Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis of certain significant factors that have affected UNIFI’s operations, along with material changes in financial condition, during the periods included in the accompanying condensed consolidated financial statements. A reference to a “note” in this section refers to the accompanying notes to condensed consolidated financial statements. A reference to the “current period” refers to the three-month period ended December 29, 2024, while a reference to the “prior period” refers to the three-month period ended December 31, 2023. A reference to the “current six-month period” refers to the six-month period ended December 29, 2024, while a reference to the “prior six-month period” refers to the six-month period ended December 31, 2023. Such references may be accompanied by certain phrases for added clarity. The current period and the prior period each consisted of 13 weeks. The current six-month period and the prior six-month period each consisted of 26 weeks.
Our discussions in this Item 2 focus on our results during, or as of, the three months ended December 29, 2024 and December 31, 2023, and, to the extent applicable, any material changes from the information discussed in the 2024 Form 10-K or other important intervening developments or information. These discussions should be read in conjunction with the 2024 Form 10-K for more detailed and background information about our business, operations, and financial condition.
Discussion of foreign currency translation is primarily associated with changes in the Brazilian Real (“BRL”) and changes in the Chinese Renminbi (“RMB”) versus the U.S. Dollar (“USD”). Weighted average exchange rates were as follows:
For the Three Months Ended
For the Six Months Ended
December 29, 2024
December 31, 2023
December 29, 2024
December 31, 2023
BRL to USD
5.80
4.96
5.66
4.92
RMB to USD
7.19
7.22
7.18
7.23
All amounts, except per share amounts, are presented in thousands (000s), except as otherwise noted.
Overview and Significant General Matters
UNIFI focuses on delivering products and solutions to direct customers and brand partners throughout the world, leveraging our internal manufacturing capabilities and an enhanced global supply chain that delivers a diverse range of synthetic and recycled fibers and polymers. Our strategic initiatives include (i) leveraging our competitive advantages to grow market share in each of the major geographies we serve, (ii) expanding our presence in non-apparel markets with additional REPREVE ® products, (iii) advancing the development and commercialization of innovative and sustainable solutions, and (iv) increasing brand awareness for REPREVE ® . We have increased our focus on sales opportunities beyond traditional apparel customers and continue to drive innovation throughout our portfolio to further diversify the business and enhance gross profit. We believe our strategic initiatives will increase revenue and profitability and generate improved cash flows from operations.
Current Economic Environment
The challenging environment for textile production and demand has adversely impacted our consolidated sales and profitability. In addition, the following pressures have been present or recently introduced: (i) the impact of inflation on consumer spending, (ii) elevated interest rates for consumers and customers, including the impact on the carrying costs of customer inventories, and (iii) the volatility of trade and regulatory matters in light of recent executive and legislative branch changes. UNIFI will continue to monitor these and other aspects of the current environment, leverage our global business model as necessary, and work closely with stakeholders to ensure business continuity and liquidity.
While we recognize the disruption to global markets and supply chains caused by the conflicts in Ukraine and the Middle East, we have not been directly impacted. Indirectly, we recognize that additional or prolonged impacts to the petroleum or other global markets could cause further inflationary pressures to our global raw material costs or additional unforeseen adverse impacts.
Input Costs and Global Production Volatility
Despite lowered input and freight costs and a marginally more stable labor pool recently, global demand volatility and uncertainty continued into fiscal 2025. The threat of recession and global tensions continue to create uncertainty. Such existing challenges and future uncertainty, particularly for rising input costs, labor productivity, and global demand, could worsen and/or continue for prolonged periods, materially impacting our consolidated sales, gross profit, and operating cash flows. Also, the need for future selling price adjustments in connection with inflationary costs could impact our ability to retain current customer programs and compete successfully for new programs in certain regions.
Key Performance Indicators and Non-GAAP Financial Measures
UNIFI continuously reviews performance indicators to measure its success. These performance indicators form the basis of management’s discussion and analysis included below:
• sales volume and revenue for UNIFI and for each reportable segment;
• gross (loss) profit and gross margin for UNIFI and for each reportable segment;
• net loss and diluted EPS;
• Segment (Loss) Profit, which equals segment gross (loss) profit plus segment depreciation expense;
• unit conversion margin, which represents unit net sales price less unit raw material costs, for UNIFI and for each reportable segment;
• working capital, which represents current assets less current liabilities;
12
• Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), which represents net loss before net interest expense, income tax expense, and depreciation and amortization expense;
• Adjusted EBITDA, which represents EBITDA adjusted to exclude, from time to time, certain other adjustments necessary to understand and compare the underlying results of UNIFI;
• Adjusted Net Loss, which represents net loss calculated under GAAP, adjusted to exclude certain amounts which management believes do not reflect the ongoing operations and performance of UNIFI and/or for which exclusion may be necessary to understand and compare the underlying results of UNIFI;
• Adjusted EPS, which represents Adjusted Net Loss divided by UNIFI’s diluted weighted average common shares outstanding;
• Adjusted Working Capital, which equals receivables plus inventories and other current assets, less accounts payable and other current liabilities; and
• Net Debt, which represents debt principal less cash and cash equivalents.
EBITDA, Adjusted EBITDA, Adjusted Net Loss, Adjusted EPS, Adjusted Working Capital, and Net Debt (collectively, the “non-GAAP financial measures”) are not determined in accordance with GAAP and should not be considered a substitute for performance measures determined in accordance with GAAP. The calculations of the non-GAAP financial measures are subjective, based on management’s belief as to which items should be included or excluded in order to provide the most reasonable and comparable view of the underlying operating performance of the business. We may, from time to time, modify the amounts used to determine our non-GAAP financial measures. When applicable, management’s discussion and analysis includes specific consideration for items that comprise the reconciliations of its non-GAAP financial measures. We believe that these non-GAAP financial measures better reflect UNIFI’s underlying operations and performance and that their use, as operating performance measures, provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles, and ages of related assets, among otherwise comparable companies.
Management uses Adjusted EBITDA (i) as a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis, as it removes the impact of items (a) directly related to our asset base (primarily depreciation and amortization) and/or (b) that we would not expect to occur as a part of our normal business on a regular basis; (ii) for planning purposes, including the preparation of our annual operating budget; (iii) as a valuation measure for evaluating our operating performance and our capacity to incur and service debt, fund capital expenditures, and expand our business; and (iv) as one measure in determining the value of other acquisitions and dispositions. Adjusted EBITDA is a key performance metric utilized in the determination of variable compensation. We also believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity because it serves as a high-level proxy for cash generated from operations and is relevant to our fixed charge coverage ratio.
Management uses Adjusted Net Loss and Adjusted EPS (i) as measurements of net operating performance because they assist us in comparing such performance on a consistent basis, as they remove the impact of (a) items that we would not expect to occur as a part of our normal business on a regular basis and (b) components of the provision for income taxes that we would not expect to occur as a part of our underlying taxable operations; (ii) for planning purposes, including the preparation of our annual operating budget; and (iii) as measures in determining the value of other acquisitions and dispositions.
Management uses Adjusted Working Capital as an indicator of UNIFI’s production efficiency and ability to manage inventories and receivables.
Management uses Net Debt as a liquidity and leverage metric to determine how much debt would remain if all cash and cash equivalents were used to pay down debt principal.
13
Review of Results of Operations
Three Months Ended December 29, 2024 Compared to Three Months Ended December 31, 2023
Consolidated Overview
The below tables provide:
• the components of net loss and the percentage increase or decrease over the prior period amounts, and
• a reconciliation from net loss to EBITDA and Adjusted EBITDA, and
following the tables is a discussion and analysis of the significant components of net loss.
Net Loss
For the Three Months Ended
December 29, 2024
December 31, 2023
% of
Net Sales
% of
Net Sales
%
Change
Net sales
$
138,880
100.0
$
136,917
100.0
1.4
Cost of sales
138,346
99.6
135,281
98.8
2.3
Gross profit
534
0.4
1,636
1.2
(67.4
)
SG&A
12,921
9.3
12,408
9.1
4.1
(Benefit) provision for bad debts
(96
)
(0.1
)
1,289
0.9
(107.4
)
Gain on sale of assets
(4,296
)
(3.1
)
—
—
nm
Restructuring costs
—
—
5,101
3.7
nm
Other operating (income) expense, net
(431
)
(0.3
)
481
0.4
nm
Operating loss
(7,564
)
(5.4
)
(17,643
)
(12.9
)
(57.1
)
Interest expense, net
2,221
1.6
1,916
1.4
15.9
Equity in loss (earnings) of unconsolidated affiliates
262
0.2
(93
)
(0.1
)
nm
Loss before income taxes
(10,047
)
(7.2
)
(19,466
)
(14.2
)
(48.4
)
Provision for income taxes
1,345
1.0
380
0.3
nm
Net loss
$
(11,392
)
(8.2
)
$
(19,846
)
(14.5
)
(42.6
)
nm = not meaningful
EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)
The reconciliations of the amounts reported under GAAP for Net loss to EBITDA and Adjusted EBITDA were as follows:
For the Three Months Ended
December 29, 2024
December 31, 2023
Net loss
$
(11,392
)
$
(19,846
)
Interest expense, net
2,221
1,916
Provision for income taxes
1,345
380
Depreciation and amortization expense (1)
6,283
6,922
EBITDA
(1,543
)
(10,628
)
Gain on sale of assets (2)
(4,296
)
—
Loss on joint venture dissolution (3)
—
2,750
Severance (4)
—
2,351
Adjusted EBITDA
$
(5,839
)
$
(5,527
)
(1) Within this reconciliation, depreciation and amortization expense excludes the amortization of debt issuance costs, which are reflected in interest expense, net. However, within the accompanying Condensed Consolidated Statements of Cash Flows, amortization of debt issuance costs is reflected in depreciation and amortization expense.
(2) In the second quarter of fiscal 2025, UNIFI recorded a gain of $4,296 related to the sale of a warehouse located in Yadkinville, North Carolina.
(3) In the second quarter of fiscal 2024, UNIFI recorded a loss of $2,750 related to the dissolution of a nylon joint venture.
(4) In the second quarter of fiscal 2024, UNIFI incurred severance costs in connection with the Profitability Improvement Plan in the U.S.
14
Adjusted Net Loss and Adjusted EPS (Non-GAAP Financial Measures)
The tables below set forth reconciliations of (i) Loss before income taxes (“Pre-tax Loss”), (ii) Provision for income taxes (“Tax Impact”), (iii) Net Loss to Adjusted Net Loss, and (iv) Diluted EPS to Adjusted EPS.
For the Three Months Ended December 29, 2024
For the Three Months Ended December 31, 2023
Pre-tax Loss
Tax Impact
Net Loss
Diluted EPS
Pre-tax Loss
Tax Impact
Net Loss
Diluted EPS
GAAP results
$
(10,047
)
$
(1,345
)
$
(11,392
)
$
(0.62
)
$
(19,466
)
$
(380
)
$
(19,846
)
$
(1.10
)
Gain on sale of assets (1)
(4,296
)
—
(4,296
)
(0.24
)
—
—
—
—
Loss on joint venture dissolution (2)
—
—
—
—
2,750
—
2,750
0.15
Severance (3)
—
—
—
—
2,351
—
2,351
0.14
Adjusted results
$
(14,343
)
$
(1,345
)
$
(15,688
)
$
(0.86
)
$
(14,365
)
$
(380
)
$
(14,745
)
$
(0.81
)
Weighted average common shares outstanding
18,288
18,110
(1) In the second quarter of fiscal 2025, UNIFI recorded a gain of $4,296 related to the sale of a warehouse located in Yadkinville, North Carolina. The associated tax impact was estimated to be $0 due to a valuation allowance against net operating losses and capital losses in the U.S.
(2) In the second quarter of fiscal 2024, UNIFI recorded a loss of $2,750 related to the dissolution of a nylon joint venture.
(3) In the second quarter of fiscal 2024, UNIFI incurred severance costs in connection with the Profitability Improvement Plan in the U.S.
Net Sales
Consolidated net sales for the current period increased by $1,963, or 1.4%, and consolidated sales volumes increased by 6.2%, compared to the prior period. Net sales in the current period were higher primarily due to improved sales volumes in each of the reportable segments, along with favorable pricing and market share gains in Brazil, mainly offset by a weaker sales mix in Asia. Despite these sales volume improvements, volumes remain depressed, particularly in the Americas and Asia Segments as a result of continued weak global demand.
Consolidated weighted average sales prices decreased 4.8% which partially offset the volume increase. The decrease in sales prices was primarily attributable to a weaker sales mix in the Asia Segment, together with unfavorable foreign currency translation effects from the weakening of the BRL versus the USD within our Brazil Segment.
REPREVE ® Fiber products for the current period comprised 31%, or $43,272, of consolidated net sales, compared to 33%, or $45,725, for the prior period.
Gross Profit
Gross profit for the current period decreased to $534 from $1,636 in the prior period. Gross profit decreased primarily due to softer sales and profitability in the Asia Segment. This was partially offset by (i) increased sales volumes, (ii) improved productivity, and (iii) higher conversion margins in the Brazil Segment. However, gross profit continues to be unfavorably impacted by weak fixed cost absorption in the Americas Segment, where utilization and productivity remain below historical averages due to depressed demand.
• For the Americas Segment, gross profit was flat primarily due to higher sales volumes and conversion margins, which were mostly offset by inflationary pressures.
• For the Brazil Segment, gross profit increased primarily due to higher sales volumes from market share gains partially offset by an unfavorable foreign currency translation impact.
• For the Asia Segment, gross profit decreased primarily due to unfavorable changes in customer-specific programs from a weak demand environment.
SG&A
SG&A did not change meaningfully from the prior period to the current period, nor did the change include any significant offsetting impacts.
(Benefit) Provision for Bad Debts
The current period benefit reflects no material activity, while the prior period provision reflected an increase for a specifically identified customer balance originating in the U.S. fiber market.
Gain on Sale of Assets
In the second quarter of fiscal 2025, UNIFI recorded a gain of $4,296 related to the sale of a warehouse located in Yadkinville, North Carolina.
15
Restructuring Costs
Restructuring costs for the prior period consisted of (i) a loss of $2,750 for the dissolution of a nylon joint venture and (ii) severance charges of $2,351 in connection with the Profitability Improvement Plan in the U.S.
Other Operating (Income) Expense, Net
The current period and the prior period include foreign currency transaction (gains) losses of $(221) and $464, respectively, with no other meaningful activity.
Interest Expense, Net
Interest expense, net increased primarily due to lower interest income in the current period, associated with lower global cash balances.
Equity in Loss (Earnings) of Unconsolidated Affiliates
There was no material activity for the current period or the prior period.
Income Taxes
Provision for income taxes and the effective tax rate were as follows:
For the Three Months Ended
December 29, 2024
December 31, 2023
Provision for income taxes
$
1,345
$
380
Effective tax rate
(13.4
)%
(2.0
)%
The effective tax rate is subject to variation due to a number of factors, including variability in pre-tax book income; the mix of income by jurisdiction; changes in deferred tax valuation allowances; and changes in statutes, audit settlement, regulations, and case law. Additionally, the impacts of discrete and other rate impacting items are more pronounced when loss before income taxes is lower.
The decrease in the effective tax rate from the prior period to the current period is primarily attributable to fewer losses in the U.S. and a discrete benefit from the release of interest and penalties accrued on uncertain tax positions after the close of the IRS audit in the prior period.
Net Loss
The improvement in net loss was primarily attributable to (i) a gain on sale of assets, (ii) no restructuring costs in the current period, (iii) lower bad debt expense and (iv) foreign currency translation gains, partially offset by (a) lower gross profit and (b) higher income tax expense.
Adjusted EBITDA and Adjusted EPS (Non-GAAP Financial Measures)
Adjusted EBITDA and Adjusted EPS were generally consistent with the prior period as the lower gross profit was mostly offset by (a) lower bad debt expense and (b) foreign currency translation gains.
Segment Overview
Following is a discussion and analysis of the revenue and profitability performance of UNIFI’s reportable segments for the current period.
Americas Segment
The components of Segment Loss, each component as a percentage of net sales, and the percentage increase or decrease over the prior period amounts for the Americas Segment, were as follows:
For the Three Months Ended
December 29, 2024
December 31, 2023
% of
Net Sales
% of
Net Sales
%
Change
Net sales
$
83,095
100.0
$
80,549
100.0
3.2
Cost of sales
89,635
107.9
87,287
108.4
2.7
Gross loss
(6,540
)
(7.9
)
(6,738
)
(8.4
)
(2.9
)
Depreciation expense
5,334
6.4
5,508
6.9
(3.2
)
Segment Loss
$
(1,206
)
(1.5
)
$
(1,230
)
(1.5
)
(2.0
)
Segment net sales as a percentage of
consolidated amounts
59.8
%
58.8
%
Segment Loss as a percentage of
consolidated amounts
(18.6
)%
(15.5
)%
16
The change in net sales for the Americas Segment was as follows:
Net sales for the prior period
$
80,549
Increase in sales volumes
2,400
Change in average selling price and sales mix
146
Net sales for the current period
$
83,095
The increase in net sales for the Americas Segment from the prior period to the current period was primarily attributable to higher sales volumes. Both periods were unfavorably impacted by the continued weak global textile demand environment.
The change in Segment Loss for the Americas Segment was as follows:
Segment Loss for the prior period
$
(1,230
)
Increase in underlying unit margins
24
Segment Loss for the current period
$
(1,206
)
Segment Loss for the Americas Segment was relatively unchanged from the prior period to the current period as higher conversion margins were offset by inflationary pressures.
Brazil Segment
The components of Segment Profit, each component as a percentage of net sales, and the percentage increase or decrease over the prior period amounts for the Brazil Segment, were as follows:
For the Three Months Ended
December 29, 2024
December 31, 2023
% of
Net Sales
% of
Net Sales
%
Change
Net sales
$
27,482
100.0
$
26,061
100.0
5.5
Cost of sales
23,696
86.2
22,922
87.9
3.4
Gross profit
3,786
13.8
3,139
12.1
20.6
Depreciation expense
602
2.2
766
2.9
(21.4
)
Segment Profit
$
4,388
16.0
$
3,905
15.0
12.4
Segment net sales as a percentage of
consolidated amounts
19.8
%
19.0
%
Segment Profit as a percentage of
consolidated amounts
67.7
%
49.4
%
The change in net sales for the Brazil Segment was as follows:
Net sales for the prior period
$
26,061
Increase in average selling price and change in sales mix
2,946
Increase in sales volumes
2,190
Unfavorable foreign currency translation effects
(3,715
)
Net sales for the current period
$
27,482
The increase in net sales for the Brazil Segment from the prior period to the current period was primarily attributable to (i) higher average selling prices due to increasing raw material costs and (ii) an improvement in sales volumes from market share gains, partially offset by unfavorable foreign currency translation effects from the weakening of the BRL versus the USD.
The change in Segment Profit for the Brazil Segment was as follows:
Segment Profit for the prior period
$
3,905
Increase in underlying unit margins
705
Increase in sales volumes
329
Unfavorable foreign currency translation effects
(551
)
Segment Profit for the current period
$
4,388
The increase in Segment Profit for the Brazil Segment from the prior period to the current period was primarily attributable to (i) improved underlying margins from higher selling prices and (ii) an increase in sales volumes as discussed above, partially offset by unfavorable foreign currency translation effects. We continue to prioritize innovation and differentiation to improve our portfolio and competitive position in Brazil.
17
Asia Segment
The components of Segment Profit, each component as a percentage of net sales, and the percentage increase or decrease over the prior period amounts for the Asia Segment, were as follows:
For the Three Months Ended
December 29, 2024
December 31, 2023
% of
Net Sales
% of
Net Sales
%
Change
Net sales
$
28,303
100.0
$
30,307
100.0
(6.6
)
Cost of sales
25,015
88.3
25,072
82.7
(0.2
)
Gross profit
3,288
11.7
5,235
17.3
(37.2
)
Depreciation expense
14
—
—
—
—
Segment Profit
$
3,302
11.7
$
5,235
17.3
(36.9
)
Segment net sales as a percentage of
consolidated amounts
20.4
%
22.1
%
Segment Profit as a percentage of
consolidated amounts
50.9
%
66.2
%
The change in net sales for the Asia Segment was as follows:
Net sales for the prior period
$
30,307
Change in average selling price and sales mix
(4,410
)
Increase in sales volumes
2,349
Unfavorable foreign currency translation effects
57
Net sales for the current period
$
28,303
The decrease in net sales for the Asia Segment from the prior period to the current period was primarily attributable to the changes in sales volumes related to customer-specific programs, which were partially offset by an overall improvement in sales volumes compared to the prior period despite continued weak global demand, particularly for apparel.
The change in Segment Profit for the Asia Segment was as follows:
Segment Profit for the prior period
$
5,235
Change in underlying unit margins and sales mix
(2,351
)
Increase in sales volumes
406
Favorable foreign currency translation effects
12
Segment Profit for the current period
$
3,302
The decrease in Segment Profit for the Asia Segment from the prior period to the current period was attributable to a decline in gross margin rate associated with a change in sales mix of REPREVE products, partially offset by the overall increase in sales volumes.
18
Six Months Ended December 29, 2024 Compared to Six Months Ended December 31, 2023
Consolidated Overview
The below tables provide:
• the components of net loss and the percentage increase or decrease over the prior six-month period amounts, and
• a reconciliation from net loss to EBITDA and Adjusted EBITDA, and
following the tables is a discussion and analysis of the significant components of net loss.
Net Loss
For the Six Months Ended
December 29, 2024
December 31, 2023
% of
Net Sales
% of
Net Sales
%
Change
Net sales
$
286,252
100.0
$
275,761
100.0
3.8
Cost of sales
276,260
96.5
274,700
99.6
0.6
Gross profit
9,992
3.5
1,061
0.4
nm
SG&A
24,763
8.7
24,017
8.7
3.1
Provision for bad debts
216
0.1
1,080
0.4
(80.0
)
Gain on sale of assets
(4,296
)
(1.5
)
—
—
nm
Restructuring costs
—
—
5,101
1.8
nm
Other operating expense, net
89
—
535
0.2
(83.4
)
Operating loss
(10,780
)
(3.8
)
(29,672
)
(10.7
)
(63.7
)
Interest expense, net
4,471
1.5
3,820
1.4
17.0
Equity in loss (earnings) of unconsolidated affiliates
251
0.1
(293
)
(0.1
)
nm
Loss before income taxes
(15,502
)
(5.4
)
(33,199
)
(12.0
)
(53.3
)
Provision (benefit) for income taxes
3,522
1.2
(83
)
—
nm
Net loss
$
(19,024
)
(6.6
)
$
(33,116
)
(12.0
)
(42.6
)
nm = not meaningful
EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)
The reconciliations of the amounts reported under GAAP for Net loss to EBITDA and Adjusted EBITDA were as follows:
For the Six Months Ended
December 29, 2024
December 31, 2023
Net loss
$
(19,024
)
$
(33,116
)
Interest expense, net
4,471
3,820
Provision (benefit) for income taxes
3,522
(83
)
Depreciation and amortization expense (1)
12,787
13,910
EBITDA
1,756
(15,469
)
Gain on sale of assets (2)
(4,296
)
—
Loss on joint venture dissolution (3)
—
2,750
Severance (4)
—
2,351
Adjusted EBITDA
$
(2,540
)
$
(10,368
)
(1) Within this reconciliation, depreciation and amortization expense excludes the amortization of debt issuance costs, which are reflected in interest expense, net. However, within the accompanying Condensed Consolidated Statements of Cash Flows, amortization of debt issuance costs is reflected in depreciation and amortization expense.
(2) In the second quarter of fiscal 2025, UNIFI recorded a gain of $4,296 related to the sale of a warehouse located in Yadkinville, North Carolina.
(3) In the second quarter of fiscal 2024, UNIFI recorded a loss of $2,750 related to the dissolution of a nylon joint venture.
(4) In the second quarter of fiscal 2024, UNIFI incurred severance costs in connection with the Profitability Improvement Plan in the U.S.
19
Adjusted Net Loss and Adjusted EPS (Non-GAAP Financial Measures)
The tables below set forth reconciliations of (i) Loss before income taxes (“Pre-tax Loss”), (ii) Provision (benefit) for income taxes (“Tax Impact”), (iii) Net Loss to Adjusted Net Loss, and (iv) Diluted EPS to Adjusted EPS.
For the Six Months Ended December 29, 2024
For the Six Months Ended December 31, 2023
Pre-tax Loss
Tax Impact
Net Loss
Diluted EPS
Pre-tax Loss
Tax Impact
Net Loss
Diluted EPS
GAAP results
$
(15,502
)
$
(3,522
)
$
(19,024
)
$
(1.04
)
$
(33,199
)
$
83
$
(33,116
)
$
(1.83
)
Gain on sale of assets (1)
(4,296
)
—
(4,296
)
(0.24
)
—
—
—
—
Loss on joint venture dissolution (2)
—
—
—
—
2,750
—
2,750
0.15
Severance (3)
—
—
—
—
2,351
—
2,351
0.13
Adjusted results
$
(19,798
)
$
(3,522
)
$
(23,320
)
$
(1.28
)
$
(28,098
)
$
83
$
(28,015
)
$
(1.55
)
Weighted average common shares outstanding
18,272
18,097
(1) In the second quarter of fiscal 2025, UNIFI recorded a gain of $4,296 related to the sale of a warehouse located in Yadkinville, North Carolina. The associated tax impact was estimated to be $0 due to a valuation allowance against net operating losses and capital losses in the U.S.
(2) In the second quarter of fiscal 2024, UNIFI recorded a loss of $2,750 related to the dissolution of a nylon joint venture.
(3) In the second quarter of fiscal 2024, UNIFI incurred severance costs in connection with the Profitability Improvement Plan in the U.S.
Net Sales
Consolidated net sales for the current six-month period increased by $10,491, or 3.8%, and consolidated sales volumes increased 6.9%, compared to the prior six-month period. Net sales in the current six-month period were higher primarily due to improved sales volumes in each of the reportable segments, along with favorable pricing in Brazil. Despite these sales volume improvements, volumes remain depressed, particularly in the Americas and Asia Segments as a result of continued weak global demand.
Consolidated weighted average sales prices decreased 3.1% which partially offset the volume increase. The decrease in sales prices was primarily attributable to sales mix and lower average selling prices in Asia and the Americas Segment, together with unfavorable foreign currency translation effects from the weakening of the BRL versus the USD within our Brazil Segment.
REPREVE ® Fiber products for the current six-month period comprised 31%, or $88,014, of consolidated net sales, compared to 32%, or $88,186, for the prior six-month period.
Gross Profit
Gross profit for the current six-month period increased to $9,992 from $1,061 in the prior six-month period. Gross profit increased primarily due to (i) increased sales volumes, (ii) variable cost saving initiatives, (iii) improved productivity, and (iv) higher conversion margins. However, gross profit continues to be unfavorably impacted by weak fixed cost absorption in the Americas Segment, where utilization and productivity remain below historical averages due to depressed demand.
• For the Americas Segment, gross profit increased primarily due to (i) higher sales volumes, (ii) higher conversion margins, and (iii) variable cost management efforts.
• For the Brazil Segment, gross profit increased primarily due to (i) higher selling prices, (ii) higher sales volumes from market share gains, and (iii) higher conversion margins, which were partially offset by an unfavorable foreign currency translation impact.
• For the Asia Segment, gross profit decreased primarily due to lower conversion margins from an unfavorable change in sales mix in a weak demand environment.
SG&A
SG&A did not change meaningfully from the prior six-month period to the current six-month period, nor did the change include any significant offsetting impacts.
Provision for Bad Debts
The current six-month period provision reflects no material activity, while the prior six-month period provision reflected an increase for a specifically identified customer balance originating in the U.S. fiber market.
Gain on Sale of Assets
In the second quarter of fiscal 2025, UNIFI recorded a gain of $4,296 related to the sale of a warehouse located in Yadkinville, North Carolina.
20
Restructuring Costs
Restructuring costs for the prior six-month period consisted of (i) a loss of $2,750 for the dissolution of a nylon joint venture and (ii) severance charges of $2,351 in connection with the Profitability Improvement Plan in the U.S.
Other Operating Expense, Net
Other operating expense, net for the current six-month period and the prior six-month period include foreign currency transaction losses of $268 and $430, respectively, with no other meaningful activity.
Interest Expense, Net
Interest expense, net increased primarily due to lower interest income in the current six-month period, associated with lower global cash balances.
Equity in Loss (Earnings) of Unconsolidated Affiliates
There was no material activity for the current six-month period or the prior six-month period.
Income Taxes
Provision (benefit) for income taxes and the effective tax rate were as follows:
For the Six Months Ended
December 29, 2024
December 31, 2023
Provision (benefit) for income taxes
$
3,522
$
(83
)
Effective tax rate
(22.7
)%
0.3
%
The effective tax rate is subject to variation due to a number of factors, including variability in pre-tax book income; the mix of income by jurisdiction; changes in deferred tax valuation allowances; and changes in statutes, audit settlement, regulations, and case law. Additionally, the impacts of discrete and other rate impacting items are more pronounced when loss before income taxes is lower.
The decrease in the effective tax rate from the prior six-month period to the current six-month period is primarily attributable to less losses in the U.S. in the current six-month period, as well as a decrease in valuation allowances on deferred tax asset balances adjusted in response to the IRS audit of tax years 2014 through 2019, which was concluded during the prior six-month period.
Net Loss
The improvement in net loss was primarily attributable to (i) increased gross profit, (ii) lower bad debt expense, (iii) a gain on sale of assets, and (iv) no restructuring costs in the current period, partially offset by (a) higher interest expense, net, (b) higher income tax expense, (c) higher SG&A costs, and (d) lower earnings from unconsolidated affiliates.
Adjusted EBITDA and Adjusted EPS (Non-GAAP Financial Measures)
Adjusted EBITDA and Adjusted EPS increased primarily due to (i) higher gross profit and (ii) lower bad debt expense, partially offset by (a) higher SG&A costs and (b) lower earnings from unconsolidated affiliates.
Segment Overview
Following is a discussion and analysis of the revenue and profitability performance of UNIFI’s reportable segments for the current six-month period.
Americas Segment
The components of Segment Profit (Loss), each component as a percentage of net sales, and the percentage increase or decrease over the prior six-month period amounts for the Americas Segment, were as follows:
For the Six Months Ended
December 29, 2024
December 31, 2023
% of
Net Sales
% of
Net Sales
%
Change
Net sales
$
169,378
100.0
$
162,122
100.0
4.5
Cost of sales
177,296
104.7
176,240
108.7
0.6
Gross loss
(7,918
)
(4.7
)
(14,118
)
(8.7
)
(43.9
)
Depreciation expense
10,744
6.4
11,005
6.8
(2.4
)
Segment Profit (Loss)
$
2,826
1.7
$
(3,113
)
(1.9
)
(190.8
)
Segment net sales as a percentage of
consolidated amounts
59.2
%
58.8
%
Segment Profit (Loss) as a percentage of
consolidated amounts
12.8
%
(22.8
)%
21
The change in net sales for the Americas Segment was as follows:
Net sales for the prior six-month period
$
162,122
Increase in sales volumes
8,999
Change in average selling price and sales mix
(1,743
)
Net sales for the current six-month period
$
169,378
The increase in net sales for the Americas Segment from the prior six-month period to the current six-month period was primarily attributable to higher sales volumes, partially offset by a lower-priced sales mix. Both periods were unfavorably impacted by the continued weak global textile demand environment.
The change in Segment Profit (Loss) for the Americas Segment was as follows:
Segment Loss for the prior six-month period
$
(3,113
)
Change in underlying unit margins and sales mix
6,112
Change in sales volumes
(173
)
Segment Profit for the current six-month period
$
2,826
The increase in Segment Profit for the Americas Segment from the prior six-month period to the current six-month period was primarily attributable to higher margins due to improved variable cost management efforts. Segment Profit for the Americas Segment continues to be negatively impacted by a lower proportion of fiber sales volumes. As fiber products carry a higher selling price and allocation of production costs versus Chip and Flake, lower fiber production drives weaker fixed cost absorption and adversely impacts gross profit and gross margin.
Brazil Segment
The components of Segment Profit, each component as a percentage of net sales, and the percentage increase or decrease over the prior six-month period amounts for the Brazil Segment, were as follows:
For the Six Months Ended
December 29, 2024
December 31, 2023
% of
Net Sales
% of
Net Sales
%
Change
Net sales
$
61,792
100.0
$
55,970
100.0
10.4
Cost of sales
50,069
81.0
50,664
90.5
(1.2
)
Gross profit
11,723
19.0
5,306
9.5
120.9
Depreciation expense
1,343
2.1
1,606
2.8
(16.4
)
Segment Profit
$
13,066
21.1
$
6,912
12.3
89.0
Segment net sales as a percentage of
consolidated amounts
21.6
%
20.3
%
Segment Profit as a percentage of
consolidated amounts
59.1
%
50.6
%
The change in net sales for the Brazil Segment was as follows:
Net sales for the prior six-month period
$
55,970
Increase in average selling price and change in sales mix
7,906
Increase in sales volumes
5,189
Unfavorable foreign currency translation effects
(7,273
)
Net sales for the current six-month period
$
61,792
The increase in net sales for the Brazil Segment from the prior six-month period to the current six-month period was primarily attributable to (i) higher average selling prices due to increasing raw material costs and (ii) an improvement in sales volumes from market share gains, partially offset by unfavorable foreign currency translation effects from the weakening of the BRL versus the USD.
The change in Segment Profit for the Brazil Segment was as follows:
Segment Profit for the prior six-month period
$
6,912
Increase in underlying unit margins
6,419
Increase in sales volumes
640
Unfavorable foreign currency translation effects
(905
)
Segment Profit for the current six-month period
$
13,066
The increase in Segment Profit for the Brazil Segment from the prior six-month period to the current six-month period was primarily attributable to (i) higher conversion margins and (ii) an increase in sales volumes discussed above, partially offset by unfavorable foreign currency translation effects. We continue to prioritize innovation and differentiation to improve our portfolio and competitive position in Brazil.
22
Asia Segment
The components of Segment Profit, each component as a percentage of net sales, and the percentage increase or decrease over the prior six-month period amounts for the Asia Segment, were as follows:
For the Six Months Ended
December 29, 2024
December 31, 2023
% of
Net Sales
% of
Net Sales
%
Change
Net sales
$
55,082
100.0
$
57,669
100.0
(4.5
)
Cost of sales
48,895
88.8
47,796
82.9
2.3
Gross profit
6,187
11.2
9,873
17.1
(37.3
)
Depreciation expense
31
0.1
—
—
nm
Segment Profit
$
6,218
11.3
$
9,873
17.1
(37.0
)
Segment net sales as a percentage of
consolidated amounts
19.2
%
20.9
%
Segment Profit as a percentage of
consolidated amounts
28.1
%
72.2
%
The change in net sales for the Asia Segment was as follows:
Net sales for the prior six-month period
$
57,669
Change in average selling price and sales mix
(6,093
)
Increase in sales volumes
3,147
Favorable foreign currency translation effects
359
Net sales for the current six-month period
$
55,082
The decrease in net sales for the Asia Segment from the prior six-month period to the current six-month period was primarily attributable to the changes in sales volumes related to customer-specific programs, partially offset by (a) an overall increase in sales volumes compared to the prior six-month period despite continued weak global demand, particularly for apparel and (b) favorable foreign currency translation effects due to the strengthening of the RMB versus the USD.
The change in Segment Profit for the Asia Segment was as follows:
Segment Profit for the prior six-month period
$
9,873
Change in underlying unit margins and sales mix
(4,266
)
Increase in sales volumes
539
Favorable foreign currency translation effects
72
Segment Profit for the current six-month period
$
6,218
The decrease in Segment Profit for the Asia Segment from the prior six-month period to the current six-month period was attributable to a decline in gross margin rate associated with a change in sales mix of REPREVE products, partially offset by (a) the overall increase in sales volumes and (b) favorable foreign currency translation effects.
Liquidity and Capital Resources
Note 5, “Long-Term Debt” to the condensed consolidated financial statements includes the detail of UNIFI’s debt obligations and terms and conditions thereof. Further discussion and analysis of liquidity and capital resources follow.
On October 25, 2024, UNIFI entered into a new credit agreement with Wells Fargo Bank, National Association for a $25,000 revolving credit facility (the "2024 Facility"). The maturity date of the 2024 Facility is the earlier of (i) October 28, 2027 and (ii) the termination or refinancing of the 2022 Credit Agreement. The 2024 Facility is deemed unsecured financing for UNIFI, but is collateralized by certain assets pledged by related party Kenneth G. Langone, one of the members of UNIFI's Board of Directors. Borrowings under the 2024 Facility bear interest at a rate of SOFR plus 0.90%. The 2024 Facility contains no additional financial covenants beyond those already in effect for the 2022 Credit Agreement and is subject to a monthly unused line fee of 0.25% on available borrowing capacity.
UNIFI’s primary capital requirements are for working capital, capital expenditures, and debt service. UNIFI’s primary sources of capital are cash generated from operations, borrowings available under the 2022 Credit Agreement and the 2024 Facility. For the current six-month period, cash used by operations was $15,004 and, at December 29, 2024, availability under the ABL Revolver and 2024 Facility was $26,387 and $22,546, respectively.
As of December 29, 2024, all of UNIFI’s $135,203 of debt obligations were guaranteed by certain of its domestic operating subsidiaries, while nearly all of UNIFI’s cash and cash equivalents were held by its foreign subsidiaries. Cash and cash equivalents held by foreign subsidiaries may not be presently available to fund UNIFI’s domestic capital requirements, including its domestic debt obligations. UNIFI employs a variety of strategies to ensure that its worldwide cash is available in the locations where it is needed.
23
The following table presents a summary of cash and cash equivalents, borrowings available under financing arrangements, liquidity, working capital, and total debt obligations as of December 29, 2024 for domestic operations compared to foreign operations:
Domestic
Foreign
Total
Cash and cash equivalents
$
29
$
18,640
$
18,669
Potential borrowings available under financing arrangements
48,933
—
48,933
Trigger level under ABL Revolver
(17,660
)
—
(17,660
)
Available Liquidity
$
31,302
$
18,640
$
49,942
Working capital
$
66,751
$
97,188
$
163,939
Total debt obligations
$
135,203
$
—
$
135,203
Borrowings available under financing arrangements are generally collateralized by receivables and inventory owned in the U.S., plus cash equivalents pledged by one of the members of UNIFI’s Board of Directors, and generally constrained by the fixed charge coverage ratio and trigger level prescribed in the 2022 Credit Agreement. Accordingly, “Available Liquidity” includes consideration for the trigger level that currently constrains our borrowing ability until a fixed charge coverage ratio of 1.05 to 1.00 is achieved. UNIFI’s primary cash requirements, in addition to normal course operating activities (e.g., working capital and payroll), primarily include (i) capital expenditures that generally have commitments of up to 12 months, (ii) contractual obligations that support normal course ongoing operations and production, (iii) operating leases and finance leases, (iv) debt service, and (v) share repurchases.
On January 2, 2025, UNIFI borrowed $22,000 against the 2024 Facility and used the proceeds to reduce the outstanding ABL Revolver balance. There was no impact to debt principal from these transactions.
Liquidity Considerations
Following the establishment of the 2024 Facility, UNIFI believes its global cash and liquidity positions are sufficient to sustain its operations and to meet its growth needs for the foreseeable future. Additionally, UNIFI considers opportunities to repatriate existing cash to reduce debt and preserve or enhance liquidity. However, further degradation in the macroeconomic environment could introduce additional liquidity risk and require UNIFI to limit cash outflows for discretionary activities while further utilizing available and additional forms of credit.
We do not currently anticipate that any adverse events or circumstances will place critical pressure on our liquidity position or our ability to fund our operations and expected business growth. Should global demand, economic activity, or input availability decline considerably for an even longer period of time, UNIFI maintains the ability to (i) seek additional credit or financing arrangements and/or (ii) re-implement cost reduction initiatives to preserve cash and secure the longevity of the business and operations. Management continues to (i) explore cost savings opportunities and (ii) prioritize repayment of debt in the current operating environment.
When business levels increase, we expect to use cash in support of working capital needs.
The following outlines the attributes relating to our credit facilities as of December 29, 2024:
• UNIFI was in compliance with all applicable financial covenants in the 2022 Credit Agreement and 2024 Facility;
• no amounts had been borrowed against the 2024 Facility as of December 29, 2024;
• availability under the 2024 Facility was $22,546 as of December 29, 2024;
• excess availability before the Trigger Level (as defined in the 2022 Credit Agreement) under the ABL Revolver was $8,727;
• the Trigger Level under the ABL Revolver was $17,660; and
• $0 of standby letters of credit were outstanding.
In addition to making payments in accordance with the scheduled maturities of debt required under its existing debt obligations, UNIFI may, from time to time, elect to repay additional amounts borrowed under the ABL Facility. Funds to make such repayments may come from the operating cash flows of the business or other sources and will depend upon UNIFI’s strategy, prevailing market conditions, liquidity requirements, contractual restrictions within the 2022 Credit Agreement, and other factors.
Liquidity Summary
UNIFI has met its historical liquidity requirements for working capital, capital expenditures, debt service requirements, and other operating needs from its cash flows from operations and available borrowings. UNIFI believes that its existing cash balances, cash provided by operating activities, and credit facilities will enable UNIFI to meet its foreseeable liquidity requirements. For its foreign operations, UNIFI expects its existing cash balances, cash provided by operating activities, and available financing arrangements will provide the needed liquidity to fund the associated operating activities and investing activities, such as future capital expenditures. UNIFI believes its operations in Asia and Brazil are in a position to obtain local country financing arrangements due to the operating results of each subsidiary.
24
Net Debt (Non-GAAP Financial Measure)
The reconciliations for Net Debt are as follows:
December 29, 2024
June 30, 2024
Long-term debt
$
122,979
$
117,793
Current portion of long-term debt
12,025
12,277
Unamortized debt issuance costs
199
229
Debt principal
135,203
130,299
Less: cash and cash equivalents
18,669
26,805
Net Debt
$
116,534
$
103,494
The increase in Net Debt primarily reflects the use of operating cash during fiscal 2025 and capital expenditures during the current six-month period. The increase was partially offset by the application of proceeds to the ABL Revolver for the warehouse sale in October 2024.
Working Capital and Adjusted Working Capital (Non-GAAP Financial Measure)
The following table presents the components of working capital and the reconciliation of working capital to Adjusted Working Capital:
December 29, 2024
June 30, 2024
Cash and cash equivalents
$
18,669
$
26,805
Receivables, net
68,934
79,165
Inventories
132,910
131,181
Income taxes receivable
1,179
164
Other current assets
9,457
11,618
Accounts payable
(35,795
)
(43,622
)
Other current liabilities
(16,054
)
(17,662
)
Income taxes payable
(921
)
(754
)
Current operating lease liabilities
(2,415
)
(2,251
)
Current portion of long-term debt
(12,025
)
(12,277
)
Working capital
$
163,939
$
172,367
Less: Cash and cash equivalents
(18,669
)
(26,805
)
Less: Income taxes receivable
(1,179
)
(164
)
Less: Income taxes payable
921
754
Less: Current operating lease liabilities
2,415
2,251
Less: Current portion of long-term debt
12,025
12,277
Adjusted Working Capital
$
159,452
$
160,680
Adjusted Working Capital decreased $1,228 from June 30, 2024 to December 29, 2024.
The decrease in Adjusted Working Capital was primarily attributable to a decrease in receivables, net primarily due to a decrease in sales and the timing of cash receipts, which was mostly offset by a decrease in accounts payable primarily due to the normal scheduled operational shutdowns and the decline in sales due to seasonality.
Operating Cash Flows
The significant components of net cash (used) provided by operating activities are summarized below.
For the Six Months Ended
December 29, 2024
December 31, 2023
Net loss
$
(19,024
)
$
(33,116
)
Equity in earnings of unconsolidated affiliates
251
(293
)
Depreciation and amortization expense
12,881
13,988
Non-cash compensation expense
1,658
1,387
Gain on sale of assets
(4,296
)
—
Deferred income taxes
628
(1,714
)
Subtotal
(7,902
)
(19,748
)
Receivables, net
8,228
14,367
Inventories
(4,841
)
15,081
Accounts payable and other current liabilities
(8,155
)
(4,763
)
Other changes
(2,334
)
(2,420
)
Net cash (used) provided by operating activities
$
(15,004
)
$
2,517
The decrease in operating cash flows was due to the relative changes in working capital including receivables, net, inventories, and accounts payable and other current liabilities, partially offset by an improvement in earnings in the current six-month period compared to the prior six-month period.
25
Investing Cash Flows
Investing activities primarily include $4,944 for capital expenditures. UNIFI expects recent and future capital projects to provide benefits to future profitability. The additional assets from these capital projects consist primarily of machinery and equipment. In March 2023, UNIFI amended certain existing contracts related to future purchases of texturing machinery by delaying the scheduled receipt and installation of such equipment in the U.S. and El Salvador by 18 months. In December 2023, UNIFI extended this delay by an additional 12 months at no cost to the Company.
Financing Cash Flows
Financing activities primarily include net proceeds from the ABL Revolver and payments on the ABL Term Loan.
Share Repurchase Program
As described in Note 7, “Shareholders’ Equity,” no share repurchases have been completed in fiscal 2025.
Contractual Obligations
UNIFI incurs various financial obligations and commitments in the ordinary course of business. Financial obligations are considered to represent known future cash payments that UNIFI is required to make under existing contractual arrangements, such as debt and lease agreements.
There have been no material changes in the scheduled maturities of UNIFI’s contractual obligations as disclosed under the heading “Contractual Obligations” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2024 Form 10-K.
Off-Balance Sheet Arrangements
UNIFI is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on UNIFI’s financial condition, results of operations, liquidity, or capital expenditures.
Critical Accounting Policies
UNIFI’s critical accounting policies are discussed in the 2024 Form 10-K. There have been no changes to UNIFI’s critical accounting policies in fiscal 2025.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.