Greetings and welcome to the UniFirst Corporation fourth quarter earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. At that time if you have a question, please press the one followed by the four on your telephone.

If at any time during the conference you need to reach an Operator, please press star, zero. I would now like to turn the conference over to Steven Sintros, President and Chief Executive Officer. Please go ahead..

Thank you and good morning. I’m Steven Sintros, UniFirst President and Chief Executive Officer. Joining me today is Shane O’Connor, Executive Vice President and Chief Financial Officer. We’d like to welcome you to UniFirst Corporation’s conference call to review our full year and fourth quarter results for fiscal year 2021.

This call will be on a listen-only mode until we complete our prepared remarks, but first a brief disclaimer. This conference call may contain forward-looking statements that reflect the company’s current views with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties.

The words anticipate, optimistic, believe, estimate, expect, intend, and similar expressions that indicate future events and trends identify forward-looking statements. Actual future results may differ materially from those anticipated, depending on a variety of risk factors.

For more information, please refer to the discussion of these risk factors in our most recent Form 10-K and 10-Q filings with the Securities and Exchange Commission. As we look back over our fiscal year 2021, we are pleased with what we have accomplished as a team in the face of what continues to be a unique and challenging operating environment.

During the year, our company and the communities that we operate in and serve continued to deal with the impact of the COVID-19 pandemic. Progress was certainly made as the introduction of vaccines has allowed for improvements in the overall public health situation as well as the reopening of many businesses.

As you are all keenly aware, however, the challenges related to COVID-19 continue to evolve and are not fully behind us just yet. I also want to continue to highlight that for over a year now, our team partners have continued to put forth tremendous efforts in the face of the many obstacles created by the pandemic.

They have worked extremely hard to take care of each other and our customers during these extraordinarily challenging times, and I want to personally thank them for their extraordinary performance. For our full year fiscal 2021, the company reported revenues of $1.826 billion, exceeding fiscal 2020’s total of $1.804 billion.

When we provided guidance at the beginning of the fiscal year, we had articulated that showing any growth during fiscal 2021 would be a challenge; therefore, overall we were pleased with this outcome.

Our core laundry operations revenue over the second half of the year were positively impacted by a modest level of customer reopenings as well as increases in the sale of PPE. In addition, our specialty garment segment was also a strong contributor to our overall results, producing a record year from a top and bottom line perspective.

From a profit perspective, full year diluted earnings per share were $7.94 compared to $7.13 in fiscal 2020. The improved earnings comparison for the full year was primarily due to our depressed results in the second half of fiscal 2020 when the impact of the COVID-19 pandemic was greatest on our business, primarily in the form of customer closures.

Shane will provide the details of our fourth quarter results shortly. As we have talked about over the last year or two, we continue to be focused on making good investments in our people, our infrastructure, and our technologies.

All of our investments are designed to deliver solid long term returns to our UniFirst stakeholders and are integral components to our primary long term objective to be universally recognized as the best service provider in the industry.

As we look ahead to fiscal 2022, there are a number of key initiatives we are excited about progressing as we continue to transform the company in terms of our overall capabilities and competitive positioning, the first being the rollout of our new CRM system which we have spoken quite a bit about previously.

We continue to make solid progress on this key initiative, which will continue through fiscal 2022 and well into fiscal 2023. The second is an investment in the UniFirst brand.

Our brand is an area that has not been significantly invested in over the years and we are excited for this revitalization, which will not only evolve the look and feel of who UniFirst is but will solidify our message internally and externally around what we stand for as a company and why we are a great choice for existing and prospective customers and employees.

Finally, during fiscal 2022 we will be embarking on a multi-year project to implement a corporate-wide ERP system with a strong focus on supply chain and procurement automation in technology.

This phased initiative will become the core of UniFirst’s technology footprint and will integrate and complement the capabilities of the CRM system we are currently deploying. From an operating standpoint, heading into fiscal 2022 we carry solid momentum from a top line perspective into the year.

Despite the external challenges that the team has endured, our sales performance has been very solid, selling both new business as well as internally to our existing customers. In addition, our customer retention for fiscal 2021 was much improved compared to recent years.

We also will clearly be looking to work with our customers to share in the cost increases that we are experiencing in various aspects of the business. As a result of these top line drivers, we expect organic growth for fiscal 2022 to exceed what we’ve been experiencing in recent years. Shane will provide the details of our outlook shortly.

From a bottom line perspective, there are two categories of costs we expect to present challenges from a margin perspective in fiscal 2022. The first group consists of costs that are bouncing back from depressed levels during the pandemic and costs that are being impacted by the increasingly inflationary environment.

Last quarter, I highlighted some of these items, including merchandise amortization, costs related to raw materials and the overall supply chain disruption, the cost to hire and retain labor, energy and travel. The second group consists of investments we are making in the future of our company.

A subset of these costs relate to building stronger overall capabilities as a company that we feel are necessary to enhance our competitiveness, accelerate growth, and ultimately improve efficiency and profitability.

These investments are being made in several areas, including human resources, supply chain, central services, and marketing, among others. In addition, significant costs are expected to be invested in fiscal 2022 and upcoming years related to the three discrete initiatives I discussed earlier.

Going forward, we’ll be carving out the portion of costs related to these initiatives that we view are transitionary and excluding them from a measure of adjusted profitability that we will continue to report until these key initiatives are completed.

You can expect we’ll be providing regular communication during our quarterly earnings calls regarding costs that we are extending during these large initiatives so investors can have a better sense of what our results look like excluding some of these costs.

Even excluding these transitory costs related to these large initiatives, our margins will be pressured in fiscal ’22 by investments we continue to make in our overall capabilities; however, we feel strongly about the need to invest in these areas and believe in the future benefits they will provide.

We also firmly believe on the other side of these initiatives, there will be opportunities not only to rationalize the direct costs related to these initiatives, but to improve the overall efficiency of our cost structure that currently is working to support multiple systems through this technology transformation.

Our solid balance sheet positions us well to meet our ongoing challenges while continuing to make these investments in growth and strengthen our business. We also continue to routinely evaluate our strategy around capital allocation.

As part of that review, we announced earlier today we will be increasing our quarterly dividend by 20% to $0.30 per share of the company’s common stock and $0.24 per share on the company’s Class B common stock.

At this time, we believe that a continued annual increase to our dividend which over time expands commensurate with our free cash flow generation will be a foundational piece to our capital allocation strategy.

In addition, we have reloaded our share purchase authorization program to allow for the company to purchase up to $100 million of its outstanding shares. Finally, as always, we continue to focus on providing our valuable products and services to existing customers and selling new customers on the value UniFirst can bring to their business.

As we have discussed, the pandemic has clearly highlighted the essential nature of our products and services. We believe the need and demand for hygienically clean garments and work environments positions our company well to support the evolving economic landscape.

With that, I’d like to turn the call over to Shane who will provide the details of our results for the fourth quarter and our outlook for fiscal ’22..

our CRM and ERP system initiatives, and our branding efforts. Excluding these transitory investment costs, our core laundry operations’ adjusted operating margin assumption at the midpoint of the range is 9.5%.

This adjusted operating margin reflects certain costs that are normalizing from depressed levels during the pandemic, like merchandise amortization and travel costs, costs we are incurring to hire and retain labor in this challenging employment environment, elevated input costs related to the current inflationary environment and global supply chain challenges, as well as additional investments we are making in strengthening our overall capabilities.

Based on the current energy prices, we are modeling the energy costs in our core laundry operations will increase to 4.6% of revenues in fiscal 2022, up from the previously discussed 4.2% in 2021. Next year’s effective tax rate is assumed to be 24% compared to 22% in fiscal 2021.

Our specialty garment segment revenues are forecast to be relatively flat compared to 2021; however, the segment’s operating income is expected to be down approximately 11%.

As a reminder, fiscal 2021 was a record year for this segment from both a top and bottom line perspective, and the anticipated decline in operating margin is due to the timing and relative profitability of its planned outages and project work.

Our first aid segment revenues are expected to be up approximately 10% compared to 2021; however, this segment’s profitability will be relatively marginal in 2022 as a result of the investments we continue to make in building out the geographic footprint of our van operations.

We expect that our capital expenditures in 2022 will approximate $125 million. Our guidance for fiscal ’22 also assumes our current level of outstanding common shares, no impact related to potential tax reform, and no deterioration in the current economic environment.

In addition, as I’m sure that you are aware, last month President Biden issued broad sweeping vaccine and/or testing requirements for all companies with more than 100 employees. These rules have not yet been finalized nor has an effective date been communicated.

As such, we have not included any costs in our forecast that we do expect would be incurred to comply with these requirements. This concludes our prepared remarks, and we would now be happy to answer any questions that you may have..

[Operator instructions] Our first question comes from the line of Tim Mulrooney with William Blair. Please proceed with your question..

Steve, Shane, good morning. .

Good morning..

Maybe one on guidance first. Excluding the $38 million of transitory investment costs, core laundry would be closer to 9.5% operating margin in 2022.

If I look back a few years, this segment was more in the 11% to 12% range, so my question is as volumes come back and you can start to get leverage off of some of these extra costs, is there any structural reason why long term the business can’t get back to that double digit operating margin range?.

Yes, that’s certainly the goal, Tim. I think when you look at it in the short term, certainly some of the challenges that not only we’re seeing in the environment but a lot of companies around energy, labor costs, supply chain disruption are impacting the numbers for this year.

Certainly it’s hard to say how all of those things will play out over the next year or two, but some of those costs we view as being hopefully temporary as things smooth out in terms of the supply chain world and even some of the labor situation, so yes, I think that is certainly the goal.

Part of what’s causing the margin headwind, we talk about investments we’re making, not only the big three initiatives but some other things we’re doing to strengthen our capabilities in light of some of these challenges in the market.

Yes, I think eventually we will, as volumes grow, kind of grow into that cost structure and get the benefit of those investments to move the margin back over time. Certainly a lot of things are hitting at once in this environment right now causing the outlook to be what it is..

Okay, thanks. Yes, I can appreciate that some of these costs may be--have a little bit more of a tail to them, so, but thank you for that answer. Moving to labor, I know you mentioned last quarter and you talked about it again this quarter, labor availability is an issue, filling all the needed service positions.

I’m curious, though, as you kind of look at the labor environment sequentially from last quarter to this quarter, if you’d characterize the environment as having improved at all or gotten worse, or is it about the same over the last six months as it relates to sourcing talent and labor availability specifically?.

Yes, I would probably characterize it, Tim, as still extremely challenging, but probably marginally better. I think some of that relates to our efforts around investing in additional capabilities and sourcing and so on, but also quite frankly just moving wages.

I think between continuing to move wages along in different key areas as well as--you know, and again, a lot of it is market by market, but in some markets we have heard more improvements that some of our local operators would tie to some of the unemployment benefits lapsing, so I would say marginally better but still very challenging..

Okay, great. Thank you. The last one from me, I think maybe I just missed the fact that you were guys were taking a concerted effort to build out your first aid business by building out the geography of your van operations, so I understand why operating profit was negative in the quarter.

I’m curious, though, what that effort looks like if we look at it on a percentage of completion basis.

I think the best way to ask the question is what is your current overlap right now geographically between your first aid business and your core laundry business, and where would you like that to ultimately be?.

Yes, so I can give you a little bit of context. If you go back, say a couple of years, our first aid business was very regional and there were many markets that we were not in from a first aid and safety perspective, that we had core laundry operations in. We have done two things.

We have done some small acquisitions in key markets, we have continued to add vans organically into some markets, and just as importantly, we have really more integrated the operations together where they’re much more closely working together.

I don’t have a percent, a reliable percent I can give you right now on the call, but I would say right now we are hitting most of the major markets that we operate in as a laundry business.

There still needs to be scale and depth added to some of those markets, like for example we may have had one or two vans in a market that’s a big market and we have a lot of customers from a laundry perspective, so what we’d be doing in that market is adding some sales and service resources so we could more effectively take advantage of the cross-selling opportunities.

I’d say for the most part, we have a little bit of a presence in the majority of our markets, but some of those need to continue to be filled out and will be continued to fill out over the next couple of years.

When you look at the operating margin challenges of that segment, it’s really about adding routes with capacity and sales resources to build those operations to scale over the next few years. There’s not as many larger acquisitions in that segment, and so this is the way we’re sort of attacking it.

Early returns have been very solid from a cross-selling opportunity perspective, but we really just need to continue to invest and get to scale..

Understood. Thank you, and thanks for taking my questions. Good luck in ’22..

Thank you, Tim..

Thank you. As a reminder, to register for a question, please press the one followed by the four on your telephone. There are no further questions at this time--actually, one question just came up. We do have a question coming from the line of Andrew Steinerman with JP Morgan. Please proceed with your question..

Hi Steve and Shane.

Could you just circle for us which categories you’re calling transitory costs, both in terms of what are they and if you could give us the amount, and then specifically define for us what you mean by transitory costs? Do you mean that they go in fiscal 2022 and they stay at that level going forward, or do you mean that they go in ’22 and they don’t repeat?.

Absolutely, Andrew. When we were talking about transitionary costs in the call, we’re primarily talking about the three large initiatives that we have, so we have a lot of cost tied up in the deployment of our CRM, some of the branding stuff that I talked about, as well as our ERP project that we’ll be kicking off this year.

Those costs will be present certainly in 2022, some of them will continue certainly into 2023, for example the CRM rollout I mentioned would be 2022 and 2023, and then those costs will start to be rationalized out. The ERP project will be a multi-year project that we’ll have to continue to talk about the investment in for a few years.

Shane can give you a little more detail about maybe the magnitude of each of those for 2022, and then we’ll continue to update you on what they’ll be in future years. Some will fade, some will ramp, some will transition from operating expenses to more capital as we get further into our ERP project, so Shane can give you a little more color there. .

Yes Andrew, when we take a look at those three key initiatives, that $38 million breakdown between each of them, for the CRM system we’re expecting to incur approximately $20 million worth of costs related to that, and that’s obviously including the teams that we have built to deploy the system, incremental travel costs that we will have for those teams that are going to be traveling to our locations and supporting during the conversions.

The ERP, we have $6 million - again, for that, a lot of that is going to be system implementation, additional people that we’re bringing in specifically to support the company’s responsibilities and activities as we go throughout that initiative, and then incremental consulting costs. Then for branding, we have $12 million attributable to that.

A large portion of that will be the rebranding of our trucks as we consistently move our new image out to our most visible billboards out there. Our trucks will be rebranded in the new image, and then there’s additional costs for advertising as well as consulting costs as well..

Right, and Shane, you didn’t mention, maybe on the branding costs, is that a one-time thing, is that a ’22 thing, does that go away in ’23, or is branding now an ongoing cost?.

Yes, the big investment in branding will be primarily ’22. It may bleed over into ’23, depending on the timing of certain things, but then that will ratchet back down to more of a maybe somewhat elevated rate as we do invest somewhat more in that area, but not nearly to the level of this transition..

Okay, thank you very much..

Thank you..

Thank you, and there are no further questions at this time..

Okay, I would like to thank everyone for joining us today to review our fourth quarter and full year results for fiscal ’21. We look forward to speaking with you again in January when we expect to report our first quarter performance, as well as our outlook for the remainder of fiscal 2022. Thank you, and have a great day..

Thank you. That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines..