Vestis NYSE: VSTS reported fiscal third-quarter results that showed improved profitability and cash generation as the company continued its transformation program, even as revenue declined due to intentional exits from lower-margin business.
Third-quarter revenue totaled approximately $662 million, down 1.8% from a year earlier. The decline reflected a 4.5% reduction in pounds processed, partially offset by strategic pricing actions. Interim Chief Financial Officer Adam Bowen said the company exited volume carrying an average revenue per pound of about $0.55, compared with Vestis’ overall cost per pound of $1.24.
“The decrease in volumes was accretive to our overall revenue quality,” Bowen said. Revenue per pound increased $0.04 year over year and $0.05 sequentially to $1.42, marking the first year-over-year increase in the metric since Vestis became a public company.
Profitability Improves as Costs Decline
Net income rose to $11 million in the fiscal third quarter from a net loss of $0.7 million in the prior-year period. Adjusted EBITDA increased to $80.9 million from $64 million a year earlier, while adjusted EBITDA margin expanded to 12.2% from 9.5%.
On a comparable, covenant-adjusted basis that excludes a prior-year inventory adjustment, adjusted EBITDA rose about $15 million, or 23%, from $65.8 million. President and Chief Executive Officer Jim Barber said the company’s operating leverage improved as revenue per pound increased while cost per pound remained flat year over year.
Cost of services fell about $15 million from the prior-year quarter, driven by lower merchandise, plant and delivery costs. SG&A expenses declined about $7 million, or 6%, as Vestis streamlined its organization and managed operating expenses.
Barber said plant productivity rose 9% year over year, on-time delivery improved by 80 basis points and customer complaints declined by 74 basis points. Linen concentration, measured by pounds processed, declined 6% from a year earlier as the company moved away from lower-margin workplace-supplies volume.
- Revenue: approximately $662 million, down 1.8% year over year
- Net income: $11 million, compared with a $0.7 million net loss a year earlier
- Adjusted EBITDA: $80.9 million, up from $64 million
- Adjusted EBITDA margin: 12.2%, up from 9.5%
- Revenue per pound: $1.42, up $0.04 year over year
- Free cash flow: $47 million; adjusted free cash flow: $56 million
Transformation Savings and Outsourcing Initiative
Vestis said its transformation initiatives have produced roughly $30 million of in-year cost savings through the first nine months of fiscal 2026, toward its estimate of about $50 million for the full year. Bowen said the company expects approximately $20 million of additional in-year benefits in the fiscal fourth quarter.
During the quarter, the company entered an agreement with a third-party provider to streamline corporate support functions, including back-office finance activities as well as certain information technology and customer-service functions. Vestis expects the arrangement to generate approximately $10 million in annualized savings beginning in fiscal 2027, with some benefits expected in the fourth quarter of fiscal 2026.
Barber also noted that fiscal 2026 includes accrued costs for the company’s management incentive bonus program. He said Vestis expects the program to add roughly $15 million to $20 million of expense for the year compared with the prior year, as the company builds a performance-based compensation culture.
Cash Flow, Debt Reduction and Capital Spending
Operating cash flow was $65 million in the quarter, while free cash flow was $47 million. Operating cash flow improved $42 million year over year, supported by higher net income, improved merchandise and service performance, and working-capital management.
Bowen said Vestis has been neutral on operating working capital over the past two quarters and that days sales outstanding reached their lowest level since the company became public. The company repaid $30 million of term-loan debt during the quarter.
At quarter-end, Vestis had net debt of $1.2 billion, including $1.1 billion of principal bank debt outstanding. The company reported approximately $352 million of available liquidity, consisting of $294 million in undrawn revolver capacity and about $58 million of cash. It has no debt maturities until 2028.
Vestis invested $23 million in capital assets during the quarter, including $18 million in cash investments and $5 million in finance leases for delivery fleet assets. Year to date, the company has installed 30 new industrial washers and dryers and expects to finish the year with roughly 60 new units installed. It is also marketing 11 non-operating properties with an estimated value of approximately $15 million, with proceeds intended for debt reduction.
Guidance Raised for Free Cash Flow
The company raised its fiscal 2026 free-cash-flow outlook to $160 million to $170 million, from prior guidance of $120 million to $150 million. The updated midpoint of $165 million is $30 million, or 22%, above the previous midpoint.
Vestis maintained its expectation for full-year revenue to be flat to down 2% from normalized fiscal 2025 revenue, excluding the impact of the prior year’s 53rd week. It also narrowed its adjusted EBITDA outlook to $310 million to $315 million, raising the midpoint by $2.5 million to $312.5 million. The guidance implies fiscal fourth-quarter adjusted EBITDA of $84 million to $89 million.
Bowen said the company expects free-cash-flow conversion of roughly 53% at the midpoint of its updated guidance, in line with its historical expectation of approximately 50% conversion.
Focus Turns to Network Performance and 2027 Growth
Looking ahead, Barber said Vestis plans to grow volume in fiscal 2027, though management will provide formal guidance after completing its bottom-up planning process. He identified six growth drivers—direct sales, national accounts, field sales, clean room, Canada and other operations—and said five are growing. Field sales remains the exception and is a priority for improvement.
The company is also segmenting its roughly 120 to 125 market centers into four performance quadrants. Barber said the strongest two quadrants produce margins that exceed expectations, while lower-performing locations weigh on overall results. Vestis plans to focus on improving the bottom two quadrants through leadership changes, targeted capital spending and market-specific operating plans.
Chief Operating Officer Bill Seward said the company expects to direct approximately 42% of plant capital expenditures in fiscal 2027 toward the lowest-performing quadrant of market centers. Barber said the goal is to move lower-performing locations upward through the performance rankings while balancing investment decisions with potential network optimization and industry dynamics.
Vestis also plans to expand its Market Development Representative program. Barber said representatives are focused primarily on renewing and improving pricing within non-national accounts, while also seeking deeper penetration with existing customers. He said the average weekly revenue generated by the program’s representatives is nearly twice that of a traditional new sales representative, though the company has only about 30% of its planned representatives in place.
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.
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