UNIFIRST CORP Q3 FY2024 earnings call

• Solid top-line growth: Overall revenues up 4.6% y-o-y, Core Laundry Operations organic growth 4.7%.
• Operating income and EBITDA increase: Benefited from lower costs related to key initiatives and favorable comparisons to prior year's elevated healthcare and legal costs.
• Cash flows: Cash flows from operating activities up 35.2% compared to 2023.
• Technology transformation: Costs related to key initiatives declining as CRM deployment winds down and ERP project costs are capitalized.
• Sales performance: Sales organization performed well despite challenging pricing environment.
• Wearer metrics: Mostly stable but saw a bit of decline in net wearer metrics.
• Full-year guidance: Core Laundry Operations organic growth in fourth quarter expected at midpoint of ~3.5%; fiscal '25 organic growth expected more modest than fourth quarter.
• Investments: Focus on enhancing ability to attract new customers, sell additional products, and improve customer experience.
• National accounts: Opportunities healthy with good success adding large programs, including a top three account in first quarter.
• Operating excellence: Focus on cost reductions and margin enhancement through areas like strategic pricing, account profitability, and sourcing.
• New facilities: Opening of new facilities in New York, Michigan, and Ontario, Canada to enhance service execution and growth capacity.

Core Laundry Operations: Revenues were $528.5 million in the third quarter of 2024, up 5.3% from the prior year. Core Laundry organic growth (adjusting for acquisitions and Canadian dollar fluctuations) was 4.7%. Operating margin increased to 7% from 4.2% prior year, and EBITDA margin to 13.1% from 9.9%. Specialty Garments: Revenues decreased to $47.6 million from $49.4 million prior year, a 3.7% decline, with operating margin dropping to 23.9% from 25.2%. First Aid segment: Revenues increased to $27.3 million from $25.5 million prior year, a 6.9% increase, with the segment having a nominal operating profit during the quarter.

• Fiscal 2024 revenues expected between $2.415 billion and $2.425 billion.
• Diluted earnings per share expected between $7.17 and $7.49.
• Fourth quarter Core Laundry Operations organic growth expected at midpoint of approximately 3.5%.
• Fiscal '25 organic growth expected to be more modest than fourth quarter.

• Challenging pricing environment impacting sequential organic growth rates.
• Potential weakening in wearer metrics as a precursor to a weaker hiring environment.
• Competitive landscape and customers focusing on cost, which could impact sales and margin expansion.
• Economic conditions and timing of nuclear reactor outages/project affecting Specialty Garments segment results.

Q: On retention levels, are they maintaining typical rates despite pricing concessions?

A: Retention rates have ticked up, though environment is more competitive, with lost accounts not as much as historical but up a bit.

Q: How to think about margin expansion with slower growth?

A: Not in a position to make additional margin comments yet, but pleased with cost trends and focus on sourcing/operational execution for cost improvements.

Q: Is fiscal '25 growth outlook inclusive of lapping the extra week in '24?

A: Everything discussed is apples-to-apples excluding impact of the extra week in fiscal '24.