Frank Voisin is a value investor and independent analyst whose site, Frankly Speaking, contains Frank’s investment theses as well as educational material to help investors avoid value traps. Subscribe to Frank’s feed here.
Three weeks ago, I wrote this article about Lakeland Industries (NASDAQ:LAKE). The company emailed me their position, and in the interests of fairness I am reproducing three paragraphs and two graphs from that email, as requested by their investor relations representative. I have not verified any of the following, so as always, do your own due diligence.
In your posting on Lakeland Industries (NASDAQ: LAKE) of early February, there was a mischaracterization of the DuPont relationship which is based on a the period in time in which you make reference to it. When the Company filed its 10-K for the year ended 1/31/10, which is what you cite as reference material, LAKE had been buying raw material (primarily Tyvek) from DuPont and shipping it to China to be sewn into garments that are then shipped back to North America to be sold to distributors (who then sell the garments to end buyers). Since the 10-K filing, LAKE has revised its relationship with DuPont and updated its subsequent SEC filings accordingly. The current relationship with DuPont positions LAKE as one of a very few master distributors. The master distributors purchase finished goods from DuPont – thus, except for special orders that DuPont can’t/won’t make, LAKE no longer buys raw materials from DuPont and does not ship or sew the products in connection with China any longer. There are various other implications associated with the changes in the DuPont relationship, but I believe the details provided herewith establish the basis for the DuPont/LAKE business for the past few quarters and going forward.
Another important matter to note is that your reporting on LAKE in the story you published refers primarily and almost exclusively to DuPont, which still makes up a large part of LAKE’s domestic business. For a fair and balanced look at the Company, you should delve into the balance of the operations – which is about half of the total company and is growing faster and has better margins than the domestic business. Please see the attached charts for international revenues in dollars and international revenue gross margin percentages.
Moreover, while Lakeland continues to do a meaningful amount of business with DuPont domestically, its international sales are anticipated to surpass North American sales this year and none of Lakeland’s international business is DuPont product. The biggest investment story for LAKE is not the DuPont dealings, but that Lakeland has been diversifying and expanding beyond North America and DuPont-related products for the past several years and this strategy has positioned the Company for long term growth. Lakeland now has significant operations in China, Brazil, India and other emerging markets. Products from Lakeland that compete very effectively with Tyvek and can be sold domestically but generally are sold outside of North America include Chemmax, Micromax, etc. Products made from these materials are outside the relationship with DuPont and for Lakeland they remain a faster growing, more profitable alternative to DuPont’s Tyvek and Tychem. A review of Lakeland’s quarterly reports will show the financial strength of the company and its ability to “weather any DuPont storm”. Perhaps as a result of misperceptions relating to the DuPont exposure, LAKE shares are very cheap and do not reflect the value of and growth potential for its international operations.
Author Disclosure: No Position