Lifetime Brands, Inc. (LCUT) Earnings Call Transcript & Summary

Thank you. Welcome to the Lifetime Brands Second Quarter 2026 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 speaker's remarks today, there will be a question and answer portion of the call. If you would like to ask a question during this time, please press the star key followed by 1 on your telephone keypad. Please note that this conference is being recorded. I would now like to turn the conference over to Jamie Kirchhen. Mr. Kirchhen, you may now go ahead.

Good morning and thank you for joining Lifetime Brands' second quarter 2026 earnings call. With us today from management are Rob Kang, Chief Executive Officer, and Larry Winokur, 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 of the company. safe harbor protection from liability established by the Private Security Litigation Reform Act. Any such statements are not guarantees of future performance and factors that could influence our results are highlighted in our earnings release. Any 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 and are subject to change for future development. Except as required by law, the company does not undertake any obligation to update such statements. Our remarks this morning and in our earnings release also contain non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Included in such 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.

Thank you and good morning. We are pleased with our performance during the second quarter, which showed year-over-year growth as expected. The increase in gross margin and our bottom line was meaningfully driven by a benefit recognized from IEPA tariff refunds. Topline growth was notable with net sales up 7.4% to $141.6 million, despite some timing delays on a few programs, which shifted revenues from these programs into the third and fourth quarter. The earnings growth we generated includes a benefit for the expected recovery of $40.1 million of tariffs we paid in 2025. Larry is going to walk through the numbers in detail, but I wanted to spend a few minutes up front on that refund, what it is, how it's accounted for, and what we're doing with it, and then get into how the underlying business performed. Some of you will remember that on our last call, we were asked about the potential IEPA tariff refund, and we said at the time that we weren't recognizing anything in our numbers or in our guidance that we had paid $41.7 million and believed we were legally entitled to a refund, but there was still a still a path to travel, including the possibility of an appeal. That path has now largely played out, We have recorded a benefit of $40.1 million of tariff refunds and to date have received approximately $36 million in cash. The accounting is straightforward. We paid the tariffs in 2025, and they ran through cost of goods sold. So accordingly, the refund runs through cost of goods sold as well. which is reflected in our results for the second quarter. That's why gross margin was 65.9% this quarter and why you're seeing such strong growth in operating income and EBITDA. I want to be straightforward about what we're doing with that money. First, we'll be paying taxes on it. Second, this income will be used to mitigate inflationary pressures that are being experienced in the economy and we are seeing flow through the lifetime. We are also using this cash inflow to restore reductions in the business that we pulled back in 2025 to protect our bottom line against the tariff impact. We've already begun restored spending levels for growth and product investment back since the beginning of 2000 of 26. And finally, we're using it to strengthen our balance sheet, particularly through deleveraging. The tariffs meant we were carrying meaningfully more inventory value. We paid duties before we ever sold the goods. And we had to shift production across our supply base to other geographies to manage the exposure. The tariff refund, combined with the cash flow the business is generating organically, lets us pay that borrowing back down. Since the end of the first quarter, we've repaid $40 million of term debt. $20 million in the second quarter, and another $20 million in early July. by a combination of operating cash flow and the tariff refund. Separately, we're in the process of refinancing our outstanding debt, which includes the company's existing line of credit and its term loan B facility. As part of that, we expect to improve the mix and tenor of our debt and expect a reduction in our ongoing annualized interest expense. On the underlying business, we beat last year's second quarter by nearly $10 million in net sales, so it was a relatively easy comparison. a year ago right after the initial tariff actions, including the 145% rate on China. and elevated rates across many other countries resulted in us largely stopping shipping during that quarter. Against that backdrop, the 2026 second quarter was in line with our expectations. End markets remain soft across the majority of consumer durable categories, and some shipments shifted out of the second quarter into the third and fourth. Driven both by market conditions and internal challenges related to our new Hagerstown, Maryland distribution center, which I will elaborate more shortly. Growth was led by our warehouse club programs and e-commerce. Setting the refund aside, gross margin in the underlying business also reflects mix. We added meaningful club channel volume this year that carries a lower margin than our average. And additionally, as we have previously discussed in the impact of tariffs and our pricing mitigation strategy, this has led to lower gross margin percentages as we focus on maintaining gross margin dollars. Today we are maintaining our full year net sales guidance as issued at $650 to $700 million. We're raising our earnings and adjusted EBITDA guidance to reflect the tariff refund offset by the cost of the additional investments I referenced above, which is also factored in inflationary and other impacts related to increased investment. That's not a change to our organic outlook for the underlying business. We continue to watch the ongoing impact of geopolitical conditions and inflation, including higher ocean freight costs on our end markets for the rest of the year, and we built a degree of caution into our guidance as a result. On new product, our newly redesigned Farbaware kitchen tool line relaunched in the second quarter and early sell-through has been very encouraging. We started this program about a year ago as a refresh to our very popular and successful product line with a redesigned look while holding competitive price points on shelf. We also extended our Dolly Parton license for another three years, reflection of how that partnership continues to perform for us. International continues to narrow its losses, sales were up, and year-to-date losses were meaningfully lower than the same period last year, with most of that improvement coming in the second quarter. Project Concord remains on plan. We're implementing the final cross-actions now. and we're actively evaluating options around the UK facility that could further improve this segment's performance. We remain on track for international to reach break-even on a pro forma basis in 2026. The Hagerstown DC is online. As we've discussed before, bringing up a facility of this scale comes with startup costs and operational disruption. That had a negative effect on the second quarter as efficiencies started out low and shipments were adversely impacted. We expect to continue the smaller impact in the third quarter as we finish the ramp, and we expect to be fully operational by the fourth quarter. At this point, we believe that our full-year guidance, as presented, captured these incremental one-time costs. If operational disruptions continue, one-time startup costs could exceed our previously disclosed estimates. As we have previously announced, we look forward to presenting our longer-term strategy at our Investor Day this December, which we will be providing more details on shortly. So, to sum up a good quarter for the underlying business against a still soft and market backdrop. And an exceptional 1 on a reported basis, given the 40.1Million dollar tariff refund. We're using that money to pay the associated taxes, restore reductions we pulled back in 2025, and strengthen our balance sheet, including $40 million of term debt paid down since the end of the first quarter. We're reaffirming our net sales guidance, raising our earnings guidance to reflect the refund and staying focused on the fundamentals, getting Hagerstown to full operation, of Concord and internationals past the break-even and continued momentum from our core lines, including Farberware, and from our licensed portfolio. With that, let me turn it over to Larry to go through the financials in more detail. Thanks.

As we reported this morning net income for the second quarter of 2026 was 19.6 million or 87 cents for the shares compared to an at loss of 39.7 million or $83 for diluted share in 25 just in that income was 26. 6.6 million for the second quarter of 26 or $1.18. Regulated shares compared to adjusted net loss of 2.6 million or 12 cents per share in 25. Income from operations with 31.6 in the second quarter 26 is compared to a loss from operations of 37.2 in the 25 period. Income from operations for the current period included a tariff refund of 40.1 million. Custom operations for the prior period included a non-cash goodwill impairment charge of $33.2 million related to the U.S. segment. Adjusted income from operations for the second quarter of 26 was 41.1M as compared to 900,000 in the 25 period. The 2026 period include adjustments for acquisition related intangible amortization expense of 4.3 million, acquisition related diligence expenses of 1 million, restructuring expenses of 2 million, and warehouse relocation and redesign expenses of 2.2 million. The 2025 period also included adjustments for acquisition related intangible amortization of 4.4 million, the goodwill impairment charge of 33.2 million, and certain other adjustments that were approximately 500,000 in the aggregate. Justice Adib adopted a trillion 12 month period and the June 30th, 26 was 92 million. The adjustment information noted are non-GAAP financial measures, which are reconciled to our GAAP financial measures in the Army's release. Following comments offered the second quarter of 26 and 25, unless stated otherwise. Solidated sales increased 7.4% to 141.6 million. In the US, segments increased by 7.5% to 128.2 million. Sales increased in all product categories driven by warehouse clubs, and to a lesser extent e-commerce. International segment sales increased 6.8% or 5.3% in local currency to 13.4 million. This increase was driven by higher sales in the Asia Pacific region and continental Europe, partially offset by lower sales in the UK. Consolidated gross margin increased to 65.9% from 38.6. The U.S. segment gross margin increased to 68.3 from 39.1%. The improvement in the gross margin percentage was attributable to a benefit from the tariff refunds 40.1 million in the current period, partially offset by unfavorable product mix. And international gross margins increased to 42.5% and 32.5 driven by favorable customer mix. US segment distribution expense as a percentage of goods shipped from its warehouses, excluding non-recurring expenses was 11.9% versus 11%. The increase was attributable to labor inefficiencies, primarily due to the move of our East Coast distribution operation from New Jersey. to Maryland. And now recurring expenses for the current period were $2.2 million, which related to one-time expenses to start up Maryland distribution facility, including relocation of inventory, recruiting and training expenses, set of costs and lease expenses for the non-operational portion of the New Jersey and Maryland distribution facility. facilities. International segment, the distribution expenses as a percentage of its goods shipped from its warehouses improved to 24.2% from 26.8%. Improvement was due to operational efficiencies in the export regions. Selling general and administrative expenses increased by 5.3% to $39.5 million. In the U.S., increased by $1.7 million to $31.2 million. This increase in expenses was employee related. As a percentage of net sales, expenses improved to $24.3 from The decrease as a percentage was attributable to the impact of fixed costs on highest sales International SG&A decreased to 3.3 million from 3.7. The decrease was due to lower employee and commission expenses. And as the percentage of net sales decreased to 24.6 and 29.4. This decreased percentage was due to the impact of fixed costs on higher sales volume. and unallocated corporate expenses were 5.1 million compared to 4.3 million. The increase was attributable to due diligence expenses. Restructuring expenses were 2 million in 2026, of which 1.2 million was for employee severance related to exiting the New Jersey distribution facility and 800,000 to close a manufacturing operation in Mexico. Interest expense, excluding mark-to-market adjustments for swaps, decreased by $900,000 due to lower average outstanding borrowings and lower interest rates on outstanding debt. The effective tax rate for 2026 and 2025 were 29.2% and 6.5% respectively. These rates differ from the federal statutory income tax rate of 21%, primarily due to the impact of non deductible expenses in 26 and a partial valuation allowance recorded on deferred taxes related to the goodwill impairment in 25. Turning to our balance sheet, it continues to strengthen. Our net debt declined by approximately $10 million for the current quarter and approximately $39 million since year end 25. At quarter end, our liquidity was approximately $151 million, which includes cash, plus availability under our credit facility and receivable purchase agreement. As discussed, the company recorded a benefit of $40.1 million for the IEFA tariff refunds, of which $36.4 million has been received to date. Our current net debt is approximately 121 million. We are now in the final stage of extending our revolving credit facility and refinancing our term loan, which if consummated, will extend all our debt maturities to 2031. As provided in the release this morning, we updated our financial guidance for the full year 26 as follows. Net sales of 650 to 700 million, adjusted income from operations from 81.5 to 84. adjusted net income of $46 million to $47.5 million, and adjusted EBITDA of $90.5 to $93 million. This concludes our prepared comments. Operator, please open the line for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using a speakerphone, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. And today's first question comes from Matt Coranda with Roth Capital. Please go ahead.

Hey guys, thanks. I guess you're raising the EBITDA guide by $37 million at the midpoint. I GUESS THE IEPA REFUND WAS ROUGHLY 40 MILLION. IS THE DELTA THERE, I GUESS THE REINVESTMENT THAT YOU WERE TALKING ABOUT IN THE PREPARED REMARKS OR MAYBE JUST UNPACK THAT FOR US IF YOU COULD. AND THEN IT SOUNDS LIKE MAYBE THERE'S A LITTLE BIT MORE LEFT TO RECEIVE FOR THE REST OF THE YEAR. I THINK THAT'S A GOOD THING. will that be recognized through the P&L or maybe just a little bit of help on sort of how it flows through? Sure.

Yes, so you got it exactly right. So as we discussed, You know, we've raised our earnings a lot, but we're also using that money to aid the lever, which flows through, and obviously pay taxes. And then restore investments. For instance, we cut a bunch of expenses because a lot of heads were not restoring that, but we also cut compensation levels and salary levels through most of the company. I restored those and we're making investment in new products that we had curtailed. So that is that Delta three main that you point out. And Larry, you wanna answer? Yes, so the 40 reflects an accrual for the.

what we received in July as well as what we expect to receive. However, we don't know I don't think anybody knows when that, if and when that will be received. But based on our analysis, we believe it was appropriate to accrue it. And as Larry pointed out, we received in cash $36 million as of this year. THAT'S HELPFUL. JUST A COUPLE MILLION LEFT TO.

received, but it's all been accrued for in the second quarter. Makes sense. I'm going to go to the Hagerstown ramp up, I guess. Is there any way to quantify the impact to the second quarter? that you saw, I guess, in terms of the drag on efficiencies and what's factored into the full year guide. It sounds like you haven't really, I mean, core guidance hasn't really changed for the full year, so I'm assuming you think you can offset whatever inefficiencies you saw in the second quarter, but just any quantification around the, the drag it created, and then any fixes that are in place, I guess, that you feel confident about that it'll be done by the third quarter.

Yes, so, so, um, we anticipated. You're going to have, it's a lot of new people, you know, like, actually a lot of the senior management is shifting, but there's a lot of new people. So there's, there's training. issues, you're building up staff, our availability of staff and their ability to get people in Hagerstown has been fine, no issues at all. But so we had anticipated we had included that in our guidance. So what we've experienced to date, that's why it had no impact in our guidance. And what we are currently anticipating to continue in the third quarter has also been factored in our guidance in our initial guidance. Right. So, so no impact there at all. The second quarter impact in terms of expense, So we had to run like a shift and a half. This is just more people to try to get things through the system. as it ramps up that that'll continue. Those are the end of the second quarter into the third quarter. We are potentially going to see some delay in shipments. We're monitoring that. The ramp up in efficiencies have to date mostly been solved. So at this point we're shipping at a very healthy rate. But we need to catch up in a couple of weeks. Once that's done over the next two to three weeks, providing there's nothing else that becomes an issue, we'll be at a good point. fully flow through. So not full capability, because we're still shifting some of the inventory out of Robbinsville, New Jersey into Hagerstown. And we'll have that mostly done by the beginning of the fourth quarter, when the Maryland facility will be fully fully operational and by the end of the year, the New Jersey facility will be not operating anymore. Okay. All right. Thank you. Yes, I think so.

Maybe just last one. It sounds like you're kind of circling in on the debt refi. given the mention, the prepared remarks. And I know you probably can't give a ton of detail, but just broad brushstrokes, curious how we should be thinking about... you know, what a new package might look like in terms of increasing capacity for acquisitions, in terms of... rates, just broad brushstrokes would be helpful to kind of get your thoughts on how to think about it.

Yes, we'll have more information very shortly and share that, but our concept is to more fully utilize our asset base capability, which is also much lower cost debt. Our total term loan will be much smaller because we don't need it. but we are looking to do it in the private market with someone that should we need availability for an external initiative, such as an acquisition, we can add that on, but it wouldn't be something we would add on and deal negative arb looking to use that money.

And we're actually past negotiation. We're in the final stage. We may file. consummate this as early possibly as tomorrow or next week. So, I mean, we know all the terms. We just don't want to cite them until they're.

It's not signed, but it could be signed imminently, and you'll see an 8K very shortly, and we're happy to discuss it once it is. And we'll have capacity to do what we call acquisitions. Again, right, we're sitting today at $150 million of liquidity, right?.

Yes. Okay. Got you. Clear. Thanks, guys. And the next question is from Anthony Libidzinski with Sidoti and Company. Please go ahead.

Thank you. Good morning, everyone. Thanks for taking the questions. Certainly a nice performance here in the quarter. Just wondering, as far as the sales increase, that 7%, the number came in better than what we had expected. And this is despite some timing shifts that you said. So is there Is there any way, Rob, that maybe you can quantify what you think those timing shifts were? And also, if you could speak to pricing versus unit volumes, just broadly speaking, as far as the impact on the revenue number.