Dru Anderson - IR Frank Saxon - CEO Ken Bowling - CFO

John Baugh - Stifel Bobby Griffin - Raymond James Marco Rodriguez - Stonegate Capital Markets

Good day and welcome to the Culp, Inc.’s Fiscal 2017 Fourth Quarter Conference Call. Today’s call is being recorded. And at this time for opening remarks, I would like to turn it over to Dru Anderson. Please go ahead.

Thank you, good morning. And welcome to the Culp conference call to review the Company’s results for the fourth quarter of fiscal 2017. As we start, let me say that this morning’s call will contain forward-looking statements about the business, financial conditions and prospects of the Company. Forward-looking statements are statements that include projections, expectations or beliefs about future events or results or otherwise are not statements of historical facts. The actual performance of the Company could differ materially from that indicated by the forward-looking statements because of various risks and uncertainties. These risks and uncertainties are described in our regular SEC filings, including the Company’s most recent filings on Form 10-K and Form 10-Q. You are cautioned not to place undue reliance on forward-looking statements made this morning and each statement speaks only as of today. We undertake no obligation to update or revise forward-looking statements. In addition, during this call, the Company will be discussing non-GAAP financial measurements. A reconciliation of the non-GAAP financial measurements to the most directly comparable GAAP financial measurements is included as a schedule to the company's 8-K filed yesterday and posted on the Company’s website at culp.com. A slide presentation with supporting summary financial information and additional performance charts are also available on the Company's website as part of the webcast of today's call. I will now turn the call over to Frank Saxon, President and Chief Executive Officer. Please go ahead, sir.

Thank you, Dru. Good morning everyone and thank you for joining us today. I’d like to welcome you to the Culp quarterly conference call with analysts and investors. With me on the call today is Ken Bowling, our Chief Financial Officer. I will begin with some brief comments and Ken will then review the financial results for the quarter and the year. I will then update you on our strategic actions in each of our operating segments, after that, Ken will review our first quarter business outlook and then we will be happy to take your questions. Our results for the fourth quarter were in line with expectation, capping of an outstanding performance for Culp in fiscal 2017, in spite of a more challenging retail environment for home furnishings. Even with this backdrop, our mattress fabrics segment posted another record performance with total annual sales surpassing the previous year's record level. Our pretax income for the year was the highest in the company’s history. Further, we achieved outstanding cash flow from operations and free cash flow and continued higher returns on capital for the year. Throughout the year we’ve demonstrated consistent execution of our product driven strategy in both businesses. As a result of our relentless focus on design creativity and product innovation. At the same time, we have continued to make substantial investments in our growing mattress fabric business, that will enhance our production capabilities and prove our operating efficiencies and continue to provide exceptional customer service. Our newest product introductions and ability to reach different market segments had produced favorable results for the upholstery fabric business and we look forward to the opportunity ahead to build on this momentum. We are pleased today to announce that our Board of Directors has approved a special dividend of $0.21 a share in line with our capital allocation strategy. This marks the fifth special dividend in the past six years for Culp. We are proud of our dividend history and this reflects our commitment to delivering value to our shareholders. At the same time, we have the financial strength and cash flow generation to continue to support our growth strategy, including a more active look at potential strategic acquisitions in each of our businesses. Having sufficient capital ready to deploy is an important part of our capital allocation strategy and a vital element in meeting our growth objectives. I’ll now turn the call over to Ken who will review the financial results for the quarter and year.

Thanks, Frank. As mentioned earlier on the call, we have posted slide presentations to our Investor Relations website that cover key performance measures. We have also posted our capital allocation strategy. Here are the financial highlights for the fourth quarter. Net sales were $77.4 million relatively unchanged compared with the prior year. Pre-tax income for the fourth quarter was $7 million, which included approximately $250,000 of plant relocation expenses, down 2.3% compared with prior year period. Pre-tax margin with 9% down 30 basis points from last year. Net income was $6.2 million for the fourth quarter or $0.49 per diluted share compared with $3.6 million a year-ago or $0.29 per diluted share. The effective GAAP income tax rate was 11.1% for the fourth quarter compared with 49.8% for the same period last year. This 11.1% income tax rate was primarily affected by a reversal of an uncertain tax position, in the foreign jurisdiction. The consolidated adjusted affected income tax rate, a non-GAAP measure, was 17.5% for the fourth quarter compared to 18.6% a year ago. This adjusted affected income tax rate or our ongoing estimated cash tax rate represents income taxes spend for Culp's non-U.S. entities divided by consolidated income before taxes. This information is important because the company currently does not pay cash taxes in the U.S. nor do we expect to for approximately one more year due to $9 million in loss carry forwards as of the end of the fiscal 2017. Looking at the full-year. Net sales were $309.5 million, down 1.1% from last year. As Frank noted earlier, the 29.7 million of pre-tax income for the year was a new record for Culp surpassing last year's record of $27.9 million. Pre-tax margin for the year improved 70 basis points to 9.6%. Net income for the year was $22.3 million or $1.78 per diluted share compared with $16.9 million or $1.36 per diluted share for last year. Adjusted EBITDA for fiscal 2017 was $40.1 million up 7% or $37.3 million for the same period a year-ago. As a percent of sales adjusted EBITDA was 13%, a new record for Culp and an increase of 100 basis points as compared to the same period a year-ago. Return on capital was 32%, no change from the record level achieved last fiscal year. Now, let’s take a look at our two businesses. For mattress fabrics, we reported $48.8 million, of sales for the quarter, flat compared to last year. For the full-year sales were $190.8 million, a new record and up 2.4% compared to last year. Our operating income was $7.2 million, relatively flat as compared to a year-ago. For the year operating income for mattress fabrics was $29.4 million, a new record and up 11% from last fiscal year. Contributing to the income growth are the benefits coming from our capital investment programs. Over the last three fiscal years we have invested approximately $38 million in capital expenditures in this business. We also benefitted from the lower input cost. Notably, we were able to achieve a strong operating performance and for the fourth quarter and full-year despite the extensive changes underway across all production facilities within this business. Annualized return on capital for mattress fabrics was 38% compared with 37% a year ago. For upholstery fabrics, sales for the quarter were $28.5 million, up roughly 1% from the previous year. Sales for the year were $118.7 million down 6% as compared to last fiscal year reflecting a soft retail environment for the residential furniture that persisted most for the past fiscal year. Operating income was $2.5 million for the quarter up 9% from last year. For the year operating income was $11.1 million slightly below the $11.3 million achieved last year. Despite the modest decline in sales as compared to last year, our operating income was comparable to last year due in large part to the favorable currency impact in China. We are also benefitting from strong margins in our growing hospitality and performance fabrics businesses. Annualized return on capital for upholstery fabrics business continues to be very impressive coming in at 64%. Here are the balance sheet highlights. We ended the year with a strong financial position with cash and cash equivalents, short-term investments and long-term investments held-to-maturity of $54.2 million and a new record and up 29% from the end of last fiscal year. This increase was achieved despite spending [$14] [ph] million on capital expenditures including vendor finance payments and our joint venture investment in Haiti and $6.3 million on dividends during fiscal 2017. Notably, we had no outstanding balance on our lines of credit at the end of the fiscal year. For the year, cash flow from operations was $33 million compared with $27 million last year, free cash flow was $18 million, a 20% increase compared with $15 million last year. This significant improvement was primarily due to increased year-over-year earnings. Operating working capital which represents accounts receivable plus inventory less accounts payable was 13% of sales down 11% from last fiscal year. With that, I’ll turn it over to Frank.

Thanks, Ken. Now I will review our two business segments. And let’s start with mattress fabrics. Overall we are pleased to meet our objectives for the quarter, during the period of disruption in the mattress industry and the soft retail environment. For the year, we delivered another record performance, topping the previous year's record with the highest annual mattress fabric sales and profits in our history. Our focus on design and innovation continues to distinguish our products in the marketplace, having a favorable product mix of mattress fabrics and sewn covers across most price points and style trends has allowed us to execute our diversification strategy and enhance our strong value preposition to customers. We are especially pleased to achieve these results during the period of major transition across our production facilities. Throughout the past year we have made substantial investments and significant changes within our multi country production facilities, that will enable us to build on our success and improve our service to customers. Here is an update on these various projects. Our expansion projects in North Carolina including a new distribution center and knitted fabric plant consolidation were substantial complete as of the fourth quarter of 2017. We expect to have all of the knit fabric equipment relocated and new installations finalize by the end of the current quarter. We estimated annual cost savings associated with these changes are approximately $1 million, which we expect to begin realizing the benefit in the second half of this year. We completed the expansion of our Canadian operations, located in Montreal, with an additional finishing equipment and a new distribution center within our current facility that will allow us to ship directly to our customers in Canada and invoice in the local currency. Together these major investments will significantly enhance our ability to serve all of our customers and strengthen Culp’s leadership position in North America. We also plan to move our mattress cover production operation, to a new location in July. That offers more efficient and streamlined production flow and access to a larger labor pool. This facility will be -- we are moving to a facility in Highpoint, North Carolina. Additionally, this facility will include expanded showroom and product development space. Our joint venture mattress cover production facility in Haiti is under construction and it is expected to commence operations during our second quarter end of this October. This new operation will complement our U.S. production facilities and capabilities via a mirrored platform, thus improving our ability to meet customer demand while remaining cost competitive. Looking ahead we're well positioned to execute our strategy in spite of the ongoing issues surrounding mattress industry currently. We have a solid market position, strong customer relationships in all product categories. More important we've worked hard to create a sustainable production and distribution platform that will favorably position Culp for the long term. While short-term demand trends remain uncertain, we're confident in our ability to deliver another solid performance in fiscal 2018. Now I’ll comment on upholstery fabrics. Our results for the fourth quarter of fiscal 2017 were inline with expectations and we're pleased with our overall operating performance and higher profitability compared with fourth quarter last year. For the year, while the modest decline in sales reflects the soft retail environment for residential furniture that has persisted most of the past fiscal year. We achieved higher margins and comparable profitability in the last year. In spite of market challenges, we continue to execute our product driven strategy with a sustained focus on driving innovation and creative designs. And offering a more diverse product mix and expanding our sales into new markets. Over the past year we made progress in each of these key areas of focus. Notably our performance line of highly durable stain resistant upholstery fabrics was a strong performer for Culp in fiscal 2017. And our recently showing at the April Furniture Market in Highpoints was encouraging with small placements for Culp. We're pleased with the momentum we're seeing in this category and we look forward to other sales opportunities in the future. While the residential market was challenging, we achieved meaningful sales growth in certain market segments, particularly the hospitability area, which accounted for higher preceding of our overall sales in fiscal 2017 compared with prior year. This trend is encouraging as we continue to focus on diversifying our sales mix. Sales of China produced fabrics accounted for 92% of our upholstery fabrics sales in the year and our operating performance for the year was increasingly diverse product mix of fabric styles and price points as well as a more favorable currency exchange rates in China. Looking ahead in spite of the uncertain market conditions, we're optimistic about the opportunities for this business. We will continue to pursue the same product driven strategy and identify new market opportunities including exploring potential acquisitions in the hospitality market that will complement our upholstery fabrics business. Which has traditionally been residential focused. In summary, we're pleased with Culp's performance in the past year and our ability to execute our strategy in an uncertain market environment. Our success reflects the ability to leverage our outstanding design capabilities and deliver a diverse range of innovative fabrics that keep pace with customer demand and style trends. At the same time, we’re identifying new market opportunities and positioning Culp for growth in those markets. Importantly, we've also followed a disciplined capital allocation strategy, allowing us to make substantial capital investments to support our growth and return significant funds to shareholders. Above all we're committed to outstanding performance for our customers as a financially stable and trusted source for innovative fabrics. We are fortunate to be surrounded by an extraordinary group of seasoned associates around the globe who continue to outperform our expectations. We are inspired everyday by their dedication, their talent and their can-do attitude in serving our customers. Ken will now review the outlook for the first quarter and then we’ll take your questions.

At this time, we expect overall sales to be comparable to the first quarter of last fiscal year. With ongoing uncertainty in the mattress industry, we expect first quarter sales on our mattress fabric business to slightly lower than the first quarter of last fiscal year, in which was an exceptionally strong first quarter performance. Operating income in this segment including approximately 300,000 in projected plant relocation expenses, is expected to be moderately lower than the record quarterly performance for the same period a year-ago. Overall, we expect to see improvement in our quarterly operating results as we move forward in fiscal 2018. In our upholstery fabrics business, we expect first quarter sales to be slightly higher and operating income is also expected to be slightly higher compared with the same quarter of last year. Pre-tax income for the first quarter of fiscal 2018 is expected to be in the range of $7.8 million to $8.4 million including approximately $300,000 in plant relocation expenses. Pre-tax income for last year's first quarter was 8.5 million. Based on our current budget capital expenditures for fiscal 2018 are expected to be comparable to the previous year. Additionally, the company expects another solid year of free cash flow even after another year of high capital expenditures and modest growth in working capital. With that, we will now take your questions.

Thank you. [Operator Instructions] We'll go first to John Baugh with Stifel.

Several questions for you. Obviously, we are well aware of what's going on in the mattress industry and it is a disruptive period. I was wondering if you could go into just a little more detail as to the puts and takes as to how it's affecting your business, what you are seeing sort of now and what you expect to develop over the course of the calendar year?

Okay, good morning John. I think as you said, you know most of what's going on if not more than we do, but from our perspective the big change for us is the decrease in the Sealy business that was to Matt Firm. We were a major player with Sealy for their Matt Firm placements. As you know many of those placements have gone to SSB with the major partnership that is going on with Matt Firm and SSB. And but -- that is -- the loss of business at Tempur is happening -- at Tempur Sealy before the full new products are in place and really beginning to turn on the Matt Firm floor.

And that's what I wanted, yes and Frank, so to explain maybe why that's the case, do you have any inventory at risk there in that transition?

No, so all that we have -- no Tempur Sealy, a little bit, but nothing to speak off. The bigger impact on us has been Matt Firm and SSB work together on the new product, that SSB is putting on the floor. And then they had -- of course once they decided on the product we got to start to make the product and be ready to get it on the Matt Firm floor. And it was a lot of new products. So it’s just taken a while and everybody has been working as hard as they can, we know SSB is like us doing everything we can to get -- to help get that product on the retail floor and supported by inventory. And it’s going, it's just a lot of products, and we've had a lot of disruption in our own plants to react to all these, which is good news, I mean we are pleased to have it and it’s over the next year as all this settles down, it’ll be fine. But it's a little bumpy right now.

Yeah, so, I guess my question is, what timeline -- when would you expect to see the flow from sort of the Siemens reset of all the Matt Firm floors and once we ultimately get to that stage, do you think you’re doing more business, the same amount of business as you lost on Sealy or any way to frame that?

I would say John, to answer the latter question, that’s, your guess is good as mine. We obviously hope more, but I don’t know that I'd have a prediction. And we are just -- we're responding to the change. And I think that for us, we’re thinking about that a lot of this is going to settle down for beginning our second half of the year, the end of October. It's just so much product change on the floors, it just takes time and we understand, they're really a big target for the July 4th promotion period and we’re doing everything we can to support that. But it’s just going to take a while to settle things back down. So, we are looking at the second half of the year, to …

So we might not even by Labor Day, Frank, we might not even be "settled" or fully in a position where SSB is making product efficiently, you’re supplying them sufficiently and efficiently, et cetera. Could be into September-October?

John, I don’t know that I am -- I would be in a position to comment on SSB, I can certainly commenting on what we’re doing. We know they're doing everything possible to get product flowing and there is product flowing, there is just a lot to do. And then [Indiscernible] in the last month or two.

Switching gears, maybe a question for Ken. You’re doing a lot internally in terms of expansions, consolidations. You gave us sort of quarter what the -- those expenses sort of - what those expansion sort of one-time are. I was wondering if you could try to frame up for the next 12 months what the net would be of ongoing consolidation or expansion expenses and what the offsets would be? You mentioned for example in the niche starting to save a million dollar by October. Just kind of wondering, how quarterly for the next 12-months the cost, are they fully offset by the saves or we have more costs earlier than saves and vice versa in the back half? Any color.

John, I think the -- as we said, you got the $300,000 in the first quarter, that's there is a lot of movements still taking place, that’s got to happen. And then there is some relocation expenses in the second quarter, of course there are still a lot of things going on in the latter part of the first and the second quarter as far as getting everything under control. The savings will start to take place mostly in the second half of the year as all this calms down. Now there is a lot of things that there is hardcore savings of like freight and lease cost and things like that, but there is also some synergies that will happen once everything calms down and we get going in the second half of the year. We hope that obviously the savings will exceed the cost of getting everything done, we feel that will be the case, but it’s going to be in the second half of the year. So I would say the first two quarters here are going to be a little choppy for us as we get everything underway and then from that point on we can take advantage of all the savings and efficiencies and synergies and all that in the second half of the year.

And Ken, if CapEx is going to be fairly similar, would we start to anniversary all of these consolidation expansion expenses such that we're at least, year-over-year, somewhat comparative on that number and then we're getting the cost savings and efficiencies for the next several quarters, I'm thinking going in the calendar '18 such that this will be a net earnings gainer? Is that sort of the right way to think about it?

Yes, I think -- I'm sorry John, as far as CapEx that we're seeing comparable to last year, once we get past this fiscal year I mean we should see things start calming back down to what we consider a normal rate and that’s maintenance CapEx and we've said anywhere from 6 million to 8 million in that range. So we've got one more year to do that, so I think once we get past that will be back to normal. Another thing that’s driven up related to CapEx this year was the investment in Haiti that will be a little bit more in '18, but that's a joint venture, we're often running there, it will be shortly. So really after this coming fiscal year, fiscal '18, we should get back down to a normal level.

And then quickly tax rate for April '18 and then I know the NOL runs out, so you have any preliminary thoughts about April '19?

Well, I mean we feel right now given the run rate of our earnings, we got nine men in the NOL. We feel pretty good that that will be utilized this year. After that our normal GAAP tax rate has been in the 35% range. However, as we’ve learned in the past, we have a lot of things going on that will affect our GAAP tax rate from time-to-time. We're also obviously very interested in tax reform and what that will do for us because we do have so much cash outside the U.S. So all those things are still in play as we go throughout the fiscal year into '19, but again, assuming that we get through the NOLs, then I would say early in '19 you're starting to look at a normal GAAP tax rate.

And what do you think the reported rate will be for fiscal '18?

That’s a tough, again we're not -- we got the adjusted rate of 17.5, but right now John, I would say, the only thing we know is what we've said before, 35% to 37%, which is our best estimate right now.

Okay, beautiful. And then maybe just as a final question, back to Frank. Anyway -- acquisitions are tough, but you've been talking about interest in hospitality fabric upholstery and you've been talking about that for a while, I know that's a strategic focus. Anyway to handicap [ph] where you are in that process, anything more favorable or less favorable from when you last updated us? Thank you.

John, I'm cautiously optimistic that we will have an acquisition in the hospitality space this fiscal year. There is a lot of opportunities there and I'm, let's say, cautiously optimistic. And we have been actively searching and would like to consummate one. We're also cautiously optimistic that we could find another one as well. So I think that we wouldn’t, with the cash build-up we've got we'd really like to find bolt-on type acquisitions, low risk, related to our current business that offer growth platforms. And we are more optimistic than not that we could consummate one and possibly two this fiscal year.

Thanks for that update and good luck.

Will go next to Budd Bugatch with Raymond James.

This is Bobby filling in for Budd, appreciate you taking my questions. Frank, I was just hoping real quickly, could you give us an update on what you are seeing on raw materials? Maybe what's your outlook is over the next six months or so and what some of the recent trends have been for both segments in that area?

Okay, raw materials have been stable over the last couple of quarters and our outlook right now is continued stability. With oil prices staying in some kind of 45 to low 50 range. It certainly looks like to us, we're headed for a stable raw material environment over the next couple of quarters as we can see. Which is good news.

Okay, I appreciate. Okay, that's helpful. For the mattress segment, once you complete some of the consolidation and some of the expansion to work on the different areas. How will the production capability or production capacity be, will you be at that kind of ideal mix again that you like to have between internal and kind of external during the high-stress periods?

Yes, great question, and yes the answer is absolutely. And we look forward -- it has been really disruptive really all of last fiscal year and into this first quarter. So by the end of the first quarter we're going to be -- we'll have a little carry over into Q2, but mostly done and then our teams will be very glad to focus on not having to move equipment or do this, do that. Really looking forward to it and off course we are -- we believe and hope we're going to start driving efficiencies and cost savings. With the most of that starting in Q3.

Okay, when you guys are moving equipment, are you than outsourcing some of the daily demand? How does that kind of work when you take lines off capacity or off production?

What they've been doing in the net plant, they've been moving three machines a week and so right now they are having to manage two locations with supervisors and people, but they have done a phenomenal job in doing this. They do three a week, so we do not impact the customer and do not impact our output, obviously it impacts cost and efficiency. So they are doing three a week, we have been doing that since February.

Okay.

Three a week and we're -- and the schedule is now, by the end of July we’ll be done and it cannot come soon enough.

Okay, good news. And then I guess lastly for me, given the focus on hospitality, can you maybe refresh us a little bit of; A, I guess what portion of the upholstery business right now you would categorize as in that hospitality arena and then maybe how does that market compare to your standard upholstery business from kind of a margin standpoint? Would an acquisition be relatively same margins as your upholstery business now or how would that kind of look?

Alright, Bobby again very good question. For now I’ll give you the hospitality business is, let’s say in the close to 10% of our upholstery fabric revenues, in that range.

Okay.

And in the hospitality, we are only selling upholstery fabrics. In hospitalities hotel, so if you think about a hotel room, you've got upholstery fabrics on the chair, you've got draperies on the window, you've got bed skirts. And those are the product categories we're interested in, we are not interested in comforters, towels, sheets. But the other textiles we are interested. So if you think about now, we have got about 10% of our upholstery fabric sales in that business. Than we would be looking for acquisitions in other textile categories that would make us a broader offering to the customers in that space and then the later question for you the margin. The margins in the hospitality space are 50% to 75% higher than the residential gross margins.

Okay, that’s helpful.

It doesn’t take a great -- it’s a very profitable area, but you've got -- the service requirements are very difficult. But I think that’s an area, we believe that’s a core competency of us and why -- and design is important and to has the China platform. So we believe we have the ingredients to compete very effectively in that marketplace.

Okay, that’s helpful. Is that in market a little less lumpy than call it the "residential" side of the upholstery business given that maybe its more replacement?

It definitely is, they replace every 5 to 7 years and that doesn’t count new construction of new hotel, definitely what we also like about hospitality, it’s a different demand driver than the U.S. consumer. It gives us so more diversification of high-margin opportunities. Also the thing we like about hospitality is that it’s a much more diverse customer base, much more fragmented in the customers. So there is no 800-pound gorilla, so to speak in that area. We like a lot of attributes of that market and we believe our core competencies in Culp of China platform, design, commitment to customer service fit very nicely like a hand-in-glove with this marketplace.

Okay, I appreciate all the detail, that’s been very helpful. Best of luck this year and fiscal 2018.

Alright, thank you Bobby.

We’ll go next to Marco Rodriguez, Stonegate Capital Markets.

Most of my questions are actually been asked and answered, but I do have a few follow up here, I'll start on the mattress fabric side. Just talking about the input cost, the raw material cost, understand what you're thinking here for the next six months or so. Just also wondering though if you have finalized most of the pass throughs that you have in all of your contracts with your customers there? Should we be thinking about any of your impacts there or should it be kind of level going forward?

Level going forward Marco, nothing outside of that.

Okay got you, and the consolidations that you're doing on the mattress fabric side, the savings, is that mostly -- if you can remind me, is that mostly going to be coming from cost of goods or is it going to be kind of split between that and SG&A?

Well, it's SG&A -- well, it's really two, both of, freight lease cost, things like that. But there is also other indirect materials and then there are some synergies of the fact that they are located in one building, so that’s roughly half-and-half I guess, maybe a little bit more SG&A than cost, but anyway, there is some -- the good part is that the synergies will help obviously on the cost side and then the SG&A will be helped by our reduced freight lease cost and other things.

Got you and your guidance for the mattress side, where you're expecting operating results to improve as fiscal '18 progresses, are you referring to topline or operating margins or both, can you just help me think through that real quick?

Given the part of that in mattress fabs we said over the remaining part of the year?

Correct.

Well as we said before, I think we got some hurdles to get through for the first half of the year, so that’s why we made that comment, as we go into second half of the year we feel things will improve. So sales, it all depends on somethings, we got a lot to work through. On the cost side, we've identified several things going on. I think cost more than sales, [Multiple Speakers] you know the sales impact of this mattress firm transition is yet to be determined, but we do know we're very positively being impacted today by the growth in our mattress cover business. Particularly and we're going to add capacity with Haiti operation and [indiscernible] we cannot get that up, soon enough. We need it today. So that’s on the favorable side of the ledger, that we're very optimistic about that business, but we need the capacity soon.

Got you, that’s helpful. And last question, shifting gears to the upholstery side, just following up on the prior question on the acquisition in the hospitality area. Frank, you made a comment that market is -- the service requirements are very difficult, I believe is the wording you used. Can you talk a little bit more about that, I mean what are these types of demands and if you can also may be talk about some other competitors that you might be facing there that, you're looking as this place if you will?

The customer demands are as you think about it, in the hotel, all of the business -- let's say the majority of the business in hospitality is project driven, a new hotel, a remodel and so it's a construction project. So in the textiles in the room textiles pieces, on the latter end of the project. So usually as we understand from being in the industry just a few years, things don’t usually go on time and they're just trying to get it done by a certain date because they're losing revenue. Then there is real pressure on the textile pieces. Because that's one of the last things to getting the hotel open. So they -- that's why what we did in the upholstery fabric end, what we offer is next day delivery of our every upholstery fabric product to our customers. That has been extremely well received because lead times in upholstery fabric have been a problem for a lot of the customers and that we hear the complaining about it, but they don’t complain about it with us. Now as we expand our product offerings into draperies, drapery installation, bed skirts, et cetera. while we might not be able to give overnight delivery of certain things, because it's going to take a little longer, we want to get faster deliveries and delivery people we can count on for those product categories. And so we hear there is lot of dissatisfaction with the delivery of product, the ones we want to compete in. So it's very important strategy for us to doing really well there as we do in our other businesses. And the three biggest players in the hospitality market are companies by the name of Valley Forge, Richloom Fabrics and P/Kaufmann, all private companies. And they've been in the business for a long time and all very fine companies. So they are the three largest players.

Got you, that's all I've got. Thanks a lot guys. Appreciate your time.

And gentlemen, we have no further questions. I would like to turn it back to you for any closing remarks.

Okay, thank you operator and again I thank everyone for your participation today and your interest in Culp's. We look forward to updating you on our progress next quarter. Have a great day.

That concludes today's conference. We thank you for your participation. You may now disconnect.