CULP - NYSE

Good morning, everyone, and welcome to the Culp, Inc. Second Quarter Fiscal 2025 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Dru Anderson. Ma'am, please go ahead.

Thank you. Good morning, and welcome to the Culp conference call to review the company's results for the second quarter of fiscal 2025. 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 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 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 at culp.com. A slide presentation on the company's restructuring plan 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.

Thank you, Dru. 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; Mary Beth Hunsberger, President of our Upholstery Fabrics business; and Tommy Bruno, President of our Mattress Fabrics business. Today, I will begin the call with some detailed comments. And as mentioned in the introduction, we have posted an updated slide presentation to our Investor Relations website that covers information on the progress of our restructuring plan and the timing to completion, which we will refer to today. Ken will then review the financial results for the quarter. And after that, I'll briefly discuss our business outlook for the second half of fiscal 2025, and we will take some questions. For the second quarter, we made continued progress on our plan to return to consolidated profitability post restructuring, even within the currently challenged demand environment. We are making changes to our platforms and improving our market position in both segments of our business. While we certainly expect the demand pressure in the quarter, the worsening conditions in the upholstery fabrics segment were an added headwind to our pace of recovery. Specifically, we saw accelerated softness in our residential upholstery fabrics business leading to lower-than-expected sales performance. Nevertheless, we remain encouraged with our strategic approach, our comprehensive restructuring process and the growth we expect for market share penetration along with an eventual normalized environment. In spite of the 5% decline in consolidated year-over-year revenue for the second quarter, we believe we are outperforming the industry average. We were especially pleased with the sequential improvement in sales and operating performance from our mattress fabrics segment during the quarter. Sales for this segment increased 7.1% compared to the first quarter of fiscal 2025 driven by higher order levels, which we believe are indicative of our growing market position. We are steadily securing new opportunities in both fabrics and sewn covers, thanks to robust product development and a strategic supply chain. We are providing our customers with innovative and functional solutions and serving them with speed to market and long-term supply security. The mattress fabrics segment also sequentially reduced its operating loss by 70.7% for the quarter, reflecting the solid progress we are making with our restructuring activity, and we expect this segment to return to a profitable run rate in the second half of this fiscal year. The vast majority of our restructuring will be complete in the third quarter. And at the end of November, we have fully ceased production in Canada. With the completion of this initiative, we will have a preferred manufacturing and sourcing supply chain model, featuring an improved and efficient U.S.A. location in North Carolina for fabrics, and a rightsized cut-and-sew platform in Haiti, which is located on the Northeast Dominican Republic border. Our near-shore Haiti platform also includes recently installed quilting capability with new equipment, which opens an additional product opportunity for CHF and an additional service offering to our customers. Our North American capacity has been expanded by strong supply chain operations in Asia, including a growing platform for fabrics and cut and sewn covers in Vietnam as well as a long-term Turkey relationship for high-volume fabric supply. We are executing continual operational improvements. And with the benefit of the restructuring activities, we expect increased margins on knits, wovens and sewn covers in the back half of the fiscal year. Despite all of this positive information, as expected due to the scope of this restructuring initiative, inefficiencies associated with the process did affect mattress fabrics operating performance during Q2. Turning to our upholstery fabrics segment. Sales for residential fabrics were affected by more dramatic weakness in residential home furnishing sales. While we did expect pressure during the period, we experienced larger impacts from customers adjusting their inventory levels to align with demand after a strong ordering period during the first quarter. This included a significant and temporary reduction in orders from a large customer during the second quarter, which is also expected to affect sales during our third quarter. It is important to note that in the face of this pressure, we remain optimistic about our residential fabrics potential as we have noted strong customer reaction at both the recent High Point furniture market and the Interwoven fabric show. Our product line is diverse, consumer-focused and stylish, and we are diligent in presenting our customers with varied supply chain strategies. With uncertainty around tariffs and trade regulations, it is important to offer supply chain options. And we are doing that by developing products via our extensive Asia operations with increased focus in Vietnam, while also reviewing other parts of the world to enable a preferred response. We also recently unveiled a new branding strategy at the Interwoven fabric show to accentuate our LiveSmart brand of performance fabrics. More to come on this as we look ahead, but we are strengthening our offering of performance, sustainability and well-being focused products. As fabrics with increased functionality of becoming an expectation for many of our manufacturing customers. Additionally, sales for our hospitality contract fabric business remained solid during the quarter, representing 35% of CUF's total sales, and we are realizing increased potential with commercial fabrics and window treatments. This hospitality contract part of the business generally affords higher margins, and we are building a strong model to supply a diverse product range. Of particular note is the improvement we are making with window treatments under our Read Window platform. We are currently producing window treatments in Knoxville, Tennessee and we are expanding our blackout roller shape production in Burlington, North Carolina week by week. The window treatment portion of our business is an important profit improvement target for the second half of fiscal 2025. Overall, we remain pleased with the upholstery fabrics segment's continuing profitability supported by an asset-light platform. While the foreign exchange rate associated with our operations in China was a pressure to operating results in Q2. We are currently seeing a favorable currency impact in Q3 that is expected to be a profit tailwind for us during the quarter. The actions we have taken over the last year to rationalize our finishing operation and improve our supply chain are lowering our manufacturing costs for upholstery fabrics, which gives us confidence to navigate our business through a variety of environments. I'd now like to circle back to give more detail on the progress of our mattress fabrics restructuring actions. As we have discussed previously, we announced a wide-ranging restructuring plan in early May with the primary focus on our mattress fabrics segment. The announced adjustments once fully implemented, will enable us to operate more efficiently and profitably with a lower level of fixed costs and without limiting our ability to grow the business. This restructuring initiative is critical to us returning to consolidated profitability in its current pressured environment. As already discussed, mattress fabrics operating results were pressured by these restructuring actions in the second quarter but we believe we are on target to achieve positive consolidated adjusted EBITDA for the second half of fiscal 2025 and a return to positive consolidated adjusted operating income sometime in the fourth quarter. Mattress Fabrics improvement is the critical catalyst to our consolidated recovery. As we rationalize our capacity, reduce fixed costs and increase efficiency, we expect to make significant improvements to our financial results even without typical sales growth from a macro market recovery. This point is illustrated mathematically in a hypothetical example on Page 6 of the updated restructuring deck. Again, to reiterate, our mattress fabrics restructuring is a comprehensive undertaking that impacts people, plant consolidations, equipment relocation and process improvements. But with it, we are successfully lowering our cost structure despite weak demand, and we look forward to meeting our objectives. I do want to emphasize that we are grateful for the support we have received from our valued employees, customers and suppliers during this process, and we are confident that the strength of these relationships are helping to drive our recovery. It is our focus to consolidate our operating facilities efficiently without any disruption to programs or customers. The scale and scope of this mattress fabrics restructuring cannot be overstated. It's a dynamic process, but one that will be accretive. We are enhancing our business platform in the current environment and with our growing market position driven by innovation and styling along with improving operational activities and best-in-class manufacturing and sourcing capabilities, we believe we are very well positioned for the future. I'd also like to again remind you that we have updated our restructuring slide deck, and it's posted on our Investor Relations page. The slide deck purpose is to help illustrate the details of the restructuring plan, including the actions we are taking, the time line for those actions and the expected financial impact. Updating the progress of our restructuring initiatives, the consolidation of our North American mattress fabrics operation is largely complete, with a phased wind-down and pending closure of our manufacturing facility in Canada. We discontinued knitting production at our Canadian facility in Q2, and we just discontinued damage squeezing production at this facility last week. With that step, we now have fully transitioned our damask weaving business to a sourcing model, primarily with one of our long-term dedicated manufacturing partners, which will improve margins for this business. We are also nearing completion of the relocation of certain knitting and finishing equipment to our Stokesdale, North Carolina facility, and we expect the last steps of this optimization will be finalized by the end of the third quarter. We also completed the consolidation of our Haiti sew and mattress cover operation during the first quarter, reducing our cost and establishing steady run schedules at this location, and we recently added quilting capabilities for important new product development. This nearshore platform serves an important piece of our mattress fabric supply chain for cut and sewn cover capacity. Additionally, we have listed for sale and are actively marketing our Canadian property, and we hope to exit and sell that facility in the fourth quarter of our fiscal year. But of course, the timing of that will be dependent on the market and interest for the building. More details and general time line, again, are found on Page 4 of the updated restructuring day. Beyond this restructuring process, our expectation is to return to positive consolidated adjusted operating income, excluding restructuring and related charges and in the currently depressed demand level sometime in the fourth quarter of fiscal 2025. Our plan continues to project a solid $10 million to $11 million in annualized cost and productivity savings from the restructuring, mostly via the mattress fabrics division but we do expect to generate over $1 million in annualized savings from reductions with unallocated corporate and shared services. Based on the restructuring activities that have been completed, along with our updated estimates on those that remain underway, we now expect to incur total restructuring-related charges of $7.3 million. Cash charges are now expected to be $4.4 million, increased somewhat as a result of a strategic decision to retain and relocate some additional equipment to optimize efficiency and due to some increased severance charges in Canada. We expect the vast majority of these charges will have been incurred by the end of the third quarter of fiscal 2025. We also anticipate funding close to $2 million of the cash cost with proceeds from the sale of excess manufacturing equipment and a building lease termination in Haiti and we currently expect approximately $6 million to $8 million of net proceeds from the sale of our Canadian facility. Our expected proceeds from the building and property sale has decreased somewhat due to a hardening real estate market, along with Canadian Ministry zoning changes, limiting some industrial activities in St. Jerome, Quebec. It is important to emphasize that these expected cash proceeds are after all property, real estate and taxes associated with winding down our operations in Canada. The cash and liquidity update is shown on Slide 5 of the restructuring slide deck. The expected benefit of our restructuring actions on both profitability and liquidity is evident. And again, this is all assuming no lift in market demand. Closing my comments and looking ahead. We are optimistic about the progress we are making with our restructuring initiatives as well as our solid market position in both businesses. We are optimizing our operations and cost structure, providing excellent customer service and winning new placements with our innovative product portfolio. Although the restructuring activity involves a significant undertaking and short-term inefficiencies, we are demonstrating quarter-by-quarter operating improvement and a challenged macro demand environment. Importantly, while we anticipate that industry conditions will remain somewhat pressured through fiscal 2025, we expect the strategic actions we are taking will position us for a return to profitability post restructuring, again, at the currently depressed demand levels as well as growth opportunities as market conditions improve. I'll now turn the call over to Ken, who will review the financial results for the quarter, and then I'll review the outlook we are providing as we look ahead to the second half of fiscal 2025. Ken?

Thanks, Iv. Here are the financial highlights for the second quarter. Net sales were $55.7 million, down 5.2% compared with the prior year period. The company reported a loss of operations of $5.4 million, which included $2.8 million in restructuring expense and related charges as compared with the loss of operations of $2.2 million for the prior year period, which included $66,000 in restructuring and related charges. Adjusted loss from operations was $2.6 million compared with an adjusted loss of operations of $2.2 million in the prior year period. Notably, the $2.6 million adjusted operating loss was sequentially improved as compared to Q1's adjusted operating loss. I'll comment in more detail on divisional sales and operating performance in a moment. Net loss in the second quarter was $5.6 million or $0.45 per diluted share compared with a net loss of $2.4 million or $0.19 per diluted share for the prior year period. Our overall operating performance for the second quarter was pressured by lower sales and inefficiencies primarily related to the significant restructuring activity underway in the mattress fabrics segment. Adjusted EBITDA for the 12-month period ending with Q2 was a negative $1.3 million as compared to negative $240,000 for the prior year period. The effective income tax rate for the second quarter of this fiscal year was 0.9% compared with a negative 27% for the same period a year ago. Our effective income tax rate for the quarter continues to be impacted by the company's mix of earnings between our U.S. and foreign subsidiaries with an operating loss in the U.S., a significant operating loss in Canada due to the restructuring effort and taxable income mostly from China, which has a higher income tax rate compared to the U.S. Expected cash income tax payments for this fiscal year will not be given at this time due to the restructuring effort. Notably, we do not expect to incur any income taxes in the U.S. on a cash basis for the foreseeable future due to our existing U.S. federal net operating loss carry forwards totaling almost $70 million as of the end of last fiscal year end. Now let's take a look at our two business segments. For the mattress fabrics segment, sales for the second quarter were $30.1 million, down 4.2% compared with last year's second quarter. Sequentially sales were up 7.1% compared with the prior quarter. While year-over-year sales were affected by weakness in the domestic mattress industry, the sequential improvement in sales was driven by higher order levels, which we believe are indicative of CHF product innovation and improving market position. Operating loss for the quarter was $1 million compared with an operating loss of $936,000 a year ago and compares to an operating loss of $3.5 million for the prior quarter. Our operating performance for the quarter was pressured by lower year-over-year sales volumes and manufacturing inefficiencies, including those related to the significant restructuring initiatives to wind down CHF Canadian operation and moved certain knitting equipment to our Stokesdale, North Carolina facility. However, while restructuring-related inefficiency negatively affected the quarter, the reduction in operating loss as compared sequentially to the first quarter of this fiscal year, reflecting the significant progress CHF is making to reduce costs, especially lower fixed costs related to the closure of the Canadian facility. For the upholstery fabric segment sales for the first quarter were $25.6 million, down 6.4% compared to the prior year period. Sequentially, sales were down 10% compared to the prior quarter. The reduction in sales was driven primarily by further demand weakness in the residential home furnishings industry, which resulted in lower order levels that some customers, including a significant customer adjusted their inventory to align with soft industry demand. This ordering variability will also pressure residential fabric sales for the third quarter of this fiscal year. Sales for our hospitality contract business, including Read Window were flat compared to both prior year and sequential periods. Income from operations for the quarter was $615,000 compared with income from operations of $1.4 million a year ago. Operating performance for the quarter was affected by lower sales and unfavorable China foreign currency exchange rate and higher freight costs, offset somewhat by lower SG&A and lower fixed costs. Now let me turn to the balance sheet. We reported $10.5 million total cash and $4.1 million outstanding debt under our China credit line as of the end of the second quarter. Cash flow from operations and free cash flow were negative $2.6 million and a negative $3.4 million, respectively, for the first six months of this fiscal year compared with cash flow from operations and free cash flow of negative $4.5 million and a negative $5.6 million, respectively, for the same period last fiscal year. Our cash flow from operations and free cash flow during the first six months of this fiscal year affected by operating losses and planned strategic investments in capital expenditures, mostly related to the mattress fabrics segment, partially offset by lower working capital. Capital expenditures for the first six months of this fiscal year were $1.6 million, based on current expectations, capital spending for this fiscal year is projected to be approximately $3.5 million to $4 million and will center mostly on maintenance, CapEx and quick payback projects that will increase efficiencies and improve quality, especially for the mattress fabrics segment. Based on current expectations, depreciation for this year -- for this fiscal year is expected to be approximately $5.6 million. With respect to liquidity, as of the end of the second quarter, we had approximately $33.1 million, consisting of $10.5 million in cash and $22.6 million of borrowing availability under our domestic credit facility. As noted earlier, we also had $4.1 million in borrowings outstanding under our China credit line as of the end of the quarter. The company's existing and future borrowings under our domestic and foreign credit facilities during this fiscal year are in connection with our restructuring activities, the timing of payments to vendors ahead of the Chinese New Year holiday and to fund worldwide working capital to grow the business. Importantly, given these objectives, our outstanding borrowings could exceed our available cash at the end of the third quarter for a net debt position as we await the sale of our Canadian facility. We did not repurchase any shares during the first half 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 third quarter as we remain focused on preserving liquidity and being positioned to support future growth opportunities. With that, I'll turn the call back over to Iv to discuss the general outlook for the second half of this fiscal year, and then we will take your questions. Iv?

Thank you, Ken. As we've talked about due to the expected continued pressure on sales and the significant restructuring activity underway in the mattress fabrics segment, we are only providing limited financial guidance at this time. We expect our consolidated net sales for the third quarter to be flat to slightly down sequentially with continued pressure on residential upholstery fabrics, and approximately one week less in shipping days for both segments due to customer holiday closures. We currently expect positive adjusted EBITDA, excluding restructuring and related charges for the second half for this fiscal year and a return to positive consolidated adjusted operating income, excluding restructuring and related charges sometime in the fourth quarter of this fiscal year. With that, we will now take your questions.

Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] Our first question today comes from Brian Gordon from Water Tower Research. Please go ahead with your question.

Hey, good morning, everyone. First of all, thanks for taking my questions. Certainly a challenging quarter. My first question is on the sequential improvement that we saw in the mattress industry. I think it's pretty impressive given the current industry headwind. Is it right to think that you guys are gaining share in this business? And what do you attribute the strong order growth here? Yes.

Good morning, Brian. Thank you for jumping on with us today. Good question. I'm going to pivot this primarily to Tommy because he's managing that business, but we are very encouraged with where we're headed in mattress fabrics. As we talked about, the catalyst to us getting back to our commitment of profitability in this environment is mattress fabrics. And we are quite pleased with the performance and where they're ahead of it. Tommy, you may want to context as to what you see in share and what you see in general macro demand?

Brian, yes, we are growing our share. That is the primary contribution in terms of regrowing sequentially from the bottom in Q4. The macro environment does remain challenged, but we have had some strategic placements and good run rates on new programs that we feel confident about to continue our growth through the back half of this year. So we see the run rates on our business being pretty stable.

Okay. Just to follow up, do you see that positive momentum going through Q3, Q4?

Yes, sir, we do. We feel confident in the run rate. As Iv mentioned, we do have one week of less shipping days in Q3. But we have good momentum, and we've got a docket of new programs that are scheduled to launch in Q3 and Q4.

Excellent. So my next question is on the upholstery side of the business. I mean I would say that the contraction that we did see, while it was potentially unexpected, it's definitely not surprising given what's happening in the industry overall. My question though would be how much of the change that you guys saw is a reflection of the underlying demand versus your customers just being more conservative in how they're building inventories for 2025? And do you have any insight into what that delta might be between the inventory build and the end demand dynamics?

Yes. Brian, I'm going to pivot that to Mary Beth because she is living the upholstery segment day by day. But it is a really good question and one we've thought a lot about. The upholstery segment has been a stalwart for us through a lot of ups and downs. It's been steady. It's remained profitable, and we're bullish on that segment. We have been. There's been a lot of interest from our customer base and new products, and there's a thirst to get that innovative product to retail floors. And I think that as we get out and start to see some improvement, there were some just some customers getting ahead of themselves and ordering more than they needed, and now we're being caught in an adjustment. But Mary Beth, you can add color as to what you see and what it means. And Brian, we're talking residential fabrics here at this point, right? That's your question. Mary Beth, add some color to that.

Sure, sure. Brian, yes, I would definitely say that most of our customers have reported continued pressure in the industry, perhaps longer than we anticipated earlier in the year. While we did see some uptick in enthusiasm in Q1, the customer proved us wrong and proved that we were perhaps too aggressive, some of our customers too aggressive in building their inventory in Q1. So now assuming that the industry recovery is delayed into that calendar year, we saw these customers normalize their inventory level. And specifically, the key customer that had significant change in ordering patterns. If you normalize that key customer Q1 to Q3, we believe we're on pace or slightly better than the industry with positive placement going into the spring season.

That's good to -- yes, certainly. That's good to hear. If I could pivot just very quickly, though, to the contract and hospitality side, and that on a relative basis was an outperformer. Could you maybe break down the difference between what's happening on the office side versus the hospitality side?

Sure. Good question. So within our contract hospitality numbers, a subsection of that is office furniture, primarily seating. And since COVID with the -- just decline and changes in how we work in offices, that portion of that channel is down significantly. So if you tease out the two parts, we're seeing extreme favorability with hospitality with the large pipeline of hotels and the number of brand standards that we've been able to capture. So that is outpacing and overcoming this loss on the office seating side.

Great. Thank you.

And Brian, I would add one more thing on -- just as you tease out hospitality, I mean, it's important for investors to understand, it's a two part hospitality business. We have a very robust fabric business that we sell to hospitality, guest rooms, public space cinemas, whatever it may be. And we also have a very strong building window treatment business for hotels, timeshares, blackout roller shades, a lot of excitement in the hospitality segment of that business, fabrics and window treatments.

Thank you. I think that's a good point to note. The next question, if I may, maybe more of a question for Ken. There's obviously a lot of moving parts with the restructuring. I was hoping that maybe we could get a little bit more insight into what the economics of the mattress business is going to look like when we move through the current restructuring. Kind of more specifically, how should investors be thinking about what the breakeven point for this segment could be? And then what do contribution margins look like on the other end of this?

Yes, Brian. Yes, it's a great question. I think, obviously, getting through the restructuring is priority one, and that's -- we're making great progress on that, and we're looking forward to that point. I think I would look at it as the -- we said that on an annualized basis, once all activity had been completed, we would generate at least $10 million in savings. So if you refer to that slide in the deck, the restructuring slide, it shows the potential that CHF has once we get past the restructuring. The other thing that we're excited about, I mean, that's step number one is to get to that point and get those savings implemented. The second part is the confidence and the encouragement that we have with regard to as the business grows, the leverage that we get from just being able to have the current platform in place, both fixed cost and SG&A and the leverage we would get from there as we grow sales. I mean, that's the exciting part. I mean we're going to be profitable at the current level. But when we start growing, we're going to leverage those fixed costs and be able to really take advantage of a lot of opportunity there to grow the bottom line. So get the restructuring in place first, get profitable and then grow the business. And that's where the real growth comes from in opportunity.

Yes, I would agree with that. I think as I look at the model, the potential for really significant operating leverage moving forward is probably what I am most focused on. So definitely, thanks for that. I have one kind of final question and this is probably more for you, Iv. How concerned are you about the potential for increased tariffs under the new administration? And what the set of options that you guys have at the ready to respond to any potential changes that you see on that front?

Brian, great question. We're getting that discussion frequently with customers today. It's in the news a lot, of course. And while there are no sure answers, there aren't safe easy plug-and-play options. I think on that topic, I feel as good as I could feel the way both businesses are set up and I'll let each of them -- I'll let Tommy and Mary Beth both speak to it, why they're confident. But I think we've always had a mindset of maintaining optionality in our supply chain and being able to flex our business to where we need to serve a customer. And that will be no different with tariffs. And we have great strategies in both businesses. From an asset-light model in CUF that allows flexibility to budding U.S. stronghold in the mattress side. So I'm excited about both. But I know Tommy and Mary Beth both have bigger pieces than just as they think about it. So Tommy, you want to go first on how you're hearing about tariffs in your space?

Yes, Brian, for us, we are -- we're very pleased with the fact that we've now moved all of our capabilities into the U.S., which really insulates us quite a bit versus the things that we're hearing from the incoming administration. So having our mega plant be in North Carolina, we feel is a value to our customers. It can provide confidence and security. And then across the world, one of the things we like about our nearshore cut and sewn -- our nearshore cut and sewn is that it allows us to bring fabrics in duty and tariff free and cut and sew them into final covers and then bring them in to the U.S. So we feel like we're pretty well insulated on the mattress side. And then we have options in Vietnam now that we've set up and we started manufacturing. So depending on how things go, we feel like we've got a lot of different varied options to present all of our customers.

Brian, I would say from the upholstery side, the vast majority of our products do not ship into the U.S. So we are fairly insulated from that as well for the portion that does ship into the U.S. The nice thing about an asset-light model and two to three decades of relationships with global suppliers means that we are nimble. We have begun a few years ago some setup in Vietnam. We are continuing to focus there. But again, we can pivot as needed.

Great. Great. Thank you, everyone. And best of luck up for the third quarter and we will be speaking again soon.

Thank you, Brian. Appreciate the time.

And ladies and gentlemen, at this time, we'll be ending today's question-and-answer session. I'd like to turn the floor back over to the management team for any closing comments.

Thank you, operator. And again, thank you 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.