Exhibit 99.1
G&K Services Reports Fiscal 2005 Second Quarter Results
MINNEAPOLIS--(BUSINESS WIRE)--Feb. 1, 2005--
Organic rental growth continues to improve;
Significant increase in direct sale revenue;
Strong earnings on revenue growth and operational improvements
G&K Services, Inc. (Nasdaq:GKSRA), today reported revenue for the
second quarter ended January 1, 2005 of $195.1 million, up 6.9 percent
over $182.5 million reported in the second fiscal quarter last year.
Earnings per diluted share totaled $0.48 for the quarter, a 14.3
percent increase compared to $0.42 during the prior-year quarter.
"Our second quarter results continue to reflect the momentum we're
building across the company," said Richard Marcantonio, G&K's
president and chief executive officer. "Consistent with what we
previously outlined, we are taking the necessary steps and making the
investments needed to deliver short- and long-term improvements to
revenue and earnings growth."
For the six months ended January 1, 2005, revenue was $377.6
million compared to $361.1 million during the prior-year period, an
increase of 4.5 percent. Earnings per share were $0.93, up nearly 15
percent over last year.
"I am pleased with our performance during the first half of fiscal
2005," Marcantonio said. "While we continued to make solid progress on
our initiatives to improve organic revenue growth and sustainable
earnings growth, we've also continued to better position the company
through our acquisition activities. In particular, our acquisition of
Lion Uniform Group significantly enhances our direct sale capabilities
especially in the area of garment design, sourcing, distribution and
program management. This acquisition will provide immediate and
long-term value to our shareholders."
Income Statement Review
Second quarter revenue from G&K's rental business increased to
$183.1 million, up 4.9 percent over the prior-year period. The
company's organic industrial rental growth rate was approximately
negative 1.0 percent in the second quarter, an improvement of 100
basis points compared to the organic growth rate in the first quarter
of fiscal 2005. Direct sale revenue increased to $12.0 million, up
51.9 percent over the prior-year quarter and up 17.0 percent on an
organic basis. The organic growth rates are calculated using
industrial rental and direct sale revenue, respectively, adjusted for
foreign currency exchange rate differences and revenue from newly
acquired locations compared to prior-period results.
Gross margin from rental operations for the quarter was 36.4
percent, consistent with the prior-year quarter. Continued
improvements in merchandise costs linked directly to inventory
management initiatives and the expansion of off-shore manufacturing
capacity were offset by increased energy costs. Gross margin from
direct sales was 29.8 percent compared to 27.0 percent in the
prior-year period, an increase driven primarily by additional volume
and margins associated with the acquisition of Lion Uniform Group.
Selling, general and administrative expenses were 21.1 percent of
consolidated revenue, down from 21.3 percent during the same period
last year. The reduction was attributed primarily to leverage on
incremental revenue.
"During the second quarter, we conducted a very successful annual
outerwear promotion that drove significant growth in our direct sale
volume and also contributed to stronger than anticipated earnings,"
Marcantonio said. "On the rental side of the business, we continued to
focus on improving our organic growth rate through new account sales
initiatives including expanding the size of the sales force and
through further penetration of products and services to existing
customers. The organic rental growth rate is also benefiting from
improved economic conditions related to more stable employment levels
and a better pricing environment."
Balance Sheet and Cash Flow Review
The company's balance sheet remains strong. Total debt to total
capitalization was 31.6 percent as of January 1, 2005 compared to 35.0
percent last year. Total stockholders' equity increased to $459.2
million.
Free cash flow, which is cash provided by operating activities
less capital expenditures was $25.3 million for the six month period
ending January 1, 2005. Cash used for property, plant and equipment
during the six month period totaled $4.1 million, down from $8.4
million during the same period last year. The reduction was driven by
proceeds from the sale of selected plant assets during the first
quarter of fiscal 2005.
Outlook
"We remain confident that we are taking the appropriate steps to
enhance our leadership position in the industry," Marcantonio said.
"Every day, our customers rely on G&K to help them enhance their image
and address safety and cleanliness concerns in their workplace.
Through innovation and superior customer service, we will exceed the
expectations of our customers."
The company expects fiscal 2005 third quarter revenue to range
from $194.0 million to $198.0 million and earnings per diluted share
from $0.47 to $0.49. This guidance reflects solid improvement in both
revenue and earnings versus the third quarter of fiscal 2004. The
guidance also includes anticipated benefits and associated costs of
the company's growth initiatives, gradual improvements in the
employment markets, continued high energy costs, incremental revenue
and earnings associated with the acquisition of Lion Uniform Group and
the Canadian currency translation rate remaining at current levels.
The guidance does not include any future acquisitions and reflects the
sequential quarterly impact on revenue and earnings contributed by the
strong outerwear promotion conducted during the second quarter.
Conference Call Information
The company will conduct a conference call today beginning at
10:00 a.m. Central Time. The call will be webcast and can be accessed
through the website www.gkservices.com (on the Investor Relations
page, click on the webcast icon and follow the instructions). A replay
of the call will be available through March 1, 2005.
Safe Harbor for Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (the "Act")
provides companies with a "safe harbor" when making forward-looking
statements as a way of encouraging them to furnish their shareholders
with information regarding expected trends in their operating results,
anticipated business developments and other prospective information.
Statements made in this press release concerning our intentions,
expectations or predictions about future results or events are
"forward-looking statements" within the meaning of the Act. These
statements reflect our current expectations or beliefs, and are
subject to risks and uncertainties that could cause actual results or
events to vary from stated expectations, which could be material and
adverse. Given that circumstances may change, and new risks to the
business may emerge from time to time, having the potential to
negatively impact our business in ways we could not anticipate at the
time of making a forward-looking statement, you are cautioned not to
place undue reliance on these statements, and we undertake no
obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
Some of the factors that could cause actual results or events to
vary from stated expectations include, but are not limited to, the
following: unforeseen operating risks; the effects of overall economic
conditions and employment; fluctuations in costs of insurance and
energy; acquisition integration costs; the performance of acquired
businesses; preservation of positive labor relationships; competition,
including pricing, within the corporate identity apparel and facility
services industry; and the availability of capital to finance planned
growth. Additional information concerning potential factors that could
affect future financial results is included in our Annual Report on
Form 10-K for the fiscal year ended July 3, 2004.
About G&K Services, Inc.
Headquartered in Minneapolis, Minnesota, G&K Services, Inc. is a
market leader in branded identity apparel programs and facility
services in the United States, and is the largest such provider in
Canada. G&K operates over 130 processing facilities and branch
offices, serving more than 160,000 customers.
CONSOLIDATED STATEMENTS OF OPERATIONS
G&K Services, Inc. and Subsidiaries
(Unaudited)
For the Three Months Ended
--------------------------
January 1, December 27,
(U.S. Dollars, in thousands, except per
share data) 2005 2003
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Revenues
Rental operations $183,110 $174,620
Direct sales 12,025 7,919
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Total revenues 195,135 182,539
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Operating Expenses
Cost of rental operations 116,415 111,062
Cost of direct sales 8,441 5,783
Selling and administrative 41,226 38,791
Depreciation and amortization 10,161 9,773
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Total operating expenses 176,243 165,409
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Income from Operations 18,892 17,130
Interest expense 2,641 2,933
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Income before Income Taxes 16,251 14,197
Provision for income taxes 6,054 5,395
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Net Income $10,197 $8,802
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Basic weighted average number of shares
outstanding 20,911 20,666
Basic Earnings Per Common Share $0.49 $0.43
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Diluted weighted average number of shares
outstanding 21,200 20,850
Diluted Earnings Per Common Share $0.48 $0.42
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Dividends per share $0.0175 $0.0175
For the Six Months Ended
--------------------------
January 1, December 27,
(U.S. Dollars, in thousands, except per
share data) 2005 2003
- ----------------------------------------------------------------------
Revenues
Rental operations $359,401 $347,900
Direct sales 18,166 13,242
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Total revenues 377,567 361,142
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Operating Expenses
Cost of rental operations 227,424 220,907
Cost of direct sales 13,337 10,084
Selling and administrative 79,845 77,324
Depreciation and amortization 20,319 19,463
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Total operating expenses 340,925 327,778
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Income from Operations 36,642 33,364
Interest expense 5,189 6,088
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Income before Income Taxes 31,453 27,276
Provision for income taxes 11,756 10,365
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Net Income $19,697 $16,911
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Basic weighted average number of shares
outstanding 20,868 20,638
Basic Earnings Per Common Share $0.94 $0.82
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Diluted weighted average number of shares
outstanding 21,133 20,789
Diluted Earnings Per Common Share $0.93 $0.81
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Dividends per share $0.0350 $0.0350
CONSOLIDATED CONDENSED BALANCE SHEETS
G&K Services, Inc. and Subsidiaries
January 1,
2005 July 3,
(U.S. dollars, in thousands) (Unaudited) 2004
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ASSETS
Current Assets
Cash and cash equivalents $10,958 $26,931
Accounts receivable, net 83,776 71,058
Inventories 112,513 94,476
Prepaid expenses 10,726 14,902
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Total current assets 217,973 207,367
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Property, Plant and Equipment, net 238,593 240,609
Other Assets 391,689 354,771
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$848,255 $802,747
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $26,706 $20,511
Accrued expenses 74,744 76,470
Deferred income taxes 7,871 7,395
Current maturities of long-term debt 24,935 24,018
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Total current liabilities 134,256 128,394
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Long-Term Debt, net of current maturities 186,840 184,305
Deferred Income Taxes 39,874 38,256
Other Noncurrent Liabilities 28,074 26,369
Stockholders' Equity 459,211 425,423
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$848,255 $802,747
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
G&K Services, Inc. and Subsidiaries
(Unaudited)
For the Six Months Ended
--------------------------
January 1, December 27,
(U.S. dollars, in thousands) 2005 2003
- ----------------------------------------------------------------------
Operating Activities:
Net income $19,697 $16,911
Adjustments to reconcile net income to
net cash provided by operating
activities -
Depreciation and amortization 20,319 19,463
Deferred income taxes 540 562
Amortization of deferred compensation -
restricted stock 523 467
Changes in current operating items,
exclusive of acquisitions (12,564) 15,314
Other assets and liabilities 838 197
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Net cash provided by operating activities 29,353 52,914
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Investing Activities:
Property, plant and equipment additions,
net (4,095) (8,372)
Acquisition of business assets and other (36,038) (7,137)
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Net cash used for investing activities (40,133) (15,509)
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Financing Activities:
Proceeds from issuance of long-term debt - 1,345
Repayments of long-term debt (17,114) (6,427)
Proceeds from (repayments of) short-term
borrowings, net 7,400 (28,700)
Cash dividends paid (732) (726)
Sale of common stock 3,633 2,703
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Net cash used for financing activities (6,813) (31,805)
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(Decrease) Increase in Cash and Cash
Equivalents (17,593) 5,600
Effect of Exchange Rates on Cash 1,620 375
Cash and Cash Equivalents:
Beginning of period 26,931 11,504
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End of period $10,958 $17,479
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Supplemental Cash Flow Information:
Non-Cash Transactions -
Debt issued in connection with business
acquisitions $11,890 $ -
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CONTACT: G&K Services, Inc., Minneapolis
Jeffrey L. Wright, 952-912-5500
or
Glenn L. Stolt, 952-912-5500