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Unifi’s Profits Slashed by Higher Costs, Production Problems

Unifi Inc. saw a precipitous decline in net income and gross profit, impacted by U.S. labor, production and input cost challenges.

In a Nutshell: Unifi, makers of Repreve and other recycled and synthetic yarns, updated its expectations for fiscal 2022 on Thursday, with overall volume and Repreve fiber sales growth seen driving net sales to $800 million or more, which would represent an increase of at least 20 percent from the level achieved in fiscal 2021.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) is forecast to range between $60 million and $62 million, with a larger portion of second half fiscal 2022 profitability being generated in the fourth quarter ending July 3.

Capital expenditures of approximately $40 million to $44 million are expected, as the company continues its plan to invest in new yarn texturing machinery within its Americas facilities. Such capital expenditure levels will be funded by cash on-hand and available financing arrangements and are inclusive of approximately $10 million to $12 million of routine annual maintenance.

Unifi said the forecast assumes there are no further significant disruptions to global markets, supply chains or the labor market and no further adverse impacts from Covid-19.

The company, based in Greensboro, N.C., also noted that on Oct. 19, the U.S. Department of Commerce announced final antidumping duty deposit rates on imports of polyester textured yarn from Indonesia, Malaysia, Thailand and Vietnam. On Nov. 16, the U.S. International Trade Commission determined that the U.S. textile industry was materially injured by these imports and last month, the Commerce Department issued unanimous final antidumping duty orders on Subject Imports.

Following these concluded petitions, Unifi continues to expect an increase in annual revenue of $20 million or greater as a result of a more normalized pricing environment.

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Sales: Net sales for the second fiscal quarter ended Dec. 26 increased 23.7 percent to $201.4 million from $162.8 million.

The Asia segment achieved record quarterly sales volume, driving a 32 percent rise in revenue. The Brazil segment captured a 14 percent year-over-year revenue increase from favorable pricing and sales mix.

Polyester segment revenue rose 21 percent due to pricing adjustments associated with a portion of raw material cost increases that occurred in calendar 2021. Repreve fiber product sales reached 40 percent of consolidated sales, up from 38 percent in the second quarter of fiscal 2021 and continue to meet the ever-growing demand for sustainable textiles, driving underlying portfolio momentum, Unifi noted.

Earnings: Net income in the quarter was $900,000, or five cents diluted earnings per share (EPS), compared to net income of $7.5 million, or 40 cents diluted EPS for the second quarter of fiscal 2021.

Gross profit decreased 35 percent to $16.9 million. Polyester segment gross profit fell $10.5 million as a result of rising input costs and production inefficiencies. Brazil segment gross profit was consistent with expectations as the local market dynamics exhibit some normalization from the favorable environment in the prior-year quarter.

Gross margin was 8.4 percent compared to 15.9 percent for the second quarter of fiscal 2021, impacted by domestic labor and input cost challenges. Operating income declined to $4.6 million from $13.1 million, primarily due to the decrease in gross profit.

CEO’s Take: Eddie Ingle, CEO of Unifi, said: “Second quarter fiscal 2022 sales exceeded our expectations, driven by continued strong international performance, but labor and input cost headwinds for our domestic operations pressured overall profitability results. Our teams in Asia and Brazil have performed very well against a dynamic business environment, while the polyester and nylon operations have experienced significant cost and efficiency pressures that weighed on gross profit.”

“However, with continued global momentum allowing Repreve fiber products to achieve 40 percent of consolidated sales, recent responsive selling price adjustments in the U.S. and Central America, and anticipated productivity improvements across our manufacturing base, expectations for mid- and long-term performance remain strong,” Ingle added. “Although we face some short-term headwinds domestically that have impacted our performance…we feel that we are better positioned to navigate our domestic headwinds going forward and remain confident in our ability to execute and drive future value for shareholders. Our momentum in Asia and Brazil helped contribute to overall revenue performance exceeding expectations, demonstrating the strength of our dynamic global business model. As the demand for sustainable solutions grows, we will remain focused on capturing momentum towards long-term growth and are excited for the opportunities that lie ahead of us.”

In other company news, Unifi is launching an enhanced supply chain certification and two new products at Outdoor Retailer’s Winter Market taking place this week in Denver.

Unifi said these additional innovations–U Trust Product Certification, Repreve SmartDye technology and Berry Compliant Knit Cord–enhance and support its commitment to sustainability, transparency and customer service.

Textile companies are set to debut their latest product innovations as the Outdoor Retailer opens its doors Wednesday in Denver.
Repreve SmartDye recycled polyester. Courtesy

The U Trust Product Certification allows brands to get an additional level of transparency for their products made with Repreve recycled fibers and builds on other Unifi certifications, such as U Trust Fabric Certification, Scientific Certification Systems, Oeko-Tex and the Global Recycle Standard certification.

As a complement to these existing safeguards, the U Trust Product Certification allows brands to aggregate multiple Repreve certified fabric components in a product and leverages the physical tracer FiberPrint technology that can be audited, proven and found in the product throughout its life.

“Our newest certification gives brands additional peace of mind that goes beyond what a purely transaction-based certification can provide,” said Jay Hertwig, Unifi’s senior vice president of commercialization. “This certification’s credibility can be validated by external parties. The U Trust Product Certification validator tool also introduces new functionality for corporate brands and retailers into their brands’ certifications.”

Unifi is also rolling out Repreve SmartDye lower-temperature dyeable recycled polyester. The product yields substantial energy savings and reduces cycle time when compared to standard polyester, according to Unifi. It is available in Repreve polyester staple and filament fibers and improves dye cycle efficiency and achieves up to 30 percent energy savings without compromising a fabric’s performance based on Unifi package dyeing equipment.

In addition, the company is introducing Berry Compliant Knit Cord, a high-quality synthetic cord that’s perfect for comfortable ear loops for standard, surgical, KN95 and N95 respirator masks. The soft and durable product is packaged on yarn bobbins, not loose in boxes. Customizability is key for this product, as it’s available in nylon and polyester, multiple colors and patterns, and in a variety of sizes.