Unifi, Inc. reported earnings declined 56.3 percent in the third fiscal quarter ended March 27 as lower gross margins offset a 12.3 percent revenue gain. The parent of Repreve Fiber said sales and profitability were in line with expectations.

Third Quarter Fiscal 2022 Overview

  • Net sales were $200.8 million, an increase of 12.3 percent from the third quarter of fiscal 2021;
  • Revenues from Repreve products represented 36 percent of net sales compared to 34 percent in the third quarter of fiscal 2021. Similarly, Repreve products made up 38 percent of year-to-date net sales compared to 36 percent for the same year-to-date period of fiscal 2021;
  • Gross profit was $19.1 million compared to $25.6 million for the third quarter of fiscal 2021. Gross margin was 9.5 percent compared to 14.3 percent for the third quarter of fiscal 2021;
  • Operating income was $5.8 million compared to $8.6 million for the third quarter of fiscal 2021;
  • Net income was $2.1 million, or $0.11 diluted earnings per share, compared to net income of $4.8 million, or $0.25 diluted EPS for the third quarter of fiscal 2021;
  • Adjusted EPS was $0.14 and excluded the revision of an estimate for recovering non-income taxes in Brazil, compared to $0.25 for the third quarter of fiscal 2021;
  • Adjusted EBITDA was $12.2 million compared to $15.9 million for the third quarter of fiscal 2021;
  • Under a previously announced program, the company repurchased 50,000 shares of its common stock for $1.0 million during the third quarter of fiscal 2022. During fiscal 2022, the company has repurchased 101,500 shares of its common stock for $2.2 million.

Eddie Ingle, CEO, Unifi, said, “Our third-quarter fiscal 2022 results were consistent with our expectations, with Repreve Fiber products comprising 36 percent of consolidated sales. This marks our second consecutive quarter of over $200.0 million in sales. We implemented further selling price adjustments and demonstrated solid progress against the difficult U.S. labor environment, exhibiting a definitive improvement in our Polyester and Nylon Segments’ gross margins since the December 2021 quarter.

“We are pleased with the gross margin improvement, and we expect to continue making progress in the quarters ahead. Although we are carrying significant momentum into the fourth quarter, the lockdowns in China will adversely impact our overall profitability. Fortunately, we expect our constant pursuit of innovation and sustainability, combined with our regional competitive advantages, to help offset the temporary shortfall in China and continue to drive long-term growth for Unifi.”

Third Quarter Fiscal 2022 Compared To Third Quarter Fiscal 2021
Net sales increased 12.3 percent to $200.8 million, from $178.9 million, primarily driven by strong pricing initiatives for each segment in response to higher input costs. The Polyester and Nylon Segments generated double-digit percentage increases in revenue due to product demand, despite some small labor challenges that dampened sales volume performance. The Asia and Brazil Segments also increased revenue, albeit under softer market conditions than the prior-year period when localized lockdowns and logistics issues were not as prevalent. Repreve Fiber products comprised 36 percent of consolidated net sales and continue to meet the demand for sustainable textiles.

Gross profit decreased 25.2 percent to $19.1 million from $25.6 million. Polyester Segment gross profit decreased $3.3 million as a result of rising input costs and less efficient production. Brazil Segment gross profit decreased $4.6 million, which was consistent with the company’s prior expectations as the local market dynamics have exhibited some normalization from the exceptionally strong environment in the prior-year period.

Operating income decreased to $5.8 million, from $8.6 million, primarily due to decreased gross profit, partially offset by $0.9 million of foreign currency gains in fiscal 2022 and a $2.6 million non-cash loss on asset disposals in fiscal 2021. Operating income for the third quarter of fiscal 2021 included $4.0 million of higher incentive compensation expense.

Net income was $2.1 million, or $0.11 per share, compared to $4.8 million, or $0.25 per share, impacted by a higher effective tax rate in connection with a U.S. net operating loss for which the full benefit is currently unrealizable. On an adjusted basis, EPS was $0.14, which includes a revision to the fiscal 2021 estimated recovery of non-income taxes in Brazil, compared to $0.25 in the prior-year period. Adjusted EBITDA was $12.2 million, compared to $15.9 million, consistent with the change in operating income. Adjusted EBITDA includes the aforementioned estimate revision for non-income taxes in Brazil.

Debt principal was $97.3 million on March 27, 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 $53.0 million on March 27, 2022, from $78.3 million on June 27, 2021. Accordingly, Net Debt was $44.3 million on March 27, 2022, compared to $8.6 million on June 27, 2021.

Year-To-Date Fiscal 2022 Compared To Year-To-Date Fiscal 2021
Net sales were $598.2 million, compared to $483.1 million, an increase of 23.8 percent. Revenues from Repreve Fiber products represented 38 percent of consolidated net sales, compared to 36 percent. Gross margin was 10.4 percent, compared to 13.7 percent. Operating income was $23.6 million, compared to $24.6 million. Net income was $11.7 million, compared to $15.7 million.

Outlook
The following reflect the company’s updated expectations for fiscal 2022.

  • Sales volume and Repreve Fiber sales growth driving net sales to $810 million or more, which would represent an increase of 21 percent or more from the level achieved in fiscal 2021;
  • Adjusted EBITDA to range between $54.0 million and $57.0 million, reflecting the adverse impacts of recent and ongoing COVID-related lockdowns in Asia and renewed global volatility;
  • An effective tax rate between 45 percent and 55 percent, assuming no significant changes in existing tax legislation; and
  • Capital expenditures of approximately $40.0 million to $42.0 million as the company continues investing in new yarn texturing machinery in the U.S., El Salvador and Brazil. Such capital expenditure levels will be funded by cash-on-hand and available financing arrangements and include approximately $10.0 million to $12.0 million of routine annual maintenance.

Ingle concluded, “While renewed global volatility amid lockdowns in Asia mutes our expectations for the fourth quarter, we remain optimistic about our momentum towards the strategic initiatives outlined in pursuit of our fiscal 2025 targets.”

Unifi’s Repreve will be featured in the upcoming H&M Cherish Waste Art and Fashion Exhibition. To learn more, go here.
Photo courtesy Repreve x H&M