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Operating margins continue to expand - G&K

31 Oct '07

3 min read

The organic growth rates are calculated using rental and direct sale revenue, adjusted for foreign currency exchange rate differences and newly acquired revenue compared to prior-period results.

Gross margin from rental operations for the quarter increased to 36.8 percent, up from 36.5 percent in the prior-year period. The increase in gross margin resulted from lower merchandise costs, benefits from plant productivity initiatives and improved overall leverage from higher revenue growth.

Gross margin from direct sales increased to 28.1 percent, an improvement from 23.9 percent in the prior-year period. The increase in gross margin was driven primarily by improved efficiencies from higher volume.

Selling and administrative expenses were 21.4 percent of consolidated revenue for the quarter, down from 22.4 percent in the year-earlier period. Selling and administrative expenses decreased compared to the prior-year period due to leverage from revenue growth and efficiencies attained from the complete rollout of handheld devices across the company's route structure.

Operating margin for the first quarter increased significantly to 9.8 percent of consolidated revenue, up from 8.2 percent in the prior-year period. The improvement in operating margin was a result of leverage realized from revenue growth, lower merchandise costs and higher productivity achieved from operational initiatives, partially offset by slightly higher selling expensesand on-going acquisition integration costs.

The effective tax rate for the first quarter was 37.8 percent compared to 38.5 percent in the year-earlier period.

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G&K Services Inc

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