ATLANTA - Vestis (NYSE: VSTS), a prominent supplier of uniforms and workplace essentials, has reached an agreement to sell its 39% equity interest in Aramark Uniform Services Japan Corporation (AUSJ) to Mitsui & Co., Ltd., the majority stakeholder. The transaction, valued at approximately $37 million, is aimed at reducing the company's debt.
The sale of the minority stake in AUSJ, a uniform rental service provider in Japan founded in 1988, is not expected to significantly affect Vestis's financial records. The stake was classified as a non-operating equity investment, not reflected in the company's Operating Income or Adjusted EBITDA. Vestis anticipates that the divestiture will sharpen its strategic focus, fortify its balance sheet, and heighten its financial agility.
Completion of the sale is anticipated by the end of October 2024, pending the satisfaction of standard closing conditions and regulatory approvals.
Vestis, recognized as a leader in the B2B uniform and workplace supplies sector, caters to a diverse North American clientele ranging from Fortune 500 corporations to small, locally-owned businesses. Its extensive service offerings include full-service uniform rental programs, floor mats, towels, linens, managed restroom services, first aid supplies, and specialty garment processing for cleanrooms and other applications.
The information presented in this article is based on a press release statement. It should be noted that forward-looking statements regarding the sale and its proceeds involve risks and uncertainties, and actual results may vary materially from expectations. These statements are not assurances of future performance and are subject to unpredictable risks, uncertainties, and circumstances beyond the company's control, including but not limited to the fulfillment of sale conditions, exchange rate fluctuations, and the timing and occurrence of other events.
In other recent news, Vestis Corp has been the subject of acquisition discussions with Elis SA. Analysts from Stifel and Baird have maintained their hold and neutral ratings on Vestis respectively, amidst these ongoing talks. Despite Elis's confidence in managing Vestis's operations and potential synergies, questions about the alignment with Elis's acquisition criteria and potential tax implications remain.
Vestis Corp's fiscal third quarter 2024 earnings revealed a 1.6% decrease in revenue year-over-year and a 260 basis point reduction in adjusted EBITDA margin, now standing at 12.4%. The adjusted EBITDA for the quarter was $87 million, consistent with the previous quarter but down $20 million year-over-year. Despite these figures, Vestis has seen growth through new business wins and improved customer retention rates.
The company's Board of Directors approved a quarterly cash dividend of $0.035 per share. Vestis anticipates a sequential decline in EBITDA in the fourth quarter due to non-repeating one-time benefits from the third quarter, but targets a leverage ratio between 1.5 and 2.5 times. These are the latest developments in the ongoing operations of Vestis Corporation.
InvestingPro Insights
Vestis's decision to sell its minority stake in AUSJ aligns with several key financial indicators and trends highlighted by InvestingPro. According to InvestingPro Tips, Vestis currently has "liquid assets exceeding short-term obligations," which suggests a solid financial foundation. This position may be further strengthened by the $37 million influx from the AUSJ stake sale, potentially improving the company's debt profile as intended.
The company's focus on strategic realignment is particularly noteworthy given another InvestingPro Tip indicating a "strong return over the last three months." Vestis's stock has shown a 23.84% price total return over the past three months, reflecting positive market sentiment that could be further bolstered by this strategic divestiture.
While Vestis aims to enhance its financial agility, it's worth noting that the company's revenue growth has been modest, with InvestingPro Data showing a 1.61% increase in the last twelve months. The sale of the AUSJ stake, although not directly impacting operating income, may allow Vestis to redirect resources to areas with higher growth potential within its core North American market.
For investors seeking a more comprehensive analysis, InvestingPro offers 6 additional tips for Vestis, providing deeper insights into the company's financial health and market position.
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