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UNIFIRST ANNOUNCES FINANCIAL RESULTS FOR THE SECOND QUARTER OF FISCAL 2020

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WILMINGTON, Mass., April 01, 2020 (GLOBE NEWSWIRE) -- UniFirst Corporation (NYSE:UNF) (the "Company") today reported results for its second quarter ended February 29, 2020 as compared to the corresponding period in the prior fiscal year:

Q2 2020 Financial Highlights

  • Consolidated revenues for the second quarter increased 6.2% to $464.6 million.
  • Operating income was $44.1 million, a decrease of 29.3%.
  • The effective tax rate for the quarter decreased to 24.2% from 24.9%.
  • Net income in the quarter decreased to $34.7 million from $47.6 million, or 27.2%.
  • Diluted earnings per share decreased to $1.82 from $2.48, or 26.6%.

Operating income in the second quarter of fiscal 2019 benefited from a pre-tax gain of $21.1 million, which was recorded in selling and administrative expenses. This amount reflected a settlement with the lead contractor for the version of the customer relationship management system for which the Company had recorded a $55.8 million impairment charge in fiscal 2017 (the "CRM Settlement"). This settlement included the receipt of a one-time cash payment of $13.0 million, the forgiveness of amounts previously due the contractor as well as the receipt of certain hardware and related maintenance. Excluding the effect of the CRM Settlement:

  • Operating income increased 6.8% compared to prior year's adjusted operating income.
  • Net income increased 8.2% from prior year's adjusted net income of $32.0 million.
  • Diluted earnings per share increased 9.0% from prior year's adjusted amount of $1.67.

See the Reconciliation of GAAP to Non-GAAP Financial Measures below.

Steven Sintros, UniFirst President and Chief Executive Officer, said, "We are pleased with the results of our second quarter which largely met our expectations and showed solid top and bottom-line growth.  However, the Company's attention has now turned toward our pandemic response efforts.  Our top priority is working to ensure the safety of our Team Partners while continuing to provide our value-added products and services to the many essential businesses that are keeping our communities safe and operating.  I want to thank our Team Partners for their continued efforts as they demonstrate unwavering commitment and dedication."

Segment Reporting Highlights

Core Laundry Operations

  • Revenues for the quarter increased 4.5% to $412.2 million.
  • Organic growth, which excludes the effect of acquisitions and fluctuations in the Canadian dollar, was 3.6%.
  • Operating margin decreased to 9.3% from 15.0%. Adjusted for the effect of the CRM Settlement in 2019, adjusted operating margin in prior year was 9.6%. The decrease from prior year's adjusted operating margin was primarily due to higher production and service payroll costs as a percentage of revenues, which were partially offset by lower energy costs.

See the Reconciliation of GAAP to Non-GAAP Financial Measures below.

Specialty Garments

  • Revenues for the quarter were $36.0 million, an increase of 21.0%. The increase in Specialty Garments revenue was primarily due to higher direct sale activity in the quarter as well as strong performance in the cleanroom and European nuclear operations.
  • Operating margin increased to 12.9% from 7.5%. This increase was primarily due to the higher direct sale activity in the quarter.
  • Specialty Garments consists of nuclear decontamination and cleanroom operations and its results can vary significantly due to seasonality and the timing of reactor outages and projects.

Balance Sheet and Capital Allocation

  • Cash, cash equivalents and short-term investments totaled $395.3 million as of February 29, 2020.
  • The Company had no long-term debt outstanding as of February 29, 2020.
  • Under its previously announced stock repurchase program, the Company repurchased 20,500 common shares for a total of $4.2 million during its second fiscal quarter of 2020. As of February 29, 2020, the Company had repurchased a total of 268,250 common shares for a total of $44.7 million under the program.
  • Weighted average shares outstanding – Diluted for the second quarter of fiscal 2020 and fiscal 2019 was 19.1 million and 19.2 million shares, respectively.

Financial Outlook

Mr. Sintros continued, "Due to the evolving pandemic, our ability to assess the financial impact on our business remains limited.  As a result, we are not providing guidance for the remainder of our fiscal 2020.  Although we are not able to quantify, we expect the disruption related to this pandemic will clearly have a negative impact on our revenues and profitability. We also expect that if sustained for an extended period, the sharp decline in oil prices as well as the decline in the Canadian exchange rate will further challenge our performance. Our strong balance sheet positions us well to weather this disruption and maintain focus on the care of our Team Partners, our customers and our communities."

Conference Call Information

UniFirst will hold a conference call today at 9:00 a.m. (ET) to discuss its quarterly financial results, business highlights and outlook. A simultaneous live webcast of the call will be available over the Internet and can be accessed at www.unifirst.com.

About UniFirst Corporation

Headquartered in Wilmington, Mass., UniFirst Corporation (NYSE:UNF) is a North American leader in the supply and servicing of uniform and workwear programs, as well as the delivery of facility service programs. Together with its subsidiaries, the company also provides first aid and safety products, and manages specialized garment programs for the cleanroom and nuclear industries. UniFirst manufactures its own branded workwear, protective clothing, and floorcare products; and with 260 service locations, over 300,000 customer locations, and 14,000-plus employee Team Partners, the company outfits nearly 2 million workers each business day. For more information, contact UniFirst at 800.455.7654 or visit UniFirst.com.

Forward-Looking Statements Disclosure

This public announcement contains forward-looking statements that reflect the Company's current views with respect to future events and financial performance, including projected revenues and earnings per share. Forward-looking statements contained in this public announcement are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995 and may be identified by words such as "estimates," "anticipates," "projects," "plans," "expects," "intends," "believes," "seeks," "could," "should," "may," "will," "strategy," "objective," "positions," "assume," or the negative versions thereof, and similar expressions and by the context in which they are used. Such forward-looking statements are based upon our current expectations and speak only as of the date made. Such statements are highly dependent upon a variety of risks, uncertainties and other important factors that could cause actual results to differ materially from those reflected in such forward-looking statements. Such factors include, but are not limited to, uncertainties caused by adverse economic conditions, including, without limitation, as a result of extraordinary events or circumstances such as the COVID-19 pandemic, and their impact on our customers' businesses and workforce levels, disruptions of our business and operations or the business and operations of our customers or suppliers in connection with extraordinary events or circumstances such as the COVID-19 pandemic, uncertainties regarding our ability to consummate and successfully integrate acquired businesses, uncertainties regarding any existing or newly-discovered expenses and liabilities related to environmental compliance and remediation, any adverse outcome of pending or future contingencies or claims, our ability to compete successfully without any significant degradation in our margin rates, seasonal and quarterly fluctuations in business levels, our ability to preserve positive labor relationships and avoid becoming the target of corporate labor unionization campaigns that could disrupt our business, the effect of currency fluctuations on our results of operations and financial condition, our dependence on third parties to supply us with raw materials, which such supply could be severely disrupted as a result of extraordinary events or circumstances such as the COVID-19 pandemic, any loss of key management or other personnel, increased costs as a result of any changes in federal or state laws, rules and regulations or governmental interpretation of such laws, rules and regulations, uncertainties regarding the price levels of natural gas, electricity, fuel and labor, the negative effect on our business from sharply depressed oil and natural gas prices, including, without limitation, as a result of extraordinary events or circumstances such as the COVID-19 pandemic, the continuing increase in domestic healthcare costs, increased healthcare costs resulting from extraordinary events or circumstances such as the COVID-19 pandemic, our ability to retain and grow our customer base, demand and prices for our products and services, fluctuations in our Specialty Garments business, instability in Mexico and Nicaragua where our principal garment manufacturing plants are located, our ability to properly and efficiently design, construct, implement and operate a new customer relationship management ("CRM") computer system, interruptions or failures of our information technology systems, including as a result of cyber-attacks, additional professional and internal costs necessary for compliance with any changes in Securities and Exchange Commission, New York Stock Exchange and accounting rules, strikes and unemployment levels, our efforts to evaluate and potentially reduce internal costs, economic and other developments associated with the war on terrorism and its impact on the economy, the impact of foreign trade policies and tariffs or other impositions on imported goods on our business, results of operations and financial condition, general economic conditions, our ability to successfully implement our business strategies and processes, including our capital allocation strategies and other factors described under "Item 1A. Risk Factors" and elsewhere in our Annual Report on Form 10-K for the year ended August 31, 2019 and in our other filings with the Securities and Exchange Commission. We undertake no obligation to update any forward-looking statements to reflect events or circumstances arising after the date on which they are made.

Consolidated Statements of Income
(Unaudited)

 (In thousands, except per share data)   Thirteen weeks ended February 29, 2020     Thirteen weeks ended February 23, 2019     Twenty-six weeks ended February 29, 2020     Twenty-six weeks ended February 23, 2019  
Revenues   $ 464,600     $ 437,485     $ 929,998     $ 876,035  
                                 
Operating expenses:                                
Cost of revenues (1)     301,422       281,672       590,738       558,721  
Selling and administrative expenses (1)     93,080       68,321       183,608       154,280  
Depreciation and amortization     25,971       25,046       51,430       50,162  
Total operating expenses     420,473       375,039       825,776       763,163  
                                 
Operating income     44,127       62,446       104,222       112,872  
                                 
Other (income) expense:                                
Interest income, net     (2,175 )     (2,009 )     (4,536 )     (3,714 )
Other expense, net     539       1,060       1,067       1,232  
Total other income, net     (1,636 )     (949 )     (3,469 )     (2,482 )
                                 
Income before income taxes     45,763       63,395       107,691       115,354  
Provision for income taxes     11,083       15,789       24,769       29,428  
                                 
Net income   $ 34,680     $ 47,606     $ 82,922     $ 85,926  
                                 
Income per share – Basic:                                
Common Stock   $ 1.90     $ 2.59     $ 4.55     $ 4.67  
Class B Common Stock   $ 1.52     $ 2.07     $ 3.64     $ 3.74  
                                 
Income per share – Diluted:                                
Common Stock   $ 1.82     $ 2.48     $ 4.34     $ 4.46  
                                 
Income allocated to – Basic:                                
Common Stock   $ 29,129     $ 39,923     $ 69,654     $ 72,061  
Class B Common Stock   $ 5,551     $ 7,683     $ 13,268     $ 13,865  
                                 
Income allocated to – Diluted:                                
Common Stock   $ 34,680     $ 47,606     $ 82,922     $ 85,926  
                                 
Weighted average shares outstanding – Basic:                                
Common Stock     15,293       15,428       15,300       15,430  
Class B Common Stock     3,643       3,710       3,643       3,710  
                                 
Weighted average shares outstanding – Diluted:                                
Common Stock     19,105       19,232       19,114       19,258  

(1) Exclusive of depreciation on the Company's property, plant and equipment and amortization on its intangible assets.

Condensed Consolidated Balance Sheets
(Unaudited)

 (In thousands)   February 29, 2020     August 31, 2019  
Assets                
Current assets:                
Cash, cash equivalents and short-term investments   $ 395,323     $ 385,341  
Receivables, net     209,878       203,457  
Inventories     94,875       100,916  
Rental merchandise in service     179,291       184,318  
Prepaid taxes     8,933       4,060  
Prepaid expenses and other current assets     35,522       35,699  
                 
Total current assets     923,822       913,791  
                 
Property, plant and equipment, net     582,753       574,509  
Goodwill     424,711       401,178  
Customer contracts and other intangible assets, net     88,355       72,720  
Deferred income taxes     475       448  
Operating lease right-of-use assets, net     46,426        
Other assets     86,320       84,674  
    $ 2,152,862     $ 2,047,320  
                 
Liabilities and shareholders' equity                
Current liabilities:                
Accounts payable   $ 71,172     $ 77,918  
Accrued liabilities     117,968       111,721  
Accrued taxes           205  
Operating lease liabilities, current     12,255        
                 
Total current liabilities     201,395       189,844  
                 
Long-term liabilities:                
Accrued liabilities     118,114       117,074  
Accrued and deferred income taxes     99,439       99,172  
Operating lease liabilities     32,476        
                 
Total liabilities     451,424       406,090  
                 
Shareholders' equity:                
Common Stock     1,529       1,533  
Class B Common Stock     364       364  
Capital surplus     84,577       84,946  
Retained earnings     1,648,069       1,588,075  
Accumulated other comprehensive loss     (33,101 )     (33,688 )
                 
Total shareholders' equity     1,701,438       1,641,230  
                 
    $ 2,152,862     $ 2,047,320  

Detail of Operating Results
(Unaudited)

Revenues

 (In thousands, except percentages)   Thirteen weeks ended February 29, 2020     Thirteen weeks ended February 23, 2019     Dollar
Change
    Percent
Change
 
Core Laundry Operations   $ 412,192     $ 394,408     $ 17,784       4.5 %
Specialty Garments     35,980       29,745       6,235       21.0 %
First Aid     16,428       13,332       3,096       23.2 %
Consolidated total   $ 464,600     $ 437,485     $ 27,115       6.2 %


 (In thousands, except percentages)   Twenty-six weeks ended February 29, 2020     Twenty-six weeks ended February 23, 2019     Dollar
Change
    Percent
Change
 
Core Laundry Operations   $ 828,490     $ 784,885     $ 43,605       5.6 %
Specialty Garments     69,382       64,193       5,189       8.1 %
First Aid     32,126       26,957       5,169       19.2 %
Consolidated total   $ 929,998     $ 876,035     $ 53,963       6.2 %

Operating Income

 (In thousands, except percentages)   Thirteen weeks ended February 29, 2020     Thirteen weeks ended February 23, 2019     Dollar
Change
    Percent
Change
 
Core Laundry Operations   $ 38,357     $ 59,113     $ (20,756 )     (35.1 )%
Specialty Garments     4,627       2,235       2,392       107.0 %
First Aid     1,143       1,098       45       4.1 %
Consolidated total   $ 44,127     $ 62,446     $ (18,319 )     (29.3 )%


 (In thousands, except percentages)   Twenty-six weeks ended February 29, 2020     Twenty-six weeks ended February 23, 2019     Dollar
Change
    Percent
Change
 
Core Laundry Operations   $ 92,165     $ 103,895     $ (11,730 )     (11.3 )%
Specialty Garments     9,506       6,705       2,801       41.8 %
First Aid     2,551       2,272       279       12.3 %
Consolidated total   $ 104,222     $ 112,872     $ (8,650 )     (7.7 )%

Operating Margin

    Thirteen weeks ended February 29, 2020     Thirteen weeks ended February 23, 2019  
Core Laundry Operations     9.3 %     15.0 %
Specialty Garments     12.9 %     7.5 %
First Aid     7.0 %     8.2 %
Consolidated total     9.5 %     14.3 %


    Twenty-six weeks ended February 29, 2020     Twenty-six weeks ended February 23, 2019  
Core Laundry Operations     11.1 %     13.2 %
Specialty Garments     13.7 %     10.4 %
First Aid     7.9 %     8.4 %
Consolidated total     11.2 %     12.9 %

Consolidated Statements of Cash Flows
(Unaudited)

(In thousands)   Twenty-six weeks ended February 29, 2020     Twenty-six weeks ended February 23, 2019  
Cash flows from operating activities:                
Net income   $ 82,922     $ 85,926  
Adjustments to reconcile net income to cash provided by operating activities:                
Depreciation and amortization     51,430       50,162  
Amortization of deferred financing costs     56       56  
Forgiveness of a liability           (7,346 )
Share-based compensation     3,227       2,796  
Accretion on environmental contingencies     269       377  
Accretion on asset retirement obligations     463       441  
Deferred income taxes     727       364  
Other     16       (811 )
Changes in assets and liabilities, net of acquisitions:                
Receivables, less reserves     (4,867 )     (2,502 )
Inventories     6,125       (5,589 )
Rental merchandise in service     6,839       (4,862 )
Prepaid expenses and other current assets and Other assets     2,170       (3,616 )
Accounts payable     (5,815 )     (5,268 )
Accrued liabilities     (1,752 )     (7,711 )
Prepaid and accrued income taxes     (4,941 )     26,243  
Net cash provided by operating activities     136,869       128,660  
                 
Cash flows from investing activities:                
Acquisition of businesses, net of cash acquired     (41,021 )     (67 )
Capital expenditures, including capitalization of software costs     (62,271 )     (52,152 )
Proceeds from sale of assets     236       178  
Other           15  
Net cash used in investing activities     (103,056 )     (52,026 )
                 
Cash flows from financing activities:                
Proceeds from exercise of share-based awards     75       27  
Taxes withheld and paid related to net share settlement of equity awards     (3,281 )     (1,095 )
Repurchase of Common Stock     (14,203 )     (6,280 )
Payment of cash dividends     (6,609 )     (4,140 )
Net cash used in financing activities     (24,018 )     (11,488 )
                 
Effect of exchange rate changes     187       (336 )
                 
Net (decrease) increase in cash, cash equivalents and short-term investments     9,982       64,810  
Cash, cash equivalents and short-term investments at beginning of period     385,341       270,512  
Cash, cash equivalents and short-term investments at end of period   $ 395,323     $ 335,322  


UniFirst Corporation and Subsidiaries
Reconciliation of GAAP to Non-GAAP Financial Measures

The Company reports its consolidated financial results in accordance with generally accepted accounting principles ("GAAP"). To supplement these consolidated financial results, management believes that certain non-GAAP operating results provide a more meaningful measure on which to compare the Company's results of operations for the periods presented. The Company believes these non-GAAP results provide useful supplemental information regarding the Company's performance to both management and investors by excluding certain non-recurring amounts that impact the comparability of the results. Supplemental reconciliations of consolidated operating income, net income and earnings per diluted share on a GAAP basis to adjusted operating income, net income and earnings per diluted share on a non-GAAP basis are presented in the following tables. In addition, Core Laundry Operations operating income and operating margin on a GAAP basis to adjusted operating income and adjusted operating margin on a non-GAAP basis are presented in the following tables. Investors are encouraged to review the reconciliations of these non-GAAP measures to their most directly comparable GAAP financial measures, which are provided below.

    Thirteen weeks ended February 23, 2019  
    Consolidated     Core Laundry Operations  
(In thousands, except percentages)   Revenue     Operating
Income
    Net
Income
    Diluted
EPS
    Revenue     Operating
Income
    Operating
Margin
 
As reported   $ 437,485     $ 62,446     $ 47,606     $ 2.48     $ 394,408     $ 59,113       15.0 %
CRM Settlement           (21,127 )     (15,566 )     (0.81 )           (21,127 )     (5.4 )%
As adjusted   $ 437,485     $ 41,319     $ 32,040     $ 1.67     $ 394,408     $ 37,986       9.6 %


    Twenty-six weeks ended February 23, 2019  
    Consolidated     Core Laundry Operations  
(In thousands, except percentages)   Revenue     Operating
Income
    Net
Income
    Diluted
EPS
    Revenue     Operating
Income
    Operating
Margin
 
As reported   $ 876,035     $ 112,872     $ 85,926     $ 4.46     $ 784,885     $ 103,895       13.2 %
CRM Settlement           (21,127 )     (15,566 )     (0.81 )           (21,127 )     (2.7 )%
As adjusted   $ 876,035     $ 91,745     $ 70,360     $ 3.65     $ 784,885     $ 82,768       10.5 %

Investor Relations Contact
Shane O'Connor, Senior Vice President & CFO
UniFirst Corporation
978-658-8888
shane_oconnor@unifirst.com

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