Unifi, Inc. Q2 FY2026 earnings call

Management Statement and Operational Highlights

• Cost Reset in North America: Began a year ago, with closing of Madison facility, cost reductions, 25% fewer North America employees, improved plant efficiencies, better inventory turns, and improved profit margins/free cash flow.
• Revenue Growth Focus: Q1 and Q2 impacted by tariff complexity, but recent order trends in January/February show improvement, including holiday sales solid, inventory replacement by customers, Central America demand pickup, and traction in innovations like Textile Takeback and ThermaLoop.
• Strategic Initiatives: Implemented profitability improvement plan, U.S. manufacturing transition (sale of Madison facility, improved Yadkinville efficiency), and cost restructuring program reducing headcount, labor hours, operating spend, and CapEx, with $4M SG&A savings.

Segment Performance

• Americas: Net sales down 7.1% y-o-y due to lower fiber sales and tariff uncertainty. Gross profit increased by $6.1 million during the quarter, primarily from cost-saving initiatives like consolidation of yarn manufacturing. Revenue contribution details not explicitly given in absolute % but key operational changes noted.
• Brazil: Net sales and gross profit decreased y-o-y due to pricing pressures from Asia imports. However, demand and growth opportunities remain strong in Brazil, with improved performance anticipated in the second half of the fiscal year.
• Asia: Net sales and gross profit declined 27% and 10% respectively, mainly due to lower sales volumes and pricing dynamics. Despite headwinds, gross margin improved by 260 basis points, highlighting effectiveness of asset-light model.

Guidance

• Third Quarter: Expect to realize full benefits of cost reduction initiatives and improved working capital efficiency.
• Trade Environment: Anticipate greater clarity on global trade, supporting revenue improvement in calendar year 2026.
• Margin Accretion: Focus on margin-accretive efforts, including REPREVE value-added products and expansion of Beyond Apparel initiatives.
• Tariff Impact: Positive on reciprocal tariff deal with Guatemala and El Salvador, benefiting North America and Central America orders.

Risks

• Tariff Complexity: Impacted Q1 and Q2 revenues, with continued uncertainty affecting orders and sales.
• Asia Trade: Tariffs creating uncertainty for brands evaluating business actions in Asia.
• Brazil Pricing: Ongoing pricing pressures from Asian imports, though demand remains strong.
• Short-Term Challenges: Potential short-term challenges in Americas despite mid- to long-term improvement optimism.

Question and Answer

Q: Is the pickup in demand seen since quarter end across all segments?

A: Yes, across the board. Brazil has positive momentum from government economic stimulation, Asia saw strong activity in January due to new year, and U.S./Central America benefit from inventory restocking and reciprocal tariff agreement.

Q: Update on Beyond Apparel and revenue percentage?

A: Beyond Apparel includes carpet, packaging, military/tactical, auto. Packaging had strong Q2, carpet grew slightly, military/tactical had sampling. Apparel still large but moving to lower percentage of revenue.

Q: Pricing dynamics in segments?

A: Brazil seeing positive pricing momentum due to Asian asset shutdowns; Asia has slight uptick; U.S./Central America did bottom sizing, targeted price increases, benefiting margin improvement.