Unifi, Inc. reported a net loss of $18 million in its fiscal second quarter ended January 1 as sales fell 32 percent. Results were in line with a pre-announcement on January 19.
Second Quarter Fiscal 2023 Overview
- Net sales were $136.2 million, a decrease of 32.4 percent from the second quarter of fiscal 2022, primarily attributable to temporary demand disruption in the Americas and Asia Segments caused by near-term inventory destocking measures taken by apparel brands and retailers.
- Revenues from Repreve Fiber products represented 31 percent of net sales, or $42.9 million, compared to 40 percent, or $81.5 million, in the second quarter of fiscal 2022, primarily impacted by lower sales volumes in Asia.
- Gross loss was $8.0 million compared to gross profit of $16.9 million for the second quarter of fiscal 2022, primarily impacted by lower facility utilization and lower sales. Gross margin was (5.9 percent) compared to 8.4 percent for the second quarter of fiscal 2022.
- Operating loss was $19.8 million compared to operating income of $4.6 million for the second quarter of fiscal 2022.
- Net loss was $18.0 million, or ($1.00) per share, compared to net income of $0.9 million, or $0.05 per share, for the second quarter of fiscal 2022. Adjusted Net Loss was $21.8 million compared to $0.9 million of Adjusted Net Income for the second quarter of fiscal 2022.
- Adjusted EBITDA was ($13.0) million compared to $10.9 million for the second quarter of fiscal 2022.
- Operating cash flows generated for the six months ended January 1, 2023 were $7.3 million, compared to ($4.0) million used in the comparative prior year period, exhibiting diligence around operating costs and working capital, which helped to offset a demand-suppressed operating environment.
- Net Debt decreased from $79.8 million at October 2, 2022 to $79.6 million at January 1, 2023.
- In October 2022, the existing credit facility was amended, expanded from $200.0 million to $230.0 million and maturity extended to October 2027, to support future growth and to provide additional liquidity.
On January 19, Unifi said it expected sales to decrease 24 percent to 25 percent from the first quarter of fiscal 2023 compared to the previous expectation of a 10 percent to 15 percent decrease. Adjusted EBITDA was projected to be between $12.0 million and $14.0 million, compared to the previous expectation of between $0.0 million and $5.0 million.
Eddie Ingle, CEO of Unifi, said, “Our second quarter fiscal 2023 performance was significantly impacted by a sequential decline in apparel production beyond our prior expectations. Our team remained proactive and executed numerous cost reduction initiatives and other savings measures during the period, but the headwinds caused by near-term inventory destocking efforts impacted demand from many of our apparel customers. The good news is that our customers’ supply chains are beginning to normalize and the drivers of our mid- and long-term growth engines remain fully intact. Further, our customers are forecasting a stronger second half of the calendar year as they work through their remaining excess inventory and short-term headwinds. In the interim, we will continue to invest prudently with an eye toward supporting long-term growth, while simultaneously controlling costs and building efficiencies. We remain confident in our position as a global leader for sustainable solutions and in the long-term demand profile for our Repreve products and other innovative solutions.”
Second Quarter Fiscal 2023 Compared to Second Quarter Fiscal 2022
Net sales decreased 32.4 percent to $136.2 million, from $201.4 million, primarily driven by lower sales volumes. The demand for apparel production declined significantly in the first half of fiscal 2023 as brands and retailers took action to reduce their inventory levels and normalize supply chains. This caused the Americas and Asia Segments to experience revenue declines from customers across both U.S. and foreign markets.
Gross loss was $8.0 million compared to gross profit of $16.9 million in the second quarter of fiscal 2022. Americas Segment gross profit decreased $13.9 million, primarily as a result of lower sales volumes driving weaker productivity and cost absorption. Brazil Segment gross profit decreased $6.2 million due to selling price pressures from foreign imports against high-cost inventory. The Asia Segment maintained a strong gross margin rate but was impacted by weaker sales volumes, driving a gross profit decrease of $4.8 million.
Operating loss was $19.8 million compared to operating income of $4.6 million in the second quarter of fiscal 2022, primarily due to the decrease in gross profit. Net loss was $18.0 million, or ($1.00) per share, compared to net income of $0.9 million, or $0.05 per share, impacted by the weaker profitability in the U.S. On an adjusted basis, EPS was ($1.21), which includes a $3.8 million recovery of prior years’ income taxes in Brazil, compared to of $0.05 in the prior year period. Adjusted EBITDA was ($13.0) million, compared to $10.9 million, consistent with the change in operating income.
Year-To-Date Fiscal 2023 Compared to Year-To-Date Fiscal 2022
Net sales were $315.7 million compared to $397.4 million. Revenues from Repreve fiber products represented 29 percent of net sales, or $92.0 million, compared to 39 percent, or $153.4 million. Gross margin was (0.5 percent) compared to 10.8 percent. Operating loss was $24.5 million compared to operating income of $17.8 million. Net loss was $25.9 compared to net income of $9.6 million.
Liquidity and Credit Facility
On October 28, 2022, Unifi renewed and amended its existing credit facility to expand the borrowing capacity and extend the maturity date. The amended credit agreement increases the borrowing capacity from $200.0 million to $230.0 million, extends the maturity date from December 2023 to October 2027 and contains pricing, terms,and conditions generally consistent with those in place prior to the amendment. In connection with the refinancing, a loss on debt extinguishment of $0.3 million was recorded to interest expense in the second quarter of fiscal 2023.
Debt principal was $130.4 million on January 1, 2023 compared to $114.3 million on July 3, 2022. Cash and cash equivalents decreased to $50.8 million on January 1, 2023, from $53.3 million on July 3, 2022, as operational losses were partially offset by cost and working capital diligence. Accordingly, Net Debt was $79.6 million on January 1, 2023 compared to $61.0 million on July 3, 2022. On January 1, 2023, the revolving credit facility had outstanding borrowings of $3.4 million and availability of $64.7 million.
The operating environment and textile demand trends for the apparel market are expected to recover at a modest pace during calendar 2023. Unifi expects the following for the third quarter of fiscal 2023:
- Revenue to increase sequentially, but adversely impacted by the Lunar New Year holiday in Asia;
- Sequential operating performance improvement;
- Continued volatility and unfavorability in the effective tax rate; and
- Slightly lower sequential capital expenditures, with further reductions anticipated during the fourth quarter of fiscal 2023.
Ingle continued, “Although current economic conditions have impacted our financial results in the first half of the fiscal year, our team has taken the proper actions to mitigate these headwinds. We believe we have positioned the business to return to strength in the second half of the fiscal year. We have also made positive changes to our capital structure by amending and expanding our credit facility, and we maintain a strong and flexible balance sheet. Most importantly, our position as the premier supplier of sustainable fibers continues to be recognized across the globe, and the Repreve brand remains highly aligned with our customers’ long-term priorities. As the apparel markets recover, we expect to see our business bounce back fairly quickly and are confident we have the right strategic plan to drive long-term growth and value for all of our stakeholders.”