Vestis shares tumble 20% on earnings miss, lowered guidance

ATLANTA – Vestis Corporation (NYSE: VSTS), a prominent supplier of uniforms and workplace items, disclosed its second-quarter financial results, which fell short of Wall Street expectations, prompting a sharp 21% decline in its stock price.

The company reported an adjusted earnings per share (EPS) of $0.13, significantly below the analyst consensus of $0.23. Revenue for the quarter was $705.4 million, also missing the expected $728.65 million.

The modest 0.9% year-over-year (YoY) revenue increase was further adjusted for foreign exchange (FX) impacts and the previous year’s temporary energy fee, resulting in a 2.8% growth.

Despite the revenue shortfall, the company highlighted a robust 85% YoY increase in operating cash flow to $127.5 million and a 107% surge in free cash flow to $97.7 million for the first half of the fiscal year.

“The earnings results look pretty bad, and we expect the stock to drop precipitously today – this is not what investors signed up for in terms of a turnaround, in our view,” Stifel analysts said in a note.

Kim Scott, President and CEO of Vestis, acknowledged the company’s performance did not meet expectations but emphasized the strength of the business model, as evidenced by the improved cash flow.

“While we are lowering fiscal 2024 guidance as we navigate short-term challenges, operating trends are improving across our business,” said Scott. The company has revised its fiscal year 2024 outlook, now anticipating revenue growth between a decrease of 1% and flat, with an adjusted EBITDA margin expected between 12.0% and 12.4%.

Vestis also reported progress in its strategic initiatives, including logistics optimization and customer penetration through cross-selling on routes. The company remains focused on disciplined capital allocation and deleveraging as a priority, expecting strong free cash flow conversion and a ratio of free cash flow to net income greater than or equal to 100%.

The second quarter also saw Vestis reduce its debt by $54 million, including a $45 million voluntary prepayment, bringing its net leverage down from 3.95x at the end of fiscal 2023 to 3.82x. Additionally, the company successfully refinanced its $800 million 2-year Term Loan A-1 with a new $800 million 7-year Term Loan B-1, extending its debt maturity profile significantly.

The market’s negative reaction to the earnings miss and guidance reduction was immediate, with Vestis shares plummeting 21% following the announcement. This sharp decline reflects investor concerns over the company’s short-term challenges and revised expectations for the fiscal year.

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