Exhibit 99.1
G&K Services Reports Fiscal 2007 First Quarter Results
Organic rental revenue growth continues to improve
MINNEAPOLIS--(BUSINESS WIRE)--Oct. 31, 2006--G&K Services, Inc.
(Nasdaq:GKSR), today reported revenue for the first quarter ended
September 30, 2006 of $223.1 million, a 7.3 percent increase from
prior-year revenue of $207.9 million. Continued increases in rental
organic growth and strong direct sale organic growth drove the
increase in revenue compared to the prior-year.
Earnings per diluted share totaled $0.43 for the quarter compared
to $0.49 during the prior-year quarter. As expected, first quarter
earnings reflect higher rental gross margins offset by the increased
selling, general and administrative expenses associated with
investments in sales, marketing and technology initiatives as compared
to the prior-year.
"Our first quarter results were consistent with our
expectations," said Richard Marcantonio, G&K's chairman and chief
executive officer. "Importantly, the continued investment in our
strategic initiatives is enhancing our product and service offerings
and strengthening our competitive advantage. These initiatives are key
components of our strategy to further improve revenue growth and
establish long-term earnings momentum."
Income Statement Review
First quarter revenue from G&K's rental business increased to
$207.3 million, up 6.8 percent over the prior-year period. The
company's organic industrial rental growth rate was approximately 5.0
percent in the first quarter, an improvement of 50 basis points
compared to the fourth quarter of fiscal 2006 and 200 basis points
compared to the prior-year period. Direct sale revenue, driven almost
entirely by organic growth, increased to $15.8 million, up 14.0
percent over the prior-year quarter. The organic revenue 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 36.5
percent, an increase of 70 basis points compared to 35.8 percent in
the prior-year period. Gross margin for the quarter increased due to
lower production and delivery costs, offset by higher levels of
merchandise costs primarily associated with new account growth and
higher energy costs. Gross margin from direct sales was 23.9 percent
compared to 26.5 percent in the prior-year period.
Selling, general and administrative expenses were 22.4 percent of
consolidated revenue for the quarter, up from 21.0 percent in the
year-earlier period. Selling, general and administrative expenses
increased as a result of the expenses associated with the increase in
the company's sales force during the last six months, the continued
rollout of the company's information technology initiatives, and
ongoing investments in segmented marketing programs.
The effective tax rate for the first quarter increased to 38.5
percent from 34.7 percent in the year-earlier period. The company's
effective tax rate in the prior-year quarter was lower due to the
reduction of tax reserves no longer required.
Balance Sheet and Cash Flow Statement Review
The company's balance sheet remains strong. As of September 30,
2006, the company had total borrowings of $221.2 million and a total
debt to total capitalization ratio of 28.5 percent. Total
stockholders' equity increased to $555.5 million.
Cash provided by operating activities for the first quarter was
$6.9 million compared to $7.3 million in the prior-year period. Cash
used for property, plant and equipment during the quarter totaled $9.8
million compared to $8.5 million in the first quarter of the previous
year.
Outlook
The company expects fiscal 2007 second quarter revenue to range
from $230 million to $233 million and earnings per diluted share from
$0.44 to $0.48. The revenue guidance represents a rental organic
growth rate consistent with the first quarter of fiscal 2007 and up
from the second quarter of fiscal 2006. The revenue guidance also
includes increased direct sale revenue from the company's annual
outerwear promotion. The earnings guidance reflects the company's
ongoing efforts to improve operational efficiency and lower
anticipated energy costs, offset by investments in growth, technology
and productivity initiatives.
Conference Call Information
The company will conduct a conference call today beginning at
10:00 a.m. Central Time. The call will be webcast. To access the
webcast, go to the Investor Relations section of the company's website
at www.gkservices.com. Click on the webcast icon and follow the
instructions. A replay of the call will be available through November
30, 2006.
Safe Harbor for Forward-Looking Statements
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 Private
Securities Litigation Reform Act of 1995. 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. 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.
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 1, 2006.
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 Months Ended
--------------------------
September 30, October 1,
(U.S. dollars, in thousands, except per
share data) 2006 2005
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Revenues
Rental operations $207,301 $194,068
Direct sales 15,827 13,880
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Total revenues 223,128 207,948
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Operating Expenses
Cost of rental operations 131,652 124,506
Cost of direct sales 12,039 10,201
Selling and administrative 49,879 43,745
Depreciation and amortization 11,218 10,599
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Total operating expenses 204,788 189,051
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Income from Operations 18,340 18,897
Interest expense 3,393 3,015
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Income before Income Taxes 14,947 15,882
Provision for income taxes 5,755 5,511
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Net Income $9,192 $10,371
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Basic weighted average number
of shares outstanding 21,186 20,992
Basic Earnings per Common Share $0.43 $0.49
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Diluted weighted average number
of shares outstanding 21,365 21,148
Diluted Earnings per Common Share $0.43 $0.49
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Dividends per share $0.04 $0.0175
CONSOLIDATED CONDENSED BALANCE SHEETS
G&K Services, Inc. and Subsidiaries
(Subject to Reclassification)
September 30, July 1,
2006 2006
(U.S. dollars, in thousands) (Unaudited)
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ASSETS
Current Assets
Cash and cash equivalents $23,526 $19,690
Accounts receivable, net 96,330 94,964
Inventories 141,999 141,031
Prepaid expenses 14,047 15,552
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Total current assets 275,902 271,237
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Property, Plant and Equipment, net 250,254 249,001
Other Assets 429,360 430,854
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$955,516 $951,092
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $30,102 $27,404
Accrued expenses 62,078 72,999
Deferred income taxes 10,418 10,419
Current maturities of long-term debt 18,124 18,199
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Total current liabilities 120,722 129,021
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Long-Term Debt, net of current maturities 203,036 195,355
Deferred Income Taxes 33,266 34,343
Other Noncurrent Liabilities 43,009 44,985
Stockholders' Equity 555,483 547,388
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$955,516 $951,092
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
G&K Services, Inc. and Subsidiaries
(Subject to Reclassification)
For the Three Months Ended
---------------------------
September 30, October 1,
(U.S. dollars, in thousands) 2006 2005
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Operating Activities:
Net income $9,192 $10,371
Adjustments to reconcile net income to
net cash
provided by operating activities -
Depreciation and amortization 11,218 10,599
Stock-based compensation 929 1,007
Deferred income taxes 114 394
Changes in current operating items,
exclusive of acquisitions (15,170) (15,210)
Other, net 624 148
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Net cash provided by operating
activities 6,907 7,309
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Investing Activities:
Property, plant and equipment additions,
net (9,769) (8,506)
Acquisition of business assets and
other (994) (832)
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Net cash used for investing activities (10,763) (9,338)
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Financing Activities:
Repayments of long-term debt (7,293) (7,309)
Proceeds from short-term borrowings, net 14,901 11,600
Cash dividends paid - (369)
Sale of common stock 74 658
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Net cash provided by financing activities 7,682 4,580
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Increase in Cash and Cash Equivalents 3,826 2,551
Effect of Exchange Rates on Cash 10 435
Cash and Cash Equivalents:
Beginning of period 19,690 15,345
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End of period $23,526 $18,331
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CONTACT: G&K Services, Inc.
Jeffrey L. Wright, 952-912-5500
Senior Vice President and Chief Financial Officer
or
Glenn L. Stolt, 952-912-5500
Vice President and Treasurer
or
Shayn R. Carlson, 952-912-5500
Director of Investor Relations