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Favorable Raw Materials Environment Sends Unifi Profitability Up

Unifi Inc. scored significant gains in income in its fiscal first quarter, boosted by lower expenses and stable raw material costs.

In a Nutshell: Unifi, a manufacturer of recycled and synthetic yarns, said revenues from premium value-added products represented a record 54 percent of consolidated net sales in its fiscal 2020 first quarter, up from 43 percent in the prior-year quarter.

Sales volume increased 16 percent compared to the first quarter of fiscal 2019, led by Repreve-branded products and Asia, which lowered consolidated average selling prices.

The company, based in Greensboro, N.C., said with the assumption that raw material costs remain stable for the remainder of fiscal 2020, it was reaffirming its fiscal 2020 outlook.

This includes high-single-digit percentage growth in sales volume and mid-single-digit percentage growth in net sales. Operating income is expected to more than double to between $22 million and $27 million.

Sales: Net sales in the first quarter ended Sept. 29 dipped 0.9 percent to $179.9 million compared to $181.6 million in the year-ago period. However, the first quarter of fiscal 2020 consisted of 13 weeks of domestic operations, compared to 14 weeks of domestic operations in the first quarter of fiscal 2019.

Earnings: Net income more than doubled to $3.7 million from $1.8 million in the year-ago quarter, boosted by a significant improvement in the effective tax rate.

Operating income increased 11 percent to $6.3 million compared to the first quarter of fiscal 2019, primarily due to lower expenses stemming from sales, general and advertising (SG&A) reductions that began in the second half of fiscal 2019. SG&A decreased $3.4 million year over year, demonstrating results from cost-reduction efforts. Operating cash flows improved significantly to $23.8 million, which allowed for a 17 percent reduction of net debt to $88.3 million.

Gross profit fell 13 percent to $17.4 million from $20 million, primarily attributable to competitive pricing pressures that were most pronounced in Brazil and Asia, along with a higher proportion of sales in Asia. The decrease was partially offset by a more favorable raw material cost environment in the U.S.

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President’s Take: Tom Caudle, president and chief operating officer of Unifi, said: “Our strategy and portfolio in Asia continue to be validated, helping us to achieve our revenue expectations for the first quarter of fiscal 2020. Profitability was aided by our previously communicated step-down in SG&A, along with a more favorable raw material cost environment in the U.S. While we recognize that the current business environment in the U.S. is challenging and our Brazil segment was impacted by elevated raw material costs, we are pleased with our operating cash flows and earnings in the first fiscal quarter and look to carry that momentum into the remainder of fiscal 2020.”