CULP INC 10-K

ITEM 1. BUSINESS As used in this document, the terms “Culp,” the “company,” “we,” “our,” and “us” refer to Culp, Inc. and its consolidated subsidiaries (unless the context indicates another meaning). The term “common stock” means the common stock of Culp, Inc., par value $.05 per share. The terms “Read Window Products” and “Read” refer to our wholly-owned subsidiary, Read Window Products, LLC. Overview Culp is one of the largest marketers of mattress fabrics for bedding and upholstery fabrics for residential, commercial, and hospitality furniture and other applications in North America. The company markets a variety of fabrics to its global customer base of leading bedding and furniture companies, including fabrics produced at Culp's manufacturing facilities and fabrics sourced through other suppliers. The company competes in a business driven by fashion and product performance, and we strive to differentiate ourselves by placing a sustained focus on creativity and product innovation. In addition, we place great emphasis on providing excellent and dependable service to our customers as well as a supply chain that provides customers with sourcing optionality across a variety of jurisdictions. Our focused efforts to protect our financial strength and manufacturing flexibility have allowed us to maintain our position as a stable and trusted supplier of innovative fabrics to bedding and furniture manufacturers. At the end of fiscal 2025, we initiated an integration effort involving the combination of our two operating divisions, Culp Upholstery Fabrics and Culp Home Fashions, into one unified business as described below in " — Fiscal 2026 Business Integration." However, for financial reporting purposes, our operations are classified into two operating segments— bedding and upholstery. The bedding business markets primarily knitted and woven fabrics, as well as sewn covers made from those fabrics, which are used in the production of bedding products, including mattresses, foundations, and mattress sets. The upholstery business markets a variety of fabric products that are used in the production of residential and commercial upholstered furniture, including sofas, recliners, chairs, loveseats, sectionals, sofa-beds, and seating for offices, healthcare facilities, and other institutional uses, as well as fabric products that are used in the production of upholstered furniture for the hospitality industry, including seating for restaurants, hotels, and theaters. The upholstery business also markets window treatment products and provides installation services for customers in the hospitality and commercial industries. Culp markets a variety of fabrics and other products in different categories to a global customer base, including fabrics produced at our manufacturing facilities and fabrics produced by other suppliers. In fiscal 2026, we operated production and distribution facilities located in North Carolina, Shanghai, China, and Ouanaminthe, Haiti (on the Dominican Republic border), and we also operated a facility in Tennessee for a portion of the year before closing it in connection with the integration of our two operating divisions. Culp also sources fabrics and cut and sewn kits from other manufacturers, located primarily in China, Vietnam, and Turkey. Substantially all of these products are created by Culp designers and made specifically for Culp. In connection with the Fiscal 2025 restructuring referenced below, we transitioned the internal weaving operations in our bedding business to a strategic sourcing model primarily utilizing one of our long-standing supply partners in Turkey. In May 2024, Culp announced a restructuring plan (the “Fiscal 2025 restructuring”) that was effectively completed during our fiscal 2025 year (with the sale of our manufacturing facility in Quebec, Canada, occurring on April 30, 2025, at the start of our first quarter of fiscal 2026). The Fiscal 2025 restructuring primarily focused on the consolidation of certain operations within our bedding segment. It included a phased wind-down and closure of our manufacturing plant in Quebec, Canada, the transition of a portion of that plant's knitting operations to our manufacturing facility in Stokesdale, North Carolina, and the transition of that plant's weaving operations to a strategic sourcing model. In addition, the company reduced its fixed cost structure through the consolidation of its sewn mattress cover operation in Haiti and rationalized its internal upholstery finishing operation in China to better align with demand and further leverage strategic supply relationships. See “ — Fiscal 2025 Restructuring” below for further details regarding the restructuring. During fiscal 2026, we completed the integration of our U.S. upholstery distribution and window treatment operations into our owned facility in Stokesdale, North Carolina, and reduced our facility footprint in China. See " — Fiscal 2026 Business Integration" below for further details regarding the integration of our two operating divisions into one unified Culp-branded business. Additional information about trends and developments in each of our business segments is provided in the “Segments” discussion below, as well as in our “Management’s Discussion and Analysis” in Part II, Item 7 of this report. 2 General In formation Culp, Inc. was organized as a North Carolina corporation in 1972 and made its initial public offering in 1983. Our common stock currently trades on the Nasdaq Stock Market LLC (Nasdaq) under the symbol “CULP.” The company's fiscal year is the 52- or 53-week period ending on the Sunday closest to April 30. Our executive offices are located in High Point, North Carolina. Culp maintains a corporate website at www.culp.com. We will make this Annual Report and our other Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and amendments to these reports available free of charge on our website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”). Copies of any materials we file or furnish with the SEC can also be obtained free of charge through the SEC’s website at www.sec.gov. The information included on our website is not incorporated by reference into this annual report or any other reports we file with, or furnish to, the SEC. Fiscal 2025 Restructuring At the beginning of fiscal 2025, Culp announced and initiated the Fiscal 2025 restructuring, which was designed to reduce costs, improve asset utilization, and drive performance and profitable growth. The plan, which was mostly focused within the company’s bedding segment and, to a lesser extent, its upholstery segment, included the following strategic actions: • Consolidating the company’s North American bedding operations, including a gradual discontinuation and closure of the company’s manufacturing plant in Quebec, Canada, and the incorporation of the knitting and finishing capacity at this plant into the company’s facility in Stokesdale, North Carolina; • Cost efficiency, throughput and quality improvements via the optimization of volume and equipment in the company’s bedding operation in Stokesdale, North Carolina; • Transitioning the bedding segment’s internal weaving operation to a strategic sourcing model through the company’s long-standing supply partners, which enhanced competitiveness and value for customers; • Consolidating the company’s Haiti sewn mattress cover operation (which is located on the Dominican Republic border) into one building, which significantly reduced operating expenses at that location; • Restructuring the company’s upholstery finishing operation in China to better align with demand and continuing to leverage strategic supply relationships; and • Reducing unallocated corporate and shared services expenses with targeted annualized savings of $1.5 million. These restructuring actions were effectively completed during fiscal 2025, with the sale of the Quebec facility occurring at the start of fiscal 2026. Since the inception of this restructuring initiative, we incurred cumulative restructuring and restructuring-related charges totaling $5.3 million, most of which related to the bedding segment. Of the total $5.3 million in cumulative charges, we recorded a restructuring credit of $(3.4) million in fiscal 2026 related to the sale of the Quebec, Canada, facility noted above, and we incurred $8.7 million of restructuring and restructuring-related charges during fiscal 2025. The $5.3 million cumulative charges included $7.2 million of cash charges and a $(1.9) million non-cash restructuring credit. For further information about the Fiscal 2025 restructuring, see Note 10 to the consolidated financial statements. Fiscal 2026 Business Integration At the end of fiscal 2025, we announced and initiated a strategic transformation of our operating model through the combination of our two operating divisions into a single, integrated business designed to optimize operational agility, further streamline costs and processes, and increase responsiveness to customer needs and market trends. This integration initiative included, among other actions, increased centralization and collaboration among previously division-specific functions and departments, the transition of the duties and responsibilities of certain key division leadership roles to a company-wide scope, and the consolidation of certain upholstery and window treatment operations into a shared management model within our owned Stokesdale, North Carolina facility, which had historically been operated solely by our bedding segment. In addition, we closed leased facilities in Burlington, North Carolina, and Knoxville, Tennessee, each operated by our upholstery segment, and transitioned their production and distribution activities to the Stokesdale, North Carolina, facility. We also reduced our upholstery facility footprint in China from three to two facilities during fiscal 2026. These integration actions were completed by the end of fiscal 2026. Since the inception of this restructuring initiative, we have incurred restructuring and restructuring-related charges totaling $2.7 million, of which $676,000 were incurred in fiscal 2025 and $2.0 million of which were incurred in fiscal 2026. This included approximately $1.4 million in cash costs and $1.3 million in non-cash charges. For further information on the Fiscal 2026 business integration, see Note 10 to the consolidated financial statements. 3 Segm ents Our operations are classified into two business segments for reporting purposes: bedding and upholstery. The following table sets forth certain information for each of our segments. Sales by Fiscal Year ($ in Millions) and Percentage of Total Company Sales Segment Fiscal 2026 Fiscal 2025 Fiscal 2024 Bedding $ 116.6 57 % $ 113.9 53 % $ 116.4 52 % Upholstery 86.9 43 % 99.3 47 % 108.9 48 % Total $ 203.5 100 % $ 213.2 100 % $ 225.3 100 % Additional financial information about our operating segments can be found in Note 19 to the consolidated financial statements included in Item 8 of this report. Bedding. The bedding segment, previously known as Culp Home Fashions prior to the recent integration of our bedding and upholstery divisions, manufactures and markets bedding and sewn mattress covers to bedding manufacturers. These products include woven jacquard fabrics, knitted fabrics, and some converted fabrics. Our bedding business operates a fabric manufacturing facility located in Stokesdale, North Carolina, and, prior to the Fiscal 2025 restructuring, operated a fabric manufacturing facility in St. Jerome, Quebec, Canada. As part of the Fiscal 2025 restructuring, Culp relocated some of its knitting and finishing operations from its Quebec, Canada, facility to Stokesdale, North Carolina, and transitioned its woven jacquard fabric operations to a strategic sourcing model utilizing outside suppliers. See “—Manufacturing and Sourcing—Bedding Segment,” below, for information on our bedding manufacturing. During fiscal 2023, we completed a restructuring and rationalization of our U.S.-based cut and sewn mattress cover platform, moving our research and development ("R&D") and prototyping capabilities to our owned facility in Stokesdale, North Carolina. This initiative also involved the discontinuation of our higher-cost on-shore production capabilities through the closure of two leased facilities in High Point, North Carolina, and allowed us to generate cost savings by utilizing our lower-cost mattress cover production and sourcing capabilities in Haiti and Asia. Also, as part of the Fiscal 2025 restructuring, we consolidated our Haiti sewn mattress cover operation into one building and significantly reduced operating expenses at that location. In prior fiscal years, we completed several multi-year capital projects in our bedding business, including certain operational consolidations, capacity expansions, efficiency and customer service enhancements, and other measures to maintain flexibility in our fabric sourcing strategies. In fiscal 2021, we invested in additional knit machines and other equipment to expand our bedding capacity in North America, and we also enhanced the digital project management platform that allows us to work with customers from concept ideation and 3D mapping to product life cycle management and final merchandising. In fiscal 2022, we expanded our leading-edge technology by investing in robust hot melt lamination finishing equipment. In fiscal 2024, we invested in knitting software to monitor machine efficiency and output and a chemical dosing system designed to enhance our finishing capabilities and provide immediate cost saving benefits. We believe the success of our bedding business over the longer term is due largely to a strategy focusing on creative design and product innovation, a strong, multi-faceted and flexible global manufacturing and sourcing platform, solid long-term customer and vendor relationships, and reliable service. Our business model has allowed us to provide bedding manufacturers with innovative products developed from consumer-based research and trend analysis, and we have been able to meet continually changing demand trends with the support of our flexible global platform. Upholstery. The upholstery segment, previously known as Culp Upholstery Fabrics prior to the recent integration of our bedding and upholstery divisions, markets fabrics for residential, commercial, and hospitality furniture. This segment also includes window treatment products and installation services through our Read Window Products business, including roller and solar shades, drapery, roman shades and top treatments, hardware, and top-of-mattress soft goods, for customers in the hospitality and commercial industries. During fiscal 2025 and fiscal 2026, the upholstery segment reduced the number of facilities it operates in Shanghai, China, and now operates two facilities there. From these locations, we market a variety of upholstery and cut and sewn kits sourced from third-party producers, mostly in China and Vietnam. We utilize these facilities for design, prototyping, warehousing, quality control, and inspection operations related to these products. As part of the Fiscal 2025 restructuring, we rationalized our internal upholstery finishing operation in China to better align with demand and further leverage strategic supply relationships. See “—Manufacturing and Sourcing—Upholstery Segment,” below, for information on our upholstery manufacturing. 4 We continue to expand our marketing efforts to sell our upholstery products in countries other than the U.S., including the Chinese local market. In fiscal 2024, we established an administrative office located in Ho Chi Minh City, Vietnam, for the purpose of enhancing our sourcing capabilities and to further diversify our supply chain in Asia. In fiscal 2026, we also added a showroom in Ho Chi Minh City, Vietnam, to facilitate better product exposure with our growing customer base there. Additionally, we market a variety of window treatments, using mostly customer-supplied fabrics and materials. These window treatment products are now fabricated at our facility in Stokesdale, North Carolina (following the consolidation described above in "—Fiscal 2026 Business Integration"), as well as by third-party suppliers. In recent years, our upholstery business has successfully transitioned from reliance on a large fixed capital manufacturing base to a more flexible and scalable marketing model better equipped to meet changing levels of customer demand and shifting consumer tastes. At the same time, we have maintained control of the most important “value added” aspects of our business, such as design, finishing, quality control, and logistics. This strategy has allowed us to reduce capital investment in fixed assets and better control production costs, while continuing to leverage our design and finishing expertise, industry knowledge, and customer and supplier relationships. We believe the success of our upholstery business over the longer term is due largely to a strategy focusing on design and product innovation in a low-cost environment, speed-to-market execution, consistent quality, reliable service and lead times, and increased recognition of and reliance on the Culp brand. We believe this strategy serves as a competitive differentiator in our markets and enables us to provide furniture manufacturers with products from nearly every category of fabric for upholstered furniture and meet continually changing demand levels and consumer preferences. Overview of Indu stry and Markets Culp offers products primarily to manufacturers and other customers in four principal markets – bedding, residential furnishings, commercial furnishings, and hospitality furnishings. The bedding segment supplies the bedding market, which comprises mattress sets (mattresses, box springs, foundations and top-of-bed components) and bedding accessory products. The upholstery segment supplies the residential furnishings market and the commercial and hospitality furnishings markets. The residential furnishings market includes upholstered furniture sold to consumers for household use, including sofas, sofa-beds, chairs, recliners, and sectionals. The commercial furnishings market includes fabrics used for upholstered seating sold primarily for use in offices, healthcare facilities, and other institutional settings as well as window treatment products for commercial application. The hospitality furnishings market includes fabrics and window treatment products for use in the hospitality industry (primarily hotels, restaurants, and theater seating). The principal markets into which the company sells products are described in more detail below. The great majority of our products are sold to manufacturers for end use in the U.S. and, accordingly, the discussions below are focused on that market. Overview of Be dding Industry The bedding industry has contracted and expanded in recent years in accordance with the general economy, although traditionally the industry has been relatively mature and stable. This is due in part to the fact that a larger share of bedding industry sales are replacement purchases, which are generally less volatile than sales based on economic growth and new household formation. Since the second half of fiscal 2022, the bedding industry has experienced weakness in domestic mattress sales, with industry reports reflecting significant unit contraction and historically low volume. We believe this industry softness is mostly driven by inflationary pressures and related uncertainty affecting consumer spending, especially for mattress products in the low to mid-range price points. Industry reports indicate that these factors, along with price increases driven by recent tariff-related actions, are expected to continue affecting the bedding industry into fiscal 2027. Until the last several years, the U.S. bedding industry largely remained a North American-based business, with limited competition from imports. This dynamic was mainly driven by the short lead times demanded by mattress manufacturers and retailers, the customized nature of product lines, the relatively low direct labor content in mattresses, and strong domestic brand recognition. In recent years, imports of bedding into the U.S. accelerated significantly, especially for lower-priced and roll-packed, boxed bedding. Major importing countries in fiscal 2026 included Indonesia, Mexico, Vietnam, Poland, and China, among others. The result of the increase in imports has been a decline in sales for the major U.S. bedding manufacturers, which has affected major suppliers to those manufacturers, including Culp. While several rounds of actions by the U.S. Department of Commerce intended to promote domestic production have yielded some benefits to domestic manufacturers, and recent U.S. tariff measures may ultimately enhance the competitive positioning of domestic manufacturers, imported products continue to retain solid market share. Additionally, many mattress producers have adjusted to an assembly-only model in the U.S., still utilizing a mix of domestic and imported materials from suppliers like Culp. We believe that key trends in the bedding industry include increased demand for roll-packed/compressed (or "boxed") mattresses through both online and traditional sales channels, greater awareness among consumers about the health benefits of better sleep, greater emphasis on designs knitted or woven into mattress fabric, consolidation resulting in larger market share for certain mattress manufacturers and 5 marketers, and the pricing and supply chain impacts stemming from the ongoing global trade negotiations and related tariff and import control measures. Consumer acceptance of roll-packed/compressed, or “boxed,” mattresses as a delivery mechanism continues to drive growth and increase market share for this product, increasing potential demand for knitted fabrics and sewn mattress covers. Mattress fabric design efforts are based on current trends in home decor and fashion. Additionally, the growth in non-traditional sources for retail mattress sales, such as online e-commerce channels and wholesale warehouse clubs, may potentially increase overall consumption of bedding products due to convenience and high traffic volume, which may result in more frequent product replacement. Among fabric types, knitted fabrics have continued to increase in popularity. Knitted fabric was initially used primarily on premium mattresses, but these fabrics are now used in more mattresses at mid-range to lower retail price points and nearly all roll-packed bedding. Knitted fabrics offer higher gross margin potential because they are viewed as more versatile due to their design flexibility in both style and texture and their functionality with roll-packed bedding. Overview of Residential, C ommercial, and Hospitality Furnishing Industries Overall demand for our residential and commercial upholstery depends upon consumer and business demand for furniture products, which is subject to variations in the general economy, including current inflationary pressures affecting consumer spending and declines in consumer confidence. Purchases of furniture products are discretionary for most individuals and businesses, and economic downturns or periods of depressed consumer confidence reduce demand for our upholstery fabrics. In addition, sales of residential furniture are influenced significantly by the housing industry and by trends in home sales and household formation. Reduced home sales in recent years have adversely affected our residential sales. Additionally, demand for our upholstery and window treatment products for the commercial and hospitality industries generally reflects economic trends affecting businesses; consumer spending on travel and experiences; demand for new and refurbished hotel and resort properties; and demand for new and refurbished commercial office space. While increased consumer spending on travel and experiences following the COVID-19 pandemic drove increased demand for our products in the hospitality market, this trend shifted in fiscal 2026, with travel and leisure spending being challenged by ongoing global volatility, tariffs, and inflation. As a result, hotel and resort properties and other hospitality/entertainment businesses have been reluctant to start new projects or have delayed planned projects, which has adversely affected our hospitality sales. In addition, significant challenges in the commercial real estate market following the COVID-19 pandemic and its impact on remote work trends have adversely affected our commercial sales to some extent in recent years. The sourcing of components and fully assembled furniture from overseas continues to play a major role in the furniture industry. The largest source for imported upholstery continues to be China, while China and Vietnam now serve as the largest sources for fully assembled furniture. Imports of upholstery, both in roll and in “kit” form, have significantly impacted the furniture market in recent years, with fabrics entering the U.S. from China and other low labor-cost countries resulting in increased price competition in the upholstery and upholstered furniture markets. The supply chain and pricing impacts stemming from the ongoing trade negotiations between the U.S. and China and other low labor-cost countries, as well as related tariff and import control measures, may ultimately impact this competitive dynamic. In general, the residential furniture industry has been consolidating for several years, with the result of this trend being fewer, but larger, customers for marketers of upholstery fabrics. Intense price competition continues to be an important consideration for both residential and commercial furniture. Additionally, with ongoing trade and other tensions between the U.S. and China, the trend of customers transitioning some or all of their supply chains away from China beginning in late fiscal 2019 has continued and, in some cases, accelerated. While we believe Asia remains a preferred location for sourcing of components, including fabric, we continue to diversify our sourcing strategies to develop additional geographic options to service our customers. Produ cts As described above, our products include bedding and upholstery, which are our two identified operating segments. These fabrics are sold in roll form and as sewn mattress covers by the bedding segment, and in roll form and as cut and sewn kits by the upholstery segment. Our upholstery segment also provides window treatments and related products. 6 Bedding Segment Bedding segment sales constituted 57% of our total net sales for fiscal 2026, compared with 53% for fiscal 2025. The company has emphasized fabrics that have broad appeal at prices generally ranging from $2.00 to more than $18.00 per yard. Upholstery Segment Upholstery segment sales totaled 43% of our total net sales for fiscal 2026, compared with 47% for fiscal 2025. The company has emphasized fabrics that have broad appeal at “good” and “better” prices, generally ranging from $5.00 to $15.00 per yard. Product Categories by Segment We market products in most categories of fabric that manufacturers currently use for bedding and furniture. We also market window treatment products to customers in the hospitality and commercial industries. Our product lines include: Bedding • Knitted fabric – Various patterns and intricate designs produced on special-width circular knit machines utilizing a variety of synthetic and natural yarns. Knitted bedding fabrics have inherent stretching properties and spongy softness, which conforms well to layered foam packages. • Woven jacquards – Various patterns and intricate designs, woven on complex looms using a variety of synthetic and natural yarns; sourced from third parties following the Fiscal 2025 restructuring. • Converted fabric – Suedes, pile, and embroidered fabrics, as well as other specialty type products, are sourced to offer diversity for higher-end mattresses. • Sewn mattress covers – Covers for mattresses (primarily specialty beds), sewn from bedding produced by our facilities or sourced from third parties. Upholstery • Woven jacquards – Elaborate, complex designs such as florals and tapestries in traditional, transitional, and contemporary styles. Woven on intricate looms using a wide variety of synthetic and natural yarns. • Woven dobbies – Fabrics that use straight lines to produce geometric designs such as plaids, stripes, and solids in traditional and country styles. Woven on less complicated looms using a variety of weaving constructions and primarily synthetic yarns. • Velvets – Soft fabrics with a plush feel. Woven or knitted in basic designs, using synthetic yarns that are yarn dyed or piece dyed. • Suedes – Fabrics woven or knitted using microdenier polyester yarns, which are piece dyed and finished, usually by sanding. The fabrics are typically plain or small jacquard designs, with some printed. These fabrics are sometimes referred to as "microdenier suedes." • Faux leathers – Sueded or knitted base cloths that are overprinted with polyurethane, and composite products consisting of a base fabric that is coated with a top layer of polyurethane that simulates the look and feel of leather. • Cut and sewn kits – Covers made from various types of upholstery and cut and sewn to the specifications of furniture manufacturing customers for use on specific furniture frames. Through our Read Window Products business, the upholstery segment also markets a variety of window treatment products and installation services for customers in the hospitality and commercial industries. These products include roller and solar shades, drapery, roman shades and top treatments, hardware products, and soft goods such as duvet covers, bed skirts, bolsters and pillows. Manufacturing and Sourcing Bedding Segment Our bedding segment currently operates two manufacturing plants, with one located in Stokesdale, North Carolina, and one in Ouanaminthe, Haiti, on the Dominican Republic border. In connection with the Fiscal 2025 restructuring, we closed our manufacturing 7 plant in St. Jerome, Quebec, Canada, and expanded the capacity of our plant in North Carolina via the relocation of knitting and finishing equipment from our Canada facility. In addition, we consolidated our Haiti production operations from two facilities to one. See “—Fiscal 2025 Restructuring” for further details regarding the Fiscal 2025 restructuring. Over the past 12 fiscal years, we have made capital expenditures to consolidate our production facilities and to modernize both knit and weaving equipment, enhance and provide knit and woven finishing capabilities, and expand capacity. The result has been an increase in manufacturing efficiency and reductions in operating costs, as well as expanded product offerings. Knitted fabrics are currently produced at our Stokesdale facility, while our jacquard (damask) fabric, which was previously produced solely at our facility in Canada, is now sourced primarily from a long-tenured, strategic supplier located in Turkey. The majority of our finishing and inspection processes for bedding are conducted at the Stokesdale plant, which also offers finished goods distribution capabilities and houses the majority of the bedding business’s administrative offices. Additionally, our mattress cover operation has a wholly owned manufacturing platform in Haiti for production of cut and sewn mattress covers that now consists of a single leased facility following the Fiscal 2025 restructuring. In addition to the bedding and sewn covers manufactured internally, we have important supply arrangements that allow us to source bedding and sewn covers from strategic suppliers. We source some knitted fabrics, certain converted fabric products, and sewn mattress covers using our China platform. We also source sewn mattress covers from a strategic supply relationship in Vietnam, and our woven jacquard (damask) and knitted fabrics from outside suppliers, with the majority of our woven jacquard (damask) fabrics sourced from a long-standing, strategic supplier located in Turkey. Substantially all of our outsourced bedding products are made specifically for Culp and manufactured to our design specifications. Upholstery Segment During fiscal 2025 and fiscal 2026, the upholstery segment reduced the number of facilities it operates in Shanghai, China, and now operates two facilities there. At these facilities, we inspect fabrics sourced from a limited number of suppliers. As part of the Fiscal 2025 restructuring, we rationalized our internal upholstery finishing in China to align with current demand and further leverage strategic supply relationships. Additionally, we previously produced cut and sewn upholstery kits in Haiti, but we discontinued this production during fiscal 2024 due to reduced demand. A large portion of our upholstery products, as well as certain elements of our production processes, are sourced from outside suppliers. Our facilities in China provide a base from which to access a variety of products, including certain fabrics (such as microdenier suedes and polyurethane fabrics) that are not produced anywhere within the U.S. We have identified opportunities to develop significant relationships with key overseas suppliers in China that allow us to source products on a cost-effective basis, while limiting our investment of capital in manufacturing assets. During fiscal 2025 and 2026, we sourced unfinished and finished fabrics, as well as cut and sewn kits, from a limited number of strategic suppliers in China that are willing to commit significant capacity to meet our needs and work with our product development team located in China to meet the demands of our customers. Beginning in late fiscal 2019, we also developed strategic supplier relationships in Vietnam for additional sourcing of our cut and sewn kits, which has allowed us to begin adjusting our supply chains to meet customer demands. In fiscal 2024, we established an administrative office in Ho Chi Minh City, Vietnam, for the purpose of enhancing our strategic sourcing and further diversifying our supply chain in Asia. Additionally, beginning in fiscal 2022, we developed strategic supplier relationships in Turkey for additional sourcing of fabric products, providing further diversification in our supply chain. We fabricate a variety of window treatment products for our Read Window Products business at our facility in Stokesdale, North Carolina. We also use a limited number of strategic suppliers in the U.S. and Mexico for window treatment fabrication. The majority of upholstery fabrics and materials used by our Read Window Products business to fabricate window treatments are customer-supplied. These materials are generally sourced by customers, and we also source a portion of other window treatment products such as hardware and roller shades, from outside suppliers in the U.S., Turkey, and China. Product Design and Innovation Consumer tastes and preferences related to bedding, upholstered furniture, and window treatment products change over time. The use of new fabrics, creative designs, and special production finishes and technologies remains an important consideration for manufacturers and marketers to distinguish their products at retail and to capitalize on changes in preferred colors, patterns, textures, and performance properties. Culp’s success is largely dependent on its ability to market fabrics and products with appealing designs and patterns, as well as performance properties such as cleanability, stain-resistance, cooling, sustainability, and health- and hygiene-related benefits. The process of developing new designs and innovative finishes involves maintaining an awareness of broad fashion and color trends, as well as wellness and other consumer trends, both in the U.S. and internationally. To enhance our design and innovation creativity and advance the synergies between our bedding and upholstery segments, we launched a new innovation campus in downtown High Point, North Carolina, during fiscal 2022. This space combines our design, innovation, 8 and sales teams for both businesses into a shared location to support collaboration and pull our top creative talent together to develop new products and technologies based on the latest consumer trends. Bedding Segment Design innovation is a very important element of bedding production. We invest significant resources to stay ahead of current design trends, including maintaining a team of dedicated design and innovation professionals; investing in research and development activities, such as participation in international design shows; and implementing systems for creating, cataloging, and simulating new designs. Price point delineation for our fabrics and our customers’ finished mattress products is accomplished through fabric quality as well as variation in design. Consumers are often drawn to the mattress that is the most visually appealing when in a retail showroom or by viewing mattress products online, so this design variation, together with price point delineation, helps our customers merchandise different looks at various price points. Fiber differentiation also plays an important part in design. For example, rayon, organic cotton, and other special fibers, including recycled fibers promoting sustainability and fibers with cooling properties, are incorporated into the design process to allow the retailer to offer consumers additional benefits related to their sleeping experience. Similarly, many fabrics contain special production finishes that enhance fabric performance. Bedding designs are not routinely introduced on a scheduled seasonal cadence. Designs are typically introduced upon the request of the customer as they plan new product introductions. Additionally, we work closely with our customers on new design offerings around the major furniture markets such as those in Las Vegas, Nevada, and High Point, North Carolina. Upholstery Segment The company has developed an upholstery design and product development team (with staff located in the U.S. and in China) primarily focused on value in designing furniture body cloths, while promoting style leadership with pillow fabrics and color. Our design staff regularly attends international trade and design shows to maintain familiarity with current design and fashion trends. The team searches continually for new ideas and for the best sources of raw materials, yarns, and fabrics, utilizing a supply network located mostly in China. Using these design elements, the team develops product offerings using ideas and materials that take both fashion trends and cost considerations into account to offer products designed to meet the needs of furniture manufacturers and, ultimately, consumer preferences. Upholstery designs are introduced at major fabric trade conferences that occur twice annually in the United States. We prioritize the protection of our proprietary designs and are assertive in addressing any copying or infringement. Distri bution Bedding Segment Most of our bedding shipments originate from our facility in Stokesdale, North Carolina, and we currently have additional distribution capabilities in China, Haiti, and Turkey. Following the Fiscal 2025 restructuring, distribution from Canada was eliminated in connection with the closure of our former facility there. Through arrangements with major customers and in accordance with industry practice, we maintain a significant inventory of “make to stock” bedding at our distribution facility in Stokesdale, North Carolina, so that products may be shipped to customers with shorter lead times and/or on a “just in time” basis. Upholstery Segment A majority of our upholstery products are marketed on a “make to order” basis and are shipped directly from our distribution facilities in Stokesdale, North Carolina, and Shanghai, China. We also have distribution capabilities in Vietnam and Turkey. In addition to “make to order” distribution, an inventory of select fabric patterns is held at our distribution facilities in North Carolina and China from which our customers can obtain quick delivery of sourced fabrics through a program known as “Culp Express.” Window treatment products sold through our Read Window Products business are done on a “job order” basis, with manufactured products shipped directly to the job installation site from our facility in Stokesdale, North Carolina, or shipped from our strategic suppliers. Sources and Availabil ity of Raw Materials Bedding Segment 9 Raw materials account for approximately 60%-70% of our bedding production costs. The bedding segment purchases primarily synthetic yarns (polyester, polypropylene, and rayon), certain greige (unfinished) goods, glue adhesives, laminates, dyes, and other chemicals. Most of these materials are available from several suppliers, and prices fluctuate based on supply and demand and the general rate of inflation. The ongoing global trade negotiations, including the recent imposition of U.S. tariffs on China imports and the possibility for additional tariffs, have also affected the price of raw materials and may continue to do so. Additionally, because many of our basic raw materials are produced from petrochemical products, our costs are highly sensitive to the underlying price of oil, which has experienced fluctuation in recent periods in connection with impacts from the U.S. conflict with Iran. The bedding segment generally has not had significant difficulty in obtaining raw materials. However, our increasing use of outside suppliers to source materials could subject the bedding segment to price adjustments, delays, expenses, or production interruptions caused by shipping logistics or business partners outside of our control. Upholstery Segment The upholstery segment generally does not purchase raw materials directly, but raw materials, particularly synthetic yarns (polyester, acrylic, rayon, and polypropylene) and dyes, are important to our suppliers of finished and unfinished fabrics. Raw materials account for approximately 60%-70% of the costs of the upholstery products we manufacture. As with our bedding segment, our costs fluctuate based on supply and demand, the general rate of inflation and the price of oil. In addition, the ongoing global trade negotiations, including U.S. tariffs on China imports and the possibility for additional tariffs, have also affected raw material costs and may continue to do so. Increased reliance by both our U.S. and China upholstery operations on outside suppliers for basic production needs such as base fabrics, yarns, and finishing services has caused the upholstery segment to become more vulnerable to price increases, delays, or production interruptions caused by problems within businesses that we do not control. Season ality Overall, demand for our products generally depends upon consumer demand for furniture and bedding products, which reflects sensitivity to overall economic conditions, including consumer confidence, unemployment rates, and housing market conditions. Bedding Segment The bedding business and the bedding industry in general are slightly seasonal, with sales traditionally being the highest in early spring and late summer and another peak in mid-winter. In the U.S., customers often purchase mattresses during major holidays in conjunction with retail store promotional events. However, these seasonality trends relate more to in-store retail sales. Online sales, which have grown in recent years, are less affected by in-store seasonality trends. Upholstery Segment The upholstery business has some seasonality, which is tied to the timing of holidays in our manufacturing facilities. Our facilities in China close during Chinese National Holiday (in October) and the Chinese New Year (which occurs in January or February each year), often causing sales to be higher in advance of these holiday periods and sometimes lower during or immediately following the same periods. Compet ition Competition for our products is high and is based primarily on price, design, quality, product performance, timing of delivery, and service. Bedding Segment The bedding market is concentrated within a few relatively large suppliers including Culp, as well as some niche producers focusing mainly on knitted products. We believe our principal bedding competitors are BekaertDeslee Textiles (fabric and mattress cover producer), Global Textile Alliance (fabric and mattress cover producer), and several smaller companies producing knitted fabrics, sewn covers, and other fabric, including companies in China supplying fabric and cover products to sub-contract manufacturers in the U.S. In addition, our bedding customers continue to face increasing competition from imports of finished beds, which indirectly compete with our bedding products because import producers generally do not purchase our fabrics. 10 Upholstery Segment In the upholstery market, we compete against a large number of companies ranging from a few manufacturers comparable in size to Culp to small producers and converters (companies that buy and re-sell fabrics, but have no manufacturing). We believe our principal upholstery competitors are Crypton, Dorell Fabrics Co., Morgan Fabrics, Richloom Fabrics, Specialty Textile, Inc., and ZhongWang Fabrics, plus a significant number of smaller competitors (both manufacturers and converters). The trend in the upholstery industry toward greater overseas competition and the entry of more converters has caused the industry to become substantially more fragmented in recent years, with lower barriers to entry. This has resulted in a larger number of competitors selling upholstery products and an attendant increase in competition based on price. Environmental and Other Regulations We are subject to various federal and state laws and regulations, including the Occupational Safety and Health Act (“OSHA”) and federal and state environmental laws, as well as similar laws governing our facilities in China and Haiti and our former facility in Canada. We monitor our compliance with these laws and regulations in an attempt to minimize the risk of violations. Our operations involve a variety of materials and processes that are subject to environmental regulation. Under current law, environmental liability can arise from previously owned properties, previously leased properties, and properties owned by third parties, as well as from properties currently owned and/or leased by the company. Environmental liabilities can also be asserted by adjacent landowners or other third parties in toxic tort litigation. In addition, under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (“CERCLA”), and analogous state statutes, liability can be imposed for the disposal of waste at sites targeted for cleanup by federal and state regulatory authorities. Liability under CERCLA is strict as well as joint and several. Domestic and foreign laws and regulations, as well as international agreements, may result in new regulations on greenhouse gas emissions. It is uncertain if, when, and in what form, a mandatory carbon dioxide emissions reduction program may be enacted either through legislation or regulation. However, if enacted, this type of program could materially increase our operating costs, including costs of raw materials, transportation, and electricity. It is difficult to predict the extent to which any new rules or regulations would affect our business, but we would expect the effect on our operations to be similar to that for other manufacturers, particularly those in our industry. We have been involved from time to time, and may again be involved, in environmental claims or litigation and requests for information from environmental regulators. Each of these matters is carefully evaluated and addressed based on information presently available. Based on this information, we do not currently believe that environmental matters will have a material adverse effect on either the company’s financial condition or results of operations. However, there can be no assurance that the costs associated with environmental matters will not increase in the future. Human C apital Our Employees As of the end of fiscal 2026, we employed 887 people, an increase of 56 employees compared to the end of the prior fiscal year. The year-over-year increase in the number of employees primarily relates to an increase in employees in the bedding segment due to a ramp-up in cut and sew production in Haiti as a result of higher demand, partially offset by headcount reductions associated with the fiscal 2026 business integration and the consolidation of certain facilities. Approximately 405 of our employees work in the United States, and 482 are employed in international locations. We employ the vast majority of our team on a full-time basis. The hourly employees at our former manufacturing facility in Canada were represented by a local, unaffiliated union. The collective bargaining agreement covering those employees was terminated in connection with our closure of that facility in fiscal 2025. We are not aware of any ongoing efforts to organize our employees, and we believe our employee relations are very good with our workforce. Our company-wide annual employee turnover rate was approximately 25.2% during fiscal 2026, compared to approximately 46.3% in the prior year. Although our turnover rate was down in fiscal 2026 compared to the prior year, employee turnover in recent fiscal years has been higher than near-term historical trends, driven mostly by the rationalization of our bedding cut and sew operation in Haiti during fiscal 2024; the discontinuation of our upholstery cut and sew operation in Haiti during fiscal 2024; the Fiscal 2025 restructuring and associated closure of our former Canada manufacturing facility, consolidation of our two manufacturing facilities in Haiti, and rationalization of our internal upholstery finishing operation in China; and the fiscal 2026 business integration and consolidation of 11 certain upholstery facilities in the U.S. and China. See “—Fiscal 2025 Restructuring” and "—Fiscal 2026 Business Integration” for further details regarding these restructuring and integration actions. Excluding employee layoffs associated with these events, our company-wide annual employee turnover rate was approximately 18.4% in fiscal 2026, 24.5% in fiscal 2025, and 17.6% in fiscal 2024. Mission Statement and Values Our human resources department has adopted the following mission statement embodying our values and goals in our relationships with employees: Culp HR Services is committed to providing outstanding employee support in a mutually respectful, safe, diverse, and collaborative environment through innovative programming that engages our associates and promotes the success of Culp, Inc. We strive to maintain a welcoming and inclusive workplace. Discrimination on the basis of race, ethnicity, sex, age, religion, national origin, sexual orientation, gender, gender identity, genetic information, disability, veteran status, or other status protected by law, as well as sexual harassment or harassment of any kind, are not tolerated in our workplaces. Employees have multiple avenues available to report inappropriate behavior, including a dedicated “HR Connection” phone line. All reports of inappropriate behavior are promptly investigated and appropriate action is taken to prevent their recurrence. We also prohibit retaliation against individuals who, in good faith, report any violation of company policies, including unlawful discrimination or harassment. Along with our mission statement and values, we act in accordance with our Code of Business Conduct and Ethics (“Code of Conduct”), which sets forth expectations and guidance for employees to make appropriate decisions. Our Code of Conduct covers topics such as conflicts of interest, fair dealing, protecting confidential information, appropriate use of company assets, compliance with laws (including, without limitation, anti-corruption and antitrust laws), workplace safety and environmental stewardship, and reporting Code of Conduct violations. The Code of Conduct reflects our commitment to operating in a fair, honest, ethical, and responsible manner, and also provides direction for reporting complaints in the event of alleged violations of our policies. Our executive officers and supervisors maintain “open door” policies, and any form of retaliation is strictly prohibited. We also conduct regular training programs with our management and employee leaders to inform and refresh their knowledge about company policies and procedures pertaining to employment and human capital. Employee Recruitment, Development, Engagement, and Wellness We strive to attract, recruit, and retain employees through competitive compensation and benefit programs that are aligned with those of comparable industries and companies and in the geographic areas where our facilities are located, and that comply with local regulatory requirements. We also provide development opportunities that support career growth and maintain a wide variety of programs to engage with our employees and promote overall wellness. We believe these efforts support all of our personnel in the workplace and elsewhere in their lives, which in turn promotes employee satisfaction and retention. We also continue to strengthen our workforce analytics to advance HR metrics and delivery, enhance HR operations, and continually evaluate responsible use of artificial intelligence to support efficiency and decision-making. Our focus is on translating insights into action through deeper leader engagement, continued emphasis on retention and safety, and sustained communication with employees. Our human resources department concentrates on aligning employee feedback, leadership action, and measurable outcomes. Results from our ongoing company-wide CULPchat surveys help shape priorities, and we are intentional about communicating with employees on how their feedback is being addressed. In addition, we conduct targeted retention and attrition surveys with front-line supervisors and managers to better understand turnover challenges at the operational level. Analysis of this data then informs action planning. In addition to CULPchat, other examples of employee engagement initiatives include: • Interactive TeamTalk meetings, business strategy sessions, and video chat sessions with senior management • Leadership Talk Tuesdays for managers and supervisors, with each session featuring either an external or internal guest speaker presenting various leadership development topics and also covering company human resources policies and benefits • Frontline Leadership Academy, with monthly sessions held in-person at our Stokesdale, North Carolina facility targeting associates who are new in leadership roles and those in need of extra leadership development • Regularly scheduled, on-site informational and assistance visits by the company's human resources benefits team to our Stokesdale, North Carolina, facility • The CulpVets program, which provides special recognition to military veterans 12 • The “CULPgrow” program, which provides employees with skills assessment and education assistance, such as GED, ESOL (English to Speakers of Other Languages), and computer literacy programs. The purpose of CULPgrow is to provide a workplace where every employee has the key resources they need to grow, develop, and reach their career goals. The program focuses on identifying the skills and goals of each employee, as well as ways the company can invest in their future and provide tools and resources that support their career advancement. It also provides resources such as financial educational assistance, as well as mentorship opportunities where employees can be matched with a company mentor and guided through pathways for success within the company. • The "Share the Love" program, a company-wide global giving initiative that involves employees in each of our geographic locations choosing a charitable endeavor to support, based on their knowledge of local cultural considerations and areas of need • Employee awards and recognition programs These engagement efforts and programs are continually refined and updated to meet the evolving needs of our workforce. Safety and Health The safety and health of our employees is a fundamental priority at Culp. In fiscal 2026, we launched a new "Target Zero" safety program that reflects our ongoing commitment to creating a workplace where every employee goes home safe at the end of every shift. We recognize that safety culture is driven by leadership, and what we consistently discuss and prioritize sets the standard for our teams. Our leadership is expected to reinforce safety daily through shift huddles, conversations, and visible leadership commitment; engage with employees on hazards and safety concerns; and recognize and affirm safe behaviors in real time. In addition to Target Zero, we maintain comprehensive safety monitoring and training programs, with regular reports to senior management on these topics. Our behavior-based safety initiative combines awareness programs, observation, and training to enhance continued compliance with safe and healthy practices in our facilities. Customers and Sales Bedding Segment Major customers for the bedding business include leading bedding manufacturers such as Serta-Simmons Bedding (SSB), Somnigroup International (f/k/a Tempur Sealy International (TSI) prior to its acquisition of Mattress Firm), Brooklyn Bedding, FXI, Sleep Number, and Ashley Furniture. Our largest customer in the bedding segment is Serta-Simmons Bedding (SSB), accounting for approximately 13% of the company’s consolidated sales in fiscal 2026. These sales include sales to customers who are also subcontractors and licensees for SSB. Our bedding customers also include many small and medium-size bedding manufacturers. Upholstery Segment Our major customers for our upholstery business are leading furniture manufacturers including Ashley Furniture, Flexsteel Home, Jonathan Louis, La-Z-Boy Incorporated (La-Z-Boy Wholesale, Joybird and England), Southern Furniture Industries (Fusion and Southern Motion), and Best Home Furnishings. Major customers for the company’s fabrics for commercial furniture include Exemplis, HNI Corporation, Hilton, and Best Western. Our largest customer in the upholstery segment is La-Z-Boy Incorporated, which accounted for approximately 12% of the company’s consolidated sales in fiscal 2026. The following table sets forth our net sales by geographic area by amount and percentage of total net sales for the three most recent fiscal years. Net Sales by Ge ographic Area (dollars in thousands) Fiscal 2026 Fiscal 2025 Fiscal 2024 United States $ 139,936 68.8% $ 143,713 67.4% $ 153,631 68.2% North America (Excluding USA) (1) 31,544 15.5% 32,912 15.4% 29,357 13.0% Far East and Asia (2) 28,963 14.2% 30,586 14.3% 36,334 16.1% All other areas 3,039 1.5% 6,026 2.8% 6,011 2.7% Subtotal (International) $ 63,546 31.2% $ 69,524 32.6% $ 71,702 31.8% Total $ 203,482 100.0% $ 213,237 100.0% $ 225,333 100.0% 13 (1) Of this amount, $28.7 million, $28.8 million, and $25.1 million are attributable to shipments to Mexico in fiscal 2026, 2025, and 2024, respectively. (2) Of this amount, $12.6 million, $16.0 million, and $18.3 million are attributable to shipments within China in fiscal 2026, 2025, and 2024, respectively. Sales attributed to individual countries are based upon the location that the company ships its products to for delivery to customers. For additional segment information, including the geographic location of long-lived assets, see Note 19 in the consolidated financial statements. Back log Bedding Segment The order backlog for our bedding segment is not a reliable predictor of future shipments because the majority of sales in that segment are made on a just-in-time basis. Upholstery Segment Although it is difficult to predict the amount of order backlog that is “firm” in our upholstery segment, we have reported the portion of the upholstery backlog from customers with confirmed shipping dates within five weeks of the end of the fiscal year. As of May 3, 2026, the portion of the upholstery segment backlog with confirmed shipping dates prior to June 8, 2026, was $8.5 million, compared with $6.5 million as of the end of fiscal 2025 (for confirmed shipping dates prior to June 2, 2025). The increase in the order backlog for our upholstery segment for this period is primarily due to more consistent ordering activity from a large residential customer in fiscal 2026, as compared to fiscal 2025 (when such customer had concentrated periods of ordering throughout the year that led to periods of elevated or reduced backlog, including a period of lower backlog at the end of fiscal 2025). Intellectual Property We currently hold, or have registration applications pending for, numerous trademarks and copyrights for various product and trade names, logos, and fabric designs in the United States and certain foreign countries. We view such intellectual property, along with any unregistered copyrights, trademarks, service marks, trade names, domain names, trade dress, trade secrets, and proprietary technologies, as an important part of our business and seek to diligently protect, monitor, and defend, through appropriate action, against their unauthorized use. 14 ITEM 1A. RI SK FACTORS Our business is subject to a variety of risks and uncertainties. In addition to the matters described above under “Cautionary Statement Concerning Forward-Looking Information,” set forth below are some of the risks and uncertainties that could cause a material adverse change in our results of operations, financial condition, or future prospects. The risks described below should be carefully considered, together with other information provided in this report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations and our financial statements and the related notes. The risks discussed below are not the only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by us also may materially adversely affect our business, financial condition, or results of operations in future periods. Macroeconomic, Market, and Strategic Risks Continued economic and industry uncertainty could negatively affect our sales and earnings. Overall demand for our products depends upon consumer demand for furniture and bedding products, which is subject to cyclical variations in the general economy, including current inflationary pressures affecting consumer spending, declines in overall consumer confidence, recession and fears of recession, and other geopolitical events, such as the ongoing Russia/Ukraine war, the war in Iran, and other armed conflicts in the Middle East and other areas of the world. Because purchases of furniture and bedding products may be considered discretionary purchases for most individuals and businesses, demand for these products is heavily influenced by economic trends. Economic downturns, increases in unemployment rates, persistent inflation, and uncertainty about future health and economic prospects can affect consumer spending habits and demand for discretionary items, including home furnishings, which reduces the demand for our products and, therefore, can cause a decline in our sales and earnings. In addition, the level of housing starts, sales of existing homes, declines in office occupancy rates, trends in disposable income, changes in interest rates (particularly home mortgage rates), and availability of consumer credit, can also affect our business. Following an increase in demand for residential upholstery during the COVID-19 pandemic, increased consumer discretionary spending on travel, leisure, and entertainment, and away from home goods persisted for several years. Inflationary pressures also impacted consumer spending through fiscal 2026. Further, the extended downturn of the U.S. housing and commercial real estate markets negatively affected demand for furniture and bedding, reducing demand for our upholstery and bedding products. In addition, as discussed in more detail below, recent global trade negotiations and related tariff and import control measures have affected, and are expected to continue to impact, industry pricing and supply chain dynamics, which may continue to pressure demand for our upholstery and bedding products. Global volatility, higher oil prices, and overall inflation have also challenged travel and leisure spending in fiscal 2026, which has negatively affected demand in our upholstery hospitality business. We are unable to predict how long these trends will last, or to what extent macroeconomic or other geopolitical events may affect the purchasing cycle for home furnishing products. Demand for our products, along with our results of operations, has been adversely affected by macroeconomic trends that are beyond our control, and those effects may continue or worsen. Partly in response to certain of these trends, in fiscal 2025 we completed a restructuring of our business pursuant to which we, among other actions, consolidated our North American bedding operations and our sewn cover operation in Haiti in an effort to align capacity and cost structure with demand. See “Item 1. Business—Fiscal 2025 Restructuring.” Additionally, at the end of fiscal 2025, we initiated a strategic transformation of our operating model through the combination of our two operating divisions into a single, unified business designed to optimize operational agility, further streamline costs and processes, and increase responsiveness to customer needs and market trends. We completed this business integration in fiscal 2026. See "Item 1. Business - Fiscal 2026 Business Integration." While some of the anticipated cost savings, efficiencies, and other benefits from these efforts began to positively impact our financial results in fiscal 2025 and fiscal 2026, we can offer no assurance that these efforts will achieve their full intended impacts or that such impacts will be realized on the expected timeframe or at all. Loss of market share due to competition may result in declines in sales and could result in losses or decreases in earnings. Our business is highly competitive and fragmented, and we face significant competition from many competitors, both foreign and domestic. We compete with many other manufacturers of fabric, as well as converters who source fabrics from various producers and market them to manufacturers of furniture and bedding. In many cases, these fabrics are sourced from foreign suppliers who have a lower cost structure than the company. The highly competitive nature of our business in each of our segments means we are constantly subject to the risk of losing market share, which would likely result in a decrease in our future sales and earnings. In particular, in recent years the U.S. bedding industry has seen significant increases in competition from low-cost foreign producers, which has adversely affected demand for products in our bedding segment. As a result of increased competition, there have been deflationary pressures on the prices for many of our products, which make it more difficult to pass along increased operating costs such as raw materials, shipping, energy, foreign currency fluctuations, additional tariffs, 15 or labor in the form of price increases, which can put downward pressure on our profit margins. Also, the wide range of product offerings in our industry can make it more difficult to differentiate our products through design, styling, finish, and other techniques. Our operations are subject to risks of unsettled political conditions, civil unrest or instability, public health concerns or pandemics, natural or man-made disasters, armed conflicts or acts of war, terrorism, and the effects of climate change, any one of which could adversely affect our business and results of operations. Our domestic and foreign operations are subject to risks of unsettled political conditions, civil unrest or instability in countries in which we operate, natural or man-made disasters, armed conflicts or acts of war, and terrorism. As an example, we maintain an active production facility in Ouanaminthe, Haiti, on the Dominican Republic border. Severe political instability in Haiti, along with recent natural disasters, has created a crisis in the country, subjecting our operations there to heightened risk. In addition, recent government action regarding the minimum wage levels applicable to textile workers in Haiti led to labor strike activity in the industrial park in which our Haiti operations are located, temporarily impacting production schedules. Ongoing political and civil unrest in Haiti could cause futher manufacturing disruptions at our Haiti facility. Civil instability, public health concerns, pandemics, natural disasters, armed conflicts or acts of war, terrorism or other adverse events could cause disruption at our manufacturing or distribution facilities, or at the facilities of our suppliers and distribution channels. Moreover, the effects of climate change and actions taken to combat climate change could exacerbate these risks, including by increasing the likelihood and severity of extreme weather events. The materialization of any of these risks could result in additional expense to us, limit our supply of necessary goods and raw materials, and otherwise affect our ability to meet the needs of our customers, and our results of operations may be materially adversely affected as a result. Our future success depends in part on our ability to successfully implement our strategic initiatives and achieve our business plans. We continue to focus on strategic initiatives designed to improve our business and our results of operations. In fiscal 2025, we completed a significant restructuring plan designed to reduce costs, improve asset utilization, and drive performance and profitable growth. This plan focused primarily on our bedding segment and, to a lesser extent, our upholstery segment, and included consolidating operations, restructuring operations, and reducing expenses. See “Item 1. Business—Fiscal 2025 Restructuring.” In addition, at the end of fiscal 2025, we announced the strategic transformation of our operating model through the combination of our two operating divisions, Culp Upholstery and Culp Home Fashions, into a single, unified business designed to optimize operational agility, further streamline costs and processes, and increase responsiveness to customer needs and market trends. This integration initiative, which was completed during fiscal 2026, included increased centralization and collaboration among previously division-specific functions and departments, the transition of the duties and responsibilities of certain key division leadership roles to a company-wide scope, the consolidation of certain upholstery operations into a shared management model within our owned facility in Stokesdale, North Carolina (which had historically been operated solely by our bedding segment), and the rationalization of our upholstery operations in China. See “Item 1. Business—Fiscal 2026 Business Integration.” There can be no assurance that these or other future strategic initiatives will be successful to the extent we expect, or at all. Additionally, the costs of these initiatives may outweigh their benefits. If we miscalculate the resources we need to complete these strategic initiatives or fail to implement them effectively, our business and operating results could be adversely affected. Operational Risks Our business may be adversely affected by increased tariffs or other changes in U.S. trade policy related to imported products. Many of our products are manufactured or sourced outside of the U.S. Since early 2025, the U.S. government has imposed tariffs on imports from various countries, including China, where a significant amount of our products is manufactured. Many of these tariffs were imposed pursuant to the International Emergency Economic Powers Act ("IEEPA"). In February 2026, the U.S. Supreme Court ruled these tariffs unlawful, but did not address potential refunds for tariffs paid under IEEPA. The U.S. government immediately imposed new global tariffs pursuant to different statutory authority. These tariff actions compelled us to raise prices on our products and, as a result, our sales and gross margins on certain products have been, and will likely continue to be, affected. Moreover, the current tariff and trade regulatory environment is unpredictable, making it difficult for us, and for our customers and suppliers, to manage enterprise cost structure and supply chain planning. Any tariffs that result in increased costs of imported products and materials could require us to further increase prices to our domestic customers. If we are unable to pass along these additional costs, our sales and gross margins may be adversely affected. Further, while a significant portion of our products produced in China are not sold directly into the U.S., and therefore may not be directly impacted by certain U.S. imposed tariffs, most of our products are sold to manufacturers for end use in the U.S. If our customers’ sales are adversely affected by tariffs, our sales may also be adversely affected. As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” tariffs have had an adverse impact on our business, and may have a material adverse effect on our results of 16 operations in the future. Following the U.S. Supreme Court’s decision finding tariffs under IEEPA to be unlawful, we filed a claim with the U.S. Court of International Trade seeking a refund for approximately $7.0 million that we paid pursuant to IEEPA tariffs. We received payment for the full amount claimed during the first quarter of fiscal 2027. See Note 14 to the consolidated financial statements for further details . However, litigation is ongoing as to whether businesses that paid tariffs under the IEEPA may receive or retain refunds for those tariffs, and there is uncertainty as to whether the company may retain the refund amount it received. Additionally, the new global tariffs imposed subsequent to the February 2026 Supreme Court ruling remain in effect. In addition to tariffs, the U.S. government is considering other proposals for substantial changes to its trade and tax policies, which could include import restrictions, changes to or withdrawal from existing trade agreements, and border-adjustment taxes, among other possible measures. Material changes in these policies could increase our tax obligations, require us to source materials from different regions, or increase prices to customers, which could adversely affect sales. Any significant change in U.S. trade or tax policy related to imported products could have a material adverse effect on our business and financial results. Our business may be adversely affected by violations of existing trade policies. There are a number of trade regulations and duties currently in place to protect the U.S. textile industry against competition from low-priced foreign producers, such as those in China and Vietnam, but violations of these trade regulations and duties by foreign producers has had, and may in the future have, a material adverse effect on our operations. In May of 2019, the U.S. Department of Commerce imposed punitive anti-dumping measures against China mattress imports to address violations of trade regulations. Despite the imposition of these duties, we believe that some China producers have moved their production out of China and continue to engage in competitive activity inconsistent with trade regulations between the U.S. and other countries, including transshipments of mattress products into the United States that circumvent imposed duties by falsely claiming that mattresses are products of a particular country of origin. In response to low-priced mattress imports that moved out of China to other countries in an effort to circumvent U.S. duties, the U.S. Department of Commerce has imposed anti-dumping duties on mattress imports from countries other than China. While we believe the domestic mattress industry and, in turn, our business, began to realize some benefits from these duties starting in 2021, low-priced imports continue to adversely affect our sales. We can offer no assurance that such trends will abate, nor can we offer assurance that the U.S. Department of Commerce can effectively limit the dumping of low-priced imports into the U.S. market. If supply chains are moved out of China to countries without anti-dumping duties and producers continue to supply low-priced imports in violation of U.S. trade laws, or if illegal transshipments are not monitored and enforcement is not effective to limit them, our business, financial condition, results of operations or cash flows may be adversely affected. Greater reliance on offshore operations and foreign sources of products or raw materials increases the likelihood of disruptions to our supply chain or our ability to timely deliver products to our customers. We rely significantly on operations in distant locations, especially China. In addition, we source a significant share of our products and raw materials from offshore suppliers, particularly suppliers in Asia and Turkey. At the same time, domestic manufacturing capacity for upholstery continues to decline, and we have limited optionality to source and/or produce upholstery domestically. These changes have caused us to rely on an extended supply chain and on a larger number of suppliers that we do not control, subjecting us to greater risks of delay or disruption. In addition, operations and sourcing in foreign areas are subject to the risk of changing local governmental rules, taxes, changes in import rules or customs, import restrictions, tariffs, shipping rates, potential political unrest and instability, or other threats that could disrupt or increase the costs of operating in foreign areas or sourcing products overseas. Any of the risks associated with foreign operations and sources could cause unanticipated increases in operating costs or disruptions in business, which could have a negative impact on our ultimate financial results. In recent fiscal years, a confluence of factors has caused disruptions to international shipping, increasing costs and delaying shipments. The closure of the Strait of Hormuz in connection with the recent Iran war along with other armed conflicts in the Middle East have caused increases in oil prices and disruptions to shipping routes. As a result of these and other factors, shipping costs have increased. Delays and increases costs with respect to international shipping logistics may interfere with our ability to timely ship our products or receive the materials we need to produce our products and adversely impact our margins. While we have been able to pass along some of the additional costs arising from increases in oil and other petrochemical prices to our customers, we may be unable to pass along such costs or any additional increases to our customers going forward, or may have difficulty meeting our customers’ demands, each of which may materially and adversely affect our results of operations. In addition, with respect to sourcing products and raw materials from third-party suppliers in China, our ability to timely or successfully import such products or those made with such raw materials may be adversely affected by changes in U.S. laws. For example, certain laws and regulations impose a presumptive ban on the import of goods to the U.S. that are made, wholly or in part, in certain defined areas or by certain restricted persons or entities. These laws and regulations specifically target cotton and the apparel and textile 17 industries as high-priority sectors for enforcement. To our knowledge, none of our Chinese suppliers are identified as restricted entities under these laws and regulations, and we prohibit our suppliers from doing business with or sourcing inputs from any company or entity that is in the region targeted or that is restricted under U.S. or other applicable law. However, as a result of these laws and regulations, products we import into the U.S. could be held for inspection by U.S. Customs and Border Protection based on suspicion of noncompliance. During fiscal 2023 and early in fiscal 2024, certain of our shipments were detained as a result of such inspections. We were successful in submitting satisfactory supply chain evidence to result in the release of all such detained goods, and these detentions did not result in any material impact on our business, supply chain, customer relationships, or reputation. However, future detentions could result in unexpected: (i) delays or rejections of products scheduled for delivery to us, which could, in turn, affect the timing or our ability to deliver products to our customers; (ii) supply chain disruptions and increased operating costs; (iii) damage to our customer relationships; and/or (iv) negative publicity that harms our reputation, any of which could have a material impact on our business and negatively affect our financial results. Our business faces several risks associated with doing business in China. We source a variety of fabrics, as well as cut and sewn upholstery kits and sewn mattress covers, from a limited number of strategic suppliers in China. We also operate two facilities in Shanghai, China. The Chinese economy is characterized by extensive state ownership, control, and regulation, and the political, legal, and economic climates in China can be fluid and somewhat unpredictable. Therefore, our business is continually subject to the risk of changes in Chinese laws and regulations that could have an adverse effect on our suppliers and manufacturing operations. Any changes in policies governing tariffs, imports and exports, taxation, inflation, economic sanctions and export controls, environmental regulations, foreign currency exchange rates, the labor market, property, network security, intellectual property, or financial regulations could have an adverse effect on our business. Further, the enforcement of applicable laws, rules and regulations in China may not always be consistent or uniform relative to other jurisdictions. Moreover, any natural disasters, or other threats or disruptions could inhibit our operations in China or increase our costs of operating there. The Chinese economy poses additional risks to our business, including fluctuating rates of inflation and currency exchange rates, a declining labor force participation rate, and rising employee wages. In addition, further changes in the political climate or trade policy of the U.S., such as re-imposed or increased duties, tariffs, or U.S. restrictions on Chinese imports, may adversely affect our business. The Chinese government has imposed reciprocal tariffs on certain products imported from the U.S., and any additional tariffs or related measures could have a material adverse impact on our third-party suppliers and their supply chains as well as our ability to operate in China. Any of these risks associated with our China operations and sources could cause unanticipated increases in operating costs or disruptions in business, which could negatively affect our ultimate financial results. Because a significant portion of our operations are located outside the U.S., we may be adversely affected by changes in the value of the U.S. dollar. Changes in the value of the U.S. dollar versus other currencies can affect our financial results because a significant portion of our operations are located outside the U.S. We manage various operating activities at the local level, and net sales, costs, assets and liabilities are denominated in both the local currency and the U.S. dollar. Our results of operations and assets and liabilities are reported in U.S. dollars and thus will fluctuate with changes in applicable exchange rates, affecting our reported results and the comparability of our results of operations and cash flows between periods. Further, strengthening of the U.S. dollar against other currencies could make our products less competitive on the basis of price in markets outside the U.S., and strengthening of currency in China could have a negative impact on our sales of products produced there. We may have challenges managing the outsourcing arrangements used for products and services. We rely on outside sources for various products and services, including yarn and other raw materials, greige (unfinished) fabrics, finished fabrics, cut and sewn upholstery kits, sewn mattress covers, and services such as weaving and finishing, as well as window treatment fabrication and installation. As part of the fiscal 2025 restructuring, we transitioned all of our internal production of jacquard (damask) fabric to strategic outside suppliers. Increased reliance on outsourcing lowers our capital investment and fixed costs, but it decreases the amount of control that we have over certain elements of our production capacity. Interruptions in our ability to obtain raw materials or other required products or services from our outside suppliers on a timely and cost-effective basis, especially if alternative suppliers cannot be immediately obtained, could disrupt our production and damage our financial results. In addition, while we are committed to ensuring that all of our manufacturing facilities comply with our internal code of conduct and applicable laws and regulations, and we require our suppliers and independent contractors to operate their businesses in compliance with the laws and regulations that apply to them, we do not control these suppliers and independent contractors. A violation of our policies, applicable manufacturing or employee safety standards and codes of conduct, labor laws or other laws or regulations by our suppliers or independent contractors could interrupt or otherwise disrupt our operations. Negative publicity regarding the production or operating methods of any of our suppliers or independent contractors or their failure to comply with our policies, applicable manufacturing or 18 employee safety standards and codes of conduct, labor laws or other laws or regulations could adversely affect our reputation, brands, sales and partner relationships, which could adversely affect our business and results of operations. Impairment of assets would result in a decrease in our earnings and shareholders’ equity. The company has assets, primarily consisting of property, plant and equipment, right of use assets, inventory, and intangible assets, that may be subject to impairment. In accordance with accounting standards, management continuously examines inventory to determine if there are indicators that the carrying value exceeds its net realizable value. Experience has shown that the most significant of such indicators are the age of the inventory, planned discontinuances of certain patterns, and restructuring initiatives. Identifying and assessing whether impairment indicators exist, or if events or changes in circumstances have occurred, including market conditions, operating results, competition, and general economic conditions, requires significant judgment. Any such future actions or circumstances could result in charges that could have an adverse effect on our financial condition and results of operations, and there is no assurance that future write-downs of fixed assets or other intangible assets will not occur if business conditions were to deteriorate. As part of the fiscal 2025 restructuring, we incurred non-cash charges totaling $4.3 million of which: (i) $1.6 million related to the loss on disposal, valuation, and markdowns of inventory; (ii) $1.3 million associated with additional depreciation for shortened useful lives of equipment; (iii) $849,000 of accelerated lease termination costs for the reduction in periods of use for certain facilities, and (iv) an impairment charge of $540,000 related to the “Read Window” tradename. See Notes 6 and 10 of the consolidated financial statements for further details of the above-mentioned non-cash charges. Moreover, as a result of inventory assessments, we incurred a non-cash inventory charge during fiscal year 2023 totaling $5.8 million, which included: (i) a $2.9 million impairment charge associated with our bedding segment; (ii) $2.8 million related to markdowns of inventory in both segments that were estimated based on our policy for aged inventory; and (iii) $98,000 for the loss on disposal and markdowns of inventory related to the exit of our cut and sewn upholstery operation located in Shanghai, China. As part of the fiscal 2026 business integration, we incurred non-cash charges totaling $1.3 million of which: (i) $931,000 related to the loss on disposal, valuation, and markdowns of inventory; (ii) $291,000 related to the impairment of Read Window customer relationships, (iii) $112,000 related to additional depreciation for shortened useful lives of equipment; and (iv) $37,000 related to lease termination costs. See Notes 6 and 10 of the consolidated financial statements for further details of the above-mentioned non-cash charges. Impairment of our assets, including inventory, results in an immediate charge to our earnings, and can have a material adverse effect on our operating results and financial condition. Changes in the price, availability, and quality of raw materials could increase our costs or cause production delays and sales interruptions, which would result in decreased earnings. We depend upon outside suppliers for most of our raw material needs and we rely upon outside suppliers for component materials such as yarn, unfinished fabrics, cut and sewn upholstery kits, mattress covers, and jacquard (damask) fabric, as well as for certain services such as finishing and weaving and window treatment fabrication and installation. Fluctuations in the price, availability, and quality of these goods and services have had, and could continue to have, a negative effect on our production costs and ability to meet the demands of our customers, which can affect our ability to generate sales and earnings. In many cases, we are not able to pass through increased costs of raw materials or increased production costs to our customers through price increases. In particular, many of our basic raw materials are petrochemical products or are produced from such products. For this reason, our material costs are especially sensitive to changes in prices for petrochemicals and the underlying price of oil. Increases in prices for oil, petrochemical products or other raw materials and services provided by outside suppliers can significantly increase our costs and negatively affect our profit margins and earnings. The recent global trade negotiations and related tariff and import control measures beginning in the fourth quarter of fiscal 2025 and continuing throughout fiscal 2026 have impacted, and are expected to continue to impact, industry pricing and supply chain dynamics and, in turn, pressure our raw material costs. Additionally, the cost of raw materials increased during the fourth quarter of fiscal 2026 due to higher oil prices, driven by the war with Iran, and this trend may continue in fiscal 2027. While we have been able to pass along some of the additional costs arising from increases in oil and other petrochemical prices to our customers, we may be unable to pass along such costs or any additional increases in raw material prices to our customers going forward, and our results of operations may be harmed as a result. Increases in energy costs increase our operating costs and could adversely affect earnings. Higher prices for electricity, natural gas, and fuel increase our production and shipping costs. A significant shortage, increased prices, or interruptions in the availability of these energy sources would increase the costs of producing and delivering products to our customers and would be likely to adversely affect our earnings. In many cases, we are not able to pass along the full extent of increases in our 19 production costs to customers through price increases. Energy costs have varied significantly during recent fiscal years, with the price of oil increasing dramatically during the fourth quarter of fiscal 2026, and remain a volatile element of our costs. Increases in energy costs could have a negative effect on our earnings. Business difficulties or failures of large customers could result in a decrease in our sales and earnings. We currently have several customers that collectively account for a substantial portion of our sales. In the bedding segment, several bedding manufacturers have large market shares and comprise a significant portion of our bedding sales, with Serta-Simmons Bedding (SSB) and its subcontractors and licensees accounting for approximately 13% of consolidated net sales in fiscal 2026. In the upholstery segment, La-Z-Boy Incorporated accounted for approximately 12% of consolidated net sales during fiscal 2026, and several other large furniture manufacturers comprised a significant portion of sales. A business failure or other significant financial difficulty by one or more of our major customers, or the loss of one or more of these customers, could cause a significant loss in sales, an adverse effect on our earnings, and difficulty in collection of our trade accounts receivable. For example, in June 2026, a major customer associated with our bedding segment announced that it had filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Based on the information available to us at this time, we have not recorded any credit losses and we expect to receive payment in full regarding all outstanding accounts receivable with respect to this customer. Additionally, based on information available to us at this time, we expect that this customer will continue to conduct normal business operations pending its reorganization, but a business failure or loss of this customer could cause a decrease in our sales and an adverse effect on our earnings. Additionally, in recent years, two other major customers associated with our bedding segment filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Although we did not record any credit losses and received payment in full regarding all outstanding accounts receivable with respect to each of these two customers, a business failure or loss of either such customer and its affiliates, or a business failure or loss of one or more other major customers, could cause a decrease in our sales and an adverse effect on our earnings. Unforeseen events may adversely affect our customers, causing them to delay, or cease, payments to us. While we perform credit evaluations of our customers, those evaluations involve significant management judgment and may not prevent uncollectible trade accounts receivable, especially in the current environment. If more customers than we anticipate experience liquidity issues, if payments are not received on a timely basis, or if a customer declares bankruptcy, we may have difficulty collecting amounts owed to us by these customers, which could adversely affect our sales, earnings, financial condition, and liquidity. Changes in our customers' business models, inventory levels, sourcing strategies, or retail performance could adversely affect demand for our products. Our sales depend not only on end-consumer demand for furniture and bedding, but also on our customers' operating strategies, inventory management practices, product development cycles, sourcing decisions, and retail and e-commerce performance. Our customers may reduce or delay orders as they rebalance inventory, seek lower-cost sourcing alternatives, consolidate suppliers, modify product lines, reduce store traffic expectations, or experience weaker online or in-store demand. Customers that operate significant retail networks also face risks from store closures, weaker traffic, higher occupancy and labor costs, and changes in consumer purchasing channels, any of which could reduce their need for our products. If these customer-level risks occur, our sales, production planning, inventory levels, margins, and collection of receivables could be adversely affected. Product quality, safety, and warranty or recall issues could damage our customer relationships, reputation, and results of operations. Our products are incorporated into furniture, bedding, and other consumer products sold by our customers. Product defects, quality failures, contamination, failure to satisfy customer specifications, or noncompliance with applicable flammability, labeling, chemical content, consumer product safety, environmental, or other requirements could result in delayed shipments, customer chargebacks, warranty claims, product recalls or withdrawals, litigation, regulatory action, or loss of customer confidence. Even if a quality or safety issue originates with a supplier or customer, we could experience reputational harm, increased costs, lost sales, or reduced future business with affected customers. If we fail to anticipate and respond to changes in consumer tastes and fashion trends, our sales and earnings may decline. Demand for various types of upholstery fabrics and mattress coverings changes over time due to fashion trends and changing consumer tastes for furniture and bedding. Our success in marketing our fabrics depends upon our ability to anticipate and respond in a timely manner to fashion trends in home furnishings. If we fail to identify and respond to these changes, our sales of these products may decline. In addition, inaccurate projections about the demand for certain products could cause the accumulation of excess raw material or finished goods inventory, which could lead to inventory mark-downs and decreases in earnings. 20 Increasing dependence on information technology systems comes with specific risks, including cybersecurity breaches and data leaks, which could have an adverse effect on our business. Our business increasingly relies on technology systems and infrastructure, including from third-party service providers. Greater dependence on technology systems heightens the risk of potential vulnerabilities from system failure and malfunction, breakdowns due to natural disasters, human error, unauthorized access, power loss, and other unforeseen events. Data privacy breaches by employees and others with or without authorized access to our systems pose risks that sensitive data may be permanently lost or leaked to the public or other unauthorized persons. With the growing use and rapid evolution of technology, including artificial intelligence and machine learning, there are additional risks of data leaks. There is also the risk of our exposure to theft of confidential information, intentional vandalism, ransomware attacks, industrial espionage, and a variety of cyber-attacks, including phishing attempts, covertly introducing malware to our computers and networks (or the computers and networks of our third-party providers), and impersonating authorized users, among other types of cyber-attacks, that could compromise our internal technology systems or infrastructure, or result in data leakage in-house or at our third-party providers and business partners. These risks have intensified with the rapid advancement of artificial intelligence. Moreover, we may face increased exposure to these threats as a result of allowing certain of our employees to work remotely. Attempts to gain unauthorized access to information technology systems have become increasingly more sophisticated over time, and while we seek to detect and investigate all security incidents and to prevent their recurrence, in some cases we might be unaware of an incident or its magnitude and effect. Failures of technology or related systems, cybersecurity incidents, or improper release of confidential information could damage our business or subject us to unexpected liabilities, expenditures, and recovery time. Additionally, spending additional resources on securing our information technology systems could increase our operating costs or otherwise adversely affect our financial results. We continue to balance the risk of an electronic security breach with the cost to protect us against such a breach, and we have taken steps to obtain insurance coverage for certain potential losses arising from a breach, although the costs, potential monetary damages, and operational consequences of responding to cyber incidents and implementing remediation measures may be in excess of our insurance coverage or not covered at all by our insurance. Losses in excess of our insurance coverage or outside the scope of our coverage could have a material adverse effect on our operations and financial results. In addition to direct financial losses, cybersecurity incidents may adversely impact our relationships with our customers or our business reputation, which may cause long-term damage to our business. We have been a target of cybersecurity attacks in the past, and while such attacks have not resulted in a material impact on our operations, business, customer relationships, or reputation, we can provide no assurance that cybersecurity attacks or other cybersecurity-related incidents will not have a material adverse impact on our business in the future. Actions of activist shareholders could be disruptive and potentially costly, and the possibility that activist shareholders may seek changes that conflict with our strategies could cause uncertainty about the direction of our business. In July 2024, we entered into an agreement with an activist investor, 22NW, LP, and various of its affiliates (collectively, “22NW”), where we agreed to appoint a representative of 22NW to our board of directors and nominate that representative for election at our 2024 annual meeting in return for certain confidentiality and standstill provisions. In June 2025, we entered into a new multi-year agreement with 22NW pursuant to which, in return for certain confidentiality and standstill provisions, we agreed to: (i) renominate the 22NW representative for election to our board of directors at our 2025 and 2026 annual meetings; (ii) nominate two identified independent candidates for election to our board of directors at our 2025 and 2026 annual meetings; (iii) establish a strategy committee of our board of directors, and (iv) limit the size of our board of directors to no more than eight as of our 2025 annual meeting and no more seven as of our 2026 annual meeting and until the agreement with 22NW terminates. 22NW remains a greater-than 5% owner of Culp stock. Activist investors may attempt to effect changes in our strategic direction and how we are governed, or to acquire control over us. Some investors seek to increase short-term shareholder value by advocating for corporate actions, such as financial restructuring, increased borrowing, special dividends, stock repurchases, or even sales of assets or the entire company. While we welcome varying opinions from all shareholders, activist campaigns that contest or conflict with our strategic direction could have an adverse effect on our results of operations and financial condition, as responding to proxy contests and other actions by activist shareholders can disrupt our operations, be costly and time-consuming, and divert the attention of our board of directors and senior management from the pursuit of business strategies. In addition, perceived uncertainties as to our future direction as a result of changes to the composition of our board may lead to the perception of a change in the direction of the business, instability or lack of continuity, which may be exploited by our competitors, may cause concern to our current or potential customers, may result in the loss of potential business opportunities and may make it more difficult to attract and retain qualified personnel and business partners. These types of actions could cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals and prospects of our business. We may not be able to recruit and retain key employees and skilled workers in a competitive labor market. Our business is dependent on attracting and retaining quality employees. Competition for personnel is highly competitive, and we may not be able to attract and retain a sufficient number of qualified personnel. Our ability to meet our labor needs is subject to many factors such as prevailing wage rates, minimum wage legislation, unemployment levels, and actions by our competitors with respect 21 to compensation levels. Wage rates have increased in the U.S. and wage rate increases have also occurred in foreign countries in which we operate. Any further significant increases in wage rates in the countries in which we operate could have an adverse impact on our operating results. In addition, changes in federal, state, or local laws and regulations relating to employee benefits, could cause us to incur additional costs. Competitive and regulatory pressures have already significantly increased our labor costs, and we may be unable to fully pass these costs to our customers, which could deteriorate our profitability. In addition, further changes that hurt our ability to attract and retain personnel could adversely affect our results of operations in the future. Moreover, we are and will continue to be dependent upon our senior management team and other key personnel. Losing the services of one or more key members of our management team or other key personnel could adversely affect our operations. Our intellectual property rights may not prevent others from using our copyrights or trademarks in connection with the sale of competitive products. We may be subject to claims that our products or trademarks infringe intellectual property rights of others. We currently hold, or have registration applications pending for, numerous trademarks and copyrights for various product and trade names, logos, and fabric designs in the United States and certain foreign countries. We view such intellectual property, along with any unregistered copyrights, trademarks, service marks, trade names, domain names, trade dress, trade secrets, and proprietary technologies, as an important part of our business. These intellectual property rights may not provide adequate protection against infringement or piracy, may not prevent competitors from developing and marketing products that are similar or competitive with our fabric designs or other products, and may be costly and time-consuming to protect and enforce. In addition, the laws of some foreign countries may not protect our intellectual property rights and confidential information to the same extent as the laws of the United States. If we are unable to protect and enforce our intellectual property rights, we may be unable to prevent other companies from using our fabric designs or trademarks in connection with competitive products, which could adversely affect our sales, profitability, cash flows and financial condition. We may be subject to claims that our products, advertising, or trademarks infringe the intellectual property rights of others. The defense of these claims, even if we are ultimately successful, may result in costly litigation, and if we are not successful in our defense, we could be subject to injunctions and liability for damages or royalty obligations, and our sales, profitability, cash flows and financial condition could be adversely affected. We have made and expect to continue to make acquisitions, which could involve certain risks and uncertainties. Acquisitions have been and may continue to be an important element of our business strategy. Acquisitions involve numerous inherent challenges, such as properly evaluating acquisition opportunities, properly evaluating risks and other diligence matters, ensuring adequate capital availability, and balancing other resource constraints. There are risks and uncertainties related to acquisitions, including difficulties integrating acquired operations, technology, personnel, and financial and other systems; unrealized sales expectations from the acquired business; unrealized synergies and cost-savings; unknown or underestimated liabilities; diversion of management attention from running our existing businesses; and potential loss of key management employees of the acquired business. In addition, internal control over financial reporting of acquired companies may not be up to required standards. Our integration activities may place substantial demand on our management, operational resources, and financial and internal control systems. Customer dissatisfaction or performance issues with an acquired business, technology, service, or product could also have a material adverse effect on our reputation and business. Risks Related to Financing Our Operations We have required, and may continue to require, funding from external sources, which may not be available at the levels we require or may cost more than we expect. As a result, our expenses and operating results could be negatively affected. We regularly review and evaluate our liquidity and capital needs. Our available cash, cash equivalents, and cash flow from operations have generally been adequate to finance our operations and capital requirements in recent years, but in fiscal 2025 and fiscal 2026 we required additional external funding to support our operations and utilized both U.S. and China credit facilities for that purpose. In addition, increased interest rates in recent years have increased our cost of borrowing. If interest rates increase further, our cost of borrowing could increase substantially over debt costs that we have previously incurred. As of May 3, 2026, we had approximately $14.5 million in total borrowing availability under our domestic credit facility. In January 2023, we entered into a Second Amended and Restated Credit Agreement (as amended, the "Credit Agreement") with respect to our domestic credit facility, and we entered into an amendment to that agreement on June 12, 2025, which extended the maturity date to June 12, 2028. The Credit Agreement provides for a revolving credit facility of up to a maximum principal amount of $30.0 million, which may be increased upon mutual agreement by up to $10.0 million via an accordion feature, and is secured by a lien on the company's 22 assets. The amount available under this facility is limited by a borrowing base consisting of certain eligible accounts receivable and inventory of the company. In the event we require additional liquidity from our lenders that exceeds the availability under our credit facilities at such time, such funds may not be available to us. In addition, outstanding amounts borrowed under the facilities may become immediately due and payable upon certain events of default, including a failure to comply with the financial covenants or certain other affirmative and negative covenants in the credit agreements. If we are unable to access additional credit at the levels we require, or the cost of credit is greater than expected, it could adversely affect our operating results or financial condition. Further, we may not be able to renew or refinance our indebtedness, including our U.S. credit facility, on substantially similar terms, or at all, whether due to volatility and disruption of global credit markets or otherwise. We may have to pay additional fees and expenses that we might not have to pay under normal circumstances, and we may have to agree to terms that could increase the cost of our debt structure. If we are unable to renew or refinance our indebtedness on terms that are substantially similar to the terms currently available to us or obtain alternative or additional financing arrangements, we may not be able to repay such indebtedness, which may result in a default. Legal and Regulatory Risks We are subject to litigation and environmental regulations that could adversely affect our sales and earnings. We have been, and in the future may be, a party to legal proceedings and claims, including environmental matters, product liability, and employment disputes, some of which seek significant damages. We face the continual business risk of exposure to claims that our operations have caused personal injury or property damage, including the related risk of damage to our brand and reputation in conjunction with such claims. We maintain insurance against product liability claims and, in some cases, have indemnification agreements with regard to environmental claims, but there can be no assurance that these arrangements will continue to be available on acceptable terms or that such arrangements will be adequate for liabilities actually incurred. Given the inherent uncertainty of litigation, there can be no assurance that claims against the company will not have a material adverse impact on our earnings or financial condition. We are also subject to various laws and regulations in our business, including those relating to environmental protection and the discharge of materials into the environment. We could incur substantial costs as a result of noncompliance with or liability for cleanup or other costs or damages under environmental laws or other regulations. We must comply with many governmental regulations applicable to our business, and changes in those regulations could adversely affect our business. Our products and raw materials are and will continue to be subject to regulation in the U.S. by various federal, state, and local regulatory authorities. In addition, governments and agencies in other jurisdictions regulate the manufacture, sale, and distribution of our products and raw materials. Also, rules and restrictions regarding the importation of fabrics and other materials, including custom duties, tariffs, import restrictions, quotas, banned substances, and other regulations, are continually changing. Environmental laws, labor laws, tax laws and regulations (including the Global Intangible Low Taxed Income (“GILTI”) tax provisions), data privacy laws, and other regulations continually affect our business. These rules and regulations can and do change from time to time, which can increase our costs and our taxes, or can require us to make changes in our manufacturing processes, product mix, sources of products and raw materials, or distribution. Changes in the rules and regulations applicable to our business may negatively affect our sales and earnings. Risks Related to Trading in Our Stock The market price of our stock is affected by the illiquidity of our stock, which could lead to our stock trading at prices that are significantly lower than expected. Public companies with relatively small market capitalizations generally have difficulty generating institutional interest, research coverage, and trading volume. This illiquidity can translate into price discounts as compared to industry peers or to a stock’s inherent value. We believe that the market perceives us to have a relatively small market capitalization. This has led and could continue to lead to our stock trading at prices that are significantly lower than our estimate of its inherent value. As of July 15, 2026, we had 12,662,784 shares of common stock outstanding and we estimate that approximately 34% of such shares were beneficially owned by entities who each owned more than 5% of the outstanding shares of our common stock. Sales of substantial amounts of our stock in the public market by any of these large holders could adversely affect the market price of our stock, especially in light of the limited trading volumes. The market price of our stock may be highly volatile, and the stock market in general can be highly volatile. 23 Fluctuations in our stock price may be influenced by, among other things, general economic and market conditions, conditions or trends in our industry, changes in the market valuations of other companies in our industry, announcements by us or our competitors of significant acquisitions, strategic partnerships or other strategic initiatives, and trading volumes. In addition, our stock is listed on the Nasdaq Capital Market and must meet certain standards to continue to be listed, including a minimum bid price of $1 per share. If we were to lose our listing on Nasdaq, we may face material adverse consequences, such as reduced liquidity. Many of these factors are beyond our control but may cause the market price of our stock to decline, regardless of our operating performance. ITEM 1B. UNRESOLVE D STAFF COMMENTS None. ITEM 1C. CYBERSECURITY Our Board of Directors (the “Board”) recognizes the importance of cybersecurity and safeguarding our information systems and data assets. It is imperative that we maintain the trust and confidence of our customers, business partners and employees. Protecting our data and the data of our customers, business partners and employees is critical to maintaining that trust. As such, the Board is actively involved in overseeing our cybersecurity risk management program. Risk Management and Strategy We manage cybersecurity risks as part of our broader enterprise risk management framework, which allows us to leverage existing, robust processes for assessing the effectiveness and coverage of our controls. Our cybersecurity policies, standards, processes and practices are based on recognized frameworks established by the National Institute of Standards and Technology, the International Organization for Standardization and other applicable industry standards. We seek to address cybersecurity risks through a comprehensive, cross-functional approach that is focused on preserving the confidentiality, security, and availability of the information we collect and store, including information regarding our customers, suppliers and employees. As part of our enterprise risk management program, we actively work to identify, prevent, and mitigate cybersecurity threats, and take steps to be prepared to effectively respond to cybersecurity incidents when they occur. Our approach includes using select third-party resources, including external cybersecurity consultants, auditors, and technologies, along with our internal staff, to benchmark, measure, and improve our cybersecurity risk management systems and processes, and ensure alignment with industry best practices. We have established a robust cybersecurity governance framework to manage and mitigate risk. Our approach includes: • Security Operations Program - a security operations program to bolster real-time cybersecurity incident detection and response capabilities; • Third-Party Risk Management – regular evaluation and monitoring of our network of external partners, vendors, suppliers and service providers, which includes monitoring of third parties, securing vendor remote access, and implementation of protections against cyber threats that may arise through business-to-business system integrations; • Security Control Framework - a security control framework that aligns with industry-accepted best practices and prioritizes implementation of critical cybersecurity controls; • Incident Response Plan - a cybersecurity incident response plan, designed to effectively address cybersecurity incidents while promoting cross-functional coordination across the organization; • Assessments – annual cybersecurity assessments, administered by a third-party specialist, which focus on identifying and remediating vulnerabilities that present the most significant organizational risks; • Training - security awareness training for all salaried personnel that highlights critical organizational risks through monthly phishing simulation campaigns, “lunch and learns,” and annual cybersecurity learning modules; • Insurance - cybersecurity insurance policies and periodic reviews of our policies and coverage levels; and • Monitoring Legal/Regulatory Developments - review of emerging data protection, data privacy, and other relevant cybersecurity laws and regulations to determine appropriate changes to cybersecurity controls and processes. Through the aforementioned processes, we did not identify risks from current or past cybersecurity threats or cybersecurity incidents that have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial condition. However, we face ongoing risks from certain cybersecurity threats that, if realized, are reasonably likely to materially affect 24 business strategy, results of operations, or financial condition. See “Risk Factors—Increasing dependence on information technology systems comes with specific risks, including cybersecurity breaches and data leaks, which could have an adverse effect on our business.” Governance Our Board of Directors has delegated to its Audit Committee primary responsibility for overseeing our management of risks arising from cybersecurity threats. The Audit Committee receives quarterly presentations on our cybersecurity program, including regular presentations regarding our cybersecurity risks ; our efforts to address evolving standards; vulnerability assessments, including results of third-party penetration testing; and external audits of our cybersecurity IT controls. Management and the Board also receive prompt and timely information regarding any significant or potentially significant cybersecurity incident and our remediation efforts. Our Vice President of Information Technology and our Director of Technical Infrastructure, in coordination with management, work to implement our program to protect the company’s information systems from cybersecurity threats. These individuals work to promptly evaluate and address any cybersecurity incidents, and work with management to assess the impact and any necessary remediation efforts following a cybersecurity incident. In addition, the Vice President of Information Technology provides updates to the Audit Committee and the Board on a regular basis and as needed in response to specific incidents. To facilitate the success of our cybersecurity risk management program, we have assigned our Director of Technical Infrastructure and his team to monitor the prevention, detection, mitigation and remediation of cybersecurity threats and incidents in real time and provide reports to management. Our Vice President of Information Technology and Director of Technical Infrastructure have a combined 65 years of experience designing, implementing, and supporting information technology systems with a security-first mindset. In particular, prior to joining Culp, our Director of Technical Infrastructure gained experience leading cybersecurity teams at a managed security service provider, where he provided cybersecurity support to outside organizations. 25 ITEM 2. P ROPERTIES As of the end of fiscal 2026 (May 3, 2026), we leased our corporate headquarters and a design and innovation campus located in High Point, North Carolina. In addition, we owned or leased six facilities associated with our bedding and upholstery operations. The following is a list of our administrative and production facilities. Our facilities listed below are organized by segment. Location Principal Use Approx. Total Area (Sq. Ft.) Expiration of Lease (1) ● Administrative: High Point, North Carolina Upholstery and shared service offices 18,960 2033 High Point, North Carolina Design and innovation campus, showrooms, and executive offices 21,261 2043 ● Bedding: Stokesdale, North Carolina Manufacturing and headquarters office (2) 299,163 Owned Stokesdale, North Carolina Distribution center (2) 220,222 Owned Ouanaminthe, Haiti Manufacturing 83,579 2026 (3) ● Upholstery: Burlington, North Carolina Design center 13,750 2026 Shanghai, China Warehouse and offices 68,677 2026 Shanghai, China Warehouse and offices 89,861 2026 (1) Includes all options to renew, except as noted in footnote 2 below. (2) During fiscal 2026, we closed leased facilities in Burlington, North Carolina, and Knoxville, Tennessee, each operated by our upholstery segment, and transitioned their production and distribution activities to a shared management model within our owned facility located in Stokesdale, North Carolina, which had historically been operated solely by our bedding segment. Refer to Note 10 of the consolidated financial statements for further details and description of our restructuring activities. (3) This lease agreement has an unspecified number of renewal options available, and the year listed above is the expiration of the current lease term. We believe that our facilities are in good condition, well-maintained, suitable, and adequate for present utilization. In the upholstery segment, we have the ability to source upholstery fabric from outside suppliers to meet current and expected demand trends and further increase our output of finished goods. This ability to source upholstery fabric is part of our long-term strategy to have a low-cost platform that is scalable, but not capital intensive. In the bedding segment, we believe we have sufficient capacity to meet current and expected demand trends, but we also source certain fabrics from outside suppliers and have the ability to source additional bedding fabrics from outside suppliers to further increase our ultimate output of finished goods. ITEM 3. LEGA L PROCEEDINGS There are no legal proceedings to which the company, or its subsidiaries, is a party to or of which any of their property is the subject that are required to be disclosed under this item. ITEM 4. MINE SA FETY DISCLOSURE Not applicable. 26 PART II