News Column

Lifetime Brands, Inc. Reports Second Quarter Financial Results

August 5, 2014

Net Sales Increase by 19% to $115.3 Million

Company Reaffirms Net Sales Guidance for 2014

Reports Significant Investments to Support Future Growth

GARDEN CITY, N.Y.--(BUSINESS WIRE)-- Lifetime Brands, Inc. (NasdaqGS:LCUT), a leading global provider of branded kitchenware, tableware and other products used in the home, today reported its financial results for the second quarter ended June 30, 2014.

Second Quarter Financial Highlights:

  • Consolidated net sales were $115.3 million in the quarter ended June 30, 2014; an increase of $18.3 million, or 18.9%, as compared to consolidated net sales of $97.0 million for the corresponding period in 2013. Consolidated net sales in the quarter ended June 30, 2014 included $16.0 million of net sales from Kitchen Craft and other acquisitions that were completed in the first quarter of 2014.
  • Gross margin was $40.9 million, or 35.4%, in the quarter ended June 30, 2014, as compared to $36.4 million, or 37.5%, for the corresponding period in 2013.
  • Loss from operations was $3.2 million in the quarter ended June 30, 2014, as compared to income from operations of $12,000, for the corresponding period in 2013.
  • Net loss was $3.2 million, or $0.24 per diluted share, in the quarter ended June 30, 2014, as compared to net loss of $0.6 million, or $0.04 per diluted share, in the corresponding period in 2013.
  • Adjusted net loss was $3.1 million, or $0.23 per diluted share, in the quarter ended June 30, 2014, as compared to adjusted net loss of $1.1 million, or $0.08 per diluted share, in the corresponding period in 2013.
  • Consolidated EBITDA was $1.5 million, in the quarter ended June 30, 2014, as compared to $4.3 million for the corresponding 2013 period.
  • Equity in earnings, net of taxes, was $41,000 in the quarter ended June 30, 2014 as compared to $92,000 in the corresponding 2013 period.

    Six Months Financial Highlights:

  • Consolidated net sales were $233.7 million in the six months ended June 30, 2014, an increase of $38.1 million, or 19.5%, as compared to net sales of $195.6 million for the corresponding period in 2013. Consolidated net sales in the six months ended June 30, 2014 included $33.2 million of net sales from Kitchen Craft and other acquisitions that were completed in the first quarter of 2014.
  • Gross margin was $85.2 million, or 36.4%, in the six months ended June 30, 2014 as compared to $72.7 million, or 37.1%, for the corresponding period in 2013.
  • Loss from operations was $5.4 million in the six months ended June 30, 2014, as compared to loss from operations of $0.1 million, for the corresponding period in 2013.
  • Net loss was $6.1 million, or $0.46 per diluted share, in the six months ended June 30, 2014, as compared to net loss of $1.2 million, or $0.09 per diluted share, in the 2013 period.
  • Adjusted net loss was $4.8 million, or $0.36 per diluted share, in the six months ended June 30, 2014, as compared to adjusted net loss of $1.7 million, or $0.13 per diluted share, in the 2013 period.
  • Consolidated EBITDA was $5.2 million in the six months ended June 30, 2014, as compared to $7.4 million for the corresponding 2013 period.
  • Equity in losses, net of taxes was $0.2 million in the six months ended June 30, 2014 as compared to equity in earnings of $0.3 million, net of taxes in the corresponding 2013 period.

    Jeffrey Siegel, Lifetime's Chairman and Chief Executive Officer, commented,

    “During the quarter, our U.S. wholesale segment was challenged by the slow retail environment and by uneven retailer replenishment activity that did not keep pace with stronger point-of-sale performance. Wholesale gross margin in the U.S. declined during the quarter, as we moved to create opportunities to expand our market share; however, we expect to recoup a substantial portion of this decline during the balance of the year. U.S. SG&A increased, reflecting the acquisition of Built NY and investments to grow our domestic business. Excluding these activities, U.S. SG&A expenses increased by approximately 3%.

    “Our international segment, comprising Creative Tops and Kitchen Craft, produced outstanding results. Creative Tops recorded a 45% organic sales growth in local currency, and we are pleased with Kitchen Craft’s performance. The segment’s gross margin was strong, reflecting a significant improvement for Creative Tops and the inclusion of Kitchen Craft, which is in a higher margin product category. SG&A expenses for the segment as a percentage of net sales improved from the prior period.

    “Our consolidated gross margin for the full year 2014 is expected to be comparable to 2013’s. Improvements in gross margin for Creative Tops and the inclusion of Kitchen Craft are expected to offset any decline in the U.S. segment.

    Grupo Vasconia, our Partner Company in Mexico, also recorded a strong quarter with significant increases in both net sales and income from operations. Net income and our share of its income would have increased but for a value added tax recovery in the 2013 quarter.”

    Mr. Siegel continued, “The first half of 2014 has been a period of remarkable activity, in which we successfully executed strategic initiatives in acquisitions, brand development, channel expansion, product innovation, and geographic growth. In this period, we:

  • Completed four acquisitions, Kitchen Craft, La CafetiÈre, Built NY and Empire Silver;
  • Introduced 4,000 new products and introduced our new acquisitions and other new brands, including Bombay®, Brick Oven®, Debbie Meyer® and Reo®;
  • Appointed new managers to oversee the development of a new Hong Kong-based sales team, which we are supporting with a new 12,000 square foot showroom and a new third-party bonded distribution facility in China;
  • Began supplying kitchenware and tableware products to the 400 Walmart Supercenters in China and hired a sales team to service that account, together with other Chinese retailers, and opened a distribution facility to support that business;
  • Appointed managers to coordinate export sales by our U.S. and U.K. based companies and to focus on the independent retail store channel; and
  • Made significant investments in Lifetime to position it for growth in the U.S. and internationally. These investments include hiring talent to strengthen our global sourcing and quality control teams, to further grow our U.S. businesses, to support our new Wal-Mart business in China and to develop a Hong Kong based export business.

    “We previously stated that we expected net sales for the full year to total approximately $600 million. Today, we are reaffirming that guidance.”

    Dividend

    On July 29, 2014, the Board of Directors declared a quarterly dividend of $0.0375 per share payable on November 14, 2014 to shareholders of record on October 31, 2014.

    Conference Call

    The Company has scheduled a conference call for Tuesday, August 5, 2014 at 11:00 a.m. ET. The dial-in number for the conference call is (877) 474-9505 or (857) 244-7558, passcode #20312904. A replay of the call will also be available through Tuesday, August 12, 2014 and can be accessed by dialing (888) 286-8010 or (617) 801-6888, conference ID #37651110. A live webcast of the conference call will be broadcast in the Investor Relations section of the Company's web site, www.lifetimebrands.com. For those who cannot listen to the live broadcast, an audio replay of the call will also be available on the site.

    Non-GAAP Financial Measures

    This earnings release contains non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company's historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statements of income, balance sheets, or statements of cash flows of the Company; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. As required by SEC rules, the Company has provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures. These non-GAAP measures are provided because management of the Company uses these financial measures in evaluating the Company's on-going financial results and trends, and management believes that exclusion of certain items allows for more accurate comparison of the Company’s operating performance. Management uses this non-GAAP information as an indicator of business performance. These non-GAAP measures should be viewed as a supplement to, and not a substitute for, GAAP measures of performance.

    Forward-Looking Statements

    In this press release, the use of the words “believe,” "could," "expect," "may," "positioned," "project," "projected," "should," "will," "would" or similar expressions is intended to identify forward-looking statements that represent the Company’s current judgment about possible future events. The Company believes these judgments are reasonable, but these statements are not guarantees of any events or financial results, and actual results may differ materially due to a variety of important factors. Such factors might include, among others, the Company’s ability to comply with the requirements of its credit agreements; the availability of funding under such credit agreements; 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; the impact of changes in general economic conditions on the Company’s customers; changes in demand for the Company’s products; shortages of and price volatility for certain commodities; significant changes in the competitive environment and the effect of competition on the Company’s markets, including on the Company’s pricing policies, financing sources and an appropriate level of debt.

    Lifetime Brands, Inc.

    Lifetime Brands is a leading global provider of kitchenware, tableware and other products used in the home. The Company markets its products under such well-known kitchenware brands as Farberware®, KitchenAid®, Cuisine de France®, Fred® & Friends, Guy Fieri®, Kitchen Craft®, Kizmos, La CafetiÈre®, Misto®, Mossy Oak®, Pedrini®, Sabatier®, Savora and Vasconia®; respected tableware brands such as Mikasa®, Pfaltzgraff®, Creative Tops®, Gorham®, International® Silver, Kirk Stieff®, Sasaki®, Towle® Silversmiths, Tuttle®, Wallace®, V&A® and Royal Botanic Gardens Kew®; and home solutions brands, including Kamenstein®, Bombay®, BUILT®, Debbie Meyer® and Design for Living. The Company also provides exclusive private label products to leading retailers worldwide.

    The Company’s corporate website is www.lifetimebrands.com.

                           
    LIFETIME BRANDS, INC.
    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

    (In thousands - except per share data)

    (unaudited)

     
    Three Months EndedSix Months Ended
    June 30,June 30,
    2014         20132014         2013
     
    Net sales $   115,321 $   96,976 $   233,732 $   195,633
     
    Cost of sales     74,469       60,620       148,548       122,965  
     
    Gross margin 40,852 36,356 85,184 72,668
     
    Distribution expenses 12,460 10,129 24,806 20,925
    Selling, general and administrative expenses 31,424 25,927 65,607 51,558
    Restructuring expenses     125       288       125       288  
     
    Income (loss) from operations (3,157 ) 12 (5,354 ) (103 )
     
    Interest expense (1,672 ) (1,149 ) (3,062 ) (2,311 )
    Loss on early retirement of debt     -       -       (319 )     -  
     
    Loss before income taxes and equity in earnings (4,829 ) (1,137 ) (8,735 ) (2,414 )
     
    Income tax benefit 1,586 477 2,771 876
    Equity in earnings (losses), net of taxes     41       92       (167 )     338  
     
    NET LOSS $   (3,202 ) $   (568 ) $   (6,131 ) $   (1,200 )
     
    Weighted-average shares outstanding - basic and diluted     13,483       12,808       13,379       12,784  
     
    BASIC AND DILUTED LOSS PER COMMON SHARE $   (0.24 ) $ (0.04 ) $   (0.46 ) $   (0.09 )
     
    Cash dividends declared per common share $ 0.0375 $ 0.03125 $ 0.0750 $ 0.0625
     
         
    LIFETIME BRANDS, INC.
    CONDENSED CONSOLIDATED BALANCE SHEETS

    (In thousands - except share data)

    (unaudited)

                   
    June 30,December 31,
    20142013
    (unaudited)
    ASSETS
    CURRENT ASSETS
    Cash and cash equivalents $   5,229 $   4,947
    Accounts receivable, less allowances of $6,082 at June 30, 2014 and
    $5,209 at December 31, 2013 70,059 87,217
    Inventory 153,241 112,791
    Prepaid expenses and other current assets 11,365 5,781
    Deferred income taxes     3,994       3,940  
    TOTAL CURRENT ASSETS 243,888 214,676
     
    PROPERTY AND EQUIPMENT, net 27,127 27,698
    INVESTMENTS 37,407 36,948
    INTANGIBLE ASSETS, net 110,800 55,149
    OTHER ASSETS     3,315       2,268  
    TOTAL ASSETS $   422,537   $   336,739  
     
    LIABILITIES AND STOCKHOLDERS' EQUITY
    CURRENT LIABILITIES
    Current maturity of Credit Agreement Term Loan $ 10,000 $ -
    Current maturity of Senior Secured Term Loan - 3,937
    Accounts payable 27,823 21,426
    Accrued expenses 27,808 41,095
    Income taxes payable     333       3,036  
    TOTAL CURRENT LIABILITIES 65,964 69,494
     
    DEFERRED RENT & OTHER LONG-TERM LIABILITIES 20,827 18,644
    DEFERRED INCOME TAXES 10,665 1,777
    REVOLVING CREDIT FACILITY 98,349 49,231
    CREDIT AGREEMENT TERM LOAN 40,000 -
    SENIOR SECURED TERM LOAN - 16,688
     
    STOCKHOLDERS’ EQUITY

    Preferred stock, $.01 par value, shares authorized: 100 shares of Series A

    and 2,000,000 shares of Series B; none issued and outstanding - -
    Common stock, $.01 par value, shares authorized: 25,000,000; shares
    issued and outstanding: 13,511,864 at June 30, 2014 and 12,777,407 at
    December 31, 2013 136 128
    Paid-in capital 157,546 146,273
    Retained earnings 31,058 38,224
    Accumulated other comprehensive loss     (2,008 )     (3,720 )
    TOTAL STOCKHOLDERS’ EQUITY     186,732       180,905  
    TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $   422,537   $   336,739  
     
                 
    LIFETIME BRANDS, INC.
    CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

    (In thousands)

    (unaudited)

     
    Six Months Ended
    June 30,
    2014         2013
    OPERATING ACTIVITIES
    Net loss $   (6,131 ) $   (1,200 )
    Adjustments to reconcile net loss to net cash (used in) provided by
    operating activities:
    Provision for doubtful accounts 156 32
    Depreciation and amortization 7,329 5,190
    Amortization of financing costs 311 266
    Deferred rent (530 ) (459 )
    Deferred income taxes - 180
    Stock compensation expense 1,439 1,393
    Undistributed equity in earnings, net 167 234
    Loss on early retirement of debt 319 -
    Changes in operating assets and liabilities (excluding the effects of

    business acquisitions)

    Accounts receivable 33,180 39,877
    Inventory (18,960 ) (7,970 )
    Prepaid expenses, other current assets and other assets (4,050 ) (3,512 )
    Accounts payable, accrued expenses and other liabilities (17,356 ) (3,112 )
    Income taxes payable     (3,277 )     (3,615 )
    NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES     (7,403 )     27,304  
     
    INVESTING ACTIVITIES
    Purchases of property and equipment (2,783 ) (1,992 )
    Kitchen Craft acquisition, net of cash acquired (61,676 ) -
    Other acquisitions, net of cash acquired (5,280 ) -
    Net proceeds from sale of property     70       -  
    NET CASH USED IN INVESTING ACTIVITIES     (69,669 )     (1,992 )
     
    FINANCING ACTIVITIES
    Proceeds from Revolving Credit Facility 163,986 88,155
    Repayments of Revolving Credit Facility (115,102 ) (107,208 )
    Repayments of Senior Secured Term Loan (20,625 ) (3,500 )
    Proceeds from Credit Agreement Term Loan 50,000 -
    Payment of financing costs (1,375 ) -
    Payments for common stock repurchases - (3,229 )
    Proceeds from exercise of stock options 1,460 676
    Cash dividends paid     (1,007 )     (720 )
    NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES     77,337       (25,826 )
     
    Effect of foreign exchange on cash 17 (175 )
     
    INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     282       (689 )
    Cash and cash equivalents at beginning of period     4,947       1,871  
    CASH AND CASH EQUIVALENTS AT END OF PERIOD $   5,229   $   1,182  
     
                 
    LIFETIME BRANDS, INC.
    Supplemental Information

    (In thousands)

     

    Consolidated EBITDA for

    the Four Quarters Ended

    June 30, 2014

     

    Three months ended June 30, 2014 $ 1,494
    Three months ended March 31, 2014 3,660
    Three months ended December 31, 2013 21,011
    Three months ended September 30, 2013   15,067
    Total for the four quarters $ 41,232
     

    Consolidated EBITDA for

    the Four Quarters Ended

    June 30, 2013

    Three months ended June 30, 2013 $ 4,321
    Three months ended March 31, 2013 3,079
    Three months ended December 31, 2012 17,868
    Three months ended September 30, 2012   11,568
    Total for the four quarters $ 36,836
     
                                                 

    Reconciliation of GAAP to Non-GAAP Operating Results

     

    Consolidated EBITDA:

     
    Three Months Ended

    June 30,

    2014

    March 31,

    2014

    December 31,

    2013

    September 30,

    2013

    Net income as reported $   (3,202 ) $   (2,929 ) $   9,388 $   1,093
    Subtract out:
    Undistributed equity in (earnings) losses, net (41 ) 208 (332 ) 5,452
    Add back:
    Income tax provision (benefit) (1,586 ) (1,185 ) 6,182 3,869
    Interest expense 1,672 1,390 1,256 1,280
    Loss on early retirement of debt - 319 102 -
    Depreciation and amortization 3,716 3,613 2,708 2,517
    Stock compensation expense 713 726 750 738
    Permitted acquisition related expenses 97 1,518 957 39
    Restructuring expenses     125       -       -       79
    Consolidated EBITDA $   1,494   $   3,660   $   21,011   $   15,067
     
         
    LIFETIME BRANDS, INC.
    Supplemental Information

    (In thousands)

     
    Reconciliation of GAAP to Non-GAAP Operating Results (continued)
                                       

     

    Consolidated EBITDA:

    Three Months Ended
    June 30,

    2013

    March 31,

    2013

    December 31, 2012September 30,

    2012

    Net income as reported $       (568 ) $       (632 ) $   15,154 $   3,890
    Subtract out:
    Undistributed equity in (earnings) losses, net 480 (246 ) (4,464 ) (695 )
    Add back:
    Income tax provision (benefit) (477 ) (399 ) 2,596 1,930
    Interest expense 1,149 1,162 1,254 1,271
    Loss on early retirement of debt - - - 1,015
    Depreciation and amortization 2,667 2,523 2,446 2,409
    Stock compensation expense 722 671 662 679
    Intangible asset impairment - - - 1,069
    Permitted acquisition related expenses 60 - 220 -
    Restructuring expenses         288           -       -       -  
    Consolidated EBITDA $       4,321   $       3,079   $   17,868   $   11,568  
     


    Consolidated EBITDA is a non-GAAP measure that the Company defines as net income (loss), adjusted to exclude undistributed equity in earnings (losses), income taxes, interest, losses on early retirement of debt, depreciation and amortization, stock compensation expense, intangible asset impairment, acquisition related expenses and restructuring expenses, as shown in the tables above.

         
    LIFETIME BRANDS, INC.
    Supplemental Information

    (In thousands- except per share data)

     
    Reconciliation of GAAP to Non-GAAP Operating Results (continued)
                     

    Adjusted net loss and adjusted diluted loss per common share:

     
    Three Months EndedSix Months Ended
    June 30,June 30,
    2014         20132014         2013
     
    Net loss as reported $     (3,202 ) $     (568 ) $   (6,131 ) $   (1,200 )
    Adjustments:
    Acquisition related expenses, net of tax 68 - 1,057 -
    Loss on early retirement of debt, net of tax - - 191 -
    Restructuring expenses, net of tax 75 170 75 170
    Grupo Vasconia recovery of value-added taxes       -         (672 )     -       (672 )
    Adjusted net loss $     (3,059 ) $     (1,070 ) $   (4,808 ) $   (1,702 )
    Adjusted diluted loss per share $     (0.23 ) $     (0.08 ) $   (0.36 ) $   (0.13 )
     


    Adjusted net loss in the three and six months ended June 30, 2014 excludes acquisition related expenses, the loss on retirement of debt and restructuring expenses. Adjusted net loss in the three and six months ended June 30, 2013 excludes restructuring expenses related to the planned closure of the Fred®& Friends distribution center and a recovery by Grupo Vasconia of value-added taxes related to a 2004 tax position.



    Lifetime Brands, Inc.

    Laurence Winoker, Chief Financial Officer

    516-203-3590

    investor.relations@lifetimebrands.com

    or

    Lippert/Heilshorn & Assoc.

    Harriet Fried, SVP

    212-838-3777

    hfried@lhai.com

    Source: Lifetime Brands, Inc.


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