Unifi reports Q3 results, sale of interest in Parkdale JV
Posted May 7, 2020
GREENSBORO, N.C. – Unifi, Inc., one of the world's leading innovators in recycled and synthetic yarns, released operating results for the third quarter of fiscal 2020 ended March 29 and announced the April 29 completed sale of its 34 percent interest in Parkdale America, LLC (PAL) to the existing majority partner, Parkdale, Inc., in an all-cash transaction for $60.0 million.
For the quarter, net sales of $171.0 million decreased 5.0 percent, compared to $180.0 million for the third quarter of fiscal 2019, Revenues from premium value-added products represented 52 percent of consolidated net sales.
Gross margin was 9.0 percent, compared to 7.7 percent in the third quarter of fiscal 2019. Operating income was $3.1 million, compared to $0.8 million in the third quarter of fiscal 2019.
Net loss of $41.1 million and basic earnings per share of ($2.23), which includes the impact of a $45.2 million impairment charge in connection with the company's sale of its 34 percent interest in Parkdale America, compares to the third quarter of fiscal 2019's net loss of $1.5 million and EPS of ($0.08).
"The first 10 weeks of our fiscal third quarter were strong and consistent with our expectations as our trade actions and overall strategy were generating significant momentum," said Tom Caudle, president and chief operating officer of Unifi. "However, the impacts of the pandemic on global demand began materializing at the end of the March 2020 quarter, which have placed pressure on many of our customers and the pipeline."
Sale of interest in Parkdale America
On April 29, Unifi sold its 34 percent interest in Parkdale America to the majority owner, Parkdale, for $60.0 million in cash. Proceeds have been used to reduce leverage and increase cash reserves on the balance sheet during the fourth quarter of fiscal 2020. In connection with the sale, the company recorded a $45.2 million impairment charge in the third quarter of fiscal 2020.
"We are pleased to have reached a mutually beneficial agreement whereby Parkdale has acquired Unifi's 34 percent interest in PAL, allowing Parkdale 100 percent ownership of the entity that has been a producer of cotton and synthetic yarns for the textile and apparel industries since its formation in 1997,” Caudle said. “Parkdale has been the driver of the business and operational decisions of PAL since its inception, and this transaction is a natural evolution of our joint venture relationship.
“We thank Parkdale for being such a great business partner and look forward to continued business activities in the future, even with Parkdale becoming the single owner of PAL,” he continued. “For Unifi, this transaction will allow us to focus our efforts on expanding our global leadership in recycled and synthetic fibers while strengthening our balance sheet and improving our leverage profile."
Liquidity update and risk mitigation initiatives
As of March 29, cash and cash equivalents were $33.4 million and debt principal was $133.7 million, totaling Net Debt of $100.3 million.
On April 29, the company sold its 34 percent interest in PAL for $60.0 million cash, which will lower Net Debt and reduce leverage during the fourth quarter of fiscal 2020.
Capital expenditure levels have been reduced while prioritizing safety and maintenance.
Raw material pricing remains at low levels, which aids short-term working capital and liquidity.
Manufacturing operations have been strategically reduced to support critical businesses and manage working capital.
"This pandemic quickly changed the global dynamic, and we have responded with immediate and meaningful mitigation efforts,” Caudle said. “First, we have and will continue to prioritize the health and safety of all of our employees around the globe, which includes restricting travel, maintaining diligent sanitation and disinfection practices, and encouraging social distancing. We have also taken steps to significantly fortify our cash position and strengthen our balance sheet. The path ahead will be challenging, but the proactive, strategic steps we took in 2019 and 2020 have significantly improved our financial flexibility and position.
“Further,” he continued, “we have seen a positive lift from our domestic trade actions, while our Asian operations quickly resumed in March 2020. Lastly, the combination of our diverse global operations, growing asset light model and support of many essential businesses is expected to provide a solid level of base commerce for Unifi."
Caudle concluded: "We are working with our customers on a daily basis to meet their shifting demand needs in this environment. I am proud of Unifi's opportunity to participate in the supply chain for personal protective equipment necessary for our first responders, healthcare personnel and military. As we look beyond fiscal 2020 and these uncertain times, we remain optimistic about our ability to rebound quickly and return to long-term growth. We have the right strategy in place and we will remain committed to our values and to constant innovation. These priorities are resonating with our customers as they work to meet their sustainability goals. I have great confidence in our global workforce, brand-name customer base, suppliers and communities. Together we can navigate these near-term issues and return to long-term growth."
Source: Unifi, Inc.