Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period after the registrant was required to submit such files). ☒ Yes No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Common shares outstanding as of March ~~8, 2023:~~6, 2024: ~~12,311,583~~12,469,903

FOR THE THREE MONTHS ENDED JANUARY ~~29, 2023,~~28, 2024, AND JANUARY ~~30, 2022~~29, 2023

FOR THE NINE MONTHS ENDED JANUARY ~~29, 2023,~~28, 2024, AND JANUARY ~~30, 2022~~29, 2023

FOR THE THREE AND NINE MONTHS ENDED JANUARY ~~29, 2023,~~28, 2024, AND JANUARY ~~30, 2022~~29, 2023

JANUARY 28, 2024, JANUARY 29, 2023, ~~JANUARY~~AND APRIL 30, ~~2022, AND MAY 1, 2022~~2023


	January 29,		January 30,		* May 1,		January 28,		January 29,		April 30,
	2023		2022		2022		2024		2023		2023*
Current assets:
Cash and cash equivalents	$	16,725		11,780		14,550	$	12,585	$	16,725	$	20,964
Short-term investments - held-to-maturity		—		1,315		—
Short-term investments - available for sale		—		438		—
Short-term investments - rabbi trust		2,420		—		—		937		2,420		1,404
Accounts receivable, net		21,241		38,998		22,226		23,686		21,241		24,778
Inventories		47,627		73,133		66,557		46,877		47,627		45,080
Short-term note receivable								260		—		219
Assets held for sale		1,950		—		—		—		1,950		—
Current income taxes receivable		238		367		857		476		238		—
Other current assets		2,839		4,419		2,986		4,237		2,839		3,071
Total current assets		93,040		130,450		107,176		89,058		93,040		95,516
Property, plant and equipment, net		37,192		42,778		41,702		34,021		37,192		36,111
Right of use assets		8,913		16,595		15,577		6,952		8,913		8,191
Intangible assets		2,346		2,722		2,628		1,970		2,346		2,252
Long-term investments - rabbi trust		7,725		9,223		9,357		7,083		7,725		7,067
Long-term investments - held-to-maturity		—		8,677		—
Long-term note receivable								1,530		—		1,726
Deferred income taxes		463		500		528		531		463		480
Other assets		919		622		595		853		919		840
Total assets	$	150,598		211,567		177,563	$	141,998	$	150,598	$	152,183
Current liabilities:
Accounts payable - trade	$	22,540		46,690		20,099	$	29,793	$	22,540	$	29,442
Accounts payable - capital expenditures		25		33		473		19		25		56
Operating lease liability - current		2,785		3,295		3,219		2,524		2,785		2,640
Deferred compensation		2,420		—		—
Deferred compensation - current								937		2,420		1,404
Deferred revenue		1,430		518		520		1,798		1,430		1,192
Accrued expenses		6,701		8,446		7,832		7,300		6,701		8,533
Income taxes payable - current		467		240		413		1,070		467		753
Total current liabilities		36,368		59,222		32,556		43,441		36,368		44,020
Operating lease liability - long-term		4,399		7,848		7,062		2,656		4,399		3,612
Income taxes payable - long-term		2,648		3,099		3,097		2,072		2,648		2,675
Deferred income taxes		6,089		5,484		6,004		6,177		6,089		5,954
Deferred compensation		7,590		9,180		9,343
Deferred compensation - long-term								6,856		7,590		6,842
Total liabilities		57,094		84,833		58,062		61,202		57,094		63,103
Commitments and Contingencies (Notes 9, 15, and 16)
Commitments and Contingencies (Notes 10, 16, and 17)
Shareholders' equity
Preferred stock, $0.05 par value, authorized 10,000,000		—		—		—		—		—		—
Common stock, $0.05 par value, authorized 40,000,000 shares, issued and outstanding 12,311,583 at January 29, 2023; 12,218,067 at January 30, 2022, and 12,228,629 at May 1, 2022		616		611		611
Common stock, $0.05 par value, authorized 40,000,000 shares, issued and outstanding 12,469,903 at January 28, 2024; 12,311,583 at January 29, 2023, and 12,327,414 at April 30, 2023								624		616		616
Capital contributed in excess of par value		43,992		42,890		43,143		44,843		43,992		44,250
Accumulated earnings		48,875		83,145		75,715		35,241		48,875		44,195
Accumulated other comprehensive income		21		88		32		88		21		19
Total shareholders' equity		93,504		126,734		119,501		80,796		93,504		89,080
Total liabilities and shareholders' equity	$	150,598		211,567		177,563	$	141,998	$	150,598	$	152,183

FOR THE NINE MONTHS ENDED JANUARY ~~29, 2023,~~28, 2024, AND JANUARY ~~30, 2022~~29, 2023



						Capital						Accumulated											Capital						Accumulated
						Contributed						Other			Total								Contributed						Other			Total
	Common Stock					in Excess			Accumulated			Comprehensive			Shareholders'			Common Stock					in Excess			Accumulated			Comprehensive			Shareholders'
	Shares			Amount		of Par Value			Earnings			Income (Loss)			Equity			Shares			Amount		of Par Value			Earnings			Income (Loss)			Equity
Balance, May 1, 2022 *		12,228,629		$	611	$	43,143		$	75,715		$	32		$	119,501			12,228,629		$	611	$	43,143		$	75,715		$	32		$	119,501
Net loss		—			—		—			(5,699	)		—			(5,699	)		—			—		—			(5,699	)		—			(5,699	)
Stock-based compensation		—			—		252			—			—			252			—			—		252			—			—			252
Unrealized loss on investments		—			—		—			—			(7	)		(7	)		—			—		—			—			(7	)		(7	)
Common stock issued in connection with the vesting of performance-based restricted stock units		913			—		—			—			—			—			913			—		—			—			—			—
Common stock issued in connection with the vesting of time-based restricted stock units		32,199			2		(2	)		—			—			—			32,199			2		(2	)		—			—			—
Common stock surrendered in connection with payroll withholding taxes		(6,708	)		—		(52	)		—			—			(52	)		(6,708	)		—		(52	)		—			—			(52	)
Fully vested common stock award		19,753			1		(1	)		—			—			—			19,753			1		(1	)		—			—			—
Balance, July 31, 2022		12,274,786		$	614	$	43,340		$	70,016		$	25		$	113,995			12,274,786		$	614	$	43,340		$	70,016		$	25		$	113,995
Net loss		—			—		—			(12,173	)		—			(12,173	)		—			—		—			(12,173	)		—			(12,173	)
Stock-based compensation		—			—		313			—			—			313			—			—		313			—			—			313
Unrealized loss on investments		—			—		—			—			(46	)		(46	)		—			—		—			—			(46	)		(46	)
Common stock issued in connection with the vesting of performance-based restricted stock units		669			—		—			—			—			—			669			—		—			—			—			—
Common stock surrendered in connection with payroll withholding taxes		(20	)		—		19			—			—			19			(20	)		—		19			—			—			19
Fully vested common stock award		18,327			1		(1	)		—			—			—			18,327			1		(1	)		—			—			—
Balance, October 30, 2022		12,293,762		$	615	$	43,671		$	57,843		$	(21	)	$	102,108			12,293,762		$	615	$	43,671		$	57,843		$	(21	)	$	102,108
Net loss		—			—		—			(8,968	)		—			(8,968	)		—			—		—			(8,968	)		—			(8,968	)
Stock-based compensation		—			—		322			—			—			322			—			—		322			—			—			322
Unrealized gain on investments		—			—		—			—			42			42			—			—		—			—			42			42
Fully vested common stock award		17,821			1		(1	)		—			—			—			17,821			1		(1	)		—			—			—
Balance, January 29, 2023		12,311,583		$	616	$	43,992		$	48,875		$	21		$	93,504			12,311,583		$	616	$	43,992		$	48,875		$	21		$	93,504

~~Substantial and Unusual Losses Resulting from Subsequent~~ Measurement of Inventory to Net Realizable Value

We ~~incurred~~recorded a non-cash inventory ~~charges totaling~~(credit) charge of $(2.0) million and $6.3 million ~~during~~for the ~~first~~ nine months ended January 28, 2024, and January 29, 2023, respectively. The non-cash inventory credit of ~~fiscal 2023. These charges represent~~$(2.0) million for the nine months ended January 28, 2024, represents a credit of $(2.0) million related to adjustments made to our inventory markdown reserve estimated based on our policy for aged inventory for both our mattress and upholstery fabrics segments, partially offset by a charge of $40,000 which represents markdowns of inventory related to the discontinuance of production of cut and sewn upholstery kits at our facility in Ouanaminthe, Haiti. The non-cash inventory charge of $6.3 million for the nine months ended January 29, 2023, represented a $2.9 million ~~write-down~~charge for the write down of inventory to its net realizable value associated with our mattress fabrics segment, a $3.3 million charge related to markdowns of inventory estimated based on our policy for aged inventory infor both our mattress and upholstery fabrics segments, and a $98,000 ~~for~~charge related to the loss on disposal and markdowns of inventory related to the exit of our cut and sew upholstery fabrics operation located in Shanghai, ~~China (see Note 8~~China. Of the $(2.0) million non-cash inventory credit for the first nine months of fiscal 2024, $(1.9) million and $(163,000) pertained to ~~the consolidated financial statements for further details).~~our mattress fabrics and upholstery fabrics segments, respectively. Of the $6.3 million non-cash inventory charge for the first nine months of fiscal 2023, $3.9 million and $2.4 million pertained to our mattress fabrics and upholstery fabrics segments, respectively.

~~We incurred a non-cash inventory charge of $~~M~~1.4~~ ~~million for the first nine months of fiscal 2022, which represents markdowns of inventory estimated based on our policy for aged inventory in both mattress and upholstery fabrics segments.~~

During the second quarter of fiscal 2023, our mattress fabrics segment experienced a 35.8% decline in net sales compared with the second quarter of fiscal 2022. This decline in net sales led to a significant decrease in gross margin to (8.7%)~~, excluding~~ (excluding a non-cash inventory ~~charges~~charge of $3.8 million recorded during the second quarter of fiscal ~~2023,~~2023), as compared with gross margin of 15.0% during the second quarter of fiscal 2022. The significant decline in net sales and profitability during the second quarter of fiscal 2023 stemmed from a greater than anticipated decline in consumer discretionary spending on mattress products, which we believe was ~~due to~~driven by the following factors: (i) inflationary effects of commodities such as gas, food, and other necessities; (ii) a significant increase in interest rates; (iii) the pulling forward of demand for home goods products during the early years of the COVID-19

pandemic, which demand ~~has now~~then shifted to travel, leisure, and other services; and (iv) excess inventory held by customers due to the decline in consumer demand. Based on this evidence, management conducted a thorough review of its mattress fabrics inventory and, as a result, recorded a charge of $2.9 million within cost of sales to write down inventory to its net realizable value. This $2.9 million charge was based on management's best estimates of product sales prices, customer demand trends, and its plans to transition to new products.

As of January ~~29, 2023,~~28, 2024, we reviewed our mattress fabrics ~~inventory~~and upholstery fabrics inventories to determine if any additional write-downs, in excess of ~~inventory that were not~~the amount recorded based on our policy for aged inventory, were necessary. Based on ~~this~~our assessment, no additional write-downs of ~~inventory~~inventories to their net realizable value were recorded ~~during~~for the ~~third quarter~~three months and nine months ended January 28, 2024, other than the markdowns of ~~fiscal 2023.~~inventory associated with our upholstery fabrics segment restructuring activity described more fully in Note 9 of the consolidated financial statements.

Based on ~~the~~ current unfavorable macroeconomic conditions, it is possible that ~~the~~ estimates used by management to determine the write down of inventory to its net realizable value could be materially different ~~from~~ the actual amounts or ~~its~~ results. These

differences could result in higher than expected markdowns of inventory, ~~provisions,~~ which could adversely affect the ~~company's~~company’s results of operations and financial condition in the near term.

Our non-compete agreement is associated with a prior acquisition by our mattress fabrics segment and is amortized on a straight-line basis over the fifteen-year life of the agreement.

The gross carrying amount of our non-compete agreement was $2.0 million as of January 28, 2024, January 29, 2023, ~~January~~and April 30, ~~2022, and May 1, 2022,~~2023, respectively. Accumulated amortization for our non-compete agreement was $~~1.6~~1.7 million, $~~1.5~~1.6 million, and $1.6 million as of January 28, 2024, January 29, 2023, ~~January~~and April 30, ~~2022, and May 1, 2022,~~2023, respectively.

The remaining amortization expense for the next five years and thereafter follows: FY ~~2023 - $18,000; FY~~ 2024 - $~~76,000~~19,000; FY 2025 - $76,000; FY 2026 - $76,000; FY 2027 - $76,000~~, and thereafter~~; FY 2028 - $73,000.

The weighted average amortization period for the non-compete agreement was ~~5.3~~4.3 years as of January ~~29, 2023.~~28, 2024.

As of January ~~29, 2023,~~28, 2024, management reviewed the long-lived assets associated with our mattress fabrics segment, which consisted of property, plant, and equipment, right of use assets, and finite-lived intangible assets (collectively known as the ~~"Asset~~"Mattress Asset Group"), for impairment, as events and changes in circumstances occurred that indicated the carrying amount of the Mattress Asset Group may not be recoverable. ~~During~~The mattress fabrics segment experienced a significant cumulative operating loss totaling $19.7 million commencing in the second quarter of fiscal 2023, and continuing through the third quarter of fiscal ~~2023,~~2024. We believe the significant decline in ~~net sales and~~ profitability ~~continued~~ for ~~our mattress fabrics segment. During~~ the ~~first nine months of fiscal 2023, net sales for our~~ mattress fabrics segment ~~declined by~~ ~~34.4%, compared with the first nine months of fiscal 2022. This decline in net sales led to a significant decrease in gross margin to (9.1%) during the first nine months of fiscal 2023, compared with gross margin of~~ ~~13.2% during the first nine months of fiscal 2022. The significant decline in net sales and profitability during the first nine months of fiscal 2023~~ stemmed from a ~~greater than anticipated~~ decline in consumer discretionary spending on mattress products, which we believe was ~~due to~~driven by the following factors: (i) inflationary effects of commodities such as gas, food, and other necessities; (ii) a significant increase in interest rates; (iii) the pulling forward of demand for home goods products during the early years of the COVID-19 pandemic, which demand has now shifted to travel, leisure, and other services; and (iv) excess inventory held by customers due to the decline in consumer demand.

Based on the above evidence, we were required to determine the recoverability of the Mattress Asset Group, which is classified as held and used, by comparing the carrying amount of the Mattress Asset Group to the sum of the future undiscounted cash flows expected to result from its use and eventual disposition. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized for the excess of the carrying amount over the ~~fair value (i.e., the~~ sum of the undiscounted future cash ~~flows)~~flows of the ~~asset.~~asset group. The carrying amount of the Mattress Asset Group totaled $~~37.8~~34.7 million, which relates to property, plant, and equipment of $~~34.7~~32.3 million, right of use assets of $~~2.5~~1.8 million, customer relationships of $~~370,000~~319,000, and a non-compete agreement of $~~309,000~~320,000. ~~Based on the comparison of the~~The total carrying amount of the Mattress Asset Group todid not exceed the sum of its future undiscounted cash flows from its use and ~~eventual disposition,~~disposition. As a result, we determined no impairment associated with the Mattress Asset Group existed as of January ~~29, 2023, as the carrying amount of the Asset Group totaling $~~28, 2024.~~37.8~~ ~~million did not exceed the sum of its future undiscounted cash flows.~~

interest payments were made during the first nine months of fiscal 2024. Interest paid during the first nine months of fiscal 2023 totaled $8,000.No

~~12.~~13. Segment Information

Overall

Our operations are classified into two business segments: mattress fabrics and upholstery fabrics. The mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers. The upholstery fabrics segment develops, manufactures, sources, and sells fabrics primarily to residential and commercial furniture manufacturers. In addition, this segment includes Read, which provides window treatments and sourcing of upholstery fabrics and other products, as well as measuring and installation services for Read’s products, to customers in the hospitality and commercial industries. Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows.

~~I-19~~

Financial Information

We evaluate the operating performance of our business segments based upon (loss) income from operations before certain unallocated corporate expenses and other items that are not expected to occur on a regular basis. Cost of sales for each segment includes costs to develop, manufacture, or source our products, including costs such as raw material and finished goods purchases, direct and indirect labor, overhead, and incoming freight charges. Unallocated corporate expenses primarily represent compensation and benefits for certain executives and their support staff, all costs associated with being a public company, amortization of intangible assets, and other miscellaneous expenses. Segment assets include assets used in the operations of each segment and consist of accounts receivable, ~~inventories,~~inventory, property, plant, and equipment, and right of use assets. Also, total assets related to our upholstery fabrics segment include a right of use asset classified as held for sale as of January 29, 2023. Intangible assets are not included in segment assets as these assets are not used by the Chief Operating Decision Maker to evaluate the respective segment’s operating performance, allocate resources to individual segments, or determine executive compensation.

I-19

Statements of operations for our operating segments are as follows:

Three months ended

January 29, 2023

January 30, 2022

net sales by segment:

mattress fabrics

$
24,697

$
38,439

upholstery fabrics

27,826

41,852

net sales

$
52,523

$
80,291

gross (loss) profit:

mattress fabrics

$
(1,237
)

$
3,164

upholstery fabrics

3,330

5,946

gross profit

$
2,093

$
9,110

selling, general, and administrative expenses by segment:

mattress fabrics

$
2,992

$
2,800

upholstery fabrics

3,750

3,500

unallocated corporate expenses

2,423

1,707

selling, general, and administrative expenses

$
9,165

$
8,007

(loss) income from operations by segment:

mattress fabrics

$
(4,229
)

$
364

upholstery fabrics

(420
)

2,446

unallocated corporate expenses

(2,423
)

(1,707
)
total segment (loss) income from operations

$
(7,072
)

$
1,103

restructuring expense (1)

(711
)

—

(loss) income from operations

$
(7,783
)

$
1,103

interest income

196

214

other expense

(1,095
)

(322
)
(loss) income before income taxes

$
(8,682
)

$
995

~~I-20~~


	Three months ended
	January 28, 2024			January 29, 2023
net sales by segment:
mattress fabrics	$	30,021		$	24,697
upholstery fabrics		30,397			27,826
net sales	$	60,418		$	52,523
gross profit (loss):
mattress fabrics	$	1,520		$	(1,237	)
upholstery fabrics		6,122			3,330
segment gross profit		7,642			2,093
restructuring related credit (1)		61			—
gross profit	$	7,703		$	2,093
selling, general, and administrative expenses by segment:
mattress fabrics	$	3,102		$	2,992
upholstery fabrics		4,030			3,750
unallocated corporate expenses		2,361			2,423
selling, general, and administrative expenses	$	9,493		$	9,165
(loss) income from operations by segment:
mattress fabrics	$	(1,582	)	$	(4,229	)
upholstery fabrics		2,092			(420	)
unallocated corporate expenses		(2,361	)		(2,423	)
total segment loss from operations	$	(1,851	)	$	(7,072	)
restructuring related credit (1)		61			—
restructuring credit (expense) (2)		50			(711	)
loss from operations	$	(1,740	)	$	(7,783	)
interest income		284			196
other expense		(705	)		(1,095	)
loss before income taxes	$	(2,161	)	$	(8,682	)

(1) Gross profit and loss from operations for the three months ending January 28, 2024, includes a restructuring related credit of $61,000 for the gain on disposal of inventory related to the discontinuation of production of cut and sewn upholstery kits in Ouanaminthe, Haiti.

(2) The restructuring credit of $50,000 for the three months ended January 28, 2024, represents a gain on disposal of equipment related to the discontinuation of production of cut and sewn upholstery kits in Ouanaminthe, Haiti. Restructuring expense of $711,000 for the three months ~~ending~~ended January 29, 2023, represents lease termination costs of $434,000 and an impairment loss regarding leasehold improvements totaling $277,000 that related to the consolidation of certain leased facilities located in Ouanaminthe, Haiti.

I-20

Nine months ended

January 29, 2023

January 30, 2022

net sales by segment:

mattress fabrics

$
80,299

$
122,380

upholstery fabrics

93,209

115,519

net sales

$
173,508

$
237,899

gross (loss) profit:

mattress fabrics

$
(7,330
)

$
16,106

upholstery fabrics

11,436

16,230

total segment gross profit

$
4,106

$
32,336

     restructuring related charge (1)

(98
)

—

gross profit

$
4,008

$
32,336

selling, general, and administrative expenses by segment:

mattress fabrics

$
8,821

$
8,991

upholstery fabrics

11,053

10,491

unallocated corporate expenses

7,259

6,793

selling, general, and administrative expenses

$
27,133

$
26,275

(loss) income from operations by segment:

mattress fabrics

$
(16,151
)

$
7,115

upholstery fabrics

383

5,739

unallocated corporate expenses

(7,259
)

(6,793
)
total segment (loss) income from operations

$
(23,027
)

$
6,061

     restructuring expense (2)

(1,326
)

—

     restructuring related charge (1)

(98
)

—

(loss) income from operations

$
(24,451
)

$
6,061

interest income

292

347

other expense

(348
)

(963
)
(loss) income before income taxes

$
(24,507
)

$
5,445


	Nine months ended
	January 28, 2024			January 29, 2023
net sales by segment:
mattress fabrics	$	90,619		$	80,299
upholstery fabrics		85,185			93,209
net sales	$	175,804		$	173,508
gross profit (loss):
mattress fabrics	$	5,997		$	(7,330	)
upholstery fabrics		16,780			11,436
total segment gross profit	$	22,777		$	4,106
restructuring related charge (1)		(40	)		(98	)
gross profit	$	22,737		$	4,008
selling, general, and administrative expenses by segment:
mattress fabrics	$	9,913		$	8,821
upholstery fabrics		11,969			11,053
unallocated corporate expenses		7,484			7,259
selling, general, and administrative expenses	$	29,366		$	27,133
(loss) income from operations by segment:
mattress fabrics	$	(3,916	)	$	(16,151	)
upholstery fabrics		4,811			383
unallocated corporate expenses		(7,484	)		(7,259	)
total segment loss from operations	$	(6,589	)	$	(23,027	)
restructuring related charge (1)		(40	)		(98	)
restructuring expense (2)		(432	)		(1,326	)
loss from operations	$	(7,061	)	$	(24,451	)
interest income		911			292
other expense		(560	)		(348	)
loss before income taxes	$	(6,710	)	$	(24,507	)

~~I-21~~

(1) ~~Restructuring~~Gross profit and loss from operations for the nine months ending January 28, 2024, includes a restructuring related charge of $40,000, representing markdowns of inventory related to the discontinuation of production of cut and sewn upholstery kits at our facility located in Ouanaminthe, Haiti. Gross profit and loss from operations for the nine months ending January 29, 2023, includes a restructuring related charge of $98,000 ~~for the nine months ended January 29, 2023,~~that represents a loss on disposal and markdowns of inventory related to the exit of our cut and sew upholstery fabrics operation located in Shanghai, China, which occurred during the second quarter of fiscal 2023. ~~This~~

(2) Restructuring expense of $~~98,000~~432,000 ~~restructuring related charge was recorded in cost of sales in the Consolidated Statements of Net Loss~~ for the nine months ending January ~~29, 2023.~~28, 2024, represents a $

329,000 impairment charge associated with equipment and $

~~(2)~~103,000 for employee termination benefits related to the discontinuation of production of cut and sewn upholstery kits in Ouanaminthe, Haiti. Restructuring expense of $1.3 million for the nine months ending January 29, 2023, relates to both our restructuring activities for our cut and sew upholstery fabrics operations located in Shanghai, China, which occurred during the second quarter of fiscal 2023, and located in Ouanaminthe, Haiti, which occurred during the third quarter of fiscal 2023. Restructuring expense consists of lease termination costs of $481,000, employee termination benefits of $468,000, impairment losses totaling $357,000 that relate to leasehold improvements and equipment, and $20,000 for other associated costs.

I-21

Balance sheet information for our operating segments follows:


(dollars in thousands)	January 29, 2023		January 30, 2022		May 1, 2022		January 28, 2024		January 29, 2023		April 30, 2023
Segment assets:
Mattress Fabrics:
Accounts receivable	$	8,314	$	17,617	$	9,865	$	11,463	$	8,314	$	12,396
Inventory		28,757		39,544		39,028		27,925		28,757		25,674
Property, plant and equipment (1)		34,661		39,913		38,731		32,263		34,661		33,749
Right of use assets (2)		2,476		3,706		3,469		1,798		2,476		2,308
Total mattress fabrics assets		74,208		100,780		91,093		73,449		74,208		74,127
Upholstery Fabrics:
Accounts receivable		12,927		21,381		12,361		12,223		12,927		12,382
Inventory		18,870		33,589		27,529		18,952		18,870		19,406
Property, plant and equipment (3)		1,794		2,018		2,030		1,155		1,794		1,671
Right of use assets (4)		2,995		8,727		8,124		2,345		2,995		2,618
Assets held for sale (5)		1,950		—		—		—		1,950		—
Total upholstery fabrics assets		38,536		65,715		50,044		34,675		38,536		36,077
Total segment assets		112,744		166,495		141,137		108,124		112,744		110,204
Non-segment assets:
Cash and cash equivalents		16,725		11,780		14,550		12,585		16,725		20,964
Short-term investments - available for sale		—		438		—
Short-term investments - held-to-maturity		—		1,315		—
Short-term investments - rabbi trust		2,420		—		—		937		2,420		1,404
Short-term note receivable								260		—		219
Current income taxes receivable		238		367		857		476		238		—
Other current assets		2,839		4,419		2,986		4,237		2,839		3,071
Long-term note receivable								1,530		—		1,726
Deferred income taxes		463		500		528		531		463		480
Property, plant and equipment (6)		737		847		941		603		737		691
Right of use assets (7)		3,442		4,162		3,984		2,809		3,442		3,265
Intangible assets		2,346		2,722		2,628		1,970		2,346		2,252
Long-term investments - rabbi trust		7,725		9,223		9,357		7,083		7,725		7,067
Long-term investments - held-to-maturity		—		8,677		—
Other assets		919		622		595		853		919		840
Total assets	$	150,598	$	211,567	$	177,563	$	141,998	$	150,598	$	152,183

Nine months ended

(dollars in thousands)

January 29, 2023

January 30, 2022

Capital expenditures (8):

Mattress Fabrics

$
612

$
2,828

Upholstery Fabrics

465

815

Unallocated Corporate

75

1,330

Total capital expenditures

$
1,152

$
4,973

Depreciation expense:

Mattress Fabrics

$
4,624

$
4,613

Upholstery Fabrics

604

590

Total depreciation expense

$
5,228

$
5,203

(1)

The $32.3 million as of January 28, 2024, represents property, plant, and equipment of $21.9 million, $9.8 million, and $600,000 located in the U.S., Canada, and Haiti, respectively. The $34.7 million as of January 29, 2023, represents property, plant, and equipment of $23.1 million, $10.9 million, and $651,000 located in the U.S., Canada, and Haiti, respectively. The $~~39.9~~33.7 million as of ~~January~~April 30, ~~2022,~~2023, represents property, plant, and equipment of $~~26.6~~22.7 million, $~~12.5~~10.4 million, and $~~796,000~~ ~~located in the U.S., Canada, and Haiti, respectively. The $38.7~~ ~~million as of May 1, 2022, represents property, plant, and equipment of $25.6~~ ~~million, $12.4~~ ~~million, and $757,000~~608,000 located in the U.S., Canada, and Haiti, respectively.

(2)

The $1.8 million as of January 28, 2024, represents right of use assets of $1.2 million and $604,000 located in Haiti and Canada, respectively. The $2.5 million as of January 29, 2023, represents right of use assets of $1.6 million and $833,000 located in Haiti and Canada, respectively. The $~~3.7~~2.3 million as of ~~January~~April 30, ~~2022,~~2023, represents right of use assets of $~~2.1~~ ~~million, $1.3~~1.5 million and $~~352,000~~776,000 located in Haiti ~~the U.S.,~~ and Canada, respectively.

(3)

The $~~3.5~~1.2 million as of ~~May 1, 2022,~~January 28, 2024, represents ~~right of use assets~~property, plant, and equipment of $~~2.0~~ ~~million, $1.2~~1.1 million and $~~291,000~~134,000 located in ~~Haiti,~~ the U.S., and ~~Canada,~~China, respectively.

~~I-22~~

~~(3)~~

The $1.8 million as of January 29, 2023, represents property, plant, and equipment of $1.0 million, $630,000, and $121,000 located in the U.S., Haiti, and China, respectively. The $~~2.0~~1.7 million as of ~~January~~April 30, ~~2022,~~2023, represents property, plant, and equipment of $~~1.1~~974,000 ~~million,~~, $~~585,000~~592,000, and $~~344,000~~ ~~located in the U.S., Haiti, and China, respectively. The $2.0~~ ~~million as of May 1, 2022, represents property, plant, and equipment of $1.0~~ ~~million, $756,000, and $255,000~~105,000 located in the U.S., Haiti, and China, respectively.

(4)

The $2.3 million as of January 28, 2024, represents right of use assets of $944,000 and $1.4 million located in China and the U.S., respectively. The $3.0 million as of January 29, 2023, represents right of use assets of $1.7 million and $1.3 million located in China and the U.S., respectively. The $~~8.7~~2.6 million as of ~~January~~April 30, ~~2022,~~2023, represents right of use assets of $~~4.1~~ ~~million, $2.7~~1.5 million and $~~1.9~~1.1 million located in China ~~Haiti, and the U.S., respectively. The $8.1~~ ~~million as of May 1, 2022, represents right of use assets of $3.7~~ ~~million, $2.6~~ ~~million, and $1.8~~ ~~million located in China, Haiti,~~ and the U.S., respectively.

(5)

The $2.0 million as of January 29, 2023, represents a right of use asset classified as held for sale located in Haiti.

(6)

The $~~737,000~~603,000, $~~847,000~~737,000, and $~~941,000~~691,000 as of January 28, 2024, January 29, 2023, ~~January~~and April 30, ~~2022, and May 1, 2022,~~2023, respectively, represent property, plant, and equipment associated with the unallocated corporate ~~departments~~department and corporate departments shared by our mattress fabrics and upholstery fabrics segments. Property, plant, and equipment associated with our corporate departments reside in the U.S.

I-22

(7)

The $~~3.4~~2.8 million, $~~4.2~~3.4 million, and $~~4.0~~3.3 million as of January 28, 2024, January 29, 2023, ~~January~~and April 30, ~~2022, and May 1, 2022,~~2023, respectively, represent right of use assets located in the U.S.

Information about capital expenditures and depreciation expense for our operating segments follows:


	Nine months ended
(dollars in thousands)	January 28, 2024		January 29, 2023
Capital expenditures (1):
Mattress Fabrics	$	2,828	$	612
Upholstery Fabrics		219		465
Unallocated Corporate		167		75
Total capital expenditures	$	3,214	$	1,152
Depreciation expense:
Mattress Fabrics	$	4,422	$	4,624
Upholstery Fabrics		475		604
Total depreciation expense	$	4,897	$	5,228

~~(8)~~(1)

Capital expenditure amounts are stated on the accrual basis. See Consolidated Statements of Cash Flows for capital expenditure amounts on a cash basis.

We grant performance-based restricted stock units to key employees which could earn up to a certain number of shares of common stock if certain performance targets are met over a three-fiscal year performance period as defined in the related restricted stock unit award agreements. Our performance-based restricted stock units granted to key employees were measured based on the fair market value (the closing price of our common stock) on the date of grant. No market-based total shareholder return component was included in these awards.

~~19. Dividend Program~~

On June 29, 2022, our board of directors announced the decision to suspend the company’s quarterly cash dividend. Considering the current and expected macroeconomic conditions, we believe that preserving capital and managing our liquidity is in the company’s best interest to support future growth and the long-term interests of our shareholders. Accordingly, we did not make any dividend payments during first nine months of fiscal 2023.

~~During the nine-month period ending January 30, 2022, dividend payments totaled $4.1~~ ~~million, which represented quarterly dividend payments ranging from $0.11~~ ~~per share to $0.115~~ ~~per share.~~

~~I-30~~

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

This report and the exhibits attached hereto contain “forward-looking statements” within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934). Such statements are inherently subject to risks and uncertainties that may cause actual events and results to differ materially from such statements. Further, forward looking statements are intended to speak only as of the date on which they are made, and we disclaim any duty to update or alter such statements to reflect any changes in management’s expectations or any change in the assumptions or circumstances on which such statements are based, whether due to new information, future events, or otherwise. Forward-looking statements are statements that include projections, expectations, or beliefs about future events or results or otherwise are not statements of historical fact. Such statements are often but not always characterized by qualifying words such as “expect,” “believe,” “anticipate,” “estimate,” “intend,” “plan,” “project,” and their derivatives, and include but are not limited to statements about expectations, projections, or trends for our future operations, strategic initiatives and plans, production levels, new product launches, sales, profit margins, profitability, operating (loss) income, capital expenditures, working capital levels, cost savings, income taxes, SG&A or other expenses, pre-tax (loss) income, earnings, cash flow, and other performance or liquidity measures, as well as any statements regarding dividends, share repurchases, liquidity, use of cash and cash requirements, borrowing capacity, investments, potential acquisitions, future economic or industry trends, public health epidemics, or future developments. There can be no assurance that we will realize these expectations or meet our guidance, or that these beliefs will prove correct.

Factors that could influence the matters discussed in such statements include the level of housing starts and sales of existing homes, consumer confidence, trends in disposable income, and general economic conditions. Decreases in these economic indicators could have a negative effect on our business and prospects. Likewise, increases in interest rates, particularly home mortgage rates, and increases in consumer debt or the general rate of inflation, could affect us adversely. The future performance of our business depends in part on our success in conducting and finalizing acquisition negotiations and integrating acquired businesses into our existing operations. Changes in consumer tastes or preferences toward products not produced by us could erode demand for our products. Changes in tariffs or trade policy, including changes in U.S. trade enforcement priorities, or changes in the value of the U.S. dollar versus other currencies, could affect our financial results because a significant portion of our operations are located outside the United States. Strengthening of the U.S. dollar against other currencies could make our products less competitive on the basis of price in markets outside the United States, and strengthening of currencies in Canada and China can have a negative impact on our sales of products produced in those places. In addition, because our foreign operations use the U.S. dollar as their functional currency, changes in the exchange rate between the local currency of those operations and the U.S dollar can affect our reported profits from those foreign operations. Also, economic or political instability in international areas could affect our operations or sources of goods in those areas, as well as demand for our products in international markets. The impact of public health epidemics on employees, customers, suppliers, and the global economy, such as the global coronavirus pandemic currently affecting countries around the world, could also adversely affect our operations and financial performance. In addition, the impact of potential goodwill or intangible asset impairments could affect our financial results. Increases in freight costs, labor costs, and raw material prices, including increases in market prices for petrochemical products, can also significantly affect the prices we pay for shipping, labor, and raw materials, respectively, and in turn, increase our operating costs and decrease our profitability. Finally, ~~disruption~~our success in diversifying our ~~customers’~~ supply ~~chains for non-fabric components may cause declines in new orders and/or delayed shipping of existing orders while~~chain with reliable partners to effectively service our ~~customers wait for other components, which~~global platform could affect our operations and adversely affect our financial results.Further information about these factors, as well as other factors that could affect our future operations or financial results and the matters discussed in forward-looking statements, are included in Item 1A “Risk Factors” section in our most recent Form 10-K and Form 10-Q reports filed with the Securities and Exchange Commission. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. 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.

I-31

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following analysis of financial condition and results of operations should be read in conjunction with the consolidated financial statements and notes and other exhibits included elsewhere in this report.

General

Our fiscal year is the 52 or 53-week period ending on the Sunday closest to April 30. The nine months ended January ~~29, 2023,~~28, 2024, and January ~~30,~~29, 2023, both represent 39-week periods.

Our operations are classified into two business segments: mattress fabrics and upholstery fabrics.

Mattress Fabrics

The mattress fabrics segment manufactures, sources, and sells fabrics and mattress covers primarily to bedding manufacturers. ~~We currently~~Currently, we have mattress fabric operations located in Stokesdale, NC, Quebec, Canada, and Ouanaminthe, Haiti. During the third quarter of fiscal 2023, we completed a rationalization of our U.S.-based mattress fabrics cut and sew platform, which included the closure of our two High Point, NC, facilities associated with this business.

Upholstery Fabrics

The upholstery fabrics segment develops, sources, manufactures, and sells fabrics primarily to residential and commercial furniture manufacturers. WeCurrently, we have upholstery fabric operations located in Shanghai, China, and Burlington, ~~NC, as well as cut and sewn kit production in Ouanaminthe Haiti.~~NC. During the third quarter of fiscal 2022, we commenced operation of a new leased facility located in Ouanaminthe, Haiti, dedicated to the production of cut and sewn upholstery kits. However, due to a decline in demand, we (i) terminated the agreement to lease this new facility during the third quarter of fiscal 2023, ~~we began~~(ii) relocated a ~~rationalization and consolidation of our~~scaled-down upholstery cut and ~~sewn kit production~~sew operation into our existing mattress cover facility located in Ouanaminthe, Haiti, ~~which includes closing a leased facility~~during the fourth quarter of fiscal 2023, and ~~relocating into an existing facility used by our mattress fabrics segment~~(iii) thereafter discontinued the production of cut and sewn upholstery kits in ~~Ouanaminthe,~~ Haiti during the latter part of the first quarter of fiscal 2024. (See Note 89 to the consolidated financial statements for further ~~details).~~ details.)

Additionally, Read Window Products, LLC (“Read”), a wholly-owned subsidiary with operations located in Knoxville, TN, provides window treatments and sourcing of upholstery fabrics and other products, as well as measuring and installation services for Read’s products, to customers in the hospitality and commercial industries. Read also supplies soft goods such as decorative top sheets, coverlets, duvet covers, bed skirts, bolsters, and pillows.

Executive Summary

Results of Operations


	Three Months Ended
(dollars in thousands)	January 28, 2024			January 29, 2023			Change
Net sales	$	60,418		$	52,523		15.0%
Gross profit		7,703			2,093		268.0%
Gross margin		12.7	%		4.0	%	876bp
Selling, general, and administrative expenses		9,493			9,165		3.6%
Restructuring (credit) expense		(50	)		711		(107.0)%
Loss from operations		(1,740	)		(7,783	)	(77.6)%
Operating margin		(2.9	)%		(14.8	)%	1194bp
Loss before income taxes		(2,161	)		(8,682	)	(75.1)%
Income tax expense		1,027			286		259.1%
Net loss		(3,188	)		(8,968	)	(64.5)%

Three Months Ended

(dollars in thousands)

January 29,
2023

January 30,
2022

Change
Net sales

$
52,523

$
80,291

(34.6)%
Gross profit

2,093

9,110

(77.0)%
Gross margin

4.0
%

11.3
%
(730)bp
Selling, general, and administrative expenses

9,165

8,007

14.5%
Restructuring expense

711

—

100.0%
(Loss) income from operations

(7,783
)

1,103

N.M.
Operating margin

(14.8
)%

1.4
%
(1620)bp
(Loss) income before income taxes

(8,682
)

995

N.M.
Income tax expense

286

1,284

(77.7)%
Net (loss) income

(8,968
)

(289
)
N.M.

I-32

~~I-32~~

Nine Months Ended

(dollars in thousands)

January 29,
2023

January 30,
2022

Change
Net sales

$
173,508

$
237,899

(27.1)%
Gross profit

4,008

32,336

(87.6)%
Gross margin

2.3
%

13.6
%
(1130)bp
Selling, general, and administrative expenses

27,133

26,275

3.3%
Restructuring expense

1,326

—

100.0%
(Loss) income from operations

(24,451
)

6,061

N.M.
Operating margin

(14.1
)%

2.5
%
(1660)bp
(Loss) income before income taxes

(24,507
)

5,445

N.M.
Income tax expense

2,332

2,633

(11.4)%
Net (loss) income

(26,839
)

2,812

N.M.


	Nine Months Ended
(dollars in thousands)	January 28, 2024			January 29, 2023			Change
Net sales	$	175,804		$	173,508		1.3%
Gross profit		22,737			4,008		467.3%
Gross margin		12.9	%		2.3	%	1062bp
Selling, general, and administrative expenses		29,366			27,133		8.2%
Restructuring expense		432			1,326		(67.4)%
Loss from operations		(7,061	)		(24,451	)	(71.1)%
Operating margin		(4.0	)%		(14.1	)%	1008bp
Loss before income taxes		(6,710	)		(24,507	)	(72.6)%
Income tax expense		2,244			2,332		(3.8)%
Net loss		(8,954	)		(26,839	)	(66.6)%

Net Sales

Overall, our net sales for the third quarter of fiscal ~~2023 decreased~~2024 increased by ~~34.6%~~15% compared with the same period a year ago, with mattress fabrics sales ~~decreasing 35.8%~~increasing 21.6% and upholstery fabrics sales ~~decreasing 33.5%~~increasing 9.2%. Our net sales for the first nine months of fiscal ~~2023 decreased~~2024 increased by ~~27.1%~~1.3% compared with the same period a year ago, with mattress fabrics sales ~~decreasing 34.4%~~increasing 12.9% and upholstery fabrics sales decreasing ~~19.3%~~8.6%.

The ~~decrease~~increase in net sales in our mattress fabrics segment for both the third quarter and the first nine months of fiscal ~~2023~~2024 was primarily ~~reflects an ongoing slowdown~~driven by new fabric and sewn cover placements that are priced in ~~consumer demand~~line with current costs, and, to a lesser extent, SKU rationalization and the re-pricing of some underperforming SKUs to reflect current costs, resulting in higher average selling prices overall.

The increase in net sales for our upholstery fabrics segment for the ~~domestic mattress industry. The impact~~third quarter of ~~this industry softness has been exacerbated~~fiscal 2024 was driven by ~~mattress manufacturers and retailers continuing to work through an excess of inventory, delaying~~ the timing of ~~shipments and new product rollouts. The decrease~~the Chinese New Year holiday (which falls primarily in ~~net sales during both periods was partially offset by certain pricing and surcharge actions in effect that were not in effect during~~ the ~~same periods a year ago. These pricing actions increased net sales for the division by approximately 1.3% during~~fourth quarter of fiscal 2024, as compared to the third quarter ~~and by approximately 3.0%~~of fiscal 2023), as well as improved residential home furnishing sales during the ~~first nine months of fiscal 2023.~~period.

The decrease in net sales for our upholstery fabrics segment for ~~both the third quarter and~~ the first nine months of fiscal ~~2023 primarily~~2024 reflects reduced demand for our residential upholstery fabrics products during the first half of the year, driven by a slowdown in new retail business in the residential home furnishings industry ~~and high inventory levels at manufacturers and retailers. The decrease in net sales~~ during the nine month period was partially offset by higher sales in our hospitality/contract fabric business, as compared to the prior-year period, as well as certain pricing and surcharge actions in effect that were not in effect during the same periods a year ago. These pricing actions increased net sales for the division by approximately 1.7% during the third quarter and by approximately 2.9% during the first nine months of fiscal 2023.this period.

See the Segment Analysis section below for further details.

~~Income~~Loss Before Income Taxes

Overall, our loss before income taxes for the third quarter of fiscal ~~2023~~2024 was ~~$(8.7)~~$(2.2) million, compared with ~~income~~loss before income taxes of ~~$1.0~~$(8.7) million for the prior-year period, while our loss before income taxes for the first nine months of fiscal ~~2023~~2024 was ~~$(24.5)~~$(6.7) million, compared with ~~income~~loss before income taxes of ~~$5.4 million~~$(24.5) for the prior-year period.

Operating performance for the third quarter of fiscal ~~2023,~~2024, as compared to the prior-year period, was ~~primarily~~positively affected by ~~lower sales; operating inefficiencies due to these lower~~higher sales volume and ~~holiday shutdowns~~a more profitable mix of sales for both the mattress fabrics and upholstery fabrics segment; a more favorable foreign exchange rate associated with our upholstery fabrics operation in ~~both of our businesses; operating inefficiencies within~~China; and fixed cost savings in the upholstery fabrics ~~segment's cut~~segment. These factors were partially offset by higher SG&A expense during the period, as well as production inefficiencies relating to the start up of certain new product launches in the mattress fabrics segment. Notably, operating performance for the third quarter of fiscal 2023 was negatively affected by restructuring and ~~sew facility in Haiti due to lower demand; labor challenges and inflationary pressures affecting our Read business; and restructuring~~related charges associated with ~~the rationalization of~~ our upholstery fabrics ~~cut and sew platform located in Ouanaminthe, Haiti~~segment.

Operating performance for the first nine months of fiscal 2024 was positively affected by the same factors that affected the third quarter, as well as better inventory management. These factors were partially offset by higher SG&A expense over the nine-month period; lower residential upholstery fabrics sales during the ~~quarter. Operating~~first six months of fiscal 2024; and production inefficiencies that negatively affected our mattress fabrics segment during the third quarter of fiscal 2024. Notably, operating performance for the first nine months of fiscal 2023 was ~~also materially pressured~~negatively affected by the same factors, as well as continued inflationary pressures; labor challenges within our mattress fabrics business that resulted in increased employee training costs and operating inefficiencies, including quality issues within our mattress fabrics segment;inventory impairment charges ~~during the second quarter of fiscal 2023 due to the write down of inventory to its net realizable value~~ and inventory closeout sales for our mattress fabrics segment; higher than normal markdowns of inventory ~~due to~~for our ~~aged inventory policy for both our mattress fabrics and~~ upholstery fabrics segment; and restructuring and related charges associated with ~~the closure of~~ our upholstery fabric segment's cut and sew facility located in Shanghai, China, during the second quarter. Performance for the first nine months of fiscal 2023 was favorably affected by the foreign exchange rate associated with our upholstery fabric operations in China.fabrics segment.

I-33

See the Segment Analysis section below for further details.

~~I-33~~

Income Taxes

We recorded income tax expense of $2.2 million, or (33.4%) of loss before income taxes, for the nine-month period ending January 28, 2024, compared with income tax expense of $2.3 million, or (9.5%) of loss before income taxes, for the nine-month period ~~ended~~ending January 29, ~~2023, compared with income tax expense of $2.6 million, or 48.4% of income before income taxes, for the nine-month period ended January 30, 2022.~~2023.

Our consolidated effective income tax ~~rate~~rates during the first nine months of fiscal 2024 and the first nine months of fiscal 2023 ~~was much more negatively~~were both adversely affected by the mix of earnings between our U.S. operations and foreign subsidiaries, as ~~compared to~~our taxable income stems from our China operations during fiscal 2024 and from our China and Canada operations during fiscal 2023, which have higher income tax rates than the U.S. In addition, during both the first nine months of fiscal ~~2022. During the first nine months of~~2024 and fiscal 2023, we incurred ~~a significantly higher~~ pre-tax ~~loss from~~losses associated with our U.S. operations, ~~totaling $(28.8) million, compared with $(2.3) million during the first nine months of fiscal 2022. As a result, a significantly higher~~for which an income tax benefit was not ~~recognized~~recorded due to athe full valuation allowance ~~being~~applied against our U.S. net deferred income tax assets. The income tax charge associated with the full valuation allowance applied against our U.S. net deferred income tax assets was lower during the first nine months of fiscal 2024 compared with the first nine months of fiscal 2023, as our $(11.3) million U.S. pre-tax loss incurred during the first nine months of fiscal 2024 was significantly lower than the $(28.8) million U.S. pre-tax loss incurred during the first nine months of fiscal 2023.

During the first nine months of fiscal 2024, we incurred a lower consolidated pre-tax loss totaling $(6.7) million, compared with $(24.5) million during the first nine months of fiscal 2023. 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 nine months of fiscal 2024, as compared with the first nine months of fiscal ~~2022.~~In addition, almost all of our taxable income in the first nine months of both fiscal 2023 and fiscal 2022 was earned by our foreign operations located in China and Canada, which have higher income tax rates than the U.S.2023.

Refer to Note 1314 of the consolidated financial statements for further details regarding our provision for income taxes.

Liquidity

As of January ~~29, 2023,~~28, 2024, our cash and cash equivalents (collectively, “cash”) totaled ~~$16.7~~$12.6 million, ~~an increase~~a decrease of ~~$2.2~~$8.4 million compared with ~~$14.6~~cash of $21.0 million as of ~~May 1, 2022.~~April 30, 2023. This ~~increase~~decrease was ~~primarily~~mostly due to ~~(i)~~net cash used in operating activities totaling $(6.0) million and capital expenditures mostly related to our mattress fabrics segment totaling $(3.2) million, partially offset by proceeds from the sale of rabbi trust investments totaling $1.2 million to fund withdrawals from our deferred compensation plan for certain retired employees (see offsetting decrease to the decrease in deferred compensation liability in item (iii) of the below paragraph).

Our net cash used in operating activities was $(6.0) million during the first nine months of fiscal 2024, a decrease of $10.6 million compared with net cash provided by operating activities ~~totaling $4.6 million, partially offset by (ii) capital expenditures~~ of ~~$1.6 million and (iii) contributions totaling $870,000 to our rabbi trust that funds our deferred compensation plan.~~

~~Our net cash provided by operating activities was~~ $4.6 million during the first nine months of fiscal ~~2023, an increase of $17.0 million compared with net cash used~~2023. This trend primarily reflects (i) a significant decrease in ~~operating activities of $12.4 million~~inventory during the first nine months of fiscal ~~2022. This trend mostly reflects (i) a reduction of inventory related~~2023 due to ~~the significant decline in net sales,~~ improved alignment of inventory purchases with ~~current~~ customer demand trends, ~~and~~ promotional programs to reduce aged raw materials and finished goods ~~inventory;~~inventory, and a significant decline in net sales (27.1%) during the period, which did not recur during the first nine months of fiscal 2024; (ii) annual incentive payments made during the first quarter of fiscal ~~2022 that~~2024, which did not ~~recur~~occur during the first quarter of fiscal 2023; (iii) payments to certain retired employees totaling $1.2 million for withdrawals from our deferred compensation plan during the first nine months of fiscal ~~2023,~~2024; partially offset by ~~(iii) a decrease~~(iv) an increase in ~~net~~ cash earnings during the first nine months of fiscal ~~2023 as~~2024 compared with the first nine months of fiscal ~~2022.~~2023.

As of January ~~29, 2023,~~28, 2024, there were no outstanding borrowings under our lines of credit.

~~Dividend Program~~

~~During the first nine months of fiscal 2022, dividend payments totaled $4.1 million, which represented quarterly cash dividend payments ranging from $0.11 per share to $0.115 per share.~~

Our board of directors has sole authority to determine if and when we will declare future dividends, and on what terms. We will continue to reassess our dividend policy each quarter. Future dividend payments will depend on our earnings, capital requirements, financial condition, excess availability under our lines of credit, market and economic conditions, and other factors we consider relevant.

~~Common Stock Repurchases~~

In March 2020, our board of directors approved an authorization for us to acquire up to $5.0 million of our common stock. Under the common stock repurchase program, shares may be purchased from time to time in open market transactions, block trades, through plans established under the Securities Exchange Act Rule 10b5-1, or otherwise. The number of shares purchased and the timing of such purchases are based on working capital requirements, market and general business conditions, and other factors, including alternative investment opportunities.

During the first nine months of fiscal 2023, we did not purchase any shares of our common stock. As a result, as of January 29, 2023, $3.2 million is available for additional repurchases of our common stock. Despite the current share repurchase authorization, the company does not expect to repurchase any shares through at least the fourth quarter of fiscal 2023.

~~During the first nine months of fiscal 2022, we repurchased 121,688 shares of our common stock at a cost of $1.8 million.~~

I-34

Segment Analysis

Mattress Fabrics Segment


	Three Months Ended							Three Months Ended
(dollars in thousands)	January 29, 2023			January 30, 2022			Change	January 28, 2024			January 29, 2023			Change
Net sales	$	24,697		$	38,439		(35.8)%	$	30,021		$	24,697		21.6%
Gross (loss) profit		(1,237	)		3,164		(139.1)%
Gross profit (loss)									1,520			(1,237	)	(222.9)%
Gross profit margin		(5.0	)%		8.2	%	(1320)bp		5.1	%		(5.0	)%	1007bp
Selling, general, and administrative expenses		2,992			2,800		6.9%		3,102			2,992		3.7%
(Loss) income from operations		(4,229	)		364		N.M.
Loss income from operations									(1,582	)		(4,229	)	(62.6)%
Operating margin		(17.1	)%		0.9	%	(1800)bp		(5.3	)%		(17.1	)%	1185bp

Nine Months Ended

(dollars in thousands)

January 29,
2023

January 30,
2022

Change
Net sales

$
80,299

$
122,380

(34.4)%
Gross (loss) profit

(7,330
)

16,106

(145.5)%
Gross margin

(9.1
)%

13.2
%
(2230)bp
Selling, general, and administrative expenses

8,821

8,991

(1.9)%
(Loss) income from operations

(16,151
)

7,115

N.M.
Operating margin

(20.1
)%

5.8
%
(2590)bp


	Nine Months Ended
(dollars in thousands)	January 28, 2024			January 29, 2023			Change
Net sales	$	90,619		$	80,299		12.9%
Gross profit (loss)		5,997			(7,330	)	(181.8)%
Gross margin		6.6	%		(9.1	)%	1575bp
Selling, general, and administrative expenses		9,913			8,821		12.4%
Loss from operations		(3,916	)		(16,151	)	(75.8)%
Operating margin		(4.3	)%		(20.1	)%	1579bp

Net Sales

Mattress fabrics sales ~~decreased 35.8%~~increased 21.6% in the third quarter of fiscal ~~2023~~2024 compared to the prior-year period. Mattress fabrics sales ~~decreased 34.4%~~increased 12.9% in the first nine months of fiscal ~~2023~~2024 compared to the first nine months of fiscal ~~2022.~~2023.

The ~~decrease~~increase in net sales in our mattress fabrics ~~net sales~~segment for both the third quarter and ~~for~~ the first nine months of fiscal ~~2023 reflects an ongoing slowdown~~2024 was primarily driven by new fabric and sewn cover placements that are priced in ~~consumer demand in~~line with current raw material and operational costs, and, to a lesser extent, SKU rationalization and the domestic mattress industry. We believe this slowdown is primarily due to inflationary pressures affecting consumer spending, as well as a shift in demand from home goods to travel, leisure, and entertainment following a pulling forward of demand for home goods during the early years of the COVID-19 pandemic.The impact of this industry softness has been exacerbated by mattress manufacturers and retailers continuing to work through an excess of inventory, delaying the timing of shipments and new product rollouts. However, we did begin the roll outre-pricing of some ~~new customer programs during the third quarter. The decrease~~underperforming SKUs to reflect current costs, resulting in net sales during both periods was partially offset by certain pricing and surcharge actions in effect that were not in effect during the same periods a year ago. These pricing actions increased net sales for the division by approximately 1.3% duringhigher average selling prices as compared to historical average selling prices.

During the third quarter, ~~and by approximately 3.0% during the first nine months of fiscal 2023.~~

~~Despite the headwinds,~~ we ~~remained focused~~maintained our focus on inventory reductions and cash generation during the quarter, while also engaging in an ongoing business transformation plan focused on long-term improvement in the business in areas that include quality, sales, marketing, and operational processes; supply chain optimization; employee engagement; and our organizational management structure. We continued to executeexecuting our product-driven strategy ~~during the quarter,~~ with an ongoing emphasis on innovation, design creativity, and customer relationships. ~~Additionally, the~~The strength and flexibility of our global manufacturing and sourcing operations in the U.S., Canada, Haiti, Asia, and Turkey continued to ~~enable us to~~ support the evolving needs of our mattress fabrics and cover customers during the period. We ~~believe our market position remains solid, with strong new placements, although the timing for new product rollouts continues~~also continued to ~~be affected by customers working through their existing excess inventory.~~implement improvement initiatives to support future profitable sales growth and enhance operating efficiencies.

Looking ahead, we are diligently focused on winning new placements to drive revenue and increase margins. We are optimistic about the mid-to-long term growth potential for our business and believe our market position is strong. However, the industry demand backdrop has deteriorated further than expected during the first few weeks of the fourth quarter. We expect ~~the~~ current ~~macroeconomic environment~~macro-economic conditions will continue to affect consumer spending trends for some time, resulting in ongoing industry softness that ~~may reduce~~could affect near-term sales results. In the face of these macro headwinds, we are working to manage the aspects of our business we can control. We believe we will mitigate demand ~~for our mattress fabrics and cover products and continue~~pressures to ~~delay~~some extent by the ~~timing~~continued rollout of new ~~product rollouts. We expect these conditions are likely~~programs priced in line with current costs, along with opportunities to ~~pressure results through at least~~make additional gains with customers. However, greater macro-industry and end-consumer support will be needed to drive recovery in the ~~end of fiscal 2023.~~mattress industry and support our future sales growth. Additionally, the potential ongoing ~~impacts of~~geopolitical disruptions related to wars in Ukraine and the ~~COVID-19 pandemic,~~Middle East, as well as ~~Russia’s invasion of Ukraine, including its effect on petrochemical pricing~~possible economic and ~~consumer spending,~~health effects from additional surges in the coronavirus, remain unknown and depend on factors beyond our knowledge or control. ~~At this time, we cannot reasonably estimate the ongoing impact of the COVID-19 pandemic or the evolving impact of the Russia-Ukraine war on our mattress fabrics segment; however, either of these~~These situations could cause disruption to global markets that could adversely affect our operations and financial performance.

Gross Profit, Selling, General & Administrative Expenses, and ~~Operating Income~~Loss from Operations

The decrease in ~~mattress fabrics profitability~~this segment’s operating loss during the third quarter of fiscal ~~2023,~~2024, as compared to the prior-year period, was primarily due to ~~lower~~higher sales of products with better pricing and ~~operating~~margins, as well as a more favorable product mix. These factors were partially offset by production inefficiencies ~~arising from these lower sales volumes and from holiday shutdowns across our locations.~~mostly relating to the start up of certain new product launches, as well as higher SG&A expense.

~~I-35~~

~~Mattress fabrics profitability for~~The decrease in operating loss during the first nine months of fiscal ~~2023~~2024, as compared to the prior-year period (which was ~~pressured~~negatively affected by certain inventory impairment charges and losses from inventory close out sales), was primarily due to the same factors that positively affected the third quarter, along with better inventory management. These factors were partially offset

I-35

by higher SG&A expense during the period, as well as ~~labor challenges that resulted in increased employee training costs and operating~~the production inefficiencies ~~including quality issues; higher raw material costs; $2.9 million in impairment charges due~~relating to the ~~write down~~start up of inventory to its net realizable value; $2.6 million in losses from closeout sales of raw material and finished goods inventory; and $1.0 million in markdowns of inventory based on our policy for aged inventory.certain new product launches that negatively affected the third quarter.

~~We completed the previously announced restructuring and rationalization of our U.S.-based cut and sewn cover platform~~Higher SG&A expense during both the third quarter and the first nine months of fiscal ~~2023, moving our R&D~~2024, as compared to the prior-year periods, was due mostly to an increase in provision for bad debts (reflecting current unfavorable macro-economic conditions relating to bedding products), an increase in sampling expense driven by new product roll outs; and ~~prototyping capabilities from our High Point, North Carolina, location to our facility~~an increase in Stokesdale, North Carolina. The result of this move is the discontinuation of our higher-cost on-shore production capabilities, with closures of our two leased facilities in High Point, North Carolina, during the quarter. We believe this move will allow us to generate cost savingspersonnel; partially offset by ~~utilizing our lower-cost mattress cover production and sourcing capabilities in Haiti and Asia, where we can scale operations to align with demand and continue to support the needs of our customers.~~lower compensation expense.

We expect the ongoing (and further deteriorating) industry softness affecting sales volumes ~~as well as continued inflationary pressures,~~ will continue to affect profitability ~~through at least the end of fiscal 2023,~~for this segment, although we believe these headwinds will be mitigated to some extent by our ongoing efforts to improve operational efficiencies and control internal costs, as well as our continued roll out of new products priced in line with current costs. Additionally, the internal inefficiencies relating to the start up and ~~improve efficiencies. We will consider further adjustments~~production of certain new products that negatively affected this segment's operating performance during the third quarter of fiscal 2024 are also expected to affect operating performance during the fourth quarter.

Looking ahead, with the uncertainty of consumer demand in the near term, we are evaluating strategic actions to adjust and right-size ~~and restructure~~ our ~~operations as necessary~~global platform to align with current demand levels, ~~as well as~~while still supporting our valued customers. We will also consider additional reasonable pricing actions as ~~necessary~~competitive conditions permit to further mitigate and manage inflation.

Segment assets

Segment assets consist of accounts receivable, inventory, property, plant, and equipment, and right of use assets.


(dollars in thousands)	January 29, 2023		January 30, 2022		May 1, 2022		January 28, 2024		January 29, 2023		April 30, 2023
Accounts receivable	$	8,314	$	17,617	$	9,865	$	11,463	$	8,314	$	12,396
Inventory		28,757		39,544		39,028		27,925		28,757		25,674
Property, plant & equipment		34,661		39,913		38,731		32,263		34,661		33,749
Right of use assets		2,476		3,706		3,469		1,798		2,476		2,308
	$	74,208	$	100,780	$	91,093	$	73,449	$	74,208	$	74,127

Refer to Note 1213 of the consolidated financial statements for disclosures regarding determination of our segment assets.

Accounts Receivable

As of January ~~29, 2023,~~28, 2024, accounts receivable ~~significantly decreased~~increased by ~~$9.3~~$3.1 million, or ~~52.8%~~37.9%, compared with January ~~30, 2022. These declines reflect~~29, 2023. This increase reflects the ~~significant decrease~~increase in net sales during ~~third quarter of fiscal 2023 compared with~~ the third quarter of fiscal ~~2022,~~2024 compared with fiscal 2023, as described in the Net Sales section above. In addition, we experienced ~~faster~~slower cash collections ~~from certain significant~~as customers ~~we had on shorter credit terms due to their financial condition,~~did not take advantage of cash discounts as much during the third quarter of fiscal ~~2023~~2024, as compared with the third quarter of fiscal ~~2022, which~~2023, and more customers elected to source our products from China, (where we have longer payment terms) as opposed to the U.S. This led to ~~a decline~~an increase in ~~days’~~days' sales outstanding to 35 days for the third quarter of fiscal 2024, as compared with 31 days for the third quarter of fiscal 2023.

As of January 28, 2024, accounts receivable decreased by $933,000, or 7.5%, compared with April 30, 2023. This decrease primarily reflects faster cash collections, as we had a mix of higher sales to customers with longer credit terms during the fourth quarter of fiscal 2023, ~~down from 42 days for~~as compared with the third quarter of fiscal ~~2022.~~

2024. As ~~of January 29, 2023, accounts receivable~~a result, days’ sales outstanding decreased ~~by $1.6 million, or 15.7%, compared with May 1, 2022. This trend reflects a decrease in net sales~~to 35 days during the third quarter of fiscal ~~2023 compared with the fourth quarter of fiscal 2022. Net sales during the third quarter of fiscal 2023 were $24.7 million,~~2024, a decrease ~~of $5.1 million, or 17.1%, compared with net sales of $29.8 million~~from 37 days during the fourth quarter of fiscal ~~2022. Days’ sales outstanding was 31 days and 30 days for the third quarter of fiscal 2023 and the fourth quarter of fiscal 2022, respectively.~~2023.

Inventory

As of January ~~29, 2023,~~28, 2024, inventory ~~significantly~~ decreased by ~~$10.8 million,~~$832,000, or ~~27.3%~~2.9%, compared with January ~~30, 2022, and significantly decreased~~29, 2023. Although net sales increased by ~~$10.3 million, or 26.3%, compared with May 1, 2022. This trend reflects (i) a decline in inventory purchases reflecting the 35.8% decrease in net sales~~21.6% during the third quarter of fiscal ~~2023~~2024, as compared with the third quarter of fiscal ~~2022 and a 17.1% decrease in net sales~~2023, inventory modestly decreased during the third quarter of fiscal ~~2023~~2024, as compared with the ~~fourth quarter of fiscal 2022; (ii) $3.9 million of non-cash charges recorded~~prior-year period, due to improved raw materials inventory management in ~~the first nine months of fiscal 2023, which includes $2.9 million related~~relation to ~~a write down of inventory to its net realizable value~~current customer demand trends and ~~$1.0 million related to markdowns of inventory estimated based on our policy for aged inventory; and (iii)~~ promotional programs to reduce aged raw materials and finished ~~goods inventory; partially offset~~goods.

As of January 28, 2024, inventory increased by ~~(iv) higher raw material, labor, and overhead costs stemming from inflationary pressures.~~$2.3 million, or 8.8%, compared with April 30, 2023. This trend primarily reflects lower than anticipated demands trends during the third quarter of fiscal 2024, compared with the fourth quarter of fiscal 2024. Net sales for the third quarter of fiscal 2024 were $30.0 million, a decrease of 2.2%, compared with net sales of $30.7 million during the fourth quarter of fiscal 2023.

I-36

Inventory turns were 4.0 for the third quarter of fiscal 2024, compared with 3.5 for the third quarter of fiscal 2023 ~~compared with 3.4 for the third quarter of fiscal 2022~~ and ~~2.9~~4.4 for the fourth quarter of fiscal ~~2022.~~2023.

~~I-36~~

Property, Plant, & Equipment

As of January 28, 2024, property, plant, and equipment has steadily decreased compared to January 29, 2023, and April 30, 2023, due to reduced capital spending stemming from the current and expected unfavorable macro-economic conditions and our strategic focus on limited capital projects that will increase efficiencies and improve the quality of our products.

The $32.3 million as of January 28, 2024, represents property, plant, and equipment of $21.9 million, $9.8 million, and $600,000 located in the U.S., Canada, and Haiti, respectively. The $34.7 million as of January 29, 2023, represents property, plant, and equipment of $23.1 million, $10.9 million, and $651,000 located in the U.S., Canada, and Haiti, respectively. The ~~$39.9~~$33.7 million as of ~~January~~April 30, ~~2022~~2023, represents property, plant, and equipment of ~~$26.6~~$22.7 million, ~~$12.5~~$10.4 million, and ~~$796,000 located in the U.S., Canada, and Haiti, respectively. The $38.7 million as of May 1, 2022, represents property, plant, and equipment of $25.6 million, $12.4 million, and $757,000~~$608,000 located in the U.S., Canada, and Haiti, respectively.

As of January 29, 2023, property, plant, and equipment has steadily decreased compared with January 30, 2022, as we have reduced our capital spending as a result of current and expected macroeconomic conditions.

Right of Use Assets

As of January 28, 2024, right of use assets have decreased due to rent expense incurred over the terms of existing lease agreements.

The $1.8 million as of January 28, 2024, represents right of use assets of $1.2 million and $604,000 located in Haiti and Canada, respectively. The $2.5 million as of January 29, 2023, represents right of use assets of $1.6 million and $833,000 located in Haiti and Canada, respectively. The ~~$3.7~~$2.3 million as of ~~January~~April 30, ~~2022,~~2023, represents right of use assets of ~~$2.1 million, $1.3~~$1.5 million and ~~$352,000~~$776,000 located in Haiti ~~the U.S.,~~ and Canada, respectively. ~~The $3.5 million as of May 1, 2022, represents right of use assets of $2.0 million, $1.2 million, and $291,000 located in Haiti, the U.S., and Canada, respectively.~~

As of January 29, 2023, right of use assets have steadily decreased compared with January 30, 2022, due to rent expense recognized over the terms of the respective lease agreements, as well as the termination of one lease agreement and the significant reduction in the lease term associated with another lease agreement, both of which are related to the closure of our mattress cover operation located in High Point, NC, during the third quarter of fiscal 2023.

Upholstery Fabrics Segment


	Three Months Ended
(dollars in thousands)	January 28, 2024		January 29, 2023		% Change
Non-U.S. Produced	$28,425	94%	$25,514	92%	11.4%
U.S. Produced	1,972	6%	2,312	8%	(14.7)%
Total	$30,397	100%	$27,826	100%	9.2%


	Nine Months Ended
(dollars in thousands)	January 28, 2024		January 29, 2023		% Change
Non-U.S. Produced	$77,187	91%	$86,633	93%	(10.9)%
U.S. Produced	7,998	9%	6,576	7%	21.6%
Total	$85,185	100%	$93,209	100%	(8.6)%

Net Sales

Three Months Ended

(dollars in thousands)

January 29,
2023

January 30,
2022

% Change

Non-U.S. Produced

$
25,514

92%
$
39,286

94%

(35.1
)%
U.S. Produced

2,312

8%

2,566

6%

(9.9
)%
Total

$
27,826

100%
$
41,852

100%

(33.5
)%

Nine Months Ended

(dollars in thousands)

January 29,
2023

January 30,
2022

% Change

Non-U.S. Produced

$
86,633

93%
$
108,814

94%

(20.4
)%
U.S. Produced

6,576

7%

6,705

6%

(1.9
)%
Total

$
93,209

100%
$
115,519

100%

(19.3
)%

Upholstery fabrics sales ~~decreased 33.5%~~increased 9.2% in the third quarter of fiscal ~~2023~~2024 compared to the prior-year ~~period, which was an especially strong sales~~ period. Upholstery fabrics sales decreased ~~by 19.3% for~~8.6% in the first nine months of fiscal ~~2023, as~~2024 compared to the first nine months of fiscal ~~2022.~~2023.

The increase in upholstery fabrics net sales during the third quarter was driven by the timing of the Chinese New Year holiday (which falls primarily in the fourth quarter of fiscal 2024, as opposed to the third quarter of fiscal 2023), as well as some improvement in residential home furnishing sales during the period. This increase was partially offset by moderately lower sales in our hospitality/contract fabric business primarily due to the impact of winter weather events in January; short-term supply chain issues that affected production in our Read business; and increased construction costs affecting demand for new and ongoing hospitality/contract projects.

The decrease in upholstery fabrics net sales for the third quarter and for the first nine months of fiscal 2023 reflects reduced demand for our residential upholstery fabrics products compared to the prior-year periods, driven by high inventory levels and a slowdown in new retail business for the residential home furnishings industry. It also reflects slightly lower sales for our Read business during both periods, as compared to the prior-year periods. For the first nine months of fiscal 2023, the decrease in net sales was partially offset by higher sales in our hospitality/contract fabric business, as compared to the prior year period, as well as pricing and surcharge actions in effect that were not in effect during the same periods a year ago. These actions increased net sales for the division by approximately 1.7% during the quarter and by approximately 2.9% during the first nine months of fiscal ~~2023.~~

~~Looking ahead, we expect the high inventory levels and the slowdown~~2024 reflects softness in ~~new retail business for~~ the residential home furnishings industry, where demand was pressured during the first half of the year by a challenging macro-economic environment.

Although we saw a year over year increase in residential fabric sales during the third quarter, the industry demand backdrop for residential home furnishings has deteriorated further than expected during the first few weeks of the fourth quarter, and we expect this ongoing softness may affect demand for our residential business for some ~~period of~~ time. Despite this challenge, we believe our business is well positioned for the long term with our product-driven strategy and innovative product offerings, ~~as well as~~including our popular portfolio of LiveSmart® performance products, supported by our flexible Asian platform and our long-term supplier relationships. We also believe overall demand remains solid for our hospitality/contract business.

I-37

Notably, the potential ongoing geopolitical disruptions related to wars in Ukraine and the Middle East, as well as the economic and health effects offrom possible additional surges in the ~~COVID-19 pandemic, as well as the impact of Russia’s invasion of Ukraine, including its effect on petrochemical pricing and consumer spending,~~coronavirus, 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 ~~either~~any of these situations, including additional ~~COVID-19-related~~COVID-related shutdowns of our China operations, the impact on our operations, and/or on our suppliers, customers, consumers, and the global economy, could adversely affect our financial performance.

~~I-37~~

Gross Profit, Selling, General & Administrative Expenses, and ~~Operating~~ Income (Loss) from Operations


	Three Months Ended							Three Months Ended
(dollars in thousands)	January 29, 2023			January 30, 2022			Change	January 28, 2024			January 29, 2023			Change
Gross profit		3,330			5,946		(44.0)%		6,122			3,330		83.8%
Gross margin		12.0	%		14.2	%	(220)bp		20.1	%		12.0	%	817bp
Selling, general, and administrative expenses		3,750			3,500		7.1%		4,030			3,750		7.5%
Restructuring expense		711			—		100.0%
(Loss) income from operations		(420	)		2,446		(117.2)%
Restructuring (credit) expense									(50	)		711		(107.0)%
Income (loss) from operations									2,092			(420	)	(598.1)%
Operating margin		(1.5	)%		5.8	%	(730)bp		6.9	%		(1.5	)%	839bp


	Nine Months Ended							Nine Months Ended
(dollars in thousands)	January 29, 2023			January 30, 2022			Change	January 28, 2024			January 29, 2023			Change
Gross profit		11,436			16,230		(29.5)%		16,780			11,436		46.7%
Gross margin		12.3	%		14.0	%	(170)bp		19.7	%		12.3	%	740bp
Selling, general, and administrative expenses		11,053			10,491		5.4%		11,969			11,053		8.3%
Restructuring expense		1,326			—		100.0%		432			1,326		(67.4)%
Income from operations		383			5,739		(93.3)%		4,811			383		1156.1%
Operating margin		0.4	%		5.0	%	(460)bp		5.6	%		0.4	%	525bp

The ~~decrease~~increase in upholstery fabrics profitability for the third quarter of fiscal ~~2023,~~2024, as compared to the ~~prior-year~~prior year period (which was negatively affected by restructuring and related charges), primarily reflects ~~lower residential~~higher sales as well as operating inefficiencies in our cut and sew operation in Haiti due to reduced demand, and labor challenges and inflationary pressures affecting our Read business during the quarter. These pressures were partially offset byvolume; a ~~significantly~~more profitable mix of sales; a more favorable foreign exchange rate ~~associated with our operations~~ in ~~China, as well as~~China; and lower fixed costs resulting from the previous restructuring of ~~our~~the upholstery fabrics segment's cut and sew ~~platform in China completed~~platforms. These factors were partially offset by lower hospitality/contract sales and higher SG&A expense during the ~~second quarter of fiscal 2023.~~period.

~~Upholstery~~The increase in upholstery fabrics profitability for the first nine months of fiscal ~~2023~~2024, as compared to the prior-year period (which was negatively affected by ~~the same factors that affected the third quarter, as well as $2.3 million~~higher than normal inventory markdowns ~~due to our policy for aged inventory.~~and restructuring and related charges), primarily reflects a more profitable mix of sales; better inventory management; a more favorable foreign exchange rate in China; lower fixed costs resulting from the previous restructuring of the upholstery fabrics cut and sew platform; and lower freight costs. These factors were partially offset by lower residential fabric sales and higher SG&A expense during the period.

~~Based on demand trends, we began a rationalization and consolidation of our cut and sew upholstery kit platform~~The increase in ~~Haiti near the end of~~SG&A expense during both the third quarter and the first nine months of fiscal ~~2023. This restructuring, which will be completed~~2024, as compared to the prior-year periods, was mostly due to wage inflation, higher professional and consulting fees, higher travel and tradeshow costs as business travel and industry tradeshows have resumed, and an increase in sampling expense driven by new product roll outs.

Looking ahead, the residential home furnishings industry remains under pressure, and we expect further deterioration during the fourth quarter of fiscal ~~2023, better aligns our capacity~~2024 due to shifting consumer demand trends and ~~costs with current demand levels for upholstery kits. We believe this move, which includes terminating~~inflation affecting overall consumer spending. As a ~~lease and relocating into an existing facility for our mattress cover business, will allow us to reduce our operating costs without sacrificing our ability to support our customers.~~

~~Looking ahead,~~result, we expect lower sales volumes in our residential business will continue to ~~pressure~~affect our profitability. However, we still expect to benefit in fiscal 2024 from (i) our strategic decision to discontinue production of cut and sewn upholstery kits in Haiti; (ii) improved inventory management; (iii) a solid hospitality/contract fabric business; and (iv) improvement in our Read business. We will also continue our ongoing cost reduction efforts and will consider further adjustments to right-size and restructure our operations as necessary to align with current demand levels, while maintaining our ability to service our customers.

Restructuring Activities

~~Second Quarter of Fiscal 2023~~Ouanaminthe, Haiti

During the third quarter of fiscal 2023, Culp Upholstery Fabrics Haiti, Ltd. ("CUF Haiti") entered into an agreement to terminate a lease associated with a facility located in Ouanaminthe, Haiti, and, in turn, moved its production of upholstery cut and sew kits to an existing facility leased by Culp Home Fashions Haiti, Ltd. (“CHF Haiti”) during the fourth quarter of fiscal 2023. Both CUF

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Haiti and CHF Haiti are indirect wholly-owned subsidiaries of the company. During the first quarter of fiscal 2024, demand for upholstery cut and sewn kits declined more than previously anticipated, resulting in the strategic action to discontinue the production of upholstery cut and sew kits in Haiti.

Shanghai, China

During the second quarter of fiscal 2023, we closed our cut and sew upholstery fabrics operation located in Shanghai, China, which included the termination of an agreement to lease a building. This strategic action, along with the further use of our Asian supply chain, was ~~our response~~taken in order to adjust our operating costs to better align with the declining ~~consumer~~customer demand for cut and sewn products. ~~As a result of this strategic action, we recorded~~

The following summarizes our restructuring expense and restructuring related charges ~~totaling $713,000. These charges represent employee termination benefits of $468,000, loss~~ from both our restructuring activities noted above for the ~~disposal~~nine months ending January 28, 2024, and ~~markdowns of inventory of $98,000, impairment loss associated with equipment of $80,000, lease termination costs of $47,000, and other associated costs of $20,000.~~January 29, 2023:


	Nine Months Ended		Nine Months Ended
	January 28, 2024		January 29, 2023
Lease termination costs	$	—	$	481
Employee termination benefits		103		468
Impairment loss - leasehold improvements and equipment		329		357
Loss on disposal and markdowns of inventory		40		98
Other associated costs		—		20
Restructuring expense and restructuring related charges (1) (2)	$	472	$	1,424

(1) Of the total ~~$713,000, $615,000~~$472,000, $432,000 and ~~$98,000~~$40,000 were recorded towithin restructuring expense and cost of sales, respectively, in the Consolidated Statement of Net Loss for the ~~three-month period ending October 30, 2022, and the~~ nine-month period ending January ~~29, 2023.~~28, 2024.

~~Third Quarter of Fiscal 2023~~

During the third quarter of fiscal 2023, we entered into an agreement to terminate the lease ("the Termination Agreement") of a facility (the "Terminated Facility") located in Ouanaminthe, Haiti, that was used solely for the production of cut and sewn kits associated with our upholstery fabrics segment. As a result, we are relocating production of cut and sewn upholstery kits into another existing facility that is also located in Ouanaminthe, Haiti, and leased by an affiliate that produces mattress covers at this

~~I-38~~

facility. As a result, we will produce both upholstery cut and sewn kits and mattress covers in this location. We believe this strategic action will realign our capacity and costs with current demand levels, while still allowing us to support our customers and scale for additional capacity if conditions improve.

Based on the terms of the Termination Agreement, once we vacate and return possession of the Terminated Facility to the lessor (which has now occurred), a third party lessee will take possession of the Terminated Facility and has agreed to pay us $2.4 million over a period commencing April 1, 2023, through December 31, 2029, for the right to use the building. The terms of the Termination Agreement fully and unconditionally release and discharge us from all of our obligations under the original lease for the Terminated Facility.

As a result of this strategic action, we recorded restructuring expense of $711,000 during the third quarter of fiscal 2023, which represents lease termination costs of $434,000 and an impairment loss regarding leasehold improvements totaling $277,000.

The following summarizes our restructuring expense and restructuring related charges that were associated with both our restructuring activities noted above for the nine-months ending January 29, 2023:

Nine Months Ended

(dollars in thousands)

January 29, 2023

Lease termination costs

$
481

Employee termination benefits

468

Impairment loss - leasehold improvements and equipment

357

Loss on disposal and markdowns of inventory

98

Other associated costs

20

Restructuring expense and restructuring related charges (1)

$
1,424

~~(1)~~(2) Of the total $1.4 million, $1.3 million and $98,000 were recorded towithin restructuring expense and cost of sales, respectively, in the Consolidated Statement of Net Loss for the nine-month period ending January 29, 2023.

See Note ~~8 to~~9 of the consolidated financial ~~statements~~statement for further details regarding our restructuring ~~activities associated with our upholstery fabrics segment.~~activities.

Segment Assets

Segment assets consist of accounts receivable, inventory, property, plant, and equipment, right of use assets, and assets held for sale:


(dollars in thousands)	January 29, 2023		January 30, 2022		May 1, 2022		January 28, 2024		January 29, 2023		April 30, 2023
Accounts receivable	$	12,927	$	21,381	$	12,361	$	12,223	$	12,927	$	12,382
Inventory		18,870		33,589		27,529		18,952		18,870		19,406
Property, plant & equipment		1,794		2,018		2,030		1,155		1,794		1,671
Right of use assets		2,995		8,727		8,124		2,345		2,995		2,618
Assets held for sale		1,950		—		—		—		1,950		—
	$	38,536	$	65,715	$	50,044	$	34,675	$	38,536	$	36,077

Refer to Note 1213 of the consolidated financial statements for disclosures regarding determination of our segment assets.

Accounts ~~Receivablec~~Receivable

As of January ~~29, 2023,~~28, 2024, accounts receivable ~~significantly~~ decreased by ~~$8.5 million,~~$704,000, or ~~39.5%~~5.4%, compared with January ~~30, 2022. This trend reflects the decrease in~~29, 2023. Although net sales increased by 9.2% during the third quarter of fiscal ~~2023~~2024, as compared with the third quarter of fiscal ~~2022, as described in~~2023, accounts receivable decreased. This trend reflects a timing difference of cash receipts from certain significant customers during the ~~Net Sales~~ ~~section above. In addition, we experienced faster~~last week of the third quarter of fiscal 2024, which cash ~~collections as we had a favorble mix of higher sales volume with customers with shorter credit terms~~receipts did not occur during the third quarter of fiscal ~~2023 compared~~2023. It also reflects the expiration of extended credit terms with ~~the third quarter of fiscal 2022.~~certain customers. As a result, days’ sales outstanding for this segment ~~declined~~decreased to 31 days for the third quarter of fiscal 2024, as compared with 38 days for the third quarter of fiscal ~~2023, down from 45~~2023.

As of January 28, 2024, accounts receivable decreased by 1.3%, compared with April 30, 2023. This trend reflects a static net sales of $30.4 million for the third quarter of fiscal 2024, that was comparable with net sales of $30.7 million during the fourth quarter of fiscal 2023. Days' sales outstanding was 31 days for the third quarter of fiscal ~~2022.~~2024, as compared with 33 days for the fourth quarter of fiscal 2023.

Inventory

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As of January 28, 2024, inventory increased by 0.4%, compared with January 29, 2023. Although net sales increased by 9.2% during the third quarter of fiscal 2024, as compared with the third quarter of fiscal 2023, inventory remained flat as inventory levels were well managed in relation to current customer demand trends.

As of January ~~29, 2023, and May 1, 2022, accounts receivable were lower than normal, as we experienced~~28, 2024, inventory decreased by $454,000, or 2.3%, compared with April 30, 2023. The trend reflects a ~~significant decline~~modest decrease in net sales of 1.1% during the third quarter of fiscal 2024, as compared with the fourth quarter of fiscal 2023. Net sales for the third quarter of fiscal 2024 were $30.4 million, compared with net sales of $30.7 million during the fourth quarter of fiscal 2023.

Inventory turns were 5.1 for the third quarter of fiscal 2024, compared with 4.1 for the third quarter of fiscal 2023 and ~~the fourth quarter of fiscal 2022. As described in the~~ ~~Net Sales~~ section above, net sales significantly declined during the third quarter of fiscal 2023 due primarily to reduced customer demand and higher than normal inventory levels held by our residential furniture customers. During the fourth quarter of fiscal 2022, net sales significantly declined due to the mandated COVID-19 related shutdowns associated with our upholstery fabrics operations located in China. Days’ sales outstanding were 38 days and 40 days during the third quarter of fiscal 2023 and the fourth quarter of fiscal 2022, respectively.

~~I-39~~

~~Inventory~~

As of January 29, 2023, inventory decreased by $14.7 million, or 43.8%, compared with January 30, 2022. This trend reflects (i) a decline in inventory purchases reflecting the decrease in net sales during the third quarter of fiscal 2023 compared with the third quarter of fiscal 2022, as described in the ~~Net Sales~~ section above; (ii) a $2.4 million non-cash charge recorded during the first nine months of fiscal 2023, which includes $2.3 million of markdowns of inventory estimated based on our policy for aged inventory and $98,000 that was associated with the loss on disposal and markdowns of inventory related to the exit from our cut and sew upholstery fabrics operation located in Shanghai, China; and (iii) promotional programs to reduce aged raw materials and finished goods inventory; partially offset by (iv) higher raw material, labor, and overhead costs stemming from inflationary pressures.

As of January 29, 2023, inventory decreased by $8.7 million, or 31.5%, compared with May 1, 2022. This trend reflects (i) the reduction in inventory, despite the modest increase in net sales during the third quarter of fiscal 2023 compared with net sales during the fourth quarter of fiscal 2022, due to improved alignment of inventory purchases with current customer demand trends; (ii) a $2.4 million non-cash charge recorded during the first nine months fiscal 2023, which includes $2.3 million of markdowns of inventory estimated based on our policy for aged inventory and $98,000 that was associated with the loss on disposal and markdowns of inventory related to the exit from our cut and sew upholstery fabrics operation located in Shanghai, China, and (iii) promotional programs to reduce aged raw materials and finished goods inventory; partially offset by (iv) higher raw material, labor, and overhead costs stemming from inflationary pressures.

~~Inventory turns were 3.8 for the third quarter of fiscal 2023, compared with 3.8 for the third quarter of fiscal 2022, and 3.0~~4.8 for the fourth quarter of fiscal ~~2022.~~2023.

Property, Plant, & Equipment

As of January 28, 2024, property, plant, and equipment steadily decreased compared to January 29, 2023, and April 30, 2023, due to (i) impairment charges of $329,000 related to our strategic action to discontinue the production of upholstery cut and sew kits in Ouanaminthe, Haiti, and (ii) a reduction in capital spending as a result of current and expected unfavorable macro-economic conditions.

The $1.2 million as of January 28, 2024, represents property, plant, and equipment of $1.1 million and $134,000 located in the U.S. and China, respectively. The $1.8 million as of January 29, 2023, represents property, plant, and equipment of $1.0 million, $630,000, and $121,000 located in the U.S., Haiti, and China, respectively. The ~~$2.0~~$1.7 million as of ~~January~~April 30, ~~2022,~~2023, represents property, plant, and equipment of ~~$1.1 million, $585,000,~~$974,000, $592,000, and ~~$344,000 located in the U.S., Haiti, and China, respectively. The $2.0 million as of May 1, 2022, represents property, plant, and equipment of $1.0 million, $756,000, and $255,000~~$105,000 located in the U.S., Haiti, and China, respectively.

As of January 29, 2023, property, plant, and equipment decreased compared with January 30, 2022, and May 1, 2022, due to a reduction in capital spending as a result of current and expected macroeconomic conditions.

Right of Use Assets

As of January 28, 2024, right of use assets has steadily decreased compared with January 29, 2023, and April 30, 2023. This is due to rent expense incurred over the terms of existing lease agreements, partially offset by the renewal of our agreement to lease our facility associated with Read and certain facilities associated with our operations located in China.

The $2.3 million as of January 28, 2024, represents right of use assets of $944,000 and $1.4 million located in China and the U.S., respectively. The $3.0 million as of January 29, 2023, represents right of use assets of $1.7 million and $1.3 million located in China and the U.S., respectively. The ~~$8.7~~$2.6 million as of ~~January~~April 30, ~~2022,~~2023, represents right of use assets of ~~$4.1 million, $2.7~~$1.5 million and ~~$1.9~~$1.1 million, located in China ~~Haiti,~~ and the U.S., respectively. ~~The $8.1 million as of May 1, 2022, represents right of use assets of $3.7 million, $2.6 million, and $1.8 million located in China, Haiti, and the U.S., respectively.~~

As of January 29, 2023, our right of use assets decreased by $5.7 million, or 65.7%, compared with January 30, 2022, and decreased by $5.1 million, or 63.1%, compared with May 1, 2022. These decreases mostly resulted from (i) a six-month forgiveness of rent payments associated with COVID relief permitted by the Chinese government for all building lease agreements located in Shanghai, China, (ii) the termination of a building lease agreement in connection with the exit from our cut and sew upholstery fabrics operation located in Shanghai, China, and (iii) the termination of a building lease agreement in connection with the rationalization of our cut and sew upholstery fabrics operation located in Ouananminthe, Haiti.

Assets Held for Sale

AsThe $2.0 million as of January 29, 2023, ~~we classified~~represents a right of use asset ~~related~~associated with an agreement to ~~item (iii)~~lease a facility located in ~~the above paragraph as held for sale.~~Ouanaminthe, Haiti, which such lease was terminated in connection with a restructuring activity. See Note 89 of the consolidated financial statement for further details regarding our restructuring activity associated with our upholstery cut and sew operation located in Ouanaminthe, Haiti. This right of use asset was sold to a third party during the fourth quarter of fiscal 2023, which resulted in a note receivable. See Note 7 to the consolidated financial statements for further ~~details.~~details regarding this note receivable.

Other Income Statement Categories


	Three Months Ended							Three Months Ended
(dollars in thousands)	January 29, 2023		January 30, 2022		% Change			January 28, 2024		January 29, 2023		% Change
SG&A expenses	$	9,165	$	8,007		14.5	%	$	9,493	$	9,165		3.6	%
Interest income		196		214		(8.4	)%		284		196		44.9	%
Other expense		1,095		322		240.1	%		705		1,095		(35.6	)%


	Nine Months Ended
(dollars in thousands)	January 28, 2024		January 29, 2023		% Change
SG&A expenses	$	29,366	$	27,133		8.2	%
Interest income		911		292		212.0	%
Other expense		560		348		60.9	%

I-40

Nine Months Ended

(dollars in thousands)

January 29, 2023

January 30, 2022

% Change

SG&A expenses

$
27,133

$
26,275

3.3
%
Interest income

292

347

(15.9
)%
Other expense

348

963

(63.9
)%

Selling, General, and Administrative Expenses

The increase in selling, general, and administrative expenses during the third quarter and first nine months of fiscal 2023, compared with the third quarter and the first nine months of fiscal 2022, is due mostly to change in estimate adjustments that were recorded during the third quarter of fiscal 2022, which adjustments were not required during fiscal 2023. The change in estimate adjustments recorded during the third quarter of fiscal 2022 lowered incentive compensation expense, reflecting unfavorable financial results in relation to pre-established targets.

~~Interest Income~~

~~The decrease in interest income during the third quarter and first nine months of fiscal 2023,~~2024, compared with the third quarter and first nine months of fiscal ~~2022,~~2023, is ~~mostly~~ due to ~~the liquidation~~a variety of ~~all of our remaining short-term investments classified as available-for-sale~~factors, including (i) wage inflation; (ii) higher professional and ~~corporate bond investments classified as held-to-maturity during the fourth quarter of fiscal 2022, partially offset~~consulting fees; (iii) an increase in provision for bad debts reflecting current unfavorable macro-economic conditions relating to furniture and bedding products; and (iv) an increase in sampling expense driven by ~~a significant~~new product roll outs in both business segments.

Interest Income

The increase in interest income is due primarily to higher market interest rates during the third quarter and first nine months of fiscal 2024, as compared with the third quarter and first nine months of fiscal 2023.

Other Expense

Management is required to assess certain economic factors to determine the currency of the primary economic environment in which our foreign subsidiaries operate. Based on our assessments, the U.S. dollar was determined to be the functional currency of our operations located in China and Canada.

The ~~increase~~decrease in other expense during the third quarter of fiscal ~~2023~~2024, as compared with the third quarter of fiscal ~~2022~~2023, is due mostly to ~~significantly less~~more 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.~~amounts during third quarter, as compared with the third quarter of fiscal 2023. During the third quarter of fiscal ~~2023,~~2024, we reported a foreign currency exchange loss associated with our operations located in China ~~totaling $757,000,~~of $290,000, compared with ~~$108,000~~$757,000 during the third quarter of fiscal ~~2022.~~

2023. The decrease in other expense ~~for~~due to more favorable foreign exchange rates noted above, was partially offset by an increase in unrealized gains associated with our rabbi trust that funds our deferred compensation liability.

The increase in other expense during the first nine months of fiscal ~~2023~~2024, as compared with the first nine months of fiscal ~~2022~~2023, is mostly due ~~mostly~~ to ~~significantly more favorable exchange rates applied against our balance sheet accounts denominated~~the increase in ~~Chinese Renminbi to determine the corresponding U.S. dollar financial reporting amounts. During the first nine months of fiscal 2023, we reported a foreign exchange gain~~fees associated with our ~~operations~~ABL Credit Agreement effective on January 19, 2023. See Note 10 located in ~~China totaling $425,000, compared~~the consolidated financial statements for further details. In addition, the increase in other expense is due an increase in unrealized gains associated with ~~a foreign exchange loss of $268,000 during the first nine months of fiscal 2022.~~our rabbi trust that increased our deferred compensation liability.

~~The $425,000~~A foreign currency exchange ~~rate~~ gain of $389,000 was reported during the first nine months of fiscal ~~2023, which is~~2024 that (i) related to our operations located in China, (ii) was mostly non-cash, and (iii) was ~~mostly~~ offset by ~~$315,000 of~~a $477,000 income tax ~~expense that increased our~~charge. This income tax ~~payments. This $315,000~~charge of ~~income tax expense~~$477,000 was associated with taxable foreign currency exchange ~~rate~~ gains ~~relating to more~~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 gains ~~associated with~~incurred on our U.S. dollar denominated balance sheet accounts ~~related to~~associated with our operations located in China isare considered taxable income, as we incur income tax expense and pay income taxes in China's local currency. The $477,000 income tax charge represents an increase in our income tax payments and withholding tax payments associated with future earnings and profits that will ultimately be repatriated from our operations located in China to the company's U.S. parent.

Income Taxes

Effective Income Tax Rate & Income Tax Expense

We recorded income tax expense of $2.2 million, or (33.4%) of loss before income taxes, for the nine-month period ending January 28, 2024, compared with income tax expense of $2.3 million, or (9.5%) of loss before income taxes, for the nine-month period ending January 29, 2023 ~~compared with income tax expense of $2.6 million, or 48.4% of income before income taxes, for the nine-month period ending January 30, 2022.~~

Our effective income tax rates for the nine-month periods ended January ~~29, 2023,~~28, 2024, and January ~~30, 2022,~~29, 2023, 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 nine-month periods ended January ~~29, 2023,~~28, 2024, and January ~~30, 2022,~~29, 2023, 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

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China, Canada, and Haiti ~~versus~~as compared to annual projections, as well as changes in foreign currency exchange rates in relation to the U.S. dollar.

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 nine-month periods ending January ~~29, 2023,~~28, 2024, and January ~~30, 2022:~~29, 2023:


	January 29,			January 30,			January 28,			January 29,
	2023			2022			2024			2023
U.S. federal income tax rate		21.0	%		21.0	%		21.0	%		21.0	%
U.S. valuation allowance		(29.3	)		(26.9	)		(42.0	)		(29.3	)
Withholding taxes associated with foreign jurisdictions		(2.0	)		9.8			(8.1	)		(2.0	)
Capital expenditure deduction - Quebec, Canada		(1.6	)		—			—			(1.6	)
Foreign income tax rate differential		1.4			7.9			(5.2	)		1.4
Tax effects of local currency foreign exchange gains (losses)		1.3			(1.0	)
Global Intangible Low Taxed Income Tax ("GILTI")		—			37.4
Stock-based compensation								(2.9	)		(0.4	)
Tax effects of local currency foreign exchange gains								3.8			1.3
Other		(0.3	)		0.2			—			0.1
	(9.5)%				48.4	%	(33.4)%			(9.5)%

Our consolidated effective income tax ~~rate~~rates during the first nine months of fiscal 2024 and fiscal 2023 ~~was much more negatively~~were both adversely affected by the mix of earnings between our U.S. operations and ~~our~~ foreign subsidiaries, as ~~compared to~~our taxable income stems from our operations located in China during fiscal 2024 and from our operations located in both China and Canada during fiscal 2023, each of which has higher income tax rates than the U.S. In addition, during the first nine months of fiscal ~~2022. During~~2024 and the first nine months of fiscal 2023, we incurred ~~a significantly higher~~ pre-tax ~~loss from~~losses associated with our U.S. operations, ~~totaling $(28.8) million, compared with $(2.3) million during the first nine months of fiscal 2022. As a result, a significantly higher~~for which an income tax benefit was not ~~recognized~~recorded due to athe full valuation allowance ~~being~~ applied against our U.S. net deferred income tax assets (as described below). The income tax charge associated with the full valuation allowance applied against our U.S. net deferred income tax assets was lower during the first nine months of fiscal 2024 compared with the first nine months of fiscal 2023, as ~~compared with~~our $(11.3) million U.S. pre-tax loss incurred during the first nine months of fiscal ~~2022. In addition, almost all of our taxable income in~~2024 was significantly lower than the $(28.8) million U.S. pre-tax loss incurred during the first nine months of fiscal ~~2023 and fiscal 2022 was earned by our foreign operations located in China and Canada, which have higher income tax rates than the U.S.~~2023.

During the first nine months of fiscal ~~2023,~~2024, we incurred a ~~significantly higher~~lower consolidated pre-tax loss totaling ~~$(24.5)~~$(6.7) million, compared with ~~a much lower pre-tax income totaling $5.4~~$(24.5) million during the first nine months of fiscal ~~2022.~~2023. 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 nine months of fiscal ~~2022,~~2024, as compared with the first nine months of fiscal 2023.

U.S. Valuation Allowance

We evaluate the realizability of our U.S. net deferred income tax assets to determine if a valuation allowance is required. We assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more-likely-than-not” standard, with significant weight being given to evidence that can be objectively verified. Since the company operates in multiple jurisdictions, we assess the need for a valuation allowance on a jurisdiction-by-jurisdiction basis, considering the effects of local tax law.

As of January ~~29, 2023,~~28, 2024, we evaluated the realizability of our U.S. net deferred income tax assets to determine if a full valuation allowance was required. Based on our assessment, we determined ~~that~~ we still have a recent history of significant cumulative U.S. ~~taxable~~pre-tax losses, in that we experienced U.S. ~~taxable~~pre-tax losses during each of the last three fiscal years from ~~2020~~2021 through ~~2022,~~2023, and we are currently expecting significant U.S. pre-tax losses to continue during fiscal ~~2023.~~2024. As a result of the significant weight of this negative evidence, we believe it is more likely than not that our U.S. deferred income tax assets will not be fully realizable, and therefore we provided for a full valuation allowance against our U.S. net deferred income tax assets.

Based on our assessments as of January 28, 2024, January 29, 2023, ~~January~~and April 30, ~~2022, and May 1, 2022,~~2023, valuation allowances against our net deferred income tax assets pertain to the following:


(dollars in thousands)	January 29, 2023		January 30, 2022		May 1, 2022		January 28, 2024		January 29, 2023		April 30, 2023
U.S. federal and state net deferred income tax assets	$	15,741		7,802		9,527	$	19,162	$	15,741	$	16,345
U.S. capital loss carryforward		2,330		2,330		2,330		2,330		2,330		2,330
	$	18,071		10,132		11,857	$	21,492	$	18,071	$	18,675

Undistributed Earnings

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Refer to Note 1314 of the consolidated financial statements for disclosures regarding our assessments of our recorded deferred income tax liability balances associated with undistributed earnings from our foreign subsidiaries as of January 28, 2024, January 29, 2023, ~~January~~and April 30, ~~2022, and May 1, 2022,~~2023, respectively.

~~I-42~~

Uncertain Income Tax Positions

Refer to Note 1314 of the consolidated financial statements for disclosures regarding our assessments of our uncertain income tax positions as of January 28, 2024, January 29, 2023, ~~January~~and April 30, ~~2022, and May 1, 2022,~~2023, respectively.

Income Taxes Paid

The following table sets forth income taxes paid by ~~jurisdiction:~~jurisdiction for the nine months ended January 28, 2024, and January 29, 2023, respectively:


	Nine Months			Nine Months		Nine Months		Nine Months
	Ended			Ended		Ended		Ended
	January 29,			January 30,		January 28,		January 29,
(dollars in thousands)	2023			2022		2024		2023
United States Transition Tax Payment	$	265		$	266	$	499	$	265
China Income Taxes, Net of Refunds		1,680			2,036		1,803		1,680
China - Withholding Taxes Associated With Earnings and Profits Distributed to the U.S.		—			487
Canada - Income Taxes, Net of Refunds		(9	)		256		468		(9	)
	$	1,936		$	3,045	$	2,770	$	1,936

Future Liquidity

We are currently projecting annual cash income tax payments of approximately $3.2 million for fiscal ~~2023,~~2024, compared with ~~$3.1~~$2.3 million for fiscal ~~2022. These~~2023. Our estimated income tax payments for fiscal 2024 are management’s current projections only and can be affected ~~over the year~~ by actual earnings from our foreign subsidiaries located in China and Canada versus annual ~~projections,~~projections; changes in the foreign exchange rates associated with our China operations in relation to the U.S. ~~dollar,~~dollar; the timing of when we will repatriate earnings and profits from China and Canada; and the timing of when significant capital projects will be placed into service, which determines the deductibility of accelerated depreciation.

Additionally, we currently expect to pay minimal income taxes in the U.S. on a cash basis during fiscal ~~2023~~2024 due to the immediate expensing of U.S. capital expenditures and our existing U.S. federal net operating loss carryforwards that totaled ~~$23.7~~$49.4 million as of ~~May 1, 2022,~~April 30, 2023, which are projected to increase as a result of the significant U.S. loss carryforward we expect to generate during fiscal ~~2023.~~2024.

As of January ~~29, 2023,~~28, 2024, we will be required to pay annual U.S. federal transition tax payments, in accordance with the 2017 Tax Cuts and Jobs Act, ~~(“TCJA”),~~ as follows: ~~FY 2024 - $499,000;~~ FY 2025 - $665,000; and FY 2026 - ~~$831,000.~~$830,000.

Liquidity and Capital Resources

Liquidity

Overall

Currently, our sources of liquidity include cash and cash equivalents (collectively, "cash"), cash flow from operations, and amounts available under our revolving credit lines. As of January ~~29, 2023,~~28, 2024, we believe our cash of ~~$16.7~~$12.6 million ~~cash flow from operations,~~ and the current availability under our revolving credit lines totaling~~$28.9~~ $26.2 million (Refer to Note 910 of the consolidated financial statements for further details) will be sufficient to fund our foreseeable business needs, commitments, and contractual obligations.

As of January ~~29, 2023,~~28, 2024, our cash totaled ~~$16.7~~$12.6 million, ~~an increase~~a decrease of ~~$2.2~~$8.4 million compared with ~~$14.6~~cash of $21.0 million as of ~~May 1, 2022.~~April 30, 2023. This ~~increase~~decrease was ~~primarily~~mostly due to ~~(i)~~net cash used in operating activities totaling $(6.0) million and capital expenditures mostly related to our mattress fabrics segment totaling $(3.2) million, partially offset by proceeds from the sale of our rabbi trust investments totaling $1.2 million to fund withdrawals from our deferred compensation plan for certain retired employees (see offsetting decrease to the decrease in deferred compensation liability in item (iii) of the below paragraph).

Our net cash used in operating activities was $(6.0) million during the first nine months of fiscal 2024, a decrease of $10.6 million compared with net cash provided by operating activities ~~totaling $4.6 million, partially offset by (ii) capital expenditures~~ of ~~$1.6 million, and (iii) contributions totaling $870,000 to our rabbi trust that funds our deferred compensation plan.~~

~~Our net cash provided by operating activities was~~ $4.6 million during the first nine months of fiscal ~~2023, an increase of $17.0 million compared with net cash used~~2023. This trend

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primarily reflects (i) a significant decrease in ~~operating activities of $12.4 million~~inventory during the first nine months of fiscal ~~2022. This trend mostly reflects (i) a reduction of inventory related~~2023 due to ~~the significant decline in net sales,~~ improved alignment of inventory purchases with ~~current~~ customer demand trends, ~~and~~ promotional programs to reduce aged raw materials and finished goods ~~inventory;~~inventory, and a significant decline net sales of (27.1%) during the period, which did not recur during the first nine months of fiscal 2024; (ii) annual incentive payments made during the first quarter of fiscal ~~2022 that~~2024, which did not ~~recur~~occur during the first quarter of fiscal 2023; and (iii) payments to certain retired employees totaling $1.2 million for withdrawals from our deferred compensation plan during the first nine months of fiscal ~~2023,~~2024; partially offset by ~~(iii) a decrease~~(iv) an increase in ~~net~~ cash earnings during the first nine months of fiscal ~~2023 as~~2024 compared with the first nine months of fiscal ~~2022.~~2023.

As of January ~~29, 2023,~~28, 2024, there were no outstanding borrowings under our lines of credit.

~~I-43~~

The income taxes we pay also affect our liquidity. See the above section titled “Income Taxes Paid” of this Item 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION for further detail.

Our cash balance may be adversely affected by factors beyond our control, such as (i) recent customer demand trends, (ii) supply chain disruptions, (iii) rising interest rates and inflation, (iv) world events (including wars in Ukraine and the ~~Russia-Ukraine war)~~Middle East), and (v) the continuing uncertainty associated with COVID-19. These factors could cause delays in receipt of payment on accounts receivable and could increase cash disbursements due to rising prices.

By Geographic Area

A summary of our cash ~~and investments~~ by geographic area follows:

(dollars in thousands)

Janaury 29, 2023

January 30, 2022

May 1, 2022

United States

$
9,658

$
12,351

$
4,430

China

6,114

8,838

9,502

Canada

700

454

267

Haiti

244

557

341

Cayman Islands

9

10

10

$
16,725

$
22,210

$
14,550

The total balance as of January 30, 2022, includes short-term investments classified as available-for-sale and short-term and long-term investments classified as held-to-maturity that were liquidated in their entirety during the fourth quarter of fiscal 2022, and therefore, the total balances as of January 29, 2023, and May 1, 2022, solely represent cash.



(dollars in thousands)	January 28, 2024		January 29, 2023		April 30, 2023
United States	$	2,816	$	9,658	$	9,769
China		9,138		6,114		10,669
Canada		259		700		281
Haiti		363		244		236
Cayman Islands		9		9		9
	$	12,585	$	16,725	$	20,964

Common Stock Repurchase Program

In March 2020, our board of directors approved an authorization for us to acquire up to $5.0 million of our common stock. Under the common stock repurchase program, shares may be purchased from time to time in open market transactions, block trades, through plans established under the Securities Exchange Act Rule 10b5-1, or otherwise. The number of shares purchased and the timing of such purchases are based on ~~our~~ working capital requirements, market and general business conditions, and other factors, including alternative investment opportunities.

~~During the first nine months of fiscal 2023, we~~We did not ~~purchase~~repurchase any shares of ~~our~~ common ~~stock.~~stock during either of the nine-month periods ending January 28, 2024, or January 29, 2023, respectively. As a result, as of January ~~29, 2023,~~28, 2024, $3.2 million is available for additional repurchases of our common stock. Despite the current share repurchase authorization, the company does not expect to repurchase any shares through at least the fourth quarter of fiscal ~~2023.~~2024.

~~During the first nine months of fiscal 2022, we repurchased 121,688 shares of our common stock at a cost of $1.8 million.~~Dividends

~~Dividend Program~~

OnIn June ~~29,~~ 2022, our board of directors ~~announced the decision to suspend~~suspended the company’s quarterly cash dividend. Considering the current and expected macroeconomic conditions, we believe that preserving capital and managing our liquidity is in the company’s best interest to support future growth and the long-term interests of our shareholders. Accordingly, we ~~did~~do not ~~make~~expect to pay any ~~dividend payments during first nine months~~dividends through at least the fourth quarter of fiscal ~~2023.~~

~~During the nine-month period ending January 30, 2022, dividend payments totaled $4.1 million, which represented quarterly dividend payments ranging from $0.11 per share to $0.115 per share.~~

Working Capital

Operating Working Capital

Operating working capital ~~(accounts~~(the total of accounts receivable and inventories, less accounts payable-trade, less accounts payable-capital expenditures, and less deferred revenue) was $39.0 million as of January 28, 2024, compared with $44.9 million as of January 29, 2023, ~~compared with $64.9~~and $39.2 million as of ~~January~~April 30, ~~2022, and $67.7 million as of May 1, 2022.~~2023. Operating working capital turnover was 5.9 during the third quarter of fiscal 2024, compared with 4.1 during the third quarter of fiscal 2023, ~~compared with 6.0 during the third quarter of fiscal 2022~~ and ~~5.2~~4.6 during the fourth quarter of fiscal ~~2022.~~2023.

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Accounts Receivable

Accounts receivable was $23.7 million as of January 28, 2024, an increase of $2.5 million, or 11.5%, compared with $21.2 million as of January 29, ~~2023,~~2023. This increase mostly reflects a ~~significant decrease~~15.0% increase in net sales during the third quarter of ~~$17.8 million, or 45.5%,~~fiscal 2024, as compared with ~~$39.0~~the third quarter of fiscal 2023. Days’ sales outstanding were 33 days during the third quarter of fiscal 2024, compared with 34 days during the third quarter of fiscal 2023.

Accounts receivable was $23.7 million as of January 28, 2024, a decrease of $1.1 million, or 4.4%, compared with $24.8 million as of April 30, ~~2022.~~2023. This decrease primarily reflects ~~the significant~~a decrease in net sales during the third quarter of fiscal 2024, as compared with the fourth quarter of fiscal 2023. Net sales were $60.4 million during the third quarter of fiscal 2024, a decrease of $1.0 million, or 1.6%, compared with net sales of $61.4 million during the fourth quarter of fiscal 2023. In addition, this decrease reflects faster cash collections associated with our mattress fabrics segment, as we had a mix of higher sales to customers with longer credit terms during the fourth quarter of fiscal 2023, as compared with the third quarter of fiscal ~~2022. Net~~2024. As a result, days’ sales ~~were $52.5 million~~outstanding decreased to 33 days during the third quarter of fiscal ~~2023,~~2024, a decrease from 35 days during the fourth quarter of fiscal 2023.

Inventory

Inventory was $46.9 million as of January 28, 2024, a decrease of ~~$27.8 million,~~$750,000, or ~~34.6%~~1.6%, compared with $47.6 million as of January 29, 2023. Although net sales ~~of $80.3 million~~increased by 15.0% during the third quarter of fiscal 2022. In addition, we experienced faster cash collections from certain significant customers that we had on shorter credit terms due to their financial condition and a more favorable mix of higher sales volume with customers who had shorter credit terms during the third quarter of fiscal 2023,2024, as compared with the third quarter of fiscal ~~2022. As a result, we experienced a decline in days’ sales outstanding to 34 days for the third quarter of fiscal~~ 2023, ~~down from 44 days~~inventory modestly decreased during the third quarter of fiscal ~~2022.~~

~~Accounts receivable was $21.2 million~~2024, as ~~of January 29, 2023, a decrease of $985,000, or 4.4%,~~ compared with ~~$22.2 million~~the prior-year period, as of May 1, 2022. These accounts receivable balances were lower than normal, as we experienced a significant decline in net sales during the third quarter of fiscal 2023 and the fourth quarter of fiscal 2022. During the third quarter of fiscal 2023, net sales significantly declined due primarily to reduced consumer demand and higher than normal inventory levels ~~held~~were well managed in relation to current customer demand trends by ~~our customers related to~~ both our mattress and upholstery fabrics ~~segments. During the fourth quarter of fiscal 2022, net sales significantly declined due to the mandated COVID-19 related shutdowns associated with~~segments, and our ~~upholstery~~mattress fabrics ~~operations located in China. Days’ sales outstanding were 34 days and 35 days during the third quarter of fiscal 2023 and the fourth quarter of fiscal 2022, respectively.~~

~~Inventory~~

Inventory was $47.7 million as of January 29, 2023, a significant decrease of $25.5 million, or 34.9%, compared with $73.1 million as of January 30, 2022, and a significant decrease of $18.9 million, or 28.4% , compared with $66.6 million as of May 1, 2022. This trend reflects (i) a decline in inventory purchases reflecting the 34.6% decrease in net sales during the third quarter of fiscal 2023 compared with the third quarter of fiscal 2022, and a 7.8% decrease in net sales during the third quarter of fiscal 2023 compared with the fourth quarter of fiscal 2022; (ii) a $6.2 million non-cash charge recorded in the first nine months of fiscal 2023, which includes $2.9 million related to a write down of inventory to its net realizable value and $3.3 million related to markdowns of inventory estimated based on our policy for aged inventory; (iii) $98,000 for the loss on disposal and markdowns of inventory related to the exit from our cut and sew upholstery fabrics operation located in Shanghai, China; and (iv)segment implemented promotional programs to reduce aged raw materials and finished ~~goods inventory; partially offset by (v) higher raw material, labor, and overhead costs stemming from inflationary pressures.~~goods.

Inventory was $46.9 million as of January 28, 2024, an increase of $1.8 million, or 4.0%, compared with $45.1 million as of April 30, 2023. This trend primarily reflects lower than anticipated demand trends associated with our mattress fabrics segment during the third quarter of fiscal 2024, compared with the second quarter of fiscal 2024. Net sales related to our mattress fabrics segment for the third quarter of fiscal 2024 were $30.0 million, a decrease of 4.3%, compared with net sales of $31.4 million during the second quarter of fiscal 2024.

Inventory turns were 4.5 for the third quarter of fiscal 2024, as compared with 4.0 for the third quarter of fiscal 2023 ~~as compared with 3.4 for the third quarter of fiscal 2022~~ and ~~3.1~~4.7 for the fourth quarter of fiscal ~~2022.~~2023.

Accounts Payable - Trade

Accounts payable - trade was $29.8 million as of January 28, 2024, an increase of $7.3 million, or 32.2%, compared with $22.5 million as of January 29, 2023. This increase is mostly due to the timing of vendor payments associated with the Chinese New Year holiday, where a higher level of vendor payments was made prior to January 29, 2023, ~~a significant decrease of $24.2 million, or 51.7%,~~as compared with ~~$46.7~~January 28, 2024.

Accounts payable - trade was $29.8 million as of January 28, 2024, a decrease of 1.2% compared with $29.4 million as of April 30, ~~2022.~~2023. This ~~significant decrease primarily~~trend reflects ~~the significant~~a decline in net sales during the third quarter of fiscal ~~2023,~~2024, as compared with the ~~third~~fourth quarter of fiscal ~~2022.~~2023. Net sales were ~~$52.5~~$60.4 million during the third quarter of fiscal ~~2023,~~2024, a decrease of ~~$27.8~~$1.0 million, or ~~34.6%~~1.6%, compared with net sales of ~~$80.3~~$61.4 million during ~~the third quarter of fiscal 2022.~~

Accounts payable - trade was $22.5 million as of January 29, 2023, an increase of $2.4 million, or 12.1%, compared with $20.1 million as of May 1, 2022. These accounts payable balances were lower than normal, as we experienced a significant decline in net sales during the third quarter of fiscal 2023 and the fourth quarter of fiscal 2022. During the third quarter of fiscal 2023, net sales significantly declined due primarily to reduced consumer demand and higher than normal inventory levels held by our customers related to both our mattress and upholstery fabrics segments. During the fourth quarter of fiscal 2022, net sales significantly declined due to the mandated COVID-19 related shutdowns associated with our upholstery fabrics operations located in China.2023.

Financing Arrangements

Currently, we have revolving credit agreements with banks for our U.S parent company and our operations located in China. The purposes of our revolving lines of credit are to support potential short-term cash needs in different jurisdictions, mitigate our risk associated with foreign currency exchange rate fluctuations, and ultimately repatriate earnings and profits from our foreign subsidiaries to our U.S. parent company to take advantage of the TCJA, which allows a U.S. corporation a 100% dividend received income tax deduction on earnings and profits repatriated to the U.S. from 10% owned foreign corporations.

As of January ~~29, 2023,~~28, 2024, we did not have any outstanding borrowings associated with our revolving credit agreements.

Our loan agreements require, among other things, that we maintain compliance with certain financial covenants. As of January ~~29, 2023,~~28, 2024, we were in compliance with these financial covenants.

~~I-45~~

Refer to Note 910 of the consolidated financial statements for further disclosure regarding our revolving credit agreements.

Capital Expenditures and Depreciation

Overall

Capital expenditures on a cash basis ~~were $1.6 million~~ during the first nine months of fiscal ~~2023, compared~~2024 totaled $3.2 million and were mostly related to machinery and equipment associated with ~~$5.3 million for the same period a year ago.~~our mattress fabrics segment. Capital expenditures on a cash basis during the first nine months of fiscal 2023 ~~reflected a reduction~~totaled $1.6 million and pertained to (i) manufacturing equipment associated with our mattress fabrics

I-45

segment, (ii) machinery and equipment associated with our former upholstery cut and sew operation located in Haiti; and (iii) IT equipment associated with both our ~~capital spending as a result of current and expected macroeconomic conditions. Capital expenditures on a cash basis~~business segments.

Depreciation expense was $4.9 million during the first nine months of fiscal ~~2022 mostly related to our mattress fabrics segment, our innovation campus located in downtown High Point, NC, and IT equipment.~~

~~Depreciation expense was~~2024, compared with $5.2 million ~~during~~for the ~~first nine months of fisca1 2023 and fiscal 2022.~~same period a year ago. Depreciation expense mostly related to our mattress fabrics segment for both periods. For the remainder of fiscal 2024, our planned capital spending will be centered on our mattress fabrics segment, with a strategic focus on capital projects that will increase efficiencies and improve the quality of our products. Funding for capital expenditures is expected to be from cash provided from operations.

Accounts Payable – Capital Expenditures

As of January ~~29, 2023,~~28, 2024, we had ~~total~~ amounts due regarding capital expenditures totaling ~~$25,000~~$19,000 that pertained to outstanding vendor invoices, none of which were financed. The total amount outstanding of ~~$25,000~~$19,000 is required to be paid based on normal credit terms.

Purchase Commitments – Capital Expenditures

As of January ~~29, 2023,~~28, 2024, we had open purchase commitments to acquire equipment for our mattress fabrics segment totaling ~~$738,000.~~$880,000.

Critical Accounting Policies and Recent Accounting Developments

As of January ~~29, 2023,~~28, 2024, there were no changes in our significant accounting policies or the application of those policies from those reported in our annual report on Form 10-K for the year ended ~~May 1, 2022.~~April 30, 2023.

Refer to Note 2 of the consolidated financial statements for recently adopted and issued accounting pronouncements, if any, since the filing of our Form 10-K for the year ended ~~May 1, 2022.~~April 30, 2023.

Contractual Obligations

There were no significant or new contractual obligations since those reported in our annual report on Form 10-K for the year ended ~~May 1, 2022,~~April 30, 2023, except for those disclosed in Note 910 of the consolidated financial statements.

Inflation

Any significant increase in our raw material costs, utility/energy costs, and general economic inflation could have a material adverse impact on the company, because competitive conditions have limited our ability to pass significant operating cost increases on to customers.

During fiscal ~~2022~~2023 and continuing through the third quarter of fiscal 2024, raw material costs started to decline due to lower oil prices and slowing global demand; however, higher cost of labor remained challenging during fiscal 2023 and continuing through the third quarter of fiscal 2024.

Inflationary pressures also affected consumer spending during fiscal 2023 and through the third quarter of fiscal 2024, causing a slowdown in business in both the mattress industry and the residential home furnishings industry. This slowdown has caused reduced demand for our mattress fabrics and residential upholstery fabrics products during fiscal 2023 and during the first nine months of fiscal 2023, higher freight costs, labor costs, and raw material prices have increased the prices we pay for shipping, labor, and raw materials. Inflationary pressures also began to affect consumer spending during the second half of fiscal 2022, and these pressures have continued through the first nine months of fiscal 2023. 2024.

We are unable to predict how long these trends will last, or to what extent inflationary pressures may affect the economic and purchasing cycle for home furnishing products (and therefore affect demand for our products) over the short and long term.

I-46

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rates

We are exposed to market risk from changes in interest rates with regards to our revolving credit agreements.

Effective January 19, 2023, we entered into a second amended and restated U.S. revolving credit agreement (the “Amended Agreement”) ~~to establish~~that established an asset-based revolving credit facility that required interest to be charged at a rate (applicable interest rate of ~~5.81%~~6.81% as of January ~~29, 2023)~~28, 2024) calculated using an applicable margin over the Federal Reserve Bank of New York’s secured overnight fund rate, ~~(SOFR),~~ as defined in the Amended Agreement. As of January ~~29, 2023,~~28, 2024, there were no outstanding borrowings under the Amended Agreement.

Our revolving credit line associated with our operations located in China bears interest at a rate determined by the Chinese government at the time of borrowing. As of January ~~29, 2023,~~28, 2024, there were no borrowings outstanding under our revolving credit agreement associated with our operations located in China.

Foreign Currency

We are exposed to market risk from changes in the value of foreign currencies ~~for~~related to our subsidiaries domiciled in Canada and China. We try to maintain a natural hedge by keeping a balance of our assets and liabilities denominated in the local currency of our subsidiaries domiciled in Canada and China. However, there is no assurance that we will be able to continually maintain this natural hedge. Our foreign subsidiaries use the United States dollar as their functional currency. A substantial portion of the company’s imports purchased outside the United States are denominated in U.S. dollars. A 10% change in the above exchange rates as of January ~~29, 2023,~~28, 2024, would not have materially affected our results of operations or financial position.

ITEM 4. CONTROLS AND PROCEDURES

As of January ~~29, 2023,~~28, 2024, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of such date, in all material respects, to ensure that information required to be disclosed in the reports filed by us and submitted under the Exchange Act, is recorded, processed, summarized, and reported as and when required, and that these disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed in reports filed by us under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, in a manner to allow timely decisions regarding the required disclosure.

During the quarter ended January ~~29, 2023,~~28, 2024, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

I-47

Part II – Other Information

Item 1. Legal Proceedings

There have not been any material changes to our legal proceedings during the three months ended January ~~29, 2023.~~28, 2024. Our legal proceedings are disclosed in the company’s annual report on Form 10-K filed with the Securities and Exchange Commission on July ~~15, 2022,~~14, 2023, for the fiscal year ended ~~May 1, 2022.~~April 30, 2023.

Item 1A. Risk Factors

There have not been any material changes to our risk factors during the three months ended January ~~29, 2023.~~28, 2024. Our risk factors are disclosed in Item 1A “Risk Factors” of the company’s annual report on Form 10-K filed with the Securities and Exchange Commission on July ~~15, 2022,~~14, 2023, for the fiscal year ended ~~May 1, 2022.~~April 30, 2023.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

ISSUER PURCHASES OF EQUITY SECURITIES

(c)

(d)

Total Number of

Approximate

(a)

Shares Purchased

Dollar Value of

Total

(b)

as Part of

Shares that May

Number

Average

Publicly

Yet Be Purchased

of Shares

Price Paid

Announced Plans

Under the Plans or

Period

Purchased

per Share

or Programs

Programs (1)

October 31, 2022 to December 4, 2022

—

—

—

$
3,248,094

December 5, 2022 to January 1, 2023

—

—

—

$
3,248,094

January 2, 2023 to January 29, 2023

—

—

—

$
3,248,094

Total

—

—

—

$
3,248,094


			(c)	(d)
			Total Number of	Approximate
	(a)		Shares Purchased	Dollar Value of
	Total	(b)	as Part of	Shares that May
	Number	Average	Publicly	Yet Be Purchased
	of Shares	Price Paid	Announced Plans	Under the Plans or
Period	Purchased	per Share	or Programs	Programs (1)
October 30, 2023 to December 3, 2023	—	—	—	$3,248,094
December 4, 2023 to December 31, 2023	—	—	—	$3,248,094
January 1, 2024 to January 28, 2024	—	—	—	$3,248,094
Total	—	—	—	$3,248,094

(1)

In March 2020, our board of directors approved an authorization for us to acquire up to $5.0 million of our common stock.

Item 5. Other Information

During the three months ended January 28, 2024, none of the company’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (as such terms are defined in Item 408 of Regulation S-K).

II-1

Item 6. Exhibits

The following exhibits are submitted as part of this report.

~~10.1~~ ~~First Amendment to Second Amended and Restated Credit Agreement~~.

31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).

31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).

32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.

32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

101.INS Inline XBRL Instance Document

101.SCH Inline XBRL Taxonomy Extension ~~Schema Document~~

~~101.CAL~~ ~~Inline XBRL Taxonomy Extension Calculation~~Scheme with Embedded Linkbase ~~Document~~

~~101.LAB~~ ~~Inline XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE~~ ~~Inline XBRL Taxonomy Extension Presentation Linkbase Document~~

~~101.DEF~~ ~~Inline XBRL Taxonomy Extension Definition Linkbase Document~~Documents

104 Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101).

II-2

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		CULP, INC. (Registrant)

Date: March ~~9, 2023~~8, 2024	By:	/s/ Kenneth R. Bowling
		Kenneth R. Bowling
		Executive Vice President and Chief Financial Officer
		(Authorized to sign on behalf of the registrant and also signing as principal financial officer and principal accounting officer)


	~~By:~~	~~/s/ Thomas B. Gallagher, Jr.~~
		~~Thomas B. Gallagher, Jr.~~
		~~Vice President of Finance~~
		~~(Authorized to sign on behalf of the registrant and also signing as principal accounting officer)~~

II-3


1823 Eastchester Drive
High Point, North Carolina	27265-1402
(Address of principal executive offices)	(zip code)


		Name of Each Exchange
Title of Each Class	Trading Symbol(s)	On Which Registered
Common Stock, par value $.05/ Share	CULP	New York Stock Exchange


	NINE MONTHS ENDED						NINE MONTHS ENDED
	January 29,			January 30,			January 28,			January 29,
	2023			2022			2024			2023
Cash flows from operating activities:
Net (loss) income	$	(26,839	)		2,812
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:
Net loss							$	(8,954	)	$	(26,839	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation		5,228			5,203			4,897			5,228
Non-cash inventory charges		6,301			1,407
Non-cash inventory (credit) charge								(1,978	)		6,301
Amortization		323			417			291			323
Stock-based compensation		887			880			747			887
Deferred income taxes		150			199			172			150
Realized loss from the sale of short-term investments available for sale		—			28
Gain sale of equipment		(312	)		—
Gain on sale of equipment								(284	)		(312	)
Non-cash restructuring expenses		791			—			330			791
Foreign currency exchange (gain) loss		(362	)		240
Foreign currency exchange gain								(347	)		(362	)
Changes in assets and liabilities:
Accounts receivable		954			(1,228	)		1,040			954
Inventories		12,477			(18,453	)	-				12,477
Other current assets		(39	)		(571	)		(1,190	)		(39	)
Other assets		(76	)		(1,404	)		(107	)		(76	)
Accounts payable – trade		3,051			3,865			963			3,051
Deferred revenue		910			(22	)		606			910
Accrued expenses and deferred compensation		885			(5,130	)		(1,437	)		885
Income taxes		254			(612	)		(719	)		254
Net cash provided by (used in) operating activities		4,583			(12,369	)
Net cash (used in) provided by operating activities								(5,970	)		4,583
Cash flows from investing activities:
Capital expenditures		(1,602	)		(5,288	)		(3,249	)		(1,602	)
Proceeds from the sale of equipment		465			—			363			465
Proceeds from the maturity of short-term investments (Held to Maturity)		—			3,953
Purchase of short-term and long-term investments (Held to Maturity)		—			(9,751	)
Purchase of short-term investments (Available for Sale)		—			(4,392	)
Proceeds from the sale of short-term investments (Available for Sale)		—			9,442
Proceeds from the sale of long-term investments (rabbi trust)		70			33
Purchase of long-term investments (rabbi trust)		(870	)		(873	)
Proceeds from note receivable								240			—
Proceeds from the sale of investments (rabbi trust)								1,224			70
Purchase of investments (rabbi trust)								(704	)		(870	)
Net cash used in investing activities		(1,937	)		(6,876	)		(2,126	)		(1,937	)
Cash flows from financing activities:
Payments associated with lines of credit		—			(3,000	)
Proceeds associated with lines of credit		—			3,000
Dividends paid		—			(4,104	)
Common stock repurchased		—			(1,752	)
Common stock surrendered for withholding taxes payable		(33	)		(50	)		(146	)		(33	)
Payments of debt issuance costs		(289	)		(110	)		—			(289	)
Net cash used in financing activities		(322	)		(6,016	)		(146	)		(322	)
Effect of exchange rate changes on cash and cash equivalents		(149	)		32			(137	)		(149	)
Increase (decrease) in cash and cash equivalents		2,175			(25,229	)
(Decrease) increase in cash and cash equivalents								(8,379	)		2,175
Cash and cash equivalents at beginning of period		14,550			37,009			20,964			14,550
Cash and cash equivalents at end of period	$	16,725			11,780		$	12,585		$	16,725


(dollars in thousands)	January 29, 2023		January 30, 2022		May 1, 2022
Raw materials	$	9,623	$	12,964	$	13,477
Work-in-process		3,164		4,679		4,237
Finished goods		34,840		55,490		48,843
	$	47,627	$	73,133	$	66,557


	Part I - Financial Statements	Page

Item 1.	Financial Statements: (Unaudited)	I-1

	Consolidated Statements of Net ~~(Loss) Income~~Loss — Three Months and Nine Months Ended January 28, 2024, and January 29, 2023 ~~and January 30, 2022~~	I-1

	Consolidated Statements of Comprehensive ~~(Loss) Income~~Loss – Three Months and Nine Months Ended January ~~29, 2023~~28, 2024, and January ~~30, 2022~~29, 2023	I-3

	Consolidated Balance Sheets — January 28, 2024, January 29, 2023, ~~January~~and April 30, ~~2022, and May 1, 2022~~2023	I-4

	Consolidated Statements of Cash Flows — Nine Months Ended January ~~29, 2023,~~28, 2024, and January ~~30, 2022~~29, 2023	I-5

	Consolidated Statements of Shareholders’ Equity – Nine Months Ended January ~~29, 2023~~28, 2024	I-6

	Consolidated Statements of Shareholders’ Equity – Nine Months Ended January ~~30, 2022~~29, 2023	I-7

	Notes to Consolidated Financial Statements	I-8

	Cautionary Statement Concerning Forward-Looking Information	I-31

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	I-32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	I-47

Item 4.	Controls and Procedures	I-47

	Part II - Other Information

Item 1.	Legal Proceedings	II-1

Item 1A.	Risk Factors	II-1

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	II-1

Item 6.	Exhibits	II-2

Signatures		II-3


	Mattress		Upholstery				Mattress		Upholstery
(dollars in thousands)	Fabrics		Fabrics		Total		Fabrics		Fabrics		Total
Products transferred at a point in time	$	24,697	$	25,575	$	50,272	$	30,021	$	28,604	$	58,625
Services transferred over time		—		2,251		2,251		—		1,793		1,793
Total Net Sales	$	24,697	$	27,826	$	52,523	$	30,021	$	30,397	$	60,418


(dollars in thousands)
2024	$	90
2025		360
2026		360
2027		360
2028		360
Thereafter		600
Undiscounted value of note receivable	$	2,130
Less: unearned interest income		(340	)
Present value of note receivable	$	1,790


	Employee
	Termination
(dollars in thousands)	Benefits			Total
Beginning balance	$	—		$	—
Expenses incurred		103			103
Payments		(103	)		(103	)
Ending balance	$	—		$	—


	Employee			Lease			Other
	Termination			Termination			Associated
(dollars in thousands)	Benefits			Costs			Costs			Total
Beginning balance	$	—		$	—		$	—		$	—
Accrual established in fiscal 2023		468			47			—			515
Expenses incurred		—			—			20			20
Payments		(468	)		(47	)		(20	)		(535	)
Ending balance	$	—		$	—		$	—		$	—


	Three months ended
(amounts in thousands)	January 29, 2023		January 30, 2022
Weighted average common shares outstanding, basic		12,299		12,212
Dilutive effect of stock-based compensation		—		—
Weighted average common shares outstanding, diluted		12,299		12,212


	Three Months Ended
(in thousands)	January 28, 2024	January 29, 2023
antidilutive effect from decrease in the price per share of our common stock	15	22
antidilutive effect from net loss incurred during the fiscal quarter	81	87
total unvested shares of common stock not included in
computation of diluted net loss per share	96	109


	August 10,			July 22,
	2022			2021
Closing price of our common stock	$	5.06		$14.75
Expected volatility of our common stock		48.2	%		54.2	%
Expected volatility of peer companies (1)	41.6% - 105.1%			45.7% - 101.5%
Risk-free interest rate		3.13	%		0.33	%
Dividend yield		0.00	%		3.00	%
Correlation coefficient of peer companies (1)	0.05 - 0.23			0.03 - 0.35


	January 8,	September 28,	August 10,	July 22,
	2024	2023	2022	2021
Closing price of our common stock	$5.61	$5.59	$5.06	$14.75
Expected volatility of our common stock	33.5%	37.3%	48.2%	54.2%
Expected volatility of peer companies	33.7% - 102.6%	35.7% - 91.5%	41.6% - 105.1%	45.7% - 101.5%
Risk-free interest rate	4.30%	4.90%	3.13%	0.33%
Dividend yield	0.00%	0.00%	0.00%	3.00%
Correlation coefficient of peer companies	0.01 - 0.21	0.01 - 0.21	0.05 - 0.23	0.03 - 0.35


	(3)		(4)						(3)		(4)
	Performance-Based		Restricted Stock						Performance-Based		Restricted Stock
	Restricted Stock		Units Expected						Restricted Stock		Units Expected
Date of Grant	Units Awarded		to Vest		Price Per Share			Vesting Period	Units Awarded		to Vest		Price Per Share			Vesting Period
January 8, 2024 (1)										24,597		14,663	$	6.23	(5)	31 months
September 28, 2023 (1)										202,900		83,055	$	6.43	(6)	34 months
August 10, 2022 (1)		178,714		—	$	5.77	(5)	3 years		178,714		—	$	5.77	(7)	3 years
July 22, 2021 (1)		122,476		—	$	15.93	(6)	3 years
July 22, 2021 ~~(2)~~(1)		20,500		—	$	14.75	(7)	3 years		122,476		—	$	15.93	(8)	3 years
July 22, 2021 (2)										20,500		—	$	14.75	(9)	3 years


	Performance-Based				(4)
	Restricted Stock		(3)		Price
Fiscal Year	Units Vested		Fair Value		Per Share
Fiscal 2023 (1)		545	$	3	$	5.10
Fiscal 2023 (2)		437	$	2	$	5.10
Fiscal 2022 (1)		5,051	$	87	$	17.14
Fiscal 2022 (2)		5,812	$	100	$	17.14


	Time-Based
	Restricted Stock		(1)
Date of Grant	Units Awarded		Price Per Share		Vesting Period
September 6, 2022		37,671	$	4.58	1 to 3 years
August 10, 2022		82,016	$	5.06	3 years
July 22, 2021		37,591	$	14.75	3 years
August 6, 2020		129,095	$	11.01	3 years
August 2, 2018		10,000	$	24.35	5 years


	Nine Months Ended		Nine Months Ended		Nine Months Ended		Nine Months Ended
(dollars in thousands)	January 29, 2023		January 30, 2022		January 28, 2024		January 29, 2023
Operating lease liability payments	$	1,704	$	2,249	$	1,992	$	1,704
Right of use assets exchanged for lease liabilities		731		3,763		978		731


	January ~~29, 2023~~28, 2024
Weighted average lease term (in years)	~~3.9~~3.72 ~~years~~
Weighted average discount rate		~~3.69~~4.00	%



(dollars in thousands)	Janaury 29, 2023		January 30, 2022		May 1, 2022
United States	$	9,658	$	12,351	$	4,430
China		6,114		8,838		9,502
Canada		700		454		267
Haiti		244		557		341
Cayman Islands		9		10		10
	$	16,725	$	22,210	$	14,550

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller Reporting Company

Emerging Growth Company