Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. LAKELAND INDUSTRIES INC (798081) 10-Q published on Jun 09, 2020 at 4:03 pm
Reporting Period: Apr 29, 2020
On March 20, 2020 Lakeland Argentina and AP Partners entered into an agreement for Lakeland Argetnina to obtain a loan in the amount of ARS $10 million (approximately USD $158k, based on exchange rates at time of closing); such loan is for a term of one year at an interest rate of 30% per annum. The amount outstanding at April 30, 2020 was ARS $9.3 million (approximately USD $139k which is shown as short-term borrowings on the consolidated balance sheet).
The last two weeks of FY20 and Q1 FY21 were dominated by response to the COVID-19 outbreak. The virus’ progression into a global pandemic will likely impact our business throughout the entirety of FY21. In the near term, increased demand for our disposable and chemical lines, combined with our high inventory levels has produced sales revenues beyond our sustainable manufacturing capacity on an annualized basis. We anticipate that COVID-19 sales will continue for the remainder of FY21 however not at the levels experienced in Q1 FY21 as inventory has been reduced by the high demand and we are limited to our maximum available manufacturing throughput until we can meaningfully increase sustainable manufacturing capacity. Our future sales would also be affected should there be an industry-wide shortage of necessary raw materials in the event of a new rise in COVID-19 cases; in this respect we did experience significant price increases for fabric during the first quarter of FY 21 and managed our available manufacturing capacity to meet customer demand at these higher prices. While we have not experienced any manufacturing capacity issues due to government quarantine or shelter-in-place orders, or due to COVID-19 outbreaks in any of our factories, there can be no assurance that this will continue to be the case. Potential headwinds to revenue as we emerge from pandemic sales include the possibility of a recession and consumer stockpiled inventories, as well as a decline in our oil and gas industrial sector that may temper demand within our regular markets in the second half of the year. Reference is made to “Risk Factors” in Part I, Item 1, of our Annual Report on Form 10-K for the fiscal year ended January 31, 2020. Offsetting these risks are changes to our sales environment, as a result of COVID-19, that we believe represent considerable upside to sales. We believe that once the pandemic subsides, there will likely be secondary government-based pandemic demand as governments around the world seek to replenish and perhaps increase their PPE stockpiles prior to a possible second wave of virus outbreak in the fall. This stockpiling will be filled in part by inventory that is in the distribution channels as the pandemic ends. When specific governments will issue RFQs for additional product is unknown, but some RFQs are already pending release, others may take up to a year. Additionally, we believe the private sector will also engage in stockpiling of PPE as supply channels catch up to demand. And finally, we are seeing the emergence of institutional cleaning as a new market segement as countries and states reopen and seek to prevent further infections. For these reasons we are maximizing our manufacturing capacity in the near-term and preparing for a slower second half to last quarter of the year.
Cash increased by $8.9 million, primarily as a result of increased profitability, improved accounts receivable collection efficiency, and a decrease in inventory, offset by the payoff of the term loan outstanding at January 31, 2020. Accounts receivable increased due to the increase in sales. Inventory decreased $6.8 million due to the increase in sales. Accounts payable, accrued compensation, and other accrued expenses increased $0.9 million. Capital expenditures for the three months ended April 30, 2020 were $0.2 million.
Net Sales. Net sales increased to $45.6 million for the three months ended April 30, 2020 compared to $24.7 million for the three months ended April 30, 2019, an increase of 84.7%. Sales globally were driven by COVID-19 demand, as we realized significant increases in all markets for our disposable and chemical product lines. In addition to the increased volumes, sales were also impacted by price increases based on our normal, annual adjustments, special price increases due to increases in raw material costs, which we expect will be temporary, and increased sales to new customers, which are typically at prices above those for our recurring customers. We were able to meet this demand with inventory on hand (which has been significantly reduced) and by increasing our manufacturing capacity with expanded operating hours. Other product lines such as wovens, which are primarily used by industrial customers, declined during the period due to various global shutdowns and quarantines.
Net cash provided by operating activities of $10.3 million for the three months ended April 30, 2020 was primarily due to net income of $8.6 million, non-cash expenses of $2.9 million for deferred taxes, depreciation and amortization and stock compensation, offset in part by a $1.3 million increase in net working capital accounts. Net cash used in investing activities of $0.2 million for the three months April 30, 2020 reflects purchases of property and equipment. Net cash used in financing activities of $1.0 million for the three months ended April 30, 2020, was due to the repayment of a term loan.