Notes to Investors Non-GAAP Financial Measures Vestis reports its financial results in accordance with U.S. GAAP, but in this presentation and the non-GAAP reconciliations that follow, Vestis also uses the following non-GAAP measures: Adjusted Basic Earnings Per Share ("EPS"), Adjusted Diluted EPS, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income (Loss), Free Cash Flow, Adjusted Free Cash Flow, Net Debt, Net Leverage Ratio, Operating Leverage, Trailing Twelve Months Covenant Adjusted EBITDA, Adj ...

Core Insights - The textile industry is experiencing a cautious optimism despite ongoing challenges, with companies anticipating growth in 2026 driven by market recovery and strategic expansions [8][10][12]. Group 1: Market Performance and Forecasts - Reda's sales increased by 1 percent to 84 million euros in 2025, with expectations of single-digit growth in 2026, influenced by a recovering Chinese market contributing 10 percent to its business [2]. - Vitale Barberis Canonico reported a 7 percent sales increase to 137 million euros in 2025, with business improving sequentially since July 2025 [4]. - Botto Giuseppe aims for a 7 percent sales increase to 70 million euros in 2026, focusing on men's apparel and sports, which currently make up 65 percent of its business [9]. - Manteco recorded a 5 percent sales increase in 2025 and expects similar growth in 2026, contingent on market conditions [15]. - Albini Group's sales in 2025 were flat at 155 million euros, but the company anticipates growth in 2026, particularly in the luxury segment [16]. Group 2: Challenges and Market Dynamics - The U.S. market, representing 20 percent of Reda's business, is currently characterized by unpredictable consumer behavior and a strong euro affecting trade [2]. - The textile industry faces potential raw material price increases in the second half of 2026 as market demand expands [3]. - The overall Italian textile market is projected to decline by 1.5 percent in 2025, although this is an improvement from an 8.8 percent drop in 2024 [18]. Group 3: Strategic Initiatives and Opportunities - Companies are exploring new markets, such as the potential benefits from the EU-Mercosur trade deal, which could provide growth opportunities in South America [24][26]. - The demand for bespoke tailoring is on the rise, representing a niche market that could help expand market shares for formalwear [29][30]. - Companies like Albini are investing in local production capabilities in Europe to leverage trade agreements and enhance supply chain resilience [28]. Group 4: Product Trends and Innovations - The spring 2027 collections emphasize lightweight blends, particularly linen, which is becoming increasingly popular among textile manufacturers [31][34]. - Innovations in fabric technology are evident, with companies like Thermore introducing sustainable materials such as recycled PET for padding [39]. - The trend towards personalization in fashion is driving companies to expand their offerings in bespoke and tailored products [29][30].

Financial Data and Key Metrics Changes - Total company net sales for Q1 2025 decreased by 2.1% to $57.9 million compared to $59.2 million in Q1 2024 [12] - Gross profit was $29.2 million, representing 50.3% of net sales, down from 50.6% in the prior year [13] - Operating loss for Q1 was $4.4 million, compared to an operating income of $5.6 million in the same period last year [14] - Net loss for Q1 was $4.8 million, or a loss per share of $0.37, compared to net income of $4.4 million, or income per share of $0.35 in the prior year [15] - Adjusted EBITDA was negative $3 million for Q1, compared to negative $1.5 million in the prior year [16] Business Line Data and Key Metrics Changes - The wholesale segment was relatively flat compared to the prior year, while the direct-to-consumer segment declined by 4.4% due to planned store activity and softer traffic trends [12] - Improved product margins were noted, excluding freight and distribution costs, indicating a healthier margin business [6] Market Data and Key Metrics Changes - The company has significantly reduced its exposure to China, with expectations that by spring 2026, exposure will be approximately 25% of the cost of goods [17][18] - The company is navigating increased freight and tariff costs, with expectations of higher costs in Q2 due to ongoing trade policy issues [24][17] Company Strategy and Development Direction - The company is focusing on diversifying its sourcing base outside of China while maintaining product quality [18] - Plans to open new stores in Nashville and Sacramento later this year, alongside the recent opening in Marlebone, London, indicate a commitment to expanding international presence [8][9] - The company is investing in store remodels to enhance customer experience and align with brand positioning [9] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the macroeconomic environment and the ongoing tariff situation, opting not to provide full-year guidance at this time [5][16] - There is optimism about the trends seen in the business, particularly in the direct-to-consumer segment driven by e-commerce [5][10] Other Important Information - Selling, general, and administrative expenses increased to $33.6 million, or 58% of net sales, compared to 54% in the prior year, attributed to increased marketing and store-related expenses [14] - The company is committed to disciplined expense management amid ongoing volatility and uncertainty [16] Q&A Session Summary Question: Trends in freight costs and distribution methods - Management confirmed that air shipping was utilized more in Q1 due to timing issues, and they expect to see increases in freight costs in Q2 [22][24] Question: Impact of trade policy issues in future quarters - Management indicated that the back half of the year may see more impact from tariffs, but they are working on mitigating these costs through supplier discounts and sourcing adjustments [26] Question: Plans for price increases - Management stated that price increases are being implemented strategically and should not be significantly noticeable to consumers [27] Question: Factors driving positive consumer trends - Management highlighted the success of new product lines, particularly linen, and the ability to extend the spring assortment despite delays in pre-fall shipments [30][31]