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Lakeland Industries reported lackluster financial results yesterday and shares tumbled today. Our opinion has not changed on the company.
Despite our longer-term investment aspirations, we are aware that Lakeland could temporarily be held captive by cyclical trends in the U.S. economy…We use the word ‘accumulate’ to depict our investment position because we would prefer to purchase shares on weakness and/or at current market prices. Dec 29, 2006 ~ PDF File
Some of the notable negatives reported by the company were a 1.45% annual decline in domestic sales and a breakdown in the middle of the income statement. After many years of outsized anti-terrorist and/or bio-preparedness spending by the U.S. government the decline in domestic sales was not alarming. However, the jump in SG&A costs was larger than anticipated.
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Although expansion plans could further suppress the company’s bottom line in the coming quarters, we nonetheless anticipate that these expenses will return to more historical levels as the company’s expansion/acquisitions initiatives take root.
Along with the negatives there were some positives. Specifically, the company’s tangible equity per diluted share increased to $11.79/share in fiscal 2007 (or up 8.7% compared to 2006), gross margins remained stable at 24.2% (24.2% in 2006), and the company was able to grow international sales by 28.4% last year. International sales are currently running at 12.3% of the business, or more than double what they were in fiscal 2002.
In short, while the company’s stock price may or may not remain under pressure over the near term, nothing in the filing suggests that the company is headed for collapse. We still believe that Lakeland is an attractive ‘accumulation’ investment.
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