Full Press Release Details
3555 Veterans Memorial Highway, Suite
Ronkonkoma, NY 11779
981-9700 - www.lakeland.com
Lakeland Industries, Inc. Reports Fiscal
2017 First Quarter Financial Results
RONKONKOMA, NY - June 14, 2016 --
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 2017 first quarter ended April 30, 2016.
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. The global operations of Lakeland Industries, Inc. 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 a then 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 2017 First Quarter Financial
Continuing Operations, unless otherwise noted"
Management's Comments
Christopher J. Ryan, President and Chief
Executive Officer of Lakeland Industries, stated, "The first quarter of fiscal 2017 showed progress on a number of operational
and, more importantly, forward looking objectives that position the Company for its next phase of growth. This growth is intended
to be organic from the traditional markets we serve by capitalizing on new markets and products while taking market share in some
of the more developed regions we serve.
"Incremental to all of these growth
opportunities is emergency demand, such as the Ebola-related orders we received in the early part of the prior fiscal year, which
resulted in an unfavorable comparison on a year-over-year basis for the first quarter of the current year. These revenues were
much higher than our traditional sales, so this skewed year-over-year comparisons. Also negatively impacting the first quarter
of this year were the currency volatility in Argentina, Kazakhstan, Canada, China and the UK and the continued weakness in the
global industrial economy, particularly in the oil and gas sector. This sector represents roughly 10% of our annual revenues. As
with any business cycle, we anticipate a recovery in demand for our products as oil prices rebound.
"Meanwhile, we have taken steps to
reduce our cost structure and, at the same time, undertake certain operating efficiencies to enhance our global infrastructure
in preparation of global sales growth and market share gains -- with or without industrial or oil sector recoveries which have
been in corresponding down turns for the past several quarters. Proof of concept for this strategy can be found in our Canadian
operations where sales in the first quarter were up 25% in local currency as compared to the prior year despite challenging economic
conditions in the country. As previously disclosed, in the first quarter of fiscal 2017 we implemented a voluntary reduction in
force for our USA operations which resulted in a charge during the quarter of $300,000 that will reduce payroll by over $1.0 million
on an annualized basis. Certain manufacturing functions will be assumed by our facilities in India and Mexico where our cost base
is significantly lower. Overall, we are leveraging our global operations to drive costs lower, improve manufacturing efficiencies
are pleased to report that operating profit has been achieved in each of our major country operations except for a modest loss
in Mexico. As of April 30, 2016, we had cash and cash equivalents of approximately $10.3 million, with this balance increasing
$3.3 million from the beginning of the fiscal year. Net cash provided by operating activities was $3.5 million for the fiscal 2017
first quarter, primarily due to effective cash management and inventory reductions. To further increase our productivity and leverage
our global workforce, we have been bolstering our country sales management and financial personnel while investing in management
information systems infrastructure to enhance our costing, inventory, bidding and workflow management.
"As previously stated, regardless
of the overall market's growth and any continued economic uncertainties, we see a multitude of organic growth opportunities
in converting customers to Lakeland products. New product development will aid in this effort. An example of this strategy is
the redesigning of our disposable product for use in cleanrooms, estimated as an annual addressable market of approximately $75
million to $100 million . We are well on our way to realizing the benefits of our market and product diversity to deliver long
term sustainable growth in revenues, profitability and cash flow."
Fiscal 2017 First Quarter Financial
Net sales from continuing operations decreased
18% to $20.4 million for the three months ended April 30, 2016 compared to $24.8 million for the three months ended April 30, 2015.
Overall sales volume was reduced in the quarter due to global softness in the industrial sector partially resulting from a continuing
downturn in the oil and gas industry, as well as currency headwinds in several of the foreign countries in which the Company has
operations. On a consolidated basis in US currency for the first quarter of fiscal 2017, domestic sales were $12.2 million or 60%
of total revenues and international sales were $8.2 million or 40% of total revenues. This compares with domestic sales of $12.8
million or 52% of the total and internationals sales of $12.0 million or 48% of the total in the same period of fiscal 2016.
Sales in the USA decreased 7% or $1.0 million
due primarily to the strong sales levels in the disposables and chemical divisions related to the Company's response to the
Ebola crisis in the first quarter of the prior year and a soft market in the industrial sector in 1Q17. USA sales of disposables
decreased by $0.5 million, chemical sales decreased $0.6 million, wovens and fire protection sales combined were level, while glove
sales decreased $0.1 million and reflective sales increased $0.2 million.
Among the Company's larger international
operations, sales in China and to the Asia Pacific Rim were down 25% or $2.9 million, amid currency headwinds. Canada sales increased
by 26% or $0.4 million, despite Canadian currency declines, as that country benefited from the effective implementation of market
share attainment strategies an unexpected oil and gas turnaround as well as protective apparel requirements to handle wildfires.
UK sales decreased by $3.3 million or 58% mostly due to the Company's Ebola-related sales in fiscal 2016 first quarter and
continuing currency challenges. Sales in Russia and Kazakhstan increased $0.2 million or 73% as economic stability improved. Latin
America sales decreased $0.5 million or 37% due to a depressed commodities market which curtails agriculture and mining production
and due to the poor economic environment in certain regions.
Gross profit decreased $2.5 million, or
27%, to $6.8 million for the three months ended April 30, 2016, from $9.3 million for the three months ended April 30, 2015. Gross
profit as a percentage of net sales decreased to 33.3% for the three months ended April 30, 2016, from 37.4% for the three months
ended April 30, 2015, but increased from 29.4% from the fourth quarter of fiscal 2016 ended January 31, 2016. Gross margins for
disposable products, the Company's largest product line, remained level at 34% despite low volume. Major factors driving
the year-over-year changes in gross margins include Chemical protective apparel line gross margins decreasing by 17 percentage
points as compared to the same quarter in the previous year primarily due to the very high volume and high margins associated with
the Company's response to the Ebola crisis, and cost saving efforts and severance payments in the more recent quarter associated
with a reduction in force in the USA to move production to more cost effective facilities in Mexico and China.
Operating expenses increased from $6.1
million for the three months ended April 30, 2015 to $6.6 million for the three months ended April 30, 2016. Operating expenses
as a percentage of net sales was 32.4% for the three months ended April 30, 2016 up from 24.4% for the three months ended April
30, 2015. The main factors for the increase in operating expenses are a $0.3 million increase in payroll administration and salaries
for the expansion of the Company's global sales management among other activities and $0.3 million increase in professional
fees for audit fees, legal fees and year-end tax preparation, and a $0.1 million increase in travel expense.
Operating profit was $0.2 million for the
three months ended April 30, 2016, from $3.2 million for the three months ended April 30, 2015, mainly as a result of weak sales
volume. Operating margins were 0.8% for the three months ended April 30, 2016, compared to 13.0% for the three months ended April
Net income was $0.0 million for the three
months ended April 30, 2016 from $1.2 million for the three month ended April 30, 2015. The results for the three months ended