MINNEAPOLIS, Jan. 25 /PRNewswire/ -- G&K Services, Inc. (Nasdaq: GKSRA), a
leading supplier of uniforms and related textile services, today announced
continued acceleration in its revenue growth rate for the fiscal 2000 second
quarter ended December 25, 1999. Consolidated revenues improved 9.6 percent
compared to the prior-year quarter, driven by contributions from a larger
sales force, revenue increases in both the North American rental and direct
sale/catalog groups and acquisitions. Net income decreased 6.5 percent
compared with the prior-year quarter, due primarily to higher costs related to
G&K's new direct sale fulfillment center and information system.
"We are pleased with the progress made toward improving our revenue growth
rate. Second quarter revenue results are beginning to reflect the investments
made in expanding our sales force, penetrating national and regional accounts
and improving our customer retention," said Richard Fink, chairman. "As
indicated in our January 18 news release, we are disappointed with our
earnings result. Although we have gained significant revenue growth in the
rapidly expanding direct sale/catalog group, we incurred more expenses than we
originally anticipated relating to the new fulfillment center and information
system. Also, expenses related to our self-funded health insurance and a
non-operating charge tied to our deferred compensation plan were higher than
usual."
Revenues for the second quarter rose to $142.4 million from $129.9 million
in the second quarter last year. Comparable revenues, after adjusting for
acquisitions and divestitures, were up 7.9 percent over the prior-year
quarter. The Company reported diluted earnings per share of $0.42 for the
second quarter compared with $0.45 for the prior-year quarter. Net income
decreased 6.5 percent to $8.6 million from $9.2 million in the prior-year
quarter.
Second quarter revenue from G&K's rental businesses increased 8.7 percent
to $135.9 million over the prior-year period and 6.9 percent on a comparable
basis, after adjusting for acquisitions and divestitures. Consolidated direct
sales revenue for the quarter increased 33.3 percent to $6.5 million. The
increase in direct sales was driven by the direct sale/catalog group, which
posted a 55.9 percent increase in revenues over the prior-year quarter.
Cost of rental operations for the quarter increased to 57.1 percent of
revenue compared with 56.2 percent for the prior-year quarter. The increase
was largely due to higher than usual health insurance costs for this quarter.
Cost of direct sales increased to 78.8 percent of direct sale revenue
compared with 69.0 percent last year. Increased expenses were related to the
continued high costs associated with the recently expanded fulfillment center,
additional staffing and implementation of a new information system. Although
continuing at a higher level year-over-year through the second half of fiscal
2000, direct sales costs should begin to decline as G&K improves productivity
and completes the implementation of the information system.
SG&A expenses rose 13.7 percent in the second quarter compared with the
prior-year quarter. This increase was driven primarily by the direct
sale/catalog group, which incurred additional expenses related to a larger
sales force, an expanded catalog and additional administrative personnel.
Year-to-date revenues rose 8.3 percent to $277.3 million from
$256.0 million a year ago. Diluted earnings per share for the six-month
period were $0.89 compared with $0.87 a year ago, reflecting a slight increase
in net income to $18.2 million.
Thomas Moberly, chief executive officer, said, "We believe we are on track
toward our objective of reaching double-digit consolidated revenue growth,
excluding acquisitions and divestitures, in the fourth quarter of fiscal 2000.
We are working hard to reduce the expenses in the direct sale/catalog group.
Once this operation is streamlined, it should be a positive contributor to
G&K's earnings growth in 2001 and beyond. The investment in a larger, more
efficient fulfillment center is important in offering a full menu of products
and services to our national and regional accounts, and despite the
implementation challenges we've faced, this initiative is already improving
our competitive position in these key markets."
This press release contains "forward-looking statements" within the
meaning of the federal securities laws, including statements concerning
business strategies and their intended results, and similar statements
concerning anticipated future events and expectations that are not historical
facts. These forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The
forward-looking statements in this press release reflect management's best
judgment at the time they are made, but all such statements are subject to
numerous risks and uncertainties, which could cause actual results to differ
materially from those expressed in or implied by the statements herein.
Additional information concerning potential factors that could effect future
financial results is included in the Company's Annual Report on Form 10-K for
the Fiscal Year Ended June 26, 1999.
G&K Services, Inc. is headquartered in Minneapolis, Minn. The company is
one of the largest suppliers of uniforms and related products in the United
States, and is the largest uniform service provider in Canada. G&K operates
over 130 uniform processing facilities and branch offices, serving over
105,000 customers and processing over 2 million garments daily.
To receive the latest information about G&K Services, inc. by fax, at no
cost, dial 1-800-PRO-INFO, code GKSRA
G&K SERVICES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(US dollars in thousands, except per share amounts)
(unaudited)
For the Three For the Six
Months Ended Months Ended
Dec. 25, Dec. 26, Dec. 25, Dec. 26,
1999 1998 1999 1998
REVENUES
Rental operations $135,879 $125,006 $266,415 $247,820
Direct sales 6,476 4,858 10,900 8,167
Total revenues 142,355 129,864 277,315 255,987
OPERATING EXPENSES
Cost of rental operations 77,571 70,246 150,752 139,302
Cost of direct sales 5,106 3,352 8,819 5,574
Selling and administrative 31,564 27,771 61,280 55,107
Depreciation 7,060 6,482 14,064 13,041
Amortization of intangibles 2,237 2,139 4,377 4,282
Total operating
expenses 123,538 109,990 239,292 217,306
INCOME FROM OPERATIONS 18,817 19,874 38,023 38,681
Interest expense 4,167 4,291 8,053 9,021
Other (income) expense, net 242 381 (331) 60
INCOME BEFORE INCOME TAXES 14,408 15,202 30,301 29,600
Provision for income taxes 5,777 5,967 12,087 11,675
NET INCOME $8,631 $9,235 $18,214 $17,925
Basic weighted average
number of shares
outstanding 20,357 20,401 20,458 20,399
BASIC EARNINGS PER
COMMON SHARE $0.42 $0.45 $0.89 $0.88
Diluted weighted average
number of shares
outstanding 20,400 20,521 20,517 20,521
DILUTED EARNINGS PER
COMMON SHARE $0.42 $0.45 $0.89 $0.87
Dividends per share $0.0175 $0.0175 $0.0350 $0.0350
G&K SERVICES, INC.
SELECTED BALANCE SHEET INFORMATION
(US dollars in thousands)
December 25, June 26,
1999 1999
(unaudited)
WORKING CAPITAL $63,546 $73,168
TOTAL ASSETS 586,505 541,432
LONG-TERM DEBT 198,554 193,952
STOCKHOLDERS' EQUITY 253,550 235,633
SOURCE G&K Services, Inc.
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CONTACT:
Richard M. Fink, Chairman, or Jeffrey L.
Wright, Chief Financial Officer, both of G&K Services, Inc.,
612-912-5500; or General Information, Leslie Hunziker, or
Analysts, Suzy Lynde, both of The Financial Relations Board,
312-266-7800
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