UniFirst Corporation (NYSE:UNF) has announced a robust performance in its second-quarter results for fiscal year 2024, with revenues rising by 8.8% compared to the same period last year. The company attributes this growth to the acquisition of Clean Uniform and strong organic growth in its Core Laundry operations.
Net income and EBITDA have also seen significant increases. UniFirst's sales organization has been successful, evidenced by a 10% rise in new account installations. Looking ahead, the company has provided positive revenue and earnings guidance for the fiscal year.
Key Takeaways
- UniFirst's Q2 revenues increased by 8.8%, driven by Clean Uniform acquisition and organic growth.
- Net income and EBITDA rose by 14.9% and 23.8%, respectively.
- The company forecasts FY2024 revenues to be between $2.415 billion and $2.425 billion.
- Diluted earnings per share for FY2024 are projected to be between $6.80 and $7.16.
- Operating and EBITDA margins for Laundry Operations are estimated at 6.5% and 12.6%.
- New account installations increased by 10%, with 60% of sales coming from competitors.
- The company's ERP project is on track, and the estimated CapEx for the year is $150 million.
Company Outlook
- UniFirst expects fiscal 2024 revenue to remain stable or see a slight increase.
- Diluted earnings per share are anticipated to range from $6.80 to $7.16.
- The company projects an effective tax rate of 25% and does not plan any share buybacks.
- CapEx for the year is estimated at $150 million, with no significant adverse economic developments expected.
Bearish Highlights
- The company has faced increased pricing sensitivity, though it has managed to secure some price increases.
- Additional expenses were incurred due to the opening of two new facilities and the timing of selling incentives.
- Environmental reserve adjustments have impacted margins, but this is not expected to continue.
Bullish Highlights
- Merchandise costs have flattened, with a slight benefit expected for the fiscal year.
- Margin expansion is expected in the second half of the year despite a decline in Q2 due to seasonality.
- The CRM system is showing improvements in merchandise management and operational efficiency.
Misses
- There was a margin impact due to additional expenses and environmental reserve adjustments.
- Operating margins showed variability due to changes in discount rates and reserve adjustments.
Q&A Highlights
- The company discussed the long-term progress of certain sites and the adjustments in estimates that can take years to materialize.
- They addressed the margin impact from additional expenses, which were anticipated in their guidance.
- UniFirst highlighted the benefits of their CRM system, expecting improvements in customer experience and merchandise management.
UniFirst Corporation remains optimistic about its future performance, with a steady increase in new account installations and effective cross-selling strategies. The company is also making strides in optimizing its CRM system, which is expected to enhance merchandise management and overall efficiency. Investors and stakeholders can look forward to UniFirst's third-quarter performance report in June, as the company continues to navigate the fiscal year with a strong operational strategy.
InvestingPro Insights
UniFirst Corporation (UNF) has demonstrated resilience and strategic growth, as reflected in their recent financial performance. With a market capitalization of $3.22 billion, the company is positioned as a significant player in the uniform rental and facility services industry.
The company's commitment to returning value to shareholders is evident through its consistent dividend payments, having raised its dividend for 6 consecutive years and maintained dividend payments for 42 consecutive years.
InvestingPro data indicates a robust revenue growth of 11.1% over the last twelve months as of Q1 2024, underlining the company's successful expansion efforts. This growth trajectory is further supported by a gross profit margin of 33.86%, showcasing UniFirst's ability to manage costs effectively while expanding its operations.
An InvestingPro Tip notes that UniFirst holds more cash than debt on its balance sheet, which is a strong indicator of financial stability and provides the company with flexibility for future investments or to weather economic downturns. Additionally, the company's liquid assets exceed its short-term obligations, ensuring it can meet its immediate financial commitments without strain.
InvestingPro also highlights that analysts predict UniFirst will be profitable this year, which aligns with the company's positive outlook and the growth figures reported. Despite some analysts revising their earnings downwards for the upcoming period, the company's profitability over the last twelve months suggests a strong foundational performance.
For investors interested in a deeper analysis, there are additional InvestingPro Tips available, which can provide further insights into UniFirst's financial health and market positioning. To access these tips and benefit from comprehensive financial data, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
Full transcript - Unifirst Corp (UNF) Q2 2024:
Operator: Hello. And thank you for standing by. Welcome to UniFirst Second Quarter 2024 Earnings Conference Call. At this time, all participants will be in a listen-only mode. After the speakers’ presentation there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Steven Sintros, UniFirst President and Chief Executive Officer. Sir, you may begin.
Steven Sintros: Thank you, and good morning. I'm Steven Sintros, UniFirst's President and Chief Executive Officer. Joining me 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 second quarter results for fiscal year 2024. 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. We are pleased with the results from our second quarter which met our internal expectations. I want to sincerely thank our team partners who continue to always deliver for each other and our customers as we strive toward our vision of being universally recognized as the best service provider in the industry, all while living our mission of serving the people who do the hard work. The people who do the hard work are the workforce that keeps our communities up and running. So many of them are our existing and prospective customers as well as our own UniFirst team partners. Our mission is to support those employees by providing the right products and services enabling them to do their jobs successfully and safely. Whether that means providing uniforms, work wear, facility services, first aid and safety, cleanroom or other products and services, our goal is to partner with our customers to ensure that we structure the right program, products and services for their business and their team, all while providing an enhanced customer service experience. Overall, revenues in our second quarter were up 8.8% compared to the second quarter of fiscal 2023. The current quarter benefited from the acquisition of Clean Uniform, which just passed its one-year anniversary of becoming part of UniFirst this month. We continue to be pleased with the overall performance of Clean as we have been able to retain its customers and continue to move its top line positively over the last year. Core Laundry operations organic growth totaled 4.8% in the quarter. Net income and EBITDA increased 14.9% and 23.8% respectively in the quarter compared to a year ago, benefiting from growth in our top line and lower cost expended during the quarter related to key initiatives. Excluding the impact of the key initiatives, we still experience solid EBITDA growth in the first six months of the year. We are also pleased with the significant improvement in cash flows from our operating activities compared to 2023, as well as some positive trends in certain key areas such as merchandise costs. As a reminder, we have been expending costs over the last couple of years related to our technology transformation. As expected, these costs are declining due to activities surrounding the deployment of our CRM largely winding down. We continue to expend dollars related to our ERP project. However, as we enter implementation phases of the project, more costs are being capitalized. During the quarter, we saw continued strong performance from our sales organization, delivering a 10% increase in new account installations compared to the prior year. We continue to sell prospects on the value that UniFirst can bring to their businesses. Our approach is a consultative one, where as I mentioned, we focused on creating the right programs with the right garments and products for our customers. Overall, we are pleased with solid organic growth for the quarter, despite a somewhat more challenging pricing environment. In addition, wearers versus reductions were flat in the quarter compared to a positive impact in wearer levels that we had a year ago. As we look forward to the rest of 2024 and beyond, we will continue to focus on delivering profitable growth fueled by strong execution from our sales organization and our continuing efforts to drive superior service execution and customer satisfaction. In addition to executing our growth model, we continue to focus on opportunities to improve our efficiency and profitability. Our team continues to become more proficient utilizing and optimizing the capabilities of our new CRM, including leveraging some of Clean's proprietary technology across UniFirst, with all efforts focused on deploying standard processes and driving productivity. In addition, areas such as strategic pricing and account profitability, as well as strategic manufacturing and sourcing, represent significant margin enhancement opportunities. Although some of these benefits going forward will be more significantly enabled through the implementation of our ERP, we continue to focus on these areas and others that we feel can move the needle in the near to midterm. We continue to believe strongly in the bright future of our first aid and safety division. During the quarter, we continue to deliver strong growth in our van operations, which was partially offset by a decline in our wholesale operations. We continue to make investments in the sales and service infrastructure of the van business to expand our footprint and ensure we can reach existing UniFirst customers, as well as new prospects in the market that have a strong need for these products and services. As we progress, increasing route density in addition to penetrating customers with the full breadth of services that we provide will be critical steps in building the profitability of this segment. With that, I'll turn the call over to Shane, who will provide more details on our second quarter, as well as the outlook for the remainder of fiscal ‘24.
Shane O'Connor: Thanks, Dave. In our second quarter of 2024, consolidated revenues were $590.7 million, up 8.8% from $542.7 million a year ago. And consolidated operating income increased to $27.9 million from $20.7 million, or 34.9%. Net income for the quarter increased to $20.5 million, or $1.9 million per diluted share, from $17.8 million, or $0.95 per diluted share. Consolidated EBITDA increased to $62.5 million compared to $50.5 million in the prior year, or 23.8%. Our financial results in second quarter of fiscal 2024 and 2023 included approximately $3.2 million and $9.1 million, respectively, of cost directly attributable to our key initiatives. In addition, we incurred costs of approximately $2 million in our second quarter of fiscal 2023 related to the acquisition of Clean Uniform. The effect of these items on the second quarter of fiscal 2024 and 2022 combined to decrease both operating income and EBITDA by $3.2 million and $11.1 million, respectively. Net income by $2.5 million and $8.3 million respectively, and EPS by $0.13 and $0.44 respectably. Year-over-year, net income and EPS comparisons were also unfavorably impacted by lower interest income in our second quarter of 2024 due to lower cash reserves subsequent to the acquisition of Clean in our third quarter of fiscal 2023. Our Core Laundry Operations revenues for the quarter were $522.4 million, up 9.5% from the second quarter of 2023. Core Laundry organic growth, which adjusts for the estimated effect of acquisitions as well as fluctuations in the Canadian dollar, was 4.8%. The solid organic rate was primarily the result of solid new account sales and improved pricing with our customers. Core Laundry operating margin increased to 3.6% for quarter, or $19 million, from 2.9% in prior year or $13.6 million and the segment's EBITDA margin increased to 9.9% from 8.7%. The costs we incurred related to our key initiatives were recorded to the Core Laundry Operation segment and combined to decrease both the Core Laundry Operating and EBITDA margins for the second quarter of fiscal 2024 and 2023 by 0.6% and 2.3% respectively. Excluding these items, the segment’s operating and EBITDA margins were also impacted by additional reserves we recorded related to our legacy environmental sites and higher costs we incurred related to investments we have made in building our corporate capabilities over the last year. These items were partially offset by lower energy costs during the quarter, which decreased to 4.4% of revenues down from 4.8% in 2023. Revenues from our Specialty Garment segment, which delivers specialized nuclear decontamination and cleanroom products and services, increased slightly to $43.5 million, from $42.1 million in prior year, or 3.2%. This increase was primarily due to growth in our cleanroom operations. Segment’s operating margin increased to 22.8% from 19.1%, primarily the result of lower merchandise expenses in our cleanroom operations. As we've mentioned in the past, the segment's results can vary significantly from period to period due to seasonality as well as the timing and profitability of nuclear reactor outages and projects. Our First Aid segment's revenues increased to $24.8 million from $23.5 million in prior year or 5.6%. As Steve discussed, this increase was fueled by strong growth in our van operations, partially offset by a decline in the wholesale operations. Segment had an operating loss of $1 million during the quarter as the segment results continue to reflect the investments we are making in our First Aid van business. At the end of our second fiscal quarter, we continued to reflect a solid balance sheet and financial position with no long-term debt and cash, cash equivalents, and short-term investments totaling $101.9 million. Cash flows from operating activities in fiscal 2024 have increased to $106.7 million compared to $64.2 million in prior year, or 66.3%, primarily due to improved profitability and lower working capital needs of the business. During the first half of this year, we continue to invest in our future with capital expenditures of $72.9 million and we repurchased 46, 750 shares of common stock for $8.1 million. I'd like to take this opportunity to provide an update on our outlook. We now expect our revenues for fiscal 2024 to be between $2.415 billion and $2.425 billion in line with the message at the end of our last fiscal quarter. We further expect that our diluted earnings per share will be between $6.80 and $7.16. Our guidance for fiscal 2024 continues to include one extra week of operations compared to fiscal 2023 due to the timing of our fiscal quarter and assumes Core Laundry Operations operating and EBITDA margin at the midpoint of the range of 6.5% and 12.6% respectively. We now estimate that the cost directly attributable to our key initiatives that will be expensed in fiscal 2024 will be $12 million and will reduce both Core Laundry Operations operating and EBITDA margins by 0.6%. We fully expect the full year effective tax rate will be 25% and our guidance assumes no future share buybacks or unexpected significantly adverse economic developments. This concludes our prepared remarks and we would now be happy to answer any questions that you may have.
Operator: [Operator Instructions] Our first question comes from the line of Manav Patnaik with Barclays.
Ronan Kennedy: Hi, good morning. This is Ronan Kennedy on from Manav. Thank you for taking my questions. The first one, if I may, just to look to unpack, I know you historically don't disaggregate or break out the organic growth algo, but you did comment on strong performance with a 10% increase in new account installations. Just wondering if you could unpack that a bit further with some further detail as to the drivers there who you're winning from. And some further detail, please.
Steven Sintros: Sure. From a sales perspective, I think if you look at it, as we've talked about in the past, about 60% of our new account sales come from competition, and that's sort of a wide range of competition, and the other 40% are no programmers. So those are either people that had a different type of program, maybe a direct purchase program or no program at all or opening a new business and so on. From an industry perspective, I think it's pretty widespread. We haven't seen any significant shift in the type of business that we're winning. We're still winning a healthy amount of uniform business, which did run a little bit higher this year, at least year-to-date compared to a year ago. So I would say the wins are pretty broad based.
Ronan Kennedy: That's helpful, thank you, and then as a follow-up also on the organic growth, I think you had referenced a somewhat more challenging pricing environment, which you had also previously spoken of seeing price sensitivity. I think it was relative to initial expectations and also a function of moderating costs. But can you just talk about how pricing is trending and whether, you've seen some, continue to see what was previously some strategic losses, and then also just any comments on attrition and how that is trending, please.
Steven Sintros: Sure, with respect to pricing, I think my comments probably held from last quarter as well. It is a little bit more sensitive out there. I think you just look at the cycle that we've gone through from an inflationary perspective, and although costs are not going backwards, some of the cost trends just out in the marketplace have moderated, and I think a lot of companies are starting to look at their costs and maybe putting programs out to bid a little bit more than they did, certainly during the pandemic. I think this is -- a lot of this is in the context of comparing to the pandemic where retention for a lot of service companies was better. Price sensitivity wasn't as strong, especially with the inflation that was being experienced across the market. So I wouldn't say during the quarter we had any further change in that environment. It continues to be on balance, a little more challenging in that area compared to, say, a year ago. From an attrition perspective, I know we had talked about it ticking up a bit over the last couple of quarters. I would say no real change there, although compared to maybe the second half of last year, maybe some recent improvement in a little bit. So nothing really significantly different in the environment.
Operator: Our next question comes from the line of Kartik Mehta with North Coast Research.
Kartik Mehta: And Steve, just to understand pricing a little bit more from a sensitivity standpoint, are you at a point where year-over-year, starting to have to go negative pricing or decreased pricing, or are you still able to get a bit of a price increase, but maybe just not as much as you were getting during the pandemic time?
Steven Sintros: Yes, I think, it's the latter. I think we still feel like we're securing some price. But as we all have talked about over the last couple of years, on balance there was more impact as work through what had been sort of rapidly rising fuel prices and other inflationary areas. I'd think that the ability to share in price was on balanced easier. But no, I would say we are still getting some benefit from pricing for sure in the current quarter and in current environment.
Kartik Mehta: And then I know you talked a little bit about attrition, but as you look at your ad stop metric, how is that trending?
Steven Sintros: Yes, ad stops are very stable right now. I think I made the comment that a year ago, we were seeing a little bit more of a pull from positive ads and you just don't need to look much further than sort of the job numbers kind of month-to-month over the last couple years to see that you can kind of make the connection that we're getting more pull over that period of time and let's pull now. Right now I'd say it's stable. We obviously look closely to see if there's any signals of industry sort of pulling back and although we've seen select layoffs here and there. Broadly, it's been very stable overall.
Kartik Mehta: And Shane, just one last question. For the year, what would you -- and just to try to understand adjusted EPS, I know you gave that EPS number, but what kind of impact would you anticipate from your key initiatives? I know the acquisition is you are lapping but just for the year.
Shane O'Connor: Yes. I think the estimate for my key initiatives is $12 million for the year.
Operator: Our next question comes from the line of Tim Mulroney with William Blair.
Luke McFadden: Hi, good morning. This is Luke McFadden on for Tim. Thanks for taking our questions today. So last quarter you had mentioned detecting more cautious posture from some clients as it pertains to business outlook, at least on the margin. But given that many of your clients have now likely gone through their own annual budgeting process, just curious to hear if you've noticed any shift in sentiment one way or another as it relates to the outlook for the balance of 2024.
Shane O'Connor: I wouldn't say there's really been any shifts. And I think you sort of seeing that in the ads reductions, right? I think we're probably seeing people a little bit more cautious about growth outlook overall, which is causing maybe some pullback in hiring. But again, I think it's sort of incrementally cautious. But I wouldn't say compared to a quarter ago that that's really changed a heck of a lot.
Luke McFadden: Understood. And then if I can, pivoting to your ERP implementation, could you just provide any update on progress as it relates to that initiative to date just in terms of kind of where that's trended in term of your internal expectations and in light of that progress is the $150 million number that you've given in the past for CapEx for full year 2024 still the right way to be thinking about that.
Steven Sintros: Yes, our ERP projects continues to progress sort of in line with our expectations. Again, we're in the earlier implementation phases where we are focusing on maybe some more of the foundational items as we implement that system. At this point in time, I would say largely it's progressing as expected. When you take a lower, as it relates to your question around the CapEx for the year, the $150 million I think through two quarters we spent a little over $72 million in CapEx and I thank the way things are trending that $150 million number still is a good number.
Operator: Our next question comes from the line of Andrew Steinerman with JP Morgan.
Andrew Steinerman: Hi. Could you talk a little bit about UniFirst success in cross-selling? Like right now, how much is cross-selling existing accounts helping the organic revenue growth? And overall, I know you talk about building out your vans business in first aid. This is really kind of a I would say a core laundry question, but are you getting more cross-sell of core laundry from your vans customers in first aid?
Steven Sintros: Yes, I'll take the second part of the question first. Certainly, we are getting a lot of energy in cross-sell with our first aid expansion, and that was sort of the purpose of expanding that infrastructure to really take advantage of our UniFirst customer base, and I think that's being successful. As far as from a core laundry perspective, and again, I know we don't always break down the components of that growth. We're probably seeing a consistent amount of cross-sell going on right now in the core. I had to guide; I really don't want to break down the components of the 4.8. It gets a little messy with ads reductions in cross-sell and so on, but I think it's pretty consistent. I think there's more we can do there, and some of our strategy over the next couple of years is to increase some investments in that area. I think without getting into some of the details about some of the products and other things that we're looking at, we think there's incremental opportunity there. So right now, it's probably been pretty steady based on what we've been doing, but we think there's opportunity to improve that area.
Operator: Our next question comes from the line of Justin Hawke with Baird.
Andy Wittmann: Hey, it's Andy Whitman. Sorry for the confusion there. I just wanted to ask, Shane, you talked about the environmental liability on some of your sites increased and impacted your margins, this question, really two parts to this one. How much was the reserve this quarter, and do you see that reserve being kind of an adjustment that is one time, or do you think this is an ongoing level of greater cost that you'll be having to take in your PML on a go-forward basis?
Shane O'Connor: Yes, so the first thing I'll say about those reserve adjustments is those relate to legacy sites and those environmental issues were probably from three or four decades ago. So those are reserves that we've carried for a significant amount of time. The headwind that we saw during the quarter, our legal expenses were actually 50 basis points of headwind. The vast majority of that was related to the environmental reserves that we recorded. That isn't in ongoing, you shouldn't expect that there's going to be ongoing reserve adjustments on a quarterly basis from time to time. We do have to adjust those. One of the adjustments that we make to those reserves are change in discount rates, and we've talked about that from time to time. So we've had some variability go through our operating margins as a result of those types of changes, but they aren't normal operating expenses that are routine and consistent. So every now and then, we'll have to make some adjustments to those reserves, but it's sporadic.
Steven Sintros: The only other thing I'll add, Andy, is that some of the progress related to these sites transpires over years, and so we'll be asked to do a little bit more work on a site, and we'll try to estimate the impact of that, and then two years later, we'll have some more feedback about something so as Shane mentioned, it was both that this quarter, as well as somewhat of the interest rate adjustments that we made to those reserves, as well.
Andy Wittmann: Yes. Okay. That all makes perfect sense. Then I guess the other key thing that you mentioned here in your margins was related to merchandise costs. This has been a lingering headwind, but it sounds like this is -- the quarter where you saw a little positive benefit from there. Do you feel like that bottom is in place on the merchandise costs? I thought it was particularly interesting, given that new account installs were, sounded like they're pretty good. You guys said positive things about that. So does that give a firmer base, do you think, Steve, on merchandise costs, and can you give us the quantum of the benefit that you saw in the quarter on that one, as well?
Steven Sintros: Yes. I think in the quarter, compared to year-over-year, we're still sort of flat, or maybe even up a tenth or something in merchandise, but compared to our expectations, we saw some benefit there. And to answer your question, I think clearly now we feel like we're seeing that flattening, right? We've been growing. We started to see some early signs of flattening, and we really are seeing that now. And just as a reminder generally more than two-thirds of the merchandise is just regular replacement merchandise for existing accounts, and about a third is related to new accounts. So even with new accounts higher, yes, we're seeing some benefits in that area, which are great to see.
Shane O'Connor: Yes, the only thing I'll add to that is as we came into the year, we had sort of messaged that merchandise was starting to flatten. And we had indicated that maybe we were looking at 10 basis points headwinds during the year. Based on what we've seen through six months, we've obviously seen some flattening in the additional ads to our merchandise and service. Again, the way that we account for our merchandise won't have as much of a meaningful impact on the current year, because we amortize that over an extended life. At this point in time, when I take a look at the year, I'm looking at merchandise being relatively flat or maybe a slight benefit around 10 basis points. But again, because of the way that we account for that, that trend will aggregate over time.
Andy Wittmann: Okay, that's helpful. I guess I'm just going to ask one question maybe on the top line here, because I'm hearing some puts and takes. I'm hearing 10% increase in new account installs, which sounds like a really good performance year-over-year, and would otherwise suggest that maybe potentially, I guess the question is, do you think, can that lead to an inflection in your growth rate from here, just given that you installed a lot of new business in the quarter? And I guess, previously, you were kind of share you were talking about the revenue being maybe on the lower end of guidance. And so does the sales performance change that commentary or does the ad stop, are now more flat instead of positive like you were getting a year ago? Does that have an effect? I guess, ultimately, do you still like the low end of the revenue guidance or are you more positive this quarter given the factors that you saw play out?
Shane O'Connor: Yes, we're probably right down the middle there, Andy. And I think that the guidance reflects that, right? I think all we did on the top line guidance was sort of narrow the range and shift it a bit to reflect the commentary we made last quarter. And I do think the impact of some of those things you're mentioning, whether it be the impact of solid new account sales, price, ads reductions, all of those things kind of have us looking very much in the same place that we were a few months ago, I guess.
Operator: Our next question comes from the line of Joshua Chan with UBS.
Joshua Chan: Hi. Good morning, Steve and Shane. Good morning. On your Core Laundry margin, I guess even if you add back the 50 basis points of legal, it still seems that it's down versus last year. And kind of could you help us understand then what drives margin expansion in the second half, because I think that's what you need to get to your midpoint.
Steven Sintros: Yes. I can add some additional light there. I'll start with saying that our second quarter from a profitability perspective is seasonally our lowest quarter because of certain items that annually land in that quarter. So if you take a look at our history, it usually is our lowest quarter. When you take a look at the year-over-year trend, some of the other things that are contributing to that margin headwind would be the acquisition of Clean, which accounts for about 20 basis points. We've made investments that we've talked about over the last year, primarily in the second half of 2023 and our corporate capabilities, which have contributed 20 to 30 basis points to that margin headwind. Energy was a benefit of 40 basis points. And then there were a number of other items that happened within the second quarter, which contributed to some additional expenses, a lot of which were anticipated and originally provided for in our guidance. As an example during this second quarter we had two new facility openings and usually there's incremental expenses that we incur as we get those facilities up and running and stabilized. There were certain selling incentives that landed during the quarter that were previously or in past years were timed in different quarters. And then there were a number of other items and timing items that happened in our second quarter that contributed to that delta of 30 to 40 basis points. Again the seasonality as well as some of these items were largely provided for in our original guidance and as we look throughout the remainder of the year, we are expecting that margin will trend northward of maybe our 2Q experience.
Joshua Chan: That's really helpful color, yes, thank you for breaking that down. As my follow-up, could you talk about your CRM and now that you've had that for a while at least in the US, could you talk about the progress towards capturing any savings and what, how you expect those to trend over the coming years? Thank you.
Steven Sintros: Yes. I think certainly I made the comments in my prepared remarks that when you change the system like we had there's a lot of learning, there's a lot of change management I think the teams are becoming much more comfortable kind of optimizing the use of the new system and we've always talked about that one of the areas that we expect the benefit from with the CRM is sort of increased merchandise management with kind of a more sophisticated barcode technology and some other controls and I think that's partially maybe what we're starting to see with the improvements in merchandise. I think over the last couple years as we were deploying the new system. There was probably incrementally some additional cost as we transitioned and re-bar coded a lot of our garments, but we're through most of that now, and I think we expect that to start to smooth out. So I think that's one of the biggest areas, and I just think the efficiency in kind of the day-to-day planned operations, I mean, when you think about our cost structure, merchandise is such a big part of it, and then efficiency in the plans as well. And then we've always said kind of the service execution side of it with the automation we're giving our route drivers is a big part, and although there was change management, we have been happy with the adoption of the new technology by our frontline service workers, and I think the more they continue to get comfortable with that, it's just going to provide for that enhanced customer experience, which will help our overall growth over time.
Operator: Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Steven for closing remarks.
Steven Sintros: Well, thank you. I'd like to thank everyone for joining us today to review our second quarter results, and we look forward to speaking with you again in June when we expect to be reporting our third quarter performance. Thank you, and have a great day.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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