Unifi (NYSE:UFI) executives said the company is beginning to see operating improvements from a year-long effort to reset its North American cost structure, highlighting better margins, improved free cash flow, and leaner inventories during the company’s fiscal second quarter 2026 earnings call.
Executive Chairman Al Carey said the closure of the Madison facility and broad cost reductions have positioned the company to “make healthy profits on a much smaller sales level.” Carey pointed to materially improved inventory turns, a roughly 25% reduction in North America headcount, and higher plant efficiencies at the Yadkinville facility now that operational changes are complete.
Quarter results show margin improvement amid lower sales
Operating expenses improved as cost actions flowed through results. SG&A expense was $9.7 million, a 25% improvement from the prior-year period, and adjusted EBITDA was a loss of $0.7 million—an improvement of $5.1 million versus the second quarter a year earlier. Eaker said these results reflect the “initial benefits” of cost-saving initiatives, which management expects to continue supporting performance through the rest of fiscal 2026.
Segment performance: Americas improves on cost actions; Asia and Brazil face pressure
In the Americas, net sales fell 7.1% year-over-year, which Eaker attributed to a lower mix of fiber sales—typically higher priced—along with tariff uncertainty. Despite the revenue decline, gross profit in the region increased by $6.1 million, primarily due to cost-saving initiatives and consolidation of yarn manufacturing operations.
In Brazil, both net sales and gross profit declined compared with the prior year. Management attributed the shortfall to pricing pressures tied to lower competitive prices and imports from Asia. Even so, Eaker said demand and growth opportunities “continue to remain strong” in the region and that the company anticipates improved performance in the second half of the fiscal year.
Asia was the weakest segment on revenue, with net sales down 27% and gross profit down 10% due to lower volumes and pricing dynamics. However, Eaker said gross margin in the region improved by 260 basis points year-over-year, which he said demonstrated the flexibility of the company’s asset-light model. He added that December outperformed October and November, suggesting early signs of demand improvement, although tariffs continue to create uncertainty as brands reassess strategies.
Cash flow, debt reduction, and working capital trends
Management emphasized balance sheet progress. Eaker reported year-to-date free cash flow of $13.3 million, a “significant increase” compared with the prior year’s first-half results. Capital spending in the first half totaled $3.1 million, down about 60% year-over-year as Unifi prioritized spending and cost savings.
Net debt declined to $75 million at the end of December, while working capital year-to-date was $149 million, down 9% from the prior fiscal period. Eaker attributed the improvement to cost-saving measures, footprint consolidation, and reductions in working capital enabled by leaner U.S. operations.
Looking ahead, Eaker said Unifi expects efforts to minimize free-cash-flow drag through the rest of fiscal 2026, but also anticipates a moderate increase in working capital as customers rebuild depleted inventories into calendar 2026. As a result, the company expects the fiscal third quarter to show lower operating cash flows than the second quarter as it supports “disciplined inventory builds” and higher sales activity.
Strategy update: cost reset completed, focus shifts to revenue and adoption of innovations
Carey framed the past year as “step one,” completing difficult cost and footprint actions, with “step two” focused on rebuilding revenue. He said revenue in the first half of fiscal 2026 was heavily affected by tariff-related complexity beginning around April, when reciprocal tariffs drove customers to place orders ahead of implementation and then left the industry with elevated inventories and slower ordering for much of the calendar year.
Carey said recent demand signals have improved. He cited solid holiday apparel sales of about 4% growth, customers reordering to replenish inventories (particularly after fiscal year-ends on 12/31), a pickup in Central America demand, and increasing traction for “textile takeback” and ThermaLoop innovations.
CEO Eddie Ingle said that while second quarter results were in line with expectations, some metrics were better than anticipated. He said early in the third quarter the company is seeing “initial signs of an improved operating environment” driven by increased customer engagement and post-holiday restocking, and argued that the company’s realigned cost structure leaves it better positioned to capitalize on those trends.
Ingle outlined four focus areas for the second half of fiscal 2026:
- Leverage the improved operating model created through cost decisions and footprint consolidation.
- Continue investing to strengthen and scale the company’s brands.
- Drive customer adoption of innovative solutions.
- Convert operational progress into sustained financial momentum.
On operational actions, Ingle reviewed a series of initiatives over the past two years, including a profitability improvement plan launched in December 2023 and a U.S. manufacturing transition during calendar 2025. That transition included the sale of the Madison, North Carolina facility for $45 million, with proceeds used to pay down debt, as well as efforts to improve utilization and productivity at Yadkinville through existing automation assets. In late 2025, Unifi implemented another cost restructuring program, which reduced headcount and spending and is expected to yield $4 million in SG&A savings reflected in fiscal 2026.
Ingle also said the company estimates these efforts reduced its annual revenue break-even point by approximately $125 million—arriving at a break-even level around $575 million. In the Q&A, Eaker added that, under the company’s framework, the Americas would represent “mid- to high-300s” of revenue, with Brazil and Asia filling in the remainder, to reach a consolidated high single-digit gross margin and approximately breakeven operating income.
On branding and innovation, Ingle highlighted co-branding placements and marketing activity for REPREVE and newer offerings, including ThermaLoop and REPREVE Takeback. He cited examples including a ThermaLoop collection launch with Save the Duck, REPREVE signage and in-store branding with Spanish brand El Ganso, and additional co-branding activity in the U.S. with Obermeyer, a collaboration involving Ciele and REI, and Brentwood Home. He also said newer products such as Integr8 and A.M.Y. Peppermint Technologies have received positive feedback, while acknowledging adoption has been slower than expected amid the current environment.
Demand and pricing commentary: early signs of improvement and Central America trade developments
During Q&A, Ingle said the post-quarter demand pickup is occurring “across the board,” with Brazil seeing positive momentum following holiday-related destocking and government economic stimulus, Asia seeing stronger-than-expected activity heading into the mid-February Lunar New Year period, and the U.S. and Central America benefiting from restocking and trade-related news.
Ingle also discussed pricing dynamics, noting that pricing in Brazil has been pressured by competition and imports from Asia, but that conditions have improved in recent weeks as oil prices rose, the Brazilian real strengthened, and some inefficient Asian assets appeared to be shutting down—contributing to higher pricing in Asia and knock-on effects for Brazil’s supply chain. In the U.S. and Central America, Ingle said Unifi has “bottom-sized” the business, exited challenging low-price areas, implemented targeted price increases, and refined pricing to match product mix, contributing to margin improvement alongside restructuring actions.
Ingle pointed to Central America as an opportunity, citing developments around reciprocal tariffs. He said El Salvador and Guatemala signed reciprocal tariff deals with the U.S., which he expects could allow apparel made from regional yarns in those countries to receive CAFTA-DR-like duty-free treatment when shipped to the U.S., once final terms are in place.
On diversification, Ingle described the company’s “Beyond Apparel” initiatives—centered on carpet, packaging, military/tactical, and auto—saying packaging was particularly strong in the quarter and carpet grew slightly. He said military/tactical has involved substantial sampling and that order impact is expected later, with more influence anticipated in fiscal fourth quarter. Carey added that military could be “bigger than expected” over the next couple of quarters, noting the long testing cycle but potentially durable, higher-margin business once won.
Management closed the call by reiterating a focus on realizing the full benefits of cost reductions and working capital efficiency in the third quarter, improving clarity on global trade conditions, and emphasizing value-added REPREVE products and Beyond Apparel initiatives as it works to translate operational progress into sustained financial momentum.
About Unifi (NYSE:UFI)
Unifi, Inc (NYSE: UFI) is a global manufacturer of polyester and nylon textured yarns and fibers, specializing in both virgin and recycled synthetic materials. Headquartered in Greensboro, North Carolina, the company serves a diverse range of end markets including apparel, athleisure, home furnishings, automotive and industrial applications. Unifi’s vertically integrated operations encompass polymer extrusion, spinning, texturing, and finishing processes designed to meet the performance and aesthetic requirements of its customers.
A key differentiator for Unifi is its REPREVE® brand, a family of certified recycled performance fibers made from post‐consumer plastic bottles and other waste streams.
