UNIFI, Inc. — Fiscal 2023 Form 10-K Summary
Reporting period: Fiscal year ended July 2, 2023 (52 weeks), compared with fiscal 2022 ended July 3, 2022 (53 weeks). Unless otherwise noted, amounts below are in millions of U.S. dollars. The filing also reports fourth-quarter results; the provided request’s “2022 Q4” label does not match the filing’s fiscal 2023 annual reporting period.
Business context and reporting period
UNIFI manufactures and sells polyester and nylon products, including recycled fibers and polymers under its REPREVE brand. Its reportable segments are Americas, Brazil, and Asia. Apparel accounted for approximately 65% of fiscal 2023 sales. REPREVE Fiber sales were $186.2 million, or 30% of consolidated sales, down from $293.1 million, or 36%, in fiscal 2022.
Financial results and liquidity
| Metric | Fiscal 2023 | Fiscal 2022 |
|---|---|---|
| Net sales | $623.5 | $815.8 |
| Gross profit / margin | $14.2 / 2.3% | $80.5 / 9.9% |
| Operating income (loss) | $(40.9) | $28.6 |
| Net income (loss) | $(46.3) | $15.2 |
| Diluted EPS | $(2.57) | $0.80 |
| Adjusted EBITDA (non-GAAP) | $(4.1) | $55.2 |
| Cash from operating activities | $4.7 | $0.4 |
| Capital expenditures | $36.4 | $39.6 |
- Sales fell 23.6%; sales volumes declined 25.3%, partly offset by a 1.7% increase in weighted-average selling prices. Fiscal 2022 included an extra week, contributing approximately $8.7 million of sales.
- Gross profit fell 82.3%, reflecting lower demand and production, weak fixed-cost absorption in the Americas, high-cost beginning inventory, and competitive pricing pressure in Brazil.
- Fiscal 2023 results included an $8.2 million impairment for abandoned specialized machinery and $0.6 million in costs to delay equipment purchases. Management’s adjusted measures exclude these items and include other specified adjustments.
- Cash and cash equivalents were $47.0 million; total debt principal was $140.9 million and net debt was $93.9 million. Debt principal increased from $114.3 million a year earlier.
- Reported working capital was $222.1 million. The company reported $55.7 million of excess availability under its revolving credit facility and total liquidity of $102.7 million. Approximately 99% of cash was held by foreign subsidiaries, and may not be immediately available for domestic needs.
- Quarterly fiscal 2023 results included fourth-quarter sales of $151.1 million, gross profit of $6.0 million, and a net loss of $15.3 million.
Material changes versus the prior period
- Americas sales declined 19.3% to $389.7 million; Segment Profit fell to $7.4 million from $45.6 million. Lower volumes and fixed-cost absorption were major pressures; the segment reported a gross loss.
- Brazil sales declined 5.6% to $119.1 million and Segment Profit fell to $14.2 million from $28.6 million, primarily due to low-priced imports, pricing pressure, and high-cost inventory.
- Asia sales declined 44.4% to $114.8 million and Segment Profit fell to $16.7 million from $28.9 million, mainly due to weaker demand, lower volumes, China-related pandemic disruption, and unfavorable currency translation.
- Operating cash flow improved from $0.4 million, principally as working capital was reduced, but remained modest despite the net loss. Cash declined by $6.3 million during the year.
- Interest expense increased, reflecting higher debt and interest rates. The company entered a new $230 million senior secured ABL facility in October 2022, maturing in October 2027.
Outlook, management commentary, risks, and unusual items
- Management expects fiscal 2024 capital expenditures of $14–$16 million. It deferred approximately $25 million of planned machinery spending by 18 months to better match investment with expected activity; the modification cost $0.6 million.
- Management expects an improvement in the Asian market in the second half of fiscal 2024, but did not provide quantified sales or earnings guidance. It expects the majority of fiscal 2024 capital to support working capital as demand and sales recover.
- Management cites inventory destocking, subdued textile demand, inflation and raw-material volatility, labor productivity, low-cost imports, foreign exchange movements, and interest rates as risks. Further selling-price adjustments could affect customer retention and competitiveness.
- Borrowings carry variable rates; management estimated that a 50-basis-point increase in SOFR would raise annual interest expense by approximately $0.7 million. The fixed-charge coverage covenant becomes applicable if revolver availability falls below its trigger level; the company reported compliance at year-end.
- The company recorded a Brazilian income-tax recovery in fiscal 2023. It also disclosed a possible approximately $11.6 million tax liability if certain foreign earnings treated as permanently reinvested were repatriated or related interests transferred.
- UNIFI identified environmental uncertainty relating to the former Kinston site, but could not estimate whether or when it may have responsibility. It did not expect active remediation costs at the Kentec site to be material. Management said ordinary-course legal proceedings were not expected to have a material adverse effect.
- The CFO notified the company of his resignation from all company positions effective August 25, 2023. The filing reports unqualified audit opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether textile demand, volumes, and Americas plant utilization recover, and whether management’s fiscal 2024 Asia and capital-spending expectations are realized.
- Whether the sharp fall in gross margin and negative adjusted EBITDA persist, and how inventory valuation and fixed-cost absorption develop.
- Domestic access to cash given the concentration of cash overseas, revolver availability, debt service requirements, variable-rate exposure, and covenant thresholds.
- The treatment and recoverability of tax assets and Brazilian tax recoveries, including the valuation allowance and potential tax cost of repatriating foreign earnings.
- Customer and brand-partner concentration: no direct customer represented 10% or more of consolidated sales, but one customer was 15% of Asia Segment sales and the top ten direct customers represented approximately 26% of consolidated sales.
- The assumptions supporting the $8.2 million machinery impairment, inventory net realizable value estimates, and any eventual Kinston environmental obligations.