Vestis Q2 Earnings Call Highlights

Key Points

• Vestis posted a major profitability rebound in fiscal Q2 2026, with adjusted EBITDA rising to $74.5 million from $47.6 million a year ago and net income improving to $2.6 million from a $27.8 million loss. Management called it a “meaningful inflection point” and said operating leverage improved for the first time since the company went public.
• The company’s transformation plan is cutting costs and improving operational performance, including better on-time delivery, higher plant productivity, lower customer complaints, and reduced SG&A. Vestis also continued to focus on pricing discipline and exiting lower-margin business to improve revenue quality.
• Guidance was raised for both EBITDA and free cash flow, with full-year adjusted EBITDA now expected at $295 million to $325 million and free cash flow at $120 million to $150 million. Vestis maintained its revenue outlook, but said it still expects flat to down 2% revenue for the year.

Vestis NYSE: VSTS reported improved profitability and cash generation in its fiscal second quarter of 2026, with management saying its business transformation plan is beginning to translate into better operating leverage. The uniform and workplace supplies company also raised its full-year outlook for adjusted EBITDA and free cash flow while maintaining its revenue forecast.

President and Chief Executive Officer Jim Barber said the quarter marked “a meaningful inflection point” for Vestis, citing the company’s first year-over-year adjusted EBITDA growth in more than two years and its first improvement in operating leverage since becoming a public company.

“This performance demonstrates the impact of an enterprise-wide focus on execution and on managing every dollar of the business down to the penny,” Barber said.

Revenue Declines Slightly, But Profitability Improves

Interim Chief Financial Officer Adam Bowen said second-quarter revenue was approximately $659 million, down about $6 million, or 0.9%, from the prior year. The result included a $2.7 million favorable foreign currency impact from the company’s Canadian business.

Bowen said the revenue decline was primarily driven by a 1.2% reduction in volume, measured as pounds processed, partially offset by strategic pricing and product mix improvements. Revenue per pound was $1.37, flat both year over year and sequentially.

The company said the volume it lost was lower-quality business, carrying an average revenue per pound of about $1. Bowen said that made the volume decline accretive to overall revenue quality and reflected continued progress in strategic pricing, product mix and the intentional exit of lower-margin business.

Adjusted EBITDA was $74.5 million, with an adjusted EBITDA margin of 11.3%, compared with $47.6 million, or 7.2%, in the prior year. Excluding a $15 million bad debt adjustment in the year-ago period, adjusted EBITDA increased by approximately $12 million, or 19%, on what the company described as a comparable or covenant-adjusted basis.

Net income improved to $2.6 million, compared with a net loss of $27.8 million in the prior-year quarter.

Transformation Plan Targets Costs, Pricing and Network

Barber said Vestis made progress across the three pillars of its transformation framework: operational excellence, commercial excellence, and network and asset optimization.

On the operational side, he said on-time delivery improved by 270 basis points from the prior year, plant productivity increased by 11%, and customer complaints declined by 4%. Vestis also delivered a $0.02 year-over-year reduction in cost per pound, which management said contributed to improved operating leverage.

Bowen said cost of service decreased by approximately $4 million year over year, supported by lower merchandise and delivery costs and better plant productivity. Selling, general and administrative expense declined by approximately $36 million on a reported basis, though the prior year included a $15 million bad debt adjustment and $8 million of non-recurring severance related to executive transition costs. Adjusted for those items, SG&A fell about $13.5 million, or 12%.

During the question-and-answer session, Bowen said plant productivity contributed about $9 million of improvement inside plant costs, while SG&A reductions were the largest driver of the year-over-year improvement in adjusted operating expenses.

Chief Operating Officer Bill Seward said the company is also focused on smaller operational savings, including truck idling and hanger reclamation, while emphasizing that cost reductions are being pursued alongside improved service levels.

Commercial Discipline Narrows Revenue Quality Gap

Management said Vestis is working to improve commercial decision-making through customer-level profitability tools, pricing frameworks, product mix targets and approval processes across national accounts, new field sales and direct sales.

Barber said Vestis is “reestablishing commercial rigor and discipline” that had eroded following the spin, including enforcing pricing floors, targeting improved product mix for new sales, onboarding volume that is accretive to the network and exiting business that does not meet return thresholds.

Bowen said linen concentration increased 4% year over year in the second quarter, an improvement from a 7% increase in the first quarter, and declined 2% sequentially. In response to an analyst question, Barber said the company is working to shift mix back toward garments and higher-profitability products, while adding that Vestis is not exiting linen entirely.

Barber said he believes Vestis can return to revenue growth in the fourth quarter of fiscal 2026, though he declined to quantify the expected growth rate. He said the company is still working through “non-regrettable churn” from customers leaving because margins are not acceptable.

Cash Flow Surges and Debt Is Reduced

Vestis generated $58.3 million in operating cash flow and $45.6 million of free cash flow during the quarter. Adjusted free cash flow was $57 million, excluding transformation-related cash expenditures such as third-party costs and severance payments.

Bowen said free cash flow for the first half of fiscal 2026 was approximately $74 million, an improvement of $92 million from the first half of fiscal 2025. He attributed the improvement to stronger working capital and balance sheet management, better rental merchandise and service management, and improved collections practices.

At quarter-end, net debt was $1.25 billion, and principal bank debt outstanding was $1.13 billion. Vestis repaid $34 million of debt during the quarter, including $19 million of revolver borrowings and $15 million of term loan debt. The company ended the quarter with approximately $344 million of available liquidity, including $294 million of undrawn revolver capacity and about $50 million of cash.

As part of its network and asset optimization efforts, Vestis sold two inactive non-operating facilities during the quarter for approximately $6.5 million in net proceeds, which were used to repay debt. Bowen said the company is actively marketing 11 additional properties with an estimated value of approximately $15 million.

Guidance Raised for EBITDA and Free Cash Flow

Vestis raised its fiscal 2026 adjusted EBITDA outlook to a range of $295 million to $325 million, compared with its prior range of $285 million to $315 million. The updated midpoint is $310 million.

The company now expects in-year benefits from its transformation plan of approximately $50 million, up from its prior estimate of $40 million. Bowen said that translates to at least $75 million on a full-year basis entering fiscal 2027.

Vestis also raised its free cash flow outlook to $120 million to $150 million, compared with its previous range of $50 million to $60 million. The guidance assumes $60 million to $70 million of cash capital expenditures and $30 million to $35 million of cash paid for transformation-related expenses.

The company maintained its fiscal 2026 revenue outlook, expecting revenue to be flat to down 2% compared with normalized fiscal 2025 revenue, excluding the impact of the 53rd week last year. Management also expects the full-year effective tax rate to be between 35% and 40%.

About Vestis NYSE: VSTS

Vestis Corporation provides uniform rentals and workplace supplies in the United States and Canada. Its products include uniform options, such as shirts, pants, outerwear, gowns, scrubs, high visibility garments, particulate-free garments, and flame-resistant garments, as well as shoes and accessories; and workplace supplies, including managed restroom supply services, first-aid supplies and safety products, floor mats, towels, and linens. The company serves manufacturing, hospitality, retail, food processing, food service, pharmaceuticals, healthcare, automotive, and cleanroom industries.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.