Jump into the lake after stocks drop 21%

Lakeland Industries (LAKE) reported disappointing results for its fiscal 2025 second quarter ended July 31, leading to a 14% drop in its stock price since the earnings call on September 4. The company reported sales of $38.5 million, up 17% year over year, boosted by $6.3 million from recent acquisitions. However, those 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, well below expectations for earnings of $0.36 per share, largely due to costs related to integrating new acquisitions and significant currency headwinds in Argentina.

Despite these setbacks, I believe the market reaction was overly harsh, especially since the weaker-than-expected results were primarily due to on-time delivery issues rather than any fundamental weakness in the company. A significant portion of the revenue shortfall was due to the transition of large North American channel partner accounts to LineDrive, LAKE’s new industrial market representative, which resulted in some orders being pushed into future quarters. As LineDrive actively builds pipeline capabilities, LAKE expects channel sales to rebound in the second half of the year. Similarly, delays in the shipment of significant orders from subsidiaries Jolly Scarpe and Eagle Technical Products contributed to the shortfall, but are expected to be recognized in late third and early fourth quarters.

Several additional factors also suggest that the second half of the fiscal year is shaping up to be significantly stronger than the first, particularly with the strategic acquisition of LHD Group in early July. LHD is a leading provider of firefighting equipment, 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 firefighting service offering and reach, consistent with its growth strategy of making small, strategic and rapid acquisitions. LHD’s strong presence in Germany, Australia and Hong Kong – some of the largest firefighting markets in the world – broadens LAKE’s reach with an expanded offering of high-quality rescue equipment and maintenance services.

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

The acquisition also solves a major operational challenge that LHD faced under previous ownership. Specifically, production at LHD’s German operations slowed dramatically due to liquidity issues, which resulted in a multi-year backlog that eroded customer confidence. However, now that LHD is under the financially stable control of LAKE, suppliers have resumed offering credit terms and discounts. Production has increased, and LAKE is focused on clearing the backlog by the end of the fiscal year, which I believe will restore customer confidence and help drive revenue growth. If that’s not enough, LHD’s Hong Kong operations recently secured a contract extension with the Hong Kong Fire Department, with contract revenue increasing from $3.5 million to $5.3 million for the period from September 2024 to September 2025.

These changes not only reinforce LAKE’s confidence in LHD’s growth prospects, but also provide a clear path to improved performance in the second half of the year as LAKE leverages LHD’s renewed momentum and integrates it with the newly introduced Lakeland Fire + Safety brand identity. I believe this consolidation of LAKE’s diverse portfolio under a unified brand underscores its commitment to delivering comprehensive, innovative solutions to the emergency services and worker safety sectors, setting the stage for continued growth and market leadership.

When combined with LAKE’s solid organic performance, the outlook for the second half of the year is even more encouraging. In particular, its Latin America business performed excellently, with year-over-year sales growth of 63% in the second quarter, driven by a strong team that continues to capitalize on new market opportunities, particularly in woven products. The company is expanding its fire protection and industrial product offerings in the region and recently integrated its Mexican sales operations into the LatAm team, with second-quarter sales in Mexico already up 58% year-over-year. Additionally, LAKE saw double-digit sales growth in Canada, Asia, India and other markets, driven by new sales leadership and expansion into new Asian markets outside of China. Given this strong regional performance, it is no wonder that management is confident of achieving its fiscal 2025 targets of $160-170 million in revenue and $18-21.5 million in adjusted EBITDA, despite a second-quarter loss.

At the halfway point, this guidance reflects revenue and adjusted EBITDA growth of 32% and 65%, respectively, from $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 as the increased costs associated with their integration decline in the coming months, the analysts forecast revenue and adjusted EBITDA to increase another 13% and 43% to $186.3 million and $24.7 million in fiscal 2026, respectively, beginning in February.

Despite a 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 the strategic shift toward higher-value products and high-growth geographies — LAKE stock is currently down more than 20% from its August 19 high of $26.10. With a P/E ratio of just 11.6 compared to the five-year average of 13.7, this recent pullback could present a profitable opportunity for investors to invest in LAKE at current levels.

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