Unifi, Inc. [UFI] Q2 2023 Earnings Conference Call February 2, 2023 8:30 AM ET

Company Participants

Albert Carey - Executive Chairman

Eddie Ingle - CEO

Craig Creaturo - CFO

A.J. Eaker - VP, Finance & Treasurer

Conference Call Participants

Daniel Moore - CJS Securities

Anthony Lebiedzinski - Sidoti & Company

Operator

Ladies and gentlemen, good morning. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to Unifi’s second quarter fiscal 2023 conference call. Today's conference is being recorded, and all lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you, and I will now turn the conference over to A.J. Eaker, vice President of Finance and Treasurer. You may begin.

A.J. Eaker

Thank you, Abby, and good morning, everyone. On the call today is Al Carey, Executive Chairman; Eddie Ingle, Chief Executive Officer; and Craig Creaturo, Chief Financial Officer.

During this call, management, we’ll be referencing a webcast presentation that can be found in the Investor Relations section of our website, unifi.com. Please turn to Page 2 of that slide deck for our cautionary statements. Management advises you that certain statements included in today's call will be forward-looking statements within the meaning of the federal securities laws. Management cautions that these statements are based on current expectations, estimates and/or projections about the markets in which Unifi operates. These statements are not guarantees of future performance, and involve certain risks that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecasted, or implied by these statements. You are directed to the disclosures filed with the SEC on Unifi's Form 10-Q and 10-K regarding various factors that may impact these results. Also, please be advised that certain non-GAAP financial measures such as adjusted EBITDA, adjusted EPS, adjusted working capital, and net debt may be discussed on this call.

I'll now turn it over to Al Carey.

Albert Carey

Thanks, A.J. Good morning, everyone, and thanks for joining this call. I have a few remarks to kick this off, and then I'm going to turn it over to our CEO, Eddie Ingle. So, as you can see, quarter two of 2023 has been a very difficult environment to operate in, and you saw that in the pre-release that we had a couple of weeks ago, and also our materials for today. At this point, I think most of you have heard about apparel retailers and apparel brands that have had significant backlogs of inventory in their system and in their stores, and they've been trying to discount this inventory and clear it out all the way through the Christmas holidays. And this imbalance of inventory began all the way back in June of 2022. So, it's been with us for a while, and this has very definitely had a significant impact on our volume and our profits in Q1 as we reported before. And then it's also persisted, this issue is persisted and actually worsened for Q2. Now, there is good news. We have seen a pickup in the month of January in orders for our US operations, and it looks like we should see a gradual improvement through the balance of this fiscal year, and then a corresponding improvement in profitability as well. With regards to our Asian business, that same inventory backlog from US retailers, is having an impact on our China business, because a great portion of our business there is for US retailers. So, it's had a significant volume decrease for our Asian business. This situation has continued all the way through Chinese Lunar New Year holiday that ended last week. We expect to see some level of volume improvements coming very soon. We'll know more in the next couple of weeks, but we do know that many manufacturers are opening up this week in China.