Vestis Corporation Upholds Guidance Despite Revenue Decline

Vestis Corporation Reports Third Quarter 2024 Earnings: Guidance Remains Steady

Vestis Corporation (ticker: VEST), a prominent player in its sector, recently conducted its fiscal third quarter 2024 earnings call, revealing that it has maintained its full-year guidance despite a minor decrease in revenue and adjusted EBITDA margin. The company reported a 1.6% year-over-year decline in revenue and a 260 basis point drop in adjusted EBITDA margin, which now stands at 12.4%.

While these challenges persist, Vestis Corporation has seen positive outcomes through securing new business and enhancing customer retention. Company leaders highlighted their strategic focus on boosting operational efficiency and productivity as essential drivers for future growth.

Key Highlights:

• Revenue decreased by 1.6% year-over-year, while the adjusted EBITDA margin slipped to 12.4%.
• A significant number of customer losses adversely affected revenue, but improved retention rates are expected to mitigate these losses in 2025.
• The adjusted EBITDA for the quarter was $87 million, consistent with the previous quarter but down $20 million compared to the same period last year.
• The company generated $49 million in cash from operations and cut inventory by $21 million year-to-date.
• Vestis made substantial loan principal repayments and entered into a $250 million accounts receivable securitization facility, which will help reduce its net debt.
• Full-year revenue guidance remains unchanged, with operational trends expected to continue into the fourth quarter.

Outlook:

Vestis Corporation anticipates a sequential decrease in EBITDA in the fourth quarter as a result of non-recurring benefits from the third quarter. The company is aiming for a leverage ratio between 1.5 and 2.5 times and expresses confidence in achieving this target.

Concerns:

• There has been a decline in direct sales, exerting pressure on revenue and margins.
• Cross-selling initiatives have slowed, and details regarding sales employee turnover have not been disclosed.

Positive Developments:

• The company expects diminished customer losses in the upcoming year.
• A positive pricing impact is projected at 1% to 2% for the full year.

Challenges:

• Revenue and adjusted EBITDA margin both saw declines compared to the previous year.

Q&A Highlights:

During the Q&A session, CEO Kimberly T. Scott and CFO Ricky T. Dillon discussed various strategies for retaining customers and enhancing pricing methodologies. They emphasized the importance of customer experience and leveraging new national account wins to boost volume and operational leverage. Additionally, initiatives to enhance service quality, such as addressing shortages and ensuring timely deliveries, were outlined.

The executives elaborated on several strategic initiatives aimed at fostering growth and improving efficiency. These initiatives focus on customer retention, service quality, and increasing sales through new business acquisitions and enhanced productivity.

Cultural transformation and the embedding of new practices are acknowledged as gradual processes that the company is devoted to advancing. Despite some cross-selling deceleration and a lack of clarity on sales staff turnover, Vestis Corporation’s management remains optimistic about value creation and their commitment to meeting market expectations.

In conclusion, Vestis Corporation is navigating a challenging fiscal third quarter but continues to maintain a solid position regarding shareholder returns and liquidity. The company has seen slight revenue declines, yet it is well-prepared to tackle these challenges as it implements strategic initiatives to enhance its operational foundation and restore customer confidence.