Unifi Narrows Losses as Cost Cuts Pay Off, But Revenue Struggles Persist

Date of Call: Feb 4, 2026

Financials Results

• Revenue: Down 12.5% year-over-year
• Gross Margin: 3%, compared to 0.4% in the prior year

Guidance:

• Expect to realize full benefits of cost reduction initiatives and improved working capital efficiency in Q3.
• Anticipate greater clarity on the global trade environment, supporting revenue improvement through calendar year '26.
• Focus on margin-accretive efforts with continued emphasis on REPREVE value-added products and expansion of Beyond Apparel initiatives.
• Third quarter will exhibit lower operating cash flows compared to Q2 to support disciplined inventory builds and higher sales activity.

Business Commentary:

Cost Reduction and Operational Efficiency:

• Unifi, Inc. reported an improvement in gross margin to 3% during the quarter, compared to 0.4% for the same period last year.
• SG&A expenses decreased by 25% from the prior year period, contributing to an adjusted EBITDA improvement of $5.1 million year-over-year.
• The improvements are attributed to cost-saving initiatives, including the consolidation of yarn manufacturing operations and a reduction in headcount and labor hours.

Demand and Revenue Outlook:

• Net sales for the quarter were down 12.5% year-over-year, primarily due to lower demand in the Asia segment and pricing pressure in Brazil.
• Despite the decline, there are early signs of improvement in demand, particularly in the U.S. and Central America, driven by post-holiday restocking and new tariff agreements.
• The company anticipates that these positive trends will support revenue improvement in the coming months.

Inventory Management and Cash Flow:

• Year-to-date free cash flow increased to $13.3 million, a significant improvement from the previous year's first half results.
• Working capital was 9% lower than levels seen in the prior fiscal period, attributed to leaner operations in the U.S.
• The improvements in cash flow and working capital are a result of footprint consolidation and cost-saving measures.

Innovation and Brand Development:

• Unifi has seen positive feedback on its innovative products, such as REPREVE Takeback and ThermaLoop, with increased customer engagement and co-branding efforts.
• The interest in circular textile solutions is growing, especially among European customers facing legislative pressures to offer sustainable options.
• Continued promotion through partnerships and digital engagement is expected to support future growth.

Sentiment Analysis:

Overall Tone: Positive

• Management is 'pleased to see improved profit margins and free cash flow' and 'dramatically improved our inventory turns.' They are 'cautiously optimistic' about recent order trends and 'encouraged by the progress' made, with 'quite a bit of optimism for what our profitability and our cash flow can be going forward.'

Q&A:

• Question from Anthony Lebiedzinski (Sidoti & Company, LLC): So by the way, it was a really good cash flow quarter, which is great to see. So I guess my first question, in terms of your comments about the pickup in demand that you've seen since the quarter end. Is that in all segments? Or is one segment particularly doing better than others? I just wanted to get more flavor, more color on what you're seeing thus far since the quarter ended?
  Response: CEO Edmund Ingle responded that the pickup in demand is seen across all segments: Brazil is recovering post-holiday, Asia is strong with the new year activity, and the U.S./Central America is benefiting from post-year-end inventory restocking and new tariff agreements.

• Question from Anthony Lebiedzinski (Sidoti & Company, LLC): So that's encouraging to hear certainly. So when we look at your business, I mean you've talked about Beyond Apparel for a bit. Can you give us an update? And I guess as we talked about this, maybe just kind of give us an update where you are like as far as apparel or as footwear, what percent of revenue is that at the moment? And kind of how should we think about the Beyond Apparel initiatives kind of going forward?
  Response: CEO Edmund Ingle stated that apparel remains a large part of revenue but the company is moving towards making it a lower percentage. Beyond Apparel (carpet, packaging, military/tactical, auto) saw strength in packaging last quarter, with military/tactical expected to grow in Q4. Executive Chairman Albert Carey added that military business is bigger than expected and typically long-term with high margins.

• Question from Anthony Lebiedzinski (Sidoti & Company, LLC): That's good to hear certainly. And can you also give us an update on the pricing dynamics in each of your segments that you talked about. I think you really highlighted Brazil as dealing with pricing pressures. But maybe if you could just go over the pricing dynamics that you have seen and expect to see here going forward in each of the three segments.
  Response: CEO Edmund Ingle noted continued dumping from Asia into Brazil but expects positive pricing momentum in Q3. In Asia, pricing is reactionary with a slight uptick. In the U.S./Central America, targeted price increases and business exits have improved pricing and are aiding margin recovery.

• Question from Anthony Lebiedzinski (Sidoti & Company, LLC): Okay. That's -- yes, certainly good to hear. So -- and obviously, as you guys have talked about, you've done a lot of work as far as the restructuring and manufacturing transitions and so on. So as we think about the $575 million revenue that's needed to breakeven. How do you guys think about the mix between the three segments? What do you guys need to get there? I mean if I look back historically, the Asia and Brazil segment, gross margins have done better than what we've seen last couple of years or so. So just broadly speaking, how do we think about the mix that -- between the three segments that's needed to get back to breakeven?
  Response: CFO A.J. Eaker responded that to reach breakeven, the revenue mix would be mid- to high 300s for the Americas, with the other two segments (Asia and Brazil) filling in from their historical run rates, leading to a high single-digit consolidated gross margin.

Contradiction Point 1

Demand Outlook and Timing

Contradiction on the timing and visibility of demand recovery in the Americas.

Has the pickup in demand since quarter-end been across all segments or driven by one in particular? - Anthony Lebiedzinski (Sidoti & Company, LLC)

2026Q2: Demand improvement is seen across all segments... the U.S./Central America region is benefiting from post-year-end inventory restocking and positive news on new reciprocal tariff agreements. - Edmund Ingle(CEO)

Could you elaborate on the volatility in demand and production in the Americas and how it impacted the first quarter? - Anthony Lebiedzinski (Sidoti & Company, LLC)

2026Q1: October saw improved revenues, with a slowdown expected for the Americas during the Christmas holiday period and an uptick anticipated in Q3 thereafter. - Edmund Ingle(CEO)

Contradiction Point 2

Beyond Apparel Revenue Run Rate

Contradiction on the expected revenue run rate from Beyond Apparel initiatives.

Can you provide an update on Beyond Apparel, including its current revenue contribution from apparel and footwear, and how we should view these initiatives moving forward? - Anthony Lebiedzinski (Sidoti & Company, LLC)

2026Q2: The military segment is bigger than expected... typically brings long-term, high-margin business. - Albert Carey(Executive Chairman)

What is the current revenue from initiatives beyond apparel (e.g., military, carpet), and what is the opportunity? - Anthony Lebiedzinski (Sidoti & Company, LLC)

2026Q1: The company expects beyond apparel revenue to reach a run rate of around $20 million by the end of calendar 2026. - Edmund Ingle(CEO)

Contradiction Point 3

Timing of Asia Segment Order Recovery from Tariffs

Contradiction on when increased orders from Asia will materialize, shifting from Q1/Q2 benefit to a more distant future.

Provide an update on pricing dynamics per segment? - Anthony Lebiedzinski (Sidoti & Company, LLC)

2026Q2: Increased orders are already being seen in August for September demand in Asia and Central America. - Edmund Ingle(CFO)

Is any pent-up demand already visible in Q1, or is it expected to primarily impact Q2? - Anthony Chester Lebiedzinski (Sidoti & Company)

2025Q4: Increased orders are already seen in August for September demand, indicating a benefit starting in Q1 and continuing into Q2 and Q3. - Edmund Ingle(CFO)

Contradiction Point 4

Military Segment Profitability and Size

Contradiction on the characterization of the military segment's margin profile.

What is the current status of Beyond Apparel, including its revenue contribution from apparel and footwear, and what is the strategy for its future initiatives? - Anthony Lebiedzinski (Sidoti & Company, LLC)

2026Q2: The packaging sector was very strong in the last quarter... The goal is to reduce the apparel percentage of revenue while moving forward with these initiatives. - Edmund Ingle(CFO)

Can you quantify the margin improvement and market opportunity in Beyond Apparel's corporate and military markets? - Anthony Lebiedzinski (Sidoti & Company)

2025Q3: Margins for Beyond Apparel products like military wear and carpet are at least twice as good as those for the base business. - Al Carey(COO)

Contradiction Point 5

Asia Segment Revenue Potential and Tariff Impact

Contradiction on the magnitude of potential revenue decline in Asia due to tariffs.

Has the demand pickup post-quarter-end occurred across all segments or are certain segments outperforming? Could you provide more details on the current trends? - Anthony Lebiedzinski (Sidoti & Company, LLC)

2026Q2: Demand improvement is seen across all segments: Asia showed strong activity in January, continuing positively into the new year. - Edmund Ingle(CFO)

If tariffs remain long-term, is a 10-15% decline the expected impact for Asia? - Anthony Lebiedzinski (Sidoti & Company)

2025Q3: A potential revenue downturn in the Asia segment... is estimated to be in the 10-15% range, assuming reciprocal tariffs remain at current levels. - Eddie Ingle(CFO)