Vestis Earnings Call Signals Turnaround, Raises Outlook

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

Vestis Corporation’s latest earnings call struck a cautiously upbeat tone, as management showcased the first year-over-year adjusted EBITDA growth in more than two years and clear gains in efficiency and cash generation. Executives framed the quarter as evidence that the transformation plan is taking hold, even as modest revenue declines and elevated leverage leave investors with execution risks to watch.

Adjusted EBITDA Growth and Margin Expansion

Adjusted EBITDA climbed to $74.5 million in Q2, up about $12 million or roughly 19% year over year on a covenant-adjusted basis. Margin expansion was notable, with adjusted EBITDA margin improving to 11.3% from 7.2% a year ago, or 9.4% on a comparable adjusted basis, signaling better profitability despite a flat top line.

First EBITDA Growth and Operating Leverage Improvement

Management highlighted this as the first year-over-year adjusted EBITDA growth since the company went public, paired with its first improvement in operating leverage. Operating leverage improved by $0.02 per pound, indicating that incremental volumes and efficiency gains are now dropping through more effectively to earnings.

Cost per Pound Reduction

Cost per pound declined by $0.02 year over year, reflecting lower merchandise and delivery expenses as well as streamlined SG&A. Improved plant productivity amplified these savings, helping to offset revenue softness and demonstrating early payback from ongoing transformation initiatives.

Operational Performance Metrics Improved

Operational KPIs moved in the right direction, with on-time delivery improving by 270 basis points and plant productivity increasing around 11%. Customer complaints fell approximately 4%, suggesting that service levels are strengthening even as the company pushes cost and productivity programs through its network.

Revenue-Per-Pound Stabilization and Mix Quality

Revenue per pound held steady at $1.37 year over year and sequentially, marking the first time this metric has been flat since the IPO. Vestis also exited roughly 6 million pounds of lower-quality volume at about $1.00 per pound, which weighed on total volume but lifted the overall revenue mix and pricing quality.

Cash Flow and Balance Sheet Progress

Operating cash flow reached $58.3 million in Q2, supporting free cash flow of $45.6 million and adjusted free cash flow of $57 million. Year to date, free cash flow improved to about $74 million, a roughly $92 million jump versus last year, enabling $34 million of debt repayment and leaving total liquidity around $344 million.

Asset Dispositions and Debt Reduction Actions

The company sold two inactive nonoperating facilities during the quarter, generating about $6.5 million in net proceeds that were directed to debt reduction. Management is marketing another 11 nonoperating properties with an estimated value of roughly $15 million, aiming for incremental balance sheet improvement, though these proceeds will only chip away at overall leverage.

Revenue and Volume Declines

Total Q2 revenue came in at approximately $659 million, down about $6 million or 0.9% from the prior year despite a $2.7 million favorable foreign exchange impact. Pounds processed declined around 1.2% year over year, or about 6 million pounds, reflecting deliberate exits from low-quality business and ongoing top-line softness.

Product Mix and Linen Concentration Challenges

Linen concentration remained elevated compared with prior periods, up roughly 4% year over year, although it ticked down about 2% sequentially. Management acknowledged prior shifts toward lower-margin workplace supplies and linen and said they are actively reshaping the portfolio toward more attractive, higher-margin categories.

High Net Leverage Still a Risk

Despite stronger cash flow and recent repayments, net debt stood at roughly $1.25 billion, with principal bank debt of about $1.13 billion. This leverage level keeps financial risk elevated and underscores the importance of sustaining EBITDA growth and disciplined capital allocation over the coming quarters.

Nonrecurring Items and Comparability Issues

Year-ago results were distorted by a $15 million bad debt adjustment and $8 million of severance, complicating year-over-year comparisons. Q2 also included around $11 million of transformation cash costs and benefited from several one-time items, including roughly $12 million of merchandise benefits and about $7 million of balance-sheet-related cash inflows.

SG&A Trends and Adjustment Complexity

Reported SG&A fell by about $36 million year over year, but after stripping out last year’s one-offs, the true underlying decline was closer to $13.5 million, or around 12%. That gap shows that a portion of the apparent SG&A improvement stems from easier comparisons rather than purely ongoing, repeatable cost reductions.

Modest Net Income Despite Turnaround

Net income swung to a profit of $2.6 million from a $27.8 million loss a year earlier, a roughly $30.4 million improvement. Even so, absolute earnings remain modest relative to the size of the balance sheet and debt load, suggesting that further margin gains and growth are needed to fully de-risk the equity story.

Top-Line Uncertainty and Execution Dependence

Management signaled confidence in a return to top-line growth by Q4 but stopped short of providing specific volume growth forecasts. The path to that inflection hinges on successful commercial execution, customers accepting pricing actions, and continued progress in network and asset optimization programs.

Raised Guidance and Forward Outlook

Vestis raised full-year fiscal 2026 adjusted EBITDA guidance to a range of $295 million to $325 million, with a midpoint of $310 million and implied growth of about 5% in Q3 and another 5–10% in Q4. Free cash flow guidance jumped to $120 million to $150 million, while management now expects roughly $50 million of in-year transformation benefits and a stronger run-rate heading into fiscal 2027, even as revenue is still projected to be flat to down slightly versus normalized fiscal 2025.

Vestis’s earnings call painted a picture of a business finally gaining operational traction, with margins, cash flow and service metrics all moving in the right direction. Investors will welcome the upgraded guidance and evidence of transformation benefits, but will also keep a close eye on the company’s ability to restore revenue growth and steadily chip away at its still-heavy debt burden.