Vestis (NYSE:VSTS) executives emphasized early progress in a multi-pronged business transformation during the company’s fiscal first-quarter 2026 earnings call, highlighting sequential improvement in profitability alongside continued pressure on revenue tied to product mix shifts.
First-quarter results and profitability trend
Interim CFO Adam Bowen reported fiscal first-quarter revenue of $663.4 million, down $20.4 million, or 3%, from the prior-year period. Rental revenue declined $17.9 million and direct sales fell $2.7 million, partially offset by a $0.2 million foreign exchange benefit related to the company’s Canadian business.
Adjusted EBITDA in the quarter was $70.4 million, or a 10.6% margin, compared with $81.2 million, or 11.9%, a year ago. CEO Jim Barber said adjusted EBITDA improved sequentially versus fiscal fourth quarter 2025, which management described as a low point for profitability.
Mix shift pressures revenue per pound
Management framed the revenue decline as a function of revenue quality rather than broad-based demand weakness. Bowen said the company’s product mix shift negatively impacted revenue per pound by $0.04, or 3%, which equated to roughly $20 million—about the full year-over-year decline in quarterly revenue.
Bowen said the heavier weighting toward linen and related items is “significantly more costly” to process than uniforms, and that while the revenue dollar mix only shifted 1% toward workplace supplies, the volume mix shift was more pronounced and limited top-line operating leverage despite stable throughput.
In response to a question on the outlook for revenue per pound, Bowen reiterated the company’s full-year revenue guidance of flat to down 2% compared with fiscal 2025 (on a 52-week basis) and said the company expects the year-over-year quarterly changes in revenue to narrow as the year progresses. Barber added the plan is to improve revenue per pound through the year, but cautioned investors not to look at the metric in isolation, emphasizing it should be assessed “in concert with cost per pound.”
Operational metrics and “pennies” focus on cost per pound
Barber said Vestis is managing the business through “pennies” and pointed to operating leverage as a primary scorecard. The company reported a $0.02 improvement in cost per pound versus fiscal first quarter 2025, which Barber said translates to roughly $10 million in adjusted EBITDA at current volume and mix levels. He also stated that each penny of improvement in cost per pound is worth approximately $5 million of adjusted EBITDA given current throughput.
Barber outlined several operating indicators that improved year-over-year in the quarter:
- On-time delivery improved 300 basis points versus fiscal first quarter 2025.
- Plant productivity improved 7%.
- Customer complaints declined 12%.
- Average weekly loss business declined 15% from fiscal fourth quarter 2025.
Chief Operating Officer Bill Seward said management is monitoring service levels alongside cost metrics and described sequential improvement month-over-month as the transformation efforts take hold. In response to analyst questions, management clarified the plant productivity metric was measured on pounds processed per operating hour. Barber said the productivity gains did not directly drive the full cost-per-pound improvement in the first quarter, but noted that December performance began to improve and that management expects the benefits to show up more clearly in cost per pound in subsequent quarters.
Transformation spending, cash flow, and balance sheet
Bowen said cost of service decreased $3 million year-over-year due to lower merchandise and delivery costs, while plant costs increased due to the product mix shift. He added that average weekly plant cost improved 3.7% in December versus November, which he attributed to productivity gains.
Reported SG&A declined about $0.9 million year-over-year, though Bowen noted the quarter included $7.8 million in third-party support costs and $5.5 million in severance tied to the transformation. Adjusting for those items, SG&A was down about $14 million, or 12%, year-over-year.
Vestis generated $38 million in operating cash flow and $28 million in free cash flow, including a $12.7 million working capital benefit driven largely by inventory actions within procurement and supply chain. Excluding working capital improvements, Bowen said free cash flow would have been $15.6 million, which he said aligned with the company’s full-year free cash flow guidance of $50 million to $60 million “spread evenly throughout the year.”
Capital investments were $9.4 million, below a baseline target of $15 million per quarter, due to longer lead times for industrial laundry equipment, which management expects to arrive in later quarters.
At quarter-end, Bowen reported net debt of $1.29 billion and total outstanding debt of $1.16 billion, including $19 million on the revolving credit facility. Vestis ended the quarter with $317 million of available liquidity, including $275 million of undrawn revolver capacity and $42 million of cash. Bowen said there are no debt maturities until 2028.
Guidance reaffirmed and path to sequential improvement
Management reaffirmed its fiscal 2026 outlook, calling for revenue flat to down 2% versus fiscal 2025 (52-week basis), adjusted EBITDA of $285 million to $315 million, and free cash flow of $50 million to $60 million. Bowen also reiterated the expectation for 5% successive quarterly improvements in adjusted EBITDA beginning in the second quarter.
In Q&A, Bowen discussed the cadence of transformation savings, distinguishing between a longer-term run-rate benefit and in-year benefits. He said the company expects $40 million of in-year benefit in fiscal 2026, building toward $75 million on a full-year basis once fully realized. Bowen characterized the step-up from fiscal fourth quarter 2025 to fiscal first quarter 2026 as about a $5 million increment, with additional savings expected to phase in through the remainder of the year.
On commercial execution, Barber said Vestis has begun strengthening local customer engagement, including introducing Market Development Representatives. When asked about macro conditions, Bowen said the company’s vertical exposure has not shifted and that management has seen “no waning in demand,” pointing again to flat pounds processed year-over-year.
Barber described the transformation as still in the early stages, saying the company is in the “first inning,” and emphasized that both cost per pound and revenue per pound will be key levers as Vestis works to improve operating leverage over time.
About Vestis (NYSE:VSTS)
Vestis Corporation provides uniform rentals and workplace supplies in the United States and Canada. Its products include uniform options, such as shirts, pants, outerwear, gowns, scrubs, high visibility garments, particulate-free garments, and flame-resistant garments, as well as shoes and accessories; and workplace supplies, including managed restroom supply services, first-aid supplies and safety products, floor mats, towels, and linens. The company serves manufacturing, hospitality, retail, food processing, food service, pharmaceuticals, healthcare, automotive, and cleanroom industries.
