Exhibit 99.1
G&K Services Reports Fiscal 2007 Second Quarter Results
MINNEAPOLIS--(BUSINESS WIRE)--Jan. 30, 2007--G&K Services, Inc.
(Nasdaq:GKSR), today reported revenue for the second quarter ended
December 30, 2006 of $230.8 million, a 5.2 percent increase from
prior-year revenue of $219.3 million. Growth in both rental and direct
sales contributed to the increase in revenue over the prior-year.
Earnings per diluted share totaled $0.45 for the quarter compared
to $0.48 during the prior-year period. Second quarter earnings were
consistent with management's previous guidance and reflect incremental
earnings from revenue growth, productivity improvements and lower
energy costs. These gains were offset by higher initial merchandise
costs resulting from record new account sales written over the last
twelve months, expenses associated with investments in sales,
marketing and technology initiatives and a higher effective tax rate.
"We continue to put tremendous focus on improving the fundamentals
of our business while executing our strategic initiatives," said
Richard Marcantonio, G&K's chairman and chief executive officer. "The
investments we're making will provide a superior value proposition for
our customers and strengthen our foundation to drive long-term revenue
and earnings growth for our shareholders."
Income Statement Review
Second quarter revenue from G&K's rental business increased to
$209.1 million, up 4.9 percent over the prior-year period. The
company's organic industrial rental growth rate was approximately 4.5
percent in the second quarter, an improvement of 100 basis points
compared to the prior-year period. Rental organic growth was slightly
below expectations due to economic softness in certain traditional
rental uniform wearing industries, particularly the automotive sector.
In addition, unseasonably warm weather resulted in lower than expected
growth of entrance mat products during the quarter. Direct sale
revenue, driven almost entirely by organic growth, increased to $21.6
million, up 8.2 percent over the prior-year second quarter. The
company's annual outerwear promotion and continued momentum in the
Lion Uniform Group contributed to the direct sale revenue growth. 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 35.5
percent compared to 36.0 percent in the prior-year period.
Improvements in production and delivery productivity and lower energy
costs during the quarter were offset by increased merchandise costs
associated with record new account growth achieved during the last
twelve months. Gross margin from direct sales was 27.8 percent
compared to 29.2 percent in the prior-year period.
Selling, general and administrative expenses were 21.7 percent of
consolidated revenue for the quarter, down from 21.8 percent in the
year-earlier period. Selling expenses as a percent of consolidated
revenue were higher than the year ago period as a result of the
expansion in the company's sales force during the last nine months.
This increase was offset by lower administrative expenses due to
office productivity savings driven by the company's handheld
initiative, leverage due to improved revenue growth and lower
retirement plan expenses.
The effective tax rate for the second quarter increased to 38.0
percent from 34.9 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 December 30,
2006, the company had total borrowings of $198.3 million, down from
$238.7 million a year ago. Total debt as a percent of total
capitalization was 26.1 percent. Total stockholders' equity increased
to $561.1 million.
Cash provided by operating activities for the six months ended
December 30, 2006 was $28.0 million compared to $24.1 million in the
prior-year period. Cash used for property, plant and equipment during
the six month period totaled $18.4 million compared to $16.5 million
in the previous year. Free cash flow, defined as cash flow from
operations less capital expenditures, totaled $9.7 million for the
first six months of fiscal 2007 compared to $7.6 million in the same
period of fiscal 2006.
Outlook
The company expects fiscal 2007 third quarter revenue to range
from $232.0 million to $235.0 million and earnings per diluted share
from $0.49 to $0.53. The revenue guidance represents a rental organic
growth rate consistent with the second quarter of fiscal 2007 and an
increase from the third quarter of fiscal 2006. The earnings guidance
reflects a continued sequential improvement in operating margin and a
lower income tax rate.
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 March 1,
2007.
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 For the Six Months Ended
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(U.S. Dollars, in
thousands, except December 30, December 31, December 30, December 31,
per share data) 2006 2005 2006 2005
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Revenues
Rental operations $209,130 $199,355 $416,431 $393,423
Direct sales 21,634 19,993 37,461 33,873
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Total revenues 230,764 219,348 453,892 427,296
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Operating Expenses
Cost of rental
operations 134,833 127,672 266,485 252,178
Cost of direct
sales 15,617 14,155 27,656 24,356
Selling and
administrative 50,042 47,855 99,921 91,600
Depreciation and
amortization 11,232 10,644 22,450 21,243
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Total
operating
expenses 211,724 200,326 416,512 389,377
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Income from
Operations 19,040 19,022 37,380 37,919
Interest expense 3,486 3,302 6,879 6,317
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Income before
Income Taxes 15,554 15,720 30,501 31,602
Provision for
income taxes 5,910 5,486 11,665 10,997
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Net Income $9,644 $10,234 $18,836 $20,605
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Basic weighted
average number
of shares
outstanding 21,190 21,083 21,187 21,037
Basic Earnings Per
Common Share $0.46 $0.49 $0.89 $0.98
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Diluted weighted
average number
of shares
outstanding 21,385 21,221 21,374 21,185
Diluted Earnings
Per Common Share $0.45 $0.48 $0.88 $0.97
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Dividends per
share $0.0400 $0.0175 $0.0800 $0.0350
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CONSOLIDATED CONDENSED BALANCE SHEETS
G&K Services, Inc. and Subsidiaries
December 30, July 1,
2006 2006
(U.S. dollars, in thousands) (Unaudited)
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ASSETS
Current Assets
Cash and cash equivalents $14,032 $19,690
Accounts receivable, net 101,418 94,964
Inventories 139,870 141,031
Prepaid expenses 12,700 15,552
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Total current assets 268,020 271,237
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Property, Plant and Equipment, net 248,465 249,001
Other Assets 430,837 430,854
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$947,322 $951,092
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $27,074 $27,404
Accrued expenses 72,155 72,999
Deferred income taxes 10,197 10,419
Current maturities of long-term debt 71,143 18,199
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Total current liabilities 180,569 129,021
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Long-Term Debt, net of current maturities 127,200 195,355
Deferred Income Taxes 31,700 34,343
Other Noncurrent Liabilities 46,787 44,985
Stockholders' Equity 561,066 547,388
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$947,322 $951,092
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CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
G&K Services, Inc. and Subsidiaries
(Unaudited)
For the Six Months Ended
-------------------------
December 30, December 31,
(U.S. dollars, in thousands) 2006 2005
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Operating Activities:
Net income $18,836 $20,605
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 22,450 21,243
Stock-based compensation 2,070 2,118
Deferred income taxes (338) 371
Changes in current operating items,
exclusive of acquisitions (16,260) (21,198)
Other assets and liabilities 1,276 977
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Net cash provided by operating activities 28,034 24,116
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Investing Activities:
Property, plant and equipment additions,
net (18,355) (16,482)
Acquisition of business assets 50 (11,515)
Purchase of investments, net (1,393) (1,248)
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Net cash used for investing activities (19,698) (29,245)
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Financing Activities:
Repayments of long-term debt (7,440) (7,484)
Proceeds from (repayments of) short-term
borrowings, net (7,759) 10,550
Cash dividends paid (857) (747)
Sale of common stock 2,743 1,250
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Net cash (used for) provided by financing
activities (13,313) 3,569
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Decrease in Cash and Cash Equivalents (4,977) (1,560)
Effect of Exchange Rates on Cash (681) 295
Cash and Cash Equivalents:
Beginning of period 19,690 15,345
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End of period $14,032 $14,080
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Supplemental Cash Flow Information:
Non-Cash Transactions -
Debt issued in connection with
business acquisitions $- $(1,419)
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CONTACT: G&K Services, Inc.
Jeffrey L. Wright,
Senior Vice President and Chief Financial Officer,
952-912-5500
or
Glenn L. Stolt,
Vice President and Treasurer,
952-912-5500
or
Shayn R. Carlson,
Director of Investor Relations,
952-912-5500