Despite textiles slump, Unifi ups domestic RPET sales

A financial presentation from Unifi reported “strong adoption” of RPET chip and flake in the Americas in the fourth quarter of the 2023 fiscal year. | Don Pablo/Shutterstock

For Unifi, greater sales of recycled PET flakes and chips in the Americas provided one bright spot amid an otherwise gloomy business environment last year.

The North Carolina-based manufacturer is a major player in the PET recycling business. The publicly traded company has the capacity to recycle 130 million pounds of PET bottles at its plant in Reidsville, N.C. annually, and the resulting RPET is either converted by Unifi into its “Repreve” brand of yarn, which is used in apparel and other textiles, or sold in flake and chip form to outside manufacturers.

During an Aug. 24 conference call with investors, Unifi CEO Eddie Ingle said the company has been selling resin and flake for some time, but the materials have traditionally been seen mostly as feedstock for the Repreve business, not as big sellers in their own right.

“I’m pleased to say that the team responsible for this initiative has had some meaningful wins here,” he said during the call. “In the fourth quarter, Repreve resin and flake sales were strong and represented more of the Americas quarterly sales mix than ever before. And we will continue pursuing this revenue opportunity along with our high-quality Repreve yarn products.”

Globally, Unifi experienced weaker demand for textiles during the 2023 fiscal year (the year ending July 2, 2023), which resulted in a substantial net loss. Facing slowdowns in consumer spending, retailers and brand owners reduced their inventories. COVID-19-related lockdowns in China also hurt last year, Unifi noted.

The company reported net sales of $624 million during the 2023 fiscal year, down 24% from the prior year, according to a press release. Gross profit was $14 million, down 82% from the year before. The company reported a net loss of $46 million, whereas the prior year it reported net income of $15 million.

“Inventories at retail have been massively high starting last fall on apparel. They’re still high today,” Al Carey, Unifi’s executive chairman, said during the conference call. “The retailers are working them down, but until they come down, ordering for yarn has been scarce.”

Carey said he believes that consumers have been spending on the essentials, such as food, fuel and housing, with much of their remaining money going to experiences, leaving less for items such as new apparel. But company executives are certain a rebalancing between goods and services will occur soon.

He expects the retailers’ destocking will be finished toward the end of the calendar year, and orders will begin flowing back to Unifi around October.

“How big will the ordering be and how fast will it come back? I don’t know. There’s still a fair amount of uncertainty,” he said. “But listening to retailers, I’d say it will probably be conservative at first as they’re going to be cautious when they start back ordering and especially after they just came out of a troubled time of heavy inventories.”

Despite an overall slowdown in textiles buying, Unifi reported that demand in the Americas for chip and flake experienced “strong adoption” during the fourth quarter (the April-June 2023 timeframe), according to a financial presentation.

The average selling prices for recycled flake and chip are, of course, lower than selling prices for finished fiber. But during the investors call, Ingle, the company’s CEO, said the profit margin on recycled chip and flakes sales is “quite healthy” and is above the normal gross profit margin for the company.

“What’s nice about it also is the fact that we’re not just selling into one market, we’re selling into the nonwoven space, into the film space and into the specialty packaging space as it relates to some cosmetic end users,” he said. “So it’s very diverse.”

He also noted that the company produces a quality recycled resin capable of being converted by Unifi into yarn at a rate of 3,000 meters per minute. “The purity of it is playing well into these new markets,” he said.

The presentation notes that, during the 2024 fiscal year, the company will work on continuing to support its chip and flake sales to help diversify revenue in its Americas Segment.

Overall, however, Repreve continues to make up a smaller and smaller percentage of Unifi’s total sales. In addition to the recycled polyester and nylon products sold under the Repreve brand, Unifi markets a number of virgin plastic offerings.

Last year, the Repreve product line made up 30% of its total sales, down from 36% in the 2022 fiscal year and 37% in the 2021 fiscal year, according to an annual report. Unifi’s report stated lower sales volumes in Asia drove the decrease last year.

To help alleviate a cash crunch, Unifi is planning to reduce its capital expenditures, the annual report notes. Overall, the company is looking to spend less than $16 million in capital expenditures during the 2024 fiscal year, down from $36 million last year.

In fact, Unifi had been planning to spend $100 million over the course of the 2021, 2022 and 2023 fiscal years to buy high-tech yarn texturing machinery to replace older equipment. Unifi had spent about $75 million on the eAFK Evo texturing machines when, in March 2023, it decided to renegotiate the equipment purchase agreement to delay further investments, the annual report notes. Unifi helped develop the technology and has the exclusive North American rights to use it.

As part of the deal, Unifi will pay the equipment vendor $623,000 for the right to delay the remaining equipment purchases for a year and a half. As a result, $25 million that Unifi expected to spend on the texturing machines between March 2023 and September 2024 will now be delayed until the September 2024 to March 2026 time frame.

“This action allows for improved short- and mid-term liquidity in light of the current subdued levels of sales and facility utilization and allows for a better matching of future capital expenditures with expected higher levels of future business activity,” the annual report noted.