Vestis Corp (NYSE:VSTS) stock surged over 26% following Q2 2026 Earnings, with adjusted EBITDA up 19.1%, free Cash Flow swinging to USD 45.6 million, and full-year guidance sharply raised. A data-driven analysis of the operational turnaround behind the stock surge and what it signals for valuation.

Key Highlights

  • Adjusted EBITDA rose 19.1% year-over-year to USD 74.5 million, with Margin expanding to 11.3% from 9.4%.
  • Free cash flow swung to USD 45.6 million from negative USD 6.9 million in the prior-year quarter.
  • Full-year free cash flow guidance more than doubled at the midpoint, raised to USD 120-USD 150 million.
  • Leverage/">Operating Leverage per pound improved for the first time in Vestis Corp's history as a standalone public company.
  • Revenue per pound stabilized at USD 1.37, ending a multi-quarter decline.

Operational Inflection, Not Just a Numbers Beat

Vestis Corporation (NYSE:VSTS), a provider of uniform services and workplace supplies to North American businesses, reported its fiscal second quarter 2026 results on May 12, 2026. Revenue came in at USD 659.4 million, a 0.9% decline from USD 665.2 million in the prior year. On an adjusted earnings basis, the company posted USD 0.16 per diluted share, marginally below analyst consensus. Yet the headline numbers obscure a more significant structural development: the company recorded its first improvement in operating leverage per pound since separating from Aramark.

That metric, representing revenue per pound minus cost per pound, rose to USD 0.15 from USD 0.13 in the second quarter of fiscal 2025. Management noted that each one-cent improvement in this figure translates to approximately USD 5 million in adjusted EBITDA at current volumes. Small in absolute terms, but directionally meaningful for a Business in the early stages of a cost-driven transformation.

Cost Discipline Drives the Margin Expansion Story

Adjusted operating expenses declined USD 17.7 million, or 2.9%, to USD 584.9 million, despite only a 1.2% reduction in processing Volume. Cost per pound improved to USD 1.22 from USD 1.24 a year earlier. The savings were split between lower cost of services, primarily merchandise and delivery efficiencies contributing USD 4.2 million, and SG&A reductions of USD 13.5 million tied to the company's ongoing transformation plan.

Plant productivity rose 11% year-over-year. On-time deliveries improved by 270 basis points. Customer complaints declined 4%. These are the building blocks of a service business recovering its unit Economics. The company now estimates approximately USD 50 million in in-year benefit from its transformation plan for fiscal 2026, up from the prior estimate of USD 40 million, with at least USD 75 million in annualised savings targeted by year-end.

Cash Flow Transformation Is the Headline Metric

The most decisive shift in the quarter was in cash generation. Free cash flow reached USD 45.6 million, compared to negative USD 6.9 million in the second quarter of fiscal 2025, a swing of USD 52.4 million. Adjusted free cash flow, which excludes USD 11.1 million in transformation-related cash outflows, was USD 56.6 million.

The company applied this cash purposefully. Vestis repaid USD 34 million in Debt during the quarter, comprising USD 19 million on its revolving Credit Facility and USD 15 million in term Loan principal. Net debt declined to approximately USD 1.25 billion as of April 3, 2026, from USD 1.31 billion at the start of the fiscal year. Net leverage now stands at 4.47 times trailing twelve-month covenant adjusted EBITDA, down from 4.72 times at fiscal year-end October 2025. Available Liquidity totalled USD 344.5 million, including USD 50.3 million in cash and USD 294.2 million in revolving credit availability.

Raised Guidance Signals Management Confidence

Full-year fiscal 2026 guidance was revised upward across key profitability metrics. Adjusted EBITDA is now expected in the range of USD 295 million to USD 325 million, compared to a prior range of USD 285 million to USD 315 million. Free cash flow guidance was more than doubled at the midpoint, raised to USD 120 million to USD 150 million from the earlier range of USD 50 million to USD 60 million. Revenue guidance was held steady, with management projecting flat to down 2% compared to normalised fiscal 2025 revenue.

For the remainder of fiscal 2026, management expects adjusted EBITDA to grow approximately 5% sequentially in the third quarter and between 5% and 10% in the fourth quarter.

Risks Remain Structural

Vestis carries meaningful execution risk. Revenue is still declining, reflecting continued volume pressure and an ongoing exit from lower-margin business. The net Leverage Ratio, while improving, remains elevated. The company also flagged macroeconomic uncertainties, geopolitical instability in key Supply corridors including the Strait of Hormuz, and the complexity of its ongoing separation from Aramark as factors that could weigh on performance.

Conclusion

Vestis Corp's second quarter 2026 results mark a credible inflection in its operational and financial profile. The combination of margin expansion, positive free cash flow generation, accelerating debt repayment, and raised guidance provides a clearer picture of the transformation's early tangible benefits. Whether the pace of improvement is sufficient to sustain the market's re-rating of the stock will depend on the company's ability to stabilise revenue while continuing to compound operational gains through the second half of fiscal 2026.