Uniform Company Looks Good In Financial Results

G&K Services, Inc., known as a leading provider of uniforms and work wear for a variety of industries including the automotive service industry, has reported strong earnings for the fourth quarter and the fiscal year.
The Minneapolis, Minn., company today reported U.S. dollar earnings per diluted share of $0.47 for the fourth quarter ended June 29, 2002, up 20.5 percent compared to $0.39 for the same period last year. Fourth quarter results include approximately $0.03-$0.04 of earnings per share benefit from elimination of goodwill amortization expense.
Revenue for the quarter was $158.1 million, up 1.9 percent from $155.1 million in the fourth quarter last year. Earnings per diluted share for fiscal 2002 were $1.85, up 12.1 percent compared to $1.65 in fiscal 2001.
Revenue for the year was $625.9 million compared to $603.6 million last year, a 3.7 percent increase.
“G&K posted record revenue and net income for fiscal 2002, a challenging year of higher unemployment levels and overall weak economic conditions,” said Richard Fink, G&K’s chairman.
“Fiscal 2002 marks the company’s 100th year of business, an accomplishment that represents the importance we place on our customers and employees. Looking into the next century, we are pleased with the strategic position of the company and the growth prospects of our industry providing businesses with brand-building solutions, professional employee apparel and facility services.”
Fourth quarter revenue from G&K’s rental business increased to $152.7 million, up 2.1 percent over the prior-year period. Direct sale revenue decreased 3.9 percent, to $5.4 million for the quarter. Gross margin from rental operations for the quarter increased to 42.2 percent of rental revenue versus 41.6 percent for the prior-year quarter.
The combination of improved operational productivity, lower merchandise expense, and reduced energy costs contributed to the improved rental gross margin. Direct sales gross margin for the quarter decreased to 21.7 percent of direct sale revenue compared with 23.8 percent in the same period last year.
Selling, general and administrative expenses were 23.4 percent of consolidated revenue, compared with 23.2 percent in the same period last year. Sales and marketing expenses aimed at new account growth and new product development and penetration drove the increase.
“While broad economic indicators remain mixed, we are cautiously optimistic about the current economic trends affecting our business,” said Thomas Moberly, G&K’s chief executive officer. “During the quarter, the level of employment reductions in our customer base improved; however, we are still experiencing a net reduction of customer employees in uniform. Our fourth quarter results were consistent with our previous guidance and reflect the impact of a difficult economy on our revenue and earnings. To mitigate the economic pressure, we continued to focus on key operational measures including merchandise cost containment, labor productivity and distribution optimization.”
The company reported free cash flow, which is cash from operations less capital expenditures, of $50.5 million for the year ended June 29, 2002 compared to $50.8 million during the prior-year period. The company also reported the execution of a new $325 million credit facility to replace maturing bank loans. The new five-year credit facility provides the company with credit capacity for internal growth initiatives and acquisitions to expand the company’s geographic presence and market share. Capital expenditures for fiscal 2002 were $29.2 million, down 14.5 percent from fiscal 2001.
“While the signs of economic improvement are mixed, we anxiously await an acceleration of employment growth,” said Moberly. “In the meantime, we are continuing to add new customers, penetrate existing customers with a broader mix of product and service offerings, and drive higher levels of operational efficiency. The addition of Rick Marcantonio as president and chief operating officer, a seasoned business executive with valuable experience leading large business services organizations, adds strength to our executive management team. Rick will play a key role in our future success.”
Outlook Based on current trends, the company expects fiscal 2003 revenue to be in the range of $645 million to $655 million. The company noted that the compounding impact of revenue lost within its existing customer base over the past eighteen-months will continue to pressure near-term earnings. The company anticipates earnings to be in the range of $2.00 to $2.10 per share for the year ending June 28, 2003 with higher earnings growth rates in the last half of the fiscal year driven by improved employment levels.