Most companies out there in Wall Street land are just getting started with their fiscal years 2006. A few are still wrapping up 2005. But protective clothing manufacturer and Motley Fool Hidden Gems "Tiny Gem" designee Lakeland Industries (NASDAQ:LAKE) is far ahead of the pack -- calendar-wise, at least. When Lakeland reports earnings on Monday morning, the news will be on Q4 and full-year 2006.

What analysts say:

  • Buy, sell, or waffle? Only one analyst (not counting us Fools, that is) tracks Lakeland, giving the company a buy rating.
  • Revenues. There's no sales estimate on record.
  • Earnings. But the analyst estimates that quarterly profits rose 44% this past quarter, to $0.36 per share.

What management says:
In its December earnings report, Lakeland addressed the effect of rising raw materials costs on its business. Because the firm has been able to raise the prices on its goods (i.e., pass the higher costs along to its customers) and control selling, general, and administrative costs, its profits are rising despite the higher costs of goods sold. Lakeland also highlighted its prescient purchase of large stocks of raw material inventories in late 2005, which was partly in anticipation of price hikes on these goods, and partly in order to meet surging sales orders that the firm began seeing in November. As a result, he company predicted significant margin expansion throughout this quarter and well into fiscal year 2007.

What management does:
In recent quarters, the company has indeed grown its gross margins. Although operating margins are unchanged from 18 months ago, at last report the company is netting 30% more profits from each dollar of sales now than it was back in the July 2004 quarter.

Margins %

7/04

10/04

1/05

4/05

7/05

10/05

Gross

22.1

22.3

21.4

21.5

22.3

23

Op.

8.4

8.9

8

8.3

8.4

8.4

Net

4.7

5

5.3

5.6

6

6.1
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ending in the named months.

One Fool says:
Ordinarily, investors should be wary of a firm that grows inventories 61% on a sales increase of 1% (that's called "understatement," folks). But if you dig deeper into the inventory picture, you'll see that fiscal Q3 inventories of raw materials grew fastest of all (up 92%), which is consistent with the firm's description of its inventory strategy.

I'm still leery of the fact that finished goods also vastly outgrew sales gains -- up 45%. But judging from the firm's performance over the past year and a half, I'm inclined to give Lakeland the benefit of the doubt here for the time being.

Competitors:

  • Alpha Pro Tech (AMEX:APT)
  • Mine Safety (NYSE:MSA)
  • Dupont (NYSE:DD)
  • Kimberly Clark (NYSE:KMB)

Lakeland Industries is a Motley Fool Hidden Gems "Tiny Gem" designee, and Mine Safety is a Hidden Gems pick. Take Hidden Gems for a 30-day free trial run.

Fool contributor Rich Smith does not own shares of any company named above.