UNIFI, Inc. New 2026 Q4 Earnings Call

Good morning, everyone, and thank you for joining our earnings call today. I am happy to lead the call off with some good news. We are seeing very nice progress in our efforts to reposition Unifi for sustainable growth in the long term. We began this effort about 18 months ago, and I think you will see in our Q4 earnings that we are beginning to show some of the improvement. A.J. will take you through that in the next few minutes. There were three steps in this transformation when we got started. The first one was to reduce our costs significantly, so we began by closing the Madison facility and reduced our excess capacity. We also resized our labor force, improved efficiencies throughout our manufacturing footprint, and we also optimized the portfolio to remove unprofitable items from our lineup.

All of that was step 1, and all of that work is now complete, and A.J. will take you through all of that. Step 2 was to improve our cash management and also lower our debt, and we have had dramatically reduced inventories over the last 18 months. We have also seen our capital discipline improve cost controls, and you will see that as well in our Q4 results. The next step on step 2 is to close on a purchase agreement signed this week for property and excess assets for $60 million, and Eddie will tell you more about this deal. But when the deal is closed, it will have a dramatic impact on our net debt and our balance sheet. The third and final step is to ramp up our revenue growth. I will tell you that revenues in our industry over the last 12-plus months have struggled.

It is an industry that has got lots of macro issues, such as oil prices, shifting tariff rates, and inflation. I will let you know here, though, that we are not sitting around waiting for things to change. We have taken charge of our own revenue growth plan, and you will see more of that as the next couple of quarters unfold. We are now seeing some evidence that we are seeing improved demand for our innovations and also for our business in Central America and overall U.S., and most of that will probably happen as we get towards this middle of the year. So we are at a pivot point for our company right now, and I would like to make two final comments before handing it off to our CEO, Eddie. We are not celebrating. We are not even close to finishing our work.

But I will tell you that it is all about revenue right now, and we are all over it, and you will see that improve. The second comment I wanted to make is about our management team. We have taken out costs, we have cut inventories, we have reworked management processes, which is not the most fun stuff to work on. But I will tell you, the quality of our management team has a lot to do with the progress that we have made up until now. This is a determined never-give-up team, and I would emphasize the word team. I would say out of our top 20 executives that were here when we got going on this initiative, 19 of them are still with us today, and one of the biggest reasons for my optimism is the quality of this team today. Now let me turn it over to their leader, Eddie Ingle.

Thanks, Al. I am very pleased to be able to say that we closed out fiscal 2026 on a strong note with 4% top-line growth and another quarter of improving profitability and cash generation. This stronger financial performance reflects the successful execution of our initiatives over the past several quarters to realign our cost structure, optimize our operations, and enhance our margin performance through improved portfolio management. Importantly, the progress we have made from these efforts has strengthened our operating foundation and increased our confidence in our ability to navigate these very difficult and challenging market conditions. But at the same time, supporting our customers with differentiated solutions and drive sustainable growth over the long term. I would like to call out our recent agreement for the sale of non-strategic assets in the U.S., as Al mentioned.

We look forward to moving along with this deal, which once concluded, will have no impact up to our operations and ability to service customers, while at the same time allowing us to retire a material portion of our outstanding debt. Said another way, the sale of these warehouses and adjacent land is not reducing in any way the existing production capacity in our Yadkinville, North Carolina complex. Before I dive deeper into our near-term priorities, our innovation progress, and what lies ahead for Unifi in fiscal 2027, I am going to turn the call over to A.J. to walk you through the financial details for the quarter.

A.J.? Thank you, Eddie. I will start off by discussing our consolidated financial highlights for the quarter on slide 4.

Consolidated net sales for the quarter were $144.2 million, up 4%, again, on a year-over-year basis. The improvement in net sales reflects strong performance in our Brazil segment, stabilization in the Americas and Asia, as well as increasing momentum across our Beyond Apparel initiatives. Consolidated gross profit was $14.3 million, and gross margin was approximately 10% during the period, compared to gross loss of $1.1 million and gross margin of negative 0.8% for the prior year period. Our net loss came in at $1.2 million, but its comparability is skewed as Q4 last year included a gain on the sale of the Madison facility and was partially offset by associated transition costs. When excluding those items, adjusted net loss was $9.5 million better than the year ago period. Adjusted EBITDA during this period was $8.2 million, a $12.3 million improvement on a year-over-year basis.

The continued improvement in performance this quarter is another indication that the operational initiatives we've been executing are taking hold. The work we've done to streamline our cost structure and improve efficiency continues to translate into stronger financial results. Turning now to slide 5. In the Americas, net sales were down 1% as the region continues to face volume headwinds. Despite the slightly lower sales during the quarter, we did generate gross profit of $3.3 million, a significant year-over-year gain again. This marks the second quarter in a row of delivering positive gross profit in the Americas. The continued improvement in the Americas demonstrates that our footprint consolidation and cost optimization initiatives are delivering the intended results, driving greater efficiency and strengthening the profitability of our domestic operations.

Slide 6 displays our Brazil segment, which saw net sales increase by $5.1 million or 17.8%, and gross profit improved by $6.4 million. The strong performance there during the period was driven by higher sales volumes and favorable pricing dynamics amid the volatile cost environment stemming from Middle East conflicts, reflecting the continued demand stability and growth potential in the region. On slide 7, the Asia segment had net sales and gross profit increase by $1.1 million and half a million dollars respectively, primarily due to the portfolio strength in that region. While we still have uncertainty in the Asia market, our asset-light model has allowed us to maintain stable margins in the segment, and tariff certainty in the future should help eventually normalize the business. Slide 8 outlines our improving balance sheet and capital structure.

During this fourth quarter, we generated $1 million in free cash flow, bringing full year free cash flow to $21.5 million. That's over a $50 million improvement versus prior year fiscal 2025. CapEx for the quarter came in at a low $1.1 million, and our full year CapEx was constrained at $5 million, a 50% decline compared to the prior period as we continue to closely manage all spending. Now we recognize this level of CapEx will need to adapt for long-term health, and we've allocated between $7 million and $9 million for maintenance and redundancy projects in fiscal 2027. Our net debt was reduced to $67.4 million at the end of the quarter, a meaningful improvement from any recent period, and our working capital remains balanced and healthy.

We're very pleased with this performance, beating our expectations laid out in the prior earnings call and indicative of our ability to generate positive momentum even in difficult conditions. Looking ahead to fiscal 2027, our focus will remain on driving disciplined capital allocation while continuing to explore additional options to further strengthen our balance sheet. Included in those additional options is our plan to sell two non-strategic real estate assets in the U.S. We're able to work with a known buyer to identify portions of the business that could benefit their future operations while having no impact to our ability to serve its customers and maintain production capacities. Upon closing, we would significantly improve our leverage and balance sheet, and we look forward to providing additional commentary as the closing nears and completes. This concludes the financial overview, and I'll pass the call back to Eddie.

Thank you, A.J. As A.J. outlined, the initiatives we have implemented to improve our operations are showing the early signs of a more resilient and flexible business model, which has positioned us to better navigate market volatility while at the same time supporting our goal of creating sustainable long-term growth. Let's turn to slide 9, which outlines the strategic priorities that will continue to guide our execution. As we discussed in detail during our third quarter earnings call, our objective is to return Unifi to sustainable long-term growth and enhance profitability. We're accomplishing this by staying focused on four key priorities. First, we will continue to build on the operational improvements that we've implemented and ensure we don't lose any of the enhancements to the businesses that we've made.