UniFirst Corporation (UNF) is a leading player in the uniform and protective workwear industry, witnessing strong revenue growth post-pandemic. However, its margins have been under pressure due to investments in key initiatives such as Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP), as well as acquisition costs.
In recent years, UNF’s revenue growth has been robust, with a significant increase in FY22 and FY23. This growth was partly attributed to customer re-openings in FY21 and growth in their Core Laundry Operations, along with the impact of acquisitions in FY23.
Despite the company’s revenue growth, operating income and net income margins have declined due to costs associated with acquisitions and key initiatives. These initiatives, which include CRM and ERP projects, are expected to improve operational efficiency and expand margins in the long term.
In the second quarter of 2024 (2Q24), UNF reported robust growth in revenue, operating income, and EBITDA, with strong performance in its Core Laundry Operations. The company also incurred costs related to key initiatives and the Clean Uniform acquisition.
UNF’s business segments include Core Laundry Operations, Specialty Garment, and First Aid. It serves approximately 300,000 locations in the U.S., Canada, and Europe.
The company has been investing in key initiatives like CRM and ERP to optimize operations and enhance customer engagement. It also acquired Clean Uniform in 2023, a strategic move to enhance its market share in the uniform and facility services industry.
The workwear and uniforms market is projected to grow in the coming years, driven by factors such as strict occupational safety regulations, growth in industries like construction and healthcare, and job growth in sectors like government and nonfarm payroll employment.
UniFirst Corporation faces competition from Cintas (CTAS), Vestis Corporation (VSTS), and Alsco Inc. Among its peers, UNF has relatively strong forward revenue growth but lower net income and gross profit margins. Its forward P/E ratio is currently trading lower than its peers.
Based on market estimates for 2025 revenue and EPS, and considering factors such as key initiatives and industry demand, a target price of $172.39 is projected, indicating a 9% upside potential. However, this upside lacks margin of safety, leading to a ‘Hold’ rating for now. If subsequent quarters report better-than-expected margins, market expectations may be revised upwards.
In conclusion, UniFirst Corporation is navigating growth and investment while facing margin pressures. Its key initiatives are expected to improve margins in the long term, and the industry outlook remains positive. However, the company’s valuation does not provide a significant margin of safety, warranting a ‘Hold’ rating for the time being.
