Quarterly Report for Quarter Ending September 28, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is management's discussion and analysis of certain significant factors that have affected UNIFI's operations, along with material changes in financial condition, during the periods included in the accompanying condensed consolidated financial statements. A reference to a "note" in this section refers to the accompanying notes to condensed consolidated financial statements. A reference to the "current period" refers to the three-month period ended September 28, 2025, while a reference to the "prior period" refers to the three-month period ended September 29, 2024. Such references may be accompanied by certain phrases for added clarity. The current period and the prior period each consisted of 13 weeks.

Our discussions in this Item 2 focus on our results during, or as of, the three months ended September 28, 2025 and September 29, 2024, and, to the extent applicable, any material changes from the information discussed in the 2025 Form 10-K or other important intervening developments or information. These discussions should be read in conjunction with the 2025 Form 10-K for more detailed and background information about our business, operations, and financial condition.

Discussion of foreign currency translation is primarily associated with changes in the Brazilian Real ("BRL") and changes in the Chinese Renminbi ("RMB") versus the U.S. Dollar ("USD"). Weighted average exchange rates were as follows:

All amounts, except per share amounts, are presented in thousands (000s), except as otherwise noted.

Overview and Significant General Matters

UNIFI focuses on delivering products and solutions to direct customers and brand partners throughout the world, leveraging our internal manufacturing capabilities and an enhanced global supply chain that delivers a diverse range of synthetic and recycled fibers and polymers. Our strategic initiatives include (i) leveraging our competitive advantages to grow market share in each of the major geographies we serve, (ii) expanding our presence in non-apparel markets with additional REPREVE®products, (iii) advancing the development and commercialization of innovative and sustainable solutions, and (iv) increasing brand awareness for REPREVE®. We have increased our focus on sales opportunities beyond traditional apparel customers and continue to drive innovation throughout our portfolio to further diversify the business and enhance gross profit. We believe our strategic initiatives will increase revenue and profitability and generate improved cash flows from operations.

Current Economic Environment

Beyond the specific demand challenges within the textile industry, our business has been adversely impacted by: (i) the impact of inflation, including tariffs, on consumer spending, (ii) elevated interest rates for consumers and customers, including the impact on the carrying costs of customer inventories, and (iii) the volatility in customer order patterns resulting from trade and regulatory matters (including tariffs). This volatility in demand resulted from customers buying ahead of tariffs becoming effective for certain countries and difficulty in predicting final tariff assessments. A tariff structure that disproportionately impacts one country or region over another may result in a shift in manufacturing or flow of goods particularly as it relates to textile production across Asia and Central America. Such lower tariff countries or regions may be situated outside of UNIFI's existing global supply chain. If UNIFI is unable to move production based on these shifts in regional demand, we may lose sales and experience an adverse effect on our financial condition, results of operations, or cash flows. UNIFI will continue to monitor these and other aspects of the current environment, leverage our global business model as necessary, and work closely with stakeholders to ensure business continuity and liquidity.

UNIFI has been expanding its supply chain and business model across multiple geographies over the last several years. Particularly, (i) our feedstock supply spans multiple domestic and foreign markets, (ii) our commercial position in the Central American market remains key to servicing compliant business for USMCA and CAFTA-DR programs, and (iii) we have expanded our asset light model beyond China, most recently with the addition of Unifi Textiles India in October 2024. Each of these initiatives affords us diversity in this dynamic trade environment and greater flexibility in servicing our customer base.

Specific to other ongoing geopolitical tensions, we recognize the disruption to global markets and supply chains caused by the conflicts in Ukraine and the Middle East, however we have not been directly impacted. Indirectly, we recognize that additional or prolonged impacts to the petroleum or other global markets could cause further inflationary pressures to our global raw material costs or additional unforeseen adverse impacts.

Input Costs and Global Production Volatility

Despite lower input and freight costs and a marginally more stable labor pool recently, global demand volatility and uncertainty continued into fiscal 2026. The threat of an economic slowdown and global tensions continue to create uncertainty. Such existing challenges and future uncertainty, particularly for rising input costs, labor productivity, and global demand, could worsen and/or continue for prolonged periods, materially impacting our consolidated sales, gross profit, and operating cash flows. Also, the need for future selling price adjustments in connection with inflationary costs could impact our ability to retain current customer programs and compete successfully for new programs in certain regions.

Fiscal 2026 Profit Improvement Plan

UNIFI has implemented additional cost savings initiatives that include reducing variable manufacturing costs across labor, spend, and support functions, while also eliminating a meaningful percentage of salaried positions in the U.S. ("Fiscal 2026 Profit Improvement Plan"). Accordingly, UNIFI expects to incur restructuring charges in the second quarter of fiscal 2026 of between $500 and $1,000, primarily relating to severance costs.

Key Performance Indicators and Non-GAAP Financial Measures

UNIFI continuously reviews performance indicators to measure its success. These performance indicators form the basis of management's discussion and analysis included below:

EBITDA, Adjusted EBITDA, Adjusted Net Loss, Adjusted EPS, Adjusted Working Capital, and Net Debt (collectively, the "non-GAAP financial measures") are not determined in accordance with GAAP and should not be considered a substitute for performance measures determined in accordance with GAAP. The calculations of the non-GAAP financial measures are subjective, based on management's belief as to which items should be included or excluded in order to provide the most reasonable and comparable view of the underlying operating performance of the business. We may, from time to time, modify the amounts used to determine our non-GAAP financial measures. When applicable, management's discussion and analysis includes specific consideration for items that comprise the reconciliations of its non-GAAP financial measures. We believe that these non-GAAP financial measures better reflect UNIFI's underlying operations and performance and that their use, as operating performance measures, provides investors and analysts with a measure of operating results unaffected by differences in capital structures, capital investment cycles, and ages of related assets, among otherwise comparable companies.

Management uses Adjusted EBITDA (i) as a measurement of operating performance because it assists us in comparing our operating performance on a consistent basis, as it removes the impact of items (a) directly related to our asset base (primarily depreciation and amortization) and/or (b) that we would not expect to occur as a part of our normal business on a regular basis; (ii) for planning purposes, including the preparation of our annual operating budget; (iii) as a valuation measure for evaluating our operating performance and our capacity to incur and service debt, fund capital expenditures, and expand our business; and (iv) as one measure in determining the value of other acquisitions and dispositions. Adjusted EBITDA is a key performance metric utilized in the determination of variable compensation. We also believe Adjusted EBITDA is an appropriate supplemental measure of debt service capacity because it serves as a high-level proxy for cash generated from operations and is relevant to our fixed charge coverage ratio.

Management uses Adjusted Net Loss and Adjusted EPS (i) as measurements of net operating performance because they assist us in comparing such performance on a consistent basis, as they remove the impact of (a) items that we would not expect to occur as a part of our normal business on a regular basis and (b) components of the provision for income taxes that we would not expect to occur as a part of our underlying taxable operations; (ii) for planning purposes, including the preparation of our annual operating budget; and (iii) as measures in determining the value of other acquisitions and dispositions.

Management uses Adjusted Working Capital as an indicator of UNIFI's production efficiency and ability to manage inventories and receivables.

Management uses Net Debt as a liquidity and leverage metric to determine how much debt would remain if all cash and cash equivalents were used to pay down debt principal.

Review of Results of Operations

Three Months Ended September 28, 2025 Compared to Three Months Ended September 29, 2024

Consolidated Overview

The below tables provide:

following the tables is a discussion and analysis of the significant components of net loss.

Net Loss

nm = not meaningful

EBITDA and Adjusted EBITDA (Non-GAAP Financial Measures)

The reconciliations of the amounts reported under GAAP for Net loss to EBITDA and Adjusted EBITDA were as follows:

Adjusted Net Loss and Adjusted EPS (Non-GAAP Financial Measures)

The tables below set forth reconciliations of (i) Loss before income taxes ("Pre-tax Loss"), (ii) Provision for income taxes ("Tax Impact"), (iii) Net Loss to Adjusted Net Loss, and (iv) Diluted EPS to Adjusted EPS.

Net Sales

Consolidated net sales for the current period decreased by $11,698, or 7.9%, and consolidated sales volumes decreased 5.2%, compared to the prior period. Net sales in the current period were lower primarily due to (i) lower sales volumes and lower-priced sales mix in the Asia Segment and (ii) lower sales volumes and prices in the Brazil Segment. Overall sales remain depressed, particularly in the Americas and Asia Segments as a result of continued volatility from uncertainty over global trade policies and competition from lower-priced products.

Consolidated weighted average sales prices decreased 2.7%. The decrease in sales prices was primarily attributable to sales mix and lower average selling prices in the Asia and Brazil Segments.

REPREVE®Fiber products for the current period comprised 29%, or $39,272, of consolidated net sales, compared to 30%, or $44,742, for the prior period.

Gross Profit

Gross profit for the current period decreased to $3,387 from $9,458 in the prior period. Gross profit decreased primarily due to (i) lower sales volumes, (ii) lower overall conversion margins and (iii) production volatility from an inability to forecast demand due to the tariff uncertainty in the Americas Segment. The decrease was partially offset by (a) variable cost saving initiatives and (b) improved utilization in certain manufacturing areas. Gross profit continues to be unfavorably impacted by demand volatility in the Americas Segment and import pricing pressures in the Brazil Segment.

SG&A

SG&A did not change meaningfully from the prior period to the current period, nor did the change include any significant offsetting impacts. Actions from the Fiscal 2026 Profit Improvement Plan are expected to reduce SG&A in future fiscal quarters.

(Benefit) Provision for Bad Debts

The current period and prior period provision reflect no material activity.

Restructuring Costs

On February 3, 2025, UNIFI announced the closing of its Madison, North Carolina facility and the transition of those manufacturing operations to other UNIFI production facilities in North and Central America. As a result, UNIFI incurred transition costs of $1,068 in the current period which consisted of (i) equipment relocation and facility closure costs (including asset impairments and disposals) of $1,021 and (ii) employee separation costs of $47. There were no Restructuring costs for the prior period.

Other Operating Expense, Net

Other operating expense, net for the current period and the prior period include foreign currency transaction losses of $50 and $489, respectively, with no other meaningful activity.

Interest Expense, Net

Interest expense, net decreased in connection with lower average debt principal and lower average interest rates.

Equity in Earnings of Unconsolidated Affiliate

There was no material activity for the current period or the prior period.

Income Taxes

Provision for income taxes and the effective tax rate were as follows:

The effective tax rate is subject to variation due to a number of factors, including variability in pre-tax book income; the mix of income by jurisdiction; changes in deferred tax valuation allowances; and changes in statutes, audit settlement, regulations, and case law. Additionally, the impacts of discrete and other rate impacting items are more pronounced when loss before income taxes is lower.

The increase in the effective tax rate from the prior period to the current period is primarily attributable to a large decrease in foreign earnings in the current period.

Net Loss

The increase in net loss was primarily attributable to (i) decreased gross profit and (ii) restructuring costs incurred in the current period, partially offset by (a) lower interest expense, net, and (b) lower income tax expense.

Adjusted EBITDA and Adjusted EPS (Non-GAAP Financial Measures)

Adjusted EBITDA and Adjusted EPS decreased primarily due to lower gross profit.

Segment Overview

Following is a discussion and analysis of the revenue and profitability performance of UNIFI's reportable segments for the current period.

Americas Segment

The components of Segment Profit, each component as a percentage of net sales, and the percentage increase or decrease over the prior period amounts for the Americas Segment, were as follows:

The change in net sales for the Americas Segment was as follows:

The slight decrease in net sales for the Americas Segment from the prior period to the current period was primarily attributable to a lower-priced sales mix which was partially offset by higher sales volumes. Both periods were unfavorably impacted by the continued volatile global textile demand environment resulting from tariff uncertainty.

The change in Segment Profit for the Americas Segment was as follows:

The decrease in Segment Profit for the Americas Segment from the prior period to the current period was primarily attributable to lower productivity, partially offset by higher sales volumes.

Brazil Segment

The components of Segment Profit, each component as a percentage of net sales, and the percentage increase or decrease over the prior period amounts for the Brazil Segment, were as follows:

The change in net sales for the Brazil Segment was as follows:

The decrease in net sales for the Brazil Segment from the prior period to the current period was primarily attributable to (i) lower selling prices associated with competitive pricing pressures and (ii) lower sales volumes due to market conditions, partially offset by favorable foreign currency translation effects from the strengthening of the BRL versus the USD.

The change in Segment Profit for the Brazil Segment was as follows:

The decrease in Segment Profit for the Brazil Segment from the prior period to the current period was primarily attributable to (i) lower conversion margins primarily due to sales mix and pricing pressures, and (ii) a decrease in sales volumes discussed above, partially offset by favorable foreign currency translation effects from the strengthening of the BRL versus the USD. We continue to prioritize innovation and differentiation to improve our portfolio and competitive position in Brazil.

Asia Segment

The components of Segment Profit, each component as a percentage of net sales, and the percentage increase or decrease over the prior period amounts for the Asia Segment, were as follows:

The change in net sales for the Asia Segment was as follows:

The decrease in net sales for the Asia Segment from the prior period to current period was primarily attributable to (i) an overall decrease in sales volumes due to competitive pricing pressures and the continued volatility introduced by recent tariffs and (ii) a change in sales mix of REPREVE products.

The change in Segment Profit for the Asia Segment was as follows:

The decrease in Segment Profit for the Asia Segment from the prior period to the current period was primarily attributable to a decline in gross margin associated with (i) lower sales volumes discussed above and (ii) a change in sales mix of REPREVE products.

Liquidity and Capital Resources

Note 5, "Long-Term Debt" to the condensed consolidated financial statements includes the detail of UNIFI's debt obligations and terms and conditions thereof. Further discussion and analysis of liquidity and capital resources follow.

On October 25, 2024, UNIFI entered into a new credit agreement with Wells Fargo Bank, National Association for a $25,000 revolving credit facility (the "2024 Facility"). The maturity date of the 2024 Facility is the earlier of (i) October 28, 2027 and (ii) the termination or refinancing of the 2022 Credit Agreement. The 2024 Facility is deemed unsecured financing for UNIFI, but is collateralized by certain assets pledged by related party Kenneth G. Langone, one of the members of UNIFI's Board of Directors. Borrowings under the 2024 Facility bear interest at a rate of SOFR plus 0.90%. The 2024 Facility contains no additional financial covenants beyond those already in effect for the 2022 Credit Agreement and is subject to a monthly unused line fee of 0.25% on available borrowing capacity. In the third quarter of fiscal 2025, UNIFI borrowed $22,000 against the 2024 Facility and used the proceeds to reduce the outstanding ABL Revolver balance. There was no impact to debt principal from these transactions.

UNIFI's primary capital requirements are for working capital, capital expenditures, and debt service. UNIFI's primary sources of capital are cash generated from operations, borrowings available under the 2022 Credit Agreement and the 2024 Facility. For the current period, cash used by operations was $8,920 and, at September 28, 2025, availability under the ABL Revolver and 2024 Facility was $36,233 and $586, respectively.

As of September 28, 2025, all of UNIFI's $120,345 of debt obligations were guaranteed by certain of its domestic operating subsidiaries, while nearly all of UNIFI's cash and cash equivalents were held by its foreign subsidiaries. Cash and cash equivalents held by foreign subsidiaries may not be presently available to fund UNIFI's domestic capital requirements, including its domestic debt obligations. UNIFI employs a variety of strategies to ensure that its worldwide cash is available in the locations where it is needed.

The following table presents a summary of cash and cash equivalents, borrowings available under financing arrangements, liquidity, working capital, and total debt obligations as of September 28, 2025 for domestic operations compared to foreign operations:

Borrowings available under financing arrangements are generally collateralized by receivables and inventory owned in the U.S., plus cash equivalents pledged by Mr. Langone, and generally constrained by the fixed charge coverage ratio and trigger level prescribed in the 2022 Credit Agreement. Accordingly, "Available Liquidity" includes consideration for the trigger level that currently constrains our borrowing ability until a fixed charge coverage ratio of 1.05 to 1.00 is achieved. UNIFI's primary cash requirements, in addition to normal course operating activities (e.g., working capital and payroll), primarily include (i) capital expenditures that generally have commitments of up to 12 months, (ii) contractual obligations that support normal course ongoing operations and production, (iii) operating leases and finance leases, (iv) debt service, and (v) share repurchases.

Liquidity Considerations

Following the establishment of the 2024 Facility, UNIFI believes its global cash and liquidity positions are sufficient to sustain its operations and to meet its growth needs for the foreseeable future. Additionally, UNIFI considers opportunities to repatriate existing cash to reduce debt and preserve or enhance liquidity. However, further degradation in the macroeconomic environment could introduce additional liquidity risk and require UNIFI to limit cash outflows for discretionary activities while further utilizing available and additional forms of credit.

We feel that our current liquidity position is sufficient to fund our operations and expected business growth. Should global demand, economic activity, or input availability decline considerably for an even longer period of time, UNIFI maintains the ability to (i) seek additional credit or financing arrangements and/or (ii) re-implement cost reduction initiatives to preserve cash and secure the longevity of the business and operations. Management continues to (i) explore cost savings opportunities and (ii) prioritize repayment of debt in the current operating environment.

When business levels increase, we expect to use cash in support of working capital needs.

The following outlines the attributes relating to our credit facilities as of September 28, 2025:

In addition to making payments in accordance with the scheduled maturities of debt required under its existing debt obligations, UNIFI may, from time to time, elect to repay additional amounts borrowed under the ABL Facility. Funds to make such repayments may come from the operating cash flows of the business or other sources and will depend upon UNIFI's strategy, prevailing market conditions, liquidity requirements, contractual restrictions within the 2022 Credit Agreement, and other factors.

Liquidity Summary

UNIFI has met its historical liquidity requirements for working capital, capital expenditures, debt service requirements, and other operating needs from its cash flows from operations and available borrowings. UNIFI believes that its existing cash balances, expected cash provided by operating activities, and credit facilities will enable UNIFI to meet its foreseeable liquidity requirements. For its foreign operations, UNIFI expects its existing cash balances, cash provided by operating activities, and available financing arrangements will provide the needed liquidity to fund the associated operating activities and investing activities, such as future capital expenditures. UNIFI believes its operations in Asia and Brazil are in a position to obtain local country financing arrangements due to the operating results of each subsidiary.

Net Debt (Non-GAAP Financial Measure)

The reconciliations for Net Debt are as follows:

The increase in Net Debt primarily reflects the use of operating cash and capital expenditures during the current period.

Working Capital and Adjusted Working Capital (Non-GAAP Financial Measure)

The following table presents the components of working capital and the reconciliation of working capital to Adjusted Working Capital:

Adjusted Working Capital increased $8,106 from June 29, 2025 to September 28, 2025.

The increase in Adjusted Working Capital was primarily attributable to the reductions in (i) accounts payable primarily due to lower production activity and variable cost savings initiatives and (ii) other current liabilities due primarily to the payment of incentive compensation earned in fiscal 2025 together with increases in (a) inventories due to higher units on hand and (b) receivables, net due to the timing of cash receipts. These were partially offset by a decrease in other current assets primarily prepaid expenses and vendor deposits.

Operating Cash Flows

The significant components of net cash used by operating activities are summarized below.

The change in operating cash flows was due to the diligent reduction of inventory balances, partially offset by reductions in accounts payable and other current liabilities together with lower earnings from gross profit in current period compared to the prior period.

For the current period, the increases in accounts receivable was largely driven by the timing of cash receipts. The decrease in accounts payable and other current liabilities was largely due to lower production activity, variable cost savings initiatives, and satisfaction of incentive compensation liabilities. The increase in inventories was not meaningful. Other changes comprise mostly jurisdictional tax liabilities.

For the prior period, the increase in inventories was primarily due to higher on hand units. The decrease in accounts receivable was largely driven by the decrease in sales and timing of cash receipts. The increase in accounts payable and other current liabilities was not meaningful.

Investing Cash Flows

Investing activities primarily include $2,029 for capital expenditures. UNIFI expects recent and future capital projects to provide benefits to future profitability. The additional assets from these capital projects consist primarily of machinery and equipment.

Financing Cash Flows

Financing activities primarily include net proceeds from the ABL Revolver and payments on the ABL Term Loan.

Share Repurchase Program

As described in Note 7, "Shareholders' Equity," no share repurchases have been completed in fiscal 2026.

Contractual Obligations

UNIFI incurs various financial obligations and commitments in the ordinary course of business. Financial obligations are considered to represent known future cash payments that UNIFI is required to make under existing contractual arrangements, such as debt and lease agreements.

Except for the $3,705 of new finance leases commencing during the three months ended September 28, 2025, there have been no material changes in the scheduled maturities of UNIFI's contractual obligations as disclosed under the heading "Contractual Obligations" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 2025 Form 10-K.

Off-Balance Sheet Arrangements

UNIFI is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on UNIFI's financial condition, results of operations, liquidity, or capital expenditures.

Critical Accounting Policies

UNIFI's critical accounting policies are discussed in the 2025 Form 10-K. There have been no changes to UNIFI's critical accounting policies in fiscal 2026.