UniFirst (UNF)

Workplace uniform provider UniFirst (NYSE:UNF) fell short of the market’s revenue expectations in Q2 CY2025 as sales only rose 1.2% year on year to $610.8 million. On the other hand, the company’s outlook for the full year was close to analysts’ estimates with revenue guided to $2.43 billion at the midpoint. Its GAAP profit of $2.13 per share was 7% above analysts’ consensus estimates.

Company Overview

With a fleet of trucks making weekly deliveries to over 300,000 customer locations, UniFirst (NYSE:UNF) provides, rents, cleans, and maintains workplace uniforms and protective clothing for businesses across various industries.

Growing regulatory pressure on environmental compliance and increasing corporate ESG commitments should buoy the sector for years to come. On the other hand, environmental regulations continue to evolve, and this may require costly upgrades, volatility in commodity waste and recycling markets, and labor shortages in industrial services. As for digitization, a theme that is impacting nearly every industry, the increasing use of data, analytics, and automation will give rise to improved efficiency of operations. Conversely, though, the benefits of digitization also come with challenges of integrating new technologies into legacy systems.

UniFirst's main competitors in the uniform rental and workplace solutions industry include Cintas Corporation (NASDAQ:CTAS), Alsco (privately held), and Vestis Corporation (NYSE:VSTS), all of which offer similar uniform rental and facility services programs.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $2.46 billion in revenue over the past 12 months, UniFirst is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the bright side, it can still flex high growth rates because it’s working from a smaller revenue base.

As you can see below, UniFirst grew its sales at a decent 5.8% compounded annual growth rate over the last five years. This shows its offerings generated slightly more demand than the average business services company, a useful starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. UniFirst’s annualized revenue growth of 6.2% over the last two years aligns with its five-year trend, suggesting its demand was stable.

We can dig further into the company’s revenue dynamics by analyzing its most important segment, Core Laundry Operations. Over the last two years, UniFirst’s Core Laundry Operations revenue (uniform rental and laundering) averaged 6.3% year-on-year growth.

This quarter, UniFirst’s revenue grew by 1.2% year on year to $610.8 million, falling short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 1.3% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will face some demand challenges.

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

UniFirst was profitable over the last five years but held back by its large cost base. Its average operating margin of 7.5% was weak for a business services business.

Looking at the trend in its profitability, UniFirst’s operating margin decreased by 2.4 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. UniFirst’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q2, UniFirst generated an operating margin profit margin of 7.9%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

UniFirst’s flat EPS over the last five years was below its 5.8% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

Diving into the nuances of UniFirst’s earnings can give us a better understanding of its performance. As we mentioned earlier, UniFirst’s operating margin was flat this quarter but declined by 2.4 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q2, UniFirst reported EPS at $2.13, up from $2.03 in the same quarter last year. This print beat analysts’ estimates by 7%. Over the next 12 months, Wall Street expects UniFirst’s full-year EPS of $8.14 to grow 2.2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

UniFirst has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.5%, subpar for a business services business.

Taking a step back, we can see that UniFirst’s margin dropped by 2.1 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. Almost any movement in the wrong direction is undesirable because of its relatively low cash conversion. If the longer-term trend returns, it could signal it’s in the middle of an investment cycle.

UniFirst’s free cash flow clocked in at $24.44 million in Q2, equivalent to a 4% margin. The company’s cash profitability regressed as it was 2.2 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

UniFirst historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.4%, somewhat low compared to the best business services companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, UniFirst’s ROIC decreased by 2.3 percentage points annually over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

UniFirst is a profitable, well-capitalized company with $211.9 million of cash and $74.73 million of debt on its balance sheet. This $137.2 million net cash position is 3.9% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We enjoyed seeing UniFirst beat analysts’ full-year EPS guidance expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. On the other hand, its revenue slightly missed. Overall, this print was mixed. The stock traded up 1.2% to $192.50 immediately following the results.

Updated: July 14, 2025 at 11:25 PM EDT

Before making an investment decision, investors should account for UniFirst’s business fundamentals and valuation in addition to what happened in the latest quarter.

UniFirst isn’t a terrible business, but it isn’t one of our picks. Although its revenue growth was decent over the last five years, it’s expected to deteriorate over the next 12 months and its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders. On top of that, the company’s relatively low ROIC suggests management has struggled to find compelling investment opportunities.

UniFirst’s P/E ratio based on the next 12 months is 21.1x. This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $179.33 on the company (compared to the current share price of $178.09).