Lifetime Brands Inc (LCUT) 2012 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the first quarter 2012 Lifetime Brands earnings conference call. My name is Brian and I will be the operator on today's call.

At this time all participant lines are muted and in a listen-only mode. At the end of today's presentation there will be a question and answer session and additional instructions will be provided at that time. (Operator Instructions)

As a reminder, this call is being recorded for replay purposes and now I'd like to turn the call over to your host for today's call, Ms. Harriet Fried of LHA. Please proceed, ma'am.

Good morning everyone and thank you for joining Lifetime Brands' 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 agreements, the availability of funding under those credit agreements, 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, effective competition on the Company's markets, and other risks detailed in Lifetime's filings with the Securities and Exchange Commission. 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.

Thanks Harriet and good morning everyone. With me today on the call is Larry Winoker, our CFO.

Hopefully, you've all had a chance to review the earnings announcement we issued this morning. Lifetime is clearly off to a good start for the year with an 18.7% increase in net sales, a 6.4% increase in organic net sales, a 70 basis point increase in gross margin, and a net income of $1.3 million or $0.11 per diluted share. In fact, this is Lifetime's best first quarter bottom line performance since the year 2000.

The results we've generated to date in fiscal 2012 have been very encouraging. Looking first at our core U.S. wholesales businesses, kitchenware and tabletop together, these recorded an 11.1% increase in net sales all of which was organic.

The real standout was kitchenware where net sales grew almost 27%. The increase in this product category was primarily attributable to successful new programs launched during the period. Those of you who listened to our fourth quarter call in March may remember that I mentioned that some of our retailer partners had shifted some new product launches to 2012 so they could better manage the yearend inventories. The launches of these kitchen tool and gadget programs did indeed begin in the first quarter and they were the principal drive of our growth. These market share gains should provide for additional kitchenware business for at least the next year.

I'd also like to note that if these rollouts occurred in the fourth quarter we would have had the benefit of reorder activity in the first quarter so it's not all business that moved.

At the recently concluded International Home and Housewares Show in Chicago we showed several new lines that were enthusiastically received by key retailers. These include our new Savora line of high end kitchen products and our recently launched line of Guy Fieri branded products.

There has been a lot of excitement about Savora. It's a new brand of high end kitchen products that we think sets a new standard in kitchenware. You may have seen the coverage of this in The New York Times home section in March.

Our designers drew inspiration from every corner of modern lifestyles including fashion, cosmetics, and even luxury vehicles to create Savora's form and color palette. The result is a high end line of kitchenware that is both beautiful and functional. We will begin to ship this line in the third quarter of 2012 to key upscale retailers in the U.S. and several foreign countries.

In the past I've mentioned that Lifetime's success is based on its brands, its commitment to innovation, and its sourcing capabilities. As we grow internationally we need to rely on brands that we own and that are versatile, brands that we can use on a wide range of products and that are global. We expect that Savora is going to be a key brand for us globally starting in the second half of this year.

Our international partners have enthusiastically embraced Savora as their key upscale offering in kitchenware. We have been highly selective in choosing only the finest high end retailers in each market to be our launch partners for this spectacular line. Savora will begin shipping in the third quarter.

The Guy Fieri line was shown for the first time in Chicago as well. Guy has the top rated show on The Food Network and both Lifetime and our key retailers are highly optimistic about the success of products branded with his name.

Turning to tabletop, net sales in this product category actually decreased 14% compared to 2011. This comparison is a little misleading, however, as the decrease was primarily due to sales from excess sterling silver finished goods inventory in 2011 that were not repeated in 2012 and those sales were at no appreciable margin in 2011.

In addition, there was a rollout of new programs in dinnerware at a major retailer in the first quarter of 2011 that was not repeated in the first quarter of this year. The patterns that were in that rollout are still selling well but the extra sales pop that we get from an initial rollout was not repeated this year.

Sales in our third market category, home solutions, continued to be soft, decreasing by about 5%. As I mentioned in our yearend call, the home decor market, a non-essential category that is very sensitive to consumer demand, has been struggling as a whole for some time. Our plan to strengthen Lifetime's home decor business involves refocusing our product assortment on more upscale offerings utilizing the Mikasa, Pfaltzgraff, and Studio Nova brands.

Simply put, our goal is to step up the price point, make better returns on less volume. To date, Mikasa and Studio Nova branded home decor, sales in those areas have been excellent. The Pfaltzgraff line has generated quite a bit of interest and will begin shipping in this quarter, the second quarter.

The turnaround of our home solutions business will be an area of continued focus for us throughout the year. We do expect bottom line performance of home solutions to be better in 2012 than it was in 2011.

Moving on to the expanding international side of our business, this is the first full quarter since we've acquired Creative Tops, a leading UK supplier of private label and branded tableware and kitchenware products. As you know, our goal is to use the acquisition as a base for building a powerful housewares company in the UK and as a platform for expanding our tabletop business throughout Europe.

In the first quarter, Creative Tops contributed more than $11 million to our net sales which was certainly material to our results and right in line with the very conservative expectations we set for this business.

The margin for this new area is similar to that of our existing tabletop business. Obviously, it's a little early in the process but Creative Tops showed our kitchenware and flatware at the Birmingham trade show in February as well as the important Ambiente show in Frankfurt also in February and they have had very good success in placing items developed by Lifetime into key UK retailers and those start shipping in the second and third quarters of this year.

We have several teams working with Creative Tops to assist them in launching our flatware and food prep lines in the UK and we're also assisting them in moving to the same SAP platform that Lifetime uses. In addition, we are helping them increase their warehousing capabilities in anticipation of increased business.

Lifetime Brands Canada and our investment partner companies in Mexico, Canada, Brazil, and China all performed to expectations in Q1 although the strong U.S. dollar negatively impacted our year over year comparisons for Grupo Vasconia, our 30% owned Mexican affiliate.

In a nice step forward, Vasconia which already had a record year in 2011, acquired Almexa Aluminio in April. Almexa was a major integrated fabricator of aluminum products in Mexico. Vasconia's subsidiary, [Amasa], already was Mexico's largest integrated manufacturer of industrial aluminum products and Almexa's acquisition will allow Amasa to broaden its product offerings and to further integrate its manufacturing processes and increase efficiency. The purchase price was approximately $35 million.

In summary, there are many positive developments in our business and while we're cautious about potential slowing of U.S. and UK economies, we're confident that Lifetime is well positioned to build on any positive momentum. I should note that input costs had no meaningful impact on our Q1 results and we continue to believe that commodities will not be either a major headwind or a major tailwind this year.

Before I turn the call over to Larry for more details on our first quarter financial results let me just note that we'll be holding our annual meeting in Garden City on Wednesday, June 13. If you'd like to attend and at the same time take a tour of the showroom and see our many exciting new products and brands, please contact our IR Representative, Harriett Fried, at LHA. Larry?

Thanks Jeff. As we reported earlier this morning net income for the first quarter of 2012 was $1.3 million or $0.11 per diluted share compared to a loss of $900,000 or $0.08 per diluted share in the 2011 period.

Income from operations was $3.2 million for the quarter as compared to a loss of $23,000 for the corresponding period in 2011. Consolidated EBITA, a non-GAAP measure that defines and reconciles net income in our earnings release was $6.2 million for the first quarter and $2.7 million for the 2011 period. Consolidated EBITDA for the trailing four quarters ended in the 2012 period was $41.6 million versus $39.9 million for the same period last year.

For our wholesale segment, net sales for the current quarter increased 21.7% to $103.3 million. The increase is primarily attributable to very successful new kitchenware programs during the period and sales of Creative Tops, our UK business. These increases more than offset declines in our tabletop and home solutions product categories.

The decline in tabletop reflects the absence of one time sales in 2011, an excess in sterling silver finished goods inventory, and also a major dinnerware rollout. The home solutions decline reflects continued category weakness.

Wholesale segment gross margin was 35.4% in the 2012 quarter compared to 34% for the corresponding 2011 period. This increase reflects the absence of below margin excess sterling silver finished goods as noted and changes in product mix.

Wholesale distribution expense as a percentage of sales shipped from the Company's warehouses was approximately 9.8% in the 2012 quarter versus 10.9% last year. This significant improvement reflects the benefit of an increase in warehouse shipments which is supported by a largely fixed cost base as well as improved direct labor management and lower facility expenses including the benefit of a mild northeast winter.

Wholesale SG&A expenses were $20.4 million in the first quarter versus $17 million in last year's quarter. The increase is primarily due to the inclusion of Creative Tops but as a percentage of net sales, SG&A declined to 19.7% in 2012 versus 20% in 2011.

For our retail direct segment, net sales were $5.7 million in 2012 quarter versus $6.9 million in 2011. The decrease is a result of both the Company's decision to terminate its print catalog in April of last year as well as strategic repositioning of our Mikasa.com website to a less promotional format.

Retail direct gross margin increased to 68.6% in 2012 from 66.4% in 2011 which in part reflects the new format. Distribution and SG&A expenses for retail direct also declined on savings from the catalog discontinuance and lower sales.

With respect to non-segment items, unallocated corporate expenses were approximately the same for both quarterly periods. Interest expense declined to $1.7 million from $2 million last year despite higher borrowings related to the recent acquisitions as the convertible notes retired in July 2011 were funded with significantly lower rate credit facility borrowings.

The effective income tax rate for the quarter was 38.3%. This is lower than our recent tax rate in recent periods as we now have sources of income outside the U.S. in lower tax jurisdictions. In the comparable 2011 period, the effective rate was a reduced benefit rate of 29.4% on a net loss. The reduced benefit rate in 2011 was primarily due to losses in certain jurisdictions for which no benefit could be recorded for financial reporting purposes.

Turning to our financial position, at March 31, 2012 the outstanding balance on our revolving credit facility was $56.5 million and for the trailing 12 month period ended in the first quarter, the leverage ratio that is total indebtedness to EBITDA was 2.3 times and availability under the facility was $72.1 million.

As we look forward to our full year 2012 results we currently expect sales for our U.S. wholesale business to grow in a range of 3% to 5% over 2011 notwithstanding the negative comparisons from the tabletop category and continuing challenges in our home solutions product category.

Internationally, we are investing considerable resources to build Creative Tops in the UK and GS in Brazil as we strongly believe it will position us well for future growth and profitability. These actions will negatively impact on their short term results although we believe still accretive in 2012.

This concludes our comments. Operator, we're ready for questions.

(Operator Instructions)

And your first question comes from the line of Lee Giordano from Imperial Capital. Please proceed, sir.

Can you talk a little more about the shift in Q1 from Q4 on those launches? How much of that, if you can quantify it, how much of that was impacted from that shift?

It wasn't a great amount. There was a few million dollars that did shift that we expected to reasonably shift in 2011 but it's hard to quantify the difference because we didn't get the, we would have gotten the reorders in the first quarter of 2012 so it's not a very big difference. I would say net difference is probably $1 million.

And then on Savora, the new line, what are the margins on that type of product? Are they higher than your current product lines?

Yes, slightly. They are slightly higher. It's a very different thing from last time. It's a much, much higher end product. It's been very, very well received by the people that we want to sell it to. It opens a new world for us. There would be no cannibalization at all because it's completely different price points than we normally do business at and we're very, very enthusiastic about this. We spent a lot of money last year in developing this line and a lot of research was done to develop the line.

And then lastly, on the tabletop category, can you give us an update on what's happening with reactive glaze? Is this still a key trend for you and will it be a key component of sales in 2012?

Yes, it still is. The patterns that we introduced in 2011 are still selling very well. Reactive glaze has not shown that it's slowing down. At some point it will and other things will replace it because that's the nature of the tabletop business and we're certainly working on replacements ourselves when it does slow down but to date it really hasn't slowed down very much. It's just about the same.

And your next question comes from the line of Gary Giblen of Aegis Capital. Please proceed, sir.

One quick question and one industry question -- so Larry, it sounds like the tax rate of 38% to 39% would be applicable for the year because it just reflects your blended rate on your jurisdictions now?

Yes, that's the blended rate, obviously. If the blend of profits shifts that would shift but it is lower than it has been because of more profits coming from outside the U.S.

Right, okay, And then you answered so many company-specific questions in the opening presentation but in terms of the consumer environment and the retailer open-to-buy kind of environment, would you say it's getting better or just flat or what's the environment out there?

I think it's getting slightly better. Everyone has seen the results from retailers in the first few months of the year. The results were stronger in the ready-to-wear areas and not as strong in the home areas but it certainly, as you can see, it didn't affect our results. Overall, we find great enthusiasm at the retail level. Inventories are not high at all at retail so we expect things to be on a normalized basis but I don't see anything heading really upwards in any major way either though. I really don't.

And are results, are your sales results or the stores' results consistent month by month or is it kind of choppy in terms of consumer takeaway?

It has been fairly consistent. It hasn't been choppy at all. Normally, the first quarter of the year for us is normally more rollouts of new things. Rollouts occur in the first and third quarter. Second quarter has no rollouts. Second quarter is the reorder business but we see things being fairly normalized right now and they have been for some time. I think the reason we're doing well frankly, is market share gains. It's not that the retail is increasingly, frankly.

I understand but at least you're not fighting terrific headwinds like a year ago.

No, not at all. We're not seeing anything on the negative basis, no.

(Operator Instructions)

And gentlemen, it appears there are no other questions in the queue at this time.

Okay, thank you. I guess we answered the questions. Thanks for joining the call today. As you can see, Lifetime is off to a solid start in 2012. While we're cautious about the economic uncertainties that exist in the global economy we will be working hard to maintain our momentum. I hope you join us for an update when the second quarter results are in. Thank you.

Ladies and gentlemen that concludes today's conference call. You may now disconnect your lines and have a nice day.