The Art of Saying No - VSTS: Vestis Corp
The Uniform Company That Lost Its Way (Then Found It... Maybe)
“The difference between successful people and really successful people is that really successful people say no to almost everything.” — Warren Buffett
Introduction: The Power of Subtraction
In the autumn of 1995, Steve Jobs returned to Apple and did something counterintuitive: he killed 70% of Apple’s products. Not because they were bad, but because they distracted from what mattered. This is the central paradox of value creation—the power lies not in what you do, but in what you refuse to do.
Warren Buffett keeps a list of companies he’s studied and rejected. Charlie Munger famously said his success came from “knowing the edge of my circle of competence.” Peter Lynch turned down hundreds of stocks for every one he bought. These aren’t stories about missing opportunities; they’re stories about the disciplined pursuit of only the best opportunities.
Sometimes, the companies we look at are perfectly fine companies at the wrong time or wrong price. A few are fascinating turnarounds that need more time. But all of them failed to answer three brutally simple questions satisfactorily:
1. How many birds are in the bush? (What’s the magnitude of return if the thesis works?)
2. How sure are you? (What’s the probability the thesis actualizes?)
3. How fast till you get them out? (What’s the realistic time horizon?)
For a LEAPs strategy—buying long-dated call options 12-24 months out—I need high conviction on all three. If any answer is unsatisfactory, the idea gets rejected. Period.
What follows is a detailed forensic examination of each rejection, complete with financial analysis, probability assessments, and the specific mechanical failures that killed each thesis. Think of it as a masterclass in what Charlie Munger calls “the psychology of misjudgment”—except here, we catch ourselves before the mistake.
Let’s begin.
VSTS: The Uniform Company That Lost Its Way (Then Found It... Maybe)
Date Analyzed: September 24, 2025
Current Price: ~$16.10 | Market Cap: $2.1B
The Spin-Off That Unraveled
Vestis Corporation represents one of the more instructive cases in this collection—a fundamentally solid business that stumbled badly post-spin-off, then faced the ignominy of a securities class action lawsuit for allegedly misleading investors about its operational readiness.
The company spun off from Aramark on September 30, 2023, creating a pure-play uniform and workplace supplies business serving over 300,000 customer locations across the US and Canada. Think of the people who deliver clean uniforms to restaurants, mechanic shops, and hospitals—that’s Vestis. It’s a “boring but important” business generating $2.7 billion in annual revenue.
The Business Model
Revenue Composition:
95% from recurring rental contracts
5% from direct sales
91% from US operations, 9% from Canada
The business operates like clockwork (when functioning properly):
Customer signs multi-year contract
Vestis delivers clean uniforms/supplies weekly via 3,300 routes
Picks up soiled items for cleaning at 325+ facilities
Repeat indefinitely
Key Attractive Feature: Negative working capital. They collect from customers before paying suppliers—classic “getting paid to run your business” economics.
What Went Wrong: The May 2025 Massacre
On May 7, 2025, Vestis reported dismal Q2 earnings and withdrew full-year guidance. The stock collapsed 37.5% in a single day, falling from $8.71 to $5.44.
What management had been saying:
“Customer retention above 92%”
“Service capabilities improving”
“On track for EBITDA growth of up to 10% in back half”
What was actually happening (per the class action complaint):
Customer churn accelerating above disclosed rates
Service issues unresolved before implementing price increases
Facilities suffering from legacy underinvestment
Sales force execution problems
The Timeline of Deception (Alleged):
May 2, 2024: Initial earnings emphasize “operational readiness and growth priorities post-spin.” Internal data allegedly showed serious service gaps.
Mid-2024 through Early 2025: Quarterly updates tout “execution, customer growth, and margin expansion” while service problems persist.
May 2025: Reality hits. Investors lose trust. Class action lawsuits filed.
The Financial Performance
Fiscal 2025 Results:
Revenue: $2.7 billion
Operating income: $64.4 million (2.4% margin—razor thin)
Net loss: $40.2 million (-1.5% margin)
Q3 2025 Results (June 27, 2025):
Revenue: $674 million
Operating income: $25 million
Net loss: $0.7 million
Adjusted EBITDA: $64 million
Free cash flow: $8 million (positive, at least)
Customer Retention Rates:
Fiscal 2023: 90.4%
Fiscal 2024: 91.9%
Q2 2025: 92.4%
Current: 91.9% (deteriorating again)
The retention rate story is interesting. Management claimed improvement from 90.4% to 91.9%, which sounds great until you realize:
They were losing 8.1% of customers annually
In a recurring revenue model, that’s catastrophic over time
New customer acquisition wasn’t keeping pace
The “improvement” masked deteriorating service quality
No significant Capex spending for the past 5 years. Majority of spending is property and equipment, the majority of which is related to market center facility improvements.
Margin improvements were offset by amortisation from new installation and changes in product mix. Scale efficiency was lost.
Amortisation only makes up 5% of revenue, hence, it should not make much of a impact on the gross profit. Majority of the problem should come from product mix
The Turnaround Plan
New CEO Jim Barber (appointed May 2025, right before the collapse) launched a transformation program:
Cost Structure Improvements:
Workforce reduction actions
Network efficiency optimization
De-layered business structure (fewer management layers)
Expected annual savings: $8 million
Strategic Focus:
Value-based pricing (translation: stop discounting to keep unhappy customers)
Cross-selling to existing customers (currently only use 30-40% of Vestis’s services)
Target attractive sectors for expansion
Increase route density
The Investment Analysis
When I analyzed this in September 2024, here’s what I saw:
The Bull Case:
Strong cash conversion cycle (negative working capital)
Improving customer retention from 90.4% to 91.9%
New management team focused on operational excellence
Trading at $16.10 with potential for recovery to $20-25 if turnaround executes
Not to forget, strong insider purchase in the open market:
And minimal RSU relative to open market purchases
The P/E Puzzle:
2024 EPS: $0.15 per share Current price: $16.10 P/E Ratio: 107x (absurd for this business)
But wait—2024 was catastrophically bad due to spin-off transition costs. Historical net income averaged $112 million annually. If they recover to that level:
Pro Forma Math:
Net income: $112 million
Shares outstanding: ~130 million
EPS: $0.86
At $16.10 price: P/E of 18.7x
That’s more reasonable. The question: Can they get back to $112 million net income?
To Achieve Historical Profitability:
Need revenue CAGR of 5-7% (management guidance)
Need margin expansion from restructuring
Need to stop losing customers
The Margin Math Problem:
Current operating margin: 2.4% Historical operating margin: 4.1% Target: Get back to 4%+
To hit a P/E of 6x (typical for mature industrial services), they’d need to generate approximately $263 million in annual net profit—a 135% increase from current $21 million.
Management’s Expected Savings: $30-50 million from restructuring
That’s nowhere near enough. Even adding $50 million to the $21 million only gets you to $71 million net profit—still a P/E of 37x.
Why I Rejected It
Birds in the Bush: 2-3x if operations recover to historical levels
Probability of Success: 40%—execution risk remains high
Time Horizon: 3-5 years, NOT the 24 months needed for LEAPs
The Fatal Flaw: Management explicitly stated they’re “focused on long-term value creation, not short-term results.” That’s admirable corporate governance—and terrible for a LEAPs strategy requiring near-term value realization.
Additional Concerns:
The Class Action Lawsuit: Investors are suing for securities fraud. Even if Vestis wins, the distraction and legal costs damage value creation.
The CFO Departure: CFO Ricky T. Dillon stepped down in early 2025. CFO departures mid-turnaround are rarely bullish.
Spin-Off Friction: The company lost synergies with Aramark (shared IT, corporate functions, procurement power) and now bears all those costs alone. Public company costs run $5-10 million annually minimum.
The Fastenal Comp Problem: I noted this might work as a Sit-On-Your-Ass (SOYA) long-term play, similar to Fastenal’s business model. But Fastenal trades at 23x earnings because they execute flawlessly. Vestis is struggling to execute at all.
The Lesson
There’s a profound difference between:
A good company at the wrong time (VSTS)
A bad company (CHR, WIMI)
Vestis is the former. The uniform rental business works. Cintas, the market leader, generates 15% operating margins and trades at 40x earnings. The business model is sound: recurring revenue, high switching costs (who wants to manage uniform logistics?), and essential service (restaurants need clean chef coats by law).
But a good business is not a good investment if:
Management lost credibility (lawsuit alleges false statements)
Operational problems will take years to fix
Your strategy requires 24-month value realization
As Buffett says: “When management with a reputation for brilliance tackles a business with a reputation for bad economics, it’s the reputation of the business that remains intact.”
Vestis’s business is fine. The execution is not. And patience is required—patience that a LEAPs strategy cannot afford.
Verdict: Rejection. Not because it’s a bad company, but because it’s the wrong strategy fit. File this under “circle of competence”—know what your strategy can tolerate, and don’t pretend otherwise.
Learnings To Stick To
1. Dilution is Value Destruction
It doesn’t matter if a company has $200 million in cash if they’re issuing $300 million in equity at pennies on the dollar. Per-share value is what matters, not absolute value.
2. Debt is Fragility
Interest coverage below 3x means one bad year could trigger covenant breaches. Below 2x is playing with fire. Below 1.5x is suicidal.
3. Insiders Always Know First
When CEOs, CFOs, and directors sell 60-80% of vested RSUs immediately, they’re voting with their wallets. Listen.
4. Business Models Matter More Than Operations
You can’t cost-cut your way to success if the fundamental value proposition is obsolete.
5. Timing Is Everything (For Options)
e.g. MDU Resources and Krispy Kreme might be great investments... in 2027. But for LEAPs expiring in 2026, the timeline doesn’t work.
6. Regulatory Red Flags Are Never False Alarms
When annual reports are encrypted, when revenue collapses without explanation, when short sellers publish specific fraud allegations—walk away. The risk isn’t worth the reward.
7. Pandemic Winners Are Usually Losers
Mean reversion is brutal. Companies that benefited from temporary behavioral shifts rarely maintain those gains.
The Philosophy of “No”
Charlie Munger said: “The art of being wise is the art of knowing what to overlook.”
In investing, success comes from:
Saying yes to the right opportunities (important)
Saying no to the wrong opportunities (more important)
Saying no to marginal opportunities (most important)
This article is about #3. None of these companies were obviously terrible (well, maybe CHR and WIMI). Most had legitimate businesses, real assets, and plausible turnaround stories.
But “plausible” isn’t “probable.”
And “interesting” isn’t “investable.”
The Buffett-Munger Standard
Before investing, ask:
Do I understand this business? (Circle of competence)
Does it have a sustainable competitive advantage (Moat)/ does it have a legitimate working business model (for LEAPs)?
Is management trustworthy and aligned? (Stewardship)
Is the price attractive relative to intrinsic value? (Margin of safety)
What could go wrong? (Risk analysis)
For LEAPs specifically, add: 6. Will value be realized in 12-24 months? (Timing) 7. Is the expected return 2x+ to compensate for time decay? (Return threshold)
If the answer to ANY of these is “no” or “uncertain,” walk away.
The Opportunity Cost Mindset
Every dollar invested in these marginal opportunities is a dollar not available for exceptional opportunities.
Your capital is finite. Your attention is finite. Your time is finite.
Protect all three zealously.
When I reject companies, I’m not losing opportunities—I was preserving capital and attention for better opportunities yet to come.
In investing, a 0% success rate at finding investments can be a 100% success rate at avoiding disasters.