UNIFI, Inc. — Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2022, ended March 27, 2022. The filing covers 2022, not 2021 as indicated in the request metadata. Unless stated otherwise, figures are in millions of dollars.
Business context
UNIFI manufactures and sells recycled and synthetic polyester and nylon products, including REPREVE-branded recycled fibers, to textile manufacturers and other customers. Its reportable segments are Polyester, Asia, Brazil, and Nylon. The quarter and nine-month comparison periods each contained 13 and 39 weeks, respectively.
Financial performance
| Metric | Quarter ended Mar. 27, 2022 | Prior-year quarter | Nine months ended Mar. 27, 2022 | Prior-year nine months |
|---|---|---|---|---|
| Net sales | $200.8 | $178.9 | $598.2 | $483.1 |
| Gross profit | $19.1 | $25.6 | $62.1 | $66.1 |
| Gross margin | 9.5% | 14.3% | 10.4% | 13.7% |
| Operating income | $5.8 | $8.6 | $23.6 | $24.6 |
| Net income | $2.1 | $4.8 | $11.7 | $15.7 |
| Diluted EPS | $0.11 | $0.25 | $0.62 | $0.83 |
| Adjusted EBITDA (non-GAAP) | $12.2 | $15.9 | $43.0 | $44.2 |
Quarterly sales increased 12.3%, while sales volume fell 7.0%; higher average selling prices more than offset lower volume. For the nine months, sales rose 23.8%, with volume up 4.3% and weighted average selling prices up 19.5%. REPREVE Fiber accounted for 36% of quarterly sales and 38% of nine-month sales, compared with 34% and 36%, respectively, in the prior-year periods.
Quarterly gross profit fell 25.2%, mainly because higher input costs and labor challenges reduced profitability in Polyester and Brazil. Over nine months, gross profit declined 6.0% despite higher sales. Polyester segment profit was down 28.3% year to date; Asia segment profit rose 25.2%, Brazil was approximately flat, and Nylon rose 41.8%.
Cash flow, debt, and liquidity
- Operating cash flow was negative $2.1 for the nine months, versus positive $25.7 a year earlier, primarily reflecting increased receivables and inventory and payment of prior-year incentive compensation.
- Capital expenditures were $30.1. Cash declined to $53.0 from $78.3 at fiscal year-end.
- Total debt principal was $97.3, up from $86.9 at June 27, 2021; net debt, a non-GAAP measure, was $44.3 versus $8.6. Debt included $18.5 drawn on the ABL revolver and $70.0 on the ABL term loan. The main ABL maturities fall in December 2023.
- Unused ABL availability was $64.8; reported total liquidity was $117.8. Nearly all cash was held by foreign subsidiaries, while domestic cash was only $0.3, a factor relevant to domestic funding needs. UNIFI reported covenant compliance and no material risk of failing its financial covenants.
- Working capital was $244.2 and adjusted working capital was $207.9, compared with $223.6 and $162.5, respectively, at June 27, 2021.
Material changes, outlook, and risks
Management cited inflation in raw materials, packaging, supplies, and labor, along with weaker U.S. labor availability and productivity. Price increases had been implemented for most of the portfolio, but some lagged cost increases and temporarily compressed margins. Management said January and March 2022 pricing actions and workforce training and retention initiatives were expected to support future Polyester profitability.
Management anticipated strong textile demand through the remainder of fiscal 2022 and into fiscal 2023, and expected existing cash and borrowing capacity to meet foreseeable needs. It planned fiscal 2022 capital spending of approximately $40–$42 million, including eAFK Evo texturing machinery and other facility upgrades; up to $11.9 million remained to be spent after the reporting date. The filing does not provide a specific revenue or earnings forecast.
The company reported no direct significant impact from the Russia-Ukraine conflict, but warned that further petroleum-market disruption could raise costs. Pandemic-related restrictions in China, supply-chain and freight issues, inflation, labor constraints, raw-material availability and pricing, foreign exchange, and trade policy are identified risks. In November and December 2021, U.S. agencies made determinations and issued antidumping orders concerning polyester textured yarn imports from Indonesia, Malaysia, Thailand, and Vietnam; management expected the trade measures to support fairer U.S. market pricing.
Unusual item: Results included an $0.8 million non-income-tax recovery line associated with Brazilian tax credits. The company also said it reduced its estimated recovery claim by $0.8 million after reviewing the recovery process and moved the remaining estimate to current assets based on an expected 12-month recovery period. The filing’s descriptions should be reviewed together to understand the accounting and cash timing. The quarterly effective tax rate was 56.6%, and the nine-month rate was 46.9%, with deferred-tax valuation allowances and foreign earnings among the cited factors.
UNIFI disclosed environmental monitoring obligations at the Kentec site and possible future responsibility related to the Kinston site, but said it could not determine whether or when Kinston obligations would arise. It did not expect active Kentec remediation; any such costs were expected to be immaterial. The company said ordinary-course legal proceedings were not expected to have a material adverse effect.
Key facts for investors to verify
- Whether price increases catch up with raw-material and labor costs and restore gross margins, especially in Polyester.
- Whether negative operating cash flow reverses as receivables and inventories are managed, and whether planned capital spending remains within the $40–$42 million estimate.
- How much foreign-held cash is practically available for domestic obligations, alongside ABL availability and debt maturities in December 2023.
- The timing, amount, and accounting treatment of Brazilian non-income-tax credits and the related recovery estimate.
- Whether demand, REPREVE sales momentum, and trade orders offset risks from China restrictions, supply-chain disruption, commodity inflation, and labor productivity.