Q4 2020 Lifetime Brands Inc Earnings Call
Ladies and gentlemen, this is the operator todays conference call is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.
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Yeah.
Good morning, ladies and gentlemen, and welcome to lifetime brands fourth quarter and full year 2020 earnings conference call. At this time I would like to inform all participants that their lines will be in listen only mode. After the Speakers' remarks, there will be a question and answer period.
We would like to ask a question. During this time. Please press star one on your telephone keypad I would now like to introduce your host for today's conference Andrew Squire. Mr. Squire you may begin.
Thank you good morning, and thank you for joining lifetime brands fourth quarter 2020 earnings call.
With us today from management are Rob Kay Chief Executive Officer, and Larry <unk>, 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 liability established from the private Securities Litigation Reform Act.
Such statements are not guarantees of future performance and factors that could influence. Our results are highlighted in today's press release from others are contained in our filings with the Securities and Exchange Commission.
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 to 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 to discuss lifetime brands fourth quarter and full year 2020 financial results.
We are very pleased with our performance in the fourth quarter, which marks another quarter driving significant value for our stakeholders.
Our results this quarter reflect the continued strong demand.
For our products and our ability to outperform in the majority of our categories in both pure play and Omni channel E Commerce combined with robust demand in many brick and mortar channels and market share gains in many of our categories.
On a consolidated basis, we also delivered growth for the full year 2020.
With a very strong fourth quarter capping strong revenue and earnings performance from our full year.
This was achieved notwithstanding the negative contribution of our international business for the first three quarters of the year.
And the decline in our commercial foodservice business due to the impacts from the Covid pandemic.
Despite the many external challenges we all face.
It was a truly transformative year for lifetime brands and I am incredibly proud of the entire team's performance, whose execution on the opportunities and challenges we face drove our strong performance.
Throughout 2020, our core U S business showed strength and in fact has now delivered its sixth consecutive quarter of year over year growth, achieving 10, 7% growth in the fourth quarter.
Similar to prior quarters in 2020, we.
We experienced very strong demand in our kitchenware cutlery and measurement products.
The combination of market share gains and robust demand for <unk>.
The strong growth that in many cases exceeded the underlying growth in our markets. For example, at our largest customer Walmart we grew revenues year over year, 34% in stores and 76% on Walmart Dot com.
Both levels, which exceeded overall category growth.
Moreover, in the fourth quarter, we saw ongoing strong performance across most of our channels and we continue to capture revenue streams through participation across the spectrum of shopping channels available to the consumer.
Thanks to the investments we've made as part of our lifetime to point out strategy.
We were able to further expand our e-commerce capabilities enhancing.
Enhancing our competitive advantage and capabilities to address increased demand and gain market share.
Similarly in 2020, we also saw meaningful growth with omni channel retailers, thanks to our drop shipment capabilities, which gives us a competitive advantage and enabled us to meet increased demand and gain market share in that fast growing channel as well.
For the fourth quarter, our E Commerce revenues grew 41, 6% and.
And represented 23, 4% of our total revenues.
Turning to our international business.
We achieved meaningful progress in the international business during the fourth quarter.
While our international business faced many COVID-19 related challenges in the first half of 2020.
Our turnaround plan successfully stabilize the operational issues that we began phasing in the third quarter of 2019.
Driven by our newly launched business model.
And despite store closures throughout Europe towards the end of the year.
Our international business grew three 3% in the fourth quarter, marking its return to growth.
Further we are starting to see results from the strategy that we launched in 2020 of utilizing direct Inc. Country managers and other strategic initiatives, including in China, where we launched four of our brands direct to consumer and the E Commerce channel.
And as I mentioned on last quarters call.
We were also excited to launch a line of popular kitchenaid kitchen tools and bakeware internationally. This year with a full product rollout in 2021.
As for our Foodservice initiative.
We remain confident that this channel will provide long term growth opportunities for lifetime.
As previously discussed.
The result of Covid, 19 regulations, which have impacted operations in restaurants hotels and other foodservice businesses.
Has caused the delay in our ability to meaningfully penetrate this market.
That said, our Makassar hospitality business recognize some sales in 2020.
Particularly as we're getting picked up by foodservice distributors and this combined with meaningful interest and dialogue from many industry participants is a good sign for the future prospects of the business.
Even though the pandemic slowed our progress we are optimistic in the power and the potential of Mcarthur hospitality for the front of the house foodservice market.
And we remain confident that this initiative represents a growth opportunity of approximately $100 million or more over the next five years.
As for headwinds in the fourth quarter.
Similar to the previous months, we continued to face some shipping challenges both related to inbound ocean freight and outbound to most domestic freight availability.
These headwinds caused shipping delays and cancellations, which slightly slowed our growth for the quarter.
While we expect these challenges to remain for the first half of 2021, we.
We believe it will remain capable of overcoming these obstacles and have taken steps to keep a strong fulfillment capability to meet equally strong demand.
While 2020 challenged us all in many ways.
You provided a good opportunity to demonstrate the capabilities of lifetime brands.
And how our team is well equipped to quickly and efficiently pivot in response to external EBIT.
It also provides an opportunity to showcase the capabilities, we have built and the strategy we have implemented with our lifetime two <unk> initiative.
In the face of much global economic uncertainty.
Lifetime brands team diligently executed and delivered significant growth, while making meaningful progress on our lifetime to point out a strategic plan.
Successfully accomplishing the priorities laid out when we launched our new strategy back in 2018.
As a result, we generated $77 $3 million in adjusted EBITDA in 2020.
An increase of approximately 21% over 2019.
And while we've delivered strong top line growth. We've also remain focused on disciplined cost control.
Which has contributed to making our company a leaner organization.
Of note the strategies, which we have employed as part of lifetime to point out how.
Has resulted in greater market share.
Leaner more profitable organization.
And momentum that we have been demonstrating since the first half the last half of 2019.
To that point, the pandemic has reinforced the importance of disciplined financial management.
Throughout 2020, we managed to remain true maintained adequate liquidity inventory levels.
And accelerated our supply chain, thanks in part to our flexible balance sheet.
And the combination of generating cash flow from operations and a more disciplined approach to managing the balance sheet has created substantial cash flow that we have used a deleverage lifetime to our target levels.
All of these factors should lead to a strong first half of 2021 for life.
We started the year consistent with the second half of a successful 2020, and we expect this momentum to drive our performance as we continued to capitalize on the groundwork we have put in place.
In line with our historical practice, we intend to resume guidance in the first quarter and the first quarter.
Barring any unforeseen circumstances.
Already in 2021, we have reinforced our consumer penetration strategy with the strategic acquisition of year end day.
A development stage online tabletop platform focused on millennials, which is an under represented age group in our current dinnerware offering.
This acquisition is an example of our ability to incubate digitally native brands with significant growth potential by leveraging our scale infrastructure and global footprint.
The brands founder will be joining us.
It will operate under her leadership as a separate business unit within lifetime.
We expect the transaction to be accretive by 2022.
And although not initially material to our business. We think it's a good example of how we can take advantage of our unique capabilities to support brands with significant potential for growth.
Looking ahead, we continue to invest in brands and products that we believe will drive growth and profitability.
I would like to emphasize our core to our 2021 strategy is investment in future growth initiatives.
In addition to a year and a day other investments for 2021 includes the expansion of our kitchenaid line across multiple categories and into new international margin.
We're excited about some new product launches and our profit a rabbit line of bar and wanting tools.
And we will also be launching a new celebrity backed lifestyle brand in partnership with Walmart, which is expected to be available in approximately 2000 stores next year.
As we invest in new product launches for the future.
We are also investing in additional talent and people.
In a good position to capitalize on those opportunities.
Given our success, achieving our lifetime to point our objectives.
We are moving forward with the next phase of our strategic plan.
Which will drive continued growth and profitability on top of the strong foundation that our team has built.
We plan to do so by remaining focused on our core business and.
And capitalizing on opportunities to expand into adjacent product categories that fit our core competencies and channel management product design and innovation.
We also plan to leverage our strong financial Foundation.
To maintain our prudent capital allocation strategy.
With significant cash flow and a strong balance sheet, we are well positioned to continue our dividend and pursue and pursue a disciplined M&A strategy that will drive incremental growth.
With a focus on growth margin expansion and strategic long term value creation for lifetime brands.
With that I'll now turn the call over to lap.
Thanks, Rob.
As we reported this morning net income for the fourth quarter of 2020 was $15 $2 million for 70 cents per diluted share versus a loss of 14 5 million or <unk> 70 per diluted share in the 2019 quarter 2019 quarter incurred a noncash charge of $33 2 million related to the payer.
<unk> of the U S segment's goodwill.
Adjusted net income was $15 2 million for the 2020 quarter was 70 cents per diluted share.
Share to an adjusted net income of $11 3 million or <unk> 54 per diluted share in 2019 the.
Table, which reconciles this non-GAAP measure to reported results was included in this morning's release.
Income from operations was $24 4 million for the fourth quarter of 2000, twenty's compared to a loss from operations of $15 5 million in the 2019 period.
Excluding the noncash charge for goodwill impairment in 2019 income from operations would have been approximately $17 8 million.
Adjusted EBITDA, a non-GAAP measure that is reconciled to our GAAP results in the release was $77 $3 million for the year ended December 31 2020.
This represents a $4 6 million increase over $72 7 million for the trailing 12 months ended September 32020, and an increase of $13 2 million or 21% over the year ended December 31 2019.
Net sales in the fourth quarter.
$249 2 million compared to $226 nine for the 2019 quarter.
In the U S segment sales were up $21 4 million to $222 million.
The increase came from category growth and increased market share in the kitchen with product categories led by tools and gadgets cutlery kitchen measurement and Barware products category growth reflects continuation of consumers preparing more meals at home.
<unk> two market share gains.
Market share gains reflect the appeal of our products from brands and our ability to keep retailers in stock table, where was mixed as some retailers will be have a large presence in this category we opened slowly.
At home solutions best skills experienced significant growth, but it was offset by declines for home decor, which did not anniversary eight 2019 launch and for lifestyle products affected by the pandemic.
Development of a talented ecommerce team enabled us to address the accelerated opportunities in this channel as sales grew 41, 6% in the quarter.
And so now international segment sales were up 900000 to $29 million on a reported basis 200000 in constant U S. Dollars E. Commerce sales grew significantly book was largely offset by lower sales to national and independent retailers as Europe continued its lockdowns due to the Cove.
119 pandemic.
Gross margin was 35, 4% for the 2020 quarter versus 37% for 2019 from.
U S segment gross margin was 36, 2% in the 2020 quarter versus 38, 5% in 2019.
This was primarily due to channel shifts and in 2019, we realize the benefit from a tariff refund for.
For the 2020 full year gross margin was up 20 basis points on a comparable basis, excluding the SKU rationalization charge reported in the second quarter of 2019.
From International gross margin improved to 29, 1% from the 2020 quarter from 26%, reflecting the benefit of the turnaround plan improvements, which included elimination of unprofitable skus price adjustments for select offerings to increase margin and the introduction of new products with higher margin.
Yeah.
Distribution expense as a percent of sales shipped from warehouses was lowered by 60 basis points to eight 9% in 2020 quarter.
For the U S segment distribution expenses as a percentage of sales shipped from warehouses was eight 4% and eight 3% from 2019 to 2020 in 2019 periods respectively.
The benefit of higher sales volume on fixed costs and fewer prepaid freight orders was offset by an increase in hourly wage rates and highest piece of pick expense from increased drop shipment volume.
For the international segment distribution expenses, excluding the 2019 relocation expenses were 12, 1% versus 17, 1% for the 2020 and 2019 periods respectively. This very large improvement was driven by the realization of the efficiencies of the new warehouse.
And the benefit of the turnaround plan.
Selling general and administrative expenses declined by $1 6 million to $41.
$6 million in 2020.
U S segment expenses declined by $1 5 million to $29 9 million in 2020 as a percentage of net sales SG&A expenses declined to 13, 6% from 15, 8%.
The improvement was primarily attributable to lower general and still many expenses, resulting from our cost reduction actions. This is partially offset by higher employee incentive compensation earned.
International segment expenses declined by $1 6 million to $5 1 million in 2020, the decline reflected the benefit of the turnaround plan and cost savings initiatives implemented as part of this plant and supplemented in response to the COVID-19 pandemic.
Unallocated expenses increased $1 6 million to $6 7 million in 2020. This increase was mainly from higher incentive compensation.
Interest expense declined to $4 2 million in 2020 from $5 $3 million, reflecting lower debt outstanding and lower interest rates.
The effective tax rate for the 2020 period was 33, 6% day rate was higher than the statutory rate, primarily due to foreign taxes, including a UK valuation allowance.
State taxes, and certain non deductible expenses.
The effective tax rate for 2019 was 27% the rate was lower than the statutory rate.
Primarily due to.
State taxes, and a decrease in non deductible expenses offset by foreign taxes and R&D credits.
Looking at liquidity as of December 31, 2020, our liquidity was $156 million, which was comprised of $36 million of cash plus availability under our revolving credit facility. This was a $29 $7 million increase from year end 2019.
Cheap through improved operating results from fleet topline growth and cost reduction actions taken by the company.
At December 31, 2020, our net debt was $253 9 million and a net debt to EBITDA ratio was three three times our accounts receivable at year end 2020 increased significantly in Italy over the comparable period in the prior year.
This reflects higher sales volume into 2020 quarter, particularly in November and December.
As is typical for us cash flow was strong in the first quarter of the calendar year, which follows our peak selling period.
As of February 28, 2021, our net debt was further reduced to $226 3 million a decline of approximately $28 million from December 31.
With a corresponding increase in liquidity.
Assuming our adjusted EBITDA was unchanged from full year 2020, the net debt to EBITDA leverage ratio at the end of February 2021 would've improved to two nine times.
This concludes our prepared comments operator, please open the line for questions.
Thank you as a reminder, we have a question. Please press star one on your telephone keypad.
First question comes from the line of Linda Bolton Weiser from D. A Davidson.
Hi, how are you.
Good and yourself good good.
So you talked about.
The fact that your foodservice business was impacted by the pandemic in 2020 is there any way to size that business for us and I know that you're really just starting but is there any way to give us. Some impression is it is it just really tiny revenue in 2020 or is it.
Five per cent of revenue is there any way to size it for us.
So.
Just to back up a second we've been in the foodservice business and back of the house. So in the kitchen for 15 years.
And that business is approximately a $20 million business for us, which and it's all U S space and was.
Meaningful down down this year.
Macarthur hospitality, which represents the big initiative.
Is where most of your question is geared towards.
We had de Minimis sales.
Less than seven figures, but.
But we are as I mentioned, having meaningful dogs and part of that is things are just shut down Pfizer people werent ordering.
New place in dinnerware, and the like and copper and so forth.
That is starting to pick up and we are actually now in some major distributors that are in their catalogs and it's a two step distribution process foodservice so as people reopen.
We have share that will be utilized.
And resulted in revenues in 2021, most in the second half and we're starting to see some of that.
Thank you that's helpful and then.
I think that you know investors are looking at.
Companies, who are affected by the pandemic either positively or negatively and then looking at comparisons going forward for revenue growth I guess, one could argue that you've maybe been helped by the pandemic in some ways, because you're selling kitchen goods and people are cooking more at home do you think theres been any unusual benefit.
That you've had that will be hard to lap those comparisons or are you changing your business enough. So that you can still grow against growth when we get up against those comparisons.
Yes.
Basically.
Everyone's question right.
We were.
A beneficiary of more people working from home.
And.
The demand for our products and home products.
We also though as a result of what we've been doing and I think we accelerated that in the conditions of the pandemic to noticeably increased our market share and if you look at NPD data in many categories. We increased our market share. So that that's a sustainable advantage and we think we can continue on.
On that.
And there were a lot of headwinds that we faced in 2020.
That won't be there and that's also why we've invested significantly in inventory and supply chain.
And we are realizing a lot of things going on in implementing our plan. We started investing heavily in 2020, but 2021 is going to be a significant investment year for us to grow for the future. So net we believe we won't get lapped by some extraordinary tail winds, we'll give more guidance.
In the first quarter, but we think this is sustainable.
The first quarter. So far is very strong to support that as well as our order book.
So the market share as new product introductions.
Other initiatives like year on day, one, which will start really paying off from 2022.
New products, such as the Walmart celebrity back brand that will announce will launch we mentioned that last call will launch this year, but we will get the full benefit also next year. So second half of this year next year Theres a lot of things going on.
Which will.
Give us.
Ongoing financial momentum in 2021.
But again it will be in invest year. So.
So that we grow in 2022 and beyond so we're not expecting to grow 21% in 2021 again.
Okay.
And then your cash.
Cash flow in 2020 benefited from working capital improvement.
Is it fair to say that cash flow will be a little less robust in 2021.
Oh.
Sure.
Let's defer that until we give our guidance.
First quarter, we probably will have a little incremental not tremendously, but a little incremental capex from 2021.
We'll also have more cash flow of debt levels right. There are some good Gibson puts which Larry will elaborate on.
I will then I think we spoke about it there were some deferrals, we were able to take advantage of true up related to the pandemic things like deferring some employer payroll taxes as well as in the U K the.
Following payment of the tax so and.
And also we negotiated some rent so some of that a lot of that will begin to.
I'll have to get paid into 'twenty, one and actually some into 2022.
Okay. Thank you very much.
You're welcome. Thank you Linda I guess, we'll see you tomorrow, yes.
Okay. Thank you. Your next question comes from Brian Nagel from Oppenheimer.
Good morning.
Hey, Brian.
Thanks for taking my questions.
So a couple here first off.
With regard you called out your in your prepared comments just the shipping issues and we're hearing this from a lot of lot of companies across the consumer landscape.
Just a question I have is.
It would kill these sort of see naturally abate.
Are there levers you can pull.
To help you know help me help the company continue with them better or is it just a matter of basically accepting these disruptions in the near term.
Yeah. That's a great question I mean, we're doing everything we can.
And I think our organization like us versus a lot of our competition. They can't do anything so theres true shipping.
Issues in terms of two general buckets, one is freight in getting things in from overseas really Asia.
Where there is an availability on a price.
In terms of container costs coming out from.
And the second is freight out so, but if you look at.
Walmart Amazon I mean, they've had major.
Issues getting enough truckers to move things around and they have a little bit more weight than us.
But we have been doing things to mitigate and also working with our customers as well as shippers on the on the freight side of things.
We accelerated a lot of inventory.
Into the fourth quarter and first quarter to meet what we saw very strong demands.
And that supersedes the availability of containers, because we worked.
We do have.
Tremendous wait with our third party factories.
We control a lot of those factories and therefore, we can get our goods made quicker and then we ship for instance, a lot pre Chinese new year lunar new year, which just passed.
And it's an investment in inventory, we have the balance sheet to do that and we brought things in faster. So there are things you can do.
But a lot of it is beyond your control and we've been facing this for six months it will continue.
Fortunately, it's a quality problem that.
Part of it is our demand is also very strong.
Okay got it that's really helpful.
And then the second question I wanted to ask somewhat of a follow up to the prior question, but you only.
Bruce your comment are we wrong.
Looking at this to see how.
How how demand trending.
Quarter might shift as the Covid headwinds path, so Ravi recognizing that it's extraordinarily Florida.
Apologize for just being a relatively near term question, but you know as some markets have started to open up more third party.
United States are you see any early indications of demand trends for your products beginning to change.
No.
Except on the foodservice side, where we're seeing demand increase.
D. In Europe. We are you know there was a tremendous lockdown starting in last December and that had a negative impact.
The lockdown hasn't really been as extensive and you haven't seen that in the United States.
But we haven't seen that in theirs.
It's not worth getting into a debate in terms of the sustainability of the move towards home cooking.
<unk>, which we believe in and Theres been a lot of data.
We view on your own.
But if you look at a lot of categories if.
If you look at cookware for example.
People. It benefited tremendously you go into many retailers and you couldnt find cookware on the shelf, but youre not going to buy another set of pots and pans next year. Our goods are renewable you know and people use them and replace them.
Different ticket item and so we think thats sustainable we're not relying on that as I explained in Linda's question and there's a lot we're doing that is plus one.
For 2021 and beyond.
Alright.
I appreciate all the color. Thank you.
Yes.
Thank you once again, if you have a question. Please press star one on your telephone keypad once again that is star one.
Okay.
Your next.
Comes from the line of Anthony.
From Sidoti <unk> company.
Good morning, again, and thank you for taking the questions. So.
We are hearing from more companies about the.
We're seeing inflation just wondering if you could comment on are you seeing that kind of what's your outlook for that as to how you think you'll manage that.
Inflation did you say.
Yes.
We are definitely seeing a cost input inflation.
And we've been putting strategies to mitigate that whether that's be labor costs in our distributions, which has been up on average $2 for almost a year in house all day.
Fortunately, we're in a labor wage rate, where if they go to a $15 minimum wage it does impact us.
That's the good news, but we have been experiencing that.
But the cost inputs, whether it's materials PPE.
That's helpful.
Polypropylene.
Which is a big input for ours. If you look at I mean their record highs. So a lot of the material costs labor costs, a lot of the inputs. So there is cost inflation that we've been working for a while now and we will continue to do to mitigate that through various channels.
But it is a reality.
Okay.
Taking up you're saying or are you.
How exactly are you going to.
Some of these higher input costs.
Like I said labor costs as well.
On the labor cost.
Basically we've been experiencing that for most of 2020. So we have mitigated that and you can see.
In terms of our.
If you look at that I mentioned in the distribution cost and if you look at our distribution costs. It was down even in 2020 with significant labor cost increases. So we've had strategies to mitigate that that had been highly effective and will continue to do so.
The inputs, it's a universal right. This isn't a lifetime oriented thing that everyone who's making anything similar to us.
Which will ultimately result in higher prices to the consumer over time.
Yes.
Got it okay. Thanks for that.
Robert You mentioned that you use so you have a strong outlook first half of the year.
Is that.
Taking international as it was it more skewed that's more domestic similar to the fourth quarter trends.
Yes, so just to clarify we have not given any guidance.
And we will you know with our first quarter call per our normal practice.
I'd say that so far we've seen consistent with 2020, we've seen.
Strong demand so far in the first quarter in our core market.
Europe was shut down and the combination of that and Brexit, which frankly has been a complete disaster.
We were well prepared I think better than the average bear but.
Very difficult and they kind of hate each other over there.
So that's had an impact on our business.
So but.
No.
Demand still remains strong and we are off to a good start.
Got it okay. Thanks for that and then.
Lastly, as far as the tax rate.
How should we thought that for 'twenty one.
Yeah.
In the past I mean, we should be.
No.
21, plus the <unk>.
State.
Seven points 28, just no debt.
The UK is planning to increase their rate.
Legislations out there so great may be higher.
If that were to occur.
Got it alright, well, thanks and best of luck.
Thanks Anthony.
Once again, if you have a question please press.
Our wanting it.
Pat.
Okay.
At this time, we have no further questions.
This concludes this mornings conference call.
Thank you again for joining us today. We appreciate your continued support of lifetime brands and we hope that you will tune in tomorrow can listen to our presentation at the D. A Davidson consumer growth conference.
We look forward to discussing fourth first quarter results from fiscal 2021 on our next conference call. Thank you and have a good day.
This concludes today's session you may now disconnect.
Davidson that cant.
I remember from the presentation, it's only 100 ones, but they are going to play.
Okay.
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