Q4 2021 Lifetime Brands Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the life time brands fourth quarter 2021 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. If you would like to ask a question. During this time. Please press Star then one on your telephone keypad.
I'd now like to introduce your host for today's conference Andrew.
Andrew Squire Mr. Squire you may begin.
Thank you.
Good morning, and thank you for joining lifetime brands fourth quarter 2021 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 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.
Sept 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 to the comparable financial measures calculated in accordance with GAAP that introduction I'd like to turn the call over to Rob Kay. Please go ahead.
Bob.
Thank you.
Good morning, everyone and thank you for joining us today to discuss lifetime brands fourth quarter and full year 2021 financial results.
We are pleased with our strong performance in the fourth quarter, which marks another period of significant growth and capped a record year for lifetime in 2021.
As we continue to drive significant value for our stakeholders.
While inflationary and supply chain challenges.
<unk> to impact our industry and many others our team effectively managed costs and.
And continued our actions to not only mitigate these challenges, but deliver substantial growth in spite of that.
Our strong execution in the face of this challenging macroeconomic environment.
Enabled us to generate adjusted EBITDA of $95 $1 million or.
Or a 23% increase over 2020.
Which exceeded the high end of our guidance for 2021.
We delivered a strong gross margin dollar increase of $29 3 million or 10, 7%.
As we manage cost pressures in the business.
Focused on growing market share and implemented price increases to offset increased supply chain freight and other inflationary cost pressures.
While supply chain disruptions did have an impact on revenues in the fourth quarter.
We still outperformed on revenues compared to 2020, and our full year results in both revenues and EBITDA achieved record levels. Thanks to continued growth and market share gains across product categories in the U S.
And increased operating cash flow in our international business.
While we estimate that supply chain disruptions had a negative impact on fourth quarter revenue of approximately $20 million.
Revenues and EBITDA still increased meaningfully meaningfully for the year.
Of note while some of these delays resulted in cancelled orders. The majority of these missed shipments are expected to ship throughout 2022.
Starting with our core business in the U S.
We continue to see very strong end market demand across the majority of our product categories.
Similar to prior quarters, our largest category tools and gadgets performed well.
Further contributing to our overall gross margin growth.
We saw strong performance in our rapid accessory lines driven by robust demand across various channels, including club mass and E Commerce.
And our plan of box and Taylor lines delivered record results in 2021.
Driven by strong consumer demand for these products.
Further we continue to gain traction with our beautiful brand at Walmart and see meaningful opportunities to expand that product line into new categories over the next few years.
Brick and mortar stores in the U S continued their strong rebound in the fourth quarter.
Even with the surge of the army crime variant at the very end of the year.
This drove growth for the company as we were able to sustain the market share gains that we achieved in 2020.
And E Commerce, we greatly improved our margins and continue to see strong growth in the channel on a dollar sales phases with ecommerce sales, reaching 43 $4 million in the fourth quarter and $136 $5 million for the full year.
The full year ecommerce sales as a percentage of revenue were down slightly to 17, 7% compared to peak pandemic level of 18, 9% a year ago.
This is consistent with the greater industry trend as brick and mortar channels gained back share at the expense of ecommerce throughout 2021.
Continuing to expand our e-commerce business remains an important growth driver for lifetime.
And we continue to make great progress.
Both our core U S market as well as internationally.
Turning now to our international business.
Our international business continues to benefit from the transformation that we fully implemented in 2020.
And while we saw a meaningful growth in the first three quarters of 2021 to.
Fourth quarter saw a decline related to practice and Brexit and end market disruption due to the adverse impact of omnicom variant throughout Europe .
The international business achieved strong growth in the fourth quarter and full year 2021, and gross margin percentage.
Okay.
This is directly attributable to our implementation of our transformation strategy.
We continue to expand our Asia Pacific presence with.
With growth of 47, 5% for the full year.
<unk> full year of positive contribution margin in 2021.
This result was achieved through meaningful growth in Australia, and New Zealand and the continued ramp up of our E Commerce business in China.
Our successful launch in Tmall.
We are leveraging the lessons learned from the Tmall launch as we transition even more categories and brands to the Tmall platform.
We achieved these results in our international business, despite seeing a more significant impact related to the omnicom omnicom surge in Europe than in the U S with more widespread store closures, particularly in the U K and Continental Europe .
These COVID-19 related challenges as well as the Brexit pressures I mentioned earlier impacted our ability to ship goods from our UK warehouses to the continent in a timely manner.
Going forward. These types of challenges will be significantly offset by the addition of our new warehouse in the Netherlands, which we expect to be up and running by the end of March 2022.
The Netherlands warehouse will continue to drive our overall cost basis down.
And enable us to ensure we consistently meet the service level expectations, we set for ourselves.
With the ability to ship across Europe within 24 to 48 hours.
Combined with the new country managers to be installed in key geographies across Europe .
We expect to continue to drive meaningful growth in our international business in 2022 and beyond.
We also continue to make exciting progress on our other strategic growth initiatives.
Starting with Mcarthur hospitality.
As I discussed last quarter, we invested in top talent in this area.
Stopped our hospitality business with World class professionals.
As a result, the commercial foodservice business is ramping up well and we have got we have begun to win very significant national accounts like Chile and Hilton hotels.
Our cost of hospitality began generating revenue in 2021.
And with the recent wins and a rebound in the hospitality market underway remains on track to reach profitability in the second half of 2022.
As we observed previously we see this as a huge growth opportunity for lifetime.
We expect to reach $10 million in revenue over the coming year and continue to see this as a $60 million business by 2026.
We had a number of exciting product launches in 2021.
Including the successful launch of our Kitchenaid cutlery line.
And we expect to see the full benefits of this line in 2020 chip.
We also successfully relaunched our urine de business and website in 2021.
Which we continue to expect to be accretive by 2022.
Finally lifetime has continued its expansion into adjacent categories.
Including outdoor pet.
Pet and storage and organization.
While we are still in the early stages of establishing these categories.
The early results are very promising.
We have a lot of great products in development and expect more meaningful revenue contributions beginning in 2022.
Additionally, as you may have seen last week, we announced our exciting acquisition of small bottle.
That's not for creating the first reusable hydration fashion accessories.
As well as a perfect fit for our growing and successful hydration and storage categories.
And it's well established e-commerce presence will expand our direct to consumer offering.
Further it's significant corporate partnership gives us below open up a new an attractive channel for lifetime with meaningful opportunities for a number of our brands and our existing portfolio.
We expect well can be fully integrated into our operations in the second quarter of 2022.
At which point, we believe it will contribute approximately four and a half million dollars of incremental EBITDA on an annualized basis.
In addition to our strategic growth drivers, we continue to focus on operational excellence.
Over the past year, we accomplished our goal of transitioning all of our direct to consumer websites to shopify.
This shift provides a uniform backend for our direct to consumer business.
Create significant operational efficiencies across the business.
Before I conclude I wanted to take a moment to touch on the ongoing macro economic headwinds that are still being felt across the industry.
While we continue to take action to effectively mitigate supply chain and inflationary pressures, we are not immune to the disruptions and we are feeling the impact of increased labor shipping and material cost as well as the availability of adequate shipping containers and vessels and trucks.
Our mitigation efforts remain focused on driving down operating costs increase.
Increasing prices and investing in inventory level to maximize the availability of our products.
Which leverages, our scale and our market share competitive advantages.
On the labor side, we have restructured our distribution center operations to add another shift and transition our model from largely tapped labor to more permanent positions in order to retain talent and keep our operations fully staffed.
As you can see from our results. These actions continue to be successful.
And we have been able to effectively manage through these macro headwinds.
Multiple multiple obstacles these have created.
We expect these pressures to persist in 2022.
We currently expect to see normalization in supply chain costs in 2023.
We remain confident in our ability to continue to deliver very strong results in the current environment and we believe that our growth initiatives. We will continue to drive significant long term value.
In closing our record performance in 2020 to Mark another year of incredible progress for lifetime brands.
And we are well positioned as we move into 2022.
Again, and again, we have shown a proven ability to manage through a variety of business cycles.
And we are executing on or ahead of plan on every single one of our growth drivers.
We look forward to continuing to advance our strategy and create value for our shareholders.
With that I'll now turn the call over to Larry.
Thanks, Rob.
As we reported this morning, the net loss for the fourth quarter of 2021 was $600000 or <unk> <unk> per diluted share versus net income of $15 2 million or 70 cents per diluted share in the fourth quarter of 2000 22021 quarter included a noncash charge of $14 8 million related to.
The impairment of indefinite life intangible assets in the International segment. These assets were initially recorded when we acquired kitchen craft in 2014.
Adjusted net income, which excludes the noncash charge was $14 4 million for the fourth quarter of 2021 65 per diluted share as compared to $15 $15 2 million or 70 cents per diluted share in 2020.
Table, which reconciles this non-GAAP measure to reported results was included in this morning's release and income from operations was $8 9 million for the current quarter as compared to $24 4 million in 2020 period and excluding the impact of the impairment charge adjusted net income.
Income from operations was $23 7 million for the 2021 period.
Adjusted EBITDA non-GAAP measure that is reconciled to our GAAP results in the release was $95 1 million for the year ended December 31, 2021. This represents an increase of $17 8 million or 23% over 2020.
Net sales in the 'twenty to 'twenty, one quarter grew two 7% to $255 9 million and for the full year net sales grew 12, 2% compared to prior year.
The U S segment sales were up $9 9 million to $231 million. This.
This increase was mainly driven by increase in kitchenware products category led by Pantry Ware, and the tableware category from warehouse programs and ecommerce sales for dinnerware.
International segment sales were down $3 3 million to $25 seven on a reported basis $4 million in constant U S dollars as Rob discussed this was caused by Brexit, Brexit disruptions, which impacted our ability to timely ship goods from our U K warehouse to Continental Europe .
And the adverse impact of the current variant in Europe as Rob also commented the Brexit disruption will be alleviated. Beginning later this month as we will serve as continental Europe from a third party logistics facility located in the Netherlands.
Gross margin was 34, 4% for the 2021 quarter versus 35, 4% for 2020.
So the U S segment gross margin was $34 nine in the current quarter versus 36, 2% last year. This was primarily caused by higher inbound freight costs and product mix, partially offset by higher selling prices for.
For International gross margin was 33% in the 'twenty to 'twenty, one quarter compared to 29.1.
The comparable periods last year, the improvement reflects a favorable customer mix for both the U S and Asia export business and selling price increases. This was partially offset by higher inbound freight expense and duty charges for shipments to Europe . The latter will be alleviated by distributing from the Netherlands facility.
<unk>.
Distribution expense as a percentage of sales shipped from warehouses increased by 30 basis points to nine 2% in 2021 quarter.
For the U S segment expense as a percentage of sales shipped from warehouses was eight two and eight 4% for 'twenty, one and 'twenty quarters, respectively.
The improvement was a result of the leverage benefit of fixed cost on higher sales volume and the success of our continuous improvement programs, particularly in labor management.
The latter largely offset higher hourly labor rate increases.
For international distribution expense, excluding relocation expenses in 2021 was 23, 1% and 12, 1% for the 'twenty, one and 'twenty quarters, respectively. The increase was driven by a current period charge related to a revised real estate tax for the U K warehouse.
Higher freight out expense for shipments to continental Europe .
Excluding this real estate tax evasion distribution expense was 16, 5%.
And great expense trade expense will decline when we began distributing from the Netherlands.
Selling general and administrative expenses declined by $1 5 million to $40 1 million for the quarter.
U S segment expenses declined by $1 2 million to $28 six.
And the 21 quarter, primarily due to lower incentive compensation as a percentage of net sales SG&A declined to 12, 4% from 13, six reflected reflecting the leverage benefit of fixed cost on higher sales volume.
International segment, SG&A decreased nominally to $5 2 million.
Higher foreign currency exchange losses, and high employee expenses were offset by lower amortization expense.
And and unallocated corporate expense decreased by 500, thousands of $6 2 million.
In the current quarter, the decrease was from lower incentive compensation offset by higher professional fees.
Interest expense declined to $3 nine from $4 2 million last year due to less debt outstanding.
Our tax expense for the quarter reflects a loss in the U K, including the intangible impairment charge for which no tax benefit was recognized.
And looking at our balance sheet.
Our balance sheet and liquidity continued to be strong at December 31, net debt was $224 1 million a decline of approximately $30 million from last year end.
This was achieved despite our strategic increased investment in inventory to help mitigate supply chain risks.
At year end and net debt the net debt leverage ratio was two four times and liquidity, which is comprised of cash plus availability under the credit facility with sprott.
<unk> hundred $74 million.
This concludes our prepared comments operator, please open the line for questions.
Thank you and at this time, we will be conducting a question and answer session. If you would.
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One moment, please while we poll for questions.
Our first question comes from the line of Linda Bolton Weiser with D. A Davidson.
Please proceed with your question.
Hi.
So I was curious I'm, usually you issue guidance for the next coming fiscal year and I was curious you know why you are choosing not to do so at this time.
So Linda consistent actually.
Just to correct your understanding.
We all we issued guidance in May.
So this is we haven't changed our practice at all.
Oh, Okay, I'm, sorry, I, that's right I forgot about that.
So so your plan. So you plan to issue and that's at the time that the first quarter's reported.
Correct.
System with what we've always done.
Okay, great and with regard to the 20 million.
Of orders that were shipped in.
I mean, you're pretty much almost done are partly done with the first quarter I mean, what portion of that 20 million.
Going to come in the first quarter and then.
Is there some sort of shifting of first quarter sales into the second quarter. If you know what I'm asking.
Yes.
So there are several buckets so there.
A little bit greater than.
'twenty, but and some orders did cancel there was a big Thanksgiving program, we didn't know that didn't make it some of it did.
So we got some cancellation of the majority of it though moved over.
Hum.
Those shipments that were missed but some of them because there is some seasonality there.
That will result in sales as late as the fourth quarter for shipments as late as the fourth quarter.
The nature of those products.
They wouldn't on a normalized basis and I'll get to your question in a second have shipped in the first quarter anyway, because of the delay either we're going to make it or they they have to wait till the third quarter, the fourth quarter and the first quarter. We didn't we have not yet caught up in the first quarter because there has it's still.
Basically a two months delay to get into port a month delay to get out. So there has not been alleviation and there is a corresponding.
From January for instance, you know things rolled into January and then sure shipped and then things some January southwold into February so we have not caught up as of yet.
Yeah.
Okay.
So I mean, maybe you could just give a little more detail cause I mean.
All companies are facing these issues, but it sometimes.
Sometimes it's different situations I mean is it get.
Finished goods from Asia to the U S and Europe for distribution or is it.
Bottlenecks like in ports, where it's just a distribution that's delayed.
Where where are the biggest bottlenecks for you that are holding you up.
I guess, the bottlenecks exist everywhere, it's getting out of China, and Asia, India wherever we're shipping from.
Although that's alleviated somewhat as of late.
But it's getting containers ships out.
And then.
To our destination ports.
The average rate on the west coast to get into Port is two months left right studies.
The shipping excuse me sitting out waiting for a birth to be able to unload so theres a tremendous delay just getting your products to our.
Our markets the biggest ones being Europe and.
North America.
Then there was delays getting out of court.
So the ports.
Having problems with that there are trucking delays are very noticeably in Europe , but also here.
So it's not one which is also why we don't think that this situation alleviates very quickly unless there's a big compression ourselves language, so hopefully not.
Because theres, so many aspects that need to be fixed in.
The chain.
So, it's not I'm, saying, but what gets most.
Press and people talk about is ocean freight and ocean timing that it does have a very big impact.
Hope that helps.
Yes, okay. Thank you.
So.
Yeah.
Now I mean, it's kind of crept up and again a lot of companies are keeping more inventory. So you are not unusual but I mean your level of inventory it's easier annual sales now so it is kind of a big lumpy.
What it has been.
Thanks, an awful lot could you give us some sense of of that aspect of inventory.
Yeah I mean.
First of all answering your question directly yes, so because of the situation I described.
And good taking much longer to get from.
It's a source of production to actually a distribution center, whether that being ours or if it's direct import and customer that.
<unk> created a slowdown in terms of a much higher inventory just by its very nature.
Lee is for some time as you're aware we've.
Strategically decided to use our very strong financial position and balance sheet to just invest a lot more inventory. It's proven successful in terms of gaining and maintaining market share and then you see it in the results here.
So even with delays, we're still growing very nicely.
But we are carrying higher inventory levels and we plan to keep.
Higher inventory levels until there's some normalization in the world and we think that's no earlier than 2023. Additionally, as you pointed out is the fact of the supply chain is just taking much longer to get goods. We actually are the owner of those goods even direct import in many cases are.
Where the way it works, even though they're going directly to the customer.
We're not getting paid right away.
So this is having an impact in our receivables and our.
And Philadelphia.
Okay.
Do you think inventory is.
It's just creep up a little in the next year.
Another big step ups that you have to take an inventory level kind of in the next year.
So all other things remain the same so on a constant state basis right. Obviously, we doubled inventory I mean doubled revenues you'd see a big increase in inventory.
Not that we're guiding here and we're not saying it's going to double.
Some money out.
But no we don't expect a big increase we've made the investments we started making the investment as you know quite some time ago and I'm curious if we weren't carrying you know a tremendous amount of extra inventory, which we again have been helping us to produce a result.
We do believe that since the situation.
As lasted for some time, we continue to refine what we're doing so there's an opportunity to actually lower our inventories a bit this year.
Okay.
And then.
That's sort of a new distribution center in the Netherlands.
What role than just at least for the UK facilities that just fulfilling now the U K and is there a chance that there'll be no excess capacity in the U K location.
Like explain kind of what's going on there.
So just as a point of information the U K facility, when we set that up as a bonded facility. So.
You're not paying duties Friday, just so when you're actually getting something in the EU through the U.
U K it is especially coming from China, So I could never existed in the U K from a tariff perspective how's.
However in practice it turned out that post Brexit they would get delaying anything coming out of the U K. So it wasn't a tariff issue. We just couldnt get our goods. We went from service levels of 48 hours.
On the good.
Good sites for weeks and up to eight weeks to ship and it obviously hurt our business noticeably.
The Rotterdam facility is gonna as we ramp it up.
We'll be getting good almost wholly from sorts of origin. So they won't be routed through the U K right because that would just.
Result in slower times higher inventory level system wide.
So it'll be direct in terms of will manage it through there.
As a result, yes.
Because we're having more.
Total capacity in the system.
<unk> fell into the U K it will free up capacity in the U K and presents an opportunity for us there.
But we work at full capacity there before just as an FYI off. So this is giving us more capacity excess capacity.
Okay.
And then just switching a little bit.
So the new acquisition the swell acquisition.
So if you said it added.
Corporately 5 million of EBITDA on an annualized basis. So.
In 2022, it'll add 10 months roughly of four out of that is a portion of that will be in for 2022 am I understanding that correctly.
I think roughly eight months, but besides that I think.
You asked yet understanding correctly seasonality aside from getting in Washington.
But that's the TSA.
So yes, so I think it would be about eight months after the transition period.
If I'm understanding my math right.
Okay.
In annual revenue.
No.
Roughly I'm guessing 30, 35 million something like that can you get higher.
Is that.
Okay.
Yeah.
But pretty much youre right on its just yeah.
Right.
Okay.
And the and the seasonality of that business is it is there something unusual in the seasonality.
Yeah, I mean look it's predominantly regulation is definitely seasonality in hydration as you're aware.
I know at one point going back to the U K warehouse, even though we're creating excess capacity, we will be at a lower cost footprint systemwide once for life.
Okay, you mean with the Netherlands combined with the U K the whole thing is going to be lower cost correct.
Okay, and that's supposed to be up and running kind of like at the end of March you said.
Any day.
Okay.
Sounds good Okay I'll pass it onto the next person. Thank you so much.
Thank you Linda.
And our next question comes from the line of Anthony.
With Sidoti <unk> Company. Please proceed with your question.
Good morning, and thank you for taking the question so actually just to follow up on the.
The previous question that Linda asked as far as the.
The lower cost that you were talking about as far as movement from the UK to the Netherlands, how should we think about the magnitude of those cost savings. If you could give us an approximate idea that'd be helpful very helpful.
We're putting that warehouse, hey, Anthony we're putting that warehouse in place because once for life will be able to ship anywhere in the content of the continent.
In 24 to 48 hours so it's a huge.
Revenue opportunity for us and that's really what's driving.
That decision.
The.
Math is we'll actually be in a lower cost footprint combined.
But it's not significant so the big impact from the Netherlands is gonna be revenues and not call.
Okay got it yeah. Thanks for clarifying that that's definitely appreciate it so.
As far as price increases can you quantify what the impact was from higher prices in your fourth quarter and as far as plans for further price increases this year.
Yeah.
Yeah.
Okay.
So yes, the price increases are not the easiest to calculate in part because we.
We change our products. So frequently so would you only look at those that are comparable.
Our estimate for the fourth quarter bear in mind, a lot of this is being phased in is like maybe 5%, 3% on an annualized basis.
And.
Yeah, that's what it is it being phased in.
Ourselves obviously were accepted by the <unk>.
Approximate.
Supply chain issues of about $20 million. So you got to factor in as well that would've had an impact on that percentage.
And in terms of her other price increases Anthony.
I know that the world is went from crazy to crazy or so we've got to constantly monitor it you know and it could.
When we we put in several price increases.
Globally, we do it by market.
In 2021.
We were very clear that we were only looking for.
What was required and we can come back and we've already come back.
For additional price increases in 2022 and that May continue.
So you know as the world.
Markets shift one way or another.
Mhm, Okay, yes, thanks for that color, so I know youre not providing guidance obviously for it yet for for this year you did mentioned that earlier, Rob in your prepared remarks that you're well positioned for 2022.
That being said you're just looking at.
How are you guys did it in in 2021, you had a huge first half as far as.
You know first quarter, you out at 35% sales increase and a 24% in the second quarter and more modest than.
In the back half of the year or so.
Could we see a kind of tell us tale of two halves. This year just in reverse order.
Yeah, just just Directionally, if you guys could comment on what you want.
What's your reasonable to expect for this year.
Yeah. That's a good question and I think I mean look back two years, we had a record year in 2020.
And then we crushed it in 2021.
And you know I think beat our expectations as well.
Good stuff yeah. So yeah, we said in 2020 and wildlife we can't keep on growing 20 plus percent a year, but we get it up.
But you know we can't keep on growing 20% a year you know all things remaining the same it's a very difficult environment, but yeah. It was a little strange year.
In 2020 in terms of particularly on a copier basis.
The beginning as you pointed out of the year at stronger comps and you now versus then.
Second half, which is also against very strong comps. So you probably should expect a more normalized curve of the quarters.
And what you saw in 2025, so you are correct.
Okay, alright, well, thanks and best of luck.
Thank you.
And our next question comes from the line of Sam Dennis.
Our capital. Please proceed with your question.
Hi, Thanks for taking my question just wanted to I know you touched on <unk>.
Container availability, but just wanted to see how youre seeing container freight rates and in Q1 and for the rest of the 22 relative to the last couple of quarters.
How do you think about substituting function there.
And kind of.
Yeah.
Okay, a couple of things to begin with we don't really.
Five are just the.
And appropriate and cost effective means of shipment for what we do.
So we've basically adult.
He made me samples you know, but we don't do assay.
Secondly.
Our focus.
And as the World has had global supply disruption and then on availability over cost because we can still make money at some ridiculous container rates.
And we focused and because we've been growing a lot.
We think it's a big competitive advantage a lot of people we compete with are much smaller.
As you know we've talked we've invested in inventory and stability to be there to support our wholesale channel as well as direct to consumer.
And so aveo.
Availability is trumped price for us and it's had some impact on our gross margins.
As a result, but also in a rising I'm getting off threshold. They put in a rising cost environment, there's always going to be a lag impact for us to catch up on a margin basis. So so far this year.
Theres been some jumps so the spot market jumped out to like almost 25000 container to the west coast.
By coast and of course to Europe , but it's all linear right.
But it came back pretty fast more importantly, we purchased our ocean freight on contract rates.
In a normal environment over 90% of what we ship is on our contract rates.
Last year.
It was hard to get people too.
And that's how it works it was hard to get people to actually ship you, even though you had a contractual right to ship you on a contractual rate. So our total shipping costs as a function of how much we had to buy a spot and how much we had a buy on contract.
So Rachel.
Stabilized.
A little bit.
More importantly, though in February we shipped about 90%, which is the first time like last year, we probably get 50 55 at best.
Percent on contract, we did 90% on contract in February So it appears from what we understand the.
Carriers are.
Julianne Moore and supplying more in terms of their long or a bigger relationships on contract, which is much lower than spot contract rates there will be higher in 2022 than they were in 'twenty, one still much below spot.
Okay, Thank you and against.
It sounds like being able to push price you know.
Through on the top line should probably be able to offset those increased contract rates year over year.
Is that the way to think about it yes.
Our focus on maintaining gross margin dollar.
In a rising.
Parity.
With our price increases and cost decreases for that matter.
And that's our focus so yes since you maintained gross margin dollar parity.
Okay. Thank you very much.
Our next question comes from the mine, Justin Putnam with Alaska.
Please proceed with your question.
Oh, yes. Good morning, I was just wanted to get a little more maybe give your thoughts on your net debt picture for next year.
I understand that you invested strategically a lot of inventory this year, but yet you still lowered your net debt my calculations are correct somewhere around $25 million this year.
I think you said never they expect an increase.
Inventories same degree next year. So what are what are kind of your target debt levels can you remind us about that and then maybe your uses of cash for next year.
Just generally.
Yeah first of all good to hear from Justin.
We generate a lot as you know we generate a lot of cash and keep on growing even generate more cash.
So we use that strategically in the business to our advantage, but we continue also to delever well, creating value for our shareholders by paying down debt as well we didn't just use although it's pretty immaterial in terms of our leverage ratios you know, but we just made an acquisition of a very accretive business.
And great brands.
So we used some cash for that you know we continue.
Hum.
When we did the filament lifetime transaction, we were highly levered right.
And we said we are our target levels as a public company was three times and below we've been below that for a while right.
And.
We have opportunities to use the cash we don't expect getting to that five times leverage you know so it's all within the guidelines that we.
Uh huh.
Have been vocal about and like I said, you know the acquisition, we just made you're not going to see an impact in terms of our net debt level.
Alright.
Okay. So do you expect net debt did decrease a fairly materially in the next year then.
In all likelihood you know cause.
As far as I know it was going to hit $200 Tomorrow and you know how this is gonna be a whole bunch of things right. So youre not giving guidance today on the spot, but we consistently generate a lot of cash and deleveraging has been you know it gives us dry powder on the balance sheet and you know increases stakeholder value just by doing that so that's what we've been doing.
Yeah.
And we use our cash that we used to fund our European business, we have a separate line for that but we now find that out of the U S. A.
Because you know, we're picking up a little bit of a negative arbitration and the arb on the interest rates there.
<unk> got the cash.
Right, Okay, great well, thank you for that color.
And then as a quick reminder, if anyone has any questions you May press star one on your telephone keypad.
Next question comes from the line of Chris Mcdonald with Kennedy Capital. Please proceed with your question.
Hi, Good morning, Robin Larry Congrats on the results.
Thanks, Chris.
Just wanted to talk about share gains a little bit so clearly pronounced share gains really once COVID-19 started and you just want to hear about.
The company's ability to hold onto that share and then perhaps some of the other areas.
Looking forward, where you're most excited about share gain opportunities either new products or expanded.
Customer relationships.
Yeah look we've been focused as we did the transformative strategy that we you know.
Called lifetime to point at all.
Oh, you know gaining share and focusing on categories, where we had a right to win.
And in 2021.
You saw a tremendous impact in our financial statements because a lot of share we retained in our business.
Holding onto the shares a lot easier than gaming.
And you saw the benefit of that in 2021, but we've also been expanding to a lot of plus one opportunities in adjacent categories and at the launch of beautiful has gotten traction, which as you know that's exclusive to Walmart and to new brand there.
It's beautiful by drew Barrymore.
Very well received.
We're actually looking into expanding that into additional categories, all plus one opportunity.
And one area of getting us into some new category, we're very big in but we do nothing.
Walmart I've been scratching our heads about that and now we may have that in front of us and that could be very big kitchenaid cutlery, which I mentioned in my remarks.
That over.
And launch that in 2020 and it helped it helped that growth in 2000, I'm, sorry, 'twenty one.
In 2021, but it was only a half year result, right now so we'll get the other half year. This year right. So you know that just keeps on providing opportunities.
So in terms of we've launched a lot Mcarthur hospitality is probably the biggest area that you know I'm very bullish on its a tremendous opportunity and we believe we have a very strong right to win the market's been disrupted obviously in terms of the hospitality market, but we're getting traction there.
It's still look it's an investment we could've shut that down you know would be $100 million EBIT.
Ebitdas instead of 95 right now.
But we're investing in the future year and gave the same thing with losing money for us, but we think that you know it's gonna be not too long that is going to be.
$15 million to $20 million business for US you know a highly profitable is a great brand great product offering and we're seeing tremendous results since we relaunched it. So you know we still have a lot of investments out there.
Which are negative which will drive positive international we've made tremendous progress on that.
Going to be a huge driver for us everything we've done over the last three plus years, which has been you know, it's usually transformative from a financial perspective, that's been wildly been losing money over that I was.
Close that gap in 2021, but as that becomes a positive that's going to have a huge impact on that so yeah. It's the things we've talked about yeah cleared up to Justin's question. You know, there's a lot of dry powder on our balance sheet. We think we can use that and we're very disciplined about that so we can use that you.
Gain.
Positive value creation, and we're looking for the opportunity one opportunity that we had was well if we just transact.
Yeah, no. Thanks for walking through that would you expect.
There will be new opportunities perhaps to reinvest.
The earnings associated with some of these areas, where you've been investing thus far back into the business or do you think some of these.
Our strategic priorities and collecting to be positive contributors.
Fall to the Bottomline.
Yeah, Chris It's a good question look we've even while we were transforming the business we were and that's why we're building out we were investing in the business.
Right you know so we're not looking to answer to maximize a quarter or a given year. So we're always investing in the business, which again like I said, we could be generating a lot more.
Cash income today, if we werent, making these investments. So that's just the nature of our strategy. We will continue to reinvest in the business to give us future growth opportunities.
Okay, Great and then just two other quick ones. One are you seeing any change in the either the nature or the cadence of your customer discussions on.
Neither seasonal planning or any other sort of normal program rollout discussions that you would have tied to all these supply chain disruptions is there any any change in.
How that's played through here.
Or do you expect it.
Yeah, Yes, we have.
So as a rule plan O Gram resets are being pushed off because of this.
In some cases are postponed a significantly.
That's good for US as you know having a good part of the plan O Gram, it's bad for Us I'm trying to get new plus when you stop it right.
But yes, there has definitely been a delay in resets.
On the wholesale community, obviously, not an E com.
As a result of supply chain disruption.
Okay until that probably ties back to your comment from before that 2022 as a more typical seasonal year, where Q1 starts out.
And then you.
Expand a bit through the year than what we've seen some unusual patterns here. These last couple of years.
Yeah, So Chris.
And you know.
It's not like we stand alone on its what people might have different opinions, we don't see the supply chain issues resolving themselves from 2022.
But in 2020 was a very strange year because of the impacts of the Covid pandemic.
And as a result, we ended up having a tremendous.
2020, but.
The first half was.
Impacted by that so if you looked at 2021 on a comp basis.
Our comp performance and we also just achieve a lot of it flowed over into 2000.
What do you want so we had a tremendous back half of <unk>.
2020, and a tremendous front half of 2021, which was highly hit until 2021 the growth in the first half was highly unusual on a comp basis.
But you know its normal down and and and and and sustained right, which is why we significantly deep.
Our own guidance, let alone everyone else's.
A year or.
2021 that we've now gone through a complete cycle of that impact, so really which was COVID-19 related so.
We would expect a much more normalized rollout of the year because our business does have some seasonality in it and differs by product category right.
Yeah good.
Good morning.
Very good and then just last one for me.
Back to the working capital discussion so.
The business if I combine the last two years of cash flow you've generated roughly 20, a little more than 25% of your market cap and free cash flow in those two years combined and that was in spite of about a $30 million net operating.
Working capital build so a non trivial headwind from there.
Going through.
Is it even a neutral thought process on working capital clearly is attitude relative to the run rate that you've been at and it sounds like I realize it's difficult to predict in this environment.
It's not.
That's kind of within the scope of planning.
Assumptions that you could be neutral on a working capital investment basis through the year relative to where you were at the end of this year or maybe even a little positive some inventory can burn down does that is that fair.
Yeah, that's I mean, the market cap for instance, you know we've talked about that I mean.
We view that there's a huge gap between our intrinsic value and I.
And our market cap, but but yet from a working capital perspective.
That's fair.
Okay, great. Thanks, again, and congrats on the year.
Oh, Thank you cool.
And we have reached the end of the question and answer session and I'll now turn the call back over to Rob Kay for closing remarks.
Thanks Chanel.
Thank you everyone for your interest.
The time with us today, and we look forward to future dialogue, we will actually tomorrow. The attending a fireside chat with Linda Bolton Weiser, which I'm sure will be available as well for people to listen to.
Have a great day and thank you for your support.
And this concludes today's conference and you may disconnect your lines.
Thank you for your participation.