Lakeland Industries (LAKE) is trading roughly flat this morning after reporting Q2 (Jul) results last night. Since you're probably not familiar, LAKE is a manufacturer of safety garments for the industrial protective clothing market. Products include coveralls, lab coats, caps, arm guards, hoods, chemical protective clothing, safety gloves, heat resistant clothing etc.
Its industrial customers tend to operate in the following areas: chemicals, automobile, steel, glass, construction, smelting, janitorial, pharmaceutical etc., as well as hospitals and labs. LAKE also supplies government agencies, including fire and police departments, airport crash rescue units, Dept of Defense, CDC etc.
About 90% of its revenue is recurring in nature as it has focused on driving sales from traditional, non-emergency industries such as pharmaceuticals, automotive, utilities, and oil & gas. When an emergency or crisis does strike, LAKE's scale and manufacturing capacity allows it to ramp production quickly and it gives LAKE an edge over smaller competitors, which has led to market share expansion.
LAKE has seen some nice margin expansion recently as the company has been placing a concerted emphasis on selling higher margin products using modifications of existing product lines to create new, higher margin garments. This capability is somewhat unique to Lakeland because it owns its own manufacturing facilities.
Also, in the past, Lakeland had been singularly focused on the US market for disposable garments. However, LAKE's diversification efforts have led to nearly half of revenue coming from international sales. Also, once confined to high cost manufacturing in one country, LAKE is now producing PPE (personal protective equipment) in four countries around the world. And once dependent on disposable products, LAKE is now a global provider of comprehensive lines of disposable, chemical, fire gear, reflective and fire retardant garments.
Turning to the Q2 (Jul) results, EPS rose 25% YoY to $0.25 while revenue rose 7.4% year/year to $23.9 mln. The revenue number was in-line with its mid-August guidance of $23-25 mln. EPS saw some nice upside relative to market expectations. Of note, LAKE had guided to JulQ EPS of $0.19-0.21 in mid-August. There was no forward guidance provided in the earnings release, which is usually the case.
Breaking down the numbers a bit, sales in the US increased 6%, primarily due to increased sales of turnout gear and fire retardant garments, disposable products and chemical protective clothing due to demand from the oil field services and refinery sectors. Sales in China and to the Asia Pacific Rim increased more than 11% as industrial activity improved and several larger customers began replacing depleted inventories. On the negative side, sales in Europe, which have been dominated by England, remain soft as a result of economic uncertainties following Brexit.
LAKE says that its diversification efforts (see above) have enabled it to attack specific higher growing markets -- by product, vertical customer orientation, and geographic segment -- as well as to establish footholds for other operational benefits. This does require investment of capital and personnel development, which is why LAKE has been focused on cash management. Cash increased 27% from the beginning of the fiscal year to $13.2 mln at the end of JulQ. In sum, investors appear to be viewing the JulQ report as a bit of a non-event despite the decent EPS upside. Perhaps investors were looking for more upside.