UNIFI, Inc. — Form 10-Q Summary
Business context and reporting period
UNIFI manufactures and sells synthetic and recycled polyester and nylon products, including REPREVE fiber, to textile manufacturers and related customers. This report covers the 13 weeks ended October 2, 2022 (first quarter of fiscal 2023), compared with the 13 weeks ended September 26, 2021. Amounts below are in millions of dollars unless stated otherwise.
UNIFI reports three segments: Americas, Brazil, and Asia. The Americas segment combines businesses previously reported separately; prior-period segment figures were recast to match the new presentation.
Key financial results
| Metric | Q1 FY2023 | Prior-year quarter |
|---|---|---|
| Net sales | $179.5 | $196.0 |
| Gross profit / margin | $6.6 / 3.7% | $26.1 / 13.3% |
| Operating income (loss) | $(4.7) | $13.3 |
| Net income (loss) | $(7.8) | $8.7 |
| Diluted EPS | $(0.44) | $0.46 |
| Adjusted EBITDA | $2.3 | $19.8 |
| Net cash used in operating activities | $(5.9) | $(15.8) |
| Capital expenditures | $11.2 | $9.3 |
Sales volume fell 21.6%, while weighted-average selling prices increased 13.2%; net sales declined 8.4%. REPREVE fiber sales were $49.2 million, down from $71.9 million, and represented 27% of sales versus 37% a year earlier. The tax provision was $2.7 million despite a $5.1 million pretax loss; the reported effective tax rate was negative 53.6%, mainly reflecting a valuation allowance increase for deferred tax assets and current U.S. tax on GILTI.
Segment results: Americas sales were $107.6 million and Segment Profit was $0.6 million, versus $110.8 million and $14.3 million. Brazil sales rose to $38.9 million from $33.7 million, while Segment Profit fell to $7.3 million from $10.3 million. Asia sales fell to $33.0 million from $51.4 million, and Segment Profit declined to $4.6 million from $7.0 million. Segment Profit is a company-defined measure equal to segment gross profit plus segment depreciation.
Financial position, debt, and liquidity
At October 2, 2022, cash was $47.2 million, total debt principal was $127.0 million, and net debt was $79.8 million, compared with $61.0 million at fiscal year-end. Current assets were $318.8 million and current liabilities were $78.7 million; working capital was $240.1 million. Cash decreased by $6.1 million during the quarter. Operating cash use was partly offset by financing cash inflows, including net ABL revolver proceeds.
Debt included $54.5 million drawn on the ABL revolver and $62.5 million on the ABL term loan. Revolver availability was $26.2 million at quarter-end. Approximately 93% of cash was held by foreign subsidiaries and may not be readily available for domestic requirements. UNIFI reported compliance with financial covenants.
On October 28, 2022, after quarter-end, UNIFI entered a new $230 million senior secured credit facility, including a $115 million revolver and a term loan that may be reset up to $115 million subject to conditions. It extends maturity to October 2027; revolver availability was reported at $80.4 million on that date.
Material changes, outlook, and risks
- Management attributed weaker results primarily to lower global textile demand and customer inventory destocking, with pandemic-related lockdowns also reducing Asia sales. Americas profitability was sharply affected by lower production and weak fixed-cost absorption; Brazil margins normalized from unusually favorable prior-year conditions.
- Management said raw material and freight costs improved during the quarter, but demand uncertainty, inflation, rising interest rates, labor and productivity constraints, and supply-chain volatility remain risks. Selling-price adjustments may help margins, but could affect customer retention and competitiveness.
- For the second quarter of fiscal 2023, UNIFI expected capital expenditures of $10–$12 million. It expected most remaining fiscal 2023 capital spending to support machinery upgrades, production capabilities, technology, and maintenance. The filing provides no specific full-year revenue or earnings guidance.
- Management stated existing cash and credit resources were sufficient for operations and expected needs, but a prolonged deterioration in demand or input availability could increase liquidity risk and lead to reduced capital or discretionary spending. A 50-basis-point interest-rate increase was estimated to raise annual interest expense by approximately $0.6 million.
- Other notable items: a $0.7 million foreign-currency transaction gain was included in operating results, while foreign-currency translation reduced other comprehensive income by $5.9 million. No derivatives were outstanding at quarter-end. Management did not expect the disclosed environmental matter or ordinary-course legal proceedings to have a material adverse effect.
Important facts for investors to verify
- Whether demand, customer destocking, and production utilization recover enough to restore gross margins, particularly in the Americas.
- Whether lower REPREVE sales and Asia’s sales decline persist, and how segment mix affects profitability.
- Cash conversion and working-capital trends, including the impact of lower accounts payable and the concentration of cash in foreign subsidiaries.
- Borrowing availability, covenant compliance, interest costs, and terms under the October 2022 credit agreement.
- Execution and returns from planned capital expenditures, and whether pricing actions offset input-cost volatility without harming customer relationships.