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Culp Inc (NYSE:CULP)
Q4 2021 Earnings Call
Jun 17, 2021, 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 2021 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, 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 2021. 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 that 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 10-Q. You are cautioned not to place undue reliance on forward-looking statements made today, and each such statement speaks only as of today. We undertake no obligation to update or to 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 in either the tables to the press release included as an exhibit to the company's 8-K filed yesterday and posted on the company's website at culp.com or in the slide presentation with supporting summary financial information that is also available on the company's website as part of the webcast of today's call.

I will now turn the call over to Iv Culp, President and Chief Executive Officer of Culp. Please go ahead, sir.

Robert G. Culp IV -- Chief Executive Officer

Good morning, and thank you all for joining us today. I would like to welcome you to the Culp quarterly conference call with analysts and investors. With me on the call today are Ken Bowling, our Chief Financial Officer; and Boyd Chumbley, President of our Upholstery Fabrics business. I will begin the call with some opening comments, and Ken will then review the financial results for the quarter and the full year. I will then update you on the strategic actions in each of our operating segments. And after that, Ken will review our first quarter and fiscal 2022 full-year business outlook. We will then be happy to take your questions.

We are pleased to have delivered a strong fourth quarter with dramatic sales growth across both our divisions and consolidated operating income, in line with expectations. Despite some ongoing headwinds, we ended a tumultuous year with strength and momentum. Demand remained strong during the quarter as consumer focus on the home continued and our robust global platform utilizing our manufacturing and sourcing capabilities across six countries and our long-term supplier relationships enabled us to service the surge in demand for fabric and sewn covers from both new and existing customers.

For the full year, we have retained tremendous adversity to deliver strong growth in sales and operating performance compared to the prior year. Our company's solid foundation, stable supply chain and spirit of innovation helped us to successfully weather the initial pandemic-related downturn in our business at the end of last fiscal year and capitalize on market share opportunities throughout fiscal 2021. The exceptional execution by both divisions during this challenging operating environment strengthened our customer relationships and generated positive momentum to start fiscal 2022. In addition to our improved sales and operating performance, our cash flow for the year and our balance sheet remained strong. We ended the fiscal year with $46.9 million in total cash and investments and no outstanding debt.

Our existing Haiti operations have performed very well for our mattress fabric segment during fiscal 2021. As previously reported, we acquired the remaining 50% ownership interest in our former unconsolidated joint venture in Haiti during the fourth quarter, and we are now the sole owner with full control of this mattress cover operation. With respect to this acquisition, we reported a gain from bargain purchase totaling $819,000.

We are also happy to announce an additional expansion to our Haiti operations to include a third facility. This new building will be dedicated to production of cut-and-sewn upholstery kits. Construction began during the fourth quarter and is expected to be complete during the second quarter of fiscal 2022. The new facility will primarily support committed demand from an existing customer of the upholstery fabrics division. We believe this move will enhance our speed-to-market, provide growth opportunities and mitigate some risk for our upholstery fabrics business with near-shore capabilities that complement our already strong Asian platform.

Importantly, we finished the year as a stronger company both operationally and financially, thanks to extraordinary efforts and resilience of our associates around the world. We are extremely proud of their hard work, adaptability and perseverance in the face of unique challenges and uncertainties. We are grateful for their unwavering dedication and tremendous accomplishment during this challenging time.

Looking ahead, we are entering fiscal 2022 with a positive outlook for our business. We are proud of our ability to absorb the significant increase in demand during fiscal 2021, and we are even more pleased about the outlook that supports our continued growth during fiscal 2022. We also believe our hospitality business will begin to see improvement as conditions normalize in the travel and leisure industry.

Heading into the first quarter, we are faced with some continued near-term pressures in both divisions relating to ongoing customer capacity limitations, primarily due to supply chain disruption for non-fabric components and labor shortages, as well as increasing raw material and freight costs and foreign currency fluctuations in China and Canada. We do expect that most of these headwinds are temporary and will be mitigated to some extent by recent pricing actions taken by both divisions, all of which were affected by May 1. Despite these challenges, we believe our business will continue its solid and improved performance during fiscal 2022. We will maintain our focus on innovation, and we will emphasize efforts to increase our market share and make progress on ESG initiatives throughout the year.

On the innovation front, we are excited to advance the tremendous synergies developing between our two businesses by combining our design, innovation and sales team for both divisions into a shared space at our new innovation campus in downtown High Point, North Carolina. This design-driven space will pull our top creative talent together to support collaboration across divisions and provide an everyday space to gather, meet with customers, develop new products and showcase our technologies and innovations from fabric to sewn cover. I'm extremely proud of our company's accomplishments in fiscal 2021. And I'm confident that we are well positioned to deliver value for our customers, employees and our shareholders in fiscal 2022 and beyond.

I'll now turn the call over to Ken who will review the financial results for the quarter and the full year.

Kenneth R. Bowling -- Senior Vice President, Chief Financial Officer and Treasurer

Thanks, Iv. As mentioned earlier on the call, we have posted slide presentations to our Investor Relations website that cover key performance measures. We have also posted our capital allocation strategy. As a reminder, we present our results on both a GAAP and non-GAAP basis. We believe the non-GAAP presentation better reflects performance of the business as we compare our financial results among comparable financial period. A reconciliation of the non-GAAP adjustments in the most directly comparable GAAP measurement is included in the tables in our press release and in the tables at the back of the summary financial information presentation on our website.

Here are the financial highlights for the fourth quarter. Net sales were $79.1 million, up 67% compared to the prior year period. Both divisions had a strong sales performance for the quarter. Iv will go into more detail on divisional and operational performance in a moment. The company reported income from the continuing operations of $1.6 million compared with a loss from continuing operations of $18 million for the prior-year period, which included $13.7 million in non-cash asset impairment charges. Non-GAAP net income from continuing operations for the fourth quarter was $1.4 million or $0.11 per diluted share, which excludes an $819,000 gain on bargain purchase associated with our fourth quarter acquisition of the remaining 50% ownership interest in our former unconsolidated joint venture located in Haiti, as well as $742,000 in certain income tax adjustments for the quarter. This compares with a non-GAAP net loss from continuing operations of $5.3 million or $0.43 per diluted share for the prior-year period, which excludes $13.7 million in non-cash asset impairment charges and $2.8 million in income tax expense.

The current quarter was affected by operating inefficiencies incurred in connection with servicing the surge in demand in our mattress fabrics business, along with higher freight and raw material costs, unfavorable foreign exchange rate fluctuations and higher SG&A expenses, due primarily to increased incentive compensation costs. On a percent of sales basis, total SG&A came in at 12.8% compared to 15.5% for the same period a year ago. For fiscal 2021, net sales were $299.7 million, up 17% as compared to the previous year. Income from continuing operations for fiscal 2021 was $12.1 million compared with a loss from continuing operations of $7.6 million for the prior year, which included $13.7 million in non-cash asset impairment charges.

Non-GAAP net income from continuing operations for fiscal 2021 was $7.3 million or $0.59 per diluted share, which excludes the $819,000 gain on bargain purchase I mentioned earlier, as well as $4.9 million in income tax expense for the year. This also includes $2.2 million in other expense relating primarily to foreign exchange rate fluctuations associated with our operations in China. Notably, the foreign exchange charges included in the other expense line item for this fiscal year are mostly non-cash and are mostly offset by income tax deductible foreign exchange losses associated with our China operations. Non-GAAP net income from continuing operations for the prior fiscal year was $1.2 million or $0.10 per diluted share, which excludes $13.7 million in non-cash asset impairment charge as I mentioned earlier, as well as $1.3 million in income tax expense. It also includes $902,000 in other expense.

The current year was affected by the same factors I noted earlier for the fourth quarter, particularly the unfavorable foreign exchange rate fluctuations and higher SG&A expenses, due primarily to increased incentive compensation costs. On a percent of sales basis, total SG&A came in at 12.6% compared to 13.4% for the prior year. Trailing 12 months adjusted EBITDA for this fiscal year was $18.5 million or 6.2% of net sales compared to $13.8 million or 5.4% of net sales for last fiscal year.

The effective income tax rate for the fourth quarter of this fiscal year was 36.6% compared with 12.2% for the same period a year ago. The increase in the company's effective income tax rate for the fourth quarter for fiscal 2021 is mostly due to the significant US pre-tax loss during the fourth quarter of fiscal 2020 that stemmed from the economic uncertainty and disruption caused by the COVID-19 global pandemic. The effective income tax rate for the full fiscal 2020 year [Phonetic] was 70.7% compared with 43.7% for the prior year. Income tax expense for this fiscal year includes an $8.5 million non-cash income tax charge to record a full valuation allowance against the company's US net deferred income tax assets, partially offset by a $3.6 million non-cash income tax benefit that was associated with the retroactive US Treasury regulations enacted during the first quarter of fiscal 2021 regarding the GILTI tax provisions of the recent Income Tax Reform Act. The prior fiscal year included $1.9 million of GILTI that did not reoccur in fiscal 2021, due to this recent change in GILTI tax regulations.

As a reminder, the company's effective income tax rate is affected over the fiscal year by the mix and timing of actual earnings from our US operations and our foreign subsidiaries located in China and Canada, which have higher income tax rates as compared to the US federal income tax rate. Looking ahead to next fiscal year, we currently estimate that our consolidated effective income tax rate for the first quarter will be in the 30% to 35% range based on the facts we know today.

Now let's take a look at our business segments. For the mattress fabrics segment, sales for the fourth quarter were $42.9 million, up 84% compared with last year's fourth quarter, which was impacted by the COVID-19 pandemic. Operating income for the quarter was $2.3 million compared with an operating income (loss) -- operating loss of $2.8 million a year ago, with an operating income margin of 5.3% compared with a negative 11.8% a year ago. Our operating performance for the quarter, though, dramatically improved as compared to the prior-year period was affected by several factors. We were able to meet the extraordinary increase in customer demand during the quarter, but in doing so, we incurred considerable operating inefficiencies that satisfy this surge. We were also pressured by increased raw material prices, freight costs and unfavorable foreign currency fluctuations in China and Canada. Notably, although we announced a price increase during the fourth quarter to help mitigate higher freight and raw material costs, this action did not take effect until the beginning of fiscal 2022 resulting in a temporary cost price lag that affected our operating performance for the quarter.

For the upholstery fabrics segment, sales for the fourth quarter were $36.1 million, up 50% over the prior year, which was impacted by the COVID-19 pandemic. Operating income for the quarter was $2.6 million compared with $0.5 million a year ago, with an operating income margin of 7.2% compared with 2% a year ago. Our improved operating performance for the fourth quarter primarily reflects the significant increase in sales for our residential business, offset somewhat by unfavorable China foreign exchange rate fluctuations and reduced demand in our upholstery -- in our hospitality business.

Here are the balance sheet highlights. As of the end of the year, we reported $46.9 million in total cash and investments and no outstanding borrowings, up from our $38.7 million net cash position as of the end of last fiscal year. We also generated cash flow from operations of $21.5 million and free cash flow of $14.4 million for the year, compared with cash flow from operations of $5 million and free cash flow of $1.5 million for the prior year. This year-over-year improvement reflects higher earnings and a focused attention on working capital management throughout this fiscal year. During this fiscal year, we spent $6.7 million in capital expenditures and $892,000 in acquisition-related investments. We also returned $5.3 million to shareholders through our regular quarterly dividends.

We are very pleased with our strong balance sheet going into the first quarter of fiscal 2022. On March 2 of this year, the Board of Directors reinstated the company's share repurchase plan, which was previously suspended last April due to the economic uncertainty related to COVID-19 pandemic. The company did not repurchase any shares during the fourth quarter of this fiscal year.

With that, I'll turn the call back over to Iv.

Robert G. Culp IV -- Chief Executive Officer

Thanks, Ken. I will begin with the mattress fabrics business. We were energized about significant growth in top line performance for the mattress fabric segment during the fourth quarter. Our increase in sales of 84% year-over-year compared to the prior year period, as well as our top line growth for the full fiscal year of 20% year-over-year was driven by the ongoing consumer focus on the home environment and market share gains across a diversified group of new and existing customers, including further growth in our sewn mattress cover business. Our fabric-to-cover model as well as our onshore, near-shore and offshore supply chain strategy is preferred. The strength and flexibility of our global manufacturing and sourcing operations in the US, Canada, Haiti, Asia and Turkey enabled us to support strong demand trends and serve the needs of our mattress fabric and cover customers during the fourth quarter and throughout fiscal 2021.

We also continue to benefit from our innovation focus and our virtual design capabilities, including our Re.Imagine Culp Home Fashions 3D rendering services, which allowed us to strengthen our position with customers and capitalize on market share opportunities. In addition, we believe the domestic mattress industry and in turn, our business continued to realize some benefits during the fourth quarter from the preliminary anti-dumping duties imposed in October 2020 by the US Department of Commerce on mattress imports from seven countries. We are cautiously optimistic that this tailwind will continue during fiscal 2022.

As we look ahead into fiscal 2022, we are excited about the expanding depth and expertise of our team with additional engineering and innovation development experience. The importance of mattress product performance has grown exponentially in recent years, and we believe this added knowledge is an important factor of maintaining a competitive advantage. We are also excited about our recent introduction of our new mattress fabric ChillSense powered by REPREVE that combines cooling technology with a sustainability focus and reflects our commitment to developing products that are better for the environment. Although there are lingering pressures heading into fiscal 2022, we believe we are well positioned in mattress fabrics to gain market share, and we expect our solid top line performance to continue at improved profitability levels during the year. We have the ability to leverage our creative designs, innovative products, digital marketing strategies and global production capabilities to enhance our leadership position and sustain Culp's competitive advantage.

I'll now turn for a few comments on the upholstery fabrics segment. We are very pleased by the strong growth in sales during the fourth quarter, up 50% year-over-year; for the full fiscal year, up 14% year-over-year. We successfully navigated the significant headwinds we were facing going into the quarter, including customer supply chain constraints and container availability, as well as the impact of Chinese New Year to deliver better-than-expected results. We executed well on our product-driven strategy and benefited from the strength and flexibility of our platform in Asia, including our stable long-term supplier relationships and our expanded cut-and-sew capabilities in Vietnam. Our growth for the fourth quarter and for fiscal 2021 year was driven by strong industry demand in our residential business, as well as the benefits of market share gains and product innovation. This growth was partially offset by lower sales for our hospitality business, which remained under pressure due to pandemic-related disruptions affecting the travel and leisure industries.

Our highly durable stain resistant, LiveSmart performance fabrics, as well as our LiveSmart Evolve performance plus sustainability fabrics are important drivers of growth in our residential business. These product lines continued to experience strong demand trends amid consumer desire for cleanability, ease of maintenance and environmentally conscious products. Looking ahead, we are confident in our strong backlog and our ability to meet the ongoing demand. We believe our recent price increase at the end of the fourth quarter will help offset the ongoing China foreign exchange fluctuations.

We are also excited to be expanding our capacity for cut-and-sewn upholstery kits with a new production facility in Haiti, which is expected to be completed during the second quarter of fiscal 2022. And while we do expect that certain near-term headwinds, including rising freight and raw material costs may temporarily pressure our business during fiscal 2022, we are confident in our ability to navigate these headwinds and believe our business is well positioned for the long term. We are also cautiously optimistic that pent-up demand for travel and leisure activities will benefit our hospitality business, although the timing of this does remain uncertain. Above all, we remain focused on providing innovative products that meet the changing demands of our valued customers.

Now, Ken will discuss the general outlook for the first quarter and full fiscal year 2022, and we'll then take some questions.

Kenneth R. Bowling -- Senior Vice President, Chief Financial Officer and Treasurer

Although subject to uncertainties, we are encouraged by the execution of our product-driven strategy and the continued strength of demand for home furnishing products, as well as our expanding market share reach. We expect sales for the first quarter of fiscal 2022 to increase approximately 20% compared to the prior year period, and we expect our consolidated operating income for the quarter to be significantly improved as compared to the prior year period and as compared to the fourth quarter of fiscal 2021. For the full fiscal 2022 year, we expect net sales to continue to increase moderately and consolidated operating income to increase significantly as compared to fiscal 2021. Notably, our expectations for the first quarter and full fiscal 2022 year are based on information that is available at the time of this webcast presentation and reflect certain assumptions by management regarding our business and trends. The outlook assumes there will be no further pandemic-related shutdowns and no material changes in freight and raw material costs, foreign currency exchange rates, recent consumer trends or other circumstances beyond the company's control.

Additionally, based on current expectations, capital expenditures for fiscal 2022 are expected to be in the $9 million to $10 million range. Our capital investments were focused on our ongoing strategy of maintenance capex centered in our mattress fabrics business, as well as spending in our upholstery fabrics business with investments in read windows and our new Haiti start-up. At the corporate level, capex spending will include investments in IT infrastructure and security, as well as our new innovation campus in High Point, North Carolina. Depreciation and amortization is expected to be approximately $7.5 million to $8 million for fiscal 2022.

With that, we'll now take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Okay. So we will take our first question from Budd Bugatch, Water Tower Research. Please go ahead. Your line is open.

Budd Bugatch -- Water Tower Research -- Analyst

Good morning, Iv. Good morning, Ken.

Robert G. Culp IV -- Chief Executive Officer

Good morning.

Budd Bugatch -- Water Tower Research -- Analyst

Congratulations on a strong quarter and a nice rebound. Couple of questions, if I could. You talk -- you showed that really good sales growth. Can you give us some feeling of how that's going to continue going forward, and what gives you that confidence?

Robert G. Culp IV -- Chief Executive Officer

Yes, sir. Thank you, Budd. Yes, we talked about in the release. I think I commented -- we mentioned both on the script and the press release [Phonetic] that there's a dramatic sales increase we saw in Q4. And I think about that certainly -- admittedly, it's against a weaker quarter last year. And we have continued -- are continuing to see focus on the home as a safe place and many consumers are seeing home as where these place for upgraded spend. So that's good for our business. Our pandemic backlogs and our customers are strong and really all of our customers are seeing strong backlog, which creates significant tailwinds for us. But more than that, I think going forward, both businesses that we touched on a lot are flourishing innovation and products and processes. That means new products, new developments. It means cut-and-sew development around the world. It's a robust sales mix. That's really, I think, growing our market penetration in both mattress fabrics and upholstery fabrics. So we see a strong year. And I guess, it's important -- we are forecasting a moderate sales growth for all of 2022, but that's on a backdrop of significant sales growth last year. So we absorbed the growth we've had. And now, we're going to continue growing, which gives us quite a bit of optimism.

Budd Bugatch -- Water Tower Research -- Analyst

Let's drill down a little bit into that. You talked about 20% in the first quarter. How does that split out between Culp Home Fashions and Culp Upholstery Fabrics? How do you -- is that equal in terms of rate of growth or it's one better than the other in your crystal ball?

Kenneth R. Bowling -- Senior Vice President, Chief Financial Officer and Treasurer

Yeah. Budd, this is Ken. I think when you look at in the first quarter, I think there is a little bit more upward trend for upholstery fabrics as compared to mattress fabrics. Both of them are doing quite well. But I think as we go into the first quarter, there is a little bit more growth opportunity for upholstery fabrics as compared to mattress.

Budd Bugatch -- Water Tower Research -- Analyst

And then, both of them relatively moderate going forward in Qs two, three and four?

Kenneth R. Bowling -- Senior Vice President, Chief Financial Officer and Treasurer

Yeah, yeah. Exactly, yeah. I think -- yeah, I think by the end of the year, you kind of pan out to a nice moderate increase for both of them.

Budd Bugatch -- Water Tower Research -- Analyst

And for Re, you talked about being more positive and I think everybody can kind of understand that. Are you seeing any green shoots early on in hospitality that gives you some comfort there?

Boyd B. Chumbley -- President of Culp Upholstery Fabric Division

Yes, Budd. This is Boyd. And we start -- certainly have started seeing an improvement in the order rates and the backlogs building in the hospitality area, started seeing that in fourth quarter, but certainly believe that will be progressively seeing some better business as we go forward into this year as travel has begun to return. And I think expectations would be that travel will be a driver of some more robust sales in that hospitality segment as we go through this year.

Budd Bugatch -- Water Tower Research -- Analyst

Thank you, Boyd. A couple of other things on the sales growth. ChillSense looks like an interesting innovation. Do you have an exclusive on that? How are you doing that? That's -- and that being a mattress fabrics, I don't remember sustainability innovation in mattress fabrics. It seems to me that first one. So that's actually pretty exciting. Have you had some early wins in that fabric among some of your mattress customers?

Robert G. Culp IV -- Chief Executive Officer

Yeah, good question, Budd. We definitely believe -- companywide, we think post pandemic, there will be a continued focus on sustainability offerings. So we're working really hard on that. We've had tremendous success with LiveSmart Evolve on the upholstery fabric side of the business. And I think jointly, in our press release, recently, we've already -- with our offerings, we have already saved like 63 million bottles -- water bottles. So we're thrilled with that. There is some mattress development already in there. We are using some generic -- I say, generics, some recyclable products in our mattress fabric offerings, but ChillSense is another step adding sustainability and also cooling. And obviously, cooling has been a story in the mattress business for some time and to be able to provide both of those things, the performance product plus sustainability, we think, is a real win for the business. It's a partnership, just like Evolve is we use Unifi REPREVE. ChillSense also uses Unifi REPREVE, which is a great partner of ours. And we do have an exclusive bleed on ChillSense for a period of time to get that launched to the market. So with their marketing efforts and ours, we think ChillSense will be a strong candidate for top of mattress. We're quite excited about that.

Budd Bugatch -- Water Tower Research -- Analyst

Okay. [Technical Issues] Iv, I know that I'm going to get [Indecipherable] focus on your mattress margins. And with an 84% growth in revenues, I can understand how active you had to be during the quarter. And with all that was going on both outside of the home furnishings world, but even in the home furnishings world with foam and other kinds of disruptions, I'm sure that had an impact. Can you give us a feel of where margins will go going forward and what gives you comfort to be able to say that?

Robert G. Culp IV -- Chief Executive Officer

Yeah, well, let me just -- Budd, just a little bit just to explain more, which we covered in the release. It was an extraordinary sales lift on the mattress fabrics side, 84%. And we're proud to have absorbed that, although we admitted to some inefficiencies in doing so. So -- and we had and are having market share wins, and we wanted to service [Phonetic] that first and foremost. So to gain that business, we had to react immediately and not always optimize in our best manufacturing geography. So yeah, we're pressured with currency, freight material pricing, and all of that had a lag with our own price increase. So our price increase is now effective for the whole fiscal year starting May 1. And we've guided a significant margin improvement for the whole fiscal year. And Ken, you may want to add to that or any color to [Speech Overlap].

Kenneth R. Bowling -- Senior Vice President, Chief Financial Officer and Treasurer

I think that's exactly right. I mean, we did get pressure in the fourth quarter, and we've got the price increase in effect. And so we are seeing or expecting some significant improvement as we go into first quarter and beyond, especially in the mattress fabric side.

Robert G. Culp IV -- Chief Executive Officer

And we've always said about our mattress fabric business, our expectation is to be a double-digit operating income margin business. So our expectation for '22 is to start approaching that. We're not going to commit to getting there in Q1 or immediately, but that's our target.

Kenneth R. Bowling -- Senior Vice President, Chief Financial Officer and Treasurer

Yeah.

Budd Bugatch -- Water Tower Research -- Analyst

Got you. Okay. Just a few modeling questions if I could, your tax rate you gave us between 30% and 35% to use for Q1, Ken. How do we think about the whole year? And is there much -- can you -- is your crystal ball give us any feeling of what you should look at any of the quarters specifically?

Kenneth R. Bowling -- Senior Vice President, Chief Financial Officer and Treasurer

Budd, I would say that -- I would say that's good for Q1, and the rest of the year based on the facts we know today. As I've said in the prepared remarks, our tax rate can be affected by the mix of income between the US and China and Canada, but based on what we see today, we feel good about that. Of course, what comes out of Washington will depend on the future. We don't think that will affect our fiscal year. We don't think so, but we'll wait and see. But right now, I think 30% to 35% would be good for Q1 and the rest of the year.

Budd Bugatch -- Water Tower Research -- Analyst

Okay. And as we look at currency, the fourth quarter, you had $819,000 gain. The other part of that bucket was $150,000 some [Phonetic]. Was that all currency -- was that an all currency impact? What was the currency impact in the fourth quarter? And what does that look like going forward? I know that's a tough one to call.

Kenneth R. Bowling -- Senior Vice President, Chief Financial Officer and Treasurer

You mean in other expense for the quarter?

Budd Bugatch -- Water Tower Research -- Analyst

Yes, sir.

Kenneth R. Bowling -- Senior Vice President, Chief Financial Officer and Treasurer

Yeah, yeah. Well, we -- if you remember, we were just getting killed all throughout the year. I think I said in Q3, we had it in other expense. We had been hit like $1.5 million of non-cash. Yeah, actually in the fourth quarter, February, March actually flipped back around and weakened only to strengthen in April to pretty much wipe it out. So when you look at Q4, we actually were favorable somewhat. That's why the other expense was more normal as compared to the other quarters. I'd say going forward since our fiscal year, the rate has strengthened a little bit. I think it may be weakened a little bit. So I don't know, Budd. It's one that really depends on what's going to -- I mean, there is interest rate talk out there. And what happens with the Dow and all that. So right now, we're just -- and even the -- we get reports from various banks and they're all over the place. So we're hoping that it will stay steady for where it is today. So we can plan accordingly, but we'll just have to wait and see.

Budd Bugatch -- Water Tower Research -- Analyst

Okay. And last from me. Capital expenditures of $9 million to $10 million, how does that break out quarter-by-quarter?

Kenneth R. Bowling -- Senior Vice President, Chief Financial Officer and Treasurer

It's pretty consistent when you look at it. It may be a little bit front-loaded as we look at the year, whereas last year was more back-loaded, but I would say a little bit front-loaded as compared to kind of a spread evenly over the year.

Budd Bugatch -- Water Tower Research -- Analyst

Okay. Because I didn't know if Haiti would get us more of a capital expended there or new design center would change the cadence of that.

Kenneth R. Bowling -- Senior Vice President, Chief Financial Officer and Treasurer

Yeah. I mean, that's definitely projects that would cause the first half to be higher.

Budd Bugatch -- Water Tower Research -- Analyst

Got you. Okay. Well, thank you very much for the guidance for the quarter. And I was good to see a little bit more of a good outlook for the full year. I think that somewhat new for you all, and I hope you all continue to do that and continue to update us on that as the quarters and the year progresses, but a nice performance and thank you very much.

Robert G. Culp IV -- Chief Executive Officer

Thank you, Budd. Have a good day.

Operator

Thank you. So, we will now take our next question from Anthony Lebiedzinski at Sidoti & Co. Please go ahead. Your line is open.

Anthony Lebiedzinski -- Sidoti & Co. -- Analyst

Good morning, and thanks for taking the question. So actually first, let me just could follow up about the new facility in Haiti. [Indecipherable] have an expectation as far as the cost of new facility and how much of your upholstery business you think will come out of that facility this fiscal year?

Robert G. Culp IV -- Chief Executive Officer

I'm going to -- well, Anthony, this is Iv. Thanks for the question. We are really excited about the opportunity for Haiti for upholstery kits. It is important to note that we're really still strong with our Asian platform. Haiti is not intended to replace that. It's a compliment. But I'm going to pivot to Boyd and let him talk a bit more about it, because it's -- he is champion in this for us, but it is really important, we note that. It's not -- I mean to be a replacement, it's to get us an offshore and a near-shore strategy. Boyd?

Boyd B. Chumbley -- President of Culp Upholstery Fabric Division

Thank you and I'll add to that, Anthony. Yeah, just as Iv has said here, we believe that establishing a upholstery cut-and-sew facility in Haiti really does establish our overall global platform for cut and sew for upholstery and gives us a near-shore option to complement the already strong Asia platform that we have. And of course, it does provide some risk mitigation as well. It's also enabling us to handle the increased demand for cut and sew that we're experiencing as part of the overall demand surge that we're seeing in the upholstery fabrics business. So in terms of just your question of how much of our business for this fiscal year, it will be -- we're not -- the operation is not starting up until late second quarter and then, there will be a scale-up. So it's not going to be a significant portion for this fiscal year, but we will start seeing output and part of it is growth output coming from that Haiti operation during the fiscal year.

Anthony Lebiedzinski -- Sidoti & Co. -- Analyst

Okay. Thank you for that. As far as cost, I mean is there any way you guys could quantify that or is that anything significant to I think of as far as the cost of getting that facility up and running?

Kenneth R. Bowling -- Senior Vice President, Chief Financial Officer and Treasurer

Yeah. It's really the two components. It's the cost of the lease of the facility and then, you've got some capex, which is part of the capex plan that I described earlier. So, we don't disclose that, but it's not significant, but it's an investment that we feel is, it will over time certainly be a nice payback and one that we can put behind us in the first year and get rolling.

Anthony Lebiedzinski -- Sidoti & Co. -- Analyst

Got it. All right. Thank you very much for that. And then, could you quantify the extent of the price increases that you have in place for [Technical Issues]? And then, how that will impact margins in the first quarter?

Kenneth R. Bowling -- Senior Vice President, Chief Financial Officer and Treasurer

Yeah. Anthony, this is Ken again. We don't really disclose that. I think that what we've tried to do is, by forecasting a significant improvement in Q1, obviously those price increases are in effect on both sides. And so, that's certainly helping our performance in the first quarter and beyond, but it's -- price increases that we're strategically done to overcome currency, freight and raw material changes that we knew of as of the time of the price increase.

Anthony Lebiedzinski -- Sidoti & Co. -- Analyst

Got it. Okay. Thanks. Let me -- A couple of more questions from me. As far as labor availability and costs, I mean, what do you guys seeing there with respect to [Technical Issues] operation and with respect to your customers as well?

Robert G. Culp IV -- Chief Executive Officer

Yeah. Anthony, thank you. This is Iv. I think the cost that we think about that we are seeing the most impact today is probably freight. I believe that we've at least for now offset most of our material increases with our price increases. We're watching currency closely. Freight is one that we're experiencing some rising costs within. And to your point labor, in the US, it's definitely a challenge for us to. And we are -- we do have some jobs we're trying to fill, which is why though that we are so bullish on our global platform, because we have options in each business where we're not in any shortage of supply of our products. So we can meet the demand. And we talk about meeting the demand with strength. And that's how we look at it, but it does mean we need to flex our muscles globally more and just to be able to offset any labor challenges we may have here. We are doing enormous efforts to our human resource department to engage our employees more to look at tweaks to jobs where we need to adjust pay rates, and everything we can to make sure we're staffed well. I wouldn't call it any major concern, but we do want to keep our eyes on that labor ball at least in the short term.

Anthony Lebiedzinski -- Sidoti & Co. -- Analyst

Got it. Okay. Thank you, Iv. And last question from me here, so you talked about with respect to the surge [Phonetic] in the hospitality. Can you talk about the margins that you have in hospitality versus residential piece of that business?

Boyd B. Chumbley -- President of Culp Upholstery Fabric Division

Yes, Anthony. This is Boyd. And yeah, typically in that segment of our business, that does carry somewhat higher margins. So that will be an assist [Phonetic] to us as we see the hospitality business starts to come back from the impacts of the pandemic, but, yeah, just in general, that business does carry somewhat higher margins than our other business.

Anthony Lebiedzinski -- Sidoti & Co. -- Analyst

Got it. All right. Well, thank you, and best of luck.

Robert G. Culp IV -- Chief Executive Officer

Thank you, Anthony.

Kenneth R. Bowling -- Senior Vice President, Chief Financial Officer and Treasurer

Thanks, Anthony.

Operator

Thank you. So, we will now take our next question from Marco Rodriguez at Stonegate Capital Markets. Please go ahead. Your line is open.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Good morning, everybody. Thank you for taking my questions.

Robert G. Culp IV -- Chief Executive Officer

Good morning, Marco.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Good morning, guys. Most of the big topics had been discussed already and answered, so just a couple of quick follow-ups. Wondering if you guys are going to be talking a little bit more about the new product line with their pre-fabric. Can you just maybe discuss the factor or the genesis of that? I understand that you work with that supplier for some time, but just kind of how to product launch come about, and what are sort of the expectations you're thinking about in terms of that line?

Robert G. Culp IV -- Chief Executive Officer

Yeah. Thank you, Marco. Great question. We've had such great success with LiveSmart Evolve on the upholstery side. And so, when we -- coming out of the pandemic and our recent showtime in furniture market, we're just seeing continued interest in that product line. So it's fairly natural for us to start thinking about how we can get that sustainability story more branded on the mattress side. Now back to LiveSmart Evolve in upholstery, what's special about that is its performance story offering enhanced cleanability plus sustainability.

So on the mattress side, we want to define that performance plus as well. And so, we have a cooling story plus sustainability. And the reason cooling so important is just in our business today on the mattress side, we do a lot of work with cooling mattress fabrics, whether they'd be very special high-tech cooling yarns or phase change materials that we apply to finish. And so, having this with Unifi REPREVE is a more economical way of applying cooling. It's inherent in the yarn, so it's no treatment. And then, it also adds the sustainability story. So we think it's right at the heart of our consumers who are paying attention to. And we just -- we're trying to get more active with our branding on the mattress side as well. And we think this is a really nice win. We're just launching it. We're only in the beginning phases of rolling this to the market, but we think with our exclusive lead, we can have some fun with this later this year.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Understood. Got it. And then, in terms of the supply chain disruptions and that are non-fabric related, I know we've discussed this for a few quarters here now. And there is obviously the expectation that it continues here in the near term as far as potential headwind. Can you maybe kind of give us a sense as far as your best estimate or best read as far as when that sort of normalize, if you will?

Robert G. Culp IV -- Chief Executive Officer

Yeah. It's a good question. I think -- I'm going to speak for a minute on the mattress side, and I'll let Boyd make some comments on the upholstery side. To be sure, it gives you the full expert opinion. I think what I hear mostly for the mattress side of the business, it gets better every week and every month. So I think our biggest challenge there has been some firm allocation that our customers have been wrestling with. And we hear it gets better every month. So I think within late this quarter or our second quarter, I think our expectation is to be more normal there with supply. And it will be good for that side of the business. Boyd, you may speak to what you're seeing from upholstery side.

Boyd B. Chumbley -- President of Culp Upholstery Fabric Division

I think it's very similar, Iv, on the upholstery side of the business. Also here that there is steady improvement in terms of availability that's occurring. So I think the expectations there are as well that by the end of the quarter, there'll be considerable improvement there, maybe not completely resolved, but certainly a lot of improvement throughout the quarter.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Got it. Thanks. Appreciate that. And then, in terms of your expectations for cash flow from operations for the fiscal year, can you kind of give us a sense as far as how that's going to ramp in -- is there an expectation that you're going to build cash this year?

Kenneth R. Bowling -- Senior Vice President, Chief Financial Officer and Treasurer

Yeah, Marco. It's good question. I think when you look at -- we've got a significant increase in earnings, which will help the working capital I think from the standpoint of where we are with respect to inventory. Obviously, we want to make sure that we have enough inventory on hand to meet our customer needs. So that'll be a focus. I think as far as capex, the uses of cash on the capex side, we are increasing our capex this year as compared to last. So I would say right now based on what we know, we'll probably -- based on the projections, our cash will be pretty consistent this time next year versus now based on what we know today. So I would look at that way with the increased capex. Of course, we will continue paying the dividend and those factors. And so, I would say pretty consistent year-over-year.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Understood. Well, that's all I have. I really appreciate your time, guys. Thanks.

Robert G. Culp IV -- Chief Executive Officer

Thank you, Marco.

Boyd B. Chumbley -- President of Culp Upholstery Fabric Division

Thanks, Marco.

Operator

Thank you. So that is all the questions that we have at the moment. So I'd like to turn the call back over to the speakers for any additional or closing remarks.

Robert G. Culp IV -- Chief Executive Officer

Thanks, operator. And again, thank you to everyone for your participation and your interest in Culp. We look forward to updating you on our progress next quarter. Have a good day.

Operator

[Operator Closing Remarks]

Duration: 50 minutes

Call participants:

Dru Anderson -- Investor Relations

Robert G. Culp IV -- Chief Executive Officer

Kenneth R. Bowling -- Senior Vice President, Chief Financial Officer and Treasurer

Boyd B. Chumbley -- President of Culp Upholstery Fabric Division

Budd Bugatch -- Water Tower Research -- Analyst

Anthony Lebiedzinski -- Sidoti & Co. -- Analyst

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

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