Unifi Inc. reported a 0.9 percent slide in sales in the first quarter ended September 30, in line with expectations. A 16 percent volume hike helped offset lower prices. Expense controls improved profitability.

The quarter ended September 29, 2019 contained 13 weeks of domestic operations while the quarter ended September 30, 2018 contained 14 weeks of domestic operations.

First Quarter Fiscal 2020 Overview

  • Sales volumes increased 16 percent compared to the first quarter of fiscal 2019, led by REPREVE®-branded products.
  • Achieved expected revenue performance, with net sales of $179.9 million, despite one fewer sales week for domestic operations when compared to the prior year first fiscal quarter net sales of $181.6 million.
  • Revenues from premium value-added products represented a record 54 percent of consolidated net sales, up from 43 percent compared to the first quarter of fiscal 2019.
  • Operating income increased 11 percent to $6.3 million compared to the first quarter of fiscal 2019.
  • Operating cash flows improved significantly to $23.8 million and included $10.4 million in distributions received from Parkdale America, LLC (“PAL”), which allowed for a 17 percent reduction of Net Debt to $88.3 million.
  • Selling, general and administrative expenses (“SG&A”) decreased $3.4 million compared to the first quarter of fiscal 2019, demonstrating results from previously communicated cost reduction efforts.
  • Net income of $3.7 million and diluted earnings per share (“EPS”) of $0.20 each exhibited substantial growth from the first quarter of fiscal 2019, despite a larger loss from PAL in the first quarter of fiscal 2020.

“Underlying sales growth was led by our REPREVE®-branded products, as our strategy and portfolio in Asia continue to be validated, helping us to achieve our revenue expectations for the first quarter of fiscal 2020,” said Tom Caudle, President & Chief Operating Officer of Unifi. “Profitability was aided by our previously communicated step-down in SG&A, along with a more favorable raw material cost environment in the U.S. While we recognize that the current business environment in the U.S. is challenging and our Brazil Segment was impacted by elevated raw material costs, we are pleased with our operating cash flows and earnings in the first fiscal quarter and look to carry that momentum into the remainder of fiscal 2020.”

Caudle added, “Consistent with the timeline we have previously communicated, before the end of calendar 2019, we expect finalization of our October 2018 trade petitions and look forward to providing further updates in due time.”

First Quarter Fiscal 2020 Compared to First Quarter Fiscal 2019

Net sales in the first quarter of fiscal 2020 were $179.9 million, compared to $181.6 million. The first quarter of fiscal 2020 consisted of 13 weeks of domestic operations, compared to 14 weeks of domestic operations in the first quarter of fiscal 2019. Sales volumes grew 16 percent, led by Asia, which lowered consolidated average selling prices.

Gross profit decreased to $17.4 million, from $20.0 million, primarily attributable to competitive pricing pressures that were most pronounced in Brazil and Asia, along with a higher proportion of sales in Asia. The decrease was partially offset by a more favorable raw material cost environment in the U.S.

Operating income increased to $6.3 million, from $5.7 million, primarily due to lower expenses stemming from SG&A reductions that began in the second half of fiscal 2019.

Net income was $3.7 million, compared to $1.8 million, and EPS was $0.20, compared to $0.10. Although PAL results were $1.2 million lower in the first quarter of fiscal 2020, a significant improvement in the effective tax rate benefited net income. Adjusted EBITDA was $12.3 million, compared to $11.9 million. Adjusted EBITDA is a non-GAAP financial measure. The schedules included in this press release reconcile Adjusted EBITDA to net income, the most directly comparable GAAP financial measure.

Net Debt was $88.3 million at September 29, 2019, compared to $105.8 million at June 30, 2019, benefiting from both the $10.4 million in distributions received from PAL and the improvement in working capital. Net Debt is a non-GAAP financial measure. The schedules included in this press release reconcile Net Debt. Cash and cash equivalents increased to $34.1 million at September 29, 2019, from $22.2 million at June 30, 2019.

Foreign currency fluctuations had no significant impact on comparable quarterly results.

Fiscal 2020 Outlook

For fiscal 2020, the company reaffirmed its previously announced expectations. Assuming no significant volatility in raw material costs, the company expects:

  • High-single-digit percentage growth from fiscal 2019 for sales volumes;
  • Mid-single-digit percentage growth from fiscal 2019 for net sales;
  • Operating income between $22.0 million and $27.0 million, over 100 percent growth from fiscal 2019;
  • Adjusted EBITDA between $47.0 million and $52.0 million, over 25 percent growth from fiscal 2019;
  • Capital expenditures of approximately $25.0 million; and
  • An effective tax rate not to exceed 25 percent.

Caudle concluded, “With the assumption that raw material costs remain stable for the remainder of fiscal 2020, we are reaffirming our fiscal 2020 outlook. We continue to project growth from fiscal 2019 that includes continued top-line expansion, a doubling of operating income, substantial improvement in our effective tax rate and a significant increase in net income and Adjusted EBITDA.”