded income tax expense of $1.6 million, or (53.2)% of loss before income taxes, for the six-month period ended November 2, 2025, compared with income tax expense of $190,000, or (1.5)% of loss before income taxes, for the six-month period ended October 27, 2024.

Previous wording

Our consolidated effective income tax rates were adversely affected by the mix of earnings between our U.S. operations and foreign subsidiaries, as our taxable income stemmed from our operations located in China and a gain from the sale of Property located in Canada during the first quarter of fiscal 2026 (see Notes 8 and 10 of the consolidated financial statements for further details), which jurisdictions have higher income tax rates than the U.S. In addition, we applied a full valuation allowance against our U.S. deferred income tax assets during the first quarters of fiscal 2026 and 2025, respectively. Consequently, an income tax benefit was not recognized for pre-tax losses associated with our U.S. operations totaling ($3.3) million and ($7.0) million that were incurred during the first quarters of fiscal 2026 and 2025, respectively. Lastly, our consolidated effective income tax rates were also adversely affected by pre-tax losses associated with our Haitian operations, which are not subject to income tax. Our Haitian operations are located in an economic zone that permits a 0% income tax rate for the first fifteen years of operations, for which we have seven years remaining. As a result of the 0% income tax rate , an income tax benefit was not recognized for the pre-tax losses associated with our Haitian operations totaling $(362,000) and $(633,000) that were incurred during the first quarters of fiscal 2026 and 2025, respectively.

Current wording

Our consolidated effective income tax rates were adversely affected by the mix of earnings between our U.S. operations and foreign subsidiaries, as our taxable income stemmed from our operations located in China and a gain from the sale of Property located in Canada during the first quarter of fiscal 2026 (see Notes 8 and 10 of the consolidated financial statements for further details), which such jurisdictions have higher income tax rates than the U.S. In addition, we applied a full valuation allowance against our U.S. net deferred income tax assets during the first half of fiscal 2026 and 2025. Consequently, an income tax benefit was not recognized for pre-tax losses associated with our U.S. operations totaling $(8.1) million and $(12.4) million that were incurred during the first half of fiscal 2026 and 2025, respectively. Lastly, our consolidated effective income tax rates were also adversely affected by pre-tax losses associated with our Haitian operations, which are not subject to income tax. Our Haitian operations are located in an economic zone that permits a 0% income tax rate for the first fifteen years of operations, for which we have seven years remaining. As a result of the 0% income tax rate, an income tax benefit was not recognized for the pre-tax losses associated with our Haitian operations totaling $(565,000) and $(727,000) that were incurred during the first half of fiscal 2026 and 2025, respectively.

Previous wording

During the first quarter of fiscal 2026, we earned a lower consolidated pre-tax income totaling $1.1 million, compared with a significantly higher consolidated pre-tax loss of $(7.0) million. As a result, we reported a positive effective income tax rate during the first quarter of fiscal 2026, compared with a negative effective income tax rate during the first quarter of fiscal 2025. Accordingly, the principal differences between our income tax expense at the U.S. Federal income tax rate and the effective income tax rate reflected in the consolidated financial statements were more pronounced during the first quarter of fiscal 2026, compared with the first quarter of fiscal 2025.

Current wording

During the first half of fiscal 2026, we incurred a consolidated pre-tax loss of $(3.0) million, compared with a significantly higher consolidated pre-tax loss of $(12.7) million during the first half of fiscal 2025. As a result, the principal differences between income tax expense at the U.S. federal income tax rate and the effective income tax rate reflected in the consolidated financial statements were more pronounced during the first half of fiscal 2026, as compared with the first half of fiscal 2025.

Previous wording

As of August 3, 2025, our cash and cash equivalents (collectively, “cash”) totaled $11.1 million, which represents an increase of $5.5 million compared with cash of $5.6 million as of April 27, 2025. This increase was due mostly to (i) net borrowings on our lines of credit of $5.3 million, an increase of $1.3 million compared to the comparable quarter, and (ii) proceeds from the sale of property, plant, and equipment totaling $966,000, partially offset by net cash used in operating activities of $(695,000).

Current wording

As of November 2, 2025, our cash and cash equivalents (collectively, “cash”) totaled $10.7 million, which represents an increase of $5.1 million compared with cash of $5.6 million as of April 27, 2025. This increase was due mostly to: (i) net borrowings on our lines of credit of $5.3 million during the first half of fiscal 2026, an increase of $1.3 million compared with the first half of fiscal 2025, and (ii) proceeds from the sale of property, plant, and equipment totaling $979,000, partially offset by net cash used in operating activities of $(1.2) million.

Previous wording

Our net cash used in operating activities of $(695,000) increased during the first quarter of fiscal 2026, compared with net cash used in operating activities of $(206,000) during the first quarter of fiscal 2025. This trend mostly reflects: (i) an increase in inventory related to strategically sourcing certain fabrics that have longer lead times to acquire, rising prices, and tariffs imposed by U.S. trade policy; (ii) a decrease in accounts payable due to a decrease in consumer demand along with timing of vendor payments as the first quarter of fiscal 2026 represented a 14-week period compared with a 13-week period for the first quarter of fiscal 2025; partially offset by (i) a decrease in cash losses and (ii) a decrease in accounts receivable due to a decrease in net sales for the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025 that was partially offset by longer payment trends during the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025.

Current wording

Our net cash used in operating activities of $(1.2) million improved for the first half of fiscal 2026, compared with net cash used in operating activities of $(2.6) million during the first half of fiscal 2025. This trend mostly reflects: (i) a decrease in cash losses from savings associated with our restructuring activities announced on May 1, 2024, and April 24, 2025 (refer to section titled "-- Segment Analysis -- Consolidated Other Income Statement Categories -- Restructuring Activities for further details regarding our restructuring initiatives), and (ii) an increase in cash flow from accounts receivable due to shorter payment trends associated with the upholstery segment during the second quarter of fiscal 2026, as we experienced a higher sales mix with customers who had longer credit terms during the fourth quarter of fiscal 2025; partially offset by: (i) a decrease in cash flow from inventory related to strategically sourcing certain fabrics that have longer lead times to acquire, rising prices, and tariffs imposed in accordance with U.S. trade policy, and (ii) a decrease in cash flow from accounts payable due to a decline in consumer demand.

Previous wording

We had outstanding borrowings totaling $18.1 million under our line of credit agreements, of which $11.1 million and $7.0 million were reported in line of credit-current and line of credit-long term, respectively, on the August 3, 2025, Consolidated Balance Sheet.

Current wording

We had outstanding borrowings totaling $18.3 million under our line of credit agreements, of which $11.3 million and $7.0 million were reported in lines of credit-current and line of credit-long term, respectively, on the November 2, 2025, Consolidated Balance Sheet.

Previous wording

Our Chief Operating Decision Maker ("CODM") is our Chief Executive Officer ("CEO"), who regularly reviews the financial results of the company on a consolidated and business segment basis for the purpose of evaluating financial and operating performance and allocation of resources to the individual segments noted above. Beginning in the first quarter of fiscal 2026, the CODM decided to use net sales and gross profit excluding items that are not expected to occur on a regular basis (i.e. restructuring activities) as the primary measure of segment profit or loss. Previously, segment performance was primarily evaluated based on net sales and income (loss) from operations before unallocated corporate expenses and other items that are not expected to occur on a regular basis (i.e., restructuring activities). This change was made to align with internal management reporting and the decision-making processes affected by the strategic transformation of the company's operating model announced on April 24, 2025, which combined certain activities within the bedding and upholstery business segments and created one integrated Culp-branded business. The CODM evaluates segment performance based on (i) net sales, (ii) cost of sales, (iii) gross profit excluding items that are not expected to occur on a regular basis (i.e. restructuring related charges and credits), (iv) assets used in operations, which generally include accounts receivable, inventory, property, plant, and equipment, right of use assets, and assets held for sale; and (v) capital spending.

Current wording

Our Chief Operating Decision Maker ("CODM") is our Chief Executive Officer ("CEO"), who regularly reviews the financial results of the company on a consolidated and business segment basis for the purpose of evaluating financial and operating performance and allocation of resources to the individual segments noted above. Beginning in the first quarter of fiscal 2026, the CODM decided to use net sales and gross profit, excluding items that are not expected to occur on a regular basis (e.g. restructuring activities), as the primary measure of segment profit or loss. Previously, segment performance was primarily evaluated based on net sales and income (loss) from operations before unallocated corporate expenses and other items that are not expected to occur on a regular basis (e.g. restructuring activities). This change was made to align with internal management reporting and the decision-making processes affected by the strategic transformation of the company's operating model announced on April 24, 2025, which combined certain activities within the bedding and upholstery business segments and created one integrated Culp-branded business. The CODM evaluates segment performance based on: (i) net sales, (ii) cost of sales, (iii) gross profit excluding items that are not expected to occur on a regular basis (i.e. restructuring related charges and credits), (iv) assets used in operations, which generally include accounts receivable, inventory, property, plant, and equipment, right of use assets, and assets held for sale; and (v) capital spending.

Previous wording

Looking ahead, we are focused on growing placements and market share to increase revenue, but expect continued sales pressure due to the current macroeconomic environment. We believe that significant future sales growth is dependent upon a broad industry recovery cycle along with improved economic and global trade stability. Moreover, ongoing geopolitical risks, including the conflicts in Ukraine and the Middle East, could also disrupt global markets and affect our sales.

Current wording

Looking ahead, we see some encouraging indications that the bedding market may be stabilizing to a degree, although at lower unit levels, and we see potential for improvement in demand driven by product replacement cycles. We will continue to focus on expanding placements with key customers and growing market share to increase revenue, but expect continued sales pressure in the current macroeconomic environment. We continue to believe that significant future sales growth is dependent upon a broad industry recovery cycle along with improved economic and global trade stability. Moreover, ongoing geopolitical risks, including the conflicts in Ukraine and the Middle East, could also disrupt global markets and affect our sales.

Previous wording

The cost reductions and efficiency improvements generated by restructuring initiatives in our bedding segment drove the strong turnaround in gross profit compared to the loss in the comparable quarter. With the restructuring now fully completed and price adjustments taking effect in the second quarter of fiscal 2026, we anticipate continued profitability improvement and potential future gains supported by our segment integration initiatives and resulting shared management model.

Current wording

As anticipated, the cost reductions and efficiency improvements generated by the restructuring of our bedding segment in fiscal 2025, along with pricing adjustments, continued to drive significantly improving gross profit in this segment during the quarter. We anticipate continued profitability improvement and potential future gains supported by our segment integration initiatives and resulting shared management model.

Previous wording

As of August 3, 2025, inventory increased by $9.8 million, or 38.9%, compared with July 28, 2024. In connection with the restructuring activity announced on May 1, 2024 (see Note 10 of the consolidated financial statements for further details), the increase in inventory reflects a transition to strategically source certain mattress fabrics with long-standing supply partners. As a result of this increased sourcing, more finished goods inventory is required to be on hand due to longer lead times to acquire products and accommodate our customers. In addition, the increase in inventory is also due to rising costs to produce and source inventory, along with tariffs imposed by U.S. trade policies related to imported products.

Current wording

As of November 2, 2025, inventory of $34.5 million increased by $5.3 million, or 18.1%, compared with inventory totaling $29.3 million as of October 27, 2024. In connection with the restructuring activity announced on May 1, 2024 (see Note 10 of the consolidated financial statements for further details), the increase in inventory reflects a transition to strategically source certain mattress fabrics with long-standing supply partners. As a result of this increased sourcing, more finished goods inventory is required to be on hand due to longer lead times to acquire products and accommodate our customers. In addition, the increase in inventory is also due to rising costs to produce and source inventory, along with tariffs imposed in accordance with U.S. trade policies related to imported products.

Previous wording

Inventory turns were 2.9 for the first quarter of fiscal 2026, as compared with 4.3 for the first quarter of fiscal 2025 and 2.9 for the fourth quarter of fiscal 2025.

Current wording

Inventory turns were 3.2 for the second quarter of fiscal 2026, as compared with 4.1 for the second quarter of fiscal 2025, and 2.9 for the fourth quarter of fiscal 2025.

Previous wording

Property, plant, and equipment has steadily decreased due to reduced capital spending stemming from current unfavorable macro-economic conditions within the home furnishings and bedding industries, as well as restructuring initiatives commencing at the beginning of fiscal 2025 and continuing through the first quarter of fiscal 2026. See note 10 of the consolidated financial statements for further details and description of our restructuring activities.

Current wording

Property, plant, and equipment has steadily decreased due to reduced capital spending stemming from current unfavorable macroeconomic conditions within the home furnishings and bedding industries, as well as restructuring initiatives commencing at the beginning of fiscal 2025 and continuing through the second quarter of fiscal 2026. See note 10 of the consolidated financial statements for further details and description of our restructuring activities.

Previous wording

The $22.1 million as of August 3, 2025, represents property, plant, and equipment of $21.2 million and $888,000 located in the U.S., and Haiti, respectively. The $28.8 million as of July 28, 2024, represents property, plant, and equipment of $20.9 million, $7.4 million, and $511,000 located in the U.S., Canada, and Haiti, respectively. The $23.3 million as of April 27, 2025, represents property, plant, and equipment of $22.3 million, and $955,000 located in the U.S. and Haiti, respectively.

Current wording

The $21.1 million as of November 2, 2025, represents property, plant, and equipment of $20.2 million and $842,000 located in the U.S. and Haiti, respectively. The $24.7 million as of October 27, 2024, represents property, plant, and equipment of $22.2 million, $1.6 million, and $889,000 located in the U.S., Canada, and Haiti, respectively. The $23.3 million as of April 27, 2025, represents property, plant, and equipment of $22.3 million and $955,000 located in the U.S. and Haiti, respectively.

Previous wording

Right of use assets have steadily decreased due to restructuring initiatives commencing at the beginning of fiscal 2025 and continuing through the first quarter fiscal 2026. In connection with these restructuring initiatives, right of use assets decreased due mostly to the termination of an agreement to lease a facility located in Ouanaminthe, Haiti, and the shortening of the period of use associated with two leased facilities located in Quebec, Canada.

Current wording

Right of use assets have steadily decreased due to restructuring initiatives commencing at the beginning of fiscal 2025 and continuing through the second quarter fiscal 2026. In connection with these restructuring initiatives, right of use assets decreased due mostly to the termination of an agreement to lease a facility located in Ouanaminthe, Haiti, and the closure of two leased facilities located in Quebec, Canada.

Previous wording

The $50,000 as of August 3, 2025, represents a right of use asset located in Haiti. The $568,000 as of July 28, 2024, represents right of use assets of $350,000 and $218,000 located in Haiti and Canada, respectively. The $125,000 as of April 27, 2025, represents a right of use asset located in Haiti.

Current wording

As of November 2, 2025, the bedding segment did not have any right of use assets due to the closure of the above mentioned facilities. The $275,000 and $125,000 as of October 27, 2024, and April 27, 2025, respectively, represents a right of use asset located in Haiti.

Previous wording

Assets held for sale are associated with our restructuring initiatives commencing at the beginning of fiscal 2025 and continuing through the first quarter. of fiscal 2026. Refer to Note 8 of the consolidated financial statements for further details.

Current wording

Assets held for sale are associated with our restructuring initiatives commencing at the beginning of fiscal 2025 and continuing through the second quarter of fiscal 2026. Refer to Note 8 of the consolidated financial statements for further details.

Previous wording

Notably, the potential ongoing geopolitical disruptions related to conflicts in Ukraine and the Middle East remain unknown and depend on factors beyond our control. At this time, we cannot reasonably estimate the impact on our upholstery fabrics segment, but we note that if conditions worsen in these situations, including shipping disruptions related to conflicts in the Middle East, the impact on our operations, and/or on our suppliers, customers, consumers, and the global economy, could adversely affect our financial performance.

Current wording

Notably, the macroeconomic impact of the ongoing geopolitical disruptions related to conflicts in Ukraine and the Middle East remain unknown and depend on factors beyond our control. At this time, we cannot reasonably estimate the impact on our upholstery fabrics segment, but we note that if conditions worsen, including shipping disruptions related to conflicts in the Middle East, the impact on our operations, and/or on our suppliers, customers, consumers, and the global economy, could adversely affect our financial performance.

Previous wording

As of August 3, 2025, accounts receivable decreased by $3.1 million, or 27.5%, compared to April 27, 2025. This decrease in accounts receivable is mostly due to shorter payment trends during the first quarter of fiscal 2026, as we experienced a higher sales mix with customers who had longer credit terms during the fourth quarter of fiscal 2025, as compared with the first quarter of fiscal 2026. Accordingly, days’ sales outstanding decreased to 33 days for the first quarter of fiscal 2026, from 46 days for the fourth quarter of fiscal 2025.

Current wording

As of November 2, 2025, accounts receivable of $9.4 million decreased by $(1.8) million, or (16.2)%, compared with $11.3 million as of April 27, 2025. This decrease in accounts receivable is mostly due to shorter payment trends during the second quarter of fiscal 2026, as we experienced a higher sales mix with customers who had longer credit terms during the fourth quarter of fiscal 2025, as compared with the second quarter of fiscal 2026. Accordingly, days’ sales outstanding decreased to 35 days for the second quarter of fiscal 2026, from 46 days for the fourth quarter of fiscal 2025.

Previous wording

Inventory turns were 4.8 for the first quarter of fiscal 2026, as compared with 5.3 for the first quarter of fiscal 2025 and 4.0 for the fourth quarter of fiscal 2025.

Current wording

Inventory turns were 5.0 for the second quarter of fiscal 2026, as compared with 5.1 for the second quarter of fiscal 2025 and 4.0 for the fourth quarter of fiscal 2025.

Previous wording

The $956,000 as of August 3, 2025, represents property, plant, and equipment of $897,000 and $59,000 located in the U.S. and China, respectively. The $1.1 million as of July 28, 2024, represents property, plant, and equipment of $990,000 and $108,000 located in the U.S. and China, respectively. The $1.0 million as of April 27, 2025, represents property, plant, and equipment of $940,000 and $70,000 located in the U.S. and China, respectively.

Current wording

The $785,000 as of November 2, 2025, represents property, plant, and equipment of $737,000 and $48,000 located in the U.S. and China, respectively. The $1.2 million as of October 27, 2024, represents property, plant, and equipment of $1.1 million and $95,000 located in the U.S. and China, respectively. The $1.0 million as of April 27, 2025, represents property, plant, and equipment of $940,000 and $70,000 located in the U.S. and China, respectively.

Previous wording

As of August 3, 2025, right of use assets increased by $681,000 or 46.1%, as compared with July 28, 2024. This increase represents the renewal of certain lease agreements associated with our operations located in China, partially offset by rent expenses incurred over the terms of the existing respective lease agreements.

Current wording

As of November 2, 2025, right of use assets of $1.2 million, decreased by $(1.5) million, or (54.3)%, compared with $2.7 million as of April 27, 2025. The right of use assets of $2.7 million as of April 27, 2025, included the renewal of certain lease agreements associated with our operations located in Shanghai, China and Burlington, North Carolina during the third and fourth quarters of fiscal 2025. The decrease in right of use assets as of November 2, 2025, compared with April 27, 2025, represents rent expense incurred over the terms of the existing respective lease agreements.

Previous wording

The $2.2 million as of August 3, 2025, represents right of use assets of $1.4 million and $771,000 located in China and the U.S., respectively. The $1.5 million as of July 28, 2024, represents right of use assets of $1.1 million and $393,000 located in the U.S. and China, respectively. The $2.7 million as of April 27, 2025, represents right of use assets of $1.7 million and $1.0 million located in China and the U.S., respectively.

Current wording

The $1.2 million as of November 2, 2025, represents right of use assets of $725,000 and $499,000 located in China and the U.S., respectively. The $1.1 million as of October 27, 2024, represents right of use assets of $925,000 and $195,000 located in the U.S. and China, respectively. The $2.7 million as of April 27, 2025, represents right of use assets of $1.7 million and $1.0 million located in China and the U.S., respectively.

Previous wording

The slight decrease in selling, general, and administrative expenses during the first quarter of fiscal 2026, as compared to the first quarter of fiscal 2025, was primarily due to: (i) a decrease in net sales of 10.3% during the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025; (ii) lower professional fees; and (iii) cost reduction initiatives in connection with our restructuring and integration activities announced on May 1, 2024, and April 24, 2025 (see Note 10 of the consolidated financial statements for further details and descriptions of our restructuring initiatives); partially offset by additional SG&A expenses incurred during the first quarter of fiscal 2026 compared with the first quarter of fiscal 2025, as the first quarters of fiscal 2026 and 2025 represented 14-week and 13-week periods, respectively.

Current wording

The decrease in selling, general, and administrative expenses during the second quarter and first half of fiscal 2026, compared with the second quarter and first half of fiscal 2025, was primarily due to: (i) a decrease in net sales of (4.4)% and (7.4)% during the second quarter and first half of fiscal 2026, compared with the second quarter and first half of fiscal 2025, respectively; (ii) lower professional fees; and (iii) cost reduction initiatives in connection with our restructuring and integration activities announced on May 1, 2024, and April 24, 2025 (see Note 10 of the consolidated financial statements for further details and descriptions of our restructuring initiatives). Also, additional SG&A expenses were incurred during the first half of fiscal 2026, compared with the first half of fiscal 2025, as the first half of fiscal 2026 and 2025 represented 27-week and 26-week periods, respectively.

Previous wording

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

Current wording

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

Previous wording

As of the end of the first quarter of fiscal 2026, all of the above restructuring activities related to this announcement have been completed, including the sale of the Property and certain equipment located at Quebec, Canada. Accordingly, we recorded a gain from the sale of the Property and equipment totaling $4.0 million that was classified within restructuring credit in the Consolidated Statement of Net Loss for the period ending August 3, 2025. See notes 7 and 8 of the consolidated financial statements for further details regarding the Sales Agreement associated with the sale of the Property and determination of fair value regarding the Property and equipment.

Current wording

The above restructuring activities related to the May 1, 2024 announcement were mostly completed by the end of the second quarter of fiscal 2026, including the sale of the Property and certain equipment located in Quebec, Canada. Accordingly, we recorded a gain from the sale of this Property and equipment totaling $4.0 million that was classified within restructuring credit in the Consolidated Statement of Net Loss for six-month period ended November 2, 2025. See Notes 7 and 8 of the consolidated financial statements for further details regarding the Sales Agreement associated with the sale of the Property and determination of fair value regarding the Property and equipment.

Previous wording

During the three months ended August 3, 2025, we recorded a restructuring credit of $3.9 million that was mostly related to the gain on sale of the Property noted above and was solely related to the bedding segment. Since the inception of this restructuring initiative, we incurred cumulative restructuring and restructuring related charges totaling $4.8 million, most of which related to the bedding segment.

Current wording

Since inception of this restructuring initiative, we incurred cumulative restructuring and restructuring related charges totaling $5.3 million, most of which related to the bedding segment.

Previous wording

On April 24, 2025 (fourth quarter of fiscal 2025), the company announced a strategic transformation of its operating model that will combine certain activities within the bedding and upholstery business segments and create one integrated Culp-branded business. As part of this strategic transformation, we will close our leased facilities operated by our upholstery segment located in Burlington, North Carolina, and Knoxville, Tennessee, and will transition their production and distribution activities utilizing a shared management model within our owned facility located in Stokesdale, North Carolina. Our Stokesdale, North Carolina facility has historically been solely operated by our bedding segment.

Current wording

On April 24, 2025 (fourth quarter of fiscal 2025), the company announced a strategic transformation of its operating model that will combine certain activities within the bedding and upholstery segments and create one integrated Culp-branded business. As part of this strategic transformation, we are closing our leased facilities operated by our upholstery segment located in Burlington, North Carolina, and Knoxville, Tennessee, and are currently transitioning their production and distribution activities to a shared management model within our owned facility located in Stokesdale, North Carolina, which has historically been solely operated by our bedding segment.

Previous wording

During the three months ended August 3, 2025, we incurred restructuring expense of $349,000 related to this strategic transformation, of which $256,000 and $93,000 related to the bedding and upholstery segments, respectively. The estimated cumulative restructuring and restructuring related charges for this initiative are expected to be $2.2 million, of which $674,000 is expected to be cash expenditures. The $2.2 million of estimated cumulative restructuring and restructuring related charges associated with this initiative represents: (i) a non-cash charge for impairment of Read's tradename totaling $540,000 (see Note 6 located in the notes to the consolidated financial statements for further details); (ii) a non-cash charge of $450,000 associated with the disposal and markdowns of inventory; (iii) non-cash lease termination costs of $125,000; (iv) non-cash accelerated depreciation expense, along with impairments and losses on disposal of fixed assets totaling $424,000; (v) cash charges for employee termination benefits of $207,000; (vi) cash charges for facility consolidation and relocation expenses of $432,000; and (vii) cash charges for other associated costs of $35,000. We expect the initiatives associated with this strategic transformation to be substantially completed by December 31, 2025.

Current wording

The estimated cumulative restructuring and restructuring related charges for this initiative are expected to be $2.6 million, of which $1.1 million is expected to be cash expenditures. The $2.6 million of estimated cumulative restructuring and restructuring related charges associated with this initiative represents: (i) a non-cash charge for impairment of Read's tradename totaling $540,000 (see Note 6 located in the notes to the consolidated financial statements for further details); (ii) a non-cash charge of $393,000 associated with the disposal and markdowns of inventory; (iii) non-cash lease termination costs of $116,000; (iv) non-cash accelerated depreciation expense, along with impairments and losses on disposal of fixed assets totaling $399,000; (v) cash charges for employee termination benefits of $386,000; (vi) cash charges for facility consolidation and relocation expenses of $655,000; and (vii) cash charges for other associated costs of $69,000. We expect the initiatives associated with this strategic transformation to be substantially completed by the end of the third quarter of fiscal 2026.

Previous wording

The following summarizes restructuring (credit) expense associated with the above announcements for the three month periods ended August 3, 2025, and July 28, 2024:

Current wording

The following summarizes restructuring expense (credit) and restructuring related charges associated with the above announcements for the three-month and six-month periods ended November 2, 2025:

Previous wording

The increase in interest expense reflects increased borrowings under line of credit agreements associated with our operations located in the U.S. and China.

Current wording

The increase in interest expense during the second quarter and first half of fiscal 2026, compared with the second quarter and first half of fiscal 2025, reflects increased borrowings under line of credit agreements associated with our operations located in the U.S. and China.

Previous wording

The decrease in interest income is due to lower average cash balances during the first quarter of fiscal 2026, compared with the first quarter of fiscal 2025.

Current wording

During the second quarter and first half of fiscal 2026, interest income remained flat, compared with the second quarter and first half of fiscal 2025. This trend represents lower average cash balances during the second quarter and first half of fiscal 2026, compared with the second quarter and first half of fiscal 2025, offset by interest earned from a note receivable associated with the sale of the Property that occurred during the first quarter of fiscal 2026. During the second quarter and first half of fiscal 2026, interest income of $73,000 and $149,000, respectively, was earned from this note receivable, which such interest income was not earned during the second quarter and first half of fiscal 2025.

Previous wording

The change in other expense during the first quarter of fiscal 2026, compared with the first quarter of fiscal 2025, was due primarily to less favorable foreign currency exchange rates applied against our balance sheet accounts denominated in Chinese Renminbi to determine the corresponding U.S. dollar financial reporting amounts. During the first quarter of fiscal 2026, we incurred a foreign currency exchange rate loss associated with our operations located in China totaling $189,000, compared with a foreign currency exchange rate loss of $45,000 incurred during the first quarter of fiscal 2025.

Current wording

The increase in other expense during the second quarter and first half of fiscal 2026, compared with the second quarter and first half of fiscal 2025, was mostly due to less favorable foreign currency exchange rates applied against our balance sheet accounts denominated in Chinese Renminbi to determine the corresponding U.S. dollar financial reporting amounts. During the second quarter and first half of fiscal 2026, we incurred foreign currency exchange rate losses associated with our operations located in China totaling $273,000 and $462,000, respectively, compared with foreign currency exchange rate losses of $186,000 and $231,000, respectively, incurred during the second quarter and first half of fiscal 2025. In addition, this increase in other expense included higher expenses associated with our rabbi trust that funds our deferred compensation liability during the second quarter and first half of fiscal 2026, compared with the second quarter and first half of fiscal 2025.

Previous wording

The $189,000 foreign currency exchange rate loss described above was mostly non-cash and offset by an income tax benefit of $119,000. The income tax benefit of $119,000 was associated with tax deductible foreign currency exchange rate losses based on less favorable foreign currency exchange rates applied against balance sheet accounts denominated in U.S. dollars to determine the corresponding Chinese Renminbi local currency amounts. The foreign currency exchange rate loss derived from U.S. dollar denominated balance sheet accounts is considered tax deductible, as we incur income tax expense and pay income taxes in China's local currency.

Current wording

The $462,000 foreign currency exchange rate loss for the first half of fiscal 2026 described above was mostly non-cash and offset by an income tax benefit of $249,000. The income tax benefit of $249,000 was associated with tax deductible foreign currency exchange rate losses based on less favorable foreign currency exchange rates applied against balance sheet accounts denominated in U.S. dollars to determine the corresponding Chinese Renminbi local currency amounts. The foreign currency exchange rate loss derived from U.S. dollar denominated balance sheet accounts is considered tax deductible, as we incur income tax expense and pay income taxes in China's local currency.

Previous wording

We recorded income tax expense of $1.4 million, or 120.3% of income before income taxes, for the first quarter, compared with income tax expense of $240,000 or (3.4%) of loss before income taxes, for the comparable period.

Current wording

We recorded income tax expense of $1.6 million, or (53.2)% of loss before income taxes, for the six-month period ended November 2, 2025, compared with income tax expense of $190,000, or (1.5)% of loss before income taxes, for the six-month period ended October 27, 2024.

Previous wording

Our effective income tax rates for the three-month periods ended August 3, 2025, and July 28, 2024, were based upon the estimated effective income tax rate applicable for the full year after giving effect to any significant items related specifically to interim periods. When calculating the annual estimated effective income tax rates for the three-month periods ended August 3, 2025, and July 28, 2024, we were subject to loss limitation rules. These loss limitation rules require any taxable loss associated with our U.S. or foreign operations to be excluded from the annual estimated effective income tax rate calculation if it was determined that no income tax benefit could be recognized during the current fiscal year. The effective income tax rate can be affected over the fiscal year by the mix and timing of actual earnings from our U.S. operations and foreign subsidiaries located in China, Canada, Haiti, and Vietnam versus annual projections, as well as changes in foreign currency exchange rates in relation to the U.S. dollar.

Current wording

Our consolidated effective income tax rates for the six-month periods ended November 2, 2025, and October 27, 2024, were based upon the estimated effective income tax rate applicable for the full year after giving effect to any significant items related specifically to interim periods. When calculating the annual estimated effective income tax rates for the six-month periods ended November 2, 2025, and October 27, 2024, we were subject to loss limitation rules. These loss limitation rules require any pre-tax loss associated with our U.S. or foreign operations to be excluded from the annual estimated effective income tax rate calculation if it was determined that no income tax benefit could be recognized during the current fiscal year. The effective income tax rate can be affected over the fiscal year by the mix and timing of actual earnings from our U.S. operations and foreign subsidiaries located in China, Canada, Haiti, and Vietnam versus annual projections, as well as changes in foreign currency exchange rates in relation to the U.S. dollar.

Previous wording

The following schedule summarizes the principal differences between income tax expense at the U.S. federal income tax rate and the effective income tax rate reflected in the consolidated financial statements for the three-month periods ended August 3, 2025, and July 28, 2024:

Current wording

The following schedule summarizes the principal differences between income tax expense at the U.S. federal income tax rate and the effective income tax rate reflected in the consolidated financial statements for the six-month periods ended November 2, 2025, and October 27, 2024: