Unifi is seeing excess inventory at retailers and vendors work its way up to the suppliers. The company reported fiscal third quarter net sales fell 30.0% to $119.1 million compared to $169.8 million for the prior years fiscal third quarter. The cumulative effect of year-over-year declines in retail sales since October 2008 caused by the global recession was the cause of the sales decline. Unifi also saw reduced production levels throughout the textile supply chain as excess inventory was depleted.
The company noted that overall U.S. apparel market sales at retail are down 5% to 8% and overall home furnishing market retail sales are down 12% to 14%. Unifi was hit harder than the overall market because excessive inventories were built up within the supply chain and fabric mills. Finished good providers and retailers have curtailed new production and orders in an effort to reduce their investment and working capital.
Year-to-date sales of Unifis “premier value added” products are down, but the declines are approximately half of what the rest of the business is experiencing. The adoption cycle for premier value added programs is being tempered by the economy, but strength in Repreve recycled products and will continue to develop sustainable textiles under the Repreve brand. Unifi will also begin localizing recycling efforts in China.
Gross margins, which are heavily dependent on production volume as a percentage of capacity, were less than 1% of sales compared to 7.9% of sales last year. Unifi cut roughly $600,000 from their SG&A expenses but still reported a net loss of $33.0 million compared to a net income of
$12,000 for the same quarter last year. Diluted EPS was a loss of $0.53 compared to $0.00 diluted earnings per share last year.
