iFabric Q1 Earnings Call Highlights

iFabric (TSE:IFA) reported record quarterly revenue and improved profitability in its latest first-quarter results, with management pointing to new retail programs, expanded product placements and growth across both of its major divisions.

Speaking on a post-results update call, Chief Executive Officer Hylton Karon said revenue for the quarter was CAD 27.5 million, up from CAD 7.1 million in the comparable period referenced by the company and ahead of prior guidance of CAD 20 million to CAD 25 million.

“An absolute record for the company,” Karon said, adding that the result was slightly above the company’s earlier expectations.

Revenue in the Intelligent Fabrics division rose to CAD 23.6 million from CAD 5.8 million, while Intimate Apparel revenue increased to CAD 3.9 million from CAD 1.3 million. Karon said both figures represented records for the divisions.

New Programs Drive Revenue Growth

Karon said the Intelligent Fabrics business benefited from new scrubs and footwear programs, expansion of existing programs and organic growth in core lines.

In Intimate Apparel, he cited the launch of the company’s Nudish brand, which replaced the prior Maidenform brand, as well as the need to repopulate stores at major customers including Kohl’s and Target. Karon also pointed to the launch of a new intimates program at Walmart U.S.

During the question-and-answer portion of the call, Chief Operating Officer Giancarlo Beevis said the quarter included several contributors, including additional Walmart stores, an expansion of iFabric’s leak-proof program within Walmart U.S., the new Walmart intimate apparel program, and the relaunch of Nudish at Kohl’s and Target. Beevis also said part of the Roots-related business was included in the quarter, with another portion having been included in the prior fourth quarter.

Margins Improve, Though Mix Remains a Factor

Gross margin for the quarter was 33%, up from 26% in the prior quarter. Karon said the company is “definitely headed in the right direction” and said his target for the year would be 35% or slightly above that level.

Karon said product mix remains an important factor, noting that Intelligent Fabrics sales carry lower margins than Intimate Apparel, which he described as the company’s highest gross-margin business. Asked whether higher Intimate Apparel revenue helped gross margin in the quarter, Karon said it did, estimating the benefit at “at least two points,” though he did not provide an exact figure.

The company also incurred some tariff-related impact in the quarter. Karon said iFabric has a pending claim to recover approximately CAD 850,000 in tariffs paid before the tariffs were declared no longer in effect. He said the company has not recorded the amount as an asset and would recognize any recoveries as income when cash is received.

Selling and administrative expenses increased by CAD 1.5 million, which Karon attributed mainly to variable costs such as royalties and commissions, along with smaller increases in base overhead. He said the company’s CAD 5.7 million in adjusted EBITDA for the quarter reflected his prior view that, above CAD 35 million in revenue, a large portion of margin would flow to the bottom line.

Karon also noted that he had recently issued a CAD 1 million royalty payment to Roots related to Roots product sales to Costco.

Inventory and Receivables Rise With Sales

iFabric ended the quarter with CAD 16.9 million in inventory. Karon said the level may appear high, but the company typically carries four to six months of inventory and has three full-time analysts tracking sales trends, sell-through rates and product performance.

He said the company intentionally carries additional inventory when launching multiple new programs, because running out of product can disrupt sales momentum. Karon added that iFabric’s products are not fashion items, reducing the risk of being left with unsellable merchandise.

Accounts receivable totaled CAD 25.5 million at quarter-end, which Karon said was tied to the quarter’s revenue level. He said the company’s collection cycle is typically about 75 days and that collections from customers such as Walmart and Costco “tend to run like clockwork.” Payment terms generally range from 60 to 90 days, he said.

Balance Sheet and Cash Flow Commentary

Karon said iFabric’s current ratio was a “healthy” two-to-one at quarter-end, excluding a term loan secured by the company’s building that is classified as current because of the terms of the banking agreement.

Deposits for purchasing declined to CAD 1.3 million from a peak of CAD 6 million. Karon said deposits are expected to build again over the year as the company begins ordering for year-end programs, noting that the fourth quarter is typically one of the company’s larger quarters.

Operating debt stood at CAD 9.3 million at the end of the quarter. Karon said he expected it to be reduced “at a fairly rapid rate” as earnings convert to cash and receivables are collected.

Management Limits Outlook Discussion During Financing Period

At the start of the call, the company noted that it is in a regulatory quiet period related to a short-form prospectus offering and would not discuss the proposed financing, offering terms or specific use of proceeds. As a result, management declined to answer several questions involving future revenue cadence, additional Walmart store expansion and other forward-looking topics.

Karon said the company plans to hold another webinar after the financing closes, which he said was expected in the first week of June, to provide more detail on future plans.

While avoiding detailed guidance, Karon said the business remains in strong shape. “If there is a dip from one quarter to another, that’s by no means an indication of a soft quarter,” he said. “The business is still in unbelievable shape and really everything is pointing forward in a very nice manner.”

About iFabric (TSE:IFA)

iFabric Corp is engaged in the business of women's intimate apparel. It has three business segments. The Intimate apparel segment is involved in the design and distribution of women's intimate apparel, and accessories. Its Intelligent fabric segment develops and distributes innovative products and treatments that are suitable for application to textiles, plastics, liquids, and hard surfaces as well as finished performance apparel. The other segment engages in the leasing of property to group companies, related parties, and third parties.

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