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Water Tower Research

Research from Water Tower Research

Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Equity Research Firm

Equity Bottom-Up

<div><div><div><ul style="list-style-type: disc;"><li><p>MillerKnoll earnings sparked a second week of outperformance for the commercial/contract furniture stocks, which rose ~8% in a week when broader indices were roughly flat.</p></li><li>MLKN reported adjusted EPS of $0.37 in 1QFY24, above consensus of $0.21 consensus, and upped guidance.</li><li>Shares jumped 27% on Wednesday. All three major US firms in the sector advanced last week.</li></ul></div></div></div>

MillerKnoll earnings sparked a second week of outperformance for the commercial/contract furniture stocks, which rose ~8% in a week when broader indices were roughly flat.MLKN reported adjusted EPS of $0.37 in 1QFY24, above consensus of $0.21 consensus, and upped guidance.Shares jumped 27% on Wednesday. All three major US firms in the sector advanced last week.

Furniture/Furnishings Weekly  - MLKN Results Boost Sector; Consumer Confidence Dips

Thematic (Sector/Industry)

<ul style="list-style-type: disc;"><li><p>In a week when the broad market indexes retreated by ~3%, the positive earnings report from Steelcase, Inc. (SCS) provided a boost for all the Commercial/Contract Furniture issues.</p></li><li><p>SCS results supported a view that demand in the office furniture sector had troughed.</p></li><li><p>CFO Dave Sylvester noted that the weekly pace of orders in its Americas segment was steady through its fiscal 2Q and into 3Q and that the Y/Y order comparison for the first few weeks of September was up by ~18%. For details, see our update note from September 22.</p></li></ul>

In a week when the broad market indexes retreated by ~3%, the positive earnings report from Steelcase, Inc. (SCS) provided a boost for all the Commercial/Contract Furniture issues.SCS results supported a view that demand in the office furniture sector had troughed.CFO Dave Sylvester noted that the weekly pace of orders in its Americas segment was steady through its fiscal 2Q and into 3Q and that the Y/Y order comparison for the first few weeks of September was up by ~18%. For details, see our update note from September 22.

Furniture/Furnishings Weekly - SCS Results Boost Commercial/Contract Furniture Sector

<div><div><div><ul style="list-style-type: disc;"><li><p>Herein we inaugurate the WTR Furniture/Furnishings Weekly. Under “Statistics”, we recap stock price performance for select issues in three sectors: Commercial/Contract Furniture, Residential Manufacturers &amp; Suppliers, and Home Goods Retailers.</p></li><li><p>Inside, we present data on company operating performance and valuation. Pertinent economic data/charts to furniture/furnishings issues follow.</p></li><li><p>This front-page column, and additional text, if needed, will be devoted to news tidbits.</p></li></ul></div></div></div>

Herein we inaugurate the WTR Furniture/Furnishings Weekly. Under “Statistics”, we recap stock price performance for select issues in three sectors: Commercial/Contract Furniture, Residential Manufacturers &amp; Suppliers, and Home Goods Retailers.Inside, we present data on company operating performance and valuation. Pertinent economic data/charts to furniture/furnishings issues follow.This front-page column, and additional text, if needed, will be devoted to news tidbits.

Inaugural Industry Report Tracks Stocks, Fundamentals, and Economic Drivers

<ul><li>Herein we revise our estimates for Culp, which reported 1QFY24 results and issued guidance in the face of continued weak demand juxtaposed against improving and better-than-expected margins.</li><li>Gross margin for CHF, Culp’s mattress fabrics segment, is recovering faster than expected (up ~700 bps in 1QFY24 versus 1QFY23).</li><li>For CUF, Culp’s upholstery fabrics segment, management grew 1QFY24 gross margin by 667 bps despite a significantly down Y/Y sales comparison (~ -17.4%).</li></ul>

Herein we revise our estimates for Culp, which reported 1QFY24 results and issued guidance in the face of continued weak demand juxtaposed against improving and better-than-expected margins.Gross margin for CHF, Culp’s mattress fabrics segment, is recovering faster than expected (up ~700 bps in 1QFY24 versus 1QFY23).For CUF, Culp’s upholstery fabrics segment, management grew 1QFY24 gross margin by 667 bps despite a significantly down Y/Y sales comparison (~ -17.4%).

Culp, Inc. - Revising Estimates to Reflect Continued Demand Weakness and Margin Improvement

<ul style="list-style-type: disc;"><li><p>After Wednesday’s close, Culp Inc. reported a 1Q24 EPS loss of $0.27, beating our $0.36 loss estimate and its 1Q23 $0.47 LPS.</p></li><li><p>Revenues missed expectations and residential demand challenged. The balance sheet remains strong.</p></li><li><p>The Mattress Fabric (CHF) segment delivered a markedly improved margin, reporting a gross margin of 6.8%, up from negative 0.1% a year ago and better than our estimate of 2.6%.</p></li></ul>

After Wednesday’s close, Culp Inc. reported a 1Q24 EPS loss of $0.27, beating our $0.36 loss estimate and its 1Q23 $0.47 LPS.Revenues missed expectations and residential demand challenged. The balance sheet remains strong.The Mattress Fabric (CHF) segment delivered a markedly improved margin, reporting a gross margin of 6.8%, up from negative 0.1% a year ago and better than our estimate of 2.6%.

Culp, Inc - Loss Narrows; 1Q Margins Improve as Top Line Remains Pressured

United States

Culp, Inc. manufactures and markets upholstery fabrics and mattress tickings for use in furniture and bedding industries. The Company's fabrics are used in the production of residential and commercial furniture and bedding products, including sofas, recliners, chairs, loveseats, sectionals, sofa-beds, office seating, panel systems, and mattress sets.

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Culp Inc (CULP US)

Furniture/Furnishings Weekly - MLKN Results Boost Sector; Consumer Confidence Dips

MillerKnoll earnings sparked a second week of outperformance for the commercial/contract furniture stocks, which rose ~8% in a week when broader...

Water Tower Research

Furniture/Furnishings Weekly - SCS Results Boost Commercial/Contract Furniture Sector

In a week when the broad market indexes retreated by ~3%, the positive earnings report from Steelcase, Inc. (SCS) provided a boost for all the...

Water Tower Research

Inaugural Industry Report Tracks Stocks, Fundamentals, and Economic Drivers

Under “Statistics”, we recap stock price performance for select issues in three sectors: Commercial/Contract Furniture, Residential Manufacturers &...

Water Tower Research

Culp, Inc. - Revising Estimates to Reflect Continued Demand Weakness and Margin Improvement

Herein we revise our estimates for Culp, which reported 1QFY24 results and issued guidance in the face of continued weak demand juxtaposed against...

Water Tower Research

Culp, Inc - Loss Narrows; 1Q Margins Improve as Top Line Remains Pressured

The Mattress Fabric (CHF) segment delivered a markedly improved margin, reporting a gross margin of 6.8%, up from negative 0.1% a year ago and...

Water Tower Research

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