UNIFIRST CORP

Previous wording

This Quarterly Report on Form 10-Q and any documents incorporated by reference may contain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements contained in this Quarterly Report on Form 10-Q and any documents incorporated by reference are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “projects,” “plans,” “expects,” “intends,” “believes,” “seeks,” “could,” “should,” “may,” “will,” “strategy,” “objective,” “assume,” “strive,” “design,” “assumption,” “vision” 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 an economic recession or other adverse economic conditions, including, without limitation, as a result of continued high inflation rates or further increases in inflation or interest rates or extraordinary events or circumstances such as geopolitical conflicts like the conflict between Russia and Ukraine, disruption in the Middle East or the COVID-19 pandemic, and their impact on our customers’ businesses and workforce levels, disruptions of our business and operations, including limitations on, or closures of, our facilities, 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 acquisitions and successfully integrate acquired businesses, including Clean Uniform (“Clean”), and the performance of such 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 conflict between Russia and Ukraine, any loss of key management or other personnel, increased costs as a result of any changes in federal, state, international or other laws, rules and regulations or governmental in…

Excerpt shortened here; the source contains the full paragraph.

Current wording

This Quarterly Report on Form 10-Q and any documents incorporated by reference may contain forward-looking statements within the meaning of the federal securities laws. Forward-looking statements contained in this Quarterly Report on Form 10-Q and any documents incorporated by reference are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by words such as “estimates,” “anticipates,” “projects,” “plans,” “expects,” “intends,” “believes,” “seeks,” “could,” “should,” “may,” “will,” “strategy,” “objective,” “assume,” “strive,” “design,” “assumption,” “vision” 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 an economic recession or other adverse economic conditions, including, without limitation, as a result of high inflation rates or further increases in inflation or interest rates or extraordinary events or circumstances such as geopolitical conflicts like the conflict between Russia and Ukraine, disruption in the Middle East or the COVID-19 pandemic, and their impact on our customers’ businesses and workforce levels, disruptions of our business and operations, including limitations on, or closures of, our facilities, or the business and operations of our customers or suppliers in connection with extraordinary events or circumstances, uncertainties regarding our ability to consummate acquisitions and successfully integrate acquired businesses, including Clean Uniform (“Clean”), and the performance of such 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 conflict between Russia and Ukraine, any loss of key management or other personnel, increased costs as a result of any changes in federal, state, international or other laws, rules and regulations or governmental interpretation of such laws, rules and reg…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

In general, we believe that our results of operations are not dependent on moderate changes in the inflation rate. Historically, we have been able to manage the impacts of more significant changes in inflation rates through our customer relationships, customer agreements that generally provide for price increases and continued focus on improvements of operational productivity. However, the inflationary environment of 2022 and 2023 had a negative impact on our margins, including as a result of increased energy costs for our vehicles and our plants, as well as increasing wages in the labor markets in which we compete. While inflation has moderated recently, a period of sustained inflation could pressure our margins in future periods. In addition, in response to the concerns over inflation risk in the broader U.S. economy, the U.S. Federal Reserve increased its benchmark interest rate significantly during 2022 and 2023. Interest rates may remain high in 2024. Adverse economic conditions resulting from inflationary pressures, U.S. Federal Reserve actions, including continued high interest rates and/or increases in interest rates, geopolitical issues or otherwise are difficult to predict and may have a material adverse impact on our business, results of operations and financial condition.

Current wording

In general, we believe that our results of operations are not dependent on moderate changes in the inflation rate. Historically, we have been able to manage the impacts of more significant changes in inflation rates through our customer relationships, customer agreements that generally provide for price increases and continued focus on improvements of operational productivity. However, the inflationary environment of 2022 and 2023 had a negative impact on our margins, including as a result of increased energy costs for our vehicles and our plants, as well as increasing wages in the labor markets in which we compete. While inflation has moderated recently, a period of sustained inflation could pressure our margins in future periods. In addition, in response to the concerns over inflation risk in the broader U.S. economy, the U.S. Federal Reserve increased its benchmark interest rate significantly during 2022 and 2023. Interest rates may remain high through 2024. Adverse economic conditions resulting from inflationary pressures, U.S. Federal Reserve actions, including continued high interest rates and/or increases in interest rates, geopolitical issues or otherwise are difficult to predict and may have a material adverse impact on our business, results of operations and financial condition.

Previous wording

The following table presents certain selected financial data, including the percentage of revenues represented by each item, for the thirteen weeks ended November 25, 2023 and November 26, 2022.

Current wording

The following table presents certain selected financial data, including the percentage of revenues represented by each item, for the thirteen and twenty-six weeks ended February 24, 2024 and February 25, 2023.

Previous wording

In fiscal 2018, we initiated a multiyear CRM project to further develop, implement and deploy a third-party software application we licensed. This new solution is intended to improve functionality, capability and information flow as well as increase automation for our operations in servicing our customers. We began deployment of our new CRM project during the second half of fiscal 2021 and concluded the deployment to our U.S. locations in the first quarter of fiscal 2024. We are depreciating this system over a 10-year life and recognized $0.8 million of amortization expense during each of the thirteen weeks ended November 25, 2023 and November 26, 2022, respectively.

Current wording

In fiscal 2018, we initiated a multiyear CRM project to further develop, implement and deploy a third-party software application we licensed. This new solution is intended to improve functionality, capability and information flow as well as increase automation for our operations in servicing our customers. We began deployment of our new CRM project during the second half of fiscal 2021 and concluded the deployment to our U.S. locations in the first quarter of fiscal 2024. We are depreciating this system over a 10-year life and recognized $1.0 million and $1.8 million of amortization expense during each of the thirteen and twenty-six weeks ended February 24, 2024, respectively.

Previous wording

We refer to our CRM and ERP projects together as our “Key Initiatives”. For the thirteen weeks ended November 25, 2023, we incurred $1.0 million and $1.9 million of costs related to these projects, respectively, for a total of $2.9 million directly attributable to our Key Initiatives. As of November 25, 2023, we had capitalized $45.7 million related to our CRM project and $4.5 million related to our ERP project. For the first quarter of fiscal 2023, our “Key Initiatives” also included our UniFirst brand project, which concluded in fiscal 2023.

Current wording

We refer to our CRM and ERP projects together as our (“Key Initiatives”). For the thirteen weeks ended February 24, 2024, we expensed $3.2 million of non-recurring costs related to our Key Initiatives, primarily relating to our ERP project. For the twenty-six weeks ended February 24, 2024, we expensed $6.1 million of non-recurring costs related to our Key Initiatives, primarily relating to our ERP project.

Previous wording

On October 24, 2023, our Board of Directors authorized a new share repurchase program to repurchase up to $100.0 million of our outstanding shares of Common Stock, inclusive of the amount which remained available under the existing share repurchase program approved on October 18, 2021. Repurchases from time to time under the new program, if any, will be made in either the open market or in privately negotiated transactions. The timing, manner, price and amount of any repurchases depend on a variety of factors, including economic and market conditions, our stock price, corporate liquidity requirements and priorities, applicable legal requirements and other factors. The share repurchase program may be funded using available cash or capacity under our Credit Agreement (as defined below) and may be suspended or discontinued at any time. During the thirteen weeks ended November 25, 2023, we repurchased 1,500 shares for an average price per share of $170.07 under the share repurchase program. During the thirteen weeks ended November 26, 2022, we did not repurchase any shares. As of November 25, 2023, we had $99.7 million remaining under our share repurchase program.

Current wording

On October 24, 2023, our Board of Directors authorized a new share repurchase program to repurchase up to $100.0 million of our outstanding shares of Common Stock, inclusive of the amount which remained available under the existing share repurchase program approved on October 18, 2021. Repurchases from time to time under the new program, if any, will be made in either the open market or in privately negotiated transactions. The timing, manner, price and amount of any repurchases depend on a variety of factors, including economic and market conditions, our stock price, corporate liquidity requirements and priorities, applicable legal requirements and other factors. The share repurchase program may be funded using available cash or capacity under our Credit Agreement (as defined below) and may be suspended or discontinued at any time. During the thirteen and twenty-six weeks ended February 24, 2024, we repurchased 45,250 and 46,750 shares, respectively, for an average price per share of $173.79 and $173.67, respectively, under the share repurchase program. During the thirteen and twenty-six weeks ended February 25, 2023, we did not repurchase any shares. As of February 24, 2024, we had $91.9 million remaining under our share repurchase program.

Previous wording

The increase in consolidated revenues of 9.5% during the thirteen weeks ended November 25, 2023 compared to the prior year comparable period was due primarily to growth in our Core Laundry Operations of 9.8%. The increase in our Core Laundry Operations was due to organic growth of 5.2%, the effect of Canadian dollar exchange rate changes on our revenues of (0.2)%, and acquisition related growth of 4.8%. The Core Laundry Operations strong organic growth rate was primarily the result of pricing efforts over the last year to share with our customers the cost increases that we have incurred due to the ongoing inflationary environment and solid new account sales. The impact on our revenues from acquisitions was primarily the result of our acquisition of Clean, which was completed on March 13, 2023.

Current wording

The increase in consolidated revenues of 8.8% during the thirteen weeks ended February 24, 2024 compared to the prior year comparable period was due primarily to growth in our Core Laundry Operations of 9.5%. The increase in our Core Laundry Operations was due to organic growth of 4.8%, the effect of Canadian dollar exchange rate changes on our revenues of 0.1%, and acquisition related growth of 4.7%. The Core Laundry Operations strong organic growth rate was primarily the result of solid new account sales and improved pricing with our customers. The impact on our revenues from acquisitions was primarily the result of our acquisition of Clean, which was completed on March 13, 2023.

Previous wording

The increase in consolidated cost of revenues of 8.4% during the thirteen weeks ended November 25, 2023 compared to the prior year comparable period was due primarily to the impact of revenue growth mentioned above. While overall cost of revenues increased, cost of revenues as a percentage of revenues decreased due primarily to lower merchandise costs as a percentage of revenue as well as lower fleet and energy costs.

Current wording

The increase in consolidated cost of revenues of 7.1% during the thirteen weeks ended February 24, 2024 compared to the prior year comparable period was due primarily to the impact of revenue growth mentioned above. While overall cost of revenues increased, cost of revenues as a percentage of revenues decreased due primarily to lower manufacturing, freight and merchandise costs.

Previous wording

Depreciation and amortization expense increased by 24.7% during the thirteen weeks ended November 25, 2023 compared to the prior year comparable period due primarily to continued investment in our systems and technology capabilities and infrastructure to support our future growth. Also contributing to this increase was $3.6 million of depreciation and amortization related to the Clean acquisition in the first quarter of fiscal 2024, of which $2.4 million was intangibles amortization.

Current wording

Depreciation and amortization expense increased by 17.6% during the thirteen weeks ended February 24, 2024 compared to the prior year comparable period, due primarily to continued investment in our systems and technology capabilities and infrastructure to support our future growth. Also contributing to this increase was $3.5 million of depreciation and amortization in the second quarter of fiscal 2024 related to the Clean acquisition, of which $2.4 million was acquisition-related intangibles amortization.

Previous wording

In the thirteen weeks ended November 25, 2023, Specialty Garments revenues slightly increased compared to the prior year comparable period due primarily to growth in our cleanroom operations. First Aid revenues in the same period increased 22.4% compared to the prior year comparable period with both the van and wholesale distribution businesses contributing to the growth.

Current wording

In the twenty-six weeks ended February 24, 2024, Specialty Garments revenues slightly increased compared to the prior year comparable period due primarily to growth in our cleanroom operations. First Aid revenues in the same period increased 13.4% compared to the prior year comparable period due primarily to growth in the First Aid van business.

Previous wording

The increase in selling and administrative costs of 4.7% during the thirteen weeks ended November 25, 2023 compared to the prior year comparable period was due primarily to $6.4 million of additional costs from the Clean acquisition and continued investments we have made in our corporate capabilities over the last year. The increase in costs were partially offset by a decrease in spending on our Key Initiatives from $10.0 million in the first quarter of fiscal 2023 to $2.9 million in the first quarter of fiscal 2024.

Current wording

The increase in selling and administrative costs of 6.1% during the twenty-six weeks ended February 24, 2024 compared to the prior year comparable period was due primarily to continued investments we have made in our corporate capabilities over the last year and $12.4 million of additional costs from the Clean acquisition. The increase in costs was partially offset by a decrease in spending on our Key Initiatives from $19.1 million in the first half of fiscal 2023 to $6.1 million in the first half of fiscal 2024. In addition, we incurred $2.0 million of Clean acquisition-related costs during the first half of fiscal 2023.

Previous wording

Other income, net during the thirteen weeks ended November 25, 2023 remained relatively consistent with the prior year comparable period. The thirteen weeks ended November 25, 2023 benefited from $2.1 million of interest income recorded in the period as a result of a tax dispute we were able to favorably resolve, which was offset by lower interest expense in the quarter due to lower cash reserves subsequent to our acquisition of Clean in the prior year.

Current wording

Other income, net during the twenty-six weeks ended February 24, 2024 decreased as compared to the prior year comparable period due primarily to lower interest income resulting from lower cash reserves subsequent to the acquisition of Clean in our third fiscal quarter of 2023. This was partially offset by $2.1 million of interest income recorded in the twenty-six weeks ended February 24, 2024 as a result of a tax dispute we were able to favorably resolve.

Previous wording

The decrease in the effective tax rate for the thirteen weeks ended November 25, 2023 as compared to the corresponding period in the prior year was primarily due to the release of certain tax reserves and a U.S. state legislative change enacted during the first quarter of fiscal 2024.

Current wording

The decrease in the effective tax rate for the twenty-six weeks ended February 24, 2024 as compared to the corresponding period in the prior year was due primarily to the release of certain tax reserves and a U.S. state legislative change enacted during the first quarter of fiscal 2024.

Previous wording

Cash and cash equivalents and short-term investments totaled $88.8 million as of November 25, 2023, a decrease of $0.8 million from $89.6 million as of August 26, 2023. The decrease in cash and cash equivalents and short-term investments was largely driven by our continued investment in our business with capital expenditures. We generated $45.7 million and $27.7 million in cash from operating activities in the thirteen weeks ended November 25, 2023 and November 26, 2022, respectively. The increase was primarily due to increased profitability. During the thirteen weeks ended November 25, 2023, we continued to invest in our business with capital expenditures totaling $39.1 million.

Current wording

Cash and cash equivalents, and short-term investments totaled $101.9 million as of February 24, 2024, an increase of $12.3 million from $89.6 million as of August 26, 2023. The increase in cash and cash equivalents and short-term investments was largely driven by our cash flows from operating activities. We generated $106.7 million and $64.2 million in cash from operating activities in the twenty-six weeks ended February 24, 2024 and February 25, 2023, respectively. The increase was due primarily to increased profitability and lower working capital needs of the business. During the twenty-six weeks ended February 24, 2024, we continued to invest in our business with capital expenditures totaling $72.9 million.

Previous wording

Pursuant to share repurchase programs approved by our Board of Directors on October 24, 2023, we repurchased 1,500 shares of our Common Stock for an aggregate of approximately $0.3 million during the thirteen weeks ended November 25, 2023.

Current wording

Pursuant to the share repurchase program approved by our Board of Directors on October 24, 2023, we repurchased 46,750 shares of our Common Stock for an aggregate of approximately $8.1 million during the twenty-six weeks ended February 24, 2024.

Previous wording

Sources and uses of cash flows for the thirteen weeks ended November 25, 2023 and November 26, 2022, respectively, are summarized as follows:

Current wording

Sources and uses of cash flows for the twenty-six weeks ended February 24, 2024 and February 25, 2023, respectively, are summarized as follows:

Previous wording

The net cash provided by operating activities during the thirteen weeks ended November 25, 2023 increased as compared to the prior year comparable period due to our improved profitability and benefit of depreciation and amortization as well as positive impacts from rental merchandise in service of $11.6 million and receivables of $3.3 million. These increases were partially offset by a decrease in accounts payable of $7.1 million and inventory of $8.3 million.

Current wording

The net cash provided by operating activities during the twenty-six weeks ended February 24, 2024 increased as compared to the prior year comparable period due to our improved profitability and benefit of depreciation and amortization as well as positive impacts from rental merchandise in service of $20.7 million, receivables of $15.1 million and accrued liabilities of $10.9 million. These increases were partially offset by a decrease in inventory of $10.6 million, a decrease of in prepaid expenses and other current and noncurrent assets of $9.6 million and a decrease in accounts payable of $7.1 million.

Previous wording

The positive impact from merchandise in service was due primarily to a focused effort on managing our inventory balances in the current year and our balance sheet position continuing to normalize coming out of the COVID-19 pandemic. The positive impact from receivables was due primarily to a focused effort on collections and timing. The negative impact on accounts payable was due primarily to timing. The decrease in inventories was due primarily to elevated inventories in the prior year attributable to pandemic supply chain disruption that has improved over the past twelve months.

Current wording

The positive impact from merchandise in service was due primarily to a focused effort on managing our inventory balances in the current year and our balance sheet position continuing to normalize coming out of the COVID-19 pandemic. The positive impact from receivables was due primarily to a focused effort on collections and timing. The decrease in inventories was due primarily to elevated inventories in the prior year attributable to pandemic supply chain disruption that has improved over the past twelve months. The negative impact on prepaid expenses and other current assets was due primarily to increases in information technology prepaid contracts and deferred commission costs. The negative impact on accounts payable was due primarily to timing.

Previous wording

The net cash used in investing activities during the thirteen weeks ended November 25, 2023 decreased as compared to the prior year comparable period due to reduced investment of purchases of certificates of deposit, net of maturing certificates of deposit, of $105.8 million and no acquisition activity during the period.

Current wording

The net cash used in investing activities during the twenty-six weeks ended February 24, 2024 decreased as compared to the prior year comparable period due to reduced investment of purchases of certificates of deposit, net of maturing certificates of deposit, of $99.8 million and no acquisition activity during the twenty-six weeks ended February 24, 2024.

Previous wording

As of November 25, 2023, we had forward contracts with a notional value of approximately 5.0 million CAD outstanding and recorded the fair value of the contracts of $0.2 million in prepaid expenses and other current assets with a corresponding gain of $0.1 million in accumulated other comprehensive loss, which was recorded net of tax. During the thirteen weeks ended November 25, 2023, we reclassified a nominal amount from accumulated other comprehensive loss to revenue related to the derivative financial instruments. The gain on these forward contracts that results in a decrease to accumulated other comprehensive loss as of November 25, 2023 is expected to be reclassified to revenues prior to their maturity on August 29, 2026.

Current wording

As of February 24, 2024, we had forward contracts with a notional value of approximately 4.5 million CAD outstanding and recorded the fair value of the contracts of $0.2 million in prepaid expenses and other current assets with a corresponding gain of $0.1 million in accumulated other comprehensive loss, which was recorded net of tax. During the thirteen and twenty-six weeks ended February 24, 2024, we reclassified a nominal amount from accumulated other comprehensive loss to revenue related to the derivative financial instruments. The gain on these forward contracts that results in a decrease to accumulated other comprehensive loss as of February 24, 2024 is expected to be reclassified to revenues prior to their maturity on August 29, 2026.

Previous wording

There is usually a range of reasonable estimates of the costs associated with each site. In accordance with U.S. GAAP, our accruals represent the amount within the range that we believe is the best estimate or the low end of a range of estimates if no point within the range is a better estimate. When we believe that both the amount of a particular liability and the timing of the payments are reliably determinable, we adjust the cost in current dollars using a rate of 3% for inflation until the time of expected payment and discount the cost to present value using current risk-free interest rates. As of November 25, 2023, the risk-free interest rates we utilized ranged from 4.60% to 4.79%.

Current wording

There is usually a range of reasonable estimates of the costs associated with each site. In accordance with U.S. GAAP, our accruals represent the amount within the range that we believe is the best estimate or the low end of a range of estimates if no point within the range is a better estimate. When we believe that both the amount of a particular liability and the timing of the payments are reliably determinable, we adjust the cost in current dollars using a rate of 3% for inflation until the time of expected payment and discount the cost to present value using current risk-free interest rates. As of February 24, 2024, the risk-free interest rates we utilized ranged from 4.37% to 4.51%.

Previous wording

For environmental liabilities that have been discounted, we include interest accretion, based on the effective interest method, in selling and administrative expenses on the Consolidated Statements of Income. The changes to the amounts of our environmental liabilities for the thirteen weeks ended November 25, 2023 were as follows (in thousands):

Current wording

For environmental liabilities that have been discounted, we include interest accretion, based on the effective interest method, in selling and administrative expenses on the Consolidated Statements of Income. The changes to the amounts of our environmental liabilities for the twenty-six weeks ended February 24, 2024 were as follows (in thousands):