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8-K - CURRENT REPORT - LAKELAND INDUSTRIES INC | lake_8k.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 Third Quarter Financial
Results
RONKONKOMA,
NY – December 17, 2018 -- Lakeland Industries, Inc. (NASDAQ:
LAKE) (the “Company” or “Lakeland”), a
leading global manufacturer of technologically-advanced
protective clothing for industry, healthcare and to first
responders on the federal, state and local levels, today announced
financial results for its fiscal 2019 third quarter ended October
31, 2018.
Fiscal 2019 Third Quarter Financial Results Highlights and Recent
Developments
●
Net sales for 3Q19
of $24.0 million, flat from the 3Q18
●
Gross profit for
3Q19 of $8.3 million, down from $9.0 million in 3Q18
●
Operating expenses
of $7.3 million in 3Q19 increased from $6.3 million in 3Q18 mainly
due to continued investment in growth and profitability
enhancements including items relating to IT infrastructure and
expansion in the sales force
●
Net income of $0.5
million in 3Q19, down from $1.8 million in 3Q18
●
Cash of $11.7
million at the end of 3Q19 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 in
the first half of the current year
●
Total debt was $1.5
million at end of 3Q19, down from $1.7 million at the beginning of
the fiscal year
●
Stockholders’
equity at the end of 3Q19 increased by $3 million or 3.6% to $85.8
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
Vietnam
manufacturing ramping up
o
Launch of new
websites for nine global locations
Management’s Comments
Christopher
J. Ryan, President and Chief Executive Officer of Lakeland
Industries, stated, “Third quarter fiscal 2019 continued to
be negatively impacted by our enterprise resource planning
(“ERP”) system implementation. Aspects of the
installation of this system began in the second quarter and led to
three days of lost sales toward the end of that period which
related to inventory baselining. On August 1, 2018, the first day
of our fiscal 2019 third quarter, we commenced usage of the system
for financial reporting and other data inputs, including costing,
order tracking and sales. The ERP implementation was expected to
require significant effort and expense as well as lead to
operational issues amid such a massive undertaking, but the
challenges exceeded what we had anticipated. As a result, we filed
for a delayed reporting of third quarter results to ensure accuracy
while we systematically and manually completed the financial
reporting process. Ultimately, we expect the ERP systems to yield
improved information, operational agility, and inventory and cash
flow management. While we believe we are past the most difficult
and costly period which was our fiscal 2019 third quarter,
implementation and training on the system is expected to continue
over the short-term.
“In
the third quarter we had elevated expenses and revenue was flat
since we were unable to process orders to the extent that reflects
the true global demand that we are otherwise experiencing. We
anticipate a similar although diminished negative impact through at
least May 2019 as we train our workforce on the ERP system. Our
longstanding customers have taken certain orders to our competitors
while committing to return to us, yet there have been a few
instances where we may have lost a customer. Certain orders that
are being placed have been delayed for shipment, which is in part
why our inventory levels remain very high. Initially, we had
elevated our inventory levels to account for temporarily slowed or
faulty workflow information. Inventories at the end of the third
quarter of fiscal 2019 were $46.6 million, nearly $4 million higher
than at the beginning of the fiscal year.
1
“We
started the fiscal fourth quarter with over $5.0 million in orders
waiting to be cleared and shipped. Our order backlogs historically
have been approximately $3.0 million in the US. The delay in
shipping and revenue recognition caused by our ERP system
implementation essentially reduced reported revenue by an estimated
$2.5 million or nearly 10% of total third quarter revenue, which
would have brought our third quarter revenue growth significantly
higher than only marginal improvement over the prior year period.
Furthermore, many of the international currencies in markets where
we have large operations have declined against the strength of the
U.S. dollar. A blend of these key markets average about a 5%
decline as compared with last year, so our international sales as
consolidated and reported do not adequately reflect the organic
growth we are experiencing from around the world. On a reported
basis in U.S. dollars, third quarter international sales of $12.2
million increased 10% from the prior year.
“The
global market for personal protective apparel is strong and the
Lakeland brand has been gaining momentum, despite the shortcoming
as we have reported in our third quarter results. We have been
strategically deploying our cash to position the Company for
continued growth. Cash used since the beginning of the fiscal year
include planned investments in manufacturing operations in Vietnam
and India as well as the Company’s upgraded information
technology system deployment and our digital marketing evolution.
We now have a manufacturing staff of approximately 430 in Vietnam
and approximately 130 in India. Earlier today we announced the
launching of nine new websites for our global operating regions.
Additionally, we invested nearly $2.2 million in equipment for use
in Mexico, India, Vietnam, and China as we prepare for continued
global demand. As we work through the next six months until our ERP
implementation and training has been completed, we are excited by
our prospects for top and bottom line growth.”
Fiscal 2019 Third Quarter Financial Results
Net
sales were $24.0 million for the third quarters of fiscal 2019 and
2018. On a consolidated basis for the third quarter of fiscal 2019,
domestic sales were $11.8 million or 49.2% of total revenues and
international sales were $12.2 million or 50.8% of total revenues.
This compares with domestic sales of $12.9 million or 53.7% of
revenues and international sales of $11.1 million or 46.3% of the
total revenue in the same period of fiscal 2018.
Domestic
revenues were down year-over-year by 2% primarily due to lower
sales of disposable garments, gloves and fire product lines,
partially offset by an increase in chemical product line sales. As
previously disclosed, reduced sales of products in the U.S. reflect
the impact of delayed and/or lost revenues associated with the
Company’s ERP implementation as certain orders were unable to
be filled or shipped within the quarter.
Among
the Company’s larger international operations, sales in China
and to the Asia Pacific Rim increased $0.8 million or 21% mostly as
a result of significant sales into the nuclear and utilities
industries. Sales in the USA
decreased $1.6 million or 11% primarily due to several changes in
the business environment for two of our major customers as well as
long lead times from our ERP implementation which resulted in order
cancellations in the disposables, gloves and fire product lines,
offset by an increase of $0.6 million in the chemical product line
primarily due to reclassifying products into the correct sales
division, moving products that were previously classified under
Disposable division into our chemical division. UK sales
decreased $0.02 million or 0.8% due to product mix. International
sales as reported in U.S. dollars were negatively impacted by
foreign exchange fluctuations in many of the Company’s larger
markets as the U.S. dollar strengthened by approximately 5%
year-over-year against the Euro, Yuan and Canadian
currencies.
Gross
profit decreased $0.7 million or 8.1% to $8.3 million for the three
months ended October 31, 2018, from $9.0 million for the three
months ended October 31, 2017. Gross profit as a percentage of net
sales decreased to 34.6% for the three-month period ended October
31, 2018 from 37.8% for the three months ended October 31, 2017.
The gross profit and margin declines reflect increased expenses
across distribution and supply chain management associated with the
implementation of the new ERP system, increased payroll costs due
to additional labor requirement, and additional rents associated
with higher levels of inventory. In key international markets, UK
gross margins increased 3.8 percentage points as a result of the
Company’s exit from targeted lower margin business, price
increases in the period, and successful implementation of growth
and market share attainment in the country. China gross margins for
external sales increased 4.0 percentage points as product mix
shifted to domestically sourced products as a result of trade
concerns, while Mexico gross margins increased 1.5 percentage
points amid an expansion into national accounts.
Operating
expense increased 14.4% to $7.3 million for the three months ended
October 31, 2018 from $6.3 million for the three months ended
October 31, 2017. Operating expense as a percentage of net sales
was 30.4% for the three months ended October 31, 2018, up from
26.7% for the three months ended October 31, 2017. Some of the
major factors in this increase of operating expenses are a $0.3
million increase in sales salaries and travel and entertainment as
the Company continues to ramp up sales efforts and expand its
international sales force, a $0.1 million increase to temporary
labor associated with the ERP implementation, a $0.2 million
increase to rent and office expense associated with the new Vietnam
facility, a $0.1 million increase for IT infrastructure investments
and a $0.1 million increase to equity compensation offset by a $0.2
million favorable currency transaction effect primarily in Vietnam,
and a reduction to the bad debt allowance as a result of the
collections on account of slow paying customers in various
countries.
2
Operating
income decreased to $1.0 million for the three months ended October
31, 2018 from $2.7 million for the three months ended October 31,
2017 which primarily reflects lower sales and higher costs in the
U.S. resulting from the ERP implementation that offset improvements
in international operations before currency reductions. Operating
margins were 4.2% for the three months ended October 31, 2018,
compared to 11.1% for the three months ended October 31,
2017.
Income
tax expense was $0.5 million for the three months ended October 31,
2018 as compared with $0.9 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 as a percentage of
income 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 and Chile, partially offset by
lower U.S. tax rates.
Net
income for the three months ended October 31, 2018 was $0.5 million
or $0.06 per share (basic and diluted), compared with $1.8 million
or $0.23 per share (basic and diluted) for the three months ended
October 31, 2017. The results for three months ended October 31,
2018 are primarily due to increased operating expenses,
including spending on global growth initiatives such as additional
salespeople and IT investments, reduced sales and higher expenses
in the U.S. operations from the ERP implementation, and currency
fluctuations which diminish international improvements as reported
in U.S. dollars.
As of
October 31, 2018, Lakeland had cash and cash equivalents of
approximately $11.7 million and working capital of $68.1 million.
To accommodate continued global growth and anticipated challenges
relating to the ERP implementation, inventories were increased to
$46.6 million at October 31, 2018 from $42.9 million at the end of
fiscal 2018. As a result, cash and cash equivalents decreased $4.1
million from the beginning of the fiscal year, while working
capital increased by $2.0 million. The Company’s $20 million
revolving credit facility had a $0 balance as of October 31, 2018
and January 31, 2018. Total debt outstanding at October 31, 2018
was $1.5 million, down by $0.2 million or 8.6% from $1.7 million at
January 31, 2018.
The
Company incurred capital expenditures of approximately $1.0 million
during the third quarter of fiscal 2019. Capital expenditures
during the first nine months of fiscal 2019 were $2.2 million. The
Company anticipates fiscal year 2019 capital expenditures to be
approximately $2.5
million, up from $0.9 million in the prior year, with the increased
level of capital expenditures primarily relating to 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 third 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 December 24, 2018, dial 877-481-4010,
Pass Code 40639.
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
3
“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)
4
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS ($000’s) Except
Share Information
(UNAUDITED)
ASSETS
|
October
31,
|
January
31,
|
|
2018
|
2018
|
Current
assets
|
|
|
Cash and cash equivalents
|
$11,660
|
$15,788
|
Accounts
receivable, net of allowance for doubtful accounts of $556 and $480
at October 31, 2018 and January 31, 2018, respectively
|
16,271
|
14,119
|
Inventories, net of
allowance of $2,222 and $2,422 at October 31, 2018 and January 31,
2018, respectively
|
46,620
|
42,919
|
Prepaid VAT
tax
|
1,971
|
2,119
|
Other current
assets
|
2,902
|
1,555
|
Total current
assets
|
79,424
|
76,500
|
Property and
equipment, net
|
10,286
|
8,789
|
Assets held for
sale
|
150
|
150
|
Deferred income
tax
|
7,205
|
7,557
|
Prepaid VAT and
other taxes
|
300
|
310
|
Other
assets
|
168
|
354
|
Goodwill
|
871
|
871
|
Total
assets
|
$98,404
|
$94,531
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
Current
liabilities
|
|
|
Accounts
payable
|
$7,687
|
$6,855
|
Accrued
compensation and benefits
|
1,381
|
1,771
|
Other accrued
expenses
|
1,966
|
1,384
|
Current maturity of
long-term debt
|
158
|
158
|
Short-term
borrowings
|
179
|
211
|
Total current
liabilities
|
11,371
|
10,379
|
Long-term portion
of debt
|
1,200
|
1,312
|
Total
liabilities
|
12,571
|
11,691
|
Commitments and
contingencies
|
|
|
Stockholders’
equity
|
|
|
Preferred stock,
$0.01 par; authorized 1,500,000 shares (none issued)
|
-----
|
-----
|
Common stock, $0.01
par; authorized 20,000,000 and 10,000,000 shares authorized at
October 31, 2018 and January 31, 2018, respectively
Issued 8,475,929
and 8,472,640 shares; outstanding 8,119,488 and 8,116,199 shares at
October 31, 2018 and January 31, 2018, respectively
|
85
|
85
|
Treasury stock, at
cost; 356,441 shares
|
(3,352)
|
(3,352)
|
Additional paid-in
capital
|
75,384
|
74,917
|
Retained
earnings
|
16,227
|
12,841
|
Accumulated other
comprehensive loss
|
(2,511)
|
(1,651)
|
Total stockholders'
equity
|
85,833
|
82,840
|
Total liabilities
and stockholders' equity
|
$98,404
|
$94,531
|
5
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($000’s except for share and per share
information)
|
Three Months
Ended
October
31,
|
Nine Months
Ended
October
31,
|
||
|
2018
|
2017
|
2018
|
2017
|
Net
sales
|
$24,009
|
$23,960
|
$73,970
|
$70,831
|
Cost of goods
sold
|
15,691
|
14,907
|
46,995
|
44,530
|
Gross
profit
|
8,318
|
9,053
|
26,975
|
26,301
|
Operating
expenses
|
7,305
|
6,388
|
21,898
|
18,981
|
Operating
profit
|
1,013
|
2,665
|
5,077
|
7,320
|
Other income,
net
|
7
|
7
|
36
|
13
|
Interest
expense
|
(25)
|
(35)
|
(93)
|
(147)
|
Income
before taxes
|
995
|
2,637
|
5,020
|
7,186
|
Income tax
expense
|
494
|
831
|
1,634
|
1,828
|
Net
income
|
$501
|
$1,806
|
$3,386
|
$5,358
|
Net income per
common share:
|
|
|
|
|
Basic
|
$0.06
|
$0.23
|
$0.42
|
$0.72
|
Diluted
|
$0.06
|
$0.23
|
$0.41
|
$0.71
|
Weighted average
common shares outstanding:
|
|
|
|
|
Basic
|
8,119,488
|
7,894,582
|
8,117,307
|
7,477,202
|
Diluted
|
8,186,130
|
7,922,397
|
8,174,560
|
7,530,637
|
6
LAKELAND
INDUSTRIES, INC.
AND
SUBSIDIARIES
Operating Results ($000)
Reconciliation
to GAAP Results
|
Three months
ended
October
31,
|
Nine months
ended
October
31,
|
||
|
2018
|
2017
|
2018
|
2017
|
Net
sales
|
$24,009
|
$23,960
|
$73,970
|
$70,831
|
Year
over year growth
|
0.2%
|
-----
|
4.4%
|
----
|
Gross
profit
|
8,318
|
9,053
|
26,975
|
26,301
|
Gross
profit %
|
34.7%
|
37.8%
|
36.5%
|
37.1%
|
Operating
expenses
|
7,305
|
6,388
|
21,898
|
18,981
|
Operating
expenses as a percentage of sales
|
30.4%
|
26.7%
|
29.6%
|
26.8%
|
Operating
income
|
1,013
|
2,665
|
5,077
|
7,320
|
Operating
income as a percentage of sales
|
4.2%
|
11.1%
|
6.9%
|
10.3%
|
Interest
expense
|
(25)
|
(35)
|
(93)
|
(147)
|
Other
income, net
|
7
|
7
|
36
|
13
|
Pretax
income
|
995
|
2,637
|
5,020
|
7,186
|
Income
tax expense
|
494
|
831
|
1,634
|
1,828
|
Net
income
|
$501
|
$1,806
|
$3,386
|
$5,358
|
|
|
|
|
|
Weighted
average shares for EPS-Basic
|
8,119
|
7,895
|
8,117
|
7,477
|
Net
income per share
|
$0.06
|
$0.23
|
$0.42
|
$0.72
|
|
|
|
|
|
Operating
income
|
$1,013
|
$2,665
|
$5,077
|
$7,320
|
Depreciation
and amortization
|
214
|
197
|
642
|
582
|
EBITDA
|
1,227
|
2,862
|
5,719
|
7,902
|
Equity
Compensation
|
189
|
93
|
491
|
291
|
Adjusted
EBITDA
|
1,416
|
2,955
|
6,210
|
8,193
|
Cash
paid for taxes
|
520
|
217
|
1,326
|
928
|
Capital
expenditures
|
1,007
|
171
|
2,227
|
619
|
Free
cash flow
|
$
(111)
|
$2,567
|
$2,657
|
$6,646
|
7
LAKELAND
INDUSTRIES, INC. AND SUBSIDIARIES
Operating
Results ($000)
Reconciliation
of Non-GAAP Results
|
Three Months Ended
|
Nine Months Ended
|
||
|
October 31,
|
October 31,
|
||
|
2018
|
2017
|
2018
|
2017
|
Net
Income to EBITDA
|
|
|
|
|
Net
Income
|
$501
|
$1,806
|
$3,386
|
$5,358
|
Interest
|
25
|
35
|
93
|
147
|
Taxes
|
494
|
831
|
1,634
|
1,828
|
Depreciation
and amortization
|
214
|
197
|
642
|
582
|
|
|
|
|
|
Less
other income, net
|
(7)
|
(7)
|
(36)
|
(13)
|
EBITDA
|
1,227
|
2,862
|
5,719
|
7,902
|
EBITDA
to Adjusted EBITDA
|
|
|
|
|
(excluding
non-cash and one-time expenses)
|
|
|
|
|
Equity
compensation
|
189
|
93
|
491
|
291
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA
|
1,416
|
2,955
|
6,210
|
8,193
|
(excluding
non-cash and one-time expenses)
|
|
|
|
|
Adjusted
EBITDA to Adjusted Free Cash Flow
|
|
|
|
|
(excluding
non-cash and one-time expenses)
|
|
|
|
|
Adjusted
EBITDA
|
1,416
|
2,955
|
6,210
|
8,193
|
(excluding
non-cash and one-time expenses)
|
|
|
|
|
Cash
paid for taxes
|
520
|
217
|
1,326
|
928
|
Capital
expenditures
|
1,007
|
171
|
2,227
|
619
|
Adjusted
Free Cash Flow
|
(111)
|
2,567
|
2,657
|
6,646
|
(excluding
non-cash and one-time expenses)
|
|
|
|
|
8