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8-K - CURRENT REPORT - LAKELAND INDUSTRIES INC | a05-8kq2fy19.htm |
Exhibit
99.1
|
3555
Veterans Memorial Highway, Suite C
Ronkonkoma, NY 11779
(631) 981-9700 - www.lakeland.com
|
Lakeland
Industries, Inc. Reports Fiscal 2019 Second Quarter Financial
Results
RONKONKOMA,
NY – September 10, 2018 -- Lakeland Industries, Inc. (NASDAQ:
LAKE) (the “Company” or “Lakeland”), a
leading global manufacturer of protective clothing for industry,
healthcare and to first responders on the federal, state and local
levels, today announced financial results for its fiscal 2019
second quarter ended July 31, 2018.
Fiscal 2019 Second Quarter Financial Results Highlights and Recent
Developments
●
Net sales for 2Q19
of $25.6 million increased 7.1% from $23.9 million in
2Q18
●
Gross profit for
2Q19 of $9.2 million increased 5.3% from $8.7 million in
2Q18
●
Operating expenses
of $7.5 million in 2Q19 increased from $6.5 million in 2Q18 for
continued investment in growth and profitability enhancements
including one-time items relating to IT infrastructure, and
expansion in the sales force.
●
Net income of $1.0
million in 2Q19 decreased from $1.8 million in 2Q18
●
Cash of $14.9
million at the end of 2Q19 decreased from $15.8 million at the
beginning of the fiscal year due to increased inventory purchases,
capital expenditures for growth initiatives. and debt
reduction
●
Total debt was
reduced by 12.2% to $1.5 million at end 2Q19 from $1.7 million at
the beginning of the fiscal year
●
Stockholders’
equity at the end of 2Q19 increased by 3.1% to $85.4 million from
$82.8 million at the beginning of fiscal year
●
Investments in
digital transformation and global diversification
o
ERP system
installation and IT infrastructure improvements
o
Amazon.com
distribution platform
o
Vietnam
manufacturing ramping up; India next
Management’s Comments
Christopher
J. Ryan, President and Chief Executive Officer of Lakeland
Industries, stated, “Second quarter fiscal 2019 sales were
7.1% higher than the year earlier period, which is a higher rate of
growth than the year-over-year improvement of 6.0% for the first
quarter. Reported revenue growth for the second quarter of this
year is even more impressive considering that we had no revenue for
three days from our US operations, representing roughly half of our
consolidated activities, due to the implementation of the initial
stage of an ERP system.
“The
ERP implementation is part of a larger digital transformation that
is expected to improve our long term financial performance and
competitiveness on a global scale. This transformation includes
initiatives to generate higher sales from multiple product
categories and customer segments, improve gross margins, drive
operating leverage and yield sustainably higher long term financial
performance and management effectiveness. In the immediate term of
the second quarter and to a lesser degree in the third and fourth
quarters of fiscal 2019, the investments and cut-over adjustments
for the new system implemented in the US have negatively impacted
our financial results at the gross margin level as well as elevated
operating expenses. In the near future we also will be deploying
the ERP systems in our other major operations
globally.
“Another
component of our digital transformation is an e-commerce strategy
with sales and distribution on Amazon.com. This is an important
extension to our plans for long term revenue growth and customer
diversification, while potentially providing contributions to
margin enhancements and inventory management benefits. Our
e-commerce strategy utilizes Amazon.com as the cornerstone of our
cloud-based platform for online distribution, and serves as an
ideal complement to our longstanding practices of sales and
marketing on a business-to-business basis and through third party
distributors. We are in effect leveraging alternative distribution
channels, principally with Amazon, for retail and small business
customer sales. We began distributing a limited set of products
earlier this year on Amazon.com in the US. Distribution on the
Amazon platform will be rolled out in multiple subsidiaries
throughout our fiscal year, including Canada with a limited number
of products during the fiscal second quarter. Most recently, we
initiated sales on Amazon in Mexico. Our next launches on Amazon
will take place in Australia and Europe.
“Across
the board we are making solid progress as revenues increased in our
domestic and international operations and all major country
operations were profitable in the second quarter. An important
development in the second quarter was the ramping up and
commencement of operations of our new manufacturing facility in
Vietnam. Since the first quarter, we have nearly doubled the
workforce at this facility which had a staff of approximately 350
at July 31, 2018. Manufacturing in Vietnam should provide a lower
cost basis as compared to China and also presents more favorable
trade conditions for our sales into Asia-Pacific, Europe, Russia,
South America and North America. Approximately 70% of our $1.0
million in capital expenditures in the second quarter was for
equipment in Vietnam. We also have begun investing in India which
is expected to become a very large manufacturing hub for the
Company.
“Half
way through fiscal 2019, we have been incredibly busy and made
significant headway on all strategic fronts outlined during our
capital raise in August 2017. In addition, our success is in large
part drawn from our management team and we were pleased to have
strengthened our leadership with the promotion of Charlie Roberson
to the position of Chief Operating Officer in July 2018. With a
larger workforce and higher overall increased operating expenses
which included operating expenses that were incurred in the US as
part of the new system deployments along with our investments in
machinery, facilities, and the sales force, we are rapidly
implementing our long term growth strategies and are well
positioned to further improve top and bottom line
results.”
Fiscal 2019 Second Quarter Financial Results
Net
sales increased to $25.6 million for the three months ended July
31, 2018 compared to $23.9 million for the three months ended July
31, 2017, an increase of 7.1%. On a consolidated basis for the
second quarter of fiscal 2019, domestic sales were $13.4 million or
52.2% of total revenues and international sales were $12.3 million
or 47.8% of total revenues. This compares with domestic sales of
$12.6 million or 52.8% of revenues and international sales of $11.3
million or 47.2% of the total revenue in the same period of fiscal
2018.
Domestic
sales were impacted by no shipments being made during three days in
the fiscal 2019 second quarter due to inventory reclassification
and tracking requirements associated with the Company’s ERP
system installation. Among the Company’s larger international
operations, sales in China and to the Asia Pacific Rim increased
$0.8 million or 6.1% mostly as intercompany demand increased
(eliminated in consolidation) as industrial activity continued to
improve. Canada sales decreased $0.2 million or 6.9% as compared to
the prior year period in which the wild fire response created
unusually high demand. UK sales increased $0.5 million or 22.9% as
new distributors in Europe continue to place initial stocking
orders. Russia and Kazakhstan sales combined increased $0.5 million
or 124.1% as the Company continued to gain customers in this
region, and Latin America sales increased $0.5 million or 29.9%
reflecting an overall increase in industrial activity in that
region.
Gross
profit increased $0.5 million or 5.3% to $9.2 million for the three
months ended July 31, 2018, from $8.7 million for the three months
ended July 31, 2017. Gross profit as a percentage of net sales
decreased to 35.7% for the three-month period ended July 31, 2018
from 36.3% for the three months ended July 31, 2017. The gross
margin decline reflects sales mix for certain product groups within
disposables and chemical suits which was partially offset by price
increases in select markets around the world and efforts to market
higher margin woven and flame retardant products globally,
particularly into the pipeline industry and to electric utilities
domestically.
Operating
expense increased 15.3% to $7.5 million for the three months ended
July 31, 2018 from $6.5 million for the three months ended July 31,
2017. Operating expense as a percentage of net sales was 29.3% for
the three months ended July 31, 2018 up from 27.2% for the three
months ended July 31, 2017. The main factors for the increase in
operating expenses are a $0.1 million increase in equity
compensation, $0.1 million for sales salaries as the Company
continues to ramp up sales efforts and expand its international
sales force, $0.1 million for increased commissions and a $0.1
million increase in freight out as a result of increased sales
volumes, $0.2 million increase in currency fluctuations primarily
in Latin America, UK, and Canada, and a $0.1 million increase in IT
infrastructure investments.
Operating
income decreased to $1.6 million for the three months ended July
31, 2018 from $2.2 million for the three months ended July 31,
2017. Operating margins were 6.5% for the three months ended July
31, 2018, compared with 9.1% for the three months ended July 31,
2017 as the Company allocated resources to IT
infrastructure.
Income
tax expense was $0.6 million for the three months ended July 31,
2018 as , compared with $0.3 million for the same period of fiscal
2018. Lakeland subsidiaries are required to pay local taxes on
certain country operations where those operations were profitable
on a local basis. The increase in tax expense is a result of the
country of origin of profits and the currency fluctuations in those
countries as taxes are calculated based on local statutory profits
prior to translation and to income taxes now being paid in
Argentina, offset in part by lower USA tax rates. Cash paid for
foreign taxes in the second quarter of fiscal 2019 was $0.6
million, compared with $0.3 million for the second quarter of
fiscal 2018.
Net
income for the three months ended July 31, 2018 was $1.0 million or
$0.12 per diluted share, compared with $1.8 million or $0.25 per
diluted share for the three months ended July 31, 2017. The results
for three months ended July 31, 2018 are primarily due to increased
operating expenses, including spending on global growth initiatives
such as additional salespeople and IT investments, and a reduced
gross margins which was partially offset by an increase in sales
volume.
As of
July 31, 2018, Lakeland had cash and cash equivalents of
approximately $14.9 million and working capital of $68.3 million.
To accommodate continued global growth, the seasonally strong
fiscal second quarter and anticipated challenges relating to the
ERP implementation, inventories increased to $46.4 million at July
31, 2018 from $42.9 million at the end of fiscal 2018. As a result,
cash and cash equivalents decreased $0.9 million or 5.4% from the
beginning of the fiscal year, while working capital increased by
$2.2 million for an improvement of 3.3%. The Company’s $20
million revolving credit facility had a $0 balance as of July 31,
2018 and January 31, 2018. Total debt outstanding at July 31, 2018
was $1.5 million, down by over $0.2 million or 12.2% from $1.7
million at January 31, 2018.
The
Company incurred capital expenditures of approximately $1.0 million
during the second quarter of fiscal year 2019, compared to $0.3
million in the second quarter of fiscal 2018. The increased level
of capital expenditures primarily includes the cost for a phased
global rollout of a new ERP system and additional equipment in
Vietnam.
No
stock was acquired as part of the Company’s $2.5 million
stock repurchase program which was approved on July 19,
2016.
Financial Results Conference Call
Lakeland
will host a conference call at 4:30 pm eastern today to discuss the
Company’s fiscal 2019 second quarter financial results. The
call will be hosted by Christopher J. Ryan, Lakeland’s
President and CEO, and Teri W. Hunt, Lakeland’s Chief
Financial Officer. Investors can listen to the call by dialing
877-407-8033 (Domestic)
or 201-689-8033 (International).
For a
replay of this call through September 24, 2018, dial 877-481-4010,
Pass Code 37195.
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 1,200 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 many other federal and state
agencies. For more information concerning Lakeland, please visit
the Company online at www.lakeland.com.
Contacts:
Lakeland
Industries,
Inc.
Darrow
Associates
631-981-9700
512-551-9296
Christopher Ryan,
CJRyan@lakeland.com
Jordan Darrow,
jdarrow@darrowir.com
Teri W.
Hunt, TWHunt@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 Forms 8-K, registration statements, quarterly
and annual reports and other 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,” or other words which 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.
Non-GAAP Financial Measures
To
supplement its consolidated financial statements, which are
prepared and presented in accordance with Generally Accepted
Accounting Principles (GAAP), the Company uses the following
non-GAAP financial measures: EBITDA, Adjusted EBITDA and Free Cash
Flow. The presentation of this financial information is not
intended to be considered in isolation or as a substitute for, or
superior to, the financial information prepared and presented in
accordance with GAAP. The Company uses these non-GAAP financial
measures for financial and operational decision making and as a
means to evaluate period-to-period comparisons. The Company
believes that they provide useful information about operating
results, enhance the overall understanding of past financial
performance and future prospects, and allow for greater
transparency with respect to key metrics used by management in its
financial and operational decision making. The non-GAAP financial
measures used by the Company in this press release may be different
from the methods used by other companies.
For
more information on the non-GAAP financial measures, please see the
Reconciliation of GAAP to non-GAAP Financial Measures tables in
this press release. These accompanying tables include details on
the GAAP financial measures that are most directly comparable to
non-GAAP financial measures and the related reconciliations between
these financial measures.
(tables
follow)
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS ($000’s) Except
Share Information
(UNAUDITED)
ASSETS
|
July
31,
|
January
31,
|
|
2018
|
2018
|
Current
assets
|
|
|
Cash and cash
equivalents
|
$14,933
|
$15,788
|
Accounts
receivable, net of allowance for doubtful accounts of $515 and $480
at July 31, 2018 and January 31, 2018, respectively
|
13,627
|
14,119
|
Inventories, net of
allowance of $2,463 and $2,422 at July 31, 2018 and January 31,
2018, respectively
|
46,358
|
42,919
|
Prepaid VAT
tax
|
2,759
|
2,119
|
Other current
assets
|
2,432
|
1,555
|
Total current
assets
|
80,109
|
76,500
|
Property and
equipment, net
|
9,524
|
8,789
|
Assets held for
sale
|
150
|
150
|
Deferred income
tax
|
7,253
|
7,557
|
Prepaid VAT and
other taxes
|
305
|
310
|
Other
assets
|
189
|
354
|
Goodwill
|
871
|
871
|
Total
assets
|
$98,401
|
$94,531
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
Current
liabilities
|
|
|
Accounts
payable
|
$8,744
|
$7,057
|
Accrued
compensation and benefits
|
1,411
|
1,771
|
Other accrued
expenses
|
1,365
|
1,182
|
Current maturity of
long-term debt
|
158
|
158
|
Short-term
borrowings
|
85
|
211
|
Total current
liabilities
|
11,763
|
10,379
|
Long-term portion
of debt
|
1,233
|
1,312
|
Total
liabilities
|
12,996
|
11,691
|
Commitments and
contingencies
|
|
|
Stockholders’
equity
|
|
|
Preferred stock,
$0.01 par; authorized 1,500,000 shares (none issued)
|
-----
|
-----
|
Common stock, $.01
par; authorized 20,000,000 shares,
Issued 8,472,640
shares; outstanding 8,116,199 shares
|
85
|
85
|
Treasury stock, at
cost; 356,441 shares
|
(3,352)
|
(3,352)
|
Additional paid-in
capital
|
75,221
|
74,917
|
Retained
earnings
|
15,726
|
12,841
|
Accumulated other
comprehensive loss
|
(2,275)
|
(1,651)
|
Total stockholders'
equity
|
85,405
|
82,840
|
Total liabilities
and stockholders' equity
|
$98,401
|
$94,531
|
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($000’s except for share and per share
information)
|
Three Months
Ended
July
31,
|
Six
Months Ended
July
31,
|
||
|
2018
|
2017
|
2018
|
2017
|
Net
sales
|
$25,616
|
$23,909
|
$49,960
|
$46,870
|
Cost of goods
sold
|
16,465
|
15,219
|
31,304
|
29,623
|
Gross
profit
|
9,151
|
8,690
|
18,656
|
17,247
|
Operating
expenses
|
7,505
|
6,508
|
14,593
|
12,593
|
Operating
profit
|
1,646
|
2,182
|
4,063
|
4,654
|
Other income,
net
|
30
|
4
|
29
|
6
|
Interest
expense
|
(37)
|
(36)
|
(68)
|
(112)
|
Income
before taxes
|
1,639
|
2,150
|
4,024
|
4,548
|
Income tax
expense
|
622
|
308
|
1,139
|
996
|
Net
income
|
$1,017
|
$1,842
|
$2,885
|
$3,552
|
Net income per
common share:
|
|
|
|
|
Basic
|
$0.13
|
$0.25
|
$0.36
|
$0.49
|
Diluted
|
$0.12
|
$0.25
|
$0.35
|
$0.49
|
Weighted average
common shares outstanding:
|
|
|
|
|
Basic
|
8,116,199
|
7,266,291
|
8,116,199
|
7,265,053
|
Diluted
|
8,177,135
|
7,280,050
|
8,168,758
|
7,316,876
|
LAKELAND INDUSTRIES,
INC. AND SUBSIDIARIES
Operating
Results ($000)
Reconciliation to
GAAP Results
|
||||
|
Three months
ended
July
31,
|
Six
months ended
July
31,
|
||
|
2018
|
2017
|
2018
|
2017
|
|
|
|
|
|
Net
sales
|
$25,616
|
$23,909
|
$49,960
|
$46,870
|
Year over year
growth
|
7.1%
|
-----
|
6.6%
|
-----
|
Gross
profit
|
9,151
|
8,690
|
18,656
|
17,247
|
Gross profit
%
|
35.7%
|
36.3%
|
37.3%
|
36.8%
|
Operating
expenses
|
7,505
|
6,508
|
14,593
|
12,593
|
Operating expenses
as a percentage of sales
|
29.3%
|
27.2%
|
29.2%
|
26.9%
|
Operating
income
|
1,646
|
2,182
|
4,063
|
4,654
|
Operating income as
a percentage of sales
|
6.4%
|
9.1%
|
8.1%
|
9.9%
|
Interest
expense
|
37
|
36
|
68
|
112
|
Other income,
net
|
30
|
4
|
29
|
6
|
Pretax
income
|
1,639
|
2,150
|
4,024
|
4,548
|
Income tax
expense
|
622
|
308
|
1,139
|
996
|
Net
income
|
$1,017
|
$1,842
|
$2,885
|
$3,552
|
|
|
|
|
|
Weighted average
shares for EPS-Basic
|
8,116
|
7,266
|
8,116
|
7,265
|
Net income per
share
|
$0.13
|
$0.25
|
$0.36
|
$0.49
|
|
|
|
|
|
Operating
income
|
$1,646
|
$2,182
|
$4,063
|
$4,654
|
Depreciation and
amortization
|
241
|
200
|
428
|
385
|
EBITDA
|
1,887
|
2,382
|
4,491
|
5,039
|
Equity
Compensation
|
183
|
99
|
302
|
198
|
Adjusted
EBITDA
|
2,070
|
2,481
|
4,793
|
5,237
|
Cash paid for taxes
(foreign)
|
503
|
362
|
806
|
711
|
Capital
expenditures
|
950
|
307
|
1,220
|
448
|
Free cash
flow
|
617
|
$1,812
|
$2,767
|
$4,078
|
|
|
|
|
|
TTM Adjusted
EBITDA
|
$9,231
|
$10,140
|
$9,231
|
$10,140
|
TTM cash paid for
taxes (foreign)
|
1,355
|
1,718
|
1,355
|
1,718
|
TTM capital
expenditures
|
1,679
|
865
|
1,679
|
865
|
TTM free cash
flow
|
$6,197
|
$7,557
|
$6,197
|
$7,557
|
LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES
|
|||||
Operating
Results ($000)
|
|||||
Reconciliation
of Non-GAAP Results
|
|||||
|
|
|
|
|
|
|
Three
Months Ended
July
31,
|
Six
Months Ended
July
31,
|
|||
|
2018
|
2017
|
2018
|
2017
|
|
Net
Income to EBITDA
|
|
|
|
|
|
Net
Income
|
$1,017
|
$1,842
|
$2,885
|
$3,552
|
|
Interest
|
37
|
36
|
68
|
112
|
|
Taxes
|
622
|
308
|
1,139
|
996
|
|
Depreciation
and amortization
|
241
|
200
|
428
|
385
|
|
Less
Other income, net
|
(30)
|
(4)
|
(29)
|
(6)
|
|
EBITDA
|
1,887
|
2,382
|
4,491
|
5,039
|
|
EBITDA
to Adjusted EBITDA (excluding non-cash and one-time
expenses
|
|
|
|
|
|
Equity
compensation
|
183
|
99
|
302
|
198
|
|
Adjusted
EBITDA (excluding non-cash and one-time expenses
|
2,070
|
2,481
|
4,793
|
5,237
|
|
Adjusted
EBITDA to Adjusted Free Cash Flow (excluding non-cash and one-time
expenses)
|
|
|
|
|
|
EBITDA
to Adjusted EBITDA (excluding non-cash and one-time
expenses
|
2,070
|
2,481
|
4,793
|
5,237
|
|
Cash
paid for taxes (foreign)
|
503
|
362
|
806
|
711
|
|
Capital
expenditures
|
950
|
307
|
1,220
|
448
|
|
Adjusted
Free Cash Flow (excluding non-cash and one-time
expenses)
|
617
|
1,812
|
2,767
|
4,078
|