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

Lifetime Brands Inc. (NASDAQ:LCUT)

Q3 2009 Earnings Call

November 5, 2009; 11:00 am ET

Executives

Jeff Siegel - Chairman, President & Chief Executive Officer

Larry Winoker - Senior Vice President & Chief Financial Officer

Harriet Fried - Investor Relations, Lippert/Heilshorn & Assoc.

Analysts

Jonathan Bresler - EJF Capital

Gary Giblen - Quint Miller & Co.

Neal Goldman - Goldman Capital Management

Per Ostlund - Jeffries

David Liebowitz - Horizon

Operator

Welcome to the Lifetime Brands Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we’ll hold a Q-&-A session. (Operator Instructions)

I would now like to turn the conference over to Harriet Fried of LHA. Please go ahead, ma’am.

Harriet Fried

Thank you, operator. Good morning everyone, and thank you for joining Lifetime Brands third quarter 2009 conference call. 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’ll read the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. The statements that are about to 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 the requirements of it’s credit agreement, the availability of funding under that 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 company’s products, shortages of and price volatility for certain commodities, the effect of competition on the company’s markets and other risks detailed in the company’s filings with the SEC.

The company undertakes no obligation to update these forward-looking statements. The company’s earnings release contained non-GAAP financial measures within the meaning of regulation G promulgated by the SEC. Included in this mornings 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.

Jeffrey Siegel

Thank you, Harriet. Good morning everyone. This morning we announced our third quarter 2009 results. I’m pleased to report that Lifetime Brands delivered a solid quarter. For the quarter operating cash flow was $8.3 million, net income was $4.9 million and diluted income per common share was $0.40. Each of these key financial indicators shows a significant improvement over last year.

I’m also pleased to note that our improved operating results and our continued disciplined approach in closing expenses and reducing inventory levels enabled the company to reduce its bank borrowings by $52.8 million as compared to September 30, 2008. It’s a reflection of the tough decisions we’ve made beginning in 2007 and a credit to our employees that we are able to achieve these positive results despite the continuing weak economy.

While we are not professional economist, it’s clear that higher employment, low home prices and the volatile stock markets, and concerns about the shape of the recovery continued to have a dampening effect on consumer spending. In addition, retailers significantly brought down their inventories.

In principle this is a positive strategy, however in the short term, this transition had a negative impact on our wholesale sales as replenishment generally was at rates below those of retail sales groups.

Our net sales declined by 20.8% in the quarter and by 13.3% for the nine months as compared to the same period last year. In our wholesale business, net sales decreased by 14.5% in the quarter and by 4.85% year-to-date. It’s important to note however, that a significant portion of the decline in the third quarter reflect several factors that make it difficult to compare the 2009 third quarter to same quarter in 2008.

Notably, 2008 quarter included sales of Linens ’N Things, which began liquidating its source in the fourth quarter of 2008. Second, the 2008 quarter includes the liquidation of excess inventory in connection with our June 2008 purchase of Mikasa.

Third, this year, we discontinued certain low margin sales to a direct response retailer that were included in the 2008 results. Excluding these sales from our 2008 quarter, would result in a year-over-year decrease of approximately 8% for the quarter, which I believe is more indicative of our actual performance.

It’s also important to note, that as we continue to focus on maintaining lower inventories we have fewer products to discontinue each month, which has a negative impact on top line sales. We believe this is the right strategy for us and we believe we still have room to reduce our inventories further, while maintaining still rates of low over 95%.

Net sales for our direct to consumer business were off reflecting our decision last year; to close out retail outlet stores and shop we reduced the number of catalogs mailed to consumers in order to lower cost and improved productivity.

All in all, we are pleased with our performance this quarter and our year-to-date results. Overall, it looks as though the bringdown of retail inventory have just about run its course. Assuming that to be the case, going forward, we expect to be able to grow our wholesale business from 2009 levels.

Before Larry comments in great detail on the financial statements, let me take a moment to comment on some overreaching themes that have affected our business this year; first, despite some recent positive economic news and the improving comps being posted by a number of retailers. The overall environment continues to be challenging. Consumers remain cautious and concerned, it takes innovation and great perceived values to get the consumer to respond, we offer both.

[Inaudible] sales and we have introduced a number of really unique products, such as our speed prep, one handed Mandoline slicer, our patent Pending Odor Absorbing Splatter screens and Mr. Olive Oil Sprayers, all of which have received good placement and should do very well during the holiday season. We have an even better pipeline of new products the next year.

Second, consumers are looking for lower price points. At one large retailer where we sell a lot of kitchen cutlery, the majority of business has shifted from set price from $80 to $300, the set price from $40 to a $150. While most of our competitors cannot bring down their price points without damaging their brands, we can do so through the use of our multiple brand approach and in this example, the retailer increased the number of our set assortment by several skews.

Our cutlery fetch dollars, the dollar volume at this customer is projected to increase by almost 80% this year, which shows that the strategy is certainly is working for the retailer and for us. Similarly, our Mikasa brand is gaining market share in the luxury dinnerware and glassware segments where it is positioned at the opening price point, it’s an affordable alternative for the more expensive luxury brands.

Third, while the major impact of retail inventory destocking is likely is just about cash. Retailers will continue to adopt the conservative position of risk factor inventories. In response to this challenge, we’ve reduced our own number of skews that we carry and have changed outsourcing practices, so that we bring in goods much closer to the dates in which are actually to be shipped to our customers.

As noted, this change has allowed us to significantly reduce our inventories by over 25%, and enabled us to bring down our bank borrowings by 45% as compared to last year. At the moment, we think our wholesale business is likely to be flat as compared to the fourth quarter of 2008.

However, I want to qualify that by noting that, it’s so early and much will depend on how retailers do their business over the thanksgiving weekends. We also expect our Internet and catalog sales in the fourth quarter to be on par with last year.

Last year, our net wholesale sales to the fourth quarter were a $119 million and Internet and catalog sales were about $10 million. As we’ve just reported that the wholesale sales for the third quarter of a $111 million, and Internet and catalog sales of $5 million to the third quarter. Even if our fourth quarter business would have come in somewhat less than last year, we should still post a good quarter.

In addition, we anticipate based on October’s results and our current order flow that our margin for the quarter should be higher than our margins for the fourth quarter of 2008. Larry.

Larry Winoker

Thanks Jeff. As reported, net sales were a $111.4 million for the third quarter 2009 versus a $140.6 million in 2008. Net income was 4.9 or $0.40 per diluted share for the third quarter of 2009, as compared to a net loss of $1.1 million or $0.09 per share in 2008.

Income from operations excluding restructuring expenses was $8.3 million in 2009 versus $8 million in 2008. Looking at our wholesale segment, segment income from operations excluding restructuring expenses was $11.6 million in the 2009 quarter versus $12.1 in the 2008 period.

Net sales for the 2009 period were $106.3 million, a decrease of $80 million compared to a $124.3 million for the 2008 period, approximately half of the decrease reflects the 2009 quarter, the absence of sales to Linens-N-Things, the non-recurrence of sales of excess inventory acquired with our June 2008 purchase of Mikasa, and a discontinuance of certain low margin sales to a direct response retailer.

Wholesale gross margin was 35.7% in 2009, compared to 35.9% in 2008. During the second quarter earnings call, we commented that gross margin was expected to increase from the benefit of lower inbound ocean freight cost.

This cost reduction added approximately a 150 basis points for the gross margin in the third quarter. However, unfavorable product mix, most notably from our decision to fill excess sterlings over inventory offset the freight cost savings. Wholesale distribution expenses were 7.8% of net sales in 2009, compared to 9% last year. This improvement reflects the elimination of distribution services for Mikasa provided by the seller in 2008, the closing of the York, Pennsylvania facility, during this year and then improved labor efficiency.

SG&A expenses for 2009 were $18.1 million or 70% of sales versus $21.2 million or 17.1% of sales in 2008. The decrease is due to the elimination of transition services provided to Mikasa in 2008 and our ongoing effort compared overhead. The decrease as a percentage of net sales was dampened by lowest sales volume in the 2009 period, as a significant portion of these expenses do not vary with sales.

Turning to the direct-to-consumer segment; as you know, our direct-to-consumer business now consists of the Internet and catalog channels only. As we closed all of our retail stores last December. So I’ll comment on the ongoing business only. Segment operating loss of operations, excluding restructuring expenses was $700,000 in the 2009 quarter versus $900,000 in 2008.

Net sales were $5.1 million in 2009 versus $6.5 million last year. We attribute the overall volume decline to the continued retail environment, and our de-emphasis of the catalog channel. Gross margin increased to 72% from 69.2% last year. Due to selective product pricing increases and less free shipping promotional activity.

Distribution expenses were 39.3% in 2009 compared to 38.5% in 2008. The increase was due to lower sales volume and inefficiencies incurred during the line down of activity in the York, Pennsylvania facility. We anticipate a significant improvement in the expense rate going forward. SG&A expenses for 2009 declined to $2.4 million from $2.9 million, primarily due to lower expenses associated with our de-emphasis of the catalog channels. Unallocated corporate expenses were $2.6 million in ‘09 versus $2.7 last year.

During the quarter we recorded $700,000 of restructuring expenses related to the 2008 initiative and severance related to the realignment of certain management positions. Interest expense for the 2009 quarter was $3.3 million versus $2.9 last year. The increase was due to higher average interest rates on our bank debt, partially offset by lower average borrowings.

Income tax for the current quarter was $153,000, which is primarily for minimum state taxes. We recognized the tax benefit of losses incurred during the first half of the year against income earned in the current quarter.

Equity in earnings of Grupo Vasconia, our 30% owned Mexican investee was $727,000 for the current quarter versus $390,000 in the 2008 period. Vasconia net income more than doubled in local currency terms and increased by 70% in US dollars. The increase in net income was driven by higher sales of kitchen products across all of its distribution channels.

Looking at our financial position, we continue our significant progress in strengthening our balance sheet, at September 30, 2009 our bank borrowings was $62.9 million, a reduction of $26.4 million from year end ‘08 and a reduction of $53 million when compared to September of 2008.

The reduction reflects our continuing plan to right size our inventory levels, improve operations, while maintaining sufficient capital expenditures to support our operating needs. At September 30th, availability under the bank credit facility was $42.7 million, which is net of $50 million of minimum required availability.

On a year-to-date basis, capital expenditures were $1.7 million, and we expect full year expenditures will not exceed $4 million. We are in compliance with all financial covenance required under the bank credit facility.

On October 30th, we amended the facility to provide for additional liquidity, extend the period for us to complete our restructuring plans and reduce the facility commitment by $20 million. Reduction in our inventory levels enabled us to reduce the facility commitment size without any adverse effects. While we pursue opportunities and navigate challenges, we may focus on improving our financial position and operating profitability.

This concludes our prepared comments, operator we are ready for questions.

Question-And-Answer Session

Operator

(Operator Instructions) Your first question comes from Jonathan Brussler - EJF Capital.

Jonathan Brussler - EJF Capital

I just got two quick things; do you guys have any thoughts on how you are planning on dealing with the convert?

Jeffrey Siegel

We are working on it. We are not ready to share anything yet.

Jonathan Brussler - EJF Capital

How do you guys see the bank borrowings trending throughout the rest of the year, are you still expecting a reduction of about $15 to $20 million?

Jeffrey Siegel

We, this is the time of the year that we just ran our seasonal PTs, so this is the time of the year where sales increased, inventory comes down and we bring down bank quality levels almost $20 millions, it should be a few more.

Jonathan Brussler - EJF Capital

All right great and there is obviously some plans maybe to use that and maybe pay down the convert or are you guys not talking about that?

Larry Winoker

It just that something we are not ready to share obviously, we focused we think about it probably we are not ready to share any information about that.

Operator

Your next question comes from Gary Giblen - Quint Miller.

Gary Giblen – Quint Miller & Co.

As consumers trade down to lower price points as you said Jeff in your remarks. Does that necessarily or usually mean that your margins will be lower on those products or is there not a correlation?

Jeffrey Siegel

There is not a correlation, maybe not much of a difference for us, the only difference is we have to sell more units, but as I used in the example, it’s really working, I mean I was concerned about it a little earlier in the year, but I’m much less concerned about it now.

The consumer is really responding for low price points, and it doesn’t cover all of our businesses, it certainly this is on the kitchen ware businesses, it definitely has no effect whatsoever, lowering the price points of the kitchen gadgets, but on the upper end products like couple of resets that’s happening and also other upper end products, we find that.

Gary Giblen – Quint Miller & Co.

Well, Jeff are you saying that the added volume another as you generate the same gross margin dollars or are we talking, I was trying to get a percentage?

Jeffrey Siegel

Gross margins dollars are good, I mean those are good, our gross margin is the same across our brands, not exactly the same, but very close across our brands and are obviously the most value to gross margin dollars comes in.

Gary Giblen – Quint Miller & Co.

Is the wedding business still strong in the kitchenware/housewares arena?

Jeffrey Siegel

Yes, that’s a very steady business, the bridal business is a - for us we find a rock steady business.

Operator

Your next question comes from Neal Goldman - Goldman Capital Management.

Neal Goldman - Goldman Capital Management

The first question, you had a great quarter, I assume you are translating it back with the pace of being 12.5, so wherever it is now, can you describe why they are doing so well at this point?

Jeffrey Siegel

Their business is great, they sell mostly in the mass market with in next quarter they do, and now do every level using some of our brands, I think they are benefiting from the relationship and as are we in the United States, but they are rock solid as a company in Mexico, and the business reflects it, I mean they are certainly gaining market share, and growing and we anticipate that they will continue to grow.

Neal Goldman - Goldman Capital Management

How are you doing with their brand in the US?

Jeffrey Siegel

We are starting to do very well of it here, it look longer I guess we introduced that’s not the best time in the environment, but I’m going to add one more thing, the Grupo Vasconia has a well into category management which is something that we do in the US, and they would really, it’s really quite on from them in Mexico and they are managing categories for many retailers, and it’s both helping the retailer to grow overall and certainly helping the Grupo Vasconia to growth in addition.

Neal Goldman - Goldman Capital Management

One of the things I remember earlier, you had shifted your Canadian operation, we are just getting a royalty which affects sales, right?

Jeffrey Siegel

It has affected our top line sales this year.

Neal Goldman - Goldman Capital Management

You had mentioned that in terms of the differences of this year versus last year or was that in effect last year too?

Jeffrey Siegel

Well in the third quarter there wasn’t that much of difference. Am I right?

Larry Winoker

Yes, that’s right but third quarter we had -.

Jeffrey Siegel

We had already made the change by the third quarter, but for the year-to-date there was definitely a reduced sales, there is a much better arrangement gross profit was.

Neal Goldman - Goldman Capital Management

Okay, did you make, what was your comment on the bank borrowings that you expect from here to year end to be done approximately x what was that number?

Larry Winoker

The $20 million I think the early question and we reduced borrowings like $20 million and I said that it’s achievable.

Neal Goldman - Goldman Capital Management

So from like 70 --

Jeffrey Siegel

Through the end of the year.

Neal Goldman - Goldman Capital Management

I’m sorry.

Larry Winoker

Let’s say at least somewhere in the - it should be able to be in the low 40.

Neal Goldman - Goldman Capital Management

40 to 45, right?

Larry Winoker

Yes.

Neal Goldman - Goldman Capital Management

Is that right?

Jeffrey Siegel

Yes, that’s correct yes.

Neal Goldman - Goldman Capital Management

Okay, and what would be at the current run rate because it’s I mean, you are basically saying, that the fourth quarter which is not historically the best quarter, the third as you say in the fourth quarter we are better than the third by about, it looks like what $15 million right?

Jeffrey Siegel

The fourth quarter is always our best, it’s our best quarter for volume and we should reduce more gross margin dollars in that quarter.

Neal Goldman - Goldman Capital Management

Yes, but basically your fourth quarter could be up to $20 million if you achieve it what you are saying it’s still early you could be up $19 to $20 million in the fourth quarter form the third and but with higher margins right?

Jeffrey Siegel

Much of the revenue that wasn’t that high but...

Neal Goldman - Goldman Capital Management

Yes, you said your wholesale; your kind of wholesale was 119 plus catalog of 10.

Larry Winoker

Yes. So Yes which would make it about $10 million more than the.

Neal Goldman - Goldman Capital Management

Okay 130 right, okay.

Larry Winoker

Yes.

Neal Goldman - Goldman Capital Management

With higher profitability, when we look at next year forget sales and whatever, and what are the cost this year that were embedded in these numbers that basically we worked away through with including the warehousing and things of that nature okay, separate from reduced interest cost because of the lower borrowings. What kind of dollar amount that we are looking at just as a swing factor assuming sales for the same etcetera?

Larry Winoker

Well, we got pretty precise dollar amount the - opportunity what has, we don’t have the full year effect of these savings and the distribution center because we closed; you are in the second quarter and important to the third quarter. So we are going to get some benefit on our wholesale, but we will also get benefit on their direct-to-consumer business.

Neal Goldman - Goldman Capital Management

We are talking about four five millions swing on cost or less than that for next year just from that issues.

Larry Winoker

It’s probably less than 5 million.

Neal Goldman - Goldman Capital Management

Okay, Jeff what’s your inventory if you are running at the right level of inventory what should it be at this point in time I mean, going forward?

Jeffrey Siegel

As you know we are focused on continually reducing it and doing it probably little slower than we could do it, only because we want to make sure we maintained the slope off of it. I think we can still take out another 15, may be, I am sorry, $20 million from our inventory.

So there is plenty of room to go and we are focused on getting there next year. I think next year is going to that we finally achieve the goal that we set a long time ago.

Neal Goldman - Goldman Capital Management

Okay, so in theory between another let’s say, even say $15 million plus whatever, the earnings next year, our debt would be significantly reduced. I mean, if we are saying its $20 million three now in the fourth quarter, and we can add another $15 million plus profitability, we can have that down in the low 20s next year.

Jeffrey Siegel

We certainly have a goal to get there.

Neal Goldman - Goldman Capital Management

I am not talking about on average, in the cost of the year, because obviously that’s seasonal borrowing talking about by the end of the next year.

Larry Winoker

Again to grow the business of course you do have higher working capital.

Neal Goldman - Goldman Capital Management

Right, I understand that. Actually in working capital needs for additional growth, right.

Jeffrey Siegel

Yes, that’s correct.

Neal Goldman - Goldman Capital Management

Okay, so we will really be in great financial shape at that point, you know and hopefully easy to pay off the convertible debt going forward.

Jeffrey Siegel

We are working on that and we believe that could be the case over, we are definitely working on that.

Neal Goldman - Goldman Capital Management

Great, the first time I am pleased in a long time, you finally get -- just look like you have your axe under control, thank you guys.

Operator

Your next question comes from [Peer Oslen] - Jefferies.

Peer Oslen – Jefferies

Jeff, going back to your comments in the opener there, wholesale was down about 8% you said in the third quarter, kind of axing out the excess Mikasa inventory, the Linens-N-Things and the discontinued customer.

Jeff Siegel

That’s correct.

Peer Oslen - Jefferies

And then the fourth quarter you mentioned that you think wholesale could be flat, does that contemplate, you know the Linens factor in the discontinued customer as well or is it probably?

Jeff Siegel

Linens, in the third quarter we shipped a substantial amount of Linens where they are going out of business here frankly, and we didn’t have that in the fourth quarter. So we are not up again, we can send you that Larry.

Larry Winoker

There was some, quite of a much less than.

Jeffrey Siegel

Much less.

Peer Oslen - Jefferies

So flat for the fourth quarter would be a fairly organic number at the end of the day.

Larry Winoker

Right, we are getting to more apples to apples comparison.

Peer Oslen - Jefferies

When you filed the waiver for the third quarter net sales bogey if you will, was that an issue of some programs, may be just getting pushed out a little bit, where orders didn’t materialize the same way as may be they’d been expected to or what kind of happened there, just out of curiosity?

Larry Winoker

No, things are changing and I guess we didn’t anticipate some of the things that we thought especially with Linens-N-Things augmentation which we were up against, which we didn’t have in the Mikasa, there was a substantial liquidation of excess Mikasa inventory, right after we acquired Mikasa. So, we just wanted to get things straight to where they are.

Peer Oslen - Jefferies

Sure, and there’s definitely a few factors that play there. Do you ever sense it as to just how much your sell in is lagging the POS right now?

Larry Winoker

Substantially. It’s shocking, but honestly sometimes a shocking number and I know, I can’t get into numbers by retailers, but we do get it from, like one retailer, but we are down about 6% on point of sale and at one retailer, inventories are down over 30%, over the same point last year.

I think we reached the bottom of that destocking though, because it really started happening in November of last year and it got more severe in December and January, but it happened already. So we are now, I don’t think retailers are able to lower their inventories, much below where they are now, although I don’t anticipate them going back to the old methods of keeping high inventories, everything off of that will happen.

Peer Oslen - Jefferies

Now, I would suspect not. That makes sense. It looks like obviously you are making up a fair amount of the ground on the gross margin front, the margins certainly got closer to last year’s number versus the last several quarters where it’s been down more.

As the lower freight and the lower china sourcing cost kind of start to flow into the P&L, do you see any changing of your pricing strategy or do, should we expect that a lot of that cost savings, or that lower cost will actually flow to the bottom line.

Jeffrey Siegel

We’ve passed a lot of the savings on for the retailers in order to help them get to the right price points in many cases, but we’ve done that now. We probably passed it on a little faster than we got the benefit and now we should reap some of the benefits of what happened, so we are certainly improving, and it’s a lot to do with the mix that we are selling and we’ve discontinued business.

We had a customer last year, who was a direct selling customer that we were an OEM supplier too and we were, the margins were horrible, we inherited that customer with one of our acquisitions and we finally decided just to give up the volume all together and it was, the mix is what’s changing our margins, it’s just getting better, we are fighting to make sure our cost stayed very much in line obviously, and we are trying to make a lot of money going forward, we are working on it.

Peer Oslen - Jefferies

The cost structure has certainly has gotten a lot better. Most of my other questions have been answered, so maybe just one housekeeping one, just to finish up, and I guess this would probably be for you Larry. I assume that the shares related to that convertible would have been anti diluted here in the third quarter and that’s why the share base was still around 11/09?

Larry Winoker

I think actually this was the quarter where we have that were diluted.

Peer Oslen - Jefferies

They were, okay, when I worked through the math to get to the $0.41 I was getting an 11.09 number, so that’s...

Larry Winoker

Well, it’s actually I reported, now we said what the diluted was $0.40, there was only a penny diluted, if it was $0.41 on a basic and $0.40 diluted, so it turned out to be a penny diluted for this quarter.

Peer Oslen - Jefferies

Okay, so the full 2.7 million shares, not all of those go into the denominator on this?

Larry Winoker

No, but maybe perhaps the numerators were different, because we have both the interest on the notes as well as that EPP-14 adjustment we had to make the non cash.

Peer Oslen - Jefferies

So there was the interest expense add back in that so.

Larry Winoker

Then again, and even though we didn’t record federal tax provision in the quarter, and rule says, if you look at what you think you will have on a full year basis, we think it would be attached there, so the interest expenses numerator was tax effected.

Peer Oslen - Jefferies

Okay, all right.

Larry Winoker

Anyway it’s only a penny difference between the two.

Operator

(Operator Instruction). Your final question comes from David Lebuvitz - Horizon.

David Lebuvitz – Horizon

One, looking at this holiday selling season versus last year’s holiday season. Do you have lodging of reserves vis-à-vis, what might occur against retail sales in getting marked down money or push money or what have you, versus last year where obviously everybody was quite flatfooted in that respect?

Jeffrey Siegel

We do have reserves, but honestly in my opinion with the way the retailers are maintaining such a low inventory, I would expect is going to be much less in mark downs, it’s not going to be like last year, unless the world comes apart.

David Lebuvitz – Horizon

No, what I’m saying is last year you had payments that exceeded the reserve quite apparently, as did everybody else in the industry, and is not pointing a finger. What I am asking is based on what you are seeing today, are you adequately reserved or might there be an incremental charge to earnings because we are under reserved?

Larry Winoker

We believe so, I mean, I don’t know that, we were not under reserved last year, but just to clarify Jeff’s point is that last year retails had inventory, more inventory than they expected, so then they go back to their suppliers and look for open call marked down money, but this year because retail inventories are so low, we think we are perhaps in a better position because there is less inventory and therefore it’s less to mark down.

David Lebuvitz – Horizon

Okay.

Larry Winoker

Our second issue was that is there enough inventory historical or the business.

Jeffrey Siegel

Yes, the way we see it, the retailers today are very willing to run out, and give up that last sale and like I said, I think of a healthier way to do business, but the inventories are the lowest I have ever seen them.

David Lebuvitz – Horizon

Okay. Second question, the field itself is lit with failures right now or companies on the verge, are you looking or are you in the process of talking with any companies right now about perhaps acquiring them before they get pushed into chapter 11?

Jeffrey Siegel

No, we don’t know, we talk about this, but I can say currently we are not looking at any acquisitions. We are very focused on running our business profitably, that’s all we are focused on.

David Lebuvitz – Horizon

And two last questions. The balance sheet going forward, what ratio of debt to equity would you like to have and what cash component would you like to get back to on the balance sheet?

Jeffrey Siegel

Well, I think more about in terms of leveraged debt to EBITDA. If I had a wish that could be investment grades, so I would like to the leverage ratio go like around below three, but we are going to focus on as we said, and we said a number of quarters, focus on de-leveraging, bring down our debt level, some much shrinking the balance sheet and fully able to grow business just by better management of our inventory levels and raise our operating profitability. So we bring that leverage ratio down.

So that’s our goal and in time, let’s see, if there is acquisition opportunities perhaps we think that could be expanded. It’s also a function of what the marketplace will find it an acceptable leverage ratio, two years ago that number would have been higher than it is today. So, what I have to say is, we are going to control, we are going to control and we are working to increase our profitability, bring down our debt and the effect of that is improved leverage.

David Lebuvitz – Horizon

And the last question if I may, if we look out two years would you expect your top five or top 10 accounts A to B the same vendors you have been dealing with, and second of all with the percentage of your total business going to those 5 or 10 be the same less or greater?

Jeffrey Siegel

Our top 5 accounts I would, do you have any healthy condition. So I would expect that they will continue to be our top 5 accounts. We focus on actually the top 40 accounts and then we will narrow it top 30 and I would just say, it’s a percent of business I think it would probably be similar not, it’s going to move between accounts because it always does but it will be similar.

David Lebuvitz – Horizon

And in other words, if we look at the traditional 80-20 row you think that’s going to be the case you think you would be moving close to the 90-10?

Jeffrey Siegel

No, I think the 80-20 is a good way to look at it and I do believe that’s, we haven’t seen a shift away from that we honestly do.

Operator

There are no further questions at this time, please proceed with your presentation or any closing remarks.

Jeffrey Siegel

Okay, thanks for joining us on this morning’s call. I hope we have given you a good overview of Lifetime and how we’ve adapted to today’s business environment, and while we think we are positioned to bring 2009 to a successful close. We focused on providing retailers with new and innovative products and price points that consumers find reasonable, and we are really focused on the consumer.

We look forward to talking to you again after the holiday season, thank you all.

Operator

Ladies and gentlemen that concludes our conference call for today. We thank you for your participation and ask that you please disconnect your line.

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 Inc. Q3 2009 Earnings Call Transcript
This Transcript
All Transcripts