Q2 2019 Earnings 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 one on your telephone keypad.
I would now like to introduce your host for today's conference Andrew supplier. Mr. Spire, you may begin.
With us today from management are Rob, Okay, Chief Executive Officer, Larry Winoker, 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.
These statements are intended to qualify for the safe Harbor liability established by the private Securities Litigation Reform Act.
Any such statements are not guarantees of future performance factors that can influence. Our results are highlighted in today's press release and others are contained in our filings with the Securities Exchange Commission.
That introduction I'd like to turn the call over to Rob <unk>. Please go ahead Rob.
Thanks, Andrew.
Good morning, and thank you for joining us today to discuss lifetime brands second quarter 2019 financial results.
This quarter, we continued to focus on long term growth initiatives and although our performance in Q2 fell short of expectations I am pleased that the company remains on track to achieve its strategic priorities of repositioning our company for higher growth rates and increased returns.
Looking at Q2, while we have successfully gained market share in the majority of our business lines, we have faced market and geopolitical factors that have had a negative impact on our results.
Notwithstanding these headwinds we successfully launched several initiatives in the second quarter and continued to benefit from the reorganization activities that we executed in 2018.
The initiatives that we launched in the second quarter include the introduction of our cutlery and tabletop offerings into the commercial foodservice sector.
The launch of a comprehensive international sales effort.
And the launch of several new product lines across our bakeware kitchen tools at home solution lines.
While the international and Foodservice service initiatives are not expected to contribute meaningfully to 2019 results.
The other initiatives will help provide positive momentum and results in the second half of this year.
Further our UK business continues to show improved results as a result of our reorganization efforts over the past several quarters.
And we occupied or new single location UK operation during the quarter.
Which will begin to contribute meaningfully to enhance margins and profits in the second half of 2019 and beyond.
We also made significant progress on our portfolio realignment and SKU rationalization as we take a more strategic approach to products and categories going forward.
As we discussed last quarter, the retail industry continues to face temporary down cycles, driven by structural train changes in both brick and mortar and ecommerce retail.
Our results for the quarter were impacted by temporary softness in our end markets as well as the continued impact from ongoing geopolitical conditions, including tariffs and Brexit uncertainty.
The latter which has had an impact on shipments for both the UK and Continental Europe markets.
With regard to tariffs this continues to be a fluid environment as evidenced by the administration's recently announced intention to enact an additional 10% tower on all remaining goods manufactured in China that are not currently being tower.
As previously announced.
Lifetime actively monitors the changing tariff environment and have strategies in place intended to mitigate the impact of such tariffs.
These include achieving reductions to cost of goods.
Reducing cost across the supply chain.
Reducing administrative costs and discretionary spending activity.
And pursuing price increases in the sale of our products to our customers.
While the financial impact from tariffs is immediate upon implementation.
There is a lag in realizing the financial benefits from these mitigating actions.
This is a similar pattern to what we saw when the last power program went into effect.
As a result, we will continue to see some temporary negative impact on our margins until our mitigating actions are fully realized.
We have also experienced some marginal reduction in shipments as a result of tariffs as higher prices have reduced demand.
To date this has not been significant and we continue to experience revenue is consistent with our expectations.
Due to the large magnitude of the implemented and recently announced tariffs on China.
The lack of achieving of achieving mitigation has increased and we do not fully anticipate we do not anticipate fully implementing all of the strategies discussed until the end of 2019.
I'd also like to address two meaningful steps, we took in the quarter to realign the portfolio as part of our company wide transition to a more strategic product and category driven business model.
These important actions will create enhanced cash flow generation in the near term and contribute to improved efficiency and performance overtime.
First following the completion of our SKU rationalization.
We have made the decision to discontinue.
For deemphasize our investments in a significant number of legacy product categories across most of the lines of business.
We made the decision to eliminate product offerings that do not provide adequate returns for the call.
As a result of this decision we are occurring a nonrecurring noncash accounting charge of $8.5 million to write down the value of these products.
And free up more cash by modest driving essentially stranded assets on our balance sheet.
By monetizing these assets in the short term, we will be able to reinvest in the areas of our business that will drive growth and focus on product categories that will position us for greater profitability in the long term.
Second as part of our portfolio review, we have identified certain non core assets that we intend to launch rise in the near term.
Together, our SKU rationalization and non core divestiture are expected to generate between 30 and $45 million in additional capital.
Which the company will be deployed toward accelerating de leveraging and investing in growth.
In addition, we expect these actions will drive increased returns from our remaining assets and improve the efficiencies of our distribution centers by reducing expenses and other related investments to our supply chain.
We will continue to take a hard look at our portfolio as we move into the second half of 2019 and into 2020.
Turning now to our European operations, we continue to see strong momentum and we delivered solid performance in Q2 with year over year growth of $700000 in adjusted earnings from operations.
Additionally, we have funded and have begun to roll out our international business strategy in Q2, which consist of revamping our international sales efforts.
Two positioned lifetime brands to capture significant sales opportunities globally.
We have already made the necessary investments in 2019, and we expect to start seeing the benefits in 2002 one.
You revenues did not meet our expectations for the quarter.
Revenues were impacted by a planned portfolio change and ongoing uncertainty regarding Brexit.
To that end customers are reluctant to receive export shipments from the UK and consumer spending in the UK has decreased.
Nevertheless, lifetime brands Europe continues to improve and contribution margin.
As we have begun to realize the benefits from the restructuring of those operations as previously described.
As we look ahead to Q3 and beyond we continue to have confidence in our strategy on are built and our ability to deliver strong results in 2019 and beyond.
Despite the expected continuation of tariffs and Brexit uncertainty in the near term.
The improvement we saw in Europe was driven by the reorganization of our UK based business lifetime brands here.
This reorganization has included portfolio realignment as we ship the product mix away from nonproductive low margin products.
And focus on brands and offerings, where we can add value to the consumer and retailer.
Further in the quarter, we occupied our new European headquarters in Birmingham, England.
And we anticipate it will be fully operational in Q3.
Our reorganize operations.
Our plan for the region.
Is running squarely on track and the anticipated benefits remain consistent with our original estimates.
As a reminder, we will combine eight standalone warehouses and two separate business units into the single operation in Birmingham.
Allowing customers to order all products from one business.
And received one invoice from one ship way.
The single operation allows us to be considerably more efficient.
And offers best in class service levels and scale for competitive advantage.
In addition, our consolidation of business units in the UK will help will help offset the investments we've made.
While we continue to expect headwinds in Europe , and particularly in the UK as a result of the uncertainty surrounding Brexit and related FX challenges. We are pleased with the results of our turnaround efforts.
And our reorganization remains on plan, which will result in enhanced profitability and cash flow.
Moving to e-commerce .
As I mentioned on our first quarter call.
We made the decision to restructure our ecommerce activities in the fourth quarter of 2018.
Which has led to strong results and profitable growth in this channel.
During the second quarter, we were pleased with the company's performance on Amazon Prime day, which yielded robust sales in our product categories, such as kitchenware, which increased 51% compared with prior year Prime day revenues.
Bakeware, which increased 32% spice racks, which increased 150% and farberware calorie, which increased 66%.
We are proud that equal or ecommerce operations now represent nearly 14% of total revenues.
With pure play e-commerce revenues growing nearly 16% year to date compared with to 2018.
Ecommerce represents an important growth area for lifetime brands and we remain confident in its potential as we continue executing the transformation strategy for this channel.
Similarly.
We are excited by our recent expansion in the commercial foodservice industry.
In May we launched Macassa hospitality, a standalone unit onto the lifetime brands umbrella that covers dinnerware flatware, drinkware and table serving accessories.
We are starting to bring these products into our warehouses and expect to begin selling no later than Q4 with shipments starting in fiscal 2020.
While we do not anticipate recognizing revenue from this business in the near term. This expanded line is a logical and attractive growth opportunity in an industry and product categories were lifetime brands is already a global leader.
We will continue to take steps to strengthen our position in this growing space going forward.
We continue to have positive expectations for additional product launches in 2019, most notably in food preparation Barware tabletop and home solutions.
We will begin shipping many of these products in Q3, and we expect them to provide meaningful market share gains across our product categories.
Turning to our outlook for 2019.
As provided in more detail in our press release.
We expect to achieve net sales of between 755 million and $760 million.
Adjusted diluted EPS between 50 cents and 62 cents.
And consolidated adjusted EBITDA between 66 million and 70 million.
While this represents a level of revenues consistent with previous guidance.
We are revising downward our view of EBITDA for 2019, which reflects the timing impact of the announced and implemented tariffs on China and the uncertainty created on our European business related to Brexit.
While a downward revision the midpoint of our guidance Joe represents adjusted EBITDA growth of approximately 4% compared to 2018 and revenue growth of 3.7% compared to 2018 pro forma revenues.
As we transition to the second half of 2019.
We remain focused on executing our strategic priorities and continuing to implement our model that takes a more strategic approach to product and category.
Lifetime brands is committed to raising its competitive position in the market.
Driving sales generation optimizing profitability and increasing investment in brand equity.
And we have taken action this quarter to position us to capture these opportunities.
Looking ahead early bookings for the second half of the year looks strong and inline with expectations.
We are excited about our prospects and are confident that the path. We're on we will continue to drive improved performance profitability and meaningful value creation for our shareholders.
Ill now turn it over to Larry to go over financial results.
Thanks, Rob.
As we reported this morning, the net loss for the first quarter of 2019.
Including the impact of the nonrecurring noncash charge of eight and a half million related to the SKU rationalization.
Was a loss of $11.5 million.
Or 56 cents loss per share as compared to net loss of $6.1 million.
30 cents loss per share.
Second quarter of a seat.
Adjusted net loss for the 2019 quarter with $4.5 million.
Were 22 cents per share as compared to adjusted net loss of $5.7 million.
28 cents per diluted share in 2018, a table, which reconciles. This non-GAAP measure to reported results was included in this morning's release.
While some operations, including the nonrecurring noncash charge of $8.5 million for the SKU rationalization.
Was 12.5 million to 2019 quarter compared to a loss last year of 3.3 million.
Adjusted EBITDA, a non-GAAP measure that is reconciled to our GAAP results in the release was $68.8 million for the trailing 12 month period ended June Thirtyth 90.
After giving effect to certain adjustments and before limitations as permitted and defined in our debt agreements.
This includes projected unrealized savings of $4.8 million.
Of note the projected unrealized savings continue to decline as they continue to be realized and reflected.
Actual operating results.
Net sales for the 2019 quarter was $142.5 million versus $148.7 million last year.
USL segment decreased 5.9 billion or 4.6% to $123.1 million decrease was from certain low margin tableware programs in 2018, not repeating in 2019 and to a lesser degree decline declines in kitchenware. This decrease this decrease was partially offset by strong growth in hydration products.
International segment sales were $19.4 million in 2019 versus $19.7 million last year on a reported basis in constant euros dollars, which includes the impact of foreign exchange fluctuations.
Sales increased 900000 or 4.6%.
This increase was due to higher sales from E Commerce and UK independent customers.
While national accounts were down reflecting the planned the emphasis of low margin private label tableware products and the decline in export sales.
Gross margin was 30.9% in the 2019 quarter. However, there was 36.8% excluding the 8.5 million.
Charge for the SKU rationalization.
This compares to 35.8% last year.
The newest segment gross margin was 29.8% as reported for the 19 quarter.
36.7%, excluding the SKU rationalization versus 35.3% in the 2018 quarter. The 2018 quarter would have been 36%, excluding the onetime charge related to the inventory step up in connection with the filament acquisition.
This 70 basis point point improvement is primarily attributable to the absence in 2019 of low margin tableware programs that we had in 2018.
For International gross margin was 37.6% in the 2019 quarter compared to 33.4%.
In the 2018 period.
This increase is primarily due to our planned de emphasis of low margin private label tableware products and lower sales allowances.
Distribution expenses in the 2019 quarter of $15.5 million or 10.9% of sales compared to $14.9 billion or 10.1% of sales last year.
For the US segment distribution expense as a percentage of.
Good shipped from our warehouses, excluding relocation expenses were 11.8% and 10.5% respectively.
This increase was primarily due to lower shipment volumes.
Higher onetime higher real estate tax charge.
And an increase in freight expense on sales to prepaid freight customers.
For the international segment distribution expense as a percentage of sales shipped from our UK warehouses were 14% in both periods.
Looking at selling general and administrative expenses.
With 2019 quarter, they were $40.9 million.
Versus $40 million in the 2018 period.
In the Us segment.
<unk> expenses were 28.9 in 2019 quarter versus 30.9 in period last year.
And as a percentage yesterday expense improved to 23.5% of sales versus 24% sales this improvement.
As reflective of the realize synergies from the filament acquisition.
SGT expenses for international was $7 million in 2019 compared to $4 million into 2018 period.
The 2018 period includes a $2.1 billion mark to market gain from foreign currency contracts in 2019, the company commenced new lease for its new UK headquarters and warehousing as part of European reorganization plan.
In connection with their with and incurred 500000 of duplicate lease expenses.
Excluding these nonrecurring items international equity net expenses were $6.5 million in 2019 versus 6.1 last year.
Unallocated corporate expenses were approximately $5 million in both periods lower employee related acquisition to trim expenses offset by higher professional fees.
Interest expense was $4.7 million in both periods.
However, the 2019 period flex and interest rate swap mark to market gain of 300000.
In both 2019, and 2018 quarters income tax you flexi benefit the effective tax rate in 2019 was 33.6% versus 22.1% last year.
The effective tax rate to 2019 period varies from the federal statutory rate, 21%, primarily due to state and local as well as the impact of non deductible expenses.
The impact of non deductible expenses is significant in 2019 due to lower forecasted full year income as compared to forecast the same time last year.
And at June Thirtyth of 2019, our net debt was $306 million, which represents a decline of $22 million from a year ago date.
And a leverage ratio was 4.4 times also at June Thirtyth, our liquidity was $112 million comprise of availability under the revolving credit facility and cash on hand of $11 million.
We believe that I will liquidity is adequate for the foreseeable future, which will be supplemented in part by the anticipated benefit of free cash flow from the portfolio realignment.
Its also worthwhile to note that our term loan debt has no negative financial maintenance covenants and minimal required amortization.
As provided in the release, we have updated financial outlook for the full year. The mid range of the outlook reflects the approximately 60% of our sales will be generated in the second half of the year, which on a pro forma basis is consistent with last year.
The mid range of the outlook also reflects at approximately 85% of our adjusted EBITDA will be generated in the second half of the year, which is lower than the 94% we generated on a pro forma basis in the same period last year.
This concludes our prepared comments operator, please open the line for questions.
Thank you and as a reminder, if you would like to ask a question Press Star then the number one on your telephone keypad.
And your first question is from Frank Camma of Sidoti.
Good morning, guys. Thanks for taking the questions.
The obvious question to me at least when I was first reading the release is.
You, obviously did not meet your expectations, but your guidance at least on the sales side, which that want to stay focused on is actually going up. So can you talk about your confidence for the second half how you achieve that especially in light of the fact that you're actually cutting skews.
Can you just kind of bridge us to how you get there.
Yes, the on the skew reduction rationalization is not really having theirs are nonproductive assets and non productive skews that were eliminating so there's really not having.
And.
Big impact in terms of our overall revenues and it's.
As I explained stranded assets and therefore, we're creating value by taking money that is just sitting there and converting that to cash.
That will.
This is stuff so how do you.
Suming its product is a product that you then.
Divert to through like a discount or I mean, how do you what channel do you get rid of that product I guess, it's not going to happen.
One week, Brian Okay. So it will happen over a six to nine month period.
So it will be done in orderly basis, mostly through alternative channels. Okay. That's what I was getting that okay.
But while summit, we won't anticipate recognizing margin for this and we're just converting it to cash it will have some sales impact which is why there was an uptick in the revenue guidance okay.
Okay I got that.
All right that makes sense now so just staying on that for a second can you can you talk about the categories, where I think you made a comment that you gained some market share. So can you talk about the.
Either the categories.
Were you pruned or the categories that you've taken market share.
So it's really less categories and product specific units. So we've been gaining in barware.
Kitchenware bakeware and some of the things that I mentioned, we've been gaining share a lot of that obviously shipped in the second half the seasonality of our business as you're aware.
So we've had big wins in those areas from a market share basis.
Our perspective, and Thats driving growth for us and even this year in the first six months, while the second quarter is always a low quarter for us.
The first quarter was very strong and you know we've been gaining from the benefit of market share a lot of that flows through in the second half of the year.
The the we it's not like we eliminated categories on the SKU rationalization, we eliminated products that weren't productive, but we're in the products offering for some period of time and the company is offering for some period of time. So those would have included for instance areas, where we are growing like kitchen Ware bakeware sync where.
Yes tabletop.
Barware so across the company there was an opportunity to look at the portfolio from a strategic rather transactional portfolio and a return on assets basis too.
And that presented us with an opportunity to identify where we can monitor rising create value off of our balance sheet by raising an additional $30 million plus.
Okay, and the $30 million does that also include.
Clearly like you said it includes.
Inventory that you're you're you've already marked down but does it also include sort of other assets like minority investments that you might hold.
So.
It does include other assets.
Yes. It does include other asset okay.
All right.
Sue and I think that's encouraging.
Sounds like you're going to use.
A lot of that to either invest into their company or reduce debt.
So just staying on capital allocation for a second.
Do you think.
In light of what you're doing.
Obviously, you have a dividend, it's not a very big dividend, but does it make sense to keep the dividend or does it make sense to perhaps use that money, it's not a lot of money, but to direct towards the reduction of debt or and or even maybe the.
Repurchasing shares at the current valuation.
One of the thoughts about that.
So we have no intention to change the dividend.
Okay.
And the immediate use of this incremental capital raise will be to repay debt debt. Okay.
All right.
And just the last one from me is.
Can you talk at all about.
Hi, This is not a big issue for your growing ecommerce platform, but can you talk at all about.
Inventory trends.
Your retail partners, particularly some of them.
Our.
Yes so.
Coming back right now actually the bricks and mortar, but some of them actually or not so can you just talk about the general levels versus say a year ago.
Yes, I think we've seen an ongoing trend in this retail environment, particularly with some of the larger players too.
Shift some of the working capital burden to their supply base, including us.
We've seen a lot of that we saw more of that in 2018.
And if you look at particularly a lot of the larger retailers and the tariff situation. They are doing a lot of direct import right.
On a private label business. So if it's a 25% tariff or now maybe 10 on some other stuff. They are paying all that themselves and it's created additional pressures on the retailers, which while not directly related to us theyre looking everywhere, including anything on the balance sheet, but nothing material.
For us in 2019.
Okay. That's helpful. Thank you.
Thank you. Your next question is from Justyn Putnam of Atlanta.
Hey, Jeff.
Hey, good morning, I, just have a couple of questions.
First question is.
It looks like.
No your guidance was.
Lowered.
This quarter for the year.
Mainly due to geopolitical factors that occurred.
After the end of the quarter is that fair.
Specifically the 10%.
Yes, yes no.
Thats fair.
Alright, so follow up on that is I was I just wanted to hear your thoughts on the trade off between.
You know the timing of trying to recapture.
The margin from the Terra versus maybe trying to capture market share.
What is your.
Strategy on that.
It's complicated and it also depends upon.
Levels. So if you look at lists for which is the recently announced 10% it covers everything.
So one of the.
Okay kind of advantages for us of.
The putting lives for tariffs is it's basically everything sold.
In a retail environment is covered by the tariffs so kind of creates a level playing field.
And at 10% you can do things on a strategic basis, such as you suggest.
And if those go to 25%.
Were not going to neither is the market.
Going to completely absorb.
A 25% tariffs now you mitigate what you can but you can't mitigate 25%.
10% a lot different.
And again, its a trade war Chinese devaluing, the RMB erodes thats low hanging fruit in terms of cost sales reductions for us.
But little guys. If they try to absorb that will go out of business now we wouldn't go on a business, but it's not it's a big dollar amount to try to absorb so we wouldn't.
Do that and we'd rather remain with the market neutral if obviously react to market conditions no. One is doing there.
What's going to happen is.
Consumer prices will rise because the retailers are passenger.
Okay. So I understand it's complicated but on average would you say that your end.
Positions us or maybe more than your competitors and potentially gain market share during this transition.
For the vast majority of our competitors that would be the case and frankly in foodservice and are which is a very large opportunity for us.
The opportunities as a result of this and what its impacted on some of the people selling comparable products has created very favorable environment for us.
All right well.
It's going to.
Ask about that.
Down the road, but since you mentioned that what is can you quantify the magnitude as the.
Opportunity in the commercial line as you're so we're already a player in foodservice Justin.
On the if you look at foodservice Theres too you can divide it into two big pieces, which are.
Separate and one would be what's called front of the house someone's call back of house, what use in the kitchen, what use in the front.
So we have been a player for.
Almost 20 years in back of the house.
So we understand the market we've never been in the front of the house and we talked about this when we did the merger the ability to do that because lifetime has the products.
Flatware, where global leader table dinnerware were so the main products are so that we make all that stuff.
Through our global leader at any price point than any quality level. So it was a natural opportunity for us and we had now the expertise. So we spent the first year, putting it altogether and launch it in may of this year.
Launched a thousand skews into front of the house.
So it's a very good opportunity balls as a slow build for us.
It's a good opportunity and the products that were.
Selling in the front of the house.
In North America in Foodservice is a little over a billion dollar.
Market.
So we think we can get.
Decent market share of that market.
What do you what are you.
We're just a decent market share.
You can guess.
I mean, we haven't disclosed anything along that but you know, we're not talking to one or 2% here.
Okay.
Okay. So.
My other question was.
The SP rationalization initiative I know you mentioned a little bit about that.
Prior question, but.
This is on top of the cash flow that we're generating.
Through the business this year at least based on your guidance as Youve given.
And it looks like it's almost double your potential cash flow for the year.
Is that.
Is that accurate understanding of the opportunity with the FTC reservation.
One piece is accurate and one pieces there.
It is completely incremental that is accurate.
We the realization of this cash flow will be.
Both 2019 and 2020, so we expect this to be a nine month process.
To orderly.
Go through the process and realize.
The numbers that were stating.
Okay well the next two quarters are your big cash flow generating quarters anyway for the business.
So by spring of 2020.
You would expect to see.
Thanks, Ken.
Decrease in net debt levels.
That.
Yes.
You wouldn't be expecting for that SKU rationalization, right I mean basic basically correct.
With just a slight correction is yes, we are in basically this quarter and next quarter peak.
Seasonal cash need it.
In terms of our working capital cycle, and our seasonality of our business.
And therefore, the retail selling and the collection of what we ship you know is more fourth quarter and first quarter right. We do have certain businesses in the combined business such as the Taylor line, which has a very big first quarter business.
And other businesses that we have so you know that.
Couple of not as pure as you're saying and a little correction, there, but you correctly youre correct.
Okay. So the other words you cited for this new cash flow.
Investing in growth.
Just kind of ballpark percentage, how much of that cash flow is going to be used.
For investing in growth versus.
Just ballpark 25%.
Half of that.
So I mean, it's.
Gives us the opportunity to invest in growth a lot of the initiatives that we've already talked about foodservice international we funded a lot of that.
So this would be over and above opportunities that we've discussed to date.
And you know it's more just looking at the appropriate return at this point. The majority is being used will be used for deleveraging and if there are.
As we.
Originate additional gross things to discuss to the.
To the shareholders and the public.
You know, we will discuss that on a full disclosure basis, but at this point.
Most of the cash will be used to dealer.
Just I am just.
So let me just make just one.
Clarification is that and we have been sort of how much we're going to.
Realized in terms of timing, but the current.
Our current agreement term loan agreement has a what's called an excess some fairly familiar with an excess cash flow suite.
So to the extent we collected this year.
That is we've reduced our working capital position cash that will affect how much is available to reinvest.
Versus how much we'd have to pay down.
This dispute and we could always be do that but so I mean, we always have the option, but it is our intention.
As we generate until theres opportunities, which prevent or present appropriate return.
It.
We will de lever.
But the point being is we've generated and created a significant capital amount of capital.
From stranded assets.
That give us flexibility to invest in growth.
With providing appropriate returns and until that time, we just to lever.
Okay, well as shareholders I think that the.
Ill you found stranded assets and the cash flow.
That you're generating from that and pay down opportunities.
Pretty good.
Pretty exciting so.
I appreciate that.
Oh. Thank you we share your enthusiasm we were very happy to identify this operation.
Okay Thats all my questions. Thank you.
Thank you. Your next question is from Patrick Bar when do they gone.
Yes, thanks, guys.
Can you talk about the food service channel.
More.
Some maybe not necessarily your competitors with some other companies have talked about it being.
Fairly pressured in terms of traffic decline very aggressive pricing.
Just talk about what you're saying.
Yes so.
No the foodservice channel right, which would be a restaurant hotel catering and the like.
It has for the past 10 years grown at a faster pace than our core consumer market.
We know the channel well.
And.
We know the price points in the channel and we know our cost structure and we have the products. So the margin.
Net margin in that business, you have healthy gross margins, but theres big different gross and net.
On the margin is.
That we will be selling these products, which is known.
Is well within.
Our margin requirements, so not an issue for us.
And what you're seeing today globally, and particularly in North America, and particularly in the front of the house, where we're making a big initiative.
Is some disruption because there are a lot of traditional players.
That or not.
Providing the service levels that you need to in foodservice and food service. It's all from your distribution you need to they want and need it tomorrow.
So that that is mission critical and there are certain players in that industry in that space today, I should say that whether they're financially challenged or for whatever reason.
Other reasons I should say, we're aware of them, obviously are not able to deliver.
Fortunately for us that coincides with you know our tremendous investment in this space. So therefore, there is legitimate opportunities and we've gotten tremendous.
Sales opportunities as a result of this obviously, we need to execute on that.
Okay and then.
Going back to the.
You rationalization and cash flow.
Sorry to belabor that but clearly the point of interest.
You guys did about 20 million and.
And free cash flow last year, so should we.
In fact in the second half of this year.
That should be double that number.
Yes, as we said with.
Justin Putnam's question.
Is that yes, it's going to be a nine month periods to some.
Of the money that we're going to generate will be in 2019, and some will be in 2020, but this is all incremental cash flow that the company will generate off its balance sheet.
Okay.
And then.
The EBITDA guidance, just a little bit with the language so.
On an apples to apples basis.
EBITDA guidance is now.
58.
All right fair, if we compare to the first quarter.
No. So we went the guidance of 66 to 70, which is the from 71 to 73 and last year, we did a little over 65, so thats, where its 4% the midpoint of 66 to 70 or 68.
Equates to 4% growth over prior year.
And the range as I explained versus our guidance that was in place in the first quarter is down.
From the 71 to 73 level.
Okay.
And then have you guys saw in Amazon There was an article out either this week or last week about.
Amazon going to vendors and they need to reduce prices if they were selling anywhere else for cheaper.
Have you guys had conversations with them on that.
Are any of you there.
Yes, I saw that article.
And now look to Amazon does everything Amazon changes every other week now that is not something.
You got it.
It's a big effort, which some particularly.
Smaller companies have a harder time viewing in terms of maintaining map pricing on Amazon that very algorithmic focused.
So and their algorithm search around and if there is what they do anyway. If there is a lower price that they find online they immediately lower.
And that causes disruption in the marketplace, So and we have a significant infrastructure in place to protect Mac pricing because just to give you. An example, a rabbit corkscrew we sell those.
No in it.
A significant amount of independent wine and liquor stores throughout the whole country.
So you have a guy who is buying it lets just say at wholesale and.
He's a little Guy, we'll just say on long island any buys an extra 2000, Rob Corkscrews marks it up five bucks over wholesale puts it on Amazon is a threepi seller and it totally disrupt the marketplace. So you need to police that and basically go to that Guy and say Hey, you have two choices never sell like that again or satellite that will touch off and thats maintaining that pricing is just one example.
So you know Amazon is very focused on a lot of these things, but I did see that article not an issue for us.
We have a very strong multi tiered relationship basis because of our size.
Versus a lot of our competitors with Amazon.
So theres an active dialogue on a million topics that has not been long enough.
Okay. Thanks, guys.
Thank you we have no further questions at this time I will turn the floor back over to Rob K for any additional or closing remarks.
Thank you.
Thank you again for joining us today.
We remain focused on executing our strategic priorities to deliver sustainable growth in the second half of 2019.
We appreciate your continued support of lifetime brands and look forward to discussing third quarter results on our next conference call.
Have a good day.
Thank you. This does conclude today's conference call. You may disconnect. Your lines at this time and have a wonderful day.