Lifetime Brands Inc (LCUT) 2009 Q3 法說會逐字稿

Welcome to the Lifetime Brands conference call. At this time, all participants are in a listen-only mode. Following Management's prepared remarks, we'll hold a Q&A session. (Operator instructions). As a reminder, this conference is being recorded today, November 5, 2009.

I would now like to turn the conference over to Harriet Fried of LHA. Please go ahead, ma'am.

Thank you, Operator. Good morning everyone, and thank your joining Lifetime Brands third-quarter 2009 conference call. With us today from Management are Jeff Siegel, Chairman, President and Chief Executive Officer, and Larry Winoker, Senior Vice President and Chief Financial Officer.

Before we begin, I'll read the safe harbor statement under the Private Securities Litigation Reform Act of 1995. The statements that are about to be made in this conference call that are not historical facts are forward-looking statements and involve risks and uncertainties, including the Company's ability to comply with the requirements of its credit agreement; the availability of funding under that credit agreement; the Company's ability to maintain adequate liquidity and financing sources and an appropriate level of debt; changes in general economic conditions which could affect customer payment practices or consumer spending; changes in demand for the Company's products; shortages of and price volatility for certain commodities; the effect of competition on the Company's markets; and other risks detailed in the Company's filings with the SEC. The Company undertakes no obligation to update these forward-looking statements.

The Company's earnings release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the SEC. Included in this morning's release is a reconciliation of these non-GAAP financial measures to the comparable financial measures calculated in accordance with GAAP.

With that introduction, I'd like to turn the call over to Mr. Siegel. Go ahead, please, Jeff.

Thank you, Harriet. Good morning, everyone. This morning we announced our third-quarter 2009 results. I'm pleased to report that Lifetime Brands delivered a solid quarter. For the quarter, operating cash flow was $8.3 million. Net income was $4.9 million. And diluted income per common share was $0.40. Each of these key financial indicators shows a significant improvement over last year.

I'm also pleased to note that our improved operating results and our continued disciplined approach to controlling expenses and reducing inventory levels enabled the Company to reduce its bank borrowings by $52.8 million as compared to September 30, 2008. It's a reflection of the tough decisions we've made beginning in 2007 and a credit to our employees that we were able to achieve these positive results despite the continuing weak economy.

While we're not professional economists, it's clear that high unemployment, low home prices and the volatile stock market, and concerns about the shape of the recovery continued to have a dampening effect on consumer spending.

In addition, retailers significantly brought down their inventories. In principle, this is a positive strategy. However, in the short term, the transition -- this transition had a negative impact on our wholesale sales as replenishment generally was at rates below those of retail sell-throughs.

Our net sales declined by 20.8% in the quarter and by 13.3% for the nine months as compared to the same periods last year. In our wholesale business, net sales decreased by 14.5% in the quarter, and by 4.8% year to date. It's important to note, however, that a significant portion of the decline in the third quarter reflects several factors that make it difficult to compare the 2009 third quarter to the same quarter in 2008.

Notably, 2008 quarter included sales to Linens 'n Things which began liquidating its stores in the fourth quarter of 2008. Second, the 2008 quarter includes the liquidation of excess inventory in connection with our June 2008 purchase of Mikasa. Third, this year we discontinued certain low-margin sales to a direct response retailer that were included in 2008 results. Excluding these sales from our 2008 quarter would result in a year-over-year decrease of approximately 8% for the quarter, which I believe is more indicative of our actual performance.

It's also important to note that as we continue to focus on maintaining lower inventories, we have fewer products to discontinue each month, which has a negative impact on top-line sales. We believe this is the right strategy for us. And we believe we still have room to reduce our inventories further while maintaining fill rates of well over 95%.

Net sales for our direct-to-consumer business were off, reflecting our decision last year to close our retail outlet stores and sharply reduce the number of catalogs mailed to consumers in order to lower costs and improve productivity. All in all, we are pleased with our performance this quarter and our year-to-date results. Overall, it looks as though the bring-down of retail inventory has just about run its course. Assuming that to be the case, going forward we expect to be able to grow our wholesale business from 2009 levels.

Before Larry comments in greater detail on the financial statements, let me make -- take a moment to comment on some over-reaching themes that have affected our business this year. First, despite some recent positive economic news and the improving comps being posted by a number of retailers, the overall environment continues to be challenging. Consumers remain cautious and concerned. It takes innovation and great perceived values to get the consumer to respond. We offer both. Newness still sells, and we have introduced a number of really unique products such as our Speed-Prep One-Handed Mandoline Slicer, our patent-pending odor-absorbing splatter screens, and our Misto oil sprayers, all of which have received good placement and should do very well during the holiday season. We have an even better pipeline of new products for next year.

Second, consumers are looking for lower price points. At one large retailer where we sell a lot of kitchen cutlery, the majority of business has shifted from sets priced from $80 to $300 to sets priced from $40 to $150. While most of our competitors cannot bring down their price points without damaging their brands, we can do so through the use of our multiple-brand approach. And in this example, the retailer increased the number of our sets in its assortment by several SKUs. Our cutlery-set dollars, the dollar volume at this customer, is projected to increase by almost 80% this year, which shows that the strategy certainly is working for the retailer and for us.

Similarly, our Mikasa brand is gaining market share in the luxury dinnerware and glassware segments where it is positioned at the opening price point. It's an affordable alternative to the more expensive luxury brands.

Third, while the major impact of retail inventory is -- the destocking is likely -- is just about past, retailers will continue to adopt a conservative position with respect to inventories. In response to this challenge, we have reduced our own number of SKUs that we carry and have changed our sourcing practices so that we bring in goods much closer to the dates in which they are actually to be shipped to our customers. As noted, this change has allowed us to significantly reduce our inventories by over 25%. And it enabled us to bring down our bank borrowings by 45% as compared to last year.

At the moment, we think our wholesale business is likely to be flat as compared to the fourth quarter of 2008. However, I want to qualify that by noting that it's still early. And much will depend on how retailers view their business over the Thanksgiving weekend.

We also expect our internet and catalog sales in the fourth quarter to be on par with last year. Last year our net wholesale sales for the fourth quarter were $119 million. And internet and catalog sales were about $10 million. As we have just reported, net wholesale sales for the third quarter of $111 million and internet and catalog sales of $5 million for the third quarter -- even if our fourth quarter business were to come in somewhat less than last year, we should still post a good quarter.

In addition, we anticipate, based on October's results and our current order flow, that our margins for the quarter should be higher than our margins for the fourth quarter of 2008. Larry?

Thanks, Jeff. As reported, net sales were $111.4 million for the third quarter of 2009 versus $140.6 million in 2008. Net income was $4.9 million or $0.40 per diluted share for the third quarter of 2009 as compared to a net loss of $1.1 million or $0.09 per share in 2008. Income from operations, excluding restructuring expenses, was $8.3 million in 2009 versus $8 million in 2008.

Looking at our wholesale segment, segment income from operations, excluding restructuring expenses, was $11.6 million in the 2009 quarter versus $12.1 million in the 2008 period. Net sales for the 2009 period were $106.3 million, a decrease of $18 million compared to $124.3 million for the 2008 period. Approximately half of the decrease reflects in the 2009 quarter the absence of sales to Linens 'n Things, the nonrecurrence of sales of excess inventory acquired with our June 2008 purchase of Mikasa, and the discontinuance of certain low-margin sales to a direct response retailer.

Wholesale gross margin was 35.7% in 2009 compared to 35.9% in 2008. During the second quarter earnings call, we commented that gross margin was expected to increase from the benefit of lower inbound ocean freight costs. This cost reduction added approximately 150 basis points to the gross margin in the third quarter. However, unfavorable product mix, most notably from our decision to sell excess sterling silver inventory, offset the freight cost savings.

Wholesale distribution expenses were 7.8% of net sales in 2009 compared to 9% last year. This improvement reflects the elimination of distribution services for Mikasa provided by the seller in 2008, the closing of the York, Pennsylvania facility during this year, and improved labor efficiency.

SG&A expenses for 2009 were $18.1 million or 17% of sales versus $21.2 million or 17.1% of sales in 2008. The decrease is due to the elimination of transition services provided to Mikasa in 2008 and our ongoing effort to pare overhead. The decrease as a percentage of net sales was dampened by lower sales volume in the 2009 period, as a significant portion of these expenses do not vary with sales.

Turning to the direct-to-consumer segment, as you know, our direct-to-consumer business now consists of the internet and catalog channels only, as we closed all of our retail stores last December. So I'll comment on the ongoing business only. Segment operating loss from operations, excluding restructuring expenses, was $700,000 in the 2009 quarter versus $900,000 in 2008. Net sales were $5.1 million in 2009 versus $6.5 million last year. We attribute the overall volume decline to the continued retail environment and our de-emphasis of the catalog channel.

Gross margin increased to 72% from 69.2% last year due to selective product pricing increases and less free shipping promotional activity. Distribution expenses were 39.3% in 2009 compared to 38.5% in 2008. The increase was due to lower sales volume and inefficiencies incurred during the wind-down of activity in the York, Pennsylvania facility. We anticipate a significant improvement in the expense rate going forward.

SG&A expenses for 2009 declined to $2.4 million from $2.9 million, primarily due to lower expenses associated with our de-emphasis of the catalog channel. Unallocated corporate expenses was $2.6 million in 2009 versus $2.7 million last year.

During the quarter we recorded $700,000 of restructuring expenses related to the 2008 initiative and severance related to the realignment of certain management positions. Interest expense for the 2009 quarter was $3.3 million versus $2.9 million last year. The increase was due to higher average interest rates on our bank debt, partially offset by lower average borrowings.

Income tax for the current quarter was $153,000, which is primarily for minimum state taxes. We recognized the tax benefit of losses incurred during the first half of the year against income earned in the current quarter.

Equity and earnings of Grupo Vasconia, our 30% owned Mexican investee, was $727,000 for the current quarter versus $390,000 in the 2008 period. Vasconia's net income more than doubled in local currency terms and increased by 70% in US dollars. The increase in net income was driven by higher sales of kitchen products across all of its distribution channels.

Looking at our financial position, we continue our significant progress in strengthening our balance sheet. At September 30, 2009, our bank borrowings were $62.9 million, a reduction of $26.4 million from year-end '08, and a reduction of $53 million when compared to September of 2008. The reduction reflects our continuing plan to right-size our inventory levels, improve operations, while maintaining sufficient capital expenditures to support our operating needs. At September 30, availability under the bank credit facility was $42.7 million, which is net of $50 million of minimum required availability.

On a year-to-date basis, capital expenditures were $1.7 million and we expect full-year expenditures will not exceed $4 million. We are in compliance with all financial covenants required under the bank credit facility.

On October 30, we amended the facility to provide for additional liquidity, extend the period for us to complete our restructuring plans, and reduce the facility commitment by $20 million. The reduction in our inventory levels enabled us to reduce the facility commitment size without any adverse effects.

While we pursue opportunities and navigate challenges, we remain focused on improving our financial position and operating profitability. This concludes our prepared comments.

Operator, we're ready for questions.

(Operator instructions.) Our first question is from Jonathan [Brussler] with EJF Capital. Please go ahead with your question.

Hey, guys, thanks for answering my question. I just have two quick things. Do you guys have any thoughts on how you're planning on dealing with the convert?

We're working on it. We're not ready to share anything yet.

And how do you guys see the bank borrowings trending throughout the rest of the year? Are you still expecting a reduction of about $15 million to $20 million?

This is the time of the year that -- we -- just [around] our seasonal [peak needs,] so this is the time of the year when sales increase, inventory comes down and we bring down the bank borrowing levels.

And I'm assuming --

The numbers you said, $20 million, should be achievable.

All right, great. And is there any -- there's obviously some plans, maybe, to use that and maybe pay down the convert? Or are you guys not talking about that?

As Jeff said, that's something we're not ready to share. Obviously, we're focused and we think about it, but we're not ready to share any information about that.

All right, thanks.

Our next question comes from the line of Gary Giblen with Quint Miller. Please go ahead with your question.

Hi, good morning, everybody.

Good morning.

Good morning.

As consumers trade down to lower price points, as you said, Jeff, in your remarks, does that necessarily or usually mean that your margins will be lower on those products, or is there not a correlation?

There's not a correlation. It's really not much of a difference for us. The only difference is we have to sell more units. But it's -- as I used in the example, it's really working. I mean, it's -- I was concerned about it a little earlier in the year, but I'm much less concerned about it now. The consumer is really responding to low price points. It doesn't cover all of our businesses. It certainly -- for instance, in the kitchenware business, it definitely has no effect whatsoever. We don't -- lowering the price points of kitchen gadgets. But on the upper end products like cutlery sets, it's happening. And also other upper end products, we find that.

Well, Jeff, are you saying that the -- the added volume -- in other words, you generate the same gross margin dollars, or are we talking -- I was trying to get at percentages.

Well, gross margin dollars are good. I mean, both parts are good. Our gross margin is the same across our brands. Not exactly the same, but very close across our brands. And obviously, the more volume you do, the more gross margin dollars comes in.

Okay, I understand. And is the wedding business still strong in the kitchenware/housewares arena?

Yes. That's a very steady business. The bridal business is a -- for us is, we find, a rock steady business.

Well, that's good. Okay, good luck in the fourth quarter.

Thank you.

Our next question is from Neal Goldman with Goldman Capital Management. Please go ahead with your question.

Good morning, guys. First question, Visconia had a great quarter. And I assume you're translating it back with the peso being at 12.5, so -- or wherever it is now. Can you describe why they're doing so well at this point?

It's -- their business is great. They sell mostly in the mass market within Mexico, though they do -- and now do every level using some of our brands. I think they're benefiting from the relationship, and as are we in the United States. But they're rock solid as a company in Mexico. And their business reflects it. I mean, they're certainly gaining market share and growing. And we anticipate that they will continue to grow.

And how are you doing with their brand in the US?

We're starting to do very well with it here. It took longer. I guess we introduced it at not the best time in the environment. But -- oh, I want to add one more thing. The Grupo Vasconia has a -- went into category management which is something that we do in the US. And they've really -- it's really caught on for them in Mexico. And they're managing categories from many retailers. And it's both helping the retailers to grow overall and, certainly, helping the Grupo Vasconia to grow in addition.

Okay. One of the things I remember earlier, you had shifted your Canadian operation. Were you just getting a royalty which affects sales, right?

It has affected our top-line sales this year.

You had mentioned that in terms of the differences of this year versus last year. Or was that in effect last year, too?

In the third quarter there wasn't that much of a difference. Am I right?

Yes, that's right. By third quarter we had --

We had already made the change by the third quarter. But for the year to date there is definitely a reduced sales, so it's a much better arrangement for us profit-wise.

Okay. Did you make a -- what was your comment on the bank borrowings that you expect from here to year end to be down approximately X? What was that number?

I had said we would -- the $20 million, I think, earlier question can we reduce borrowings by $20 million, and I said that should be achievable.

So from like --

From the third quarter through the end of the year.

From where it is now.

So it'll be down [$50] million in round numbers -- I'm sorry --

Let's say it will be somewhere in the -- it should be able to be in the low 40's.

Forty to 45, right?

Yes.

Is that right?

Yes.

That's correct.

That's correct, yes.

And what would be at the current run rate, because it -- I mean, you're basically saying that the fourth quarter which is not historically the best quarter, the third is. You're saying the fourth quarter will be better than the third by about -- it looks like, what, $15 million, right?

The fourth quarter is always our best quarter --

I mean, the earnings [would] be higher.

-- for volume and we should produce the most gross margins dollars in that quarter.

Yes, but basically your fourth quarter could be up $20 million -- if you achieve what you're saying, it's still early, you could be up $19 million to $20 million in the fourth quarter from the third, but with higher margins. Right?

Yes, I'm not sure the revenue number is that high, but --

Yes, you said your wholesale -- your comment was wholesale was $119 million plus catalog of $10 million?

Yes, so -- yes, which would make it about $10 million more than the --

Okay, $130 million, right? Okay.

Yes.

With higher profitability. When we look at next year -- forget sales and whatever. What are the costs this year that were embedded in these numbers that basically we've worked our way through including the warehousing and things of that nature, okay? Separate from reduced interest costs because of the lower borrowings. What kind of dollar amount are we looking at just as a swing factor, assuming sales were the same, et cetera?

Well, without putting a precise dollar amount on it, the opportunity -- well, not the opportunity -- what has -- you don't have the full year effect of is the savings in the distribution center because we closed York during the second quarter and then part into the third quarter. So we're going to get some benefit on our wholesale but we'll also get benefit on our direct-to-consumer business.

And are we talking about $4 million or $5 million swing on costs or less than that for next year just from that issues?

It's probably less than $5 million.

Okay. Jeff, what's your inventory -- if you were running at the right level of inventory, what should it be at this point in time? I mean, going forward.

As you know, we've focused on continually reducing it and doing it probably a little slower than we could do it, only because we want to make sure we maintain the [slope] properly. I think we can still take out another $15 million, maybe at the outside, $20 million from our inventory on a -- . So there's plenty of room to go. And we're focused on getting there next year. I think next year is going to be the year that we finally achieve the goal that we set a long time

Okay. So in theory between another -- let's even say $15 million plus whatever the earnings next year, our debt would be significantly reduced. I mean, if we're saying it's $20 million between now and the fourth quarter, and we can add another $15 million plus profitability, we could have that down in the low 20's next year?

We certainly have a goal to get there.

I'm not talking about on average in the course of the year. Because obviously, you'll [see some] borrowing. I'm talking about by the end of next year.

Again, if you grow the business, of course, you do have higher (inaudible - multiple speakers.)

Right, I understand that. X-ing working capital needs for additional growth, right.

Yes, that's correct.

Okay. So we'd really be in great financial shape at that point. And hopefully, easy to pay off of the convertible debt going forward?

We're working on that and we believe that to be the case. So we're definitely working on that.

Great. Well, for the first time I'm pleased in a long time. You finally get -- you look like you have your act under control. Thank you, guys.

Thank you.

Our next question comes from the line of [Pier Uslin] with Jefferies. Please go ahead with your question.

Good morning, everybody.

Hi, Pier, how are you?

Good, thank you. Jeff, going back to your comments in the opener there. Wholesale was down about 8% you said in the third quarter? Kind of X-ing out the excess Mikasa inventory, the Linens 'n Things and the discontinued customer?

That's correct.

And then the fourth quarter you mentioned that you think wholesale could be flat. Is that -- does that contemplate the Linens factor and the discontinued customer as well, or is it probably -- ?

Yes, Linens -- in the third quarter we shipped a substantial amount to Linens for their going-out-of-business sale, frankly. And we haven't -- we didn't have that in the fourth quarter. So we're not up -- are we up against any of that, Larry?

Only very -- there was some in fourth quarter, but much less.

Much less.

So flat for the fourth quarter would be a fairly organic number?

Right, if anything, a more apples-to-apples comparison.

Okay, all right. That makes sense. When you filed the -- for the waiver for the third quarter net sales bogey, if you will, was that an issue of some programs maybe just getting pushed out a little bit where orders didn't materialize the same way as maybe they had been expected to? Or what kind of happened there, just out of curiosity?

No, things are changing. And I guess we didn't anticipate some of the things that -- we thought especially with the Linens 'n Things augmentation, which we were up against which we didn't have. And the Mikasa -- there was a substantial liquidation of excess Mikasa inventory right after we acquired Mikasa. So we just wanted to get things straight to where they are.

Sure. There was definitely a few factors at play there. Do you have a sense as to just how much your sell-in is lagging the POS right now?

Substantially.

Substantially.

It's shocking. Honestly, it's sometimes a shocking number. And I don't -- I can't get at the numbers by retailer, but we do get it from -- like one retailer we're down about 6% on point of sale at one retailer. Our inventories are down over 30%.

Wow.

Over the same point last year. I think we've reached the bottom of that destocking, though, because it really started in -- it started happening in November of last year. And it got more severe in December and January. But it happened already. So we're now -- I don't think retailers are able to lower their inventories much below where they are now, although I don't anticipate them going back to the old methods of keeping high inventories. I really don't think that will happen.

No, I would suspect not. That makes sense. It looks like, obviously, you're making up a fair amount of the ground on the gross margin front. The margins certainly got closer to last year's number versus the last several quarters where it's been down more. As the lower freight and the lower China sourcing costs kind of start to flow into the P&L, do you see any changing of your pricing strategy? Or do -- should we expect that a lot of that cost savings, that lower cost, will actually flow to the bottom line?

We've passed a lot of the savings on to the retailers in order to help them get to the right price points in many cases. But we've done that now. We've probably passed it on a little faster than we got the benefit.

Sure.

And now we should reap some of the benefit of what happened. So we're certainly improving. And it's a lot to do with the mix that we're selling. And we've discontinued business to -- we had a customer last year, it was a direct selling customer that we were an OEM supplier to. And we were -- the margins were horrible. We inherited that customer with one of our acquisitions. And we finally decided just to give up the volume altogether. And it was a -- so the mix is what's changing our margin. It's just getting better. And we're fighting to make sure our costs stay very much in line, obviously, and we're trying to make a lot money going forward. We're working on it.

Well, the cost picture certainly has gotten a lot better. Most of my other questions have been answered. So maybe just one housekeeping one to finish up. And I guess this would probably be for you, Larry. I assume that the shares related to the convertible would have been anti-dilutive here in the third quarter, and that's why the share base was still around 11.9?

I think actually this was a quarter where we actually had -- they were dilutive.

They were. Okay. When I worked through the math to get to the $0.41 I was getting an 11.9 number, so that's --

Well, it's actually -- I reported and then we said what the dilutive was $0.40. It was only $0.01 dilutive. It was $0.41 on basic, and $0.40 dilutive. So it turned out to be $0.01 dilutive for this quarter.

Okay, so the full 2.7-ish million shares, not all of those go into the denominator on this?

No. They are, but maybe perhaps your numerator is a little different. Because we have both the interest on the notes as well as the -- that APB-14 adjustment we had to make, the noncash.

Okay, that's right. So there was the interest expense add-back and that's --.

And again -- and even though we didn't record a federal tax provision in the quarter, the rule says you look at what you think you'll have on a full-year basis. We think we'll be a taxpayer, so the interest expense and the numerator was tax affected.

Okay, all right.

Anyway, it's only $0.01 difference between the two.

Yes. No, that's right, I was only thinking denominator when I needed to think of both. So okay, thanks for the clarification. And congratulations.

Thanks.

(Operator instructions). Our next question comes from David Leibowitz with Horizon. Please go ahead with your question.

Yes, a couple of items. One, looking at this holiday selling season versus last year's holiday season, do you have a large enough reserve vis-a-vis what might occur against retail sales and getting mark-down money or push money or what-have-you versus last year where obviously everybody was caught flat-footed in that respect?

We do have reserves. But the -- with the -- honestly, in my opinion with the way retailers are maintaining such a low inventory, I would expect there's going to much less in mark-downs. I don't -- it's not going to be like last year unless the world comes apart.

No, what I'm saying is last year you had payments that exceeded the reserve quite apparently, as did everybody else in the industry. And that's not pointing a finger. What I'm asking is based on what you're seeing today, are you adequately reserved or might there be an incremental charge to earnings because we're under-reserved?

We believe so. I mean, I don't know that we -- I don't -- we were not under-reserved last year. But this is to clarify Jeff's point, is that last year retails had inventory -- more inventory than they expected. So then they go back to their suppliers and look for what we call mark-down money. But this year, because retail inventories are so low, we think we're perhaps in a better position because there's less inventory in the store. And therefore, there's less to mark down.

Okay. The second --

The second issue was that -- is there enough inventory in the stores for all the business that may be there?

The way see it, the retailers today are very willing to run out and give up that last sale. Like I said, I think it's a healthier way to do business. But it-- the inventories are the lowest I've ever seen them.

Okay. Second question, the field itself is littered with failures right now or companies on the verge. Are you looking or are you in the process of talking with any companies right now about perhaps acquiring them before they get pushed into Chapter 11?

No, we're not current- -- we don't normally talk about this. But I can tell you currently we are not looking at any acquisitions. We are very focused on running our business profitably. That's all we're focused on.

And two last questions. The balance sheet going forward, what ratio of debt to equity would you like to have? And what cash component would you like to get back to on the balance sheet?

Well, I think more about in terms of leverage, debt to EBITDA. If I had a wish list, I'd like to be investment grade. So I'd like to have that leverage ratio go like around below 3. But we are going to focus on, as we said and we've said a number of quarters, focus on deleveraging. Bringing down our debt level, somewhat shrinking the balance sheet and still being able to grow our business just by better management of our inventory levels. And raise our operating profitability so we bring that leverage ratio down. So that's our goal. And in time, we'll see. If there's acquisition opportunities, perhaps we think that could be expanded. And it's also a function of what the marketplace will find as an acceptable leverage ratio. Two years ago that number would have been higher than it is today. So I'd just say is we're going to control what we're going to control and we're working to increase our profitability, bring down our debt, and the effect of that is improved leverage.

And the last question, if I may. If we look out two years, would you expect your top five or top ten accounts, a, to be the same vendors you've been dealing with; and second of all, would the percentage of your total business going to those five or ten be the same, less or greater?

Our top five accounts are in fairly healthy condition. So I would expect that they will continue to be our top five accounts. We focus on, actually, about the top 40 accounts and in more narrow ways the top 30. And I can say it's a percentage -- but percent of business, I think it will probably be similar, not -- it will -- it's going to move between accounts because it always does. But it will be similar.

In other words, if we look at the traditional 80/20 rule, do you think that's going to be the case? Or you think you'll moving closer to 90/10?

I think the 80/20 is a good way to look at it. And I do believe that's -- we haven't seen it shift away from that, to be honest with you.

Thank you very much.

There are no further questions at this time. Please proceed with your presentation or any closing remarks.

Okay. Thanks for joining us on this morning's call. I hope we've given you a good overview of Lifetime and how we've adapted to today's business environment. And why we think we're positioned to bring 2009 to a successful close. We're focused on providing retailers with new and innovative products and at price points that consumers find reasonable. We're really focused on the consumer. We look forward to talking to you again after the holiday season. Thank you all.

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