Unifi Loss Widens, Turnaround Seen
January 29, 2007-- Home Textiles Today,
Stung by steadily sliding sales and a costly build-up of stockpiles, Unifi Inc., a producer of polyester and nylon yarns, recorded a sharply widened loss of $16.5 million, more than four times the size of a year-ago deficit of $3.8 million.
Extending a downward trend line, sales tumbled by 17.9%, to $156.9 million from $191.1 million last year, a daunting shortfall of $34.2 million, as the yarn producer worked off a glut of higher-priced partially oriented yarn (POY) in the supply chain.
Putting the bottom line under heavy pressure, along with the sliding sales, margins approached the vanishing point, narrowing to 1.7% from 4.9% during the same period a year ago. Gross margin dollars fell by 72.0%, to $2.6 million from $9.4 million last year.
Acting as a further drag, operating costs climbed higher as a percentage of dwindling sales, rising by 110 basis points, or 1.1 percentage points, to 6.6% from 5.5% the prior year. Measured in absolute dollars, however, costs were held in check and remained relatively steady, backing off by 0.7%, to $10.4 million from $10.5 million last year.
Further weighing down the bottom line, stockpiles were virtually unchanged from their level of six months ago, even though sales fell by 12.7% over the same period. Inventories at the end of the quarter were $115.4 million, off 0.5% from $116.0 million on June 25, 2006.
Bill Lowe, coo and cfo, said earnings were hurt "by the lingering effect of higher priced POY inventory and a significant decline in POY volume during the quarter," problems largely behind Unifi now. Lowe said, "The inventory adjustments that took place throughout the supply chain during the December appear largely complete, and our POY and texturing plants are now running at expected capacities. We anticipate operating at these higher run rates and also expect to achieve mix-related benefits as well during the March quarter."
In a big plus for the company, leading to lower interest costs ahead, Unifi slashed its debt by 22.0%, or $58 million, to $206.1 million from $264.1 million, after a May refinancing.
Brian Parke, chairman and ceo, said, "We continue to make excellent progress with our operations in China. We have many products now being sampled by critical new customers and larger scale trials are being requested. On the cost side, we have made changes that will reduce our operating costs approximately $2 million in the coming year, which will help us reach our goals. The momentum is building from the market side, and downstream opportunities are beginning to turn into solid orders."
|Qtr. 12/24 (x000)||2006||2005||% change|
a. Second quarter results include a bad-debt recovery of $1.0 million, compared with a bad-debt provision of $604,000 during the same period a year ago; interest income of $1.1 million, compared with $2.2 million last year; $236,000 in miscellaneous expenses, compared with $303,000 a year ago; a $2.9 million loss from the company's stake in a subsidiary, compared with an $18,000 profit last year; a $2.0 million charge for the write-down of long-lived assets; and a $540,000 income tax benefit, compared with a $1.1 million benefit last year; a $167,000 loss from discontinued operations, compared with a $583,000 loss a year ago. Results in the prior-year quarter include a $208,000 one-time gain.
b.Six month results include a $589,000 bad-debt provision, compared with $1.1 million during the year-ago period; $1.5 million in interest income, compared with $3.5 million last year; $243,000 in miscellaneous income, compared with $549,000 a year ago; a $4.8 million loss from the company's stake in a subsidiary, compared with a year-ago profit of $1.8 million; a $3.2 million charge for the write-down of long lived assets, compared with $1.5 million a year ago; a $1.7 million income tax benefit, compared with a $1.2 million benefit last year; and a $203,000 loss from discontinued operations, compared with a prior-year profit of $1.3 million. Prior-year results include a $29,000 restructuring charge.
|Oper. income (EBIT)||(7,768)||(1,091)||—|
|Average gross margin||1.7%||4.9%||—|
|Oper. income (EBIT)||(10,017)||(3,175)||—|
|Average gross margin||3.6%||4.7%||—|
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