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Lakeland Industries, Inc. (LAKE)

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Lakeland Industries, Inc. (LAKE)

Q4 2018 Earnings Conference Call

April 16, 2019 4:30 PM ET

Company Participants

Christopher Ryan – Chief Executive Officer

Teri Hunt – Chief Financial Offficer

Conference Call Participants

Mark Rosenkranz – Craig-Hallum

Presentation

Operator

Before we begin, parties are reminded that statements made during this 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, April 16, 2019.

Forward-looking statements are based on current assumptions and analysis 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 the circumstances. These statements are subject to a number of assumptions, risks and uncertainties and factors in the company’s filings with the Securities and Exchange Commission, general economic and business conditions, the business opportunities that may be presented to you and pursued by the company, changes in law or regulation 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 development 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’d like to introduce your host for this call, Lakeland Industries' Chief Executive Officer, Christopher J. Ryan. Mr. Ryan, you may begin.

Christopher Ryan

Okay. Due to our accelerated filing status as a public company and our new internal information and reporting systems, we came down to the wire in terms of filing our financial results. With the potential for the filing for an extension, which we did not have to do thanks to the hard work by our finance team and other parties, we did not provide advanced notice of the conference call simply because it came down to today. So with that said, I’d like to say good afternoon to you all and thank you for joining our 2019 fourth quarter and year-end financial results conference call. We’re 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. Fiscal 2019 was a year of total restructuring and significant development on a global scale with our progress on a consolidated basis marred most notably by the challenging costs and operational issues in connection with the implementation of an enterprise resource planning, or ERP, system. I’ll speak more about our ERP challenges throughout my remarks.

From a top line perspective, total revenues increased for a second year in a row driven by strength in all our international operations, while the ERP system in the U.S. led to lower domestic sales due to order processing and delivery delays. In the third and fourth quarters, we had elevated expenses and reduced revenue in the U.S. as we were unable to process orders to the extent that reflect the true global demand that we are otherwise experiencing. We ended the year with the highest level of revenue since 2011 excluding sales relating to emergency situations.

This heightened level of revenue was achieved due the growth of our international operations, which increased 8% over the last year. As a result of our ERP challenges, domestic revenues for the year were down slightly from the prior year due to delayed shipments and even the loss of orders that were to our competitors due to delivery requirements. This clearly demonstrates that our industry remains competitive, where turnaround time and inventory availability, pricing and product quality are determining factors. Despite these challenges, our other investments in product development, quality control and positioning in the market are paying off, as evidenced by fiscal 2020 beginning with a global order backlog of $10.5 million. We began Q4 with a U.S. backlog of about $5.5 million and ended the year at approximately $4 million.

The ERP installation, which is being deployed in the U.S. where we have about half of our total revenues, led to an estimated $1.3 million in additional non-recurring expenses in fiscal 2019 as well as the degradation of margins due to associated delays and operational inefficiencies. These expenses include access freight cost, temporary labor and consulting service fees. We expect the domestic installation to be completed by mid-summer 2019 with full optimization to realize all of the systems' intended benefits contributing favorably to our financial performance by January 2020.

Beyond this critical program, we have been addressing our long-term cost structure with the build-out of our new manufacturing facilities in Vietnam and India. A new pilot facility of nearly 33,000 square feet has been created in India, while Vietnam has been our primary focus for new production capacity, which includes 141,000 square foot facility for manufacturing, warehouse and administration. In Vietnam, we invested $1.5 million in equipment and ended approximately 570 manufacturing employees in fiscal 2019. By the end of fiscal 2021, we expect India to be equal to China in manufacturing headcount.

Our facilities and capabilities in China, India, Mexico and Vietnam allow access to a less expensive labor pool that is available in the U.S. and permits us to purchase certain raw materials at a lower cost that are available domestically. Both India and Vietnam provide an even lower cost basis in China. We have multi-sourcing of materials in our international locations, which also enable us to work around any new tariffs or trade disputes between the U.S. and China. In fact, Vietnam is one of the most unencumbered countries in the world when it comes to international exporting of goods. Of course, with our operations in Vietnam really just getting underway, we have significant start-up costs and need a few quarters to get them trained up to our quality standards before we get them fully efficient and profitable.

Read the rest of this transcript on seekingalpha.com