Unifi Inc. reported earnings in the second quarter ended December 25 slumped 29.0 percent to $4.6 million, or 25 cents a share. Revenues eased 0.7 percent to $155.2 million.

Second Quarter and Year-to-Date Fiscal 2017 Highlights

  • Volume, measured by pounds sold, increased by more than 10 percent for the second quarter and first six months of fiscal 2017 compared to the second quarter and first six months of fiscal 2016, driven by the strength of the international premium value-added (PVA) portfolio;
  • Gross margin increased to 14.3 percent for the second quarter of fiscal 2017, compared to 14.0 percent for the prior fiscal year second quarter, and increased to 14.5 percent compared to 13.4 percent, for the year-to-date periods of fiscal 2017 and 2016, respectively;
  • Operating income increased to $9.0 million for the second quarter of fiscal 2017, up from $8.6 million for the prior fiscal year second quarter, and increased to $21.6 million compared to $18.3 million, for the year-to-date periods of fiscal 2017 and 2016, respectively;
  • Net income for the second quarter and fiscal six month period was $4.6 million and $14.0 million, respectively. Net income includes a year-over-year decline in earnings from Parkdale America, LLC (PAL) of $0.3 million for the quarter and $1.4 million for the six month period, as well as a $1.7 million loss on a non-core divestiture for both periods;
  • Adjusted net income, which excludes the loss on a non-core divestiture, was $0.6 million less than the prior fiscal year quarter and $0.8 million higher than the prior fiscal year six month period; and
  • Term loan principal reset to $100 million under the existing credit facility, enhancing liquidity and financial flexibility.

“We are pleased with another quarter of solid results, as strong performance internationally counterbalanced headwinds in the domestic market, driven by weak retail sales and elevated inventory levels,” said Tom Caudle, president of Unifi. “In the short-term, we expect margin pressure in the International Segment due to increased import tariffs on raw materials for our Brazilian operations, and we expect domestic market conditions to remain difficult. As a result, we now expect fiscal 2017 results to be broadly consistent with fiscal 2016.”

Caudle concluded, “As we look forward, we continue to see attractive international growth opportunities. We also believe that our collection of technologically advanced assets in the U.S. positions our domestic business to thrive over the mid-term, as our customers seek a speed-to-market advantage that imports cannot offer. Lastly, we continue to invest in product innovation and brand relationships to expand our growing PVA and REPREVE portfolio.”

Second Quarter Fiscal 2017 Operational Review

Net sales were $155.2 million for the second quarter of fiscal 2017, compared to net sales of $156.3 million for the second quarter of fiscal 2016. Operating income grew more than 4 percent to $9.0 million in the second quarter of fiscal 2017, compared to $8.6 million in the second quarter of fiscal 2016. Strong PVA performance in Asia and Brazil mostly offset weaker sales in the domestic market.

The company divested its 60 percent interest in Repreve Renewables, LLC (Renewables) during the second quarter of fiscal 2017, which at the transaction date had a net asset value of $2.2 million. The transaction resulted in a loss of $1.7 million and a reduction in consolidated net debt (debt principal less cash and cash equivalents) of $4.0 million.

Net income of $4.6 million for the second quarter of fiscal 2017 reflects solid operating results offset by a $0.3 million decline in earnings for Parkdale America, LLC (PAL) and a $1.7 million loss on the sale of the investment in Renewables. Adjusted Net Income for the second quarter of fiscal 2017 of $6.3 million, which excludes the loss on the sale of the investment in Renewables, was $0.6 million less than the prior fiscal year second quarter. Basic EPS was 25 cents in the second quarter of fiscal 2017 compared to 36 cents in the second quarter of fiscal 2016, and Adjusted EPS was 34 cents compared to 38 cents in the prior second quarter.

Adjusted EBITDA was $14.5 million for the second quarter of fiscal 2017, compared to $14.4 million for the second quarter of fiscal 2016. Adjusted EPS, Adjusted Net Income and Adjusted EBITDA are non-GAAP financial measures. The schedules included in this press release calculate Adjusted EPS and reconcile Adjusted EBITDA and Adjusted Net Income to Net income attributable to Unifi, Inc.

Foreign currency translation in the second quarter resulted in an increase to net sales of $2.0 million and gross profit of $0.3 million compared to the prior fiscal year second quarter, with no notable impact to other key metrics.

Net debt was $106.7 million at December 25, 2016, which includes the execution of the second principal reset on the term loan and the elimination of debt for Renewables, compared to $106.4 million at June 26, 2016.

First Six Months of Fiscal 2017 Operational Review

Net sales were $315.1 million for the six months ended December 25, 2016, compared to net sales of $318.5 million for the six months ended December 27, 2015. Operating income grew 18 percent year-over-year, to $21.6 million in the first half of fiscal 2017 compared to $18.3 million in the first half of fiscal 2016. Strong PVA performance in Asia and Brazil mostly offset weaker sales in the domestic market.

Net income was $14.0 million for the first half of fiscal 2017, compared to $14.5 million for the first half of fiscal 2016. Net income for the first half of fiscal 2017 was adversely impacted by a loss of $1.7 million associated with the sale of the investment in Renewables and a $1.4 million decline in earnings from PAL.

Adjusted net income and adjusted EPS, both excluding the loss from the sale of the investment in Renewables, grew to $15.7 million and $0.87, respectively, for the first six months of fiscal 2017 compared to $14.9 million and $0.83, respectively, for the first six months of fiscal 2016. Of note, both adjusted net income and Adjusted EPS increased despite $1.4 million of weaker results from PAL. Adjusted EBITDA, which excludes changes in earnings from PAL, increased to $32.4 million for the first half of fiscal 2017, compared to $29.4 million for the first half of fiscal 2016.

Foreign currency translation resulted in an increase to net sales of $3.3 million and gross profit of $0.4 million compared to the prior fiscal year period, with no notable impact to other key metrics.