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Unifi Reports Profit Drop on High Raw Materials Costs

Synthetic fiber firm Unifi Inc. said external price pressures and underperformance have led to a short-term profitability decline, but an improving price-to-cost relationship is expected for the third and fourth quarters of fiscal 2019.

The Greensboro, N.C.-based company on Monday announced preliminary financial results for its second fiscal quarter ended Dec. 30 and said it expects to post an operating loss between $500,000 and $1.5 million, a loss before income taxes of the same amounts, and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $4.5 million to $5.5 million.

“While we remain committed to delivering our revenue growth targets, and are confident in our ‘Partner, Innovate and Build Strategy,’ our fiscal second quarter profitability was considerably lower than we anticipated,” said Unifi CEO Kevin Hall. “Polyester raw material costs spiked in September to reach a multi-year high in October, resulting in short-term demand disruption. While those costs have declined since, gross margins were pressured throughout the second quarter as we worked through the higher-cost inventory. These headwinds were compounded by lower production volumes and a weaker sales mix. Despite these headwinds, we saw continued growth in certain international operations against foreign economic and currency pressure.”

Gross margins are now expected to be approximately 8.4 percent in the second quarter. The company forecasts net sales of approximately $167 million. Unifi is scheduled to release its full second quarter financial results on Jan. 20.

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“As we look forward, we continue to forecast solid revenue growth in the second half of fiscal 2019 and we expect to drive stronger operating income and adjusted EBITDA, given the recent decline in raw material costs, the seasonal demand that historically occurs in our third and fourth quarters, and the continued traction of our PVA portfolio,” said Hall, referring to the company’s premium value-added fibers. “This second-half outlook includes gross margins near more seasonal norms in the third and fourth quarters. Therefore, we are reiterating our top-line guidance for the year and have adjusted our outlook for fiscal 2019 operating income and adjusted EBITDA.”

Unifi’s updated fiscal 2019 outlook now forecasts operating income of $19 million to $23 million compared to an adjusted EBITDA between $42 million and $46 million, compared to its previous outlook for the year of mid-single-digit percentage growth in operating income and adjusted EBITDA.

In the first quarter ended Sept. 30, Unifi posted its sixth consecutive quarter of revenue growth, but a surge in raw material costs reduced earnings. Net sales in the period increased 10.6 percent to $181.6 million, while net income was cut to $1.8 million compared to $9 million in the year-ago period.

Unifi’s Profiber technologies offer increased performance, comfort and style advantages. Its Repreve branded recycled performance fibers have transformed more than 13 billion plastic bottles into recycled fiber for new apparel, footwear, home goods and other consumer products.