LAKELAND INDUSTRIES INC annual report, FY2024

Lakeland Industries, Inc. FY2024 Form 10-K Summary

Business context and reporting period

Lakeland Industries, Inc. manufactures and sells protective clothing and accessories for industrial, firefighter, chemical, cleanroom, utility, manufacturing and government applications. The company operates globally, with seven manufacturing locations in seven countries, sales in more than 50 countries and approximately 1,750 employees as of January 31, 2024.

The filing covers the fiscal year ended January 31, 2024 (“FY24”), with comparison to FY23. The requested fourth quarter (“Q4 FY24”) refers to the three months ended January 31, 2024. The Form 10-K was filed April 10, 2024.

Key financial metrics

Metric	FY24	FY23	Change
Net sales	$124.7 million	$112.8 million	Up $11.9 million, or 10.5%
Gross profit	$51.2 million	$45.8 million	Up 11.8%
Gross margin	41.1%	40.6%	Up 50 basis points
Operating profit	$6.0 million	$5.5 million	Up 8.2%
Operating margin	4.8%	4.9%	Down 10 basis points
Net income	$5.4 million	$1.9 million	Up $3.6 million
Diluted earnings per share	$0.72	$0.24	Up $0.48
Cash flow from operations	$10.9 million	$(5.5) million	Improved $16.4 million

FY24 other income included a $3.8 million pretax gain from the sale of the Canadian office and warehouse facility. Operating expenses increased to $45.2 million from $40.3 million, including currency translation expense, restructuring costs, Monterrey facility costs, acquisition-related expenses and higher professional costs. The company also reduced its Eagle acquisition earnout accrual by $2.5 million, lowering operating expenses.

Q4 FY24 net sales were $31.2 million versus $29.0 million in Q4 FY23. Q4 net loss was $1.0 million versus net income of $0.6 million. Q4 operating margin was negative 10.5%, compared with 0.3% in the prior-year quarter. Q4 results were affected by Argentine peso devaluation and inventory write-downs, partially offset by the Canadian facility gain.

Revenue and operating trends

Fire services sales increased to $26.5 million from $14.7 million, supported by the Eagle acquisition, Pacific Helmets and stronger demand.
Woven sales increased to $12.6 million from $7.6 million, and high-performance wear sales increased to $6.9 million from $5.0 million.
Disposable sales declined to $49.6 million from $55.2 million, while chemical sales declined to $20.3 million from $22.2 million, primarily due to reduced COVID-19-related demand, especially in Asia.
U.S. external sales increased to $55.3 million from $49.0 million. European sales increased to $16.3 million from $8.3 million, primarily due to Eagle. Latin American sales increased to $16.1 million from $10.8 million.
Asian external sales declined to $13.8 million from $24.8 million due to lower COVID-19 demand and slow improvement in China’s industrial sector.
International sales represented approximately $69.4 million, or more than half of FY24 revenue.

Liquidity, debt and capital allocation

Cash and cash equivalents were $25.2 million at January 31, 2024, compared with $24.6 million at January 31, 2023.
Working capital was approximately $83.2 million, down $3.8 million year over year.
Inventories declined to $51.3 million from $58.2 million, contributing materially to operating cash flow. The company recorded $3.4 million of inventory adjustments in FY24, including $2.3 million related to discontinued or unsupported products.
The company had no borrowings under its primary revolving credit facility at January 31, 2024 and reported $25.0 million of available credit at that date. Pacific borrowings resulted in approximately $0.3 million of short-term debt and $0.7 million of long-term debt.
FY24 investing cash outflows were $5.1 million, including $5.5 million for Pacific, $2.2 million invested in Bodytrak and $2.1 million of capital expenditures, partially offset by $4.6 million from the Canadian facility sale.
The company paid $0.9 million in dividends and repurchased 27,514 shares for $0.3 million. The quarterly dividend was $0.03 per share, subject to future board approval.
FY25 capital expenditures are expected to be approximately $3.0 million, primarily for replacement equipment and expanded fire-services manufacturing capacity.

Material changes versus the prior comparable period

Revenue growth and improved gross margin reflected stronger fire-services, woven and high-performance product demand, pricing, factory utilization and product mix.
Operating margin remained broadly stable because higher gross profit was offset by increased operating expenses, restructuring, currency effects and other costs.
Operating cash flow improved substantially as inventory was reduced, compared with a significant inventory build in FY23.
Pacific Helmets NZ Limited was acquired on November 30, 2023 for approximately $8.5 million to $8.6 million, including assumed debt. Pacific contributed approximately $1.0 million of FY24 sales and expanded the company’s firefighter helmet portfolio.
The company continued its $8.0 million strategic investment in Bodytrak and had recognized cumulative losses of approximately $1.1 million through January 31, 2024.
The company remediated a previously identified material weakness involving foreign-subsidiary currency translation or remeasurement controls. Management and the auditor concluded that internal control over financial reporting was effective as of January 31, 2024, although Pacific was excluded from the assessment because it was recently acquired.

Outlook, commentary, risks and unusual items

Management stated that existing cash, expected operating cash flow and available borrowing capacity should be sufficient for operating and investing needs for at least the next twelve months. The filing does not provide formal revenue or earnings guidance. Management expects FY25 capital expenditures of approximately $3.0 million.

On February 5, 2024, the company acquired Jolly Scarpe, an Italy- and Romania-based firefighter and safety footwear business, for approximately $9.3 million. The acquisition was funded partly through a $12.3 million credit-line draw.
On March 28, 2024, the primary revolving credit facility was amended and expanded to $40.0 million, with a potential $10.0 million accordion feature, maturity extended to March 28, 2029, and revised SOFR-based pricing and covenants.
On April 2, 2024, the company agreed to acquire the fire and rescue business of LHD Group for approximately €15.4 million, or about $16.7 million, subject to closing conditions and regulatory approvals. The transaction was expected to close in May 2024 and be funded through the credit facility.
Key risks include international manufacturing and supply-chain exposure, China and Vietnam geopolitical and trade risks, tariffs, foreign-currency volatility, inflation, seasonal demand, excess inventory, competition, cybersecurity, product liability and changing safety standards.
PFAS-related regulatory developments and lawsuits involving firefighter turnout gear could result in litigation, remediation, compliance or product-transition costs. The filing states these matters were at an early stage and that no material environmental costs were currently anticipated.
The company identified structural defects at its newly constructed Monterrey, Mexico facility and was discussing potential remedies with the landlord. Changes in intended use could affect the carrying value of the related right-of-use asset.
Approximately $24.4 million of the company’s $25.2 million of cash was uninsured at January 31, 2024, primarily because it was held in foreign bank accounts.

Most important facts for investors to verify

Whether fire-services growth, including Pacific, Eagle, Jolly and the proposed LHD acquisition, offsets continued weakness in disposable, chemical and Asian markets.
Whether inventory reductions are sustainable and whether additional write-downs will be required after the FY24 excess-inventory adjustments.
The effect of Argentine currency devaluation, other foreign-exchange movements, tariffs and inflation on gross and operating margins.
The final purchase-price allocations, integration costs and operating contribution from Pacific, Jolly and LHD.
Debt levels, covenant compliance and liquidity after the Jolly acquisition and any LHD acquisition financing.
The recoverability of the $4.7 million Bodytrak equity investment and $2.2 million of convertible debt investments.
Potential exposure from PFAS litigation and regulation, the Monterrey facility dispute, product liability and other contingencies.
Future dividend and share-repurchase decisions, which remain subject to board discretion and financial conditions.