UNIFI INC Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Macro economic headwinds have been stubborn, but improvement expected in Q2 of fiscal year.
• REPREVE innovation is enthusiastically received by customers, with products like ThermaLoop set to show in Q4.
• Beyond Apparel business is gaining traction in home, carpet, military, and packaging segments.
• Brazil business has momentum due to investment in EvoCooler, aiding market share gain.
• Cost reductions in North America are ongoing.
• Hurricane Helene impacted some customers, pushing sales into Q2.
• REPREVE launched new products like REPREVE Takeback white filament yarn and ThermaLoop, with strong media coverage.
• Beyond Apparel initiatives include growth in flooring, military, and resin business.

Segment Performance

• Americas segment: Performance relatively in line with expectations but experienced a modest slowdown due to seasonality and weather impacts.
• Brazil segment: Strongest performing segment for the third quarter in a row, with net sales up 15% year-over-year, driven by price taking and market share capture.
• Asia segment: Saw a slowdown in performance due to China's struggling economy and pricing pressure, with net sales down 2% year-over-year. REPREVE represented 30% of sales in Q1, a slight decrease from the previous quarter.

Guidance

• Q2 fiscal 2025 net sales expected to be between $140 million and $145 million, with adjusted EBITDA ranging from negative $4 million to negative $2 million.
• Fiscal 2025 outlook: Expect 10% year-over-year top-line growth, stronger profitability, and capital expenditures around $12 million.

Risks

• Macro economic headwinds, apparel inventory issues, and slow consumer sales continue to pose challenges.
• Weather events impacted customers' operations, pushing sales to later quarters.
• Economic struggles in China are affecting the Asia segment's performance.

Question and Answer

Q: What is the dollar amount of sales impact due to storms late in Q1?

A: The impact to Q1 was approximately 1% on a consolidated basis and around 2% specific to the Americas segment, with similar impacts lingering into Q2.

Q: How to sustain strong margins in the Brazil segment going forward?

A: Q1 was exceptional, Q2 is typically weak, but confident mid-term margins will return to normal.

Q: When can Asia segment margins return to previous levels?

A: Long-term, Asia is expected to return to stronger margins as it remains a growth engine.

Q: How much better are margins in Beyond Apparel compared to normal products?

A: Significantly better, approximately 30% better than normal product gross margins.

Q: Plans for marketing new products?

A: Invest in trade shows, road shows, and education; big brands will assist in marketing.

Q: Where are cost reduction efforts in terms of progress?

A: Around the 4th or 5th inning of ongoing cost reduction and sales transformation efforts.