UniFirst Earnings Call: Growth Investments Hit Near-Term Margins

UniFirst Corp ((UNF)) has held its Q1 earnings call. Read on for the main highlights of the call.

UniFirst Balances Growth Investments With Margin Pressure in Latest Earnings Call

UniFirst Corp’s latest earnings call painted a picture of a company cautiously progressing through a transition phase. Management highlighted steady revenue gains, strong performance in First Aid, improved customer metrics, and a rock-solid balance sheet as evidence that strategic investments are starting to take hold. At the same time, profitability came under notable pressure, with double-digit declines in operating income, EBITDA, net income, and EPS as UniFirst absorbs higher costs, funds a multi-year ERP rollout, and invests in its “UniFirst Way” operating framework. Management’s tone was confident but realistic: the near term will be choppy, but they see the groundwork being laid for a margin recovery in the 2027–2028 timeframe.

Moderate Revenue Growth Anchored by Core Uniform Operations

Consolidated revenues rose to $621.3 million, up 2.7% year-over-year from $604.9 million, signaling modest but steady top-line momentum. The Uniform & Facility Service Solutions segment, UniFirst’s core business, remained the main growth driver, supported by a broad customer base across industries. While the growth rate is not explosive, it is positive in a tougher macro environment and provides a platform for the company’s ongoing strategic initiatives. The call underscored that demand remains stable enough to support UniFirst’s longer-term investment agenda.

Core Organic Growth Supported by New Wins and Better Retention

Uniform & Facility Service Solutions revenue reached $565.9 million, with organic growth of 2.4%. Management emphasized that new customer wins exceeded the prior year, and customer retention improved sequentially for the second year in a row. These trends suggest UniFirst is gaining traction in the marketplace despite competitive pressures, and that sales and service investments are beginning to show tangible benefits. Stronger retention and new business wins are crucial for driving future operating leverage once investment and one-time cost headwinds ease.

First Aid & Safety Delivers Double-Digit Growth

First Aid and Safety Solutions stood out as a growth engine, with revenues climbing 15.3% to $30.2 million from $26.2 million. The strength was fueled by double-digit growth in van operations and supported by small bolt-on acquisitions, underscoring management’s belief that First Aid is a strategic expansion area for the company. Despite posting a nominal operating loss this quarter due to elevated investment, management framed spending in this segment as a deliberate move to build scale and profitability over the coming years.

Share Repurchases and Dividend Hike Signal Confidence

UniFirst demonstrated disciplined capital allocation and clear commitment to shareholder returns. The company repurchased approximately $31.7 million of common stock during the quarter, bringing buybacks to more than $77 million over the last two quarters, and also increased its dividend. Management and the Board positioned these moves as a signal of confidence in UniFirst’s strategy and long-term earnings power, even as near-term margins and free cash flow are under pressure. For investors, these actions underscore the company’s willingness to return capital while continuing to fund its transformation.

Strong Balance Sheet Enables Ongoing Strategic Investment

The balance sheet remains a key strength, with $129.5 million in cash, cash equivalents and short-term investments and no long-term debt. UniFirst deployed $38.9 million in capital expenditures and $14.9 million on four acquisitions in its First Aid business, illustrating its capacity to invest heavily without stretching its financial position. Management highlighted this balance sheet flexibility as a competitive advantage that allows the company to sustain its ERP rollout, operational initiatives, and M&A strategy while still supporting shareholder returns.

Operational Initiatives Beginning to Show Early Gains

Management devoted significant time to the early progress of its sales and service investments, UniFirst Way operating framework, and ERP implementation. These initiatives are already contributing to improved account retention, higher new account sales, and additional product placements within existing customers. However, leadership stressed that the full financial benefits—particularly margin expansion—are expected to materialize more meaningfully over the next 18–24 months, and even more so into 2027–2028 as the ERP platform and process changes scale across the business.

Profitability Takes a Hit Amid Heavy Investment

Despite the revenue growth, UniFirst’s profitability weakened sharply. Operating income declined to $45.3 million from $55.5 million, a drop of about 18.4% year-over-year. Net income fell to $34.4 million from $43.1 million (down roughly 20.2%), while adjusted EBITDA declined to $82.8 million from $94.0 million (down about 11.9%). Diluted EPS slid to $1.89 from $2.31, an 18.2% decline. Management acknowledged that this pressure is partly self-inflicted, tied to planned investments and transformation costs that they believe will ultimately drive better performance, but it nonetheless marks a near-term drag on returns.

Margin Compression in Core Uniform Segment

The Uniform & Facility Service Solutions segment, while growing, saw notable margin compression. Operating margin fell to 7.4% from 8.8%, a decline of 1.4 percentage points, and adjusted EBITDA margin slid to 13.6% from 15.4%, down 1.8 points. Management cited deliberate investments, higher healthcare claims, and elevated legal costs as the main drivers. These pressures reinforce that the current phase is more about building future capabilities than maximizing short-term profitability, but they also raise the bar on management’s ability to translate these investments into tangible margin gains over the next few years.

ERP and Key Initiatives Weigh on Near-Term Results

UniFirst’s multi-year ERP and Key Initiative program continues to burden current earnings. Costs directly tied to these efforts totaled $2.3 million in the quarter, roughly in line with the prior year’s $2.5 million. Management indicated that these expenses reduced operating income and adjusted EBITDA by $2.3 million, net income by $1.7 million, and diluted EPS by $0.09 for the quarter. The ERP rollout, including supply chain-related releases, is expected to extend through 2027, meaning investors should anticipate ongoing but gradually evolving cost impacts before the full efficiency benefits are realized.

Higher Claims, Legal and Operating Costs Add to Headwinds

Beyond strategic investments, UniFirst faced higher-than-expected healthcare claims and legal costs, which further pressured margins. Energy costs represented 4.1% of revenues, and management flagged potential tariff impacts as another cost risk going forward. While some of these items are inherently volatile or episodic, they compound the earnings drag during a period when the company is already absorbing substantial transformation expenses, making margin management more challenging.

Free Cash Flow and Working Capital Under Strain

Free cash flow was negatively impacted by lower profits and heavy working capital requirements. UniFirst pointed to increased merchandise in service tied to large national account installations and the timing of income tax and vendor payments as key factors. This pattern is typical for businesses onboarding sizable accounts and building inventory to support growth, but it does mean that cash generation is currently lagging headline revenue growth. Management framed this as a temporary dynamic that should normalize once these installations are fully ramped and profits begin to improve.

Segment-Specific Challenges Temper Overall Results

Not all parts of the portfolio moved in the right direction. Specialty Service Solutions revenues slipped 2.9% to $25.2 million from $25.9 million, mainly due to the anticipated wind-down of a large refurbishment project and fewer reactor outages. Meanwhile, First Aid, despite its strong top-line performance, recorded a small operating loss of $0.4 million, reflecting stepped-up investment to build future profitability. These mixed segment results highlight the uneven nature of UniFirst’s transition, with some areas acting as growth platforms and others facing cyclical or project-related headwinds.

Strategic Uncertainty from Unsolicited Proposal

Adding another layer of complexity, UniFirst disclosed it has received an unsolicited, non-binding proposal from competitor Cintas. The Board has engaged advisors and the review process is ongoing, introducing potential strategic uncertainty and distraction. Management emphasized that current guidance does not assume any outcome related to this proposal and also excludes the impact of future share repurchases. Investors will be watching closely for any developments that could alter UniFirst’s standalone strategy or capital return plans.

Guidance Reaffirmed Despite Margin and Cash Flow Pressures

Management reaffirmed full-year fiscal 2026 guidance, projecting consolidated revenues between $2.475 billion and $2.495 billion and fully diluted EPS of $6.58 to $6.98. The outlook incorporates an estimated $7 million of Key Initiative (ERP) costs to be expensed in FY26 and assumes an effective tax rate around 26%, while explicitly excluding potential future share buybacks. The Q1 results—$621.3 million in revenue, $45.3 million in operating income, adjusted EBITDA of $82.8 million, net income of $34.4 million, and $1.89 in diluted EPS—combined with a cash and short-term investment position of $129.5 million, $38.9 million of capex, $31.7 million of share repurchases, and $14.9 million of acquisitions, were presented as evidence that the company can support its guidance even as investments and one-time costs weigh on margins in the near term.

In closing, UniFirst’s earnings call underscored a classic transformation trade-off: modest but improving revenue momentum and strategic progress against a backdrop of pressured margins, subdued free cash flow, and heightened uncertainty. Management is clearly leaning into investments in systems, processes, and growth platforms like First Aid, supported by a strong balance sheet and active capital returns. For investors, the story hinges on whether these efforts translate into the anticipated margin inflection in 2027–2028. Until then, UniFirst remains a steady, asset-light uniforms player in transition, asking shareholders for patience while it builds what it believes will be a more profitable, scalable platform for the long term.