Pointing to demand instability across apparel and textile supply chains fueled by brand and retailer demand, Unifi reported a 30.6 percent drop in consolidated net sales in the fourth quarter of 2023, compared to the same period last year.
The North Carolina-based maker of Repreve recycled yarns blamed its losses in part on weakened demand for apparel production in fiscal 2023 as brands and retailers looked to reduce inventory levels.
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The company’s gross profit for the fourth quarter was $6.0 million compared to $18.4 million during the same period in 2022. Gross profits for Unifi’s Americas segment decreased $8.5 million, while its Brazil segment saw a $2.0 million decrease in gross profits for the quarter. And while the Asia segment maintained a strong gross margin, it still saw a $1.8 million gross profit decrease, impacted by weaker sales volumes.
“While we recognize that globally, our business is suffering, alongside others in the textile space and retail environment, we presently see opportunities for capturing market share in each of the regions as we continue to move through the de-stocking of the supply chain and then charge towards normalcy,” said Eddie Ingle, CEO, Unifi.
Unifi’s operating loss for the quarter also increased significantly over Q4 2022, to $13.7 million from $5.0 million. Reduced gross profit and an $8.2 million impairment charge for abandonment of machinery constructed in the Americas contributed to the loss.
The company’s debt principal was $140.9 million on July 2, 2023 compared to $114.3 million on July 3, 2022. Cash and cash equivalents decreased to $47.0 million on July 2, 2023, from $53.3 million on July 3, 2022, as operational losses were partially offset by cost and working capital management. Unifi’s net debt was $93.9 million on July 2, 2023 compared to $61.0 million on July 3, 2022. On July 2, 2023, the revolving credit facility had outstanding borrowings of $18.1 million and total availability of $55.7 million.
Looking forward, Unifi expects its fiscal 2024 first quarter net sales to be consistent with fourth quarter 2023 results. The company’s effective tax rate is expected to continue to demonstrate volatility, while capital expenditures are projected to trend downward for the first quarter and fall between $14.0 million and $16.0 million for fiscal 2024.
“As we move through fiscal 2024 and anticipate the demand environment to improve in calendar 2024, our plan for the full fiscal year is very much weighted towards the back half of the fiscal year,” Ingle said.
Net sales: Net sales came in at $151.1 million, down from $217.6 million in Q4 2022, which Unifi said were impacted by “volatile ordering patterns from brands and retailers.” The company’s Repreve fibers represented 29 percent of net sales at $4.5 million versus 32 percent and $49.6 million in the third quarter, impacted by lower sales in Asia.
“This reduction is primarily driven by an economic slowdown in China’s textile exports, and we do not view it as a review of sustainability based on our ongoing commercial conversations,” Ingle said. “Any improvement at all in China sales will drive a commensurate rebound of our pre-sales.”
CEO’s take: Despite this quarter’s losses, Ingle said the company expects a rebound as it diversifies its reach and implements cost-cutting measures.
“In spite of the current headwinds, we are cultivating market share opportunities across the Americas and Brazil segments through diligent price management and portfolio diversification,” he said. “Additionally, our mix enrichment efforts in Asia continue to strengthen the asset-light margin profile. Our disciplined cost controls and reduced spending levels have bolstered our balance sheet and liquidity.
Looking forward, Ingle said the Repreve maker anticipates a slow build to a stronger 2024.
“These efforts allow us to remain focused on positioning our segments for demand recovery in fiscal 2024, restoring profitability, and executing our growth strategy, which includes accelerating innovation, expanding Repreve brand awareness, increasing market share, and penetrating new markets,” he said.