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Culp Inc. (NYSE:CULP)
Q4 2018 Earnings Conference Call
Jun. 14, 2018 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the Culp's fourth-quarter 2018 earnings conference call. Today's conference is being recorded. At this time, for opening remarks and instructions, I would like to turn the call over to Ms. Dru Anderson. Please go ahead, ma'am.

Dru Anderson -- Investor Relations

Thank you. Good morning, and welcome to the Culp conference call to review the company's results for the fourth quarter and fiscal 2018. As we start, let me state that this morning's call will contain forward-looking statements about the business, financial condition and prospects of the company. Forward-looking statements are statements that include projections, expectations or beliefs about future events or results or otherwise, are not statements of historical fact.

The actual performance of the company could differ materially from that indicated by the forward-looking statements because of various risks and uncertainties. These risks and uncertainties are described in our regular SEC filings, including the company's most recent filings on Form 10-K and Form 10-Q. You are cautioned not to place undue reliance on forward-looking statements made this morning, and each such statement speaks only as of today. We undertake no obligation to update or revise forward-looking statements.

In addition, during this call, the company will be discussing non-GAAP financial measurements. A reconciliation of these non-GAAP financial measurements to the most directly comparable GAAP financial measurement is included as a schedule to the company's 8-K filed yesterday and posted on the company's website at culp.com. A slide presentation with supporting summary financial information and additional performance charts are also available on the company's website as part of the webcast of today's call. With that, I will now turn the call over to Frank Saxon, president and chief executive officer.

Please go ahead, sir.

Frank Saxon -- President and Chief Executive Officer

Thank you, Dru, and good morning, everyone. And thank you for joining us today. I'd like to welcome you to the Culp quarterly conference call with analysts and investors. With me on the call today is Ken Bowling, our chief financial officer.

I'll begin the call with some brief comments and then Ken will review the financial results for the quarter. And I will then update you on the strategic actions in each of our operating segments. After that, Ken will review our first-quarter outlook, and then we'll be happy to take your questions. We were pleased to finish fiscal 2018 with higher sales for Culp, reflecting growth in both of our businesses.

While we had some challenges in the fourth quarter, our mattress fabric division had another record year of overall sales. Our upholstery fabrics division finished the year with strong note as well, and we are encouraged by the sales trends in that business. Our results for the year reflect consistent execution of our product-driven strategy in both businesses, with a relentless focus on design, creativity and product innovation. Our ability to offer a diverse product mix and reach new market segments has been a key differentiator for Culp in the marketplace.

We have realized the benefits of our substantial investments in our mattress fabric business, with enhanced production capabilities and improved efficiencies, supported by excellent customer service. We have continued to diversify both our product and customer mix in upholstery fabrics with favorable results. And we recently completed the strategic acquisition of Read Window Products to support and expand our capabilities in the growing hospitality market. We are especially pleased today to announce that we have taken a majority interest in eLuxury, an e-commerce company focused on home textile.

This strategic partnership substantially expands our addressable market and adds an exciting new sales channel for us. I will have more comments on this transaction in a moment. As we look ahead to the new fiscal year, we are facing a significant challenge with the growth of Chinese-imported mattresses and its effect on fabric orders from many of our customers. We are aware of actions being considered by the industry to address this situation in the near term, and we are optimistic that these actions will be successful later in our fiscal year.

Despite the short-term challenges in the bedding industry, we are confident Culp is well positioned for the long term, with expanding sales channels and markets, outstanding product development capability, a highly competitive global manufacturing platform and a strong balance sheet. I'll now turn the call over to Ken who will review the financial results for the quarter and the year.

Ken Bowling -- Chief Financial Officer

Thank you, Frank. As mentioned earlier on the call, we have posted slide presentations to our Investor Relations website to cover key performance measures and our capital allocation strategy. We have also posted slides that highlight our eLuxury investment. Here are the financial highlights for the fourth quarter.

Net sales were $78.2 million, up 1% compared with the prior year. Pretax income for the fourth quarter was $6.5 million, down 7.6% compared with the prior-year period. Pretax income margin was 8.3% compared with 9% a year ago. Divisional gross profit pressures, which we will cover in more detail shortly, were somewhat offset by a significant reduction in SG&A expenses due to much lower incentive compensation cost as compared to the previous year.

Net income for the quarter under GAAP was $12.7 million or $1 per diluted share compared with $6.2 million or $0.49 per diluted share last year. The results for the fourth quarter include a net income tax benefit of $8 million that pertains to requirements under the Tax Cuts & Jobs Act or tax reform and a settlement of an IRS exam. Adjusted net income, a non-GAAP measure that excludes the impact of tax reform for the quarter, was $4.7 million or $0.37 per diluted share. Looking ahead to next fiscal year, we estimate that our consolidated effective income tax rate will be in the range of 26% to 29%.

These rates are subject to revisions to our provisional estimates made in connection with tax reform. Importantly, as part of tax reform, we elected out of use in our NOLs to offset the benefits for our repatriation tax in order to fully utilize our foreign tax credits. As a result, we have approximately $7 million in NOLs to apply against fiscal 2019 US taxable income. This fact, coupled with lower corporate income tax rate and the ability to immediately expense all US capital expenditure starting this fiscal year, is expected to result in minimal U.S. cash taxes paid in fiscal 2019 based on the fact and circumstances we know today. Trailing 12-months adjusted EBITDA was $36.4 million or 11.2% of sales compared with $40.1 million for the same period a year ago. Annualized consolidated return on capital was 25% compared with 32% a year ago. Now let's take a look at our two businesses.

The mattress fabrics sales were $46.5 million, down 4.7% compared with last year's fourth quarter. Operating income was $6.1 million compared with $7.2 million a year ago, with an operating income margin of 13.1% compared with 14.6% a year ago. Frank will provide more color on mattress fabrics sales in a minute. Operating income was primarily pressured by lower sales, which impacted manufacturing efficiencies and fixed costs absorption, offset somewhat by lower incentive compensation expenses in SG&A.

Annualized return on capital for mattress fabrics was 29%. For upholstery fabrics, sales for the fourth quarter were $31.7 million, up 11% over the prior year. Operating income was $2.2 million for the quarter compared with $2.5 million last year's fourth quarter. Operating income margin was 6.9% compared with 8.8% for last year.

Operating income and margins were impacted by unfavorable currency exchange rates in China and pressure coming from losses associated with our US operation located in Anderson, South Carolina. Annualized return on capital for the upholstery fabrics business was 64%. Here are the balance sheet highlights. As of the end of fiscal 2018, we reported no outstanding balance on our lines of credit and $54.5 million in total cash and investments, up slightly from a year ago.

For the fiscal year, we spent $11.8 million on capex, including vendor-financed payments, funding an acquisition and investment in Haiti for a combined $5.2 million and returned $6.8 million to shareholders in regular and special dividends. The company did not repurchase any shares this fiscal year, leaving $5 million available under the current repurchase program. With that, I'll turn the call back over to Frank.

Frank Saxon -- President and Chief Executive Officer

Thanks, Ken. I will start with mattress fabrics. Our results for the fourth quarter reflect more challenging market conditions, with soft demand trends across the bedding industry, and we are starting to realize the impact of the lower-priced imported mattresses from China. Despite these headwinds late in the fiscal year, we are still pleased to report another year of solid annual sales in this business.

Having a favorable product mix of mattress fabrics and sewn covers across most price points and style trends has supported our diversification strategy with favorable results. Importantly, CLASS, our mattress cover business as it's called, has allowed us to develop new products with our core customers and to reach new customers and additional market segments, especially the boxed bedding space. In addition, our new line of bedding accessories marketed under the brand name, Comfort Supply Company by Culp, will further extend our market reach, and we expect sales to begin this fiscal year in that new venture. We are also pleased to achieve these results during a period of major transition across all of our production facilities during the year.

With the substantial investments and significant changes in our operations in fiscal 2017 and '18, we have enhanced our ability to serve our customers. Our operating results for the year were affected by the production disruptions in costs associated with these changes, including one-time moving expenses and transition costs. However, going forward, we have a sustainable production and distribution platform that will favorably position Culp for the long term. Fiscal 2018 was a transformational year for our mattress fabric business with many operational accomplishments.

We believe the investments we have made in our global platform and our strategic initiatives will further enhance our competitive position in the industry. While the recent softness in market conditions has prevailed through early summer due to the increasing impact of Chinese-imported mattresses, we remain optimistic about our long-term growth prospects. As noted in our press release, we signed a definitive agreement for Culp to become a majority owner in eLuxury, an Internet company offering bedding accessories and home goods direct to consumers, whose primary products include a line of mattress pads manufactured at eLuxury's facility in Evansville, Indiana. We expect to close this transaction in 30 days.

eLuxury also offers handmade platform beds, cotton bed sheets, and other bedding items. eLuxury's revenue is on a current run rate of $22 million for the calendar '18, excluding some related businesses, with EBITDA expected to be slightly positive for the same period. Their products are available on eLuxury's own branded website, eLuxury.com, Amazon and other leading online retailers for specialty home goods. This investment will provide us with the new sales channel in the bedding accessory category and expand our opportunity to participate in the rapidly growing e-commerce direct-to-consumer space.

This business combination brings together eLuxury's experience in e-commerce, online brand building and direct-to-consumer shopping and fulfillment expertise with Culp's extensive global production, sourcing, product development and distribution capability. We also have an opportunity to market our new line of bedding accessories from Comfort Supply and other finished goods that we may develop, including items made from upholstery fabrics through this e-commerce platform and extend our market reach to consumers. We are very excited to work with Paul Saunders, a successful entrepreneur who has built a great business, and we look forward to having his associates as partners with the Culp team. We strongly believe our companies share similar values and a common business culture centered around product excellence and exceptional customer service.

Now I'll turn to upholstery fabrics. We are pleased with the strong finish to fiscal 2018, with higher-than-expected upholstery fabric sales for the quarter. Our performance reflects the strength of our product mix, led by continued growth in LiveSmart, our popular performance line of highly durable, stain-resistant fabrics. For the full year, we saw annual growth in sales over last year, reversing multiyear trends of lower annual sales.

Throughout the year, we have pursued a product-driven strategy, with a sustained focus on innovation and creative designs, supported by our substantial manufacturing global platform. Notably, we had favorable sales trends with both our residential and hospitality market customers. Although fiscal 2018 sales were up, our operating results were slightly lower, primarily due to unfavorable currency exchange rates in China, particularly in the second half of the year. We've also seen a decline in sales for products manufactured in our US-based operation in Anderson, South Carolina.

This decline reflects changing consumer-style preferences and related customer demand. For fiscal 2018, products from the Anderson facility accounted for about 6% of total upholstery fabric sales. With the declining volumes, this operation has reached a level where we determined it is not sustainable to continue. Therefore, we will be closing the Anderson facility and expect to cease production by the end of our second quarter, October 30.

During this transition period, we will work closely with our customers to fulfill any outstanding orders, and we also intend to develop alternative fabrics supplied from other Culp locations to ensure their needs are met. We appreciate the hard work and dedication of our loyal associates and the community of Anderson for its many years of support for Culp. As previously announced, during April, we completed the acquisition of Read Window Products, a source for custom window treatments and other products for the hospitality and commercial industries. The addition of window treatments and other soft goods to our product line will allow Culp to be a more complete source of upholstery fabrics for the hospitality market.

We believe there are significant growth opportunities in this market segment in the years ahead. And we have a great opportunity to combine Culp's outstanding design and global production capabilities with Read Window's expertise and strong customer relationships. We welcome Dale Read and his team to Culp as we integrate Read's operations and extend our market reach in the growing hospitality market. Ken will now review the outlook for the first quarter, and then we'll take your questions.

Ken Bowling -- Chief Financial Officer

At this time, we expect overall sales to be approximately 10% lower as compared with the first quarter of last year. With ongoing uncertainty in the mattress industry, we expect first-quarter sales, operating income, and margins in our mattress fabric business to be significantly lower than the first quarter of last fiscal year, as we continue to battle soft demand trends due to the increasing impact of imported mattresses from China. Looking ahead to the remainder of fiscal 2019, we are optimistic that the actions being considered by the industry in the near term to address this situation will be successful. Assuming such action is successful and factored in the incremental sales from the eLuxury partnership, we expect sales and operating performance for the remainder of fiscal 2019 to be positively affected by these events especially in the second half of the fiscal year.

In our upholstery fabrics business, we expect first-quarter sales to be moderately higher compared with the first quarter of last year due to the Read Window Products acquisition. We believe the upholstery fabric segment's operating income and margins will be down from the same quarter of last year, primarily due to continued pressure from unfavorable currency exchange rate in China and the impact of closing the Anderson facility. Looking ahead to the remainder of the fiscal year, particularly the second half, we are currently projecting improving results on a comparable basis. This projection is based on business expectations, the impact of the Anderson plant closing, contributions from Read Window's products and a more stable currency exchange rates.

Considering these factors, we expect before pre-tax income for the first quarter of fiscal 2019 in the range of $3.8 million the $4.8 million. Pretax income for last year's first quarter was $6.7 million. Based on our current budget, the capital expenditures for fiscal 2019 are expected to be in the range of $6 million to $7 million, as we move to a more maintenance level of capital expenditures. Depreciation and amortization for fiscal 2019 is expected to be approximately $9 million.

With that, we will take your questions. 

Questions and Answers:

Operator

Thank you. [Operator instructions] We can now take our first question. It comes from Bud Bugatch of Raymond James. Your line is open, please go ahead.

Bud Bugatch -- Raymond James -- Analyst

Good morning, Frank. Good morning, Ken. I have a couple of question.

Frank Saxon -- President and Chief Executive Officer

Good morning, Bud.

Bud Bugatch -- Raymond James -- Analyst

eLuxury, can you give us a little bit of a color as to how the inside, the operating statement looks in terms of gross margin and the operating expense? Talk about its growth profit level.

Frank Saxon -- President and Chief Executive Officer

Bud, at this point, what we've disclosed is the -- last year is around the EBIT breakeven level, as you know. And at this point, we -- I don't think have a good enough handle on this gross profit SG&A due to classifications, and I don't think I would be comfortable breaking that out at this point.

Ken Bowling -- Chief Financial Officer

OK, I would agree.

Bud Bugatch -- Raymond James -- Analyst

OK. And where are you going to report it? Is it going to be reported inside mattress or is there going to be a separate segment? Or how are you going to consolidate it?

Frank Saxon -- President and Chief Executive Officer

It will be reported as part of the mattress fabrics segment, and principally because of the bedding accessories focus of that business.

Ken Bowling -- Chief Financial Officer

Correct.

Bud Bugatch -- Raymond James -- Analyst

OK. You do talk about the fact that the mattress fabrics in the first quarter looked like they'll be down significantly. If I do the math on that, it looks like it's down about 25% to 30% of the sales line. Is that a reasonable guess?

Frank Saxon -- President and Chief Executive Officer

Twenty to 25%. I would say, 20% to 25%. Yes.

Bud Bugatch -- Raymond James -- Analyst

OK. So that would make -- and including in the -- the upholstery segment includes Read, how much is the Read addition to the upholstery's outlook? [Inaudible] in other words...

Frank Saxon -- President and Chief Executive Officer

It's running about a $12 million -- $12 million annual run rate, so $2.5 million to $3 million in Q1.

Bud Bugatch -- Raymond James -- Analyst

OK. So excluding that, excluding Read, then essentially, it's just up a little bit -- including -- and that would still include Anderson, right? That will still get reported as revenues?

Frank Saxon -- President and Chief Executive Officer

That is correct. Yes.

Bud Bugatch -- Raymond James -- Analyst

OK. And when will you book a restructuring charge? Or will there be any restructuring and other severance type charges that you'll book? I know the severance will have to be -- have to wait, but what's the restructuring outlook?

Ken Bowling -- Chief Financial Officer

Yes, Bud, this is Ken. We're going to be evaluating that as we work with our customers. So probably as we near the end of the first quarter, we'll be able to evaluate how much inventory we have and need for the remainder of the time. The way it's planned right now, the way we have it to run out, we'll have the severance costs and all that, we'll probably booked at the very end, which will be in the second quarter.

And then as it stands now, the live assets, the fixed assets are looking to be, basically, probably be able to get funds exceeding that value. So I'd say right now, it looks like we'll have some charges in the first and then some charges in the second quarter.

Bud Bugatch -- Raymond James -- Analyst

Right. OK. And lastly for me on that, you talked about Anderson getting -- coming out, and that's obviously been a disappointment that you have to close that. What do you think the operating margin target then for upholstery looks like after Anderson? What do we think that can be?

Frank Saxon -- President and Chief Executive Officer

The effect of the Anderson results in fiscal '18 just ended affected our annual results by about $1 million on sales for that operation. So we will have, obviously, continuing losses for Q1 and some in Q2 until we close the facility, but we expect a nice benefit on the second half of the year with the elimination of those losses. We've given that product line and product category probably more time than we should have in retrospect, but we really wanted, Bud, as you and I have talked many times, we wanted to keep a US facility if there was any way possible. And it's just not going to be possible.

The customers are not wanting to buy as much from the US products as they do other locations like China. And the products out of that plant, the velvets, was a category that just is not in style nearly as much. So, unfortunately, we had to reach a decision to close the facility. We bought that facility in 1985.

And while it's the right thing to do, of course, from a business standpoint, nonetheless, it's a tough day when you have to do these kinds of things. But it will contribute nicely to the second half of our year in upholstery fabrics, and it will contribute meaningfully.

Bud Bugatch -- Raymond James -- Analyst

Just to make sure I understand. You're saying you had a $1 million drag on an EBITDA or an EBIT loss on about $7 million or $8 million worth of the sales out of Anderson last year?

Frank Saxon -- President and Chief Executive Officer

That's correct, Bud. That is correct.

Bud Bugatch -- Raymond James -- Analyst

OK. I gotcha. That's -- I understand how tough that is. You talked about the fact that you're hearing things about things in the industry.

We are, too. Any venture on timing as to when something might be formally filed?

Frank Saxon -- President and Chief Executive Officer

I mean, you may be more up to date on these things than I am, but we hear in the -- around the August 1 time frame, late July to mid-August kind of time frame. It's what we're hearing. And the good news, and Bud, you may comment on this because you know a lot about this, that the impact of a filing of some anti-dumping filing can be fairly quickly. A preliminary ruling by the Department of Commerce is very likely to be no more than 45 to 60 days from the filing date.

And at that time, preliminary duties are assessed, and we understand beginning -- the duties begin accruing at that date. So under that kind of time frame, what we're looking at is certainly effect in Q1 and Q2, but potentially a look good bit better in our second half of the year. Budd, you may comment as well from what you're hearing and your knowledge of these proceedings.

Bud Bugatch -- Raymond James -- Analyst

I've just -- I will defer to you. You're not -- you can't be a party to it, though, is that correct? You can't be a party to the filing?

Frank Saxon -- President and Chief Executive Officer

We cannot be a -- that's correct. We can only be producers in the US. And we also understand the majority of the participants, a very high percentage of domestic producers are a part of the petition, which also helps the strength of the case. Unfortunately, we also are hearing and seeing -- you issued a report yesterday that, unfortunately, the Chinese-imported mattresses are accelerating into the calendar Q2.

But while that's painful short term, it probably does mean a higher duty rate could be shown at the preliminary ruling stage. And obviously, the higher the duty rate that the Department of Commerce sets, the better for the industry.

Bud Bugatch -- Raymond James -- Analyst

OK. But, obviously, I'm curious as to -- if CLASS gives you the opportunity to be a part of a filing.

Frank Saxon -- President and Chief Executive Officer

No, it does not. This is a -- as we understand, the scope is domestically produced mattresses, not the fabric or mattress covers at all. Now it's possible that -- it's possible, Bud, that our -- that the -- if the industry would like some of our data to help the case, we're certainly willing to provide that, but we cannot be part of the petition, is my understanding. And it's really not needed, [Inaudible] of the producers ended it already.

Bud Bugatch -- Raymond James -- Analyst

Gotcha. And your -- and mattress is going to be impacted. Is CLASS more impacted for you than your legacy products?

Frank Saxon -- President and Chief Executive Officer

That's a good question. We are affected by both. The bed and the box folks had equally been affected by these imported mattresses as what you might call the traditional players. Both are affected.

I think there's -- when I look at our numbers, too, I think with the -- what apparent acceleration of the imported situation in Q2, calendar Q2, I think we're also feeling the effect of some inventory adjustments from customers in the first quarter, as they don't order as much because they've already got inventory. That should work its way through by the end of Q1.

Bud Bugatch -- Raymond James -- Analyst

Gotcha. Understood. Thank you very much. I'll let others ask question.

Frank Saxon -- President and Chief Executive Officer

Fine.

Operator

Thank you. [Operator instructions] We can then move along to our next question. It comes from Marco Rodriguez of Stonegate Capital Markets. Your line is open, please go ahead.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Good morning, guys. Thank you for taking my questions. Just kind of a bit of a follow-up here on the mattress fabrics with the impacts you guys are seeing with the Chinese imports. Is there any way that you can kind of quantify the impact you saw there in Q4 on the revenue side and on the margin side as well?

Frank Saxon -- President and Chief Executive Officer

Our revenues for the fourth quarter were down in that segment 4.7%. So that's -- and that was due to the imported mattress situation across our customer base. And you saw our margins in that segment were down about a little over 100 basis points. So it started affecting us than seeing it, but it has accelerated -- the unit impact is affecting us more.

But I think one thing to keep in mind for Culp is that we are very pleased that even with the impact in the first quarter, which we're not happy with at all, but it is what it is, we're still going to achieve a pretty darn good operating margin on a sales decline of a 20% to 25%. We're very likely to be nine -- 8%, 9%, maybe 10% operating margin for Q1 even with sustaining this kind of unit volume. So we have got a very profitable business that we built over time. And Marco, this Chinese mattress imported situation will pass.

We strongly believe this is short term. We've seen other similar things in other industries get handled, and we will -- we strongly believe it is short term, and we will start to see benefit and return to some kind of normalcy in the second half of our fiscal year.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Understood. And just to also kind of follow back up here on a prior question on the timing of the antidumping filing. I believe you mentioned a July, August kind of time frame. So I'm assuming or I'm just trying to, I guess, kind of understand how quickly you think your Q2 revenues can kind of -- assuming that the filing or everything gets done here by August, how quickly things can kind of return to a normalcy, if you will?

Frank Saxon -- President and Chief Executive Officer

If we -- if a filing would occur, let's say, between August 1 and August 15. 21 days from the filing date, the lawyers for the industry will meet with the Department of Commerce. Then 45 to 60 days from the filing date, which would put that mid to late September, maybe early October, we are told that the Department of Commerce will issue a preliminary ruling and establishment of preliminary duty. We're also told, and we're far from experts, but what we hear is that there can be some impact, favorable impact in reducing upon the filing of the petition because duties do begin to improve after the preliminary ruling.

We hear the significant impact occurs at the preliminary filing, right after that preliminary filing. So it's certainly possible that we're going to see some reduction, some benefit. And our customers have some relief in our second fiscal quarter and in October. I think more likely, it's going to be Q3 and Q4.

Some of these orders probably are 30, 60-day orders, and then some of that may need to run off as well.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Gotcha. OK. And so just also to be clear here. On fiscal '19 expectations for mattress fabrics, if we're excluding the fact that, obviously, eLuxury has not closed yet.

But assuming -- if you kind of exclude that revenues for fiscal '19 for mattress fabrics should be down probably somewhere in the mid-single digits or so. Is that fair?

Frank Saxon -- President and Chief Executive Officer

I think what our expectation, as we've said in our remarks, that we will see positive impacts in our second half of the year from eLuxury in sales and profitability. We'll also see favorable results from a reduction in import, imported mattresses, which will obviously affect our customers, and we will have more orders in the second half. It is still possible that the second half of our year could be equal to the second half of the year just ended. So we're going to see a rebound in the second half, it just depends on probably those two factors, also depends on the overall industry demand, in general, for it.

But certainly, our goal is to get second half of the year rebounded and comparable to last year.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Gotcha. And were the SG&A expenses -- in the mattress fabrics segment, were they held at an abnormally lower level just given the fact that you've got those impacts going around? Or were -- or people let go, anything of that nature?

Frank Saxon -- President and Chief Executive Officer

You mean in the mattress fabrics business?

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Yes, yes.

Frank Saxon -- President and Chief Executive Officer

Yes. No, that was reduced incentive compensation. As we've said before, we base our incentive compensation on EVA, and their performance for the fourth quarter did not meet expectations, and so it was -- we had to adjust downward.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Gotcha. OK. And last quick question, just here on the upholstery side, just making sure I heard this correctly. So about $1 million impact from the Anderson plant to Q4 operating income.

So obviously, then had you not had that issue, it probably would have been somewhere in the $3 million range or so?

Frank Saxon -- President and Chief Executive Officer

So Marco, that's for the full year.

Ken Bowling -- Chief Financial Officer

Yes.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Oh, for the full year?

Frank Saxon -- President and Chief Executive Officer

Full year.

Ken Bowling -- Chief Financial Officer

Yes.

Frank Saxon -- President and Chief Executive Officer

And upholstery fabric are in just under $11 million for the year in operating income. So not excluding Anderson, it was $12 million, even with the currency unfavorable impact during the year. So pretty darn good performance once you start carving out that.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

OK. And so would FX account for the remaining impact that you saw, at least with the gross margin level there in Q4 for the -- on the upholstery side? Or were there other factors?

Ken Bowling -- Chief Financial Officer

Well, Anderson is including that. Yes, that's FX.

Frank Saxon -- President and Chief Executive Officer

Right. Right.

Ken Bowling -- Chief Financial Officer

That's the vast majority of the others -- of the side of that impact.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Gotcha. OK. Great. Thank you, guys.

I appreciate your time.

Frank Saxon -- President and Chief Executive Officer

All right. Thank you.

Operator

Thank you. We have no further questions at the present. [Operator instructions] Thank you.

Frank Saxon -- President and Chief Executive Officer

All right. Thank you, operator. And again, thank you, everyone, for your participation and your interest in Culp, and we look forward to updating you at the end of our next quarter. Have a good day.

Operator

[Operator signoff]

Duration: 39 minutes

Call Participants:

Dru Anderson -- Investor Relations

Frank Saxon -- President and Chief Executive Officer

Ken Bowling -- Chief Financial Officer

Bud Bugatch -- Raymond James -- Analyst

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

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