UniFirst Corporation (NYSE: UNF) — Form 10-Q Summary
Reporting period: Third quarter of fiscal 2022, the 13 weeks ended May 28, 2022; year-to-date figures cover 39 weeks. Financial statements are unaudited. UniFirst provides uniform and protective-workwear rental, cleaning and sales, along with related facility, specialty-garment and first-aid services.
Key financial results
| Metric | Q3 FY2022 | Q3 FY2021 | 39 weeks FY2022 | 39 weeks FY2021 |
|---|---|---|---|---|
| Revenue | $511.5 million | $464.3 million | $1,484.4 million | $1,360.9 million |
| Operating income | $33.7 million | $54.2 million | $101.1 million | $150.9 million |
| Operating margin | 6.6% | 11.7% | 6.8% | 11.1% |
| Net income | $25.1 million | $42.0 million | $77.2 million | $116.5 million |
| Diluted EPS, Common Stock | $1.33 | $2.21 | $4.07 | $6.12 |
Revenue increased 10.2% in the quarter and 9.1% year to date, while operating income fell 37.8% and 33.0%, respectively. Cost of revenues rose to 65.4% of revenue in Q3 from 61.7%; selling and administrative expenses rose to 22.7% from 20.9%. The filing attributes margin pressure to inflation, energy and labor costs, supply-chain disruption, higher merchandise amortization and investment in large national accounts, as well as spending on strategic initiatives. Year-to-date diluted EPS and net income also declined materially.
Revenue mix and growth: Q3 Core Laundry Operations revenue was $450.0 million, Specialty Garments $41.2 million and First Aid $20.3 million. Core Laundry organic growth was 9.3% in Q3 and 8.6% year to date, excluding estimated acquisition and Canadian-dollar effects. Management cited sales performance, improved retention and customer price increases; Specialty Garments benefited from cleanroom operations, and First Aid from wholesale distribution growth.
Cash flow, balance sheet and capital allocation
- For the 39 weeks, operating cash flow was $88.8 million, down from $187.5 million. Investing used $139.8 million, including $42.7 million of cash paid for acquisitions and $97.3 million of capital expenditures. Financing used $49.8 million, including $30.5 million for share repurchases and $15.4 million for dividends.
- Cash, cash equivalents and short-term investments were $410.6 million at May 28, 2022, down $102.3 million from August 28, 2021. Management also compared this balance with $535.0 million at May 29, 2021 and cited acquisitions as a primary reason for the lower cash balance.
- Total assets were $2.41 billion and shareholders’ equity $1.90 billion. Total liabilities were $506.8 million. The company had no revolver borrowings; $60.6 million of letters of credit left $114.4 million available on its $175 million revolving facility, which matures March 26, 2026. It reported compliance with all covenants.
- Management said existing cash, future operating cash generation and revolver availability should be sufficient for anticipated working capital and capital expenditure needs for at least 12 months, while noting there is no assurance.
- Ten acquisitions were completed during the 39 weeks for aggregate purchase consideration of approximately $43.9 million. The company repurchased 165,644 shares year to date; $71.6 million remained under its repurchase authorization as of May 28, 2022. Quarterly dividends had been increased to $0.30 per Common share and $0.24 per Class B share.
Outlook, risks and notable items
- No specific revenue, earnings or margin guidance is provided in the supplied filing text. Management expects inflation to continue pressuring margins; it also flags energy, wage and other input costs, supply-chain disruption and challenging labor markets.
- Management described COVID-19-related adverse impacts and supply disruptions as having declined from their peak, but warned that future variants could adversely affect operations. It also cited possible adverse economic effects from inflation, rising interest rates and geopolitical events.
- Key Initiatives include CRM rollout, investment in the UniFirst brand, and a corporate ERP system focused on supply-chain and procurement automation. Costs directly attributable to these initiatives were $11.4 million in Q3 and $24.1 million year to date. CRM deployment was expected to continue through fiscal 2022 and 2023.
- Environmental remediation is a material contingency area. The recorded environmental liability was $29.5 million at May 28, 2022; the company cautioned that estimates could change. Matters include sites in Woburn and Somerville, Massachusetts, and a transit authority reimbursement demand relating to the Somerville site.
- Other disclosed risks include seasonal and project-based Specialty Garments activity, customer retention and competition, foreign exchange, regulation of nuclear garment decontamination, acquisition integration, labor relations and potential IT or cyber disruptions. The company reported no material changes to the risk factors in its prior Form 10-K and no material changes in internal control during the quarter; disclosure controls were assessed as effective.
Investor verification priorities
- Track whether revenue growth converts into improved operating margins as energy, labor, merchandise and other inflationary costs evolve.
- Assess operating cash flow and working-capital trends, particularly receivables, inventories, rental merchandise in service and accrued liabilities.
- Verify returns and integration progress from acquisitions, and the costs, timing and benefits of the CRM, brand and ERP initiatives.
- Monitor environmental remediation exposure, including the Woburn and Somerville matters, insurance recoveries and potential changes to the $29.5 million reserve.
- Confirm liquidity and capital-allocation capacity alongside planned repurchases, dividends, capital spending and the remaining $114.4 million revolver availability.