Unifi Inc (UFI) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2012 Unifi earnings conference call. My name is Joan and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions)

I would like to turn the call over to Mr. Ron Smith, Chief Financial Officer. Please proceed, sir.

Thanks, Joan. Good morning, everyone. Joining me for the conference call today is Bill Jasper, the company's Chairman and Chief Executive Officer, and Roger Berrier, the company's President and Chief Operator Officer. During this call, we'll be referencing a webcast presentation that can be found at unifi.com. The presentation can be accessed by clicking the first quarter conference call link found on our homepage.

Before we begin, I need to first advise you that certain statements included herein may be forward-looking statements within the meaning of federal securities laws. Management cautions that these statements are based on current expectations, estimates and/or projections about the markets in which the company operates. Therefore, these statements are not guarantees of future performance and involve certain risks that can be difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecasted or implied by these statements. I direct you to the disclosures filed with the SEC and our Form 10-Qs and 10-Ks regarding various factors that may impact these results.

Before we get to the financial details, I'd like to turn the call over to Roger, who will provide you with an overview of the market and the raw material trends. Roger.

Thanks, Ron. And good morning, everyone.

We are encouraged by the performance of retail apparel, which is up 6.9% compared to the September 2010 quarter. And while we believe this growth will be a positive trend for the company over the long term, we are not currently seeing the benefits in our part of the supply chain, as almost all of the increase is a result of price inflation.

On a unit basis, volumes at resell for the September quarter were flat to up slightly. Retail inventory continues to remain flat, but overall inventory on the supply chain has increased. The producer of wholesale inventories, each of which has traditionally averaged about 50 days, reached 58 and 63 days respectively. As we move through the quarter, these producers and wholesalers began to react to the elevated inventory levels. And we're now seeing those inventories begin to come down, though at the expense of production levels in the yarn and fabric shipments. As a result of this inventory destocking, the company's U.S. polyester and nylon volumes declined to a September quarter compared to the June quarter, impacting our financial results.

Going forward, although consumer spending from a dollar basis in apparel continues to grow, we expect retailers to take a cautious and safe approach on total units for the holiday season. This would indicate the possibility of another quarter of volume softness as further inventory destocking takes place and apparel wholesalers and producers return to more normalized inventory levels. Given these conditions, the company began adjusting its production rates during the quarter to levels lower than our sales rate in order to adjust our inventory going forward accordingly. We are confident that we can ramp up production quickly once this destocking ends and the market returns, which we anticipate occurring after the first of the calendar year. We have taken these correction measures now as a precaution against the possibility of weak consumer spending through the holidays. And we are aggressively managing our inventories and working capital in a manner that is reflective of the current business environment.

There are, however, several positives we see in our business. The commitment of brands and retailers to the region remains solid with several textile and apparel plant expansions taking place throughout the region. There are key apparel categories such as socks and sheer hosiery in which regional production is vital to the overall supply chain. From a production standpoint in the apparel segment, supply from the region has maintained share over the past two-and-a-half years and is expected to maintain or grow slightly. We expect the positive impact of this regional share gain to be compounded by a longer term return of year-over-year growth of units sold at retail.

Furnishing sales are largely contingent on the housing market. And September figures for single-family housing starts project a seasonal adjusted annual rate that is 5% lower than last year. Building permits, an indicator of future construction, declined to a five-month low as foreclosures and the supply of unsold homes continue to hold back developers. However, there has been modest improvement in retail sales in home furnishings, which increased 2% in the September quarter compared to a year ago and 1% on a year-to-date basis. Although current sales in this segment remain below pre-recession levels, long-term industry forecasts estimate a 5% to 6% average annual growth rate for upholstered furniture and 6% to 7% growth rate for the mattress segment, which is positive news for a market that is dominated by U.S. production.

Year-to-date production and unit sales of cars and light-duty trucks have increased by approximately 8%. The automotive sector and automotive fabrics represent about 5% of the company's sales. And we are seeing increasing interest in our 100% recycled Repreve product, as manufacturers place additional emphasis on green initiatives. Ford will become the first automaker to use Repreve-branded yarns in their seat fabric, which will be the standard option for their 2012 Ford Focus electric car.

Our operations in Brazil have been challenged over the last two quarters by the strong Brazilian reais. A strong reais has negatively impacted both volume and conversion margins by making imports of competing fibers, garments and apparel more competitively priced and resulting in a 4 to 6 million decline in our expectation loss of annual adjusted EBITDA from Brazil.

Our operations in China did not perform as well as expected in the September quarter as one larger customer delayed an order. This is an inventory timing issue. And we expect UTSC to be more in line with expectations for the balance of the year.

Unifi Central America has continued to perform well. And our DTY business in Central America remains strong. The shorter lead times and competitive pricing offered by the region provide advantages to brands and retailers. There has been investment and new or expanded production facilities in the region over the past two years. And we continue to see programs shifting from Asia to the region in segments such as shapewear, knit apparel and intimate apparel.

Finally, I have a few comments on polyester raw material pricing. Despite indications that polyester raw materials would decline in the September 2011 quarter, they rose slightly and continued at their highest level in over 30 years. This was primarily driven by supply issues due to paraxylene and MEG plant outages in Asia, most of which are expected to come back online in the December quarter.

In addition, the softening demand in Asia has driven down PTA prices there even while PX prices remain high. Because Asia's PTA pricing is market driven and U.S. pricing is formula driven, the U.S. and Asia gap in polymer pricing has grown to $0.09 to $0.10 per pound from $0.03 to $0.04 per pound earlier this year. That has made Asian imported yarn more competitive and caused the company to lose some market share at the low end of our product line. Some industry experts are predicting declines in raw material pricing over the next three to six months. And the company will look to recapture lost margins and lost volumes in the second half of the fiscal year.

With that as a backdrop, I will now turn the call back over to Ron.

Thanks, Roger.

We'll begin the review of our preliminary results for the September quarter, which will begin on Page 3 of the presentation with the volume and pricing highlights.

Quarter over prior year quarter volume decreased 11% on a consolidated basis, which reflects the impact of demand softness that Roger spoke of earlier. In addition, volume in our Chinese operation was negatively impacted by a temporary delay in orders from UTSC's largest customer, a large performance apparel manufacturer from the European Union. The quarter over prior year quarter unit volume decreases were partially offset by increased pricing across all segments. These pricing increases are primarily related to higher raw material costs, but mix enrichment did play a significant role in certain segments.

Versus the June 2011 quarter, volume declined 13.5% due to the cumulative effect of the retail inventory buildup, the yarn pricing gap with Asia and the general softness in Brazil that Roger noted earlier. In nylons specifically, the volume decline was the result of lower shipments in the socks, hosiery and knit apparel applications. This slowdown resulted in a lower mix of commodity sales, which had a positive impact on knit and helped improve average unit pricing along with a price increase that took effect in early July.

Turning to Page 4, net sales for the current quarter were $171 million, an increase of $4 million or 2% over the prior year's September quarter. As noted earlier, this decrease stems from the cumulative effect on volume of the buildup in inventory in the U.S. apparel supply chain, the polymer pricing gap and a softness in Brazil. This decrease is partially offset by the higher selling prices related to elevated raw material costs.

The company is reporting net income of $286,000, a $0.01 per share for the September quarter, compared to net income of $10.2 million or $0.51 per share for the prior year quarter.

The decline in gross profit for the quarter is a cumulative effect of the following. Approximately $2 million of the shortfall is related to a decline in conversion margin, which for us is selling price less raw materials caused by historically high raw material pricing around the globe. Approximately $3.5 million in manufacturing variances were related to lower utilization rates and increase end unit costs stemming from the product volume decline experienced in the prior two quarters. And another $3 million related to lower profitability in Brazil, whose market softened over the last four to five months as the Brazilian reais strengthened into the 1.5 reais to 1 U.S. dollar range, thereby making imported yarn, fabric and garments from Asia more competitive alternatives.

Coming into the September quarter, we forecasted the softness in the Brazilian market and a large portion of the manufacturing cost variances. During the quarter, however, the conversion margin compression caused by higher than expected raw material prices and lower than anticipated volume caused the remainder of the shortfall. This decline in gross profit is the primary driver of our adjusted EBITDA for the quarter of $8.1 million, which was $10.3 million lower than the prior year quarter.

Total SG&A expense for the quarter decreased $1.1 million compared to a year ago quarter based on higher variable compensation targets and spending limitations that the company has put into place.

Interest expense continues to decline and improve by nearly $1 million as the company continues to focus on its deleveraging strategy. Since June 2010, the company has retired a total of $55 million of its 11.5% senior secured notes due 2014. And income for the quarter was negatively impacted by a $4.8 million decline associated with the company's share of earnings in Parkdale America, which I'll discuss when we get to the equity affiliate slide.

Turning to our balance sheet highlights on Slide 5, as of September 25th, cash on hand was $19.8 million. And long-term debt consisted of $123.7 million of senior secured notes and $39.9 million under our revolving credit facility. Total liquidity, which we define as cash on hand plus net availability under our revolving credit facility, continues to be strong at $74.4 million.

Turning to Slide 6. During the quarter, our investment in working capital decreased by approximately $5 million. This decrease is a result of an $8.8 million reduction related to currency exchange rate in Brazil, moving from 1.56 reais to the U.S. dollar at the beginning of the September quarter to 1.85 at the end of the quarter, the lower accounts receivable attributed to the aforementioned volume decline. These declines were offset by higher unit costs of inventory related to the peak raw materials and an increased inventory panels on hand, which we have addressed over the last month-and-a-half.

Turning to Page 7. The company recorded net earnings of $3.5 million from our equity affiliate partners in the September quarter, a decline of $5.5 million from the prior year quarter. The primary driver of earnings in equity affiliates is our earnings from Parkdale America. The $4.8 million decline in Parkdale America's results quarter over prior year quarter is primarily attributable to the timing of deferred revenue recognition by Parkdale America under the terms of the cotton rebate program. During the year ago quarter, Parkdale America recognized rebates of $19 million under the EAP cotton rebate program, substantially greater than the normal quarterly benefit level of approximately $7 million. This higher level of EAP revenue recognition was driven by the timing of Parkdale America's capital expenditures being disproportionately higher in the prior year's September quarter. From an operating standpoint, Parkdale America's results have weakened slightly compared to the June 2011 quarter, as Parkdale America is experiencing similar volume issues related to the temporary destocking of inventory at apparel companies, the company noted earlier.

Turning to Page 8, the company is reporting adjusted EBITDA of $8.1 million from the September quarter, which is below the $12 million to $13 million estimate for the quarter provided on our July earnings call due to the unexpected issues with buying softness and raw material prices remaining at elevated levels during the quarter instead of falling back to more normalized levels, which would have allowed the company to recapture a portion of lost margin.

Now, before I turn the call back over to Bill, I'd like to provide a brief update on some key dates for the September and December quarter. We expect to file our 10-Q for the September quarter no later than Friday, November 4th. And our quiet period for the December quarter will begin on Thursday, December 22nd and extend to our earnings release conference call, which is currently scheduled for Thursday, February 2nd.

30 and is expected to be webcast for those unable to attend in person. If you have any interest in attending, please contact our investment relations coordinator, Rebecca Landas, at rlandas@unifi.com. That is r-l-a-n-d-a-s at unifi.com.

And with that, I'd like to turn the call back over to Bill. Bill.

Thanks, Ron. Simply put, we are an asset-intensive company where asset utilization is important and raw material costs make up greater than 50 percent of our costs. Because of that, a period where lower utilization rates caused by inventory corrections at normally high raw material prices from the prior year quarter passing through our inventory and a strengthening reais is going to be a tough operating environment. There's no doubt we're off to a slow start. However, we expect both of these conditions will improve over the next several months and believe the second half of our fiscal year will be considerably better than the first.

We are anticipating some raw material cost relief end of this quarter, this December quarter, and expect to see improved results starting with the third fiscal quarter as we work off high cost inventory. We also expect the apparel supply chain to destock during the holiday season and volumes to improve as brands and retailers shift to their spring lineup. Our manufacturing efficiencies and costs continue to improve as we work to offset inflation. But the lower production volumes that Roger noted earlier are negatively impacting our results.

The strength of the Brazilian reais impacted the competitiveness of the apparel supply chain there and resulted in lower volumes from our Brazilian operation. Combined with higher priced inventory flowing through their operation, our Brazil results were also below expectations. We have seen some improvement in Brazil just recently as the reais has weakened over the last month and would expect improved results if the exchange rate were to settle at the current levels.

While the factors mentioned have certainly affected our results over the short term, we remain committed to our core strategies of continuous operational improvement, growth in Brazil and China, and growing our PVA business, especially Repreve.

The North American trading region has maintained its share of synthetic apparel supplied to U.S. retail for the past two-and-a-half years. And all indications are that it will maintain or grow share this year. We are seeing significant investment being made in the region, across the apparel supply chain and many programs have returned to the region from Asia, which is another indication of stabilization in the region and that slow growth in real volume is likely. We also believe the economies in apparel consumption of both China and Brazil will grow. And we are well-positioned to benefit in both countries.

While we expect this fiscal year to be challenging, we believe the strength of our company has us well-positioned for the future. We plan to aggressively manage our costs, working capital and ultimately our cash as we work our way through this soft start to our fiscal year. Our adjusted EBITDA forecast for the balance of the year largely depends on what will happen in retail with specific interest on customer spending on apparel with inventory levels in the supply chain and raw material pricing over the next several months.

If weak consumer spending during the holiday season fails to reduce the inflated inventory levels in the supply chain and if raw material prices remain at these abnormally high levels that really are well above the historic relationship with oil prices, then we would expect adjusted EBITDA for this fiscal year to be in the low 40s. However, if strong consumer spending during the holidays expedites the pace of inventory restocking in the supply chain and polyester raw materials return closer to prices that are reflective of the historic relationship with crude oil, then we would expect adjusted EBITDA to be in the high 40s with a much improved run rate for the back half of this fiscal year. In either case, we have plans in place to generate significant cash flow from operations and working capital reduction initiatives, which will allow us to further strengthen our balance sheet for the future.

And with that, I'll turn it over for questions.

Operator.

(Operator Instructions) Please stand by for your first question. Your first question comes from the line of Mr. Bryan Hunt from Unifi. Please proceed.

Hello, hey, Bryan. Operator, can you recheck that question?

Yes, will do.

Hello?

Bryan, your line is open.

Okay. Ron, there are a lot of moving parts with the numbers. I do my best to write everything down. But it looks like the Brazilian reais strengthening really made the Asia imported yarns much more competitive. And since the end of September, the reais has dropped down to about 1.73. So at what level would the reais need to weaken in order to reduce the competitive advantage? Or what level would it need to return to before your yarns become much more competitive versus the Asian yarns?

I'll let Bill answer that here in one second. But I understand that our webcast was having some problems. So we had some people dialing in late who didn't hear part of the presentation. So we'll be happy to take an extended period of questions for you guys. Anybody that has missed anything, please make sure you ask questions.

But I'll start off with some facts about the reais and let Bill pick up. The reais started at the end of June was about 1.56. It stayed at that level for most of the quarter. And then, it popped up at the very end of September, it got up into the 1.90s and then has fallen back to that 1.85 by the end of the quarter. Mostly, in quarter, we had that strong reais operating environment. And if you go back to our July earnings call, we told you guys that since there is such a large focus on imports in Brazil, we were going to have a tough quarter in Brazil, which came true because of the change in pricing, in polymer pricing in Asia happened dramatically, which allowed traders to react a little more quickly than we could as a local producer buying POY from Asia that that was going to have an impact on us. And the strong reais was going to have an impact on us for the quarter, both of those which came true. And I think what Bill said in his comments was more along the lines of as it's moderated up into that 1.75 level, we certainly feel a little bit better about the competitiveness of that business.

Yeah, I think there's a couple of factors at play here. First, Bryan, the reais historically over the last four or five years, when it was 1.70 or weaker, we've not seen that much in terms of garment and finished product and fabric imports into Brazil. It's only when it got down between 1.50 and 1.60 that we really started seeing that. So I think there is some relationship there. So when we get back to 1.75, we certainly feel more comfortable about our competitiveness there.

I think an additional factor right now is this inventory destocking you're seeing here in the U.S., imports of apparel over the last couple of months into the U.S. from Asia has dropped because of this destocking, this less buying by the retail supply chain. And as China has typically done in the past, when they have a large surplus of stuff, they'll start dumping it into different markets. And I think that's part of what we saw too in Brazil.

I think to get to your original question, when it's up around 1.70, 1.75 to 1.80, 1.85 where it's been over the last several years, we've not seen much of that. So I don't know if there's a direct relationship, but certainly we're much more comfortable at 1.75 with our competitiveness than we were at 1.50 or 1.55. And I hope that answers your question.

Yes, that's helpful. Thank you.

And now, regarding your outlook for raw material inflation, I believe you said that polyester price has actually increased slightly after quarter end. Can you repeat for us when you believe these prices will normalize?

Yes. Well, actually, let's talk about normalize. If you look at polyester raw material pricing as it has been over the last three or four months and you look at the historic relationship to crude oil pricing over the last 10 to 15 years, it's literally $0.20 to $0.25 a pound higher than it has been over the last 10 to 15 years with relationship to oil. I mean, it's related to a $140 to $150 a barrel oil right now. The main driver for that is that several paraxylene and MEG plant outages in Asia over the last six months. So it's really a supply issue as opposed to anything based on the fundamentals.

What we have seen, they've stayed basically high and they dropped down for a couple of months. But they came back up in August, September to these very, very high levels. We are expecting to see a drop in November and potentially another drop in December. And ideally, we'd like to see it obviously get back to the normal relationship with oil. Now, will that happen? I think it will over time, because there is more paraxylene capacity coming online in 2012, 2013. But we've certainly been weathering some extremely high raw material prices well beyond what you would normally expect with $80 to $90 a barrel oil.

The only thing I'd add to that, if you go to the really macro level, our raw materials go into auto resins and plastics and lots of different stuff. You went through a recession where demand went down and there were some capacity that came out. You're now back to pre-recession levels and investment is on the way. But it takes two years to build a petrochemical facility. So that's common and there's really coming asset investment, because it is. But we're just in the uniquely tight environment right now. I think (technical difficulty) which is driving that well over where we should be from a normalized level in raw materials. And we think that's going to abate here in the next 12 to 18 months.

And I guess the only other factor I'd mention, Ron, is Roger mentioned this price gap between the U.S. and Asia. Just a quick review of that, it's paraxylene prices that have been abnormally high because of paraxylene supply. That then, of course, gets made into PTA or terephthalic acid, which then goes into polyester. In Asia, the price of PTA is basically supply demand driven, market driven. And the margins of the PTA suppliers have really been squeezed because of the high PX prices, because they've not been able to get PTA prices up. Unfortunately, in the U.S., PTA is formula driven. And those margins, PTA over PX, have stayed quite robust. So that gap between raw material prices in Asia and here in the U.S., which is typically you're out $0.04 to $0.05. If you look at it over the last 10, 15 years is $0.09 or $0.10 today. Now, we think that will also moderate with time.

Got you. That's very helpful. Thank you.

And a couple of questions related to your pricing. And then, I'll hop off. Would you say that you have led the industry in pricing or that you followed and that had played a role in some of the volume losses as well?

Yes, Bryan, this is Roger. I think as we saw raw materials increasing through the last six to nine months, we've certainly went out into the market. We would think that we were the leader in the price increases, but at the same time, there was a softness in volume as we started picking up this destocking issue. So, unprecedented, we were faced with increasing raw material in a market where the volume was soft. So we were able to get some price increases through. But in some areas of our business where we compete against Asian imports and the imports were coming in at much lower prices, we had difficulty in those segments. That's where we're forecasting as raw materials decrease, we should be able to go back and compete in some of those sectors and get generally prices up across the board and get our conversion margins back.

Got you. And assuming raw material costs stabilize or even retreat for the back half of the year, how sticky would that pricing be?

I think as we move through the back half, we talked about recapturing lost margin in the script. I think it's a difficult operating environment with volume as -- when you have a volume slowdown, trying to get price to stick. And so the combination of volume coming back once this destocking works itself through and then a declining raw material environment, we'll be able to get margins back towards the normalized levels those margins are at. That is our full expectations.

Great. And final question for me, for the full year, and you may have mentioned this, I apologize if I missed it, but do you expect working capital being a source for you and to what extent, all purposes?

Sure. I think the actual answer is it depends. I think we gave a couple of different ranges in the low 40s to high 40s. I think in both of those, working capital will be a source of cash during the year, because we're coming out of a year -- we don't believe raw material prices are going to be at the level that they have historically been in. And if you think about us, when we talk about pennies per pound, a penny drop in polyester raw material prices is worth almost a million dollars to us. So we would expect raw material prices from that record high level towards the end of last year to drop $0.10 to $0.15. So there will be a substantial working capital pick up, even if volume returns back to the levels we were running last June quarter. If it doesn't quite return back to that level, we'll have a little bit larger volume pick up.

And I think that's part of the reason why we feel so confident is that, even in an environment where we're running at a little bit lower rate, we're going to be able to generate some cash flow here short term just from adjusting our working capital levels. And I think we got a little bit behind in the quarter. There in early September, we implemented those working capital plans in order to be able to adjust those inventory levels down. And I talked about in my part of the script where as we moved out of the quarter over the last several weeks, we've adjusted significant amounts of inventory out in October. So we're highly confident of our ability to manage on that working capital side.

And, Ron, the other thing I'd add to that is even if volume comes back by the end of this fiscal year to the same level as June, we would expect our returns to be about 15 or 20% percent better as we have initiated some lean manufacturing programs. So we're going to better manage the units in our inventory as well.

Great. Thank you for your time.

Thanks.

Thank you. The next question comes from the line of Chris McGinnis from Sidoti & Company. Please go ahead. Your line is open.

Good morning. Thanks for taking my question.

Hey, Chris.

I guess I was one of the guys who got in late. I don't know if you already touched on this, but I guess just maybe the impact from the recent South Korean Trade Agreement, how you view that on your industry, but also on maybe (technical difficulty) as well.

Okay. I'm going to let Bill do that one too. But I'm getting feedback here as I go through here. I understand there was a delay at the encoding center from Thompson. So, I just want to remind everybody that the full webcast will be available about two hours after conclusion for replay. So anybody that wants to hear the full one can go back at that point in time. And with that, I'll turn it back to Bill.

Well, certainly, the South Korean Free Trade Agreement was one that the textile industry in the U.S. had concerns about. I think for us personally, if you look at the businesses that we're in, for the most part, the duties that are in place today drop over the next five to ten years, so there's not going to be an immediate impact. In addition to that, if you look at the Korean textile industry today, CAFTA frankly is more competitive than the Korean industry. So I don't know it that it would have a major impact if the free trade agreement was to be executed as written.

The one concern we have, the one concern we've always had as a textile industry is a possibility of the illegal transshipments of Chinese goods coming through to Korea, basically goods made in China that should be coming in here under the duty and shipped to Korea and then just tagged Made in Korea and shipped over. But there are some [custom] enforcement language in the agreement we don't feel is strong enough. The textile industry here is going to be very aggressive in monitoring that supply chain.

And, again, this is something that we're going to be looking at a year, maybe a year-and-a-half from now. But we're going to be very, very aggressive in looking at that supply chain, maybe even have people in Korea not as unified with the textile industry to make sure we monitor that supply chain so these illegal transshipments do not happen. I think beyond that, we don't see a large impact on our business, certainly not for the next five years and probably not at all as CAFTA, again, is more competitive.

Is that the same for Parkdale as well, just quickly I guess?

Yes, from a Parkdale standpoint, again, I think they're even more competitive since they're cotton pricing here is actually a little bit deeper than cotton pricing in Asia, kind of the opposite of what happens to us. And, again, their supply chain in my mind, especially since most of what they do goes through CAFTA is really more competitive than what we believe the Korean supply chain is. But, again, they're going to have the same concern about illegal transshipments coming through China.

Over the last, just for order of magnitude thing, is Korean is less than 1% of apparel that gets imported in the U.S. today, consumed in the U.S. So it's a small infrastructure. And the places where it plays is some really technical fabrics that we really don't play in. So we certainly objected to several parts of the agreement. And we want to make sure enforcement is as strong as we possibly could. In addition to that, we've developed this deal or worked with the NCTO to develop this bill around the textile enforcement side of it as well with the TESA that I think Bill has talked about before on here.

So, we feel pretty good about it. I think there is certainly risk going forward. But I think Bill's point earlier of the Korean supply chain, just from a cost standpoint, the major cost inputs, power costs, raw material cost and people cost, the CAFTA supply chain can be substantially more competitive than their supply chain. So, although we're going to monitor, we're not overly concerned at this point.

Thanks. These next couple of questions, just on PVA, indicates on [buy-ins in a quarter], how are you seeing that? How is that impacted in the quarter?

Yes, on PVA, talk about PVA really is our umbrella branded products. Certainly, we talk a lot about Repreve. But we have other branded products in that PVA category like our moisture management Sorbtek and our odor control, which is our antimicrobial yarn, A.M.Y. We have an Augusta program, which is a performance yarn that we've done with Reebok and Adidas.

When we look at that PVA category, we've talked about our strategic goal is to double that business in three years. And we continue to be on track with that. As we experience volume softness through the first quarter, we really don't see that type of volume softness in our PVA category. We continue to see Repreve programs being adopted and the Repreve growth that we've talked about continues. There's a lot of development, lean development activity that we're thinking that's going to come online in 2012. That would really continue to contribute to our PVA growth.

And just last two things. One, just CapEx for the year, your thinking. And then, second, the last quarter, you talked about maybe adding some capacity in El Salvador. How's your view on that with the current conditions?

Backing up to the second one first, we're continuing down the path of capacity expansion in El Salvador. That operation is still running well. And there's some trade discussion, we're going to have a Gildan ruling that we expect to come into play here in the next one to quarters, which will close a loophole in CAFTA that allowed for imported yarns to be used in sewing thread. And we are probably the largest sewing thread producer here in the region. So a combination of those two things makes us feel very confident about production in that region. So we're continuing down that path. Because of this inventory destocking, we are slowing it down a little bit. We're not in a hurry to get those machines in like we once were. Still, before the end of the fiscal quarter, we'll have those machines up and running from an expansion point down there.

From the CapEx standpoint, we are pulling back on CapEx this year. In an environment where we said back in the budget where we gave a guidance of mid-60s, low to mid-60s for the year, we talked about CapEx not being $22 million like it was last year when we made all these investments, but dropping it back into that $12 million to $14 million range. I think we'll cut back from that as well. Roger talked about Repreve and some of the programs around Repreve. We had some Repreve expansion in this period. And we're pushing a little bit of that back into the next period. So, instead of the 12 to 14 range, it will be more like the 7 to 8 range of CapEx that we're planning for this year. Still doing everything that's required to keep our machines operating. I know you've been to the facility. You know how seriously we take quality and how seriously we take maintenance around machines. So we'll continue to do everything we need to do around that. But we will pull back this year into a lower CapEx level, more like that 7 to 8.

Great. Thank you very much for taking my questions.

Thanks, Chris.

The next question comes from the line of Bryan Hunt from Unifi. Please go ahead. Your line is open.

One final question for us. There's some flooding in Thailand. Has that in any way impacted the supply of yarn available for export in the region?

Not in Thailand for us. A lot of the yarn out of Thailand actually goes into Brazil. So that's one of the competitors in Brazil. And we could see future disruption of our competition in Brazil. But we haven't heard anything specifically about them. And I guess Roger's got a comment.

The Thailand flooding hasn't made any impact to our business. We have experienced some flooding, heavy rains in El Salvador that's been reported in the news. We've had some temporary disruptions for a 24-hour period. Our customers have also felt that impact. But everything is back to normal operations. And, again, that impact was very short. Those disruptions were power. We didn't have flooding in our facility. They were power disruptions.

Okay. Thank you.

Thank you. You have no questions at this time. (Operator instructions.)

Operator, we'll give it one more second and see if anybody queues up.

Thank you.

With no further questions, I think Bill's got some closing comments.

Thanks, Ron. Over the last several months, we've weathered a perfect storm of supply chain inventory destocking, abnormally high raw material price, widening Asia ingredients cost gap and a strong Brazilian reais. And I think it's important to note in many ways this is a worse scenario than we faced in our 2009 fiscal year. Despite all of that, we've maintained positive earnings and adjusted EBITDA and a very strong balance sheet. We feel the improvements we've made to our business over the last four years, coupled with a return to more normal parameters and regional market stabilization and growth, position us well to recover strongly and get back on track later this fiscal year.

With that, we thank you all for listening in. And have a good day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

Thank you.