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Lakeland Industries, Inc. (LAKE)

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Lakeland Industries Inc. (LAKE)

Q1 2019 Results Earnings Conference Call

June 08, 2018, 10:00 AM ET

Executives

Christopher Ryan - Chief Executive Officer

Teri Hunt - Chief Financial Officer

Analysts

Dave King - ROTH Capital

Alex Fuhrman - Craig-Hallum Capital Group

Presentation

Operator

Good morning and welcome to the Lakeland Industries Fiscal First Quarter Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note that this event is being recorded. Before we begin, parties are reminded that statements made during the call contain forward-looking information within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934. Forward-looking statements are all statements other than statements of historical facts which reflect management’s expectations regarding future events, and operating performance and speak only as of today June 8, 2018.

Forward-looking statements are based on current assumptions and announcements made by the company in light of its experience and its perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate under certain circumstances.

These statements are subject to a number of assumptions, risks and uncertainties and factored in the company’s filing with the Securities & Exchange Commission, general economic and business conditions, the business opportunities that maybe presented to you and pursued by the company changes in law or regulations and other factors many of which are beyond the control of the company.

Listeners are cautioned that these statements are not guarantees of future performance and the actual results or developments may differ materially from those projected in any forward-looking statements. All subsequent forward-looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements.

At this time, I would like to introduce your host for this call, Lakeland Industries, Chief Executive Officer, Christopher J. Ryan. Mr. Ryan, you may begin.

Christopher Ryan

Thank you, and good afternoon to you all and thank you for joining our fiscal 2018 fourth quarter and full year [fiscal 2019 first quarter] financial results conference call. We are going to provide opening statements on the status of operations and on our financial results. The call will then be opened up, so that we may respond to your questions.

Now on to my formal remarks. We were off to a very solid start to fiscal 2019, which further solidifies our leadership position in the global workforce protection market. While fiscal 2018 was quite strong in terms of a rebound, the start of our fiscal 2019 has continued in similar fashion as we are seeing growth in the global industrial economic landscape with particular resurgence in the oil and gas sector. We achieved the second consecutive year of revenue growth for the first quarter and nearly eclipsed the level of sales in the first quarter, above fiscal 2016 when we had significantly heightened demand resulting from the devastating bird flu outbreak.

In the first quarter of fiscal 2019, we once again experienced sales growth in all of our major international operating regions as well as in our emerging market operations. Sales in the U.S. were lower due to inventory work down from large fourth quarter shipments and a concerted effort to focus on higher marginal product lines.

Considerable effort and investment have been made in order to increase our manufacturing capabilities to meet growing customer demands. This was part of the revenue growth strategy we had last year and which is continuing into this year. I talked about our overall revenue growth strategy on the year-end earnings results conference call. I’d like to review the elements of this strategy and update you on our progress in the first quarter.

In addition to increased production capacity, our revenue growth strategy includes; one, new products targeted at underserved vertical markets; two, entry into and scaling of new geographic markets; three, hiring of additional sales people; four, Amazon distribution platform; five, investments in information technology.

Most of these growth strategy elements I have discussed dovetail into our gross margin improvement initiatives. While reporting an increase in our topline for the first quarter, we have made great strides to position the company for longer-term gains and a parallel improvement in our gross margins, and already we are seeing an uptick in gross margins. Our gross margin as a percent of sales increased to the highest first quarter level in recent history, at 39% in the first quarter of fiscal 2019, we have seen a significant increase from 37.3% in the first quarter of fiscal 2018, and a 33.3% for fiscal first quarter 2017.

The key components of our ongoing effort to improve gross margins include, entry into faster growing international markets with limited competition; two, introduction of new specialty products which benefit from our material to manufacturing expertise, including the multi-sourcing of raw materials; three, the lowering of our cost of manufacturing; four, improving our operational effectiveness through investments in technology; and five, leveraging of alternative distribution channel, principally with Amazon for retail sales.

In addition, we are also increasing prices in select markets around the world. The development of higher margin products includes lines of fire retardant garments for the utility market and our cleanroom garments. These products are intended for underserved vertical markets, which are less immune to competition. This is particularly important for our U.S. operations.

We have secured marquee customers within the utility market and these customers are beginning to use our products on an increasingly national basis once initially penetrated. Given our exposure to the U.S. market, which is one of the most mature regions for PPE products, it is here where we are learning -- leaning towards the introduction of new, higher margin products that showcase our leading global design and manufacturing capabilities.

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