Lifetime has shown an ability to grow quickly and profitably. Revenue has climbed from $131 million in 2002 to $307 million in 2005, and EPS from $0.34 in 2002 to $1.23 in 2005. The company’s guidance for 2006, most recently given on August 3, is $480-500 million in sales and $1.50 to $1.70 in EPS.
Lifetime has been aggressive in purchasing brands and assets. Last year the company purchased Pfaltzgraff, which instantly made it a major player in the tabletop space. Pfaltzgraff doubled the number of outlet stores the company operates (88 after closing overlapping stores) and gave the company a direct-to-consumer business to complement the existing wholesale business. Lifetime also acquired Salton’s (SFP) tabletop business, which expanded the product line to fine china and crystal and included licenses of premium brands such as Calvin Klein Home. More recently, the company acquired the assets of Syratech to move into the home decor and picture frame business.
With each acquisition completed, Lifetime has been able to quickly improve cost structure through global sourcing, expand distribution via its extensive distribution network, and reinvigorate product lines with new merchandise and designs by its in-house design staff. Lifetime has also moved aggressively to enter into licensing deals for trusted brands like KitchenAid and Cuisinart, both of which it has successfully extended into new markets like cutlery and kitchenware. The company has also been most enterprising about introducing new products. It plans to introduce 1,400 in 2006, double the number released in 2005.
Though the company has certainly taken advantage of opportunities, it has been disciplined about it. Earlier this year, Lifetime reached an agreement to purchase the assets of WearEver, a bakeware company, out of bankruptcy for $21 million. At the mandatory court auction, the company lost out to another bidder who paid $36.5 million.
What’s not to like? The company recently sold $75 million worth of convertible debt, increasing long-term debt to $80 million, but this hardly seems unreasonable for a profitable company with a $270 million market cap. The stock dropped when the company warned of a second quarter loss, but its earnings are historically extremely seasonal -- almost all earnings come in the third and fourth quarter -- and the company has maintained its guidance for the full year. There have been reports critical of the number of family members employed in senior roles at the company, which does give one pause -- but the numbers attest to the job management is doing.
Lifetime trades at 14x 2006 earnings and 10x 2007 estimates. The company also features a 1.24% yield. With a 5 year EPS growth rate of 27.3%, and well off its 52 week high of $30.10, the stock seems quite cheap at Wednesday’s close of $20.10. I believe that as the company’s earnings come in in the third and fourth quarters, the stock can quickly rebound towards the mid-20s, and can continue to rise over the next several years.
Lifetime Brands 1-year chart:
By Neal Shanske, Contributor -- Inelegant Investor
Neal Shanske holds a position in LCUT stock.