Unifi Inc. reported earnings slid in the fiscal fourth quarter ended July 3 as lower gross margins offset a sales gain of 18 percent. Results were consistent with expectations.

Fourth Quarter Fiscal 2022 Overview

  • Net sales were $217.6 million, an increase of 18 percent from the fourth quarter of fiscal 2021.
  • Revenues from Repreve products represented 31 percent of net sales compared to 38 percent in the fourth quarter of fiscal 2021. Repreve products comprised 36 percent of fiscal 2022 net sales compared to 37 percent for fiscal 2021. Fourth quarter and fiscal 2022 product revenues were adversely impacted by the ongoing pandemic-related lockdowns in Asia.
  • Gross profit was $18.4 million compared to $27.4 million for the fourth quarter of fiscal 2021. Gross margin was 8.4 percent compared to 14.9 percent for the fourth quarter of fiscal 2021.
  • Operating income was $5.0 million compared to $14.0 million for the fourth quarter of fiscal 2021.
  • Net income was $3.5 million, or $0.19 diluted earnings per share (EPS), compared to net income of $13.4 million, or $0.70 diluted EPS for the fourth quarter of fiscal 2021. Adjusted EPS was $0.11 and exclude an adjustment for income taxes compared to $0.37 for the fourth quarter of fiscal 2021, which excludes the estimated recovery of non-income taxes in Brazil.
  • Adjusted EBITDA was $12.2 million compared to $20.4 million in the fourth quarter of fiscal 2021.
  • Unifi repurchased 515,000 shares of its common stock for $7.0 million under a previously announced program. During fiscal 2022, Unifi repurchased 616,500 shares of its common stock for $9.2 million.

Eddie Ingle, CEO of Unifi, said, “Our fourth quarter fiscal 2022 results were consistent with our expectations, as we generated double-digit top-line growth and continued to navigate a volatile macro environment. This marks our third consecutive quarter of over $200 million in sales, and we are proud of how our teams around the globe continue to leverage the resilience and agility of our business model.

“As we look to fiscal 2023, we remain focused on executing our growth strategy, which includes accelerating innovation, expanding our Repreve branding, growing our market share and penetrating new markets. Additionally, we will remain diligent in aligning pricing to stay ahead of inflation, and we expect to continue to make progress towards a stronger and more profitable U.S. business in the quarters and years ahead.”

Business Segment Update
In the fourth quarter of fiscal 2022, Unifi realigned its reportable segments to correspond with changes to its operating model, management structure and organizational responsibilities. Accordingly, Unifi is now reporting the Americas, Brazil and Asia Segments. The Americas Segment represents the combination of the previously reported Polyester Segment, Nylon Segment and All Other categories. There are no changes to the composition of the historical Brazil Segment and Asia Segment. Comparative prior period disclosures have been updated to conform to the new presentation.

Fourth Quarter Fiscal 2022 Compared To Fourth Quarter Fiscal 2021
Net sales increased 18.0 percent to $217.6 million, from $184.4 million, primarily driven by pricing actions in the U.S. in response to inflation and higher input costs. The Americas Segment generated a double-digit percentage increase in revenue due to stable product demand amid higher selling prices. The Brazil Segment increased revenue by nearly 50 percent, as the comparative period included the unfavorable impact of pandemic-related lockdowns in Brazil. The Asia Segment generated strong underlying revenue performance considering the pressure from the current and ongoing pandemic-related lockdowns in China. The fourth quarter and fiscal year 2022 each contained an additional fiscal week.

Gross profit decreased 33.0 percent to $18.4 million from $27.4 million. Americas Segment gross profit decreased $3.1 million as a result of rising input costs and lower manufacturing productivity. Brazil Segment gross profit decreased $4.8 million, consistent with Unifi’s prior expectations as the local market dynamics have exhibited some normalization from the strong environment in the prior year period, and raw material cost volatility adversely impacted the fourth quarter of fiscal 2022. Asia Segment’s gross profit was impacted by the current and ongoing pandemic-related lockdowns in China, while the gross margin rate remained robust with underlying Repreve product demand.

Operating income decreased to $5.0 million, from $14.0 million, primarily due to the decrease in gross profit. Net income was $3.5 million, or $0.19 per share, compared to $13.4 million, or $0.70 per share, and was favorably impacted by an estimated recovery of income taxes in Brazil. On an adjusted basis, EPS was $0.11, which excludes the benefit of the estimated recovery of income taxes in Brazil, compared to $0.37 which includes the 2021 estimated recovery of non-income taxes in the prior year period. Adjusted EBITDA was $12.2 million, compared to $20.4 million, consistent with the decrease in operating income.

The debt principal was $114.3 million on July 3, 2022, compared to $86.9 million on June 27, 2021. In connection with previously anticipated investments in new yarn texturing innovation and working capital to support future growth, cash and cash equivalents decreased to $53.3 million on July 3, 2022, from $78.3 million on June 27, 2021. Accordingly, Net Debt was $61.0 million on July 3, 2022, versus $8.6 million on June 27, 2021.

Fiscal 2022 Compared To Fiscal 2021
Net sales were $815.8 million for fiscal 2022, the highest annual sales level in more than 10 years, compared to $667.6 million in fiscal 2021. Revenues from Repreve Fiber products represented 36 percent of consolidated net sales, compared to 37 percent. The gross margin was 9.9 percent, compared to 14.0 percent. Operating income was $28.6 million, compared to $38.6 million. Net income was $15.2 million, compared to $29.1 million.

Outlook
The following reflects Unifi’s expectations for fiscal 2023, in which the first quarter will exhibit the most profitability pressures, and quarterly performance is anticipated to improve sequentially throughout the year.

  • Sales volume and Repreve sales growth to drive net sales between $855 million and $885 million, which would represent an increase of 5 percent or more from the level achieved in fiscal 2022.
  • Adjusted EBITDA to be between $48.0 million and $57.0 million. This range anticipates that current headwinds from customer demand patterns and input cost dynamics will be most pronounced in the Americas segment and will continue for at least the first half of the fiscal year.
  • Effective tax rate to be between 55 percent and 65 percent, assuming no significant changes in existing tax legislation.
  • Capital expenditures of approximately $35.0 million to $40.0 million, as Unifi continues investing in new yarn texturing machinery within the U.S., El Salvador and Brazil. Such capital expenditure levels will be funded by available financing arrangements, and are inclusive of approximately $10.0 million to $12.0 million of routine annual maintenance.

Ingle concluded, “While there is short-term uncertainty with regard to global demand and inflation concerns that will pressure our first half of fiscal 2023, our team remains focused on executing our strategic plans including the long-term financial goals that were presented during our February 2022 Investor Day. We continue to make investments in and are realizing initial benefits from our new yarn texturing machinery within our U.S., El Salvador and Brazil manufacturing operations. Adoption of our Repreve Fiber products continues to grow as we support numerous customers with their sustainability endeavors. We continue to make progress with innovative approaches to the labor challenges that have impacted many businesses in the U.S. In addition, we remain diligent with pricing actions to offset inflationary pressures. We are well positioned as a global sustainability leader and will drive long-term value for all of our stakeholders.”

Photo courtesy Unifi/Repreve