Lifetime Brands, Inc.

Good morning, ladies and gentlemen, and welcome to the Lifetime Brands third quarter 2025 earnings conference call. At this time, I would like to inform all participants that their lines will be in a 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 touchtone telephone. Please note that this conference is being recorded. I would now like to introduce our host for today's conference, Jamie Kirchhen, Mr. Cochin, you may go ahead now.

Good morning, and thank you for joining Lifetime Brands' third quarter 2025 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 of the company, and these statements are intended to qualify for the safe harbor protection from liability established by the Private Security Litigation Reform Act. Any such statements are not guarantees of future performance and factors that could influence our results are highlighted in our earnings 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 our earnings 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, and good morning.

As we discussed last quarter, the second quarter was shaped by a unique set of external pressures most notably the sudden tariff swings that disrupted shipping patterns across our industry. Coming into the third quarter, we expected a move towards normalization, and that is what we've seen, although in a still choppy environment as tariff rates have continued to fluctuate in both directions. We saw the new 232 tariffs. implemented on steel content imported across all geographies. Most recently, there has been announced 10% reduction of tariffs assessed against imports from China. Even before this tariff reduction, Lifetime had seen a more favorable all-in cost basis from China for many of our product categories in the current tariff environment. We anticipate that this will further improve with the latest 10% tariff reduction. The current macroeconomic backdrop and end market environment have created an environment that we expect will persist until greater stability returns to the global trade environment. As has occurred historically, stability at whatever tariff levels has resulted in a return to normalcy with our customer base and in our end markets. We fully expect to see this same trend return. Third quarter saw a decline in shipments across most consumer categories. According to the U.S. Bureau of Labor Statistics, the general merchandise category saw a decline in shipments of approximately 6.1% for the quarter. Lifetime shipments were basically in line with this metric, and we believe compares favorably to many of our peers. We remain confident that our proactive actions and deep expertise in navigating periods of uncertainty will favorably position lifetime for above average growth in a return to a normal operating environment. Of note, the overall end market demand continues to evolve driven partly by the current macro environment. You will increasingly hear about the K-shaped economy, where there is a trending diversion of outcomes between different age and demographic groups. We are closely monitoring these trends to optimize our footprint among positive trends in consumer spending. Along these lines, we remain wary of a slightly downtrend for this holiday season. However, expect that shipments to two of our three largest customers will rebound in the fourth quarter due to a shift of orders from the third quarter to the fourth quarter. The near-term volatility created by the current tariff landscape remains challenging, but Lifetime has navigated environments like this before. The steps we took early in the year, including expanding sourcing in Mexico and Southeast Asia, implementing targeted pricing actions, and tightening cost controls have all proven effective. Our tariff mitigation strategy is now fully in place and performing as intended. While some manufacturing has shifted back to China due to the current trade realities I just mentioned, the flexibility of our supply chain allows us to pivot quickly as conditions evolve. Importantly, The diverse geographic footprint that we set out to establish for our product country of origin is firmly in place and we are positioned to adjust our sourcing across regions in response to evolving political and economic conditions. The results for the third quarter reflect disciplined cost management, ongoing progress under Project Concord, and continued enhancements in operational efficiency across our platform. Company-wide, we have further streamlined processes, eliminated redundancies, and captured tangible savings that are reflected in our results. SG&A expenses in the U.S. are down over 5% year over year. On Concord, we're approaching the finish line on the major initiatives we established. and will evaluate after year end whether the progress achieved warrants a next phase of optimization. Operationally, the business is performing well in the areas within our control. In a down market, our international segment again showed progress on top and bottom line, benefiting from our strategic shift towards major retailers in markets like Australia and New Zealand and the European continent. The strength of those relationships coupled with our globally recognized brand portfolio, continues to differentiate lifetime and further strengthen our competitive position. Specifically, Paris remained disruptive across all categories, with certain segments like dinnerware and the club channel experienced deferred shipments that we expect will move into 2026. However, our multi-pronged pricing strategy will offset much of the cost impact. moving forward as it has been fully implemented for all tariffs announced through the third quarter with the exception of the 232 tariff price increases, which have been passed through to our customer base in this quarter and will be fully implemented before the end of the fourth quarter. These pricing actions are intended to preserve and sustain our gross margin dollar. It's worth noting that some peers are struggling to adapt with slow reaction on pricing actions and a lack of adequate infrastructure to implement a diversified manufacturing strategy as well as the system capabilities to manage the complex and changing customs, cost, and pricing environment. Lifetime is benefiting. from higher deal flow as we believe that financially pressured competitors are looking for partnership or sale opportunities. That dynamic supports our ongoing M&A strategy where we continue to make progress. Innovation also remains central to our growth strategy. We're continuing to launch new products that align with consumer trends and retailer demand. The Dolly line and the expanded build-a-board collection have performed well, reaffirming our ability to identify trends early and bring to market at scale. In hydration, our new glass bottle line under the Swell brand has launched successfully and will be expanded shortly to capture additional market opportunities in the hydration category. From a macro perspective, we continue to believe the consumer will remain cautious through the holiday period. Their early indications of seasonal sell-through are encouraging. With an average product price point below $10, Lifetime's portfolio continues to resonate with households seeking quality and value, a key strength in uncertain times. Liquidity remains solid at $51 million and adjusted EBITDA for the trailing 12 months ended September 30th was $47.2 million. This solid financial position allows us to continue investing selectively in areas that will drive long-term profitability and shareholder value. Stepping back, 2025 thus far has been a transitional year, but an important one. The second quarter appears to have represented the trough of tariff-related disruption, and the third quarter marks tangible progress towards the beginning of normalization. The actions we've taken under Project Concord combined with disciplined cost management and proactive sourcing diversification have meaningful improved the quality of our earnings and the resilience of our business. As I said last quarter, our goal is to control what we can control and we are doing just that. As the broader market stabilizes, we expect the groundwork we've laid this year to translate into stronger performance, greater efficiency, and renewed growth momentum in 2026 and beyond. Particularly, we expect the current headwinds across the consumer products industry to drive further disruption as many undercapitalized participants face increasing challenges meeting the operational and financial demands required to remain competitive in rapidly changing environments. These needs require a tremendous effort in supply chain management, system requirements, and balance sheet depth to effectively mitigate the trade war impact and remain relevant and present to the retail community and consumers. Frankly, many smaller and some of our larger competitors are not adequately addressing these needs and are not providing for a consistent quality supply of products while adhering to the frequently changing legal requirements created over the past year. Ultimately, those companies will not be able to sustain this current operating modus operandi. This will result in a streamlining of the participants in the consumer products industry and create opportunities for those that have the resources and have managed efficiently and appropriately through this environment. At this end, we are confident that lifetime is well positioned to thrive as normalization returns to the global and domestic markets for our categories. Thank you, and with that, I'll turn the call over to Larry to review the financials in more detail.

Thanks, Rob. As we reported this morning, the net loss for the third quarter of 2025 was $1.2 million, or $0.05 per diluted shares, compared to net income of 0.3 million or 2 cents per diluted share in third quarter of 2024. Adjusted net income was $2.5 million for the third quarter of 2025 or 11 cents per shares compared to 4.5 million or 21 cents per diluted share in 2024. Income from operations was 6.7 million in the third quarter of 2025 as compared to 8.6 million in the 2024 period. An adjusted income from operations for the third quarter of 25 was $11.5 million compared to $13.2 million in the 24 period. Adjusted EBITDA for the trillion 12-month period ended September 30 at 25 was $47.2 million. Adjusted net income, adjusted income from operations, and adjusted EBITDA are non-GAAP financial measures which are reconciled to our GAAP financial measures in the earnings release. Following comments up to the third quarter of 2025 and 2024, unless stated otherwise. Consolidated sales declined by 6.5% to 171.9 million. U.S. segment sales decreased by 7.1% to 158.1 million. Sales were favorably impacted by the initiation of our planned increase in selling prices to offset higher tariffs on products sourced from outside the U.S., However, we experienced a decline in unit sales from dampened consumer demand, and for some retailers, a shift in the timing of their orders. Within the segment, product line decreases were primarily in tableware, which was most affected by the retail order shifts. International segment sales increased by 1.5% to 13.8 million, And excluding the impact of foreign exchange translation, the decrease was 2.7%, predominantly in Europe, but partially offset by higher sales in the Asia Pacific region. Consolidated gross margin decreased to 35.1 from 36.7%. U.S. segment gross margin decreased to 35.1 from 36.8%. The decrease in the gross margin percentage was primarily due to higher selling prices to offset higher tariffs. As Rob commented, our pricing actions were designed to maintain gross margin dollars, which arithmetically results in a lower gross margin percentage. International gross margin increased to 35.5 to 34.6%, driven by favorable customer and product mix. U.S. segment distribution expenses as a percentage of goods shipped from its warehouses excluding non-recurring expenses was 8.5% versus 10.1%. The decrease was attributable to improved labor management efficiencies resulting in decreased employee expenses, lower depreciation expenses due to change in asset retirement estimates in the prior year. The decrease was partially offset by higher software expenses for the warehouse management system implemented in September of 2024. International segment distribution expense as a percentage of good shift from its warehouses improved to 22.6% from 24.2. The improvement was due to lower freight out expenses and higher shipment volume resulting in better absorption of fixed expenses. Selling general and administrative expenses decreased by 8.5% to 35.5 million. In the U.S., the expense decreased by 1.5 million to 28.4 million, and as a percentage of net sales, the expense increased to 18% from 17.6. The decrease in expenses due to lower employee expenses, including incentive compensation, partially offset by an increase in amortization expense related to a trade name previously considered indefinite life. The increase in percentage of net sales was attributable to the impact of fixed costs on lowest sales line. International SG&A expenses decreased by $1.1 million to $3.4 million. As the percentage of net sale, the expense ratio improved to 24.6% from 33.1%. The decrease was due to lower employee expenses and low selling expenses, and a prior year included a regulatory expense. An allocated corporate expense decreased to $33.7 million from $4.3 million due to low incentive compensation and legal expenses. Interest expense, excluding mark-to-market adjustment for swaps, decreased by $0.8 million due to lower average outstanding borrowings and lower interest rates on those outstanding borrowings. And the income tax rate for the current period differs from the federal statutory rate of 21%, primarily due to the impact of nondeductible expenses, which no tax benefit is recognized, and a partial valuation allowance on U.S. tax asset as a result of goodwill impairment in the second quarter. In 2024, the rate difference is primarily due to foreign losses for which no tax benefit was recognized. Looking at our balance sheet, it continues to be strong despite the challenges from high tariff rates. Our debt level increased from the second quarter reflects seasonal working capital needs, including an additional $13 million of inventory costs due to higher tariffs. At quarter end, our liquidity was approximately $51 million, which includes cash plus availability under our credit facility and receivable purchase agreement. Now, adjusted EBITDA to net debt ratio as of September 30th was 4.2 times. This concludes our prepared comments. Operator, please open the line for questions.

Thank you. We will now begin the question-answer session. If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star and 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. We will wait for a moment while the question queue assembles. We have the first question from the line of Anthony from Sedotian Company.

Please go ahead. Good morning, everyone, and thanks for taking the questions. So first, is there any way that you guys could quantify what the magnitude of the revenue shift was for a couple of your large customers, Rob, as you called out in your remarks?

Not at this time, Anthony.

Okay. And then, you know, thinking about pricing versus unit volumes, I know you did some price increases in the quarter. Can you give us some more information about that and how should we think about the fourth quarter as it relates to pricing? And I don't know if you can answer anything about the unit volumes about it. If you could talk about pricing, that'd be great.

Yeah, well, I'll start off by saying that in our analysis, it appears that our price increase approximately offsets the traditional tariffs, and that was our objective. So that's good. That's as planned. In terms of the impact of these price increases on sales, it's a couple of percentage points. You know, it's still being phased in. It doesn't happen all at once and for all customers, so it will have additional impact in the fourth quarter.

Yeah, thanks, Larry. And are you referring to the Section 232 tariffs here for the fourth quarter? I know it's hard to keep up with all the changing tariff rates, but as far as the Section 232, whether that's already included in your outlook?

A little of both. I mean, by the end of the third quarter, except for the 232 tariffs, everything has been implemented, but it wasn't implemented day one and two, three. Right. So there's not a full quarter.

Okay. Gotcha. All right. All right. And then, um, can you give us a sense as to, uh, you know, what your product sourcing is, uh, now, nowadays, um, especially as it relates to china i know you said that some production have shifted back to china but to just help us better understand kind of where you are with that at this point yeah it's fluctuated a lot um so like we had moved um you know production to um

India, but when the 50% tariffs were put in India, we basically stopped doing business with India because it became uneconomical to do so. We've finished our build-out substantially of a lot of the Southeast Asian geographies, so we're shipping meaningfully from Cambodia and Malaysia and other geographies. But again, we started in the third quarter experiencing infrastructure problems. So you couldn't get containers out of Vietnam. We had Vietnam and Cambodia shipping through. So again, we shifted that back to China. So we'd have continuity of supply. And in today's environment, as I mentioned, the economics are favorable, all in, including tariffs. with China so while we are targeted and we could easily move even today 80% of production out of China it won't be by year end because in today's economic environment that would be today's tariff environment that would be harm the economics so we can flex it and a lot of our factories in Southeast Asia overlap ownership with the factories in China so we can shift very easily back and forth.

Gotcha. Okay. And then lastly for me, what types of M&A opportunities are you guys looking at and what are you seeing in terms of valuation multiples nowadays?

So we are actively engaged. We're seeing a lot in our own space, which would be highly synergistic just from the customer eliminations and some that are more vertically oriented to our current footprint. In this environment, particularly since the financial buyers are not participating, we're seeing a meaningful reduction in valuation. So we're seeing good valuations from a combination of A, Generally, the market valuations are down, and B, we're looking at opportunities that have meaningful synergies and cost eliminations, which leverages that multiple down further.

All right. Well, that's good to hear, and best of luck.

Thanks, Anthony.

Thank you. This concludes our question and answer session. I would now like to hand the conference over to Rob for closing comments.

Thank you. And as always, thanks everyone for listening to our call and your interest in Lifetime Brands. We look to communicating with people in the near future. And as always, Larry and I remain available for anyone who wants to be cast directly. Thank you and have a great day.

Thank you. Everyone else has left the call.