Lakeland Industries Inc (LAKE) 2017 Q3 法說會逐字稿

Good morning, and welcome to the Lakeland Industries' Third Quarter Fiscal Year 2018 Earnings Release and Conference Call. (Operator Instructions) Please note that this event is being recorded.

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, December 15, 2017.

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 a number of assumptions, risks and uncertainties, and factored 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 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.

Good afternoon to you all, and thank you for joining our fiscal 2018 third quarter 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 you -- we may respond to your questions.

Now on to my formal remarks. We're very pleased with our performance in the third quarter fiscal 2018, which demonstrate the momentum of our core business while we gear up for accelerated growth and continued market share attainment. Similar to the second quarter, we showed effective management in all facets of our operations and improved our profitability in the third quarter as compared to the prior year. For the fourth consecutive quarter, we delivered very solid performance, which resulted from the implementation of the diversified growth strategy.

Here are some of our more important aspects of our third quarter performance. Revenues continue to increase. We had sales growth in all major operating regions. Our Amazon distribution strategy has gained meaningful traction. Our gross margin, operating margin and net margin all increased. Our cash balance at the end of the quarter was up more than 100% from the beginning of the year.

Subsequent to the end of the quarter, we paid down all the $2.3 million of debt. New lower-cost manufacturing operations are underway in India and Vietnam. New products and vertical markets are showing progress as part of our strategy for achieving [permanent] increases in our consolidated gross margin levels.

During the last call, I mentioned that in the more than 30 years that I have been involved with Lakeland, the company has never been better positioned and presented with more global opportunities than it is today. In the third quarter, we advanced our mission of fortifying our business for many years ahead and have positioned the company for meaningful growth in top and bottom line results.

During the third quarter, with a backdrop of favorable trends for our opening performance and improving economies globally, we took decisive action to capitalize on the appreciation of our share price by raising over $10 million in net proceeds from the issuance of common stock. New offering proceeds along with our operating performance have enabled us to substantially bolster our financial position.

We have been very active in putting the offering proceeds to work. First, as I've mentioned, we eliminated the remaining high-interest bank debt on our books. We have been hiring sales people and have continued to invest in our information systems to accommodate anticipated growth as well as to better respond to customer requirements anywhere in the world.

An Amazon fulfillment platform has been developed for the U.S. operations, and we have been very busy in building additional overseas manufacturing facility as well as purchasing new equipment to increase our capacity and lower our cost base. The takeaway prospective investors should have on the spending is that we intended to drive growth today and far to the future.

Now I'll provide additional color on our third quarter performance and address some of the initiatives to drive future growth in sales and profitability.

In the third quarter, among the more mature markets for personal protective equipment, our sales in the U.S. continued to grow. This suggests we are attaining market share. We've talked in the past about our new products and new vertical market initiatives and this process has continued pace. A component of our growth in the third quarter, while currently representing less than 1% of the total company sales, is derived from the distribution of our products through Amazon. We view Amazon as another distributor for the company, which enables us to capture sales to which we previously did not have access.

From a standing still position a few months ago as we completed the investment in marketing and fulfillment capabilities, we are announcing very accelerated order growth. Over 16 pages of Lakeland branded products have been populated on the Amazon website. Sales range from the order of one chemical jump suit to boxes of coveralls. These orders are shipped by the next day. I'd like to take this opportunity to congratulate our U.S. team for doing a great job in [getting] this new aspect of our business up and running. We intend to mirror this process in Canada, Australia and India.

Moving on to other operations. Growth in the U.K. and Europe has finally been -- seen a post-Brexit rebound. In Germany, we effectively entered about 6 months [ago] with the hiring of a salesperson to cover the country. We recently signed on 2 major distributors in Germany. In Australia, we also hired our first salesperson. Overall, our international markets are picking up as former economically challenged and sanction-filled operations in South America and Russia are beginning to take off.

In faster-growing and less-competitive regions, our sales in Canada continue to reach new record levels, and China revenues have been expanding. We are very excited by the high level of interest in Lakeland products in South America, Russia, Kazakhstan, Australia and other Asian markets. And sales in Chile and Argentina are growing rapidly. Across the board, we are experiencing heightened demand from a resurgence of the oil and gas sector.

Amid this global growth, we are making investments to increase manufacturing capacity, lowering our cost structure and accelerating our entry into some very attractive markets around the world. From a manufacturing standpoint, we've begun the process of adding facilities in India and Vietnam, which we believe will provide us with years of lower labor cost and favorable tariffs that will enhance our gross margins while bringing products closer to new markets we are now entering throughout Asia and the Pacific Rim. These facilities will start to come online at the end of fiscal 2019 first quarter or in about 6 months from now. Collectively, these facilities will provide Lakeland with the capability to nearly double existing manufacturing capacity once new operators and management are trained and attain standard proficiency.

Our diversification through manufacturing and new feet on the street enables us to attack specific higher-growing markets by product, vertical customer orientation and geographic segment and to establish footholds for other operational benefits. The added manufacturing will provide Lakeland with ample capacity to achieve a continuation of growth trajectory and to continue to respond successfully to black swan or emergency events as they arise.

We are also building out our IT operations and marketing infrastructure to integrate with not only Amazon in multiple countries, but Jet, TeamWALL and JD.com. Essentially, Lakeland intends to make online marketing a core competency and a very nice complement to our traditional direct and indirect sales channel.

Lakeland's competitive position has continued to improve throughout the first 3 quarters of fiscal 2018. Diversification of business lines and the management of expenses are driving our financial performance. With a very solid third quarter behind us, we look excitedly towards the fourth quarter and into next year.

Lakeland is essentially debt-free and has a strong cash position, deep management team, world-class manufacturing, a respected and flourishing global brand and are well diversified in both established and developing markets. We are very encouraged by our prospects for continued global growth on the top and bottom line.

That concludes my remarks. I will now pass the call over to our CFO, Teri Hunt, to provide a more thorough review of the company financial results.

Thank you, Chris. The following addresses my review of the third quarter of fiscal 2018 ended October 31, 2017. Net sales from continuing operations were $24 million, up from $23.9 million in Q2 '18 and $23.2 million for the prior year period. As compared to earlier periods, overall sales volume was higher as economic growth seems to be positively impacting the industrial sector on a global scale and there's been a rebound from the oil and gas sectors. On a consolidated basis, for the third quarter of fiscal '18, domestic sales were $12.9 million or 54% of total revenue, and international sales were $11.1 million or 46% of total revenue.

Sales in the U.S. increased 11%, primarily due to increased sales of disposable products in national accounts and in response to hurricane cleanup efforts. Additionally, there was an increase in sales of chemical line products into the oilfield services and refinery sectors, along with demand from other industrial sectors, as the U.S. economy continues to improve.

Sales of disposable products in the U.S. increased $1.2 million, chemicals increased $0.5 million, wovens products increased $0.1 million and gloves increased $1.1 million. Sales of reflective products remained level at $2.1 million, and sales of fire products decreased $0.5 million as there were large orders in the comparison period last year that did not repeat during the 3 months ended October 31, '17. The increase in woven sales is mostly due to focused penetration of fire retardants or FR coveralls into the pipeline industry where activity is increasing.

Among the company's larger international operations, sales in China into the Asia Pacific Rim increased $3.1 million or 29% as compared to the prior year period. This growth is attributable to improving industrial activity and several larger customers beginning to replace depleted inventories as the company worked through a large backlog. Sales in Canada increased $0.4 million as that country continues to experience an oil and gas turnaround, requiring protective wear and that some customers replenish their stock in response to higher demand than forecasted demand. U.K. sales increased by $0.3 million or 18% as new distributors placed stocking orders. Russia and Kazakhstan's sales combined for an increase in sales of $0.3 million or 110.6%. Amid continuously improving economies within Latin America, sales remain strong at $1.8 million, although the region as a whole reported lower sales due to a single large order in Ecuador during the prior year period.

Gross profit increased 6.3% to $9.1 million for the 3 months ended October 31, '17, from $8.5 million for the 3 months ended October 31, '16. Gross profit as a percentage of net sales increased to 37.8% for the fiscal 2018 third quarter from 36.6% for the same period of the prior year.

Major factors driving gross margins were as follows: Disposables gross margin increased 4.6 percentage points due to product mix and increased volume; chemical margins increased by 7.5 percentage points, primarily due to a reduction in force in the U.S. as production was moved to more cost-effective facilities in Mexico and China in the prior period; fire protection gross margins decreased 2.5 percentage points as the company prepares for the upcoming change to the NFPA standard by discounting products produced under the old standard and due to product mix; wovens gross margin increased 18 percentage points due to market price increases on contractor FR coveralls; reflective gross margins increased 14.3 percentage points as a result of increased pricing on some products and the product mix.

Operating expense increased from $6.3 million for the 3 months ended October 31, '16, to $6.4 million for the 3 months ended October 31, '17. Operating expense as a percent of net sales was 26.7% for the 3 months ended October 31, '17, and 2016, respectively, but down from 27.2% in the second quarter. The main factors for the higher operating expenses are increases in salaries for additional sales personnel as the company expands internationally; freight costs and AR allowances for several slow-paying customers, partially offset by lower commission fees due to a large international order in the prior year period; and a decrease in officer salaries, resulting from the reduction of one officer due to retirement.

As in the second quarter, we've committed to spending as part of our building-out process of sales and marketing and related infrastructure for some of our faster-growing international operations.

Operating income increased to $2.7 million for the 3 months ended October 31, '17, from $2.2 million for the 3 months ended July 31, '17, and $2.3 million for the 3 months ended October 31, '16. Operating margins were 11.1% compared to 9.1% for the 3 months ended July 31, '17, and 9.7% for the 3 months ended October 31, '16.

Net income increased to $1.8 million for the 3 months ended October 31, '17, from $1.5 million from October 31, '16. The results for 3 months ended October 31, '17, are primarily due to continuing cost-containment effort and increases in sales volume as the industrial sector showed marked performance improvement and the global economy improved.

Income tax expense for the 3 -- third quarter of fiscal '18 was $0.8 million compared with $0.6 million in income tax expense for the prior year period. The increase in tax expense was a result of significantly higher operating income in the U.S. as well as overall improved profitability. The company also has a benefit of a tax credit from the worthless stock deduction related to exit from Brazil, so there should be no cash taxes in the U.S. for approximately the next 2 years, depending on profitability in these periods and assuming no changes to the U.S. tax code. The company may also be required to pay local taxes on certain country operations when those operations are profitable on a local basis.

On the balance sheet, cash and equivalents at the end of the third quarter rose to $21.5 million from $13.2 million at the end of the second quarter and $10.4 million at the beginning of the fiscal year. Cash and cash equivalents increased $11.1 million or 107% from the beginning of the fiscal year, which included $10.1 million from the net proceeds of the common stock offering in the third quarter of fiscal '18 as well as cash flow from operations.

Free cash flow was very strong in the third quarter at $2.6 million or 39% of year-to-date free cash flow of $6.7 million. Fiscal 2018 third quarter free cash flow increased by 26% from the prior year period.

Working capital of $64.7 million at the end of the third quarter increased by $17 million, for an improvement of 36% from the beginning of the fiscal year.

At October 31, '17, the balance of borrowings under our revolving credit facility stood at a 0 balance, down from $4.9 million at the beginning of the fiscal year, and total debt was $2.3 million. Total debt outstanding at July 31, '17, was $2.8 million down from $5.8 million at January 31, '17, and $13.4 million at January 31, '16.

The company incurred capital expenditures of approximately $171,000 during the third quarter of fiscal '18. Third quarter CapEx principally relates to the addition of equipment in China and for new manufacturing facilities in India and Vietnam.

While year-to-date CapEx was a $619,000, total CapEx for the fiscal year is budgeted at approximately $1.2 million, which includes the cost for a phased global rollout of a new enterprise resource planning or ERP system. The global ERP implementation uses the Sage X3 platform to aid in the digital evolution of Lakeland by leveraging cloud technology. With Sage X3, we'll be able to increase efficiency by accelerating all 4 business processes with one business management solution and gain visibility across the business with real-time information, which will assist in management decision-making.

Our quarterly and annual results reporting process will become more efficient, with simplified compliance and automated reporting, as the system supports global laws and restrictions across currencies, regions and regulations. This will be particularly helpful given our current sales activities in 20 countries around the world.

The numerous analytical capabilities and the supply chain management improvements that we expect from the system will support our top line growth strategies with product pricing and information availability while aiding cash flow management through inventory turns and related performance-enhancing features.

Moving back to the balance sheet. Our current ratio improved to 6.4:1 at the end of the third quarter from 5.1:1 at the end of the second quarter and 4.9:1 at the beginning of the year. Total shareholder's equity at $87.1 million at October 31, '17, improved from $75.4 million at the end of the second quarter and $71.5 million at the beginning of the year.

That concludes my remarks. I will turn the call back to the operator to begin the Q&A session.

(Operator Instructions) First question will come from Dave King with Roth Capital.

I guess, first off, on the revenue side, how much of a benefit do you think you had from the hurricanes? And then on the China side, it seems like the -- reducing the backlog, I think, has been a benefit now. How big is that backlog versus normal? How many more quarters do you think that should provide a benefit as you sort of work that down? Any color there would be appreciated.

On the hurricanes, we did not see a lot of business. They cleaned up Houston very, very quickly. I think we'll see more business over a long period of time when we look at Puerto Rico, the Dominican Republic and the Virgin Islands. They don't even have power yet for the most part and it's been almost 6 or 7 weeks, so they can't fix anything. So that will probably go, probably, over the course of a year or 2 to do the fix-ups in those places. They'll use a certain amount of [garments] but I don't think it'll be enough to make a big swing in sales. As to backlogs, we worked them and down pretty well. We probably have 7 months of backlogs right now. Okay.

Okay. That 7 months -- sorry, go ahead, Chris.

And in 7 months, it's about $7 million.

And we're seeing an ease-up, and that was part of the improvements you saw in China was the easing up of the backlog. It reached a high earlier in the year of almost $13 million. So we're working through it.

Okay. And then what's typical versus that 7 months?

What's typical is more like a half of the backlog that we're looking at right now. But we also have to keep in mind that we're getting towards the end of the year so people are depleting their inventories. So this -- it'll start picking back up, and in January and February, I think we'll begin to restock. So that's why we're saying probably 7 months because it's going to get larger before it really runs down.

Okay, okay. That helps. And then on the gross margin side, what's driving the mix improvement within the disposables category? And is that a sustainable trend there just within that category?

We think it is sustainable. We're seeing, as we work through some on -- we have a very specific initiative, where we're running down some of our SKUs. We're streamlining the processes. We're seeing improved margins in some of the markets we haven't been before. We're moving into clean room. So we have -- we are specifically targeting higher-margin products in our mix. So it is an intentional improvement in the margins, and we do think it's sustainable.

I mean, you'll have blips from quarter-to-quarter. It's totally on product mix.

Some of which, we obviously have no control over.

Okay. And then, I guess, lastly for me, where's the cash balance now as of December 15th versus where it was at quarter end? Where are you on the deployment of the capital raise proceeds? Sounds like you expect CapEx to ramp, but that's for the ERP system. And then I think, Chris, you said where debt might be as of now. I know there's lots of parts to that question, but I think another piece of that is, when we spoke last, I think Vietnam you had already rented the facility. I guess I'm just trying to get a sense of where we are in this whole process.

As far as the cash balance, I can answer that part of the question. The mix of the cash hasn't changed significantly. We still have a large portion of cash in China. We have not declared dividend intentionally. We don't need the cash in the U.S., and we are waiting on the -- to see what's going to happen with the changes in the U.S. tax code. If we do bring in dividends, we do take the -- even though there's no cash taxes, unless stated in the U.S, it still is a noncash charge to expense. So we're kind of waiting. We're sitting on hold [indiscernible] until we see what's going to happen, what's this new tax overhaul.

Understood.

Okay. And as far as deployment of the cash, you're going to see that really start picking up in the January-February time frame. We won't be hiring people into Vietnam until late February, early March. And you're going to see a lot of capital expenditures there for sewing machines and air conditioning and cutting tables, things like that. India probably won't pick up for about another 6 months, so we'll probably be hiring in India out in the July-August time frame. And then you'll see a lot of the capital expenditures and deployment of the cash at that point. The ERP is an ongoing thing for the next 2 years.

Right, right. And we'll probably ultimately see a cash outlay of approximately $2 million on the ERP. We're already [gone] maybe $600,000, $700,000 in on that. So it'll be a gradual phase in of CapEx.

The next question will come from Alex Fuhrman of Craig-Hallum Capital Group.

Just a little bit more kind of curious about the new facilities you're putting together in India and Vietnam. Do you have a time line in mind of when we're actually going to start to see finished product coming from those facilities? And thinking about the different opportunities to improve margin there, I mean, it sounds like you guys have talked about improved manufacturing costs and lower tariffs in certain instances and as well as potentially being closer to some of your customers and presumably saving on shipping costs. Can you kind of give us a sense just in order of magnitude between the manufacturing costs, the tariffs and the shipping? What is the biggest bucket of potential savings? And what could the actual net impact to gross margin be? And would that be kind of a back half 2018 event or more of a 2019 when we could see that in the numbers?

It's definitely going to be 2019. I mean, we'll probably be hiring ladies in Vietnam, as I said, in March. We probably won't be hiring in India until July or August. So you're going to see them really up and running at full speed probably about a year from now, okay, where there -- where you will have everybody hitting a standard, what we call a standard in the sewing industry. What this does do is really reduce our direct labor costs substantially, okay? So if we look at something like a $2 million total investment in Vietnam and we can save $3 a box, we only have to have -- ship 700,000 cases to pay for the whole thing. So the direct labor is going to be a substantial savings. Not only in Vietnam, but also in India, okay? Over current [Chinese] costs, which are really just continue to go up and up, and they'll be up higher next year. So we'll see a very, very big change in our direct labor costs, which will increase our gross margins. And I said, the payback will be probably within 18 months on the investments. So they're very sort of high-return investments. The ERP is going to be the same thing in terms of being able to knock down our inventory, okay, be able to process everything much more efficiently. We spent too many man hours fooling with Excel spreadsheets, whereas once the system is totally implemented -- and it'll take a year or 2 to really be -- to where everybody's operating at a top level, it'll save a lot of money. I can't put my finger on that because what it does is it just saves hours and hours of white collar time that can be devoted to other things. And certainly, with the sales force, it's going to make them more efficient because they spend way too much time fooling around with sort of old IT standards. This should really boost their productivity. Hard to put a number on that, unlike the manufacturing. And I'd give you an example. Currently in China, we're paying about $2.50 an hour. In Vietnam, it's more like $1.15 to $1.20. And in India, it's $0.85. So when you combine this with millions of man hours, it's a big, big savings to the gross margin. As to Vietnam, it has great tariff deals with most of the world. For instance, if we ship something from -- our typical product goes from China to, say, the European theater, there's a 12% tariff, okay? From Vietnam, in 2020 it'll be 0. The same is true of Vietnam to Russia, Kazakhstan, as I said, all of Europe, the tariffs go to 0. Whereas prior to this, they were 18% in Russia out of China, 20% in Canada out of China, so we'll save a lot on tariffs. So we either can choose to lower our price, which I don't think we really want to do, but really just collect more margin again. So...

Great. That's really helpful, Chris. I appreciate that. And then if I could also ask just about the European market in general from a demand perspective. I mean, it sounds like things, you said have picked up a little bit now kind of after some of the post-Brexit slowdown. It also sounds like maybe -- I'm not sure if that was new distributor relationships, it sounds like there was a sell-in there during the quarter. Do you feel like Europe and the U.K. has finally kind of started to turn the corner? And would you expect that region to be back to growth next year?

Yes, we do because a large segment of our sales in Europe are in the U.K. That's where our warehouse is. We hired a guy in Germany. He is now signing on new distributor, new customers. The Brexit thing, I guess, will sort of solve itself, but that's another thing. The currency dropped by 15% the day Brexit was passed. That should change over time. But look, Europe looks good right now. And we really just have to work harder on really the sales management in terms of customer pricing and customer acquisition, which we're doing at this very moment. So yes, I expect Europe to improve over time.

The next question will be from Jeff Briggs of Singular Research.

So the question I have is in regards to the investments and sort of maybe some of the operational changes that go along with the Amazon strategy that you guys have. I know there's a lot of different ways to go about it, whether it's fulfilling individual orders from your own fulfillment centers versus having it sort in their warehouses and things of that nature. Can you describe a little bit sort of what you have to do to make that work? And maybe how the margins compare with other sales channels, and any additional expenses that might go along with that sales channel?

Well, typically, what we are really interested in is Amazon's new B2B platform. They will always have the consumer platform where guys like you and me might order something, be it a book, or one of our [suits]. But as the B2B platform, it's the businesses -- real businesses starting to order off the Amazon platform, which really interests us. Because in the consumer-type situation, Amazon buys our goods, puts it in their own inventories, stores it, picks it, ships it, bills it, okay, and we agree on a price between us. In this -- in the B2B, we're keeping the inventory, we ship it, we pick it, we bill it. So we know where the, at least the end user is in all of this, okay? Margins are better in the B2B platform because we get to set the price at the end user, and we generally set prices that are typically the same or even higher than our own distributors. The difference being is that we pick up another 5% to 10% in margin on this B2B business as opposed to, say, a typical distributor. I mean, that might change, but right now it's very, very attractive because it increases our margins and it also gives us a view of the end user so that we can really talk to the end user about what they want in terms of new products. This is very helpful because in many instances, when we're dealing through distributors, we don't know where the end -- who the end user is or where our product is going.

Yes, it's very helpful. One very short follow-up to that. How do you see -- since you are selling to end users in this case, how do you see sort of the average order size? Is it that you guys picking and packing it, fulfilling a lot of smaller orders? Or are they generally a good size? I know you said it's everything from one unit to cases but...

Well that's what I mean, typically, when you're servicing the consumer market, it's onesie-twosies. So -- but that's what Amazon serves. On the B2B, you're looking -- you're really looking at small businesses. So rather than onesie-two, oh, I want a pair of gloves. I mean, it's ridiculous. But when you're dealing with small businesses, they're going to be ordering boxes, cases of 25, cases of 50. And that's even a small construction business. If you get in and occasionally -- I've seen General Electric go out there and do Dutch auctions on $5 million bids, that's the type of thing you'd really want to go after is the larger end users just placing orders directly. Because then you'll be able to call on that end user, and you'll be able really to create a relationship, brand your product with the end user and also really ask them, what's wrong? What do you need? And this is the greatest way to develop new products is when you have a big end user like a General Electric telling you this is what we need.

And one more quick question. So is the way that you pay Amazon, is it basically just like a commission that if there's orders placed through the platform, obviously...

Yes, a percent of the sales price.

The next question will come from [Denis Amato], a private investor.

Would you be able to comment on the progress, if any, in penetrating both the utility and pharma markets that was an initiative a while back?

Okay. The pharma is about 3 or 4 months behind, but we will be penetrating. We'll be there in the spring. Utility, again, we'll be in there in the spring. It's only about a month or 2 behind. You run into these problems primarily because fabric suppliers are not very efficient. I mean, we have guys that just sit there and tells, oh, that's a 12-week lead time. I mean, our customers want it next day. We never tell them 12 weeks from now. But that's what most of the loss of a couple months has been. So they're both going to be introduced very hard in the spring.

(Operator Instructions) The next question will come from Peter Muckerman with Raymond James.

You've answered the questions that I had. So I was sitting here thinking, what can I ask? So I guess I'll ask this. In -- it's twofold. When you're talking to manufacturers out there, are they a little -- I guess, I would love to hear some feedback in regards to what they are thinking. I'm speaking mostly to your foreign customers in relation to what's going on in Washington. And then to follow on to that, does any of the -- this makes me a little bit nervous so I just thought I'd ask. Does the re -- kind of jiggering of trade policies that have been in place for so many years, all of a sudden, they're all going to be renegotiated. Do you see any impact in 2018 and beyond in regards to that?

Not for us specifically. The most active negotiation is NAFTA, okay? And we're not seeing any real negotiation going on in the apparel business, simply because apparel has not been made in this country for close to 30 years. So there's no jobs. There's no job issue. What you're seeing in NAFTA is a big, big to do about the automobile industry. And a lot because Mexico has made deals with Europe all over the world, much like Vietnam has, to be able to export automobiles duty-free. So Mexico has built about 20 auto plants, a lot of them being American. But not only American, it's German, it's Korean, it's Japanese. And I think that's what Mr. Trump is after, is to try to get some of those auto jobs back because those are the high-paying jobs that Americans have done historically. As to the rest of the world, the Europeans, they look at it. It's hard to say. Most of them are not too happy. But it doesn't affect trade simply because we operate in 10 countries. So the fact that the United States has dropped out of the Pacific -- the Pan Pacific agreement or Trans-Pacific agreement doesn't affect us at all because we're manufacturing in Vietnam, and they're a member, okay? We're manufacturing in -- we sell out at Chile, they're a member. So the fact that the Trans-Pacific agreement we've dropped out of doesn't affect us at all.

Okay. All right, and congratulations on all your progress.

[Essentially], the apparel business is not what Mr. Trump is trying to change.

Ladies and gentlemen, as there are no further questions, this concludes our question-and-answer session. I would like to turn the conference back to management for closing remarks.

Okay. Well, we appreciate your participation on Lakeland's Fiscal 2018 Third Quarter Financial Results Conference Call. As we are committed to delivering value for our shareholders, we believe this is the best achieved for Lakeland Industries through the continued implementation of strategies, for effectively managing its balance sheet, controlling expenses and capitalizing on long-term global growth initiatives. We have made significant progress in the year-to-date toward optimizing our balance sheet, improving our cost structure and, importantly, enhancing our competitive market position. It is our intent to continue on this path. Thank you, again, and goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.