Q3 2021 Lifetime Brands Inc Earnings Call

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Good morning, ladies and gentlemen, and welcome to the lifetime brands third quarter 2021 earnings conference call and webcast.

At this time I'd like to inform all participants that their lines will be in a listen only mode.

After the Speakers' remarks, there'll be a question and answer period. If you would like the ask a question during that time. Please press star one on your telephone keypad.

I'd 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 third quarter 'twenty to 'twenty, one 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 relates 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 others 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 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 relief that the reconciliation of these non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP.

That introduction I'd like to turn the call over to Rob Katz. Please go ahead Rob.

Thank you.

Good morning, everyone and thank you for joining us today.

To discuss lifetime brands third quarter 2021 financial results.

On today's call I'd like to cover our third quarter financial results and also discuss our revised long term financial objectives, which we disclosed in this morning's press release and have posted it in detail on our corporate Investor Relations site.

Beginning with our results.

We are pleased with our strong performance in the third quarter, which marks another quarter of growth.

We continue to see robust demand for our products across categories.

Our growth has been achieved as a result of a lifetime to point out a strategy we implemented over the over the past two plus years.

Create topline growth and improve profitability.

Further the mitigating actions, we have taken to offset inflationary and supply chain disruption also contributed to our results.

Our trailing 12 months adjusted EBITDA increased by more than 25% compared to the end of 2020.

And even greater compared to the year ago period, which demonstrates the continued momentum that lifetime has created.

And reinforces the impact from our significant progress in accelerating our long term growth trajectory.

Our supply chain mitigation efforts.

Coupled with disciplined operations enabled us to deliver a gross margin dollar increase of roughly $4 million or five 5%.

As we manage cost pressures throughout our business.

As a result, we are well positioned to meet customer demand and continued to benefit from increased market share.

In our core U S business, we continue to see strong performance across most of our product categories.

Home solutions produced strong results this quarter, while we saw a moderate growth in tableware.

As we highlighted last quarter, one area of incremental growth is coming from the launch of new products and brand initiatives such as the launch of beautiful have Walmart, which is gaining traction as.

As well as the successful rollout of our kitchenaid cutlery life.

Let's turn now to our international business, which has benefited from the transformation that we began in 2019 and fully implemented in 2020.

During the third quarter, we maintained the strong momentum we've been building throughout 2021.

And delivered revenue growth of approximately 17% compared to the same period last year.

Further we are pleased to report that we are now actively pursuing new and existing opportunities.

As a result of our successful implementation of country managers in 12 different geographies around the world, which will enable lifetime to go direct in those markets.

I will touch more on this shortly but we believe there are numerous growth opportunities ahead for our international business and we are well positioned to win market share and increase profitability.

As COVID-19 restrictions in infection rates are they.

Consumers are returning to brick and mortar stores.

As a result pure play e-commerce sales in general have declined as a percentage of retail sales. However, lifetime has seen growth in this important channel in both percentage of total sales in absolute dollar growth.

Our e-commerce sales for the quarter were 19% of total net sales.

Pair to 16, 4% a year ago.

16.1% in the second quarter of this year.

Dollar sales growth in E. N E Commerce continued to grow reaching $42 $7 million in the third quarter and $113 million in the year to date period.

I wanted to take a moment to talk about the ongoing macro economic headwinds and supply chain disruptions that money companies across industries are experiencing.

While we feel as prepared as possible.

Taken proactive steps to mitigate these pressures we are not immune to these disruptions and we are still navigating a number of macro economic factors, including inflation in.

And increased labor and shipping costs, and most importantly, the availability of adequate shipping containers and vessels and trucks to get our goods to end markets.

Specifically, we have experienced a significant increase in ocean freight cost.

Coupled with declining container availability.

And difficulty and unloading and getting goods to our distribution centers or directly to our customers.

As a result, we were unable to fulfill some orders in the third quarter. Despite the strong customer demand.

However, we expect all of these orders to rollover to the fourth quarter.

We are actively working to mitigate these headwinds through a number of initiatives to drive down our operating costs increase prices in line with inflation and invest in inventory levels to ensure availability of our products.

In particular.

Our strong supply chain and proactive inventory management.

Have enabled us.

[noise] excuse me to significantly reduce the impact of these headwinds thus far.

While we expect these headwinds to persist in the fourth quarter.

Cost of Ocean freight began to decline in October.

While shipping availability increased.

As a reminder, while the nature of our business is typically weighted towards the latter part of the year.

The vast majority of inventory that we saw in the fourth quarter typically shipped in the third quarter.

So we believe the actions we've already taken will positively impact.

It's just the supply chain impact on our results for the fourth quarter.

Notwithstanding these actions as I just noted we had noticeable delays in shipping product in the third quarter.

Which in turn reduced our overall shipments and consequently revenues for the quarter.

Let me now turn to a discussion of our financial guidance.

Despite the macroeconomic headwinds I just described.

Based on our continued strong performance, we are raising full year EBITDA guidance to a range of 88 million to $92 million.

While maintaining our previous revenue guidance of $880 million.

We are confident in our ability to continue executing in a challenging environment and look forward to building on our successful track record of strong growth.

Before I pass it over to Larry to discuss our financials in more detail.

I would like to discuss the revised long term financial objectives, we announced this morning.

Since launching lifetime to point out in 2018.

We have taken significant steps to optimize our business model.

Utilize our infrastructure more efficiently.

And then burst and meaningful growth opportunities.

Our strategy is working.

And thanks to the hard work of our team we have made incredible progress improving our operations and taking our big our business to the next level.

We believe there are significant opportunities for us to deliver long term sustainable growth.

Building on the successful execution of lifetime to point out.

We have now fully developed a detailed strategy for our next five year plan.

This strategy is targeted to deliver approximately one point to $5 billion in net sales.

And $145 million of EBITDA by 2026.

We intend to achieve this growth through multiple levers.

Which I'll briefly touch on now.

First we expect continued strong organic growth in our core categories.

Since implementing lifetime to point out our company has grown significantly and gained market share.

As we execute on our brand and product strategies, we expect this trend to continue.

This includes a robust product development portfolio and the continued execution of the many product initiatives that we have previously discussed.

Second.

As we have discussed frequently we expect to further penetrate the commercial foodservice market in the front of the house.

Our mikasa hospitality business unit.

We are encouraged by our recent sales covered conversations in Mcarthur hospitality.

And we now have greater visibility.

Into what this opportunity looks like in the near medium and long term.

Over the last year, we have invested in top talent in this area.

We are pleased to report that our hospitality business is now staffed with world class professionals.

As a result, we have successfully entered the market.

And believe we can generate consistent growth in the foodservice markets.

As we build our book of business we.

We expect to start seeing revenues increase over the next year and Macarthur hospitality remains on track to be <unk>.

Profitability by the second half of 2022.

We are executing on a detailed plan.

Design for our commercial foodservice unit to be a $60 million revenue business for lifetime by 2026.

Notably this is a fairly conservative target given the $2 billion total addressable foodservice market where.

Where we think we have a strong customer value proposition.

Long term, we see this as a huge market opportunity for us.

One where we are well positioned for success.

Third.

We will look to expand our presence in profitability in international markets.

As I mentioned earlier, our international business has performed well as a result of the restructuring we undertook beginning in 2019.

Lifetime is in over 100 markets.

With specific country by country plans tailored to capitalize on each market opportunity.

Specifically, we have installed 12 in country managers for targeted geographies, mostly in Europe and Asia Pacific.

As we look across our international business. We are pleased with the successful implementation of our new sales initiatives in Asia, which includes a growing e-commerce presence in China, and South East Asia.

We have also made numerous operational improvements, including the establishment of a new warehouse and distribute our products from Continental Europe and.

And increased direct to consumer logistics in China.

The business is poised to continue its growth trajectory and we look forward to capitalizing on our enhanced international operations.

To drive future success.

Fourth.

We have now relaunched the operations of the urine day in the fourth quarter.

We anticipate that this will increase our reach millennials and Gen Z consumers.

While enhancing our dinnerware offerings.

As a reminder, we expect the year end to a transaction to be accretive by 2022.

Finally.

Lifetime will continue to expand into adjacent categories, including barbecue pet and storage and organization.

We consider each of these categories to be high growth high margin opportunities for us in areas that are consistent with our core competencies in product design and development.

While we are still in the early stages of establishing these categories.

Initial product launches had been successful.

And we are positioned to see more meaningful revenue contribution starting in 2022.

Beyond these five growth drivers.

We will also plan to continue to focus on operational excellence.

Over the past year, we undertook a U S operational redesign.

Centered around our warehouses and distribution infrastructure.

We are now moving forward with plans to implement this expansion and redesign of our U S distribution footprint.

Which will drive further operational efficiencies across the business and deliver incremental profitability moving forward and support our growth plans.

In closing the strong results, we delivered in the face of a challenging macroeconomic environment.

Underscores that we have the right strategy in place to drive long term value.

We expect the investments we've made in our business to deliver tangible results as we navigate the macroeconomic environment and react to the challenges and opportunities in the marketplace.

While we are proud of what we've accomplished during the past few years, we remain focused on executing against our next strategic plan.

Delivering value for all lifetime brands stakeholders.

With that I'll now turn the call over to Larry.

Thanks, Rob.

As we reported this morning net income for the third quarter of 2021 was $12 $6 million or <unk> 57 per share.

Versus $13 $9 million was <unk> 65 per share in the third quarter of 2020.

The decline in net income was due to a higher income tax rate in the current quarter.

Income before income.

Income taxes increased $18 million in the current quarter from $17 5 million into 2024.

Adjusted.

Adjusted net income was $13 4 million for the 'twenty to 'twenty, one quarter was <unk> 61 per share as compared to $13 $9 million or 65 cents a share in 2020 the table reconciling this non-GAAP measure.

The results was included in this morning's release.

Adjusted EBITDA, a non-GAAP measure that is reconciled to our GAAP results in the release was $96 7 million for both the trailing 12 month periods ended September 32021.

At June 30th 2021.

As Rob mentioned this represents a 25, 1% increase over the $77 $3 million achieved for the full year 2020.

Net sales were $224 8 million for both the 21 and 20 quarters.

U S segment sales were down slightly by $3 8 million to 197 7 million the.

The decrease was primarily driven by lower sales due to supply chain constraints, which primarily impacted sales of kitchenware products, partially offset by higher selling prices.

For the comparable 2020 period experienced a very strong level of sales as the economy began to reopen.

International segment sales were $3 9 million.

Up $3 9 million to $27 1 billion on a reported basis $2 5 million in constant U S dollars.

Sales increased e-commerce continued recovery brick and mortar.

Retailers as economies begin to reopen and higher selling prices.

The global trading business in Asia also contributed to the growth in net sales.

Gross margin for the 2021 quarter was 37% and for the 2020 quarter 35, 1% on a reported basis correspondingly gross margin dollars increased $4 3 billion.

Two five or five 5%.

But the U S segment gross margin was 37, 7% in the 2021 quarter versus 35, 6% last year.

For International gross margin was 31, 7% in 'twenty, one quarter compared to 32% in 2020.

The improvement in gross margin was driven by several factors, including channel and product mix and price increases to offset higher inventory costs.

Distribution expenses for 'twenty, one and 'twenty with both eight 4% of net sales for the U S segment distribution expenses as a percentage of sales shift from its warehouses were eight 4% for both the 'twenty one 'twenty quarters.

While the company incurred higher wage rates these costs were offset by labor inefficiencies.

For the international segment distribution expenses as a percentage of sales shipped from its warehouses, excluding moving and relocation costs for the U K operations in 2020, or 44, 5% and 13, 6% for the 'twenty, one and 'twenty quarters, respectively. The.

The increase was primarily attributable to increased shipping costs for products shipped from the U K warehouse.

Continental Europe, which had been temporarily heightened as a result of Brexit.

Further freight rates have increased in the UK and the EU driven by shortage of drivers.

Selling general and administrative expenses were $42 5 billion for the 2021 quarter versus $38 3 million in 2020.

U S segment expenses were $29 4 million into 'twenty, one quarter versus $27 3 million last year.

As a percentage of net sales SG&A expenses increased to 14, 8%.

From 13, 5% last year.

The expense increase was primarily attributable to lower expenses in the prior period due to the company's savings initiative in response to the COVID-19 pandemic.

SG&A expenses for the International segment was $6 3 million in 2021 quarter compared to $4 8 million for the 2024.

The increase came from foreign currency exchange losses and increased professional fees.

Unallocated corporate expenses were $6 9 billion in the 'twenty, one quarter versus $6 three into 2024th increase was driven by higher incentive compensation expense.

Interest expense was $3 8 million versus $4 1 million last year.

Due to lower debt outstanding.

For the 2021 quarter. The income tax rate was 31, 1% the rate was higher than the federal statutory rate, primarily due to state and local income taxes and foreign losses for which no tax benefit recognized for.

For the 2020 quarter U can tax rate was 21, 2%. This reflects the federal statutory rate decreased by state and local tax expense and offset by credits none of which were individually significant.

Looking at getting liquidity, our balance sheet and liquidity continues to be strong at.

At September 32021, net debt was $245 million.

And the net debt to EBITDA ratio was two five times liquidity, which included $8 7 million of cash availability plus availability under our credit facilities was $153 8 million.

As discussed in our release, we are issuing updated financial guidance for the full year 2021 with net sales of 872 890 billion a 13 one.

One to 15, 7% increase over 2020 adjusted income from operations of 59, 5% to $63 million, an increase of 24, 2% to 31, 5% over last year. Adjusted net income of 31 to $33 9 million an increase of 54.

5% to 67, 8% off of last year, and adjusted EBITDA of 88 million to 92 million, an increase of 13, 8% to 19% over last year.

This guidance utilizes a forecasted pound sterling to U S dollar exchange rate of 135 and net income.

For sure it was.

Calculated based on an effective income tax rate of 30%.

Finally as discussed in this morning's release the company has revised its long term financial objectives through 2026.

With sales expected up 1.25 billion and adjusted EBITDA of 145 million.

Sales is expected to be driven by core organic growth further penetration in commercial foodservice expansion into adjacent categories in international markets, while we evaluate acquisition opportunities. We assume there are known these projections.

In order to accommodate this planned growth we have developed the redesign and expansion plan of our U S distribution operations.

This redesign and expansion, we will incur incremental capital and other costs of approximately $12 million with an expected payback of only one point to 1.9 years.

Additional information about the long term objectives and operations redesign can be found in the investor presentation.

Oh, the Investor Relations section at our website.

This concludes our prepared remarks, operator, please open the line for questions.

And at this time, if you would like to ask a question. Please press the star and one on your Touchtone phone that started one on your Touchtone phone.

We can pause to allow questions to queue.

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Again star and one for our questions today.

Speakers. It appears we have no questions at this time I'll return the floor to you for any additional remarks.

Thank you Keith.

Well as always.

Thanks, everyone for interest in lifetime brands.

And our disclosures and calls and we look forward to speaking everyone to everyone in the future and to continue our strong performance. Thank you.

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And this does conclude today's program. Thank you for your participation you may now disconnect and have a great day.

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