Vestis Margins Widen as Pricing Gains Offset Volume Decline
Vestis posted a 26% jump in Adjusted EBITDA to $80.9 million even as revenue slipped 1.8% to $661.7 million, prompting the uniform-rental company to raise its full-year free cash flow outlook by $30 million.
Vestis (VSTS) reported third-quarter fiscal 2026 results in which margin expansion outpaced a continued decline in sales volume, and the uniform and workplace-supplies rental company raised its full-year cash flow guidance on the strength of a cost-cutting program it calls the transformation Plan.
Revenue fell 1.8% year over year to $661.7 million from $673.8 million, driven by a 4.5% decline in pounds processed that was partly offset by pricing and mix gains. Revenue Per Pound rose 3% year over year while Cost Per Pound held flat, the first time as a public company Vestis has achieved that combination. It builds on the second quarter, which was the first period Revenue Per Pound did not decline year over year.
That pricing discipline flowed through to profitability. Adjusted EBITDA rose to $80.9 million, a 12.2% margin, from $64.0 million and a 9.5% margin a year earlier, a $16.9 million increase and roughly 270 basis points of margin expansion. It was the second consecutive quarter of improved Adjusted EBITDA and what the company calls Operating Leverage, following sequential gains from $70.4 million in the first quarter to $74.5 million in the second. Net income swung to $11.0 million, or $0.08 a diluted share, from a net loss of $(0.7) million, or $(0.01) a share, a year earlier, extending a sequential recovery from a $(6.4) million loss in the first quarter and $2.6 million in profit in the second.
Covenant Adjusted EBITDA, the metric tied to Vestis's debt agreements, rose 23% year over year to $65.8 million, a 9.8% margin, which resulted from Revenue Per Pound gains and Operating Leverage from the transformation Plan. The estimated in-year benefit from that Plan climbed to roughly $50 million, up from an estimate of about $40 million given last quarter, with about $30 million already realized through the third quarter versus $15 million through the second. Canadian segment revenue grew year over year in the quarter, a disclosure the company had not broken out in prior releases.
Not every operational metric improved at the same pace. Plant productivity gains decelerated to 9% year over year from 11% in the second quarter, and on-time delivery improvement slowed sharply to 80 basis points from a 270-basis-point gain the prior quarter. The company also reported a 74-basis-point reduction in customer complaints, a shift in units from the 4% reduction it reported last quarter that makes a direct comparison difficult.
Adjusted Free Cash Flow improved $47.5 million year over year to $55.5 million, roughly flat with $56.6 million in the second quarter but well above the $42.9 million generated in the first. Available liquidity rose to $351.8 million, including $57.7 million in cash, up from $344.5 million at the end of the second quarter and $316.7 million at the end of the first. Debt repayment slowed to $30.0 million in the quarter from $34.0 million in the second quarter.
For the full fiscal year, Vestis raised its Free Cash Flow outlook to a range of $160.0 million to $170.0 million, a midpoint of $165.0 million, up $30 million, or 22%, from the $120.0 million to $150.0 million range it gave with second-quarter results. Full-year Adjusted EBITDA guidance moved to $310.0 million to $315.0 million from $295.0 million to $325.0 million, a modest $2.5 million increase at the midpoint, while revenue guidance narrowed to a decline of 2% to flat, from a prior range of down 2% to down 1%.
Vestis also disclosed a new outsourcing partnership for corporate support functions expected to generate about $10 million in annual SG&A savings starting in fiscal 2027, with some benefit beginning as early as the fourth quarter of fiscal 2026. Management described Operating Leverage as having returned to its highest level since the third quarter of fiscal 2024.