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UniFirst Specialty Garments registers strong top line growth

Jul '08
UniFirst Corporation announced record revenues and earnings for its third quarter and first nine months of fiscal 2008 which ended May 31, 2008.

Revenues were a record $254.6 million and $772.2 million for the third quarter and first nine months of fiscal 2008. These revenues represent increases of 10.8% and 14.5%, respectively, over the comparable fiscal 2007 quarterly and nine month periods.

The first nine months of fiscal 2008 includes an extra week compared to fiscal 2007 as fiscal 2008 is a 53 week year for the Company. The extra week occurred in the Company's second fiscal quarter and accounted for approximately 2.9 percentage points of year to year revenue growth for the first nine months.

Third quarter net income increased 23.8% to $16.9 million, or $0.87 per diluted common share, from last year's third quarter net income of $13.7 million, or $0.71 per diluted common share. Net income for the first nine months of fiscal 2008 increased 41.6% to $48.7 million, or $2.52 per diluted common share, from $34.4 million, or $1.78 per diluted common share for the comparable period in 2007.

The Company's nine month earnings in fiscal 2007 were affected by severance expense and increases in the Company's environmental reserves. These combined to decrease the Company's income from operations and net income by approximately $2.3 million and $1.4 million, respectively. Without these adjustments, the Company's diluted earnings per share for the first nine months of fiscal 2007 would have been $1.85.

The increase in earnings continues to be driven by strong revenue growth as well as higher operating margins in the Company's core laundry business, which represents approximately 90% of the Company's consolidated revenues. Core laundry revenues increased 11.5% and 15.0% for the quarterly and nine month periods, respectively, compared to fiscal 2007.

The core laundries' organic revenue growth, which excludes the effects of the extra week, acquisitions and fluctuations in the Canadian exchange rate, was 7.8% for both the quarter and nine month periods.

The core laundry business' operating margin increased significantly from 10.5% in the third quarter of fiscal 2007 to 12.3% for the same period of fiscal 2008. The operating margin year-to-date in fiscal 2008 is 11.9% which is up from a pro forma operating margin of 9.9% in fiscal 2007 after adjusting for the impact of the 2007 severance and environmental charges.

The improvement in the third quarter margin is consistent with the first two quarters of fiscal 2008 and is related primarily to lower merchandise amortization as well as lower payroll and related costs as a percentage of revenues. The negative impact of fuel costs associated with our fleet of delivery vehicles continued to accelerate during the third quarter and partially offset these benefits.

The Company's Specialty Garments segment produced strong top line results inthe third quarter but operating income was down compared to the high profitability levels achieved in the third quarter of fiscal 2007. In addition, our First Aid segment also generated operating income at levels lower than the comparable fiscal 2007 periods.

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