Lakeland Industries’s (LAKE) stock fell under pressure after it released results for the final quarter of fiscal 2024 (which ended January 31). And at first blush, it’s tough to blame anyone for selling as net sales of $31.2 million and a loss of $1.0 million, or 13 cents per share, the company reported on April 10 was much worse than the $32.5 million and 30-cent profit analysts had been expecting.
A look behind these disappointing headline numbers, however, quickly reveals that this performance isn’t nearly as bad as it initially appears. For one thing, LAKE’s sales grew in every region except Asia. This is why even with the continued weakness in its disposables business in China, organic sales still expanded slightly from the prior year, thanks to strong demand for its fire service, high-performance wovens, chemical and high-visibility products. Combined with solid contributions from the acquisitions of Eagle Technical Products and Pacific Helmets, this drove net sales 7.7% higher. Moreover, the entire reported loss was due to a $2.7 million adjustment for discontinued products and excess inventory. Without this significant one-time, non-cash charge, I estimate LAKE would’ve enjoyed a more than tenfold increase in profitability to over 20 cents per share, thanks to lower freight costs and an ongoing shift in sales toward higher-margin value-added products. This is also evident in the company’s much better performance on a free-cash-flow basis, with a solid $2.6 million, or 35 cents a share, during the quarter, compared with the $933,000 it burned through in Q4 of fiscal 2023.
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What’s more, with its recently completed acquisitions (which also include the subsequent purchase of Jolly Scarpe Boots in February) rounding out LAKE’s head-to-toe fire product offering, strengthening its geographic diversity and providing it with new cross-selling opportunities, the company thinks it can achieve net sales of $140 million to $150 million and adjusted Ebitda of $16.8 million to $18.5 million in fiscal 2025 (which began in February). Not only is this higher than the $138.9 million and $15.4 million projected by the Street, but it also represents substantial growth of at least 12% and 40% from the $124.7 million and $12.0 million recorded last year. And when you consider that this doesn’t even include the benefits it stands to gain from its acquisition of Germany’s LHD Group—which was announced April 2, is expected to boost revenue by about $27 million a year as soon as the deal closes in May and comes with much higher margins than LAKE’s current ones—it’s not hard to see why actual results for the year will likely be even stronger. Thus, I think those who take advantage of the short-sighted sell-off to buy the stock will ultimately be very happy they did.
Julius Juenemann, CFA is the equity analyst and associate editor of the Forbes Special Situation Survey and Forbes Investor investment newsletters. Lakeland Industries (LAKE) is a current recommendation in the Forbes Investor. To access this and the other stocks being recommended through the Forbes Investor, click here to subscribe.
