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Jumping Into LAKE After Stock’s 21% Dive

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Lakeland Industries (LAKE) reported disappointing results for the second quarter of fiscal 2025, ending July 31, which has led to a 14% drop in its stock price since the earnings announcement on September 4. The company posted sales of $38.5 million, a 17% increase year-over-year, bolstered by $6.3 million from recent acquisitions. However, these results missed consensus estimates by $1.4 million due to a 2.8% decline in organic revenue. Additionally, LAKE reported a net loss of $0.19 per share, significantly below expectations for earnings of $0.36 per share, largely due to costs associated with integrating new acquisitions and significant currency headwinds in Argentina.

Despite these setbacks, I believe the market’s reaction has been overly harsh, especially since the weaker-than-expected results were primarily due to shipment timing issues rather than any fundamental weakness in the business. A notable portion of the revenue shortfall resulted from the transition of large North American channel partner accounts to LineDrive, LAKE’s new industrial market representative, which caused some orders to slip into future quarters. With LineDrive actively building pipeline opportunities, LAKE anticipates channel sales to rebound in the second half. Similarly, delays in shipping significant fire orders from the Jolly Scarpe and Eagle Technical Products subsidiaries contributed to the shortfall but are expected to be recognized in the late third and early fourth quarters.

Several additional factors also suggest that the second half of the fiscal year is shaping up to be much stronger than the first, particularly with the strategic acquisition of LHD Group in early July. LHD is a leading provider of firefighter turnout gear, accessories, and personal protective equipment, as well as cleaning, repair, and maintenance services, generating approximately $27 million in annual revenue. This acquisition significantly expands LAKE’s global fire services offerings and footprint, aligning with its growth strategy of making small, strategic, and quick acquisitions. LHD’s strong presence in Germany, Australia, and Hong Kong—some of the largest fire markets globally—broadens LAKE’s reach with an expanded range of high-quality rescue gear and maintenance services.

LHD’s holistic approach to protective clothing maintenance also introduces an attractive recurring revenue stream. And along with its previous acquisitions of leading global structural firefighting helmet manufacturer Pacific Helmets NZ Limited of New Zealand last November and Italy and Romania-based Jolly Scarpe (a leading designer and producer of professional footwear for firefighting, military, police, and rescue bodies) in February, the integration of LHD allows LAKE to offer a comprehensive head-to-toe fire solution to a larger geographic audience.

The acquisition also resolves a significant operational challenge LHD faced under its previous ownership. Specifically, production at LHD’s German entity had slowed dramatically due to liquidity issues, creating a multi-year backlog that dampened customer confidence. However, with LHD now under LAKE’s financially stable control, suppliers have resumed offering credit terms and discounts. Production has ramped up, and LAKE is focused on working down this backlog by the end of the fiscal year, which I believe will restore trust with customers and help drive revenue growth. If that’s not enough, LHD’s Hong Kong division recently secured a renewal with the Hong Kong Fire Department, with committed contract revenue increasing from $3.5 million to $5.3 million for the period from September 2024 to September 2025.

These developments not only bolster LAKE’s confidence in LHD’s growth prospects but also provide a clear path to stronger second-half performance as LAKE leverages LHD’s renewed momentum and integrates it into the newly launched Lakeland Fire + Safety brand identity. I believe this consolidation of LAKE’s diverse portfolio under a unified brand underscores its commitment to providing comprehensive, innovative solutions for first responders and worker safety sectors, setting the stage for continued growth and market leadership.

When you also consider the robust underlying performance of LAKE’s organic business, the outlook for the second half is even more encouraging. Specifically, its Latin American operations have excelled, with a 63% year-over-year sales increase in Q2 driven by a strong team that continues to seize new market opportunities, especially in woven products. The company is expanding its fire services and industrial product offerings in the region and has recently integrated its Mexican sales operations under the LatAm team, with Q2 sales in Mexico already up 58% year-over-year. Additionally, LAKE saw double-digit sales growth in Canada, Asia, India and other markets, fueled by new sales leadership and expansion into new Asian markets outside of China. With these strong regional performances, its’s no wonder management remains confident in achieving its fiscal 2025 targets of $160-170 million in revenue and $18-21.5 million in adjusted EBITDA, despite the Q2 loss.

At the midpoint, this guidance reflects revenue and adjusted EBITDA growth of 32% and 65% over the $124.7 million and $12 million achieved in fiscal 2024. More importantly, as LAKE cross-sells more products from its recent acquisitions, realizes cost synergies from them, and the elevated costs related to their integration subside in the months ahead, analysts project revenue and adjusted EBITDA to grow another 13% and 43% to $186.3 million and $24.7 million in fiscal 2026, starting in February.

Despite the favorable outlook and a healthy net debt balance of just $4.6 million—even after spending $28.4 million on three acquisitions over the past nine-and-a-half months that I believe have accelerated its strategic shift towards higher-value products and high-growth geographies—LAKE’s stock is now down over 20% from its August 19 high of $26.10. Trading at a forward P/E ratio of only 11.6 compared to its five-year average of 13.7, this recent pullback could present a rewarding opportunity for investors to jump into LAKE at current levels.

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