Lifetime Brands, Inc.

Good morning, ladies and gentlemen, and welcome to Lifetime Brands' second quarter 2024 earnings conference call. At this time, I would like to inform all participants that their lines will be in listen-only mode. After the speaker's remarks, there will be a question and answer portion of the call. If you would like to ask a question during this time, please press star 1 on your telephone keypad. I would now like to introduce your host for today's conference, Carly King, Ms. King, you may begin.

Thank you. Good morning, and thank you for joining Lifetime Brands' second 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 development. 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.

Thank you. Good morning, everyone, and thank you for joining us today. Our second quarter results were in line with our expectations, even though macroeconomic pressures led to weakened demand across end markets. Despite these headwinds, We are pleased to report that we continue to execute on our plan for the full year and are making progress toward completing several strategic initiatives which will bolster our full year performance. This includes increasing market share in a majority of our categories, delivering year-over-year e-commerce growth in our core US market, and expanding gross margins. Our ability to deliver solid performance fight challenges in our operating environment is a testament to the work we have done to strengthen our business model, and we are pleased to have delivered another quarter of outperformance in comparison to the market and our peers. In the second quarter, we delivered $141.7 million in net sales compared to $146.4 million in the same period last year. Over the last 12 months, we have generated an adjusted EBITDA of $56.6 million. The drag on net sales reflected a sluggish market in combination with overall seasonal timing impacts in the second quarter for our core U.S. business. Despite weakened demand, we grew market share across the majority of our categories on a year-over-year basis, a testament to the fact that our leading portfolio of brands continues to resonate with customers. The level of decline observed this quarter was in line with our expectations and the macroeconomic headwinds were largely baked into the guidance we provided last year for the full year. We believe that lifetime results will improve the back half of the year as we execute our operational plan and we continue to expect to deliver in line with our expectations for 2024. Turning to our international segment. In Europe, the impact of the UK's economic recession has persisted, which has prevented any meaningful recovery in demand. We continue to take action to offset the recessionary impacts including implementing changes to our UK sales strategy to shift our legacy focus away from independent retailers and specialty cook shops and prioritizing larger national accounts. This pivot is already paying dividends as we were able to maintain relatively flat sales for the segment despite turbulent market conditions. We are also seeing the impact of the ongoing conflict in the Red Sea as rerouted shipments are taking longer to reach Europe. This has resulted in a need to increase safety stock and therefore an increased investment in additional inventory which will help mitigate these impacts. In Asia Pacific, we continue to gain traction in terms of both listings and brands in Australia and New Zealand as a result of our change in go-to-market strategy. We are now in the second phase of this two-step process where we would discontinue our partnership with our distributor in the region and move to building out our own infrastructure. Once complete, this will allow us to implement a fully direct APAC sales strategy. Turning now to some of our growth initiatives, we are pleased with the incredible success of our Dolly Parton line of products, which was successfully launched in this second quarter and has performed above our and our customers' expectations. While last quarter we signaled that we did not expect to be able to begin shipping until the third quarter, we were able to begin shipments in the second quarter. While the majority of shipments have not yet completed, initial sell-through numbers have greatly exceeded expectations. We expect that this outperformance will continue through the rest of the year and translate to revenue impact in the third and fourth quarters. We now believe shipments of Dolly to the Dollar Channel will exceed $10 million in 2024. Building on this strong initial momentum, we are already in discussions with additional customers for 2025 shipment. In our food service business, Though we experienced a slight slowdown in these end markets this quarter, we continue to gain market share and remain optimistic based on the continued new listings that we have won that will see meaningful growth this year and in 2025. Our e-commerce business continues to be a major growth driver. This quarter, e-commerce sales represented 18.9% of revenues compared to 18.1% in the same period last year. We once again had a very successful Amazon Prime Day with total company sales up 23% over the prior year. This compares favorably with the overall Amazon Prime Day sales growth of 11%. Turning now to our supply chain. While ocean freight costs have been increasing as a result of geopolitical conditions and due to vessel and container availability levels, we believe these levels have now stabilized and will remain fixed at the higher base for the foreseeable future. We are managing all input costs across the business and have been successful in decreasing product COGS in many areas. This has translated to margin expansion this quarter despite these ocean freight increases. In Mexico, our plastics manufacturing facility remains on schedule to reach full production capacity this year. We have taken a measured approach to ramping up this facility to ensure we achieve high quality output and build the appropriate product mix being produced in this facility. Additionally, we continue to drive forward on our efforts to have approximately 25% of our spend on goods being sourced outside of China and remain on track to meeting this target. We are focused on expanding our sourcing capability in additional geographies with a primary focus on Southeast Asia and expect to begin shipping out of new locations in the near term. Our manufacturing partners in the region are working with us to set up new factories outside of China in order to accommodate this expansion, and we are already in the process of transferring production of one of our largest SKUs, which represents nearly 10 million unit sales a year, to one such facility. I'd now like to provide some high-level color around our balance sheet, which Larry will discuss in greater detail shortly. Typically, liquidity is most drained during the second quarter as a result of seasonal business trends. However, our continued focus on operating the business efficiently and using disciplined cash management has allowed us to maintain strong levels of liquidity. For example, we are paying close attention to challenges facing retailers in this environment and have placed certain customers on credit holds to limit our exposure. While a credit hold has a negative impact on near-term sales, we believe this is operationally prudent. We are comfortable with our leverage ratio and pleased with our cash generation levels despite headwinds in the environment. We continue to view the market as favorable for acquisitions and have an active slate of M&A opportunities in our pipeline. We expect to continue to progress discussions regarding these potential opportunities in the coming months and will keep the market updated of all strategic initiatives. I'd like to briefly touch on the non-cash loss we recorded in the second quarter related to our equity investment in Grupo Basconia, a housewares company in Mexico. In the second quarter, the company discontinued the equity method of accounting for this investment, which resulted in the non-cash loss of $14.2 million to record the investment at its fair value. It is important to note that this does not negatively impact our cash flow and is consistent with our view that this stranded asset from an investment made in 2007 is not strategic to our company. Let me expand further on our financial guidance for the full year of 2024. In our press release this morning, we revised our guidance for net loss as a result of the non-cash loss related to the non-cash write-down of $14.2 million on our Grupo Vasconi investment. Apart from this adjustment, we continue to expect results for the full year in line with our previously shared expectations for all other metrics. We are carefully monitoring the headwinds we saw over the last few months, and as we head into the next quarter, however, our reiterated outlook reflects our confidence in our ability to continue executing and delivering results driven by the strategic initiatives we have in place. As we look ahead to the remainder of the year, we believe we are well positioned to continue to grow market share and create value as demand rebounds. We have a strong foundation in place thanks to the significant work completed over the last several years to increase the resiliency of our business model. We look forward to keeping you updated on our progress as we continue expanding our leading portfolio of brands, driving innovation, and delivering operational excellence. With that, I'll now turn the call over to Larry.