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spk02: Good morning, ladies and gentlemen, and welcome to the Lifetime Brands' first quarter 2024 earnings conference call. At this time, I would like to inform all participants that all their lines will be in listen mode only. After the speaker's remarks, there will be a question and answer portion of the call. If you'd like to ask a question during this time, please press start and number one on your telephone keypad. I would like to introduce your host for today's conference, Carly King. Ms. King, please go ahead.
spk00: Thank you. Good morning, and thank you for joining Lifetime Brands' first quarter 2024 earnings call. With us today from management are Rob Kay, Chief Executive Officer, and Larry Winokur, Chief Financial Officer. Before we begin the call, I'd like to remind you that our remarks this morning may contain forward-looking statements that relate to the future performance of the company. And these statements are intended to qualify for the safe harbor protection from liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance and factors that could influence our results are highlighted in today's press release. And other factors are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update such statements. Our remarks this morning and in today's press release also contain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Included in such release is a reconciliation of these non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP. With that introduction, I'd like to turn the call over to Rob Kay. Please go ahead, Rob.
spk01: Thank you. Good morning, everyone, and thank you for joining us today. I am pleased to report a solid start to fiscal year 2024, delivering first quarter results that were in line with our expectations and came in above the broader market. Our performance this quarter is a direct testament to the work we have done in the last few years to ensure we are well positioned to compete and gain share notwithstanding market conditions. As we look ahead to the rest of the fiscal year, we are confident in our ability to continue driving operational excellence, advancing our strategic growth initiatives, and investing in our business to drive value for our shareholders. We delivered $142.2 million in net sales this quarter, a decrease of 2.2% year-over-year. This slight decrease reflects both economic headwinds and the impact of inventory rationalization efforts among select retailers, which I will elaborate on later in my remarks. It is worth noting that third-party market data, which we tracked, reported a decline of approximately 3.5% in point-of-sale revenues, indicating that Lifetime's top line performance exceeded the broader market across our categories. Despite these macro pressures, we delivered strong bottom line growth driven by gross margin of 40.5% for the quarter, exceeding expectations and surpassing that of our first quarter last year. This was a result of benefits from favorable product mix, new product introduction, and stability in our supply chain. Further, our margin expansion and increased profitability, despite challenges in the underlying markets, underscores our continued focus on disciplined expense management as we balance investment and growth with delivering financial results. Beginning with our core U.S. business, We delivered solid results in the first quarter and performed well in comparison to the market and our peers. As widely reported for the quarter, end markets across our industry experienced a dip in demand, leading to decreased shipment volume among retailers. One factor which contributed to our decline in shipments was a lowering of in-stock levels at certain retailers, particularly in e-commerce. Lifetime tracked a noticeable divergence between shipments and sell-through rates with these retailers, which speaks to the continued customer and consumer receptivity to our products. We are confident that as demand returns, we will see a corresponding rebound in shipment activities to normal levels. I'll now discuss our international business, where we continue to focus on investing in growth and improving our performance across each of our end markets. While our investments broadly are bearing fruit and supporting share gains, the ongoing recessionary environment in the UK continues to put significant pressure on demand for the market. In the first quarter, we saw a substantial decline in UK order volume during the period resulting from a temporary decrease in shipment volume from a major customer and sluggishness in the independent and specialty retail channels. However, we expect volume to return to normal levels in the coming months, particularly driven by recent incremental placement at national retailers and a rebound in the e-commerce channel, which we have begun to experience. Turning to our other international markets, in Asia Pacific, we continue to realize the significant benefits of the change in our go-to-market strategy in Australia and New Zealand, where we are consistently gaining new customers and seeing higher margins. Additionally, our markets throughout Southeastern Asia are benefiting from the infrastructure investments we've made over the last several quarters, and we are confident that the solid volume growth and pickup and sales rates we are seeing in those regions will continue throughout 2024. In the European markets and predominantly in our core UK market, after a strong start to the year, we saw a meaningful drop-off in shipments in March, driven by poor retail sales across all channels and a shutdown in shipments to our largest customer, which is in the e-commerce channel, for nearly a six week period. This had an adverse impact for our international segment results for the quarter, which were basically flat to prior year, but below our expectations. Although our international segment was not favorable in terms of contribution margin for the quarter, we remain confident this segment will produce a meaningful improvement in contribution margin for the full year. based upon the actions we have previously taken and some momentum we are starting to see in market share gains, which I will talk about in a moment. Turning to our growth initiatives. First, let me address our progress in our food service business. We are continuing to gain shares through our Mercasa Hospitality product line and remain on a path to deliver $30 million in revenue from our food service business for the fiscal year. We remain excited about the opportunity in this business, which continues to gain traction with customers and build a book of business that will serve as a solid base for this foreseeable future. In e-commerce, our sales for the quarter were impacted by inventory rationalization efforts, as safety stock levels at our largest e-commerce customer were significantly reduced, leading to meaningful decreases in order volume. We believe this will be a temporary pause as sell-through data across all of our categories was strong, and we picked up share in nearly all of our categories. Accordingly, we expect to see robust performance in this channel throughout 2024. New product development is one of Lifetime's core capabilities that provides us with a competitive advantage. We remain excited about our robust product pipeline, where we have continued to invest in a challenging end market environment, which has further differentiated lifetime for many of our competitors. The Dolly Parton line of products we announced last year has now been introduced to our customers and is garnering significant interest. While we originally expected some shipments in the second quarter, Due to a change in shipment mechanics, shipments will begin in the third quarter and at this point will exceed our initial estimates. Further, while this line is being launched in the dollar channel, we are having meaningful conversations with other retailers about expansion across several categories. Our KitchenAid line is gaining strong traction in our international end markets. notably in continental Europe and Australia and New Zealand. As a result, there are numerous customers where we have either gained listings or expanded listings now that we have established a beachhead on-shelf at these customers. We will see the benefit of this strategy this year. Looking ahead, we are preparing to announce a new partnership that we are particularly excited about for our international geographies. We expect to launch it likely this year, but no later than next year. More to come on that front, but we believe these new product introductions and brand will translate to top line growth in our international segment in 2025. For our Swell product line, we received good reception following our brand relaunch as we sold through and out of many products, delivering sales above expectations. Notably, these shipments were exclusively online as we pursued this relaunch solely on Swell.com and e-commerce platforms. We will continue to roll out this re-energized Swell product line across multiple channels and are pleased with the direction of this line. Let me briefly touch on our supply chain. As I noted, stability in our supply chain was a contributor to the solid margin expansion we were able to deliver this quarter. To that end, we were pleased to lock in rates for our ocean freight contract at levels comparable to last year, offering us stability in this key cost factor. In Mexico, We are pleased with our continued progress bringing our plastics manufacturing facility online. The facility remains on track to reach full production capacity this year. We continue to be active in many geographies, including Mexico and across Asia. Product supply diversification will remain a priority for us moving forward as part of our continued efforts to strengthen and de-risk our supply chain by moving towards sourcing 25% of our goods outside of China. Turning now to our balance sheet. Our strong earnings and cash flows have provided us the flexibility to reduce our term loan balance by almost $100 million over the past 12 months. While maintaining historical high levels of liquidity, we are pleased to be approaching our target leverage ratio of three times or below. Our continued focus on disciplined expense management has helped us maintain strong levels of liquidity above historical norms, which affords us ample flexibility with respect to capital allocation. We continue to view the market as favorable for strategic acquisitions and remain open to opportunities for value-enhancing acquisitions that align with our priorities. We will continue to evaluate these opportunities as they arise. On that note, let me now turn to our financial guidance for 2024, which we issued in our release this morning. While we are closely monitoring the initial signs of pressure on retailer and market demand, that we observed this quarter, our outlook reflects our confidence that we are positioned to continue executing and creating value regardless of market conditions. We have growth opportunities already in our pipeline for the year and are eager to continue bringing new products to market and gaining share across categories. Our guidance is based on our belief that we can grow our top and bottom lines through net market share expansion and diligent operational and expense management. A rebound in our end markets will be accretive to our guidance. We note that due to timing factors, the expectation built into our full year guidance is for a slight decline in the second quarter with growth in quarters three and four and for the full year. In summary, we are operating from a position of strength as we head into the remainder of fiscal 2024. With strong momentum across our business and the flexibility to invest in our continued growth, we are well positioned to capture opportunities as demand improves and create meaningful value for our shareholders. With that, I'll now turn the call over to Larry to discuss financials in more detail.
spk05: Thanks, Rob. As we reported this morning, net loss the first quarter of 2024 was an improved $6.3 million, or $0.29 per diluted shares, compared to $8.8 million, or $0.41 per diluted share, in the first quarter of 2023. Adjusted net loss was $3.2 million. for the first quarter of 2024 or 15 cents for diluted share as compared to 2.6 million or 12 cents for diluted share in 2023. Income from operations was 1.8 million dollars in the first quarter of 24 as compared to a loss of 1.8 million in the 23 period. And adjusted income from operations for the first quarter of 24 was 5.7 million dollars compared to 3.4 million in the 23 period. Adjusted EBITDA, the trailing 12-month period ended March 31, 2024, was $59.5 million, an increase of $2.2 million from $57.3 million for full year 2023. Adjusted net loss, adjusted income from operations, and adjusted EBITDA are non-GAAP financial measures which are reconciled to our GAAP financial measure in the earnings release. Following comments for the first quarter of 2024 and 2023, unless stated otherwise. Consolidated sales declined by 2.2%. U.S. segment sales decreased by 2.3% to $130.5 million. As Rob commented, a key factor was lower in stock levels at certain retailers. Within this segment, the decrease occurred in home solutions and kitchenware categories. Home solutions decline was due to lower hydration products, and tailored bath measurement products. Kitchenware's decline was from kitchen tools and barware, partially offset by an increase for cutlery and boards. The segment's decrease was partially offset by an increase in the tableware category due to a new warehouse club program. International segment sales were down 1.6% or $200,000, or $700,000 in constant US dollars to $11.7 million. As Rob commented, this slight decrease was due to the ongoing recessionary environment in the UK and a drop-off of shipments in March from a temporary decrease in shipments to a major customer. The decrease was partially offset by higher sales in Asia. Gross margin increased to 40.5% from 37%. U.S. segment gross margin increased to 40.8% from 36.6%. The improvement was due to low inbound freight cost and favorable product mix. International gross margin decreased to 35.9% from 42% as the prior year benefited from a very favorable currency hedge. Excluding the hedge benefit, the current quarter's gross margin improved on better product mix and lower container cost. U.S. distribution expenses as the percentages of goods shipped from its warehouses with 10.5% in both quarters. The significant inventory reduction during 23 resulted in second order benefits of more efficient labor utilization and lower facility expenses in the current quarter. These benefits were offset by a temporary surcharge rate on domestic shipments. International segment distribution expenses as a percentage of goods shipped from its warehouses with 23.6% versus The improvement was due to lower outbound freight rates obtained from a new carrier. Selling, general, and administrative expenses increased by 4.2% to $39.5 million. The U.S. segment expenses increased by $1.5 million to $30.8 million. As a percentage of net sales, expenses increased to 23.6% from $21.9 million. The increase is driven by inflationary factors and mostly affecting employee expenses, the largest component of SG&A. Other increases included legal expenses and expenses related to the startup of the company's manufacturing operations in Mexico. Allowances for bad debt declined as last year included a charge-off for Bed Bath & Beyond. International SG&A expense increased by $600,000 to $4.2 million. As a percentage of net sales, it increased to 35.9% and 30%. As in the US, the increase was driven by inflationary factors and mostly affected by employee expenses. In addition, the current quarter reflects an unfavorable impact of foreign currency translation. Unallocated corporate expenses decreased by $500,000 to $4.5 million due to lower professional expenses. Interest expense, excluding a mark-to-market adjustment for swaps, increased by $300,000 due to higher interest rates on our variable rate debt, partially offset by lower average borrowings. For income taxes for the current quarter, the tax revision rate differs from the federal statutory income tax rate, primarily due to equity-based awards where the book expense exceeded the tax deduction and foreign losses for which no tax benefit was recognized. The effective tax rate for the prior year's quarter differs from the federal statutory rate, primarily due to state and local tax, as well as the impact of non-deductible expenses and foreign losses for which no tax benefit is recognized. Related to our 24.7 percent interest in Cuba-Basconia, the passive investment we record a loss of 2.1 million. Our investment in Grupo Vasconia is now fully written off. On April 29th of this year, Vasconia shareholders approved a resolution to a reorganization process in accordance with the law of commercial bankruptcy in Mexico. We will evaluate the impact of this on our accounting for the investment, noting that a loss of significant influence over Grupo Vasconia may result in a non-cash loss of 14.2 million that would be reclassified from the statement of other comprehensive loss to the statement of operations. Turn to our balance sheet, we continue to be quite strong. As of March 31st, 24, our liquidity was approximately 125 million, which included cash plus availability under our credit facility and receivable purchase agreement. This is achieved notwithstanding the reduction of the term loan by $96 million over the past 12 months, plus $9.5 million of term loan original issue discount and fees. At quarter end, our debt to adjusted EBITDA leverage ratio was 3.3 times versus 3.4 times at year end 23, and significantly improved from 4.4 times at March 31 of 2023. Finally, as discussed in the release, we are issuing financial guidance for the full year of 2024 as follows. Net sales of 690 to 730 million, adjusted income from operations of 49 million to 54 million, adjusted net income of 15 million to 17 million, and adjusted EBITDA of 57.5 million to 62.5 million. This concludes our prepared comments. Operator, please open the line for questions.
spk02: Thank you. We are now opening the floor for question and answer session. If you'd like to ask a question, please press star and number one on your telephone keypad. Our first question comes from Anthony Libinski from Sidoti Company. Your line is now open.
spk04: Good morning and thank you for taking the questions. So first, In regards to your first quarter commentary in the international segment, so it sounds like there was a big drop-off there in March. As far as the core U.S. segment, were the sales kind of more even by month, or did you see any substantial variations? Just wondering about how the quarter flowed.
spk01: Unrelated, but We did see a softer March and a stronger start of the year in the US markets as well. But the UK business, while the UK market is sluggish as we talked about, they were beating and having a very strong January and February but then primarily driven by being shut down by their largest customer, no shipments, at a very bad march, and that put them into this fight to climb.
spk04: Understood. Okay. And then, Robin, in terms of your commentary about the second quarter sales being down, is that mostly because of the Dolly Parton merchandise shifting from April to the third quarter, or is there anything else driving that?
spk01: It's really not related to that, Anthony. While we initially expected to start shipping Dolly in the second quarter, it wasn't substantial. It's just that we're going to ship nothing or maybe 100,000. We're expected to ship maybe half a million or so. So it's just timing, and it's informational. The reason... for decline is just seasonality and how the business rolled in last year versus this year in terms of different programs. So it's just timing of how last year played out versus this year. So the comps are different quarter to quarter. And that's why you'll see that drop off and then pick up, not related to the Dolly Parton launch.
spk04: Okay, so thanks for clarifying that, Rob. And then, you know, certainly it was nice to see the gross margin improving here in the quarter. How sustainable is that improvement, do you think, going forward?
spk05: That was timing having to do with how we recognize in inventory the savings that hit the first quarter. That's not going to be maintained for the balance of the year.
spk04: Okay.
spk05: Excuse me, Anthony, you're talking about the gross margin, right? The comment about gross margin?
spk04: That's correct. Yeah, I was talking about the gross margin.
spk05: Right. So it should be better because we had this big pickup in the first quarter. So it should be better than last year, but it's not going to be sustained at that level for the remainder of the year.
spk01: Right. Year over year, they'll be higher, right? And as we've talked, we've locked in things, but we're not going to see an increasing trend.
spk05: Right. Don't expect 40% for the full year.
spk04: Okay. That's good that you clarified that. And then lastly, before I pass it on... That's reflected in our guidance.
spk01: And that's reflected in our guidance.
spk04: Of course. Right, right. I guess my last question before I pass it on to others is you talked about the
spk01: potential acquisitions it's just wondering you know how strong is your appetite for that and then you know in terms of valuation multiples what are you seeing that out there in the marketplace now it's um our appetite is strong you know but as we've done as you've seen us done do uh you know we'll maintain discipline right so there's a lot we could have been announcing to the public you know for a while now but we just maintain discipline and we're not willing to do something less you know we're confident in it. We have seen valuations being much more attractive than they've been for over a decade, particularly for strategic because financials are less competitive in this market. Cost of debt is higher and the availability of debt is lower, so they have to put in more equity, therefore valuations are down for them. And that's helped the whole market and given an edge to strategic. So we are interested. The availability of product is out there. In many cases, again, an advantage for a strategic is you need people who can add value and not on a standalone basis. So we are active. We are looking, but we'll maintain our discipline.
spk04: All right. That's good to hear. Thank you very much, and best of luck. Thank you, Anthony.
spk02: Our next question comes from . Your line is now open. Good morning, guys.
spk03: Thanks for taking the question. I guess my first one, as we look at, you know, the guidance supplies, a pickup of growth on the top line this year, which kind of investors have been waiting for. after I guess Q2, like when we look at H2 forward, should we kind of return to more consistent, predictive, top line growth from your perspective and kind of how should that look like?
spk01: Yeah, Brian, as we talked about, you know, there's still not tremendous visibility and we're not assuming big growth in the end markets and have not factored that into our guidance. If that happens, that's accretive. This is driven by stuff that we have in the pipeline. So new product introduction and new launches and gaining share is what is driving our growth in the second half.
spk03: Okay. And then on, this is probably a broader question, but your stock has traded about 9,000 shares since the market opened on an earnings day. So Larry, you've been pretty vocal about your view that the stock's undervalued, but Does it make sense to be a public company? I know it's a big question here, but investors can't buy it because it doesn't have liquidity. So I'm just curious how you guys think about that in terms of getting the value that you work hard to and that you think you deserve.
spk01: Yeah, we do think there's an intrinsic value gap, and management and the board will assess different paths to realize that value. But we do recognize that gap that needs to be addressed.
spk03: And then my last one is, like, I guess what products do you have out in the marketplace right now that have been, you know, surprises, both pleasant and maybe, you know, not so good? And kind of what's your relative hit or miss rate in a typical year in terms of new product launches?
spk01: That's – hard to answer. We launch so much and in so many different levels. Some of it is just what we refer to as lipstick on the pig. We're just taking something that we used to sell in blue, we sell it in white. There's different reasons why we're launching things. If you look at beautiful, if you look at totally white space, I should say, You know, we launched Beautiful in multiple categories. It is growing. It's highly successful and grown where we already had major share at Walmart in terms of cutlery. But we also launched it in tools in Walmart where we are the number one provider as well. It did not do so well, so we're no longer selling that, right? So, you know, you've got a hit and a miss, right, in that one. We're highly confident in Dolly, which is all incremental. It gets us into a new channel, the pretty much channel we don't sell, which is dollar channel. But we're very bullish on the Dolly line based upon the tremendous feedback we've gotten from everyone we speak to and demand of stuff that we're not even selling yet. So that doesn't guarantee success. But we think that, again, we're very bullish. We think that that will work. And there were things that we launched in the last year which didn't. They were much smaller, so we didn't really talk to them. Fortunately, our biggest one that we're launching seems to have very good traction.
spk03: All right. I'll leave it there. Thanks a lot, guys. Best of luck. Thanks.
spk02: Next question comes from Linda Weiser from Davidson. Your line is now open.
spk06: Yes, hi. So I was curious, in the markets where the consumer is particularly weak, I guess UK especially, are you thinking about making some changes to your merchandising plans or your product mix or your marketing plans, like maybe introducing more lower price point items? I know that Your items are relatively low in price point anyways, but just how are you changing your plans? I mean, given sort of the sustaining consumer weakness in some regions.
spk01: Yeah, well, starting with the U.K. that you talked about, the business historically was very dependent upon independence and specialty and what they call cook-stops. And what we've done is to reposition what we're selling and where we're selling. So we've picked up and we're doing more with Dun Elm and Next and the national retailers there. We're doing a similar strategy in continental Europe, picking up Etica and Carrefour and larger players in the major geographies. So it's really a strategy that's more shifted to channel that has a price implication in terms of your sell points as well and what you're selling, so we had to have the right product for that. Secondarily is we've been exploiting, because we didn't know we'd have KitchenAid International, and when we got that, we've been selling that and we're now positioning, and that's giving us a beachhead because many, particularly retailers and larger retailers, are very interested and want the KitchenAid brand. And now that we're getting that in there, we're now selling our complete portfolio. So those are our two main prongs that we've implemented, which is different from how we did business in the past.
spk06: Okay. And then on Mikasa Hospitality, is there any way of telling us roughly the sales level roughly in 2023? And then what kind of growth rate you're expecting in 2024?
spk01: So, yeah, our food service business was in the neighborhood of $20 million, of which Mikasa Hospitality, you know, was a very small piece of that for 2023. It'll grow five-fold in 2024 at a minimum based upon what we believe we've already achieved. That means the Mikasa Hospitality piece. The rest of the business will grow like 5%. And that combined will get us, we believe, close to or over $30 million that we talked about.
spk06: So for $30 million total in 2024?
spk01: Yes.
spk06: Okay, great.
spk01: And then... Versus $20 million in 2023, right, Linda?
spk06: Yeah, gotcha. Yep, thank you. And then, sorry, I missed this a little bit or I didn't understand. The Dolly Parton, you said there's a possibility of expanding it. Did you say into another retailer in the Dollar Channel or even beyond the Dollar Channel? I didn't quite catch that.
spk01: Yeah, so when we launched Dolly, it's not an exclusive in the Dollar Channel, but we did – it allowed us to get into the Dollar Channel, so we launched it first – in the dollar channel with one retailer, the largest player in the dollar channel. We are in conversations to sell it in many other, too many other customers that we traditionally do business with outside the dollar channel.
spk06: Okay. And what would be the timing of that potential expansion? Would it be not until next year, 2025, or...?
spk01: There might be some that ships likely 2025, yes. But there's a chance of some in 2024, but most likely 2025.
spk06: Okay. And then I was curious, on the cost side, you mentioned the freight that you had contracted for that to be fairly flattish going in the next year. which is good. What are you seeing more on the commodity side, just given that there's been some little increase in oil and things like that? What are you seeing in the rest of the cost base?
spk01: We have been very effective in reducing our cost of goods sold, not just in freight, and we don't see inflationary pressures on that. And in this End market environment, it's kind of a buyer's market, and you can translate that into being more aggressive on cost.
spk06: Okay. That's it for me. Thank you very much.
spk07: Thank you, Linda.
spk02: As of right now, we don't have any raised hands, and I'd like to hand back over to Rob K. for final remarks.
spk01: Thank you, and thank you to everyone for spending your time and listening on our call, and we look forward to continued dialogue. Have a great day.
spk02: Thank you so much for attending today's call. Have a wonderful day. You may now disconnect.
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