Lifetime Brands Inc (LCUT) 2007 Q4 法說會逐字稿

Welcome to the Lifetime Brands fourth quarter earnings conference call. At this time, all participants are in a listen-only mode. Following management's prepared remarks we will hold a Q&A session. (OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded today, March 10, 2008.

I would now like to turn the conference over to [John Heilshorn]. Please go ahead, Sir.

Thank you very much, Operator. Good morning, everyone, and thank you for joining Lifetime Brands' fourth quarter 2007 conference call. With us today from management are Jeff Siegel, Chairman, President and Chief Executive Officer; Larry Winoker, Senior Vice President and Chief Financial Officer; and Chris Kasper, Senior Vice President, Corporate Development.

Before we begin I will read the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995.

The statements that are about to being made in this conference call that are not historical facts are forward-looking statements and involve risks and uncertainties including but not limited to product demand and market acceptance risks; the effects of economic conditions; the impact of competitive products on pricing; product developments; commercialization; technological difficulties; capacity constraints or difficulties; the results of financing efforts; the effects of the Company's accounting policies and other details contained in the filings with the Securities and Exchange Commission.

The Company undertakes no obligation to update these forward-looking statements.

With that introduction, I will turn the call over to Mr. Siegel. Please go ahead, Jeff.

Thanks, John, and good morning, everyone.

Let me start by saying that we were very disappointed by the Company's overall performance in 2007 and we are highly focused on fixing what is wrong as well as continuing our focus on growing those parts of our business that are highly profitable.

That said, some of our businesses especially our cutlery, cutting board, kitchenware and home decor divisions in fact showed outstanding performance despite the difficult environment. We took decisive action to remedy those areas that did not meet our expectations. Moreover, the new product line and initiatives that I'll discuss in a moment have us extremely excited about our Company's prospects.

As detailed in this morning's release, Lifetime sales for the fourth quarter and consequently for 2007 as a whole were significantly impacted by the unfavorable retail environment. As I mentioned in our call in early November, most retailers adopted a very cautious wait-and-see approach to building inventory for the holiday season and once the season came, consumers did pull back severely on their spending, resulting in significant lower-than-expected sales for the quarter and, in Lifetime's case, having a dampening effect on our entire year.

Disappointing sales from our Direct to Consumer and our dinnerware and glassware businesses also contributed to the shortfall.

Our Company has a high degree of operating leverage, so the lower sales had an even larger impact on our bottom line. We've taken corrective action to remedy the DTC and dinnerware issues and would like to take you through those actions before turning to our plans for achieving profitable growth in 2008.

I will start with the changes we have made in the DTC area. While our DTC management team did make progress in 2007 in revitalizing our retail stores, in December, we determined that certain locations did not have the potential to show meaningful profits. In total, we closed 30 stores -- everyone without a four-wall profit -- and made cuts in divisional overhead. We estimate the steps alone will eliminate approximately $2 million of DTC losses in 2008.

We are continuing to look at all aspects of that business including addressing the inefficient warehouse we inherited as part of the Pfaltzgraff acquisition. And as we have said in the past, we will exit the business if without seek a clear path to return to an acceptable level of profitability in the near term.

Strategically, we are also continuing to shift the emphasis of the DTC division to the Internet catalog and Internet catalog end of the business and away from bricks and mortar retail. To help us to continue to build strength in the Internet and catalog area, we just recruited an individual with 25 years' experience in the management and operation successful direct response businesses. Jeff Berman, who is most recently general manager of J&R Music and Computerworld -- a major U.S. consumer electronics computer and music retailer that is highly focused on Internet retailing -- started with us last week in the newly established position of President - Direct Retail.

Our dinnerware category also substantially underperformed in 2007 and we recently re-energized it with new management bringing in as President [Glenn Simon], founder and former president of [Sakura], a very successful dinnerware business that was initially sold to Oneida. Under Glenn's direction, we will be introducing approximately 100 new dinnerware patterns in 2008 that are both beautiful to look at and very well-priced.

Turning to our plans for 2008, I want to begin by saying that even though retailers are extremely cautious, they are actively looking for answers that will boost business, especially in the second half of the year. We are responding by employing Lifetime's great strengths and designer innovation, introducing a tremendous number of truly exciting new products that we anticipate will enable us to take market share and drive profitable growth, despite the difficult retail economy.

In the first quarter of this year, we are showing retailers approximately 2,500 new products, all of which will be available for shipment this year. This more than doubles the largest number of new introductions we have ever had in any quarter. In 2008, as a whole, leveraging the strengths of our over 100 person staff of designers, artists and engineers will introduce approximately 4,000 new and redesigned products.

In addition to the new dinnerware patterns I've already mentioned, our most significant initiatives include an expanded Vasconia assortment that has been very well received by several key retailers. As you recall Vasconia is one of Mexico's best-known brands and presents us with an outstanding platform for reaching U.S. consumers of Latino heritage. We have been showing this line to retailers for several months and placement starts this June and is running far ahead of our expectations.

One of the things that is exciting about this line is that it does not in any way cannibalize any of our other retail placements.

Next is an amazing line of over 150 products under the EcoWorld brand that are made primarily from plant-based, Earth-friendly bio plastics. They look and function as well as the products made of oil-based plastics and they offer the extra benefit of being biodegradable. Today, both retailers and consumers are asking for products that are friendly to our planet and Lifetime is in the forefront of offering such products for the home. This line will be shown for the first time this Sunday in Chicago at the International Home and Houseware Show.

We believe the introduction of this line has the potential to be an industry-changing event. Because we are so sure of success in placement of the line, we are working on a significant number of additional products under this umbrella brand. It is my expectation that EcoWorld will be the umbrella for over 500 SKUs by next year and the potential exists for several thousand more. Being able to be the first company in our industry to work offer products such as this is a testament to our leadership in product development and particularly in material research.

Next, our two great lines of trash cans under two of our best consumer brands. These are items that on average retail for well over $100. They are unique products with unique features and have been very well-received by the few retailers who have seen them. This is a new category for Lifetime although it is related to our current pantryware business there is great volume potential here.

Interestingly, with the introduction of these product lines, our Kamenstein division is, in a sense, returning to its rooted groups roots in that it was Kamenstein that many decades ago was the first company in the world to market step-on trash cans.

There are also two additional and very unique lines of kitchenware under our Hoffritz and Pedrini brands. These are unlike anything on the market today and will serve to emphasize our leadership in the category. We will also have a large number of new cutlery offerings at great price points under each of our major cutlery brands, as well as a high-end line of super quality Damascus steel cutlery that is approximately 70% less at retail than comparable products on the market.

In addition to these introductions, to capitalize on a growing importance of so-called Black Friday promotions, we've developed a large number of items at Super Price points that we are about to show our retail partners. Retailers are asking for innovation to drive business year-round and Superbase Specials to drive extra business in the critical Thanksgiving to Christmas period. Lifetime will have both.

We believe these initiatives, along with the many exciting new SKUs that we are introducing under our many established brands, will help propel sales in our wholesale division, enabling us to obtain an organic growth rate of 6 to 10% even in this very weak retail environment. I would also like to note that our Martha Stewart and Food Network branded lines, both of which were launched late last year, are doing very well.

In addition, I want to give you a quick update on our inventory reduction initiative, which is beginning to show the results we targeted. Year-end acquisition adjusted inventory levels were down by $17 million, a 10% reduction from year-end 2006. We believe there is additional room for lower inventory levels even though we expect sales to increase.

We expect to reduce inventory dollars by year-end 2008 by an additional $5 million to $10 million. We recognize that the economic climate in 2008 is likely to remain challenging. We think this environment will present this with a myriad of opportunities to take market share from smaller less well-capitalized competitors.

Before turning the call over to Larry and then to Chris for more detail on our 2007 numbers and 2008 guidance, I'd also like to note we completed our acquisition of a 30% stake in [Echo SAB], Mexico's largest housewares company in December and that the consolidation of our Southern California distribution centers is coming on plan. Larry.

Thanks Jeff.

The audit of our 2007 consolidated financial statements is not yet completed. Our auditors expect to complete it within the next few days. Therefore, my remarks are subject to the completion of their review.

Net sales for the fourth quarter of 2007 were $155.1 million, compared to $157.3 million in the 2006 period, a decrease of 1.4%. Net income was $5.4 million or $0.40 per diluted share for 2007, compared to net income of $9.5 million or $0.63 per diluted share in the 2006 period.

For our wholesale segment, net sales were $127.1 million for the fourth quarter of 2007 and $127.0 million for the 2006 period. The home decor category improved due to new placement in programs with some major retailers. This increase was offset by lower volume in our other wholesale product categories, largely due to the weak retail environment in the fourth quarter of 2007.

In the Direct to Consumer segment, net sales were $28 million for the 2007 quarter compared to $30.3 million for 2006. This decrease was primarily due to the lower store traffic, partially offset by higher volume in the stores that we are closing under the restructuring plan.

Web and catalog sales were lower versus the comparable quarter last year due to late summer/fall shipments in 2006 and the late holiday orders in 2007 that were shipped in January 2008.

On a consolidated basis, cost of sales for the fourth quarter 2007 was $91.5 million, 59% of sales compared to $91.5 million or 58.1% of sales in the 2006 period.

In the Wholesale segment cost of sales were 62.7 -- 62.7% of net sales in the 2007 quarterly period compared to 62.5% in the 2006 period. An improvement in cost of sales percentage due to increased emphasis on higher margin business in the home decor category was offset by unfavorable product mix in the tabletop category.

In the Direct to Consumer segment, cost of sales was 42.1% of sales in the 2007 quarter compared to 39.6% in 2006. The increase as a percentage of sales primarily results from lower margins from the stores to be closed in the -- under the restructuring plan. Distribution expenses were $15.4 million or 9.9% of net sales in the fourth quarter 2007, compared to $14.8 million or 9.4% of net sales and in 2006.

In the Wholesale segment, distribution expenses as a percent of sales increased to 8.8% in 2007 versus 8.1% in 2006. The increased percentage results from lower volume and the start up of a new West Coast distribution center beginning in December 2007.

For the Direct to Consumer segment, distribution expenses were 15.2% of sales for the fourth quarter of 2007 compared to 14.7% for 2006. Distribution expenses increased as a percentage of sales as a result of fixed warehouse costs, including costs associated with the higher inventory levels during most of the 2007 period.

Total selling, general and administrative expenses for the 2007 quarter were $37 million versus $33.8 million in 2006, an increase of 9.5%. Excluding unallocated corporate expenses, SG&A was $31.9 million in 2007 and $30.6 million in 2006.

Increase is attributable to our new headquarters, and SAP enterprise system were partially offset by successful expense reduction efforts in the Direct to Consumer segment.

Unallocated corporate expenses for the 2007 and 2006 quarters were $5.1 million and $3.2 million, respectively. This increase is primarily due to a one-time charge related to the termination of a license contract and higher professional expenses.

During the fourth quarter of 2007, we recorded a charge of $1.9 million for asset impairment and restructuring charges related to the Direct to Consumer restructuring plan. These charges are primarily for the write up of fixtures in the stores to be closed.

Income from operations for the 2007 quarter was $9.3 million compared to $17.2 million in 2006. Now a wholesale segment income from operations was $16.2 million in 2007 and $19.6 million in 2006.

In the Direct to Consumer segment, income from operations was $0.1 million or $100,000 in 2007, excluding the asset impairment and restructuring expenses versus $800,000 in 2006. Other income in the 2007 period is primarily due to the gain recognized on the sale of our former headquarters building.

Interest expense for the fourth quarter in 2007 was $2.7 million versus $1.9 million in 2006. The increase was attributable to higher bank borrowings outstanding during the current period, which is largely due to the acquisition of Pomerantz Inforum, capital expenditures and our stock repurchase program, partially offset by the proceeds on the sale of the building.

Income taxes, our income tax rate was 45.5% for the full year 2007 and 49.2% for the fourth quarter, compared to 38.5% for both periods in 2006. The increase is attributable principally to stock option expense that is not deductible for income tax purposes and to a lesser degree the effect of the Direct to Consumer segment losses in certain states where the Company [cannot] recognize a tax benefit.

Turning to the balance sheet, at year-end 2007, availability under our bank credit facility was approximately $73.6 million. At the end of February 2008 after giving effect to our fourth quarter results, liquidity was approximately $50 million.

During the fourth quarter, the Company generated substantial cash flow from operations which is attributable to normal seasonal activity, as well as management's effort to reduce inventory levels.

During the current quarter, we reduced inventory by $36 million. In addition, we generated $8.8 million before income taxes from the sale of the building and used $23 million to acquire a 30% interest in Echo SAB and $7.6 million to repurchase shares of our common stock.

Capital expenditures were approximately $4 million during the fourth quarter of 2007.

Now I will turn the call over to Chris.

I will expand on Jeff and Larry's remarks by giving more detail on the number of Lifetime's initiatives and their expected impact on our 2008 financials.

Similar to my comments on our last earnings call, the focus remained on, first, addressing underperforming businesses -- in particular, our Direct to Consumer division; second, aggressively managing our working capital and capital expenditures to improve free cash flow; and, third, maximizing the value of our acquisitions.

But first let me review and comment on our 2008 sales and earnings guidance. We are currently projecting 2008 sales to be in the range of $510 million to $525 million.

This guidance assumes the following. First, our wholesale business representing 80% of our total sales is projected to increase between 6% and 10%. Second, our bricks and mortar retail business on a comparable store basis is projected to increase between 2% and 4%. Third, our Internet and catalog business is projected to increase 6% to 10%.

After EPS our guidance is for $0.86 to $1.06 per share. But this includes a $0.19 DTC restructuring expense. So our operating results are expected to be $1.05 to $1.25 per share.

Based on a fully diluted share count of 14.6 million shares, including the 2.7 million shares attributable to the 4 3/4% convertible notes, this equates to a full year net income of approximately $13 to $16 million excluding restructuring expense.

In addition to the projected growth of the wholesale business, the other big driver of increased profitability is the restructuring of our DTC division. As Jeff already mentioned, we announced in December that we are closing 30 of our 78 factory stores or approximately 40% of our total retail doors.

In doing this, we are closing every store that was expected to have a negative four-wall contribution. Closing these stores will eliminate approximately $2 million of losses in the DTC division. Further, we are taking a hard look at the divisional overhead and have recently announced staff reductions at the division's York, Pennsylvania facility. Improvements in merchandising and operations should result in further improvement.

In addition, opportunities for increased profitability will come in July 2009 when the current lease for our York distribution center expires. This facility was acquired as part of the Pfaltzgraff acquisition and its inefficient operation has been a drag on both the DTC business as well as the wholesale dinnerware business. Our distribution team is currently working on a plan as part of our Companywide distribution strategy.

To reiterate Jeff's message, we expect substantial improvement in the operating results of the division in 2008 and are exploring every option to ensure the division does not continue to be a drag on our earnings in the future.

Let me shift gears and talk about the Company's focus on free cash flow. In 2006, the Company had a free cash flow of negative $32 million. While in 2007, that number was a positive $9 million.

In 2008, we project free cash flow to be between $15 and $20 million. This dramatic improvement is in large part a result of both a focus on improving our working capital efficiency and the end of a phase of significant infrastructure investment spending.

We're very pleased by the improvement we saw in working capital in 2007 and expect our continued emphasis to generate favorable results in 2008. In 2006, changes in working capital and other operating assets and liabilities resulted in a use of $36 million in cash. In 2007, it was a source of $6 million in cash, and in 2008, we projected to be a further source of approximately $5 million in cash. The driver of this is expected to be further reductions in inventory levels.

In 2007, we ended the year with inventory levels at 144 million which is 12 million less than at year-end 2006.

Adjusted for acquisition inventories declined 17 million. These improvements were the result of three factors. First, increased visibility of inventory levels and planning due to our new SAP system. Second, having changed the incentive compensation of sales and division management to include inventory levels as a metric. And, third, the increased focus by senior management.

We believe these initiatives which were implemented midyear last year should continue to generate results in 2008.

As we have noted in past conference calls, our 2006 and 2007 capital expenditures were exceptionally high, due to two large onetime infrastructure investments. Our new SAP system and our new Garden City showroom design center and corporate offices. Both of these investments provide a platform to support substantial growth in our business.

2006, capital expenditures totaled $21 million. In 2007 that number was $19 million and in 2008 we project it to be $7 million, which is closer to our historical average. We expect CapEx in future years to be consistent with the 2008 forecast.

The $15 to $20 million of cash generated by the business will be used, first, to play our regular annual dividends of approximately $3 million and then the remainder will go to pay down debt under our revolving credit facility and delever the Company.

Further uses may include opportunistic acquisitions, vestments or partnerships. But only those which we are convinced will yield a substantial return on our investment. To date we have utilized 22.7 million of our 40 million stock repurchase authorization. The Company has not repurchase any shares into early December and any future share repurchases will be evaluated carefully.

As for corporate development, Jeff already mentioned that we closed on our investment in Echo last December. For a total purchase price of $23 million we acquired 30% of the business. Jeff, Ron Shiftan and I were in Mexico City in January for our first Echo Board meeting and remained very impressed with the company and excited about its prospects.

We continue to believe there is significant growth opportunity for Echo as they go to market with Lifetime's products and brands and work toward completing the integration of the amounts of acquisition they made in 2007.

Finally, we are close to finalizing our conversations with Lifetime's Canadian distributor about entering into an arrangement to grow the business in that market. We expect to make a formal announcement in the next few weeks.

Operator, we are now ready to take questions.

(OPERATOR INSTRUCTIONS) Derek Leckow with Barrington.

Just trying to calculate the EPS on an operating basis here and got a number of items obviously with the gain on the sale and you've got the charge in here. You also mentioned something else in the SG&A line. Could you remind me what that was and help me get to an operating EPS number?

The SG&A line. Are you referring to the unallocated corporate expenses?

I think that's what you mentioned. I think you said during your prepared remarks, I'm not sure what that was.

Yes, I said that the unallocated corporate was up $1.9 million in part due to a one-time charge related to a licensed (inaudible). That was approximately about $1.5 million.

1.5?

Yes.

So when you look at operating EPS, what number -- I mean, what do you guys come up with?

Well, in our numbers, we only remove the sale of the building as well as the restructuring of DTC and, Chris, the -- .

$0.61. If you back out the -- , sell the building and the DTC restructuring you go from $0.68 on a diluted per share basis to about

Thank you. And then, as it relates to the loss from DTC for the year, could you remind me what the net loss was for the full year and as well what was in '06?

We report in segment. Last year we reported $8 million. This year we reported $8 million plus $2 million for the restructuring charge.

The 10 million from that?

Yes.

Then looking at next year, you said you were going to reduce that by 2 million. Is that right or did you have a larger improvement in mind for '08 in your guidance?

We certainly had a larger improvement in mind. What we refer to on the call was that the $2 million reduction was a result of just closing the stores which means we have already announced the closing for. It would be -- the other initiative that we discussed, including addressing the distribution, supporting the Direct to Consumer business, would all be additive to that $2 million improvement.

So you are still counting on a loss in your guidance for next year, right?

That's correct.

And then if you could help out with the quarterly breakdown this year for earnings. As far as I can tell it looks like you're going to have a substantial increase in revenue I guess in the first couple quarters, based on some of these new products. Just maybe help me with the breakdown for the earnings progression throughout the year.

First of all the new products that we were introducing at the housewares show -- we're actually -- some of it's introduced already in the first quarter and some will be introduced at the housewares show next week. They are not for shipment in the first quarter. Most of them are for shipment late second quarter beginning third quarter. None of it will be in the first quarter.

So that comparison with the first quarter is probably going to be down then, versus last year? Is that right?

As you know business is very seasonal. Most of the improvements in the topline and the growth of the wholesale business that Jeff spoke to earlier, we will be realizing in the third and fourth quarters of 2008. Further to that, it's probably worth noting that there are some additional expenses that we will be incurring in the first and second quarters of 2008, that will be a drag on results in those two quarters.

First and foremost, the fact that as a result of our restructuring of the distribution in Southern California, we are effectively running duplicate distribution centers as we transition from the old D.C. to the new D.C. We will be out of all of the old leases before the end of the second quarter of 2008. But there will be a period where we will be running duplicate expenses there.

Again, this is a business where, Q1 and Q2, we have and expect to continue to lose money in the first and second quarter of the year.

That's helpful and as far as the third quarter is concerned that is where we should see that improvement and expenses related to the distribution center. Is that right?

Not only will you see an improvement in expenses, but you'll also see the impact of the sales for many of the new products that we have placed. And just to reiterate when we talk about the improvement in distribution expenses, the press release we issued in December of 2007 spoke to a pro forma improvement of approximately $1 million as a result of the realignment of our distribution in California.

Thank you. And then as far as the cash flow guidance that you gave, it sounds like most of it is coming from the reduction in working capital. I mean, it's a pretty huge drop from 2007 to 2008, and then you said that that was going to be the average we should probably maintain going forward from that point, the $7 million?

Well, the improvements are the fact that capital expenditures are coming back to historical levels and that is really a very substantial change. But also the continued benefit from our focus on working capital, but really primarily inventory levels. Those two [impact] themselves will have a very substantial impact on free cash flow in 2008 and those are things that we feel very comfortable taking to the bank right now.

Outside of any upside to your guidance that is, right?

Right.

Bill Chappell with SunTrust.

First question on the inventory side. Help me understand how much of the inventory improvement or if any came from just the clearance sales from the retail or the DTC? And then how much you would expect in the first quarter.

Let me just comment on the change for the year on inventory, with respect to the DTC. It was basically flat. Most of the benefit we will get from the structuring going out of business will be seen -- has been seen during the first quarter of '08. So the reduction came really from our -- on the wholesale side of our business.

Bill, if you remember we really kicked off the going out of business and store closing sales sort of in the early part of December. So they were just getting ramped up. We will see most of the inventory in those closed stores going out during the first quarter of 2008.

So I guess maybe looking the other way of your $5 to $10 million expected this year, how much would come from that and how much is just from operating improvements?

I would say $3 million to $4 million of inventory will be reduced as a result of the going out of business sales. And I think it's probably worth saying as well -- I know Jeff would agree -- that our internal targets are much more aggressive than this. But we feel like these are good numbers for us to go out with. Numbers that we feel confident we can hit.

Clearly there is greater opportunity for us to continue to bring down inventory levels while still growing the business.

And then on the tax rate, can you give us a little more clarification in the quarter and then what the expectations are for '08?

The quarter is not really indicative of the rate. That was no change in the estimates. We took a significant higher rate in the fourth quarter. The 45.5% was -- had we known what we know now, we would say was 45.5%. With respect to going forward that is something we really need to evaluate, but it will not -- I don't think it is going to be 38.5% which we had in the past (inaudible) past.

So if I'm -- bear with me, kind of doing the bills from '07 to '08 say we have an operating income net income of about $8 million going to about $13 to $16 million, $2 million is just from improvement on the DTC. So let's say $1.5 to $2 million is coming from the equity investment in Echo and then probably maybe $0.5 million from improved tax rate. So that gets me pretty close to what? $12 million right there. And I'm assuming just easier comparisons operating efficiency gets me the rest of the way.

Is that the best way to look at it or are there any other big pieces that I'm missing?

Yes, in a nutshell, the business when we look at 2008, the organic growth that we get in the business, we get a tremendous amount of operating leverage out of this. We have, as we spoke to, made a number of investments and built up the SG&A in the Company to support a large business platform. When we look to 2008, we don't look to substantially grow estimate. We believe with the infrastructure we have, we will support that higher topline and the elements that you spoke to, plus the increase in organic growth, gets you to that number.

Great. Finally just on the new EcoWorld products, is that something where you've already gotten some orders. Or this is going to be brand new at the houseware show next week and then what's the target market? Is this like a Whole Foods type customer or is it a high-end or would it even go to the mass?

This is every (inaudible). The -- all this is is really taking what we normally do which is use oil-based plastics like polypropylene, polyethylene to make gadgets. With the material research that we have done, we found a material that we can mold very similarly to oil-based plastics with a slight change in equipment, a slight change in molds, we have already done test molds and we have been working on this for a long time.

We found we could produce this same exact quality product, but made out of basically a biofuel, not an oil-based fuel which has many, many advantages. Both environmental advantages on both ways in producing the product as well as it being biodegradable at the end of the life of the product.

We have not really shown it to anybody. It is going to be shown for the first time on Sunday. But we have had discussions with two retailers that are very different levels because we are going have several lines of this and they are more than enthusiastic to say the least.

This is going to cover every level. It is not going to be one level.

Alvin Concepcion with Citigroup.

Would you be able to give us some color on what organic sales were in the quarter?

Our wholesale sales were substantially unchanged quarter over quarter and so, I would say it was relative (multiple speakers) We didn't do any acquisitions (multiple speakers).

Organic was flat in the quarter. Approximately flat in the quarter.

And it sounds like you are planning on accelerating organic sales growth in '08. Much of that will be driven by market share gains it sounds like. But is there an expectation that industry sales growth will also improve?

I expect modest improvement in the industry sales. The housewares industry in general doesn't suffer too much in a recession, but right now we are facing a consumer who on many levels is very stressed by the cost of living. So it's hard to say. It really is hard to say.

I think the way I would characterize it is to say that given what we know about 2008 right now, and what the general tenor is of the market, that is what we baked into our earnings guidance for the year. It doesn't anticipate a dramatic depression, but it also doesn't factor into significant growth in the industry either. So I think it is a conservative approach that takes into account the realities of what we see today.

You gave a comment on your inventory levels at retail. Are you pretty comfortable with those levels?

Yes, at retail, yes. Retail inventory levels right now are on the low side.

Then if you have any comments on pricing pressure in Asia and commodities?

Yes, it's been a constant pressure for the last year. I think we have done a great job and it's taken a tremendous amount of efforts and so it takes a lot of resources in order to redesign products and move things around, and move factories and we've done a tremendous amount of that. We've moved thousands and thousands of products to lower cost facilities in order to counteract the increases in raw materials and some -- the increases that are forced by social issues within the Orient.

I think we've done a really good job overall. We don't expect margins to deteriorate. But it's been tremendous amounts of redesign effort to to and efforts in moving products to different factories, changing materials where it's appropriate. It's been an all-encompassing effort by many many people within the Company.

Gary Giblen with Goldsmith and Harris.

Just to follow up on some of the questions on Eco, are you suggesting that the cost of goods is less because it's not petroleum-based?

No, but it won't follow the ups and downs of the price of oil necessarily. The material is in some ways, on a per pound basis the material is about the same price as oil-based plastics that it is replacing. It's a denser material. Therefore, you can use a little bit less of it, and we have to adjust our molds to give you -- to end up with the same product.

But there are some additional costs in producing it. There's the material that's produced in the United States and we are shipping it to China. The cost of shipping from the United States to China is very, very low. Most containers [go] back empty. We expect that the products overall and we tell the retailers that we talked to it but would be somewhere around 10 to 15% higher than comparable products that are made from oil-based plastics. There is no resistance for that.

So your cost of goods is about that much higher too so it's -- (multiple speakers) .

Yes, it is. We are certainly not going to make extra profit on it. We certainly aren't going to work on a lower margin either.

And do you think that the consumer even in a recessionary type environment won't push back on paying more?

No. And because, you're talking about -- these are -- we are mainly doing this in the kitchenware business and we don't find the resistance if an -- we move an item from $1.79 to $1.89 or from $2.49 to $2.69. It is not an area that you get resistance in.

Then in terms of change, customer orders. Have they stabilized? Are you getting canceled orders or is it just less replenishments and -- ?

No, they are somewhat stabilized. As we've said we expect our increases really to come towards the second half of the year, probably starting in the second quarter, but really the second half of the year which is where we focus our business because that's the way we look at it, it's the size of the prize. You can make a lot of efforts in the first two quarters, you get nothing for it. The second half of the year, you make the effort, you get a tremendous amount of return and that's our focus.

I know that private-label is not a (inaudible) benefactor competition much for you in the past, but is it increasing versus perhaps other players in the market? Is it becoming a bifurcated market where either strong brands or designs like yourself or more private-label and then (inaudible) is what gets squeezed?

There are two parts to private-label. The part that we really do well with is when a retailer wants to have a private-label so they can stand out and not just have the lowest price in town. We are great at that and they know we are great at it. They come to us. That's how we got the Kohl's, the Food Network line at Kohl's and the Martha Stewart line at Macy's.

If a retailer wants a private-label to have the opening price point low-end line, we don't do it. It's not our strength. We don't bring anything to the table to the retailer and we don't want that business. We never did want it and that will continue.

So when retailers want a private-label that is not opening price point low-end, they look to us in our fields. And that's what we do.

Great. Then finally, it looks like Macy's as a whole is doing poorly, so does that translate at all to -- I mean, you said Food Network -- I mean, sorry, Martha Stewart is doing very well. So.

It's doing well. The Martha Stewart line, I can't speak for the whole line. You would have to ask the people at Macy's about the whole line, but the parts that we're supplying which is mostly kitchenware and some bakeware items, we're doing very well.

Do you have any programs like that? Proprietary brands that might be might enter with other chains?

We do. We are working on things right now and we can't disclose them, but we are. There's one significant line that we will be doing this year from one part of our business, but it is not something that we can disclose.

Good luck in the current quarter.

Adam [Duland] with Moorehead Capital.

I have a couple questions for you. I was wondering if you could tell me, given the operating leverage in the business what the breakeven point is, regarding sales?

For 2008?

Just generally. You had a -- you said a 1.5% decline in sales and something like a 40 or 50% decline in net income. I was just wondering how far down does that go? At what point do you start losing money for the year in sales?

I don't know that we give specific breakeven point. I think the reality is when you look at all of the moving pieces, that's not something that I think that we give commentary on.

What kind of visibility do you think you have in sales and earnings for 2008 given that -- I mean everybody was a little surprised in 2007 across the board, but it seems to be a bigger surprise for you guys than a lot of people. Do you have a lot of confidence in your guidance for the year?

We're confident. We've gone over it many times, we've scrubbed the numbers many times. We are very comfortable with what we have put out. We expect the environment to be a very, very difficult environment and that's [taking down] our numbers.

And in those do you see -- how soon do you see all the rollout of Echo products being sold in the U.S. and Lifetime products being sold in Mexico?

The Eco products we are talking about is ancillary in the name but it is not designed. This is not EKCO. The EcoWorld that we are talking about in the United States is EcoWorld. It has nothing to do with the Mexican brand.

Right but I mean the mix and brand of products specifically, are those already (multiple speakers) ?

The Vasconia products we will begin shipping in the second quarter. Our major shipment is really the third and fourth quarter. We will begin shipping it in this second quarter. Possibly the end of the first, but most likely second quarter. The Mexican company has already started aggressively purchasing lines directly through our facilities in the Orient.

Excellent and that is going well?

That is going very well.

But just to clarify, Echo SAB buying and selling product in Mexico does not directly flow through the sales and cost of sales line on our P&L. It only impacts our income statement through the equity method accounting. So Echo has been doing very well. They have been selling products at the end of last year and this year from our brands and with products that we have licensed to them. But they buy and sell those products on their own P&L, of which at the end of the year we'll get our 30% corresponding to our equity ownership.

Okay, so the sales aren't consolidated at all on [year]?

That's correct.

Just the earnings at the end of the year?

That's correct.

And when you -- going forward, you have planned to acquire another 30% of the Company. At that point would they be consolidated?

The agreement that we entered into with Echo does give Lifetime certain rights in regard to exercising a call option on the shares of the primary shareholders who own the vast majority of the Company. We would -- those rights begin in a time period starting two years from the signing of the agreement. And at that point we will make a determination about whether we want to acquire the remainder of the business.

If we did so and took over a 51% ownership, then we would be consolidating their financials into ours. Until that time or until that event occurs, we'll just be accounting for the investment under the equity method.

Okay, got you and just one last quick question on capital structure. With the stock where it is, do you think it might not make sense to suspend the dividend and just do further share repurchases?

I don't think that is something we anticipate at this point. The dividend being what it is, about $3 million, I think from what we've heard that's not something that -- that would make sense for us to consider at this point.

Kathleen Reed with Stanford.

Can you talk a little bit about when you were talking about all of the improvements and changes you made for your Direct to Consumer division in your stores, I think you did make a statement, though, that if this division doesn't continue to improve how you think you will just close it down. Do you have a timeline that you can share for that or is it the whole year, half a year, just something else that you'll judge it by?

Because this is a vision that we've had a problem with, we watch it continually. It's not something -- we don't have a specific point in time that we are going to do an analysis right now. We are watching this on a continual basis.

The emphasis is going to continue to shift towards the Internet and catalog part of the business. We believe that has tremendous potential and we will continue to shift in that direction. As you know, we've closed a substantial number of the stores and we will watch the rest of the stores. If their division does not perform it is not going to be part of our future. At least, the brick and mortar part.

Also back to share repurchase, it seems that other than reinvesting in your business and paying down debt, it was kind of a very -- and then it was even after acquisition -- it was kind of a very distant number 4. Can you talk a little bit about your thought process there? Why again just with the depressed stock why it would kind of be a distant number 4 as opposed to maybe giving up higher than acquisition opportunities?

I think the way that we look at it is there's the -- first, it is paying down debt. Okay? And that's the no brainer, because we carry very little cash on the balance sheet and it reduces the -- goes right to the reduction in revolving credit facility.

Back-end is the opportunistic aspects of the business in terms of acquisitions or partnerships or investments and the like. Those are really unplanned, but come along and we look for those which can give us a substantial return.

When it comes to repurchasing the stock, I mean that's something we will continue to evaluate. As you know we have been under a blackout period since early December under our trading rules and we will emerge from that a few days from today. Then we and the Board will make a determination as to what the most prudent course of action is in terms of repurchasing shares, based on what the share price is, based on what our expectations are about the future, based on the timing of the free cash flow generation that we discussed earlier.

All those factors go into the mix, when we evaluate what the prudent thing to do with our shareholders' capital.

You have a $40 million authorization and if I'm right you spent 22.7 last year?

Correct.

Just lastly, I guess a bigger picture question, retailers in January reported same-store sales I believe below expectation. Some of the discounters did better in February. Just -- and again this is a question that has already been asked but just given that in the back part of your year we saw some earnings revisions to the downside, how confident or I guess how conservative are your numbers for the full year? Given that you don't have a significant order backlog right now and we are seeing mixed results in retail and more negative news in the press every day.

We agree that the news is certainly negative and we aren't anticipating a strong spring, but neither is anyone else in our industry. But we are looking towards the fall. We look at the placement we have. Some of our business -- as I said in the beginning of my prepared remarks, some of our businesses performed well last year. Those businesses are continuing to perform well.

You really have to break our business down into parts. They would have performed a lot better even the ones that did well, for instance -- the kitchenware division, the cutlery division for last year, cutting boards, home decor division, the economy was and they did well. If we would have measured them separate from the rest of our business, taking everything (inaudible) they really did well. They would have done a lot better if the economy was better.

Now we had two parts in our business that performed very poorly. They both lost a lot of money. One was DTC and the other was the Dinnerware division. Now if those two businesses were just flat, we would have had an excellent year.

So we are not an industry that suffers that much as the economy turns down, but there is a little bit of suffering. We are anticipating that it will be a bad year. It's baked into our numbers that it will be a bad year. We just look at the additional placement we have and the new offerings that we have that we know are well-received, the ones that have been [seen] are well-received already and the ones that we -- like the EcoWorld which we are 100% sure will be well-received because of a few very short conversations that I can talk about more on the next conference call. I can't talk about it now.

So we put that all together to come up with our estimates as well as getting things from sales. So we are comfortable with the numbers. We are very comfortable. That's all I can say.

John Curti with Principal Global Investors.

I have three questions for you. First off, how much of the Direct to Consumer business sales comes from the catalog and the Internet part of the business?

For a full year basis about a third come from Internet and catalog.

Second, you mentioned that the stores that you closed lost I guess about $2 million. You have also done some overhead reductions, I guess, in the field etc. How much more in terms of cost reductions was that? And how much more may be yet to come so that is there more upside to reducing expenses by $2 million that you are talking about? Or the $2 million in losses?

There are a number of areas which we anticipate will improve the performance of that division. As you point out, there are opportunities for cost reduction, both within the divisional overhead and within the distribution center. But there are also opportunities for us to improve the margin and top line in that business, which can also have a very substantial impact on the profitability.

The team that is in there now has been there for over a year, and many of the changes which they implemented last year will be having a full year effect in 2008. And so we anticipate that would be an added benefit to the performance in that division in '08.

Did the stores that you are keeping open, the 46 stores, did most of those stores comp positively last year? I noticed that you were saying you are looking for positive same-store sales from the stores this year.

They were down about $1 million. Flat to slightly down on comp stores. Full year.

My last question had to do with respect to the D.C. that I guess the lease runs out in July of next year in Pennsylvania, for the DTC segment. Would that involve consolidating those operations into an existing D.C. or would you have to go out and find yourself another one? And if so we you be looking to acquire one that was smaller than the existing facility but more efficient?

It's much more complex than that.

Okay. Sorry about that.

The D.C. we acquired is old-fashioned and is very, very high cost and it has severely impacted the the DTC division's profitability and the dinnerware and glassware divisions profitability. So we are looking at two ways -- two parts to improvement for those businesses. One part is just to improve the overall business and the second part is improve the distribution for those businesses.

The distribution for those businesses unfortunately won't be substantially improved this year. There will be improvements this year and we're getting the improvements by reducing the inventory levels to make the current warehouse more efficient, which is very important to us. But the real improvement will come next year and it might be a new facility.

We are doing a very thorough analysis. It might be a consolidation into an existing facility, it might be an expansion of an existing facility. There are many possibilities.

Just to build on Jeff's comments, when we talk about inefficiencies, one thing to just put a little color on it when we talk about the York distribution center, it is actually two separate buildings that are across the street from each other. So there is a structural inefficiency there.

Our York distribution, distribution team has been working very hard on this and doing a good job. But there are structural issues which we can address when the lease runs out.

Then there are other operational issues that, as Jeff mentioned, we are going to be able to deal with in this current year.

Yes. The facility -- we might remain in York with the new facility. We might find a way to improve one of the current facilities and make it very efficient. It has old-fashioned systems in it. We need to improve the efficiency of the facility to get it down to the percentage expense that the rest of our distribution is for the rest of the Company. That would have a dramatic improvement on both DTC and the dinnerware glassware division.

But that would be in place by the time the lease runs out next year?

Absolutely.

Absolutely.

Ross Haberman with Haberman Fund.

Hello?

Ross, your line is open.

Ross has withdrawn his question. There are no questions at this time. I would now like to turn it back over to management for closing remarks.

Thanks, again, for joining us this morning. As I noted we are aggressively focusing on innovative and exciting products as a key driver of profitable growth. The evidence of our initiatives will be on display at the International Housewares Association Trade Show in Chicago starting this Sunday. If any of you are in Chicago on Sunday, Monday or Tuesday, please stop by and see us. Thank you.

Ladies and gentlemen, that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.