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UNIFI INC (UFI)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 FY2024 showed sequential improvement: revenue $0.149B (+8.8% q/q), gross margin 3.2% (+200 bps q/q), adjusted EBITDA $(0.8)M vs $(5.5)M in Q2, and diluted EPS $(0.57) vs $(1.10) in Q2 as apparel destocking bottomed and cost actions took hold .
  • Management raised sequential guidance for Q4 FY2024: net sales $0.160–$0.165B and adjusted EBITDA $4–$6M, supported by market share gains and a Profitability Improvement Plan (PIP) targeting $2.5M per quarter expense reductions by FY2025 and ~$6M annual gross profit uplift from sales process transformation .
  • REPREVE® revenue was $46.8M (31% of net sales), up q/q despite seasonal headwinds in Asia; mix impact from Chinese New Year and Easter reduced volumes by “a couple of million dollars” per segment in Q3 .
  • The narrative pivot: industry inventories normalized; competitor exits in North America and Brazil drive share gains; beyond-apparel momentum in automotive and home; sales transformation in “third inning” improving mix and inventory turns (targeting ~5 turns in the Americas) .
  • Consensus estimate data from S&P Global was unavailable at time of analysis; comparative estimate context is limited (see Estimates Context).

What Went Well and What Went Wrong

What Went Well

  • Sequential revenue and margin improvement: net sales +8.8% q/q to $0.149B; gross margin expanded 200 bps to 3.2% on cost savings and productivity gains .
  • Share gains and PIP traction: management cites “market share gains” in Americas and Brazil due to competitor exits and improved sales process; on track for $2.5M/quarter expense reduction by FY2025, plus ~$6M annual gross profit uplift from sales transformation .
  • REPREVE® momentum: REPREVE® sales $46.8M (31% of net sales), up q/q; sustainability initiatives (Snapshot, 1.5B T-shirt recycle target by FY2030) enhance brand positioning .

Quotes:

  • “I believe that we've hit bottom in quarter 1 and quarter 2 and will go up from here.” – Executive Chairman Al Carey .
  • “We remain on track to reduce our expenses by $2.5 million per quarter by the start of fiscal 2025.” – CEO Eddie Ingle .
  • “We... see a $6 million annual improvement in our gross profit as a result of our sales transformation.” – CEO Eddie Ingle .

What Went Wrong

  • Year-over-year pressure persists: revenue down 4.9% y/y; gross margin down 300 bps y/y to 3.2%; operating loss widened y/y .
  • Americas segment loss: gross loss $(3.5)M; margin (3.9%), despite sequential improvement; pricing/mix remained pressured .
  • Asia seasonal and Brazil import pressures: Asia volumes negatively impacted by Chinese New Year; Brazil faced ongoing pricing pressure from competitive imports .

Financial Results

MetricQ3 FY2023Q2 FY2024Q3 FY2024
Revenue ($USD Billions)$0.157 $0.137 $0.149
Gross Profit ($USD Millions)$9.7 $1.6 $4.8
Gross Margin (%)6.2% 1.2% 3.2%
Operating Income ($USD Millions)$(2.7) $(17.6) $(6.9)
Diluted EPS ($USD)$(0.29) $(1.10) $(0.57)
Adjusted EBITDA ($USD Millions)$5.0 $(5.5) $(0.8)
REPREVE® Revenue ($USD Millions)—$45.7 $46.8
REPREVE® % of Net Sales—33% 31%

Segment breakdown:

Segment MetricQ3 FY2023Q2 FY2024Q3 FY2024
Americas Net Sales ($USD Millions)$101.9 $80.5 $91.1
Americas Gross Profit ($USD Millions)$3.2 $(6.7) $(3.5)
Brazil Net Sales ($USD Millions)$27.4 $26.1 $29.6
Brazil Gross Profit ($USD Millions)$2.4 $3.1 $3.8
Asia Net Sales ($USD Millions)$27.4 $30.3 $28.3
Asia Gross Profit ($USD Millions)$4.1 $5.2 $4.4

Balance sheet / liquidity KPIs:

KPIQ3 FY2023Q2 FY2024Q3 FY2024
Cash & Equivalents ($USD Millions)—$36.0 $27.7
Net Debt ($USD Millions)$93.9 $96.8 $101.0
Capital Expenditures ($USD Millions)—$3.0 $2.6
Weighted Avg. Diluted Shares (Millions)18.052 18.110 18.169

Note: “—” denotes data not disclosed for that period in the cited documents.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($USD Billions)Q4 FY2024N/A$0.160–$0.165 Raised vs Q3 guide range
Adjusted EBITDA ($USD Millions)Q4 FY2024N/A$4–$6 Raised vs Q3 guide range
Capital Expenditures ($USD Millions)Q4 FY2024N/A$4–$5 Maintained vs Q3 guide range
Effective Tax RateQ4 FY2024N/AContinued volatility Maintained tone
Net Sales ($USD Billions)Q3 FY2024$0.149–$0.154 Actual $0.149 In-line lower end
Adjusted EBITDA ($USD Millions)Q3 FY2024$(2) to $1 Actual $(0.8) In-range
Capital Expenditures ($USD Millions)Q3 FY2024$4–$5 Actual $2.6 Lower spend

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Apparel destocking / demandInventories nearing bottom; Q2 in line; cautious smaller, frequent orders; normalization expected CY2024 Bottom reached in Q1–Q2; sequential improvement; Q4 expected better than prior year Improving sequentially
Market share gainsTargeting share gains post competitor exit; volumes to improve in H1 CY2024 Gains in Americas and Brazil from competitor exits; Brazil share up 12%→18% Positive share momentum
Sales transformationPricing execution changes; activity-based costing “Third inning”; improving mix, inventory management; removing slow SKUs Execution progressing
Beyond apparelTarget segments: automotive, home (mattress) Americas growth supported by beyond apparel; momentum building Building
Asia / China dynamicsRich REPREVE mix; China economic softness impacting Brazil pricing Seasonal CNY headwind; y/y up; anticipate growth later CY2024 Seasonal dip; recovery expected
Capex discipline / Evo delayCapex paused, maintenance-level spend; extended 12 months Q3 Capex $2.6M; Q4 guide $4–$5M Controlled
Sustainability / REPREVEREPREVE 31–33% of net sales; marketing partnerships Sustainability Snapshot, 1.5B T-shirt recycling target by FY2030 Brand strengthening

Management Commentary

  • “We expect the results will continue to improve... best way to describe the business right now is that our industry sales are coming back, but still very slow, but definitely improving.” – Al Carey, Executive Chairman .
  • “We remain on track to reduce our expenses by $2.5 million per quarter by the start of fiscal 2025... see a $6 million annual improvement in our gross profit as a result of our sales transformation.” – Eddie Ingle, CEO .
  • “In our Brazil segment, performance has continued to improve, and our market share... increased from 12% to 18%... despite pricing dynamics from competitive imports.” – Eddie Ingle, CEO .
  • “We are seeing conservative ordering... but... inventories are no longer the issue.” – Al Carey .
  • “Q4... net sales between $160 million and $165 million; adjusted EBITDA between $4 million and $6 million.” – Eddie Ingle .

Q&A Highlights

  • Seasonal headwinds quantified: combined CNY and Easter timing reduced Q3 revenue by “a couple of million dollars” per segment in Americas, Brazil, and Asia .
  • Pricing and volumes: targeted, slightly upward pricing strategy; volumes increasing across all regions underpin Q4 guidance .
  • Sales transformation status: “third inning”; inventory management benefits and slow-SKU rationalization improving mix .
  • Beyond-apparel traction: growth in automotive and home (mattress); Central America apparel uptick in recent 4–5 weeks .
  • Capex and inventory turns: maintenance-level Capex expected near term; Americas inventory turns targeted toward ~5 per year (from 3–4%) with aged inventory down materially .

Estimates Context

  • S&P Global Wall Street consensus data for UFI’s quarterly EPS, revenue, and EBITDA was unavailable at time of analysis due to data access limits. As a result, explicit beat/miss vs consensus could not be determined from S&P Global data. Attempted retrieval failed (Daily Request Limit exceeded).
  • Given the in-range Q3 outcome vs company guidance and raised Q4 guidance, sell-side models may need to reflect improved sequential volumes, margin expansion from cost reset, and share capture in Americas/Brazil .

Key Takeaways for Investors

  • Sequential inflection: Q3 delivered tangible improvements across revenue, margin, and adjusted EBITDA; Q4 guide implies further acceleration with adjusted EBITDA turning positive $4–$6M .
  • Share capture catalyst: competitor exits in North America and Brazil plus sales process transformation should continue to boost volumes and mix through FY2025 .
  • Margin trajectory: $2.5M/quarter cost reductions (run-rate FY2025) and ~$6M annual gross profit uplift from sales transformation support operating leverage as demand normalizes .
  • REPREVE brand strength: sustained 31–33% of sales and new sustainability goals enhance strategic moat; marketing collaborations elevate visibility .
  • Asia/Brazil watchpoints: expect seasonal and import pricing pressures to abate later in CY2024; recovery in China should alleviate Brazil pricing pressure .
  • Liquidity discipline continues: Capex contained; working capital focus; however net debt rose q/q—monitor cash generation as EBITDA recovers .
  • Near-term trading lens: confirmation of Q4 delivery vs raised guide and evidence of Americas volume/mix improvements could be stock catalysts; any signs of sustained REPREVE growth and beyond-apparel wins would add to the momentum .