Unifi Inc. (UFI) Q2 2021 Earnings Call Transcript

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Unifi Inc. (UFI -0.34%)
Q2 2021 Earnings Call
Jan 28, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Second Quarter 2021 Unifi Inc Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. A.J. Eaker, Vice President of Finance. Sir, the floor is yours.

A.J. Eaker -- Vice President of Finance

Thank you. Rhins [Phonetic] 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 Conference Call link. Management advises you that certain statements included in today's call will 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 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, forecasted, 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 various factors that may impact these results. Also, please be advised that certain non-GAAP financial measures such as adjusted EBITDA, adjusted EPS, adjusted working capital, and net debt may be discussed on this call. I will now turn the call over to Al Carey.

Albert Carey -- Executive Chairman

Thank you. A.J., and thanks for everyone joining the call this morning, I'll be brief in my remarks and I'll provide you with let's say the broad themes of what we've seen in the first half of the fiscal 2021. And then, Eddie and Craig will follow me with the details of the Q2 performance, and then we'll have a Q&A. So, Q2 was a very positive quarter for us as we saw a nice recovery from the COVID impacts. We still have plenty to work to do, but this quarter was a strong step forward. While our revenue was slightly below prior year, it was better than our internal expectations and then both November and December revenues were above the prior year. Our adjusted EBITDA performance was very strong, it was double versus year ago. But we had some tailwinds, and we also had some upsides in a few areas, particularly from our Brazil segment. But even after you normalize those items, we still performed significantly better than prior year. Our balance sheet continues to show improvement. Inventory levels, cash and net debt are all in a good position. And then Craig will take you through the details of that very shortly.

So as you look into the second half of 2021, we're optimistic. However, we aren't entirely certain about the most recent spike in COVID cases and how it might impact retail consumption or our people in the plants. But we believe the good news on the vaccine should create some optimism for our future quarters performance. I wanted to comment on two broad positives that are outside the financials. I think both of these strengths will provide a positive impact to our business for the balance of the year, and then even beyond that. First, we have the right leadership team in place from top to bottom. Some of you who follow us remember, about a year ago that wasn't the case. So from top to bottom, our team brings significant amount of company and industry knowledge. They have really shown resilience during this COVID time. They work well together and we are now beginning to see the value of leadership continuity in our performance.

The second positive trend appears to be an acceleration of momentum on environmentally sustainable products from our customers and also from consumers, especially young consumers. Well, I think feel that they want to do something positive for our environment coming out of this pandemic. And this shows up on our mix for REPREVE. So our sales mix for REPREVE has maintained an upward trend and has moved now to a record level of 37% in Q2. It was 35% in the last quarter and in the high 20s a year ago. Additionally, the request for our REPREVE Hangtags have gone up significantly. These hangtags, you may know are fixed to the product containing REPREVE and they help tell the recycle story. And in the last six months, we shipped 45 million hangtags and that compares to 33 million a year ago during that same period. So it's up a third. We believe that many of our customers are now taking action on sustainability commitments that they've made for 2025. These environmental goals are things that have to be accomplished for our customers, and the date is getting closer, 2025, closer than we really think. So I think overall, the environmental sustainability is a definite megatrend that's only going to go up from here, whether you're talking about brands or public policy or in society, coming out of the pandemic. So in summary, I'd say, Q2 was a very solid quarter with some real nice momentum.

Now, before I turn it over to Eddie, I'm pleased to announce the addition of Emma Battle to our Board of Directors. We just announced that yesterday. Emma has extensive marketing background, general management and strategy experience, and she's had experience with companies like PepsiCo, Hanes Brands, Red Hat, and she is an independent Director at Bassett furniture. And today, she is the Founder and CEO of MarketVigor, a marketing company. I can tell you that Emma brings the skill set that is very complementary for our Board and we are delighted to have her on the Unifi team. So with that, let me turn it over to Eddie Ingle, our CEO.

Edmund Ingle -- Chief Executive Officer

Thanks, Al, and good morning everyone. As Al mentioned, our second quarter fiscal 2021 results outperformed our initial expectations and they are a reflection of our strong global presence and the resilience of both our employees and our business model. But before I speak in the quarter, I want to personally thank our employees for their continued hard work and dedication to the business, and especially their dedication to our customers. This strong quarter would not have been possible without their many contributions. I'm very pleased to report the health and safety protocols that we put in place at the beginning of the pandemic allowed us to maintain normal operations, positioning us well for further recovery.

On slide 3, we provided an overview of the quarter. The business performed well during the second quarter and is approaching pre-pandemic revenue levels. Our Q2 revenues were up 15% from Q1 with meaningful improvement across all segments and geographies. The flexibility of our global business model and its innovative components continues to allow us to adapt and quickly capitalize on new efficiencies and market share opportunities. Key drivers to the 670 basis point increase in gross margin year over year are results of continued focus on cost, outperformance by the Brazilian segments, and the expansion of our REPREVE and other innovative products, all as more volume -- as more normal volumes occur. Now, despite a challenging environment, our team's dedication and hard work contributed to Unifi achieving its best quarterly profit since June 2016 and the best second quarter profitability in 10 years. The demand for sustainable solutions continues to grow, and so is interest in our REPREVE branded fibers. This includes most of our new customer adoptions and our new co-branding opportunities, which continue to increase REPREVE's contribution to sales. The pre-fiber sales now represent a record 37% of consolidated net sales compared to 35% in the previous quarter. Additional details about REPREVE fiber sales are shown on slide 4. While these Q2 results will be hard to sustain in the short term, it's clear that the COVID crisis has enabled our organization to find new efficiencies and drive ongoing productivity across our manufacturing platforms, while pursuing market share opportunities when they arise. It's is certainly an exciting time for everyone in the company and I'm looking forward to building on our current performance long-term as we assume the underlying business momentum will remain intact.

Lastly, our work toward strengthening our balance sheet has allowed us to execute on growth focused capital allocation priorities. Shortly after the second fiscal quarter ended, we made the strategic acquisition of Fiber & Yarn Product Inc's nylon portfolio. While this transaction was of similar size to the Texturing Service LLC transaction we committed to just three months prior, it's an important step forward in our efforts to strengthen the Nylon segments and its capabilities. We are excited about the addition of Fiber & Yarn customers to our portfolio and expect a quick and seamless integration process as this business transitions to our Madison, North Carolina operations.

Now we have several exciting brand highlights to discuss today starting with our partnership with Disney. For the holiday season, Disney launched T-shirts and thesis [Phonetic] in their Orlando park stores prominently displaying REPREVE signage at point of sale. This is a follow-on to their April 2020 online launch of T-shirts made with REPREVE. Disney has the abilities to market our consumer relevant circular economy story since Unifi continues to process plastic bottles collected from Orlando parks into a REPREVE resin and yarns. Also, we had an expansion of our business into workwear. Aramark has launched a proto shirt made with REPREVE to customers looking for durable, sustainable work garments. And another recent success is a towel program at Nordstrom. These towels are available online and at retail and were developed through our Turkey supply chain operations. Another example of how we are able to leverage REPREVE in the home goods space. Then there is Tommy Hilfiger and Hugo Boss also utilizing the REPREVE brand. Tommy Hilfiger REPREVE is seeing continued strength in swim and activewear with some international placements. And Hugo Boss has launched athletic inspired footwear with a 100% REPREVE upper. This small sampling is an impressive list of partners and clients and we're both humbled and excited at the extension opportunity we have to build further and expand these relationships with leading global brands. This activity is driving the increased shipments of hangtags that Al mentioned in his remarks, representing a sizable growth in on-product co-branding. This sustained increase in co-branded items in the market represents strong momentum among brands and retailers to recognize that the REPREVE ingredient brands helps provide a quality, transparent, sustainable -- sustainability story for their customers. Now, I will provide some high level comments on our operating segment performance during the second quarter before Craig takes you through more specific details. And you can use slides 5 and 6 of the presentation where we discuss the second-quarter results compared to the first quarter.

The Polyester segment benefited from a better production and sales mix along with raw material and pricing stability. Sales volumes continue to normalize and we remain optimistic on sales mix going forward for this segment. The Asia segment continued to demonstrate signs of improving business conditions and further recovery to pre-pandemic levels. Volumes were up meaningfully and benefited from pull through on new and existing customer programs and margins were aided from supply chain efficiencies and a richer sales mix. Brazil, as you've seen, had a record second quarter. The strong performance was primarily driven by our unique position in the region and our ability to capitalize on the dynamics of the market, which is dominated by imports. Similar to the first quarter, we were able to capture unfulfilled demand and maintain a strong market position. And looking ahead, we are forecasting some moderation of our profit growth in the region given how strong it's been recently. The local Brazilian team continues to work to the best of their abilities to maintain and expand the solid market share they've captured. Lastly, the Nylon segment's performance met our expectations for the quarter, reflecting a more balanced sales level. Despite being modestly down year-over-year, the sequential increase in segment sales is encouraging and positive sign for this business. With that, I'll turn it over to Craig.

Craig Creaturo -- Executive Vice President & Chief Financial Officer

Thank you, Eddie, and good morning everyone. Like the rest of the team, I'm very pleased with our second quarter of fiscal 2021 results and our ability to navigate this recovery with strong cash and liquidity positions. Eddie highlighted the changes from the just completed second quarter to our first quarter of this fiscal year. I will provide our normal commentary on the just completed quarter compared to the same period in the prior year, which for the past few quarters has not been as meaningful due to the impacts of the pandemic. So we are pleased that the business has recovered in such a significant manner that the information is shown on slide 7 and 8 of the presentation, are meaningful again.

Let's start with the sales comparison on slide 7. Polyester segment volumes were just 1.1% lower than the prior year, and raw material costs drove pricing down but were partially offset by a richer sales mix to generate a 7.3% decrease in net sales. For the Asia segment, lower volumes negatively impacted net sales by 8.1%, while the lower raw material cost impacted pricing, generating an overall 6.7% decrease in net sales after considering some favorable foreign currency translation due to the strengthening of the renminbi against the US dollar. Brazil segment outperformed 21.7% growth from higher volumes, while strong pricing levels helped to nearly offset the significant unfavourability of foreign currency translation due to the weakening of the real against the US dollar. Lastly, the Nylon segment showed signs of stability, with revenues just 6.3% below the prior year following sales mix changes.

Moving on to the gross profit overview on slide 8, every segment exhibited an increase. The Polyester segment benefited from a more favorable raw material and pricing environment along with a richer sales mix and manufacturing efficiencies, achieving a gross margin of 14.2%. The Asia segment benefited from raw material sourcing improvements and a rich sales mix, driving gross margin to 14.6%. For Brazil segment, again with its sales outperformance, doubled both gross profit dollars and gross profit as a percentage of sales from the prior year by gaining market share and achieving strong pricing during the just completed quarter. The Nylon segment also exhibited year-over-year improvement as operational improvements led to a higher level of gross margin. For Unifi overall, gross profit was $25.9 million and a 670 basis point increase in gross margin as a percentage of sales. As you move down the income statement, our SG&A remained consistent with our expectations, driving strong operating income that further led to significant improvements in pre-tax income, net income and EPS, generating expensive year-over-year increases.

Slides 9 and 10 show the sales and gross profit comparisons for the first half of fiscal 2021 compared to the first half of fiscal 2020. We are not providing specific commentary on those sides during these prepared remarks, but they are available for use and analysis. Moving on to the balance sheet on slide 11, further improvement in our debt and liquidity positions is demonstrated by maintaining diligence around working capital components and generating cash flows. With great progress on our net debt metric, we continue to have zero borrowings on our ABL revolver which had an availability of $56 million as of December 27, 2020. Unifi's commitment to financial health has allowed us to leverage our strong balance sheet during [Indecipherable] challenged by the global pandemic. We have had the opportunity closing 2 acquisitions and we'll continue to allocate capital for new texturing technology in Amer -- in the Americas. With a balanced capital allocation approach, share repurchases and further debt reduction can occur at appropriate times. I'll now turn the call back to Eddie to take us through the last slides of the presentation and make some final comment.

Edmund Ingle -- Chief Executive Officer

Thank you, Craig. I'll now turn to slide 12 of the presentation to provide a brief update on the recent trade developments. In short, after normalization begun taking effect for China and India imports, imports of polyester textured yarn surged from Indonesia, Malaysia, Thailand and Vietnam. We petitioned for an investigation into this activity and the respective US agencies have thus far determined there is a reasonable indication of material injury. Consistent with the first round of anti-dumping investigations that spanned calendar 2019, we expect these investigations to occur over the majority of calendar 2021. And we will provide relevant updates as they occur.

I'll turn to slide 13 of the presentation to provide some context around our expectations for the back half of fiscal 2021. You will note from the outlook section of the earnings release that we were able to include more specific information than we have been able to provide for the past couple of quarters, as our business visibility is returning to more normal levels. However, we are still not able to offer the specificity of outlook that we gave before the pandemic, but we are looking forward to returning to an outlook similar to our past disclosures in the near future. We expect global demand uncertainty and risk associated with the COVID-19 pandemic to persist into the second half of the fiscal year. The second quarter's strong performance supports our expectation of incremental progress during the fiscal 2021 and as such, we anticipate net sales trends will continue to improve on a sequential basis returning to pre-pandemic levels in the March quarter. We are encouraged by the recent trends in our REPREVE and other value-added products and expect recent strength to continue long-term. With this sustained business momentum, adjusted EBITDA is expected to improve by low double-digit percentage of the pre-pandemic third quarter of fiscal 2020. That expectation includes a few factors. Continued strong performance by the Brazil segments albeit tempered from the record-setting December 2020 quarter. Unfavorable seasonal domestic shutdown impacts to gross profit for the polyester and nylon segments. Unfavorable impact of the Chinese New Year holiday for the Asia segment, and raw material cost pressures due to the recent increases in petroleum prices.

Lastly, given our momentum from the second quarter, our annual capex spend remains consistent with our expectation from the first quarter and should fall in the range of $22 to $24 million, excluding amounts related to the acquisitions. To conclude, I believe, our strong performance during the second quarter reflects our unique business model and the upside potential that it has during normal economic conditions. Going forward, we will continue to focus on partnering with global brand leaders that want to position themselves using sustainable products, innovating and repositioning the business to drive long-term organic growth, diligent cost management initiatives to drive gross margin improvement and maintaining our strong financial position and strong balance sheet to expand our growth opportunities through strategic M&A. We will now open up the line for questions. Thank you.

Questions and Answers:

Operator

Thank you, sir. At this time, we would like to take any questions you may have for us today. [Operator Instructions] You have your first question from the line of Daniel Moore from CJS Securities. Please go ahead.

Daniel Moore -- CJS Securities -- Analyst

Thank you. Good morning, gentlemen. Thanks for taking my questions.

Edmund Ingle -- Unifi Inc. -- Chief Executive Officer

Good morning, Dan.

Albert Carey -- Executive Chairman

Good morning, Dan.

Daniel Moore -- CJS Securities -- Analyst

I wanted to start with kind of macro and then maybe dig into the numbers a little bit. Do you -- from your perspective, do you see COVID and maybe perhaps aided by the recent change in administration as being a kind of a tipping point for on-product co-branding opportunities for REPREVE? Maybe just talk about the rate of change and what you've seen over the last nine months and heading into '21.

Edmund Ingle -- Unifi Inc. -- Chief Executive Officer

Yeah. As we said on the [indecipherable] from the call, we do believe that the COVID pandemic has affected the consumer mindset, and how the brands are approaching, how they communicate to their consumers. Certainly there is a megatrend of sustainability out there, and it helps that there is also a mega trend of people moving to e-commerce to acquire goods as we said in the last call. So as far as the administration, I don't think it makes a difference, but I do think the general consumer is trying to do what they can for the environment and they see COVID being an indication of the climate situation we're in today. So it's good for us, it's good that people are moving toward sustainable products and REPREVE shipments are definitely a reflection of that environment.

Albert Carey -- Executive Chairman

Dan, I'd add to that and say that when COVID first hit, it appeared that maybe environmental sustainable products would go backwards a little bit because there was so much chaos and crisis in the market. And I would say around August, a very definite change in the trajectory of environmental sustainability from our customers. And if you talk to some of the big brands and the big customers that we have today, their buyers and their merchants are all heavily focused on doing this. I think because they believe it's right, but also they are coming up on this 2025 timeframe where most big companies have some commitments that they have to hit. And I think the speed is going to continue going up.

Daniel Moore -- CJS Securities -- Analyst

Super helpful. Okay. And then maybe dig into the gross margin a little bit, which is obviously exceptional. I'll start with the international and specifically Brazil. Just maybe walk us through the factors that were, I wouldn't say maybe less permanent in nature, you know, was there may be a lack of import competition due to the pandemic, the timing of raw material changes. What is -- how much of that improvement is really sustainable as we look out beyond maybe the next quarter or two.

Edmund Ingle -- Unifi Inc. -- Chief Executive Officer

Dan, this is Eddie. I'll jump into this, start answering the question. I mean, Brazil has been preparing for the last 20 years. They've got a great team down there. They were prepared to react to the pandemic. If you go back to the Q4 of last year, they lost 70% of their revenues, but they didn't panic and they kept their raw material inventory in place. And so when the business came back and the imports from Asia dropped, they were able to supply the market. So when we run flow down there, we are also able to make sure that we manage the price points effectively. So the great thing is the market needs the product, we were there, we didn't panic. We had the materials available. And that team was able to optimize the inventory levels that we had and translate that into growth in both revenue and in gross margin. There is -- because it was a record quarter from a gross profit profitability point of view, both in margin and total gross profit, we do expect that to taper off in the coming quarters. But it's certainly we have grown market share. We expect that market share to maintain as we go through the next few quarters.

Craig Creaturo -- Executive Vice President & Chief Financial Officer

And Dan, I can just add that again, really excellent operational performance, excellent ability by the Brazil team to manage the opportunities that were in front of them and gained market share. We do think that in some ways we caught some of the competition a bit flat-footed, and as they recover that's why I think our expectations for Q3 are that we will go down a little bit from the gross margin in the high 30s. You'll recall that our gross margin in Q1 was about 20-ish percent. So we think it will trend back toward Q1 but definitely we've got some nice gains there and that is something that we're again very proud of how they performed in this just completed quarter.

Daniel Moore -- CJS Securities -- Analyst

Excellent. And similar question for Polyester. Again, looking at the gross margins that are in excess of anything we've seen for multiple years recognizing it's just one quarter, but -- and maybe talk about the puts and takes and what more sustainable margin level looks like.

Edmund Ingle -- Unifi Inc. -- Chief Executive Officer

Yeah, I think we took a lot of cost-outs over the last 18 months. And the pandemic -- the downturn in our business -- in the polyester business during the pandemic, the first few months, April, May, June, allowed us to -- forced us really to take out cost that we might not have had the courage to do before that. We've maintained consistently since then a lower level of cost and our business has come back. So we've been able to expand our margin because we've been doing a better job managing costs, and at the same time we've also increased our mix of products. So we've got a much healthier, much more attractive product mix and that in line with the fact that we've managed our costs and the fact that the raw materials have been stable for roughly six months has allowed us to remaximize the the gross profit relative to what we've been doing over the last few years in the Polyester segment.

Daniel Moore -- CJS Securities -- Analyst

Excellent. Maybe last one from me just on the acquisition. Obviously it's small as you alluded to in your prepared remarks. Was that just opportunistic? Do we expect more in the Nylon space? And maybe talk about just kind of the pipeline of M&A more generally. Thank you.

Edmund Ingle -- Unifi Inc. -- Chief Executive Officer

Well, those -- the 2 acquisitions that we did, they are small as we said. We expect to get somewhere by the fourth quarter $3 million to $4 million increase in revenue. It's slightly higher EBIT margins that we've seen in our current business. So we do expect that to help us in the coming quarters. But as far as new mergers and acquisitions, if there are small opportunities out there that fit in with our capabilities, that are easy to integrate, that can dock on to our existing infrastructure, we're certainly looking out for those opportunities. We do see some opportunities out there, but nothing specific to talk on at this present time.

Daniel Moore -- CJS Securities -- Analyst

All right. Well, thank you for your time and congrats on a great quarter and look forward to hearing a lot more. Thanks.

Edmund Ingle -- Unifi Inc. -- Chief Executive Officer

Thanks.

Operator

Thank you. You have your next question from the line of Chris McGinnis from Sidoti & Company. Please go ahead.

Chris McGinnis -- Sidoti & Company -- Analyst

Good morning, thanks for taking my questions and congrats on a great quarter, really impressive. Can we just -- maybe just touch on the sustainability, it seems to be picking up. Can you just talk about maybe the competitive landscape? You're obviously very early in on this strong customer relationships, can you just maybe talk a little bit about how that's developing? It appears you are a bit closer to that 2025 goals and -- which is how maybe that landscape is changing a little bit.

Edmund Ingle -- Unifi Inc. -- Chief Executive Officer

Yeah, so many -- as Al mentioned, many of these companies like Adidas for example have declared that they want to achieve a 100% recycled content for their apparel by 2025. REPREVE brand that we've been building over the last 10 plus years, there's something that's unique about that it's traceable, it's transparent. We're publicly [Phonetic] traded company. People know they're not going to get in trouble when they buy our products. And the fact that we're global. So the products can be -- the program we developed here in the US and then moved globally to wherever the sourcing team from a particular company wants to get the product from. So I think we're unique in that we do offer this trust and traceability and transparency that is not as open in certain competitive -- competitors that have. So I think we're in a very special place. We are seeing the growth in Asia -- significant growth in Asia and we expect to -- that to continue through 2025 because these brands have declared what they want to do. Now they have to find really solid opportunities to get those inputs and we're the right brands and the right company to deliver those inputs to them.

Chris McGinnis -- Sidoti & Company -- Analyst

Great. And just in the [Indecipherable] can you just -- just with your capacity for REPREVE now, and I guess just your thoughts around expansion as this begins to grow from here. Can you just talk about whether, does that change the supply chain, just as that continues to pick up. How are you built out in position to execute on that growth?

Edmund Ingle -- Unifi Inc. -- Chief Executive Officer

Yeah, so in Asia, we do have an asset-light model. So we don't expect to run into any issues around being able to meet the increased demand. Here in the US, we -- the growth of the REPREVE is driven a lot by the Central American market, and while it might not be as aggressively paced as in Asia, we have enough assets in place and enough capabilities to where we will be able to meet the growth that we are forecasting in the coming years. Now, we do expect to have potentially some capex next fiscal year to meet some of this increase in demand. But right now we have enough capability to meet demand in this region. And then lastly, in Brazil, that market is still very much a virgin market although we are seeing indications now that there is an interest in the consumers in sustainability. And we'll be using our Asian supply chain to meet that supply chain.

Chris McGinnis -- Sidoti & Company -- Analyst

Great, thanks for the color. Just last question just on the trade issue. I'm sure [Phonetic] if you could put a size on the impact. Is it similar to China and India and the impact that had on '19. Is there any way you can kind of touch on that or provide a little bit more color on what you think the impact is, and -- I appreciate it.

Edmund Ingle -- Unifi Inc. -- Chief Executive Officer

Well, the imports from China and India after those duties were put in place, I think the duties for India were about 18% [Phonetic] and for China were about 100% roughly. And the imports from those two countries dropped to practically zero. There was -- we did pick up some volume from that event, but not as much as we had hoped because of these four countries that we talked about Malaysia, Indonesia, Vietnam and Thailand. With this, the question now is not whether they will get antidumping, but it's about how much the antidumping duties will be, and we'll know that in April. So I think it's hard to predict exactly how much volume we're going to pick up because of that, but certainly we're optimistic that it's going to be quite meaningful for the company in the US.

Chris McGinnis -- Sidoti & Company -- Analyst

Great, thanks for taking my questions. Again congrats on the quarter and good luck in Q3.

Edmund Ingle -- Unifi Inc. -- Chief Executive Officer

Thank you, Chris.

Operator

Thank you. You have another question from the line of Marco Rodriguez from Stonegate Capital. Your line is now open.

Marco Rodriguez -- Stonegate Capital -- Analyst

Good morning, everybody. Thank you for taking my questions.

A.J. Eaker -- Vice President of Finance

Hi, Marco.

Edmund Ingle -- Unifi Inc. -- Chief Executive Officer

Hi, Marco.

Marco Rodriguez -- Stonegate Capital -- Analyst

Hi, I was wondering if I could follow up on a prior question in terms of the gross margins, the operating efficiencies. I was wondering if you can maybe talk a little bit more about that, kind of drill into a little bit more details about any specifics surrounding that. And if you can quantify perhaps the dollar amounts that might have been taken out and sustainability of that.

Craig Creaturo -- Executive Vice President & Chief Financial Officer

I think, Marco, we -- throughout the just completed quarter, we feel like we did the right things to protect the integrity of our manufacturing operations. We're very -- as Eddie mentioned, very proud of kind of the safety and protocol things that we did to keep all of those manufacturing locations up and running. We feel like we were able to accomplish a higher level of manufacturing throughput and volume. And at the same time during the quarter we still felt like we could be adding a few more people. So really we caught a fair amount of efficiencies, productivity, and really again, it's a credit to our skilled and trained workforce. To try to quantify it is a little bit hard for us to do that. I think the other thing that we had going on that we've touched on a little bit in the prepared remarks was the sales mix was a bit more favorable, especially here in the US as well. So, generating a little bit higher profitability from just because of the types of products that were run through the plants during Q2. So really, those are the main items. And I think we feel like we are being very careful in the cost that have been taken out of the business. As we start to catch some of the higher sales levels, we believe, especially maybe in SG&A we will add a little bit of cost into that area. But overall, we're being pretty prudent and trying to not let those costs kind of move back into the organization to the best we can. But we will need to add some additional costs as the volumes increase, and that is really our projection for the remainder of the fiscal year. So, Eddie, do you want to add to that?

Edmund Ingle -- Unifi Inc. -- Chief Executive Officer

No, I think you... Thank you.

Craig Creaturo -- Executive Vice President & Chief Financial Officer

Okay.

Marco Rodriguez -- Stonegate Capital -- Analyst

Okay, Craig, that's very helpful. Then, so maybe if I can ask another question surrounding that. In terms of the items that you brought out that positively impacted gross margins in the quarter, the operating efficiency, the mix, pricing stability. Maybe if you can kind of rank them from the most impact that you saw in the quarter to least impact.

Craig Creaturo -- Executive Vice President & Chief Financial Officer

It's a good question. I'd maybe give you a bit of a broader answer. I think we're continuing to see not only the sustainability pull, and you see that through the REPREVE percentage going up each course and reaching to the 37% that we noted. I think we're also seeing the REPREVE plus additional features. And I think that continues to be really an area of emphasis for our customers, not only wanting the nature of the sustainable products, but also the enhanced features, whether it'd be sure management, whether it'd be duty protection, whether -- a lot of other features that we can add on there. I think there the REPREVE and something else, those types of products and the value that that's adding to our customers, I think the content of that continues to grow. And again, we expect that to be that way into the foreseeable future as well.

Marco Rodriguez -- Stonegate Capital -- Analyst

Got it. And then if I can bring up another question here just surrounding kind of the trend and the movement [Indecipherable] sustainability of clothing, if you will. You have brought out these comments before in the last call as well as today just the sort of the mind shift change by the consumer, which seems to have kind of coincided with the pandemic with an ability to more easily search for sustainable clothing online and online shopping. I was wondering if maybe you can talk a little bit about your expectations, how you're thinking about when the world, if you will, start to become a little bit more normalized. I would assume that some of the online shopping perhaps may come down quite a bit in comparison to what it is currently, but just kind of, if you can walk us through some of your thoughts surrounding that. And if you've had any sort of conversations with your customers that have really kind of indicated this minds shift that's something more of a permanent nature, if you will, would be very helpful. Thanks.

Edmund Ingle -- Unifi Inc. -- Chief Executive Officer

Well, this is Eddie. Certainly a mega trend around sustainability as we talked about, but also on e-commerce when we first experienced the pandemic in April, May, June, the biggest impact to our business was the lock-downs of the retail environment. And as that opened up and as people accelerated their purchases onto online, this is where we saw an increase in our business. And I don't think -- I mean the megatrend of people buying online, I don't think that's going to change. I think people will, yes, continue to shop at retail, but we believe whether it's a retail or online, the move toward buying sustainable products, people want to make that extra step and pay maybe a little bit more money to do the right thing for themselves and for the environment, I think it's not going to change. And so this is why we're seeing the growth in hangtags. It's a way for the retailers and the brands to certain [Phonetic] co-brands with their brand and a sustainable story like REPREVE. So I think the future macro trends are -- bode well for us, and the commitments that the brands of retailers have, especially retailers -- big retailers like Target and Walmart, they really fit in our sweet spot, and we are there to help them meet their sustainable growth in a way that's like I said earlier, transparent and traceable and trusted.

Albert Carey -- Executive Chairman

Marco this is Al. Just wanted to add to Eddie's comments. From the retail experience I have, I think the pandemic accelerated e-commerce by five or more years. And from the retailers I'm speaking to, they expect e-commerce maybe to go backwards a small amount, but I think the e-commerce mix is here to stay, or pretty close to where it is today. And what's happened to us in our business, at least for apparel and especially athleisure, normally we'll sell product in the store and a consumer will look at that hangtag that has our story on recyclable material. But how much time do you really get with the consumer? A couple of seconds if you're lucky. However, when they call up online and order, they get a chance to read about our sustainability story and we see a very positive trend. So I see e-commerce being an add for us, a positive.

Marco Rodriguez -- Stonegate Capital -- Analyst

Got it. And then just last quick question here, just talking about the balance sheet. You have basically some excess levels here of cash, just kind of versus your historical norm. Obviously you kept that on the balance sheet to be prudent, just given the environment. But just maybe if you can walk us through your thinking about the balance sheet levels there from a debt and cash perspective as things are to normalize. And maybe if you can discuss that in terms of capital allocation decisions would be helpful.

Craig Creaturo -- Executive Vice President & Chief Financial Officer

Yeah, I think we're in a good spot, Marco. Again, we have nothing borrowed on our revolver. We're doing our quarterly term debt payments. We have deployed some of that capital for the acquisitions that we did in the last two quarters, I guess technically Q2 and the beginning of Q3 here. We feel like -- and we still have an open share repurchase program that gets consideration from the Board, and I think we're a [Indecipherable] to embark upon a noticeably higher level of capital spending. So in our guidance today, we noted that the range for capital spending for the full fiscal year will be $22 million to $24 million. And you note from our cash flow, we've only done $6 million for the first half of the year. So we know that that's an area where we are going to strategically invest in really all regions, but most specifically in the US and also in Brazil for some very important equipment, in next generation equipment, texturing equipment that we talked -- touched on before in prior calls. So we do think that that's going to get a little bit more attention and we will be spending a little bit more dollars there. But I think we're taking this overall kind of balanced approach to capital allocation and I think we've done some good things in certain areas, but I think we're ready to ramp up again capital spending and will continue to be thoughtful on future M&A activities as well.

Marco Rodriguez -- Stonegate Capital -- Analyst

Understood, thank you guys very much. I appreciate your time.

Craig Creaturo -- Executive Vice President & Chief Financial Officer

Thank you, Marco.

Albert Carey -- Executive Chairman

Thanks, Marco.

Operator

Thank you. You have your next question from the line of Gus Richard from Northland. Please go ahead.

Gus Richard -- Northland -- Analyst

Yes, thanks for taking the question and congratulations on a great quarter. I just want to talk about your customers mix a little bit, given we are all locked down and wearing our [Indecipherable] during the day. As the world returns to something approaching normal we'll start going out again. Does that have any impact on your mix or do you expect the positive mix shifts that you've been seeing during the pandemic to continue on? Any help there would be appreciated.

Edmund Ingle -- Unifi Inc. -- Chief Executive Officer

Yeah, there is a few things that we think will be positive in the coming quarters. And one of them is back to school. A lot of the kids that have been at home, home schooling, they haven't had to worry about their clothing, and so we expect -- and how they look. We expect that to see a pop some time in the summer as kids go back to school. So as far as the general workwear, I think the general society, especially in the US is becoming more casual. I think like some of these other things that happened, there is a mega trend toward becoming more casual at leisure wear being more acceptable in the workplace. Casual Fridays has become casual every-days. And I think when people get back to the office, while they will be more formal, they'll still be wearing the kind of material that is suited toward polyester and nylon. So I don't -- we think as people go back to office as the world returns to the new normal as we say, we think it's just going to continue to benefit us as the world becomes more casual in their attire.

Gus Richard -- Northland -- Analyst

Got it. And then just sustainable versus non-sustainable, clearly is sustainable, materials are growing faster. What is the relative growth rates of the two? How much quicker will sustainable products grow versus non-sustainable?

Edmund Ingle -- Unifi Inc. -- Chief Executive Officer

I'll just add a very macro level. Polyester grows at the rate of -- polyester production at the rate of 2% to 4% a year depending on GDP and population growth. So that as the virgin -- the recycled materials will grow at a faster rate than that. And it's such a small part of the entire ecosystem right now, there is a huge upside. So it's hard to put a number on it exactly, but it's certainly going to be much higher than the normal virgin growth rates. I think the other thing that I'd like to bring up is that we have REPREVE but we also, as Craig mentioned earlier, we have REPREVE plus and that's the innovation. So we're giving people the sustainability and these performance attributes that I think really resonates with the brands and helps them sell through more products. So we're for selling sustainability. We're also selling sustainability with moisture management terms. So sustainability with antimicrobial, the sustainability with no water being used to make the arm, what we call the water-wine France [Phonetic] or I think there's lots of other opportunities beyond just sustainability.

Craig Creaturo -- Executive Vice President & Chief Financial Officer

And Gus, I would just add to Eddie's comments. For us, for Unifi specifically, the trade actions kind of speak to or shout to why maybe in the recent past, our non-sustainable, or if you want to say our virgin products versus REPREVE have been a bit limited. So those actions, we really feel have leveled the playing field and will give us a chance to participate more in that market than we had been able to over the past several years. So I would say that's just kind of a complementary thing to what we're doing on sustainability is leveling the playing field for the virgin material. I think those two kind of go together.

Gus Richard -- Northland -- Analyst

Got it. Thank you. Very helpful.

Operator

Thank you. [Operator Instructions] You have a follow-up question from Daniel Moore. Please go ahead.

Daniel Moore -- CJS Securities -- Analyst

Thank you again. I have a little bit of a crystal ball question, but just digging into your outlook for the remainder of the year. As we think about Q4, just maybe talk about typical seasonality as we emerge from Chinese New Year and some of these other things, do you expect -- with the expectation the continued sequential improvement into Q4, or is it just a little early both top line and EBITDA or is it just a little early at this point to give that kind of visibility? Thanks.

Craig Creaturo -- Executive Vice President & Chief Financial Officer

Yeah. Dan, good question. I think we've got to the visibility and we're able to give a bit more specifics on Q3 and so I'm glad your question started with Q4 because I am assuming that you've kind of caught what we were saying relative to Q3.

Daniel Moore -- CJS Securities -- Analyst

Indeed.

Craig Creaturo -- Executive Vice President & Chief Financial Officer

For Q4 that usually is a good strong quarter for us, I think you're catching a [Indecipherable] of guidance that we expect will happen on the absence of Chinese New Year. And we are expecting our Asia business to grow in that Q4. But I would say that we're probably still a little bit cautious to give you a lot more specifics than that. I do feel like we have very good things going on in all segments in all geographies. But I think we probably needed to stop and not give you too much more specifics for Q4 other than to remind you, which I know you know of is Q4 usually is a pretty strong quarter for Unifi.

Daniel Moore -- CJS Securities -- Analyst

That's indeed why I asked it. Just wanted to make sure there is anything on the horizon that we should be thinking of that perhaps we're not. Thank you for the color again.

Operator

Thank you. I'm showing no further questions at this time, I would now like to turn the conference back to the management team.

A.J. Eaker -- Vice President of Finance

Thanks, Rhinz [Phonetic] With no further questions, we would like to thank everyone for participating today. We have a great platform here to drive long-term growth and we have a focus on the growing wave of sustainability. We're looking forward to partnering with all of you to create a more sustainable future. Our next earnings release for the third fiscal quarter ending March 28, 2021 is tentatively scheduled for Wednesday April 28, 2021, after the close of the market with the conference call to follow the next morning Thursday, April 29, 2021 at 8:30 AM Eastern Time. Thank you all for joining today's call.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

A.J. Eaker -- Vice President of Finance

Albert Carey -- Executive Chairman

Craig Creaturo -- Executive Vice President & Chief Financial Officer

Edmund Ingle -- Unifi Inc. -- Chief Executive Officer

Daniel Moore -- CJS Securities -- Analyst

Chris McGinnis -- Sidoti & Company -- Analyst

Marco Rodriguez -- Stonegate Capital -- Analyst

Gus Richard -- Northland -- Analyst

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