Lakeland Industries Inc (LAKE) 2008 Q1 法說會逐字稿

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, June 7, 2007.

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 circumstances.

These statements are subject to number of assumptions, risks and uncertainties and factored in the Company's filings with the Securities & 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 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 President and Chief Executive Officer, Christopher Ryan. Mr. Ryan, you may begin.

Good afternoon, gentlemen. This quarter we are facing a multitude of obstacles, which we believe are one-time in nature. We shut down our existing Mexican operations and are opening an more efficient plant elsewhere, which will be fully operational by August '07. We took a $500,000 charge to earning in this quarter, or approximately $0.09 a share, to do this.

We believe that we will recoup this loss from August 2, '07 when the new operation is fully functional, through August 2008 in lower manufacturing costs. The facility also gives us greater opportunities to move current high-cost U.S. production to this new Mexican plant and to further diversify our product offerings. We shut down our Indian glove operation for retooling to achieve higher quality production, and this retooling should be complete by the end of July 2007. The charge for this quarter was $173,000, or approximately $0.02 a share, and will be about the same in the second quarter.

Higher Tyvek costs impacted April by an additional $250,000, or approximately $0.03 a share, and will impact May also by a similar amount, but thereafter better costs will be in place for the rest of the year. Chile and Japan start-up losses were $51,000, or approximately $0.01 a share. Chile should break into the black in the second quarter, and Japan should come in at break even in the second quarter. High Tyvek fabric costs and Indian losses will continue to affect the second quarter, but will not impact the third quarter. As stated in our an Annual Report, we should be out of the rough by the fourth quarter.

Our fire gear sales were also down by $382,000 in the first quarter of FY '08 versus FY '07. This was due to having to reconfigure all our patterns pursuant to the National Fire Protection Agency, or NFPA, mandate to the fire industry as a whole. Late certification by Underwriters Laboratories and customer confusion and resistance to these mandated changes hurt the entire industry in the first quarter. Sales should return to close to normal in the second quarter. This also had a negative impact on earnings.

Thus, we experienced an estimated $0.15 a share in unusual expenses this quarter which will clear out by the third quarter bringing our fourth quarter back to more sustainable and historical earnings levels.

The future. Growing sales internationally. We are increasing our exposure for our products in the Chinese and Brazilian domestic markets by increasing our sales forces in these countries. Both of these markets have very significant revenue potential for the future. We are configuring our new Mexican facility to produce more fire gear, gloves, high visibility and other wovens as opposed to our non-woven disposable products. These woven products are currently made in the USA and will be made more economically in Mexico, than could be done either in the USA, due to higher labor costs, or in China due to high U.S. tariffs on these particular goods.

Over the next six months, besides refiguring our manufacturing, we will also be reconfiguring our sales force and strategies to jump start our sales in the U.S. and Canada, which suffered a lot this quarter. We will be focusing more sales resources on our glove, fire and high visibility lines, as these products are part of a much larger markets than our disposable and chemical suit lines.

Thus there is a much larger area for revenue growth. Industrial gloves are a $1 billion market in the U.S., fire gear a $300 million market, and high visibility a $200 million market. We continue to look at acquisition opportunities, both here and abroad. With that, I will turn the financial discussion over to Gary Pokrassa, our CFO.

Thank you, Chris. I would emphasize that we generated $1.7 million in cash flow in the quarter. I expect we will very gradually work down the inventory levels throughout the remainder of the year, as we have been saying. Our loan balance as of this morning is down to below $1 million. Our cash flow and balance sheet remain quite strong.

We have entered in to a more in-depth hedging of our foreign exchange exposure in Canada which will give our Canadian operation a cost certain for the next 12 months and beyond.

And I'd point out, if you remove the Mexican write-offs from the equation, the effective tax rate was about 27.5%. I would estimate our effective tax rate going forward at 29%. And with that, we'll turn it over to the audience for questions.

Thank you, we will now take questions from the telephone lines. (operator instructions) There will be a brief pause while the participants register for questions. Thank you for your patience. The first question is from Brian butler of Friedman, Billings, Ramsey. Please go ahead.

Yes, good afternoon.

Good afternoon.

Hi, Brian.

Hi. Question on the competitive issue that you are seeing. I guess, is there someone taking share? Is that the issue? Or is it just an -- is it really more on price? And everyone has to lower price?

Well, DuPont instituted a rebate program in March of this year, and basically the rebate program promises a rebate at the end of the year for an increase in Tyvek sales. So we had to introduce a similar rebate program, and it did impact our sales for the first quarter on the Tyvek.

Are they doing that to try to take share from you guys? Is that their goal?

That was their goal, but they failed totally. All they achieved was lowering their profits by $3 million.

Yes, and everyone is just taking home less money.

Yes.

Have they learned their lesson?

Let's hope so.

Okay. And then on the fire sales you said that they should return -- you are hoping they will turn back to normal levels in the second quarter. I mean, did those sales that didn't occur in the first quarter, are those gone for good? Did they go somewhere else, or over the next three quarters, do you think -- you kind of get that back?

I think we kind of get it back simply because, everybody was unprepared for this NFPA pattern change, and not only that customers were confused and resisted, so quite a few people were not even basically licensed by the NFPA to sell garments during that period until they had Underwriter Laboratory certifications. And with all nine competitors in the industry barreling in December, none of the certifications got done on time, so we just could not sell the product.

So we hope that's pent-up demand, but it hurt the whole industry. A lot of our competitors weren't selling the product either. That inability to sell, combined with the customer resistance to the new patterns, because the new patterns required a yolk, and, therefore, completely redesigned, and big price increases on the garments. There was a lot of customer resistance to $400 and $500 increases per coat.

Okay. And then on the glove business, the retooling had an impact, but you also stated in the release that you guys lost two customers.

Right.

So what is the right way to think about it on a go-forward basis, the retooling comes back -- the revenues associated with the retooling, I guess, are coming back, how how much did the two customers represent? And what happened to the second customer?

The second customer was a big customer, it went out of business.

No, no. Okay. What happened to the first customer?

The first customer went to a competitor, and we're busy getting them back, and we do know that the other customer who moved from us is now dissatisfied to the person they moved to, so hopefully we get it back.

And was that on price why they left?

It was on price, but now they are learning that, you get what you pay for and they are not satisfied with the quality.

Okay. And then just the last question on -- when you think about China and Brazil, I know you have been ramping up in those areas, as you talked about. Can you give any sense of how large or what kind of impact that will have and over what time period?

The retooling in India?

No. No. No, the expansion in China and Brazil.

We're hiring new salespeople in China and Brazil, and it takes time. It will be a year before they really, I think, are doing material numbers, okay, in terms of increasing sales, but we basically put two people on in China, in the last two weeks, and we have put a person on in Venezuela, and a person on in Brazil in the last month.

Okay. And then --

So, you know, I'm speculating as to when they'll start generating significant sales. It will take them a quarter just to get accustomed to the market. I then look for each of them to be doing about $100,000 and then, hopefully, $200,000 each by the fourth quarter.

Okay. Thank you very much.

In addition to our current sales, we'll have three people in China, as opposed to one. We have about six people in South America, as opposed to three. That's the increase in heads down there. They generally take a while to start, but once the snowball starts moving downhill it picks up rather quickly, and we're looking at some very, very significant bid work in South America.

All right. Thank you very much.

Okay.

Thank you. (operator instructions) The next question is from [Eric Mancini] of BLS Advisors. Please go ahead.

Hi, how are you doing guys?

Fine.

Three questions, actually. He, the last, touched on it briefly. The two customers that you lost what percentage of sales did you say both of them were combined?

Relatively small. It's really the difference between last year's sales and this year's sales.

Okay. Second question is there any thought of a cash dividend any time in the future?

We will probably bring that up at the next Board meeting. The Board almost on an annual basis considers a repurchase program, a stock dividend, or a cash dividend.

Okay. And if you did the cash -- the stock dividend would be halted, I would imagine?

Excuse me?

If you initiated the cash dividend, the stock dividend would be halted, I would imagine?

Yes.

Okay. What was my other one? I cannot remember the other one. That's it.

Okay.

Thanks.

Thank you. There are no further questions registered at this time. I would like to return the meeting back to Mr. Ryan.

Okay. Thank you. Shortage of questions, so I will close it, and thank you all for being here.

Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation, and have a nice day.