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UNIFIRST CORP (UNF)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered modest top-line growth with improved profitability: revenue rose 1.9% to $604.9M, diluted EPS rose 2.2% to $2.31, operating margin expanded to 9.2%, and Adjusted EBITDA grew 5.9% to $94.0M .
  • Management tightened FY25 revenue guidance range to $2.425B–$2.440B (from $2.425B–$2.445B) while maintaining EPS of $6.79–$7.19; CAD FX assumed at $0.74, and Key Initiatives costs of ~$16M are embedded .
  • Core Laundry margins benefited from lower merchandise and input costs, offset by higher healthcare, legal/environmental, and selling costs; Specialty Garments grew on nuclear strength; First Aid grew double-digits in vans but remained near break-even on OI .
  • Capital allocation steady: OCF up 27.3% to $58.1M, $6.4M repurchases (33,605 shares), $0.350 quarterly dividend declared; balance sheet remains debt-free with $181.0M cash plus ST investments .
  • Potential stock narrative catalysts: board’s rejection of Cintas’ unsolicited $275/share proposal and reiterated internal value-creation plan (mid-single-digit growth, high-teens EBITDA margin over time); revenue range tightening on softer wearer trends .

What Went Well and What Went Wrong

What Went Well

  • Operating leverage despite low growth: operating income +4.5% to $55.5M and Adjusted EBITDA +5.9% to $94.0M on lower merchandise/production costs; operating margin up to 9.2% .
  • Segment execution: Core Laundry OI margin edged up to 8.1%; Specialty Garments revenue +2.9% driven by European and North American nuclear; First Aid revenue +5.4% with strong van growth .
  • Cash generation and capital returns: OCF up 27.3% to $58.1M; repurchased $6.4M of shares; declared $0.350 dividend; no long-term debt .
  • Management tone: “solid start” to FY25 and confidence in strategy; reiterated vision and mission focus on service quality and customer experience .

What Went Wrong

  • Pricing/retention headwinds: post-inflation environment pressured pricing and retention; net wearer levels declined more than a year ago and worsened vs last quarter, dampening organic growth (Core Laundry organic +1.7%) .
  • Cost offsets: higher healthcare, legal/environmental, and selling costs partially offset input-cost tailwinds in Core Laundry .
  • Specialty margin compression: Specialty Garments OI margin decreased to 26.5% on higher merchandise, production, and depreciation; cleanroom softness offset nuclear strength .
  • Guidance narrowed: revenue range tightened (top end lowered) one quarter into FY25 amid softer wearer trends; quarterly tax rate rose to 25.6% (vs 23.4% YoY) .

Financial Results

Consolidated Trend vs Prior Quarters

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$603.3 $639.9 $604.9
Diluted EPS ($USD)$2.03 $2.39 $2.31
Operating Income ($USD Millions)$48.5 $54.0 $55.5
Operating Margin %8.0% 8.4% 9.2%
Adjusted EBITDA ($USD Millions)$82.5 $95.0 $94.0
Adjusted EBITDA Margin %13.7% 14.9% 15.5%
Net Income ($USD Millions)$38.1 $44.6 $43.1

Year-over-Year (Q1 2025 vs Q1 2024)

MetricQ1 2024Q1 2025
Revenue ($USD Millions)$593.5 $604.9
Operating Income ($USD Millions)$53.1 $55.5
Net Income ($USD Millions)$42.3 $43.1
Diluted EPS ($USD)$2.26 $2.31
Adjusted EBITDA ($USD Millions)$88.7 $94.0
Effective Tax Rate %23.4% 25.6%

Segment Breakdown (Revenue and Operating Margin)

Segment MetricQ3 2024Q4 2024Q1 2025
Core Laundry Revenue ($USD Millions)$528.5 $564.1 $532.7
Core Laundry Operating Margin %7.0% 8.0% 8.1%
Specialty Garments Revenue ($USD Millions)$47.6 $46.5 $45.9
Specialty Garments Operating Margin %23.9% 18.5% 26.5%
First Aid Revenue ($USD Millions)$27.3 $29.3 $26.2
First Aid Operating Margin %0.5% 0.3% 1.3%

KPIs

KPIQ1 2024Q1 2025
Operating Cash Flow ($USD Millions)$45.7 $58.1
Cash + ST Investments ($USD Millions)$87.5 $181.0
Share Repurchases (# shares / $USD Millions)255 / $0.3 33,605 / $6.4
Weighted Avg Diluted Shares (Millions)18.8 18.7
Energy Costs (% of Revenue)—3.9%
Long-term DebtNone None

Comparison to Wall Street Consensus

  • S&P Global consensus estimates for revenue/EPS were not available at time of analysis due to a temporary SPGI access limit; therefore, beat/miss versus consensus cannot be assessed. Attempted retrieval resulted in a daily request limit error [GetEstimates error].

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Consolidated RevenueFY 2025$2.425B–$2.445B $2.425B–$2.440B Lowered top end
Diluted EPSFY 2025$6.79–$7.19 $6.79–$7.19 Maintained
Core Laundry Organic Growth (midpoint)FY 2025~1.8% ~1.8% (Q1 actual 1.7%) Maintained
Consolidated Adjusted EBITDA (midpoint)FY 2025~$330M “All other assumptions largely unchanged” Maintained (implied)
CAD/USD AssumptionFY 2025$0.74 $0.74 Maintained
Key Initiatives expenseFY 2025~$16M ~$16M Maintained
DividendNext payable—$0.350 per common share; $0.280 per Class B payable Mar 28, 2025 Announced regular quarterly dividend

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Pricing and RetentionOrganic growth stronger in Q3 (Core +4.7%); margins benefitted from lower merchandise/payroll and lapped healthcare/legal headwinds . Q4 organic growth +3.9% with margin improvement .Pricing environment challenging post-inflation; retention pressured; net wearer declines worsened vs prior quarter; Core organic +1.7% .Deteriorated sequentially; management expects improvement over cycle.
ERP/Key InitiativesSignificant spend; Key Initiatives cost weighed on margins in Q3 and Q4 .~$2.5M Key Initiatives costs in Q1; project timelines “on track”; adjusted EBITDA metric refined; ERP expected to enable benefits .Ongoing; cost drag smaller YoY; benefits expected medium term.
Specialty GarmentsQ3 revenue -3.7% on nuclear softness; cleanroom growth . Q4 revenue +12.3% with stronger nuclear .Revenue +2.9% on European/U.S. nuclear; margin -60 bps YoY on higher merchandise/production/depreciation; cleanroom softer .Mixed; nuclear strength; cleanroom variability; margins under near-term pressure.
First Aid & SafetyQ3 revenue +6.9%; EBITDA margin 3.5% . Q4 revenue +15.1% .Revenue +5.4%; van operations drove double-digit growth; OI ~$0.3M given investments .Growing top line; profitability near breakeven due to investment.
Energy/Cost InputsPrior margin benefits from lower input costs (Q3/Q4) .Energy costs 3.9% of revenue; merchandise/plant production lower; healthcare/legal/environmental higher .Inputs mixed; net tailwind to margins.
FX (CAD)Guidance assumed $0.74 CAD; extra week in FY24 .CAD weakness noted; still assuming $0.74 due to uncertainty .Maintained assumption; FX risk acknowledged.
Strategic/CorporateFY24: strong Q4 finish; FY25 outlook set .Board rejection of unsolicited $275/share Cintas proposal; confidence in standalone strategy .Corporate overhang; management emphasizes internal value creation.

Management Commentary

  • CEO: “We are pleased with the results from our first quarter, which represent a solid start to our fiscal year” and reiterated focus on superior service and customer experience .
  • CEO on market dynamics: Post-inflation pricing is “more challenging” and has impacted retention; internal leading indicators (contract renewals, NPS) are improving and expected to translate into better revenue/retention trends as cycle progresses .
  • CFO: Introduced refined Adjusted EBITDA definition to better reflect profitability and cash-generating capacity; Q1 adjusted EBITDA rose to $94.0M (+5.9%) .
  • CFO: Core Laundry organic growth 1.7% in Q1, broadly in line with FY25 ~1.8% expectation; energy costs were 3.9% of revenues .
  • CEO/CFO on transformation: Company investing across technology/ERP, sourcing/procurement, strategic pricing, First Aid & Safety, direct sales/product development; aspirational targets of mid-single-digit growth and high-teens EBITDA margins over time .
  • Executive transition: Non-GAAP recon included executive transition costs tied to onboarding new COO and a senior VP departure .

Q&A Highlights

  • Cintas proposal: Management reiterated the Board’s unanimous rejection after considering offer price, execution/business risks, shareholder feedback, and future growth/value opportunities; declined further comment on the call .
  • Sequential revenue outlook: Company doesn’t provide quarterly guidance; expects momentum by FY25 year-end into FY26; Q1 Core organic growth 1.7% vs ~1.8% FY plan .
  • Transformation timing/targets: Investments ongoing across ERP/technology, pricing, sourcing, First Aid & Safety; management aims for mid-single-digit growth and high-teens EBITDA margins over time, without pegging a specific year .
  • Pricing dynamics: New business remains competitive; existing customer pricing remains complex post inflation; stronger execution/customer experience and maturing supply chain/sourcing expected to support pricing and cost recovery .
  • Wearer trends: Adds/reductions turned incrementally negative and weakened further in Q1; lower customer employee turnover reduces revenue opportunities but lowers garment investment costs .
  • Guidance narrowing: Top-line range tightened due to softer wearer trends; other assumptions largely unchanged .

Estimates Context

  • Wall Street consensus (S&P Global) could not be retrieved due to a temporary access limit; therefore, beat/miss vs consensus for Q1 2025 cannot be evaluated at this time. Attempted retrieval resulted in a daily request limit error [GetEstimates error].
  • Implication: Without consensus context, we anchor analysis on reported figures and intra-quarter guidance color; consider re-checking estimates when available to update the beat/miss framework.

Key Takeaways for Investors

  • Margin resilience: Despite modest +1.9% revenue growth, operating margin expanded to 9.2% and Adjusted EBITDA rose to $94.0M on lower merchandise/production costs—positive signal for near-term earnings quality .
  • Growth headwinds: Pricing/retention remain the primary drag; net wearer declines pressured Core organic to 1.7%—watch renewals/NPS indicators for inflection through FY25 .
  • Guidance prudence: FY25 revenue range narrowed (top end trimmed) while EPS held; management reiterated other assumptions, including ~$16M Key Initiatives costs and CAD at $0.74 .
  • Segment mix: Specialty Garments benefited from nuclear, but margin compressed; First Aid growing from van expansion yet near breakeven OI—execution in these segments will influence mix/margins .
  • Cash and returns: Strong OCF ($58.1M), debt-free balance sheet, ongoing buybacks ($6.4M) and regular dividend ($0.350) provide downside support amid slower growth .
  • Strategic roadmap: ERP and pricing/sourcing initiatives underpin medium-term targets (mid-single-digit growth, high-teens EBITDA margins); pace depends on retention stabilization and execution .
  • Corporate overhang: Rejection of Cintas’ proposal may keep strategic narratives active; management focused on standalone value creation—monitor shareholder engagement and any future updates .