Earnings call transcript: Vestis Corp Q3 2025 misses forecasts, stock dips

Vestis Corp (VSTS) reported its third-quarter earnings for 2025, revealing a significant miss in both earnings per share (EPS) and revenue compared to analyst forecasts. The company reported an EPS of -0.01 against a forecast of 0.35, marking a surprise of -102.86%. Revenue came in at $674 million, falling short of the expected $780.74 million, a 13.67% miss. Following the announcement, Vestis’s stock dropped 2.34% in premarket trading, reflecting investor disappointment. According to InvestingPro data, the company has struggled with profitability over the last twelve months, though analysts remain optimistic with upward earnings revisions for the upcoming period.

Key Takeaways

• Vestis missed both EPS and revenue forecasts for Q3 2025.
• The company’s stock price decreased by 2.34% in premarket trading.
• Focus is shifting from volume growth to profitability and efficiency.

Company Performance

Vestis Corp’s performance in Q3 2025 showed a decline in financial metrics compared to expectations. The company’s revenue decreased by 3.5% year-over-year, driven by reductions in rental revenue and direct sales. Despite a challenging quarter, Vestis emphasized its strategic shift towards profitability and operational efficiency, which includes cost reduction initiatives and a focus on value-based pricing.

Financial Highlights

• Revenue: $674 million, down 3.5% year-over-year
• EPS: -0.01, compared to a forecast of 0.35
• Gross margin: 27%, down 200 basis points
• Adjusted EBITDA: $64 million (9.5% margin)
• Operating cash flow: $23 million
• Free cash flow: $8 million

Earnings vs. Forecast

Vestis reported an EPS of -0.01, significantly below the forecasted 0.35, resulting in a negative surprise of -102.86%. The revenue of $674 million also missed the forecast of $780.74 million by 13.67%. This marks a notable deviation from previous quarters, where the company had managed to meet or exceed expectations.

Market Reaction

Following the earnings announcement, Vestis’s stock price fell by 2.34% in premarket trading, down to $5.85 from the previous close of $5.99. This decline reflects investor concerns over the company’s ability to meet financial targets. The stock remains closer to its 52-week low of $5.20, highlighting ongoing market challenges. InvestingPro analysis indicates the stock is currently trading near its Fair Value, with a notable 56.32% decline over the past six months. For deeper insights into VSTS’s valuation and 8 additional key ProTips, consider exploring InvestingPro’s comprehensive research report.

Outlook & Guidance

Looking ahead, Vestis expects its near-term performance to mirror Q3 results. The company is finalizing its 2026 operating plan, focusing on value-based pricing, operational efficiency, and technology infrastructure modernization. No immediate strategic transactions are planned, indicating a focus on internal improvements. InvestingPro analysis shows analyst forecasts remain cautiously optimistic, with expectations for profitability this year despite recent challenges. Access the complete Pro Research Report for detailed analysis of VSTS’s growth prospects and competitive positioning among 1,400+ top US stocks.

Executive Commentary

CEO Jim Barber emphasized a strategic shift, stating, "We’re shifting our mindset from how much we grow to how well we grow." This focus on quality growth over sheer volume aims to enhance profitability and operational stability. Barber also highlighted the importance of reliable plant operations and optimizing the existing business framework.

Risks and Challenges

• Continued revenue decline in core business areas
• Market saturation in key verticals such as hospitality and healthcare
• Execution risks associated with operational efficiency initiatives
• Potential macroeconomic pressures affecting customer spending
• Competitive pressures in the uniform rental industry

Q&A

During the earnings call, analysts probed into Vestis’s strategies for improving customer retention and managing working capital. The company reiterated its commitment to enhancing customer relationships and exploring growth through customer conversion and reduced churn.

Full transcript - Vestis Corp (VSTS) Q3 2025:

Operator: Welcome to the Vestas Corporation Fiscal Third Quarter twenty twenty five Earnings Conference Call. At this time, all participants have been placed on a listen only mode and the floor will be open for your questions following the presentation. I would now like to turn the call over to Stefan Neely with Valum Advisors.

Stefan Neely, Advisor, Valum Advisors: Thank you, operator, and thank you all for joining us on the call this morning. Leading the call with me today is Jim Barber, President and Chief Executive Officer and Kelly Jansen, Executive Vice President and Chief Financial Officer. Jim and Kelly will provide prepared remarks, and then we will open the line to questions. Before I turn the call over to Jim, I wanted to remind everyone that today’s discussion contains forward looking statements about future business and financial expectations. The Private Securities Litigation Reform Act of 1995 provides the Safe Harbor from civil litigations for such forward looking statements.

Actual results may differ significantly from those projected in today’s forward looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the Securities and Exchange Commission. Except as required by law, we undertake no obligation to update our forward looking statements. Further, this call will include a discussion of certain non GAAP financial measures. Reconciliation of these measures to the closest GAAP financial measure is included in our quarterly earnings press release and corresponding supplemental materials, which are available at ir.zestus.com. With that, I would like to turn the call over to Jim.

Jim Barber, President and Chief Executive Officer, Vestas Corporation: Thank you, Stefan. Good morning, everyone, and thank you for joining us. Before I begin, I would like to thank Philip, the Board and the leadership team for helping to facilitate a smooth transition for me into the CEO role here at Vestas. Now that I’m two months into the role, my belief is that this company has tremendous potential and a team capable of achieving great things. I was attracted to this opportunity because I spent much of my career leading businesses with similar route based asset intensive models.

Businesses such as this succeed when they execute well at the local level driven by strong customer relationships that are built upon reliability, excellent service quality and the ability to control daily operating costs. These outcomes are produced by frontline teams of loyal and capable people supported by robust repeatable processes and technology that enhances execution. Since starting in June, I spent a great deal of my time getting to know the business through engaging with our teams, visiting with customers and diving deep into the operational and strategic levers that drive performance. And what is clear to me is that while Vestas has faced its share of challenges, it is a company with a fundamentally sound foundation. What I believe this business needs now is a sharp focus on commercial processes, operational discipline and a clear strategy to unlock operating leverage.

To do this, we will focus on the key inputs that drive operating leverage. These are value based pricing, favorable product mix and efficient cost of service. Foundational to this is our ability as an organization to efficiently utilize our assets, both our people and infrastructure to serve our customers. First is pricing. Pricing is one of the most important levers for driving improved operating leverage.

This focus does not just pertain to setting prices, but also ensuring that they reflect the value we deliver and the cost of our service. The right pricing requires a rigorous data driven approach and we’re building out a value based pricing model designed to optimize product profitability. Price integrity, however, can only be successful when it is supported by service quality. And to that end, we are committed to raising our service standards to support long term customer relationships and improve customer retention. The strength of our customer relationships is built at the local level with our RSRs and we are investing in the tools, systems and processes to support and empower them and other frontline team members to succeed in providing customers the best possible experience.

The second key driver is product mix. We are looking to evolve our sales approach to prioritize profitability over volume. In order to do this, we need to be more selective, managing the mix of the products we sell more deliberately in order to maximize capacity utilization with a focus on margin accretive growth. We are shifting our mindset from how much we grow to how well we grow. And the third driver is optimizing cost of service.

Our teams have already made meaningful progress over the last few quarters in identifying and implementing a variety of different cost actions. However, there is still more work to be done. We are evaluating ways to increase our variable to fixed cost ratio, enhance plant reliability and optimize capacity utilization. And none of this can be accomplished if we don’t have a strong customer centric culture. That culture is firmly grounded in our people’s determination to serve customers supported by proper training, infrastructure and processes.

All of this should be underpinned by constructive management, employee and union working relationships. For the remainder of this fiscal year, I’m focused on stabilizing performance and quickly launching initiatives that we expect to result in near term financial improvement. In addition, the team and I are taking a hard look at every aspect of the business to build a roadmap for success in 2026 and beyond. As part of that roadmap, we are also laying the groundwork for investing in modernizing our technology infrastructure to better support execution and long term priorities. Smart, scalable systems are fundamental to improving the customer experience, unlocking efficiencies and enabling data driven decision making.

In a moment, Kelly will walk through our third quarter financial performance in detail. But before she does that, I would also like to provide some brief context. While our results were in line with expectations, we continue to see ongoing revenue pressure as churn outpaces conversion. I believe that our improvement initiatives will soon yield positive results. However, our expectation is that the near term performance will be similar to what we saw over this last quarter.

I want to assure you that I’m committed to seeing Vestas improve in 2026 and look forward to sharing more details, including financial and operational goals during our fourth quarter call. Yes, there are challenges that we need to address, but there are also opportunities and I believe we are focused on the right levers to create meaningful sustainable improvement. With that, I’ll turn it over to Kelly.

Kelly Jansen, Executive Vice President and Chief Financial Officer, Vestas Corporation: Thank you, Jim and good morning everyone. Revenue during the quarter was $674,000,000 down $24,000,000 or 3.5% year over year compared to the 2024. The decline in revenue was due to an $18,000,000 decrease in rental revenue and $6,000,000 of lower direct sales. Within rental revenue, growth from new business or conversion contributed approximately $45,000,000 or 6.7% of revenue year over year for the third quarter. We continue to see increases in sales from both our field and national account sales organization, which collectively installed 20% more recurring revenue year over year.

The revenue impact in the third quarter from churn or lost business was approximately $60,000,000 when compared with the same quarter in the prior year. On a rolling twelve month basis, our business retention as measured in revenue dollars was 91.9% at the end of Q3, a slight decrease when compared to what we reported last quarter. Year over year revenue from existing business decreased $3,000,000 due to declines in both price and volume. Upon further analysis of the changes that have occurred in our rental business over the last year, we’ve observed that the volume when measured as the throughput we see in our facilities has indeed gone up in line with our increased commercial effort. However, the difference in pricing between contracts that we’ve recently obtained and those that we’ve off boarded has been unfavorable.

This along with a shift to lower priced products is the primary reason for our net decline in rental revenue. In our direct sales business, revenue decreased $6,000,000 or 14% year over year, which primarily reflects the previously discussed loss of a large national account in 2024. When excluding the loss of this account, direct sales decreased approximately $1,000,000 compared to the third quarter of last year. Cost of services in the quarter was $492,000,000 and gross margin was 27%, down approximately 200 basis points when compared to the third quarter of last year. Our gross margin for the quarter was negatively impacted by churn, which as I previously discussed carried higher pricing relative to recent new account installations.

These headwinds were offset to some extent by a reduction in our delivery costs. As Jim mentioned, we have recently implemented a series of improvement initiatives, some of which are pricing to help mitigate the impact of the decremental margin on churn and are also actively evaluating several other strategies including the implementation of a comprehensive value based pricing model across all markets. SG and A for the third quarter was $122,000,000 a decrease of approximately $8,000,000 year over year. The reduction in SG and A reflects a $6,000,000 decline in stock based compensation along with a $4,000,000 decrease in separation related costs. Offsetting this overall decrease was an increase of almost $4,000,000 in selling expense related to our field sales team.

In the third quarter,

Operator: percent and we recorded an immaterial tax benefit during the period. Third quarter reported adjusted EBITDA was $64,000,000

Kelly Jansen, Executive Vice President and Chief Financial Officer, Vestas Corporation: In representing an adjusted margin of 90.5%. This compares to 12.4% in the the third quarter of last year and 9.4% in the 2025 when excluding the non recurring $15,000,000 bad debt adjustment during the same period. Now moving on to cash flow and working capital. During the quarter, we generated $23,000,000 of operating cash flow and $8,000,000 of free cash flow reflecting a positive improvement Net cash provided from working capital was $5,000,000 and includes an increase of approximately $13,000,000 resulting from our efforts to reduce our inventory levels and improve working capital efficiency. During the quarter, we also paid $9,600,000 of federal cash tax payments that we had been allowed to defer from the 2025 due to certain natural disaster relief provisions.

Consistent with our expectation, we spent approximately $15,000,000 on capital expenditures in the period and for the year, we still expect total capital investment to be around 60,000,000 the majority of which is related to market center facility improvement. Looking at our balance sheet, at the end of the third quarter, debt was $1,320,000,000 and our principal bank debt outstanding was $1,170,000,000 Our liquidity position is strong with no debt maturities until 2027 and $290,000,000 of available liquidity, including $266,000,000 of undrawn revolver capacity and $24,000,000 of cash on hand. As of the end of the third quarter, our net leverage ratio as calculated under our credit agreement was 4.5 times. As a reminder, under our amended credit agreement, the net leverage ratio cannot exceed 5.25 times for any fiscal quarter ending prior to 07/03/2026. Our guiding principles for capital allocation are to maintain a strong balance sheet and allocate capital toward high return opportunities with a focus on delevering.

Our prudent balance sheet management and working capital actions aim to provide a flexible foundation from which to support our business. As Jim mentioned, our results were in line with expectations. However, we continue to see ongoing pressure from customer losses and lower penetration, partially offset by new business wins and cost actions. We believe several of our fourth quarter initiatives will be fruitful as we remain focused on driving sustainable improvement in our operating leverage. However, I expect our near term financial performance to continue to reflect trends similar to what we saw in Q3.

Our goal is to finalize our operating plan for 2026 over the balance of the remaining fiscal year, and we look forward to providing details of our expectations for the coming year during the next call. Now, I would like to turn the call back to the operator for your questions.

Operator: Thank you. The floor is now open for questions. And our first question will come from Manav Patnaik with Barclays. Please go ahead. One moment.

Rona Kennedy, Analyst, Barclays: Can you hear me?

Jim Barber, President and Chief Executive Officer, Vestas Corporation: We can hear you.

Rona Kennedy, Analyst, Barclays: Yes, apologies. Sorry, Rona Kennedy on for Manav. Thanks for taking my question. Jim, may I ask, you alluded to spending a great deal of time with the business against your teams, visiting customers, diving deep into operational and strategic levers. We just have a recap of your an initial assessment of the strengths and weaknesses.

I know you highlighted the opportunity, but also foundationally the culture and potential work to be done there.

Jim Barber, President and Chief Executive Officer, Vestas Corporation: Sure. I appreciate that. I guess, I would say that it’s important to know why I came here. I think that having spent about forty years of my career in these network based businesses that have heavy assets in them, I saw Vestas as the same thing before I came across. And so my background in understanding how to create this operating leverage in these businesses was why I came, a big piece of it.

And I think Vestas could have used some of what I learned over my career to help them as they move forward. So that’s first why I came. So the second comment after about eight weeks would be the networks are very, very similar, the two of them. Both of them should be designed the same way to get at this leverage point. Both of them should be found on great service to our customers.

The core of that is going to be around making sure your plants are reliable, that they’re invested in properly because they’re the engine of the network. I think also to that end, I do think that the human capital and the employees in this business make a difference. I think we’ve got some opportunity in our areas of turnover in this business and plants that make it as not as optimal as it could be. And I think that in the very end, I think we’ve got the foundation already after about eight weeks to understand that in 2026, we’re going to create different value going up in this business that you’ve seen after the last couple of quarters. So I think the alignment is great quite frankly and I think there’s so many similarities.

The acronyms are different, I’d tell you that. But at the end of the day, it’s the same type of business taking care of customers. So that’s after eight weeks of view of this.

Rona Kennedy, Analyst, Barclays: Got it. Thank you. Appreciate that. And then may I confirm, it sounds like there’s going to be a shift from I think volume or the amount of growth to the profitability. It sounds like changes to capital allocation and investment levels.

Can you just give Cognizant that we’ll get the financial and operational update on strategy on the fourth quarter call, sounds like. But what are the kind of the main things we can think about for changes coming for now?

Jim Barber, President and Chief Executive Officer, Vestas Corporation: I guess I would start with the fact that my past has looked through the lens of penetration of the customer base that you already have and in this business that’s about $2,800,000,000 of revenue. And looking back, it really hasn’t grown the way in my opinion it should be and there’s lots of factors to that. We can talk about those later going forward. But at the end of the day, we’ve got to be able to create the value for our customers that allow that penetration growth to happen and that should then be supplemented by conversion and a betterment of churn. And you’re going to get growth in three different ways.

Second comment is, there’s no question I think that we’re going to create some new tools around here. Kelly mentioned in some of her comments opening the value price value based pricing model, we need that. We’ve already got teams in play building the cost models beneath it In eight weeks, I’m confident that’s going to come very quickly for us to be able to price differently because quite frankly in these networks, the key is to match the type of volume you want to your network and your customers that creates operating leverage. And so I think in eight weeks, again, the similarities for me keep coming forward between my past and best just now, and we’re going to stick to those and we’ll keep investing in those. And I think you’ll hear a lot of those specifically under pending not how and why we’re going to get better in 2026, but by initiative that we talk about here on this call today.

Rona Kennedy, Analyst, Barclays: Thank you. Appreciate it.

Operator: And we’ll go next to Tim Mulrooney with William Blair. Please go ahead.

Lucas Patton, Analyst, William Blair: Hi, good morning. This is Lucas Patton on for Tim Mulrooney. Thanks for taking our questions today. Maybe one just kind of thinking more at a macro level, non farm payrolls for July came in a bit light and both the May and June readout were revised lower. I’m just curious to hear what you’re seeing in terms of hiring behavior amongst your customer base and whether you would characterize net wear levels as a headwind, tailwind or neutral to the quarter?

Jim Barber, President and Chief Executive Officer, Vestas Corporation: I would just kind of say neutral from my perspective. And I think that I think our job in any of these networks is to deal with headwinds or tailwinds properly and just focus on modeling, getting it better and creating the leverage we’re talking here. But I would say neutral at this point. Obviously, I’d take tailwinds, but neutral is fine for now.

Lucas Patton, Analyst, William Blair: Understood. And then maybe looking at free cash flow, it looks like working capital was a big source of cash in the fiscal fourth quarter of last year and was also a source in the 2023. Are you expecting a similar dynamic here in the fourth quarter of this year?

Kelly Jansen, Executive Vice President and Chief Financial Officer, Vestas Corporation: What I can tell you is that I think we had a great quarter as it related to working capital management and obviously contributed positive cash flow in the third quarter. And we’re going to continue to manage our working capital very tightly and our cash in general. I certainly expect us to focus to have cash as a focus going forward.

Lucas Patton, Analyst, William Blair: Understood. Thank you very much.

Operator: Our next question comes from George Tong with Goldman Sachs. Please go ahead.

Anna Wu, Analyst, Goldman Sachs: Hi, thank you. Good morning. This is Anna Wu on for George Tong. I wanted to start with a high level question. Wondering if you could share some thoughts around the overall health and the competitive landscape of uniform rental industry in the near term?

And additionally, can you provide some color around the sales environment in each of your end markets? And I have a follow-up after those. Thank you.

Jim Barber, President and Chief Executive Officer, Vestas Corporation: Could you repeat the second part of the question for me, I missed it.

Anna Wu, Analyst, Goldman Sachs: Yes. Just can you provide some color around the sales environment in each of your end markets?

Jim Barber, President and Chief Executive Officer, Vestas Corporation: Sure. Let me take the first half. Look, the health of this segment in my opinion is one that I think continues to be one that is just fine. And what I mean by that is, if I look at the last month or the last quarter we just finished, what I saw was that almost 45% of our growth came from non programmers in this business. And that is a stat I’m not used to having in my background, which means that the total addressable market continues to grow.

And I think that’s a great positive step forward. I think ultimately, the products and the industry itself secondarily, I don’t see as one that megatrends are after. I think that the other I think very positive I found in this industry already is this concept of the network itself. And inside of our organization at Vestas, it’s essentially not one network, it’s 120 closed loop networks. And what that means is that we can experiment differently.

We can put projects and initiatives in flight in parallel versus kind of a serial nature to it. We’ve already begun that. And that you start to get into these businesses that the general managers have really great breadth perspective to grow in this business profitably. We’re just going to help them tune the lens a little bit better to make sure that the work that they’re putting into their individual networks creates value for our shareholders. The second half, it was something about the sales side.

What specifically is your question?

Anna Wu, Analyst, Goldman Sachs: So just each of your end markets verticals like hospitality or restaurants and how do you think about working to provide some colors around the selling environment there?

Jim Barber, President and Chief Executive Officer, Vestas Corporation: Yes. It hasn’t shifted quarter over quarter. You’re still into hospitality, into healthcare, into retail, same ones going forward. Again, I still like the non programmer side of it because I’m not used to that. And that also can probably lead us to other growth avenues that I might not have seen in my background.

So that’s how I think about both of those.

Anna Wu, Analyst, Goldman Sachs: Yes, super helpful. Thank you so much. And just a quick follow-up. On the previous earnings calls, we learned that the company has retained strategic advisors for some potential transactions. Is that due an option on the table for you?

And just wondering if there is any updates regarding the alternative options for the business at this stage?

Jim Barber, President and Chief Executive Officer, Vestas Corporation: No, I can I’ll just look forward on that. I can tell what we’re doing. We’ve already had three sets of advisers, I think, can help us speed this up coming from the outside to help the core business, not any transactions or anything else. I mean, we’re focused on the tools we’ve already talked about in cost models and pricing tools that are coming into play right now. We’ve got some work in the technology area, I think, can help us going forward, and we’ve got some opportunity from other outside looks.

But all of those are going to be supplemental to what we’re going do as a leadership team and group around here. But for the rest of it, I’m looking forward to optimizing this business, not quite the outside just yet.

Anna Wu, Analyst, Goldman Sachs: Got it. Super helpful. Thank you so much.

Operator: This concludes the Q and A portion of today’s call. I’d like to turn the call back to Jim Barber for closing remarks.

Kelly Jansen, Executive Vice President and Chief Financial Officer, Vestas Corporation: This is Kelly. Before we give it to Jim, I just wanted to mention that we put some revised materials out on our website. You can access those after the call at ir.justice.com. Dan?

Jim Barber, President and Chief Executive Officer, Vestas Corporation: Thanks, Kelly. Let me just say this quickly to close is that I think that we’re on the right track already after eight weeks. I’m really anxious to come forward and next time we talk discuss the Q4 results. We’ve got a lot of activities going the right way there and then really excited to roll out a plan for 2026 that all of our stakeholders, I think, will stand behind and be supportive of and we’ll be proud to deliver on everybody’s behalf. So I appreciate the time this morning.

Thanks.

Operator: Thank you. And this concludes today’s Vestas Corporation fiscal third quarter twenty twenty five earnings conference call. Please disconnect your line at this time and have a wonderful day.

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