Yahoo Finance Lifetime Brands, Inc. (NASDAQ:LCUT) Q1 2024 Earnings Call Transcript
Lifetime Brands, Inc. (NASDAQ:LCUT) Q1 2024 Earnings Call Transcript May 10, 2024
Lifetime Brands, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, ladies and gentlemen, and welcome to the Lifetime Brands' First Quarter 2024 Earnings Conference Call. At this time, I would like to inform all participation that all your lines will be in listen model only. After the speaker's remarks, there will be a question-and-answer portion of the call. [Operator Instructions] I would like to introduce your host for today's conference, Carly King. Ms. King, please go ahead.
Carly King: Thank you. Good morning, and thank you for joining Lifetime Brands' first quarter 2024 earnings call. With us today from management are Rob Kay, Chief Executive Officer; and Larry Winoker, Chief Financial Officer. Before we begin the call, I'd like to remind you that our remarks this morning may contain forward-looking statements that relate to the future performance of the company. And these statements are intended to qualify for the safe harbor protection from liability established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance and factors that could influence our results are highlighted in today's press release and other factors are contained in our filings with the Securities and Exchange Commission.
Such statements are based upon information available to the company as of the date hereof and are subject to change for future developments. Except as required by law, the company does not undertake any obligation to update such statements. Our remarks this morning and in today's press release also contain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Included in such release is a reconciliation of these non-GAAP financial measures with the comparable financial measures calculated in accordance with GAAP. With that introduction, I'd like to turn the call over to Rob Kay. Please go ahead, Rob.
Rob Kay: Thank you. Good morning, everyone, and thank you for joining us today. I am pleased to report a solid start to fiscal year 2024, delivering first quarter results that were in line with our expectations and came in above the broader market. Our performance this quarter is a direct testament to the work we have done in the last few years to ensure we are well positioned to compete and gain share, notwithstanding market conditions. As we look ahead to the rest of the fiscal year, we are confident in our ability to continue driving operational excellence, advancing our strategic growth initiatives and investing in our business to drive value for our shareholders. We delivered $142.2 million in net sales this quarter, a decrease of 2.2% year-over-year.
This slight decrease reflects both economic headwinds and the impact of inventory rationalization efforts among select retailers, which I will elaborate on later in my remarks. It is worth noting that third-party market data, which we track reported a decline of approximately 3.5% in point-of-sale revenues, indicating that Lifetime's top line performance exceeded the broader market across our categories. Despite these macro pressures, we delivered strong bottom line growth driven by gross margin of 40.5% for the quarter, exceeding expectations and surpassing that of our first quarter last year. This was a result of benefits from favorable product mix, new product introduction, and stability in our supply chain. Further, our margin expansion and increased profitability despite challenges in the underlying markets underscores our continued focus on disciplined expense management as we balance investment and growth with delivering financial results.
Beginning with our core US business, we delivered solid results in the first quarter and performed well in comparison to the market and our peers. As widely reported for the quarter, end markets across our industry experienced a dip in demand leading to decreased shipping volume among retailers. One factor which contributed to our decline in shipments was a lowering of in-stock levels at certain retailers, particularly in e-commerce. Lifetime tracked a noticeable divergence between shipments and sell-through rates with these retailers, which speaks to the continued customer and consumer receptivity to our products. We are confident that as demand returns, we will see a corresponding rebound in shipment activities to normal levels. I'll now discuss our international business, where we continue to invest continue to focus on investing in growth and improving our performance across each of our end markets.
While our investments broadly are bearing fruit and supporting share gains, the ongoing recessionary environment in the UK, continues to put significant pressure on demand for the market. In the first quarter, we saw a substantial decline in UK order volume, during the period resulting from a temporary decrease in shipment volume from a major customer, and sluggishness in the independent and specialty retail channels driven. However, we expect volume return returned to normal levels in the coming months, particularly driven by recent incremental placement dividends at national retailers and a rebound in the e-commerce channel, which we have begun to experience. Turning to our other international markets, in Asia Pacific, we continue to realize the significant benefits of the change in our go-to-market strategy in Australia and New Zealand where we are consistently gaining new customers and seeing higher margin.
Additionally, our markets throughout Southeastern Asia are benefiting from the infrastructure investments we've made over the last several quarters, and we are confident that the solid volume growth and pickup and sell-through rates we are seeing in those regions, will continue throughout 2024 In the European markets and predominantly in our core UK market, after a strong start to the year, we saw a meaningful drop-off in shipments in March driven by core retail sales across all channels and a shutdown in shipments to our largest customer, which is in the e-commerce channel for nearly a six week period. This had an adverse impact for our international segment results for the quarter, which were basically flat to prior year, but below our expectations.
Although our international segment was not favorable in terms of contribution margin for the quarter, we remain confident this segment will produce a meaningful improvement in contribution margin for the full year, based upon the actions we have previously taken and some momentum we are starting to see in market share gains, which I will talk about in a moment. Turning to our growth initiatives. First, let me address our progress in our foodservice business. We are continuing to gain share to Mikasa Hospitality product line and remain on a path to deliver $30 million in revenue from our food service business for the fiscal year. We remain excited about the opportunity in this business, which continues to gain traction with customers and build a book of business that will serve as a solid base, for this foreseeable future.
In ecommerce, our sales for the current quarter were impacted by inventory rationalization efforts as safety stock levels at our largest ecommerce customer, were significantly reduced leading to meaningful decreases in order volume. We believe this will be a temporary pause as sell-through data, across all of our categories was strong and we picked up share in nearly all of our categories. Accordingly, we expect to see robust performance in this channel throughout 2024. New product development is one of Lifetime's core capability that provides us with a competitive advantage. We remain excited about our robust product pipeline for we have continued to invest in a challenging end market environment, which has further differentiated Lifetime for many of our competitors.
The Dolly Parton line of products, we announced last year has now been introduced to our customers and is garnering significant interest. While we originally expected some shipments in the second quarter due to a change in shipment mechanics, shipments will begin in the third quarter and at this point will exceed our initial ethnics. Further while this line is being launched in the dollar channel, we are having meaningful conversations with other retailers about expansion across several categories. Our KitchenAid line is gaining strong traction in our international end markets, notably in Continental Europe and Australia and New Zealand. As a result, there are numerous customers where we have either gained listings or expanded listening. Now that we have established a beachhead on shelf at these customers.
We will see the benefit of this strategy this year. Looking ahead, we are preparing to announce a new partnership that we are particularly excited about for our international geographies. We expect to launch it likely this year but no later than next year, more to come on that front. But we believe these new product introductions and brand will translate to top line growth in our international segment in 2025. For our Swell product line, we received good reception following our brand relaunch, as we sold through and out of many products, delivering sales above expectations. Notably, these shipments were exclusively online as we pursued this relaunch solely on swell.com and e-commerce platforms. We will continue to roll out this reenergized swell product line across multiple channels and are pleased with the direction of this line.
Let me briefly touch on our supply chain. As I noted, stability in our supply chain was a contributor to the solid margin expansion we were able to deliver this quarter. To that end, we were pleased to lock in rates for our ocean freight contract at levels comparable to last year offering us stability in these key costs factor. In Mexico, we are pleased with our continued progress bringing our plastics manufacturing facility online. The facility remains on track to reach full production capacity this year. We continue to be active in many geographies including Mexico and across Asia. Product supply diversification will remain a priority for us moving forward as part of our continued efforts to strengthen and derisk our supply chain by moving towards sourcing 25% of our grid outside of China.
Turning now to our balance sheet. Our strong earnings and cash flows have provided us the flexibility to reduce our term loan down by almost $100 million over the past 12 months, while maintaining historical high levels of liquidity, we are pleased to be approaching our target leverage ratio of three times or below. Our continued focus on disciplined expense management has helped us maintain strong levels of liquidity above historical norms, which affords us ample flexibility with respect to capital allocation. We continue to view the market as favorable for strategic acquisitions and remain open to opportunities for value-enhancing acquisitions that align with our priorities. We will continue to evaluate these opportunities as they arise. On that note, let me now turn to our financial guidance for 2024, which we issued in our release this morning.
While we are closely monitoring the initial signs of pressure on retailer end market demand that we observed this quarter, our outlook reflects our confidence that we are positioned to continue executing and creating value, regardless of market conditions. We have growth opportunities already in our pipeline for the year and are eager to continue bringing new products to market and gaining share across categories. Our guidance is based on our belief that we can grow our top and bottom line through net market share expansion and diligent operational and expense management, a rebound in our end markets will be accretive to our guidance. We note that due to timing factors the expectation built into our full-year guidance, we saw a slight decline in the second quarter with growth in quarters three and four and for the full year.
In summary, we are operating from a position of strength as we head into the remainder of fiscal 2024. With strong momentum across our business and the flexibility to invest in our continued growth, we are well positioned to capture opportunities as demand improves and create meaningful value for our shareholders. With that, I'll now turn the call over to Larry to discuss financials in more detail.
Larry Winoker: Thanks, Rob. As we reported this morning, net loss for the first quarter of 2024 was an improved $6.3 million or $0.29 per diluted share compared to $8.8 million or $0.41 per diluted share in the first quarter of 2023. Adjusted net loss was $3.2 million for the first quarter of 2024 or $0.15 per diluted share as compared to $2.6 million or $0.12 per diluted share in 2023. Income from operations was $1.8 million in the first quarter of '24 as compared to a loss of $1.8 million in '23 periods and adjusted income from operations for the first quarter '24 was $5.7 million to $3.4 million is it '23 periods. Adjusted EBITDA for the trailing 12-month period ended March 31, 2024 was $59.5 million, an increase of $2.22 million from $57.3 million for full year 2023.
Adjusted net loss, adjusted income from operations and adjusted EBITDA are non-GAAP financial measures which are reconciled to our GAAP financial measure in the earnings release, following comments over the first quarter of 2024 and 2023 unless stated otherwise. Consolidated sales declined by 2.2%. US segment sales decreased by 2.3% to $130.5 million. As Rob commented, a key factor was lower in-stock levels at certain retailers. Within this segment, the decrease occurred in Home Solutions and kitchenware categories from solutions decline was due to lower hydration products and tailored bath measurement products. Kitchenware decline was from kitchen tools and bowlware partially offset by an increase for cutlery imports. The segment's decrease was partially offset by an increase in the tableware category due to a new warehouse club program.
International segment sales were down 1.6% or $200000 or -- $700000 in constant US dollars to 11.7 million. As Rob commented, this slight decrease was due to the ongoing recessionary environment in the UK, the drop-off of shipments in March from a temporary decrease in shipments to a major customer. The decrease was partially offset by higher sales in Asia. Gross margin increased to 40.5% from 37%. US segment gross margin increased to 40.8% from 36.6%. The improvement was due to lower inbound freight costs and favorable product mix. International gross margin decreased to 35.9% from 42% as the prior year benefited from a very favorable currency hedge. Excluding the hedge benefit, the current quarter's gross margin improved from better product mix and lower container costs.
US distribution expenses as a percentage of goods shipped from its warehouses were 10.5% in both quarters. Significant inventory reduction during '23 resulted in second-quarter benefits of more efficient labor utilization and lower facility expenses in the current quarter. These benefits were offset by a temporary surcharge rate on domestic shipments. International segment distribution expenses as a percentage of goods shipped from its warehouses was 23.6% versus 24%. The improvement was due to lower outbound freight rates obtained from a new carrier. Selling, general and administrative expenses increased by 4.2% to $39.5 million. The US segment expenses increased by $1.5 million to $30.8 million, as a percentage of net sales expenses increased to 23.6% from 21.9%.
The increase is driven by inflationary factors and mostly affecting employee expenses, the largest component of SG&A. Other increases included legal expenses and expenses related to start-up of the Company's manufacturing operations at [indiscernible]. Allowances for bad debt declined as last year included a charge of for Bed Bath & Beyond. International SG&A expense increased by $600,000 to $4.2 million as a percentage of net sales, it increased 35.9% to 30%. As in the U.S. the increase was driven by inflationary factors and mostly affected by employee expenses. In addition the current quarter reflects an unfavorable impact of foreign currency translation. Unallocated corporate expenses decreased by $500,000 to $4.5 million due to lower professional expenses.
Interest expense excluding a mark-to-market adjustment for swaps increased by $300,000 due to higher interest rates on our variable rate debt partially offset by lower average borrowings. For income taxes for the current quarter, the tax provision rate differs from the Federal Statutory tax rate, primarily due to equity-based awards with a book expense exceeded the tax deduction and foreign losses for which no tax benefit was recognized. The effective tax rate for the prior year's quarter differs from the Federal Statutory rate, primarily due to state and local tax as well as the impact of non-deductible expenses and foreign versus losses for which no tax benefit is recognized. Related to our 24.7% interest in Grupo Vasconia, the passive investment, we recorded a loss of $2.1 million.
Our investment in Grupo Vasconia is now fully written off. On April 29th of this year, Vasconia shareholders approved a resolution to a reorganization process in accordance with the law of commercial bankruptcy in Mexico. We will evaluate the impact of this on our accounting for the investment noting that a loss of significant influence over Grupo Vasconia may result in a non-cash loss of $14.2 million that would be reclassified from the statement of other comprehensive loss to the statement of operations. Turning to our balance sheet, we continue to continue to be quite strong. As of March 31st, 2024, our liquidity was approximately $125 million which included cash plus availability under our credit facility and receivable purchase agreement.
This was achieved notwithstanding the reduction of the term loan by $96 million over the past 12 months plus $9.5 million of term loan original issue discount and fees. At quarter end, our debt-to-adjusted EBITDA leverage ratio was 3.3 times versus 3.4 times at year end 2023 and significantly improved from 4.4 times at March 31, 2023. Finally, as discussed in the release, we are issuing financial guidance for the full year of 2024 as follows. Net sales of $690 million to $730 million, adjusted income from operations of $49 million to $54 million, adjusted net income of $15 million to $17 million, and adjusted EBITDA of $57.5 million to $62.5 million. This concludes our prepared comments. Operator, please open the line for questions.
See also
11 Best Farmland and Agriculture Stocks To Buy According to Analysts and
12 Best Marketing Stocks to Buy.
To continue reading the Q&A session, please click here.
