Unifi(UFI)2023-02-02 18:57Financial Data and Key Metrics Changes - Net sales for Q2 2023 were $136.2 million, down 32% compared to Q2 2022, leading to stranded fixed costs that negatively impacted profitability [9][10][15] - Consolidated gross profit decreased from $16.9 million to negative $8.0 million, with gross margin declining from 8.4% to negative 5.9% [16] Business Line Data and Key Metrics Changes - The Americas segment saw revenues decrease by 25.7% due to significantly lower sales volumes, while Brazil experienced an 8.1% increase in sales volume, offset by lower average selling prices [15][16] - REPREVE fiber products accounted for 31% of net sales, significantly impacted by lower sales in Asia, but expected to rebound as the operating environment normalizes [12] Market Data and Key Metrics Changes - Demand disruption in the US caused by inventory destocking from retailers led to a slowdown in global apparel production, affecting overall sales [8][9] - In Asia, operations maintained a strong margin profile despite lower demand, with expectations for recovery following the Lunar New Year [11][19] Company Strategy and Development Direction - The company is focusing on cost reductions, managing inventories aggressively, and has successfully generated cash despite a challenging environment [6][10] - There is optimism regarding future growth opportunities, particularly in sustainable fibers, as demand for recycled materials increases [6][8] Management Comments on Operating Environment and Future Outlook - Management noted that the operating environment has been difficult, but there are signs of recovery with improved demand trends observed in January [5][19] - The company expects modest sequential operating improvement in Q3 2023, with a return to positive gross profit anticipated [19][23] Other Important Information - The company refinanced its credit facility, increasing borrowing capacity from $200 million to $230 million, providing liquidity during the current demand softness [17][18] - The company has $38.9 million available for share repurchases, with no repurchases conducted in fiscal 2023 so far [18] Q&A Session Summary Question: What kind of "modest" sequential increase in revenue and significant operating improvement looks like for fiscal Q3? - Management expects a return to positive gross profit and a decent increase in volumes across all segments, particularly in Brazil and Asia [21][23] Question: Any color on the magnitude of the impact from increased Asian competition? - Management indicated that Brazilian operations faced unusual pricing pressures from low-cost Asian imports, but expect margins to improve as higher-priced raw materials flow through [24] Question: What was the sort of volume versus pricing in the quarter? - Management noted that input costs are stabilizing, and they expect to hold pricing as volumes return [26][30] Question: Have you sold most of the high-cost inventory by now? - Management confirmed that inventory has flushed through in the US, while Brazil's longer supply chain means it will take more time [28] Question: Are you seeing any signs that things have picked up post-Lunar New Year? - Management reported positive signals in February, with increased demand for REPREVE and expectations for brands to place orders soon [29] Question: What is your confidence level regarding pricing in the current macro environment? - Management is being strategic with pricing, balancing between volumes and opportunities, and is optimistic about holding pricing as volumes recover [30][31]