Aramark (ARMK) Q1 2021 Earnings Call Transcript

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Aramark (ARMK -0.68%)
Q1 2021 Earnings Call
Feb 9, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Aramark's First Quarter 2021 Earnings Results Conference Call. My name is Kevin, and I'll be your operator for today's call. At this time, I would like to inform you that this conference is being recorded for rebroadcast and that all participants are in a listen-only mode. We will open the conference call for questions at the conclusion of the Company's remarks.

I will now turn the call over to Felise Kissell, Vice President, Investor Relations and Corporate Affairs. Ms. Kissell, please proceed.

Felise Kissell -- Vice President, Investor Relations and Corporate Affairs

Thank you, and welcome to Aramark's first quarter fiscal 2021 earnings conference call and webcast. I hope those listening are doing well. This morning, we will be hearing from our Chief Executive Officer, John Zillmer, as well as our Chief Financial Officer, Tom Ondrof.

As a reminder, our notice regarding forward-looking statements is included in our press release this morning, which can be found on our website. During this call, we will be making comments that are forward-looking. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the Risk Factors, MD&A and other sections of our Annual Report on Form 10-K and our other SEC filings. Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in this morning's press release, as well as on our website.

So with that, I will now turn the call over to John.

John Zillmer -- Chief Executive Officer

Thank you, Felise, and hello, everyone. First, I would like to wish all of you a bright year ahead that includes good health and a return to a more conventional way of life for all of us. As we progress through the new year, I'm exceptionally encouraged by the resiliency of our business through this unprecedented period, as well as a considerable opportunities emerging for Aramark. This morning, I'll highlight our first quarter performance, provide insight into our immediate expectations for the business and share our progress in Aramark's accelerated growth strategies.

We remain committed to unlocking significant value for our stakeholders. Importantly, we continue to promote an ownership mentality within the organization having just approved an employee stock purchase program that provides employees an opportunity to participate more broadly as owners of the business. We believe this action will further align our people, values and performance.

Turning now to the first quarter. Revenue was in line with expectations as we articulated in last quarter's earnings call and subsequent disclosures with organic revenue down 36% year-over-year, consistent with fourth quarter fiscal 2020 organic revenue levels. These results reflected various stages of client reopenings, as well as the expected timing shift within higher education as the majority of schools we serve intentionally concluded their first quarter early to preserve the ongoing ability to keep students safely on campus.

Our teams across the business demonstrated unwavering resolve by effectively managing and maintaining extraordinary cost discipline that resulted in an AOI drop-through rate of 20%, at the low end of our stated expectations. This dedication contributed to a free cash flow improvement of $225 million, compared to the prior-year period, while reflecting seasonal outflow in the quarter. We maintained ample cash availability with approximately $2.4 billion at quarter-end. As we commence the new fiscal year, our performance demonstrated continued stability across all business segments as we navigated the effects of COVID-19, while simultaneously working with clients in preparing for a business reemergence.

U.S. food and facilities reported an organic revenue level in-line with the preceding quarter, as each business sector managed various stages of client activations. We added prominent new clients for our U.S. portfolio, including most recently, Florida State University, as well as drove improved retention levels. Education served clients operating both in-person and hybrid learning models. As noted earlier, higher education reflected shortened semester schedules that also resulted in reduced catering and retail activity that typically spiked during the holiday season. The second semester is currently under way. We continue to serve approximately 90% of client locations in some manner with our clients experiencing a higher student population on campus than during the fall semester.

In K through 12, the team did a tremendous job navigating through changing client operating models and strategically designing menus and customized services to meet the needs of communities where -- whether the students attended classes in-person or joined virtually, while participating in our curbside meal pick up, as we continue to offer the universal government-sponsored meal programs. Approximately 70% of the districts we serve are in a hybrid setting, with many districts in the process of resuming increase in-person learning. This promising progress gives us considerable optimism for the business.

Sports, leisure and corrections, improved slightly quarter-over-quarter as we entered the new fiscal year. Sports and entertainment began to activate as certain NFL teams introduced fans at a limited capacity based on local regulation. The NBA and NHL are implementing various strategies for partial attendance in their upcoming games. Leisure maintained steady performance as the team ramps up for the anticipated increase in activity in national parks as we head into the spring season. Lastly, corrections remained stable.

We experienced a longer recovery in business and industry. We are developing innovative solutions to offer clients that go beyond their traditional office setting. This includes the launch of Munch Mail, a few weeks ago, an exclusive home delivery option that provides curated gourmet offerings. The B&I team has already fulfilled tens of thousands of client orders across the country. Facilities and other has essentially returned to historic levels, largely from significant success in offering additional project-oriented services. The facilities team is currently deploying educational and digital content to clients that provide new insights related to innovations occurring within the business. We are pursuing numerous cross-selling opportunities in this area given the heightened demand for safety and hygiene.

Healthcare remained relatively stable and the team has worked tirelessly to provide capabilities in telehealth and mobile ordering, in addition to offering post meal -- post-care meal delivery to patient homes, extending the boundaries Aramark operates for its clients. International performance improvement quarter-over-quarter was driven by the team's ability to effectively leverage our expertise in managing complex and evolving government-mandated restrictions, specifically in Europe. Our healthcare and extractive services businesses exhibited particular resilience across the portfolio, with China once again driving nearly double-digit revenue growth. The international team continued to win broad-based new business totaling over $100 million in the first quarter, while simultaneously delivering strong retention rates.

Uniform services offerings remained in high demand and the team committed to implementing additional value-enhancing strategies, including the expansion of our adjacency services that drove double-digit year-over-year growth in this area. And investments in growth resources, which are already demonstrating productivity and recent sales conversions and the ongoing implementation of our ABS route accounting system integration that provides significant scale efficiencies, while offering enhanced service capabilities to clients.

In supply chain, we are progressing well with our priorities focused on value creation, innovation, culinary collaboration and supplier development. As we pursue this mission, we're ensuring that our operating teams have the right tools to simplify their efforts. We introduced a new system that will serve to improve spend visibility, optimize adherence to programs and uphold Aramark's commitments to sustainability, supplier diversity and local, regional suppliers. This approach has proven exceedingly advantageous and represents promising future opportunity as we strategically leverage our spend pools.

Lastly, as part of Aramark's, Be Well. Do Well., ESG commitment, we just released our Sustainability Impact Report that highlights our efforts to further enable equity and well-being for millions related to healthy eating initiatives, employee resource capabilities, diverse-owned business partners and tuition support for qualified and frontline associates. Our strategies are centered on sourcing responsibly and operating efficiently, while mindful of our ongoing focus on margin progression.

Before turning it over to Tom, I would like to highlight the recent election of Bridgette Heller to Aramark's Board of Directors. Bridgette is a highly respected business leader with 35 years of experience in food, health and wellness, and consumer care with an extremely impressive track record of accelerating growth at several Fortune 100 companies, while simultaneously championing diversity and inclusion. We are thrilled for the opportunity to have Bridgette join the Board and to leverage her extensive value-creating experience.

I will now turn the call over to Tom for a detailed financial review of the business.

Tom Ondrof -- Executive Vice President and Chief Financial Officerq

Thanks, John, and good morning, everyone. Before we begin, I want to also commend our teams around the globe on a collective ability to rapidly adapt to the current environment, while maintaining an unwavering commitment to safely serve our clients. Their focus and dedication continued to be reflected in our strong operating and financial performance.

As John mentioned, while our results remained impacted by COVID-19, the first quarter materialized as we discussed on the last earnings call, including stable sequential quarterly organic revenue performance across all segments, a favorable AOI drop-through rate of 20% on corresponding revenue decline and continued effective cash flow management resulting in an improvement in free cash flow of $225 million compared to the same quarter last year. These results enable us to maintain ample cash availability of approximately $2.4 billion at quarter-end. For the total company, organic revenue was down 36% in the quarter, compared to the prior year, in-line with the preceding quarter and a considerable improvement since the trough early in the third quarter of last year.

U.S. food and facilities reported organic revenue decline of 45% versus the prior year, similar to the fourth quarter. All lines of business had stable revenue trends with the exception of higher ed, which was unfavorably affected by the early completion of the academic semester in nearly all of our operations, and facilities, which benefited from higher frequency of services provided for existing clients and increased demand for project work.

International organic revenue was down 29% compared to the prior year, which reflected a modest improvement, compared to the fourth quarter of fiscal 2020. Teams continued to effectively navigate the government-imposed restrictions, while also benefiting from the impact of delivering strong new business and retention rates. Organic revenue in uniforms decreased 10% versus the prior year, also relatively consistent performance compared to the fourth quarter of fiscal 2020. Growing demand in ancillary safety and hygiene services was offset by increased government-imposed restrictions, particularly in Canada. The investment in additional growth resources throughout the quarter, as well as improved sales productivity continues to establish the foundation for future growth within this segment.

The Company reported adjusted operating loss of $9 million in the quarter. Once again, our operating teams effectively managed in-unit product, labor and other direct costs to appropriately serve clients based on their specific needs, while preparing for an anticipated increase in business activity. This purposeful balance led to a favorable AOI drop-through rate of 20% on corresponding revenue decline. Corporate expenses on an adjusted basis were up $7.5 million compared to the prior year, primarily from higher equity-based compensation expense, put in place to reward and inspire the organization to drive shareholder value creation. Adjusted EPS was a loss of $0.31 in the first quarter, largely due to interest expense, including that related to the $1.5 billion bond issuance last April. On a GAAP basis, Aramark reported revenue of $2.7 billion, with an operating loss of $20 million and a diluted loss per share of $0.32.

Now let me turn to cash flow. As is normal due to the seasonal cadence of the business, specifically within higher ed, free cash flow was a use during the first quarter. However, through disciplined cash flow management, the outflow of $180 million was $225 million better than prior year. A strong focus on working capital improved cash flow more than $200 million, coupled with slightly lower capital expenditures and smaller accrued expense and deferred income payments, more than offset lower net income compared to the same quarter last year.

The Company's strong cash flow and liquidity position provide a platform to advance our capital allocation priorities. First, we will continue to invest in growth through the disciplined use of capital to facilitate new business wins and invest to drive results in existing client accounts. Second, we will continue to be opportunistic with targeted and accretive tuck-in acquisitions. Third, we will look to delever.

As previously announced, we repaid $680 million on our U.S. revolving credit facility in October. Later in the quarter, we repaid an additional $416 million on our U.S. revolver and receivables facility. These proactive repayments totaling $1.1 billion are expected to result in an interest expense savings of approximately $12 million over the remainder of the fiscal year. And lastly, we remain committed to returning value to shareholders through the Board's approval last week of our upcoming quarterly dividend of $0.11 per share payable on March 3rd for shareholders of record on March -- sorry on February 17th.

We continued to participate in the appropriate country-specific government-assisted programs, including benefits from the CARES Act in the U.S. Through these global programs, we received approximately $38 million of labor credits in the first quarter to offset the cost we incurred globally, related to the retention of employees and for absorbing 100% of the benefit cost associated with furloughed employees. Under the CARES Act, specifically, we had deferred remittance of federal payroll taxes, as well as approximately $6 million of income tax benefits in the quarter related to NOL carryback modifications. We will continue to pursue opportunities to optimize the available stimulus programs as appropriate.

Finally, I want to provide an update of our view for the remainder of the fiscal year, appreciating the pace and exact timing of recovery is evolving. We will continue to leverage our resilient variable cost operating model, while investing in the business with a growth-oriented long-term mindset. Based on our current expectations, we anticipate organic revenue improvement over the course of the year with a modest improvement in business activity in the second quarter compared to the first quarter, and adjusted operating income drop-through rate of 18% to 22% in the second quarter, as a result of improved operating efficiencies, while continuing to invest in growth resources but preparing for client reopenings.

AOI margins are expected to sharply improve in the second half of the fiscal year, as we transition from managing a drop-through rate and driving margin progression. The free cash flow for fiscal 2021 raised to neutral to positive $200 million dependent on theior pace of recovery and timing of underlying revenue growth based on the delivery of strong cash flow management results in the first quarter.

Thanks for the time this morning, and now, I'll turn the call back over to John.

John Zillmer -- Chief Executive Officer

Thank you, Tom. I am immensely grateful for our exceptional teams around the globe who demonstrated an unwavering commitment to best serve our clients, employees and communities, resulting in Aramark's latest inclusion in Fortune's Most Admired Companies, as well as being named the Best Place to Work for LGBTQ equality by the Human Rights Campaign. While we focus on our extraordinary future, we remain highly committed to executing transformative actions throughout the business, capitalize on Aramark's expensive growth opportunities. Our belief in the Company's success has never been stronger.

Thank you for your time, and Operator, please open the call now for questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Ian Zaffino with Oppenheimer.

Ian Zaffino -- Oppenheimer -- Analyst

Thank you very much. Good morning, everybody. Great to hear from you guys. Question would be on the free cash flow, you took it up, you took the range up. Just trying to understand what's driving that. You seem to be very confident. The quarterly dividend as well. What are you seeing that's giving you the confidence and maybe like how you think about the business as COVID wanes? And then I have a follow up. Thanks.

John Zillmer -- Chief Executive Officer

Sure. Tom and I can both address it. Ian, first of all, we are extraordinarily confident in our management team's ability to manage through the variations that affect the business due to COVID-19. We've been able to demonstrate very strong cash flow management results over the course of the last nine months. We believe our team is very well positioned to continue to do that. And generally, we believe that the business is improving quarter-to-quarter and well through the balance of the year.

And Tom, do you want to add some commentary?

Tom Ondrof -- Executive Vice President and Chief Financial Officerq

Yeah. I think it's just that. I think we're getting more comfortable with the environment, how our clients and suppliers are working with us on receivables and payables, and certainly, how our teams are managing the inventory, if you just talk about core working capital management. So more and more comfortable as time goes on there, which gives us some confidence, as well as the team's ability to to manage capex.

Ian Zaffino -- Oppenheimer -- Analyst

Okay. Great. And then, can you guys just touch upon the bidding environment? What are you seeing there maybe versus last quarter and then also maybe year-over-year? And then also, I know you guys have really been working hard on [Indecipherable] customers, what Aramark is able to deliver, almost like a new Aramark. Is that sort of resonating with customers right now and what do you sort of hearing from them as far as feedback about that? What you guys have done as far as the changes. Thanks.

John Zillmer -- Chief Executive Officer

Yeah. Wow. Okay. That's a good question. Well, first of all, we think that the messaging is resonating very well with clients and customers that Aramark's evolution in our recommitment to a hospitality culture and serving our clients and customers has been received very, very well. And from a cultural perspective, the people in this organization are extraordinarily committed to doing what's right for the business and just -- are making heroic efforts around the world to really serve the customers. And I think that's resulting in significant improvement in retention rates and it's being demonstrated also in our ability to sell new business around the world and have strong results throughout the -- throughout the international sector in the last quarter in terms of new business growth, we are seeing strong results domestically.

With respect to bidding activity, we are seeing very strong pipelines in the business with significant additions across the enterprise, and we're also seeing significant self-op conversion opportunities begin to appear across a number of different businesses, some of which would not historically have looked at outsourcing as a way of serving their customers.

So, we see continued opportunity in the bidding sector -- the business is, or in the bidding of the business, I would say is that the companies in this industry have been very disciplined about the bid process. Obviously, we're all very focused on operating our individual businesses and cost containment and cost management, but we see significant opportunity for growth going forward, and that's why we continue to invest in growth resources across the enterprise.

Ian Zaffino -- Oppenheimer -- Analyst

Alright. Great. Thanks so much for the color.

Operator

Our next question comes from Richard Clarke with Bernstein.

Richard Clarke -- Bernstein -- Analyst

Hi, good morning. Thanks for taking my question. Just a question, Tom, you hinted that from the second half you're going to stop talking about drop-through rates and start talking about a margin recovery. What would -- what signals that sort of change in language, that change in mentality? And I'm sure you're aware that your European counterparts kind of dropped the drop-through language in this year and have already turned to that kind of margin guidance profile. Anything we should think different about Aramark that they still seeing some drop-through months maybe compared to your European peers?

Tom Ondrof -- Executive Vice President and Chief Financial Officerq

No, I don't think there's anything unique about it. I think it -- we're just finding a little easier to talk about the business and explain the business and manage the business through a drop-through rate as we're pre-lapping COVID with the declines. And as we flip in the second half of the year, it will be a growth measurement, and so I think it's just that natural evolution as you begin to lap at the end of March, that -- that nomenclature will change.

Richard Clarke -- Bernstein -- Analyst

So, maybe just as a follow-up to that then, can we assume that sort of from the second half, your margin recovery becomes a little bit less volume-dependent, or will you still be dependent on sort of volumes getting back for margin to come back?

Tom Ondrof -- Executive Vice President and Chief Financial Officerq

I think it's a bit of both, but certainly the margins help in areas like uniforms, where it's got a bit more of a fixed cost base, but certainly not completely dependent on the volume recovery.

Richard Clarke -- Bernstein -- Analyst

Okay. That's very clear. Thank you.

Operator

Your next question comes from Jaafar Mestari with Exane BNP Paribas.

Jaafar Mestari -- Exane BNP Paribas -- Analyst

Hi. Good morning, everyone. It's Jaffar from Exane. Two questions for me, please if that's OK. Firstly, on this revenue to EBIT drop-through, obviously 18%, 20% or 22%, they are all significantly better than anyone would have assumed a year ago, but if I can be picky, global competitors like Sodexo, I would calculate that they are actually talking about a drop-through below 15% in their new guidance and that 15% is a level you actually did acknowledge with theoretically achievable in the past. So my question is when you talk about investing in growth resources, is this something you could quantify in dollar terms and would it be fair to assume you're probably at a 15% drop-through, but then you're making those investments into the business?

John Zillmer -- Chief Executive Officer

Yeah, I would say that that's probably a relatively -- that's probably a good assumption. I'm not going to specifically identify the dollars to growth investments. They come across a range of different businesses, and for competitive reasons, I really don't want to disclose what I'm doing with respect to adding sales people and sales resources. We've been very explicit about the number of people we've added in uniform services. We added 150 last year. We're adding an additional 100 this year on the uniform side and that's making significant -- we're making significant progress, and the sales productivity is ramping up pretty rapidly.

On the food service side, we continue to add resources throughout a number of the lines of business if you will. So, we did guide early on that we believe if we were in a long-term cost-cutting environment, we could get drop-through down to the 15% range, but we've been very disciplined about doing what's right in terms of the long-term health of the business. We have not made a single cut to our growth part of the organization or the marketing organization. We've been very disciplined about cost containment and cost management at all levels of the Company, but we're still focused on accelerating growth in the future. So, I would say we're managing the business, we're controlling it very effectively. We're focused on the priorities that we have for the business, and there may be differences in terms of both mix and seasonality between us, Compass, Sodexo that might drive some of that differences well. So -- but we think we're doing the right things for the business, and we're focused on our strategy not theirs.

Jaafar Mestari -- Exane BNP Paribas -- Analyst

Super. Very clear. And actually my follow-up would have been on that specific case of uniforms actually. So that sales push is still happening. Is there a date at which you stop and reflect and decide more clearly if the uniforms business can be significantly improved under your leadership with those investments or whether it's due for a more open-ended strategy review?

John Zillmer -- Chief Executive Officer

Yeah, well, I've -- that reflection has already taken place. So I know that the business can significantly improve -- that we can improve both margins and growth rates in that business dramatically by taking the actions that we're taking. We see significant improvement as a result of the ABS implementation. We're transitioning the sales organization from one that was roughly one-third the size of Cintas to one that has significantly greater in level of resources. So yeah, we believe the business can strongly improve, is showing -- is beginning to show that improvement, and so we're focused on that on effectively changing that organization and making it as competitive and as profitable as we possibly can.

Jaafar Mestari -- Exane BNP Paribas -- Analyst

Super. Thank you very much.

John Zillmer -- Chief Executive Officer

Thank you.

Operator

Our next question comes from Toni Kaplan with Morgan Stanley.

Toni Kaplan -- Morgan Stanley -- Analyst

Just a question on debt paydown, given, it seems that you've weathered the storm pretty well to this point and cash flow is trending positive. Can you talk about the decision to still have so much cash on the balance sheet? Just looking forward now, how are you thinking about the pacing and scale of paydown as the economy recovers?

Tom Ondrof -- Executive Vice President and Chief Financial Officerq

Well, we're certainly looking at it, and we were prudent back in April and will continue to be prudent. There is still uncertainty out there and we all know that. Certainly, the vaccine is starting to roll and there is other positive signs from a macro standpoint. But we've also seen things change fairly quickly, and we just don't want to get too far ahead of ourselves. So, we're looking at it couple of progress payments, so to speak last quarter, and we'll continue to review that as we go.

Toni Kaplan -- Morgan Stanley -- Analyst

Okay. That's helpful. And then within uniform, can you talk about any success you've had integrating the ABS routing system and the financial benefits you're seeing when beginning to convert routes to this system? And then can you just remind us of the timeline of when they should be fully implemented and any long-term margin savings you think you can get from that?

John Zillmer -- Chief Executive Officer

Yeah, that's a great question. First of all, we are rapidly deploying ABS throughout the -- throughout the business. We anticipate that we will have somewhere in the range of 75% of our revenues covered by the end of this fiscal year and that we'll finish deployment, probably through the first[Phonetic] quarter of next year, so that by January of 2022, we will have the vast majority, if not all of the revenues company operating under ABS. We've undertaken this in a, obviously a very difficult operating environment, but the team has done extraordinarily well. We've got multiple teams doing implementations across the enterprise. And as you are probably aware there is certainly pre-work when we go ahead and do these conversions in our existing facilities, plus we're converting the former facilities that were operating on ABS to the new updated versions.

So, there's multiple conversions taking place. In those locations where we've transitioned to ABS from our old route accounting system, the margin improvements are dramatic and the customer service improvements are dramatic. It allows us to spend much more time with our customers to maintain -- to have 100% customer visitation schedules, to have our field managing the business as opposed to having to manage the accounting aspects of it. So, they are significant, and we are seeing progress across all of those operations. Those results that were demonstrated during the pilot are -- we're seeing those results replicated as we move through the organization, and we're very excited about the long-term margin enhancement potential of the conversion, and I think in the past, we've talked about a couple hundred basis points margin improvement that we can articulate from the impact of ABS.

Operator

Thank you. Your next question comes from Andrew Steinerman with J.P. Morgan.

Andrew Steinerman -- J.P. Morgan -- Analyst

Hi, there. I wanted to talk about, Tom, your comment that you expect modest organic revenue growth improvement in the second quarter year-over-year fiscal quarter compared to the first quarter of the 36% decline. I just want to make sure that I'm understanding that point correctly, in particular, how are you thinking about those last two weeks of March of this quarter, which hits the easy comps? In other words, are you saying maybe mid-30s revenue declined organically from now until five weeks from now and then growth in the last two weeks of the quarter? And if that is the way you're lining things up, could you just give us a sense of if volumes stay just where they are now, how might that year-over-year growth look at -- look like in those kind of last two weeks as we enter that kind of new period of easy comps?

Tom Ondrof -- Executive Vice President and Chief Financial Officerq

Yeah, Andrew, it's really hard to dissect two weeks in March and tell you exactly what I think at this point in time, again, because things continue to be positive but subject to change. So, we saw the first steps of modest improvement in January, primarily as we said in our guidance and primarily in the U.S. So, we remain hopeful, and we will stay very diligent on our costs, because a month doesn't necessarily make a trend, but we're confident based on January that the modest improvement will be there. And to your point, that's exactly how the math is going to work. That we will continue to show we believe some improvement in the first sort of two-thirds of the quarter and then should show some growth right at the end.

Andrew Steinerman -- J.P. Morgan -- Analyst

Right. But could you just give me a sense of if volume stayed the way they are now, not showing improvement, and just mathematically when we got to that kind of last two weeks of March, what type of growth would we be entering?

Tom Ondrof -- Executive Vice President and Chief Financial Officerq

We are just not prepared to give that level of granularity at this point.

Andrew Steinerman -- J.P. Morgan -- Analyst

Okay. Fair enough. Thank you very much.

Operator

The next question comes from James Ainley with Citi.

James Ainley -- Citi -- Analyst

Yeah. Good morning -- good afternoon, everybody. I'm interested to hear what maybe some of your B&I clients are saying to you about their plans to get people back into the office? And I'm thinking more particularly about how clients are planning their future office locations? How they configure their space? And you mentioned, I think you said Munch Mail, can you expand maybe about how clients plan to use that and whether they are thinking maybe about hybrid models where you've got some people on-site, some people off-site, but they provide some kind of foodservice between those two groups?

John Zillmer -- Chief Executive Officer

Yeah, I would say there are still companies that are still wrestling with what their eventual office situations are going to look like, particularly the pure white collar kinds of locations. And I would say that there is a range of viewpoints. We have many customers who are basically saying we're coming back, we're committed to our space. We're committed to bringing our employees back together, and that's extraordinarily important for our culture. Therefore, that's what we're going to do. And we have some companies evaluating, having returned to work strategies, that include some return to the office and some work from home. So it's just a very broad range. Hard to say that there is any trend yet in terms of what the impact might be for the business.

But the good thing is our operating model and our service capabilities, which are flexible we can adapt to serve whatever the client wants us to do for them, whether that includes just in-office environment or a combination of service capabilities to serve customers at home and in an office location. So we have been busy designing solutions that serves our customers' needs across that range of opportunities and have flexibility to go ahead and do whatever they need us to do for them. So we'll adapt. I'm very confident of that. But we have such a large range of different kinds of customers that really is, at this point, there is really no definitive model if you will.

In the blue collar sector, most of those companies are back to work and are operating in location, because they need to have employees on-site in production capacities and the like. So, as the mixed environment, both white and blue color operations, most of those operations are returning to work. So, it will be a broad spectrum, I think, for several months that evolves in-business dining. That's the one business where we think we'll have a much longer tailwinds in terms of a longer recovery period, if you will, to get that business back to normal levels, but it's still too early to say how it will end up.

Operator

Thank you. Your next question comes from Manav Patnaik with Barclays.

Greg Bardi -- Barclays -- Analyst

Hi. This is actually Greg on the line today. I was hoping to just talk about the food services sales force retention. I think you've talked about a couple of efforts around employee engagement and senior management, retention and all of that. So, just hoping for some more color on efforts around engagement and incentivization on the sales force side for food services? Thanks.

John Zillmer -- Chief Executive Officer

Sure. With respect to engagement, I think we've got a -- I think we have a terrific team of sales leaders. We have an organization now that is very much committed to the growth focus of the enterprise and incented on growth. So, you have both the operating team as well as sales and working very closely together to achieve the growth objectives of the Company, so a very high level of engagement. We've redesigned incentive programs to address the sales force, we've changed commission structures, enhanced commission structures in such a way to really allow them to earn very significant improvements in potential income.

And so frankly, we're very -- I think they're very excited about their prospects, and we've got a very good team. We're growing it, we're adding people throughout the business. We're adding resources to almost all of the lines of business, and so I think that's exciting for our organization to really be focused on growth, be engaged. Our entire team has incentives for growth built into their incentive compensation for this year, including the senior management of this Company, so it's singular focused and one that's got the entire company engaged, not just sales force.

Greg Bardi -- Barclays -- Analyst

Okay. And then I also wanted to quickly hit on delivery. It seemed across almost all of the food services segment delivery as a theme. Do you view that as sort of a transitory offering during this period, or do you think that becomes more of a permanent part of the strategy going forward? Thanks.

John Zillmer -- Chief Executive Officer

Yeah, I would say we're prepared to whatever evolves with respect to delivery and whether that's on-campus, whether that's an B&I locations or whether it's patient at-home services, we're prepared to go ahead and offer that service and have that capability designed and developed and ready to be implemented where necessary.

So, I think there are some parts of the business where it will become permanent, particularly in-patient delivery of meals. That in-patient home -- at-home support is very important for the health of patients when they return from hospital setting and that's an area that our hospital clients have really begun to focus on and find to be a very effective service offering. So, I think it will have some more permanent implications in B&I, and we'll have solutions developed and -- or we have solutions developed to go ahead and serve that need, and we will continue to try to take advantage of that marketplace in both partnership ventures as well as direct offerings.

Operator

Thank you. Your next question comes from Shlomo Rosenbaum with Stifel.

Shlomo Rosenbaum -- Stifel -- Analyst

Hi, good morning, and thank you for taking my questions. Hey, John, I just wanted to talk a little bit on the uniforms business and you might have touched on this in your comments or maybe, Tom did. The uniforms' growth seems to be kind of flat to maybe down a little bit more, like I think it was like 8.6% decline last quarter, like 9.8% this quarter. Is it have to do with like the geographic impacts or like it was more of shutdowns in Canada or something like that? I'm just trying to kind of contrast that with sort of the consistent growth have seen with you beforehand and what I'm seeing in like with Cintas where they made more progress in the last quarter in terms of year-over-year improvements on a sequential basis, and I don't know if there is a geographic difference over there.

John Zillmer -- Chief Executive Officer

Yeah, there -- thanks for the question, Shlomo. There is really two differences. I think the geographic difference is one. Obviously, the restrictions in Canada have been very dramatic. So, that's impacted the Canadian results much more than the U.S. results and that -- so that is definitely a factor. Also geographically, for us our concentration of business on the West Coast reacted pretty significantly in December to the shutdowns, California, and then the business mix across the enterprise. As you know, we have a little bit more of a hospitality focused, restaurant focused. And so the shutdowns that affected our restaurant operators where they were limited to -- had to serve in limited capacity and then had to shut down during various time periods impacted us more significantly than it would have Cintas and our other competitors.

So, I think it's primarily shutdown-related and geographic mix related more than anything else. I think in our core business, we're very comparable when we disaggregate the business and look at all of our competitors, we think our year-over-year growth rates are very, very similar with the exception to that -- with the exception to those geographic differences and the mix difference.

Shlomo Rosenbaum -- Stifel -- Analyst

Okay. Great. And then if you don't mind just commenting a little bit more, you talked about it through the year in terms of companies that have been kind of self-service looking to more outsource and you know the time period that would take for that to kind of show up in the numbers. Are you seeing that kind of snowballing? In other words, are you seeing more activity as time goes on in terms of companies looking to outsource more. And if that is true, do you think that that could potentially overtake the headwinds that we're seeing kind of in the B&I sector where it's really taking a while for people to return to office, particularly in the white-collar jobs?

John Zillmer -- Chief Executive Officer

Yeah, I think that's a good question, and I think, yes, we are seeing an acceleration in that self-op conversion opportunity trend, if you will, and we are seeing some closures of new accounts included in that Sacramento State University, for example, is a self-op conversion that we will be taking over -- that was recently announced. There are several -- there are a lot more in the pipeline. I hate to -- I can't really identify them, because from a competitive perspective, I don't want to give my competitors any information about things that I may be working on. But I would say generally, the trend is accelerating. And there are opportunities being presented to us across a range of business type, healthcare universities, facilities, sports and entertainment conversions that are very significant.

Operator

Thank you. Your next question comes from Stephen Grambling with Goldman Sachs.

Stephen Grambling -- Goldman Sachs -- Analyst

Hi. Thanks. Can you just remind us of where retention rates are? What is the ideal rate you'd be targeting and how the changes to incentives may also impact retention addition to spur new contract wins?

John Zillmer -- Chief Executive Officer

Sure. Great question. The -- first of all, retention is running at very high rates right now, and we see continued improvement across the enterprise in all of the business we operate, including uniform services. We have higher retention than our historic standards. We're targeting ultimately a corporate goal of 96% to 97%. I would say at this point. We're operating at a level higher than that, but of course, you know retention is a metric that only goes down, but today, we are operating at very high levels of retention. We've had very good results across the business, and we're very excited about that.

We're also -- we did also include retention as the element of our incentive compensation programs for the operations team, as well as sales[Phonetic] specialists. So, yes, we are all very much focused on it. We're seeing significant improvement, and we expect to be able to deliver very good results in this, and we want to hit that long-term target of call it 96% to 97% of corporate retention on an annualized basis.

Stephen Grambling -- Goldman Sachs -- Analyst

That's helpful. And one quick clarification on the uniform segment. Based on your comments, is it fair to assume that excluding the headwind from some of the government restrictions in Canada, growth would have sequentially improved, and should we generally assume that you would have a step function improvement once these are lifted or you have to rebase and build off of that lower base, because you lose some sales opportunities or demand permanently?

John Zillmer -- Chief Executive Officer

Yeah, that's -- I think you will see an acceleration of growth once the restrictions are limited -- are lifted. We saw that as restrictions were eased during the summer time. We were able to recapture significant revenues on a very short -- very quickly. I would say there are elements of the business that have permanently shut down. There are customers, restaurants, you name it[Phonetic], small businesses that have closed as a result of COVID that were our customers. And so, there will be some decremental impact from that. I can't really tell you what that number is today, but we anticipate that we'll be able to sell our way through that. One of the reasons that we continue to be very bullish about this business is the productivity that our new account sales managers are delivering both ancillary services like first aid, as well as rental[Phonetic] revenues. So, we feel very good about our ability to overcome any of the closed business kinds of impacts that we may face or our competitors may face as a result of COVID-19.

Operator

Thank you. Your next question comes from Jay Hanna with Bank of America.

Jay Hanna -- Bank of America -- Analyst

Hey, guys. This is Jay on for Gary Bisbee today. Just going back to some of the prior questions with regard to increased flexibility and new offerings within the, particularly the B&I customers of yours. I mean how do you expect cost to trend within a lot of those accounts, as they begin to reopen and you start to see some of these new services and new demands from these customers?

John Zillmer -- Chief Executive Officer

From a -- that's a great question. I would say that our contract types essentially today allow us to act along[Phonetic] any of those costs have increased -- those increases in cost for providing those different kinds of services. And definitely the development of alternative service models and approaches will -- as those get implemented and impacts on a more permanent basis, those will be baked into our contract structures. So I don't anticipate any margin implications for Aramark. And we may find that we actually have margin improvement potential as a result of these -- some of these secondary offerings that we're adding to that core contract. So the costs will be variable, and we think we can manage through those to effectively deliver service offering for our customers.

Jay Hanna -- Bank of America -- Analyst

Okay. Great. And then back to the uniform business, for the customers that have stayed open, have you seen any sort of sustained reduction and the actual number of uniform wearers on the customer side? Or have you seen that trend back positively or any insight there would be appreciated?

John Zillmer -- Chief Executive Officer

Yeah, I haven't seen that level of granularity with respect to the data. I would tell you that based on a -- if I look at base business versus base business and extract the closed account, it looks to me like a weekly revenues are holding as they return that the -- the number of wearers is pretty consistent location to location, particularly when you look at the blue collar operations. So, but again, I haven't done that level of analytics in terms of the total business. So hard to really hazard a guess[Phonetic] if you will.

Operator

Thank you. Your next question comes from Hamzah Mazari with Jefferies.

Ryan Gunning -- Jefferies -- Analyst

Hi. this is Ryan Gunning filling in for Hamzah. How much room do you guys have -- how much more room do you guys have to move toward management fee contracts from P&L and is it only in particular verticals and what does that mix stand at? What would make you revert back to P&L contracts in the future?

John Zillmer -- Chief Executive Officer

Yeah, I would tell you that it's different by vertical, obviously, in the B&I sector those contracts are all management fee now, very few P&Ls, less than that business. They were all renegotiated as part of our strategy with respect to responding to the changing needs for our customers during the original based pandemic. And they would revert to P&L when populations and facilities are back to more normalized levels and they can afford a profit locked operation -- we're hopeful that we get to the point where we will be converting them back from management fee to P&L at some point in the future.

In terms of our other contract type for our other verticals, if you will, they have different contract structures, in higher education, those contracts have been modified. We're operating under memos of understanding or letters of understanding with our university customers, as they are impacted, but I think throughout the organization, we're committed to doing what's right for our clients and our customers. We're committed to doing what's right for our shareholders. And so we'll manage through the contract change process in a very disciplined way to be able to meet everybody's needs in that respect.

We've been able to do that historically. We responded very rapidly during the initial days of the pandemic to change contract structures, and I anticipate we'll be able to evolve and adapt as we come out of this, and don't expect any significant long-term impact with respect to the overall margins of the Company or the overall profitability of the Company.

Ryan Gunning -- Jefferies -- Analyst

Got it. Thank you. And for my follow up, how are you thinking about the sports book of business and anything you're hearing there now and some stuff [Indecipherable] implications from successful vaccine rollout?

John Zillmer -- Chief Executive Officer

Yeah. I think right now, you've got both the NHL and NBA working through crafting solutions for their arenas, and obviously, this is also is something that's impacted by local jurisdictions, both political and the health environment and local jurisdictions driving some of that decision making. Major League Baseball for us is a significant contributor during the spring and summer months. At the present time, it looks like spring training is planned to start on time. It will be roughly a one month spring training and opening day is somewhere around 1st of April for teams, and those teams are working with their local jurisdictions and the league to go ahead and develop approaches.

I think the fact that the NFL was able to have a complete season without any missed games with fans and attendance, outdoors and stadiums, gives us a lot of encouragement that Major League Baseball will find a solution that also allows fans to be in stadiums, and that as higher vaccination rates occur and some infection in hospitalization rates drop, you'll see an acceleration of the opportunity for fans to be in sports venues. So we anticipate that we'll have some recovery in the third and fourth quarter coming through Major League Baseball and sports and entertainment, and we're excited about those prospects to have fans back in ballparks.

Operator

Thank you. I'll now turn the call back over to Mr. Zillmer for closing remarks.

John Zillmer -- Chief Executive Officer

Again, thank you very much everybody for your time this morning. We're extraordinarily excited about the prospects for our Company, and frankly, and just the resilience of this business and the efforts of, I think, the best management team in the industry and just an extraordinary bunch of people running this Company day-to-day. People who've really dedicated their lives to hospitality and to serving customers are doing a terrific job. And I just want to thank all of them for the work that they do, and I'm so proud to be leading this organization and to be a part of a reborn Aramark. So, thank you very much everybody.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Felise Kissell -- Vice President, Investor Relations and Corporate Affairs

John Zillmer -- Chief Executive Officer

Tom Ondrof -- Executive Vice President and Chief Financial Officerq

Ian Zaffino -- Oppenheimer -- Analyst

Richard Clarke -- Bernstein -- Analyst

Jaafar Mestari -- Exane BNP Paribas -- Analyst

Toni Kaplan -- Morgan Stanley -- Analyst

Andrew Steinerman -- J.P. Morgan -- Analyst

James Ainley -- Citi -- Analyst

Greg Bardi -- Barclays -- Analyst

Shlomo Rosenbaum -- Stifel -- Analyst

Stephen Grambling -- Goldman Sachs -- Analyst

Jay Hanna -- Bank of America -- Analyst

Ryan Gunning -- Jefferies -- Analyst

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