Full Press Release Details
Lakeland Industries, Inc. Preliminary Fiscal 2022 Fourth Quarter and Year End Financial Results
Charles Roberson - President and Chief Executive Officer, Lakeland Industries, Inc.
Allen Dillard - Chief Operating Officer and Chief Financial Officer, Lakeland Industries, Inc.
Alex Fuhrman - Craig Hallum Capital Group
Good day, and welcome to the Lakeland Industries Preliminary Fiscal 2022 Fourth Quarter Financial Results Conference Call. All lines have been placed on a
listen-only mode and the floor will be open for your questions and comments following the presentation.
During today s call, we may make statements
relating to our preliminary financial results, goals and objectives for future operations, financial and business trends, business prospects and management s expectations for future performance that constitute forward-looking statements under
federal securities laws.
Any forward-looking statements reflect management expectations based upon currently available information and are not guarantees
of future performance and involve certain risks and uncertainties that are more fully described in our SEC filings.
Our actual results, performance or
achievements may differ materially from those expressed in or implied by such forward-looking statements. We undertake no obligation to update or revise any forward-looking statements to reflect events or developments after the date of this call.
During today s call, we will discuss financial measures derived from our financial statements that are not determined in accordance with U.S. GAAP,
including EBITDA, adjusted EBITDA and EBITDA margin. Reconciliation of each of the non-GAAP measures discussed on this call to the most directly comparable GAAP measure is presented in our earnings release.
At this time, I would like to introduce you to your host for this call, Lakeland Industries Chief Executive Officer, Charlie Roberson.
Mr. Roberson, the floor is yours.
Charles Roberson President and Chief Executive Officer, Lakeland Industries, Inc.
Thank you, operator. Good afternoon and thank you all for joining us. I m joined today by Lakeland s Chief Operating and Financial Officer, Allen
Dillard. As was highlighted in today s press release, Lakeland reported solid fourth quarter and strong full-year preliminary results. I m extremely proud of our team s efforts as we continue to position the company for success in the
post-pandemic era through continued pricing discipline, investments in our sales and marketing functions and multiple operational capability enhancements and growth initiatives, which together have broadened and strengthened our customer
relationships, positioning Lakeland for continued above-market growth going forward.
Our revenue was $26.8 million for the fourth quarter and
$118.4 million for the fiscal year. Importantly, while these revenues has have declined on a quarter-over-quarter and year-over-year basis, as expected, the business has maintained its profitability in the face of multiple supply chain
and inflationary constraints as evidenced by our ability to deliver gross margin performance this quarter that was largely in line with our long-term stated goal of greater than 40%.
This achievement was noteworthy as several onetime items held back our performance in the quarter including what we regard as higher near-term expenses that
could reverse in the future, such as elevated freight costs. We believe that higher cost of goods sold, COGS, due to manufacturing curtailments are behind us and that freight costs and sales revenue will improve going forward.
Together, manufacturing curtailment in our Vietnam facility and increased freight costs added approximately $600,000 to cost of goods sold for the quarter.
Additionally, the natural effect that lower revenues present to the maintenance of margins tested the flexibility and durability of our new model.
margin was 39.2% for the fourth quarter and 43% for the fiscal year. Our performance for the year and in particular during the fourth quarter demonstrate the steps we have taken to underwrite our margin capability and sustain profitability at a
higher level compared to prior periods at similar demand and revenue levels.
Importantly, we believe the revenue level in the fourth quarter provides a
new base level for the company in terms of revenue from which we expect to grow going forward. Additionally, these results highlight the successful execution of our business plan, put in place before the onset of the
Like many areas across the U.S. economy and the world, this pandemic accelerated trends that
were already in place. For Lakeland, this translated into expediting the execution of our business plan, bringing forward the benefits of the plan we set in motion several years ago.
With COVID-related spikes in demands having largely dissipated despite the occasional small boost following variant waves, we re confident that our
fourth quarter results can serve as a baseline for revenue and profitability in the post-pandemic era.
Further, we expect to be able to grow these results at/or above market trend growth rate on average by
around 100 to 200 basis points per year due to key aspects of our strategy and positioning, including our manufacturing footprint capabilities, product focus, customer service performance, and financial strength.
It is also worth noting that while several of our end markets and customers have experienced a return to pre-COVID
demand levels, order rates from the majority of our end markets and customers, including those in our important industrial markets remain below pandemic levels. However, we are beginning to see customer activity return in these markets and expect
order trends from these customers to match pre-COVID levels soon and resume growth from there.
oil and gas business, which represents approximately 15% of our industrial revenues still remains meaningfully below pre-COVID levels though rebounding from lower levels seen during the pandemic as is the case
with all other business segments.
There are near-term complicating factors, including necessary shifts in refinery crude supply arrangements due to
developments related to the Russian war in Ukraine, affecting refinery operating rates and turnaround activities in the U.S. More specifically, refineries in the U.S. are set up with certain feedstocks in mind, namely sweet or sour crude, that are
associated with certain reservoirs or countries from which they establish oil supply arrangements.
Shifting or changing a specific refinery s crude
source can be accommodated but these facilities need to be retrofitted for another fuel source, which can t be done overnight. With that said, these are capital-intensive facilities that will not be left idle or run at greatly reduced operating
rates for long. And thus, we don t expect these interruptions to last long as new supply chain logistics are already being established in these markets.
In fact, we are now beginning to see some turnaround activity in Europe. Other industrial end markets include electric utilities and transportation are
similarly recovering and we are optimistic about a return to growth in these markets in fiscal 2023.
Our collective team has been superb in helping us
navigate persistent supply chain constraints and raw material cost inflation, particularly as it relates to freight costs and delays. We have successfully offset these headwinds through the use of geographically diverse in-house manufacturing, forward contracting of raw materials purchases and strategic inventory management.
executed on direct price pass-throughs during the quarter and year, which helped offset inflationary cost pressures and allowed us to maintain solid gross profit margins. Lakeland is able to successfully execute on these pricing measures due to the
inelastic nature of demand for our goods relative to changes in price as our customers emphasize customer service, quality and availability.
Said differently, Lakeland is able to deliver quality products on a consistent and timely basis, which
trumps pricing discussion in our end markets. We attribute our fiscal year 22 estimated retention rate of 51% for the approximately 500 new customers acquired during fiscal year 21 as a result of our COVID response strategy to the
importance of product availability over price.
As we look to fiscal 2023 and beyond and with the pandemic-related demand surge already having run its
course, I d like to provide our investors with the company s long-term strategic goals for the next several years, which will guide our business model going forward.
Over a three to five year period, we expect to produce mid to high single-digit growth on average annually in our core markets, gross margin levels in the low
40s and EBITDA margin levels in the high teens to low 20s, leading to strong and growing levels of free cash flow generation to further support our growth plans and priorities over the long-term.
Underlying growth in our markets is projected to be at a mid-single-digit rate over the next decade and thus, we
expect to be able to outgrow the market by around 100 to 200 basis points per year. This is the first time we are providing these long-term targets publicly, which speaks to the progress we have made as a company over the past several years and the
realization of important components of our growth and performance initiatives I have highlighted earlier.
In summary, Lakeland is running well and is
more focused, agile company as a direct result of our strategic initiatives put in place by our new management team over the past several years. Investments in centralized integrated data systems, manufacturing footprint expansion and a renewed
focus on product mix has translated to a significantly higher and sustainable margin profile for the business.
We are confident in our future growth, are
well positioned to respond to geopolitical uncertainty and believe fiscal 2023 is shaping up to be the year where we showcased the company s growth potential and earning sustainability in the post-COVID era. That concludes my remarks.
I ll now pass the call to Allen to provide more insight into the company s operations and financial results. Allen?
Allen Dillard - Chief Operating Officer and Chief Financial Officer, Lakeland Industries, Inc.
Thanks, Charlie, and good afternoon, everyone. As Charlie mentioned in his comments, COVID-related demand surges were largely absent from our fourth quarter
results. However, while we are confident that the pandemic overhang is behind us, we have not yet seen a full return of pre-COVID levels of demand across some of our key market areas such as oil and gas and
more broadly within the industrial disposables market due to distribution channel overstocking, which is now showing signs of dissipating based on recent order size and frequency in affected markets.
On a consolidated basis for the fourth quarter of fiscal 2022, domestic sales were $11.2 million or 42% of total revenues, and international sales were
$15.6 million or 58% of total revenues. This compares with domestic sales of $16 million or 43% of the total and international sales of $20.9 million or 57% of the total in the same period of fiscal 2021.
In terms of product mix for the quarter, we saw disposables decrease to 52.6% of sales without the COVID
surge demand, while chemical, fire and our utility lines were increased as we are beginning to see customer activity increase in these areas.
relates to broader inventory corrections, we believe distribution channel inventory levels are continuing to correct themselves and that sales have largely returned to normal rates in the U.S. and Europe as evidenced by larger orders coming from our
distributors, further signaling that overstock inventory levels are dissipating.
As was the case in previous quarters, efforts to improve our gross
margin profile has shown durability, which we expect will prove sustainable. There are several key aspects to our business strategy we have successfully executed during the pandemic, key components of which are a greater discipline around pricing, a
focus on quality, product mix, and SKU rationalization, customer service and reliability as well as product availability and investing in our manufacturing and supply chain capabilities.
As a result, gross profit as a percent of net sales was 39.2% for the fiscal 2022 fourth quarter, an impressive achievement set against a 27% year-over-year
decline in revenues. Fiscal fourth quarter revenues on an annualized basis, put us back in line with where Lakeland s business stood prior to the arrival of the COVID-19 pandemic.
As Charlie and I have already indicated, our read on near-term order activity, including inventory levels is that the
COVID-19 boost to our sales has largely been taken out of our ongoing results at this point. While gross margin fell modestly compared to 42.1% for the fiscal 2022 third quarter and were down compared to 48.5%
for the fourth quarter of fiscal 2021, the performance this quarter demonstrated our conviction in having rebased the margin profile and earnings potential of this business as we exit this period.
As Charlie indicated earlier, gross margins in the fourth quarter were impacted by lower sales, increased freight cost, and isolated short-term curtailments
in our Vietnam manufacturing facility due to COVID-related absenteeism and inventory management strategies.
Our Vietnam facility is currently operating
at normal capacity. Lakeland reported operating profit of $1.1 million in Q4 2022, down from $4.1 million in Q3 2022 and $9.1 million in the prior year period. Negative operating leverage from lower revenues versus the prior period as
well as higher incentive compensation expenses were the largest contributors to the drop in operating profits year-over-year.
As a result, operating
margins were 4.2% in the fourth quarter 2022 compared to 14.1% for the three months ended October 31, 2021, and down from 24.5% for the fourth quarter of the prior fiscal year. Net income of $500,000 or $0.06 per basic common share decreased
from $2.9 million or $0.37 per common share in the third quarter of 2022 and was down from $7.7 million or $0.97 per share in fourth quarter of fiscal 21.
Capital expenditures for the quarter were $183,000, bringing year-to-date
spending to almost $800,000. This figure compares to spending last year of $1.7 million. The majority of our spending this year was spent on technology infrastructure to further extend these solutions to the balance of our global business and