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Operating margins continue to expand - G&K

Oct '07
G&K Services Inc reported record revenue for the first quarter ended September 29, 2007 of $243.8 million, a 9.3 percent increase from previous year revenue of $223.1 million. Organic rental growth, revenue from acquisitions and strong direct sale growth drove the increase over the prior-year.

First quarter earnings per diluted share exceeded expectations and rose to $0.58, a 34.9 percent increase from $0.43 per diluted share during the prior-year period. The increase in earnings compared to the prior-year was driven by significantly higher operating income margin as a result of the company's ongoing strategic initiative.

"We're extremely pleased to deliver strong first quarter performance," said Richard Marcantonio, chairman and chief executive officer.

"As expected, record revenue was driven by strong growth from both our rental and direct sale businesses in addition to revenue from acquisitions.

It is also worth noting that we achieved record new account sales during the quarter, driven by improved sales productivity and the signing of a number of new national account customers, all of which will contribute to future revenue growth.

Of equal importance, we drove significant operating margin improvement while continuing to execute on a number of key strategic initiatives to drive long-term revenue and earnings growth."

Income Statement Review:
First quarter revenue from G&K's rental business increased to $226.1million, up 9.1 percent over the prior-year period. As expected, the company's organic rental growth rate was approximately 3.5 percent in the quarter. Direct sale revenue, driven almost solely by organic growth, increased to $17.7 million, up 11.9 percent over the prior-year period.

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