UNIFI, Inc. — Q1 FY2024 Form 10-Q
Reporting period: Three months ended October 1, 2023 (13 weeks), compared with the three months ended October 2, 2022. Unaudited results. UNIFI manufactures and sells synthetic and recycled textile products, including REPREVE fiber, to textile manufacturers and related customers. Unless stated otherwise, figures below are in U.S. dollars and rounded to millions.
Financial results and liquidity
| Metric | Q1 FY2024 | Prior-year quarter |
|---|---|---|
| Net sales | $138.8 million | $179.5 million |
| Gross profit (loss) | $(0.6) million; (0.4)% margin | $6.6 million; 3.7% margin |
| Operating loss | $(12.0) million | $(4.7) million |
| Net loss | $(13.3) million; $(0.73) per share | $(7.8) million; $(0.44) per share |
| Adjusted EBITDA | $(4.8) million | $2.3 million |
| Operating cash flow | $7.1 million | $(5.9) million |
| Capital expenditures | $2.9 million | $11.2 million |
Net sales fell 22.7%; sales volume declined 5.2% and weighted-average selling prices declined 17.5%. The lower prices primarily reflected lower input costs, competitive pressure in Brazil, and a larger mix of lower-priced Chip and Flake products. REPREVE fiber sales were $42.5 million, 31% of sales, versus $49.2 million, or 27%, a year earlier.
Cash and cash equivalents were $51.5 million at October 1, up from $47.0 million at July 2, 2023. Total debt principal was $141.5 million, versus $140.9 million; net debt was $90.0 million, down from $93.9 million. Debt included $129.8 million under the ABL facility and $11.7 million of finance leases. The ABL revolver and term loan mature in October 2027; their weighted-average rates were 7.7% and 6.9%, respectively.
Working capital was $208.6 million; adjusted working capital was $170.7 million, down from $189.5 million at fiscal year-end. The filing reports $44.2 million of ABL borrowing availability and $21.9 million of excess availability. UNIFI was in compliance with applicable credit covenants. Nearly all cash was held by foreign subsidiaries ($51.5 million); domestic cash was only $28,000, while domestic revolver availability was $44.2 million.
Material changes and segment performance
- Americas: Sales declined 24.2% to $81.6 million. Segment loss was $1.9 million, compared with $0.6 million profit. Lower fiber production and weak fixed-cost absorption weighed on results.
- Brazil: Sales declined 23.1% to $29.9 million; segment profit fell 58.6% to $3.0 million. Low-priced imports and aggressive competitive pricing pressured margins; favorable currency translation partly offset lower sales.
- Asia: Sales declined 17.1% to $27.4 million. Segment profit was nearly unchanged at $4.6 million, as improved margins and REPREVE mix offset lower volume and unfavorable currency translation.
Higher interest rates and debt principal contributed to net interest expense rising to $1.9 million from $0.7 million. Net loss widened mainly because of the sharp decline in gross profit. Operating cash flow improved year over year, helped by inventory and receivables reductions and lower capital spending, despite weaker earnings. The company generated $12.6 million from inventory reductions; accounts payable and other current liabilities used $3.4 million of cash.
Outlook, commentary and risks
No numerical revenue, earnings, or cash-flow guidance is provided in the filing. Management said weak textile demand and brand and retailer inventory destocking continued to hurt sales and profitability. It is pursuing market-share growth, expansion beyond apparel, sustainable-product innovation, and greater REPREVE brand awareness, while exploring cost savings and prioritizing debt repayment. Management expects existing cash, operating cash flow, and credit availability to meet foreseeable needs, but cautioned that prolonged deterioration in demand, the economy, or input availability could increase liquidity risk and prompt spending limits or additional financing.
Risks highlighted include continued demand weakness, inflation and consumer borrowing costs, raw-material and freight volatility, competition and import pricing, foreign-exchange movements, supply-chain disruption, and geopolitical developments. UNIFI reported no direct operational impact from the Russia-Ukraine or Middle East conflicts at the filing date, but noted potential indirect effects on petroleum prices, input costs, and markets. A 50-basis-point interest-rate increase was estimated to raise annual interest expense by approximately $0.7 million. Nearly all cash was outside the U.S., which may limit its immediate availability for domestic needs.
Other items: The IRS audit of tax years 2014–2019 concluded during the quarter, with a net refund of $1.2 million not yet received; the filing says prior-period audit adjustments were insignificant. The effective tax rate was 3.4%, primarily affected by valuation allowances on U.S. losses. Shareholders approved an increase to the incentive plan’s remaining share reserve on October 31, 2023. No share repurchases occurred in the quarter. Management stated disclosure controls were effective; it did not believe ordinary-course legal proceedings would have a material adverse effect.
Important facts for investors to verify
- Whether demand and customer inventory destocking improve, and whether sales volumes and realized prices stabilize.
- Whether Americas production utilization recovers and Brazil’s pricing competition eases enough to restore gross margins.
- Whether reported revolver availability and covenant headroom remain adequate; distinguish total borrowing availability from excess availability.
- How foreign-held cash can be accessed for domestic debt service and other needs, and whether currency movements materially affect results.
- Whether the $1.2 million IRS refund is received and whether tax valuation allowances continue to limit recognition of benefits from losses.