Vestis (VSTS) Q3 Revenue Falls 3.5%

Vestis (VSTS -6.93%), a major player in uniform rental and workplace supplies across North America, reported third quarter fiscal 2025 earnings on August 5, 2025. The most notable result was a net loss per share of $(0.01) (GAAP), falling short of analyst estimates for a $0.05 GAAP profit and marking a reversal from a $0.04 profit (GAAP) in the same quarter last year. Revenue (GAAP) came in at $673.8 million, just below the $674.04 million GAAP revenue expected by analysts, and down from $698.2 million (GAAP) in the prior year period. Free cash flow (non-GAAP) also declined, coming in at $8.0 million compared to $27.7 million for the nine months ended June 28, 2024. The quarter underscored ongoing challenges for Vestis, with earnings and cash flow under pressure amid continued customer attrition and operational issues. The results point to a period of stabilization, with improvement efforts underway but not yet visible in the financials.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q2 2025 earnings report.

Vestis’s Business and Current Focus

Vestis is a leading provider of uniform rental, floor mats, linens, managed restroom services, and related workplace supplies, mostly serving business and institutional customers. Its business is built on a recurring revenue model, with rental business representing 94% of total revenue in FY2024. The company operates over 350 facilities and serves more than 300,000 customer locations, making it one of the largest in its industry across the U.S. and Canada.

Vestis relies on its scale and extensive service network as a key advantage, allowing it to reach a broad customer base efficiently. Recent initiatives have targeted cost controls, improved sales force productivity, and strengthened customer retention. With a new CEO who joined in June 2025, attention is now focused on operational review, customer service, and stabilizing financial performance. Customer relationships, service quality, and continued investment in sustainability practices are ongoing areas of focus.

Quarter Review: Results and Operational Developments

Profitability and sales both weakened in the period, as GAAP earnings per share swung from a $0.04 profit in the prior year period to a $(0.01) loss. Revenue (GAAP) slipped 3.5% year over year, reflecting continued weaknesses in both core product lines. Rental revenue, which makes up the majority of business, fell $18.0 million year-over-year. The decline was mainly due to $14.6 million in lost business outpacing new customer wins. Existing customer attrition took another $3.4 million out of rental sales. Direct sales revenue also dropped by $5.6 million, with primarily attributable to a $4.3 million unfavorable impact from the previously anticipated loss of a national account customer.

Gross profit (GAAP) fell 10.1%, reaching $182.1 million versus $202.5 million a year earlier. This drop was tied to fewer sales and changes in the product mix. Delivery costs declined, but margin loss on reduced volume and more credits issued to customers weighed heavily. Selling, general, and administrative expenses (SG&A) decreased by $7.7 million, benefiting from lower share-based compensation and separation costs. However, spending on field sales personnel rose by $4.5 million as Vestis ramped up its sales force, looking to drive productivity. Adjusted earnings before interest, taxes, depreciation, and amortization (Adjusted EBITDA), a measure widely used to assess core operating profitability, dropped 26.4% year over year.

Cash flow was also under pressure during the quarter. Free cash flow (non-GAAP) dropped to $8.0 million, far below the $27.7 million result of the prior year period. This decline mirrored reduced net income (GAAP) and higher working capital needs. Cash and equivalents stood at $23.7 million, while total liquidity (including credit lines) reached $290 million. Debt was largely unchanged at $1.17 billion, but the company’s net leverage ratio (non-GAAP)—measuring debt versus earnings—rose to 4.50x from 3.64x in the prior year period, moving closer to but remaining inside lender covenant limits. Capital investments of $14.9 million focused mostly on market center upgrades.

During the quarter, the company’s network scale remains a long-term strength, but it did not prevent customer churn. Analysts and management noted that a key competitor, Cintas, has not reported comparable service or volume issues, indicating that many current challenges are specific to Vestis’s operations rather than industry-wide.

Another important development this quarter was the company’s leadership change. Jim Barber, with prior experience as Chief Operating Officer at UPS, took on the Chief Executive Officer role in June 2025. In statements, Barber and others in management highlighted extensive reviews of business processes and a renewed focus on “operational excellence” and restoring growth.

No significant environmental, social, and governance (ESG) updates or program expansions were disclosed in this quarter. The most recent commentary on sustainability had highlighted the company’s ongoing work to conserve water and fuel using new technologies, but no major announcements were made in the latest release. VSTS does not currently pay a dividend.

Looking Ahead: Guidance and Key Watch Areas

Vestis did not provide explicit financial guidance for revenue or earnings for the upcoming quarter or full fiscal year in this earnings release; however, management previously issued guidance for revenue to be in the range of $674 million to $682 million and Adjusted EBITDA to be at least $63 million. Management indicated that leadership is focused on completing a full operational review and stabilizing performance before offering more detailed quantitative targets. With a new CEO in the early stages of tenure, concrete initiatives are still being developed.

For investors, several metrics will be important to monitor in the coming quarters. These include the gap between lost business and new business won, improvement in customer credit issuance, and recovery of free cash flow conversion. Also important is the company’s leverage ratio, given its move higher this year. Management’s ability to improve customer retention, reverse the negative swing in profitability, and leverage Vestis’s network scale and recurring revenue model will likely determine whether performance can rebound in coming quarters.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.