Ladies and gentlemen, thank you for standing by. Welcome to the Unifirst Corporation First Quarter Earnings Results conference call. During the presentation, all participants will be in a listen-only mode. Afterwards we will conduct a question and answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press the star followed by the zero. I would now like to turn the conference over to Mr. Steve Sintros, Chief Financial Officer at Unifirst Corporation. Please go ahead, sir.

Thank you and welcome to the Unifirst Corporation conference call to review our first quarter results for fiscal 2011 and to discuss our expectations going forward. I’m 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 costs of materials, fuel and labor, and the outcome of pending and future and litigation and environmental matters. I refer you to our discussion of these points in our most recent Form 10-K filing with the Securities and Exchange Commission. Now I will turn the call over to Ron Croatti for his comments.

Thank you, Steve. I’d like to welcome all of you who are joining us for the review of our first quarter fiscal 2011, a period that once again produced record revenues and profits for our Company. Steve will cover the details in a few minutes, but let me start with a short summary. Revenues for the first quarter of fiscal 2011 were a record 273.1 million, a 6.6% increase over the 256.2 million reported for the same period a year ago. A major upside influence came from better than expected growth in our core laundry business with operations showing an increase of 5.7% over last year’s first quarter. These results were complimented by a record-setting revenue for both our specialty garments and our first aid business as well. Specialty garments, which is made up of our nuclear and clean-room operations, showed a 12.8% revenue increase on a quarter to quarter basis this year compared to last. This improvement reflects strong activities with U.S. and Canadian customers and continued positive results from our European expansion efforts and improved safety supply sales. Our first aid business reported a 14.3% revenue increase over the same period in fiscal 2010. The record-setting performance was primarily the result of private label wholesale distribution in pharmaceutical packaging areas continuing to develop and capitalize on the respective niche markets. Unifirst net income for the first quarter of 2011 was up slightly over last year’s comparable period, reporting 23.8 million versus 23.6 million a year ago. At the most basic level, Unifirst is a service company. In our core laundry operations, we continue to reap benefits from our ongoing commitment to provide consistently high service levels and product quality to our customers. We are also seeing positive results from our internal training certification programs for all our service…

Thanks, Ron. As Ron mentioned, first quarter revenues were up 6.6% compared to the first quarter of fiscal 2010. Net income for the first quarter was 23.8 million or $1.20 per diluted common share, a slight increase from the first quarter of fiscal 2010 when net income was 23.6 million or $1.21 per share. The earnings per diluted common share for the current quarter were negatively impacted by approximately $0.02 per share due to the dilutive effect of the restricted stock issued to our CEO in April 2010. Our core laundry revenues were 238.7 million in the first quarter, up 5.7% from those reported in the same period a year ago. After excluding the positive effect of acquisitions, which contributed 1.2%, as well as a stronger Canadian dollar which contributed 0.3%, the Company’s core laundry revenues increased 4.2% organically. Our year-over-year growth was the result of improvements in our key growth metrics. New sales and customer retention improved modestly in the first quarter compared to a year ago. In addition, our measure of the change in wearers at our existing accounts, which we call additions versus reductions, significantly improved compared to the same quarter last year. Higher makeup, emblem and lost garment charges also contributed to the overall growth. These charges had declined in the past two years as there was less turnover of wearers at our customers. Our core laundry revenues also increased sequentially 5.2% from the fourth quarter of fiscal 2010, of which 4.8% was organic. Our core laundry revenues typically show the biggest sequential increase between our fourth and first quarters due to several factors. Our first quarter is generally our strongest quarter for new sales. Our first quarter experience is a bump in volume from seasonal school and mat-related business, and our annual contract price adjustments…

Thank you. Ladies and gentlemen, if you would like to register a question please press the one followed by the four on your keypad. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. If you are using a speakerphone, please lift your handset before entering your request. Our first question is from the line of John Healy with Northcoast Research. Please proceed with your question.

Good morning guys and happy new year. I wanted to ask a little bit about the cost side of the business, Steve. You mentioned that we should be on the lookout for higher merchandise costs as a percentage of sales. Is there any way you could talk about how much merchandise costs are as a percentage of sales, and maybe where they got to, maybe where they are in a normal environment, and maybe where they go back to?

Yeah, I guess I can give you a little color there, John. In October I mentioned that I thought during the year, that our merchandise costs would be 1.5% higher in fiscal 2011 than fiscal 2010. In the first quarter as part of the margin decline, the merchandise cost was about eight-tenths higher than the prior year, so with more sequential deterioration of that merchandise, we expect that we’ll approach that original number that I quoted in October. That will not quite get us back to where merchandise was at its peak in, say, 2006 or 2007; but it will get it relatively close. So I don’t want to get into too much of what we think about 2012, but there might be a little bit more headwind for merchandise as we move into 2012, but then it should kind of annualize and stabilize at a more historical level. You know, we’ve never given out the actual percentage of revenues that merchandise is, but that should give you some color as to how much further we have to go.

Okay, that’s helpful. And a question for you, Ron, just about what you’re seeing out there in the economy. I was curious to get your thoughts with maybe what you’ve seen over the past three or four weeks with the holiday season, if you’ve seen your industrial customers shutting plants down and idling them longer than normal. Are they—is activity level on that side of the business good? Just any color you could provide with kind of typical holiday shutdowns and maybe how it compares to what you’ve seen in the past or what you saw last year.

John, I think basically what we’ve seen is the layoffs have basically slowed way, way down. We’re not seeing anybody really adding people but we’re just about at a breakeven basis on the add-reduction side. And as far as the holidays, I think they fell back to being more 2007 level where guys just closed—the basic companies just closed one week. We didn’t see any extended layoffs for a month or shutdowns for a month like we did in ’09 and ’10. So we think things are coming back slowly.

That’s encouraging. And then just last question for you, Ron – it seems like you gave a little more commentary about the pricing environment on this call than maybe you’ve said in the past. I was curious to get your thoughts on where we are today from a wearer level on a daily basis, for what it costs to wear a uniform. And I’m curious to get your thoughts if you think we’re at a new normal, or do you think that over the next two or three years you guys can begin to have price increases as a normal part of your organic growth strategy?

Oh, I think the answer to your first question – I think we could all do a better job getting price increases, and I think that we’re going to be forced to do it because of labor costs and material costs and so forth. I think the basic pricing of the street business has probably deteriorated probably in the 5 to 8% range. The national account pricing has deteriorated substantially more, maybe in the 10 to 12% range. But I think like anything else, inflation will be coming back and we’ll all be forced to get price increases.

Okay, thank you.

Thank you. Our next question is from the line of Andrew Steinerman with JPMorgan. Please proceed with your question.

Hi, this is Molly McGarrett for Andrew. Just one more quick question about pricing. You noted that annual contract price increases kicked in this quarter. Can you just talk about what kind of boost you saw this quarter versus past years?

Yeah, I think that we went through a similar process as we had in prior years. Over the last few years it’s been more challenging to hold any sort of price adjustments that we put through, and this year was no exception. So I would say similar to the last couple of years.

Okay, great. Thanks.

Thank you. Our next question is from the line of Andrew Whitman with Robert W. Baird. Please proceed with your question.

Good morning, guys. I wanted to dig a little bit more into kind of the new business that you’ve signed. You said that it’s a mix of no-programmers and some add-stops. Can you give us a sense about which one was greater – maybe break up the percentage of new business that you had between those two groups?

Well, I think the new business, we’ve seen a little more success on the national accounts side. We really don’t break it out as what comes from the street sales force and national accounts side. We don’t give those numbers out; but we’ve seen a little more success on the national accounts side. Our sales crew, the street force has continued to—you know, we measure it on a weekly productivity basis by rep, per dollar per rep, and that’s improved every year over the last four or five years; so we continue to monitor that productivity number. But answering you vaguely, we’ve done a better job on the national accounts side, I guess.

Yeah, I guess just a little follow-up there, Andrew – over the last few years we’ve talked about how a larger percentage of the wins have come from competitive situations. I think that’s still probably the case but it’s starting to turn a little bit. We’re seeing more no-programmer interest, more interest from people who maybe were in a direct sale program that are converting to a rental. So I don’t have the numbers for you, but we have seen some improvements there.

Okay, that sounds good. And then just a little bit more, kind of just wanted to dig on the cost structure a little bit. As you kind of look to the future, you mentioned some energy costs. You mentioned merchandise costs. Anything else that you’re focused on that maybe we aren’t thinking about? I saw a lot of people have kind of cited insurance premiums in the past as an area of concern, whether it would be legislation or just general increases that we’ve seen over the last couple of years. Is that an area that this is an anomaly kind of this quarter, that you see as a risk going forward; or are there any other kind of risks that you’re looking at on the cost structure side?

Yeah, I think you hit the nail on the head with the health insurance. I think this quarter was an anomaly. Over the last few years we’ve had over double-digit increases in the cost of healthcare that we absorbed in our numbers, and quarter-to-quarter the level of claims do jump around and this quarter we had a pretty successful quarter in that area. But that is an area of concern going forward and how the new legislation may impact us going forward. So it’s something we continue to work closely on with our HR consultants.

Okay. And then just kind of one other question, just thinking about the balance sheet and a little bit on capital allocation here. I saw that you reiterated guidance, $50 million to $60 million. Can you just talk a little bit about the acquisition environment? I mean, obviously just a small one here the first quarter. Can you talk about what’s out there today maybe versus a year ago? Is there distress out there with smaller companies? Where is pricing and how do you look at capital allocation for capital for your existing business versus acquisitions? You know, where is the priority?

We’re certainly looking into any opportunity out there that makes good business sense. We like the fill-in type acquisitions, there’s no question; but we’re still finding a sellers’ reluctance. They still have that same telephone number in their mind, and it takes some convincing to bring them down to reality. So the smaller guys are still out there, they’re still pulling a good week’s pay out of their business, and they’ve still got their telephone number. As we talk to the bigger guys, at this point, there’s no bigger guy ready to move forward that we can see. We’d certainly like them to, but again, everybody is hunkering down and hoping things come back and they can get their volume back and get more money. That’s what it amounts to. Do you want to add to that, Steve?

Yeah, I think that’s the challenge with volumes down from where they were three years ago. If someone was thinking about selling, they’re looking at multiples being a little bit lower, but also the base that those multiples are based on being down. And if they can do it, they’re trying to hang in there and wait until things come back a little bit. We are seeing some small ones that might feel a little financial distress here or there, but nothing of any real size.

Okay, so it sounds like just kind of in general, then, the bid aspect which has been wide isn’t really narrowing. Is that a fair way to kind of sum it up, maybe?

Yeah, I would agree.

Okay. And then just in terms of priorities, is that still a priority? Is there potential that with the balance sheet where it is that there might be considering a buyback? How else do you look at kind of discretionary cash?

Yeah, I think the nature is that we’ll continue to look at these acquisitions because the smaller tuck-in ones that we can meld into our existing operations can really be pretty accretive, and so that’s probably the first priority to the extent that we can find opportunities. After that, I think as the cash does accumulate, we will continue to look at our own valuation and see whether stock buybacks make sense. Right now, we have no formal plans, but that’s probably the order of priority.

Okay, sounds great. Thank you.

Thank you. (Operator instructions) And our next question is from the line of Chris McGinnis with Sidoti & Company. Please proceed with your question.

Good morning. I guess just digging into—you know, just with the guidance and today’s number. I guess I understand there’s going to be some compression coming in, but it just seems like with the beat today, at least the strong performance today – and this came up last quarter as well – you’re being a little too conservative on going forward. Can you dig us through a little bit deeper somehow to better translate what would be a pretty significant slowdown from Q1 to where you get to your full-year guidance?

Well, I think if you’re looking at the profit side, Chris – let’s hit that first. If you look at last year, our first quarter operating margin – I’m just looking at core laundry’s right now – was 15.7%, and the average margin over the remainder of the year was 11.5%. And some of the items I mentioned in the webcast – the pay rate increases January 1, some of the other kind of Q2-specific costs – as well as what continues to be sequentially higher merchandise, is what caused that last year to occur. And I think basically what we’re saying is that we anticipate the same trend happening this year. You know, embedded in the guidance assumes a similar margin decline from the second through fourth quarters of last year to the second through fourth quarters of this year. So on the cost side, that’s really the assumption. You know, we talked about a little bit last quarter that in our business, it’s a little bit difficult to project six, nine months out the relationship of merchandise costs to revenues because there isn’t necessarily a one-to-one relationship. It depends on your inventory of used stock and how much utilization you’re getting out of that for your needs, but that’s the assumption that’s embedded in there. So on the profit side, I think that’s the approach we’ve taken. We have a little bit lower tax rate this year as well that’s helping us out. It helped us in the first quarter. On the revenue side, similarly, last year and then typically the way it’s been with us is that our first quarter really kind of sets the tone for the year, and as we mentioned with some of our price adjustments being focused in the first quarter – and as Ron mentioned, pricing being challenging – what ends up happening over the remainder of the year is you end up giving some price back; and so there’s a little bit of a headwind, at least sequentially, through some of those other quarters. So if you look at last year and this year, what we’re saying is that they’re going to transpire relatively similarly based on the benchmark of the first quarter, and then specialty garments can be wildcard for us a little bit.

Right. And if you—this may be too much information, but if you back out maybe what you think is—not one-time items but of the 5.7% growth in the quarter itself on core laundry ops, if you back out the price and all that, what was your—can you talk about your growth rate? I guess—you know what I mean? A little bit stronger on the core, I guess, driver of more additional wearers in the base coming into the quarter?

Yeah. You know, we’re not going to give out the components of the growth. I think what we can say is that similar to prior years, we try to get a 1.5%-plus bump from pricing. It’s a challenge to do that in this economy, but that’s what we’re focused on and it’s a day-to-day focus of our route sales representatives on a customer by customer basis. But we’re not going to go into the components of the growth.

I understand. And just a last question just on new wearers coming in. Of the new guys coming in, what’s the percentage of new, never before—new to the program itself? New to the rental program itself?

What we call no-programmers. We’ve seen that pick up about 7%. It’s coming in at about 28% right now.

All right. Thank you very much.

Thank you. Again, it is the one followed by the four to register a question. Our next question comes from the line of Michael Kim with Imperial Capital. Please proceed with your question.

Hi, good morning, guys. Just going back to core laundry, are you seeing any particular strength or fast recovery in certain verticals, and are there some areas that are perhaps lagging from where these other areas are picking up, or are you seeing pretty much a broad-based improvement at this point?

I think it’s pretty much a broad base. The only real area that we’ve seen strong is in the oil area.

Okay. And with the pricing—you know, fairly aggressive pricing for new accounts, how is that impacting the retention rate? How has the retention rate changed from prior periods?

It really hasn’t. I think we’re out there working with our customers constantly to sell them the value of our program and how we differentiate. You know, the retention rate has actually improved a little bit.

Okay. And then just turning to specialty garments, typically first and third quarter are the strongest seasonally. Is it your sense that with the reactor outages—you know, scheduled reactor outages, that that pattern should hold this year, and would third quarter look fairly similar to the first quarter at this point?

Yeah, I think our best guess is that it would be. I think—you know, we’ve received the guidance from our guys that third quarter should be a fairly strong quarter as well, and so I think you’ll see a similar pattern to the past years.

And then just—you know, in the past you talked a little bit about operating income or operating margins for specialty garments this year. With the first quarter performance and perhaps looking fairly similar in third quarter, what’s your sense now with the—you know, how does that intersect with your revised guidance?

Yeah, I think compared to what I guided at year-end, we’re probably a little more optimistic on the profits of the specialty garments group than we were at the beginning of the year. As we talked about, their revenues were fairly high but the margin was down, and again, there’s not too much to read into that. On a quarter-to-quarter basis, the mix of their projects can really change; so I wouldn’t take that to mean that the margin is going to be necessarily lower going forward, but I think on an overall basis part of the improvement in profits comes from a slightly more positive outlook for them for the remainder of the year.

Okay. And then lastly just on free cash, I know quarter to quarter there can be variability from a timing and working capital standpoint, but what’s your sense for the full year in terms of free cash flow relative to last fiscal year?

You know, without having a specific number in front of me, I think it will be down and primarily on the merchandise side. I mean, you saw the use of cash for merchandise and service in the first quarter. I don’t think it will be as significant for each quarter for the remainder of the year, but I think each quarter will have a larger use of cash in that area than last year, and so that will cause the year-over-year free cash flow to be down, especially with profits projected to be a little bit down as well.

Okay, great. Thank you very much.

Thank you.

Thank you. Again, it is the one followed by the four to register a question. There are no further questions at this time. Mr. Sintros, I will now turn the conference back over to you.

This is Ron. We’d like to thank all of you again for your interest in our Company. Along with the rest of the world, we’re watching the economic indicators closely and are hopeful the economy is now preparing for an eventual upturn. We remain confident that when the market recovery is actually upon us, Unifirst will be firmly positioned to capitalize on all the opportunities. We look forward to talking to you in a few months when we’ll be reporting on our second quarter performance. Thank you all.

Thank you. Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and we ask that you disconnect your lines.