Vestis (VSTS)

Uniform rental provider Vestis Corporation (NYSE:VSTS) met Wall Street’s revenue expectations in Q2 CY2025, but sales fell by 3.5% year on year to $673.8 million. Its GAAP loss of $0.01 per share was in line with analysts’ consensus estimates.

Company Overview

Operating a network of more than 350 facilities with 3,300 delivery routes serving customers weekly, Vestis (NYSE:VSTS) provides uniform rentals, workplace supplies, and facility services to over 300,000 business locations across the United States and Canada.

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.

Vestis competes with Cintas Corporation (NASDAQ:CTAS), Aramark (NYSE:ARMK), and UniFirst Corporation (NYSE:UNF) in the uniform rental and workplace supplies industry, along with numerous regional and local providers across North America.

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 $2.71 billion in revenue over the past 12 months, Vestis is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, Vestis grew its sales at a sluggish 2.6% compounded annual growth rate over the last four years. This shows it failed to generate demand in any major way and is a rough starting point for our analysis.

Long-term growth is the most important, but within business services, a stretched historical view may miss new innovations or demand cycles. Vestis’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 1.5% annually.

This quarter, Vestis reported a rather uninspiring 3.5% year-on-year revenue decline to $673.8 million of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 1.3% over the next 12 months. Although this projection indicates its newer products and services will catalyze better top-line performance, it is still below the sector average.

Vestis was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.7% was weak for a business services business.

Analyzing the trend in its profitability, Vestis’s operating margin decreased by 2.6 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. Vestis’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, Vestis generated an operating margin profit margin of 3.7%, down 1.7 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

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.

Vestis has shown mediocre cash profitability over the last four years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5%, subpar for a business services business.

Taking a step back, we can see that Vestis’s margin dropped by 9.8 percentage points during that time. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business.

Vestis’s free cash flow clocked in at $8.00 million in Q2, equivalent to a 1.2% margin. The company’s cash profitability regressed as it was 2.8 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Vestis’s $1.41 billion of debt exceeds the $23.74 million of cash on its balance sheet. Furthermore, its 5× net-debt-to-EBITDA ratio (based on its EBITDA of $273.3 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Vestis could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope Vestis can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

Revenue and EPS were just in line. Investors were likely hoping for more, and shares traded down 4.7% to $5.70 immediately following the results.

Updated: November 8, 2025 at 10:29 PM EST

When considering an investment in Vestis, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

Vestis doesn’t pass our quality test. First off, its revenue growth was uninspiring over the last four years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company will start generating shareholder value, the downside is its declining EPS over the last two years makes it a less attractive asset to the public markets. On top of that, its cash profitability fell over the last four years.

Vestis’s P/E ratio based on the next 12 months is 16.2x. 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 $5.66 on the company (compared to the current share price of $5.30).