UNIFI, Inc. New 2027 Q1 Earnings Call

Thank you, and good morning, everyone. Thanks for joining our call today. You may remember about 18 months ago, we determined that we needed to take on a body of work to make Unifi a company that could grow profitably in the future. When we discussed that, we talked about three major thrusts. The first thrust was that we needed to take out significant costs and make our manufacturing footprint more efficient. In addition to that, we reduced costs in almost every area of the company. That work is now complete. I believe we have the necessary disciplines in place to keep our costs low, and I would say that we're very happy with those results. The second thrust was to reduce our long-term debt, manage capital efficiency, and strengthen our balance sheet.

I'm happy to say that yesterday, we closed a deal on a non-strategic asset that's going to allow us to check the box on thrust two. Our debt is now lower than any time in recent history, our balance sheet will be strong, and we have greater financial flexibility. You're going to hear plenty about that in the next few minutes. The third thrust was to drive revenue with our biggest customers and provide a pipeline of innovative products. Through the last 18 months, I would tell you we've reduced costs on everything except on innovation. We would have hoped these efforts would have created greater revenues by now, but the macroeconomic pressure on raw material prices has slowed down the whole industry's top-line revenue performance.

But we are seeing some very recent improvements in Central America revenues, indicating that nearshoring opportunities for brands and retailers may now be starting to strengthen, and we see greater demand shaping up for Q3 and Q4. Once we see these revenues strengthen, we've now entered a new stage for Unifi, which is greater revenue, which flows through to better profits and positive cash generation for the future. I have to tell you, the last 18 months is quite a bit of hard work has been completed by our people. Our team has done a great job, and I want to thank them right now for all the hard work and the major effort they've put forth. Now, I'd like to turn this over to our CEO, Eddie Ingle.

Thanks, Al. Let's turn to slide 4, where you can see that our first quarter results continue to demonstrate the benefits of the strategic actions we've taken over the past several quarters to improve the efficiency of our business and to strengthen margins. This was most evident in the $9.1 million, or nearly 270% increase in gross profit, and the continued improvement in cash generation that we experienced during the quarter. These financial results further highlight the earnings potential of our business and our ability to drive profitable growth, but we do have more to do. We recognize that. During the quarter, we continued to react to the escalating raw material environment caused by the rise in crude oil and implemented the appropriate pricing adjustments to offset much of these cost increases.

Additionally, as Al touched on, we recently made a great stride towards improving our balance sheet with the recently completed sale of two non-strategic real estate assets across our operating base here in Yadkin County, North Carolina. AJ will touch more on the financial details of this sale shortly, but the finalizing of this deal marks a key milestone in our efforts to pay down our debt and improve the financial flexibility of our business. As I said on the last earnings call, this asset sale does not reduce our production capacity, nor will it impact our ability to service our North American customers. Lastly, while geopolitical and macro uncertainty weighed on our top line this quarter, we saw this turmoil as an opportunity to accelerate some of the innovations we've been working on.

We launched a number of innovative product extensions during this period and announced our leadership and participation in a new industry consortium focused on strengthening the regional trade compliance and supply chain integrity in North and Central America. We call that YarnProof, and you'll be hearing more about the details of that in a few minutes. Now, I'm going to turn the call over to AJ to walk you through the financial details of the quarter.

Thank you, Eddie. Staying on slide 4, I'll start off by discussing our consolidated financial highlights for the quarter. Consolidated net sales were $127.9 million, down 5.7% on a year-over-year basis. Despite lower sales, we continued to see an improvement in profitability, with consolidated gross profit increasing to $12.5 million and gross margin expanding to 9.8%, compared to gross profit of $3.4 million and gross margin of 2.5% in the prior year period. This significant improvement was driven by strong performance in the resin business in Brazil, our strategic repositioning efforts, and portfolio management. Our net loss for the quarter came in at just $2 million, an improvement of more than $9 million compared to the first quarter of fiscal year 2026. Adjusted EBITDA during the period was $6.1 million, an $8.6 million improvement on a year-over-year basis.

These results reflect the progress of our operational initiatives, as our efforts to streamline our cost structure and improve efficiency continue to translate into stronger financial performance. Turning now to slide 5. In the Americas, net sales were down $8.2 million year-over-year, as the region continues to face volume headwinds attributed to tepid customer ordering patterns amid inflation pressures and trade uncertainty. Despite this, we delivered our third consecutive quarter of gross profit in the Americas, with gross profit reaching $4.7 million, a $6.4 million increase on a year-over-year basis. This continued improvement reflects the positive impact of our footprint consolidation, cost containment, and portfolio optimization efforts, which all have enhanced our operational efficiency and profitability across our Americas businesses.

Slide 6 displays our Brazil segment, which saw net sales increase by $4.1 million, or 14.4%, and gross profit improved $2.4 million compared to the prior year period. This strong performance in Brazil during the period was driven by continued favorable pricing dynamics and improved sales mix amid an elevated cost environment that continues to stem from geopolitical events across the globe. Turning now to the Asia segment on slide 7. Asia net sales declined $3.7 million due to pricing pressures and regional volatility. Despite this, gross profit in the Asia segment rose 7.2%, reflecting the continued strength of our portfolio in the region. Further, our asset-light model has continued to help us hold margins steady despite these near-term headwinds. Looking ahead, we remain optimistic about Asia's long-term opportunities as the tariff outlook becomes clearer. Slide 8 outlines our improved balance sheet and capital structure.

This week, we finalized the sale of two non-strategic real estate assets in Yadkinville. The proceeds were immediately used to pay down the outstanding term loan balance of $55.5 million. This significantly improves Unifi's leverage and balance sheet. Keep in mind, the numbers on this slide present our September 2026 closing balance sheet and do not reflect the impact of the real estate transaction. This marks a transformation in our balance sheet and an enormous step forward in our financial health and future. During the first quarter, we generated $2.5 million of free cash flow against working capital pressures, a $13.4 million improvement over the first quarter of the prior fiscal year. CapEx for the quarter came in at just $1.2 million as we continue to closely manage all spending.

As we noted on the fourth quarter call, our CapEx level would need to adapt to long-term health, and we have allocated between $7 million and $9 million for the remainder of fiscal year 2027. Our net debt during the quarter was reduced to $64.8 million, and our working capital remains balanced and healthy. Again, this net debt amount is presented before the significant reduction stemming from the real estate sale that was just completed. As we look to the remainder of fiscal 2027, our focus will remain on driving disciplined capital allocation while investing in our business for prudent growth. This concludes my financial overview, and I will now pass the call back to Eddie.

Thank you, AJ. As AJ just outlined, the operational initiatives that we have put into place are improving our profitability and efficiency, which is helping Unifi withstand near-term market headwinds while also building the foundation for long-term growth. Let's turn to slide 9, which outlines the strategic priorities that are continuing to guide our execution. As we have discussed on our recent earnings call, our goal is to return Unifi to sustainable long-term growth and enhanced profitability, and we are doing that by staying focused on four key priorities. First, we will build on the operational improvements we have implemented and make sure we hold onto those gains. Second, we will keep investing in our capabilities and technology so we can scale our platform of sustainable solutions.

Third, innovation remains core to our culture, and we will continue to invest in the tools and resources necessary to help drive customer adoption of our new innovative products that will, of course, help support future growth. Finally, we remain disciplined in navigating the current trade and geopolitical environment, which continues to present challenges for our business and industry in general. We are continuing to see encouraging signs across several of our innovative initiatives, especially Beyond Apparel. One area that stood out this quarter was our resin business, which, as we have noted in the past, goes primarily into the packaging products such as thermoformed PET containers. Volume for our resin business has continued to remain strong as import levels for the product remains low as a result of the current tariff situation and the lack of alternative domestic supplies.