Lakeland Industries, Inc. Reports Fiscal 2014 Third Quarter Financial Results Reports Consolidated Operating loss of $1.0 million in Q3 and an operating profit of $0.9 million, excluding Brazil

Sales down 6.0% consolidated and up 4.6%, excluding Brazil, over Q3 last year

RONKONKOMA, N.Y., Dec. 12, 2013 /PRNewswire/ -- Lakeland Industries, Inc. (NASDAQ: LAKE), a leading global manufacturer of industrial protective clothing for industry, municipalities, healthcare and to first responders on the federal, state and local levels, today announced  financial results for its third quarter of fiscal year 2014 ended October 31, 2013.

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Excluding operations in Brazil and the inventory adjustments in the US, the Company is reporting the best quarter in over three years other than its second quarter for adjusted EBITDA.

Financial Results Highlights-third quarter of fiscal 2014, and Recent Company Developments:

  • The Company has earned operating income before corporate overhead in the US of $1.1 million in Q3 of the fiscal year ending January 31, 2014, compared $0.4 million in Q3 of last year.
  • Reflected in the operating income in the US are two inventory charges:  $353,000 for overhead rate revisions and a $375,000 reserve for a discontinued product line in disposables.
  • Brazil operations in Q3 this year included inventory adjustments of $1,158,000. Further, Brazil incurred a loss of $213,000 on sales of raw material from inventory in order to raise cash in Brazil.
  • In Q3 of this year, sales of Lakeland worldwide decreased 6.0% and, excluding Brazil, increased 4.6% year over year.  Net sales (including Brazil) of $22.8 million in Q3FY14 compared with $24.2 million in Q3FY13. Net sales, however, excluding Brazil, increased 4.6% from $19.95 million last year to $20.87 million this year.
  • Sales were weak in Q3 due to:

    • Overall sales increased in the US by $1.6 million, or 16.7%.  Excluding direct shipment billing in US numbers this year, net disposables were down $0.5 million, due largely to lower sales of Tyvek as remaining stock has depleted, absence of last October's Hurricane Sandy and large shipments to the USDA, softness in the wind energy market, and lower sales of disposable FR coveralls due to lower cost FR SMS competition, which we expect to reverse by publicizing its adverse protection data.  Fire sales were up $.6 million, reflective sales up $0.2 million, chemical sales were flat, and wovens were down $0.3 million due to continued deferred refinery turnarounds. 
    • China external sales in Q2 included a major sale to a Chinese auto company and also a number of Q3 deliveries to an Asia Pacific distributor were delayed until Q4.
    • Argentina:  we resolved our internal working capital shortages immediately following our financing in late Q2, however, governmental restrictions on imports in Argentina caused shortfalls in sales in Q3. Coordination of customs import issues remains an issue. Management is pursuing all possible remedies. We believe we will have at least partial success which should be reflected in greater sales in Q4.
    • Chile:  in Q3 last year Chile had large sales to Peru and Ecuador. Bids for both are being processed and management expects some sales in Q1 of FY15 for these customers.

  • In Q3 of this year, gross margin for Lakeland worldwide was 22.1%, compared to 30.1% last year. Excluding Brazil, gross margin decreased from 30.7% last year to 28.4% this year. However, excluding Brazil and excluding the inventory charges in the US described above, gross margin increased to 31.9% as compared with 30.7% for Q3 last year.
  • Operating expenses worldwide decreased by $947,000 and decreased as a percent of sales to 26.7% from 29.0% last year. Operating expenses for Lakeland worldwide, excluding Brazil, decreased by $448,000.  SGA as a percent of sales, excluding Brazil, decreased from 27.5% to 24.1%.
  • Adjusted EBITDA increased to $1.6 million this year from $1,001,000 last year. Adjusted EBITDA for Lakeland worldwide, excluding Brazil, increased from $1,289,000 last year to $2,102,000 this year.
  • Most of the improvement in adjusted EBITDA was generated in the United States and China.
  • Net loss of $1.8 million ($(0.31) per share) this year vs. $0.3 million profit ($0.05 per share) last year.
  • The Company completed its refinancing with BDC in Canada for US $1.06 million and closed a new loan in China for $0.8 million.
  • During the Quarter ending October 31, 2013, Lakeland terminated the previous management in Brazil and hired a new CEO specializing in turnaround situations. We adopted a new strategy emphasizing industrial and smaller governmental agency orders, de-emphasizing large bid contracts. Accordingly, throughout the current fiscal year, there has been major cost cutting in Brazil to "right size" the operation to appropriate levels for the new lower volume strategy.
  • Net book value per share, counting shares underlying warrant with a nominal exercise price, is $8.24.
  • Next to Q2, the third quarter, excluding Brazil and inventory charges was the best quarter in respect to adjusted EBITDA in over three years.

 

Operating Earnings and Adjusted EBITDA - Lakeland Consolidated with and without Brazil  ($000) *



Quarter Ended October 31 2013


Quarter Ended October 31 2012










Lakeland

consolidated

Brazil **

Lakeland

worldwide

excluding

Brazil


Lakeland

consolidated

Brazil **

Lakeland

worldwide

excluding

Brazil

Sales

$22,787

$1,914

$20,873


$24,239

$4,285

$19,954

Year over year growth (decline)

(6.0)%

(55.3)%

4.6%


-----

-----

-----









Gross profit (loss)

5,042

(895)

5,937


7,287

1,161

6,126

Gross margin

22.1%

(46.7)%

28.3%


30.1%

27.1%

30.7%

Operating expenses

6,073

1,037

5,036


7,020

1,536

5,484

    Operating expense as % of

    sales

26.7%

54.2%

24.1%


29.0%

35.8%

27.5%

Operating income (loss)

(1,030)

(1,932)

902


267

(375)

642

Less other expenses

116

116

-----


(62)

(62)

-----

Add other income

57

-----

57


52

-----

52

Add depreciation and

amortization

449

87

362


383

77

306

   EBITDA

(408)

(1,729)

1,321


640

(360)

1,000

Equity compensation

20

-----

20


189

-----

189

Brazil severance and executive

recruiter fee

74

42

32


-----

-----

-----

Brazil additional foreign

exchange losses

(116)

(116)

-----


62

62

-----

Brazil additional VAT tax charge

153

153

-----


-----

-----

-----

Brazil additional inventory

reserve charge

1,159

1,159

-----


-----

-----

-----

Change in accounting estimate-

OH rates revised

354

-----

354


-----

-----

-----

Inventory reserve in USA- discontinued product line

375

-----

375


-----

-----

-----

Severance charges in USA

-----

-----

-----


110

-----

110

Brazil CEO termination

settlement

-----

-----

-----


-----

-----

-----









   ADJUSTED EBITDA

$1,611

$(491)

$2,102


$1,001

$(288)

$1,289









*This table is a reconciliation of GAAP to non-GAAP Financial Measures.

**Brazil numbers, as presented in this table, include immaterial intercompany transactions.

 

Operating Earnings and Adjusted EBITDA - Lakeland Consolidated with and without Brazil  ($000) *



Nine months Ended October 31 2013


Nine months Ended October 31 2012






Lakeland

consolidated

Brazil**

Lakeland

worldwide

excluding

Brazil


Lakeland

consolidated

Brazil**

Lakeland

worldwide

excluding

Brazil

Sales

$69,163

$5,398

$63,765


$71,719

$14,173

$57,546

Year over year growth

(3.6)%

(61.9)%

10.8%


(21.8)%

263.7%

(31.7)%









Gross profit

18,584

(478)

19,063


21,729

4,772

16,956

Gross margin

26.9%

(8.9)%

29.9%


30.3%

33.7%

29.5%

Operating expenses

18,555

3,264

15,291


21,285

5,017

16,268

    Operating expense as % of

    sales

26.8%

60.5%

24.0%


29.7

35.4%

28.3%

Operating income (loss)

30

(3,742)

3,772


444

(244)

688

Less other expenses

(271)

(271)

-----


(8,627)

(8,627)

-----

Add other income

20

-----

20


85

-----

85

Add depreciation and

amortization

1,226

276

950


1,129

224

905

   EBITDA

1,005

(3,737)

4,742


(6,969)

(8,647)

1,678

Equity compensation

179

-----

179


366

-----

366

Brazil arbitration judgment

-----

-----

-----


7,874

7,874

-----

Brazil severance and executive

recruiter fee

154

122

32


-----

-----

-----

Financing fees in other expenses

(adjustments)

75

-----

75


-----

-----

-----

QD plant shutdown costs and

costs of sale

480

-----

480


-----

-----

-----

Brazil additional foreign

exchange losses

271

271

-----


840

840

-----

Brazil additional VAT tax charge

153

153

-----


-----

-----

-----

Brazil additional inventory

reserve charge

1,159

1,159

-----


-----

-----

-----

Change in accounting estimate-

OH rates revised

354

-----

354


-----

-----

-----

Inventory reserve in USA-

discontinued product line

375

-----

375


-----

-----

-----

Severance charges in USA

-----

-----

-----


110

-----

110









   ADJUSTED EBITDA

$4,205

$(2,032)

$6,237


$2,205

$67

$2,139


*This table is a reconciliation of GAAP to non-GAAP Financial Measures.

**Brazil numbers, as presented in this table, include immaterial intercompany transactions.

 

Management's Comments

Christopher J. Ryan stated, "As stated previously, management believes it will have Brazil turned around by the first quarter in 2014. Other than Brazil, all of our other business units are doing well and as projected. Once Brazil is at breakeven, the full earning potential of the rest of the Company will be apparent.

"It is important to note that our current bank covenants and lines of credit are NOT dependent upon operations in Brazil. Thus, management is free to reorganize it, and we have and will continue to follow such a course of action."

Financial Results Conference Call

Lakeland will host a conference call at 4:30 PM (EST) today to discuss the Company's third quarter fiscal 2014 financial results. The conference call will be hosted by Christopher J. Ryan, Lakeland's President and CEO, and Gary Pokrassa, Lakeland's Chief Financial Officer.  Investors can listen to the call by dialing 877-870-4263 (Domestic) 412-317-0790 (International) or 855-669-9657 (Canada), Pass Code 10037639.

A conference call replay will be available by dialing 877-344-7529 (Domestic) or 412-317-0088 (International), Pass Code 10037639.

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.

"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 consolidated income, excluding Brazil. 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.

 

Lakeland Industries, Inc. and Subsidiaries

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands except share data)



October 31, 2013

January 31, 2013

ASSETS

(Unaudited)


Current assets



Cash and cash equivalents

$5,019

$6,737

 Accounts receivable, net

15,047

13,783

Inventories

40,440

39,271

Deferred income tax

4,594

-----

Assets of discontinued operations in India

20

813

Prepaid income tax

629

1,565

Other current assets

2,484

1,703

Total current assets

68,233

63,872

Property and equipment, net

12,572

14,090

Prepaid VAT and other taxes, noncurrent

2,417

2,461

Security deposits

1,462

1,546

Other assets, net

1,782

478

Goodwill

872

871

Total assets

$87,338

$83,318

LIABILITIES AND STOCKHOLDERS' EQUITY



Current liabilities



Accounts payable

$9,242

$6,704

Accrued compensation and benefits

1,300

976

Other accrued expenses

2,509

2,409

Liabilities of discontinued operations in India

-------

25

Current maturity of long-term debt

50

100

Current maturity of arbitration settlement

1,000

1,000

Short-term borrowing      

2,701

7,129

Borrowings under revolving credit facility

11,791

9,559

Total current liabilities

28,593

27,902

Accrued arbitration award in Brazil (net of current maturities)

4,008

4,711

Canadian loan

1,012

1,298

Subordinated debt, net of OID

1,539

-----

Other liabilities - accrued legal fees in Brazil

78

87

VAT taxes payable long-term

3,330

3,329

Total liabilities

38,560

37,327

Stockholders' equity:



Preferred stock, $.01 par; authorized 1,500,000 shares - (none issued)

--------

--------

Common stock, $.01 par; authorized 10,000,000 shares, issued 5,711,727 and

5,688,600; outstanding 5,355,286 and 5,332,159 at October 31, 2013 and

January 31, 2013, respectively

57

57

Treasury stock, at cost; 356,441 shares at October 31, 2013 and January 31,

2013, respectively

(3,352)

(3,352)

Additional paid-in capital

53,347

50,973

Retained earnings (deficit)

1,019

(473)

Accumulated other comprehensive loss

(2,293)

(1,214)

Total stockholders' equity

48,778

45,991

Total liabilities and stockholders' equity

$87,338

$83,318

 

LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

Three months and nine months ended October 31, 2013 and 2012



THREE MONTHS ENDED

NINE MONTHS ENDED


October 31,

October 31,


2013

2012

2013

2012

Net sales

$22,787

$24,239

$69,163

$71,719

Cost of goods sold

17,745

16,952

50,579

49,989

Gross profit

5,042

7,287

18,584

21,730

Operating expenses

6,072

7,020

18,554

21,285

Operating profit (loss)

(1,030)

267

30

444

Foreign exchange gain (loss) Brazil

116

(62)

(272)

(840)

Arbitration judgment in Brazil

-------

-----

--------

(7,874)

Other income, net

57

52

21

172

Interest expense

(649)

(270)

(1,391)

(766)

Income (loss) before taxes

(1,506)

(13)

(1,612)

(8,864)

Income tax expense (benefit)

329

(295)

(3,103)

(669)

Net income (loss)

$(1,835)

$283

$1,491

$(8,195)

Net income (loss) per common share





Basic

$(0.31)

$0.05

$0.27

$(1.55)

Diluted

$(0.31)

$0.05

$0.26

$(1.55)

Weighted average common shares

outstanding:





Basic

5,919,253

5,330,286

5,607,654

5,276,288

Diluted

5,919,253

5,367,243

5,715,151

5,276,288

 

SOURCE Lakeland Industries, Inc.



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