Vestis Posts Flat Revenue, Hints at Turnaround in EBITDA

Date of Call: Feb 10, 2026

Financials Results

• Revenue: $663.4M, down 3% YOY
• Operating Margin: Adjusted EBITDA margin of 10.6%, compared to 11.9% in the prior year

Guidance:

• Revenue for fiscal 2026 expected between flat to down 2% compared to fiscal 2025 (52-week basis).
• Adjusted EBITDA for full year 2026 expected in the range of $285M to $315M, with 5% successive quarterly improvements beginning in Q2.
• Free cash flow for fiscal 2026 expected in the range of $50M to $60M, assuming capital expenditures consistent with 2025.
• Full year 2026 effective tax rate expected in the range of 25% to 30%.

Business Commentary:

Operational Excellence and Cost Efficiency:

• Vestis Corporation reported an adjusted EBITDA of $70 million for Q1 2026, improving sequentially from the low point in fiscal Q4 2025.
• This improvement was driven by actions to bend the cost curve and better utilization of people and network resources, resulting in a $0.02 improvement in cost per pound, which translates to approximately $10 million in adjusted EBITDA at current volume levels.

Product Mix and Revenue Quality:

• Revenue for Q1 2026 was $663.4 million, a decline of 3% versus Q1 2025, with a 2% decrease in uniforms processed and a 7% increase in linen volume.
• The shift in product mix, with a move towards more costly linen adjacent products, negatively impacted revenue per pound by $0.04 or 3%, affecting overall revenue despite stable throughput.

Strategic Transformation and Future Outlook:

• The company is focused on improving revenue quality and cost per pound as part of its strategic business transformation.
• Future improvements are expected to come from better decision support tools, strategic pricing models, and local customer engagement, with a goal of achieving 5% sequential adjusted EBITDA growth each quarter.

Asset Optimization and Debt Reduction:

• Vestis is actively marketing non-core properties for sale to optimize its asset footprint and intends to use proceeds to repay debt.
• The company's capital allocation strategy emphasizes deleveraging, with plans to use proceeds from non-core property sales to reduce debt in the fiscal second quarter.

Sentiment Analysis:

Overall Tone: Positive

• "Adjusted EBITDA was $70 million, improving sequentially from fiscal Q4 2025, which represented a low point in our profitability." "We expect to see continued improvement in this trend throughout the year." "We are beginning to advance pricing and product mix strategies, building directly on the operational progress already underway." "We're managing Vestis as a pennies business." "We're early in the transformation. We're laying the foundation now so we can drive more consistent value creation over time."

Q&A:

• Question from John Ronan Kennedy (Barclays Bank PLC): For the revenue per pound decline of 2.8%, I think it was due to an element of mix and legacy commercial practices. Can I confirm how we should expect that to trend for the year? And then I understand there may be a lot, but what would be the most important drivers from a pricing mix action or the commercial initiatives to improve that? And when should we think about how that could potentially inflect and show in results?
  Response: For the full year, revenue is expected to be flat to down 2% YOY, with consistent trends in revenue per pound each quarter. Key drivers are shifting product mix, strategic pricing, and other commercial initiatives, with improvement starting in Q1 and continuing throughout the year.

• Question from John Ronan Kennedy (Barclays Bank PLC): On the sequential EBITDA growth assumptions, I believe it was guided to 5% sequential adjusted EBITDA growth for each remaining quarter. And I know you touched on some of these key metrics. How should we expect those to play out sequentially? And what are, again, the most important operational and commercial assumptions underpinning that sequential progression? And any upside or downside risk to that, please?
  Response: The $285M-$315M full-year adjusted EBITDA guidance translates to 5% sequential quarterly growth. The progression is driven by improvements in cost per pound, with about $5M of benefit seen in Q1 from a $0.01 per pound improvement, and the full $40M annual benefit expected from the transformation.

• Question from Stephanie Benjamin Moore (Jefferies LLC): Could you comment on what you're seeing from a general macro standpoint or customer demand standpoint? Any slowing or maybe reduction in overall demand that can be pointed to just more of a macro standpoint, that would be helpful.
  Response: No shift in macro vertical concentration or waning demand; volume in pounds processed is consistent YOY. The focus is on improving revenue quality and mix, not macro trends.

• Question from Stephanie Benjamin Moore (Jefferies LLC): As you think about your time... how would you calibrate your progress thus far? Are you ahead of schedule, in line with schedule? And as we think about the next, let's just say, 12 months, where do you think we should see the biggest change from an operations standpoint?
  Response: Early stages of transformation ('first inning'). Progress is on track with sequential improvements in cost and service metrics. The biggest changes will come from continued improvements in cost per pound and revenue per pound through operational and commercial initiatives.

• Question from Timothy Mulrooney (William Blair & Company): Can you just help me understand [plant productivity metric] again? [about pounds processed per operating hour]... Got it. So that 7% improvement in plant productivity, is that direction we see in cost per pound? Can you connect those ideas for me? And can you also talk a little bit about the things that you're doing that drove those efficiency gains, like -- and I guess where you think you are along this journey to get that wash alley efficiency up to stuff?
  Response: The 7% plant productivity improvement is not directly in cost per pound for Q1 but started to move in December and will impact cost per pound going forward. Gains are driven by better utilization of existing technology and daily visibility to productivity and service levels, with ongoing optimization planned to free up capacity.

• Question from Jinru Wu (Goldman Sachs Group): How much of that $75 million has been realized in the first quarter? And how should we think about the cadence of cost saving realizations over the remainder of the year? And what are some puts and takes there?... And I have a follow-up on if you are seeing any increase in traction in the [unblended] Market? And how is that growth in white space trending compared to last year?
  Response: Of the $40M annual cost savings target for FY26, $5M was realized in Q1. The remaining $35M is expected to be recognized with about $9M in Q2, $13M in Q3, and ~$13M in Q4. Regarding market traction, new business remains roughly 60% programmers and 40% nonprogrammers, with no dramatic shift; market development representatives are being introduced to grow both segments.

Contradiction Point 1

Status and Cadence of Transformation Savings

Different timelines for realizing the $75M annual savings target.

What portion of the $75M in transformation savings was achieved in Q1, and what is the timeline for the remaining savings this year? - Jinru Wu (Goldman Sachs Group, Inc.)

2026Q1: The $75M annual savings target will be achieved after FY26. In FY26, $40M is expected, with $5M realized in Q1. The remaining $35M will flow through in Q2-Q4... - Adam Bowen(CFO)

Are you consolidating capacity to improve logistics through network rationalization? - Benjamin Luke McFadden (William Blair & Company L.L.C.)

2025Q4: The priority is first to optimize the existing plant assets (75% of savings) before making major consolidation decisions... Some consolidation is planned for 2026... - James Barber(CEO)

Contradiction Point 2

Transformation Progress and Timeline

Inconsistent portrayal of how far along the transformation is.

How do you measure progress in the transformation, and where will the major operational changes occur in the next year? - Stephanie Benjamin Moore (Jefferies LLC)

2026Q1: The transformation is in the first inning. Progress is continuous... - James Barber(CEO)

How is the cultural transformation progressing, and what additional steps are needed? - Ronan Kennedy (Barclays)

2025Q4: The transformation begins with operational excellence and rigor... The team is in place; the focus is on aligning the organization with a clear vision and strategy to ensure success. - James Barber(CEO)

Contradiction Point 3

Pricing Strategy Focus

Shift in emphasis from a broad strategic focus to an operational, cost-aligned approach.

How do you plan to implement pricing strategies to mitigate negative effects that have historically outpaced the company's growth? - Harold Antor (Jefferies LLC)

2026Q1: Pricing will be aligned with network optimization and cost-to-serve. After optimizing operations, increases will be implemented prudently. - James Barber(CEO)

How do you view the flat same-customer revenue YoY in light of the softening labor market? - Andrew J. Wittmann (Robert W. Baird & Co. Incorporated)

2025Q4: The focus is on... penetrating the existing customer base (which represents ~80% of growth in a rational market) through market development reps and improved product offerings. - James Barber(CEO)

Contradiction Point 4

Progress of Business Transformation

Different stages of transformation reported across quarters.

How will you measure progress on the transformation, and where will the biggest operational changes occur in the next 12 months? - Stephanie Benjamin Moore (Jefferies LLC)

2026Q1: The transformation is in the first inning. - James Barber(CEO)

Could you recap the initial assessment of strengths and weaknesses, highlighting the opportunity, cultural aspects, and areas needing improvement? - John Ronan Kennedy (Barclays)

2025Q3: There is opportunity in reducing plant turnover and improving plant optimization. The foundation is sound for creating value in 2026... - James Barber(CEO)

Contradiction Point 5

Demand Environment and Volume Trends

Contradictory statements on whether business volume is stable or declining, and the impact of service issues.

Are there any signs of slowing or reduced overall demand in macroeconomic or customer demand trends? - Stephanie Benjamin Moore (Jefferies LLC)

2026Q1: Year-over-year volume in pounds is consistent, with the revenue decline solely attributed to a shift in product mix... - Adam Bowen(CFO)

What specific actions are needed to address long-standing service issues, and why is Vestis experiencing volume declines while Cintas reports steady demand? - Shlomo Rosenbaum (Stifel)

2025Q2: The volume decline is attributed to Vestis's different product mix... This segment saw a decline post-holiday season but has since recovered. - James Holloman(CEO)