Lakeland Industries, Inc. (NASDAQ: LAKE) today announced
financial results for its second quarter fiscal year 2011 ended
July 31, 2010.
Financial Results Highlights and
Recent Company Developments
- Revenue of $24.6 million in
Q2FY11 up 6.5% over Q2 last year
- International expansion efforts
drive non-US revenue growth and improved market share
- Revenues from outside the US
were 43.5% of total in Q2FY11 as compared with 37.5% for
Q2FY10
- International Growth
- China external sales continued
very strong growth at nearly double Q2 sales from last year
- India sales double from Q2 last
year
- Brazil sales relatively flat
absent large orders in Q2 this year; bids outstanding on several
large orders through balance of FY11
- Stage set for further market
expansion with strategically positioned global manufacturing
facilities and enhanced product lines
- Sales of disposable products in
North America were flat in Q2FY11 compared with prior year periods
due to Gulf oil spill demand offsetting continued depressed
economy, particularly in the industrial and automotive supply
chain
- Gulf oil spill demand resulting
in stock-outs and increased backlog at end of quarter although
backlog is declining during Q3
- Despite weakness in US sales
during Q2FY11, the US Glove Division increased sales by more than
100% from Q2FY10, driven by Indian glove product gaining traction
and the Gulf oil spill
- Gross margin improved due to
contributions from international operations and disposables
relating to industry-wide shortages and price increases
- Operating expenses increased
largely due to:
- Higher sales volumes
overall
- Freight out increases, due in
part to higher volume and use of air freight due to stock-outs
- Unusual items in Q2 operating
results:
- $457,000 cumulative charge to
equity compensation resulting from the Board of Directors changing
the performance level on the 2009 Equity Plan from zero to baseline
[$0.054 per share]
- $175,000 charge for legal and
professional fees in Brazil resulting from the terminations of two
managers [$0.027 per share]
- $220,000 charge for severance
pay resulting from a Reduction in Force [$0.026 per share]
- Without unusual expenses in
Q2FY11 EPS would have been $0.21 as compared to reported basic EPS
of $0.11 and $0.00 in the same period in prior year
- Effective inventory control and
cash management initiatives resulted in $6.6 million reduction of
bank debt at 7/31/10 from 1/31/10
- Cash position increased by 30%
to $6.6 million at end of Q2FY11 from beginning of fiscal year
- No settlement reached in Brazil
as arbitration approaches relating to Brazil employment
terminations
Fiscal 2011 Second Quarter
Financial Results
Net Sales. Net sales increased $1.5 million, or 6.5%, to $24.6
million for the three months ended July 31, 2010, from $23.0
million for the three months ended July 31, 2009. The net increase
was due to an increase of $2.1 million in foreign sales, offset by
a $0.6 million decrease in domestic sales.
External sales from China increased by $2.2 million, or 98%,
driven by Australian sales and domestic sales in China. Canadian
sales increased by $0.2 million, or 12.4%, UK sales increased by
$0.2 million or 16.7%, Chile sales decreased by $0.6 million, or
68%, in part resulting from an earthquake that led to business
disruptions, and India sales increased by $0.2 million, or 100%.
Sales in Brazil were down 7.6% mainly from lack of large bid sales
in Q2 this year as compared with the prior period.
US domestic sales of disposables were flat despite positive
order flow due to manufacturing capacity constraints and stock-out
conditions. Softness in various industrial sectors and economic
uncertainty in the US led to chemical suit sales decreasing by $0.5
million, wovens decreasing by $0.4 million and flat reflective
sales. Glove sales in the US increased by $0.7 million due to
traction for this relatively new product line and demand relating
to the Gulf oil spill.
Gross Profit. Gross profit increased $2.0 million, or 32.6%, to
$8.3 million for the three months ended July 31, 2010, from $6.2
million for the three months ended July 31, 2009. Gross profit as a
percentage of net sales increased to 33.7% for the three months
ended July 31, 2010, from 27.1% for the three months ended July 31,
2009. Major factors driving the changes in gross margins were:
- Disposables gross margin
increased by $1.5 million this year compared with last year. This
increase was mainly due to higher margins in Q2 resulting from the
prevailing industry wide shortages and price increases
- Brazil’s gross margin was 46.8%
this year compared with 40.6% last year. This increase was largely
due to the sales mix, and favorable exchange rates
- Continued gross losses of $0.1
million from India in Q2 FY11
- Chemical division gross margin
increased 1.1 percentage points resulting from sales mix
- Canada gross margin increased
6.9 percentage points due to higher volume and favorable exchange
rates
Operating Expenses. Operating expenses increased $1.4 million,
or 23%, to $7.4 million for the three months ended July 31, 2010,
from $6.0 million for the three months ended July 31, 2009. As a
percentage of sales, operating expenses increased to 30.3% for the
three months ended July 31, 2010 from 26.1% for the three months
ended July 31, 2009. The $1.4 million increase in operating
expenses in the three months ended July 31, 2010 as compared to the
three months ended July 31, 2009 was comprised of:
- $0. 5 million increase in equity
compensation resulting from the 2009 restricted stock plan treated
at the baseline performance level and the resulting cumulative
charge
- $0.2 million increase in
professional fees resulting from the terminations in Brazil
- $0.2 million increase in freight
out shipping costs, in part due to higher volume and in part due to
use of air freight in some cases resulting from stock-out
conditions
- $0.2 million increase in
administrative payroll mainly resulting from severance pay from
terminations in Canada and the US
- $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
- $0.1 million in increased sales
commissions resulting from higher volume
- $0.1 million increase in sales
salaries resulting from increased sales personnel in Argentina,
China and the wovens Division
- $(0.1) million in miscellaneous
decreases
Operating profit. Operating profit increased 293.6% to $0.8
million for the three months ended July 31, 2010 from $0.2 million
for the three months ended July 31, 2009. Operating margins were
3.4% for the three months ended July 31, 2010 compared to 0.9% for
the three months ended July 31, 2009.
Interest Expenses. Interest expenses decreased by $0.1 million
for the three months ended July 31, 2010 as compared to the three
months ended July 31, 2009 due to lower borrowing levels
outstanding and lower interest rates.
Income Tax Expense. Income tax expenses consist of federal,
state, and foreign income taxes. Income tax expenses increased $0.2
million to $0.2 million for the three months ended July 31, 2010,
from $0.0 million for the three months ended July 31, 2009. The
Company’s effective tax rates were not meaningful for Q2FY10 and
25.8% for the three months ended July 31, 2010, due to the near
breakeven profit in the previous year. The effective tax rate for
Q2FY11 reflects goodwill write-offs in Brazil and tax benefits from
India resulting from “check the box” in the US.
Net Income. Net income increased $0.6 to $0.6 million for the
three months ended July 31, 2010 from $0.0 million for the three
months ended July 31, 2009. The increase in net income primarily
resulted from higher sales and improved margins resulting from a
favorable pricing environment in Q2FY11, partially offset by
charges to net income of $0.3 million for the cumulative change in
Restricted Stock performance level ($0.05 per share), $0.2 million
for legal fees in Brazil resulting from management terminations
($0.03 per share), and $0.2 million for severance costs in Canada
($0.03 per share). Excluding these charges, the Company would have
reported net income of $1.3 million in the second quarter of fiscal
2011 ($0.21 per share).
Fiscal 2011 First Half
Financial Results
Net Sales. Net sales increased $2.9 million, or 6.1%, to $49.9
million for the six months ended July 31, 2010, from $47.0 million
for the six months ended July 31, 2009. The net increase was due to
an increase of $5.2 million in foreign sales, partially offset by a
$2.3 million decrease in domestic sales. External sales from China
increased by $3.3 million, or 83%, driven by sales of products to
Australia and domestically in China. Canadian sales increased by
$0.7 million or 24%, UK sales increased by $0.6 million or 33%,
Chile sales decreased by $0.5 million or 46% in part due to the
earthquake. US domestic sales of disposables decreased by $1.0
million, chemical suit sales decreased by $0.8 million, wovens
decreased by $0.3 million, reflective sales decreased by $0.3
million and glove sales increased by $0.9 million. Sales in Brazil
were flat in the first half of fiscal 2011 as compared with the
same period in fiscal 2010.
Gross Profit. Gross profit increased $2.4 million, or 19.8%, to
$14.7 million for the six months ended July 31, 2010, from $12.2
million for the six months ended July 31, 2009. Gross profit as a
percentage of net sales increased to 29.4% for the six months ended
July 31, 2010, from 26.0% for the six months ended July 31, 2009.
Major factors driving the changes in gross margins were:
- Disposables gross margin
increased by 4.7 percentage points this year compared with last
year. This increase was mainly due to higher margins in Q2
resulting from the industry wide shortages prevailing, partially
offset by higher priced raw materials and a very competitive
pricing environment coupled with lower volume in Q1
- Brazil’s gross margin was 48.1%
this year compared with 43.3% last year. This increase was largely
due to the volume provided by a larger bid contract this year
- Gross losses of $0.2 million
from India in FY11
- Chemical division gross margin
declined 2.3 percentage points resulting from lower volume and
sales mix
- Canada gross margin increased
6.8 percentage points due to higher volume and favorable exchange
rates
Operating Expenses. Operating expenses increased $2.2 million,
or 19.3%, to $13.5 million for the six months ended July 31, 2010,
from $11.4 million for the six months ended July 31, 2009. As a
percentage of sales, operating expenses increased to 27.1% for the
six months ended July 31, 2010 from 24.1% for the six months ended
July 31, 2009. The $2.2 million increase in operating expenses in
the six months ended July 31, 2010 as compared to the six months
ended July 31, 2009 were comprised of:
- $0.5 million increase in equity
compensation resulting from the 2009 restricted stock plan treated
at the baseline performance level and the resulting cumulative
charge
- $0.4 million in increased
operating costs in China were the result of the large increase in
direct international sales made by China which are now allocated to
SG&A costs, previously allocated to cost of goods sold
- $0.4 million increase in
administrative payroll mainly resulting from $0.3 million severance
pay from terminations in Canada and the US
- $0.3 million increase in foreign
exchange costs resulting from unhedged losses against the Euro in
China. The company has since commenced a hedging program for the
Euro
- $0.3 million increase in freight
out shipping costs, in part due to higher volume and in part due to
use of air freight in some cases resulting from stock-out
conditions
- $0.2 million increase in
professional fees relating to the terminations in Brazil
- $0.2 million increase in
salaries for additional sales personnel in Argentina, China and the
wovens division
- $0.1 million in increased sales
commissions resulting from higher volume
- $(0.2) million miscellaneous
decreases
Operating profit. Operating profit increased 27% to $1.1 million
for the six months ended July 31, 2010 from $0.9 million for the
six months ended July 31, 2009. Operating margins were 2.3% for the
six months ended July 31, 2010 compared to 1.9% for the six months
ended July 31, 2009.
Interest Expenses. Interest expenses decreased by $0.2 million
for the six months ended July 31, 2010 as compared to the six
months ended July 31, 2009 due to lower borrowing levels
outstanding and lower interest rates.
Income Tax Expense. Income tax expenses consist of federal,
state, and foreign income taxes. Income tax expenses decreased $0.2
million, or 58%, to $0.2 million for the six months ended July 31,
2010 from $0.4 million for the six months ended July 31, 2009. The
Company’s effective tax rates were not meaningful for this year and
80% for the six months ended July 31, 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 effective tax
rate for the first six months of fiscal year 2011 reflects goodwill
write-offs in Brazil and tax benefits from India resulting from
“check the box” in the US, and the $1.6 million charge for VAT tax
expense in Brazil.
Net Income (loss). Net income decreased $0.9 to a loss of $0.8
million for the six months ended July 31, 2010 from a profit of
$0.1 million for the six months ended July 31, 2009. The decrease
in net income primarily resulted from the $1.6 million charge for
VAT tax expense in Brazil in the first quarter of the present
fiscal year. Excluding the Brazilian VAT tax expense, the Company
would have reported net income of $0.8 million in the six months
ended July 31, 2010, a 771% increase as compared to the same period
in fiscal 2009. The improved profitability before VAT tax expense
reflects an increase in sales. higher margins particularly in
Q2FY11, and a $350,000 allowance against deferred taxes in the
prior year resulting from the India restructuring, partially offset
by a reduction in gross margins in disposables.
Management’s Comments
Commenting on the financial results, Lakeland Industries
President and Chief Executive Officer Christopher J. Ryan said,
“Lakeland continues to deliver strong financial performance driven
by the growth of its international operations and streamlining of
its global operating structure. We have been successful in managing
our costs while navigating through a volatile pricing and supply
chain environment. Based on continued demand and our backlog at the
end of the quarter of approximately $7 million, we believe the
Company is positioned for strong results through the balance of the
fiscal year.
“During the second fiscal quarter, we benefited from
requirements related to the Gulf of Mexico oil spill. Although the
oil well has been contained, a significant clean up effort is
underway. We experienced demand for our protective and safety
apparel that outstripped our supply of products. Our warehouse
inventory was used up, our manufacturing capacity was nearly at
full scale production for the specific products required for the
clean up, and raw materials and our other sourcing of goods were on
backorders. Stock-out condition and capacity issues resulted in a
backlog of orders at the end of the quarter. Presently, the Company
is working down the backlog, and we expect to fulfill the
backorders by the end of the fiscal year. Following the new
agreement with DuPont announced last quarter, we have essentially
depleted our inventory of products made from material we receive
from them, and will resell finished goods they send to us, although
they also are experiencing manufacturing constraints.
“The oil spill-related demand benefited our US operations, which
overall has experienced longer term challenges. The impact from the
recession served to magnify the reduced requirements for industrial
products in the US, although downward pressures had abated as the
economy had somewhat retraced from its low point last year. The
long term trend in the US was the basis for our international
diversification strategy. Our timing was prescient as we are now
more than offsetting the decline in the US with foreign revenues.
Furthermore, revenues in our overseas operations generally are
higher margin as compared to our domestic sales.
“On a larger base of sales in the second quarter of fiscal 2011
as compared with the fiscal 2010 period, nearly 44% of our
consolidated revenues were from our foreign operations versus 37%
in the prior period. China and India represent relatively new
markets for us in terms of sales operations, and we are gaining
traction in both, as evidenced by our nearly doubling of revenues
in each market. Brazil contributes significantly to our presence in
industrial growth markets and can deliver significant upswings as
there is an abundance of large bid contracts for public and private
sectors for which we have bids outstanding.
“Progress has also been made in our mission to improve our cost
structure and balance sheet. Inventories have been brought down 13%
fiscal year-to-date and are now at a reasonable steady state. We do
not expect significant further reductions. Our debt has been
reduced 69% in the time frame to $3 million, while our cash
position is up 30% to $6.6 million at the end of the second
quarter.
“In an attempt to rationalize our resources and retain and
motivate our workforce in a challenging operating environment, we
took the necessary actions that resulted in unusual expenses in the
second quarter. While our second quarter diluted earnings per share
surged to $0.10 from break-even last year, an equity compensation
adjustment expense and a reduction in force and related costs
reduced earnings per share by nearly $0.11 in the second quarter.
Excluding these charges, the Company would have reported net income
of $1.2 million in the second quarter of fiscal 2011 ($0.21 per
share). In light of the improvement made at our international
operations which presently represent minimal global market share as
well as the steps taken to maximize profits, we are confident that
there is substantial room for growth.”
Financial Results Conference
Call
Lakeland will host a conference call at 10:00 AM (EDT) on
September 14, 2010, to discuss the Company’s second 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 877-723-9523 (domestic) or
719-325-4771 (international), code 1429827.
A conference call replay will be available by dialing
888-203-1112 (domestic) or 719-457-0820 (international), code
1429827.
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)
July 31,
January 31,
ASSETS
2010
2010
(Unaudited)
Current assets: Cash and cash equivalents $ 6,608 $ 5,093
Accounts receivable, net 16,319 15,809 Inventories, net 33,560
38,576 Deferred income taxes 1,473 1,261 Prepaid income and VAT tax
3,361 1,732 Other current assets
1,507
2,356
Total current assets 62,828 64,827 Property and
equipment, net 13,572 13,742 Intangibles and other assets, net
7,894 5,622 Goodwill
6,090
5,829
Total assets
$
90,384 $ 90,020
LIABILITIES AND STOCKHOLDERS’ EQUITY Current
liabilities: Accounts payable $ 6,665 $ 3,883 Accrued compensation
and benefits 1,546 1,289 Other accrued expenses 644 1,138 Borrowing
under revolving credit facility 2,962 9,517 Other short term
borrowings 589 ----- Current maturity of long term debt
97
94
Total current liabilities 12,503 15,921 Construction loan
payable, net of current maturity 1,600 1,583 VAT taxes payable
long-term 3,309 ----- Other liabilities
98
92
Total liabilities 17,510 17,596 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 sharesissued and outstanding 5,566,537 and
5,564,732 shares atJuly 31, 2010 and at January 31, 2010,
respectively
56
56
Less treasury stock at cost
125,322 shares at July 31, 2010and January 31, 2010
(1,353 )
(1,353
)
Additional paid-in capital 50,098 49,622 Retained earnings 24,448
25,221 Other comprehensive income (loss)
(375
)
(1,122
)
Total stockholders’ equity
72,874
72,424
Total liabilities and stockholders’ equity
$
90,384 $ 90,020
LAKELAND INDUSTRIES, INC. AND
SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS (In thousands, except share and per share
data) (Unaudited) Three Months
Ended Six Months Ended July 31, July 31,
2010 2009 2010
2009 Net sales $ 24,551 $ 23,049 $ 49,914 $
47,025 Cost of goods sold
16,280
16,812 35,238
34,778 Gross profit 8,271 6,237 14,676 12,247
Operating expenses
7,431
6,023 13,545
11,355 Operating profit 840 214 1,131 892 VAT
tax charge-Brazil from prior periods ----- ----- (1,583 ) -----
Interest and other income, net 22 13 35 54 Interest expense
(92 ) (227
) (179 )
(420 ) Income (loss) before income taxes
770 0 (596 ) 526 Provision (benefit) for income taxes
198 (8 )
178 421 Net
(loss) income
$ 572 $
8 ($774 )
$ 105 Net (loss) income per common
share: Basic
$ 0.11 $
0.00 ($0.14 )
$ 0.02 Diluted
$
0.10 $ 0.00
($0.14 ) $
0.02 Weighted average common shares
outstanding: Basic
5,440,411
5,415,391 5,439,921
5,410,938 Diluted
5,533,196 5,436,309
5,526,626 5,452,560
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