UniFirst (UNF) Q2 Earnings: A Beacon of Margin Resilience in a Challenging Sector

UniFirst Corporation (NYSE: UNF) reported second-quarter 2025 results that underscore its ability to maintain robust margins despite a slowdown in revenue growth—a stark contrast to peers like MillerKnoll (MLKN) and Steelcase (SCS), which face margin pressures amid sector volatility. This resilience positions UNF as a compelling investment for those seeking stability in a fragmented industry.

Margin Resilience Amid Revenue Stagnation

UniFirst's Q2 performance hinges on its Core Laundry segment, which generates 88% of its revenue. Despite a mere 1.5% revenue growth to $530.4 million, the segment expanded its operating margin to 4.6%, up from 3.6% in 2024. This improvement stems from disciplined cost management: merchandise and production costs fell as a percentage of revenue, offsetting headwinds like rising healthcare claims and administrative expenses.

Adjusted EBITDA rose 6.3% to $68.9 million, with a margin of 11.2%—a 90-basis-point improvement over 2024. Crucially, Key Initiatives (CRM/ERP upgrades) now cost $1.9 million in Q2, down from $3.2 million in 2024, signaling a tailwind for future profitability.

Peer Comparison: UNF Outperforms in Margin Management

While MillerKnoll and Steelcase reported stronger revenue growth, their margin trajectories are less promising. MillerKnoll's net sales rose 2.2% to $970.4 million, but Global Retail margins collapsed to 4.2% due to promotional timing and weak demand. Steelcase's revenue stayed flat at $855.8 million, with margin expansion driven by a $44 million land-sale gain—a one-off event.

UNF's core-driven strategy contrasts sharply with peers' reliance on volatile segments: - MillerKnoll's International Contract & Specialty segment saw orders drop 6.5%, and margins shrink 80 basis points. - Steelcase's International segment faces persistent weakness in China, dragging down profitability despite cost-cutting.

Valuation: A Discounted Dividend Machine

At $188.74, UNF trades near the $181.67 consensus target but offers compelling value for three reasons: 1. Dividend Stability: UNF's 1.8% yield is secure, supported by $201 million in cash and a track record of consistent payouts. 2. Balance Sheet Strength: No long-term debt and a buyback program ($63.7 million remaining) enhance shareholder returns. 3. Margin Safety: With peers facing structural challenges (e.g., MLKN's retail drag, SCS's China exposure), UNF's focus on its dominant laundry business reduces downside risk.

Investment Recommendation: Buy for Defensive Exposure

Buy, with a target of $200–$210 over 12 months. UNF's margin resilience and conservative financials make it a rare defensive play in an industry buffeted by macroeconomic uncertainty. Investors seeking stability should consider: - Long-term runway: Core Laundry's 1.9% organic growth, plus margin tailwinds from Key Initiative cost reductions. - Valuation alignment: Trading at 16x forward EPS versus historical averages of 18–20x.

Risks: Currency headwinds (30% of revenue is Canadian-dollar denominated) and healthcare cost inflation could pressure margins. However, UNF's diversified customer base and cost discipline mitigate these risks.

In a sector where peers are battling margin erosion, UniFirst stands out as a disciplined operator with a fortress balance sheet. This makes it a top pick for investors prioritizing income and downside protection in 2025.