UniFirst Corp (UNF) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the third-quarter earnings call.

During the presentation, all participants will be in a listen-only mode.

Afterwards, we will conduct a question-and-answer session.

(Operator Instructions)

I would now like to turn the conference over to Steven Sintros, Chief Financial Officer.

Please go ahead.

Thank you, and welcome to the UniFirst Corporation conference call to review our third-quarter results for fiscal 2013 and to discuss our expectations going forward.

I am Steven Sintros, UniFirst's Chief Financial Officer.

Joining me today is Ronald Croatti, UniFirst's President and Chief Executive Officer.

This call will be on a listen-only mode until we complete our prepared remarks.

Now before I turn the call over to Ron, I would like to give 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 factors, including, but not limited to, the continued availability of credit and the performance of capital markets, the performance of acquisitions, fluctuations in the cost of materials, fuel and labor, and the outcome of pending and future legal and environmental matters.

I refer you to our discussion of our risk factors in our most recent 10-K and 10-Q filings with the Securities and Exchange Commission.

Now I will turn the call over to Ron Croatti for his comments.

Thanks, Steve, and welcome to all of you joining us for a review of our UniFirst third-quarter financial results for fiscal 2013.

As always, I will provide you with a brief overview of our performance, then I will turn it back over to Steve to elaborate on the details.

I am pleased to report the Company revenue for the third quarter of fiscal 2013 set another new record for UniFirst at $335.8 million, a 4.6% increase over the $320.9 million reported the same quarter in 2012.

Net income was also a new third-quarter record, coming in at $28.7 million, a 23.6% improvement over the same period last year, after adjusting for a large gain recognized in 2012 third quarter related to a legal settlement.

Our Core Laundry operations, which account for the majority of UniFirst's business, led the Company's performance during the quarter with a revenue increase of 5.9% and an operating income improving by 30.5% over 2012 third-quarter results.

Again, that is after the adjustment for the last year's legal settlement.

Both revenues and operating income were new third-quarter records for the segment.

As for Specialty Garments segment, which is made up of specialized nuclear clean-room operations, this group reported a third-quarter dip of 10% revenues and a 29% drop in operating income when compared to the same quarter in 2012.

As stated in previous webcasts, however, we expect this segment to show improvement, with the nuclear division getting involved with several new reactor projects in the US and Canada in the coming years, and the clean-room division further capitalizing on the solid presence of the ultraclean niche markets they serve.

Our First Aid and Safety segment, which is made up of our route-based first aid service, pharmaceutical packaging and wholesale operations, continued reporting solid growth in the third quarter, increasing revenue by 11.2% and improved operating income by 36.7% when comparing quarter to quarter to 2012.

And we fully expect this segment to continue the positive trend to close out the year strong.

We are happy with UniFirst's overall third-quarter results and continued financial success.

In fact, UniFirst was recently recognized for financial performance by the Boston Globe on its Globe 100 list as a result of continuous growth in revenue profits and return to our shareholder equity.

We are proud to be one of only four companies that have made the Massachusetts-based public list company every year since the annual ranking began 25 years ago.

So we would like to thank the Boston Globe for their continued recognition of UniFirst.

New sales at our Core Laundry business remained a catalyst for ongoing organic growth.

And throughout the third quarter, sales continue to track well, complemented by improvements in both sales rep turnover and rep work weeks.

Additionally, our service sales showed solid gains over 2012, largely due to ongoing route sales promotions and introduced new ancillary products and service to existing customers throughout the year.

We continue to hold our professional sales team accountable for continuous improvement, while providing our reps and managers with increased level of sales training and support.

The goals are to ensure there is a continual focus on both process and productivity at all sales levels and to help individuals gain incremental success and keep them personally motivated and involved as a contributor.

As for investment in the sales rep productivity, in the third quarter, we began the process of converting the handheld device that all our sales reps use from an older-generation BlackBerry over to the latest-generation iPad tablets.

These devices with customized applications provide more effective prospect managing, allow for greater flexibility in scheduling, recording activity and reports.

The iPad system also provides reps with new, high-quality presentation capabilities to help them share our story more effectively to prospective customers.

Companywide rollout has begun and been going smoothly, and we expect to see measurable benefits in 2014.

So as we look toward the remainder of fiscal 2013 and into 2014, we will be staying the course as far as our business strategies are concerned.

We believe although economic conditions may be stabilized, the recession recovery process will remain a slow one.

So we will ensure all our team members and partners remain flexible and financially responsible, and we will continue concentrating on the factors we can control to help maintain our growth.

These include keeping customers through service excellence and cost-saving advantages, selling aggressively into existing and new markets, committing to cost control and creative management to save dollars without sacrificing service to our customers or product quality.

It is this basic model we've maintained for the last five or so years and it has proven to be successful.

That said, we are confident at year-end that we will be reporting another year of solid growth and returns from our team partners and our shareholders.

Now I would like to turn the call back to Steve.

Thanks, Ron.

Revenues were $335.8 million, up 4.6% from $320.9 million a year ago.

Net income was $28.7 million in the quarter, or $1.43 per diluted share, compared to $27.5 million or $1.37 per diluted share reported in the year-ago period.

The results of the third quarter of fiscal 2012 included the positive effect of a settlement related to environmental litigation.

The settlement resulted in a $6.7 million gain, which was recorded as a reduction of selling and administrative expenses in the third quarter of 2012.

Diluted earnings per share for the third quarter of 2012 adjusted to eliminate the effect of the gain was $1.16.

Current-quarter diluted earnings per share increased 23.3% compared to the adjusted earnings from a year ago.

Third-quarter revenues in the Core Laundry operations were $297.7 million, up 5.9% from those reported in the prior year's third-quarter.

The impact of certain small acquisitions offset the slightly negative impact of a weaker Canadian dollar, leaving organic growth for the quarter for the Core Laundry at 5.9%.

The Company's revenues continue to benefit from solid new account sales.

In addition, certain annual price adjustments as well as higher collections of merchandise recovery charges also contributed to the revenue growth during the quarter.

Wearer additions versus reductions were negative in the third quarter and remain negative year to date.

We did see some modest improvement in these metrics sequentially compared to the second quarter.

This segment income from operations increased 36.5% compared to the third quarter of fiscal 2012, when adjusted to exclude the impact of the $6.7 million gain I referred to earlier.

Operating margin for the quarter was 13.6% compared to an adjusted operating margin of 10.5% a year ago.

Increased profitability in this segment was primarily the result of improved operating leverage that came with our revenue growth.

Expenses related to merchandise, payroll and energy were all lower as a percentage of revenue compared to the prior year.

Our operating results continue to benefit from improvements in some of our historically underperforming laundry plants.

These gains, as well as strong execution in our plant operations, as well as in the collection of merchandise recovery charges, have helped our overall margins.

In addition, comparisons were positively impacted by amounts that were expensed in the third quarter of fiscal 2012 related to the Company's initiative to update our CRM computer systems.

Energy costs for the quarter were 5.4% compared to 5.6% a year ago, primarily due to lower fuel costs for our fleet of delivery vehicles as a percentage of revenues.

Revenues for our Specialty Garments segment, which consists of nuclear decontamination and clean-room operations, were $26.3 million for the quarter, down 10% from $29.3 million in the third quarter of fiscal 2012.

This segment had income from operations for the quarter of $3.6 million, down from $5 million in the same quarter a year ago.

Year-to-date, this segment's revenues and operating income are down 7.5% and 32.6%, respectively.

This decline is primarily due to the completion of two major projects in the latter part of fiscal 2012.

Weaker results from this segment's European operations due to the shutdown of several nuclear power reactors in Germany has also impacted comparisons.

In addition, a number of outages scheduled for this year have been delayed or not materialized at the levels expected.

First Aid segment revenues increased 11.2% to $11.7 million in the quarter compared to $10.5 million in the same quarter a year ago.

Income from operations for this segment increased to $1.9 million from $1.4 million in 2012.

All facets of this segment's operations, including the van operations, pill packaging and wholesale distribution operations, all contributed to a strong result in the quarter and year-to-date periods.

The income tax rate for the quarter was 37.3% compared to 35.2% for the third quarter of fiscal 2012.

The increase in effective tax rate is due primarily to the fact that the 2012 rate benefited from the reversal of tax contingency reserves related to the resolution of certain state tax audits.

We fully expect our full-year fiscal 2013 effective income tax rate to be approximately 38.3%.

Our balance sheet and overall financial position continue to be very strong.

At the end of the third quarter, the Company had $175.6 million of cash and cash equivalents on hand, up from $120.1 million at the end of fiscal 2012.

Of this amount, $60.1 million has been accumulated by our foreign subsidiaries and is intended for future investments outside the United States.

As of the quarter-end, total debt was $110.9 million and total debt as a percent of capital was 10.1%.

For the first nine months of the fiscal year, cash provided from operating activities was $139.5 million, up 30% from $106.8 million for the same period a year ago.

The increase is primarily due to higher net income, as well as lower cash outflows related to working capital.

Capital expenditures for the first nine months of 2013 were $81.1 million.

The higher capital expenditure level is partially the result of costs related to our Unity 20/20 CRM system project.

Year-to-date, we have capitalized $16.4 million related to this project.

In addition, this year's expenditures to date, including the purchase of a building for a new laundry plant in the first quarter, as well as costs related to two plant reconstruction projects.

We now expect capital expenditures for fiscal 2013 to be between $95 million and $100 million.

We continue to invest in plant updates, expansions and automation that will allow us to achieve our long-term strategic objectives.

We also continue to look for acquisition targets as acquisitions remain an integral part of our overall growth strategy.

As always, we'd like to take this opportunity to provide you with an update regarding our outlook for the remainder of the fiscal year.

We continue to expect that revenues for the full year will be between $1.344 billion and $1.354 billion.

At this time, based on our results year-to-date, we expect that our full-year revenues will come in at the higher end of this previously communicated range.

Based on the weaker-than-expected results from our Specialty Garment segment in the third quarter and the fourth quarter outlook for this segment, we are reducing and narrowing our full-year profit guidance to a range of $5.60 per share to $5.70 a share from a previous communicated range of $5.65 a share to $5.80 per share.

As we have mentioned in the past, factors such as the timing and length of reactor outages and other projects, as well as the funding for projects from both government and private sources, can significantly impact this segment's revenues and profits and make forecasting its results challenging.

In addition, our outlook for the remainder of the year was impacted by higher-than-expected investments in new merchandise and service made by our Core Laundry operation during the third quarter.

Although a certain amount of uptick in merchandise investments is typical this time of year, this is a trend we are closely watching to determine the impact that merchandise amortization will have on our operating margins as we look to next year.

We would like to remind you that fiscal 2013 will be a 53-week year compared to 2012.

This nuance in our fiscal calendar will have the impact of increasing revenues and operating income for the full year approximately 2% compared to 2012.

The extra week will fall in our fiscal fourth quarter and provide the fourth quarter additional revenue and operating income growth of approximately 8%.

As we discussed last quarter, we anticipate mid-single-digit top-line growth to be a reality looking ahead to fiscal 2014, absent further improvement in the overall economic landscape or more significant acquisition activity.

In addition, as we've mentioned in past calls, deployment and other transition costs, as well as the eventual depreciation of our Unity 20/20 CRM system investment, will pressure margins going forward.

We also continue to evaluate the impact that the Affordable Care Act will have on our overall cost structure in future years.

We look forward to updating you regarding these items in the upcoming quarters.

This completes our prepared remarks.

We will now be happy to answer any questions you might have.

(Operator Instructions) Andy Debes, KeyBanc Capital Markets.

Good morning, guys.

This is Andy filling in for Joe.

Just wanted to first kind of dive into the organic growth rate in the Core Laundry segment.

Obviously, moderated, as expected, here in the back half.

But I wanted to know if you could kind of parse into whether or not you are seeing any new account activity actually slow, or any other material slowdown in the business, or if it is really just the function of the tougher comps that you guys expected.

I think it is really more the tougher comps.

Our sales force is still writing -- is actually writing more dollars than we wrote last year.

The prospects are still out there on the (inaudible) programmers.

People are basically purchasing direct sales accounts, are a prime target to convert.

So I think we basically see things pretty consistent, is my answer to you.

I guess then maybe also, just to get a bit more granular, anything you are seeing or hearing from those existing customers that -- I know you mentioned add/quits are down again in the quarter.

But any bright spots out there, or is it still the general hesitancy to add headcount among all customers?

I think it is more related by industry.

Last year and the year before, basically the energy industry was a big push.

That slowed a little bit.

I think what we are seeing now is a lot of smaller accounts that want to be competitive down the street with their other competitor.

And they are a pretty easy sale or a good opportunity for a sale to get them into an image and identity program.

I think the larger accounts are still working on the committee type selling arrangements that take longer to do, to be honest.

So I guess the bottom line is it is fairly consistent.

Okay, that's helpful.

And then just to check up on it, you had mentioned about 5% organic in the back half.

Taking the growth rate in 3Q, that implies about 4% in the last quarter.

Is that still a reasonable way to think about it, or any expectations changed there?

No, I think organic in the fourth quarter for the Laundry should still be in that 5% range, with the difference coming from a little bit of shortfall in nuclear.

Okay, that's helpful.

And then the only -- the other thing I wanted to comment on, Steve, we talked a bit last quarter about the need for increased investment to support recent growth.

I think the expectation was for SG&A to be flat to even up slightly, whereas it came in lower on both a dollar basis and a percent of revenue basis.

Can you maybe just give a little more detail around some of the moving pieces you noted in the press release and maybe help us clarify whether we should still expect that to flatten or move higher as we get into the last quarter and particularly 2014?

I think the comparison, if you are looking at compared to the prior year, SG&A being lower, as we mentioned in the press release, in my comments, there were some costs related to our systems project that didn't qualify for capitalization earlier on in the project that we expensed a year ago.

So that helped comps on the SG&A line year-over-year.

But overall, I think we still expect the trend to be kind of a flattening and ultimately increasing of the SG&A line as we continue to invest in sales.

And then some of the other support and transition costs, we expect to incur related to the systems project as we move especially into the second half of next year will have that line tick up as well.

Sure, great.

That's all for me.

Thanks, guys.

Andrew Steinerman, JPMorgan.

Hi.

This is Molly McGarrett for Andrew.

Could you just break out the margin impact from the various expense buckets for third quarter, so the lower merchandise, energy and payroll costs?

We mentioned the energy, which was about 2/10 of a point, Molly.

The merchandise was about 7/10, I believe.

I don't have the payroll in front of me, but it was probably similar to the merchandise.

I think we don't want to get into kind of breaking down every piece, but I know we've talked about the merchandise and we continue to talk about the energy.

So I'm happy to provide that color.

Merchandise is something we are continuing to watch.

It was still a benefit for the quarter, but like I said in my comments, the infusion of merchandise was a little higher than expected during the quarter and something we are keeping an eye on.

Okay, thanks.

And could you also give an update -- I know it is still early days -- but on your thinking about the healthcare regulations and what kind of impact that could be going forward?

I think, Molly, we are still in a -- we are still in discussions and really don't have a firm direction.

We are working with a consulting company.

And I really can't give you anything at this point.

Do you want to add to that, Steve?

No, I think that with all the changes, there are new products, new options for companies emerging every day and every month.

And I think we are in the collection mode to figure out what options are available for us and our employees so we can continue to provide affordable health care for them at a reasonable cost to both them and the company.

As Ron said, I think we are still in the evaluation stage.

And I think as we've mentioned in the past, our adoption of those regulations is a little on the later end; because of our fiscal and benefit plan year, we are not required to comply until September of 2014, so not until our fiscal 2015 year.

So we are looking and learning from others as they start to implement these rules.

Got it.

Thanks, guys.

Chris McGinnis, Sidoti.

Good morning.

Thanks for taking my questions.

I just wanted to ask -- I guess just on the -- originally, on the $40 million investment for the CRM and the improvements on the infrastructure, can you just maybe talk about the payback period you expect on that and maybe how that impacts positively maybe 2015?

Yes, I think as it relates to the systems project, there will be costs associated with the depreciation of the system when it goes live and some deployment and transition costs toward the later part of 2014.

Certainly once it is deployed and settles down, there will be some positives from administrative cost reduction.

And really the largest benefit we expect to get from the new system is tightening up our service systems, improving customer satisfaction and ultimately our lost accounts.

That is really the ultimate goal for the system.

That is not going to be an immediate process.

I'd hesitate to say in 2015 you will see the benefits come flooding in.

I think it will be something that as we deploy it and settle down the new system, it will help us in the upcoming years.

So it really is a long-term investment in a system that we expect to use for a long time.

Sure.

And then I guess if you are thinking of it that way, in terms of when you were selecting it and looking at it, what was maybe the expected either gain on sales, or however -- what are the big points that made you -- obviously, it is going to provide a lot of efficiencies.

But was it like an 8% ramp?

I think the efficiencies are not -- they are important.

I think we will get those.

But [all] focus is on the customer, the customer retention side.

I think we will be able to improve our customer retention; rather than the 8% or 8.5% that we normally lose today, I think we will be able to make some good gains in that.

Great.

I appreciate that, Ron.

That is really what it is going to come down to.

Sure (multiple speakers).

-- a differentiator on the sales side.

I mean, you've got people who have handheld devices and so forth.

This is coming out entirely different.

Is that an upgrade even from the -- you mentioned it earlier -- just on the iPad, switchover from the BlackBerry?

The iPad, the salesforce ran for -- I don't know, five, six years on BlackBerry, maybe.

They now have iPads, streaming videos.

In the old days, we used to call it a brag book.

That is now on the iPad form.

There is a lot of stuff, there is a lot of training material right on there.

Before you go in and see an account, you can refresh your memory on how to sell a HASP account or whatever the case may be.

So that is a separate project, and that is going to be an ongoing project.

What we call Unity 20/20 is a service project, billing project.

We hope to have the most friendly bill.

Obviously portals, obviously electronic payment.

The list is long of the changes that we are making.

Just to clarify, Chris, I think Ron is alluding to the iPads are for our professional salesforce.

Those are out there now, providing additional functionality.

Unity 20/20 Is for the service systems, the route drivers, the service management and have that service focus.

So that is the difference.

Sure, I appreciate that.

I guess the important point is the 8% churn that you are talking about and trying to drive that lower, obviously.

That's the whole thing.

Just on the fire retardant, obviously, it was a driver over the last number of years for the industry itself.

Could you just maybe talk about where that is growing?

And you mentioned energy is obviously one of the tougher comps.

I think we are primarily in the -- I guess you would call it Texas/Oklahoma area.

It was very good for us all this time, Louisiana, Texas.

We are not in North Dakota.

So we have seen a general slowdown on the energy side probably in the last six months.

I think, again, it is a slowdown, but it is also just tougher comps.

We were growing in that product line significantly over the last two or three years.

The growth in that product line is probably still higher than our average, but it is moderating.

Sure.

All right.

That's what I was -- I was just wondering if it is still growing, or if that is starting to -- I knew it (multiple speakers) comps.

It is still growing.

It is still growing.

And then maybe just lastly, on kind of the consolidation in the industry.

Any changes?

It seemed like you were a little more positive last quarter.

Maybe how do you feel now, and is there anything in the environment that makes it change to maybe improve in your favor?

No, I'd say still consolidation is based basically on family issues in the smaller companies and some of the regional chains.

We talk to them all the time.

That's all I can tell you.

All right.

Thanks very much.

I appreciate it.

Andrew Wittmann, Robert W. Baird and Company.

Hi, guys.

Thanks for taking my question.

I guess wanted to build on that last one.

Just looking at the balance sheet, another quarter, a little bit more cash, Ron.

Do you think about redeployment options?

Is that -- I know I sound a little bit like a broken record on this one -- but is there any change in your level of motivation to do something with this cash today versus a year ago?

And how do you think about maybe about returning some of that to shareholders?

Number one, I think we have the use for the cash.

We have some stuff in the pipeline.

Whether they will materialize, I don't know at this point.

But we've been working the acquisition targets harder the last six months than we had the previous year.

So I'm confident that we will come up with something here.

So that is where the cash is going to go.

And we are using a lot of cash in this, even though it is going to be depreciated, our Unity project is an expensive project.

Just in terms of, Steve, maybe on the notes that come due this fall, is that just thinking about pay that off with cash on hand there and then put it in the revolver, or do you see yourself in the debt markets at all?

No, I think we are taking a hard look at the debt markets.

Obviously, rates are attractive, and I think longer-term, I think we want to keep the capacity to look at acquisitions and potentially, if they don't materialize, look at other options for the deployment, as you mentioned.

Okay, good.

That's all I had.

Thank you.

(inaudible), Jefferies.

Good morning.

Thank you for taking my question.

Can you please quantify the impact of -- the exact impact of revenue from collection this quarter and how it trended versus last quarter?

Then also, the revenue from the buyout this quarter and then how it trended from the last quarter, specifically on the Laundry, on the Core Laundry business?

Thank you.

So Dan, I think when you are talking about the merchandise recovery charges, which is something we alluded to, we don't break out that level of granularity with our revenue and the different components.

When you are talking about the merchandise buyout, we had a merchandise buyout last quarter that we specifically called out.

It was about $2.2 million last quarter, and that did not reoccur again.

That was a specific situation with a particular customer, which we called out last quarter.

And that did not repeat in this quarter.

Understood.

Thank you.

And I just had one more follow-on question.

It seems like in the past two years, your growth has been in the high single digits in the Core Laundry business.

And now, we are looking more in the mid-single digits.

Is this something we should be expecting over the next few years?

Or is there [structural] decline in the growth, or it is just because of the bad economy?

I'm just trying to understand why the growth has decelerated from those high levels to a more modest level.

Thank you.

We've been talking about it for really the last eight or nine -- nine months or so.

And there has been several reasons why our growth has been higher than either the industry average or what you might expect in not that great of an economy.

We talked a little earlier in this call about the boom in flame-resisting garments and energy exploration and different parts of the country, which we have participated fully in.

We are very strong in those parts of the country.

That product line has grown substantially over the last few years.

We've talked about the strength in our national account sales, where we've done a better job participating in large account sales maybe than we have in the past.

We talk about the pricing environment.

We think we've done a good job continuing to push price with our customers.

And included in that is making sure we execute on the recovery of extra charges when it is warranted.

So these are the improvements that we feel that we've made, some of them structurally, but now we are dealing with tougher comparisons.

And some of those things are starting to slow down.

The flame-resistant growth is certainly moderating.

And some of the improvements we've made in other areas are moderating at a higher level.

And I think that growth in some of those things have helped lead to our higher margins in the last couple years, but from a growth standpoint, we are starting to annualize some of those improvements.

And so we've made the comment for the last couple quarters now that, yes, for the next couple years, we think that mid-single-digit growth, absent acquisitions or uptick in the economy where we can really see some pull from wearers, is more of a reality.

That is very helpful.

Thank you very much.

(Operator Instructions) Kevin Steinke, Barrington Research.

Good morning.

Steve, I just had a follow-up question on the higher-than-expected investments in merchandise in the quarter that you referenced.

Do you have any additional clarity on what might have driven that?

As you are aware, I mean, we have over 200,000 customers; we continue to invest merchandise on a day-to-day basis.

A portion of those merchandise additions relate to new accounts.

But really, the larger portion relate to just replacement of garments in our customer base, whether it is just garments have worn out, customer needs a new image, we are renewing a contract and redressing the account.

So there is a number of different areas that drive that merchandise investment.

The level of that investment ebbs and flows, and it can ebb and flow for a number of different reasons.

I'm not sure I can give you too many specifics on exactly why over the last couple months it ran a little higher.

As I alluded to, it typically does in the springtime a little bit.

But we thought that the investment was a little higher than expected, and something that was worth watching and mentioning.

Sometimes competitive pressures in certain markets can lead to more uniform investments, as competitors are calling on accounts and offering to provide the service for a price incentive and redress with a new uniform program.

So those things are things we address location by location, market by market.

So I'm not sure I have a silver bullet to tell you why they were a little higher the last couple months, but it was something we thought worth mentioning.

Okay.

I appreciate that.

That's helpful.

And when you were discussing CapEx, you talked a little bit about you've made some updates to laundry plants and you are going to continue to do that.

Is there anything that could move the needle materially in terms of improving productivity of plants and perhaps benefiting margins in the future?

Or is that just kind of an ongoing reinvestment that is just kind of your continual improvement process?

Well, the technology improvement in the facilities is ongoing.

That is just the way we are doing the plants, that we are replacing, or older plants that came in an acquisition.

So the technologies our key.

We keep putting in automated equipment, automated sortation, most up-to-date equipment we can get our hands on.

Software; so that's going to be a continual investment.

And obviously, there is a payback.

Okay, good.

And sorry if I missed this, but just the outlook on the Specialty Garment segment being a little weaker than expected in the fourth quarter.

Is that just due to lighter overall activity, or is it the push-forward of projects that you expected that are now going to maybe come later?

How do you see that playing out?

I know it's kind of difficult to predict quarter to quarter, but any additional color, please.

It's a little bit of both.

I think we expected a little heavier spring outage season than materialized.

There were some projects that were scheduled for the fourth quarter -- if you look at our last-year fourth quarter -- fourth quarter is typically down for this segment.

We expected this year's to be a little bit better than last year's as a result of some projects, particularly in Europe, that were scheduled to come in.

Those are now delayed, some of them indefinitely; some of them have been pushed out and may land in the early part of next year.

So it is really a little bit of everything that you mentioned, and they came in a little short.

Okay, and last one for me is as you look to fiscal 2014 -- and I know you are not providing guidance at this time -- but I believe you talked about last quarter, operating margins perhaps peaking in the near-term in fiscal 2013.

Is that still how you are thinking about things as we move into fiscal 2014?

I think so.

The guidance assumes we kind of end this year pretty close to 14% operating margin, for the Laundries anyway.

And looking back, that is pretty much as high as we've been.

Now, merchandise is a key element to that.

That is why I've signaled it is something we are keeping an eye on.

We will have a better idea next quarter when we give our guidance what we think for next year.

But I think we will work to hold that margin, but there are some things that -- with the investments we are making that in the short-term may pressure that.

And so I think we feel the same as we did last quarter.

It is something we are continuing to work on holding.

Okay, thanks for all the detail.

There are no further questions registered.

We would like to thank you all again for the interest in our Company and look forward to speaking to you in the fall, when we are reporting on UniFirst's fourth-quarter and year-end results for fiscal 2013.

Thank you, and have a great day.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your lines.