Earnings call transcript Q1 2023

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Operator

Good morning. My name is Devin, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2023 Unifi, Inc. Earnings Conference Call. [Operator Instructions]

A Eaker

good and Devin, you, morning, everyone. Thank

call Ingle, Chief the Officer. today Creaturo, is Eddie Chairman; Executive Carey, Executive Financial Al Chief On Officer; Craig and

difficult forward-looking this of of that advises or statements our securities webcast within at laws. markets of unifi.com. results statements. and referencing statements statements found Management implied During These of Management risks to forecasted current you on materially to the expectations, deck website will differ Unifi may are and included which and/or Page for the turn cautions statements call can what by cautionary X in section certain the predict. these that about Actual performance is are not will slide meaning statements. in be expressed, guarantees a certain future based Relations outcomes Investor Please management call, projections that are these that be presentation the from operates. today's estimates federal be involve our in that

are certain as EPS, filed working Also, SEC call. be XX-Q capital that net Unifi's Form be these measures financial various with XX-K adjusted may please to disclosures regarding You on and results. factors may debt discussed advised the adjusted that the EBITDA, such non-GAAP directed impact this and adjusted on

Al I'll Carey. now to it turn over

Albert Carey

the affecting a it pretty apologize I slowdown apparel, everybody. year This ordering Quarter will heavily factor out and inventory. our reporting that's voice. above on many quarter, been the Black when that XX% my contributing morning, clear been normal to uncertain and in has one significantly. orders is discounting of Good Friday for due Retailers I've But are the return. be from going AJ. volume some patterns for began a anywhere apparel during you, tough and and big of today. Thank and season summer, hopefully, X it's it's being and inventories retail it. to exactly them of therefore, and holiday XX% to retail ago, continues this lost

of with We've all like been affected who apparel just the are industry. those involved

volume American XX%, down was XX%. North in August, and Our July, September Asia,

know, you business. U.S. but business COVID shutdowns retail, affecting those also amount tremendous still in a of are Asia As does our

So of it's be to to of uncertainty. kind guiding any forecast going with have or kind difficult reasonable this

assume However, that we'll improves to the the trend I after it's think holidays, prepared volume logical to move be and rapidly.

and been even here strengthen has short this all going will working just very We're on our While long-term not will waiting. business X that up we're term. shore our sitting important initiatives profitability the on, in

already big a First North but actions in series to one impact are in America. is, costs actions term. short the reduce long-term going we've These even on our of to our begun a future, have

first The be year half volumes tough on this and very to is EBITDA. going of

The strong of going that's we're and second benefit actions of the material are will half show taking because EBITDA, down. also the improved of and volumes that raw because costs with cost

on customers on our continued sustainability our helps attain XXXX Second feel them is thing is their We're the which brand. interest because X REPREVE spending seeing time REPREVE from away. only they years we're it goals,

awareness. REPREVE that brand pull We have will actions consumer

programs of I'm very you'll months, for a information on much impressive that is pretty direct the through the unaided, few that next REPREVE see XX% aided, receive improvement significant the put some REPREVE in -- now We brand But some our A&M have XXX% that's spend. awareness unaided we XX% together. awareness and brand and sorry, doesn't

firm improve to of identify Beyond and The market and it's business. third an our sales we're thing the would long-term segments called on That time study with is, profits spending Apparel. we our completed new outside

home. and most fiscal year. subsegments fruit like there this likely auto, a And while in long-term are manifest look several a have the very that have they'll opportunities to bear is are that this We industrial to initiative, is

occurring. And that but the led you final trends team they effort business began we some credit minutes, on it Craig amendment on he'll to renewal been our take working summer, good the work that we've about facility. his And the then saw is item been of the of few complete, it. and next an in as and credit Creaturo our through facility very has feel This

dilemma. bit It's beyond a So control. all-in-all, our --

back waste. we'll same, be The make However, the near the servicing we believe it definitely stronger crisis a a will But about future. go let I spoke minute be think to are programs get immediately. company ago, just customers to ready and to in us temporary, to don't I a going in

Eddie over turn to I'll it this at point. So

Edmund Ingle

Thanks, Al, everyone. good morning, and

quarter are disappointing, we global with results, robust, for in sees business fiscal when the capitalize industry their remains consistent down and as amount expectations our model heads as outlined a as and levels. entered keeping challenging the and it's we advance to for you this a for stressful while we to normalize we employees, and quite last first were through well Our I return our distracted time imagine, you to difficult want demand environment can the anticipated fiscal XXXX. And the XXXX generally not Despite environment. move thank environment, getting them reflect positioned operating quarter we

Slide overview X quarter. the for of to Now turning an

the the which demand and market. driven volatility stressed quarter Our especially, for was quarter decline were a XXXX. the $XXX.X fiscal net stem across million, by lower the This but global down environment apparel X% sales first of from volumes, markets, compared in to

and and and the of issues in to that As XXXX, XXXX. chain led destock to online and levels now historic supply size brands that the discounting attempted they at retail fell. pushouts actions in largest up excess experienced These we've And had apparel deep cancellations issue. as seen production a inventories global those many given retailers calendar reminder, right retailers inventory world's to built

August expecting made impact cost our Offsetting last U.S. as the impacted also. fiscal and effective quarter cautioned in September and in we it pricing improved the noted we mitigating to quarter. pressures resulting negatively pricing quarter, June proved in start and some pressure of during the we The our adjustments As stronger was the to during this July second this environment volume quarter, Al are an pricing experienced in we XXXX,

We to and by profile environment the are taking encouraged macro lower to see by when our navigate levels, despite will pricing position, necessary. our we benefits as demand continue agility, fluid margin what with action protect being the muted temporary we

decline during quarter. the perspective, a From which a occurred in recycled cost bottles, both raw first we and saw materials virgin

levels. costs normalized bottle bale more have Specifically, to reasonable much

and geopolitical situation energy volatile. remain prices expectation will both Our the is that

and However, be actions we to hard We've to hope not quarter. that will in temporary take it worked strength hard we alleviate to pricing costs working the December volume U.S., necessary during our challenges. and are now establish this

programs; growth. of we to help take These expense labor to the advantage and measures Some continuing labor and while not travel area of return, spending and and high capital our lower purchases sacrificing retention underlying material decreasing reducing curtaining future strength of cost profitability opportunities. the proactive the each while growth noncritical And and we and will of hours, experiencing for business incentives lowering for prioritizing today recovery expenditures are capital pressures overall discretionary in push advertising, marketing activity; measures continuing offset are include recruiting efforts; savings. hard

selling we that on over Asia. more has will competitive battling next and more placing Brazil Now downward to prices expect continued India the Brazilian well, Brazil Entities to aggressively, perform and segment specifically pressure few their be in the have much been turning months. market. pricing China but imports exports in

brands the to Asia retailers weakened renewed has segment, very ordering from following chain, Product our market For the awaiting snapshot for patterns. similar is inventories the U.S. and signals in is high demand the supply and demand

seeing from continued China. in still impacts are We selected lockdowns COVID-related

our by brand Turning XX% and to offers remains negatively which momentum products believe and during impacted the the Slide REPREVE strong and earlier. with and long-term view net Once REPREVE commercial quarter we sent sales REPREVE were stabilizes, bounce sales the comprised products, fully by adoptions brand Fiber. customer chain mix environment which of REPREVE the a of I co-branding global expect long-term fairly followed levels the In quickly. first Asia sells in sales segment, hangtags intact and of normalizes Fiber million with disruptions mentioned adversely our was positive Asia to retailers. [inaudible]. pandemic-related demand lockdowns supply prior the demand brands customers X, particular, from $XX.X REPREVE impacted to by back for Fiber the mostly We disruptions REPREVE to

for quick expectations of the recovery demonstrates X REPREVE. our Slide

consumers, than hangtags Quiksilver, bottle see to new Saints, products by co-branded recognize continue build our during Brands as ship in This the quarter. in in brands. favorite quarter. from growing their of particular, FY J. and Crew, launch QX now from is evidenced of REPREVE Gen hangtags Z We sustainable the any more the with Americas green All that popularity expect 'XX previous the also we options in momentum

REPREVE an component brand story. brand partners of are our essential

quarter, the Guy & media and Manduca, with we social During Igloo and Zulu Zephyr. Harvey, partnerships executed TOMS Shoes Teva,

partnerships months. for upcoming exciting planned several the have We

On partnership excited Season. the activation front, with Bowl our remain we about

We directors promote sustainability X executive are initiatives. football from working closely with college to games

leading off Bound later game. Bowl partnership required mobile that college accumulate of activation to X campaign the college game. also bowl year the at football for kicks season a end team play secure up The football are gearing this a media in social tour calendar will a We at our wins the with as

Our partners mobile through tour of continues diverse consumers events. and REPREVE a mix alike about of benefits educate to the

Surf the a On appeared U.S. ManagerFest From in look football the and our platforms. games both both is the Increasing our key annual social in of on the also college Mobile site a refined and focus. Coasts. Expo with Las renovated BXB BXB perspective, evident the manager new conference, audiences. front, remains clean Vegas, early trade across We show Mobile Lovesac's media Tour BXB resonate Orlando. October, store This in website and the REPREVE at consumer style to Tour designed is attended awareness

product and QX Additionally, both start and from we Unifi and coverage REPREVE. a and both and actively in are investment media to the off Calvin pay upcoming in have media months securing perspective addition retained Klein. on Crooks partnerships social trade consumer dividends PR firm both Quiksilver, focused to quarters. already including a will with October, strong This from launches for new marketing A a Manduca is Vitamin in and several

We early and digital, about activewear in-store our are in public women's that campaign new October collaboration Asics that relations. comprehensive with with especially a excited social, included launched

has REPREVE material fabric footprint week, and from CELLIANT, and infrared And apparel more. announced sustainability the with REPREVE CELLIANT relationship leader, just a of creators we CELLIANT with with Hologenix, technology, properties the to infrared of sportswear last introduce strategic CELLIANT REPREVE. science science-backed and of to

will the With that, Craig. turn I Craig? now over to call

Craig Creaturo

of driving full Americas, have was and good reduced margin we strong, orders that volume weakness our Eddie, and challenges short-term The quarter led you, lower-than-expected on we to Outside for and of we the controlling completed disruption, and and long-term is brands Thank and as unexpected everyone. development remaining pushed believe retailers This the nimble --. programs. pressure in that remain the by team our costs stemmed management morning, products profitability. underlying our focused out from significant just pursue demand to demand delayed continue

the to turn of X webcast presentation. Let's Slide

Here, of segment our the we will begin review performance. reportable

of the sales region mix volumes for the by the strong. demand the market expect in sustainable will In robust interest by recent when highlighted For pressures, and demonstrates quarters, brand the yarns and were a demand demonstrated and efforts revenue Brazil, of underlying market retailer with connections a we're of we facing volume support offset our performance the and quarter still several overall volumes ability the X.X% our revenue Asia, revenues that completed our In the short-term allow pricing innovative performance. XX.X% strong and and presence demand demand continued decrease for The segment, We last is customer COVID strong throughout robust challenged of positive in the level the to indicative Americas subside. fewer while in flow-through. and lockdowns disruptions demand local more pricing impact double-digit remain lower products. normalized headwinds growth just

decline Consolidated product from on decreased fixed million segments profit declining percentage margin the Turning shortfall absorption. gross profit from to and weaker to $X.X to in were the margin Slide gross profit X Americas gross and impact the in overview. gross cost to for XX.X% demand attributable associated quarterly X.X%. million gross $XX.X with The

will demand a near have difficult workforce maintained We return that cost as drove these that during inefficiencies our times strong in some believe facilities. future, the in we and

the However, investments we when in people pay training expect returns. that additional future volume dividends will our and

this products, have we constrained segment and of high for historical sales of profile in due gross the the a to discussed rate The strong profit REPREVE normalization gross Asia a of expected XX.X% gross maintained at the the more In albeit the rate Brazil, demonstrated margin margin prior that is segment. level a demand. quarters, margin proportion indicative lower with and

continues Our asset-light to the to for be region. prove Asia a model good choice

to our on our Slide XXXX million allocation first and X, on balance which against our ABL Moving a sheet revolver fiscal priorities. We the year million borrowed $XX.X capital of $XX.X quarter update and term loan. provides brief borrowed against ended with

As we in our XXXX. asset-based our XX, described refinancing completed October we earnings facility the release, on of lending

period the loan borrowing presented provides overall that National Unifi the activity. during with million, short-term XXXX, partners, the other on increases our helpful would facility the benefits, favorable of maturity thank borrowings to to to support and among the new thank the Pennsylvania on X, from flexibility I Unifi banking to years, continues Bank structure majority million in their America Group Slide Legal softness. been our of Bank, facility, would outstanding date this their Finance our to several current term of the like for for of you $XXX new for liquidity like say has and Wells As $XXX rate place capacity efforts and October credit this into loan, Bank borrowing expanded First and move and significant of I demand extends Fargo

to and capital growth, business in and and/or Under maintain repurchases our remain opportunistic strong allocation, balanced organic invest the a innovation expect to M&A drive sheet to to share with balance prospects. we approach continue

As repurchases current available for remains repurchase a reminder, share $XX.X million under the program.

a reviewing spend I'll rate. moment Lastly, the tax

the segment decline. in As our the U.S. weakness profit, earnings demand drove Americas gross pressures

the losses. Our reflects the sensitivity quarter rate And negative tax allowance the lower assumed profitability tax benefit profitable levels the for create while fully in incurred foreign rate greater U.S. offsets valuation for calculation. the expense effective operations on

to the the and take presentation back call of comments. make Eddie last to pass Eddie? I'll the Now us some final slide through

Edmund Ingle

you, Thank Craig.

with our and session, the and Before discuss environment quarter. Q&A to the The outlook within to to let's presentation and inventory apparel expected timing the recovery continue demand of markets calendar as remaining to expectations trends and fluid retailers we turn we're the of year measures with production are for turn apparel for destocking the over the remain call demand rest the second to brands, deal operating uncertain. seeing, brands major of the domestically internationally, and XX fiscal Slide our both apparel

in but expect inventories constrained, environment to similar second bounced environmental X expect remains be seen hold line as quarters during we of is demand macro visibility This we a Our see half sharp a of the XXXX. second back see strongly fiscal where then in and operating take prior trends disruption, with have historically have in to quarter the recovery then impact need we rebuilt. to

quarterly an some visibility basis can guidance predictions better these a under to make Given annual temporarily challenges, we believe approach. until and prudent to we our it's shift short-term regain

second XXXX. net to XXXX, to in XX% what fiscal XX% expect sales of quarter QX reported the of we we than be lower fiscal For

is fixed Additionally, that absorption drive Americas, another of cost our unfavorable in on EBITDA. will to lower expectation the profitability quarter leading pressures

global sustainable While as and optimistic challenging, fiber of Unifi changed, the future and our growth has our the a is current operating remain about long-term we position potential not leader. environment

see revenue second inventory and levels as our expect of diminish the fiscal accelerate demand in we stabilizes, to profitability half the year. Again, and

remain will partner and balance facility, of on being choice have opportunistically and maintain well the as We globe. growth we the focused to additional sheet initiatives across our brands on pleased positioned liquidity credit our are sustainability the to by amended strong afforded to we act

the We will now questions. open for line

Operator

Instructions] [Operator

first Securities. Our from with Daniel comes question CJS Moore

Daniel Moore

Thank you. Good morning.

are more in Let cost the with those actions. those some me maybe of some and start reduction and from give you more some bit of Can or the temporary little permanent quantify whether actions, cost a are nature? savings color

Edmund Ingle

the do because back. temporary business actions Thanks we question. for see Yes, this bounce cost the predominantly are reduction

some taking are to taking shutdowns Thanksgiving our extended period, example, We holiday. we're during going take for -- and we're Christmas plant also at shutdowns the

on have We out quite into XXXX. activities later of or year to the a number perhaps, pushed

will QX. So benefit in while to the some impact and QX do predominantly implemented be much into of expect these QX, cost in savings we us

Daniel Moore

Got new some REPREVE, the it. with Helpful. partners, momentum inventory obviously of decline you hangtags. so. mentioned I obviously. Revenue did the understand XX% or the about challenges,

Asia maintaining, not share grow, kind in if Just the region? what of you're that you to gives confidence reassure continuing

Edmund Ingle

of a as this we March the back by initiative -- middle just extended push on these forever. lockdowns June, And went and true because can't the it's orders it was can't their back on question. into some quarter, year in to great point, -- May U.S. This turned be orders What brands the Yes, know also the we and that the what there the orders. inventories. slowdown out strong a restocking as and -- of cutbacks European through brands that market they COVID that their of cut turned really At last all the start go these seems from out brands to in through in of to a have is -- started of slowdown into out the brands. middle a really

Chinese New expect the back -- we REPREVE or for change that return Year as thereafter. shortly don't will a be And a As high we there expectation be their lot seeing said on through season, call, they move the we REPREVE, in the demand to happens. discounting. that of holiday bounce orders before as is there any during either we Asia the expect will inventory, don't

Daniel Moore

on And then proactive. the obviously, Okay. credit facility,

the what any other we things if facility? covenants of be on or in there, ratios Just terms any, thinking might about tell amended are us leverage

Craig Creaturo

which the expired, there charge a same covenants is covenant. fixed facility the coverage covenant, ratio as but it's are Dan, X is springing the

our plenty we long exceeds now, on excess as headroom So of that availability there's as trigger which really level, issues compliance-wise. the have no

very the facility really just similar to replaced. So we

Operator

Our next Anthony Co. question & Sidoti with comes Lebiedzinski from

Anthony Lebiedzinski

for the thank Good morning. questions. And taking you

you environment, your customer perhaps wondering, just any I'm in level So pricing? to confident you for pricing demand steady? to the able be about are hold able Or hold just your discounts? wondering will are your So given weak are confidence seeing current to -- you you ability your looking that

Edmund Ingle

the XX time to of spent last A lot over months. price getting really effort great question. the We've to needed point a we and

to are sure we are but to pressure raw have down, manage are to maintain -- under prices materials that place. in that make cost very our we strong we margins We going and to we the the are appropriate best doing stay that

Anthony Lebiedzinski

Got Okay. you.

then your gave the CapEx quarter for plans, quarter. you terms in And Okay. spending of current guidance your know I --

as the just and rest just and machines next next about far the -- because still the year target down you just year, finish of completion As are you're of assume texturing year kind come of wondering should of Evo CapEx the thinking if rollout still I of that. on to the --

Edmund Ingle

We've we have, view that have potentially the of certainly, the can from move maybe safety. point safety all on around maintenance some or CapEx for programs centered you issues the Thank CapEx certainly on of of any we cut back we question. out any initiatives exception that a with

about of as We can right are now, spending timing that. The the we imagine, forward, have decisions made pushed But currently have not that. But been out. evaluating, ongoing. we no as is Evo move you

Anthony Lebiedzinski

Got it.

was Or quarter I just last something miss quarter, guys then that? that there some that I about inventory in Okay. be here write-downs think Did the talked that would that in quarter. that meaningful reported? you was you the And

Craig Creaturo

Yes.

was the the purchasing. for those business. write-downs have of been especially of that back an really a volume, -- bigger raw been we amount have here lack And and did Anthony, that the material on quite us have on Americas. The in impact pulling So impact bit we

So those down, pretty to purchases. reduce have we as react gone our demand quick been has and

a lower -- and didn't bit little quarter, those help -- help yes, as in head just us beyond. but really now as will us buying it'll this at prices, much we're December that we So into help not impact completed

yes, had was purchasing adjust been have So inventory -- we We it higher definitely, levels. that. to at

We we we adjusted flowing inventory have slower are out we softness. historically this and -- Unfortunately, than expected is than demand have of that. because slower though, that

have as We'll quarter. into guidance an our So yes, December past our this impact quarter factored That for did that do on financials so. well. the was

Anthony Lebiedzinski

you. Got

Okay. last then my question. And

apparel. your mentioned prepared with You about a study of beyond beginning at the, think, market remarks the done I some segments

closest one the in -- which sooner your in near terms of you of terms or will the at which have you auto, ones I out do impact mean rather home, ones out So see you whether the on mean, than think the which the think that do think these, have I one of looking will impact cited, you -- later? industrial business? will impact of

Edmund Ingle

that, decision-making whereas those place to one the a those is on We a quickest we as and home that programs set. Yes. -- time at I quick one for place, the is the the long some that will three different market automotive, and right now, it takes segments, lot looked jump. can of we is said, right focusing that reason eyeing as We're in the we're think Home, give of now. us get take programs because

Operator

attending presentation. said, are Conference further that With this the Call. There Thank you time. Inc. questions Earnings no for conclude XXXX at Unifi, QX, today's

now may disconnect. You

Unifi (UFI) 4 Nov 222023 Q1 Earnings call transcript