Unifi Inc (UFI) 2021 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2021 Unifi, Inc. Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, A.J. Eaker, Vice President of Finance. Please go ahead, sir.

Thank you, operator, and good morning, everyone. On the call today is Al Carey, Executive Chairman; Eddie Ingle, Chief Executive Officer; and Craig Creaturo, Executive Vice President and Chief Financial Officer. During this call, management will be referencing a webcast presentation that can be found at unifi.com and by clicking the first quarter fiscal 2021 conference call link.

Management advises you that certain statements included in today's call will be forward-looking statements within the meaning of the federal securities laws. Management cautions that these statements are based on current expectations, estimates and/or projections about the markets in which Unifi operates. These statements are not guarantees of future performance and involve certain risks that are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecast or implied by these statements. You are directed to the disclosures filed with the SEC on Unifi's Forms 10-Q and 10-K regarding certain factors that may impact these results.

Also, please be advised that certain non-GAAP financial measures, such as adjusted EBITDA, adjusted working capital and net debt, may be discussed on this call.

I will now turn it over to Al Carey.

Thanks, A.J. And good morning, everyone, and thanks for listening to our call today. I'll turn this presentation over to Eddie Ingle, our CEO, in just a minute or 2, but I thought I'd provide you with a few broad highlights for our first quarter of fiscal of 2021.

First, we've gotten off to a good start. Each month, our volume and our revenue has improved sequentially since the pandemic began in March, and the trend continues in October, and October is part of our new quarter. And our profitability performance was also solid, and it was ahead of our expectations.

Second, we see a trend with our customers. They are prioritizing sustainability goals, and that has actually helped our REPREVE business. Last quarter, REPREVE -- back in quarter 4, REPREVE was 28% of our mix. And then in this first quarter, it was 35% of our mix, and we see that continuing.

Third, we've been quite busy during the pandemic period to set ourselves up for a better long-term business when we come out of the COVID. We've paid down our net debt to a record level. Our cash position is strong. We've reduced inventories, but I'd say we've rightsized our inventories. We began placing our innovative EvoCooler equipment, and we brought in a new CEO, Eddie Ingle. Although I'd say, Eddie is not new, he had a 30-year career with Unifi before he came back.

And fourth, you may recall, for the last 18 months or so, we've had quite a bit of management turnover. And with the addition of Eddie, we've now completed an entire reset of our leadership team at Unifi. And I feel that each member on the team is not only the right person for the job, but they're also highly motivated and working well together.

So I'm optimistic about our progress in quarter 1 and as I look out over quarter 2. But we still have a great deal of work to do and there's still a fair amount of uncertainty in the environment they're operating in, so it makes it difficult to forecast with any level of precision. So all considered, I believe our industry is recovering nicely, and we're slightly ahead of the pace of our industry. So I leave quarter 1 with a positive feeling right now.

So for more detail on our performance for Q1, let me turn it over to our CEO, Eddie Ingle, to provide you with more highlights.

Thanks, Al, and good morning, everybody. As Al mentioned, we are all proud of our first quarter fiscal 2021 results and believe we are well positioned for the fiscal year.

Reflecting on the pandemic, I want to again thank all of our employees for their dedication to the business and our customers. To date, their safety measures have allowed us to maintain low COVID case numbers while continuing to operate our business and navigate the recovery well.

On Slide 3, we've provided an overview of the quarter. On a sequential quarter basis, revenue rebounded sharply from the very low fourth quarter of fiscal 2020. And I'm glad to say that the business improved as we went through the quarter. Our strongest segment performance during the first quarter was in Brazil as the region experienced a fantastic rebound resulting in the highest quarterly sales volumes on record. While our Asia volumes saw good growth from the fourth quarter of fiscal 2020, the team there also did a great job managing their costs and improving the product mix, allowing for gross margin expansion.

At the beginning of the quarter, our Central American operation in El Salvador restarted and is now running at full capacity. Interestingly, as we ramped up operations, we saw additional growth in conversions and brand adoptions for REPREVE-branded product in the region. The supply chain that we've talked about in the past predominantly feeds the U.S. market.

As stated in the last quarter's call, we look towards returning to growth on a year-over-year basis by fiscal '21 year-end, and the first quarter is providing solid momentum for this aspiration. I'd like now to give you a little more detail on the performance of our end markets and our segments for the first quarter.

Each market recovery has been slightly ahead of our expectations, with automotive, apparel and industrial markets hovering around 15% to 25% below prepandemic levels. While we continue to provide solutions for the personal protective equipment market, or PPE as it's known, our volumes are at a lower level from earlier in the calendar year, and we expect revenues from this end market to taper off as the pandemic recedes. And I'm pleased to say, as Al had mentioned earlier, that through October, we haven't seen any negative developments in our major regional markets or categories.

The Polyester segment experienced demand and order flow compared to the fourth quarter of 2020. But of course, over -- on a year-to-year basis, volume was lower. While the pandemic has created uncertainties, it has also driven us to continue to focus on improving revenues and exploring new business opportunities. I'm also pleased to say that raw materials remained stable for the segments, and we believe that the short-term outlook remains unchanged.

Given our leading market position and the volume levels in the first quarter, it has naturally allowed us to absorb a much greater level of fixed costs when compared to the June quarter, which has impacted our profitability positively. Brazil achieved sales and market share growth compared to both the recent June quarter and, more importantly, the prior year period. Out of all our segments, Brazil has seen the strongest recovery with record sales volumes in the first quarter. Amid the demand uncertainty in Brazil over the last 6 months, competitive importers of textured polyester yarns reduced their inventory of stocks. Our business remained committed to the customer experience, and we were ready to serve when demand recovered quicker than expected in the region. Accordingly, we were able to absorb market share previously held by competitive importers, maximize facility utilization and capitalize on the situation. Going forward, we will work to hold on to our market share gains. Within the region, visibility, as in many areas, is restricted for the remainder of the fiscal year.

Outside of Brazil, the Asia segment is also recovering nicely. The segment experienced solid pull-through on both existing and new customer programs, resulting in improvement over the fourth quarter of 2020, but more importantly, getting us closer to prepandemic levels. Throughout the region, we saw enrichment in the product mix leading to improved gross margins. Demand in this segment is tied to North American and Western European retail sales, which, due to the accelerated move to online sales, is expected to continue to improve as we move through the fiscal year. Of course, this is all dependent on the U.S. and Western European economies and the consumer sentiments.

The Nylon segment performed near our expectations, and I remain optimistic about its long-term performance and place in our portfolio. It is not a surprise to us that the recovery in this segment has been the slowest of all our segments, and we remain committed to developing and commercializing new products that will help revitalize this segment.

Looking at our business from a product perspective, I'm very pleased to share that during the first quarter REPREVE fiber products hit 35% of consolidated sales compared to 31% during the same time last year and compared to 28% in the June 2020 quarter. The first quarter increase in REPREVE sales can be largely attributed to our efforts of bringing sustainable solutions to brands looking to fulfill their commitments towards more sustainable practices and an ever-expanding portfolio of sustainable products.

With the proliferation of e-commerce shopping, consumers can more readily evaluate a product based on sustainability. Consumers can also gain a better understanding of the product story as there is far more real estate online versus in-store. Perhaps even more importantly, sustainability-related keywords on fashion products has grown exponentially, and marketplace e-retailers have created new internal platforms to help the consumers sort and identify sustainable products. We are working with our customers to produce the most advantageous co-branding activations possible to help market and identify merchandise as sustainable goods, thereby creating awareness for both REPREVE and our customers' products.

We have many examples of these co-branding programs, such as in the apparel space, where U.S. brand Hollister has launched print graphic hoodies and sweatpants with our REPREVE logos visible on the garments. Justice Denim is promoting REPREVE in their girls' denim and also have future expansion plans. Aramark, a well-known workwear brand, has released new Polos with REPREVE content.

In Europe, Turkish brand, Penti and retail, Boyner, are touting a variety of items across categories containing REPREVE. In Italy, a company called Sundeck has added REPREVE to a variety of their iconic activewear lines. And Danish footwear brand, ENGEL, is promoting sustainable garments by touting its inclusion of REPREVE across several office products, interestingly both for purchase and for rent.

Several accessory brands are promoting REPREVE Alton. Igloo just released a line of soft-sided REPREVE-branded coolers. Fitbit expanded into woven wristbands made from REPREVE across the Versa, Sense and Charge portfolios. And it should be noted that Nixon has launched their first REPREVE Our Ocean collaboration in their H20 Yeah! bag line as the first North American brand to use REPREVE Our Ocean in wearable brands -- bags.

During the quarter, we saw our China market return to in-person trade shows with participation in Intertextile Shanghai where we launched 2 important innovative products, ChillSense For REPREVE Polyester and REPREVE Flex resin for bicomponent stretch yarns. Here in the U.S., just last week, at the High Point furniture market, one of the largest furniture market gatherings that exist in our backyard right here in North Carolina, we exhibited the REPREVE mobile tour at the in-person High Point furniture market. And I was honored to deliver a keynote speech on a topic that's near and dear to my heart, sustainability in textiles.

As stated in the previous quarter's call, when the right market consolidation opportunities come along, we're going to take the time to evaluate them. So in saying this and supporting our portfolio even more, earlier this month, we acquired the air-jet texturing assets of Texturing Service, LLC, or what we call TSI. This transaction is a step forward in our efforts to capitalize on M&A activity in the face of our core competencies where bolt-on acquisitions are favorable. We expect the additional markets and customers gained from this acquisition will complement our existing portfolio well and fold right in, given that we already have our own history in the air-jet texturing market. TSI primarily services nonapparel end markets. So this acquisition provides us with some segment diversification as well. On this call, we will not be discussing any specific financial details of either the transaction or how much TSI will increase our sales volume and revenue as this transaction had no impact to the just completed quarter.

Our financial position continues to strengthen, with liquidity levels in excellent shape. I'm proud of the strides we have made in improving our balance sheet and remain committed to improving and maintaining good financial health.

With that, I'm going to turn the call over to Craig. Thank you.

Thank you, Eddie, and good morning, everyone. Like the rest of the team, I am pleased with our first quarter fiscal 2021 results and our ability to maintain favorable cash and liquidity position. There's plenty of work remaining in fiscal 2021 as the business continues its path to recovery and beyond, but our position of strength is already on this way.

Alan and Eddie provided a great overview of the first quarter, and I would like to add just a few thoughts. On Pages 4 and 6 of the webcast presentation, we compared our net sales and gross profit performance for the just-completed quarter to the pandemic-impacted fourth quarter of fiscal 2020. Eddie shared the relevant highlights in his comments.

On Pages 5 and 7 of the presentation, our traditional year-over-year comparison of Q1 fiscal 2021 to Q1 fiscal 2020 for net sales and gross profit is shown. The broad theme is that except for Brazil, the year-over-year volume shortfalls are impacting our results. While we could go through the normal commentary, the general answer of having lower sales activity would be the reason for the changes. So we will skip that analysis for this quarter, and hopefully, the sales gap for the December 2020 quarter will be small enough to return to a normal, more meaningful comparison commentary.

One item for the just-completed quarter that is worth discussing is the effective tax rate. Our tax rate was more typical in the prior year at around 16% of expense. But for the just-completed quarter, we benefited from a favorable discrete item related to the recent legislation around the high-tax global intangible low-taxed income concept, commonly referred to as GILTI, driving a $2.7 million discrete benefit. This tax rate change between periods allowed net income and EPS to remain quite similar from Q1 fiscal 2020 to Q1 fiscal 2021.

On Slide 8 of the webcast presentation, I will discuss the balance sheet highlights. The graph presented here provides the trend of net debt and their components, debt principal and cash. We do need to see the significant progress we have made in strengthening and maintaining our liquidity position, beginning with the onset of the pandemic and continuing with diligent balance sheet management during the first quarter of recovery.

We continue to have 0 borrowings on our ABL revolver with availability of approximately $57.6 million, and we have not requested any changes or concessions to our debt covenants or repayment terms. Our cash position and current credit facility continues to provide us with the ability to maintain a balanced approach to capital allocation, prioritizing investments in the business and growth opportunities, supported by debt reduction and share repurchases at the appropriate time.

I'll now turn the call back to Eddie to take us through the last slide of the presentation and make some final comments. Eddie?

Thank you, Craig. I'll turn to Slide 9 of the presentation to provide some context around our next 3 quarters of fiscal 2021 before opening up for Q&A.

The first quarter strong performance supports our confidence that we'll continue to see incremental progress during fiscal 2021. We anticipate profitability will follow the expected sales trends, considering any routine seasonality for sales and expense items. All of this is assuming we don't see any economic shutdowns related to the pandemic in our core regions. Sales of REPREVE and value-added products are expected to continue recent growth rates and as a percentage of our consolidated sales.

Lastly, given the momentum from the first quarter, we also believe our annual CapEx spend will fall in the range of $22 million to perhaps $25 million.

I believe our first quarter is a great indication of what we can achieve once our markets return to normal. We will continue to focus on managing our costs and working capital, using our innovation and technology platforms to drive portfolio growth and partnering with brand leaders that look towards providing sustainable products. For the remainder of the year, we will continue to keep our people safe while not forgetting to invest in their development, so that long term, we can continue to build positive financial upward momentum as the recovery unfolds.

We'll now open up the line for questions. Thank you.

(Operator Instructions) Your first question comes from the line of Chris McGinnis with Sidoti & Company.

Nice quarter, so congrats. Can I just start off with maybe -- just on the volume increase from 1Q to 4Q? Do you think there's some pent-up demand that may be playing into that? Or is that just more of a back-to-normal order patterns? And how do you feel about that?

And then can you just talk about this change in terms of demand for REPREVE and the conversations you're having? Have those increased under COVID? And what do you think the driving factor behind that is?

There are several questions in there. I think there is demand that is being fulfilled to fulfill -- to replace the depleted inventory that's occurred. So -- but we're also seeing an increase, especially in areas like Central America where they're preparing for the Christmas season. So we know that quick turn in supply chain in Central America allows the brands in the U.S. to fulfill the market demand very, very quickly as compared to China. We're still seeing logistic issues coming from China that don't affect us, but it does affect the apparel supply chain.

And also in the automotive markets, that business is coming back very nicely, and that's a significant part of our business. And very interestingly, the upholstery and home furnishings market is also returning as people -- we all have stories where people are renovating their homes, buying new homes, or just tired of looking at the same old furniture, and that is driving an increase in that demands in that segment for us also. In fact, in Brazil, that was where we saw the largest increase in the demand within the home furnishing sector.

So I think all of this plays very well into our REPREVE brand. If you -- somehow consumers are connecting this issue, the pandemic issue with climate change and are trying to do something from a sustainability point of view. They're much more conscious today about what they're buying, and it's been driven by the millennials and Gen Z-ers. And so they're gravitating towards buying sustainable solutions, sustainable products, and I think that's where REPREVE fits in. And the brands are also seeing a lot of benefit by co-branding with our REPREVE. Thank you.

Chris, this is Al. I'll just add. It seemed that in the first part of the COVID, let's say, to the middle of the summer, not much discussion about sustainability. And I even thought, "I wonder if there'll be a decline in the interest in sustainability?" And then I'd say late summer into right now, significant increase in the discussions we're having with the big brands and the big customers. I think they take their sustainability targets very seriously now, and they realize that we can play a role in their accomplishment of those objectives.

The other thing I've noticed is as you start looking at the executives who run the important jobs in some of these companies, they are millennials, or the early edge of the millennials. And these young people take their jobs very seriously when it comes improving the sustainability.

That's great. And especially congrats on getting -- starting to get more co-branding. I think that's something that people have been looking forward to for a long time, so congrats on that bit of work.

Just to jump in on that Brazil, just two quick questions left. Just on Brazil, I know volatility in the currency kind of plays into demand trends there. How are you going to approach that business a little bit differently than, say, maybe in the past, so that, that doesn't happen if volatility comes back into that?

Well, I don't think we can do anything from a currency perspective. But what we are focused on is, and we saw this in the last quarter, is really committing to servicing our customers at a very, very high level. We were there when the importers stopped servicing that market significantly. The imports, I think, in Brazil went down about 35% over that time period. And the local customers had to look to us to service that demand. So what it's really highlighted to us is maybe there's an opportunity to expand -- potentially expand our operations there or look to running that operation a little bit more intensely and having -- building some more inventory slightly to service that market. But definitely, we have given customers a reason to pause and rethink about importing versus buying domestically. Thank you.

Great. And then just one last question, just on the gross margin improvement. How much of that is a factor of the cost savings versus maybe better utilization? Can you just maybe talk about where your utilization is at, at the moment? Any color on that?

Chris, this is Craig. The gross profit improvement definitely benefited from the rebound in the utilization, for sure. That was a very significant piece of the gross margin improvement. We definitely have had a fair amount of cost control actions and items that helped as well, but the largest piece of that was the recovery in the volume levels. And I think, again, just us being careful about costs that we've added into the business, we've been very, very careful on that over the last several quarters, even prepandemic. I think with the volume increases, we've got nice uptick in the gross margin.

We do have some room to grow. And as we said, we think we will continue, through the rest of this fiscal year, seeing higher levels of activity. If what we're seeing in October is going to continue to trend, we will start to use up some of the additional capacity we have in our facilities. We do not feel like we're capacity constrained. We feel like we would be able to hit the recovery nicely with the capabilities we have.

Your next question comes from the line of Daniel Moore with CJS Securities.

Maybe just a little more color on the cadence of volume or revenue in, I guess, both Polyester as well as Asia in terms of the sequential improvement July, August, September and now into October. What do year-over-year declines look like in October for those 2 segments?

Dan, we really -- as we stated in the commentary, really since that low point in April, we've seen the gap close each month as we're comparing the current month in calendar 2020 to the comparable month in calendar 2019. For us, the gap for October was the smallest that it's been. It's definitely noticeably smaller than the 20% or so that we were off for the whole quarter. And we're starting to now get into the -- kind of starting to hover around the teens or single digits as far as percentage off.

So that's where it's been trending. It's been pretty ratable during that whole period of time. There hasn't been 1 month that there was a sudden huge change, but it's just been this nice, steady, incremental change progressing to now what is starting to be a more reasonable gap from our performance from last year.

Very helpful. And just to clarify, I know it's not guidance per se, but your commentary going forward. And based on that trend, it certainly sounds like you expect sequential improvement, both top line and bottom line, obviously, barring any major resurgence of COVID, et cetera. But as we go forward, that's -- we should be thinking about sequential progress in both from fiscal Q1?

We definitely think, from a revenue perspective, we are anticipating continued progress there. We do have, Dan, some seasonality and some other things that will impact us both in the December quarter, also in the March quarter.

I think the other thing to note, too, is we will -- we have been pretty limited on a lot of the discretionary spending, customer visits, those types of activities during this quarter. And we are starting now to see some of that activity pick up. And we have anticipated and forecasted that, that will continue to pick up. Eddie and Al both mentioned about the brand kind of engagement that's needed. And yes, we have been doing a lot of that via conference calls and Zooms and things like that. But there is a bit of pent-up demand where we have quite a bit of demand that we want to get out and will be seeing those customers.

So that will increase a bit. I think that will put some extra dollars into the SG&A line item going forward. But overall, we are expecting -- again, the broader theme is continued improvement, especially on the top line. And again, we'll have some seasonality over the next couple of quarters or so.

Dan, this is Al. A little more -- Dan, just a little more color on that. Now as we speak to customers and brands, they are very bullish on the Christmas season. So I think they're confident of e-commerce platforms, and there's a fair amount of apparel business being done on e-commerce as we go into the Christmas season. Then what happens after Christmas, I'm not sure with any level of precision. But listen, I'm optimistic of what I'm hearing from the apparel people.

Yes. Our business in China, because of the supply chain there, it's servicing now the March, April period for what it makes. And we're seeing continued growth and adoption of the REPREVE. I mean most of what they sell is actually REPREVE, so we're seeing continued adoption by different brands, and that's really impacting the growth rate in China. And it's steadily coming back to prepandemic levels, as we've mentioned, and we're not expecting that to change. And it's really driven -- like I said earlier, the Western European and U.S. brands are -- seem to be confident in what they expect to sell in the March, April period based on what we're seeing in China. Thank you.

No, Eddie that's great. That's helpful. Polyester, are you starting to see more tangible benefit from tariffs and trade activity? Or is it simply too difficult to separate that from the sort of COVID cross-currents and recovery?

Well, going into Q3 last year, we did see an improvement in our demand for these. It's basically displacing imports. And of course, COVID took the wind out of our sales. Today, we are seeing resurgence and return of some of that business coming back. And we do believe, as we go through the next few quarters, much of that will return to us as customers not only enjoy the fact that we're -- we have product to sell that is compliant, but also the fact that we have quick service, and we have good payment terms, and we have very, very good quality. So we are seeing that product line -- product mix come back. And -- but it has been slow, but we definitely expect to see that as we move through the next few quarters. Thank you.

Perfect. Maybe one or two more, and I'll jump out. Brazil, you gave pretty good color. I mean, obviously, it sounds like the recovery is -- extends well beyond just the core apparel market, but just maybe a little more color on what's driving that turnaround and the sustainability of it from your perspective.

Yes. So traditionally, we have been very apparel-focused in Brazil, but we also have a line of goods that go into home furnishings. And like the rest of the world, people seem to be focusing on their home environments, whether it's converting some of their home into workspace or making their home more comfortable because they're spending more time in there. And that's definitely -- it's really interesting. We can absolutely see in the home furnishing, whether it's going into curtains or bedding or upholstery at home, there's been a step change in that market in Brazil. And we don't see that changing in the short term. So we've been right there ready.

On the apparel side, because of the exchange rates change, it's also made the apparel producers domestically in Brazil more competitive. So we're seeing that there is more production of apparel being made in that country than there had been, say, a year ago. And their -- the local producers of apparel are more competitive with the apparel imports. And we're more competitive with our yarns because our local costs are cheaper than they had been in the past. So we are very excited about what's happened in Brazil. And as I said earlier, we do see an opportunity to perhaps expand our market share long term. Thank you.

Very good. And maybe one more just in terms of capital allocation. As far as M&A is concerned, what are some of the other end markets outside of apparel that you intend to -- that Texturing Service will help you attack? And are you seeing more opportunities to redeploy capital in terms of M&A over the next few quarters?

Yes, I'll take part of that question. Maybe Craig wants to add to it. TSI, as we said on the call, is -- has a market -- focused on a market that is very different to our traditional air-jet texturing business. We sell a lot of air-jet texturing business that goes into apparel or military. Most of the products -- 70% of the products that TSI was selling was into nonapparel, nonmilitary, into unique specialty end uses. When you air-jet texture a yarn, it makes it much stronger and resilient. And it was interesting to see their portfolio once we acquired their business, and it is going to be very, very complementary. But it's nonapparel, nonmilitary and very, very specialty end uses, which gives us a little bit of a margin uptick compared to traditional air-jet texturing products. So we may end up expanding that business further, but that's to be determined once we get our teeth into the business. But Craig?

Yes. And Dan, I'll just add to that. The M&A, yes, we're interested in finding businesses that are a good strategic fit for Unifi, that can take advantage of the significant facility and infrastructure that we have and if they're of good value as well. And we like it when there is end market diversity, such as TSI is providing to us.

So really working all those together, that's kind of what's of interest to us, and we continue to be active as opportunities are out there. But we're pleased with the TSI acquisition, and we'll be able to give you more details on that as we integrate that business during this quarter.

Okay. Perfect. That's a lot for me. I'd just echo, it's exciting to see the acceleration in the co-branding opportunities, so look forward to more to come.

Your next question comes from the line of Marco Rodriguez with Stonegate Capital.

I wanted to kind of follow up on a couple of questions that have already been asked, specifically on the gross margins. I understand the sequential improvements in the volume and the drivers there, but I'm curious if maybe you can talk a little bit more about that year-over-year kind of comparison. You still, obviously, had lower volumes compared to last year same quarter, yet margins across most of your segments were much, much greater. That example as well as Nylon, you have about half the sales by a commensurate or same gross margin level. And I heard the commentary in terms of utilization picking up and some cost savings, but if maybe you can discuss that a little bit more in detail, maybe put more buckets there or if there are any sort of onetime items that really kind of helped the gross margin this quarter would be helpful.

I think -- Marco, I think in addition to that slide, I think the year-over-year sales comparison probably on Slide 5 is helpful as well, too. I think you see a couple of things when you look at that chart. You do see the -- still the volume decreases, yes, but I think also, too, we're -- we have taken quite a bit of activity from Q1 of FY 2020, which was a period where we were not actively taking costs out of the business and not making a lot of actions there, we did a lot of that in Q2, in Q3 during the pandemic, even in this just-completed quarter.

So I think that's really an undertone. We talked a little bit about the volume increasing or the rebound that we've seen and being able to tackle that without adding a lot of additional resources beyond what we already had ready. So I think that's part of the theme as well, too.

Mostly though, it's really just that utilization, better utilization. There are some individual market changes and mix changes blended in there. But the broader theme continues to be the increase in utilization.

Eddie, do you want to add to that?

Yes. Just one thing. We were very diligent in taking out costs in Q4, and some of that effort has obviously, as you can tell, spilled over into Q1. We will continue to focus on cost reductions, but as our business expands and as our REPREVE portfolio expands, we will be supporting our customers and our brands by spending a little bit more on marketing, as Craig had mentioned earlier. So we're always going to be conscious of how we spend money. And we -- at the same time, we're not going to be afraid to support the brands and retailers who are -- who believe in our REPREVE position. Thank you.

Okay. And then so as the year progresses, in terms of the kind of whatever "guidance" that you're providing with some sequential improvements, and you have some year-over-year growth by the end of fiscal '21, on the gross margin perspective, just kind of given what you've done to take some costs out, have you guys reset a normalized gross margin environment for you guys once you do hit a normalized sales environment? Or are those -- and it had to be kind of put back in to kind of support the growth and support your customers?

Yes. And I think it's a more -- I think we're now entering into a bit of a more normalized margin area. I think there's some psychological benefit to having that gross margin above that 10% level, and we're proud that we achieved that in a still-recovering period just this past quarter. We think that, that, Marco, is really an achievable target for us. Again, it takes a lot of hard work from a lot of people in a lot of different areas, but we believe that that's still a very good basis for us to be working towards.

Again, I think it's a lot of small incremental steps that's getting us there, not some revolutionary thing that's happening, but we are on the right track. And again, I think the margin profile that we had this quarter should be a decent proxy for what we're expecting for the rest of the year. It wasn't drastically high, drastically low versus where we expected to be for the rest of the year.

Got it. Very helpful. Then switching here to Brazil. In your prepared remarks, you guys had talked about, obviously, trying to -- you took some share in the quarter, and you're going to look to basically kind of hold that share going forward. And you did discuss strategies in terms of you increasing your customer support services and your levels there. Just wondering if there are any other sort of strategies or implementations you'll be looking at to kind of hold that share as you go through the fiscal year?

Well, in the short term, we will be probably having -- a simple thing is to have a shorter Christmas shutdown until we can build some inventories to be ready for the rebound in January. We normally have an extended shutdown, and we will take this opportunity to replenish the very low finished goods inventories that we have. That's on a simple sort of basis. Long term -- longer than that, we are looking at what else we can do to provide more support to that market, which we are not able yet to disclose. Thank you.

Understood. And then last quick question here. Al, in your prepared remarks, you had outlined 4 different goals or accomplishments that you guys have done here year-to-date -- or trailing 12 months. But then you also mentioned the fact that you obviously have some more work to do, and I was wondering if maybe you can kind of elaborate on that maybe in the next 12, 24 months. What are those specific goals or targets or objectives you guys are looking to accomplish?

Yes, I'll mention a couple, and then, Eddie, you could jump in for more color. I would say we have more work to do, meaning that getting sales back to a year ago prepandemic levels. And I think that's -- we see it in the vision. We just can't tell exactly when it's going to come back because we don't know what kind of -- some bumps in the road that may occur from the pandemic. But overall, we feel pretty good about it.

Some of the things we need to work on, I would call it getting out and selling our line of REPREVE to customers in a more aggressive fashion to take advantage of this interest in the environmental sustainability, and then to bring some of the innovations online. Like this REPREVE nylon and REPREVE ocean plastic, I think, have great potential. Customers are interested. So that's an opportunity to sell innovation.

I think the placement of these EvoCoolers, it's early days, but we're very, very impressed with what these machines can do for us in terms of cost reduction, and we'll have more to talk about at the end of the next quarter.

So those are 2 things that we're working on. And the other thing, which is a soft side, is the development of our team. For the last 18 months, we've been replacing managerial talent, we've been putting senior leadership in place. I think we're at a point now where we dive back into the -- deeper into the company and start to develop our young people. We have a great group of young people in this organization that are passionate about environmental sustainability. And we've just begun to put some, let's call it, talent development programs in place for these folks. I'm very optimistic about that part of the business. Even though it's a soft part of the business, it pays dividends down the road.

Yes. And I'll just add one thing. Basically Al has said most of what I would have said, but I think as a group, most of our sales teams are zoomed out as it were, and they're ready to get back and sit face-to-face with the customers. And we have just recently begun inviting customers into our site, obviously, taking all the safety protocol. And we know that when we bring people into our facilities, it makes the difference, whether they're brand or direct customers. And it just brings that physical connection back. But obviously, we have to be very careful. We don't do as extensive tours as we used to, but it's not -- getting face-to-face with the customer will make a difference. So -- and we're doing more and more of that.

I think you all zoomed out.

(Operator Instructions) Your next question comes from the line of Samantha Hanley with KeyBanc Capital Markets.

Congrats on the quarter. First, can you talk about the growth opportunities you see for REPREVE, either picking up new customers or expanding your relationship with existing?

Yes. It's -- REPREVE has been a long journey. We started back in 2007. And as we've said many times before, it started with just a couple of customers who believed in sustainability as a brand. The first customer brand that we worked with was Patagonia. And as everyone knows them as -- their core is sustainability. And when we were talking about this several years ago, it didn't seem to resonate with many, many customers or brands. But today, fast forward, 6 months after the pandemic has gone global, we are seeing more and more thoughtfulness around how can each company deal with the sustainability efforts. And it's -- like I said earlier, it is odd that -- somewhat odd that people are relating this pandemic with what's happening and going on with climate change and what's happening with themselves as if -- when people couldn't get things in the store, they were finding-- things were scarce. It was the first time probably a lot of people in the U.S. have experienced, especially the millennials and the Gen Z-ers, experienced shortages. And even if they go online, sometimes it takes time to get the product because it's not actually in stock.

So all of this translates into resources and carbon footprints. And we're just seeing the brands say, I've made commitments, now I'm actually going to follow through. And I think that's the real key thing. The brands are saying, I have to be part of the solution, and REPREVE is there to help these brands. Whether they're in upholstery markets or automotive markets or apparel markets or industrial markets, we're seeing interest. They want to be part of the solution. And it seems like we're right now at the right place at the right time, even though we've been working on this journey for over 13 years. Thank you.

Samantha, I just wanted to add to that. So when the company first came up with REPREVE, I would say it took about 10 years to get to the 20 billion bottles recycled mark. So 20 billion bottles, we achieved that a while back. This year, we'll achieve 23 billion. So 10 years to get to 20 billion. Just 1 year or 2 years to get another 3 billion. We think by the end of next year, we'll be at 30 billion bottles. To give you an -- that gives you a little bit of an indicator of the acceleration.

Yes. Wow, that's pretty -- something to be proud of. So to go along with that, regarding sustainable fashion, do you think that's something that consumers will continue to pay up for even through a recession?

Yes. Actually, yes, I do, and we're seeing that. And not only is it going to consumers willing to spend a little bit more, they're actually looking for more sustainable products. So the volume that -- we're hearing from the brands, the volume of these sustainable products that they're marketing is actually growing. And we're seeing that in the number of hang tags. We measure by hang tag that we give out, that has increased year-over-year fiscal 2020 versus fiscal '19. And we're also seeing in Q1, an increase in the hang tags we distributed, Q1 2021 versus Q1 2020.

So we're excited about the ability for us to help brands sell their sustainable story. REPREVE is transparent, it's traceable, it's third-party certified, and it can be trusted. It's a trusted brand that is very easy for other major brands to adopt. And I think that's what's really driving the growth, the fact that it can be trusted and is transparent.

One of the opportunities we have is there's many, many customers that will say, here's a Haggar slack made with REPREVE, and they'll talk about it. There's many customers that use REPREVE and don't speak about it. And I think that's one of our challenges as a marketing organization is to convince some of our other customers to spend more time talking about REPREVE.

Got you. And then my last question is -- I know you touched on this a bit already, but could you talk a little bit more about if your apparel partners have given any indications on margins or sales for the upcoming holiday season?

Well, all I need to say is that, for example, in El Salvador, we're running our platform there, and that feeds the U.S. market as a quick turn supply chain. So there is a brand -- we're having discussions with the brands, and they seem to be confident that it'll be a good season. And they're confident mainly because they're seeing their online sales happen earlier than normal. It seems like people -- we've all heard it, there is a longer buying season now going into Christmas. People know there are shortages of products, so they're having to buy. So the whole phenomenon of trying to buy all your presents in December is really being spread out over a longer time period, which gives the brands time to react from a supply chain perspective. And Central America is perfectly poised -- perfectly situated to respond to that. Thank you.

What we can't tell -- so if you talk to some of these brands or retailers, they're very optimistic about their e-commerce ability to get these products to marketplace for Christmas holidays. What we don't know is what's the store traffic going to look like because still, the majority of the business is done in retail -- in the bricks and mortar. So it's -- I'm optimistic, but I would not forecast it because we just don't know yet. But I -- here's a bet I would make: if consumers are not traveling and they're not taking as many vacations during this holiday season, I think they have more money in their pocket to spend on apparel.

Yes. The big question for us is Q3 and Q4 at the end of the day. That's why we haven't given a forecast. It's -- we can see this quarter and the supply chain, but it's beyond that -- beyond Christmas, it is a little hard to predict. But I agree -- what Al said is -- so we can all -- we all have our own stories around the fact that we're not traveling, we're not going out as much. So that will translate into purchases of hard goods.

With no further questions, we'd like to thank everyone for participating today. Our next earnings release for the second fiscal quarter ending December 27, 2020, is tentatively scheduled for Wednesday, January 27, 2021, after the close of market, with a conference call to follow the next morning, Thursday, January 28, 2021, at 8:30 a.m. Eastern Time.

Thanks, again, for joining today's call.

Thank you.

Thank you for participating in today's conference call. You may now disconnect your lines at this time.