Quarterly Report for Quarter Ending September 27, 2026 (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 27, 2026, while a reference to the "prior period" refers to the three-month period ended September 28, 2025. 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 27, 2026 and September 28, 2025, and, to the extent applicable, any material changes from the information discussed in the 2026 Form 10-K or other important intervening developments or information. These discussions should be read in conjunction with the 2026 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

Our business continues to be adversely impacted by: (i) the effects 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, (iii) the volatility in customer order patterns, and (iv) freight disruptions or delays in the Eastern Hemisphere. 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.

As discussed in the 2026 Form 10-K, escalating geopolitical tensions involving the Middle East, particularly Iran, continue to contribute to volatility in petroleum markets impacting freight and raw material costs. The Company implemented responsive price increases and surcharges that began in April 2026 and are expected to continue while petrochemical-related inflation remains elevated and volatile. 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, inconsistent customer ordering patterns or additional unforeseen adverse impacts.

Such existing challenges and future uncertainty, including 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.

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 expanded our asset-light model beyond China with the addition of Unifi Textiles India. Each of these initiatives affords us diversity in this dynamic trade environment and greater flexibility in servicing our customer base.

Fiscal 2026 Profit Improvement Plan

During October 2025, UNIFI implemented additional cost-saving initiatives that included reducing variable manufacturing costs across labor, spend, and support functions, while also eliminating salaried positions in the U.S. (the "Fiscal 2026 Profit Improvement Plan"). Accordingly, in the second quarter of fiscal 2026, UNIFI recorded employee separation costs of $1,093 in connection with the Fiscal 2026 Profit Improvement Plan and a $308 gain from disposals of assets from the consolidation of Americas yarn manufacturing operations.

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.

Three Months Ended September 27, 2026 Compared to Three Months Ended September 28, 2025

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 $7,754, or 5.7%, and consolidated sales volumes decreased 12.0%, compared to the prior period. Net sales in the current period were lower primarily due to (i) lower sales volumes in the Asia Segment and (ii) lower sales volumes and lower-priced sales mix due to a higher proportion of Flake and Chip sales in the Americas Segment, although mitigated through responsive price increases and surcharges, partially offset by higher sales in the Brazil Segment due to favorable pricing dynamics and improved sales mix. Overall sales remain depressed, particularly in the Americas and Asia Segments as a result of continued volatility from uncertainty over ongoing geopolitical events, global trade policies, and competition from lower-priced products.

Consolidated weighted average sales prices increased 6.3%. The increase in sales prices was primarily attributable to sales mix and higher average selling prices in the Brazil and Asia Segments.

REPREVE® Fiber products for the current period comprised 29%, or $36,448, of consolidated net sales, compared to 29%, or $39,272, for the prior period.

Gross Profit

Gross profit for the current period increased to $12,481 from $3,387 in the prior period. Gross profit increased primarily due to (i) variable cost-saving initiatives, (ii) higher overall conversion margins, and (iii) improved utilization in certain manufacturing areas. This increase was partially offset by (a) lower sales volumes and (b) production volatility from an inability to forecast demand due to the uncertainty caused by geopolitical events and tariffs impacting the Americas Segment. Gross profit continues to be unfavorably impacted by demand volatility in the Americas Segment and import pricing pressures in the Brazil Segment.

Selling, General and Administrative Expenses ("SG&A")

SG&A decreased from the prior period to the current period, primarily due to the actions from the Fiscal 2026 Profit Improvement Plan.

Provision (Benefit) for Bad Debts

The provision (benefit) for bad debts increased for a specifically identified customer balance originating in the U.S. fiber market.

Restructuring Costs, Net

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 prior 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 in the current period.

Other Operating Expense, Net

Other operating expense, net for the current period and the prior period primarily include foreign currency transaction losses of $337 and $50, respectively, and $265 of transition costs in the current period in connection with the purchase agreement entered into on August 16, 2026 for the sale of two non-strategic real estate assets in Yadkinville, North Carolina. In December 2025, Brazil declared dividends against the majority of its retained earnings in connection with certain tax law changes related to future dividends. Foreign currency transaction gains (losses) are recorded to reflect changes in the exchange rate of the Brazilian Real to the U.S. Dollar while the dividend payable is outstanding.

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 decrease in the effective tax rate from the prior period to the current period is primarily attributable to (i) U.S. tax on Net CFC Tested Income ("NCTI") and (ii) taxes associated with the repatriation of foreign earnings, including withholding taxes. Furthermore, the impact of these items on the effective tax rate was amplified by UNIFI's relatively low level of consolidated pre-tax loss during the current period.

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.

Net Loss

The improvement in net loss was primarily attributable to (i) increased gross profit and (ii) lower SG&A expenses due to overall cost-saving initiatives, including reductions in manufacturing costs from the consolidation of Americas yarn manufacturing operations and the Fiscal 2026 Profit Improvement Plan, together with (iii) lower interest expense, net, and (iv) restructuring costs in the prior period, partially offset by higher income tax expense.

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

Adjusted EBITDA increased primarily due to (i) higher gross profit and (ii) lower SG&A expenses. Adjusted EPS improved primarily due to (i) higher gross profit, (ii) lower SG&A, and (iii) lower interest expense, partially offset by higher income tax expense.

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:

nm = not meaningful

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

The decrease in net sales for the Americas Segment from the prior period to the current period was primarily attributable to lower sales volumes as discussed above and a lower-priced sales mix.

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

The increase in Segment Profit for the Americas Segment from the prior period to the current period was primarily attributable to overall cost-saving initiatives, including reductions in manufacturing costs from the consolidation of Americas yarn manufacturing operations and the Fiscal 2026 Profit Improvement Plan.

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 increase in net sales for the Brazil Segment from the prior period to the current period was primarily attributable to (i) higher selling prices due to favorable pricing dynamics and sales mix and (ii) favorable foreign currency translation effects from the strengthening of the BRL versus the USD, partially offset by lower sales volumes as discussed above.

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

The increase in Segment Profit for the Brazil Segment from the prior period to the current period was primarily attributable to (i) higher conversion margins primarily due to sales mix despite import pricing pressures and (ii) favorable foreign currency translation effects from the strengthening of the BRL versus the USD, partially offset by a decrease in sales volumes discussed above. 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 the current period was primarily attributable to an overall decrease in sales volumes due to competitive pricing pressures and the continued volatility stemming from geopolitical events and tariffs, partially offset by (a) a change in sales mix of REPREVE products and (b) favorable foreign currency translation effects from the strengthening of the RMB versus the USD.

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

The increase in Segment Profit for the Asia Segment from the prior period to the current period was primarily attributable to improved margins due to a change in sales mix of REPREVE products, mainly offset by a decline in sales volumes as discussed above.

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. As of September 27, 2026, $22,000 was outstanding on the 2024 Facility.

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 and borrowings available under the 2022 Credit Agreement and the 2024 Facility. For the current period, cash provided by operations was $3,677 and, at September 27, 2026, availability under the ABL Revolver and 2024 Facility was $42,086 and $525, respectively.

As of September 27, 2026, all of UNIFI's $90,900 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 27, 2026 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.

On October 28, 2026, UNIFI completed the sale of two non-strategic real estate assets in Yadkinville, North Carolina for a cash purchase price of $60,000, and the net proceeds from the transaction were used to repay all of the ABL Term Loan outstanding under the 2022 Credit Agreement.

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 believe that our current liquidity position, particularly following the last three quarters in fiscal 2026 and the first quarter in fiscal 2027 in which we generated cash from operating activities, is sufficient to fund our operations and expected business growth. Should global demand or economic activity weaken further, or input availability become more constrained for an extended period, 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 27, 2026:

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. The net proceeds from the completion of the non-strategic real estate sale on October 28, 2026 were used to repay all of the ABL Term Loan outstanding under the 2022 Credit Agreement.

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 Brazil are in a position to obtain local country financing arrangements due to its operating results.

Net Debt (Non-GAAP Financial Measure)

The reconciliations for Net Debt are as follows:

The decrease in Net Debt primarily reflects the generation of operating cash flows during fiscal 2027, aided by reduced levels of capital expenditures.

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 $2,095 from June 28, 2026 to September 27, 2026.

The increase in Adjusted Working Capital was primarily attributable to the increases in (i) inventories due to higher units on hand and (ii) other current assets primarily due to higher vendor deposits, together with a decrease in other current liabilities due primarily to the payment of incentive compensation earned in fiscal 2026. These were partially offset by reductions in receivables, net due to lower sales and the timing of cash receipts and increases in accounts payable primarily due to higher inventory purchases.

Operating Cash Flows

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

The change in operating cash flows was primarily due to the improvement in gross profit and, to a lesser extent, changes in working capital balances during the current period compared to the prior period.

For the prior period, the increase 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.

Investing Cash Flows

Investing activities primarily include $1,198 for capital expenditures. UNIFI expects future capital projects to primarily include routine maintenance requirements related to its existing machinery and equipment.

Financing Cash Flows

Financing activities primarily include principal payments on the ABL Term Loan and finance leases and proceeds from the ABL Revolver.

Share Repurchase Program

As described in Note 7, "Shareholders' Equity," no share repurchases have been completed in fiscal 2027.

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.

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 2026 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 2026 Form 10-K. There have been no changes to UNIFI's critical accounting policies in fiscal 2027.