I have been asked many times how my management team at Unifi transformed a company that had lost money for 8 straight years into one that was profitable, with consistent earnings growth and over 200% stock appreciation ($7.25 in October 2007 to $25.00 in April 2016) versus 35% for the S&P. Like most corporate turnarounds, it was a combination of several things. Here’s a summary:
· Focus on product development and high value branded products which were unique, defensible and provided higher returns. We increased R&D, marketing, and capital spending, all aimed at growing our branded Premier Value Added (PVA) products, which commanded a premium price versus our commodity products. Repreve®, our recycled polyester product line was especially successful due to our capability to produce and sell globally with highly consistent quality and third-party verification of our recycled content. Because of our efforts, PVA products grew from roughly 5% of total sales revenue in 2007 to over 33% in 2016.
· Take advantage of regional trade agreements. NAFTA and CAFTA are regional trade agreements encompassing Mexico, Canada, and several Central American countries. Textile products and apparel move duty free between these countries, if the yarn and all subsequent production originate in the region. Despite somewhat higher supply chain costs, garments entering the US from, say, a CAFTA country are cost competitive with the lower cost China produced alternative due to 16-32% duties applied to the Chinese goods. In-region yarn suppliers have an advantage because low cost imported Asian yarns are not typically used in NAFTA or CAFTA since garments made with them will not qualify for duty free export to the U.S. or another trade pact country. In addition to garments being cost competitive, regionally supplied goods enjoy a shorter supply chain, improving flexibility and lead times for brands and retailers. In order to take maximum advantage of this supply chain, we invested in production equipment in El Salvador, increasing our regional capacity and improving service to our customers in the growing CAFTA region.
As important as it was to develop and grow high value PVA products and understand and act upon advantages we had as the premier local producer in the NAFTA and CAFTA regions, the potential benefits of these actions would not be gained if we could not produce our products efficiently and consistently in our existing manufacturing processes. Hence, our third, and in many ways most important, strategic initiative.
· Implement a rigorous and statistically based process improvement culture. We took a disciplined and focused approach to process improvement. We used a well known consulting company’s methodology for our process improvement programs and lean manufacturing principles for process management.
I chose our process improvement consulting company because I had experience with them during my career at DuPont. I had found their methods and implementation to be significantly more effective than Six Sigma, which was also used in DuPont. It is much easier to implement and understand and provides positive results in a fraction of the time. It also assures involvement of the entire workforce, which provides buy-in and promotes long term compliance and lasting success. Using this methodology, we significantly improved process capability and variability across our plants in the U.S., El Salvador, and Brazil.
Working with this particular consultant and driving a company-wide implementation of a disciplined process improvement culture is not cheap. However, they state that their experience has been pay back from their methodology will typically be five times your investment. Frankly, I feel they are selling themselves short. In my experience with them at both DuPont and Unifi, payback has been much higher than that.
One final note. Some feel that a part of our well above market stock appreciation was related to stock buy-backs we executed on a few occasions during our turn around. My feeling is, in the long term, these buy-backs had little effect. True, they reduced the number of outstanding shares, but they also signaled to investors that we had limited strategic growth opportunities to invest in. That, in my mind, had a negative impact on stock price which likely offset much of the mathematical benefit.