Q1 2027 Unifi Inc Earnings Call

October 30, 2026

Speaker #1: Please familiarize yourself with page 2 of that slide deck precautionary statement and non-GAAP measures. Today's conference is being recorded. And all lines have been placed on mute to prevent any background noise.

Speaker #1: After the speakers' remarks, there will be a question-and-answer session. Our speakers are listed on page 3 of today's presentation and include Al Carey, Executive Chairman; Eddie Ingle, Chief Executive Officer; and AJ Ecker, Chief Financial Officer.

Speaker #1: I will now turn the call over to Al Carey. Please turn to page 4 of the presentation.

Al Carey: Thank you, and good morning, everyone. Thanks for joining our call today. You may remember, about 18 months ago, we determined that we needed to take on a body of work to make Unifi a company that could grow profitably in the future. When we discussed that, we talked about three major thrusts. The first thrust was that we needed to take out significant costs and make our manufacturing footprint more efficient. In addition to that, we reduced costs in almost every area of the company. That work is now complete. I believe we have the necessary disciplines in place to keep our costs low, and I would say that we are very happy with those results. The second thrust was to reduce our long-term debt, manage capital efficiency, and strengthen our balance sheet.

Speaker #2: Thank you. And good morning, everyone. Thanks for joining our call today. You may remember, about 18 months ago, we determined that we needed to take on a body of work to make Unifi a company that could grow profitably in the future.

Speaker #2: And when we discussed that, we talked about three major thrusts. The first thrust was that we needed to take out significant costs and make our manufacturing footprint more efficient.

Speaker #2: In addition to that, we reduced costs in almost every area of the company. So that work is now complete. I believe we have the necessary disciplines in place to keep our costs low.

Speaker #2: And I would say that we're very happy with those results. Now, the second thrust was to reduce our long-term debt and manage capital efficiency and strengthen our balance sheet.

Al Carey: I am happy to say that yesterday, we closed a deal on a non-strategic asset that is going to allow us to check the box on thrust two. Our debt is now lower than any time in recent history, our balance sheet will be strong, and we have greater financial flexibility. You are going to hear plenty about that in the next few minutes. The third thrust was to drive revenue with our biggest customers and provide a pipeline of innovative products. Through the last 18 months, I would tell you we have reduced costs on everything except on innovation. We would have hoped these efforts would have created greater revenues by now, but the macroeconomic pressure on raw material prices has slowed down the whole industry's top-line revenue performance.

Speaker #2: I'm happy to say that yesterday we closed the deal on a non-strategic asset that's going to allow us to check the box on thrust 2.

Speaker #2: Our debt is now lower than any time in recent history. Our balance sheet will be strong. And we have greater financial flexibility. So you're going to hear plenty about that in the next few minutes.

Speaker #2: The third thrust was to drive revenue with our biggest customers and provide a pipeline of innovative products. Through the last 18 months, I would tell you we've reduced costs on everything except on innovation.

Speaker #2: We would have hoped these efforts would have created greater revenues by now, but the macroeconomic pressure on raw material prices has slowed down the whole industry's top-line revenue performance.

Al Carey: But we are seeing some very recent improvements in Central America revenues, indicating that nearshoring opportunities for brands and retailers may now be starting to strengthen, and we see greater demand shaping up for Q3 and Q4. Once we see these revenues strengthen, we have now entered a new stage for Unifi, which is greater revenue, which flows through to better profits and positive cash generation for the future. I have to tell you, the last 18 months is quite a bit of hard work has been completed by our people. Our team has done a great job, and I want to thank them right now for all the hard work and the major effort they have put forth. Now, I would like to turn this over to our CEO, Eddie Ingle.

Speaker #2: But we are seeing some very recent improvements. In Central America, revenues indicating that nearshoring opportunities for brands and retailers may now be starting to strengthen.

Speaker #2: And we see greater demand shaping up for Q3 and Q4. Once we see these revenues strengthen, we've ve now entered a new stage for Unifi, which is greater revenue, which flows through to better profits, and positive cash generation for the future.

Speaker #2: I have to tell you, the last 18 months is quite a bit of hard work has been completed by our people. Our team has done a great job.

Speaker #2: And I want to thank them right now for all the hard work and the major effort they've put forth. Now, I'd like to turn this over to our CEO, Eddie Ingle.

Eddie Ingle: Thanks, Al. Let us turn to slide 4, where you can see that our first quarter results continue to demonstrate the benefits of the strategic actions we have taken over the past several quarters to improve the efficiency of our business and to strengthen margins. This was most evident in the $9.1 million, or nearly 270% increase in gross profit, and the continued improvement in cash generation that we experienced during the quarter. These financial results further highlight the earnings potential of our business and our ability to drive profitable growth, but we do have more to do. We recognize that. During the quarter, we continued to react to the escalating raw material environment caused by the rise in crude oil and implemented the appropriate pricing adjustments to offset much of these cost increases.

Speaker #3: Thanks, Al. And let's turn to slide 4, where you can see that our first quarter results continue to demonstrate the benefits of the strategic actions we've taken over the past several quarters, to improve the efficiency of our business and to strengthen margins.

Speaker #3: This was most evident in the $9.1 million or nearly $270% increase in gross profit and the continued improvement in cash generation that we experienced during the quarter.

Speaker #3: These financial results further highlight the earnings potential of our business and our ability to drive profitable growth. But we do have more to do.

Speaker #3: We recognize that. During the quarter, we continued to react to the escalating raw material environment caused by the rise in crude oil and implemented the appropriate pricing adjustments to offset much of these cost increases.

Eddie Ingle: Additionally, as Al touched on, we recently made a great stride towards improving our balance sheet and with the recently completed sale of two non-strategic real estate assets across our operating base here in Yadkin County, North Carolina. AJ will touch more on the financial details of this sale shortly, but the finalizing of this deal marks a key milestone in our efforts to pay down our debt and improve the financial flexibility of our business. As I said on the last earnings call, this asset sale does not reduce our production capacity, nor will it impact our ability to service our North American customers. Lastly, while geopolitical and macro uncertainty weighed on our top line this quarter, we saw this turmoil as an opportunity to accelerate some of the innovations we have been working on.

Speaker #3: Additionally, as Al touched on, we recently made a great stride towards improving our balance sheet and, with the recently completed sale of two non-strategic real estate assets across our operating base, here in Yadkin County, North Carolina.

Speaker #3: AJ will touch more on the financial details of this sale shortly, but the finalizing of this deal marks a key milestone in our efforts to pay down our debt and improve the financial flexibility of our business.

Speaker #3: And as I said on the last earnings call, this asset sale does not reduce our production capacity, nor will it impact our ability to service our North American customers.

Speaker #3: Lastly, while geopolitical and macro uncertainty weighed on our top-line this quarter, we saw this turmoil as an opportunity to accelerate some of the innovations we've been working on.

Eddie Ingle: We launched a number of innovative product extensions during this period and announced our leadership and participation in a new industry consortium focused on strengthening the regional trade compliance and supply chain integrity in North and Central America. We call that YarnProof, and you will be hearing more about the details of that in a few minutes. But now, I am going to turn the call over to AJ to walk you through the financial details of the quarter.

Eddie Ingle: We launched a number of innovative product extensions during this period and announced our leadership and participation in a new industry consortium focused on strengthening the regional trade compliance and supply chain integrity in North and Central America. We call that YarnProof, and you will be hearing more about the details of that in a few minutes. Now, I am going to turn the call over to A.J. to walk you through the financial details of the quarter.

Speaker #3: We launched a number of innovative products, extensions, during this period, and announced our leadership and participation in a new industry consortium focused on strengthening the regional trade compliance and supply chain integrity in North and Central America.

Speaker #3: Recall that yarnproof and you'll be hearing more about the details of that in a few minutes. But now, I'm going to turn the call over to AJ to walk you through the financial details of the quarter.

A.J. Eaker: Thank you, Eddie. Staying on slide 4, I will start off by discussing our consolidated financial highlights for the quarter. Consolidated net sales were $127.9 million, down 5.7% on a year-over-year basis. Despite lower sales, we continue to see an improvement in profitability, with consolidated gross profit increasing to $12.5 million and gross margin expanding to 9.8%, compared to gross profit of $3.4 million and gross margin of 2.5% in the prior year period. This significant improvement was driven by strong performance in the resin business in Brazil, our strategic repositioning efforts, and portfolio management. Our net loss for the quarter came in at just $2 million, an improvement of more than $9 million compared to the first quarter of fiscal year 2026. Adjusted EBITDA during the period was $6.1 million, an $8.6 million improvement on a year-over-year basis.

Speaker #2: Thank you, Eddie. Staying on slide 4, I'll start off by discussing our consolidated financial highlights for the quarter. Consolidated net sales were $127.9 million, down 5.7% on a year-over-year basis.

Speaker #2: Despite lower sales, we continued to see an improvement in profitability, with consolidated gross profit increasing to 12.5 million, and gross margin expanding to 9.8%.

Speaker #2: Compared to gross profit of 3.4 million, and gross margin of 2.5% in the prior year period. This significant improvement was driven by a strong performance in the resin business and Brazil, our strategic repositioning efforts, and portfolio management.

Speaker #2: Our net loss for the quarter came in at just $2 million. An improvement of more than $9 million compared to the first quarter of fiscal year '26.

Speaker #2: Adjusted EBITDA during the period was 6.1 million dollars, and 8.6 million dollar improvement on a year-over-year basis. These results reflect the progress of our operational initiatives as our efforts to streamline our cost structure and improve efficiency continue to translate into stronger financial performance.

A.J. Eaker: These results reflect the progress of our operational initiatives, as our efforts to streamline our cost structure and improve efficiency continue to translate into stronger financial performance. Turning now to slide 5. In the Americas, net sales were down $8.2 million year-over-year, as the region continues to face volume headwinds attributed to tepid customer ordering patterns amid inflation pressures and trade uncertainty. Despite this, we delivered our third consecutive quarter of gross profit in the Americas, with gross profit reaching $4.7 million, a $6.4 million increase on a year-over-year basis. This continued improvement reflects the positive impact of our footprint consolidation, cost containment, and portfolio optimization efforts, which all have enhanced our operational efficiency and profitability across our Americas businesses.

Speaker #2: Turning now to slide 5. In the Americas, net sales were down 8.2 million dollars year over year, as the region continues to face volume headwinds attributed to tepid customer ordering patterns, amid inflation pressures and trade uncertainty.

Speaker #2: Despite this, we delivered our third consecutive quarter of gross profit in the Americas, with gross profit reaching 4.7 million dollars, a 6.4 million dollar increase on a year-over-year basis.

Speaker #2: This continued improvement reflects the positive impact of our footprint consolidation, cost containment, and portfolio optimization efforts, which all have been enhanced our operational efficiency and profitability across our Americas businesses.

A.J. Eaker: Slide 6 displays our Brazil segment, which saw net sales increase by $4.1 million, or 14.4%, and gross profit improved $2.4 million compared to the prior year period. This strong performance in Brazil during the period was driven by continued favorable pricing dynamics and improved sales mix amid an elevated cost environment that continues to stem from geopolitical events across the globe. Turning now to the Asia segment on slide 7. Asia net sales declined $3.7 million due to pricing pressures and regional volatility. Despite this, gross profit in the Asia segment rose 7.2%, reflecting the continued strength of our portfolio in the region. Further, our asset-light model has continued to help us hold margins steady despite these near-term headwinds. Looking ahead, we remain optimistic about Asia's long-term opportunities as the tariff outlook becomes clearer. Slide 8 outlines our improved balance sheet and capital structure.

Speaker #2: Slide 6 displays our Brazil segment, which saw net sales increase by 4.1 million dollars, or 14.4%, and gross profit improved 2.4 million dollars, compared to the prior year period.

Speaker #2: This strong performance in Brazil during the period was driven by continued favorable pricing dynamics and improved sales mix, amid an elevated cost environment that continues to stem from geopolitical events across the globe.

Speaker #2: Turning now to the Asia segment on slide 7. Asia net sales declined 3.7 million dollars due to pricing pressures and regional volatility, despite this gross profit in the Asia segment rose 7.2%, reflecting the continued strength of our portfolio in the region.

Speaker #2: Further, our asset-light model has continued to help us hold margins steady despite these near-term headwinds. Looking ahead, we remain optimistic about Asia's long-term opportunities as the tariff outlook becomes clearer.

Speaker #2: Slide 8 outlines our improved balance sheet and capital structure. This week, we finalized the sale of two non-strategic real estate assets in Yadkinville. The proceeds were immediately used to pay down the outstanding term loan balance of $55.5 million.

A.J. Eaker: This week, we finalized the sale of two non-strategic real estate assets in Yadkinville. The proceeds were immediately used to pay down the outstanding term loan balance of $55.5 million. This significantly improves Unifi's leverage and balance sheet. Keep in mind, the numbers on this slide present our September 2026 closing balance sheet and do not reflect the impact of the real estate transaction. This marks a transformation in our balance sheet and an enormous step forward in our financial health and future. During the first quarter, we generated $2.5 million of free cash flow against working capital pressures, a $13.4 million improvement over the first quarter of the prior fiscal year. CapEx for the quarter came in at just $1.2 million as we continue to closely manage all spending.

Speaker #2: This significantly improves Unifi's leverage and balance sheet. Keep in mind, the numbers on this slide present our September 2026 closing balance sheet, and do not reflect the impact of the real estate transaction.

Speaker #2: This marks a transformation in our balance sheet, and an enormous step forward in our financial health and future. During the first quarter, we generated $2.5 million of free cash flow against working capital pressures, a 13.4 million dollar improvement over the first quarter of the prior fiscal year.

Speaker #2: Capex for the quarter came in at just $1.2 million, as we continue to closely manage all spending. As we noted on the fourth quarter call, our capex level would need to adapt to long-term health, and we have allocated between 7 and 9 million dollars for the remainder of fiscal year '27.

A.J. Eaker: As we noted on the Q4 call, our CapEx level would need to adapt to long-term health, and we have allocated between $7 million and $9 million for the remainder of fiscal year 2027. Our net debt during the quarter was reduced to $64.8 million, and our working capital remains balanced and healthy. Again, this net debt amount is presented before the significant reduction stemming from the real estate sale that was just completed. As we look to the remainder of fiscal 2027, our focus will remain on driving disciplined capital allocation while investing in our business for prudent growth. This concludes my financial overview, and I will now pass the call back to Eddie.

Speaker #2: Our net debt during the quarter was reduced to $64.8 million, and our working capital remains balanced and healthy. Again, this net debt amount is presented before the significant reduction stemming from the real estate sale that was just completed.

Speaker #2: As we look to the remainder of fiscal '27, our focus will remain on driving disciplined capital allocation while investing in our business for prudent growth.

Speaker #2: This concludes my financial overview, and I will now pass the call back to Eddie.

Eddie Ingle: Thank you, AJ. As AJ just outlined, the operational initiatives that we have put into place are improving our profitability and efficiency, which is helping Unifi withstand near-term market headwinds while also building the foundation for long-term growth. Let's turn to slide 9, which outlines the strategic priorities that are continuing to guide our execution. As we have discussed on our recent earnings call, our goal is to return Unifi to sustainable long-term growth and enhanced profitability, and we are doing that by staying focused on four key priorities. First, we will build on the operational improvements we have implemented and make sure we hold onto those gains. Second, we will keep investing in our capabilities and technology so we can scale our platform of sustainable solutions.

Speaker #3: Thank you, AJ. As AJ just outlined, the operational initiatives that we have put into place are improving our profitability and efficiency, which is helping Unifi withstand near-term market headwinds while also building the foundation for long-term growth.

Speaker #3: So let's turn to slide 9, which outlines the strategic priorities that are continuing to guide our execution. As we have discussed on our recent earnings call, our goal is to return Unifi to sustainable long-term growth and enhanced profitability.

Speaker #3: And we're doing that by staying focused on four key priorities. First, we will build on the operational improvements we've implemented and make sure we hold onto those gains.

Speaker #3: Second, we'll keep investing in our capabilities and technology, so we can scale our platform of sustainable solutions. Third, innovation remains core to our culture, and we will continue to invest in the tools and resources necessary to help drive customer adoption of our new innovative products that will, of course, help support future growth.

Eddie Ingle: Third, innovation remains core to our culture, and we will continue to invest in the tools and resources necessary to help drive customer adoption of our new innovative products that will, of course, help support future growth. Finally, we remain disciplined in navigating the current trade and geopolitical environment, which continues to present challenges for our business and industry in general. We are continuing to see encouraging signs across several of our innovative initiatives, especially Beyond Apparel. One area that stood out this quarter was our resin business, which, as we have noted in the past, goes primarily into the packaging products such as thermoformed PET containers. Volume for our resin business has continued to remain strong as import levels for the product remains low as a result of the current tariff situation and the lack of alternative domestic supplies.

Speaker #3: And finally, we remain disciplined in navigating the current trade and geopolitical environment, which continues to present challenges for our business. And industry in general.

Speaker #3: We are continuing to see encouraging signs across several of our innovative initiatives, especially beyond apparel. One area that stood out this quarter was our resin business, which, as we have noted in the past, goes primarily into the packaging products such as thermoformed PET containers.

Speaker #3: Volume for our resin business has continued to remain strong, as import levels for the product remain low as a result of the current tariff situation and the lack of alternative domestic supplies.

Eddie Ingle: We are also continuing to see steady results in carpet and remain positive about the strong potential we are seeing in the military and tactical markets, led by our brand Fortisyn. This should help our results during the back half of the second part of our fiscal year. We are pleased with the progress of our Beyond Apparel initiatives and look forward to providing more growth updates throughout the remainder of the fiscal year. Moving on to slide 10. Innovation continues to be a key driver of our growth for Unifi. A few weeks ago, we launched Cofira, a dual-function yarn that can be tailored with synthetic, blended, and functional fiber technologies for enhanced performance. This innovation within Unifi's portfolio delivers a fusion of filament and spun characteristics in one yarn, offering the advantage of spun yarn comfort with filament functionality.

Speaker #3: We are also continuing to see steady results in carpet and remain positive about the strong potential we are seeing in the military and tactical markets.

Speaker #3: Led by our brand Fortisan, this should help our results during the back half of the second part of our fiscal year. We are pleased with the progress of our beyond apparel initiatives and look forward to providing more growth updates throughout the remainder of the fiscal year.

Speaker #3: Moving on to slide 10. Innovation continues to be a key driver of our growth for Unifi. A few weeks ago, we launched Cofera, a dual-function yarn that can be tailored with synthetic blended and functional fiber technologies for enhanced performance.

Speaker #3: This innovation within Unifi's portfolio delivers a fusion of filament and spun characteristics in one yarn, offering the advantage of spun yarn comfort with filament functionality.

Eddie Ingle: We also announced the launch of YarnProof, together with leading polyester filament yarn manufacturers across North and Central America. YarnProof is an industry-wide initiative designed to provide immediate physical verification of polyester filament yarn origin throughout the supply chain. Powered by FibreTrace technology, the program embeds an invisible and permanent tracer into polyester filament yarn during extrusion. The tracer remains with the material throughout its life cycle and can be detected using a proprietary handheld scanner at any point across the supply chain, including yarn, fabric, and finished goods. This initiative adds a layer of verifiable evidence that strengthens trade integrity, protects compliant supply chains, and supports regional manufacturing. Our team is very pleased with the feedback we have received from many of the customers that we work with.

Speaker #3: We also announced the launch of YarnProof, together with a leading polyester filament yarn manufacturers across North and Central America. YarnProof is an industry-wide initiative designed to provide immediate physical verification of polyester filament yarn origin throughout the supply chain.

Speaker #3: Powered by fiber trace technology, the program embeds an invisible and permanent tracer into polyester filament yarn during extrusion. The tracer remains with the material throughout its lifecycle, and can be detected using a proprietary handheld scanner at any point across the supply chain.

Speaker #3: Including yarn, fabric, and finished goods. This initiative adds a layer of verifiable evidence that strengthens trade integrity, protects compliant supply chains, and supports regional manufacturing.

Speaker #3: Our team is very pleased with the feedback we have received from many of the customers that we work with. They were very curious about how it works and have expressed a lot of excitement about the technology and its potential to help them address compliance challenges.

Eddie Ingle: They were very curious about how it works and have expressed a lot of excitement about the technology and its potential to help them address compliance challenges. Throughout the quarter, we saw several notable co-branded launches with key brands. Our textile-to-textile platform gained traction with Buckle in stores, creating co-branding with REPREVE Takeback on their latest pair of jeans, while Mango integrated our Thermoloft insulation across new outerwear styles launched across Europe. Our tech yarns continue to find momentum with HOKA adopting co-branding and calling out our anti-odor technology, REPREVE A.M.Y. Peppermint, and implemented in the liner of three pinnacle trail models, the Speedgoat 7 GTX, Speedgoat 7 Hike GTX, and the Transport 2 GTX. While not called out visually here in our presentation, another great example of our co-branding efforts is J.Crew's REPREVE TruTemp365 collection, which included a men's button-up collared shirt coupled with slacks.

Speaker #3: Throughout the quarter, we saw several notable co-branded launches with key brands. Our textile-to-textile platform gained traction with Buckle in-Stores, creating co-branding with reprieve takeback on their latest paired jeans, while Mango integrated our ThermoLoop insulation across new outerwear styles launched across Europe.

Speaker #3: Our tech yarns continue to find momentum with Hoka adopting co-branding and calling out our anti-odor technology, Reprieve Amy Peppermint, and implemented in the liner of three pinnacle trail models, the Speed Goat 7 GTX, Speed Goat 7 Hike GTX, and the Transport 2 GTX.

Speaker #3: While not called out visually here in our presentation, another great example of our co-branding efforts is Jay Crews Reprieve TrueTemp 365 collection, which included a men's button-up collared shirt, coupled with slacks.

Eddie Ingle: Lastly, in the swim category, Speedo launched a co-branded REPREVE collection at DICK'S Sporting Goods, showcasing the green bottle hang tag across all styles in stores. It is an exciting time at Unifi in terms of innovation launches, and we are seeing positive market feedback and expanded adoption of our latest circularity and tech yarn products that address evolving consumer and industry needs, in addition to the growth and adoption of our REPREVE platform offerings. Moving to slide 11, it is clear that our hard work and focus on cash generation is beginning to show up in the numbers, and we are confident that we are starting off the new fiscal year on the right footing. Our outlook and how we anticipate sustaining our financial momentum for fiscal 2027 remains unchanged.

Speaker #3: And then lastly, in the swim category, Speedo launched a co-branded Reprieve collection at Dick's Sporting Goods, showcasing the green bottle hangtag across all styles in stores.

Speaker #3: It's an exciting time at Unifi in terms of innovation launches, and we are seeing positive market feedback and expanded adoption of our latest circularity and tech yarn products that address evolving consumer and industry needs in addition to the growth and adoption of our Reprieve platform offerings.

Speaker #3: Moving to slide 11, it is clear that our hard work and focus on cash generation is beginning to show up in the numbers. And we are confident that we are starting off the new fiscal year on the right footing.

Speaker #3: Our outlook and how we anticipate sustaining our financial momentum for fiscal 2027 remains unchanged. We will continue to focus on leveraging our improved cost footprint while investing in innovation and strategically managing our balance sheet to capitalize and grow our business as conditions improve.

Eddie Ingle: We will continue to focus on leveraging our improved cost footprint while investing in innovation and strategically managing our balance sheet to capitalize and grow our business as conditions improve. We also anticipate that our sales and profitability results will improve on a year-over-year basis as we begin to recognize the full-year benefits of our past strategic actions. For the second quarter, we expect stable demand in the Americas segment, with continued margin accretive revenues from value-added products and Beyond Apparel initiatives. Our Brazil segment sales and profitability will be similar to the prior year, with some working capital pressure from inflation. Finally, our Asia segment will continue to remain pressured as a result of the regional softness and geopolitical volatility. To wrap up, we are very pleased with the progress that we have made towards achieving our long-term objectives.

Speaker #3: We also anticipate that our sales and profitability results will improve on a year-over-year basis as we begin to recognize the full-year benefits of our past strategic actions.

Speaker #3: For the second quarter, we expect stable demand in the American segment with continued margin accreted revenues from value-added products and beyond apparel initiatives. Our Brazil segment sales and profitability will be similar to the prior year with some working capital pressure from inflation.

Speaker #3: And finally, our Asia segment will continue to remain pressured as a result of the regional softness and geopolitical volatility. To wrap up, we are very pleased with the progress that we have made towards achieving our long-term objectives.

Eddie Ingle: While we still have some work to do over the coming quarters, we remain confident that we are on the right path forward towards converting our operational improvements into sustained financial momentum and getting meaningful revenues from our new innovative value-added products, and ultimately creating long-term value for our shareholders. Before I hand it over to the operator, I would like to thank our employees across the globe for their hard work and efforts. We would not be here today where we are without their dedication to making Unifi a great place to work and a trusted partner for our customers. Thanks for that, everybody. We would now like to open the line for questions. Operator?

Speaker #3: While we still have some work to do over the coming quarters, we remain confident that we are on the right path forward towards converting our operational improvements into sustained financial momentum and getting meaningful revenues from our new innovative value-added products and ultimately creating long-term value for our shareholders.

Speaker #3: Before I hand it over to the operator, I would like to thank our employees across the globe for their hard work and efforts. We would not be here today where we are without their dedication to making Unifi a great place to work.

Speaker #3: And a trusted partner for our customers. So thanks for that, everybody. With that, we would now like to open the line for questions. Operator?

Operator: Thank you. If you would like to ask a question, please press star followed by the number 1 on your telephone keypad. To withdraw any questions, press star 1 again. Our first question comes from Anthony Lebiedzinski from Sidoti. Please go ahead. Your line is open.

Speaker #2: Thank you. If you would like to ask a question, please press star, followed by the number 1 on your telephone keypad. To withdraw any questions, press star 1 again.

Speaker #2: Our first question comes from Anthony Lebedzinski from Sadodi. Please go ahead. Your line is open.

Anthony Lebiedzinski: Thank you, and good morning, everyone, and thanks for taking the questions. Certainly nice to see the improved bottom line results here. Very good cash flow as well in the quarter, and congrats on finalizing the asset sale this week. First, if we were to focus on your core business tied to apparel and footwear, just curious, as you talk to your customers and brand partners, what can you share as to what you are hearing about inventory levels at retail and potential inventory replenishment after the Christmas season? It does sound like that should be helpful based on your commentary about Q3 and Q4, but just wanted to follow up about that, please.

Speaker #4: Thank you. And good morning, everyone. And thanks for taking the questions. Certainly nice to see the improved bottom line results here. Very good cash flow as well in the quarter.

Speaker #4: And congrats on finalizing the asset sale this week. So first, if we were to focus on your core business tied to apparel and footwear, I'm just curious, as you talk to your customers and brand partners, what can you share us to what they're hearing what you are hearing about inventory levels at retail and potential inventory replenishment after the Christmas season?

Speaker #4: It does sound like that should be helpful based on your commentary about Q4 and Q3 and Q4, but just wanted to follow up about that, please.

Eddie Ingle: Thanks for your question, Anthony, and welcome to the call. Yes, we believe the inventories both at retail from an apparel inventory level, they are very low, and we know the inventories across the supply chain here in the US, across the globe, are as low as they can be because everybody is trying to cut back on their inventories in anticipation of raw materials going down. We do not see that right now. But for us, part of the reason why we are expecting fiscal H2 to be improved over H1 is because some of the initiatives that we have been working on, whether that is YarnProof driving demand in the CAFTA region, whether that is some of these innovations that we have been pushing, especially on the military and tactical side, we are expecting to see some growth there.

Speaker #5: Thanks for your question, Anthony. And welcome to the call. Yeah, we believe the inventories, both at retail from an apparel inventory levels, they're very low.

Speaker #5: And we know the inventories across the supply chain here in the US, across the globe, are as low as they can be because everybody's trying to cut back on their inventories in anticipation of raw materials going down.

Speaker #5: We don't see that right now. But for us, part of the reason why we're expecting H2 fiscal H2 to be improved over H1 is because some of the initiatives that we've been working on, whether that's yarn proof, driving demand in the captive region, whether that's some of these innovations that we've been pushing, especially on the military and tactical side, we are expecting to see some growth there.

Eddie Ingle: Aside from what the market is doing, we expect much of our growth actually is going to be outside of the market conditions. I guess in Brazil, where there has just been a recent election, that might be impacted. The demand there might be impacted somewhat by the political situation down there, but we are not right now seeing any fall-off in that demand.

Speaker #5: So aside from what the market is doing, we expect some of much of our growth actually is going to be outside of the market conditions.

Speaker #5: I guess in Brazil, where there's just been a recent election, that might be impacted the demand there might be impacted somewhat by the political situation down there.

Speaker #5: But we're not right now seeing any fall-off in that demand.

Anthony Lebiedzinski: Got it. Okay. Thanks for that, Eddie. As far as the Beyond Apparel initiatives, it sounds like you are making further progress with military carpet. Are you seeing any other perhaps glimmers of demand increases perhaps, or do you think it is going to be largely in those few areas that you already talked about?

Speaker #4: Got it. Okay. Yeah. Thanks for that, Eddie. So as far as the beyond apparel initiatives, it sounds like you're making further progress with military carpet.

Speaker #4: Are you seeing any other perhaps glimmers of demand increases, perhaps, or do you think it's going to be largely in those few areas that you're already talked about?

Eddie Ingle: Thanks for the question. Beyond the resin business and our military and tactical, we are seeing some growth in auto on the sampling side, and we do expect that some of the new products we are putting out there in auto that is being developed in conjunction with two customers specifically will come through, but we do not expect that growth to happen in H2. That will be more of a fiscal 2028 volume opportunity. But certainly, we are doing the right amount of work with some key customers in the auto industry just to get some growth further down the road.

Speaker #5: Yes. Thanks for the question. So beyond the resin business and our military and tactical, we are seeing some growth in auto on the sampling side.

Speaker #5: And we do expect that some of the new products we're putting out there in auto that's being developed in conjunction with two customers in specifically will come through.

Speaker #5: But we don't expect that growth to happen in H2. That will be more of a fiscal 2028 volume opportunity. But certainly, we are doing the right amount of work with our with some key customers in the auto industry just to get some growth further down the road.

Al Carey: Anthony, there is at least four. This is Al, I am sorry. There is at least four customers, sizable customers, that the work on military has led to other opportunities and a better strategic partnership. Those are some of the things that might be the most, they were most pleased about. Now, those are more Q3, Q4 kinds of outcomes.

Speaker #1: And Anthony, there's at least there's at least four there's Al, I'm sorry. There's at least four customers a sizable customers that the work on military has led to other opportunities and a better strategic partnership.

Speaker #1: So those are some of the things that might be the most they were most pleased about. Those are more Q3, Q4 kinds of outcomes.

Anthony Lebiedzinski: Mm-hmm. Can you provide some additional details about these four customers? Obviously, you do not have to name them, but just maybe if you just talk a little bit more about that and provide additional color.

Speaker #4: So can you provide some additional details about these four customers? Obviously, you don't have to name them, but just maybe if you just talk a little bit more about that and provide additional color.

Al Carey: Yeah, they are just products, normal products that we sell to these customers. But when we build a strategic partnership with a customer, we are trying to solve some of their problems as well as ours. You build a relationship with the top of their organization rather than just selling in products to the buyers or procurement agents. Very definitely a positive down the road for us, but it will be Q3 before you see that.

Speaker #1: Yeah. They're just products. Normal products that we sell to these customers. But when we build the strategic partnership with the customer, we're trying to solve some of their problems as well as ours.

Speaker #1: You build a relationship with the top of their organization rather than just selling in products to the buyers or procurement agents. Very definitely a positive down the road for us.

Speaker #1: But it'll be Q3 before you see that.

Anthony Lebiedzinski: Okay, got it. You guys talked a little bit about portfolio optimization, that you have made progress there. Can you share some additional details as to what you have done and whether that is already been completed, or do you think there is additional things that you can do?

Speaker #4: Okay. Got it. And you guys talked about a little bit about portfolio optimization that you've made progress there. Can you share some additional details as to what you have done and whether that's already been completed?

Speaker #4: Or do you think there's additional things that you can do?

Eddie Ingle: Yeah. We have done a lot of work, as we have mentioned many times in the last few quarters, around making sure the product range that we have and the portfolio we have is optimized for the assets that we have. We have walked away from some business that was very, very challenging from a pricing point of view. I think today, we can say that much of our portfolio is where we want it to be, and the focus is now on revenue growth, on value-added products, and Beyond Apparel and beyond, Beyond Apparel. AJ, you want to add to that?

Speaker #5: Yeah. We've done a lot of work as we mentioned many times in the last few quarters around making sure the product range that we have and the portfolio we have is optimized for the assets that we have.

Speaker #5: We have walked away from some business that was very, very challenging from a pricing point of view. And I think today, we can say that much of our portfolio is where we want it to be and the focus is now on revenue growth, on value-added products in beyond apparel and beyond apparel.

Speaker #5: AJ, you want to add to that?

A.J. Eaker: Yes. There certainly has been a lot of work, as Eddie mentioned, in terms of chopping off some of the programs and specific product lines that would not make sense on a go-forward basis. We have drawn a keen eye more to what makes sense for us and the customer, delivering the appropriate value where the value really meets between us and the customer. We will continue doing that. As Eddie said, we will not rest on those initiatives. Looking forward to more of those coming to fruition in the quarters ahead.

Speaker #3: Yes. There certainly has been a lot of work, as Eddie mentioned, in terms of chopping off some of the programs and specific product lines that would not make sense on a go-forward basis.

Speaker #3: And so we've drawn a keen eye more to what makes sense for us and the customer delivering the appropriate value where the value really meets between us and the customer.

Speaker #3: And we'll continue doing that, as Eddie said. We're not rest on those initiatives. I'm looking forward to more of those coming to fruition in the quarters ahead.

Anthony Lebiedzinski: Got it. Thanks, guys. Okay. As we think about the new product introductions that we have heard in recent calls, whether it is ThermaLoop or Fortisyn and some others, which ones of these are you the most excited about in terms of driving overall performance for the company?

Speaker #4: Got it. Yes. Thanks, guys. Okay. And then so as we think about the new product introductions, that we've heard in recent calls, whether it's ThermaLoop or Fortisan, and some others, kind of which one's of these are you the most excited about in terms of driving overall performance for the company?

Eddie Ingle: In the near term, I would say we are very excited about ThermaLoop. We are very excited about Fortisyn. Longer term, we think that the Resist2O Pro, the extension of our, sorry, Resist2O Pro, which is an extension of our Resist2O product, is really going to get traction because it allows us to have this water-resistant product embedded in the fiber when we make it. So, we are excited about that for the future. Cofira, which is the product we just launched, is getting a lot of attention, as is the A.M.Y. Peppermint program. The A.M.Y. Peppermint program is live now, but we do expect to see that grow in the next 2 or 3 quarters. Like I said, it is getting a lot of attention from some other brands beyond HOKA.

Speaker #5: Yeah. In the near term, I would say I'm we're very excited about ThermaLoop. We're very excited about Fortisan. And longer term, we think that the reprieve 2.0 Pro, the extension of our sorry, was this 2.0 Pro?

Speaker #5: It was an extension of our Resist 2.0 product. It's really going to get traction because it allows us to have this water-resistant product embedded in the fiber when we make it.

Speaker #5: So we're excited about that for the future. And Cofiro, the product we just launched, is getting a lot of attention. As is the Amy Peppermint program.

Speaker #5: And the Amy Peppermint program is live now, but we do expect to see that grow in the next two or three quarters, like I said.

Speaker #5: It's getting a lot of attention from some other brands beyond Hoka.

Anthony Lebiedzinski: Got it. Okay. Last question from me is just looking at the YarnProof program that you guys announced. Sounds like that could be a significant program. How quickly do you think you can see some impact as far as your results as to how that proceeds from here?

Speaker #4: Got it. Okay. And last question for me. Just looking at the yarn-proof program that you guys announced, it sounds like that could be a significant program.

Speaker #4: How quickly do you think you can see some impact as far as your results as to how that proceeds from here?

Eddie Ingle: Yeah. Thanks for that question. We are very excited about this. We just launched it middle of October. It takes a while for all of the yarn to go through the supply chain. We have had conversations with Customs and Border Protection. They sort of asked the same question. We expect that by mid to late summer, all of the products in the region that are produced with polyester filament yarn will contain this tracer. So, we are expecting to see some impact in fiscal Q4 of this year and the first quarter next year. Like I said on the script, it has been very well received, actually better than we expected. There has been a lot of questions around transparency and avoidance of some of these, the USMCA and CAFTA-DR legislation that is in place, and what we call the Yarn Forward Rule.

Speaker #5: Yeah. Thanks for that question. We're very excited about this. We just launched it in the middle of October. It takes a while for all of the yarn to go through the supply chain.

Speaker #5: We've had conversations with customer onboarding control. They sort of asked the same question. We expect that by mid to late summer, all of the products in the region that are produced with polyester filament yarn will contain this tracer.

Speaker #5: So we're expecting to see some impact in physical Q4 of this year and the first quarter next year. Like I said, on the script, it's been very well received.

Speaker #5: Actually, better than we expected. There has been a lot of questions around transparency and avoidance of some of these USMCA and captive DR legislation that's in place and what we call the yarn forward rule.

Eddie Ingle: People want to do the right thing, and this helps them reinforce that they are doing the right thing on an instant basis. So, we are excited about it. We are getting a lot of positive conversations about the leadership. Again, it is not just Unifi. It is all of the major producers of polyester filament yarn in the region that came together. That is what makes this most important. It is an industry-wide initiative. So, we are expecting growth in CAFTA and USMCA because of this. Hard to actually determine exactly how much, but as we go through the next few quarters, we will be talking about it more and more, I expect.

Speaker #5: People want to do the right thing, and this helps them reinforce that they're doing the right thing on an instant basis. So we're excited about it.

Speaker #5: We're getting a lot of positive conversations about the leadership. And again, it's not just Unifi. It's all of the major producers of polyester filament yarn in the region that came together.

Speaker #5: That's what makes this most important it's an industry-wide initiative. So we are expecting growth in captive and USMCA because of this. Hard to actually determine exactly how much, but as we go through the next few quarters, we will be talking about it more and more, I expect.

Al Carey: Anthony, when I was mentioning strategic customer partnerships at the top level, the CEOs of many of the companies that we do business with and we are partners with are very, very happy that Eddie and the team has taken this on, because we are the largest in this business, and somebody has got to solve this problem. The cheating that goes on and shipping in product into the US and into Central America where it should not be coming in, has grown dramatically since the tariffs. So, this could produce results. We are not forecasting them because it is tough to put your finger on it, but it definitely will make an impact at some point here. I think Eddie is right on the summertime will be an opportunity.

Speaker #1: Anthony, when I was mentioning strategic customer partnerships at the top level, the CEOs of many of the companies that we do business with and we're partners with are very, very happy that Eddie and the team has taken this on because we're the largest in this business.

Speaker #1: And somebody's got to solve this problem that cheating that goes on and shipping in product into the US and into Central America, where it shouldn't be coming in.

Speaker #1: Has grown dramatically since the tariffs. So this could produce results. We're not forecasting them because it's tough to put your finger on it, but it definitely will make an impact.

Speaker #1: At some point here, I think Eddie's right on the summertime will be an opportunity.

Anthony Lebiedzinski: Sounds great. Well, thank you very much, and best of luck.

Speaker #4: Sounds great. Well, thank you very much. And best of luck.

Al Carey: Thank you.

Eddie Ingle: Thanks, Anthony.

Speaker #1: Thank you.

Speaker #5: Thanks, Anthony.

Operator: For any additional questions, please press star followed by one. In the interest of time, please limit yourself to one question and one follow-up. Our next question comes from Chris Reynolds from Neuberger. Please go ahead. Your line is open.

Speaker #2: For any additional questions, please press star followed by one. In the interest of time, please limit yourself to one question and one follow-up. Our next question comes from Chris Reynolds from Newberger.

Speaker #2: Please go ahead. Your line is open.

Chris Reynolds: Good morning, gentlemen. Nice to see you at the annual meeting.

Speaker #6: Good morning, gentlemen. Nice to see you at the annual meeting.

Al Carey: Yes, Chris. Good to see you.

Speaker #1: Yes, Chris. Good to see you.

Eddie Ingle: Good to talk with you again, Chris. Thank you.

Speaker #6: Good to talk with you again, Chris. Thank you.

Chris Reynolds: Well, my question is, some of it has been answered, but I am still struggling to figure out why the apparel business is in such a deep downturn. It seems like there has been no improvement since COVID, and this looks like one of the deepest downturns on record, not only from a production standpoint, but the length of time this has gone on. Do you think that there is a cyclical upturn that has naturally occurred in the industry before that could take hold here in the next 12 to 18 months?

Speaker #1: Yeah. Well, my question

Speaker #6: is some of it's been answered, but I'm still struggling to figure out why the apparel business is in such a deep downturn. It seems like there's been no improvement since COVID, and this looks like one of the deepest downturns on record.

Speaker #6: And only from a production standpoint, but the length of time, this has gone on. Do you think that there's a cyclical upturn that would have naturally occurred in the industry before that that could take hold here in the next 12 to 18 months?

Eddie Ingle: Chris, thank you for your question. It is confusing, I think, for everybody in the industry. I think we are at the point where we realize there may be a structural shift in some of the consumer patterns, where it is hard to tell exactly because of the pressures on the consumer from the inflation point of view. Are they basically cutting back and focusing on just trying to make sure they have enough money for gas and food? I would say that we are not relying going forward on having this come back to the same levels it was during the boom years right after COVID. We are focusing on making sure we put enough innovation out there on the marketplace and do things like YarnProof, launch products like Resist2O Pro, keep focus on some of the initiatives we launched a while back, REPREVE Takeback and ThermaLoop.

Speaker #5: Chris, thank you for your question. It is confusing. I think for everybody in the industry, I think we're at the point where we realize there may be a structural shift in some of the consumer patterns we're it's hard to tell exactly because of the pressures on the consumer.

Speaker #5: From an inflation point of view, are they basically cutting back and focusing on just trying to make sure they have enough money for gas and food?

Speaker #5: But I would say that we're not relying going forward on having this come back to the same level as it was during the boom years right after COVID.

Speaker #5: We're focusing on making sure we put enough innovation out there on the marketplace and do things like yarn-proof, launch products like Resist 20 Pro, keep focus on some of the initiatives we launched a while back.

Speaker #5: We're pre-take back and thermal loop. We're relying those to get our business back. So we don't know. The answer to your question, but we do expect that this we are everybody in this is expecting the business to come back as it does normally from the bottom of the low cycle, but nobody's expecting to come back to the peaks that it was in previous cycles.

Eddie Ingle: We're relying on those to get our business back. We don't know the answer to your question, but we do expect that everybody in this view is expecting the business to come back as it does normally from the bottom of a low cycle, but nobody's expecting it to come back to the peaks that it was in previous cycles.

Chris Reynolds: Okay. Thank you.

Speaker #6: Okay. Thank you. And then.

Al Carey: Chris, this is Al Carey. Let me add something to that. It's perplexing to everybody, and when we talk to customers, nobody's got a straight answer. Here's an educated guess. Post-COVID, there was a lot of inventory in the marketplace and in the stores and in the warehouses, and everybody has moved to a different way of ordering and managing inventory. Some of them are using AI tools, all data management tools to keep the levels lower than they were before and preserve cash. That seems to be a consistent trend. Just about the time we thought that would start showing as a positive in the market, because you have to start ordering product, these tariffs, particularly the confusion on the tariffs, and the pricing associated with raw materials has thrown another curveball into the mix.

Speaker #1: Chris, this is Al Carrey. Let me add something to that. It's perplexing to everybody. And when we talk to customers and nobody's got a straight answer.

Speaker #1: Here's an educated guess. Post-COVID, there was a hell of a lot of inventory in the marketplace. And in the stores and in the warehouses and everybody has moved to a different way of ordering and managing inventory.

Speaker #1: Some of them are using AI tools all data management tools to keep the levels lower than they were before and preserve cash. That seems to be a consistent trend.

Speaker #1: But then just about the time we thought that would start showing as a positive in the market because you have to start ordering product.

Speaker #1: These tariffs, particularly the confusion on the tariffs, and then the pricing associated with raw materials has thrown another curveball into the mix. My guess is that these inventories are now at a level where they have to start ordering again.

Al Carey: My guess is that these inventories are now at a level where they have to start ordering again, and when there's some stabilization of the raw material pricing, I think things will come back. Because the consumer, if you look at the sales, they're still flattish to up a couple of percent. It hasn't been as deep a dive as the supply chain has shown. Just one view.

Speaker #1: And when there's some stabilization of the raw material pricing, I think things will come back because the consumer if you look at the sales, they're still flattish to up a couple of percent.

Speaker #1: It hasn't been as deep a dive as the supply chain has shown. Just one view.

Chris Reynolds: Okay. Yeah, that is interesting. Well, I asked the question because there are parts of the consumer economy, like housing and autos, that have contracted because of interest rate increases, but then you look at restaurant sales and travel, it is booming.

Speaker #6: Yeah. That's interesting. Well, I asked the question because there are parts of the consumer economy like housing and autos that are contracted because of interest rate increases.

Speaker #6: But then you look at restaurant sales and travel, it's booming. And it's surprising in that you would think that with high oil prices, consumers would retrench on travel and eating away from home, but that's not occurring.

Al Carey: Yeah.

Chris Reynolds: It is surprising in that you would think that with high oil prices, consumers would retrench on travel and eating away from home, but that is not occurring, and it is growing.

Al Carey: That may happen, yes. That is right.

Speaker #6: And it's.

Speaker #1: And they haven't.

Chris Reynolds: Yeah. Apparel tends to track GDP and the categories that I just mentioned that are in an upswing. Again, it is hard to make a forecast, but thank you for your commentary.

Speaker #5: That's right.

Speaker #6: Yeah. Yeah. Apparel tends to track GDP. And the categories that I just mentioned that are in an upswing. So again, it's hard to make a forecast.

Speaker #6: But thank you for your commentary.

Al Carey: Okay. Thank you, Chris.

Speaker #1: Okay. Thank you, Chris.

Eddie Ingle: Thanks, Chris.

Anthony Lebiedzinski: Thanks, Chris.

Speaker #5: Thanks, Chris.

Speaker #6: Thanks, Chris.

Operator: We have no further questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.