UNIFI, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended July 3, 2022 (53 weeks), compared with fiscal 2021 ended June 27, 2021 (52 weeks). The filing also reports fourth-quarter results. Amounts below are in U.S. dollars; financial statement amounts are presented in thousands and converted to millions where shown.
Business context
UNIFI manufactures and sells polyester and nylon yarns, fibers and polymers, including recycled products under its REPREVE brand. Its reportable segments are Americas, Brazil and Asia. Apparel represented approximately 70% of FY2022 sales. REPREVE Fiber sales were $293.1 million, or 36% of consolidated sales, versus $245.8 million, or 37%, in FY2021.
Financial performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $815.8 million | $667.6 million |
| Sales volume / average selling price | +2.7% / +19.5% | Volume +13.5%; average price -3.4% |
| Gross profit / gross margin | $80.5 million / 9.9% | $93.5 million / 14.0% |
| Operating income | $28.6 million | $38.6 million |
| Net income / diluted EPS | $15.2 million / $0.80 | $29.1 million / $1.54 |
| Adjusted EBITDA (non-GAAP) | $55.2 million | $64.6 million |
| Cash from operating activities | $0.4 million | $36.7 million |
| Capital expenditures | $39.6 million | $21.2 million |
FY2022 sales rose 22.2%, largely on higher selling prices to recover rising input costs, with additional growth from Asia and REPREVE. Profitability declined as higher materials, labor, packaging and other input costs, together with weaker domestic labor productivity, outweighed sales growth. The additional fiscal week contributed approximately $8.7 million of sales and had an insignificant gross-profit impact.
Fourth-quarter FY2022 sales were $217.6 million, gross profit $18.4 million and net income $3.5 million, versus $184.4 million, $27.4 million and $13.4 million, respectively, in fourth-quarter FY2021. The FY2022 quarter included an extra week of sales.
Liquidity, debt and segments
- At July 3, 2022, cash was $53.3 million, total debt principal $114.3 million and net debt (non-GAAP) $61.0 million; net debt was $8.6 million a year earlier.
- Reported working capital was $243.5 million. ABL Revolver availability was $51.4 million. Management said liquidity was adequate, while noting that 99% of cash was held by foreign subsidiaries and might not be readily available for domestic requirements.
- Debt included $41.3 million drawn on the ABL Revolver, a $65.0 million ABL Term Loan, and finance-lease and construction financing obligations. The ABL Facility matures in December 2023. Scheduled debt maturities shown for FY2024 total $98.1 million, including the revolver and term loan.
- Operating cash flow was nearly nil as higher sales and input costs increased working capital, particularly inventory and receivables. Financing included $28.8 million of net ABL borrowings and $9.2 million of share repurchases.
- Americas sales rose to $483.1 million, but gross profit fell to $24.5 million from $36.4 million. Brazil sales increased to $126.1 million while gross profit fell to $27.1 million from $31.7 million as exceptional FY2021 market conditions normalized. Asia sales rose to $206.6 million and gross profit to $28.9 million.
Outlook, risks and unusual items
- Management expected FY2023 capital spending of $35–$40 million, including further eAFK Evo texturing machinery and approximately $10–$12 million of maintenance spending. It expects these upgrades to improve efficiency and productivity over time.
- Management said responsive price increases should help restore margins, but acknowledged that cost increases may not be recovered promptly and that pricing actions could affect customer retention and competitiveness. No specific revenue or earnings guidance was provided.
- Management cited demand uncertainty and potential recessionary pressure, inflation, labor availability and productivity, supply-chain disruption, and COVID-19 lockdowns in China. China-related disruption adversely affected Asia in fourth-quarter FY2022 and could affect the first half of FY2023 if it continued. UNIFI reported no significant direct customers or supply-chain partners in the Russia-Ukraine conflict region, but noted possible indirect inflation effects.
- UNIFI recorded an $815,000 reduction to its previously recognized Brazilian non-income-tax recovery estimate in FY2022 and a separate $1.4 million recovery of income taxes related to a Brazilian Supreme Court decision. FY2021 had included a $9.7 million non-income-tax recovery, making year-over-year earnings comparisons less directly comparable.
- UNIFI repurchased $9.2 million of shares in FY2022; $38.9 million remained authorized under its discretionary repurchase program. No cash dividends were paid, and the company said it did not expect to pay them in the foreseeable future.
- The filing reports an unqualified audit opinion and effective internal controls. The auditor identified inventory net realizable value estimation as a critical audit matter, focusing on recovery-rate assumptions for U.S. raw-material and finished-goods inventories.
Most important facts for investors to verify
- Whether pricing actions and productivity improvements actually recover gross margins after FY2022’s cost pressures.
- Operating cash generation and working-capital requirements, especially inventory and receivables growth.
- Refinancing or repayment plans for the ABL Facility due in December 2023 and the substantial FY2024 scheduled maturities.
- Availability and practical accessibility of foreign-held cash for domestic liquidity needs.
- Demand recovery, China lockdown effects, and execution and returns from planned eAFK Evo investments.
- Assumptions supporting inventory valuation and realization of tax assets and Brazilian tax credits.