Exhibit 99.1
G&K Services Reports Fiscal 2008 First
Quarter Results
Revenue and earnings per share exceed expectations;
Operating margins continue to expand
MINNEAPOLIS--(BUSINESS WIRE)--Oct. 30, 2007--G&K Services, Inc.
(Nasdaq:GKSR), today reported record revenue for the first quarter
ended September 29, 2007 of $243.8 million, a 9.3 percent increase
from previous year revenue of $223.1 million. Organic rental growth,
revenue from acquisitions and strong direct sale growth drove the
increase over the prior-year.
First quarter earnings per diluted share exceeded expectations and
rose to $0.58, a 34.9 percent increase from $0.43 per diluted share
during the prior-year period. The increase in earnings compared to the
prior-year was driven by significantly higher operating income margin
as a result of the company's ongoing strategic initiative.
"We're extremely pleased to deliver strong first quarter
performance," said Richard Marcantonio, chairman and chief executive
officer. "As expected, record revenue was driven by strong growth from
both our rental and direct sale businesses in addition to revenue from
acquisitions. It is also worth noting that we achieved record new
account sales during the quarter, driven by improved sales
productivity and the signing of a number of new national account
customers, all of which will contribute to future revenue growth. Of
equal importance, we drove significant operating margin improvement
while continuing to execute on a number of key strategic initiatives
to drive long-term revenue and earnings growth."
Income Statement Review
First quarter revenue from G&K's rental business increased to
$226.1 million, up 9.1 percent over the prior-year period. As
expected, the company's organic rental growth rate was approximately
3.5 percent in the quarter. Direct sale revenue, driven almost solely
by organic growth, increased to $17.7 million, up 11.9 percent over
the prior-year period. The organic growth rates are calculated using
rental and direct sale revenue, adjusted for foreign currency exchange
rate differences and newly acquired revenue compared to prior-period
results.
Gross margin from rental operations for the quarter increased to
36.8 percent, up from 36.5 percent in the prior-year period. The
increase in gross margin resulted from lower merchandise costs,
benefits from plant productivity initiatives and improved overall
leverage from higher revenue growth. Gross margin from direct sales
increased to 28.1 percent, an improvement from 23.9 percent in the
prior-year period. The increase in gross margin was driven primarily
by improved efficiencies from higher volume.
Selling and administrative expenses were 21.4 percent of
consolidated revenue for the quarter, down from 22.4 percent in the
year-earlier period. Selling and administrative expenses decreased
compared to the prior-year period due to leverage from revenue growth
and efficiencies attained from the complete rollout of handheld
devices across the company's route structure.
Operating margin for the first quarter increased significantly to
9.8 percent of consolidated revenue, up from 8.2 percent in the
prior-year period. The improvement in operating margin was a result of
leverage realized from revenue growth, lower merchandise costs and
higher productivity achieved from operational initiatives, partially
offset by slightly higher selling expenses and on-going acquisition
integration costs.
The effective tax rate for the first quarter was 37.8 percent
compared to 38.5 percent in the year-earlier period.
Balance Sheet and Cash Flow Statement Review
The company's balance sheet remains strong. As of September 29,
2007, the company had total borrowings of $246.1 million and a total
debt to total capitalization ratio of 29.0 percent. Total
stockholders' equity increased to $603.2 million.
Cash provided by operating activities for the first quarter
increased to $14.3 million, up from $6.9 million in the prior-year.
Cash provided from operating activities increased compared to the
prior-year period due to stronger earnings, higher depreciation and
amortization levels and a lower net working capital investment. Cash
used for property, plant and equipment during the quarter totaled $2.4
million compared to $9.8 million in the prior-year period. Free cash
flow, defined as cash flow from operations less capital expenditures,
increased to $12.0 million, up from negative $2.9 million in the
prior-year period.
As previously disclosed, the company initiated a share repurchase
program to purchase up to $100.0 million of the company's outstanding
common stock. During the first quarter, the company purchased 257,300
shares of common stock. Since inception of the share repurchase
program through the end of the first quarter, the company has bought
back 489,300 shares, or approximately 2.3 percent of the total shares
outstanding at the beginning of the program, at a cost of
approximately $19.1 million.
Outlook
The company expects fiscal 2008 second quarter revenue to range
from $252.0 million to $255.0 million and earnings per diluted share
from $0.53 to $0.57. The revenue guidance represents a sequential
improvement in organic rental growth, driven in part by the record
level of new account sales achieved in the company's first fiscal
quarter. The revenue guidance also includes a full quarter impact of
revenue from the acquisition of Leef Services and an expected
year-over-year increase in direct sale revenue.
The earnings guidance reflects continued efficiencies gained from
revenue growth and productivity improvements from on-going operational
initiatives. In addition, the earnings guidance includes higher
anticipated merchandise costs from record new account sales, expenses
related to further additions to the sales organization, costs related
to a systems implementation at Lion Uniform Group and costs associated
with acquisition integration activities.
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
29, 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 June 30, 2007.
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 160 processing facilities and branch
offices, serving more than 160,000 customers.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
G&K Services, Inc. and Subsidiaries
(Subject to Reclassification)
For the Three Months Ended
---------------------------
September 29, September 30,
(U.S. Dollars, in thousands, except per
share data) 2007 2006
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Revenues
Rental operations $ 226,068 $ 207,301
Direct sales 17,718 15,827
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Total revenues 243,786 223,128
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Operating Expenses
Cost of rental operations(a) 142,986 131,652
Cost of direct sales(a) 12,734 12,039
Selling and administrative 52,201 49,879
Depreciation and amortization 12,029 11,218
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Total operating expenses 219,950 204,788
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Income from Operations 23,836 18,340
Interest expense 3,958 3,393
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Income before Income Taxes 19,878 14,947
Provision for income taxes 7,514 5,755
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Net Income $ 12,364 $ 9,192
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Basic weighted average number of shares
outstanding 21,108 21,186
Basic Earnings Per Common Share $ 0.59 $ 0.43
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Diluted weighted average number of
shares outstanding 21,320 21,365
Diluted Earnings Per Common Share $ 0.58 $ 0.43
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Dividends per share $ 0.05 $ 0.04
(a) Excludes depreciation and amortization
CONSOLIDATED CONDENSED BALANCE SHEETS
G&K Services, Inc. and Subsidiaries
(Subject to Reclassification)
September 29, June 30,
2007 2007
(U.S. dollars, in thousands)
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ASSETS
Current Assets
Cash and cash equivalents $ 14,465 $ 22,759
Accounts receivable, net 105,362 98,276
Inventories 142,764 140,780
Prepaid expenses 17,002 14,912
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Total current assets 279,593 276,727
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Property, Plant and Equipment, net 257,137 255,996
Other Assets 495,826 459,091
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$ 1,032,556 $ 991,814
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 22,337 $ 21,911
Accrued expenses 67,017 68,927
Deferred income taxes 6,786 6,568
Current maturities of long-term debt 7,842 65,838
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Total current liabilities 103,982 163,244
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Long-Term Debt, net of Current Maturities 238,298 149,005
Deferred Income Taxes 28,237 34,298
Accrued Income Taxes - Long Term 11,004 -
Other Noncurrent Liabilities 47,849 53,279
Stockholders' Equity 603,186 591,988
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$ 1,032,556 $ 991,814
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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 29, September 30,
(U.S. dollars, in thousands) 2007 2006
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Operating Activities:
Net income $ 12,364 $ 9,192
Adjustments to reconcile net income to
net cash provided by operating
activities -
Depreciation and amortization 12,029 11,218
Other adjustments (1,441) 1,043
Changes in current operating items,
exclusive of acquisitions (11,344) (15,170)
Other assets and liabilities 2,730 624
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Net cash provided by operating activities 14,338 6,907
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Investing Activities:
Property, plant and equipment additions,
net (2,365) (9,769)
Acquisitions of business assets, net (40,294) (30)
Purchase of investments, net (1,348) (964)
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Net cash used for investing activities (44,007) (10,763)
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Financing Activities:
Repayments of long-term debt (7,314) (7,293)
Proceeds from short-term borrowings, net 38,601 14,901
Cash dividends paid (1,074) -
Sale of common stock 1,705 74
Repurchase of common stock shares (11,244) -
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Net cash provided by financing activities 20,674 7,682
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(Decrease) Increase in Cash and Cash
Equivalents (8,995) 3,826
Effect of Exchange Rates on Cash 701 10
Cash and Cash Equivalents:
Beginning of period 22,759 19,690
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End of period $ 14,465 $ 23,526
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Supplemental Cash Flow Information:
Non-Cash Transactions -
Notes payable issued to sellers in
business acquisitions $ - $ -
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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