Vestis Corporation’s Earnings Call: Mixed Sentiment and Forward Guidance

Vestis Corporation ((VSTS)) has held its Q2 earnings call. Read on for the main highlights of the call.

The recent earnings call for Vestis Corporation revealed a mixed sentiment among stakeholders. While there were positive developments such as the appointment of a new CEO and sequential monthly revenue growth, the company faced significant challenges. These included a decline in revenue and adjusted EBITDA margin, as well as issues with customer retention. The execution of the credit agreement amendment provides some financial flexibility, but overall performance fell short of expectations.

New Leadership Appointment

Jim Barber, the former COO of UPS, will be stepping into the role of President and CEO of Vestis Corporation on June 2, 2025. This leadership change is expected to bring fresh perspectives and strategies to the company, potentially steering it towards improved performance and growth.

Sequential Monthly Revenue Growth

Vestis reported sequential monthly revenue growth in each month since January, including April. The current run rate is 3.4% higher than it was in January, indicating a positive trend in revenue generation despite broader challenges.

Successful Execution of Credit Agreement Amendment

The company successfully executed an amendment to its credit agreement, which provides additional financial flexibility through the end of fiscal 2026. This move is seen as a strategic step to manage financial challenges and support future growth initiatives.

Strong Performance in New Business

New business activities contributed to 2.4% of revenue growth during the quarter. The field and national account sales teams collectively installed 35% more recurring revenue year-over-year, showcasing strong performance in acquiring new business.

Revenue Decline

Vestis reported a second quarter revenue of $665 million, marking a decline of 5.7% year-over-year and 2.7% sequentially. This decline was primarily driven by an $11 million drop in rental revenue and a $7 million decline in direct sales, missing growth expectations.

Adjusted EBITDA Margin Decrease

The adjusted EBITDA margin decreased to 9.4%, down from 11.9% in the first quarter of 2025 and 12.4% in Q2 of 2024. This decline reflects the company’s ongoing financial challenges.

Challenges in Customer Retention

Customer retention issues resulted in a revenue impact of approximately $20 million. However, there was a 10% improvement compared to the previous quarter, indicating some progress in addressing this challenge.

One-Time Bad Debt Adjustment

A $15 million one-time bad debt expense adjustment was made during the quarter, impacting the company’s SG&A expenses. This adjustment reflects the company’s efforts to address financial discrepancies.

Negative Free Cash Flow

The company reported a negative free cash flow of $7 million, which was attributed to lower profit and higher working capital. This highlights the financial pressures Vestis is currently facing.

Forward-Looking Guidance

Looking ahead, Vestis has shifted to quarterly guidance, projecting Q3 revenue between $674 million and $682 million and adjusted EBITDA of at least $63 million. The company emphasizes a focus on customer service and operational improvements, alongside financial flexibility through a recent credit agreement amendment.

In conclusion, the earnings call for Vestis Corporation highlighted a mix of positive developments and ongoing challenges. While new leadership and sequential revenue growth offer hope, the decline in revenue and adjusted EBITDA margin, along with customer retention issues, remain significant hurdles. The company’s forward-looking guidance suggests a cautious optimism, with a focus on operational improvements and financial flexibility.