Full Press Release Details
Lakeland Industries, Inc. Reports Fiscal
2017 Third Quarter Financial Results
RONKONKOMA, NY - December 14, 2016
-- 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 2017 third quarter ended October 31, 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 Third Quarter Financial
Continuing Operations, unless otherwise noted"
Management's Comments
Christopher J. Ryan, President and Chief
Executive Officer of Lakeland Industries, stated, "The Company's financial performance in the fiscal 2017 third quarter
ended October 31, 2016 reflects the strategic advantages of our unique operating platform and our ability to generate solid cash
flow from operations. Although there are some challenges throughout our global operating footprint, we have seen continued momentum
in our business on a consolidated global basis that began at the start of this fiscal year.
"Among our challenges, we note that
our quarterly financial performance progress in fiscal 2017 may be seen as less remarkable when compared to year earlier periods.
This has been the case for the first three quarters of fiscal 2017, following the first nine months of fiscal 2016 which benefited
from higher margin product orders stemming from the Ebola outbreak impacting many countries and spates of bird flu in North America.
Compounding these negative optics are the foreign currency exchange rates amid a strong U.S. dollar and oil prices. Currency declines
in fiscal 2017 as compared to fiscal 2016 reduces revenues as reported on a consolidated GAAP basis in U.S. dollars
even though our volume sales were higher for many of the countries in which we do business. Finally, the oil and gas sector remains
a drag on our business so long as prices are at or below $50 per barrel of oil. Oil prices have worked against us for most of fiscal
"While these challenges are a function
of our business and marketplace and not necessarily self-inflicted, we have made impressive progress and have been investing to
position the Company for continued long term growth. Key components of our growth plan were executed upon in the third quarter.
Manufacturing capabilities have been bolstered by a new pilot program in India and increased capacity in Mexico to further supplement
our large base in China. Leveraging our global production footprint, we entered four new geographic markets, including South Korea,
Indonesia, Malaysia and Vietnam. We have added to our direct sales force with hiring of experienced personnel in these countries,
as well as adding three new salespeople in the U.S. Contributions to our revenues in the third quarter are minimal for these new
additions but they have increased our operating expenses, which is in large part why our spending in the quarter picked up from
earlier periods. Our expansion of facilities, markets and sales personnel are calculated initiatives intended to drive revenues
and profits next year and beyond."
"Meanwhile, we remain vigilant in
managing our cost basis and maximizing the generation of cash flow from operations. No better measures of our progress can be found
than in debt reduction and working capital improvements. Through the first nine months of this fiscal year, we had net cash provided
by operations of $8.2 million, a significant reversal from the $3.9 million used in operating activities in the same period of
the prior year. Inventory management was a key component of our cash flow, with inventories reduced by nearly $4.3 million in the
fiscal year to date. Cash at October 31, 2016 was $8.5 million, up from $7.9 million at the end of the second quarter and $7.0
million at the beginning of the fiscal year. The increases in cash balances are impressive since we have been simultaneously reducing
our debt. In the third quarter we paid down $3.4 million of our debt which is the same reduction we recorded for the first half
of the year. Debt at the end of the fiscal third quarter was reduced by nearly 50% to $6.8 million from $13.4 million at the beginning
of the fiscal year. During the same periods, working capital improved by nearly 10% from $42.2 million to $46.2 million."
"We are pleased to have been able
to materially improve our financial condition while investing in our future growth. Lakeland Industries remains confident in its
ability to increase sales despite any pressure from global economic conditions, currency fluctuations, or the pullback in the oil
Fiscal 2017 Third Quarter Financial
Net sales from continuing operations decreased
to $23.2 million for the three months ended October 31, 2016 compared to $24.9 million for the three months ended October 31, 2015,
but increased by 4% from $22.3 million in the second quarter of fiscal 2017. As compared to the year earlier period, overall sales
volume was reduced 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 U.S. currency for the third quarter of fiscal 2017, domestic sales were $11.3 million or 48% of total revenues and international
sales were $12.0 million or 52% of total revenues. This compares with domestic sales of $14.7 million or 59% of the total and internationals
sales of $10.2 million or 41% of the total in the same period of fiscal 2016.
Sales in the USA decreased by 20% to $12.8
million from $16.0 million in the year-ago period due primarily to the strong sales levels in the disposables and chemical divisions
related to the Company's response to the bird flu pandemic in the third quarter of the prior year and a soft market in the
industrial sector in 3Q17. As compared with the year earlier period, third quarter fiscal 2017 sales in the USA of disposables
decreased by $2.0 million, chemical sales decreased $2.0 million, wovens and fire protection sales combined for an increase of
28%, while glove and reflective products sales remained level.
Among the Company's larger international
operations, sales in China and to the Asia Pacific Rim were down 20% or $2.6 million, amid decreased intercompany sales and currency
headwinds. Canada sales increased by 17% or $0.2 million, as that country benefited from the effective implementation of market
share attainment strategies and the continued unexpected oil and gas turnaround. The sales volume in Canada set another company
record. UK sales decreased by $0.9 million or 33% mostly due to Brexit uncertainties and continuing currency challenges. Sales
in Russia and Kazakhstan were level at $0.3 as unit sales increased but were offset by currency depreciation. Latin America sales
increased $1.4 million or 83% due to a traction at the Company's Argentina operation, which was partially offset by depressed
commodities market which curtails agriculture and mining activities that require personal protective apparel.
to the second quarter of fiscal 2017, third quarter sales decreased $0.3 million or 2.3% in the USA, were down $1.2 million or
10.3% in China and to the Asia Pacific Rim, decreased by $0.3 million or 14.3% in Canada, decreased by $0.8 million or 29.6% in
the UK, remained level at $0.3 million in Russia and Kazakhstan, and increased by $2.0 million or 200% in Latin America.
Gross profit decreased $0.7, or 8%, to
$8.5 million for the three months ended October 31, 2016, from $9.2 million for the three months ended October 31, 2015. Gross
profit as a percentage of net sales remained level at 37% for the three months ended October 31, 2016 and 2015. Gross margins for
disposable products, the Company's largest product line, improved 2.2 percentage points in spite of the lower year-over-year
volume as the Company continues to contain costs and maximize production efficiency. Partially offsetting the improvement in disposables
margins include the Chemical protective apparel line's gross margins decreasing by 13 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 bird flu pandemic, and a 4 percentage point decrease increase in Woven products gross margin due to product mix.
Operating expenses increased to $6.3 million
for the three months ended October 31, 2016 from $6.1 million for the three months ended October 31, 2015, and $6.0 million for
the three months ended July 31, 2016. Operating expenses as a percentage of net sales was 27.0% for the third quarter of fiscal
2017 as compared with 24.3% for the third quarter of fiscal 2016 and 26.8% in the second quarter of fiscal 2017. The main factors
for the increase in operating expenses from the earlier periods include the additions of new salespeople and commissions as part
of the Company's international and domestic expansions and an increase in depreciation expense in the normal course of business,
partially offset by ongoing operational cost containment initiatives.