Lakeland Industries, Inc. Form 10-K Summary
Business context and reporting period
Lakeland manufactures and sells industrial and public-sector protective clothing and accessories, including disposable garments, chemical suits, firefighting apparel, gloves, high-visibility clothing and durable woven garments. Products are sold through more than 1,600 distributors and directly to customers in more than 50 countries. The company operates six manufacturing facilities in six countries and employed approximately 2,000 people as of January 31, 2021.
This filing reports fiscal year 2021, ended January 31, 2021, with comparisons to fiscal year 2020. The filing also provides unaudited fourth-quarter results for the three months ended January 31, 2021, compared with the fourth quarter of fiscal 2020.
Financial performance and liquidity
| Metric | FY21 | FY20 | Change |
|---|---|---|---|
| Net sales | $159.0 million | $107.8 million | Up 47.5% |
| Gross profit | $79.3 million | $37.9 million | Up 109.2% |
| Gross margin | 49.8% | 35.2% | Up 14.6 percentage points |
| Operating profit | $43.9 million | $5.9 million | Up from $5.9 million |
| Operating margin | 27.6% | 5.5% | Up 22.1 percentage points |
| Net income | $35.1 million | $3.3 million | Up substantially |
| Diluted EPS | $4.31 | $0.41 | Up substantially |
| Net cash from operations | $40.7 million | $3.6 million | Up substantially |
| Capital expenditures | $1.7 million | $1.0 million | Higher investment |
FY21 sales growth was concentrated in disposable products, which generated $103.9 million compared with $53.4 million in FY20, and chemical products, which generated $31.2 million compared with $23.0 million. International sales increased to $88.4 million from $51.9 million, representing more than half of total sales.
Management attributed the margin improvement primarily to higher volumes and pricing, increased sales of higher-margin disposable, chemical and fire products, and improved manufacturing efficiency in Vietnam. Operating expenses increased 10.5% to $35.4 million, but declined to 22.3% of sales from 29.7%.
Fourth-quarter FY21 net sales were $36.9 million and net income was $7.9 million, compared with $28.2 million and $1.2 million, respectively, in Q4 FY20. Fourth-quarter performance benefited from COVID-19 demand, higher pricing and improved manufacturing efficiency.
Cash and cash equivalents were $52.6 million at January 31, 2021, up from $14.6 million. Working capital was approximately $108.0 million. Accounts receivable were $21.7 million, inventories were $43.8 million and total assets were $139.9 million. Total liabilities were $17.0 million and stockholders’ equity was $122.9 million.
The company had no borrowings outstanding under its $12.5 million secured revolving credit facility or its $5.0 million letter-of-credit sub-facility at January 31, 2021. The facility matures June 25, 2025, bears interest at LIBOR plus 125 basis points, subject to a 1.00% LIBOR floor, and includes financial covenants and security interests in substantially all personal property and certain subsidiary stock. Management expects FY22 capital expenditures of approximately $4.0 million.
Material changes versus the prior comparable period
- COVID-19-related demand drove significant increases in disposable and chemical protective clothing sales, particularly in the United States, China, Europe, Mexico and other international markets.
- Core industrial sales declined approximately 25% at the peak of lockdown-related disruption in Q2 FY21 but recovered steadily through Q4 FY21.
- Gross margin increased materially due to pricing, product mix and manufacturing efficiency, despite significant fabric and other raw-material price increases.
- Cash increased by $38.0 million, supported by higher profitability, improved collections, increased inventory turns and higher operating liabilities.
- Inventory declined modestly despite substantially higher sales, reflecting improved inventory management. The inventory balance included approximately $2.6 million of excess and obsolete adjustments.
- The company entered into a new Bank of America credit agreement and repaid a $1.2 million SunTrust term loan.
- Management stated that material weaknesses identified in FY20 inventory valuation controls were remediated during FY21. Management and Deloitte & Touche reported effective internal control over financial reporting as of January 31, 2021.
- Stock-based compensation changed from a $0.4 million reduction in FY20 to $1.7 million of expense in FY21, primarily because improved performance made vesting of certain awards probable.
Guidance, outlook, risks and unusual items
Management expects COVID-19-related demand to continue into the first half of FY22 but at lower levels than FY21, with demand shifting from immediate-use purchases toward stockpiling. Management expects core industrial sales to fully recover and continue growing through FY22, but the filing does not provide formal revenue or earnings guidance.
Management anticipates raw-material prices will remain elevated into FY22. Potential headwinds include another COVID-19 surge, raw-material shortages, recession risk, customer inventory stockpiling, lower oil and gas activity, changing trade policies, foreign currency movements and disruptions to international manufacturing or logistics.
Management is maximizing near-term manufacturing capacity, evaluating expansion opportunities, deploying its ERP system globally, reorganizing sales teams around four vertical markets, and investing in sales, marketing, supply-chain, quality-control and engineering personnel. The company expects long-term opportunities from PPE stockpiling, institutional cleaning, cleanrooms, isolation gowns, electric utilities and other higher-value markets.
Important unusual or contingent items include $1.9 million of FY21 income-tax expense associated with GILTI, a $2.7 million valuation allowance against deferred tax assets, and continuing potential exposure related to former Brazilian operations. Remaining Brazilian matters include VAT claims totaling approximately $0.5 million before interest, penalties and fees, a civil claim of approximately $0.7 million, and other potential labor claims. The company states that no current litigation is expected to have a material adverse effect, but outcomes in Brazil remain uncertain.
The company has not paid cash dividends since 2006 and does not anticipate paying dividends in the foreseeable future. A new authorization permits repurchases of up to $5.0 million of common stock; no shares were repurchased during FY21.
Most important facts for investors to verify
- Whether FY21 COVID-19-driven sales and margins can be sustained as pandemic demand declines.
- The pace of recovery in core industrial markets and exposure to oil, gas and other cyclical end markets.
- Raw-material pricing, product pricing and the effect of elevated input costs on gross margin.
- Customer and distributor inventory levels, purchase-order cancellations and the risk of inventory obsolescence.
- Compliance with the Bank of America facility’s fixed-charge coverage, leverage and other covenants.
- The concentration of cash held outside the United States, including approximately $23.8 million held in China and approximately $51.9 million of total cash described as uninsured.
- The effectiveness and continued operation of the remediated inventory valuation controls.
- Potential liabilities, legal outcomes and tax exposure associated with former Brazilian operations.
- Foreign currency, geopolitical, trade, tariff, labor and supply-chain risks across the company’s international operations.
- The company’s ability to convert new customers, expanded capacity and higher-value product initiatives into recurring post-pandemic growth.