Lifetime Brands, Inc. (NASDAQ:LCUT) Q4 2023 Earnings Call Transcript
Lifetime Brands, Inc. (NASDAQ:LCUT) Q4 2023 Earnings Call Transcript March 12, 2024
Lifetime Brands, Inc. misses on earnings expectations. Reported EPS is $0.29 EPS, expectations were $0.32. 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' Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, I would like to inform all participants that their lines will be in a listen-only mode. After the speakers’ remarks, there will be a question and answer portion of the call. [Operator Instructions] I would now like to introduce your host for today's conference, T.J. O'Sullivan. Mr. O'Sullivan, you may begin.
T.J. O'Sullivan: Thank you. Good morning, and thank you for joining Lifetime Brands' Fourth Quarter and Full Year 2023 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 the press 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.
Robert Kay: Thank you T.J. Good morning, everyone, and thank you for joining us today. We had a strong fourth quarter delivering results that helped us to meet or exceed net sales, income from operations and adjusted EBITDA targets from the revised full year guidance metrics we provided last quarter as well as analyst estimates. We are pleased with the strong net sales growth we are driving across categories, especially in our ecommerce channels which continues to gain share. When coupled with our continued focus on driving efficiencies across the business, this outperformance translated to meaningful operating income growth that we expect will continue in 2024. To start, I’d like to walk you through our fourth quarter and full year results at a high level.
In the fourth quarter, we delivered $203.1 million in net sales and $21.5 million in adjusted EBITDA compared to $207 million in net sales and $19.7 million in adjusted EBITDA in the prior year period. For the full year, we generated $57.3 million in adjusted EBITDA compared to $58.2 million in 2022, coming in ahead of our internal estimates, thanks to diligent expense management and a focus on incremental revenue opportunities throughout the year. Of note, our performance was notwithstanding $3.6 million of one-time charges in 2023. We have been encouraged by the improving supply chain environment in recent quarters and experienced no disruptions in the fourth quarter. Though we are monitoring potential issues stemming from ongoing geopolitical challenges in the Red Sea, which have had some initial impact on ocean freight cost and shipping times.
Further, with another quarter of normalized shipment and ordering activities now behind us, we believe that the oversupply issues our retailers experience coming out of the pandemic have dissipated. Turning now to our international business. Throughout 2023, we remained diligent in the execution of our international turnaround strategy and we are pleased with the meaningful progress we have made including market share gains in these end-markets. In Australia and New Zealand, the direct go to market strategy we implemented earlier this year is translating to increased listings with additional accounts, products and brand listings. Additionally, we continue to drive incremental revenue opportunities as we roll out new product lines into our international markets driven by our highly successful KitchenAid offering.
As a result of these factors, in the fourth quarter, we saw the first turnaround in year-over-year international revenues since 2021. As part of our international turnaround plan, we took a non-cash inventory write-off in the fourth quarter, which impacted our bottom-line performance, but we expect that the aforementioned initiatives will have a meaningful impact on our international channel’s bottom-line in 2024. In our Food Service business, we remain on track to achieve significant growth in 2024 as Mikasa Hospitality continues to gain traction and capitalize on the market positioning achieved in 2023. While this business is still in its early stages, we are confident that Lifetime is now recognized as an important participant in the food service industry and will continue to expand its product placement across North America.
We maintain our long-term view that we can grow our total food service business to $60 million in revenues by 2026. Refining and building out our ecommerce strategy remains a key strategic priority for Lifetime. This quarter ecommerce net sales exceeded 23% of our total net sales for the quarter contributing meaningfully to our overall outperformance. This represents an increase of nearly 3.5% from the comparable quarter a year ago when our ecommerce net sales were slightly below 20%. We are continuing to hone our online strategy to ensure we are best positioned to capitalize on the significant opportunities we see in the channel. We maintain a strong focus on new product development and channel expansion to bolster our market position. Looking ahead, we are excited about our robust new product pipeline, many of which are incremental revenue opportunities.
Production of our previously announced Dolly Parton-branded products is well underway with shipments on track to begin in April and the majority of products slated for the second half of the year. This launch is across four different product categories all in the Dollar channel, which is a new channel for Lifetime. We are also reinvigorating our robust pipeline of 12 products with new items being launched in the first quarter of 2024. These will initially be available online on swell.com as well as across ecommerce channels. In line with our commitment to reduce our exposure to supply chain issues in China, we continue to ramp up production capacity in our Mexico facility. With the facility now operational, and on track to reach full capacity in 2024, and combined with other sourcing initiatives we are well on our way to meeting our previously stated target of approximately 25% of our spend on goods being outside of China by the end of the year.
Active balance sheet management remains a priority for us and we are pleased with our financial position as we enter 2024. Our disciplined cash management throughout 2023 led to a noticeable improvement in working capital year-over-year in both our US and international businesses, which Larry will discuss in further details shortly. We remain prudent in our approach to capital allocation and are open minded to value-enhancing M&A opportunities that align with our strategic priorities. We will continue to evaluate opportunities as they arise, especially in the current market, which favors strategic buyers. In summary, we are pleased with the strong momentum across our business as we close out 2023. The significant work we have done over the past several years to transform and reposition our business is paying off and we are entering 2024 as a more focused agile company.
Looking ahead, we are excited by the meaningful work already underway across our organization to continue – and growing market share generating significant value for our shareholders. With that, I will now turn the call over to Larry.
Laurence Winoker : Thanks, Rob. As we reported this morning, net income for the fourth quarter of 2023 was $2.7 million or $0.13 per diluted share versus $3.3 million or $0.15 per diluted share in the fourth quarter of 2022. Adjusted net income was $6.3 million for the fourth quarter of '2023 or $0.29 per diluted share as compared to $7.5 million or $0.35 per diluted share in 2022. Income from operations was $15.7 million for the fourth quarter of ‘23 as compared to $12.8 million in the 2022 period. Adjusted income from operations for the fourth quarter of '23 was $19.4 million compared to $18.2 million in the 2022 period. And adjusted EBITDA for the full year of 2023 was $57.3 million. Adjusted net income, adjusted income from operations and adjusted EBITDA are non-GAAP financial measures, which are reconciled to our GAAP financial measures in the earnings release.
The following comments are for the fourth quarter of 2023 and 2022, unless stated otherwise. Consolidated sales declined by 1.9%. U.S. segment sales decreased by 4% to $185.2 million. The decrease occurred in the tableware and home solutions categories. Tableware was lower as most of its warehouse programs shipped during the first nine months of the year and home solutions declined due to lower hydrated products in the corporate sales channel. The decrease was partially offset by strong sales in the kitchenware category. International segment sales increased by $3.8 million or $2.9 million in constant U.S. dollar to $17.9 million. As Rob discussed, in the fourth quarter, international had its first upturn in sales since the fourth quarter of 2021.
The increase was attributable to higher ecommerce sales and market share gains from the launch of the go to market strategy and an increase in Asia sales too. Gross margin increased to 36.4% from 34.9%. U.S. segment gross margin increased to 37.2% from 35.8%. The improvement is due to lower inbound freight rates and favorable product mix. For international, gross margin decreased 27.2% from 37.1%, most notably, from reserves to certain slow moving inventory. U.S. segment distribution expenses as a percent of goods shipped from its warehouses excluding the warehouse redesign expenses were 8.7% versus 9.2%. The improvement was attributable to the significant reduction in inventory with limited the need for outsized storage and improved operating efficiency.
In addition, better safety experience, lower insurance cost and abating inflations reduced some other expenses such as perplex[Ph]. These reductions more than offset the cost of higher labor rates. International segment distribution expenses as a percent of goods shipped from its warehouses were 19.1% versus 19.6%. The improvement was due to lower outbound freight rates and more shipments from The Netherlands warehouse. Selling, general and administrative expenses decreased by 4.1% to $38.7 million. U.S. segment expenses decreased by $3.2 million to $29.1 million and as a percentage of net sales, expenses decreased to 15.7% from 16.7%. The decrease was attributable to lower allowances for bad debt and a decrease in acquisition-related contingent consideration.
International SG&A expenses increased by $700,000 to $4.5 million. As a percentage of net sales, expenses decreased to 25% from 26.7% due to the effect of period expenses on higher sales volume. Unallocated corporate expenses increased by $0.8 million to $5.1 million. The prior year reflected an expense reduction for performance stock awards not expected to be earned. Interest expense, excluding a mark-to-market adjustment for swaps increased by $0.5 million due to higher interest rates on our variable rate debt, substantially offset by lower average borrowings. The loss of extinguishment of debt was for the write-off of unamortized term loan fees into a loan amendment. For income taxes, in both Q4 2023 and 2022, the rate exceeded statutory rate primarily due to state local tax expenses, non-deductible expenses and firm losses for which no benefit is recorded.
And related to our 24.7% equity interest in Grupo Vasconia, we reported our proportional share of its losses. Grupo Vasconia is a passive investment for us. Finally, turning to our balance sheet. In November, we amended and expanded our term loan. We now have no debt maturities until August 2027. In connection with this term loan amended and expand, we repaid $48.7 million of principal and as reminder, in June of ’23 we repaid $47.2 million of principal too. Notwithstanding this $97 million reduction of permanent debt, our balance sheet continues to be very strong with $134 million of liquidity. Liquidity includes cash, plus availability under our credit facility and receivable purchase agreements. Our adjusted EBITDA to net debt ratio as of yearend was 3.4 times, a considerable improvement from 4.0 times at year end 2022.
This concludes our prepared comments. Operator, please open the line for questions.
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