UniFirst (UNF)

Workplace uniform provider UniFirst (NYSE:UNF) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 1.9% year on year to $602.2 million. 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 $1.10 per share was 8% below 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.

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years.

With $2.45 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 5.6% 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.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. UniFirst’s annualized revenue growth of 7.7% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

UniFirst also breaks out the revenue for its most important segment, Core Laundry Operations. Over the last two years, UniFirst’s Core Laundry Operations revenue (uniform rental and laundering) averaged 7.6% year-on-year growth.

This quarter, UniFirst grew its revenue by 1.9% year on year, and its $602.2 million of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and implies its products and services will see some demand headwinds.

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 7.4% was weak for a business services business.

Looking at the trend in its profitability, UniFirst’s operating margin might fluctuated slightly but has generally stayed the same 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.

In Q1, UniFirst generated an operating profit margin of 5.2%, 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.

Sadly for UniFirst, its EPS declined by 3.2% annually over the last five years while its revenue grew by 5.6%. However, its operating margin didn’t change during this time, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

In Q1, UniFirst reported EPS at $1.10, in line with the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects UniFirst’s full-year EPS of $7.83 to shrink by 2.1%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

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 3.7%, subpar for a business services business.

Taking a step back, we can see that UniFirst’s margin dropped by 2.2 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 becoming a more capital-intensive business.

UniFirst’s free cash flow clocked in at $37.66 million in Q1, equivalent to a 6.3% margin. This result was good as its margin was 1.6 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

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 7.3%, 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 2.5 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.

Companies with more cash than debt have lower bankruptcy risk.

UniFirst is a profitable, well-capitalized company with $201 million of cash and $70.88 million of debt on its balance sheet. This $130.1 million net cash position is 4% 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. On the other hand, its EPS missed and its revenue was just in line with Wall Street’s estimates. Overall, this was a mixed quarter. The stock traded up 1.8% to $178 immediately following the results.

Updated: May 21, 2025 at 11:14 PM EDT

Are you wondering whether to buy UniFirst or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

UniFirst falls short of our quality standards. Although its revenue growth was decent over the last five years, it’s expected to deteriorate over the next 12 months and its projected EPS for the next year is lacking. On top of that, the company’s declining EPS over the last five years makes it a less attractive asset to the public markets.

UniFirst’s P/E ratio based on the next 12 months is 22.8x. This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $181.67 on the company (compared to the current share price of $184.81).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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