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Vestis Corporation

Case Details

Class Period: October 2, 2023 - May 1, 2024
Date Filed: May 17, 2024
Case Number: 1:24-cv-02175
Jurisdiction: Northern District of Georgia
icon-casetype Case Type: Securities Case

Case Summary

Based in Roswell, Georgia, Vestis is a provider of uniforms and workplace supplies in the United States and Canada.  The Company was created as the result of its September 30, 2023 spinoff from food services and facilities management provider Aramark.  Vestis began trading on the New York Stock Exchange on October 2, 2023, the first day of the Class Period, under the ticker symbol “VSTS.”

Leading up to Class Period before the spinoff, soon-to-be executives of Vestis claimed that “investments are in place” to deliver “5% to 7% topline growth” on compound annual growth rate (CAGR).  They also assured investors that the Company’s sales force had “reached their stride” and were “now hitting productivity levels that we desire from them.”  As the Class Period progressed, Defendants highlighted the “really, really great feedback” that Vestis had received from its customer service initiatives and maintained that the Company’s growth would continue to accelerate based on, among other things, Vestis “providing service excellence to our customers.”

The Class Action alleges that, during the Class Period, the Defendants made materially false and misleading statements and failed to disclose that: (1) Aramark had historically underinvested in the business that became Vestis; (2) Vestis operated with outdated facilities and an underperforming sales force; (3) Vestis’s outdated facilities and underperforming sales force led to “service gaps” that had impeded the Company’s levers of growth and had resulted in customer attrition; and (4) as a result of the above, Defendants’ statements about Vestis’s business, operations, and prospects were materially false and misleading and/or lacked a reasonable basis at all relevant times.

The truth was revealed before markets opened on May 2, 2024, when Vestis issued a press release announcing financial results for the second quarter of fiscal year 2024, ended March 29, 2024.  Specifically, the Company disclosed that it had generated revenue of $705 million, a 0.9% increase over the same quarter in the prior year, and also had downwardly revised its revenue outlook for fiscal year 2024 to a range of negative 1% to 0%.  During the corresponding earnings call with analysts that day, Chief Executive Officer (“CEO”) Kimberly Scott revealed the “challenges” facing the Company related “to sales productivity and deliberate moderated pricing actions,” the latter of which CEO Scott explained were necessary to “improve[] retention” and because “service gaps” had “driven price sensitivity.”  During the same call, analysts pointed out that Vestis had pivoted from a recent announcement of a price increase to a price decrease and questioned Defendants about the reversal in pricing capabilities.  On this news, the price of Vestis stock plummeted 45%, from a closing price of $18.47 per share on May 1, 2024, to a closing price of $10.16 per share on May 2, 2024.