Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Harriet Fried – IR

Jeff Siegel – Chairman, CEO and President

Larry Winoker – SVP-Finance, Treasurer and CFO

Analysts

Lee Giordano – Imperial Capital

Dominic Marshall – Pacific Ridge Capital

Lifetime Brands, Inc. (LCUT) Q1 2013 Earnings Call May 2, 2013 11:00 AM ET

Operator

Good day ladies and gentlemen and welcome to the Q1 2013 Lifetime Brands, Incorporated Earnings Conference Call. My name is Patrice. And I will be your operator for today. At this time all participants are in listen only-mode. We will conduct a question-and-session towards the end of the conference. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

I would like to turn the call over to Harriet Fried of LHA. Please proceed ma’am.

Harriet Fried

Thank you for joining Lifetime Brands conference call this morning. 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 will read the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. The statements that are about to me 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 requirements of its credit agreement, the availability of funding under those 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 market and other risks detailed in Lifetime’s filing with the Securities and Exchange Commission.

The company undertakes no obligation to update these forward-looking statements. The company’s release this morning 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.

Jeff Siegel

Thanks Patrice. Good morning and thank you for joining us to discuss our first quarter 2013 results. Joining me on today’s call is our CFO, Larry Winoker. As I noted in our year-end 2012 conference call in March Lifetime’s business and financial results may vary significantly from quarter-to-quarter. Some of these fluctuations reflect the timing of seasonal promotions and annual planogram changes, which are part of our normal retail calendar.

(inaudible) can also result from the impact of shipments to certain large retailers such Cosco and Sam’s Club that do not follow predictable cycles and I previously said well, not the easiest to predict those models of company. These fluctuations are part of our business.

What I want to emphasize this morning is that Lifetime’s first quarter financial results with net sales of $99 million and net loss $0.05 per share are in line with our expectations. The decrease from the 2012 quarter primarily reflects a decline in private label programs at a particular retailer in the U.S. This was due mainly to line rollouts in the first quarter of 2012 that were not repeated in this year’s first quarter. In addition, we had a decline in our UK business caused by the imposition of significantly increased duties on ceramics from China. And a general weakness in the UK economy.

It’s going to take the UK retailers and consumers several months to adjust to the higher retail prices caused by the increased duties. In the UK, we have begun to have success in kitchenware segment to our business, they are in it. And I just built it should help us offset any weakness in ceramic sales.

Nonetheless, we are expecting a strong year overall, benefiting from the rollout of many new programs and promotions that we have planned for early and the second half of the year. Based on these rollouts and the inclusion of Fred & Friends which we acquired in December 2012, we expect wholesale sales of 2013 to increase by 4% to 6% of last year’s sales.

As I noted in our last call, our kitchenware business performed extremely well in 2012 and we expect that for 2013 that business will continue to perform well. At the April tabletop show, our tabletop offerings were very well received by retailers. And based on commitments, we expect our tabletop business to perform considerably better in 2013 than it did in 2012.

On another positive note, our home décor business is also improving as we are having success in moving this business from an unbranded commodity business to one that has both great brands and greatly improved products. I should also mention that our performance in 2013 and beyond will be assisted by two important corporate initiatives we undertook in 2012.

The first is Lifetime Mix, a strategic initiative designed to refocus our efforts in areas such as product design, branding, inventory, inventory management, and customer service, in order to ensure that we achieve our short and long-term goals. The second is Lifetime QM, a truly revolutionary tablet based quality assurance system that has the potential to make significant impact on the quality of our products and our packaging. These initiatives will help drive our growth and profitability in 2013 and the years to come.

Since expanding into international market has been the important part of our strategy since 2007, I like to also spend some time on that part of our business. Our partner company (Muddle) has been very successful and we expect that to continue in 2013 and beyond. It combines Lifetime strengthen branding, product designs, sourcing and marketing with the market knowledge and expertise of seasoned local management teams that have significant economic states in the enterprises.

Grupo Vasconia had a somewhat weak first quarter as was anticipated due to a premium promotion at 2012 that was not repeated this year. However, it is expected that Grupo Vasconia will have an even more profitable in 2013 than they were in 2012. DSI Brazil and Lifetime Brands Canada all performed according to plan in the first quarter and we expect all three to continue to grow in 2013.

Finally, I am pleased to note that Lifetime’s Board of Directors has authorized a program to repurchase of the $10 million worth of the company’s common stock. The repurchases will enable our strong consisting cash flow and will serve as an important way of returning value for Lifetime shareholders. They also demonstrate our confidence and our ability to generate long-term profitable growth. Lifetime’s overall strategy remains constant and steadfast to develop our brands, deliver innovative new products, and constantly improve our systems and pursue acquisitions that add new product categories or provide opportunities to expand into promising new international markets.

At this point I will turn over the call to Larry to give you more details on our Q1 financial results. Larry?

Larry Winoker

Thanks Jeff. As we reported earlier this morning, net loss for the first quarter of 2013 was approximately $600,000 or $0.05 per diluted share as compared to net income of $1.3 million or $0.11 for diluted share in 2012 period. Loss from operations was $100,000 for the 2013 quarter compared to income from operations of $3.2 million for the quarter in 2012.

Consolidated EBITDA and non-GAAP measure that is defined and reconciled to net income in our earnings release was $3.1 million for the quarter and $6.2 million for the 2012 quarter. Consolidated EBITDA for the trailing four quarters ended in the 2013 period was $38.1 million compared to $41.6 million in the 2012 period. However, wholesale segment, net sales in the 2013 quarter decreased by 9.9% to $93.1 million, when comparing first quarter 2013 with first quarter 2012 one should take into account that the 2012 quarter was exceptionally strong due to large number of promotions and new product rollouts, but that now repeat in the 2013 quarter.

Kitchenware volume was down reflecting, also reflecting slower retail sales in February and March. Tabletops sales declined primarily at creative tops from significant weakness in the UK economy and the impact of higher import duties on Ceramic products from China imposed by the EU. Home solutions sales decreased (inaudible) activity and lower volume at a warehouse club customer.

Also, segment gross margin was 34.9% in 2013 quarter compared to 35.4$ for the period in 2012. This decrease in gross margin is primarily due to pricing pressure in the UK which was partially offset by the inclusion of the higher margin Fred & Friends business. Wholesale distribution expense as a percent of sale shipped from our warehouses was approximately 10.2% in 2013 quarter versus 10.5% in 2012. This improvement resulted from continued improved labor management, another expense efficiencies which more than offset the effect of lower shipments. Wholesale SG&A expenses were $20.8 million in the first quarter of 2013 and $20.4 million in the 2012 quarter. The increase was primarily due to the inclusion of Fred & Friends partially offset by a decrease in employee related expenses. As a percentage of net sales wholesale SG&A increased to 22.3% from 19.7% in 2012.

While our retail direct segment net sales were $5.6 million in the 2013 quarter versus $5.7 million in the 2012 period. And retail direct gross margin was 68.6% in both the periods. As a percentage of net sales retail direct distribution expense was approximately 30.4% in the 2013 quarter versus 30.6% in the 2012 period.

As I noted for wholesale, the improvement comes from better labor management in other operating expense saving. Retail direct SG&A was $2.1 million for the 2013 quarter compared to $2.2 million in the 2012 quarter. The decrease was attributable to lower paid search expense. With respect to non-segment items, on the allocated corporate expenses decreased to $2.7 million from $2.9 million in the 2012 quarter reflecting a decrease in employee related expenses and low acquisition expenses, partially offset by higher professional fees.

Interest expense declined to $1.2 million in 2013 quarter from $1.7 million from last year’s quarter. The decrease in 2013 was due to lower average interest rates from refinancing the term loan last July and lower average borrowings. The effective income tax rate for the first quarter of 2013 was 31.2% versus 38.3% in 2012. A low rate for 2013 quarter was primarily due to the impact on the deferred tax assets of a reduction in certain state tax rate factors which partially offset the current period income tax benefit. Equity and earnings decreased to $200,000 in the first quarter from $400,000 in 2012. This reduction resulted from lower margin for (inaudible) aluminum business.

Turning to our financial position at March 31 leverage ratio March 31, 2013, the leverage ratio that is total indebtedness to EBITDA was 1.9 times and availability under the revolving credit facility was $75 million. As noted in our earnings release, we are reaffirming our full year sales guidance of 4% to 6%. We are projecting that our gross margin percentage and distribution expense percentage will be in line with 2012.

SG&A is expected to increase by approximately 6% which includes the impact of the Fred & Friends acquisitions and our income tax rate is expected to be approximately 39%. Capital expenditures should be $5 million to $6 million and for the full year of 2013 diluted weighted average shares are projected to be approximately $13.1 million which is not consider the impact of any stock repurchases. Based upon our current financial position, projective results and confidence in our business strategy we believe that new stock purchase program will not adversely affect our ability to reinvest in our existing business or to pursue accusations. This includes our comments.

Operator we are ready for questions.

Question-And-Answer Session

Operator

Thank you. (Operator Instructions) Please standby for your first question. This question comes from Lee Giordano from Imperial Capital. Please go ahead.

Lee Giordano – Imperial Capital

Thank you, good morning everybody.

Jeff Siegel

Good morning, Lee.

Lee Giordano – Imperial Capital

As far as Creative Tops goes, can you talk a little bit about the higher duties on ceramics, how much of the decrease was due to the higher duties and at what point do you think that normalize us? Thanks.

Jeff Siegel

Most of the decrease was due to the higher duties. The economy is on the weak side there but without the increase in high duties, I think they would have still had somewhat of an increase in sales. The duties are dramatically higher; they have gone from about 12% to almost 30%. And it takes a while for the both retailers there and the consumers to adjust to it but what happen was retailer knew that the higher duties were coming into effect, and they didn’t plan any promotions for the first half of the year.

They didn’t know what to do, you know, you take an item and all of sudden it’s dramatically higher retail price so they weren’t sure what to do. It normalizes, just normalizes it, it takes a while, it takes several months, but they are certainly doing better, they appear to be doing better now and they certainly expect to do much better than before. We also are rolling out some kitchenware programs which had nothing to do with ceramics, and into some of the retailers this was planned in advance anyway, and that should, compensate for any of the losses due to higher duties going forward. But then you know, there is a challenge when your prices go up so dramatically and your cost goes up dramatically.

Lee Giordano – Imperial Capital

Got it, and it sounds like there were some promotions you did not repeat this year in the first quarter. Are there any other significant promotions that you did last year that you would not be repeating again in 2013 that we should think about over the next few quarters?

Jeff Siegel

There were always especially with the clubs, promotions that we don’t repeat but we always get other ones, we are unfortunate over the years to have a very good business in all the clubs the warehouse clubs. So, we don’t repeat the promotion, we get a different promotion, it was in different quarters, that’s why we want everyone, on the last call and we are saying to get it now, don’t look at this one on the quarterly basis. We expect to have a very good year, this year. Every indication is that we will have that. But overall we always lose a few, gain a few that is about the same with promotions.

Lee Giordano – Imperial Capital

Okay. And then on product costs, can you talk about the trend you’re seeing in product cost…

Jeff Siegel

Yeah, we’re seeing no increase at least in the U.S. market. There is no duty differences. We send no real changes in product cost, there is a much, I see much less pricing pressure than I saw in previous years. Any increase in cost has to be proved by me in this company and I don’t I think I have approved half a dozen in the last three months.

Lee Giordano – Imperial Capital

Okay. And then a housekeeping on the tax rate, what should we assume for the remainder of the year for tax rate?

Jeff Siegel

Yeah, we, we did a lot of planning and, and that’s why I board it down from 40% to 39%, it should be a little better but I would explain it around 39% for the full year.

Lee Giordano – Imperial Capital

Great. I’ll get back in the queue. Thanks.

Jeff Siegel

Welcome.

Operator

Thank you. The next question is from the line of (inaudible). Please go ahead.

Unidentified Analyst

Hello, hi, how’re you doing? Hello? Can you guys hear me?

Jeff Siegel

Yeah, we do, good.

Unidentified Analyst

Okay, good. Sorry, it just going through some of your product conference call, I think you guys talked a bit about the turmoil that JCPenney was going through in their home department, it was closed and hadn’t reopen and I guess the home department has reopened, are you guys seeing any return to business there relative to what would happened last year?

Jeff Siegel

Yes, very much. In the last 30 days especially we’ve finalized several promotions to the fall and put that things that were taking out, their team seems to be very energized right now when they were very depressed last year but they’re energized that they’re going back to the ways that they were as far as merchandize and frankly it’s a pleasure and we should definitely get the benefit to that in the second six months of this year.

Unidentified Analyst

And, so what were your historical like three or four years ago, what percentage of your revenue was JCPenney back then relative to what it went down to last year?

Jeff Siegel

Okay. We don’t give out what the total is…

Unidentified Analyst

Okay.

Jeff Siegel

We have many customers like Penney’s that run around 2 to 3% of our volume.

Unidentified Analyst

Okay, cool.

Jeff Siegel

Okay?

Unidentified Analyst

When I’m going through your presentation and you guys talked about your longer term goals for the business and for margins, and you guys talk about I think it’s 13% pretax opt margins, the big delta there seems to be the move on SG&A from last year’s like 20%, 21% and, and you think that it can be 16% at some point in the future which is a fairly big move given that your operating margins currently you’re in the 9% range, is that something, I’m trying to get a sense of like, is that an active program or do you plan on getting there through certain efficiencies cost cutting rationalization or is that a number that you’re hoping to grow into and therefore SG&A just remains flat while you grow at whatever percent a year?

Larry Winoker

First, you can’t look at just the quarter because…

Unidentified Analyst

No, no sorry, I’m not, I’m sorry, I’m not, honestly I’m not looking the quarter. I’m thinking on an annual basis. There is nothing to do with this quarter.

Jeff Siegel

If you’re looking on an annual basis, we’re actually quite close, the point I was making was that because our SG&A is largely fixed in a quarter where we have seasonal low sales it looks very high and when you get to the third and fourth quarter, we’ll recover that. So, I don’t have the number in front of me what we have for the full year but we actually quite close on a whole – on the U.S. wholesale basis, we are actually quite close to that goal.

Unidentified Analyst

Last year that it was actually higher but it was closer to 20, was it closer to 20% last year or I kind of miss that on my…

Jeff Siegel

If you are looking at the presentation which I don’t have in front of me, it actually it shows what it was for the full year. But the point is, let me make another point is that it’s something yes we actively look at, we have done, over the last five years, four years, we’ve done a lot of work, I won’t there is not a lot of opportunity to decrease the actual dollars but we have a pretty robust infrastructure so what we said is we continue to believe is that if we can get reasonable growth on the top-line our SG&A would grow very slowly by comparison and that’s how we will be able to achieve that goal and perhaps maybe even exceed it.

Unidentified Analyst

The goal is

Larry Winoker

Let me give you an example of what we’re doing. As you know we acquired Fred & Friends at the end of December of last year. We are in the process right now of moving their distribution into our distribution facility where we can very easily absorb but they have without even adding a person.

Unidentified Analyst

Okay.

Larry Winoker

The things like that would benefit us going forward.

Unidentified Analyst

Okay. But the plan is to get to 13% opt margins from the current number I guess nine or 10?

Jeff Siegel

Remember if you look at the heading in that presentation that says U.S. wholesale.

Unidentified Analyst

Oh, U.S. wholesale, okay. That’s not a corporate wide.

Jeff Siegel

Correct.

Unidentified Analyst

Okay. Is there a goal that’s corporate wide or no?

Jeff Siegel

We haven’t published…

Larry Winoker

We haven’t published, but we do have one certainly.

Unidentified Analyst

Okay, okay. Thanks a lot guys.

Operator

Thank you. The next question is from Lee Giordano. Please go ahead. Lee your line is live into the call, please ask your question, thank you.

Lee Giordano – Imperial Capital

Thanks. Just a couple of follow ups, can you just remind me the annual run rate of sale through Fred & Friends and then what type of growth rate you’re assuming for that business?

Larry Winoker

Yeah, it’s in the high teams approaching 20, we’ve been, we haven’t broken out what we, we can have for 2013 total but I would say that were being very conservative better at this point. So, we get a better understanding of the business and develop the growth plan.

Lee Giordano – Imperial Capital

Okay, thanks. And then just can you provide an update on Savora, how that’s going and then also the Guy Fieri line, how that’s going as well? Thanks.

Jeff Siegel

Sure, the Savora is going according to plan where it’s still, we’re still keeping it in the specialty stores and only higher rent stores. We would roll out about 20 new SKUs this year. So we’re more than tripling the numbers of SKUs on the line a much large amount in 2014 that you know it’s going to have a big impact this year as we’ve said. It’s going, this is something to look for the future, it’s more for 2014, 2015 where we get some nice growth out of that line.

As far as the Guy Fieri, we just ran a promotion in Canada, one of the largest retailers in Canada, Canadian Tire that was spectacular on Guy Fieri and we scrimping and (inaudible) enough good to them. So, we, it’s going the way we expected to go. It’s a good solid line for us.

Lee Giordano – Imperial Capital

Thanks. And then just quickly can you update us on Grupo Vasconia it sounds like aluminum prices are hurting up business will back, can you talk about that? Thanks.

Jeff Siegel

The biggest issue they have in the first quarter is they do some premium business actually with banks and they didn’t anniversary promotion with the banks but they expect even and that was a significant drop in their volume. Even with that they expect by the end of April to be even with last year. So, they are reviewing, the rest of the business is doing well, it’s just is one promotion that was what they expect to have a great deal last year and made a lot of money and expect to do better this year.

Lee Giordano – Imperial Capital

Great, thanks.

Operator

(Operator Instructions). Thank you. We have a further question from Dominic Marshall Pacific Ridge Capital. Please go ahead.

Dominic Marshall – Pacific Ridge Capital

Good morning, just was hoping, if you comment on your intensions with this new share buyback in terms of, I know you can’t sort of buy until next week but at the current price how aggressive are you intend to be?

Jeff Siegel

What, I don’t think we’re going to deeper hand on that…

Dominic Marshall – Pacific Ridge Capital

I guess, said another way, what’s the plan put in place with the assumption that the stock would be around these levels and you would be fine around these levels?

Jeff Siegel

Yes. We see that as a good investment and that’s why we said, I made the comment that no way changes our strategy to seek out the right types of acquisitions, we can do both given our, the cash flow – financial position and expected cash flow based on a successful 2013.

Dominic Marshall – Pacific Ridge Capital

And any limitations from your, debt facilities in terms of how much you’re able to buyback?

Jeff Siegel

I mean, it is subject to government is restricting the payment but the amount that the board has allowed us to purchase of the 10 million we can do within our existing agreement.

Dominic Marshall – Pacific Ridge Capital

Great, glad to see it.

Jeff Siegel

You’re welcome

Operator

Thank you. The next question is from the line of (inaudible). Please go ahead again.

Unidentified Analyst

Hi, guys sorry, I’m relatively new to the story, so I’m just trying to dig in a little bit here. In terms of wholesale retail, what’s the higher margin business for you?

Larry Winoker

Well, the retail was a higher gross margin business but there is a higher SG&A.

Unidentified Analyst

Right, okay. But what’s the higher sort of op margin business for you?

Larry Winoker

When you talk about off, off price…

Jeff Siegel

Op margin business, are you talking about op office or –?

Unidentified Analyst

(Inaudible).

Jeff Siegel

What do you mean by op margin?

Unidentified Analyst

Sorry, operating margin.

Larry Winoker

Higher operating margin that would be the wholesale business.

Unidentified Analyst

The wholesale business the higher operating margin.

Larry Winoker

Yeah, yeah, definitely.

Unidentified Analyst

Okay. Thank you.

Larry Winoker

Let me just, since you are back on the line, I was able to pull up the presentation.

Unidentified Analyst

Yes.

Larry Winoker

SG&A goal of 16% for the full year, I remember I said it was the U.S. wholesale, the full year 2012, it was 17.2%.

Unidentified Analyst

Yeah. So, I didn’t notice it was U.S. wholesale segment that I just, I don’t know if I just assumed or didn’t notice I thought that was a corporate wide goal So.

Larry Winoker

Okay, fine.

Unidentified Analyst

Thanks.

Operator

Thank you for your question. I would now like to turn the call over to Mr. Jeff Siegel for closing remarks.

Jeff Siegel

Okay. Thank you for joining us today, today’s update. For those of you who are attending the B. Riley conference in Santa Monica later this month, Lifetime will be presenting on Monday, May 20th. I hope to have the opportunity to speak with you at that time. Thank you.

Operator

Thank you for joining today’s conference. This concludes presentation. You may now disconnect. Have a very good.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Lifetime Brands' CEO Discusses Q1 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts