Lifetime Brands Inc (LCUT) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter Lifetime Brands earnings conference call. My name's Dave. I'll be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions) As a reminder, the call is being recorded for replay purposes.

Now I'd like to hand the call over to Harriet Fried of LHA. Please proceed, ma'am.

Good morning, everyone. And thank you for joining Lifetime Brands' second-quarter 2013 conference call. With us today from management are Jeff Siegel, Chairman and Chief Executive Officer; and Larry Winoker, Senior Vice President and Chief Financial Officer.

Before we begin, I'll read the Safe Harbor statements under the Private Securities Litigation Reform Act of 1995. The statements that are about to be made in this 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 (technical difficulty) payment practices or consumer spending; changes in demand for the Company's products; shortages of and price volatility for certain commodities; the 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 would like to turn the call over to Mr. Siegel. Please go ahead, Jeff.

Thanks, Harriet. Good morning, and thank you for joining us to discuss our second-quarter results, as well as our strategic initiatives and outlook for the second half of 2013. With me on today's call is our CFO, Larry Winoker.

As we have discussed in past calls, Lifetime's business and financial results vary significantly from quarter to quarter. Especially in the first half of the year, our results can be heavily influenced by the timing of promotions and the rollout of new programs. And comparing them with prior periods can be misleading. In addition, quarter-to-quarter shifts can result from the impact of shipments to certain large retailers, such as Costco and Sam's Club, that don't follow predictable cycles. These fluctuations aren't easy to predict or model, but they are an ongoing aspect of our business, and they are certainly -- and they certainly impacted us in the first half of 2013.

That said, notwithstanding the small net loss we reported for the second quarter and the six months, our outlook for Lifetime's all-important third and fourth quarters has improved since we last talked. And this morning, we raised our sales guidance for 2013. Based on the rollout of new programs and promotions currently underway, the success we are achieving with Fred & Friends, which we acquired in December, and the improved outlook for the US economy, we now foresee net sales increasing by 5% to 7% rather than 4% to 6% for the year as a whole.

Before we go over the numbers for the quarter, I'd like to review certain major initiatives that will have an important influence on our year and our future. Through Lifetime Next, the strategic plan that lays out our Company's path for the next five years, we've identified three pillars for Lifetime's growth.

One is quality. This is foundational. Without quality, everything else fails. Quality is the price of admission. The Lifetime QM tablet-based Quality Assurance System that I outlined on the last call is already making a contribution. We think it will help drive our growth and profitability in the years to come. It's important to note that with the advent of the ratings and reviews on websites, brands can be enhanced or destroyed by ratings. Therefore, this quality issue is so important to us, it comes first.

Innovation. This is a quality we've often talked about in our calls. It provides a unique advantage and really insulates us from the competition. Our open innovation program is continuing to deliver thousands of ideas from outside inventors each year. And we've been really taking our efforts on the next level -- to the next level, working to penetrate online inventor networks and reach an even larger inventor community throughout the world.

Next is brands. To support our international growth, we are developing new brands we can control and that we can use on a wide range of products all over the world. As we grow Lifetime's presence in the important international market, we've dedicated more resources to the development and marketing of these brands -- Kizmos and Samora, which you recall from past calls, and a new brand called Rio.

In recent months, we've made a really concerted effort to get global feedback and input from our partners -- partner companies. And Rio is a line that, universally, is appealing and competitive in all of our markets, all over the world. We're starting Rio production with a total of 17 SKUs that are already being tooled, and another 14 that will undergo tooling toward the end of the summer. And we will have many, many more to follow.

It's not to say we don't also have our eye on licensing and additional -- on licensing of additional prominent brands. In May, we entered into a partnership with the Bombay Company to create a wide variety of home furnishing solutions. Along with Mikasa and Pfaltzgraff, Bombay will help us move Lifetime's home decor business from an unbranded commodity business to one that has both great brands and greatly improved products. We previewed the first Bombay collection in Atlanta in July at a tradeshow, and are pleased to note that it was very well-received by our retailer partners.

In July, we also previewed our new Accent furniture line at the Atlanta Gift and Furnishings Show. It, too, was extremely well-received. This collection will be available in the first quarter of 2014, and we'll be introducing more items right after that.

Just two weeks ago, we signed a licensing agreement with Housewares America to manufacture, market, sell, and distribute Debbie Meyer products worldwide. As many of you will note, Debbie Meyer is a housewares entrepreneur, TV and radio personality, as well as a featured brand on Home Shopping Network. Her home solutions, such as Debbie Meyer GreenBags -- they're storage bags and containers that retard produce spoilage by absorbing ethylene gas -- are all designed to make everyday life easier, and have been a tremendous hit at retail, with total sales already passing 1 billion units. Lifetime is the perfect partner to take Debbie's proprietary technologies to more new products and categories on a worldwide basis.

Finally, before I turn the call over to Larry to give you more details on the quarter, I'll quickly mention two developments -- one announced in mid-June and the other just this morning.

First, I am obviously pleased to note Dan Siegel's recent promotion from Executive Vice President to President of Lifetime Brands. Dan joined Lifetime in 1992, and has made tremendous contributions over the last two decades, most recently as the principal architect of Lifetime Next -- the five-year plan I mentioned earlier. Dan's promotion is part of Lifetime's management succession plan intended to ensure that the next generation of leaders continues to execute our core strategies and drive growth in our business.

Second, as you saw in this morning's release, Jack Koegel, a principle of a retail consulting company, Jo-Tan LLC, and who's been on Lifetime's Board since 2008, has been appointed as Lead Director. With his extensive experience in leading and managing major retail organizations, and an unsurpassed network of contacts in the retail industry, Jack really has a hand on the pulse of the industry. He's already given us a wealth of entrepreneurial experience and strategic counsel for Lifetime. And we look forward to his contributions in his new role.

At this point, I'll turn the call over to Larry for a review of our second-quarter financial results. Larry?

Thanks, Jeff. As we reported earlier this morning, net loss for the second quarter of 2013 was $568,000, $0.04 per diluted share as compared to net income of $559,000, $0.04 per diluted share in 2012. Adjusted net loss for the quarter was $1.1 million, $0.08 per share as compared to adjusted net income of $1 million, $0.08 per diluted share in 2012. The table which reconciles this non-GAAP measure to reported results was included in this morning's release.

Income from operations was $300,000 for the 2013 quarter, which excludes planned restructuring expenses related to Fred & Friends, which compares to $2.2 million in 2012. Consolidated EBITDA, a non-GAAP measure that is reconciled to our GAAP results in the release, was $4.3 million for the current quarter and $5.6 million in the period in 2012. Consolidated EBITDA for the trailing four quarters ended 2013 period was $36.8 million compared to $39.7 million in 2012.

For our Wholesale segment, net sales in the current quarter increased 2.4% to $93.3 million. The increase reflects an increase in kitchenware sales, partially offset by a decrease in tabletop. Kitchenware's increase was due to the inclusion of the Fred & Friends business as well as successful new cutlery programs. The tabletop decrease was partially attributable to the impact of the introduction and initial sell-in of certain new dinnerware and flatware programs in 2012, as compared to replenishment product revenue in the 2013 period.

Wholesale segment gross margin increased to 36.1% from 36% in 2012, due to the inclusion of Fred & Friends. Wholesale distribution expense as a percentage of sales shipped from our US warehouses was approximately 10.3% and 10.4% in the 2013 and 2012 quarters, respectively. This improvement resulted in continuing improved labor management. Wholesale selling and general administrative expenses were $21 million in the second quarter of 2013, and $18.8 million in the second quarter of last year. This increase was primarily due to the inclusion of Fred & Friends, and to a lesser degree, an increase in selling and compensation-related expenses. As a percentage of net sales, SG&A increased to 22.5% from 20.6% in 2012 period.

For our Retail Direct segment, net sales was $3.7 million in 2013 quarter versus $3.8 million in last year's quarter. And Retail Direct gross margin was 71.5% in the 2013 quarter versus 68.8% in the 2012 quarter, reflecting the elimination of multiple coupon use for transaction. As a percentage of net sales, Retail Direct's distribution expense was approximately 29.3% in both periods, and its SG&A expenses were $1.8 million the same -- in 2013, the same as in 2012.

With respect to non-segment, unallocated corporate expenses increased by $100,000 to $3.1 million in the 2013 quarter, reflecting higher professional fees, which was partially offset by a decrease in the compensation-related expenses. Interest expense declined to $1.1 million from $1.7 million in last year's quarter. The decrease for this 2013 period was due to the benefit of lower average interest rates from the refinancing term loan in July of last year, and lower average borrowings in the current period.

Equity in earnings was $92,000 in the 2013 quarter as compared to $500,000 last year. The reduction was due to Grupo Vasconia's lower kitchenware sales and reduced margin on its aluminum sales, partially offset by a recovery of prior-period value-added tax.

Turning to our financial position, at June 30, 2013, the outstanding balance on our revolving credit facility was $41.9 million. Our leverage ratio at its total indebtedness to LTM EBITDA was 2.0, and availability under the facility was $81.9 million. As noted in our earnings release, we have raised our full-year guidance to 5.7% over 2012 from the previous guidance of 4% to 6%. We continue to project that our gross margin percentage and distribution expense will be in line with 2012. SG&A is expected to increase by 6% to 7%, which includes the impact of the Fred & Friends acquisition. And our income tax rate is expected to be approximately 41%, due to the expected loss in the UK.

Equity earnings is expected to be $1 million to $1.5 million. And the full-year's 2013 diluted weighted average shares is projected to be $12.9 million, which does not consider the additional stock purchases, if any. Capital expenditures for the year are expected to be approximately $4 million.

As noted also in this morning's release, during the second quarter, we repurchased approximately $3.2 million of our common stock against our Board authorized program for $10 million. The repurchase authorization permits the Company to affect the repurchases from time to time through open market purchases and privately negotiated transactions. The timing announced of any share repurchase by the Company will be determined based on its evaluation of market conditions and other relative factors, and may be modified, extended, or terminated at any time.

So this concludes our prepared comments. Operator, we are ready for questions.

(Operator Instructions). Lee Giordano, Imperial Capital.

(technical difficulty) -- businesses, what's been the performance at Creative Tops relative to your expectations? And maybe kind of talk about some of the other regions as well. Thanks.

Yes. Creative Tops was faced earlier this year, and it continues to face, severely increased duties on ceramic items, which is their main business, ceramics from China -- as is every other UK importer of ceramics from China. It had a pretty severe impact on the first six months of the year, though it's certainly improving there in a very rapid rate.

It took a while for the retailers and the consumers to accept the higher cost of products, which was up about 20% more than before. So it was a substantial increase in cost. But their business is improving. And I don't think they'll make back what they lost in the first half of the year, but I think they're getting better.

Business in Mexico was impacted by loss of one promotion in the spring -- a very large promotion. And also their aluminum business has been impacted by some dumping as well -- not from China, but dumping from Greece and Turkey, believe it or not. But that's, hopefully, going to stabilize in the fall as well. And business in Canada is good. It's going along very well.

Great. And just a question on some of the guidance. Equity and earnings of $1 million to $1.5 million, does that include or exclude the tax recovery that was in the numbers this quarter?

Yes, that includes the recovery.

Includes the recovery, okay. Thank you very much.

Thank you. There are no further questions at the moment. (Operator Instructions). As there are no further questions, I would now like to turn the call back to Mr. Jeff Siegel for closing remarks.

Thanks for joining us today. As you've heard, Lifetime's strategy is centered on delivering quality and innovation in everything we do, and in developing brands that we can use to grow worldwide. As we continue -- and at the same time, we continue to pursue acquisitions, like Fred & Friends, that will add new products, new categories, and new profitability to the Company. We are enthusiastic about the Lifetime's outlook for the second half of 2013, and we look forward to giving you an update again in the fall. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.