UniFirst Corporation — Q1 FY2021 Form 10-Q
Reporting period: Thirteen weeks ended November 28, 2020, compared with the thirteen weeks ended November 30, 2019. UniFirst provides uniform rental, cleaning and related workplace services, with additional specialty garment and first-aid operations.
Financial performance
| Metric | Q1 FY2021 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $446.9 million | $465.4 million | Down 4.0% |
| Operating income | $56.0 million | $60.1 million | Down 6.7% |
| Operating margin | 12.5% | 12.9% | Down 0.4 percentage points |
| Net income | $41.9 million | $48.2 million | Down 13.2% |
| Diluted earnings per common share | $2.20 | $2.52 | Down |
| Operating cash flow | $52.7 million | $52.4 million | Up 0.6% |
Cost of revenues was $275.8 million, or 61.7% of revenue, versus 62.2% a year earlier. Selling and administrative expense was $88.7 million, or 19.9% of revenue, compared with 19.5%. Depreciation and amortization increased 3.3% to $26.3 million. The effective tax rate was 25.0%, up from 22.1%; the prior-year comparison benefited from a $1.3 million release of tax reserves.
Segments and changes versus prior year
- Core Laundry Operations revenue declined 5.6% to $393.2 million; operating income fell 9.2% to $48.9 million. Management attributed the revenue decline primarily to COVID-19-related customer closures and lower wearer levels among customers that remained open.
- Specialty Garments revenue rose 14.2% to $38.1 million and operating income increased to $7.2 million, reflecting stronger U.S. and Canadian nuclear direct sales and cleanroom growth.
- First Aid revenue decreased 1.1% to $15.5 million; operating income dropped to $0.01 million from $1.4 million, primarily amid weaker wholesale distribution sales.
- Lower healthcare and energy costs helped reduce Core Laundry cost of revenues as a share of revenue. Lower interest income, reflecting reduced interest rates, contributed to lower net income.
Cash, liquidity and obligations
- Cash, cash equivalents and short-term investments were $473.0 million at November 28, 2020, versus $474.8 million at August 29, 2020. The quarter’s net cash decrease was $1.8 million.
- Operating activities provided $52.7 million. Investing activities used $42.4 million, including $41.8 million in capital expenditures; financing activities used $12.6 million, including $7.2 million of share repurchases and $4.5 million of dividends.
- Current assets were $986.8 million and current liabilities were $211.7 million. Total liabilities were $460.8 million.
- No revolver borrowings were outstanding. Of the $250 million unsecured revolving facility, $177.3 million was available after $72.7 million of letters of credit. The company was covenant-compliant; the facility matured April 11, 2021, and management expected to replace it before maturity.
- Operating lease liabilities totaled $41.6 million in present value. The filing reports no material changes to previously disclosed contractual obligations.
Outlook, risks and notable items
- Management said it could not predict the extent or duration of COVID-19’s impact. Customer activity remained below pre-pandemic levels in many cases, and renewed restrictions, customer closures, workforce disruption or supply-chain problems could further affect operations.
- Management stated that cash, future operating cash flow and available credit were expected to meet anticipated working-capital and capital-expenditure needs for at least the next 12 months, while noting there could be no assurance. No quantified revenue or earnings guidance was provided.
- Environmental remediation liabilities were $30.4 million. The company cited uncertainty at sites including Woburn and Somerville, Massachusetts; changes in remediation requirements, estimates, insurance recoveries or other circumstances could affect recorded amounts. It also disclosed legal claims and potential environmental exposure.
- The company repurchased 41,000 shares for approximately $7.2 million during the quarter. Two acquisitions had an aggregate purchase price of approximately $0.7 million.
- Management identified exposure to foreign exchange, energy and labor costs, customer retention and demand, and regulatory and operating risks. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting reported for the quarter.
Important facts for investors to verify
- Whether customer activity and wearer levels recover, and how that affects Core Laundry revenue and margins.
- Replacement terms and continuing availability of the revolving credit facility before its April 2021 maturity.
- Progress and potential cost changes for environmental remediation, particularly at the Woburn and Somerville sites.
- Capital spending, cash generation and the company’s continued allocation of cash to dividends and repurchases.
- Whether Specialty Garments growth and First Aid profitability persist, given the disclosed seasonality and segment-specific demand factors.