UniFirst Announces Financial Results for the Third Quarter of Fiscal 2023

UniFirst Corporation

WILMINGTON, Mass., June 28, 2023 (GLOBE NEWSWIRE) -- UniFirst Corporation (NYSE: UNF) (the “Company,” “UniFirst” or “we”) today reported results for its third quarter ended May 27, 2023 as compared to the corresponding period in the prior fiscal year:

Q3 2023 Financial Highlights

• Consolidated revenues increased 12.7% to $576.7 million.

• Operating income was $33.4 million, a decrease of 0.9%.

• The quarterly tax rate increased to 27.2% compared to 25.4% in the prior year.

• Net income decreased to $24.3 million from $25.1 million in the prior year, or 3.2%.

• Diluted earnings per share decreased to $1.29 from $1.33 in the prior year, or 3.0%.

• EBITDA increased to $64.0 million compared to $60.3 million in the prior year, or 6.1%.

The Company's financial results for the third quarter of fiscal 2023 and 2022 included approximately $8.4 million and $11.4 million, respectively, of costs directly attributable to its CRM, ERP and branding initiatives (the "Key Initiatives"). In addition, the Company incurred costs related to the acquisition of Clean Uniform during the third quarter of fiscal 2023 of approximately $0.7 million. The effect of these items on the third quarter of fiscal 2023 and 2022 combined to decrease:

• Operating income and EBITDA by $9.1 million and $11.4 million, respectively.

• Net income by $6.8 million and $8.4 million, respectively.

• EPS by $0.37 and $0.44, respectively.
  

Steven Sintros, UniFirst President and Chief Executive Officer, said, “We are pleased with our strong top line performance in the quarter, but continue to be focused as a Company on mitigating the cost pressures impacting our operations. The early days of our recently closed acquisition of Clean Uniform have been very constructive with initial efforts being focused primarily on retaining Clean’s most important assets — its people and its customers. We continue to be excited about the strength and quality of the Clean business and what we continue to believe the combined companies will be able to achieve in the markets we serve together. As always, I want to thank our over 14,000 Team Partners who continue to Always Deliver for each other and our customers as we strive towards our vision of being universally recognized as the best service provider in the industry.”

Segment Reporting Highlights

Core Laundry Operations

• Revenues for the quarter increased 11.5% to $501.7 million.

• Organic growth, which excludes the effect of acquisitions and fluctuations in the Canadian dollar, was 7.8%.

• Operating margin decreased to 4.2% from 5.9%.

• Core Laundry Operations' EBITDA margin decreased to 9.9% from 11.4%.

The costs incurred related to the Key Initiatives and Clean Uniform acquisition, discussed above, were recorded to the Core Laundry Operations' segment, and decreased the Core Laundry Operations' operating and EBITDA margin for the third quarters of fiscal 2023 and 2022 by 1.8% and 2.5%, respectively.

The segment's operating and EBITDA margin were also impacted by approximately $5.3 million of additional expense compared to prior year related to high healthcare claims and costs incurred related to a legal matter as well as higher merchandise and other operating costs as a percentage of revenues which are being impacted by the inflationary environment. These increases were partially offset by lower energy costs during the quarter compared to prior year. The preliminary purchase accounting for the recent Clean Uniform acquisition further impacted the segment’s operating margin, most notably in the form of elevated non-cash intangibles amortization.

Specialty Garments

• Revenues for the quarter were $49.4 million, an increase of 19.9%, which was driven by growth in the segment's cleanroom and North American nuclear operations.

• Operating margin increased to 25.2% from 17.4% a year ago, primarily the result of the strong top line performance.

• Specialty Garments' EBITDA margin increased to 27.1% from 19.9%.

• Specialty Garments consists of nuclear decontamination and cleanroom operations, and its results can vary significantly due to seasonality and the timing of reactor outages and projects.

Balance Sheet and Capital Allocation

• Cash and cash equivalents and Short-term investments totaled $69.3 million as of May 27, 2023.

• The Company had no long-term debt outstanding as of May 27, 2023.

• The Company did not repurchase any shares of common stock in the third quarter of fiscal 2023. As of May 27, 2023, the Company had $63.6 million remaining under its current stock repurchase program.

• Weighted average shares outstanding – Diluted for the third quarter of fiscal 2023 and fiscal 2022 were 18.7 million and 18.9 million, respectively.

Financial Outlook

The Company now expects its revenues for fiscal 2023 to be between $2.220 billion and $2.230 billion, primarily as a result of the strong top-line performance in the Specialty Garments' business. We continue to expect diluted earnings per share to be between $5.02 and $5.37, which currently reflects:

• Core Laundry Operations’ operating and EBITDA margin at the midpoint of the range of 4.7% and 10.5%, respectively.

• The impact of strong profitability in the Specialty Garments’ business in the current quarter, as well as improved expectations for the remainder of the year.

• An estimate of $37.0 million of costs directly attributable to our Key Initiatives as well as $3.0 million of Clean acquisition-related expenses, which combined to decrease the Core Laundry Operations' operating and EBITDA margin assumptions by 2.1% and EPS by $1.60.

• An effective tax rate of 25.75%.

• No impact from any future share buybacks or unexpected significantly adverse economic developments.
  

Conference Call Information

UniFirst Corporation will hold a conference call today at 9:00 a.m. (ET) to discuss its quarterly financial results, business highlights and outlook. A simultaneous live webcast of the call will be available over the Internet and can be accessed at www.unifirst.com.

About UniFirst Corporation

Headquartered in Wilmington, Mass., UniFirst Corporation (NYSE: UNF) is a North American leader in the supply and servicing of uniform and workwear programs, facility service products, as well as first aid and safety supplies and services. Together with its subsidiaries, the Company also manages specialized garment programs for the cleanroom and nuclear industries. In addition to partnering with leading brands, UniFirst manufactures its own branded workwear, protective clothing, and floorcare products at its five Company-owned ISO-9001-certified manufacturing facilities. With more than 270 service locations, over 300,000 customer locations, and 14,000-plus employee Team Partners, the Company outfits more than 2 million workers every day. For more information, contact UniFirst at 888.296.2740 or visit UniFirst.com.

Forward-Looking Statements Disclosure

This public announcement contains forward-looking statements within the meaning of the federal securities laws that reflect the Company’s current views with respect to future events and financial performance, including projected revenues, operating margin and earnings per share. Forward-looking statements contained in this public announcement are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995 and may be identified by words such as “guidance,” “outlook,” “estimates,” “anticipates,” “projects,” “plans,” “expects,” “intends,” “believes,” “seeks,” “could,” “should,” “may,” “will,” “strategy,” “objective,” “assume,” “strive,” “design,” “assumption,” “vision” or the negative versions thereof, and similar expressions and by the context in which they are used. Such forward-looking statements are based upon our current expectations and speak only as of the date made. Such statements are highly dependent upon a variety of risks, uncertainties and other important factors that could cause actual results to differ materially from those reflected in such forward-looking statements. Such factors include, but are not limited to, uncertainties caused by an economic recession or other adverse economic conditions, including, without limitation, as a result of continued high inflation rates or further increases in inflation or interest rates or extraordinary events or circumstances such as geopolitical conflicts like the conflict between Russia and Ukraine or the COVID-19 pandemic, and their impact on our customers’ businesses and workforce levels, disruptions of our business and operations, including limitations on, or closures of, our facilities, or the business and operations of our customers or suppliers in connection with extraordinary events or circumstances such as the COVID-19 pandemic, uncertainties regarding our ability to consummate acquisitions and successfully integrate acquired businesses, including Clean Uniform, and the performance of such businesses, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, any adverse outcome of pending or future contingencies or claims, our ability to compete successfully without any significant degradation in our margin rates, seasonal and quarterly fluctuations in business levels, our ability to preserve positive labor relationships and avoid becoming the target of corporate labor unionization campaigns that could disrupt our business, the effect of currency fluctuations on our results of operations and financial condition, our dependence on third parties to supply us with raw materials, which such supply could be severely disrupted as a result of extraordinary events or circumstances such as the COVID-19 pandemic or the conflict between Russia and Ukraine, any loss of key management or other personnel, increased costs as a result of any changes in federal, state, international or other laws, rules and regulations or governmental interpretation of such laws, rules and regulations, uncertainties regarding, or adverse impacts from continued high price levels of natural gas, electricity, fuel and labor or increases in such costs, the negative effect on our business from sharply depressed oil and natural gas prices, including, without limitation, as a result of extraordinary events or circumstances such as the COVID-19 pandemic, the continuing increase in domestic healthcare costs, increased workers’ compensation claim costs, increased healthcare claim costs, including as a result of extraordinary events or circumstances such as the COVID-19 pandemic, our ability to retain and grow our customer base, demand and prices for our products and services, fluctuations in our Specialty Garments business, political or other instability, supply chain disruption or infection among our employees in Mexico and Nicaragua where our principal garment manufacturing plants are located, including, without limitation, as a result of extraordinary events or circumstances such as the COVID-19 pandemic, our ability to properly and efficiently design, construct, implement and operate a new customer relationship management computer system, interruptions or failures of our information technology systems, including as a result of cyber-attacks, additional professional and internal costs necessary for compliance with any changes in or additional Securities and Exchange Commission, New York Stock Exchange and accounting or other rules, including, without limitation, recent rules proposed by the Securities and Exchange Commission regarding climate-related and cybersecurity-related disclosures, strikes and unemployment levels, our efforts to evaluate and potentially reduce internal costs, economic and other developments associated with the war on terrorism and its impact on the economy, the impact of foreign trade policies and tariffs or other impositions on imported goods on our business, results of operations and financial condition, general economic conditions, our ability to successfully implement our business strategies and processes, including our capital allocation strategies, our ability to successfully remediate the material weakness in internal control over financial reporting disclosed in our Annual Report on Form 10-K for the year ended August 27, 2022 and the other factors described under Part I, Item 1A. “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended August 27, 2022, Part II, Item 1A. “Risk Factors” and elsewhere in our subsequent Quarterly Reports on Form 10-Q and in our other filings with the Securities and Exchange Commission. We undertake no obligation to update any forward-looking statements to reflect events or circumstances arising after the date on which they are made.

Consolidated Statements of Income
(Unaudited)

		Thirteen weeks ended								Thirty-nine weeks ended
(In thousands, except per share data)		May 27, 2023				May 28, 2022				May 27, 2023				May 28, 2022
Revenues		$	576,668			$	511,548			$	1,661,157			$	1,484,408
Operating expenses:
Cost of revenues (1)			379,419				334,633				1,103,287				969,579
Selling and administrative expenses (1)			132,677				116,191				372,230				332,985
Depreciation and amortization			31,175				27,027				88,115				80,744
Total operating expenses			543,271				477,851				1,563,632				1,383,308
Operating income			33,397				33,697				97,525				101,100
Other (income) expense:
Interest income, net			(553	)			(340	)			(6,353	)			(1,739	)
Other expense, net			621				431				1,526				1,761
Total other expense (income), net			68				91				(4,827	)			22
Income before income taxes			33,329				33,606				102,352				101,078
Provision for income taxes			9,053				8,539				26,309				23,855
Net income		$	24,276			$	25,067			$	76,043			$	77,223
Income per share – Basic:
Common Stock		$	1.35			$	1.39			$	4.23			$	4.26
Class B Common Stock		$	1.08			$	1.11			$	3.39			$	3.41
Income per share – Diluted:
Common Stock		$	1.29			$	1.33			$	4.06			$	4.07
Income allocated to – Basic:
Common Stock		$	20,394			$	21,037			$	63,882			$	64,835
Class B Common Stock		$	3,882			$	4,030			$	12,161			$	12,388
Income allocated to – Diluted:
Common Stock		$	24,276			$	25,067			$	76,043			$	77,223
Weighted average shares outstanding – Basic:
Common Stock			15,087				15,170				15,084				15,211
Class B Common Stock			3,590				3,632				3,590				3,632
Weighted average shares outstanding – Diluted:
Common Stock			18,748				18,875				18,751				18,958
(1)   Exclusive of depreciation on the Company’s property, plant and equipment and amortization on its intangible assets.

Condensed Consolidated Balance Sheets
(Unaudited)

(In thousands)		May 27, 2023				August 27, 2022
Assets
Current assets:
Cash and cash equivalents		$	59,303			$	376,399
Short-term investments			10,012				—
Receivables, net			279,485				249,198
Inventories			150,253				151,459
Rental merchandise in service			246,998				219,392
Prepaid taxes			17,700				25,523
Prepaid expenses and other current assets			49,254				41,921
Total current assets			813,005				1,063,892
Property, plant and equipment, net			739,607				665,119
Goodwill			648,404				457,259
Customer contracts and other intangible assets, net			151,329				84,973
Deferred income taxes			528				498
Operating lease right-of-use assets, net			62,744				50,050
Other assets			109,886				106,181
Total assets		$	2,525,503			$	2,427,972
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable		$	89,496			$	82,131
Accrued liabilities			150,921				146,808
Accrued taxes			—				1,204
Operating lease liabilities, current			18,515				13,602
Total current liabilities			258,932				243,745
Long-term liabilities:
Accrued liabilities			124,434				123,979
Accrued and deferred income taxes			119,398				106,307
Operating lease liabilities			45,888				38,070
Total liabilities			548,652				512,101
Shareholders’ equity:
Common Stock			1,510				1,508
Class B Common Stock			359				359
Capital surplus			97,154				93,131
Retained earnings			1,904,490				1,845,163
Accumulated other comprehensive loss			(26,662	)			(24,290	)
Total shareholders’ equity			1,976,851				1,915,871
Total liabilities and shareholders’ equity		$	2,525,503			$	2,427,972

Detail of Operating Results
(Unaudited)

		Thirteen weeks ended May 27, 2023													Thirteen weeks ended May 28, 2022
		Core Laundry			Specialty			First							Core Laundry			Specialty			First
		Operations			Garments			Aid			Total				Operations			Garments			Aid			Total
Revenues		$	501,719		$	49,407		$	25,542		$	576,668			$	450,039		$	41,198		$	20,311		$	511,548
Revenue Growth %			11.5	%		19.9	%		25.8	%		12.7	%
Operating Income (Loss) (1), (2)		$	20,995		$	12,455		$	(53	)	$	33,397			$	26,431		$	7,161		$	105		$	33,697
Operating Margin			4.2	%		25.2	%		-0.2	%		5.8	%			5.9	%		17.4	%		0.5	%		6.6	%
EBITDA (1), (2)		$	49,812		$	13,400		$	739		$	63,951			$	51,292		$	8,198		$	802		$	60,292
EBITDA Margin			9.9	%		27.1	%		2.9	%		11.1	%			11.4	%		19.9	%		3.9	%		11.8	%
(1)    The Company’s financial results for the third quarter of fiscal 2023 and 2022 included approximately $8.4 million and $11.4 million, respectively, of costs directly attributable to its Key Initiatives. In addition, the Company incurred costs related to the acquisition of Clean Uniform during the third quarter of fiscal 2023 of approximately $0.7 million. These costs were recorded to the Core Laundry Operations segment. (2)    The Key Initiative and acquisition-related costs resulted in a decrease in Core Laundry Operations' operating and EBITDA margin for the third quarter of fiscal 2023 and 2022 of 1.8% and 2.5%, respectively.

		Thirty-nine weeks ended May 27, 2023													Thirty-nine weeks ended May 28, 2022
		Core Laundry			Specialty			First							Core Laundry			Specialty			First
		Operations			Garments			Aid			Total				Operations			Garments			Aid			Total
Revenues		$	1,456,167		$	135,613		$	69,377		$	1,661,157			$	1,311,941		$	116,220		$	56,247		$	1,484,408
Revenue Growth %			11.0	%		16.7	%		23.3	%		11.9	%
Operating Income (Loss) (3), (4)		$	68,468		$	30,683		$	(1,626	)	$	97,525			$	81,683		$	19,640		$	(223	)	$	101,100
Operating Margin			4.7	%		22.6	%		-2.3	%		5.9	%			6.2	%		16.9	%		-0.4	%		6.8	%
EBITDA (3), (4)		$	149,754		$	33,668		$	692		$	184,114			$	155,714		$	22,738		$	1,631		$	180,083
EBITDA Margin			10.3	%		24.8	%		1.0	%		11.1	%			11.9	%		19.6	%		2.9	%		12.1	%
(3)    The Company's financial results for the first nine months of fiscal 2023 and 2022 included approximately $27.5 million and $24.1 million, respectively, of costs directly attributable to its Key Initiatives. In addition, the Company incurred costs related to the acquisition of Clean Uniform during the first nine months of fiscal 2023 of approximately $2.7 million. These costs were recorded to the Core Laundry Operations segment. (4)    The Key Initiative and acquisition-related costs resulted in a decrease in Core Laundry Operations' operating and EBITDA margin for the first nine months of fiscal 2023 and 2022 of 2.1% and 1.8%, respectively.

Consolidated Statements of Cash Flows
(Unaudited)

(In thousands)		Thirty-nine weeks ended May 27, 2023				Thirty-nine weeks ended May 28, 2022
Cash flows from operating activities:
Net income		$	76,043			$	77,223
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization			88,115				80,744
Share-based compensation			6,874				7,114
Accretion on environmental contingencies			777				447
Accretion on asset retirement obligations			690				732
Deferred income taxes			11,709				1,823
Other			16				20
Changes in assets and liabilities, net of acquisitions:
Receivables, less reserves			(22,148	)			(31,998	)
Inventories			2,110				(8,258	)
Rental merchandise in service			(19,544	)			(25,788	)
Prepaid expenses and other current assets and Other assets			67				3,603
Accounts payable			3,492				850
Accrued liabilities			(13,152	)			(21,172	)
Prepaid and accrued income taxes			7,758				3,498
Net cash provided by operating activities			142,807				88,838
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired			(306,192	)			(42,680	)
Capital expenditures, including capitalization of software costs			(124,067	)			(97,259	)
Purchases of investments			(117,012	)			—
Maturities of investments			107,000				—
Proceeds from sale of assets			517				133
Net cash used in investing activities			(439,754	)			(139,806	)
Cash flows from financing activities:
Payment of deferred financing costs			(851	)			(5	)
Borrowings under line of credit			80,000				—
Repayments under line of credit			(80,000	)			—
Proceeds from exercise of share-based awards			3				3
Taxes withheld and paid related to net share settlement of equity awards			(2,850	)			(3,898	)
Repurchase of Common Stock			—				(30,453	)
Payment of cash dividends			(16,527	)			(15,407	)
Net cash used in financing activities			(20,225	)			(49,760	)
Effect of exchange rate changes			76				(1,545	)
Net decrease in cash and cash equivalents			(317,096	)			(102,273	)
Cash and cash equivalents at beginning of period			376,399				512,868
Cash and cash equivalents at end of period		$	59,303			$	410,595

Reconciliation of GAAP to Non-GAAP Financial Measures

The Company reports its consolidated financial results in accordance with generally accepted accounting principles (“GAAP”). To supplement the Company’s consolidated financial results in this press release, the Company also presents EBITDA and EBITDA margin, which are non-GAAP financial measures. The Company defines EBITDA as net income before interest, income taxes, depreciation and amortization. EBITDA margin is defined as EBITDA for a period divided by revenue for the same period.

The Company believes these non-GAAP financial measures provide useful supplemental information regarding the performance of the Company and its segments to both management and investors. These non-GAAP financial measures exclude certain items that may impact the comparability of the Company’s results. In addition, by excluding certain items, these non-GAAP financial measures enable management and investors to further evaluate the underlying operating performance of the Company.

Supplemental reconciliations of the Company’s consolidated net income on a GAAP basis to EBITDA and net income margin on a GAAP basis to EBITDA margin are presented in the following table. Investors are encouraged to review the reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures, which are provided below. EBITDA and EBITDA margin should be considered in addition to, and not as substitutes for, or in isolation from, measures prepared in accordance with GAAP.

The Company does not allocate its provision for income taxes to its business segments and as a result, presents it in a separate column in the following tables:

		Thirteen weeks ended May 27, 2023
		Core Laundry				Specialty				First
(In thousands, except percentages)		Operations				Garments				Aid				Other				Total
Revenue		$	501,719			$	49,407			$	25,542			$	—			$	576,668
Net income		$	20,927			$	12,455			$	(53	)		$	(9,053	)		$	24,276
Provision for income taxes			—				—				—				9,053				9,053
Interest income, net			(553	)			—				—				—				(553	)
Depreciation and amortization			29,438				945				792				—				31,175
EBITDA		$	49,812			$	13,400			$	739			$	—			$	63,951
EBITDA Margin			9.9	%			27.1	%			2.9	%							11.1	%

		Thirteen weeks ended May 28, 2022
		Core Laundry				Specialty				First
(In thousands, except percentages)		Operations				Garments				Aid				Other				Total
Revenue		$	450,039			$	41,198			$	20,311			$	—			$	511,548
Net income		$	26,339			$	7,161			$	106			$	(8,539	)		$	25,067
Provision for income taxes			—				—				—				8,539				8,539
Interest income, net			(340	)			—				—				—				(340	)
Depreciation and amortization			25,293				1,037				697				—				27,027
EBITDA		$	51,292			$	8,198			$	802			$	—			$	60,292
EBITDA Margin			11.4	%			19.9	%			3.9	%							11.8	%

		Thirty-nine weeks ended May 27, 2023
		Core Laundry				Specialty				First
(In thousands, except percentages)		Operations				Garments				Aid				Other				Total
Revenue		$	1,456,167			$	135,613			$	69,377			$	—			$	1,661,157
Net income		$	73,295			$	30,683			$	(1,626	)		$	(26,309	)		$	76,043
Provision for income taxes			—				—				—				26,309				26,309
Interest income, net			(6,353	)			—				—				—				(6,353	)
Depreciation and amortization			82,812				2,985				2,318				—				88,115
EBITDA		$	149,754			$	33,668			$	692			$	—			$	184,114
EBITDA Margin			10.3	%			24.8	%			1.0	%							11.1	%

		Thirty-nine weeks ended May 28, 2022
		Core Laundry				Specialty				First
(In thousands, except percentages)		Operations				Garments				Aid				Other				Total
Revenue		$	1,311,941			$	116,220			$	56,247			$	—			$	1,484,408
Net income		$	81,661			$	19,640			$	(223	)		$	(23,855	)		$	77,223
Provision for income taxes			—				—				—				23,855				23,855
Interest income, net			(1,739	)			—				—				—				(1,739	)
Depreciation and amortization			75,792				3,098				1,854				—				80,744
EBITDA		$	155,714			$	22,738			$	1,631			$	—			$	180,083
EBITDA Margin			11.9	%			19.6	%			2.9	%							12.1	%

Investor Relations Contact
Shane O’Connor, Executive Vice President & CFO
UniFirst Corporation        
978-658-8888
shane_oconnor@unifirst.com