Uniform rental and business services provider UniFirst (NYSE:UNF) is on deck to report first-quarter fiscal 2020 results on Jan. 8 before the markets open for trading. The Wilmington, Massachusetts-headquartered garment and textiles giant enjoyed a 41% leap in its stock price in 2019. Can it maintain its drive over the coming 12 months?
Below, let's briefly walk through key details that may influence UniFirst's shares when it releases its first scorecard of 2020 next week.
Background: Vigorous growth in 2019
UniFirst improved revenue by 6.7% to $1.81 billion in fiscal 2019. This fast growth rate was anchored by the company's core laundry operations, which grew year-over-year revenue by 6.1%. Laundry operations make up 89% of total company sales; the smaller specialty garments and first aid divisions advanced annual revenue by 21.1% and 11.1%, respectively.
UniFirst CEO Steve Sintros attributed the year's progress to a number of factors during the company's fourth-quarter 2019 earnings call; these included higher customer retention, record sales in new accounts, better sales rep productivity, and a favorable pricing environment. Sintros also noted that the 2019 fiscal year included 53 weeks. The extra week added roughly 2% to Unifirst's overall revenue total.
The fiscal 2020 outlook
UniFirst doesn't provide quarterly estimates; rather, it discloses an annual outlook that it updates as needed during the fiscal year. For 2020, the company expects revenue to fall between $1.86 billion and $1.88 billion. At the midpoint, this will equate to year-over-year expansion of 3.3%; however, shareholders should be aware that fiscal 2019 had the benefit of one extra week.
On the earnings front, the company expects core laundry operating margin to land at 10.3%. Laundry margins are returning to a more normalized level after jumping to 13.2% in 2019 due to several one-time items that boosted reported profitability. In addition, management anticipates higher administrative expense in 2020 related to the company's CRM (customer relationship management) initiative.
UniFirst projects that diluted earnings per share (EPS) will range between $7.47 and $7.97 this year. This compares to $9.33 in diluted EPS in 2019: Net earnings also benefited from the 53rd week, as well as a non-recurring gain from a vendor settlement related to the company's CRM initiative.
Shareholders will also keep an eye on UniFirst's strong cash generation in fiscal 2020. Last year, the company achieved operating cash flow of $282.1 million. Even after adjusting for $13 million received in the company's CRM vendor settlement, operating cash flow jumped by 17% over the prior year.
Finally, while this isn't part of the company's formal earnings guidance, management has signaled that UniFirst is actively seeking more of the smaller, bolt-on acquisitions it's undertaken in recent years. On the fourth-quarter earnings call, CFO Shane O'Connor observed that UniFirst purchased a small uniform company in Kansas City, Missouri, in September 2019 after the fiscal year ended. This purchase is expected to add $12.5 million in additional revenue this year (the boost is included in annual guidance discussed above). O'Connor stated that the company continues "to look for and aggressively pursue additional targets as acquisitions remain an integral part of [UniFirst's] overall growth strategy."
Market pricing of UniFirst stock
As we head into four new quarters of reporting on UniFirst's operations, it's important for investors to understand that a disappointing quarter against the cadence of annual expectations could hurt its shares. Given last year's run-up and the fact that it now trades at nearly 25 times forward earnings, UniFirst is no value stock. However, the "UNF" symbol may have a slight bit of insulation as it trades at a discount to rival uniform rental bellwether Cintas Corporation, which currently trades at roughly 31 times forward earnings. UniFirst presents investors with similar characteristics to an investment at Cintas, but at a cheaper price, and thus, any post-earnings sell-off may be mitigated by bargain hunters. I've recently written in detail about UniFirst's valuation versus that of Cintas.