Christopher Ryan - CEO Teri Hunt - CFO.

Alex Fuhrman - Craig-Hallum Capital Group Doug Ruth - Lenox Financial Services Greg Eisen - Singular research.

Good afternoon, and welcome to the Lakeland Industries’ Fiscal Fourth Quarter and Year End Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note 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, April 21, 2016.

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 are factored into 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 2016 fourth quarter and full year financial results conference call. We are going to provide brief operating statements on the status of operations and on our financial results for the quarter and year. The call will then be opened up so that we may respond to your questions.

Now, I’d like to discuss our financial highlights, operating strategies and overall business with a view of our objectives as we move forward. As you may know from our Press Release issued earlier today and from our most recent quarterly calls, we present our financial results based on our continuing operations.

That would be the case with today's conference call unless otherwise specified. The continuing operations, financial results reflect our ongoing business, following our exit from Brazil, which was effectuated in the third quarter of fiscal 2016 with additional issues addressed thereafter.

With this back drop, now let's now turn to our prepared remarks regarding our continuing operations starting with some annual financial results highlights.

Sales of continuing operations increased for the third consecutive year despite considerable currency headwinds in fiscal 2016, which significantly reduced revenues reported on a consolidated GAAP basis in US dollars.

Sales of $99.6 million this year increased 7% from $93.4 million in the prior year driven by organic growth in the first three quarters of fiscal 2016 and emergency demand earlier in the year. Gross margin for the year was 36.5% compared to 33.9% last year.

Operating expenses decreased by $200,000 and decreased as a percent of sales to 25% from 27% last year. Operating income increased to $11.8 million from operating income of $700,000 last year. Operating income as a percent of sales increased to 11.9% this year vs. 7.5% last year.

Free cash flow, defined as adjusted EBITDA less cash paid for taxes and less capital expenditures, increased from $7.3 million last year to $10.6 million this year.

And fiscal 2016 net income of $7.8 million declined from $11.1 million last year, with the decline primarily reflecting the prior year’s $9.5 million tax credit associated with a $34 million net operating loss in Brazil as part of the company’s exit from that country.

Turning to the fourth quarter, sales declined by approximately 19% from the same period last year. The year-over-year comparison factors in the absence of emergency Ebola-related orders, which were mostly in last year’s fourth quarter.

Other factors for the lower quarterly sales include, one, significant slowdown in oil and energy concerns in the USA, Canada, Mexico, Russia and Kazakhstan where we operate. A slowdown in US manufacturing sector for the last six consecutive months, we believe due to slowing of exports, which in turn was connected to the strong dollar.

We saw an uptick in this manufacturing indicator in March of 2016. And thirdly, strong currency headwinds in all the currencies we sell in except the USD throughout the entire fourth quarter.

However, we have seen a downtick in the USD and uptick in most of the foreign currencies we deal in since late February 2016 turning fourth quarter headwinds into first quarter tailwinds. In scenarios where crisis dropped demand, we expect customers will attempt to cover themselves against the anticipated stock outs.

So some of our sales last year maybe correlated with future demand pull forward, not necessarily incremental business.

In turn for anything not used or sold for Ebola or other crisis purposes, these products will be sitting in the channel until needed for other traditional uses, thus creating a shortage of orders in future periods until their inventory has been worked through.

Then to look at the currency impact, if you adjust for currencies year-over-year, we estimate sales being reduced by approximately 10% in fiscal 2016 fourth quarter. On a constant currency basis, fourth quarter 2016 sales may have been more like $22.3 million.

This decline reflects the downturn in global marketplace and any resulting delays in ordering. Inventory is being run down to conserve capital and the challenge is faced by the oil and gas sector in particular. Historically, the oil and gas sector comprised approximately 10% to 20% of our total revenues.

In the fourth quarter of 2016, we believe this sector contributed about $3.5 million, which leaves remaining 5% to softness elsewhere in our consolidated business. Since the end of the fiscal fourth quarter, currencies have picked up as of oil prices.

Yet, we do not believe we have seen the end of the weakness for demand for PPE from the oil and gas sector. Diversification is a critical element of our business strategy.

Sales are now made to more than 44 countries, but are primarily in China, the European Economic Community or EEC, Canada, Chile, Argentina, Russia, Colombia, Mexico, Ecuador and Southeast Asia. In fiscal FY16, we derived approximately 43% of our net sales from customers located in foreign countries.

Interestingly and as previously addressed, the year was significantly impacted by our involvement in combating both Ebola epidemic in Africa and the major outbreak of the avian virus or bird flu in the US. The company shipped chemical protective clothing for a large Ebola-related contract with an EEC member through April 2015.

So this was a contract secured by our sales people in Europe for a product made by our manufacturing division in China and ship to the end users in Africa. We were able to win this contract due to our ability to rapidly scale up production and tripling that style capacity in a matter of few weeks.

This ability was a direct result of our controlling our own production facilities rather than relying exclusively on contractors as some of our competitors may do. The bird flu struck poultry farms in the upper Midwest of the US in May 2015.

Due to the company’s rapid increase to manufacturing capacity for its response to the Ebola crisis, we were able to win major contracts for similar garments as we could commit to large quantity orders the same day we were called by customers.

Not only did the company with these large contracts, but we believe our ability to respond immediately and decisively, made a significant impression on these customers as evidenced by the increases in orders from many of these same customers during the balance of the year versus the previous year.

We feel both of these large-scale viral emergencies materially enhanced Lakeland's reputation and brand within the industry, which should continue to benefit the company going forward. Meanwhile, smaller emergencies such as oil and chemical spills from train derailments occur regularly and are considered part of our baseline business.

No company can predict when very large scale events like Ebola and the bird flu outbreaks will occur. But historically the company has found that the large events tend to occur every two to three years.

Therefore in a sense, you might say they are somewhat recurring on a longer-term basis, which might make sense to be factored into investor thinking when analyzing the value of an investment in Lakeland.

To this end, we remain very encouraged by our opportunities for growth, which include demand for products in the US in the next two years as federal money appropriated for infectious disease preparedness in the 2015 Omnibus appropriations bill, budgeted by President Obama is allocated to the states and put out to bid in the marketplace.

In anticipation of this and our growth strategies for attainment of the market share for traditional PPE orders, we have been investing in our business accordingly. We've been adding salespeople worldwide and investing in information systems to provide for and accommodate future growth.

Fourth quarter operating expenses decreased $0.2 million from the prior year period as the company controlled cost while investing in the implementation of growth strategies, including sales and marketing expansion initiatives, new product development and enterprise planning systems.

In terms of our sales force, domestically we employ and expanding the team of experienced field salespeople, which is complemented by 60 independent sales representatives.

As of January 31, 2016, we had 1,211 full-time employees, 1,090 or 91% who were employed in our international facilities and 121 or 9% of whom were employed in our domestic facilities. Additional employees were added in the fourth quarter as part of our investment in IT.

We anticipate non-payroll R&D expenses to be $300,000 in fiscal 2017 compared to $165,000 in fiscal 2016 as some of our R&D will involve equipment purchases as well as material costs. We are gradually increasing our R&D efforts as business performance permits.

Overall, we see these investments providing us with the ability to better manage and optimize our customer contract sales efficiencies, competitors for winning contracts while maintaining if not improving margins, inventory turns and material ordering, working capital and cash flow.

Despite recent economic headwinds for the industrial marketplace which we are now about three quarters into, the longer term trends are largely in our favor to support our growth for foreseeable future.

While the US market is more a function of market share gains and periodic capacity constraints by our larger competitors that potentially open up an estimated $250 million in disposable personal protective apparel market opportunity, the international markets are relatively wide open and growing.

To put this in context, the industrial protective safety clothing market in the United States has evolved over the last 46 years as a result of governmental regulations and requirements and commercial product development.

In 1970 Congress enacted the Occupational Safety and Health Act or OSHA, regulations which require employers to supply to protective clothing to certain environments. Certain states have also enacted worker safety laws that further supplement OSHA standards and requirements. Thus the US market is large although relatively mature.

In order to comply with World Trade Organization entry requirements, foreign countries, however, are beginning to adopt and imitate US standards as provided in OSHA as well as other regional guidelines such as the American National Standards Institute and Committee European de Normalization or CE standards.

Thus with so many industrial jobs that moved outside the US and many companies in those countries adopting safety standards, the international markets are growing much more rapidly than the US markets.

Lakeland is very well versed in all of these standards and has spent considerable time and money to have our products registered and certified around the world. Complex and changing international standards play to Lakeland’s strengths when compared to most multinationals or smaller manufactures.

We intent to continuously and increasingly be a faster growing foreign market, adopting these standards which require our PPE garments.

In the fourth quarter our net sales from continuing operations attributable to customers outside of the United States were $43.1 million as compared to $43.3 million in the prior-year, again currencies lowered the fiscal 2016 figure, but real progress can be seen by looking at our individual company operations.

In Canada, for example, despite the slowdown in that nation's economy and especially the softness in the oil and gas sector, Lakeland Canada had its best-ever fourth quarter after a record third quarter. Revenues for our Canadian unit were higher for fiscal 2016 versus the prior year in Canadian dollars.

Meanwhile that currency lost approximately 10% in value against the US dollar during our fiscal 2016.

Over the past few years we delivered impressively on the execution of our turnaround strategy to regain domestic market share as distributors and end users were transitioned to our branded products which were manufactured using independently sourced materials.

These results are expected to continue domestically particularly during the industry capacity constraints in the markets. This experience and sharpened acumen will aid us as we deploy a similar approach internationally.

We have aggressively been applying those lessons learned and successes to the broader international markets in order to fully leverage our market diversification, minimize the effects of lagging markets and to invest in additional marketing, operational and technical resources to market that present the greatest growth potential.

The harmonization of system and services globally are expected to improve Lakeland’s agility so that we can fully realize the benefit of our market and product diversity. We have made key additions to our international management team and are beginning to benefit from that impact.

Key examples include the creation of new head of country operations for Australia and New Zealand, two markets where we have a limited presence today. It was off to a great start and the sales rebound in the UK, one of our more established regions that follow the implementation of organizational improvements modeled after our domestic turnaround.

Turning to other areas of the company improvements during the year, we spent considerable time on expense management and balance sheet enhancements. On the expense management side we had been originally been managing our expenses and investing in ways to drive future cost lower and otherwise maximize our profitability.

As a result and inclusive of the fourth quarter in which we were negatively impacted by issues outside of our control, our consolidated operating income for continuing operations for the year was $11.8 million as compared to $7 million in the prior year.

This reflects a 1% point increase in annual operating expenses as a percentage of sales even though we continue to invest in our global platform. We view our business over the long-term and as discussed on this call today, have been investing to deliver improved performance across the board.

In addition to additional spending on information technology and systems for improved business decision-making, in the fourth quarter of fiscal 2016, we felt comfortable with our business outlook and strengthened the balance sheet to remove future risk associated with our exit from Brazil.

We spent a total of $6 million cash to satisfy the payoff of the arbitration settlement and resolved a VAT tax liability and management VAT tax liability. And management believes that the existing accrual of $0.2 million that exist is more than adequate to satisfy any further liabilities.

With the benefit of our full year results and solid cash flow generation, we ended the year with cash and equivalents increasing by 4% from year end of the prior year and reduced our total liabilities for the third consecutive year. Finally, stockholder's equity increased by 6.3% during fiscal 2016.

I would like to take this time to acknowledge our growing global team at Lakeland and our Board of Directors for their contributions and immeasurably improving the company within a very competitive marketplace. We also appreciate the continued support of our shareholders.

It has been another productive year for Lakeland and we look forward to capitalizing on the many opportunities that lie ahead in fiscal 2017. 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's financial results..

Thank you, Chris. The following addresses my review of the fourth quarter and full 2016 fiscal year ended January 31, 2016. The fiscal 2016 financial results that I discuss on this call will be from continuing operations unless I note otherwise. The discontinued ops relate to the operating results in Brazil.

As Chris mentioned, we completed the details pertaining to our exit for Brazil, but prior thereto we exercised discontinued operations accounting for Brazil.

Discontinued operations accounting entails the reclassification of all of the financial results of the Brazil operations within the consolidated financial results of the parent company and the restatement of prior periods to reflect the same treatment.

The global operations of Lakeland excluding Brazil are shown in financial reports as continuing operations.

As of July 31, 2015 Lakeland transferred the ownership interest of its business in Brazil and effective with the fiscal 2016 third quarter that began August 1, 2015, the company expects no further losses from those discontinued ops or charges relating to Brazil beyond the existing accrual of $0.2 million which is included in the fiscal 2016 second quarter financial results.

Financial results from the fourth quarter include net sales from continuing ops of $20.5 million for the three months ended January 31, ‘16 compared to $25.3 million for the prior year period or a decrease of 19%. The gross margin was 29.4% this quarter compared to 37.7% last year.

In addition to lower sales volume in the most recent periods with write-down margin last year's gross margin was favorably impacted by higher margin sales of products relating to the Ebola crisis. Q4 FY16 operating expenses worldwide decreased by $0.2 million and increased as a percent of sales to 30.8% from 25.7% last year.

As a result of lower volume and SG&A largely being fixed other than freight out and commission and as cost containment efforts continue.

While we've been reducing expenses in many areas, we increased spending in certain areas with respect to the implementation of growth strategies including sales and marketing expansion initiatives, new product developments and enterprise planning systems as Chris discussed earlier.

We had an operating loss from continuing operations of $0.3 million in the quarter from operating income of $3 million in Q4 FY15. Operating income as a percent of sales decreased to negative 1.5% this year versus 11.9% last year. Adjusted EBITDA in Q4 FY16 was $0.2 million versus $3.5 million last year.

Free cash flow defined as adjusted EBITDA less cash paid for taxes and less capital expenditures, decreased from $2.3 million last year to a modest $0.4 million this year. Please refer to the EBITDA disclosures in our public filings or press release for reconciliations to US GAAP.

The fourth quarter net loss was $0.1 million or $0.01 per share from net income from continuing ops of $11.9 million or $1.69 per share last year.

The year-over-year decline in net income primarily reflects the income tax benefit in fiscal 2015 associated with the Brazil worthless stock deduction of $34 million recorded for the company’s exit from Brazil.

Annual results include an increase in consolidated sales for the third consecutive year despite currency fluctuations in fiscal '16 versus fiscal '15 which significantly reduced revenues reported on a consolidated GAAP basis in USD.

Sales of $99.6 million this year increased 7% from $93.4 million in the prior year driven by organic growth in the first three quarters of fiscal '16, an emergency demand earlier in the year. $56.5 million or 57% of total sales were from our domestic operations which compares to $50.1 million or 54% of total sales last year.

International revenues were $43 million or 43% of total sales this year compared to $43 million or 46% of total sales last year. As a reminder, currency devaluation should be considered for a more insightful year-over-year comparison of our international sales.

US sales increased year-over-year $5.8 million or nearly 11% due primarily to the strong sales levels in the chemical division related to the company’s response to the US bird flu which exceeded the Ebola related orders that contributed to the increase in sales during the prior year.

Sales in China and into the Asia Pacific realm as reported in USD remained in the level of $14.3 million primarily due to organic growth and shift to higher value products offset by an economic slowdown in that market.

Canada sales experienced a modest increase of about 7% in USD, but in Canadian dollars Lakeland Canada has record levels of revenue in the second through fourth quarters of fiscal '16. For the year, Lakeland Canada is up approximately 20% year over year in local currencies.

We believe our marketing efforts that had an impact in Canada with progress made in attracting new distributors with the combination of price and most importantly service that has enabled us to make market share away from the other competition.

Also we have been making considerable headway marketing of our FR and turnout gear to various start apartment and other uses of these products. In the UK, sales increased moderately $14.5 million from $14.4 million in the prior year. Again the currencies distort the sales performance from this operating region.

Also, our growth in fiscal 2016 would have been more pronounced had the fiscal 2015 period not benefited from Ebola related sales. All other country operations reported lower year-over-year sales for fiscal 2016 reflecting currency issue and economic weakness particularly in oil and gas sector.

Moving into margins and expenses, gross margins for the year was 36.5% compared to 33.9% last year. Operating expenses decreased by $.2 million and decreased as a percent of sales to 25% from 26% last year. Operating income increased to $11.8 million from operating income of $7 million last year.

Operating income as a percent of sales increased 11.9% this year versus 7.5% last year. All of our major country operations are profitable. Free cash flow increased from $7.4 million last year to $10.8 million this year.

The year over year decline in net income primarily reflects the income tax benefits in fiscal 2015 of $9.5 million recorded as part of the company's exit from Brazil. With respect to the Brazilian operations, the shares were transferred on 07/31/15 and the arbitration settlement was paid in full in June 15 for a negotiated buyout of $3.4 million.

In November 2015, the companies’ former Brazilian subsidiary settled a labor claim for approximately 250,000 USD which approximates the reserve on the books of the company. Several other smaller cases are also settled for the immaterial amounts.

The company does not anticipate any further significant charges for Brazilian labor issues beyond what's been occurred.

Also as previously disclosed the Brazilian economy has been faltering since the execution of the shares transfer agreement and has now reached a point where the federal government and state government of Brazil are suffering revenue shortfall.

As a result, the State of Bahia in Brazil, where Lakeland Brazil had operation is now pursuing that cases extremely aggressively and declared an amnesty beginning November 1, 2015 which expired on December 18, 2015.

Lakeland may be exposed to certain liabilities in connection with the prior operations of Lakeland Brazil, including without limitation from lawsuits pending in the labor courts of Brazil and VAT taxes.

For this reason the company entered into a loan agreement on December 11, 2015 with Lakeland Brazil for the amount of nearly BRL8.6 million or approximately 2.3 million USD. For the purpose of providing funds necessary for Lakeland Brazil to settle the two largest outstanding back claims with the State of Bahia.

Settlement of the back claims under amnesty benefits the company and it eliminates these large back claims which the company believes will render the continued viability of Lakeland Brazil immaterial to Lakeland Industries.

It should also eliminate the possibility of the transfer of shares of Lakeland Brazil that effectuated our exit from that country of being found fraudulent on the basis of evading back claim and will subsequently eliminate the possibility of future incumbents of the real estate by the State of Bahia in connection with any of that claims.

Lakeland Brazil completed the amnesty agreement with the State of Bahia on December 17, 2015. The [indiscernible] agreement was accounted of the company in our fiscal 2016 fourth quarter. The company took a conservative approach in Brazil to reserve the full amount of this loan and we amounted $2.3 million in fiscal 2016 fourth quarter.

This completes my remarks on subsequent events relating to Brazil. Moving onto the balance sheet, total liabilities declined year over year. Total liabilities which includes our revolving lending facility as a current liability was $20.7 million at the end of fiscal 2016, down by 30% from $29.9 million at the end of the prior fiscal year.

Cash and cash equivalents increased by $0.3 million from the end of fiscal ‘15 to $7 million at the end of fiscal 2016. Uses of cash during fiscal ‘16 include the payments of the arbitration settlement in VAT tax liability as part of the company's exit from Brazil.

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

[Operator Instructions] Our first question comes from Alex Fuhrman of Craig-Hallum Capital Group. Please go ahead..

I would love to just get a sense on especially now I would imagine you have a lot of visibility here into Q1 but it sounds like a lot of the big uptick in orders you guys had around the time of the Ebola and bird flu may have had the unintended consequence of pulling some demand.

At what point do you start to see those inventory levels of your customers normalize to the point where they’d be reordering, have you seen any of those customers back so far in Q1..

Business is just beginning to pick up in April. Orders were fairly slow in the first three months of this year. As we said manufacturing weigh down in the United States and oil and gas is just unbelievably bad. So we've seen down ticks in those areas.

We are seeing for the first time I guess in three months that business is picking up; orders are picking up in April. And we know that in North America and we will be seeing whether that's happening in places like Russia or Kazakhstan or South America fairly soon.

So yes, business is just beginning to pick back up but we have seen and all of our competitors have seen exactly the same drop off in revenues..

Now that makes sense, thanks Chris.

And I guess just following up on, and you said about the oil and gas industry I mean it’s obviously a space you guys are active in but it’s not that big of a share of your business, I mean, how should we think about that in terms of how much oil and gas was down in Q4 and was it cut in half basically in Q4 and how should we think about that business for the rest of the year?.

A lot of people just look at the United States or North America; we’re selling in Mexico, Kazakhstan, and Russia which also are affected by the oil and gas slow down, okay. And the other thing is that those countries are more affected in their currencies by the oil and gas slow down. The peso, the ruble, they almost trade with the price of oil.

So, it's about I'm guessing this is an approximate, it’s about 18% of our business overall worldwide. And it's dropped off considerably I don't want to go over the numbers out of my head because we’re taking annual number and dividing it by four hitting the fourth quarter and fourth quarter was a lot worse than all the other quarters.

But the price of oil was up, my personal feeling is it will go above 50 by year end but that's my personal opinion but at 50, they start making money again and at 50 bucks a barrel will start seeing some recovery in the oil and gas business..

Okay that's helpful thanks and I guess just kind of building on what we are discussing about Russia there.

Can you give us a sense of that business is structured in terms of fixed versus variable costs? I mean are you preparing for a scenario where the ruble stays at the depressed level it’s been the last year or two, I mean would that be a market that would be a candidate for you to exit, if the conditions in the Russian economy stay kind of where they’ve been and if so how difficult would that be to accomplish?.

The first thing we did was to did - up a big heck in Russia, we’re going to stay there because we’ve already – its hit bottom, I mean the Russian economy has hit bottom and now we are seeing it increase. The ruble is going up to the price of oil, the ruble hit a low when oil hit a $26 a barrel.

The ruble is going up quite a bit now that oil has hit $40 a barrel. And what we're seeing is opportunities because we were small and because we had low fixed cost in a place like Russia and Kazakhstan what we're seeing is our very, very big competitors being absolutely crushed by this.

Because they are so big, the restructuring costs are huge and we are being very opportunistic in grabbing business from them. So I mean Russia hit bottom about a month ago and now it's on its way up..

Our next question comes from Doug Ruth of Lenox Financial Services. Please go ahead..

I have a few questions for you.

In America, where do you think the most opportunity is now for you?.

Is strong in terms of organic growth that we’re seeing in that industry..

I think our high visibility in our chemical suites are probably the best opportunities for us because we have not really gotten a lot of share in the market. We’ve seem to be getting a lot more share in the market and its very high margin business.

And that's where we want to sort of transform or change the way like is just to keep migrating towards higher, higher margin products in a way from the lower margin ones and it’s a slow but steady move.

But that's where you're looking at utilities, utilities are just fine financially and we’re beginning to penetrate the utility business and it's a very, very profitable niche of the business. Chemical suits is another area where we’re really focusing our efforts, not only in the United States yet, but worldwide too.

So those are the two product lines that are growing. We are growing them now, even through the fourth quarter, they’ve been growing and that's where we’re going to focus all our efforts, particularly in the United States, which is a much more mature market..

So that, sales growth like a 10% rate or better?.

Better..

Awesome.

Could you talk some about, you talked about some pockets of strength in China, could you give us a little additional color there?.

China is turning to -- in other words, there was a business slowdown. I expect revenues and earnings to be up in China this year. They may publish figures of 6% growth, which may not be believable or not, but they’re still positive and they’re still higher than the United States.

We do see a slowdown, but now we see a pickup again and we've introduced new products. I am very, very positive about China next year, because things are not as bad as they colored them and China is not an oil and gas producing country. So they don't have that negative like we say due in Mexico as an example..

And the customers are accepting the new products and the sell through has been pretty good?.

Yeah. We've actually introduced three or four new products in China and they are doing very, very well..

Wonderful.

How about Mexico? It seems like there is so much production and manufacturing, moving down there, what do you think is going to happen fiscal 2017 for the company?.

It will be better than this year for sure. And we've actually seen some up quarters in Mexico, fourth quarter was down, but our third quarter not too long ago was up. So we’re seeing some real positive movements in the Mexican domestic sales. Because otherwise, Mexico is just a manufacturing operation for us.

It’s a maquiladora, which is set to basically breakeven, but what we've introduced in the last year and a half is actually domestic Mexican sales and the only thing holding us back is that the oil and gas industry is weak. Pemex is not buying as much. So we’re diversifying into the oil companies and other areas that are growing much more quickly..

Yeah.

Are you having any success with the auto manufacturers?.

I expect to in the next 2 or 3 months..

Awesome.

And what about your, could you talk about inventory, do you think it's at the right level, is it too high, too low?.

The inventories had gone a little bit high in Q3. There were some expectations, I think, around the bird flu, running a little further out and it did. And there was some excess supply in the marketplace that we saw.

But at the end of the year, it was down over Q3, about 6% and we think we’re going to bring it down about that amount for the end of Q1 and we do think that we have the inventory about where it should be in order to be able to service our markets..

Okay.

And generally, you’re hoping though work is somewhat lower throughout the year?.

That's our expectation at this point..

I recall you asked that question in October 31 numbers and I can't remember, but we do bring them down considerably from October 31 to January 31. We brought them down considerably again in the interim period..

Great. I think you’ve really done a wonderful job with this margin improvement.

Can you comment some about what you think might be up with margins in 2017 versus 2016?.

Certainly, we’re working towards cost-containment in that area. We’ve made some changes already in the US that will be effective in Q1 in terms of restructuring some of our supply chain moving from production out of the US.

We don't have much left in the US, but we have reduced our footprint here in the terms of production and moving that across to Mexico and China. So we do -- our expectation is to continue the trend with improved margins as we improve processes and control cost..

So we could see some improvement in operating margin for fiscal 2017?.

That's the expectation for -- as we continue as I’ve said with cost containment measures, improving processes, getting the inventory where it should be and management thereof..

For example, we reduced our -- basically our expense by reducing payroll in this quarter, not yet reported, by over $1 million. And those are expense reductions that stay there forever.

The unfortunate thing about a bird flu to get this big bump in sales, big bump in margins, but then they’re not there forever, whereas when you’re reducing expenses, there they’re forever..

Okay.

How are you doing with the new computer system? It sounds like that's moving at a faster rate at this point?.

Yes. We are still working through that, we've got a lot of front-end work done in terms of streamlining our processes, identifying problems. Some of the report writing type details that we are working through, but yes, we’re certainly moving forward with that and expect to have something in place in FY17 that will be a significant help to management..

So we’re going to be ready to go live at some point during the year with the new system?.

I believe that..

Okay, all right. Well, I appreciate the answer to my questions and looking forward to the next report..

Our next question comes from Greg Eisen of Singular research. Please go ahead..

Thanks, good afternoon. Yeah. This is Greg Eisen substituting for [Technical Difficulty] who couldn't be here this afternoon.

If I can just go back to the subject on the gross margin for the fourth quarter, I understand the effect of not having the higher margin emergency orders from Ebola and such replicated in this past quarter, but were there any one-off items that would not be repeatable that would also account for the gross margin being where it was this quarter or was it really just the sales volume and the margin from the emergency orders?.

The sales volume was a primary factor in the margins that we’re looking at it interferes with efficiencies and yes, on a comparative basis, with the sales mix in the previous year's quarter that did have those higher margin products, it does comparatively appear worse..

Okay. So there wasn't really anything other than that, that weren’t one-time cost in there because it was my question..

No, nothing significant..

Okay. Regarding the potential for future, so you said earlier, recurring non-recurring item, but crisis happened around the world. It’s always going to be the case.

Would you have any comment to make about the new zika phenomenon and whether or not that actually pulls a potential for your product line?.

That's not going to really increase the potential for our product line, it's there, but it’s small, it's not a big deal. The only people who will be wearing our garments is the people mixing the chemicals for the fumigators and some of the fumigators themselves, but that's not a large number and so that's it.

It's not going to affect our business positively, I mean to a great extent..

Okay. I understand.

Looking out to the New Year, I think the tax -- for the full year, the tax rate came in around 28.5%, where would you expect the tax rate, your effective tax rate to be for the New Year for fiscal ‘17?.

I wouldn't expect any significant changes year-over-year in the effective tax rate. We do have the benefit of the tax credit from the worthless stock deduction, so there won't be cash taxes in the US for the next couple of years..

The US is free of faxes, but we're fairly profitable in many of the other countries we’re operating in. So we’re paying taxes. For instance, in China where we are very profitable, in Canada, where we are very profitable and the UK, where we are very profitable and Chile where we are profitable. So that's where most of the taxes are coming from..

Okay. So -- and that 28.5% range looks pretty good..

That's about right. China is 25% and that's where a lot of these countries come in..

Understood. We are on the high side now in the US.

A little..

And because I guess it's a good thing that you have a lot of your income coming from other markets from that point of view. That was it for my questions. Thank you..

I’m seeing no further questions. This concludes our question-and-answer session. I'd now like to turn the call back over to Mr. Ryan for any closing remarks..

Okay. We appreciate your participation on Lakeland's fiscal 2016 third quarter financial results conference call.

As we are committed to delivering value for our shareholders, we believe this is 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 were very encouraged by our growth prospects as we are well positioned to grow organically through our overall market expansion, as well as capital and market share. We see the bottom in the oil and gas countries and I think they only have one place to go and that’s up. Thank you..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day..