Wednesday, August 26, 2009

Unifi Inc. (UFI) Readies for the Thread and Yarn Bounce

Perception is a funny thing. An investor can have a certain market perception and dismiss an investment out-of-hand. The issue being missed in this instance is that there are aspects of that investment which may actually be profitable, especially in times of turmoil. Generally, this is because as the turmoil subsides, these products are the ones that profit first. In the apparel marketplace, threads and fibres may just be one of those materials.

Unifi Inc., together with its subsidiaries, produces and markets a series of multifilament polyester and nylon yarns. The company operates in two segments. The polyester segment, where oriented, textured, dyed and twisted yarns are produced for the secondary processing to apparel, automotive, upholstery, home, medical and military segments. The nylon segment, is where yarn is produced for the hosiery, sock, spandex other knitters.

Although an investor might be a bit suspect with regard to the American apparel marketplace, they should also be aware of just how the apparel marketplace works. Generally, most consumers associate the apparel marketplace with foreign workers toiling over sewing machines turning out dress shirts and what-not. In the US, there may be a certain amount of this going on, but it is not the real basis of the US textile market. In the US, the real basis is turning out the yarn and thread that goes into these products. High-value product in other words. From this perspective one might surmise that the product base is quite a bit wider in scope then just thinking about shirts and skirts.

To suggest that the company has not been having its issues during the past year or two would be folly. However, it would also be folly not to suggest that, with the sheer number of fibre based products being offered to the world economy in many differing forms, profit is not being made. Currently, the company expects a less than $10 million investment in the Central American Free Trade Agreement for synthetic fibres and yarns. Additionally, the company expects results from Brazilian operations to improve dramatically as raw material costs are brought in line.

As the world economy begins to find its footing, the need for more advanced clothing will be all too apparent. Unifi has been able to keep pace in a difficult world market and is prepared to supply the fibres and yarns needed to meet designer’s needs. Having a stake in a market that has been beaten down may be a nice place to be when the economy moves. Remember though, this approach is not investing in apparel but the fibres that go into it.

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