Q3 2024 Unifi Inc Earnings Call
Operator: Good morning, and thank you for attending Unifi's third quarter fiscal 2024 earnings conference call. Today's conference is being recorded, and all lines are being placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. Speakers for today's call include Al Carey, Executive Chairman; Eddie Engle, Chief Executive Officer; and A.J. Acker, Chief Financial Officer, During the call, management will be referencing a webcast presentation that can be found in the Investor Relations section of unifi.com. Please familiarize yourself with page 2 of that slide deck for cautionary statements and non-GAAP measures. I will now turn the call over to Al Carey. Al?
Good morning, and thank you for attending unified third quarter of fiscal 'twenty 'twenty Four earnings Conference call. Today's conference is being recorded and all lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
Speakers for today's call include Al Carey Executive Chairman.
Eddie Ingle Chief Executive Officer.
A J.
A J: <unk> Chief Financial Officer.
During the call management will be referencing a webcast presentation that can be found in the best of relation section of unified dotcom.
Please familiarize yourself with page two of that slide deck for cautionary statements and non-GAAP measures.
A J: I will now turn the call over to Al Carey Al.
Albert P. Carey: Thank you very much good morning, everybody and thanks for joining our call I'll make a few general comments and turn it over to Eddie Ingle for his review of the third quarter business and then a J to review the financials.
Albert P. Carey: Thank you very much. Good morning, everybody, and thanks for joining us on our call. I'll make a few general comments and turn it over to Eddie Ingle for his review of the third quarter business and then AJ for the financials. So, if you look at our third quarter results, they're right about where we forecasted. I wouldn't say that we're happy with these results, but they are definitely improved over the prior quarter, and we expect the results will continue to improve.
Albert P. Carey: So looking at our quarter three revenues, they're almost 10% greater than quarter two, and EBITDA is 5 million better than the last quarter. So I believe that we've hit the bottom in quarter one and quarter two, and we'll go up from here.
Albert P. Carey: So if you looked at our third quarter results, they're right about where we forecast it I wouldn't say that we're happy with these results, but they are definitely improved over the prior quarter and we expect our results will continue to improve.
Edmund M. Ingle: So looking at our quarter three revenues they were almost 10% greater than quarter, two and the EBITDA is 5 million better than the last quarter quarter two.
Edmund M. Ingle: So I believe that we've hit bottom in quarter, one and quarter, two and we will go up from here.
Albert P. Carey: I'm also encouraged that our quarter four first estimate is that the business should be better than Q3, and it will also be better than prior year.
Albert P. Carey: I'm also encouraged that our first estimate for quarter four is that the business should be better than Q3, and it'll also be better than last year. I guess the best way to describe the business right now is that our industry's sales are coming back, but still very slow. But definitely improving. That's what we're hearing from most of our customers and our partners. They're all saying about the same thing, but they are also saying that inventories are no longer the issue, you know, that whole issue of... restocking and inventory backups. We don't believe that's an issue anymore.
Albert P. Carey: I guess, the best way to describe the business right now.
Albert P. Carey: Is that an industry sales are coming back, but still very slow.
Albert P. Carey: But definitely improving that's what we're hearing from most of our customers and our partners, they're all saying about the same thing.
Albert P. Carey: But they also are saying that inventories are no longer the issue you know that whole issue of <unk>.
Albert P. Carey: Restocking and inventory backups, we don't believe that's an issue anymore.
Albert P. Carey: But we are seeing conservative ordering for the business based on cash management and some fears about soft overall consumer trends, but overall, green shoots are being seen. We have several developments at Unifi, and they give me optimism about our ability to grow our sales and profits as we progress into the next few quarters. The first one is that we're seeing market share gains in both North America and Brazil due to a consolidating competitive set.
Albert P. Carey: But we are seeing conservative ordering for the business based on cash management and some fears about soft overall consumer trends, but overall opening up green shoots are being seen.
Albert P. Carey: We have several developments at unify and they give me optimism about our ability to grow our sales and profits as we progress into the next few quarters.
Albert P. Carey: Our largest competitor in both markets, both Brazil and North America, has ceased operations, and that's helping our business. The second thing is we've successfully taken out costs in North America that will definitely improve our profitability. Although the people moves are complete, several severance costs might linger into the next quarter or two. Third, our sales transformation efforts are improving our profit margins in North America with efficiencies and execution benefits, especially in the management of inventories. And you'll hear more about that in a little bit.
Albert P. Carey: The first one is that we're seeing market share gains in both North America, and Brazil due to a consolidating competitive set.
Albert P. Carey: Our largest competitor in both markets, both Brazil, and North America have ceased operations and that's helping.
Albert P. Carey: Helping our business.
Albert P. Carey: Second thing is we've successfully taken taken out costs in North America that definitely will improve our profitability.
Albert P. Carey: The people moves are complete.
Albert P. Carey: Several SAP severance costs might linger into the next quarter or two.
Albert P. Carey: Third our sales transformation efforts are improving our profit margins in North America with efficiencies and execution benefits, especially in the management of inventories and you'll hear more about that in a little bit.
Albert P. Carey: Fourth, we have begun to get traction on business categories that are outside of apparel. And we also have made progress on developing innovation for Reprieve, particularly on a circularity idea. And then the final item I'd mention that gives me optimism is the new leadership team that's been put in place under Eddie is doing a very good job of working together collaboratively. They're making things happen, and they're very results-oriented. I'm very proud of them and proud of the results they've achieved in the last 60 to 90 days.
Albert P. Carey: Fourth we have begun to get traction on business categories that are outside of apparel.
Albert P. Carey: And we also have made progress on developing innovation for Repreve, particularly on a circularity idea.
Albert P. Carey: And then the final item I had mentioned that gives me optimism as the new leadership team that's been put in place under Eddie is doing a very good job at working together collaboratively, they're making things happen and they're very results oriented I'm very proud of them and proud of the results they've made in the last 60 to 90 days.
Albert P. Carey: So in summary, we'd like to see the business the base business come back faster.
Albert P. Carey: But we are definitely making progress and we expect to improve our business results in quarter, four and into the upcoming new fiscal year that begins in July.
Albert P. Carey: So, in summary, we'd like to see the business, the base business, come back faster. Well, we are definitely making progress, and we expect to improve our business results in quarter four and into the upcoming new fiscal year that begins in July. So with that, I will turn the presentation over to our CEO, Eddie Ingle.
Albert P. Carey: So with that let me turn the presentation over to our CEO Eddie Ingle.
Edmund M. Ingle: Thanks, Al and good morning, everyone as as I've just highlighted.
Edmund M. Ingle: Thanks, Al, and good morning, everyone. As Al just highlighted, our third quarter fiscal 2024 results were in line with our expectations as we continue to see month-to-month improvements in our financial results following what we believe was really the bottom of the apparel inventory de-stocking in December. And looking ahead, we continue to remain cautiously optimistic that we will begin to see a more normalized demand environment in the apparel industry as we move through the calendar year 2024. Turning now to slide 4 for an overview of the quarter.
Edmund M. Ingle: Our third quarter fiscal 2024 results were in line with our expectations as we continue to see month to month improvement in our financial results. Following what we believe.
Edmund M. Ingle: It was really the bottom of the apparel inventory Destocking in December.
Edmund M. Ingle: And looking ahead, we continue to remain cautiously optimistic that we will begin to see a more normalized demand environment in the apparel industry as we move through the calendar 2024.
Edmund M. Ingle: Turning now to slide four for an overview of the quarter.
Edmund M. Ingle: During the third quarter of fiscal 2024, we recorded $149 million in consolidated net sales, which was up 9% compared to the second quarter of fiscal 2024. This overall increase in net sales during the quarter was driven primarily by continued improvement in the overall market and the initial results of the market share gain as our sales transformation initiatives begin to take hold. Our cost reset efforts are also beginning to show in our bottom line, and we saw solid gross margin improvement in Crenshaw. We are happy to see some of the initial success, and we remain on track to reduce expenses by $2.5 million per quarter by the start of fiscal 2025.
Edmund M. Ingle: During the third quarter of fiscal 2024, we recorded a $149 million and consolidated net sales, which was up 9% compared to the second quarter of fiscal 2024.
Edmund M. Ingle: The overall increase in net sales during the quarter was driven primarily by continued improvement in the overall market and the initial results of the market share gain as our sales transformation initiatives.
Edmund M. Ingle: Began to take hold.
Edmund M. Ingle: Our cost reset efforts are also beginning to show in our bottom line and we saw solid gross margin improvement sequentially.
Edmund M. Ingle: We are happy to see some of the initial success and we remain on track to reduce expenses by $2 5 million per quarter by the start of fiscal 2025.
Edmund M. Ingle: As for our sales transformation efforts, we have been making great progress in streamlining our sales process, improving our inventory management, and realigning our resources to maximize efficiencies in our current operating environment. Some of the initial success in our sales transformation includes gaining additional market share from our competitors and successfully reducing our inventory in the U.S. while growing revenues at the same time. This gives us great confidence to remain on track to see a $6 million annual improvement in our gross profit as a result of our sales transformation. Once the profitability improvement plan is completed, which is expected to occur by the end of this fiscal year,
Edmund M. Ingle: As for our sales transformation efforts, we have been making great progress in streamlining our sales process, improving our inventory management and realigning our resources to maximize efficiencies in our current operating environment.
Edmund M. Ingle: Some of the initial success in our sales transformation included include gaining additional market share from our competitors and successfully reducing our inventory in the U S. While growing revenues at the same time.
Edmund M. Ingle: This gives us great confidence and we remain on track to see a $6 million annual improvement in our gross profit as a result of our sales transformation.
Edmund M. Ingle: Once the profitability improvement plan is in peak competed which is expected to occur by the end of this fiscal year.
Edmund M. Ingle: I'll now provide a brief update on each of our business segments. In the Americas segment, we are seeing a modest and encouraging improvement in our volume. We attribute part of this growth to our team capturing market share in the region as a result of a competitor that we previously mentioned exiting the market. We are also highly encouraged by the growing morale we are hearing from customers as they look forward to the upcoming quarter.
Edmund M. Ingle: I will now provide a brief update on each of our business segments in the Americas segment, we are seeing a modest and encouraging improvements in our volumes.
Edmund M. Ingle: We attribute part of this growth through our team capturing market share in the region as a result of a competitor that we previously mentioned exiting the market.
Edmund M. Ingle: We are also highly encouraged by the growing morale, we are hearing from customers as they look forward to the upcoming quarters.
Edmund M. Ingle: In our Brazil segment, performance has continued to improve, and our market share in that region has increased from 12% to 18% over the last several quarters. We are pleased that we've been able to gain market share in Brazil despite continuing unfavorable pricing dynamics from competitive imports. While the pressures we are experiencing from competitive imports will remain in the near term, we continue to remain confident in our competitive local supply chain position in the Brazilian market.
Edmund M. Ingle: In our Brazil segment performance has continued to improve and our market share in that region has increased from 12% to 18% over the last several quarters.
Edmund M. Ingle: We are pleased that we've been able to gain market share in Brazil, despite continuing unfavorable pricing dynamics from competitive imports.
Edmund M. Ingle: While the pressures we are experiencing from competitive imports remain in the near term we continue to remain confident in our competitive local supply chain position in the Brazilian market.
Edmund M. Ingle: We anticipate that we'll begin to see the full impact of our increased market share in both the Americas and Brazil segments in our financial results as we move into fiscal 2025. In Asia, we are seeing signs of a consistent recovery, and as is the norm, our results in the region were impacted by the Chinese New Year in February when evaluating. We have a number of proactive initiatives in process in Asia, and we believe that will help us accelerate growth in the late calendar years 2024 and 2025 as we look forward to sharing those down the road.
Edmund M. Ingle: We anticipate that we'll begin to see the full impact of our increased market share in both the Americas, Brazil segments in our financial results as we move into fiscal 2025.
Edmund M. Ingle: In Asia, we are seeing signs of a consistent recovery and as is the norm. Our results in the region were impacted by the Chinese new year in February when evaluating.
Edmund M. Ingle: The segments on a sequential basis.
Edmund M. Ingle: We have a number of proactive initiatives in process in Asia, and we believe.
Edmund M. Ingle: Will help us accelerate growth in the late calendar 2024, and 2025 as we look forward to sharing those down the road.
Edmund M. Ingle: Turning now to slide 5, for an update on Rupreet. During the quarter, Reprieve represented 31% of sales, a 6% decrease compared to the second quarter that was driven primarily by the typical seasonal impact of the Chinese New Year, despite experiencing a decline in the percentage of net sales. Pre-sales did actually increase by 1.1 million dollars on a sequential basis. Looking ahead, we believe that we will see an improvement in reprieve sales due to both demand for the brand and its position as a leader in the branded sustainable performance fibers market. Turning now to slide 6.
Edmund M. Ingle: Turning now to slide five for an update on Repreve <unk>.
Edmund M. Ingle: During the quarter were pre represented 31% of sales a 6% decrease compared to the second quarter that was driven primarily by the typical seasonal impact of the Chinese new year.
Edmund M. Ingle: Despite experiencing a decline in the percentage of net sales pre sales did actually increased by $1 1 million on a sequential basis.
Edmund M. Ingle: Looking ahead, we believe that we will see an improvement in reprise sales due to both demand for the brand and its position as a leader in the branded sustainable performance fibers market.
Edmund M. Ingle: Turning now to slide six.
Edmund M. Ingle: In late February, we released our Sustainability Snapshot that shares impactful updates on our innovative, sustainable mission. Waste Reduction Achievements and Future Goals Included in the report was the debut of our pioneering T-shirt equivalent metric, in which we set ambitious textile-to-textile recycling targets to transform the equivalent of 1.5 billion t-shirts worth of textile and yarn waste into new products by fiscal 2030. In addition to this target, the sustainability snapshot also included several other goals, such as our target of reducing our scope 1 and 2 greenhouse gas emissions by 30% by 2030.
Edmund M. Ingle: In late February we released our sustainability snapshot that chairs impactful updates on our innovative sustainable mission waste.
Edmund M. Ingle: Waste reduction achievements and future goals.
Edmund M. Ingle: Included in the report was the debut of our pioneering T shirt equivalent metric in which we set ambitious textile to textile recycling targets.
Edmund M. Ingle: To transform the equivalent of $1 5 billion T shirts worth of textile and yarn waste into new products by fiscal 2013.
Edmund M. Ingle: In addition to this target the sustainability snapshot also included several other goals.
Edmund M. Ingle: Such as our target of reducing our scope, one and two greenhouse gas emissions by 30% by 2013.
Edmund M. Ingle: Turning now to slide 7 for an update on our marketing efforts. We continue to dedicate resources to boost the presence and reach of our premier brand Reprieve and additional performance technologies. The highlight of our third quarter was a successful execution of the collaboration with Peter Millar and WM at the 2024 WM Phoenix Open. The W.M. Phoenix Open is one of the most sustainable large-scale golf events in the world and collects all of the PET bottles at the event.
Edmund M. Ingle: Turning now to slide seven for an update on our marketing efforts, we continue to dedicate resources to boost our presence and reach of our Premier brands Repreve and additional performance technologies are.
Edmund M. Ingle: The highlights of our third quarter was a successful execution of the collaboration with Pete MLR and Wm at the 2020 for Wm Phoenix open.
Edmund M. Ingle: That dumping around Phoenix open as one of the most sustainable large scaled golf events in the world and collect all of the phe bottles at the events for.
Edmund M. Ingle: The Prix was showcased in a special edition apparel collection made from recycled bottles used to create three custom-styled Peter Molar apparel items that were sold at the tournament in February. The collaboration was covered nationally on television, digital, and print media, and social platforms generated over 200 million impressions.
Edmund M. Ingle: We're pre was showcased in a special edition apparel collection made from recycled bottles used to create three custom style. Peter Millar apparel items that were sold at the tournament in February.
Edmund M. Ingle: The collaboration was covered nationally on TV digital and print media.
Edmund M. Ingle: And social platforms generated over 200 million impressions and this was an exciting collaboration for unified to be part of and really helped highlight the important role our company is tanking and a circular economy, which is about taking what might be a waste product and turning it into something useful.
Edmund M. Ingle: This was an exciting collaboration for Unifi to be part of and really helped highlight the important role our company is taking in the circular economy, which is about taking what might be a waste product and turning it into something useful. Now turning to slide 8, later this month, we will be hosting our 7th Annual Reprieve Champions of Sustainability Awards in New York. The awards celebrate both the industry pioneers who have helped Unifi achieve the milestone of recycling over 40 billion plastic bottles into new products through Reprieve, as well as our efforts to expand our impact through new brand collaborations and upcoming product launches.
Edmund M. Ingle: Now turning to slide eight later this month, we will be hosting our seventh annual Repreve champions of Sustainability Awards in New York City.
Edmund M. Ingle: The awards celebrate both the industry pioneers, who have help unify achieved the milestone of recycling over 40 billion plastic bottles into new products through repreve as well as our efforts to expand our impact through new brand collaborations and upcoming product launches.
Edmund M. Ingle: The awards will be presented to 37 brand and retail partners that have transformed 10 million or more recycled plastic bottles and 64 textile partners that have transported 50 million or more recycled plastic bottles through the use of Reprieve performance fibers. This year, we will be celebrating key brands such as Nike, Under Armour, Inditex, Rothy's, Lovesac, and Sirius Simmons Bedding. We look forward to continuing to work with these partners to reduce negative environmental impacts and be good stewards of our planet and future, while inspiring others in our industry to do the same. With that, I would now like to pass the call over to AJ to discuss our financial results for the quarter.
Edmund M. Ingle: The awards will be presented to <unk> Havent brand and retail partners that have transformed 10 million or more recycled plastic bottles and 64 textile partners that are transport 50 million or more recycled plastic bottles through the use of Repreve performance fibers.
Edmund M. Ingle: This year, we will be celebrating key brands, such as Nike under armour, Inditex, Ralphie's Lovesick and Sir has Simmons bedding.
Edmund M. Ingle: We look forward to continuing to work with these partners to reduce negative environmental impacts and be good stewards of our planet and future while inspiring others in our industry to do the same.
Edmund M. Ingle: That I would now like to pass the call over to Jay to discuss our financial results for the quarter.
Andrew J. Eaker: Thank you, Eddie, and good morning, everyone. The third quarter was another step in the right direction for Unifi as we continue to make strides in overcoming the negative impact our businesses faced due to the inventory destocking challenges in the apparel industry and its supply chains. As both Al and Eddie have noted, we're cautiously optimistic that we have moved out of this inventory destocking period, which is evident from quarter-over-quarter revenue growth and sequential gross profit improvement.
Jay: Thank you Eddie and good morning, everyone. The third quarter was another step in the right direction for unify as we continue to make strides in overcoming the negative impact our businesses faced due to the inventory destocking challenges in the apparel industry and its supply chain as both al and Eddie have noted we're cautiously optimistic that we have moved out of this inventory destocking period, which is evidenced by.
Jay: Quarter over quarter revenue growth and sequential gross profit improvement our quarter over quarter progress highlights the benefits of our recently implemented profitability improvement plan as Andy stated earlier. The plan has been progressing as anticipated and we are continuing to focus on keeping our variable operating expenses across both production and administrative.
Andrew J. Eaker: Our quarter-over-quarter progress highlights the benefits of our recently implemented profitability improvement plan. As Eddie stated earlier, the plan has been progressing as anticipated, and we are continuing to focus on keeping our variable operating expenses across both production and administrative functions low, and we remain on track to reduce our expenses by approximately $2.5 million per quarter, beginning in fiscal 25.
Jay: <unk> low and we remain on track to reduce our expenses by approximately $2 5 million per quarter.
Jay: Beginning in fiscal 'twenty five as a reminder, we plan to strategically reinvest these cost savings and increased profits from both our cost reset and sales transformation into areas of our business that promise additional revenue and margin enhancing opportunities turning now to our financial results on slide nine you will see our consolidated financial.
Andrew J. Eaker: As a reminder, we plan to strategically reinvest these cost savings and increase profits from both our cost reset and sales transformation into areas of our business that promise additional revenue and margin-enhancing opportunities. Turning now to our financial results. On slide 9, you will see our consolidated financial highlights for the quarter. Consolidated net sales for the quarter were $149 million, up approximately 9% on a sequential basis with higher sales volumes following the holiday shutdown periods in November and December.
Andrew J. Eaker: This led to a commensurate improvement in gross profit. Turning to slide 10, in the Americas segment, net sales improved by 13% on a sequential basis, primarily due to both seasonally higher sales volumes and the recent share gains mentioned earlier by Allen Eddy. All of this led to a sequential improvement in gross profit that was further bolstered by our recent cost-saving efforts. Slide 11 displays our Brazil segment highlights, which experienced both net sales and gross profit increases on a sequential basis, primarily due to seasonally higher sales volumes, market share gains, and modest pricing pressure relief from competitive imports. On slide 12, our Asia segment was negatively impacted during the quarter, as expected, due to the Chinese New Year, which drove lower sales volumes and, accordingly, lower gross profit.
Jay: Highlights for the quarter <unk>.
Jay: Consolidated net sales for the quarter were $149 million up approximately 9% on a sequential basis with higher sales volumes. Following the holiday shutdown periods in November and December this led to a commensurate improvement in gross profit.
Jay: Turning to slide 10 in the Americas segment net sales improved by 13% on a sequential basis, primarily due to both seasonally higher sales volumes and the recent share gains mentioned earlier by Alan Eddie.
Jay: All of this led to a sequential improvement in gross profit that was further bolstered by our recent cost saving efforts.
Jay: Slide 11 displays our Brazil segment highlights, which experienced both net sales and gross profit increases on a sequential basis, primarily due to the seasonally higher sales volumes market share gains and modest pricing pressure relief from competitive imports.
Jay: On Slide 12, our Asia segment was negatively impacted during the quarter as expected due to the Chinese new year, which drove lower sales volumes and accordingly, lower gross profit <unk>.
Andrew J. Eaker: Fortunately, the portfolio remains strong with reprieved products and value-added technology. Before passing the call back to Eddie for some closing commentary, I'll now briefly discuss our balance sheet on slide 13. During the quarter, we continue to focus on working capital management and cost controls, allowing for a better free cash flow situation in the quarter and year-to-date period. CapEx spend continues to be focused on maintenance levels and remains significantly lower than the prior two fiscal years, with the current fiscal year expected to be less than $16 million.
Jay: Fortunately the portfolio remained strong with repreve products and value added technologies.
Speaker Change: Before passing the call back to Eddie for some closing commentary I'll now briefly discuss our balance sheet on slide 13.
Edmund M. Ingle: During the quarter, we continued to focus on working capital management and cost controls, allowing for a better free cash flow situation in the quarter and year to date periods.
Edmund M. Ingle: Capex spend continues to be focused on maintenance levels and remained significantly lower than the prior two fiscal years with the current fiscal year expected to be less than $16 million.
Speaker Change: We remain confident that our business is well positioned for realizing profitable growth opportunities and we continue to manage the balance sheet accordingly.
Andrew J. Eaker: We remain confident that our business is well positioned for realizing profitable growth opportunities, and we continue to manage the balance sheet accordingly. I will now pass the call back to Eddie to take us through the last slides of the presentation and make some final comments.
Speaker Change: I will now pass the call back to Eddie to take us through the last slides of the presentation and make some final comments.
Edmund M. Ingle: Thank you, AJ. Now, turn to slide 14 to discuss our forecast for the fourth quarter of fiscal 2024. For the fourth quarter, we are expecting net sales between $160 million and $165 million, just at EBITDA, between $4 million and $6 million, and capital expenditures between $4 million and $5 million.
Edmund M. Ingle: Let's now turn to slide 14 to discuss our forecast for the fourth quarter of fiscal 2024.
Edmund M. Ingle: For the fourth quarter, we are expecting net sales between $160 million and $165 million.
Edmund M. Ingle: Adjusted EBITDA between $4 million $6 million.
Edmund M. Ingle: Capital expenditures between $4 million and $5 million and the.
Edmund M. Ingle: And the effective tax rate is expected to demonstrate continued volatility. Moving on to slide 15, as evidenced by our recent quarter over quarter financial growth, we are cautiously optimistic that December was the bottom of the inventory de-stocking in the apparel industry. The quality and the improved morale of customer conversations that we've been having over the last few months gives us confidence that we will not only see an increase in net sales on a sequential basis in the fourth quarter but also strong growth in fiscal year 2025.
Edmund M. Ingle: The effective tax rate is expected to demonstrate continued volatility.
Edmund M. Ingle: Moving on to slide 15.
Edmund M. Ingle: Evidenced by our recent quarter over quarter financial growth. We are cautiously optimistic that December was the bottom of the inventory destocking in the apparel industry.
Edmund M. Ingle: The quality and the improved morale of customer conversations that we've been having over the last few months gives us the confidence that we will not only see an increase in net sales on a sequential basis in the fourth quarter, but also a strong pivot to growth in fiscal year 2025.
Edmund M. Ingle: We remain confident in our position as the partner of choice for brands and customers across the globe, and we will continue to implement cost-saving measures and invest in the areas of our business that we believe will not only drive growth for Unifi but also deliver value for our shareholders. With that, we will now open the line for questions. Thank you.
Edmund M. Ingle: We remain confident in our position as the partner of choice to brands and customers across the globe and we will continue to implement cost saving measures and invest in the areas of our business that we believe will not only drive growth for unify but also deliver value for our shareholders with that we will now open the line for questions. Thank you.
Edmund M. Ingle: Okay.
Operator: The floor is now open to your questions. To ask a question at this time, simply press the star followed by the number 1 on your telephone keypad. To withdraw your question, simply press star 0. We'll now take a moment to compile our raw data. We do have a question from the line of Anthony Lebiedzinski with Sidotian Co. Please go ahead.
Edmund M. Ingle: The floor is now open for your questions to ask a question at this time simply press the star followed by the number one on your telephone keypad to withdraw your question simply press Star one.
Speaker Change: We will now take a moment to compile a roster.
Speaker Change: We do have a question from the line of Anthony <unk> with Sidoti <unk> co. Please.
Anthony: Please go ahead.
Anthony: Hey, good morning, everyone and nice to see the sequential improvement in sales, which looks like it should continue based on your guidance. So thanks for taking the questions.
Anthony Chester Lebiedzinski: Good morning, everyone. And nice to see the sequential improvement in sales, which looks like should continue based on your guidance. So thanks for taking the questions. First, just wondering, you know, you guys talked about the Chinese New Year impact on hurting Asia sequentially. Can you comment on that as far as what's your guess as to how much that could have hurt sales? And also, Easter was also earlier this year. Just ballpark estimate how much that may have contributed to revenue that maybe, I don't know if it's going to shift over to the fourth quarter or not. You know, how do we figure it?
Anthony: So first of all just just wondering are you.
Anthony: You guys talked about the <unk>.
Anthony: The Chinese new year impact.
Anthony: It is hurting Asia sequentially.
Anthony: Can you comment on that as far as what's your guess as to how much that could have hurt sales and also also Easter was also earlier this.
Anthony: This year, just just ballpark estimate how much of that may have contributed to revenue.
Speaker Change: Maybe I don't know, if it's going to shift over to the fourth quarter.
Speaker Change: How do we think about that.
Edmund M. Ingle: I'll just do my thing, you know, if the year-over-year Q3 versus Q3 in China was up several percentage points, so from a... [inaudible] Got it, okay, that's great. Anthony, to tack on to Eddie's couple million dollar comment, indeed, for each of those segments, it's around a couple million dollars impact this quarter when you combine the Easter holiday with the Chinese.
Speaker Change: Well I'll, just driven by saying you know if the year over year Qvc's Q3 versus Q3 in China was up several percentage points so from a.
Anthony: From a Chinese new year impact that was still there, but we have seen improvement from a year over year.
Anthony: But sequentially of course is down because it's such a big advantage over there and in.
Anthony: In the Americas.
Anthony: Which would be the U S and Central America, but also in Brazil.
Anthony: This segment Easter was that last.
Anthony: A few days of our fiscal quarter and that did.
Anthony: I can describe this a little bit with about $40 million less revenue than we might have otherwise anticipated.
Speaker Change: Got it.
Anthony: Okay.
Anthony: Anthony.
Anthony: To tack onto eddies couple million dollar comment indeed for really for each of those segments. It's around a couple of million dollars impact in this quarter.
Anthony: When you combine the Easter holiday with the Chinese new year.
Edmund M. Ingle: All right, thanks very much for that. Okay, and then I know you guys talked about volumes and pricing. Can you share any more details as far as pricing and volumes in each region? And how do we think about this going forward? What's contemplated in your fourth quarter guidance?
Anthony: Alright, thanks, very much for that Okay, and then I know.
Anthony: You guys talked about generally about volumes and pricing can you share any more details as far as pricing and volumes in each region and.
Anthony: How do we think about this going forward.
Anthony: What's contemplated in your fourth quarter guidance.
Edmund M. Ingle: I'll jump here and say, you know, our pricing strategy is targeted, it's slightly upwards, and it's responsive in all regions. We are seeing volumes increase in each of the three regions, each of our three business sectors. And that's primarily what's driving the increase in revenues, with some in optics also increasing prices.
Speaker Change: Yeah ill jump here and say you know our pricing strategy is targeted.
Speaker Change: It's slightly upwards and is responsive.
Speaker Change: And in all regions, we are seeing volumes increase in each of the three regions each of our three business segments.
Speaker Change: That's primarily what's driving the increase in revenues with some uptake also in pricing.
Edmund M. Ingle: Got you, okay. Thank you for that. And then, you know, in terms of the sales transformation initiatives, which you've said are aimed at improving efficiencies and processes. So I guess if we were in a baseball game, right, what inning are you in in terms of seeing those benefits?
Speaker Change: Got you okay. Thank you for that.
Speaker Change: And then.
Speaker Change: Terms of the sales transformation initiatives, which you've said are aimed at improving efficiencies and processes.
Speaker Change: If we were in a baseball game right. So what inning are you in in terms of seeing those benefits.
Anthony: Okay.
Edmund M. Ingle: I would say that we're in the third inning as far as the sales transformation is concerned. In Q3, it was very much starting, so we'll see a lot more benefit as we move into this quarter and then into the following two. Anthony Lebedzinski, Craig Creaturo, Andrew Eaker, Unifi Inc.
Anthony: I would say that we're in the.
Anthony: The third inning.
Anthony: As far as the sales transformation we are.
Anthony: In Q3 and it was.
Anthony: Very much starting so.
Anthony: R R.
Anthony: You'll see a lot more benefit as we move into this quarter and then into the following two quarters.
Edmund M. Ingle: Anthony, we see some real benefits from how we're managing inventories and also taking out slow-moving SKUs, which is helping us improve MIX.
Anthony: Anthony we see some real benefits from how we're managing inventories.
Anthony: And also taking out slow moving skus that is helping us improve mix.
Edmund M. Ingle: Okay, that's helpful. As you prepare to pivot to growth, which customer groups are you having the most engagement with? I would guess it's probably beyond the parallel, but maybe you could just further expand on that.
Anthony: Okay.
Anthony: Helpful.
Anthony: <unk>.
Anthony: As you prepare to pivot to growth which customer groups.
Anthony: Are you, having the most engagement with.
Speaker Change: I would guess, it's probably beyond apparel, but maybe you could just further expand on that.
Edmund M. Ingle: Yeah, the, um, growth in the Americas is impacted, as you said, by Beyond Apparel and some of the businesses in the automotive and homes, particularly mattresses that we picked up. But I will also add that apparel in Central America has made a significant uptick. Just in this quarter that we're in now, in the last four to five weeks, we are seeing brands and retailers utilize the Central American supply chain differently than they did just six months ago.
Speaker Change: Yes.
Speaker Change: The growth in the Americas is.
Anthony: Impacted as you said by beyond apparel and some of these businesses in automotive and homes, particularly in matches that we picked up but I would also add that apparel in Central America has made a significant uptick just in this.
Anthony: This quarter that we're in now in the last four five weeks, we are seeing the the brands and retailers.
Anthony: Utilize the central African supply chain.
Anthony: <unk>.
Anthony: Really than what they were just six months ago. So that is a positive uptick for us here in the Americas and of course, Brazil.
Edmund M. Ingle: So that is a positive uptick for us here in the Americas, and of course, Brazil, as our biggest competitor went out and as business started to come back. People are seeing the value in the local supply chain, and some of the customers that may not have purchased from us in the past are gravitating towards us, and we're running that operation full right now, really indicative of the investment we've made down there.
Anthony: And with her as our biggest competitor went out and as the business started to come back.
Anthony: People are seeing the value of local supply chain and some of the customers that may not have purchased from us in the past are gravitating towards us and we're running that operation.
Anthony: Full right now which is.
Anthony: Really indicative of the investment we made down there would seem to be paying dividends.
Edmund M. Ingle: We really seem to be paying dividends, and in China, the growth there is simply because the brands are starting to have to reorder as the supply chain has tightened up now that all the de-stocking has been occurring.
Anthony: In China.
Anthony: The growth there is simply because the brands are starting to.
Anthony: Have to reorder as the supply chain has tightened up now that all the destocking has been accomplished.
Anthony Chester Lebiedzinski: Yeah, understood. Okay. And then just switching gears to your cash flow. So you guys have certainly benefited from lower CapEx as you've delayed the installation of the Evo.
Anthony: Okay.
Speaker Change: Okay and then.
Anthony: Just switching gears to your cash flow. So you guys have certainly benefited from lower capex as you've delayed the installation of the Evo.
Anthony: Machines.
Anthony: I guess kind of.
Anthony: Going forward, how do we think about Capex. So will you still say largely maintenance mode in fiscal 'twenty, five or I know you.
Anthony: You haven't given guidance, yet, but just directionally, how do we think about that.
Speaker Change: I would love to get your.
Speaker Change: So that's on that.
Andrew J. Eaker: Sure, Anthony. It's AJ.
J: Sure Anthony it's a J I'll start there certainly proud of what the teams have been able to do over the last several months, especially across cost controls working capital management, bringing down inventories and.
Anthony: You mentioned lowering capex levels to help.
Anthony: Serve cash and liquidity in the lower business demand environment. So.
Andrew J. Eaker: I'll start there. I'm certainly proud of what the teams have been able to do over the last several months, especially across cost controls, working capital management, bringing down inventories, and, like you mentioned, lowering capex levels to help preserve cash and liquidity in the lower business demand environment. So, we are very happy with that progress. We do expect to continue maintaining capex levels commensurate with business levels. So, as we see the business rebound more, we will consider more projects that are appropriate and return-focused.
Anthony: Happy with that progress, we do expect to continue maintaining capex levels commensurate with business levels. So as we see the business rebound more we will consider more projects that are appropriate and return focused but at this time.
Anthony: The short term as we as we are still seeing the modest recovery expect those capital expenditures expenditures to remain at modest levels that you see today and continuing to focus very heavily on inventory turns, especially here in the Americas and continued working capital management and cost controls.
Andrew J. Eaker: But at this time, in the short term, as we are still seeing a modest recovery, expect those capital expenditures to remain at the modest levels that you see today and continue to focus very heavily on inventory returns, especially here in the Americas, and continued working capital management and cost controls.
Anthony: Mhm.
Andrew J. Eaker: Gotcha. Okay. Thanks, AJ. And then just to follow up, in terms of the inventory terms, do you guys have a goal in mind as to where you think that could be, or is that still not something you're ready to share yet?
Speaker Change: Got you okay. Thanks, a J and then just a follow up in terms of the inventory turns.
Speaker Change: You guys have a goal in mind as to where you think that could be or is that still not something you're ready to share yet.
Speaker Change: Sure.
Andrew J. Eaker: The Inventory Turns Initiative is primarily focused in the Americas. There is little left to do in Brazil and Asia as far as their supply chains are concerned. So in the Americas, obviously, with what we experienced over the last couple of years at demand levels, we had very constrained inventory turn levels in the range of 3 to 4. And we are certainly marching towards a much more positive level, around five turns per year, and in the Americas, that is certainly consistent with some of the better TERMS levels that we've had in more positive states.
J: The inventory turns initiative is primarily focused in the Americas, others, There's little left to do in Brazil, and Asia as far as their supply chains. So in the Americas, obviously with what we experienced over the last couple of years at demand levels, we had.
J: Very constrained inventory turn levels in the range of three to four.
Speaker Change: And we are certainly marching towards a much more positive level around five turns per year.
Speaker Change: And in the Americas.
Speaker Change: It's certainly consistent with some of the better turns levels that we've had.
Speaker Change: <unk>.
Speaker Change: More positive years.
Andrew J. Eaker: And I'll just add to that. The health of the inventory that we have as we increase returns is improving dramatically, freeing us to put inventory in place of products that we're running quickly.
Speaker Change: And I'll just add.
Speaker Change: <unk>.
Speaker Change: Yes.
Speaker Change: Of the inventory that we have as we increase the churns.
Speaker Change: Is improving dramatically, bringing us to put inventory in place products that were going to move quickly.
Andrew J. Eaker: So, aged inventory is down significantly and continuing to go down, but we're really, we have high goals for the quick turns. I think we can get there.
Speaker Change: Our aged inventory down significantly and continuing to go down, but we're really we have high goals for the.
Speaker Change: Poor returns, we think we can get there.
Anthony Chester Lebiedzinski: All right. Well, that's very helpful, and good luck with everything and best of luck. Thank you. Thank you.
Speaker Change: Alright, that's very helpful and.
Speaker Change: Good luck with everything.
Speaker Change: Best of luck. Thank you.
Operator: Thank you. Thank you, Anthony. This concludes today's Q&A session and today's call.
Speaker Change: Thank you. Thank you Anthony Thanks Anthony.
Speaker Change: This concludes today's Q&A session and today's call.
Operator: Thank you. You may now disconnect.
Speaker Change: Thank you you may now disconnect.
Speaker Change: Okay.
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Speaker Change: [music].
Speaker Change: Yes.
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