Exhibit 99.1
G&K Services Reports Fiscal 2005 Third Quarter Results;
Company Posts Double-Digit Revenue and Earnings Growth;
Organic Rental Growth Continues to Improve
MINNEAPOLIS--(BUSINESS WIRE)--May 3, 2005--G&K Services, Inc.
(Nasdaq:GKSRA), today reported record revenue for the third quarter
ended April 2, 2005 of $203.8 million, up 13.8 percent over $179.0
million reported in the third fiscal quarter last year. Earnings per
diluted share totaled $0.49 for the quarter, a 14.0 percent increase
compared to $0.43 during the prior-year quarter. Earnings for the
quarter included a charge of approximately $0.02 per diluted share
associated with severance and recruiting costs. This charge was not
included in the company's earnings guidance for the third quarter.
"Our third quarter results marked continued progress toward our
growth and operational objectives," said Richard Marcantonio, G&K's
president and chief executive officer. "For the first time in the
history of the company, we posted quarterly revenue of more than $200
million. Our revenue growth initiatives, both from acquisitions and
improved organic growth, continue to build momentum. From an earnings
perspective, we are balancing our goal of increasing earnings with the
need to invest in the long-term future of the company."
For the nine months ended April 2, 2005, revenue was $581.4
million compared to $540.2 million during the prior-year period, an
increase of 7.6 percent. Earnings per diluted share were $1.42, up
14.5 percent over last year.
Income Statement Review
Third quarter revenue from G&K's rental business increased to
$188.1 million, up 8.4 percent over the prior-year period. The
company's organic industrial rental growth rate was approximately 1.5
percent in the third quarter, an improvement of 250 basis points
compared to the organic growth rate in the second quarter of fiscal
2005. Organic rental growth has continued to improve over the past
year as a result of the company's growth initiatives and modest
improvements in economic conditions. Direct sale revenue increased to
$15.7 million, up 186.6 percent over the prior-year quarter and up
approximately 65.0 percent on an organic basis. The growth of direct
sale revenue for the quarter was driven by the acquisition of Lion
Uniform Group and stronger than normal organic growth in G&K's direct
sale unit. 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.
"We are pleased to report a strong improvement in our rental
organic growth rate, significantly ahead of our stated goal to return
to positive growth by the end of fiscal 2005," Marcantonio said. "Over
the past year, we have put increasing attention and resources on
improving top-line growth in the business. Our efforts allowed us to
reach positive organic growth earlier than expected."
Gross margin from rental operations for the quarter was 36.6
percent, an improvement over the second quarter of fiscal 2005 and the
prior-year quarter. Continued improvements in merchandise costs driven
by inventory management initiatives and lower production costs
contributed to the increase in gross margin. This benefit was
partially offset by increased energy costs compared to the second
quarter of fiscal 2005 and the prior-year quarter. Gross margin from
direct sales was 23.7 percent compared to 26.1 percent in the
prior-year period.
Selling, general and administrative expenses were 20.9 percent of
consolidated revenue, consistent with the same period last year. In
absolute dollars, selling, general and administrative expenses were up
13.8 percent over the prior-year due to the company's investment in
growth oriented initiatives, additional expenses related to acquired
businesses and cost associated with severance and recruiting. As
compared to the second quarter of fiscal 2005, selling, general and
administrative costs, as a percent of revenue, declined 20 basis
points due to greater leverage on increased revenue.
Balance Sheet and Cash Flow Review
The company's balance sheet remains strong. Total debt to total
capitalization was 33.9 percent as of April 2, 2005 compared to 34.6
percent at the same time last year. Total stockholders' equity
increased to $470.0 million.
Free cash flow, which is cash provided by operating activities
less capital expenditures, was $33.6 million for the nine month period
ending April 2, 2005. Cash used for property, plant and equipment
during the nine month period totaled $10.2 million, down $2.6 million
from the same period last year.
Outlook
"We remain focused on our strategic vision of being the market
leader in enhancing image and safety in the workplace," Marcantonio
said. "Our recent performance driven by our internal efforts and the
investments we've made over the past couple of years adds to our
confidence that we are taking the right steps. Looking forward, the
tactical plans to support our strategy require ongoing investment in
people, technology and program development. We remain committed to
balancing the need to invest in the business with generating earnings
growth."
The company expects fiscal 2005 fourth quarter revenue to range
from $203.0 million to $207.0 million and earnings per diluted share
from $0.45 to $0.47. This guidance reflects improvement in both
revenue and earnings versus the fourth quarter of fiscal 2004, which
included an extra week of operations. On a sequential quarterly basis,
the guidance reflects higher energy costs, additional investments in
the company's growth initiatives and increased integration costs
associated with the acquisitions completed during fiscal 2005. The
guidance also includes anticipated benefits of the growth initiatives,
gradual improvements in the employment markets, and the Canadian
currency translation rate remaining at current levels. The guidance
does not include the impact of any future acquisitions.
Based on the guidance for the fourth quarter and excluding the
extra week of operations during the prior-year, the company expects
fiscal 2005 revenue to grow by approximately 9 percent and earnings to
increase by roughly 11 percent over fiscal 2004.
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 June 3, 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 140 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 For the Nine
Months Ended Months Ended
---------------------------------------
(U.S. Dollars, in thousands, April 2, March 27, April 2, March 27,
except per share data) 2005 2004 2005 2004
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Revenues
Rental operations $188,064 $173,531 $547,465 $521,431
Direct sales 15,746 5,494 33,912 18,736
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Total revenues 203,810 179,025 581,377 540,167
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Operating Expenses
Cost of rental operations 119,139 110,382 346,563 331,289
Cost of direct sales 12,011 4,061 25,348 14,145
Selling and administrative 42,518 37,353 122,363 114,677
Depreciation and
amortization 10,407 9,865 30,726 29,328
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Total operating expenses 184,075 161,661 525,000 489,439
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Income from Operations 19,735 17,364 56,377 50,728
Interest expense 2,891 2,826 8,080 8,914
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Income before Income Taxes 16,844 14,538 48,297 41,814
Provision for income taxes 6,418 5,524 18,174 15,889
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Net Income $10,426 $9,014 $30,123 $25,925
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Basic weighted average
number of shares
outstanding 20,994 20,767 20,910 20,681
Basic Earnings Per Common
Share $0.50 $0.43 $1.44 $1.25
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Diluted weighted average
number of shares
outstanding 21,290 20,974 21,186 20,851
Diluted Earnings Per Common
Share $0.49 $0.43 $1.42 $1.24
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Dividends per share $0.0175 $0.0175 $0.0525 $0.0525
CONSOLIDATED CONDENSED BALANCE SHEETS
G&K Services, Inc. and Subsidiaries
April 2,
2005 July 3,
(U.S. dollars, in thousands) (Unaudited) 2004
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ASSETS
Current Assets
Cash and cash equivalents $10,864 $26,931
Accounts receivable, net 84,458 71,058
Inventories 115,745 94,476
Prepaid expenses 12,127 14,902
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Total current assets 223,194 207,367
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Property, Plant and Equipment, net 242,228 240,609
Other Assets 425,394 354,771
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$890,816 $802,747
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $21,720 $20,511
Accrued expenses 80,610 76,470
Deferred income taxes 7,836 7,395
Current maturities of long-term debt 25,183 24,018
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Total current liabilities 135,349 128,394
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Long-Term Debt, net of current maturities 215,794 184,305
Deferred Income Taxes 40,244 38,256
Other Noncurrent Liabilities 29,413 26,369
Stockholders' Equity 470,016 425,423
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$890,816 $802,747
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
G&K Services, Inc. and Subsidiaries
(Unaudited)
For the Nine
Months Ended
-------------------
April 2, March 27,
(U.S. dollars, in thousands) 2005 2004
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Operating Activities:
Net income $30,123 $25,925
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 30,726 29,328
Deferred income taxes 509 671
Amortization of deferred compensation -
restricted stock 677 659
Changes in current operating items, exclusive of
acquisitions (19,418) 24,758
Other assets and liabilities 1,159 308
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Net cash provided by operating activities 43,776 81,649
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Investing Activities:
Property, plant and equipment additions, net (10,194) (12,790)
Acquisition of business assets and other (74,895) (26,082)
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Net cash used for investing activities (85,089) (38,872)
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Financing Activities:
Proceeds from issuance of long-term debt - 1,345
Repayments of long-term debt (21,317) (9,647)
Proceeds from (repayments of) short-term
borrowings, net 41,200 (24,100)
Cash dividends paid (1,100) (1,090)
Sale of common stock 4,855 3,714
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Net cash provided by (used for) financing
activities 23,638 (29,778)
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(Decrease) Increase in Cash and Cash Equivalents (17,675) 12,999
Effect of Exchange Rates on Cash 1,608 254
Cash and Cash Equivalents:
Beginning of period 26,931 11,504
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End of period $10,864 $24,757
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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