Unifi signals Q2 cost savings and expects $20M run rate from beyond apparel by end of 2026

Earnings Call Insights: Unifi, Inc. (UFI) Q1 2026

MANAGEMENT VIEW

* Executive Chairman Albert Carey emphasized that "our UNIFI business had a challenging quarter," attributing the results to two primary challenges: industry-wide order slowdowns following April tariffs and internal transition costs related to the Madison facility closure. He explained, "orders have been extremely light and only for goods that are absolutely necessary," particularly affecting sales in Asia and Central America. Carey stated, "we really have resized our company's cost model" with new cost reductions, headcount reductions, and price actions that are now complete, aiming for improved cash flow and profitability even at lower revenue levels.
* Carey highlighted new growth initiatives, mentioning "improving revenue growth with our efforts at beyond apparel products, which we've been talking about for quite some time, topics such as military segment, carpet, resin sales and packaging. All these products are relatively new to our business with better margins than the base."
* CEO Edmund Ingle noted, "our results for the first quarter came in below our expectations as we continue to be impacted by softer ordering patterns that are directly related to the recent tariff and trade uncertainties." Ingle said, "the mid- and long-term outlook seems to be improving" in the Americas, with brands starting to move production programs to Central America. He reported "stable demand" in Brazil but noted "dumping pressure from Asia-based companies."
* CFO A.J. Eaker stated, "This recent initiative is expected to result in significant savings on an annual basis as we reduce our headcount, match machine run rates with sales volumes and strategically reduce operating costs across our business." Eaker detailed, "This new cost reduction plan includes approximately $5 million in SG&A savings on an annualized basis compared to fiscal 2025 and approximately $4 million of those savings should be reflected in this fiscal 2026."

OUTLOOK

* Ingle forecasted, "we are expecting to begin to see the full benefits of our proactive efforts to reduce costs, increase machine efficiencies and facility utilization to improve profitability throughout the remainder of fiscal 2026."
* He added, "we also expect to see adjusted EBITDA improve sequentially from the first quarter of fiscal 2026, primarily driven by cost savings in the Americas segment."
* Ingle indicated, "sales from these [beyond apparel] initiatives will become a meaningful contributor to our financial and revenue growth in the second half of fiscal 2026."
* Guidance for Q2 includes a slight expected net sales decline in the Americas and Brazil due to the holiday period, but "net sales in Asia are expected to increase ahead of the Lunar New Year."

FINANCIAL RESULTS

* Eaker reported, "consolidated net sales for the quarter were $135.7 million, down 8% year-over-year, primarily driven by trade-related uncertainty and short-term demand volatility across each business segment."
* Gross profit was $3.4 million and gross margin was 2.5%.
* In the Americas, "net sales were down 1.3% compared to the prior year fiscal 2025 due to price and sales mix."
* Eaker stated, "the new reduction in manufacturing costs are designed to drive a $5 million per quarter savings for the remainder of fiscal 2026."
* Ingle shared that REPREVE Fiber represented 29% of sales, "down 1% point from the previous year due to trade policy impacting ordering patterns," but pointed to new momentum in REPREVE polyester resin sales.

Q&A

* Anthony Lebiedzinski, Sidoti & Company, LLC: Asked for more detail on demand volatility in the Americas and how it impacted Q1. Ingle responded, "we did have a lot of volatility in demand... we built inventory in the first 5, 6 weeks of the quarter, expecting revenues to come through. And when they didn't, we rapidly turned around and reduced our production levels."
* Lebiedzinski asked about customer feedback on the holiday season. Ingle said, "everybody is very cautious with their inventories... they are also saying at the same time, like I said earlier, Q3 should be better." Carey added, "the ports in Los Angeles had the highest level of deliveries in any time in the 17 years that they've tracked... and now blowing through it as the holiday comes in."
* Lebiedzinski asked about momentum in REPREVE. Ingle replied, "as we move through the year, we're expecting the Asia business to grow simply because REPREVE plus technologies and plus the circular solutions are going to grow."
* Lebiedzinski asked about price increases. Eaker responded, "we're not in a position to disclose the specific price increases or the overall amount, but know that these are responsive to costs and tariffs."
* On cost savings, Eaker said, "we expect that to be under $45 million for fiscal 2026" in SG&A, and COGS savings of $5 million per quarter.
* On beyond apparel, Ingle stated, "we should see a market improvements... a range of around $20 million... to the run rate of around $20 million by the end of the calendar year."
* Chris Reynolds, Neuberger Berman: Asked about Brazil cash position and de minimis rule. Eaker said, "their [Brazil's] cash levels remain in excess right now of their absolute needs for the next few quarters." Ingle explained the de minimis change could "translate into better revenues for the bigger domestic brands."

SENTIMENT ANALYSIS

* Analysts maintained a neutral tone, focusing on clarity around demand volatility, customer sentiment, cost savings, and the pace of beyond apparel revenue realization.
* Management's tone was cautiously optimistic, often referencing the need for patience and persistent execution, but signaling confidence in cost actions and new market opportunities. Ingle stated, "we believe we should build revenue momentum at the beginning of calendar 2026."
* Compared to the previous quarter, management continued a tone of resilience and adaptation, but with greater emphasis on cost containment and signals of emerging growth in new segments.

QUARTER-OVER-QUARTER COMPARISON

* The current quarter saw heightened focus on cost restructuring, with specific savings targets and ongoing benefits from the Madison facility closure, whereas the prior quarter emphasized the completion of the Madison transition and anticipated cost benefits.
* Management increased disclosures around the pace and scale of beyond apparel revenue, now aiming for a $20 million run rate by end of calendar 2026.
* Analysts’ questions shifted from general competitive positioning and product launches in the previous quarter to more granular inquiries about demand patterns, holiday inventory management, and beyond apparel momentum.
* The management tone advanced from expectation of improvement to a more active communication of cost savings already taking effect and stronger cash flow discipline.

RISKS AND CONCERNS

* Carey and Ingle highlighted ongoing risks from tariff and trade policy volatility, particularly impacting order flows in Asia and Central America.
* Management outlined mitigation strategies including resizing cost structure, accelerating cost reductions, and pursuing price increases aligned with inflation and tariff impacts.
* Concerns about demand volatility and customer inventory caution remain prominent.
* Brazil continues to face dumping pressure from Asian competitors, with an antidumping case in progress.

FINAL TAKEAWAY

Unifi management signaled that, despite a challenging start to fiscal 2026 driven by tariff-induced order slowdowns and transition costs, decisive cost restructuring actions and new growth from beyond apparel markets are expected to drive sequential profitability improvement. The company is targeting a $20 million run rate for its beyond apparel initiatives by the end of 2026, with cost savings and cash flow improvements already visible in recent results. Management remains focused on navigating near-term volatility while positioning the business for growth and margin expansion as trade conditions stabilize and customer demand recovers.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/ufi/earnings/transcripts]

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