Unifi, Inc. Aktie

Good morning, and thank you for attending Unifi's fourth quarter fiscal 2026 earnings conference call. During this call, management will be referencing a webcast presentation that can be found in the Investor Relations section of unifi.com. Please familiarize yourself with Page 2 on the Slide deck for cautionary statements and non-GAAP measures. Today's conference is being recorded. [Operator Instructions] Our speakers are listed on page 3 on today's presentation and include Al Carey, Executive Chairman; Eddie Ingle, Chief Executive Officer; A.J. Eaker, Chief Financial Officer. I will now turn the call over to Al Carey. [Operator Instructions]

Good morning, everyone, and I thank you for joining our earnings call today. I'm happy to lead the call off with some good news. We're seeing very nice progress in our efforts to reposition Unifi for sustainable growth in the long term. You know, we began this effort about 18 months ago, and I think you'll see in our Q4 earnings that we're beginning to show some of the improvement. And A.J. will take you through that in the next few minutes.

There were three steps in this transformation when we got started. The first one was to reduce our costs significantly, so we began by closing the Madison facility and reduced our excess capacity. We also resized our labor force, improved efficiencies throughout our manufacturing footprint, and we also optimized the portfolio to remove unprofitable items from our lineup. All of that was step one, and all of that work is now complete. And A.J. will take you through all of that.

Step two was to improve our cash management and also lower our debt. And we've dramatically reduced inventories over the last 18 months. We've also seen our capital discipline improve, cost controls, and you'll see that as well in our Q4 results. The next step on step two is to close on a purchase agreement signed this week for property and excess assets for $60 million, and Eddie will tell you more about this deal, but when the deal is closed, it will have a dramatic impact on our net debt and our balance sheet.

And the third and final step is to ramp up our revenue growth. Now I'll tell you that revenues in our industry over the last 12-plus months have struggled. It's an industry that's got lots of macro issues such as oil prices, shifting tariff rates, and inflation. I'll let you know here, though, that we're not sitting around waiting for things to change. We've taken charge of our own revenue growth plan, and you'll see more of that as the next couple of quarters unfold.

We're now seeing some evidence that we're seeing improved demand for our innovations and also for our business in Central America and overall U.S., and most of that will probably happen as we get towards this middle of the year. So we're at a pivot point for our company right now. And I'd like to make two final comments before handing it off to our CEO, Eddie. We're not celebrating. We aren't even close to finishing our work, but I will tell you that it's all about revenue right now, and we're all over it, and you will see that improve.

The second comment I wanted to make is about our management team. We've taken out costs. We've cut inventories. We've reworked management processes, which is not the most fun stuff to work on. But I'll tell you, the quality of our management team has a lot to do with the progress that we've made up until now. This is a determined, never-give-up team, and I would emphasize the word team. I'd say out of our top 20 executives that were here when we got going on this initiative, 19 of them are still with us today. And one of the biggest reasons for my optimism is the quality of this team today. So now let me turn it over to their leader, Eddie Ingle.

Thanks, Al. I'm very pleased to be able to say that we closed out fiscal 2026 on a strong note with 4% top-line growth and another quarter of improving profitability and cash generation. This stronger financial performance reflects the successful execution of our initiatives over the past several quarters to realign our cost structure, optimize our operations, and enhance our margin performance through improved portfolio management.

Importantly, the progress we've made from these efforts has strengthened our operating foundation and increased our confidence in our ability to navigate these very difficult and challenging market conditions, but at the same time supporting our customers with differentiated solutions and drive sustainable growth over the long term. I'd like to call out our recent agreement for the sale of non-strategic assets in the U.S., as Al mentioned.

We look forward to moving along with this deal, which once concluded, will have no impact to our operations and ability to service customers while at the same time allowing us to retire a material portion of our outstanding debt. Said another way, the sale of these warehouses and adjacent land is not reducing in any way the existing production capacity in our Yadkinville, North Carolina, complex. Before I dive deeper into our near-term priorities, our innovation progress, and what lies ahead for Unifi in fiscal 2027, I'm going to turn the call over to A.J. to walk you through the financial details for the quarter. A.J.?

Thank you, Eddie. I'll start off by discussing our consolidated financial highlights for the quarter on Slide 4. Consolidated net sales for the quarter were $144.2 million, up 4% again on a year-over-year basis. The improvement in net sales reflects strong performance in our Brazil segment, stabilization in the Americas and Asia, as well as increasing momentum across our Beyond Apparel initiatives.

Consolidated gross profit was $14.3 million, and gross margin was approximately 10% during the period, compared to gross loss of $1.1 million and gross margin of negative 0.8% for the prior year period. Our net loss came in at $1.2 million, but its comparability is skewed as Q4 last year included a gain on the sale of the Madison facility and was partially offset by associated transition costs. When excluding those items, adjusted net loss was $9.5 million better than the year-ago period.

Adjusted EBITDA during this period was $8.2 million, a $12.3 million improvement on a year-over-year basis. The continued improvement in performance this quarter is another indication that the operational initiatives we've been executing are taking hold. The work we've done to streamline our cost structure and improve efficiency continues to translate into stronger financial results.

Turning now to Slide 5. In the Americas, net sales were down 1% as the region continues to face volume headwinds. Despite the slightly lower sales during the quarter, we did generate gross profit of $3.3 million, a significant year-over-year gain again. This marks the second quarter in a row of delivering positive gross profit in the Americas. The continued improvement in the Americas demonstrates that our footprint consolidation and cost optimization initiatives are delivering the intended results, driving greater efficiency and strengthening the profitability of our domestic operations.

Slide 6 displays our Brazil segment, which saw net sales increase by $5.1 million, or 17.8%, and gross profit improved by $6.4 million. The strong performance there during the period was driven by higher sales volumes and favorable pricing dynamics amid the volatile cost environment stemming from Middle East conflicts, reflecting the continued demand stability and growth potential in the region.

On Slide 7, the Asia segment had net sales and gross profit increased by $1.1 million and $500,000 respectively, primarily due to the portfolio strength in that region. While we still have uncertainty in the Asia market, our asset-light model has allowed us to maintain stable margins in the segment, and tariff certainty in the future should eventually normalize the business.

Slide 8 outlines our improving balance sheet and capital structure. During this fourth quarter, we generated $1 million in free cash flow, bringing full-year free cash flow to $21.5 million. That's over a $50 million improvement versus prior year, fiscal '25. CapEx for the quarter came in at a low $1.1 million, and our full-year CapEx was constrained at $5 million, a 50% decline compared to the prior period as we continue to closely manage all spending.

Now, we recognize this level of CapEx will need to adapt for long-term health, and we've allocated between $7 million and $9 million for maintenance and redundancy projects in fiscal '27. Our net debt was reduced to $67.4 million at the end of the quarter, a meaningful improvement from any recent period, and our working capital remains balanced and healthy. We're very pleased with this performance, beating our expectations laid out in the prior earnings call and indicative of our ability to generate positive momentum even in difficult conditions.

Looking ahead to fiscal '27, our focus will remain on driving disciplined capital allocation while continuing to explore additional options to further strengthen our balance sheet. Included in those additional options is our plan to sell two non-strategic real estate assets in the U.S. We're able to work with a known buyer to identify portions of the business that benefit their future operations while having no impact to our ability to serve customers and maintain production capacities. Upon closing, we would significantly improve our leverage and balance sheet, and we look forward to providing additional commentary as the closing nears and completes.

This concludes the financial overview, and I'll pass the call back to Eddie.

Thank you, A.J. As A.J. outlined, the initiatives we have implemented to improve our operations are showing the early signs of a more resilient and flexible business model, which has positioned us to better navigate market volatility while at the same time supporting our goal of creating sustainable long-term growth. Let's turn to Slide 9, which outlines the strategic priorities that will continue to guide our execution.

As we discussed in detail during our third quarter earnings call, our objective is to return Unifi to sustainable long-term growth and enhanced profitability. We are accomplishing this by staying focused on four key priorities. First, we will continue to build on the operational improvements that we've implemented and ensure we don't lose any of the enhancements to the businesses that we've made. At the same time, we will continue to invest in our capabilities and technologies and reinforce and scale our platform of sustainable solutions built around our premier brand, REPREVE.

Next, we have a culture built around innovation and new product development, and we will continue to invest in tools and resources necessary to advance the customer adoption of our innovative solutions and to support future growth. And finally, we are focused on making sure we do everything we can to navigate the current trade and geopolitical environment that has created some challenges for us. Now, we're focused on positioning Unifi for a more consistent top-line growth as a broader operating environment improves.

And it is encouraging to see the momentum we are building across several of our innovative initiatives, particularly with Beyond Apparel. During the quarter, we saw positive momentum within packaging, military applications, and carpet. Our resin business, in particular, which goes primarily into the packaging sector, has seen significant growth in volumes as the imports have been somewhat muted due to the tariffs and available domestic supply. We do expect this segment of our business to remain robust at least through the next few quarters.

The carpet business in Q4 of fiscal 2026 also saw a meaningful increase in volumes as our local supply chain became more important due to the logistical challenges that were exacerbated from March onwards. We remain very positive about the opportunities that the military and tactical market will bring to us, and we continue to see building momentum in that space. Overall, I'm happy to say we're pleased with the progress on our Beyond Apparel initiatives and look forward to providing more growth updates in the next few quarters.

Moving on to Slide 10, this past quarter we kicked off April with our annual Champions of Sustainability event, celebrating our partners and their commitment to sustainability through their use of REPREVE and REPREVE Takeback. We welcomed many of our top brand customers to our Yadkinville, North Carolina factory for an engaging program featuring industry leaders shared insights on circularity and the future of the supply chain.

The inquiries and conversations with our brands and mills, as well as the strong interest in learning about how we make our circular offerings, gave us tangible evidence that REPREVE Takeback and ThermaLoop insulation are hitting the sustainable goals of many companies. While adoption is slower than expected, we remain confident that we have the best circular fiber solution on the market.

Now, April also marked Earth Month, generating strong momentum across social media as brands highlighted their sustainability initiatives with REPREVE. We partnered with brands such as Dagne Dover, Dolce Vita, and Democracy Clothing to develop collaborative content showcasing our partnership, featured product collections, and the collective environmental impact that together we've achieved. In June, World Oceans Day provided an opportunity to spotlight REPREVE Our Ocean through collaborations with several key brand partners.

Tiffany & Co. announced the launch of three limited edition Tiffany T Smile bracelets made with REPREVE Our Ocean cordage. We also partnered with Me by Jennie Garth on a reel highlighting the use of REPREVE Our Ocean in their denim collection, while The Sak spoke to their use of REPREVE in a collaborative reel as part of World Ocean Week's campaign. Lastly, we are energized to see the growth and expanding adoption of Fortisyn into critical applications, including those for the U.S. military and tactical markets. Feedback from the markets is that the performance properties of Fortisyn, along with the color consistency that we can deliver, results in a fabric form that excels in the most critical environments.

Moving to Slide 11. As we start out the new fiscal year, it is clear that the hard work and focus on cash generation is beginning to show up in the numbers. And we are confident that we are starting off the new fiscal year on the right footing. Our outlook and how we anticipate sustaining our financial momentum for fiscal 2027 is as follows. We will continue to focus on leveraging our improved cost footprint while investing in innovation and strategically managing our balance sheet to capitalize and grow our business as conditions improve.

We also anticipate that our sales and profitability results will improve on a year-over-year basis as we begin to recognize the full-year benefits of our past strategic actions. For the upcoming quarter, we expect our Brazil segment to see improved sales and profitability year-over-year as we leverage our strong competitive position and advantageous supply chain. Within our Asia segment, we continue to see opportunities to expand the adoption of our innovative technologies and circular solutions, which we believe will support future revenue growth and strengthen our market position as the tariff situation eventually gains better clarity.

This is our most challenged business segment today in terms of revenues, but we are expecting improved volumes of our new innovations to come to fruition as we move through the fiscal year. In the Americas, we expect that the broader market environment will remain challenging in terms of revenues, but our focus will continue to remain on driving growth in margin-accretive revenues from our value-added products and Beyond Apparel initiatives. And this business segment is expected to yield improved year-over-year and sequential margins.

As we look ahead, we remain focused on driving long-term growth, maintaining disciplined capital allocation, and executing initiatives that further enhance the strength of our business. While we enter the new fiscal year with improved financial flexibility and a stronger foundation, our focus remains on continuing to execute our strategy, delivering value for our customers, and building on the progress we've made to create long-term shareholder value.

And in closing, I would like to take a brief moment to thank our whole team here at Unifi for their hard work and efforts. Making these initial improvements to our business was a true team effort, and I'm confident that we have the right people in place to ensure that we will continue to remain on track with achieving our priorities. With that, I would now like to open the line for questions. Thank you. Operator?

We will now begin the question-and-answer session. [Operator Instructions] Your question comes from the line of Anthony Lebiedzinski with Sidoti.

Certainly nice to see the improvement in sales and profitability in fiscal Q4. So I guess I'll start off with Brazil, which had a great quarter. Just wondering if you could expand on the actions that you're taking to leverage your competitive position there and the advantageous supply chain dynamics?

Yes, certainly, Anthony, and thanks for the positive comments. Brazil is in a very interesting environment. We were able to increase revenues and volumes because of the fact that we have a very robust supply chain. When some of the importers who we compete with pulled back on their sales, we were able to do two things really: Service the customers very efficiently and very quickly because we are the largest manufacturer of textured polyester in the region.

And second of all, we were able to manage pricing very efficiently as the situation in Iran changed and the petrochemical costs, especially the overseas petrochemical costs, accelerated. So we took the advantage of having a very cost-competitive raw material situation and expanded that into very robust gross profits.

Sounds good. Okay. And then turning to Asia, how are you thinking about pricing and volumes there on a go-forward basis? And as far as the competitive landscape there, have you seen any notable changes? How do we think about that?

It's challenging, to be frank, Anthony. The good thing is we are competing against virgin, and virgin petrochemicals have increased very rapidly. The cost of the recycled materials haven't gone up as much, although they have increased. The real challenge that we're seeing in Asia is there's an uncertainty still around the tariffs that are causing some of the brands to pull back, whether that's in China or that's in Vietnam or Indonesia where we sell a lot of our products into.

The good news is we are still seeing a lot of sampling and traction with our REPREVE Takeback and REPREVE specialty products, what we call REPREVE+. And so while it's challenging today, you know, we do think once this situation turns, as it relates to both petrochemical costs and the supply chains which are being constrained, and as we move through the year, we're going to see expanded volumes and revenues, although this quarter will be quite challenging from a revenue point of view, but not so much profit.

Right, okay, got it, okay. And then, you know, in terms of the Americas segment. So you talked about some margin-accretive revenue that you're seeing from value-added products. Just wondering if you could expand on that. Maybe share perhaps what portion of revenue is that and the margin profile of these value-added products?

Yes, as Al mentioned at the beginning of the call, we have done a lot of portfolio management and tried to stay focused on the products that are generating good profits for us. And on top of that, this Beyond Apparel initiative, we did see some really positive growth at the tail end of Q4 for both our carpet business and our resin business. These are -- they have better margins than our normal commodity business, and we're still continuing to focus on growing those.

And then looking to the future, I feel very excited about Fortisyn. Fortisyn is this brand that's very competitive on the marketplace. It offers a very, very consistent color matching. And also, we're finding that some of this market is also going to be served by REPREVE Nylon, which is very exciting for us because if we can offer performance, color consistency, and sustainability, it does appear to be getting a lot of traction out there.

So as we move through this year, we are confident, as we said in several calls before, that we can get to some meaningful revenue growth. And along with that, the higher margin business. As you could expect from a sustainable and high-performance product.

Got you. Okay. And then as far as Beyond Apparel, is there any way you guys could quantify what portion of your sales came from Beyond Apparel in fiscal 2026? How do we think about the outlook for fiscal '27? As it relates to Beyond Apparel?

It's a good question, Anthony. We're certainly pushing hard in the Beyond Apparel space, as Eddie mentioned, several of those programs and initiatives. We'll look forward to providing some more transparency on that as we get settled into fiscal '27 and can break out some of that detail for you, but as Eddie mentioned, fiscal '27 we do see growth in each of those areas as well as the margin-accretive products as we better manage this portfolio and target the programs that deliver value both on the customer side and the Unifi side.

Okay. And then -- so obviously you guys have done a nice job with monetizing your assets last year with the Madison facility and now with the announcement on Monday that you're looking to sell off the non-strategic assets with land and warehouse space. So are there any other perhaps additional assets that you may look to monetize or do you think this is it for now?

Yes, Anthony, good question. I would say that the hopper is empty in that regard. We're very pleased with this deal as we work through that in the next couple months. Very beneficial from a leverage perspective and happy we found great terms and situation with this buyer that we can move through, but at this point, certainly the hopper is empty in further regard.

Understood. Okay. And then, last question for me. So now that the business is performing better with a leaner cost structure, how are you thinking about capital allocation priorities? Has anything changed meaningfully or how do we think about that?

As we move into closing out this deal, we'll certainly have a huge benefit to leverage in the balance sheet. We're going to maintain a very diligent capital allocation priority, making sure the business, our ability to deliver to customers, and maintain production capacities will remain top priority. So with that, the debt profile would be much improved, and then no major capital plans outside of that at this time. We'll want to get through this transaction, spend a bit of time, and then provide you some more updates in the future.

Anthony, I just mentioned one other thing. We made a big investment in EvoCooler a while back before the market slowed down post-COVID. Those are going to come in to be handy, and we'll reap the benefits of those machines as time goes on. It'll give us more capacity.

Right, yes.

Next question comes from the line of Randy Baron with Pinnacle.

I want to echo Anthony's remarks. It's really amazing the turnaround that you guys have done. I think, Al, to point out that 19 of the 20 executives are still there is a real feather in your cap, so kudos to you guys. I have just a specific question on the real estate and then a broader one. Maybe A.J., this is for you. Can you walk us through the milestones between now and December? Kind of what needs to accomplish to close this deal. And then related to that, my sense is with your NOLs, there's not going to be much tax leakage. So if you can just give us a sense of the $60 million roughly, how much will actually come into Unifi's coffers once this deal is done?

Good question, Randy. Thanks for the comments, also similar to Anthony's. I'll start with the tax question you mentioned and then pass it over to Eddie for some of those milestones. But you are correct there. The NOLs and the credits that we're carrying forward from some of those tougher years will be beneficial in this transaction. We expect minimal tax leakage from this transaction. Nowhere in the millions of dollars range at this point. So that will be a benefit to closing this transaction out and utilizing some of those NOLs and carry-forwards from prior years. I'll let Eddie take the milestones question from there.

Yes, we had signed the PSA, as you know, over the weekend, and we had been working on this for several months. We're very far along in the process. It's a complex deal because we are carving out part of our assets in Yadkinville, and some of the subdivision work that we've had to do has taken some time, but we're very, very close to completing that and expect that to get done in the next few days.

We have just a few ancillary things that we need to do, some of the exhibits in our PSA that we have to go through, a lot of legal stuff, but I don't see, none of the things that we have ahead of us to get to closing are of any concern to us today. So some work to do, but just the normal.

And I just want to make sure, is there any regulatory review on this? Or does the municipality have a chance to bid on it, you know, counter?

Yes, so these assets are in either the city of Yadkinville -- the town of Yadkinville, or within the control of the town of Yadkinville. They're zoned industrial, which includes data center zoning, so we have passed all the hurdles around that aspect of this deal.

That's wonderful. I mean, when I pencil that out, you're essentially going to be bank debt-free at the end of this calendar year, which is remarkable. And a great turnaround again. I just have one other question on REPREVE. I mean, this remarkable turnaround that you guys just reported is even more notable because REPREVE hasn't fully kicked in yet. I know that you don't know when the military will come and the specifics, but as you look out, call it three years, five years. Can you talk a little bit about what percent of the revenue you think REPREVE could be? And Anthony was asking about the higher margins. I mean, that kind of shifts the whole margin profile. So if you just riff on that.

Yes, we've had a goal to get 50% of our fiber sales to be REPREVE. And we pushed that out, our last sustainability report that we published, to 2030. We still are very confident in the brand. The brand represents a lot of investment on our side. It has a FiberPrint technology, which is a technology that allows you to prove using our U-TRUST verification system that it is actually made of sustainable materials. That's getting more and more important, the transparency and the trusting part of our brand offering.

We're also seeing quietly behind the scenes brands still trying to become more sustainable. There's a lot of tension in the marketplace around the environmental impact of apparel. And the brands are quietly working towards making sure they can offer more circular solutions. And we're right there with our REPREVE Takeback. So while it's been a challenging few years because of the market dynamics in Asia and also with some of the brands themselves have had some challenging times trying to reposition themselves.

We are not seeing any of the brands back off on their sustainability targets, except for maybe one or two. But for the most part, the offering we have with REPREVE is known to be 100% recycled. And it has a lot of brand power in the marketplace. And we expect that to grow. And especially on the circular side, REPREVE Takeback and our REPREVE ThermaLoop insulation offering. So we're confident that it's going to grow and we're putting innovation performance technologies on top of our sustainability platform, which is why we talk about our REPREVE+ business in Asia growing. But thanks for the question.

There are no further questions at this time. That concludes our Q&A session and today's call. Thank you all for joining. You may now disconnect.

Good morning, and thank you for attending Unifi's Third Quarter Fiscal 2026 Earnings Conference Call. During this call, management will be referencing a webcast presentation that can be found in the Investor Relations section of unifi.com. Please familiarize yourself with Page 2 of that slide deck for cautionary statements and non-GAAP measures. Today's conference is being recorded. [Operator Instructions]

Our speakers are listed on Page 3 of today's presentation and include Al Carey, Executive Chairman; Eddie Ingle, Chief Executive Officer; A.J. Eaker, Chief Financial Officer.

I will now turn the call over to Al Carey. Please turn to Page 4 of the presentation.

Thank you. Good morning, everyone, and thanks for joining our call. We're pleased to report that our year-long effort to reduce our cost base and improve cash generation is providing results. As a matter of fact, we're a bit ahead of expectations for Q3. A.J. is going to take you through the full story in a few minutes, but here are the 3 top headlines. The Madison plant closure is complete. Number two, the much improved efficiencies in our current plant. And three, we've optimized our product lines and SKUs so that we don't have products that contribute no profitability to our lineup. These actions set us up for improved profitability, especially as revenue begins to pick up and we're able to see higher levels of capacity utilization.

There was one area that did not see a reduction in cost over the last 12 months, and that was the work that we're doing on product innovations. These products will provide revenue growth for the future, so they're very important. We have begun to get traction with our customers on these products, and that will move us into a very important priority right now, which is to begin to commercialize these innovations. The innovations are, first, textile-to-textile recycling; second, products for categories that are outside of apparel and provide higher profitability; and third, profits with performance benefits that customers and consumers are looking for. Now Eddie is going to take you through the full story on that in just a minute.

The textile industry has still plenty of headwinds, especially as our customers navigate around the tariff complexities and the oil prices. We believe those headwinds will diminish and our profits will improve even in the current environment that we're in right now.

I'd like to say one last thing and turn it over to Eddie. We are very proud of our team, the executives, the managers and the frontline employees as well. Over the last 12 to 15 months, it's been a rough road, but the team has worked through the challenges collaboratively. There really is a special resiliency about the people from Unifi and their loyalty has been very evident throughout this entire time frame. So we are grateful for their big efforts over the last several months, and we're looking forward to returning to growth.

So now I'd like to turn the speaker -- speaking over to Eddie and A.J., who will provide you with the full story. Thank you.

Thanks, Al. And as Al just noted, this really was a stronger quarter for Unifi, and it clearly highlights the benefits of the actions we've taken to realign our cost structure and optimize our operations and improve the conversion margins through portfolio management and, of course, targeted pricing that Al has inferred. We've kept our inventories flat, spend was managed with discipline and the margin improvement that you see in the numbers in part reflects the strong operational progress.

We are a significantly more resilient business today. And despite geopolitical headwinds, we have managed our balance sheet very effectively. Structural changes to our customer contracts, combined with faster commercial decision-making, have positioned us well to be able to respond more proactively to today's market conditions.

I'm going to turn the call over to A.J. now to walk you through the financial details for the quarter, and then I'll come back in shortly to discuss our near-term priorities, our innovation progress and what lies ahead for Unifi. A.J.?

Thank you, Eddie, and good day, everyone. I'll start off by discussing our consolidated financial highlights for the quarter on Slide 4.

Consolidated net sales for the quarter were in line with our expectations, down 11% year-over-year, but up 7% sequentially. Our markets continue to be impacted by geopolitical events as well as trade and tariff-related uncertainties. Consolidated gross profit was $9.1 million and gross margin was 7% during the period compared to a gross loss of $0.4 million and gross margin of negative 0.3% for the prior year period.

SG&A was $11.2 million during the quarter, a 9% improvement from 1 year ago, while adjusted EBITDA during the period was $4 million, a nearly $9 million improvement on a year-over-year basis. These stronger results during the quarter, as Eddie and Al mentioned, reflect serious operational improvements, both on the cost and efficiency side that we have implemented over the last several quarters now translating into real results.

Turning now to Slide 5. In the Americas, net sales were down 16% as the region continues to face volume headwinds. Despite the lower sales during the quarter, we did generate gross profit of $3.6 million in that segment. This is the first time we've been able to deliver positive gross profit in the Americas for some time now, which further highlights the benefits of footprint consolidation and cost actions we have taken to improve our domestic operational efficiency.

Slide 6 displays our Brazil segment, which saw net sales increase by $1 million and gross profit declined just slightly by $0.2 million. Overall, the performance in Brazil during the period was solid due to a particularly strong March with both volume and pricing contributing. This March for Brazil was our best sales volume month on record because of cost and price dynamics where the scales tipped in our favor. While this dynamic may normalize soon, we expect to see robust results in the fourth quarter for Brazil.

On Slide 7, our Asia segment net sales and gross profit declined to $22.6 million and $2.7 million, respectively, primarily due to lower sales volumes associated with the tariff uncertainties and pricing dynamics in the region. Margins have continued to hold up well in Asia, given the asset-light model we employ there, and we did see some momentum in the region improve during March, which we are hopeful will continue.

Slide 8 outlines our improving balance sheet and capital structure. During the third quarter, we generated $7.2 million of free cash flow, bringing year-to-date free cash flow to $20.5 million. The positive free cash flow in the third quarter was a major beat against our expectations as we were originally anticipating that we would experience some cash burn during this quarter. But thanks to our operational improvements and diligence, we experienced a nice increase in cash flow generation.

CapEx for the quarter came in at just $800,000, and our CapEx on a year-to-date basis was $3.9 million, a 50% decline compared to the prior year period as we continue to closely manage our spending. Net debt was reduced to $68 million, a stark improvement from recent levels, and our working capital remains balanced, healthy and lower due to our leaner operations in the U.S. This significant improvement to our balance sheet and capital structure was directly attributable to the hard work that our whole team has executed across the globe over the last few years. We aligned our costs, consolidated our footprint and drove improved efficiencies, all of which have helped us establish a more efficient manufacturing base in the U.S.

Looking at the fourth quarter, we do anticipate a moderate increase in working capital to accommodate a modest increase in sales and the higher cost raw materials purchased thus far.

We estimate between $4 million and $7 million of working capital impact to the fourth quarter, which will obviously fluctuate in terms of amount and duration based on current geopolitical events.

This concludes my financial review, and I'll now pass the call back to Eddie.

Thank you, A.J. And as you've just heard from A.J. in quite a amount of detail, we are continuing to see the benefits of our operational improvements and the business is demonstrating improved resilience and flexibility in what I would consider an ever-changing business environment.

So let's turn to Slide 9 for an overview of our priorities going forward. As we look ahead, our focus continues to remain on returning Unifi to long-term growth and enhanced profitability. And in order to achieve this goal, we are keeping our efforts focused on 4 key areas.

First, we will continue to build on the operational improvements that we've implemented and ensure we don't lose any of the enhancements to the businesses that we have made. At the same time, we will continue to invest in our capabilities and technologies and reinforce and scale our platform of sustainable solutions.

Next, we have a culture built around innovation. And as Al mentioned, we haven't given up on those efforts, and new product development will continue to invest in resources necessary to advance the customer adoption of our innovative solutions to support future growth.

And finally, we are focused on making sure we do everything we can to navigate the current trade and geopolitical environment that is creating some challenges for us. We are also maintaining a sharp focus on positioning the business to drive more consistent top line growth as some of these global economic headwinds subside. It is good to see some momentum in a number of our innovative initiatives, especially in the U.S. with what we have called beyond apparel. You've heard us talk a lot about the potential we are seeing for our beyond apparel business. And while Q3 was still a work in progress, we are seeing real commercial success in Q4.

Moving on to Slide 10. A key highlight for the last quarter was the global launch of Luxel, a new yarn technology, that delivers the look and feel of linen while adding performance benefits like moisture management, wrinkle resistant and odor control. It's made with REPREVE recycled polyester, including a minimum of 30% textile-to-textile recycled content with our REPREVE Takeback. Luxel is designed to help brands reduce environmental impact while maintaining the look and feel of linen with easy care.

The innovation can be used in a wide range of applications from footwear, apparel and home goods. And Luxel is just another example of how we at Unifi have continued to develop yarn technologies that can replicate the performance of natural fibers and enhance the technical performance beyond what nature can actually provide. And in our military and tactical markets, much of the success we are seeing is centered around our Fortisyn brand.

We are seeing success here because we offer enhanced strength nylon yarns in natural white all with color embedded into the yarns. And in addition, these products can be made with REPREVE nylon as a base polymer. These advancements that we have made in this market with the performance promise backed up by Unifi's quality systems alongside a sustainable offering are finally starting to move into the serious commercialization stage.

So alongside the beyond the apparel growth of military and tactical, carpeting is getting more traction, and packaging has continued to perform well with volumes growing in both these markets, too.

We expect to see further growth in the periods ahead. In Asia, we are beginning to see more activity in both REPREVE Takeback, our textile-to-textile fiber platform and ThermaLoop, our innovative circular insulation product. In a couple of quarters, I expect to be able to discuss openly which additional brands and retailers have been adopting these offerings once they themselves go public.

Turning to Slide 11. In February, we released our fiscal year 2025 sustainability snapshot, highlighting progress in scaling our REPREVE recycled materials platform and advancing sustainable manufacturing. We announced a new goal to recycle 65 billion plastic bottles by 2030 and update our other established goals such as converting the equivalent of 1.5 billion T-shirts worth of textile waste into REPREVE products.

The sustainability snapshot, as we call it, really helps telegraph to the brands and retailers how serious we are about helping them meet their sustainability targets and, of course, how committed we are at Unifi to product innovation and building out our already substantial sustainable product portfolio.

Turning to Slide 12. In April, which is recognized globally as Earth Month, we celebrated our partners through our Champions of Sustainability program, announcing the winners of our ninth annual REPREVE Champions of Sustainability Awards, recognizing brands and mills who are advancing circularity and responsible manufacturing across the textile industry.

This year's program introduced new textile waste awards to Spotlight Partners accelerating circular solutions, reinforcing our commitment to scaling recycled and traceable materials globally. And since the event was held in our main U.S. manufacturing location in Yadkinville, North Carolina, we gave those who attended a view into the production of REPREVE Takeback and the process.

Moving to Slide 13 for an overview of our outlook and how we anticipate sustaining our financial momentum. For the fourth quarter, we expect to see our Brazil segment benefit financially from the supply chain dynamics that currently exist in the market, and we'll be able to leverage the long supply chain to our advantage in the coming months.

In the Asia segment, there is an expectation that we will see increased adoption and resulting revenues from our technologies and circular solutions. The Americas segment should improve in terms of volumes and revenues, primarily from pricing actions and our value-added beyond the apparel portfolio. However, we are still facing some demand challenges with our underlying business, specifically in Central America.

To wrap up, we are encouraged by the progress that we have made, which is now being reflected in our financial results. Our business is in a stronger position today than it has been in some time, and we are continuing to remain focused on ensuring that our operational enhancements translate into sustained financial improvement that will help create value for our shareholders.

And before I hand the call over to the operator, I'd like to acknowledge that the improvements to the business were a team effort, and I want to take the opportunity to thank each of the teams in the regional businesses for their hard work and efforts.

With that, let's open the line for questions. Operator?

[Operator Instructions] Your question from the line of Anthony Lebiedzinski with.

Certainly nice to see the improvement in the earnings results and also the pretty good cash flow in the quarter as well. So first, just can you talk about pricing versus unit volumes in 3Q and how that might change in the fourth quarter here given the increased input costs and some of the supply chain dynamics. I think Brazil is probably the one where you would probably see the most in terms of pricing actions. But just wondering if you could comment on the quarter that you just reported plus also give some more details about the pricing and volume dynamics that you may anticipate here in the fourth quarter.

Sure, Anthony, it's A.J. A bit of a mixed bag. So I'll try and go slow on some of that and ask Eddie to help as well. But if we start from a year-over-year perspective, we have -- the majority of decline in the Americas is volume-based. There's some pricing mix in there, but predominantly volume. When we look at Brazil, their year-over-year movement, again, Q3 versus Q3 was predominantly price. That was based on a lot of the competitive activity, lower prices coming from imported product. And third, in Asia, year-over-year, we did have a larger pricing impact versus volume impact as well.

So now when we look sequentially, Q3 to Q4, like you asked, we do see generally flat volumes in the Americas, but certainly some pricing as we've had to make some responsive pricing actions given the movement in petrochemical markets.

In Brazil, we will also see meaningful pricing increase, but also a bit of volume. And in Asia, we see a mix of volume and price there, again partly with petrochemical-related inflation and partly with some of the recovery that we mentioned beginning with the month of March in Asia headed into Q4. And I'll ask Eddie to add on any more there.

Yes. Just -- he's covered most of it. I just want to add one specific thing around the velocity of the pricing. We are in a situation today where much of our pricing is -- more of our pricing is order to order and not index like it had been in the past. So we are able to react more responsibly.

We are being careful, of course, to talk to customers and being responsible suppliers. But it has been because of the nature of the raw materials and the speed at which they've increased, we've had to react faster than we normally do.

So during the quarter 4, especially by the time we exit, we expect to be caught up on any raw material increases, unfortunately, that we have to pass on.

Got you. Okay. So just to clarify, you expect the pricing actions to essentially fully offset any of the cost headwinds that you are seeing at the moment, right?

I think there'll be a little bit of lag in the U.S. But primarily, most of the cost increases will be passed on as we move through this quarter, and we're seeing that already.

Got you. Okay. Okay. And then just in terms of the Asia segment that you highlighted that you expect improved adoption of innovative and sustainable platforms, can you give some additional details in regards to that? And then as far as some of the new products that you have talked about, which one do you think has like the most potential as far as to make a difference in terms of the sales contributions?

Yes. Here in the U.S. on the beyond apparel, in Q4, we are expecting to see about a $2 million uplift in the quarter from the beyond apparel initiatives, which is primarily from our military and tactical Fortisyn programs, our carpeting business and also the packaging business that we have. And these are all margin accretive opportunities for us.

And we're -- especially on the Fortisyn product, we spent a lot of time. We talked a lot about this on the calls. And it takes a long time to get traction, primarily because it's just such technically a difficult product to make. And then, of course, the customers are very sensitive to make sure that if they do make a switch that they're switching it to a product that can sustain itself and give them the advantages that we've described to them.

We're at the point now where we're getting adoption, and I'm very excited about that. I think the volumes potentially overall for the whole market will increase because of what's happening with Iran. But overall, we are certainly very positive about that market and where it can bring us in the next few quarters. But specifically in this quarter, it's not going to be huge, but we've got commercial programs that we didn't have just a quarter ago.

And then in Asia, it's a mixture of our ThermaLoop, which most of the insulated jackets are made actually in Asia. So we don't expect to see any of that here in the Americas. And we're starting to get traction. This is the season to make insulation for the fall jacket sales. We have good programs there. We have good programs in our REPREVE Takeback, which is our textile-to-textile recycling, and also our technologies such as TruTemp365 and Sorbtek, they are also starting to get traction. So our revenues in Q4 will be up in Asia, primarily driven by our technologies.

And in Brazil, we actually have increased the ratio of value-added sales, which is in part why the revenues will go up.

So this is more of a kind of a longer-term, bigger picture kind of question. But -- so as we look at the Americas, certainly, it's your very asset-heavy segment that you have taken out a lot of fixed costs out of the business. So even with lower revenue, you were able to generate much better gross profit here in 3Q. So as the segment recovers at some point, how should investors think about gross margin potential here in this segment with better revenue that you may see at some point?

Sure, Anthony. I'll start that and ask Eddie to add any, but we're certainly proud of what was achieved in this third quarter, again beating expectations on what the team was able to accomplish in terms of getting cost out and improving efficiencies in the facilities that remain. From a long-term perspective, we certainly want to get back to some of those better levels that were in the -- around 10 years ago. Those margin levels were certainly healthy in the Americas.

And with a lot of what Eddie has outlined in terms of new programs, new customer penetration and continued efficiencies and cost management in the Americas, we do see that as a relevant goal and an achievable goal when those catalysts do hit.

I just want to add, we are very, very careful about our spend more than we ever had been before, and it's across every part of the organization. It's a new mindset. And all we need is a little bit of volume to really get those margins that A.J. was talking about. So we still expect it to come back, especially in Central America. We're getting the signals, but we're still just waiting patiently. But while we're waiting, we still believe we can manage our spend relative to the revenues that we have to continue to give us positive gross profit in the Americas.

Anthony, this is Al. I'd add one thing to the Central America business. In many conversations with customers, all indications are they're going to use Central America for nearshoring because it's a good option for them to not be so dependent on China, and it's also a good option for close-in supply chain. And we're just waiting. It's just -- I think what's happening in the sourcing organizations of these companies, trying to determine with the tariffs changing so much is the better deal to buy from the U.S. Is it better to ship from China, from China to Vietnam over to Central America? It's going to happen, but it's just been very confusing. It's -- we're waiting for it to happen. All indications are it will happen.

Understood. And then I guess somewhat of a similar question in regards to Brazil. So obviously, the near-term picture looks bright there. But just looking back over the last few years, there has been quite a lot of volatility in the Brazil segment in terms of sales and gross margin. So kind of maybe just if you guys could talk about what's different now other than the -- just the supply chain dynamics. And how should we think about the longer-term opportunities and challenges beyond the current quarter?

Thanks for the question, Anthony. The market is still continuing to grow because of the population, because of the general economy down there. So we are the only large player down in their market. We have talked about the dumping that's been going on from Asia into Brazil. With this dynamic, higher cost dynamic, we are advantaged a little bit. So we do expect our margins to become a little bit more stabilized.

Like we said on this call, Q4 should be pretty strong. And going forward, we should get back to more normal EBITDA and more normal gross profits in Brazil on that business segment. So it's -- the dumping has lessened simply because the Asians appear to be a little bit more constrained from a petrochemical perspective, and they are passing those costs on to the market.

There are no further questions at this time, and this concludes today's call. Thank you for attending. You may now disconnect.

Good morning, and thank you for attending Unifi's Second Quarter Fiscal 2026 Earnings Conference Call. During this call, management will be referencing a webcast presentation that can be found in the Investor Relations section of unifi.com. Please familiarize yourselves with Page 2 of the slide deck for cautionary statements and non-GAAP measures.

Today's conference is being recorded [Operator Instructions]. Our speakers are listed on Page 3 of today's presentation and include Al Carey, Executive Chairman; Eddie Ingle, Chief Executive Officer; A.J. Eaker, Chief Financial Officer.

I will now turn the call over to Al Carey. Please turn to Page 4 of the presentation. You may begin.

Thank you. Well, good morning, everyone, and thanks for joining our call this morning. I'm happy to report that we're beginning to see results in our business that are coming from a major effort that began one year ago, which is essentially resetting our cost base in North America business. The closing of the Madison facility and the reduction of costs across the board have created clear operating improvements that are going to allow us to make healthy profits on a much smaller sales level.

Now a couple of highlights, and A.J. will go into more details on these later on. We're pleased to see improved profit margins improved free cash flow. We have dramatically improved our inventory turns and it's probably the best we've seen in recent history. We have 25% fewer people in North America, and our plant efficiencies have come way up from the summertime now that all the changes are behind us in our Yadkinville facility and also the closing of the Madison facility. A.J. will take you through the details of these business results in a moment. But we finally have actions behind us now after a year of hard work and some difficult decisions.

So that was a necessary step one for us to build our profitable business back here at Unifi. Now step two is building a strong revenue growth, and it's clear from the results of Q1 and Q2, those revenue levels need to improve dramatically. But don't forget, Q1 and Q2 of this fiscal year were largely impacted by the tariff complexity that started in about April. We've seen improvements in orders from many customers in early January, and we're cautiously optimistic about the recent order trends that we're seeing into February.

You may recall back in about April, May time frame last year, our revenues dropped precipitously. And that's when the reciprocal tariffs are placed in order that created turmoil in apparel and textile supply chains and most of the customers that we deal with place large orders before the tariffs went into place, understandably, but it led to record inventory levels and it slowed orders across the board in the industry for the entire balance of the calendar year, which was 7 full months.

But here's what we're seeing in January, February. First of all, the holiday sales for apparel were what we would describe as solid plus 4%. I wouldn't say they were great. but they weren't bad and most of the retailers are satisfied with what they saw. Second, recently, we have seen customers come back in order to replace the inventories, especially those whose fiscal years ended on 12/31. Third, Central America demand has picked up, which is very important for us. It really does look like in the near future that this will be a good near-shoring opportunity for retailers and brands in North America. More on that later. And then finally, innovations. Our innovations of textile Takeback and on ThermaLoop are now gaining some traction. It's taken a long time to get there, but we're optimistic about what we're seeing and probably more to come in the summer.

So in summary, we expect the sales to improve when you combine that with our lower cost base right now, it gives us quite a bit of optimism for what our profitability and our cash flow can be going forward. So to take a deeper look at all this, let me turn it over to Eddie Ingle, our CEO.

Thanks, Al. And as Al just noted, our results for the second quarter were in line with our expectations, actually with some of the metrics showing up better than expected. And while we are only a few weeks into the third quarter of our fiscal 2026, we are also starting to see some initial signs of an improved operating environment driven by increased customer engagement and many of them are beginning the post-holiday restocking.

Importantly, the strategic initiatives that we have put into place to realign our cost structure and operations have put us in a much stronger position to take advantage of these positive trends as we move forward. I'm going to walk you through this in more detail in a few minutes. But first, we're going to change things up a little bit slightly this quarter.

I'm going to turn the call over to A.J. now to walk us through the numbers for the quarter, and then I'm going to come back then to discuss our near-term strategic priorities and what lies ahead. With that, I'll turn it over to A.J. now to review our financial results. A.J?

Thank you, Eddie. I'll start off by discussing our consolidated financial highlights for the quarter on Slide 5. Net sales for the quarter were in line with our expectations, as Eddie said, but down 12.5% year-over-year, primarily driven by lower demand in the Asia segment and pricing pressure in the Brazil segment. Consolidated gross profit was $3.6 million and gross margin was 3% during the period compared to gross profit of $0.5 million and gross margin of 0.4% for the second quarter a year ago. SG&A was just $9.7 million during the quarter, a 25% improvement from the prior year period, and adjusted EBITDA was just a loss of $0.7 million which represents an improvement of $5.1 million compared to the year ago period. These favorable and improving results are the initial benefits of the hard work we have put into implementing our cost-saving initiatives which we anticipate will continue throughout the remainder of the fiscal year.

On Slide 6. In the Americas, net sales were down 7.1% compared to the prior fiscal year due to a lower portion of fiber sales with which normally carry a higher selling price, along with the tariff uncertainty that Al mentioned. Gross profit in the Americas region increased by $6.1 million during the quarter, primarily due to the previously noted cost saving initiatives that included the consolidation of the yarn manufacturing operations in this region. While we were likely to continue to have some short-term challenges in the Americas, we do believe that the mid- and long-term outlook is improving giving the better customer engagement that we're seeing today.

Slide 7 displays the Brazil segment, which saw net sales and gross profit decrease versus the prior year due to some pricing pressures associated with lower competitive prices and imports from Asia. That said, demand and growth opportunities continue to remain strong in Brazil, and we are anticipating that we will see an improved performance in the region during the second half of this fiscal year.

On Slide 8, our Asia segment net sales and gross profit declined by 27% and 10%, respectively, primarily due to lower sales volumes and pricing dynamics in the region. Despite these headwinds, gross margin in the region improved, expanding by 260 basis points on a year-over-year basis, underscoring the effectiveness of our asset-light model and its flexibility.

From a demand standpoint, we're beginning to see signs of improvement in that region with December outperforming both prior months, October and November. However, tariffs are continuing to create uncertainty and brands are still evaluating the most appropriate course of action for their businesses in Asia. As we've noted in the past, we continue to see immense opportunity in Asia once trade pressures begin to subside given that the majority of the world's polyester is still produced from China-based assets.

Slide 9 outlines our balance sheet and capital structure. Our year-to-date free cash flow reached $13.3 million, reflecting a significant increase compared to the previous year's first half results. CapEx during the first half came in at just $3.1 million, around a 60% decline compared to the prior period as we prioritize our spending and cost savings. Our net debt was reduced to $75 million at the end of December, a stark improvement from recent levels and our working capital on a year-to-date basis came in at $149 million, which was 9% lower than levels seen during the prior fiscal period due to our leaner operations in the U.S.

This significant improvement to our balance sheet and capital structure was directly attributable to our recent cost saving measures, footprint consolidation and reductions in working capital, which have helped us establish a more efficient manufacturing base in the U.S. We expect these efforts to minimize the drag on free cash flow through the remainder of fiscal '26.

At the same time, as customers begin to rebuild their depleted inventory levels into calendar year 2026, we do anticipate a moderate increase in working capital spend to support disciplined inventory builds and accommodate higher sales activity. As a result, we expect the third quarter will exhibit lower operating cash flows compared to the second quarter to support these efforts.

This concludes the financial review, and I will now pass the call back to Eddie.

Thank you, A.J. As you just heard from A.J., the hard work of our team is starting to pay off, and we're excited to see the solid start of a recovery in our core operating metrics. Today, I'd like to start with a broader perspective and talk to you through the cumulative results of two years of strategic initiatives and investments which we believe has positioned Unifi for long-term success. So let's turn to Slide 10 for an overview of our priorities for the second half of fiscal 2026.

As we look ahead, our focus continues to remain on returning Unifi to long-term growth and profitability. In order to achieve this goal, we are concentrating our efforts on four key areas. First, we have dramatically improved our operating model through targeted cost decisions and manufacturing footprint consolidation. And we need to continue to better leverage the work we've done here. At the same time, we have and we'll continue to invest in ourselves to help strengthen and scale our leading brands. Next, we have a culture built around innovation and new product development. And we will continue to prioritize the customer adoption of our innovative solutions to support future growth. And finally, we must convert all this operational progress into a sustained financial momentum.

The next few slides offer more details on each of these priorities. Let's start on Slide 11. As you can see from this slide, over the past three years, we've executed three strategic initiatives that have helped us better align our cost structures and operations. We began this process back in December of 2023, with the implementation of our profitability improvement plan, which streamlined our organization realigned leadership to enable a more efficient responsive go-to-market structure and initiated a sales transformation plan to improve operational efficiencies and gross margins.

Then throughout calendar year 2025, we undertook a U.S. manufacturing transition, which entailed the sale of our Madison, North Carolina facility to a third-party buyer for the price of $45 million with the proceeds of the sale being used to pay down our debt. Additionally, this transition helps improve efficiency and utilization at our Yadkinville, North Carolina facility and created a more efficient operating footprint and with a higher productivity labor environment as we leverage the existing automation assets.

And then most recently, during the end of calendar year 2025, we implemented an additional cost restructuring program, which reduced our head count and lowered labor hours, operating spend and CapEx. As a result of this program, we will see reduced operating spend and a $4 million in SG&A savings, all being reflected in fiscal year 2026.

As A.J. just mentioned, we are already beginning to see the initial benefits of these initiatives. And we estimate that these efforts have reduced our annual revenue breakeven point by approximately $125 million to roughly $575 million today. Some of these initiatives were difficult to execute and I want to thank our teams in each of the business units for their help in turning ideas into actions and changing the underlying cost structure of our business. It's now up to us to further leverage this improved operating platform and drive long-term results.

To do so would require top line growth. So on Slide 12, you'll see some of the continued efforts we are making to further scale our innovative brand. During the second quarter, we had several new co-branding placements of our latest product technologies and our REPREVE offering with key brand leaders. Save The Duck launched a collection highlighting ThermaLoop, showcasing our circular textile to textile insulation. Spanish brand, El Ganso, brought REPREVE into their stores with new signage and in-article branding about their usage of REPREVE.

And on the U.S. front, co-branding efforts from winter wear outfitter Obermeyer, [ had a ] collaborative with Sealy and REI and furniture from Brentwood Home ran at a diverse showcase of REPREVE branding usage. Co-branding continues to play a key role in reinforcing REPREVE and our impact on global solutions for textile to textile recycling through our REPREVE Takeback and ThermaLoop brands. The interest in our recently launched products have integrated A.M.Y. Peppermint technologies have received very positive feedback. Conversations are growing around what we consider to be our circular textile to textile offerings, in particular, REPREVE Takeback and ThermaLoop.

And we continue to leverage Instagram as a platform to collaborate with key brands and their usage of REPREVE and our technologies. Approach with Dario Mittmann highlighted the use of REPREVE on the runway at Sao Paulo Fashion Week. And we know this is not going to bring in a lot of sales but it does reinforce in our minds that designers are still thinking about sustainability and want to use it as a way to connect with the young influencers.

And lastly, another company, Dovetail Workwear, a leading U.S. women's workwear company partner with our team to create a co-branded asset to announce the launch of their hot swap denim utilizing REPREVE and our Climate Control Technology, TruTemp365. Overall, we are pleased with how the continued efforts we are putting into promoting our innovative brands through partnerships, trade events and digital engagement are paying off.

Now turning to Slide 13. You will see the output of the investments we have put into developing and launching our most important innovative products during fiscal '25 and '26. So far, the adoption of these new products has admittedly been slower than we anticipated due to the current environment, but we are ramping up efforts to increase customer adoption to help support future growth. We see great opportunities for these products globally, especially with some of our customers in Europe who are under increased legislative pressure to offer circular solutions by their governments and their consumers alike.

Moving to Slide 14 for an overview of our outlook and how we anticipate sustaining our financial momentum. For the third quarter, we expect to realize the full benefits of our cost reduction initiatives and improved working capital efficiency. We are also anticipating that we will have greater clarity on the global trade environment, which should help support revenue improvement as we move through calendar year '26. Finally, we will remain focused on margin-accretive efforts with a continued emphasis on our REPREVE value-added products and the expansion of our Beyond Apparel initiatives.

Regarding the second point around global trade, just last week, two countries in Central America, El Salvador and Guatemala just signed a reciprocal tariff deal with the U.S. government. This means that in the very near future, apparel made from regional yarns that are made in these two countries can once again receive [indiscernible] like duty-free treatments, where the final garments are shipped to the U.S.

To wrap up, we recognize that there is still important work needed to sustain the recent successes as we move towards our long-term objectives. That said, we are encouraged by the progress we've made to date. We [ have won money ] into the second half of our fiscal 2026, and our focus remains on converting our operational improvements into sustained financial momentum and ultimately creating long-term value for our shareholders.

With that, we would now like to open the line for questions. Thank you.

[Operator Instructions] And our first question comes from the line of Anthony Lebiedzinski with Sidoti.

So by the way, it was a really good cash flow quarter, which is great to see. So I guess my first question, in terms of your comments about the pickup in demand that you've seen since the quarter end. Is that in all segments? Or is one segment particularly doing better than others? I just wanted to get more flavor, more color on what you're seeing thus far since the quarter ended?

Yes. Thanks, Anthony, for the question, for joining us today. We're seeing it -- really across the board. Brazil is coming out of the holiday season, so there's destocking taking place but also there's stimulation in the economy by the government, so there seems to be positive momentum in the orders that we're seeing down there. China, the new year there is happening in mid-February. So there was a lot of activity in January in our Asia business in particular. And so that seems to be actually continuing more positively than expected because we're closing that new year period now. And then the U.S. and Central America, that's where it's shining because we are seeing the impact of the restocking of the inventories post everybody year-end -- their year-end trying to get their inventories down, but also the news around the reciprocal tariff agreement with Guatemala and El Salvador is positive for us. And so we're seeing more brands taking orders to the mills and the mills are placing orders with us. So it's really across the board.

So that's encouraging to hear certainly. So when we look at your business, I mean you've talked about Beyond Apparel for a bit. Can you give us an update? And I guess as we talked about this, maybe just kind of give us an update where you are like as far as apparel or as footwear, what percent of revenue is that at the moment? And kind of how should we think about the Beyond Apparel initiatives kind of going forward?

Yes. Beyond Apparel is really centered around carpet, packaging, military/tactical and auto. And I can say that last quarter, we had a very, very strong quarter in the packaging sector. Carpet actually grew slightly also and our military and tactical, while we didn't get orders, we still continuing to do a lot of sampling. So in the Q3, we won't see as much impact as we're we expect to see in fiscal Q4 as the orders start to come through. But definitely, as we -- we're still seeing very positive signals from the market around all of those initiatives so we're excited about that. And as a percentage of our business, apparel is still, of course, a large part of that. But we are moving towards making that a lower percentage, still very, very important, of course, but we do think that we're still on the right track with these Beyond Apparel initiatives here in the U.S.

This is Al. Watch military in the next couple of quarters. It looks like it's bigger than expected, and we're making a lot of progress with it. It just takes a long time to test for durability and colors. But when you get the business, it's usually a good long-term one and with high margins.

That's good to hear certainly. And can you also give us an update on the pricing dynamics in each of your segments that you talked about. I think you really highlighted Brazil as dealing with pricing pressures. But maybe if you could just go over the pricing dynamics that you have seen and expect to see here going forward in each of the three segments.

Yes. We talked about the dumping from Asia into Brazil, that has still continued although in the last few weeks as expected as oil has gone up as the Brazilian Real strengthened and as -- it appears that some of the really inefficient assets in Asia are being shut down. So it has created an environment where in Asia, the pricing has gone up and the sale is set by that raw material supply chain. So we are seeing some positive pricing momentum going into the Q3 in Brazil. Not huge, but enough to where we're feeling positive about that. In Asia, it's a very reactionary market, and so there is some slight uptick, like I said, in the Asian market.

But in particular, I wanted to circle back to the U.S. because -- and Central America. We've done a lot of bottom sizing in that business. We've tried to exit business that were very challenging from a pricing point of view and we've done targeted price increases. We've also try to make sure that for the complicated mix that we have, we've got the right price points in each of those different product lines that we serve. So we are seeing the benefit of that from a revenue point of view. And as we -- as our volumes increase, it will become more transparent. But we're all seeing that be part of our margin improvement. The margin improvement has been helped by, of course, all these restructuring we've done and the spend, the cost takeouts, but the pricing has been a big part of that.

Okay. That's -- yes, certainly good to hear. So -- and obviously, as you guys have talked about, you've done a lot of work as far as the restructuring and manufacturing transitions and so on. So as we think about the $575 million revenue that's needed to breakeven. How do you guys think about the mix between the three segments? What do you guys need to get there? I mean if I look back historically, the Asia and Brazil segment, gross margins have done better than what we've seen last couple of years or so. So just broadly speaking, how do we think about the mix that -- between the three segments that's needed to get back to breakeven?

Yes. Good question, Anthony. Thanks for bringing the breakeven topic, certainly proud of the actions we've been able to get through the system and get to this point. When we look at how that's distributed across the segments you're looking at mid- to high 300s generally for the Americas and then the other two segments filling in the gap really from some of their historical run rates similar to those historical run rates. So that's how we would see the distribution that would get you to a high single-digit gross margin for the consolidated entity and therefore, breakeven on an operating income zero basis.

Ladies and gentlemen, that concludes the question-and-answer session. Thank you all for joining in. You may now disconnect. Everyone, have a great day.

Good morning, and thank you for attending Unifi's First Quarter Fiscal 2026 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] Speakers for today's call include Al Carey, Executive Chairman; Eddie Ingle, Chief Executive Officer; A.J. Eaker, Chief Financial Officer. During this call, management will be referencing a webcast presentation that can be found in the Investor Relations section of unifi.com. Please familiarize yourself with Page 2 of that slide deck for cautionary statements and non-GAAP measures.

I will now turn the call over to Al Carey.

Thank you. Good morning, everybody, and thank you for joining us today. Listen, I'll get started with a few comments. And to start out, I'd say our UNIFI business had a challenging quarter. However, I'd like to spend a few minutes to explain what unusual obstacles occurred in quarter 1. I think it would be helpful for those of you that follow our company to understand that this quarter had 2 primary challenges. One is beyond our control and one is within our control, but it's temporary.

So let's start out with the first item, which is what is beyond our control. Most of you have probably read about this in our industry, the majority of our customers placed orders for goods that will get them through the holiday season, but they ordered them just before the tariffs went into effect in April. Then since April, orders have been extremely light and only for goods that are absolutely necessary, and this seems to be consistent across our industry, not just a UNIFI issue.

This has had a significant impact on our sales revenues, particularly in Asia and also in Central America, and it's going to affect sales probably for another 8 weeks. So it will take us through our quarter 2. This is as best as we can determine. But most of our customers, retailers and brands have communicated to us that they expect to return to some level of normal ordering in January. And if not, we have a plan to deal with that. One positive development that we are keeping an eye on is that the sales growth of apparel remains solid at a plus 5% versus a year ago and inventory is declining pretty significantly. So ordering should follow. So that's topic one.

Topic two, what is within our control. I think I mentioned this on the last call. We closed our Madison facility in June. We moved out of that volume. We took it from Madison to Yadkinville, our bigger facility, which added 40% to their capacity. The transition required us to hire many people, train them, moving equipment and incenting employees to stay working in Madison until we shut down so that we didn't miss out on business and kept our service up with our customers.

We've had increased costs because of these transitions, but I will tell you that we've taken actions. You'll hear more about them today to put our costs back on track. And while you don't see it in our Q1 results, we are now seeing it in our October operating results, which is the first month of the quarter, the new quarter. And you can expect these transition costs are now fully complete for our company.

The third item I wanted to mention is that we really have resized our company's cost model. We now have resized the operating cost to fit this new level of revenue, this new low level of revenue so that we can be profitable even at the lower levels. So we've taken some new cost reductions, headcount reductions and price actions that are now complete as of last week. These actions will allow us to deliver improved cash flow and EBITDA and the performance will step up as we move from quarter 2 through quarter 4.

Then when the revenues do improve and they will improve, we will see much, much better leverage on our fixed cost as a total company. Now A.J. will take you through how our net debt is being reduced and our cash flow improves with these changes. And I'd like to mention that last, but not least, we have a plan on improving revenue growth with our efforts at beyond apparel products, which we've been talking about for quite some time, topics such as military segment, carpet, resin sales and packaging. All these products are relatively new to our business with better margins than the base.

There have been a lot of work going on meeting qualifications for these projects. That's the one thing we probably didn't realize is how long it will take to qualify, but there's lots of work being done and orders are now coming in. Our efforts on the REPREVE innovation and textile Takeback are gaining a high level of interest from customers. They will see progress in the second half of calendar 2026.

So in summary, despite the obstacles we faced in quarter 1, I'd say our team was agile in taking action that will make us a more profitable company and deal with these tariff uncertainties. While our comeback has taken longer than I would have liked, we have used this adversity to take additional actions fairly quickly and to be more sure of our ability to generate profits and cash flow even as the market has periodic downturns in the future.

So now let me turn it over to Eddie Ingle, our President and CEO, who will take you through the actions that went on during this quarter.

Thanks, Al. I'm going to start with an overview of the first quarter, so please turn to Slide #4. As Al noted, our results for the first quarter came in below our expectations as we continue to be impacted by softer ordering patterns that are directly related to the recent tariff and trade uncertainties. Many of our global customers have continued to methodically slow down their ordering patterns until they are better able to formulate a strategy to handle this current tariff landscape, which remains highly fluid.

While we're disappointed that the customers are being cautious, the holiday season should bring apparel inventories down to relatively low levels, and thus, we believe we should build revenue momentum at the beginning of calendar 2026. Now along those lines, I think it's important to offer a few updates on the current trade environment in the key markets that we currently operate in.

In the Americas, while the short term remains challenging, the mid- and long-term outlook seems to be improving. The reality is many brand and partners of ours are starting the process of moving some of their production programs to Central America in calendar 2026. While more clarity on the global tariff situation will be needed, we are actively working with these retailers to highlight the fact that if they use our U.S. yarn during their production in Central America, they can receive much of the 10% reciprocal tariff back as all of our Central American supply chain is U.S.-based.

In Asia, brands are also reassessing where they need to move the final assembly step of their supply chain. While there continues to be some uncertainty in terms of which country will end up being the most favorable, our model remains asset-light. And as we've noted many times in the past, we continue to see immense opportunity in Asia once trade pressures begin to subside, given that the majority of the world's polyester is still produced from China-based assets.

In Brazil, we continue to see relative demand stability and feel highly confident in the long-term growth potential of the textured polyester yarn market. However, we are still seeing some dumping pressure from Asia-based companies whose Asia-based demand has dried up. The textured polyester industry has filed an antidumping case with the Brazilian government, and they are going through the evaluation process right now. If successful, it would help alleviate some of the short-term headwinds we are seeing in the region.

However, that process will take until the end of our fiscal year to get a final resolution. So stepping back a little bit and looking at the big picture, the tariff and trade situation has hurt all of our business segments in the near term, but they may, in fact, offer the Americas segment even greater support in the long term. Given the short-term uncertainty, it was important to further align our cost structure and improve our ability to drive greater profits and cash flow in fiscal 2026.

The first step was the [indiscernible] of a cost restructuring program that was executed right after the Q1 quarter close. A.J. will provide more details on the financial impact of this program, but these cost restructuring efforts reduced our headcount and brought down hours in some of our facilities as we wait for demand to recover.

Implementing these actions are not something that we take lightly, but we do believe that it was a necessary step for us to help deal with the financial headwinds we are currently facing and achieve improved financial results. We have done this while keeping the manufacturing footprints and capacities of the Americas business segments intact. As the fiscal year progresses and revenues pick up, we will continue to be very selective about where we add back costs.

And the second step we took during the September quarter was to communicate to customers inflation and tariff-related price increases. This increase in pricing will help drive a partial uplift to our financial results in Q2 and will be fully visible in our third fiscal quarter financial results. Turning now to our specific performance. During the first quarter of fiscal 2025, we reported $135.7 million in consolidated net sales, which was down 7.9%.

In the Americas segment, we experienced a year-over-year decline, primarily due to reduced sales volumes stemming from trade uncertainty and some productivity shortfalls caused by our continued efforts to consolidate our U.S. yarn manufacturing operations. These transition costs are now complete. In our Brazil segment, we are continuing to see stable demand for our products, but as I noted earlier, our results during the period were impacted due to import pricing pressures from some dumping in the region and slightly lower sales volumes. With that said, we see -- we still see strong fundamentals in Brazil's textured polyester market, which we believe will help drive further improved financial performance in the second half of the fiscal 2026.

In our Asia segment, sales continued to remain weak as trade negotiations drag on. As we've noted on our previous earnings call, our fixed cost profile in the region remains low and our asset-light model can be applied in many other countries. And thus, we will continue to adapt to the short term, and we'll be ready as global trade conditions shift and/or normalize.

Turning now to Slide 5 for an update on REPREVE. During the first quarter, REPREVE Fiber represented 29% of sales, down 1% point from the previous year due to trade policy impacting ordering patterns. Despite this impact, we are seeing some green shoots for our REPREVE polyester resin, which performed well during the period. And we're cautiously optimistic that this momentum in resin will continue throughout the remainder of fiscal 2026. These REPREVE resin sales are part of the Beyond Apparel business growth in the U.S.

Moving now to Slide 6 to highlight some of our recent innovation efforts. We are building off the momentum from recent global product launches. During the last quarter, we had announced the global product launch of our new offering under the A.M.Y. platform for sustainable odor control, A.M.Y. Peppermint and our updated offerings of ThermaLoop insulation and REPREVE Takeback. Both of these circular products are now offered with 100% textile fabric waste inputs.

On Slide 7, you can see the first co-branded placement of our ThermaLoop insulation products with outdoor apparel leaders, Marmot and Lafuma. Both brands have launched jackets incorporating on-garment co-branding hangtags and callouts on e-commerce. Meanwhile, REPREVE Our Ocean was featured in a co-branded Instagram social media created in collaboration with Rain Rebel.

The content effectively engaged audiences across both Europe and the U.S., serving as a compelling piece of brand storytelling using our REPREVE Our Ocean filament yarn in their rain ponchos made from 22 post-consumer recycled plastic bottles that are ocean cycle certified, which means they are removed from the ocean-bound environments in developing countries, lacking the formal infrastructure for waste management and recycling.

Further, these customer validations were complemented by the announcement of recent award recognition as leaders in sustainable textile solutions. Our ThermaLoop insulation received an Honorable Mention from Fast Company's Innovation by Design Awards in the Sustainability and Circular Design category, standing alongside renowned companies like Google, Haworth and [indiscernible]. The REPREVE brand platform was awarded as a finalist for the Digiday Greater Goods Awards, which honors brands addressing critical social and environmental challenges.

And before I call -- return the call over to A.J., I want to quickly mention that we are continuing to see positive momentum in our Beyond Apparel initiatives in carpet, military and packaging applications. So far, the government shutdown hasn't hampered sales much in the military market, but we hope to see that situation resolved reasonably quickly to keep our momentum here. We continue to believe that the sales from these initiatives will become a meaningful contributor to our financial and revenue growth in the second half of fiscal 2026.

With that, I would now like to pass the call over to A.J. to discuss our financial results for the quarter.

Thank you, Eddie. As Eddie noted, we are disappointed in our financial results this quarter and thus have continued to take steps to better align and optimize costs across our business, which now includes the recent implementation of another cost restructuring initiative. This recent initiative is expected to result in significant savings on an annual basis as we reduce our headcount, match machine run rates with sales volumes and strategically reduce operating costs across our business. This new cost reduction plan includes approximately $5 million in SG&A savings on an annualized basis compared to fiscal 2025 and approximately $4 million of those savings should be reflected in this fiscal 2026. These are predominantly cash savings.

Next, the new reduction in manufacturing costs are designed to drive a $5 million per quarter savings for the remainder of fiscal 2026. These measures were necessary to realign costs with the lower revenue levels that were not expected immediately following the closure of our Madison facility. Moving on to the financial results on Slide 8. You will see our consolidated financial highlights for the quarter. Consolidated net sales for the quarter were $135.7 million, down 8% year-over-year, primarily driven by trade-related uncertainty and short-term demand volatility across each business segment. Gross profit was lower at $3.4 million and gross margin was 2.5%.

On Slide 9, in the Americas, net sales were down 1.3% compared to the prior year fiscal 2025 due to price and sales mix. Gross profit in the region decreased by $300,000, primarily as demand and production volatility mostly offset the savings from consolidation efforts during calendar 2025. Slide 10 displays our Brazil segment, which saw net sales and gross profit decrease versus the prior year. As Eddie noted, this was primarily due to import pricing pressures and lower sales volumes. That said, demand and growth opportunities continue to remain strong in Brazil.

Finally, on Slide 11, our Asia segment net sales and gross profit declined by 19% and 16%, respectively, primarily due to lower sales volumes, a less favorable sales mix and pricing dynamics in the region. Despite these headwinds, our gross margin in the region did improve by 40 basis points, highlighting the benefit of our ability to adjust and flex our asset-light model. Slide 12 outlines our capital structure. From a CapEx perspective, we prioritize critical investments and are forecasting under $10 million in fiscal 2026.

We've also continued to do a nice job managing our working capital over the last few years and expect to continue that work throughout fiscal 2026 from a leaner manufacturing base in the U.S. With all of our calendar 2025 cost actions, we have positioned the business to better generate operating cash flows under a strained revenue environment. For example, in monitoring our weekly cash spend in the Americas business, during October, we've seen a significant decrease versus August when we had more volatile customer ordering patterns and higher activity across all operating functions. Therefore, significant progress has been made.

With that, I'll pass the call back to Eddie.

Thank you, A.J. Now let's turn to Slide 13 to discuss our forecast for the second quarter of fiscal 2026. For the second quarter, we are expecting to begin to see the full benefits of our proactive efforts to reduce costs, increase machine efficiencies and facility utilization to improve profitability throughout the remainder of fiscal 2026. We also expect to see adjusted EBITDA improve sequentially from the first quarter of fiscal 2026, primarily driven by cost savings in the Americas segment.

Due to the holiday period, the net sales are expected to drop slightly in the Americas and Brazil and net sales in Asia are expected to increase ahead of the Lunar New Year, which this year is in mid-February 2026. And while it's difficult to -- for us to predict the exact timing of this, we also anticipate that the global trade situation will gain greater clarity by the end of calendar 2025. This as well as significantly reduced inventory levels in the channel after the holiday season should help us see incremental improvement of the top line throughout calendar 2026.

Lastly, we do expect to see continued commercialization of our value-added products such as REPREVE Takeback in ThermaLoop in Asia and in the beyond apparel markets such as packaging, military, and carpets in the U.S. To wrap up on Slide 14 with our strategic priorities. While much of our cost actions were completed during the first 10 months of calendar 2025, we recognize that we still have some work ahead of us to position our business to be where we want it to be.

As we've highlighted today, we are continuing to make the necessary changes needed to strengthen our business, which will help us capitalize on the investments we have made in new innovations and circular textile solutions. As we have previously noted, achieving our goals will continue to require patience and persistence. However, the cost actions we took will be seen in Q2 and beyond.

And while October has not yet been rolled up, we have seen better revenues come through in the Americas. Further, now that we have rightsized our Americas footprint, we will see the cost benefits of this reduction begin to flow through. The tariff uncertainty should subside in the coming months, and the brands will have a clear supply chain strategy that we will adapt to. The focus going forward will be on growing revenues and margins through the commercialization of our value-added technologies and building our business in new markets. When successful, this is expected to create long-term value for our shareholders.

With that, we would now like to open the line for questions. Operator?

[Operator Instructions] And your first question comes from Anthony Lebiedzinski from Sidoti & Company.

So first, I just wanted to see if you could guys take a step back and just maybe just provide a little bit more comment and details about the volatility that you saw in demand and production, particularly in the Americas. And it sounds like things have gotten better there in October, which is encouraging, but if you could just kind of go over the volatility in demand and how that impacted the first quarter, that would be helpful.

Yes, Anthony, thanks for joining us today, and thanks for the question. Yes, the -- we did have a lot of volatility in demand. We mentioned a little bit of this in our previous earnings call. And what happened during our Q1 is we built inventory in the first 5, 6 weeks of the quarter, expecting revenues to come through. And when they didn't, we rapidly turned around and reduced our production levels. And that, in turn, resulted in some cost-cutting actions, but the demand falloff has certainly been something that we reacted to very, very quickly. We do expect -- as I said, October was good, and we expect a slowdown as we move into the -- in the Americas into the Christmas holiday period and then expect an uptick in the Q3 as we come out of that holiday.

And then just curious if you guys could provide more details as to what are you hearing from your customers about the operating environment and the upcoming holiday season. There seem to be a lot of mixed signals with the overall economy. So just wondering if you guys could talk about that.

Yes. What we're seeing is that everybody is very cautious with their inventories, and they're starting to do what we started 2 months ago, which is manage their inventory levels down by reducing their production levels and really being very reactionary to any demand. Everybody is telling us that this is really in preparation for managing their year-end inventories, which we understand. But they are also saying at the same time, like I said earlier, Q3 should be better.

And it should be better for us in the Americas because Central America is expected to pick up and it's expected to pick up because of natural seasonality, but also because the brands are moving some of the programs back here. While there is still that 10% tariff for Central America, USMCA -- not USMCA, but CAFTA-DR goods, there is an opportunity for some of the brands to claim back some of that 10% reciprocal tariff if there is a U.S. supply chain. So we're excited about the fact that the brands are learning about how to capture some of that money back to make it a more level playing field with some of the Asia tariffs.

Anthony, this is Al. I'll just add something that was in the trade press. It's in April, I mean, if I were a buyer for a chain, I do the same thing. When the tariffs were announced, they went right to the point of April -- in April and everyone ordered product that would come in, in time for Christmas. And the report was that the ports in Los Angeles had the highest level of deliveries in any time in the 17 years that they've tracked. And then in July, August, September, they've gone very low and that the inventories for the Christmas holidays were in place and ready to go a month earlier than ever before.

And they literally are sitting on a -- they were sitting on a bit of inventory and now blowing through it as the holiday comes in. So it's kind of remarkable that everybody is doing the same thing, but it makes sense. The tariffs, they got -- they almost bought into a price increase, right? Before a price increase. So the other thing I'd mention to you was in the last question you asked, the one thing that's really important is our plants -- I'll say these numbers to you, they don't mean anything, but you can see the change.

If we were running in the summer at about 85 pounds per man hour. And since then, we've jumped to 107, and we have the ability to get well above that. So the training and the hiring and the production and the goals we've set for our people are starting to take place. That's one of the most important things that's happened in the last 3 months. And we think these cases per man hour go up a good bit above what I just mentioned as they -- as some of these people get in the saddle for a while.

And then, Eddie, I think you said earlier that you're seeing some green shoots with REPREVE. Can you expand on that? What are you expecting going forward?

Yes. Much of our REPREVE is in Asia. And I mentioned that there's 2 brands, Marmot, that were and Lafuma who have adopted ThermaLoop in their products, but we're also seeing some action on the REPREVE Takeback, which is also the 100% circular solution. So as we move through the year, we're expecting the Asia business to grow simply because REPREVE plus technologies and plus the circular solutions are going to grow.

And we can see this in some of the ordering patterns that we have visibility to in the December, January period. In the U.S., there is still a renewed interest in keeping a lot of the performance apparel with REPREVE. And that is what that business is generally run through the Central America supply chain. So as we get into Q3, we should see the growth in Q3 of REPREVE also in the Americas business.

And then in terms of the price increases that you referenced, can you give us more details as far as like what's the extent of the price increases? And also, are these price increases in certain markets? How should we think about that?

Yes. I'll add a little bit of color there, Anthony. Certainly, we work closely with the customers to make sure we're delivering the right value. So we're not in a position to disclose the specific price increases or the overall amount, but know that these are responsive to costs and tariffs. And so we're doing our best to work closely with the customers to make sure everything is fair as we get through the supply chain and that we're delivering the same value we have.

That sounds good, A.J. And then I just want to follow up as far as the cost savings that you talked about, are these on a gross basis or a net basis in terms of the numbers that you provided?

So for SG&A, we are expecting a strong decline year-over-year in the annual consolidated SG&A amount. So in fiscal '25, you saw approximately $49 million of SG&A, and we expect that to be under $45 million for fiscal 2026. So that would be the overall impact to the SG&A line. From a COGS basis, at these revenue levels, we are expecting that $5 million per quarter to come through as compared to the quarter that we just completed. So improvement throughout the year beyond this Q1.

And then just also thinking about the beyond apparel initiatives. You've referenced the military and carpet, not just on this call, but on previous calls as well. Just wondering if you guys could comment as far as how much revenue are you currently deriving from these? And what's the opportunity going forward?

Yes. We still believe that in the calendar 2026, we should see a market improvements. And I'm going to put a range of around $20 million with the Q3 fiscal or Q1 calendar being on the lower range. And as we move through the 12 months in fiscal 2026 -- calendar 2026 to see a significant uptick to the run rate of around $20 million by the end of the calendar year. We are already seeing quite a nice improvement in our resin business, which is our flake and chip business, polyester, recycled polyester. And that is expected to continue as we move through 2026 calendar.

And then just overall, as far as the -- I guess the last question I would have here is just aside from military and carpet, are there any other key beyond apparel initiatives that we should think about? I think in the past, you've talked about automotive. Just wondering if you could provide anything else in regards to that.

Yes. We do, from time to time, talk about automotive specifically, and that has been quite actually good for us over the last few months. We are a little bit -- we haven't called it out because we're just a little bit nervous about the automotive industry with a lot of the changes going on. And so we still see that as being robust and helping us with our Beyond Apparel initiative. The trick there is to move it over to the value-added products that we have, and we're working hard on that. But it is something that's a very important part of our business.

And your next question comes from Chris Reynolds from Neuberger Berman.

I have 2 questions. The first relates to Brazil and sort of Latin America in general. That's an area where you have some strength. But if I recall, you have a balance sheet there that's fairly significant with cash that sort of stays in region. Can you provide an update on what those general numbers look like and then the trends because I think one of your competitors went bankrupt, and that's helped you.

The second question is any clarification on the changes to the de minimis import rules? I saw some numbers out of UPS, which said that they had big earnings gains because they didn't have to have a bunch of cost to handle that change in using software and AI and other things to help manage that transition. I'm just wondering if there's any real benefit that would come to the apparel industry in general from this change on customs.

Thanks, Chris. Two good questions there. A.J. here. I'll start with the first. Certainly, we've been proud of what the Brazil operation has been able to achieve over the last several years. Certainly, last year was stronger with the pricing environment there and a little bit more pressure in this current quarter. Fortunately, their operation has run quite well, especially from a working capital and margin perspective. Despite these pressures, they have been able to generate cash, both the quarter that we just completed and the quarter that we're in now. So that balance sheet remains healthy and their cash levels remain in excess right now of their absolute needs for the next few quarters.

And I'll let Eddie comment on de minimis for you.

Yes. We're excited about what happened with the de minimis. It was August -- at the end of August, basically an executive order was signed that you can't bring in goods duty-free and regulation-free basically. We know that it's impacting a lot of the brands in a positive way because the very, very cheap imports that were coming in under the de minimis are no longer coming in. We do expect to see this translate into better revenues for the bigger domestic brands.

And then some of the brands got caught because they were not got caught, but they were flat-footed because they were bringing in goods through the de minimis. So they are having to pay the extra cost, the extra duties and the extra transportation as the other brands who are not using that ruling. So I think we're going to see the benefit in the region over the next few quarters, but it will be -- it's right now hard to determine exactly how it's impacting us because we don't have the normal data that we get because of the government shutdown. So we're sort of running a little bit blind now on the exact import situation. So -- but more to come on that in the coming quarters. Thanks for the question.

All right. There are no further questions at this time. And ladies and gentlemen, thank you all for joining, and that concludes today's conference call. All participants may now disconnect. Thank you, everyone.