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G&K Services Reports Fiscal 2012 Fourth Quarter Results

G&K Services, Inc. (NASDAQ: GKSR) today reported operating results for the fourth quarter of its fiscal year 2012, which ended on June 30, 2012. Fourth quarter revenue grew by 4.8 percent to $224.3 million, up from $214.0 million in the prior-year period.

The company reported fourth quarter net earnings of $0.59 per diluted share, a 20 percent increase from adjusted earnings of $0.49 per diluted share in the prior-year period. Adjusted earnings in the prior year excluded a charge of $0.08 per share related to plant consolidation and restructuring activities (see reconciliation table).

“The fourth quarter was a strong finish to a strong year for G&K,” said Douglas A. Milroy, Chief Executive Officer. “Over the past three years we have made lasting improvements in our business, which are clearly reflected in our financial results. Fourth quarter revenue, operating margin, earnings per share, and return on invested capital all reached new high points since the initiation of our game plan. Moving into fiscal 2013, we will build on these successes to drive continued performance gains.”

Income Statement Review Fourth quarter revenue from rental operations grew solidly to $204.1 million, up from $194.0 million in the prior-year quarter. The rental organic growth rate was 5.8 percent. The organic growth rate is calculated using revenue adjusted for foreign currency exchange rate differences, acquisitions and divestitures. Rental organic growth was primarily driven by continued strong new account sales, increased revenue from existing rental customers, and improved pricing. Fourth quarter direct sales grew by 1.0 percent to $20.2 million, up from $20.0 million in the prior-year.

Fourth quarter operating margin expanded to 8.7 percent, a 100 basis point improvement from an adjusted operating margin of 7.7 percent in the prior-year. The prior-year adjusted operating margin excluded the impact of the previously mentioned charge related to plant consolidation and restructuring activities. The operating margin increase was driven by revenue growth leveraging fixed costs, lower selling and administrative expenses, and lower rental production and delivery costs as a percentage of revenue. These improvements were partially offset by an expected increase in rental merchandise expense and lower direct sale gross margins.

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