G&K operating margins increase significantly

30 Jan '08

3 min read

Income Statement Review:
Second quarter revenue from G&K's rental business increased to $232.2 million, up 11.0 percent over the prior-year period. The company's organic rental growth rate was approximately 3.75 percent in the quarter. Organic rental growth was driven by strong new account sales, offset by some softness in the overall economy.

Direct sale revenue increased to $23.1 million, up 6.6 percent over the prior-year period. The organic rental growth rate is calculated using rental 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 36.2 percent, up from 35.5 percent in the prior-year period. The increase in gross margin resulted from improved leverage from overall revenue growth, including lower merchandise and production costs.

Production cost savings were also driven in part by the company's continued execution of on-going productivity initiatives. The improvement in rental gross margin was partially offset by increased delivery costs due to higher energy prices. Gross margin from direct sales increased to 28.5 percent, an improvement from 27.8 percent in the prior-year period.

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