Lakeland Industries, Inc. (NASDAQ: LAKE) today announced
financial results for its first quarter fiscal year 2011 ended
April 30, 2010.
Financial Results Highlights and
Recent Company Developments
- Revenue of $25.4 million in
Q1FY11 at highest level in 6 quarters
- International expansion efforts
drive non-US revenue growth and improved market share
- Revenues from outside the US
were 39% of total in Q1FY11 as compared with 28% for Q1FY10
- International Growth
- Brazil acquisition added:
- $2.9 million of sales in
Q1FY11
- Gross margin of 49.4% for
Q1FY11
- Stage set for further market
expansion with strategically positioned global manufacturing
facilities and enhanced product lines
- Sales of disposable products in
North America declined by 8% in Q1FY11 compared with prior year
periods due to continued depressed economy, particularly in the
automotive supply chain
- Despite weakness in US sales
during Q1FY11, the US Glove Division increased sales by 61.7% over
Q1FY10, driven by Indian glove product finally gaining
traction
- Gross margin improves due to
contributions from international operations
- Operating expenses increased
largely due to:
- Additional SG&A in China
resulting from $1.2 million increase in external sales from
China
- Foreign exchange losses mainly
from unhedged losses against the Euro in China
- Increased operating expenses in
Brazil, largely sales personnel and related staff to support growth
initiatives
- Effective inventory control and
cash management initiatives resulted in $4.6 million reduction of
bank debt at 4/30/10 from 1/31/10
- Cash position increased by 12%
to $5.7 million at end of Q1FY11 from beginning of fiscal year
- New leadership for Brazil
operations; VAT tax issue arises from dispute between two
states
- Charge of $1.6 million has been
taken as a result of VAT tax expense in Brazil relating to periods
prior to the acquisition by Lakeland.
First Quarter Fiscal Year 2011
Financial Results
Net Sales. Net sales increased $1.4 million, or 5.8% to $25.4
million for the three months ended April 30, 2010, from $24.0
million for the three months ended April 30, 2009. The net increase
was due to an increase of $3.1 million in foreign sales, offset by
a $1.7 million decrease in domestic sales. External sales from
China increased by $1.2 million, or 63.6% driven by sales to the
new Australian distributor. Canadian sales increased by $0.5
million, or 37.6%, UK sales increased by $0.4 million or 51.5%,
Chile sales increased by $0.1 million, or 19%. US domestic sales of
disposables decreased by $1.1 million, chemical suit sales
decreased by $0.4 million, wovens increased by $0.1 million,
reflective sales decreased by $0.3 million and glove sales
increased by $0.2 million. Sales in Brazil increased $0.3 million,
an increase of 10.4%.
Gross Profit. Gross profit increased $0.4 million or 6.5% to
$6.4 million for the three months ended April 30, 2010, from $6.0
million for the three months ended April 30, 2009. Gross profit as
a percentage of net sales increased to 25.2% for the three months
ended April 30, 2010, from 25.1% for the three months ended April
30, 2009. Major factors driving the changes in gross margins
were:
- Disposables gross margin
declined by 3.5 percentage points in Q1 this year compared with Q1
last year. This decline was mainly due to higher priced raw
materials and a very competitive pricing environment coupled with
lower volume.
- Brazil’s gross margin was 49.4%
in Q1 this year compared with 46.6% in Q1 last year. This increase
was largely due to the volume provided by a larger bid contract
this year.
- Continued gross losses of $0.1
million from India in Q1 FY11.
- Chemical division gross margin
declined 5.7 percentage points resulting from lower volume and
sales mix
- Canada gross margin increased
6.7 percentage points due to higher volume and favorable exchange
rates.
Operating Expenses. Operating expenses increased $0.8 million,
or 14.7% to $6.1 million for the three months ended April 30, 2010,
from $5.3 million for the three months ended April 30, 2009. As a
percentage of sales, operating expenses increased to 24.1% for the
three months ended April 30, 2010 from 22.2% for the three months
ended April 30, 2009. The $0.8 million increase in operating
expenses in the three months ended April 30, 2010 as compared to
the three months ended April 30, 2009 were comprised of:
- ($0.1) million in reduced
officer salaries resulting from cost cut-backs, along with related
reduction in payroll taxes and employee benefits.
- ($0.1) million reduction in
professional and consulting fees resulting from cost cut
backs.
- ($0.1) million reduction in
equity compensation resulting from the 2009 restricted stock plan
treated at the zero performance level for the time being.
- $0.1 million in increased sales
commissions resulting from higher volume.
- $0.1 million miscellaneous
increases.
- $0.1 million increase in the
self insured medical insurance program resulting from unfavorable
experience in the current year.
- $0.1 million in inventory
contributions made to the Chilean earthquake relief effort.
- $0.1 million increase in
Delaware Franchise Taxes. This is a result of the increase in total
assets in prior years resulting from prior inventory buildup and
the Brazil acquisition. It is anticipated the cost for this tax
will be greatly reduced going forward.
- $0.2 million increase in foreign
exchange costs resulting from unhedged losses against the Euro in
China.
- $0.2 million in increased
operating costs in China were the result of the large increase in
direct international sales made by China that are now allocated to
SG&A costs although previously allocated to cost of goods
sold.
- $0.2 million of increased
operating expenses in Brazil mainly resulting from increased sales
personnel and support staff due to recent and anticipated
growth.
Operating profit. Operating profit decreased 57% to $0.3 million
for the three months ended April 30, 2010 from $0.7 million for the
three months ended April 30, 2009. Operating margins were 1.1% for
the three months ended April 30, 2010 compared to 2.8% for the
three months ended April 30, 2009. The lower operating profit and
operating margin in the first quarter of fiscal 2011 are the result
of higher gross profits offset by increased operating expenses
which in large part reflect the Company’s international growth
initiatives and foreign currency exchange rate costs.
Interest Expenses. Interest expenses decreased by $0.1 million
for the three months ended April 30, 2010 as compared to the three
months ended April 30, 2009 due to lower borrowing levels
outstanding.
Income Tax Expense. Income tax expenses consist of federal,
state, and foreign income taxes. Income tax expenses decreased $0.4
million, or 105%, to $0.0 million for the three months ended April
30, 2010 from $0.4 million for the three months ended April 30,
2009. The Company’s effective tax rate was 81.5% for the three
months ended April 30 2009. The effective tax rate for Q1FY10 was
affected by a $350,000 allowance against deferred taxes resulting
from the India restructuring, losses in India and UK with no tax
benefit, tax benefits in Brazil resulting from government
incentives and goodwill write-offs, and credits to prior year’s
taxes in the US not previously recorded. The Company’s effective
tax rate for Q1 FY11 reflects goodwill write-offs in Brazil and tax
benefits from India resulting from “check the box” in the U.S., and
a $1.6 million charge for VAT tax expense in Brazil relating to
periods prior to the acquisition by Lakeland in May 2008. It is
important to note that any collections of further escrow monies,
indemnification collections from the selling shareholders and any
potential negligence suits against responsible third parties will
be booked as profits negating this quarter’s write-off of $1.6
million
At the end of the first quarter, the Company recorded
adjustments to its balance sheet relating to a VAT tax issue for
its subsidiary in Brazil. These adjustments pertain to
jurisdictional taxes paid from 2004-2009 occurring primarily prior
to Lakeland’s acquisition of the business which have recently been
audited and put into dispute by local Brazilian authorities.
Through an amnesty payment program, Lakeland believes it will
recoup a significant portion of taxes paid through credits against
future taxes due. The Company also intends to offset taxes paid in
the VAT tax reconciliation with funds set aside in escrow as part
of the acquisition in May 2008 for contingencies such as this. To
date, $0.55 million from the escrow has been released and Lakeland
will file a claim against an additional amount of approximately $1
million. In accordance with GAAP, the Company has reflected the
above items on its balance sheet as follows:
(R$ millions) US$
millions Current assets Prepaid taxes 2.1
1.1 Current assets Escrow received 1.0 0.5
Current liabilities Taxes due 3.5 1.9
Non-current assets Deferred taxes 3.5 1.9
Long-term Liabilities Taxes payable 7.1 3.3
There is an additional exposure for 2007-2009 in the amount of
approximately $3.3 million. Lakeland intends to apply for amnesty
and make any necessary payments upon the forthcoming amnesty
periods imposed by the local Brazilian authorities.
Further to the operations in Brazil, in May 2010 Lakeland
promoted an executive within the subsidiary to replace two leading
members of the management team who had been terminated for cause. A
charge of $200,000 will be taken in the second quarter for expenses
relating to the management terminations, and other separation
actions are being taken by Lakeland. Details of the VAT tax
adjustment and leadership changes are discussed in the Company’s
first quarter fiscal year 2011 filing with the Securities and
Exchange Commission under form 10-Q.
Net Income. Net income decreased to a loss of $1.3 million for
the three months ended April 30, 2010 from net income of $0.1
million for the three months ended April 30, 2009. The decrease in
net income primarily resulted from the $1.6 million charge for VAT
tax expense in Brazil. Excluding the Brazilian VAT tax expense, the
Company would have reported net income of $0.2 million in the first
quarter of fiscal 2011, a 143% increase as compared to the same
period in fiscal 2009. The improved profitability before VAT tax
expense reflects an increase in sales, higher gross margin
contributions from an expanding base of international revenues, and
favorable tax benefits, partially offset by higher operating
expenses which in large part reflect the Company’s international
growth strategy.
Management’s Comments
Commenting on the financial results, Lakeland Industries
President and Chief Executive Officer Christopher J. Ryan said, “We
are pleased to report an improvement in consolidated revenues and
gross margin for the first quarter of fiscal 2011. Upon reporting
our year end results, we had anticipated a softer first quarter due
to several larger contracts and certain seasonality issues. The
improved performance was driven by continued growth from our
international operations which generally deliver higher margins
than our domestic sales.
“Since the end of the first quarter, a few events have occurred
which we believe bode well for Lakeland Industries for the
immediate and longer terms. The first event is the Gulf of Mexico
oil spill. There appears to be minimal if any progress being made
to contain the spill. As we have stated, in times of natural
disaster, there typically is large and urgent need for the
environmental, protective and safety apparel which we manufacture
and distribute globally. Although we have increased production of
these types of products at our facilities around the world to meet
the substantial increase in demand for oil spill containment and
remediation purposes, we are presently capacity constrained and the
back orders are mounting. We are also experiencing severe stockout
conditions as a result of our winding down inventory levels in
anticipation of the EI DuPont de Nemours & Co. (“DuPont”)
transition.
“Reflecting the pick up in demand globally as the recession had
abated with economic and industrial growth returning in many
corners of the world, during the first quarter we had already begun
to see our manufacturing capacity become challenged. As a result,
we had anticipated sales growth in the second quarter and
thereafter. The requirements pertaining to the Gulf of Mexico oil
spill are incremental to this anticipated growth.
“Later in the year, we expect our manufacturing capacity to be
realigned as a result of a second event. In May we disclosed a new
agreement with DuPont relating to our licensing and production of
garments using their material. Lakeland Industries was recently
named one of what is expected to be a limited number of wholesale
distributors for the sale of DuPont garments in the United States.
To this end, we will remain a supplier to our existing customers
and we will have additional marketing opportunities domestically.
DuPont will supply us with finished goods, which means that, except
for custom orders, we will no longer be purchasing from DuPont the
raw materials that are made into the garments, nor will we be
required to hold such large quantities of raw materials, work in
progress and finished goods in our inventory. A substantial portion
of shipping costs and related logistics and support personnel
expenses also will be eliminated. This agreement is being phased in
as we work through our remaining inventory and certain
modifications are anticipated. However, we expect that upon full
implementation as the year progresses we will significantly reduce
our annual expenses.
“Consistent with our strategy for the past few quarters and in
light of the new agreement with DuPont, we have systematically been
reducing our inventory levels. Against a backdrop of increasing
sales -- with the first quarter of fiscal 2011 at the highest level
in a year and a half – we have seen an improvement in our working
capital, inventory turns, cash generation, cash position and debt
level. At April 30, 2010, we had reduced our inventory by nearly $5
million from the beginning of the fiscal year three months earlier,
reduced the borrowings under our credit facility by nearly half to
$5 million, and increased our cash balance nearly 12% since January
31, 2010 to $5.7 million. We have sufficient cash flow and balance
sheet strength to accommodate the unanticipated Brazilian tax
issue, and are well positioned for continued performance
improvements with a markedly enhanced financial condition as well
as to capitalize on the many growth opportunities we have
identified within our global operating footprint.”
Financial Results Conference
Call
Lakeland will host a conference call at 04:30 PM (EDT) on June
14, 2010, to discuss the Company’s first quarter fiscal year 2011
financial results. The conference call will be hosted by
Christopher J. Ryan, Lakeland’s President and CEO. Investors can
listen to the call by dialing 888-510-1768(domestic) or
719-457-2683(international), code 9229477.
A conference call replay will be available by dialing
888-203-1112 (domestic) or 719-457-0820 (international), code
9229477.
About Lakeland Industries, Inc.:
Lakeland Industries, Inc. (NASDAQ: LAKE) manufactures and sells
a comprehensive line of safety garments and accessories for the
industrial protective clothing market. The Company’s products are
sold by a direct sales force and through independent sales
representatives to a network of over 1,000 safety and mill supply
distributors. These distributors in turn supply end user industrial
customers such as chemical/petrochemical, automobile, steel, glass,
construction, smelting, janitorial, pharmaceutical, and high
technology electronics manufacturers, as well as hospitals and
laboratories. In addition, Lakeland supplies federal, state, and
local government agencies, fire and police departments, airport
crash rescue units, the Department of Defense, the Centers for
Disease Control and Prevention, and may other federal and state
agencies. For more information concerning Lakeland, please visit
the Company online at www.lakeland.com.
“Safe Harbor” Statement under the Private Securities Litigation
Reform Act of 1995: Forward-looking statements involve risks,
uncertainties and assumptions as described from time to time in
Press Releases and 8-K(s), registration statements, annual reports
and other periodic reports and filings filed with the Securities
and Exchange Commission or made by management. All statements,
other than statements of historical facts, which address Lakeland’s
expectations of sources or uses for capital or which express the
Company’s expectation for the future with respect to financial
performance or operating strategies can be identified as
forward-looking statements. As a result, there can be no assurance
that Lakeland’s future results will not be materially different
from those described herein as “believed,” “projected,” “planned,”
“intended,” “anticipated,” “estimated” or “expected,” which words
reflect the current view of the Company with respect to future
events. We caution readers that these forward-looking statements
speak only as of the date hereof. The Company hereby expressly
disclaims any obligation or undertaking to release publicly any
updates or revisions to any such statements to reflect any change
in the Company’s expectations or any change in events conditions or
circumstances on which such statement is based.
LAKELAND INDUSTRIES, INC. AND
SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In thousands except share
data)
April 30,
January 31,
ASSETS
2010
2010
(Unaudited)
Current assets: Cash and cash equivalents $5,690 $5,093
Accounts receivable, net 17,278 15,809 Inventories, net 33,697
38,576 Deferred income taxes 1,261 1,261 Prepaid income and VAT tax
2,772 1,732 Escrow receivable 550 ----- Other current assets
2,966
2,356
Total current assets 64,214 64,827 Property and equipment,
net 13,665 13,742 Deferred tax asset, noncurrent 1,917 -----
Intangibles and other assets, net 6,121 5,622 Goodwill
6,154
5,829
Total assets
$92,071
$90,020 LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities: Accounts payable $5,218 $3,883 Accrued
compensation and benefits 1,575 1,289 Other accrued expenses 971
1,139 Current VAT taxes payable 1,909 ----- Borrowing under
revolving credit facility 4,953 9,518 Current maturity of long term
debt
99
94
Total current liabilities 14,725 15,921 Construction loan payable,
net of current maturity 1,644 1,583 VAT taxes payable long-term
3,270 ----- Other liabilities
100
92
Total liabilities 19,739 17,597 Commitments and
contingencies Stockholders’ equity:
Preferred stock, $0.01 par;
authorized 1,500,000 shares
(none issued)
----- ----- Common Stock, $0.01 par; authorized 10,000,000 shares
issued and outstanding 5,564,732 shares at April 30, 2010 and at
January 31, 2010 56 56 Less treasury stock at cost 125,322 shares
at April 30, 2010 and January 31, 2010 (1,353) (1,353) Additional
paid-in capital 49,640 49,623 Retained earnings
23,875
25,221
Other comprehensive income (loss) 113 (1,122) Total stockholders’
equity
72,331
72,424
Total liabilities and stockholders’ equity
$92,071
$90,020 LAKELAND INDUSTRIES, INC. AND
SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
(Unaudited) Three Months Ended April 30,
2010
2009
Net sales $ 25,363 $ 23,976 Cost of goods sold 18,959
17,965 Gross profit 6,404 6,010 Operating
expenses 6,114 5,332 Operating profit
290 679 VAT tax charge-Brazil from prior periods (1,583 ) -----
Interest and other income, net 13 40 Interest expense (86 )
(193 ) Income before income taxes (1,366 ) 525 Provision
(benefit) for income taxes (20 ) 428 Net
(loss) income
$ (1,346 )
$ 97 Net income per common share:
Basic
$ (0.25 )
$ 0.02 Diluted
$
(0.25 ) $ 0.02
Weighted average common shares outstanding: Basic
5,439,410 5,406,291
Diluted
5,465,594
5,468,616
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