Unifi, Inc, one of world’s leading innovators in recycled and synthetic yarns, has reported net sales increase to $180 mn in Q3 2019 ending March 31, 2019 from $165.9 mn in Q3 2018. Revenues from premium value-added (PVA) products grew 13.5 per cent compared to Q3 of fiscal 2018 and represented approximately 47 per cent of consolidated net sales. The gross margin of the company was 7.7 per cent in Q3 2019, compared to 10 per cent for Q3 of fiscal 2018, primarily impacted by competitive pressures, especially from low cost imports into the US. Operating income was $0.8 mn, compared to $1.6 mn for Q3 of fiscal 2018, adversely impacted by lower gross profit due to competitive pressures and unfavorable foreign currency translation. Imports of polyester textured yarn from China and India – which increased approximately 79 per cent from 2013 to 2017 and which continued to grow during the first half of 2018 – remained elevated during fiscal 2019, creating considerable pressure on margins and competitiveness in the US.
“While we continue to see positive indicators in global revenue and momentum in our sustainable and innovative PVA product portfolios, a number of headwinds and shortfalls have reduced our short-term profitability,” said Tom Caudle, President & Chief Operating Officer of Unifi. “These headwinds include unfavourable foreign currency translation impacts, a surge in imports of polyester textured yarn from China following the filing of our October 2018 trade petitions, and softness in certain markets. Amid these pressures, we were pleased to see the commerce department’s preliminary countervailing duty and critical circumstances determinations. These announcements are critical steps in advancing our efforts to better compete against the subsidized imported yarns that have flooded our market in recent years, and we will continue in our efforts to pursue these important trade actions in the coming months.
“Separate from the recent trade activity, we have transitioned our leadership team to a leaner and more agile structure with deep roots in operational excellence and a balanced focus on profitability. We also launched and are continuing to execute against a cost reduction plan, which includes a considerable step-down in our run-rate of general and administrative expenses. Our global strategy to partner, innovate and build is creating opportunities for future growth while we take appropriate action to restore profitability in the Americas businesses. This includes increasing the utilisation of our assets, supporting and expanding our sustainable and innovative portfolios, and optimising the supply chain and cost structure to better deliver efficient and effective solutions to meet the demands of our customers. We remain confident in our path forward and have made calculated changes to our organisation that empower our teams and strengthen our ability to remain the leader in synthetic and recycled textile solutions.”
For fiscal 2019, which contains 53 fiscal weeks, the company expects mid-single-digit percentage growth from fiscal 2018 for net sales. It also expects operating income between $10—$12 mn and adjusted EBITDA between $33–$35 mn.
“As a result of continued headwinds and reduced third quarter performance, our prior fiscal 2019 profitability and effective tax rate guidance is out of reach, while net sales growth and capital expenditures expectations remain unchanged,” said Caudle. “We believe fourth quarter adjusted EBITDA performance above $10 mn is attainable given current demand levels and recent stabilisation of the raw material cost environment.”
“As we look beyond fiscal 2019, we remain optimistic. In combination with our ongoing growth efforts that drive our innovative and recycled portfolios, the considerable reduction in our overhead costs should provide meaningful improvement in our profitability, while further momentum on recent trade activity is expected to provide an additional lift to our domestic operations. By growing US earnings, we would also expect to see a significant improvement in our effective tax rate,” concluded Caudle.