UNIFI, Inc. — Form 10-Q summary
Reporting period: Fiscal third quarter and first nine months ended April 2, 2023; comparisons are to the periods ended March 27, 2022. Amounts below are in millions of dollars unless stated otherwise. UNIFI manufactures and sells synthetic and recycled polyester and nylon products, including REPREVE fiber, across the Americas, Brazil, and Asia.
Financial performance and position
| Metric | Three months ended Apr. 2, 2023 | Prior-year quarter | Nine months ended Apr. 2, 2023 | Prior-year nine months |
|---|---|---|---|---|
| Net sales | $156.7 | $200.8 | $472.5 | $598.2 |
| Gross profit / margin | $9.7 / 6.2% | $19.1 / 9.5% | $8.2 / 1.7% | $62.1 / 10.4% |
| Operating income (loss) | $(2.7) | $5.8 | $(27.2) | $23.6 |
| Net income (loss) | $(5.2) | $2.1 | $(31.1) | $11.7 |
| Diluted EPS | $(0.29) | $0.11 | $(1.72) | $0.62 |
| Adjusted EBITDA (non-GAAP) | $5.0 | $12.2 | $(5.8) | $43.0 |
- Quarterly sales fell 21.9%; sales volume declined 22.3%, while weighted-average selling prices were approximately flat. Nine-month sales fell 21.0% as volume declined 26.6%, partly offset by a 5.6% increase in weighted-average prices.
- REPREVE fiber sales were $49.6 million in the quarter and $141.7 million for nine months, down from $71.9 million and $225.4 million, respectively. REPREVE represented 32% of quarterly sales and 30% of nine-month sales.
- For the first nine months, operating cash flow was $8.3 million, versus cash used of $2.1 million a year earlier. The improvement primarily reflected reduced receivables and inventories as business activity weakened; capital expenditures were $32.5 million, versus $30.1 million.
- At April 2, cash was $49.7 million; working capital was $221.2 million, down from $243.5 million at July 3, 2022. Debt principal was $136.0 million, up from $114.3 million; net debt, a non-GAAP measure, was $86.3 million versus $61.0 million.
- Current and long-term debt carrying amounts totaled $135.7 million, including finance leases and construction financing. ABL borrowings were $122.9 million; the facility’s weighted-average rates were 6.4% for the revolver and 6.3% for the term loan.
- ABL Revolver availability was $69.1 million, giving reported total liquidity of $118.8 million including cash. Nearly all cash was held by foreign subsidiaries; domestic cash was only $17,000. The company said foreign cash may not be immediately available for domestic obligations.
Changes, management commentary, and outlook
- Demand weakness and brand and retailer inventory destocking drove lower sales, particularly in the Americas and Asia. Asia quarterly sales declined 46.5%; the segment’s nine-month sales declined 47.0%. Pandemic-related lockdowns also weighed on Asia during the nine-month period.
- Gross profit fell sharply as lower volumes weakened fixed-cost absorption in the Americas. Brazil faced low-priced import competition and lower selling prices; in the nine-month period, higher-cost beginning inventory also pressured margins. Lower raw-material and freight costs during fiscal 2023 did not offset weak demand and production levels.
- Nine-month Americas segment gross loss was $14.8 million, compared with gross profit of $15.8 million in the prior period. Segment profit (gross profit or loss plus segment depreciation) fell to $1.8 million from $31.3 million. Brazil and Asia segment profit also declined, to $11.9 million and $12.5 million, respectively.
- Management cited inflation, higher interest rates, recession concerns, geopolitical tensions, supply-chain volatility, customer financial condition, and uncertain demand as ongoing pressures. It warned that prolonged weak demand, rising input costs, or further production disruption could materially affect sales, gross profit, and cash flows.
- Management provided no numerical earnings or sales guidance in the supplied filing text. It said current cash, operating cash flows, and credit availability were expected to meet foreseeable needs and that it did not anticipate critical liquidity pressure, while acknowledging that a materially worse or prolonged downturn could require cost reductions, additional financing, or limits on discretionary outflows. Management expects working-capital needs to rise as demand recovers.
- To preserve near- and medium-term liquidity, UNIFI paid a vendor $0.6 million to delay certain U.S. and El Salvador texturing-equipment purchases and installations by 18 months. Approximately $25 million of planned capital expenditures were shifted from March 2023–September 2024 to September 2024–March 2026.
- UNIFI entered a new $230 million senior secured credit facility in October 2022, with maturity in October 2027. It reported compliance with applicable financial covenants at quarter-end and $0 of standby letters of credit outstanding. A 50-basis-point rate increase was estimated to raise annual interest expense by approximately $0.6 million.
- Other notable items: nine-month results included a $0.3 million debt-extinguishment loss and a $3.8 million income-tax recovery benefit related to amended Brazilian tax returns. Environmental monitoring obligations at the Kentec site were not expected to require active remediation; the company said any such costs would likely be immaterial. It did not expect ordinary-course legal proceedings to have a material adverse effect.
Important facts for investors to verify
- Whether sales volumes and customer destocking are stabilizing, especially in Asia and the Americas, and whether production utilization improves enough to restore gross margins.
- Whether the planned equipment-spending deferral, capital needs, and working-capital recovery can be managed without further increasing debt or pressuring liquidity.
- The availability and practical accessibility of foreign-held cash for domestic debt service, and continued compliance with the 2022 Credit Agreement’s covenants and availability requirements.
- How interest rates, raw-material costs, import competition in Brazil, foreign-exchange movements, and customer or financial-institution risks affect results and cash flows.
- The assumptions and exclusions in non-GAAP measures, including Adjusted EBITDA and net debt, and the timing and realization of the Brazilian tax recovery.