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G&K Services earnings get off to good start

  • Article by: STEVE ALEXANDER
  • Star Tribune
  • October 30, 2012 - 7:36 PM

Uniform maker G&K Services Inc. reported first-quarter profits Tuesday that beat Wall Street expectations, but analysts cautioned that the results don't signal an upturn in the nation's employment.

While strong uniform sales are often a bellwether of hiring trends, analysts said G&K's performance had more to do with the firm's own cost-cutting and demand for customized uniforms.

Net income at the Minnetonka firm rose to $11.9 million from $8.3 million a year ago, while earnings per share jumped 38 percent to 62 cents a share. Analysts had expected 54 cents.

Revenue grew 6.1 percent to $222.4 million due to an uptick in uniform rentals and sales. Analysts had expected about $218.9 million.

4th-largest uniform maker

"The first quarter was a terrific start to our fiscal year, continuing our momentum," said CEO Douglas Milroy. "We were particularly pleased with our strong operating margin improvement, which reflects crisp execution of our game plan."

G&K is the fourth-largest uniform rental firm in North America. The market leaders are, in order, Cintas, Aramark and UniFirst, analysts said.

"Underlying G&K's revenue figure are strong ancillary sales, such as putting embroidery or other add-ons onto uniforms," said Barbara Noverini, an analyst with Morningstar in Chicago. "G&K has not seen a very strong trend of existing customers adding more uniform wearers."

G&K's results also benefited from cost-cutting that improved profit margins, she said.

Andrew Wittmann, an analyst at Robert W. Baird & Co. in Milwaukee, agreed.

"The fact that G&K did well this quarter is more company-specific," Wittmann said. "Some of their selling initiatives are bearing fruit."

Wittmann also questions whether uniform manufacturers are a reliable measure of employment trends.

"They only reflect the type of employees that wear uniforms, and that's only a fraction of the labor force," Wittmann said.

Steve Alexander • 612-673-4553

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