UNIFI, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 26, 2021 (UNIFI fiscal first quarter of fiscal 2022); comparative quarter ended September 27, 2020. Amounts are in millions except per-share data.
Business context and results
UNIFI manufactures and sells synthetic and recycled polyester and nylon products, including REPREVE fiber, to textile manufacturers and brand partners. It reports Polyester, Asia, Brazil, and Nylon segments, plus All Other.
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Net sales | $196.0 | $141.5 |
| Gross profit / margin | $26.1 / 13.3% | $14.6 / 10.3% |
| Operating income / margin | $13.3 / 6.8% | $2.9 / 2.1% |
| Net income | $8.7 | $3.4 |
| Diluted EPS | $0.46 | $0.18 |
| Adjusted EBITDA | $19.8 | $9.1 |
| Cash from operating activities | $(15.8) | $7.9 |
| Capital expenditures | $9.3 | $1.9 |
Sales rose 38.5%; volume increased 12.8% and average selling prices rose 25.7%, primarily reflecting higher raw-material costs. REPREVE fiber sales were $71.9 million, or 37% of total sales, versus $51.6 million, or 36%, a year earlier. Management attributed improved earnings principally to demand recovery after COVID-19-related weakness in the prior-year quarter.
Segments and material changes
- Polyester: Sales increased 29.5% to $89.5 million; segment profit rose 41.4% to $12.8 million, reflecting improved demand, mix, and facility utilization.
- Asia: Sales increased 36.3% to $51.4 million; segment profit rose 52.3% to $7.0 million, led by higher volumes and REPREVE-branded products.
- Brazil: Sales increased 49.2% to $33.7 million; segment profit more than doubled to $10.3 million, with improved pricing, mix, and competitive position. Volume declined.
- Nylon: Sales increased 82.8% to $20.2 million, but segment profit was nearly flat at $1.2 million as lower margins and mix offset volume growth.
Consolidated gross margin improved despite elevated input and supply-chain costs. SG&A increased 11.5% to $12.7 million. Prior-year results included a $4.8 million discrete tax benefit related to the retroactive GILTI high-tax exclusion, partly offset by a $2.1 million valuation-allowance expense; this makes the year-over-year tax comparison less representative.
Cash, debt, and liquidity
Cash and equivalents were $49.6 million at quarter-end, down from $78.3 million at June 27, 2021. Working capital was $219.7 million versus $223.6 million; adjusted working capital increased to $189.5 million from $162.5 million. Operating cash use reflected higher receivables and inventories, incentive-compensation payments, and other working-capital needs.
Total debt obligations were $84.3 million, down from $86.9 million at fiscal year-end; net debt increased to $34.8 million from $8.6 million, primarily because cash declined. The company had no ABL revolver borrowings and reported $73.7 million of excess availability. It was in compliance with its financial covenants. Approximately 76% of cash was held by foreign subsidiaries and may not be immediately available for domestic needs.
Outlook, risks, and unusual items
- No earnings or revenue guidance was provided. UNIFI expects fiscal 2022 capital expenditures of $40–$44 million, including eAFK Evo texturing equipment and upgrades to Americas manufacturing capabilities; it had spent $9.3 million in the quarter.
- Management said it expects liquidity to remain adequate and does not anticipate current conditions will critically constrain operations, investment, or expected growth. It expects most capital spending to be funded by existing cash and equivalents.
- Raw-material costs remained elevated. Management said it had passed through price increases for most of its portfolio, but timing lags and further cost increases could pressure margins and cash flows.
- Freight and logistics delays, U.S. labor tightness, Asian pandemic restrictions, and China’s energy-management measures could worsen and become material to Asia or Polyester operations.
- Preliminary antidumping duties on polyester textured yarn imports from Indonesia, Malaysia, Thailand, and Vietnam were in effect. The Commerce Department announced final deposit rates on October 19, 2021; the ITC’s final determination was expected November 30, 2021.
- Interest-rate swaps fixed LIBOR on $75.0 million of variable-rate debt through May 2022. Management did not expect LIBOR’s anticipated termination to have a significant operational impact. No material off-balance-sheet arrangements were reported.
- Brazilian non-income tax overpayment claims are recorded as assets; the company expects to recover them as credits against future tax obligations over 40 months following June 2021. Environmental disclosures describe monitoring obligations at a site, with no active remediation expected and any such costs expected to be immaterial.
Investor facts to verify
- Whether cash conversion improves as receivables and inventory normalize; operating cash flow was negative despite higher earnings.
- Whether the $40–$44 million fiscal-year capital plan is achieved and produces the anticipated operating benefits.
- Whether raw-material pass-through pricing keeps pace with costs and protects margins, particularly in Nylon and amid supply-chain disruption.
- The outcome and commercial effect of the pending trade proceeding on polyester textured yarn imports.
- Cash accessibility by geography, debt-service requirements, and the company’s ability to maintain covenant compliance and liquidity.