Full Press Release Details
Lakeland Industries, Inc. Reports Fiscal
2016 Third Quarter Financial Results
Significant Improvements in Margins,
Profitability and Free Cash Flow
RONKONKOMA, NY - December 15, 2015
-- Lakeland Industries, Inc. (NASDAQ: LAKE) (the "Company"), 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 2016 third quarter ended October 31, 2015.
For financial reporting presentation purposes,
the operating results in Brazil are excluded from many of the statements in this announcement because the Company's transfer
of the stock of its Brazilian subsidiary has resulted in discontinued operations accounting. Commencing with its first fiscal quarter
2016 ended April 30, 2015, historical and future financial results from the Brazilian operations are reflected as discontinued
operations in accordance with accounting principles generally accepted in the United States of America ("GAAP"). Discontinued
operations accounting entails the reclassification of all of the financial results of the Brazil operations within the consolidated
financial results of the Company, and a restatement of prior periods to reflect the same treatment. The global operations of Lakeland
Industries excluding Brazil are shown in financial reports as continuing operations. All statements and information in this announcement
have been presented or are restated to exclude Brazil, except where noted. On July 31, 2015, the Company completed a conditional
closing of the transfer of all of the stock of its then wholly-owned Brazilian subsidiary ("Lakeland Brazil"), to Zap
Com rcio de Brindes Corporativos Ltda (the "Transferee"), a company owned by an existing Lakeland Brazil
manager. This transfer is pursuant to a Shares Transfer Agreement entered into on June 19, 2015. The transactions contemplated
by the Shares Transfer Agreement, which were deemed to have been consummated as of July 31, 2015, were completed in October 2015.
Pursuant to the Shares Transfer Agreement, the Transferee has acquired
all of the shares of Lakeland Brazil owned by the Company.
Fiscal 2016 Third Quarter Financial
Results Highlights (from Continuing Operations, unless otherwise noted)
*Includes non-GAAP measures - see
table included herein for reconciliation to GAAP measures
**All shares presented are Basic,
unless otherwise noted.
Management's Comments
Christopher J. Ryan, President and Chief
Executive Officer of Lakeland Industries, stated, "We delivered solid improvements across the board for our continuing operations
in the third quarter of fiscal 2016, which is a period that is notable for being the closest we've had to a normalized quarter
in quite a long time. Absent were large one-time charges, significant event-driven sales increases, aside from some increased orders
due to the Bird Flu crisis in the US, and financial and capitalization modifications. More evident was the leverage we have in
our model and the investments we've made to capture greater global market share given our unique operating platform which
we believe is a competitive advantage amid persistent industry capacity constraints.
"We are very pleased with our performance in the
third quarter which for the most part did not contain a material event-driven or crisis situation impact on sales that
distorted year over year comparisons. Third quarter fiscal 2016 sales in the US increased by $1.7 million or 13% from the
prior year, $1.1 million of which was due primarily to orders for protective apparel related to the Company's response
to the US bird flu, while in the fiscal 2015 period we benefited from Ebola-related sales of an estimated $1.4 million in our
US and European businesses. On a consolidated basis, the Company's top line grew by 6%, despite international revenues
reported in US dollars being weighed down by the strength of this currency against foreign denominations and the devaluations
of currencies in China, Chile and the UK. International revenues were $10.2 million or 41% of total sales in the third
quarter of fiscal 2016, as compared with $10.5 million or 45% of total sales in the prior year. Furthermore, our consolidated
sales were impressive given the cyclical and dramatic downturn of the oil and gas sector which has represented nearly 5-10%
of our total revenues globally. As these trends moderate or reverse, we believe the traction we have gained in the markets in
which we operate worldwide will further bolster our growth profile.
continues to benefit its international diversification and broadening customer base from which we derive recurring sales. We have
proven our ability to deliver large quantities of protective apparel in normal periods as well as during emergency and crisis situations
where there are global capacity shortages. Over the last several quarters we implemented strategies to enhance our marketing presence
and scale production. We have the manufacturing capacity and operational expertise to respond to market demand while improving
our profitability. As a result of higher volume, improved gross margins and selling, general and administrative expenses largely
being fixed other than freight out and commissions as well as overall cost control efforts, operating profit from continuing operations
increased to $3.2 million for the third quarter from $1.3 million in the prior year. Operating income as a percentage of sales
increased to 13% this year as compared with 5% last year.
quarter, with our exit from Brazil, we set our sights on the implementation of global organic growth initiatives, driving sustainable
long term profitability, and enhancing our overall financial position. We continue to seek ways to strengthen our management and
sales teams while deploying information systems and other capital investments to help respond to market demand and maximize our
resources. A great amount of effort has recently been put toward online marketing campaigns to highlight and promote Lakeland products
as well as to develop two new products which we'll be introducing in 2016. Amid these investments and strategic spending,
we are pleased to have reduced our total liabilities nearly $8 million or 26% since the beginning of the fiscal year. At the end
of the third quarter, our current ratio improved by 25% from the beginning the fiscal year despite inventories rising to $43.5
million due to a lack of capacity in the industry. We believed we have made solid progress this year and are well positioned for
continued long term improvements in all facets of the business."
| Operating Results with 2014 Restated for Discontinued Operations ($ 000) Reconciliation to GAAP Results | ||||||||
| Quarter Ended October 31, 2015 | Quarter Ended October 31, 2014 | |||||||
| Net sales from continuing operations | $ | 24,888 | $ | 23,543 | ||||
| Year over year growth | 5.7 | % | ----- | |||||
| Gross profit from continuing operations | 9,248 | 8,223 | ||||||
| Gross profit % | 37.2 | % | 34.9 | % | ||||
| Operating expenses from continuing operations | 6,056 | 6,940 | ||||||
| Operating expenses as a percentage of sales | 24.3 | % | 29.5 | % | ||||
| Operating income from continuing operations | 3,192 | 1,283 | ||||||
| Operating income as a percentage of sales | 12.8 | % | 5.4 | % | ||||
| Interest expense from continuing operations | 183 | 511 | ||||||
| Other (income) expense from continuing operations | (7 | ) | (2,245 | ) | ||||
| Pretax income (loss) from continuing operations | 3,002 | (1,473 | ) | |||||
| Income tax expense from continuing operations | 882 | 282 | ||||||
| Net income from continuing operations | 2,120 | (1,755 | ) | |||||
| Loss from discontinued operations | ----- | (745 | ) | |||||
| Net (loss) from discontinued operations | ----- | (745 | ) | |||||
| Net income (loss) | $ | 2,120 | $ | (2,500 | ) | |||
| Weighted average shares for EPS-Basic | 7,234,914 | 5,951,613 | ||||||
| Income (loss) per share from continuing operations | $ | 0.29 | $ | (0.29 | ) | |||
| Loss per share from discontinued operations | $ | ----- | $ | (0.13 | ) | |||
| Income (loss) per share | $ | 0.29 | $ | (0.42 | ) | |||
| Operating income from continuing operations | $ | 3,192 | $ | 1,283 | ||||
| Depreciation and amortization | 232 | 276 | ||||||
| Other income (loss) from continuing operations | (7 | ) | (2,245 | ) | ||||
| EBITDA from continuing operations | 3,417 | (686 | ) | |||||
| Equity Compensation | 165 | 1,024 | ||||||
| Severance and recruiter charges in the USA | ----- | 103 | ||||||
| Early extinguishment of debt | ----- | 2,295 | ||||||
| Adjusted EBITDA | 3,582 | 2,736 | ||||||
| Cash paid for taxes (foreign) | 382 | 426 | ||||||
| Capital expenditures | 241 | 157 | ||||||
| Free cash flow | $ | 2,959 | $ | 2,153 |
| Operating Results with 2014 Restated for Discontinued Operations ($ 000) Reconciliation to GAAP Results | ||||||||
| Nine-Months Ended October 31, 2015 | Nine-Months Ended October 31, 2014 | |||||||
| Net sales from continuing operations | $ | 79,172 | $ | 68,114 | ||||
| Year over year growth | 16.2 | % | ----- | |||||
| Gross profit from continuing operations | 30,322 | 22,165 | ||||||
| Gross profit % | 38.3 | % | 32.5 | % | ||||
| Operating expenses from continuing operations | 18,211 | 18,226 | ||||||
| Operating expenses as a percentage of sales | 23.0 | % | 26.8 | % | ||||
| Operating income from continuing operations | 12,111 | 3,939 | ||||||
| Operating income as a percentage of sales | 15.3 | % | 5.8 | % | ||||
| Interest expense from continuing operations | 576 | 1,515 | ||||||
| Other (income) expense from continuing operations | 9 | (2,282 | ) | |||||
| Pretax income (loss) from continuing operations | 11,544 | 142 | ||||||
| Income tax expense from continuing operations | 3,676 | 981 | ||||||
| Net income (loss) from continuing operations | 7,868 | (839 | ) | |||||
| Non-cash reclassification of Other Comprehensive Income to Statement of Operations with no impact on stockholder's equity | (1,286 | ) | ----- | |||||
| Loss from operations from discontinued operations | (1,253 | ) | (2,047 | ) | ||||
| Loss from disposal of discontinued operations | (515 | ) | ----- | |||||
| Loss before taxes for discontinued operations | (3,054 | ) | (2,047 | ) | ||||
| Income tax expense (benefit) from discontinued operations | (569 | ) | ----- | |||||
| Net (loss) from discontinued operations | (2,485 | ) | (2,047 | ) | ||||
| Net income (loss) | $ | 5,383 | $ | (2,886 | ) | |||
| Weighted average shares for EPS-Basic | 7,148,430 | 5,933,229 | ||||||
| Net income (loss) per share from continuing operations | $ | 1.10 | $ | (0.14 | ) | |||
| Net loss per share from discontinued operations | $ | (0.35 | ) | $ | (0.35 | ) | ||
| Net income (loss) per share | $ | 0.75 | $ | (0.49 | ) | |||
| Operating income from continuing operations | $ | 12,111 | $ | 3,939 | ||||
| Depreciation and amortization | 704 | 851 | ||||||
| Other (income) expense from continuing operations | (24 | ) | (2,193 | ) | ||||
| EBITDA from continuing operations | 12,791 | 2,597 | ||||||
| Equity Compensation | 420 | 1,073 | ||||||
| Inventory reserve in USA and China - discontinued product lines raw material/finished goods | ----- | 300 | ||||||
| PA plant shutdown costs | ----- | 235 | ||||||
| Severance and recruiter charges in the USA | ----- | 103 | ||||||
| Early extinguishment of debt | ----- | 2,295 | ||||||
| Adjusted EBITDA | 13,211 | 6,603 | ||||||
| Cash paid for taxes (foreign) | 1,377 | 1,098 | ||||||
| Capital expenditures | 715 | 397 | ||||||
| Free cash flow | $ | 11,119 | $ | 5,108 |
Lakeland Brazil Update -- Subsequent to the End of Fiscal
In November 2015 the Company's former
Brazilian subsidiary ("Lakeland Brazil") settled a labor case (the "Lana dos Santos case") for R$1 million
or approximately US $250,000 which approximates the reserves on the books of the Company. Several other smaller cases also were
settled for immaterial amounts. The Company does not anticipate any significant further charges for Labor issues beyond
what has been accrued.
The State of Bahia in Brazil, declared an amnesty beginning November 1, 2015 and expiring December 18, 2015.
As previously disclosed by the
Company, the Company may be exposed to certain liabilities in connection with the prior operations of Lakeland Brazil,
including, without limitation, from lawsuits pending in the labor courts of Brazil and VAT taxes. The Company entered into a
loan agreement on December 11, 2015 with Lakeland Brazil for the amount of nearly R$8.6 million (approximately US $2.3
million), for the purpose of providing funds necessary for Lakeland Brazil settling the two largest outstanding VAT claims
with the State of Bahia. Settlement of the VAT claims under amnesty would benefit the Company in that it eliminates
these large VAT claims, which the Company believes will render the continued viability of Lakeland Brazil immaterial to
Lakeland Industries. It should also eliminate the possibility of the transfer of the shares of Lakeland Brazil being
found fraudulent on the basis of evading VAT claims and would subsequently eliminate the possibility of future encumbrance of
the real estate by the State of Bahia in connection with any VAT claims. It is expected that Lakeland Brazil will complete
the amnesty agreement with the State of Bahia on or before December 18, 2015. US $250,000 in continuing business incentives
provided by the Company to Lakeland Brazil will be waived by Lakeland Brazil as partial payment of the loan
The loan agreement provides for the following repayment provisions:
The VAT loan agreement will be accounted for by the Company
in its fiscal 2016 fourth quarter ended January 31, 2016. The Company has not yet determined the collectability or reserve needed
in connection with the loan agreement which will result in an additional charge to the loss on disposal of discontinued operations.
Any additional such losses will be available as additional tax loss carryforwards to offset cash taxes payable against future taxable
Financial Results Conference Call
Lakeland will host a conference call at
4:30 pm eastern today to discuss the Company's fiscal 2016 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 888-347-6609 (Domestic) or 412-902-4291 (International) or 855-669-9657 (Canada), Pass Code 10077364.
For a replay of this call through December
22, 2015, dial 877-344-7529 (Domestic) or 412-317-0088 (International) or 855-669-9658 (Canada), Pass Code 10077364.
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