Lakeland Industries, Inc. (NASDAQ: LAKE) today announced financial
results for its third quarter fiscal year 2011 ended October 31,
2010.
Financial Results Highlights and Recent Company Developments
-- Revenue of $26.3 million in Q3FY11 up 18% over Q3 last year
-- International revenues grew 14% and domestic revenues increased 21%
from Q3FY10
-- Gross margin improved 2 percentage points quarter-over-quarter due to
contributions from international operations and disposables relating to
industry-wide shortages and price increases
-- Bank debt of $5.9 million at end of quarter down from $9.5 million at
beginning of fiscal year
-- Cash of $5.5 million at end of Q3FY11
-- Stock repurchase plan approved
-- Visibility and Growth Outlook Strengthened:
-- Backlog of $3.4 million at end of quarter for U.S. disposables
-- Increase in deferred income from China operations to provide $0.10
in EPS in future quarters
-- International markets remain robust and provide higher margins
-- U.S. auto sector and related supply chain improving
-- "Opportunity Gap" -- maximum utilization from global
assets/workforce -- supportive of increased market share, revenues
and profits
Fiscal 2011 Third Quarter Financial Results
Net Sales. Net sales increased $4.0 million, or 18%, to $26.3
million for the three months ended October 31, 2010, from $22.3
million for the three months ended October 31, 2009. The net
increase was due to an increase of $2.8 million or 21% in domestic
sales and $1.2 million or 14% in foreign sales in the fiscal 2011
quarter as compared with the same quarter of the prior year.
External sales from China increased by $2.3 million, or over
100%, driven by domestic sales in China and sale of products for
international markets. Canadian sales increased by $0.1 million, or
9.9%, UK sales decreased by 2%, Chile sales decreased by $0.1
million, in part resulting from an earthquake that led to business
disruptions, and India sales increased by $0.4 million, or 200%.
Sales in Brazil were down nearly 8%, mainly from lack of large bid
sales this year as compared with the prior period, although
management is optimistic that the Company will secure several
significant contracts for which proposals remain outstanding.
U.S. domestic sales of disposables were $11.6 million in 3QFY11
as compared with $10.3 million in 3QFY10. The increase reflects
fulfillment of a portion of contract backlog stemming from
manufacturing capacity constraints and stock-out conditions earlier
in the year. An increase in orders relating to the Gulf oil spill
led to an increase in U.S. chemical suit sales, which increased to
$1.8 million in 3QFY11 from $1.7 million in 3Q10. Domestic sales
for woven products increased by $0.5 million, while reflective
products sales increased $0.3 million or 34% driven by demand from
the utilities market. Glove sales in the U.S. were flat due to
increased demand offset by pricing pressures.
Gross Profit. Gross profit increased $1.5 million, or 27.1%, to
$7.2 million for the three months ended October 31, 2010, from $5.7
million for the three months ended October 31, 2009. Gross profit
as a percentage of net sales increased to 27.3% for the three
months ended October 31, 2010, from 25.4% for the three months
ended October 31, 2009. Major factors driving the changes in gross
margins were:
-- Disposables gross margin increased by $1.1 million this year compared
with last year. This increase was mainly due to higher margins in
3QFY11 resulting from lower fabric costs, the industry wide shortages
prevailing and price increases
-- Brazil's gross margin was 41.7% this year compared with 41.1% last
year. This increase was largely due to the sales mix
-- Breakeven at the gross level from India in 3QFY11
-- Chemical division gross margin increased 5.3 percentage points
resulting from sales mix
-- Canada gross margin increased 4.8 percentage points due to higher
volume and favorable exchange rates
-- Reduction of 3QFY11 gross profit from elimination of intercompany
results relating to unusually high deferred profits for China sales of
products that are in transit at October 31 (and included in inventory).
This profit will be recognized when sold to third parties
Operating Expenses. Operating expenses increased $0.9 million,
or 16.3%, to $6.4 million for the three months ended October 31,
2010, from $5.5 million for the three months ended October 31,
2009. As a percentage of sales, operating expenses decreased to
24.2% for the three months ended October 31, 2010 from 24.5% for
the three months ended October 31, 2009. The $0.9 million increase
in operating expenses in the three months ended October 31, 2010 as
compared to the three months ended October 31, 2009 was comprised
of:
-- $0.2 million increase in sales salaries resulting primarily from
increased sales personnel in South America, China and other areas
relating to the Company's growth strategy
-- $0.2 million increase in professional fees resulting from management
changes in Brazil and international tax planning.
-- $0.2 million increase in freight out shipping costs, in part due to
higher volume and the need for multiple shipments using air freight and
traditional freight to fulfill orders subject to stock-out conditions
and other special circumstances
-- $0.1 million in increased sales commissions resulting from higher
volume
-- $0.1 million increase in equity compensation resulting from the 2009
restricted stock plan treated at the baseline performance level
-- $0.1 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 (previously allocated to cost of goods
sold)
-- ($0.2) million decrease in administrative payroll mainly resulting from
earlier terminations in Canada and the U.S.
-- $0.2 million miscellaneous increases
Operating profit. Operating profit increased 340% to $0.8
million for the three months ended October 31, 2010 from $0.2
million for the three months ended October 31, 2009. Operating
margins were 3.1% for the three months ended October 31, 2010
compared to 0.8% for the three months ended October 31, 2009.
Interest Expenses. Interest expenses decreased by $0.5 million
for the three months ended October 31, 2010 as compared to the
three months ended October 31, 2009 due to lower borrowing levels
outstanding and lower rates, and the buyout of the interest rate
swap in the third quarter of last year.
Income Tax Expense. Income tax expenses consist of federal,
state and foreign income taxes. Income tax expenses increased $0.3
million to $0.1 million for the three months ended October 31, 2010
from $(0.2) million for the three months ended October 31, 2009.
The Company's effective tax rates were 15.1% for 3Q FY11 and 49.6%
for the three months ended October 31, 2009, mainly resulting from
losses in India in the prior year with no tax benefit. The
effective tax rate for 3QFY11 was due to goodwill write-offs in
Brazil and tax benefits from India resulting from a "check the box"
tax status in the U.S.
Net Income. Net income increased $0.8 million to $0.6 million
for the three months ended October 31, 2010 from a net loss of
$(0.2) million for the three months ended October 31, 2009.
Earnings per basic and diluted share for the third quarter of
fiscal 2011 was $0.12, an increase from a net loss per basic and
diluted share of $(0.03) in the prior year period. The increase in
net income and earnings per share primarily resulted from higher
volumes and higher margins, offset by the elimination (deferral) of
intercompany profits of $0.10 earnings per share due to unusually
high production in China mostly in transit as of October 31, 2010.
This profit will be recognized when the product is sold to third
parties; until that time, the products will not be reflected on the
Company's income statement and will be accounted for as finished
goods inventory.
Fiscal 2011 Nine Months Financial Results
Net Sales. Net sales increased $6.9 million, or 9.9%, to $76.2
million for the nine months ended October 31, 2010, from $69.3
million for the nine months ended October 31, 2009. The net
increase was due to an increase of $6.4 million in foreign sales
and an increase of $0.5 million in domestic sales.
External sales from China increased by $5.6 million, or 80%,
driven by sales for the Australian market and domestic sales in
China. Canadian sales increased by $0.8 million or 19.6%, UK sales
increased by $0.6 million or 18.8%, Chile sales decreased by $0.6
million or 38%, in part resulting from a disruption in market
activity following an earthquake and an elimination of Argentina
sales which were subtracted from Chile as the Company formed a new
subsidiary encompassing Argentina operations to address growth
opportunities in the country. Sales in Brazil were flat for the
first nine months of fiscal year 2011 as compared with the prior
year. For the first three quarter of fiscal 2011 compared with the
2010 period, U.S. domestic sales of disposables increased by $0.3
million, chemical suit sales decreased by $0.8 million, wovens
increased by $0.2 million, reflective sales were flat, and glove
sales increased by $0.9 million.
Gross Profit. Gross profit increased $4.0 million or, 22.1%, to
$21.9 million for the nine months ended October 31, 2010, from
$17.9 million for the nine months ended October 31, 2009. Gross
profit as a percentage of net sales increased to 28.7% for the nine
months ended October 31, 2010 from 25.8% for the nine months ended
October 31, 2009. Major factors driving the changes in gross
margins were:
-- Disposables gross margin increased by 5.4 percentage points this year
compared with last year. This increase was mainly due to higher margins
in 3QFY11 resulting from the lower fabric prices industry-wide
-- Brazil's gross margin was 45.9% this year compared with 42.5% last
year. This increase was largely due to the volume provided by a larger
bid contract earlier this year
-- Continued gross losses of $0.2 million from India in FY11, although
India achieved breakeven gross margins for 3QFY11.
-- Chemical division gross margin increased 0.2 percentage points
resulting from an improved sales mix as the year progressed
-- Canada gross margin increased 6.1 percentage points due to higher
volume and favorable exchange rates
Operating Expenses. Operating expenses increased $3.1 million,
or 18.3%, to $19.9 million for the nine months ended October 31,
2010, from $16.8 million for the nine months ended October 31,
2009. As a percentage of sales, operating expenses increased to
26.1% for the nine months ended October 31, 2010 from 24.3% for the
nine months ended October 31, 2009. The $3.1 million increase in
operating expenses in the nine months ended October 31, 2010 as
compared to the nine months ended October 31, 2009 were comprised
of:
-- $0.5 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 but which had previously been allocated to
cost of goods sold
-- $0.5 million increase in freight out shipping costs due to higher
volume and to stock-out conditions, and the need for multiple shipments
to fulfill one order as stock arrived late from a supplier
-- $0.4 million increase in equity compensation resulting from the 2009
restricted stock plan treated at the baseline performance level and the
resulting cumulative charge
-- $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 professional fees resulting from management
changes, commencement of arbitration proceedings in Brazil and
international tax planning.
-- $0.2 million increase in administrative payroll mainly resulting from
$0.4 million severance pay from terminations in Canada and the U.S.,
offset by a resulting $0.2 million lower payroll costs in the remainder
of the year.
-- $0.2 million increase in sales salaries resulting primarily from
increased sales personnel in South America, China and other areas
relating to the Company's growth strategy
-- $0.2 million in increased sales commissions resulting from higher
volume
-- $0.2 million miscellaneous increases
-- $0.1 million increase in advertising resulting in lower Co-op
advertising rebates received from suppliers
-- $0.1 million increase in donations relating to Chile's earthquake
relief effort
-- $0.1 million increase in one-time increases in Delaware Franchise
Taxes.
Operating Profit. Operating profit increased $0.9 million to
$2.0 million for the nine months ended October 31, 2010 from $1.1
million for the nine months ended October 31, 2009. Operating
margins were 2.6% for the nine months ended October 31, 2010
compared to 1.6% for the nine months ended October 31, 2009.
Interest Expenses. Interest expenses decreased by $0.7 million
for the nine months ended October 31, 2010 as compared to the nine
months ended October 31, 2009 due to lower borrowing levels
outstanding and lower rates, and the buyout of the interest rate
swap in the third quarter of last year.
Income Tax Expense. Income tax expenses consist of federal,
state and foreign income taxes. Income tax expenses increased $0.1
million to $0.3 million for the nine months October 31, 2010 from
$0.2 million for the nine months ended October 31, 2009. The
Company's effective tax rates were not meaningful for this year or
last year. The effective tax rate for 1QFY10 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 U.S.
not previously recorded. The Company's effective tax rate for the
first nine months of fiscal year 2011 was impacted by goodwill
write-offs in Brazil and tax benefits from India resulting from a
"check the box" tax status in the U.S and the $1.6 million charge
for a VAT tax expense in Brazil.
Net Income (Loss). The Company reported a net loss of $(0.1)
million for the nine months ended October 31, 2010 from a net loss
of $(0.1) million for the nine months ended October 31, 2009. The
net loss per basic and diluted share for the nine months ended
October 31, 2010 was $(0.02) as compared with a loss of $(0.02) per
basic and diluted share for the same period of the prior year. The
net loss in the first nine months of fiscal year 2011 primarily
resulted from a $1.6 million charge for VAT tax expense in Brazil.
Excluding the Brazilian VAT tax expense, the Company would have
reported net income of $1.5 million or earnings per share of $0.27
for the nine months ended October 31, 2010, as compared to a net
loss of $(0.1) million or a loss per share of $(0.02) for the same
period in fiscal 2010. The improved profitability before VAT tax
expense reflects an increase in sales, increases in gross margins
in disposables, and a $350,000 allowance against deferred taxes in
the prior year resulting from the India restructuring.
Management's Comments
Commenting on the financial results, Lakeland Industries
President and Chief Executive Officer Christopher J. Ryan said,
"Lakeland has delivered another strong quarter driven by growth in
both international and domestic operations. For the last few years,
the Lakeland story has centered on growth of faster growing
international markets while the domestic market for our products
had declined precipitously with outsourcing trends and the
exporting of "dirty jobs" to nations with lower cost bases. This
negative progression was later punctuated by the global recession
and a severe pullback in the domestic auto industry. We are pleased
to report that by most measures many of the economies around the
world are recovering and the U.S. auto sector is rebounding,
although unlikely to reach its previous levels.
"Lakeland's international revenues increased by 14% even though
our Brazilian business was slightly lower year-over-year as it
awaits awards on several large bid contracts. Importantly, we have
strengthened our near term prospects through revenue and earnings
visibility and our longer term growth strategies are gaining
traction. Consolidated revenues increased by 18% for the third
quarter to $26.3 million, which on an annualized basis is higher
than any fiscal year revenue reported by the Company in its nearly
30 year history. We ended the third quarter with a backlog of $3.4
million in firm orders for domestic disposables, and deferred
profits from our operations in China that should yield
approximately $700,000 in pretax profit or $0.10 in net earnings
per share.
"Domestic operations for Lakeland have improved since bottoming
out with the recession. Of particular importance is the rebounding
of the automotive sector for which we supply our products to
manufacturers throughout the supply chain. Demand for products
related to the Gulf oil spill has been abating, but we are seeing
requirements pick up in other sectors of the domestic economy.
Internationally, we are gaining traction in multiple markets around
the world, with particular growth anticipated in China, Brazil,
Mexico, Europe, Chile, Russia and Europe.
"With the majority of our target markets on an upward trajectory
and the heavy spending on international operations behind us,
staffing for management, sales and manufacturing positions is
perhaps the most critical element for our success. Sales and
marketing personnel have been added at our operations in China,
India, Latin America, Kazakhstan and Russia. The teams have been
making considerable inroads toward securing an impressive number of
new product approvals and in setting up direct sales channels.
Charges against earnings were taken earlier in the year and in the
third quarter personnel changes that enabled us to improve upon our
management teams in Brazil, India and North America. We implemented
a headcount reduction at our manufacturing facilities in China
during the recession and amid a modified agreement with DuPont
whereby they would supply us with finished goods and we would be
able to reallocate our production capacity. The additional capacity
was not needed until recently as the global economic recovery took
effect. In October we added nearly 200 sewers hired from a
neighboring company that did not plan accordingly in facing the
recession, and just completed an expansion of our plant capacity in
Brazil by 30%.
"Now, with our manufacturing capacity returning, the Company's
global asset utilization provides significant upside to our
financial results as there is a substantial opportunity gap to
capitalize on. Capital investments are minimal from this point
forward. Incremental to this growth potential is the agreement with
DuPont whereby we resell finished goods they send to us, which
through the third quarter had been hampered by their raw material
constraints but has more recently eased up.
"Our working capital and cash position increased in the fiscal
year, with a cash balance at October 31, 2010 of $5.5 million. At
the same time, we have reduced our debt from the beginning of the
year to a very low and manageable level below $6 million. With a
credit facility of $23.5 million at our disposal, we are provided
with significant access to over $17 million for growth capital and
acquisitions.
"Reflecting the confidence we have in Lakeland's fundamental
strengths and growth prospects as well as the belief that our
current share price valuation does not reflect the Company's
underlying long term value, we announced in November a stock
repurchase program for up to $2,000,000 worth of outstanding common
stock. We believe the repurchase of our common stock and our
favorable outlook should enhance shareholder value."
Financial Results Conference Call
Lakeland will host a conference call at 4:30 PM eastern today to
discuss the Company's third 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 888-359-3613 (Domestic) or 719-457-1506 (International),
Pass Code 2118959.
A conference call replay will be available by dialing
888-203-1112 (Domestic) or 719-457-0820 (International), Pass Code
2118959.
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)
October 31, January 31,
2010 2010
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 5,455 $ 5,093
Accounts receivable, net 17,395 15,809
Inventories 38,780 38,576
Deferred income taxes 1,473 1,262
Prepaid Income Taxes and other current assets 4,018 4,087
----------- -----------
Total current assets 67,121 64,827
Property and equipment, net 13,782 13,743
Goodwill 6,226 5,829
Other assets 8,069 5,622
----------- -----------
$ 95,198 $ 90,020
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,377 $ 3,883
Accrued expenses and other current liabilities 2,639 2,427
Borrowing under revolving credit facility -- 9,518
Current maturity of long term debt 98 93
----------- -----------
Total current liabilities 10,114 15,921
Borrowing under revolving credit facility 5,859 --
Construction loan payable 1,588 1,583
VAT taxes payable long-term 3,309 --
Other non current liabilities 102 92
----------- -----------
Total liabilities 20,972 17,596
Stockholders' equity
Common stock, $0.01 par; authorized
10,000,000 shares; issued and outstanding
5,567,652 and 5,564,732 shares at October 31,
2010 and at January 31, 2010, respectively 56 55
Less treasury stock, at cost, 125,322 shares at
October 31, 2010 and January 31, 2010 (1,353) (1,353)
Additional paid-in capital 50,203 49,623
Retained earnings 25,096 25,221
Other comprehensive income (loss) 224 (1,122)
----------- -----------
Total stockholders' equity 74,226 72,424
----------- -----------
Total liabilities and stockholders' equity $ 95,198 $ 90,020
=========== ===========
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except shares and per share data)
(unaudited)
Three Months Ended Nine Months Ended
October 31, October 31,
2010 2009 2010 2009
--------- --------- --------- ---------
Net sales $ 26,293 $ 22,285 $ 76,207 $ 69,310
Cost of goods sold 19,106 16,629 54,344 51,407
--------- --------- --------- ---------
Gross profit 7,187 5,656 21,863 17,903
Operating expenses 6,361 5,468 19,906 16,823
--------- --------- --------- ---------
Operating profit 826 188 1,957 1,080
VAT tax charge Brazil -- -- (1,583) --
Interest and other income, net 16 6 51 60
Interest expense (77) (572) (256) (992)
--------- --------- --------- ---------
Income (loss) before income
taxes 765 (378) 169 148
Provision for income taxes 116 (188) 294 233
--------- --------- --------- ---------
Net income (loss) $ 649 $ (190) $ (125) $ (85)
========= ========= ========= =========
Net income (loss) per common
share*:
Basic $ 0.12 $ (0.03) $ (0.02) $ (0.02)
========= ========= ========= =========
Diluted $ 0.12 $ (0.03) $ (0.02) $ (0.02)
========= ========= ========= =========
Weighted average common
shares outstanding:
Basic 5,440,520 5,438,400 5,440,396 5,420,244
========= ========= ========= =========
Diluted 5,546,389 5,458,777 5,513,939 5,440,484
========= ========= ========= =========
Contacts: Lakeland Industries 631-981-9700 Christopher Ryan
Email Contact Gary Pokrassa Email Contact Darrow Associates
631-367-1866 Jordan Darrow Email Contact
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