Q1 2022 Lifetime Brands Inc Earnings Call
Okay.
Good morning, ladies and gentlemen, and welcome to lifetime Brands' first quarter 2022 earnings conference call. At this time I would like to inform all participants that their lines will be in a listen only mode.
After the 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 like to introduce your host for today's conference Andrew Squire. Mr. Squire you may begin.
Thank you.
Morning, Thank you for joining lifetime Brands' first quarter 2022 earnings call with US today from management are Rob Kay Chief Executive Officer, and Larry <unk>, Chief Financial Officer before.
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 and.
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.
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, including such releases 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 Rob.
Thank you.
Good morning, everyone and thank you for joining us today to discuss lifetime brands first quarter 2022 financial results.
Lifetime has achieved strong results for several years and we have maintained this performance during the first quarter of 2022.
This quarter is only the second time in the company's history.
We achieve profitability during the first quarter of the year as the seasonal nature of our business usually delays profitability until later in the year.
This continued strong results.
Shows the strength of our business model.
Compared to the first quarter of 2021.
Which was a record first quarter for lifetime.
Our net revenues operating income and adjusted EBITDA declined driven by the impact of inflation and supply chain disruptions and other macro factors such as the war in Ukraine.
Our gross margin.
Also declined year over year in the first quarter as a result of these impacts.
However, compared to the 2019 quarter, which is a relevant benchmark prior to the significant macroeconomic impacts of COVID-19 on inflation and supply chain disruptions.
Our growth in net sales operating income and adjusted EBITDA is 22%.
290% and 109% respectively.
Overall, we are pleased with our operational performance and the progress in the business during the quarter.
We have generated $91 $1 million and adjusted EBITDA over the last 12 months and we remain on track to achieve our long term targets, which I will touch on in more detail later.
Sales in the quarter were negatively impacted by a delay among large omni channel retailers and their plan O Gram resets, which have shifted to the second quarter from the first quarter.
Our streamlining of inventory positions and many retailers and a softening of order flow, particularly in the online channel.
Aided by favorable mix.
We were able to improve gross margin percentage due to the benefit of new product introduction and price increases.
Price increases also had a favorable impact on our revenues.
In our core U S business we.
We also saw the impact of inflationary pressures on end market demand, which continues to be at substantially higher levels compared with 2020 and prior to the onset of Covid in 2019.
Accordingly lifetime continues to perform very well within our industry segment.
We gained or maintained market share across our product categories.
And we made additional progress on our growth plans.
We also successfully expanded the kitchenaid brand and the cutlery line performed well in the first quarter.
Our beautiful brand remains on plan and we are having good conversations with Walmart about adding more product categories.
Which will create additional growth opportunities in 2023 and beyond.
Okay.
On our last call we discussed the acquisition of swell bottle.
Which has since been integrated into our portfolio.
<unk> contributions were not material to lifetime in the first quarter.
Yeah.
The E Commerce channel declined in absolute dollars and percentage in the quarter.
Driven by a slowdown of demand in this channel, particularly at Amazon.
E Commerce sales were 19, 1% in the first quarter of this year.
Compared to 26% a year ago.
Over inventory positions at Amazon and other pure play e-commerce retailers.
And a higher percentage of consumers returning to brick and mortar retailers.
[noise] impacted ecommerce retailers in the first quarter.
Yes.
Of note, we have seen an uptick in demand from this channel in the second quarter so far.
On direct to consumer we continue to make progress, particularly with our year end day and planet box businesses.
We expect our direct to consumer sales to continue to increase overtime.
Supply chain costs, and availability continued to be challenging with higher freight in and freight out costs cut.
Coupled with shipping delays and availability.
Which have led to delayed shipments and in a few cases canceled orders.
We have maintained our strategy of carrying high levels of inventory to mitigate these challenges.
Okay.
While this increases our distribution expense. This strategy has remained a strong competitive advantage for lifetime.
Which we continue to translate into high market shares and distribution gains.
Of note.
We have recently solidified our long term ocean freight contracts.
In line with rates that we had anticipated.
Having a positive impact to our costs. We are currently shipping over 98% of our ocean freight under contract.
Compared to less than 60% in 2021.
Turning now to our international business.
Our European business faced significant demand headwinds.
Resulting from uncertainty caused by the war in Ukraine.
And more severe COVID-19 shutdowns in Europe and Asia.
Despite these challenges our European business achieved sales relatively flat to prior year.
In Asia due to supply chain issues are Australia, and New Zealand business declined.
This resulted in an overall decline in our international sales for the quarter compared with prior year.
Taken as a whole as evidenced by these results.
We continue to make exciting progress in Europe .
And are gaining traction with our direct model.
We are achieving significant customer wins with major chains, including car for one of the largest global supermarket change and next one of the fastest growing retailers in the U K.
With car for we are currently providing products in France only.
However, we see a large opportunity to expand both within France, and two other European markets moving forward.
Okay.
In addition, an important strategic initiative was achieved in March with our new distribution facility in the Netherlands going online and we will be at full functionality by the end of the second quarter.
Yeah.
This new facility will give us the ability to grow our top line.
While reducing operating costs for our European business.
This quarter, we incurred some one time upfront costs as a result of moving initial inventory over from our U K facility.
Going forward the facility in the Netherlands will be able to take delivery directly from our manufacturers in Asia and shift across the continent within 24 to 48 hours.
In commercial foodservice are mature back of the house business.
Which was already an industry leader made significant gains in the first quarter.
More importantly, mcarthur hospitality.
Our strategic growth initiative for front of the house is making exciting progress.
The business continues to ramp up and we have one additional significant accounts such as the Venetian in Las Vegas.
We continue to invest in top talent to build out the business.
And we recently hired a new senior executive with 25 years of commercial foodservice experience to run the foodservice business and drive our expansion forward.
Finally lifetime has continued its expansion into adjacent categories, including outdoor.
Pet and storage and organization.
Following our promising results last year across these categories.
We anticipate some positive impact this year with additional benefits to be realized over the coming years.
Let me now turning to a discussion of our financial guidance.
We issued our full year guidance for 2022 in our press release this morning.
To recap.
We expect to see moderate top line growth in 2022.
With the Bottomline remaining flat to slightly down compared to 2021.
We anticipate inflationary cost pressures will remain or accelerate during the year.
And our ability to fully mitigate such impacts will not be achieved until 2023.
During the year, we still expect to generate significant operating cash flow with ample liquidity supporting our strong balance sheet.
Our 2022 guidance reflects the softening of demand we are seeing as a result of continued inflation as well as continued supply chain challenges that are not unique to lifetime.
And the uncertainty in Europe .
That I just discussed.
As we look ahead to the remainder of the year, we are facing a world with limited visibility for a variety of reasons.
And we expect these pressures will persist throughout the remainder of 2022.
However, our business model has proved resilient.
Through all market cycles.
Giving us confidence in our ability to continue to deliver strong results in the current environment.
Our strong balance sheet and cash generation remained significant competitive advantages for lifetime.
As we invest in inventory levels and other strategies that will enable us to continue gaining or maintaining market share across our product categories.
In addition to allowing us to maintain and improve our gross margins and operating margins.
Yes.
We believe that our leading brands strategic growth initiatives and financial flexibility will continue to drive significant shareholder value and enable us to execute against our long term growth and profitability objectives.
Before I hand, the call over to Larry.
I want to expand on a comment I made at the start of my remarks.
Lifetime remains on track to achieve the goals, we announced in our five year plan.
While our results were down for the quarter year over year, the outstanding progress that our team made last year.
Coupled with the mitigation efforts, we have taken have kept us on course.
We remain confident in our ability to generate approximately $1 $5 billion in net sales and $145 million of EBITDA by 2026.
Importantly.
The remarkable progress we made over the past two years towards achieving our long term goals have provided some cushion as we effectively manage through current challenges.
As a reminder.
We grew adjusted EBITDA by almost 50% between 2019 and 2021.
So our recent performance demonstrates we are on the right track forward.
We intend to achieve this growth through multiple levers, including strong organic growth.
Further penetration in the commercial foodservice markets.
Expanding our presence in profitability in international markets.
Continued expansion into adjacent categories.
And incremental growth through disciplined strategic M&A, such as our recent acquisitions of year in day and swell.
Since announcing this plan in November of last year we.
We have progressed across all five of these levers and I am confident we will continue to execute despite current macroeconomic conditions.
In closing lifetime is well prepared to navigate the current environment and.
And very well positioned for the long term.
Again, and again, we have shown a proven ability to manage through a variety of business cycles and.
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, Thanks, Rob.
As we reported this morning net income for the first quarter of 2022 was approximately 400000 or <unk> <unk> per diluted share versus net income of $3 1 million or <unk> 14 per dose.
Diluted share in the first quarter of 2021.
Adjusted net income was $1 4 million.
Two quarter was <unk> <unk> per diluted share as compared to adjusted net income of $2 $8 million 13 per diluted share in 2021.
Income from operations was $4 4 million.
For the 2022 quarter as compared to $9 2 million into 2021 period and adjusted income from operations for the first quarter.
22 was $6 8 million as compared to $9 4 million into 2021 period.
Adjusted EBITDA was $91 1 billion and 95.1 billion with a trailing 12 month period ended March 31, 2022, and December 31 2021, respectively.
Pro forma adjusted EBITDA, which includes historical results swell and pro forma projected synergies adjustments.
It was $95 1 million for the trailing 12 month period in March.
March 2022.
And also for the December 2022 period.
Adjusted net income adjusted income from operations and adjusted pro forma adjusted EBITDA.
All non-GAAP measures and are reconciled to our GAAP measures in the earnings release.
The new items in the current quarter were non-GAAP measures related to the acquisition as well and the opening of the Netherlands Third party operated distribution facility.
Following comments for the first quarter of 2022 versus 2021 unless stated otherwise.
Consolidated net sales declined by six 6%.
By approximately 5% product price increase.
But as Rob commented compared to the first quarter of 2020, and 2019 consolidated sales rose, 26% and 22% respectively.
And if you look at this same metric.
The U S business first quarter of 2022 net sales compared to the first quarters of 2020 in 2019 rose, 29% and 31% respectively.
The U S segment sales declined by $10 million to $166 2 million. This decrease mainly affected kitchenware and tableware products reflect these timing of retailer <unk> plant ramp resets and inventory streamlining this.
This was partially offset by higher sales in home solutions, driven by our new warehouse club program for bar and wire products.
International segment sales were down by 3 million to $16 5 million on a reported basis $2 5 million.
Klein in constant U S dollars.
Sales in Europe , including the UK, where even but mixed among our distribution channels.
This decline was due to supply chain constraints affecting a distributor Australia and New Zealand.
Gross margin percent increased to $34 five from $33 seven.
For the U S segment gross margin percent was $34 seven versus 33, 9%.
For International gross margin was 32, 7% compared to 31, 8% last year.
The improvement in gross margin for the U S segment was driven by a tariff reduction on certain products and favorable category mix.
This was partially offset by higher input costs the improvement in gross margin percentage for the international segment was driven by customer mix. This improvement was partially offset by higher duties on goods shipped from the U K to Continental Europe .
Opening of the Netherlands Third party logistics facility will eliminate this for.
Distribution expense as a percentage of net sales increased to 10, 5% from nine five.
For the U S segment distribution expense as a percentage of goods shipped from its warehouses.
<unk> nine 9% from eight 9%.
This increased rate was attributable to lower shipment volume.
Additionally, the rate was adversely affected by higher inventory levels, which reduced labor efficiency.
As well as general inflationary conditions.
For the international segment distribution expenses as a percentage of goods shipped from its warehouses, excluding expenses to relocate inventory to the new Netherlands facility with.
With 21, 7%.
In 2022, and 14, 4% last year.
This increase was primarily attributable to higher freight costs for products shipped in the U K to Continental Europe , and an increase in U K business occupancy tax and.
In April we began shipping from the new distribution facility in the Netherlands. This will lower shipping costs, a good ship to continental Europe customers.
Selling general and administrative expenses were 39, 5% for 2022 at 38, 1%.
One.
U S segment expenses were $28 5 million.
Versus $27 4 million in 2021, and as a percentage of net sales SG&A expense increased to 17, 1% from 15, 6%.
The increase is mainly from the integration costs related to the <unk> acquisition.
SG&A expenses for the International segment was $5 one into 2022 quarter.
I have two 5 million last year.
Kris was due to foreign currency transaction losses, offset by lower amortization expense on intangible assets that were impaired in the fourth quarter of last year.
Unallocated corporate expenses were $5 nine to 2022 quarter and $5 7 million last year.
The increase was driven by increase in legal and professional fees related to the <unk> acquisition.
That's really offset by lower incentive compensation.
Yes.
Taxes, the income tax rate for both the 2022 and 'twenty one period for both the statutory rate.
This was due to foreign losses with no tax benefit was recognized and state and local income taxes.
Looking at our debt and liquidity, our balance sheet and liquidity continued to be very strong.
At March 31, 2022, net debt was $231 1 billion net debt to EBITDA leverage ratio.
Based on pro forma adjusted EBITDA was two four times and liquidity, which includes $48 million of cash plus availability under the credit facilities was $162 million.
Despite continued inventory levels maintained.
Safeguard against supply disruptions are funding the <unk> acquisition and the commencement of the stock repurchase program.
Liquidity continues to be very strong.
This concludes our prepared comments operator, please open the line for questions.
Thank you we will now be conducting a question and answer session.
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Please while we poll for your questions.
Our first questions come from the line of Linda Bolton Weiser with D. A Davidson. Please proceed with your questions.
Yeah.
Hello, how are you doing.
We're doing fine and hopefully you are.
Thank you.
So.
Oh I see.
So that as you said I mean, you mentioned a shift of some revenues into the timing of planar Ram changes did you did you actually quantify the magnitude of that sector tend to do so for us.
And here we go.
The next question.
We heard the question because it's a little fuzzy if you talked about the timing of the planet brand shift.
Yeah.
Can you quantify the amount of revenue.
Not off hand, but.
Most of the major retailers.
In response in the U S.
In response to <unk>.
<unk> ongoing supply chain issues.
<unk> made the decision to postpone.
Our plan O Gram reset from the first quarter to the second quarter.
And the good.
News Bad news is that if on the bad news side anything new we want on our planet Graham we're not shipping yet.
The good news is we have significant market shares.
It continues right, but when the plan O Gram resets.
Hugh.
Aid in volume at the time of the reset and that was just postpone this year from Q1 to Q2.
Okay.
And then.
Can you like I think you mentioned there about the Amazon channel the pure play e-commerce retailers the bad actually improved somewhat in April I think you said, so would that be because the demand trends improve or because they were just now replenishing inventory or.
Can you give us more color around that improvement.
Yeah. So.
No in general Amazon right, just released their earnings and you saw the decline.
We've seen for.
Including last year, the pace of growth in 2021 was higher in brick and mortar than it was in E. Commerce in 2021, and a lot of factors, but some of that is people just wanted to go back to shopping in person in 2020.
And obviously, that's a big if.
Increase in e-commerce revenues across the world.
Two factors.
That impacted we believe.
Our.
Shipments into that channel.
Noticeably in the first quarter was a there has been a softening in demand so across categories.
Not uniformly, but we saw that as the categories just dipped to the whole boats went down a little bit but also.
The.
Equally in Amazon warehouses or distribution centers were clogged.
And therefore, there was a disconnect between sell in and sell through rate, if you're selling a what.
It would be called <unk>, so on a wholesale basis.
And there was a lag in most of our categories.
<unk>, what the sell through was and the replenishment of.
Those.
Inventory positions at the e-commerce retailers, particularly Amazon.
We've seen that has been the biggest impact in April where we've seen the order flow pick up a lot.
Which makes sense because they are now under inventoried in many basins or skus because of what I just described.
Okay. Thank.
Thank you and then.
So your gross margin was certainly impressive.
<unk>.
I guess one of the items you mentioned was the tear up benefit in the pipe.
That you receive so is that.
That will recur or like.
Can you say if you expect gross margin to continue to increase year over year, because it was so impressive in the first quarter.
Yes.
The issue and they can't get rolled out correctly.
So.
The there has been.
Removal of certain tariffs now you never know, but its not like Theres a plan to put them back.
So we stopped paying those tariffs and that's a positive.
And again im not predicting ongoing trade wars, and the like but it's not like they.
The current administration has not <unk>.
Tariffs on and off.
Which was actually.
Not uncommon in the prior administration.
So that should be a permanent benefit so to speak.
But if you look at our margin Theres. So many there are.
So much noise.
To begin with as we have transformed the business starting in 2018 really more impactful in 2019, we change mix and that continues to benefit because we are selling.
Products in categories, where we make more margin that that's just a permanent positive and we've done a lot of that so it's not like today. There is a big transformation, which is going to change our margin profile for 'twenty, three and 'twenty four except from the growth initiatives.
Such as Lacoste hospitality, just happens to be a high margin business.
Mix makes a difference.
The.
Channel.
And product category mix makes a difference and yet.
Do you see that one of the big impacts.
This quarter and we've changed the margin profile purposely by what we sell dramatically in our international business, but probably the biggest impact.
For this quarter is that our lowest margin sales of any international market is in Australia, New Zealand and that was down a lot.
So that helped.
So again theres a lot of noise, but we continue to focus and again, our gross margin percentage remained strong.
In a very challenging we're in a highly inflationary environment.
Yeah.
Okay, and just to remind me I mean, Natasha hospitality, that's a little bit of a lower gross margin business is that correct.
No that is incorrect.
A higher gross margin business.
In that business. There is a tremendous amount of program cost. So our contribution margin is very strong at the high end of what we do but.
The gross margins are.
Because it doesn't factor that all all the program costs in.
Are among the highest of what we sell.
Yeah.
Okay Gotcha.
And then just a broader sense.
You know we are.
Hearing from all kinds of companies different things about even in the U S consumer.
Demand kind of softening a bit are you kind of something that are like what what are you kind of seeing from the big mass retailers like like what are you thinking in terms of the consumer demand trend.
And that's going to be like yes, we posted numbers versus 19, right that was the last sort of pure.
Without noise year, and it was a strong year right now for <unk> 'twenty was a good year in 'twenty, one as well.
We have seen a softening in demand.
We don't we factor that into our guidance.
But the demand levels still remain as I said in my remarks.
Very high.
Historically right. So we do see it softening versus 21 slightly but greatly ahead of 19 and 20.
Okay. Thank you so much I appreciate it.
No problem. Thank you.
Thank you. Our next question is come from the line of Anthony <unk> with Sidoti. Please proceed with your questions.
Yes, good morning, and thank you for taking the questions Hope you guys are doing well.
So.
Yeah.
So just wanted to follow up on the last question from Linda as far as the softening of demand are there any specific product categories that stand out.
Can you give a little bit of more detail as far as what youre seeing there in terms of the different product categories and the demand levels.
Yeah.
Not necessary a little more in Delaware.
And then and tabletop and general partly because.
Those are very heavy.
And our cumbersome from a shipping perspective, so both.
Trade in and trade out so ocean and truck.
It has a much bigger impact and therefore.
To maintain.
To maintain your margin profile of the price increases have been substantial and have had some impact on the end market at least preliminarily.
But you know.
We don't have a startup.
And you know I always like to use. The example of can openers right, we sell about seven 5 million.
Can openers.
Emmanuel can openers premier we're by far the largest player and we're selling those <unk> at $5 99, or $7 99, and it's pretty it's proved historically very very in elastic.
You know and.
It's not very impactful and Thats, probably true you know the average ticket, we sell $10 and under.
It's the company has done very well in challenging economic times, and Hey, we don't know and we're not saying here that the company.
World economies on the precipice of.
If a recession, but many people are talking about that particularly in Europe , which could put the whole thing is we do well in those environments.
But the shipping impacts definitely have it.
On tabletop because of this.
The weight and other challenges of shipping that product around the globe and to the consumer.
Got it okay. Thank you for that.
Additional color on that and then in terms of your inventory increase obviously I know you guys have brought in more inventory because of all the supply chain noise and everything but just wondering how much of the inventory increase is actually because of higher pricing.
I don't need an exact number but just kind of ballpark estimate if you guys could provide some additional color.
Yeah Anthony.
Our estimate there is about $20 million of additional basis value added up cost in our inventory because of the.
Ocean freight containers is also about this.
This quarter now about Formula one.
Inventory related to swell acquisition.
So if you back that out of apples to apples basis, you can see what the increases.
Including the price increase though there's about an extra $65 million worth of inventory that we're carrying that in a normalized environment, we just convert to cash.
Got it okay.
And then you know in terms of the Lockdowns in China.
I know you guys do source a lot of talking about it.
It's more or less from Shanghai or just one.
Has that really been a material impact to your business thus far.
Definitely from a challenge perspective, so our Chinese headquarters in most of our people in Shanghai.
But we've been able to manage through it effectively.
But when they shut down at Port you know you really have to scramble.
So yes, it is something we monitor closely but.
It's one of many factors going on in the World right now.
We've been able to mitigate it and by the way of carrying those inventory levels.
Dramatically helped us to mitigate that.
And it's given us opportunity, but we're shipping things continuously and some people we compete against are not.
Okay.
Good to hear.
Yeah and in terms of the seasonality of the business. So I mean, obviously you talked about a little bit.
That is impacting you guys. So as we look to update our models.
I know, there's lots of puts and takes I know you had some delayed planned the ground resets, which should help up.
Two but there is some moderation of demand. So I mean broadly speaking I mean, you know.
Well Q2 kind of you think looks similar to Q1 or just kind of Directionally. If you could just kind of help us understand.
As far as.
But a help.
As far as Oh.
Dave in the bottles that'd be great.
I D.
We anticipate 2021 looking more like a normal year.
Our 2000, I'm, sorry, 'twenty two.
2021 was.
An aberration.
For the reasons, we've discussed in the past.
So the first quarter and second quarter were higher than normal.
And you know what.
What the seasonality would dictate.
Okay. That's helpful color.
And you know.
I know you guys did buyback some shares in the quarter can you just remind us how many shares you bought back and how much you have left on your buyback authorization.
We only bought back.
Just got started in the quarter of about $600000 worth of stock.
No about $12 $13 a share.
So we have.
90 plus million technically.
That remains.
Okay well thanks.
And best of luck going forward.
Thanks Kathy.
Yes.
Thank you there are no further questions at this time I would like to hand, the call back over to Rob Kay for any closing comments.
Thanks, Darryl once again, thank you for your interest and your support of lifetime brands.
We will be speaking at a conference next week.
<unk>.
On the call look forward to seeing you and Larry and I always remain available for Investor worries and we look forward to speaking everyone next quarter.
Have a good day.
Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect your lines at this time.
The rest of your day.