Good afternoon, everyone, and welcome to the Lakeland Industries, Inc. Q4 and Year-End Earnings Conference Call. [Operator Instructions] Please also note that today's 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, April 28, 2014..

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. 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 you to the host of your conference call, Lakeland Industries' President and Chief Executive Officer, Christopher Ryan. Sir Ryan, you may begin. .

Good afternoon to you all, and thank you for joining our fiscal 2014 fourth quarter financial results conference call. We're going to have a brief opening statement, and then open the floor for -- to questions..

We continue to just block and tackle our way through the problems caused by the implosion of the company's Brazilian unit, as a result of a large judgment against it by a very partial arbitration panel.

Our com[ph] commitment 57% drop in sales of Brazil in FY '14 compared to FY '13, the departure of our commercial bank and many other dominoes that fell, all emanating from this Brazil event. We have stabilized Brazil, taken large reserves against our remaining DuPont Tyvek inventory and cleaned house worldwide.

Thus, we expect a strong first quarter for the period ending April 30, 2014..

In FY '15, we expect strong performances from China, the U.S., Europe and even Russia despite what is going on there in terms of earnings growth. To try to measure it for you, we have gone from the one-yard starting line 2 years ago to about the 50-yard line today, in what has been a nice fall of epic proportions.

We expect to be on the one-yard finishing line within the next 6 to 8 quarters. .

What makes our stock interesting at this point is that it is not, because of its recent history, valued like the S&P 500, what most money managers measure themselves against. The S&P is currently trading at an average P/E of 18 and 260% or 2.6x book value and 167% or 1.6x sales.

We expect this coming quarter to be a good quarter to be reported by or before June 13, and yet we are trading at 87% of book value and only 46% of sales.

We are in the midst of a turnaround with the stock appreciating by 74% since this date last year, and we sincerely hope that we can achieve that percent stock appreciation again within the next 8 to -- 6 to 8 quarters..

That concludes my remarks. I will now pass the call to our CFO, Gary Pokrassa, to provide a review of the company's financial results for the fourth quarter. .

Thank you, Chris. One quick note that our press release apparently got screwed up on PR Newswire.

It should be out momentarily, but you can read the press release on the 8-K filing on the SEC website and on Yahoo!. So just be patient, it should be up momentarily..

The company has earned operating income before corporate overhead in the U.S. of $5.2 million in the fiscal year ending January 2014 compared to $1.1 million last year. Reflected in the operating income in the U.S. and China are 2 inventory charges, $353,000 for overhead rate revisions and about $1.3 million reserve for discontinued product lines. .

Brazil operations in this year included inventory adjustments of $1.4 million. Further, Brazil incurred a loss of $213,000 on sales of raw material from inventory in order to raise cash in Brazil. .

Sales of Lakeland worldwide decreased 3.9%, but excluding Brazil, increased 7.6% year-over-year. Net sales, including Brazil, were $91.4 million compared with $95.1 million last year. Net sales, however, excluding Brazil increased 7.6% from $78.3 million to $84.2 million this year. .

Net sales from continuing operations decreased $3.7 million to $91.4 million compared to $95.1 million from last year. Net decrease was $9.7 million decrease in foreign sales, which was entirely from Brazil, offset by a $6 million increase in domestic sales.

The net decrease in foreign sales was again due to Brazil, as a result of several large a bid sales in the prior year and a generally poor sales level in Brazil..

U.K. sales increased by $1.8 million. U.S. disposable sales increased by $4.2 million. But excluding direct ships, decreased by $1.0 million. Fyrepel sales increased $1.7 million or 56%, as a result of new product introductions.

Canada sales decreased by $300,000, mainly as a result of the weakening Canadian economy and the further loss from DuPont product sales, although Canada sales strengthened in Q4 in spite of the weak currency. .

Reflective sales were increased by $1.4 million, as a result of new product introduction. And Kazakhstan and Russia sales increased by $900,000 as we gained market acceptance in these new markets. In Argentina, we resolved our internal working capital shortages immediately following our financing in late Q2.

However, government restrictions on imports in Argentina caused shortfalls in sales in Q3 and Q4. Coordination for customs import issues remains problematic. Management is pursuing all possible remedies in Argentina..

In Q3, a year ago, Chile had large sales to Peru and Ecuador. Bids for both are being processed, and management expects some sales in Q1 and Q2 of FY '15 for these customers. .

In FY '14, gross margin for Lakeland worldwide was 22.2% compared to 28.7%. Excluding Brazil, gross margin increased from 28.2% to 29.7% this year. However, excluding Brazil and excluding the inventory charges in the U.S. described above, gross margin increased to 31.8% compared to 28.2% last year. .

Operating expenses worldwide decreased $3.1 million and also decreased as a percent of sales to 27.6% from 29.7% last year. Operating expenses for Lakeland worldwide, excluding Brazil, decreased by $448,000. And as a percent of sales, operating expenses went from 25.1% -- went to 25.1% from 27.4% last year. .

Adjusted EBITDA increased to $5.6 million from $2.2 million last year. Adjusted EBITDA for Lakeland worldwide, excluding Brazil, increased from $2.7 million last year to $7.9 million this year. And most of the improvement in the adjusted EBITDA was generated in the U.S. and China.

We had a net loss of $100,000, $0.02 a share, versus a $26 million loss last year, almost $5 a share. The company completed its refinancing with AloStar and LKL in June to $15 million and $3.5 million, and with BDC in Canada for USD 1.1 million.

We closed a new loan in China for $800,000 and we were also recently granted a line of credit China, an additional loan for another USD 1.2 million subsequent to year end. We've also obtained 2 factoring lines of credit in Brazil. .

Lakeland terminated the previous management in Brazil and hired a new CEO specializing in turnaround situations and a new CFO. We adopted a new strategy emphasizing industrial and smaller government agency orders, deemphasizing large-bid contracts.

Accordingly throughout the current year, there's been a major cost-cutting in Brazil to right size the operation to appropriate levels for the new lower-volume strategy. .

Net book value per share, counting the shares underlying the warrant is $7.94. Excluding operations in Brazil, excluding the losses on the sale in the plant at Qingdao, China and the inventory adjustments we talked about, the company is reporting the best year since FY '09 for adjusted EBITDA. .

Q4 gross profit was 28.1% compared to 23.9% last year. Again, excluding Brazil and excluding the inventory reserves in the U.S. and China, gross profit would have been 34.2% in Q4 this year. .

Operating income was a loss of $388,000 in Q4 this year with an operating loss -- compared to an operating loss of $1.4 million, Q4 last year. Excluding Brazil, increased from $35,000 loss last year to $280,000 profit this year.

And again, adjusted EBITDA for Q4 increased from a loss of $15,000 last year to a positive EBITDA of $1.4 million this year and excluding Brazil, increased from $522,000 last year to $1,628 million this year in Q4. .

And that concludes my remarks. I'll turn the call back to Chris. .

Thank you, Gary. And we'll now turn the call over to the operator for the QA session. .

[Operator Instructions] And our first question comes from Doug Ruth from Lenox Financial Services. .

I understand there's a lot of one-time charges.

How good will the first quarter be, Chris?.

Well, we're not allowed really to say anything positive. But I think we expect certainly a nice profit. And even though we have a little bit -- we have a write-off in there for the closure and movement of one of our Pennsylvania subsidiary. .

Yes, it's also in spite that, Doug, Q1 has the Chinese new year and Latin America has the Carnival all in February. But in spite of that, we expect a good quarter in Q1. .

That sounds good.

The $1.3 million charge, what exactly was that for?.

Mostly for remaining Tyvek inventory. And there was another discontinued -- it's all legacy, honestly. There's nothing recent here. There -- besides Tyvek, there were a few other product lines that we discontinued a while ago. We've been working on moving them out.

And finally, we're at the point where we can't sell them anymore on a regular basis and we went through it very hard and we wrote-off a significant amount. It's not just Tyvek. There's a product line called M3P that we took a write-off in Q3 on and we just -- I think 375 of that we took in Q3.

And so there's a couple of glove lines also that we've taken a few write-offs on as discontinued ops -- discontinued product lines, excuse me. It's not discontinued operations, discontinued product lines, not the India Coast[ph], but -- and all of those are old. There is nothing recent in terms of the product lines that we discontinued.

These are all legacy items from some of the previous managers. .

Essentially, what we did is from an inventory point of view, we cleaned house worldwide. .

Yes. .

Inventory is good now?.

Yes, I do not expect any significant reserves. There will always be normal reserves, normal operations. But in terms of large reserves against legacy discontinued product lines, we have totally cleaned house. There's nothing left. .

The large increase in the fire sales, could you give us a little commentary on what's happening with that segment?.

The fire department, we've had some new products in there. .

We introduced a number of new products and we've really made a focused effort in the United States on fire sales. But also, internationally, we're looking at it as a higher margin product line.

And to be honest, a lot of it has to do with new products being introduced and also a lot of the standards were upgraded last year, so there has been a little bit of a whole -- there's been a little bit of a buildup of demand while the [indiscernible] were put in place.

But in essence, it's because we basically hired more salespeople and focused a effort -- really focused on this market in the United States and introduced all new products to it. .

And do you think that this large increase could continue?.

I think so. I mean, there's no reason it shouldn't. .

Okay. And also it seemed like the reflective sales were real strong.

Could you offer a commentary there?.

Well again, we're introducing new products. We've gone after certain industries and really focused on those industries such that sales are increasing. Again, there's nothing really new here in the fire or the reflectives. It's just block and tackle. We're just moving ahead, 5 yards at a time. .

And how do you feel about the Brazil manager now?.

We're very happy with him. He's demonstrated a real ability to manage the operation. That's why we feel fairly certain that it will turn to profitability in the next 2 quarters. So we're extremely happy with him. And we brought in a new CFO and we're basically reorganizing the whole control situation down there.

So we hope to be breakeven in a quarter or 2, in which case you -- everything else will shine. .

Yes, I'm impressed with what you've done in America and China.

And could you offer commentary about Russia, Kazakhstan?.

We're just basically, again, we're picking up new accounts there. What's going on there shouldn't really affect us. But we're -- it's -- we've been there 2 years and now we finally have the reputation, whereby major, major accounts are really looking at our product line. The type of the accounts that can double your sales in a year. .

So we're selling about $1 million a year right now?.

Roughly, yes. .

Yes, and then what about India? How has that been going with reestablishing some sort of office there?.

Doug, about $1 million in each of Russia and Kazakhstan. We're -- close of the year, at about just under $2 million combined. .

Thanks, Gary. On India, they're selling a small amount. But what we're doing in India is we're just looking at manufacturing nonwovens there on a very small scale, simply because Indian labor is cheaper than Chinese labor.

So we're going to experiment with making nonwovens or disposables in India because we don't see the Indian rupee or the Indian wage scales going up anytime in the near future. So I think when we look down the road, India's going to be a cheaper place to manufacture apparel than China is, but that's sort of a long-term approach.

And yet to set up manufacturing is going to be a long-term approach from the way we're doing it. So it's a very, very small operation. Once we get some manufacturing and sales going, it should get to breakeven. But right now, it's sort of tiny. So it's not going to affect us too much either way. .

Okay.

My final question, then I'll it turn it over to somebody else is, how about Mexico? Can you offer commentary about that area?.

Mexico is looking real good. We've expanded our manufacturing there, and we intend to expand again the manufacturing but not only that, sales. We opened up sales in Mexico and that's running at about $1 million, but we expect sales to really sort of gain momentum there in the next 2 years.

We've hired a couple of new salespeople so that's where we really expect to see sales grow. Again, block and tackle. But the Mexican economy is pretty good. The GDP there is looking to be 3% to 4% growth.

The new investment by large oil companies to go down there and exploit the oil and gas assets that have not been exploited by Pemex should really, really gun the GDP down there. But more importantly, it should really gun our sales because that's where we sell a lot of fire apparel into, which is the oil and gas companies.

And as they start to make investments down there in the next 6 to 12 months, I think Mexico will be one of our fastest-growing country sites in sales. .

Our next question comes from Sam Rebotsky from SER Asset Management. .

I was just off for a short time.

I didn't -- don't know if you dealt with -- the inventory, did you basically say your inventory, which was up because of new products, and your finished goods were up significantly? These were new these or did you miss sales and were these sales happening in this first new quarter?.

Okay. This is our peak season here in spring, north of the equator, which is basically 80% of our sales. So we build inventory big time in the fourth quarter for the first quarter sales. And what you'll see is you'll see inventory start to drop off in the second, and third and fourth quarters.

And actually we'll start building it again around November for this peak season. During this time of year, when you're north of Equator, let's talk really North America here. All the oil and gas, all the utilities, anybody who has big-time capital equipment usually does their maintenance on them.

The utilities and the oil and gas because there's not a big energy draw in the spring months. There's not a huge need for heating or a huge need for air conditioning. So a lot of people take -- do the maintenance on their facilities during this period of time. And that's when they use a lot of disposable garments and a lot of fire garments.

So therefore, we build big inventories for what I call the spring. And then they're generally run down by the end of June. .

So on a quarter-to-quarter basis, unless your sales pick up significantly, do you think you would reduce inventory? Or what's your plan relative to inventory?.

We'll definitely reduce inventory literally from today and moving forward. .

Okay. Now when you addressed Brazil, you said the first 2 quarters are going to be losses.

So could you sort of quantify the losses or what kind of range of losses you expect?.

Not specifically, but it'll be a lot less than it's been running before. And I would say at the operating income level, break -- we expect to have it at breakeven, hopefully, in Q2, if not by Q3. .

Okay.

Your deferred assets -- taxes of $4.7 million versus $813,000 at the prior year, did you pick that difference up in the fourth quarter of the current year? $3.9 million is the income?.

Okay, the $4.5 million is again 0 last year. I'm not sure where you're getting the $813,000 from. [indiscernible] last year. .

I guess you had a prepaid -- in your balance sheet, you're showing $4.7 million. And I guess I'm looking at -- okay. No, I'm looking -- okay, the $4 million... .

Well, let me explain what happened. Last year, we had about the same deferred tax asset, which represents some loss carryforwards but mostly timing differences between the book and tax relating to inventory mostly. Fairly standard items in foreign tax carryforwards.

Last year, we had an asset of $4.5 million, but because we had to go in concern questions, good accounting practice said, Well, we're not sure if we could realize those assets going forward because you have to generate profits.

And if we had a going concern issue, that causes questions, so we took a valuation reserve against that last year and that's why it was 0 at the end of the year. Once we had our financing done in Q2, we're able to remove the going concern qualification and we filed an amended report for last year.

And in Q2, as a result of our financing, we took that as a reversal of our -- of the valuation allowance. So we essentially picked that back up into income. .

So based on this judgment, is there some kind range of profitability that's expected for this current year? The fact that you have put this deferred tax asset on the books?.

All you can infer from that is that we believe the accounting standard is more likely than not that we will realize that asset in the future. That's all you can -- that's the only inference you can draw from that. .

Okay, okay. And, Chris, you talk about the valuation of the stock relative to the book value, et cetera. Is there any plans for a 10b-5 plan for management to buy stock in the open market based on this valuation? So that if there's anything that's going on, that you would be... .

What I would look -- okay, what I would look at first is securing our financing back to a normal commercial banking basis, okay, and get rid of our expensive debt. At that point, we would then look at, obviously, a buyback if we're still trading down here.

I mean, anytime you can buy it back at below tangible book value and you've got the cash flow to do it. I mean, I'm the first one to do that. I would definitely be buying back stock in that situation. .

Okay. And the -- your major stockholder who is also a competitor.

Has there been any changes in their position? Has there been any conversations or anything?.

There's been no change in their position. They haven't filed a 13D, so I assume they're just holding their position. .

And you haven't had conversations with them, I guess?.

I couldn't -- even -- if I didn't have conversations or I did, I couldn't say. .

[Operator Instructions] And our next question comes from Dustin Henderson [ph], who is a private investor. .

On April 15, you filed an 8-K saying you changed the bylaws.

Could you expound upon that a little bit, please?.

Okay.

We changed the bylaws of the company basically to protect the company and the shareholders from a lot of nonsense lawsuits by activist law firms, okay? The bylaw essentially says that they can only bring suit against us in Delaware, which is where we are incorporated, not bring a suit against us in New York and a suit against us in Alabama and a suit against us wherever we happen to be in the world.

And thereby -- it's essentially blackmail, so that you settle with them rather than have to put up with legal fees. So by limiting the lawsuits to Delaware, where you have judges, who are very familiar with a lot of these types of lawsuits, it really -- it cuts down on legal fees and it cuts down on the amount of blackmail that they can throw at you.

.

Okay. And the next question I had was just a quick one. I may be in a minority here, but it seems like we're still carrying too much inventory. I can completely sympathize that it can be a seasonal business and you want build in front of that. But I -- looking back over it, I don't see finished goods dropping too far too low at all.

Like they're always in the 20s of millions of dollars, which is huge for your market cap raw materials year over year over year, quarter over quarter over quarter. Even if the summer's the wind-down quarter, it's not even dropping that low in the summer either.

So can we lower raw materials at least?.

Okay. I agree with you. And one the things we're doing is we're implementing a new IT program to better manage our inventory. We'll probably get that in by autumn of this coming year. But that should greatly reduce our inventory holdings. .

I can sympathize with lead times, I can sympathize with seasonality. But I mean, it seems like we've barely turning inventory 1.5x a year. .

We do not have a very good turn, you're absolutely right. The lead time is an issue. We -- and we have [indiscernible].

Okay. I just want you to build up cash, so you start buying back stock or something. That's all, that's all. Nothing personal. Okay. .

Yes. That's right. .

No, you're right. And we plan on addressing it this year. .

And our next question comes from Howard Rose [ph] from Wunderlich Securities. .

Moving from blocking and tackling, and let's give ourselves a year, what kind of gross margins, for next fiscal year could we be looking at for modeling purposes?.

In the low 30s. I think that's very realistic and achievable. .

And gentlemen, at this time, I'm showing no additional questions. I'd like to turn the conference call back over for any closing remarks. .

No one else? Okay, then. We appreciate your participation on Lakeland's Fiscal 2014 Fourth Quarter and Financial Results Investor Call. As we are committed to delivering the value for our shareholders, we believe Lakeland will continue to effectively manage its balance sheet, control expenses and execute on its strategy for long-term growth.

Thank you, and goodbye. .

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your telephone lines..