Unifi Inc.’s earnings climbed 11.7 percent in the fiscal fourth quarter ended June 24 as sales grew 5.9 percent. Adjusted earnings were down due to higher raw material costs.

Fourth Quarter 2018 Highlights

  • Net sales increased $10.0 million, or 5.9 percent, to $181.3 million, compared to $171.3 million for the fourth quarter of fiscal 2017 and increased $12.1 million, or 7.1 percent, when excluding the impact of foreign currency translation.
  • Revenues from premium value-added (“PVA”) products grew 16 percent compared to the fourth quarter of fiscal 2017, and represented approximately 45 percent of consolidated net sales.
  • Gross margin was 13.2 percent, compared to 16.0 percent for the fourth quarter of fiscal 2017.
  • Operating income was $9.3 million, compared to $13.0 million for the fourth quarter of fiscal 2017.
    Diluted EPS was $0.58, compared to $0.52 for the fourth quarter of fiscal 2017. Excluding a $0.19 benefit from the reversal of an uncertain tax position, Adjusted EPS was $0.39 for the quarter, compared to $0.52 for the fourth quarter of fiscal 2017.
  • Fiscal 2019 outlook of mid-single-digit percentage growth in revenue and mid- to high-single-digit growth in operating income.

“Our teams across the globe delivered strong performance during the fourth quarter and finished fiscal 2018 with 5 percent top-line growth,” said Kevin Hall, chairman and CEO of Unifi. “While navigating ongoing pressure from higher raw material costs, we capitalized on increased demand from brands and retailers for our innovative PVA offerings, including REPREVE. We also are encouraged that gross profit and operating income for the fourth quarter improved compared to the third quarter.”

Hall continued, “With our core strategy focused on innovation and sustainability, we are excited about the opportunities that remain ahead of us. Building strategic partnerships and deploying our resources efficiently for commercial expansion remain critical to achieving our long-term goals.”

Fourth Quarter Fiscal 2018 Operational Review

Net sales were $181.3 million for the fourth quarter of fiscal 2018, compared to $171.3 million for the fourth quarter of fiscal 2017. Revenue growth was driven by an overall increase in sales volume, led by worldwide PVA product sales.

Gross margin was 13.2 percent for the fourth quarter of fiscal 2018, compared to 16.0 percent for the fourth quarter of fiscal 2017. The decrease in gross margin was driven primarily by higher raw material costs and a less favorable sales mix, in combination with a highly competitive domestic environment. Gross margin increased more than 300 basis points from the third quarter of fiscal 2018, as raw material-related pricing adjustments continued to take hold in the fourth quarter.

Operating income declined to $9.3 million for the fourth quarter of fiscal 2018, from $13.0 million for the fourth quarter of fiscal 2017. The decline in operating income was primarily due to a reduction in gross profit. SG&A expenses in the quarter increased $1.2 million from the fourth quarter of fiscal 2017 as a result of investments in the company’s expanding international operations and domestic commercial capabilities. Foreign currency gains in the quarter totaled $0.8 million, compared to losses of $0.2 million in the fourth quarter of fiscal 2017.

Net income was $10.8 million for the fourth quarter of fiscal 2018, compared to $9.7 million for the fourth quarter of fiscal 2017. Net income for the fourth quarter of fiscal 2018 was adversely impacted by comparatively higher operating expenses, but benefited from a significantly lower effective tax rate. Diluted EPS was $0.58 for the fourth quarter of fiscal 2018 and $0.52 for the fourth quarter of fiscal 2017.

Adjusted Net Income was $7.4 million for the fourth quarter of fiscal 2018, compared to $9.7 million for the fourth quarter of fiscal 2017. Adjusted EPS was $0.39 for the fourth quarter of fiscal 2018, due to the reversal of an uncertain tax position, and $0.52 for the fourth quarter of fiscal 2017.

Adjusted EBITDA was $15.3 million for the fourth quarter of fiscal 2018, compared to $18.8 million for the fourth quarter of fiscal 2017. The decrease in Adjusted EBITDA resulted primarily from lower gross profit and incremental SG&A expenses, but benefited from foreign exchange gains.

Net debt (debt principal less cash and cash equivalents) was $86.3 million at June 24, 2018, compared to $94.0 million at June 25, 2017, as cash and cash equivalents grew from $35.4 million at June 25, 2017 to $44.9 million at June 24, 2018.

Fiscal 2018 Operational Review

Net sales for fiscal 2018 increased 4.9 percent to $678.9 million, compared to $647.3 million for fiscal 2017, due primarily to increased global sales of PVA products. Gross margin for fiscal 2018 was 12.7 percent, compared to 14.5 percent for fiscal 2017, due primarily to higher raw material costs and a less favorable sales mix in a highly competitive domestic environment. Operating income for fiscal 2018 was $28.8 million, compared to $43.8 million for fiscal 2017. Operating income was adversely impacted primarily by a sustained rise in raw material costs throughout much of fiscal 2018, higher SG&A expenses and foreign currency losses.

Net income for fiscal 2018 was $31.7 million, compared to $32.9 million for fiscal 2017. Net income for fiscal 2018 included $7.2 million of tax benefits due to the reversal of a valuation allowance on certain historical net operating losses and the reversal of an uncertain tax position stemming from fiscal 2015, offset by higher operating expenses and foreign currency losses. Net income for fiscal 2017 included a loss on sale of business of $1.7 million, higher research and development tax credits and foreign currency gains. For fiscal 2018, Diluted EPS and Adjusted EPS were $1.70 and $1.32, respectively. For fiscal 2017, Diluted EPS and Adjusted EPS were $1.78 and $1.87, respectively. Adjusted EBITDA for fiscal 2018 was $52.3 million, compared to $65.6 million for fiscal 2017, driven primarily by higher raw material costs and other operating expenses.

Fiscal 2019 Outlook

Fiscal 2019 will contain 53 fiscal weeks, with the first quarter ending September 30, 2018 containing 14 fiscal weeks.

For fiscal 2019, the company anticipates:

  • Mid-single-digit percentage growth for net sales;
  • Mid- to high-single-digit percentage growth for operating income and Adjusted EBITDA;
  • Capital expenditures of approximately $25.0 million and
  • An effective tax rate in the low 30 percent range, subject to adjustment in light of pending interpretations of the December 2017 federal tax reform legislation.

“Fiscal 2018 marked a challenging, but promising year, as the strategic investments that we made across the business materialized into accelerated top-line performance, which we believe will be sustainable into fiscal 2019,” said Hall. “While higher raw material costs significantly pressured our margins and profitability in fiscal 2018, we began to see a positive impact in the fourth quarter from recent pricing adjustments. As we look to fiscal 2019, we plan for improvement in all our major performance metrics and continued progress against our strategic initiatives and long-term profitability.”