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Lifetime Brands, Inc. Reports Fourth Quarter 2017 Financial Results

GARDEN CITY, N.Y., March 15, 2018 (GLOBE NEWSWIRE) -- Lifetime Brands, Inc. (Nasdaq:LCUT), a leading global provider of branded kitchenware, tableware and other products used in the home, today reported its financial results for the fourth quarter and year ended December 31, 2017.

Fourth Quarter Financial Highlights:

Consolidated net sales were $182.8 million in the quarter ended December 31, 2017; a decrease of $10.7 million, or 5.6%, as compared to consolidated net sales of $193.5 million for the corresponding period in 2016. In constant currency, which excludes the impact of foreign exchange fluctuations, consolidated net sales decreased $12.7 million, or 6.5%, as compared to consolidated net sales in the corresponding period in 2016.

Gross margin was $71.2 million, or 39.0%, as compared to $75.0 million, or 38.8%, for the corresponding period in 2016.

Income from operations was $10.9 million, as compared to $21.8 million in the prior year’s quarter.

The income tax provision for the quarter ended December 31, 2017 was $8.2 million, as compared to $6.8 million in the corresponding period in 2016. The 2017 income tax provision includes provisional adjustments for U.S. tax reform of approximately $3.3 million.

Net income was $1.3 million, or $0.08 per diluted share, in the quarter ended December 31, 2017, as compared to net income of $14.7 million, or $1.00 per diluted share, in the corresponding period in 2016.

Adjusted net income was $7.1 million, or $0.47 per diluted share, in the quarter ended December 31, 2017, as compared to adjusted net income of $14.9 million, or $1.01 per diluted share, in the corresponding period in 2016. 

Consolidated adjusted EBITDA was $19.2 million, equal to 10.5% of consolidated net sales, in the quarter ended December 31, 2017, as compared to $24.7 million, or 12.8% of consolidated net sales, for the corresponding 2016 period.

Equity in losses, net of taxes, was $0.3 million for the three months ended December 31, 2017, as compared to equity in earnings, net of tax, of $1.0 million for the three months ended December 31, 2016. 

Full Year Financial Highlights:

Consolidated net sales were $579.5 million in the year ended December 31, 2017; a decrease of $13.1 million, or 2.2%, as compared to consolidated net sales of $592.6 million for the corresponding period in 2016. In constant currency, consolidated net sales decreased $9.7 million, or 1.6%.

Gross margin was $215.2 million, or 37.1%, in the year ended December 31, 2017 as compared to $216.9 million, or 36.6%, for the corresponding period in 2016.

Income from operations was $15.2 million, as compared to $27.1 million in the prior year.

The income tax provision for the year ended December 31, 2017 was $9.0 million, as compared to $7.0 million in the corresponding period in 2016. The 2017 income tax provision includes provisional adjustments for U.S. tax reform of approximately $3.3 million.

Net income was $2.2 million, or $0.14 per diluted share, in the year ended December 31, 2017, as compared to net income of $15.7 million, or $1.08 per diluted share, in the corresponding period in 2016.

Adjusted net income was $10.6 million, or $0.71 per diluted share, in the year ended December 31, 2017, as compared to adjusted net income of $18.6 million, or $1.28 per diluted share, in the corresponding period in 2016. 

Consolidated adjusted EBITDA was $40.2 million in the year ended December 31, 2017, as compared to $46.5 million for the corresponding 2016 period.

Equity in earnings, net of taxes, was $407 thousand for the year ended December 31, 2017, as compared to equity in earnings, net of taxes, of $748 thousand for the corresponding 2016 period.

Jeffrey Siegel, Lifetime's Executive Chairman, commented,

“While generally consistent with prior disclosure, our fourth quarter operating results were disappointing, resulting in full year 2017 performance that was below our expectations. The fourth quarter shortfall was directly attributable to sales declines at two key retailers; one reflecting a storewide reduction of inventory weeks on hand and the other due to two 2016 promotions that were not repeated in 2017. In addition, we decided not to fulfill orders due to credit concerns at two other retailers.

“We believe the changes we have made in our U.K. operations, including combining Kitchen Craft and Creative Tops and closing our Netherlands operations, will create operating efficiencies and enable each business effectively to leverage the other’s traditional customer base, thereby resulting in significantly improved results for 2018.

“Our recent acquisition of Fitz and Floyd, with its popular assortment of tabletop products and decorative ceramic collections, added to fourth-quarter sales in our Tableware division. As we expected, Fitz and Floyd was accretive to our 2017 results.

“Inventory levels at December 31, 2017 declined, reflecting a company-wide effort eliminate less productive SKU’s as part of an ongoing effort to improve our inventory turns.

“As noted above, the U.S. Tax Reform Act that was signed into law in December had a significant effect on reported tax expense. The impact of the change in the law increased our tax expense for the quarter by $3.3 million. Of this amount $3.0 million was a non-cash charge to adjust deferred taxes. The balance of $300 thousand is our current estimate of the U.S. tax owed on previously unremitted foreign earnings and will be paid over eight years. The overall impact of the Tax Reform Act is quite favorable to us, and excluding further one-time charges related to the Tax Act, will reduce our effective tax rate beginning in 2018.”

Robert Kay, Lifetime's Chief Executive Officer, added,

“As Lifetime’s new CEO, I am excited to be working with Jeff and the combined Lifetime and Filament team to drive value creation through growth and increased efficiencies.  We have just brought together two industry leaders that represent innovation, execution and best in class capabilities in sales, marketing, design, creative, finance and operations.  During our first quarter earnings report, we will provide a roadmap laying out our strategy and guidance for the full year 2018.  This will include a discussion of ongoing initiatives such as Lifetime Next as well as the implementation of over $8 million of cost savings resulting from the Filament merger, which closed on March 2nd.”

Dividend        

On Thursday, March 8, 2018, the Board of Directors declared a quarterly dividend of $0.0425 per share payable on May 15, 2018 to shareholders of record on May 1, 2018.

Conference Call

The Company has scheduled a conference call for Thursday, March 15, 2018 at 11:00 a.m. The dial-in number for the conference call is (844) 787-0801 or (661) 378-9632, passcode #4479898. A live webcast of the conference call will be accessible through https://edge.media-server.com/m6/p/2rdt77c9.  For those who cannot listen to the live broadcast, an audio replay of the webcast will be available.

Non-GAAP Financial Measures

This earnings release contains non-GAAP financial measures, including consolidated net sales in constant currency, adjusted net income, adjusted diluted income per common share, and consolidated adjusted EBITDA. 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 U.S. or foreign tax law and policy; 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; expenses and other challenges relating to the integration of the Filament Brands business and future acquisitions; changes in demand for the Company’s products; changes in the Company’s management team; the significant influence and consent rights of the Company’s largest stockholder; fluctuations in foreign exchange rates; 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 well-known kitchenware brands, including Farberware®, KitchenAid®, Sabatier®, Amco Houseworks®, Chef'n® Chicago™ Metallic, Copco®, Fred® & Friends, Houdini™, KitchenCraft®, Kamenstein®, Kizmos™, La Cafetière®, MasterClass®, Misto®, Mossy Oak®, Swing-A-Way® Taylor® Kitchen and Vasconia®; respected tableware and giftware brands, including Mikasa®, Pfaltzgraff®, Fitz and Floyd®, Creative Tops®, Empire Silver™, Gorham®, International® Silver, Kirk Stieff®, Rabbit® Towle® Silversmiths, Tuttle®, Wallace®, Wilton Armetale®, V&A® and Royal Botanic Gardens Kew®; and valued home solutions brands, including Bombay®, BUILT NY®, Taylor® Bath and Taylor® Weather. The Company also provides exclusive private label products to leading retailers worldwide.

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

Contacts:

Lifetime Brands, Inc.                                                             LHA
Laurence Winoker, Chief Financial Officer                              Harriet Fried, SVP
516-203-3590                                                                          212-838-3777
investor.relations@lifetimebrands.com                                   hfried@lhai.com


LIFETIME BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands - except per share data)

 
    Three Months Ended
December 31,
  Year Ended
December 31,
 
    2017   2016   2017   2016  
                   
Net sales $   182,770     $   193,520     $   579,476     $   592,619    
                   
Cost of sales     111,539         118,487         364,319         375,719    
                   
Gross margin     71,231         75,033         215,157         216,900    
                   
Distribution expenses     18,540         16,781         58,050         57,006    
Selling, general and administrative expenses     41,331         35,735         140,903         130,397    
Restructuring expenses     498         719         1,024         2,420    
                   
Income from operations     10,862         21,798         15,180         27,077    
                   
Interest expense     (1,177 )       (1,257 )       (4,291 )       (4,803 )  
Loss on early retirement of debt     -         -         (110 )       (272 )  
                   
Income before income taxes and equity in earnings     9,685         20,541         10,779         22,002    
                   
Income tax provision     (8,169 )       (6,812 )       (9,032 )       (7,030 )  
Equity in earnings (losses), net of taxes     (265 )       1,018         407         748    
                   
                   
NET INCOME $   1,251     $   14,747     $   2,154     $   15,720    
                   
Weighted-average shares outstanding- basic     14,592         14,310         14,505         14,174    
BASIC INCOME PER COMMON SHARE $   0.09     $   1.03     $   0.15     $   1.11    
                 
Weighted-average shares outstanding- diluted     14,960         14,712         14,955         14,549    
DILUTED INCOME PER COMMON SHARE $   0.08     $   1.00     $   0.14     $   1.08    
                   
Cash dividends declared per common share $   0.0425     $   0.0425     $   0.17     $   0.17    
                   


LIFETIME BRANDS, INC.

CONSOLIDATED BALANCE SHEETS
 (In thousands - except share data) 

       
        December 31,  
        2017   2016  
               
ASSETS        
CURRENT ASSETS        
  Cash and cash equivalents $   7,600     $   7,883    
  Accounts receivable, less allowances of $6,190 at December 31, 2017 and $5,725 at
  December 31, 2016
    108,033         104,556    
  Inventory     132,436         135,212    
  Prepaid expenses and other current assets     10,354         8,796    
    TOTAL CURRENT ASSETS     258,423         256,447    
               
PROPERTY AND EQUIPMENT, net     23,065         21,131    
INVESTMENTS      23,978         22,712    
INTANGIBLE ASSETS, net      88,479         89,219    
DEFERRED INCOME TAXES     5,826         8,459    
OTHER ASSETS     1,750         1,886    
      TOTAL ASSETS $   401,521     $   399,854    
               
LIABILITIES AND STOCKHOLDERS’ EQUITY  
CURRENT LIABILITIES  
  Current maturity of Credit Agreement Term Loan $   -      $   9,343    
  Short term loan     69         113    
  Accounts payable      25,461         29,698    
  Accrued expenses      44,121         45,212    
  Income taxes payable      1,864         6,920    
    TOTAL CURRENT LIABILITIES     71,515         91,286    
               
DEFERRED RENT & OTHER LONG-TERM LIABILITIES      20,249         18,973    
DEFERRED INCOME TAXES     4,423         5,666    
INCOME TAXES PAYABLE, LONG-TERM     311         -    
REVOLVING CREDIT FACILITY     94,744         86,201    
               
STOCKHOLDERS’ EQUITY        
  Preferred stock, $1.00 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: 50,000,000 at December 31, 2017 
  and 2016; shares issued and outstanding: 14,902,527 at December 31, 2017 and
 14,555,936 at December 31, 2016
    149         146    
  Paid-in capital     178,909         173,600    
  Retained earnings      60,546         60,981    
  Accumulated other comprehensive loss      (29,325 )       (36,999 )  
    TOTAL STOCKHOLDERS’ EQUITY     210,279         197,728    
      TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $   401,521     $   399,854    
               


LIFETIME BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

       
        Year ended
December 31,
 
        2017   2016  
OPERATING ACTIVITIES        
  Net income  $   2,154     $   15,720    
  Adjustments to reconcile net income to net cash provided by operating activities:        
    Depreciation and amortization     14,189         14,148    
    Amortization of financing costs     519         650    
    Deferred rent     (642 )       (243 )  
    Deferred income taxes     1,030         (1,951 )  
    Net loss on disposal of fixed assets     -          84    
    Stock compensation expense     3,390         2,942    
    Undistributed equity earnings     (379 )       (544 )  
    Loss on early retirement of debt      110         272    
  Changes in operating assets and liabilities (excluding the effects of business acquisitions)        
    Accounts receivable     1,481         (17,977 )  
    Inventory     10,818         4,491    
    Prepaid expenses, other current assets and other assets     (951 )       (1,199 )  
    Accounts payable, accrued expenses and other liabilities     (9,778 )       12,255    
    Income taxes receivable     -          132    
    Income taxes payable     (4,935 )       969    
      NET CASH PROVIDED BY OPERATING ACTIVITIES      17,006         29,749    
               
INVESTING ACTIVITIES        
  Purchases of property and equipment     (6,311 )       (3,380 )  
  Equity investments     -          567    
  Acquisitions, net of cash acquired     (9,072 )       (21,699 )  
  Net proceeds from sale of property     15         64    
      NET CASH USED IN INVESTING ACTIVITIES     (15,368 )       (24,448 )  
               
FINANCING ACTIVITIES        
  Proceeds from Revolving Credit Facility     237,658         268,242    
  Repayments of Revolving Credit Facility     (229,696 )       (246,756 )  
  Repayments of Credit Agreement Term Loan     (9,500 )       (25,500 )  
  Proceeds from Short Term Loan     187         118    
  Repayments of Short Term Loan     (239 )       (248 )  
  Payments for stock repurchase     (644 )       (86 )  
  Payment of financing costs     (31 )       (30 )  
  Cash dividends paid     (2,475 )       (2,413 )  
  Payment of capital lease obligations     (94 )       (68 )  
  Proceeds from the exercise of stock options     2,537         2,353    
  Excess tax benefits from stock options, net     -          223    
      NET CASH USED IN FINANCING ACTIVITIES      (2,297 )       (4,165 )  
               
Effect of foreign exchange on cash     376         (384 )  
               
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS     (283 )       752    
               
Cash and cash equivalents at beginning of year     7,883         7,131    
               
CASH AND CASH EQUIVALENTS AT END OF YEAR $   7,600     $   7,883    
               


LIFETIME BRANDS, INC.

Supplemental Information
(In thousands)

Reconciliation of GAAP to Non-GAAP Operating Results

Consolidated adjusted EBITDA:

 
        Three Months Ended
December 31,
  Year Ended
December 31,
        2017   2016   2017   2016
        (in thousands)
Net income as reported   $   1,251   $   14,747     $   2,154     $   15,720  
  Subtract out:                
    Undistributed equity losses (earnings), net     265       (814 )       (379 )       (544 )
  Add back:                
    Income tax provision       8,169       6,812         9,032         7,030  
    Interest expense        1,177       1,257         4,291         4,803  
    Depreciation and amortization, net       3,468       2,404         14,165         14,148  
    Stock compensation expense       908       827         3,390         2,942  
    Loss on early retirement of debt       -        -          110         272  
    Restructuring expenses       498       719         1,024         2,420  
    Severance expense       166       -          321         -   
    Warehouse relocation       667       -          667         -   
    Unrealized loss (gain) on foreign 
  currency contracts
      169       (359 )       2,817         (745 )
    Permitted acquisition related expenses,
  net of acquisition not completed
      2,424       (852 )       2,616         435  
Consolidated adjusted EBITDA    $   19,162   $   24,741     $   40,208     $   46,481  
                     

Consolidated EBITDA is a non-GAAP measure that the Company defines as net income, adjusted to exclude undistributed equity in (losses) earnings, income taxes, interest, losses on early retirement of debt, depreciation and amortization, stock compensation expense, certain acquisition related expenses, non-cash gains or losses associated with the Company’s foreign currency contracts and certain one-time cash charges such as restructuring expenses, non-restructuring severance expense and warehouse relocation expenses, as shown in the tables above.

Consolidated adjusted EBITDA for the three months and year ended December 31, 2016 presented above have been re-cast to exclude the non-cash gains and losses related to the Company’s derivative financial instruments not designated as hedging instruments, recognized in earnings. These non-cash gains or losses are permitted to be excluded from the EBITDA covenant in the Company’s Credit Agreement.


LIFETIME BRANDS, INC.
Supplemental Information
(In thousands- except per share data)

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

Adjusted net income and adjusted diluted income per common share:

                       
        Three Months Ended
December 31,
  Year Ended
December 31,
 
        2017   2016   2017   2016  
        (in thousands)  
Net income as reported   $   1,251     $   14,747     $   2,154     $   15,720    
  Adjustments:                  
    Restructuring expenses       498         719         1,024         2,420    
    Acquisition related expenses       2,424         65         2,616         1,352    
    Loss on early retirement of debt       -         -         110         272    
    Severance expenses       166         -         321         -    
    Unrealized loss (gain) on foreign currency contracts       169         (359 )       2,817         (745 )  
    Warehouse relocation       667         -         667         -    
    Depreciation expense adjustment       -         (86 )       -          1,241    
    Gain on sale of GS International, net of tax       -         -         -          (189 )  
    Deferred tax for foreign currency translation for Grupo
Vasconia
      (1 )       -         (239 )       517    
    Transition tax on non-U.S. subsidiaries' earnings       338         -         338         -    
    Re-measurement of U.S. deferred tax assets and liabilities        2,981         -         2,981         -    
    Income tax effect on adjustments       (1,432 )       (208 )       (2,224 )       (1,965 )  
Adjusted net income   $   7,061     $   14,878     $   10,565     $   18,623    
Adjusted diluted income per common share   $   0.47     $   1.01     $   0.71     $   1.28    
                       

Adjusted net income and adjusted diluted income per common share in the three months and year ended December 31, 2017 excludes restructuring expenses, acquisition related expenses, loss on early retirement of debt, non-restructuring severance expense, the unrealized loss on foreign currency contracts and deferred tax (benefit) expense related to our equity earnings of Vasconia due to recording the tax benefit of cumulative translation gains through other comprehensive income (loss). Adjusted net income and adjusted diluted income per common share in the three months and year ended December 31, 2017 also excludes the impact of the transition tax and re-measurement of U.S. deferred tax assets and liabilities included in the income tax provision as a result of the U.S. tax reform. The income tax effect on adjustments reflects the statutory tax rates applied on the adjustments.

Adjusted net income and adjusted diluted income per common share in the three months and year ended December 31, 2016 excludes acquisition related expenses, a charge to correct accumulated depreciation balance relating to certain leasehold improvements at one of the Company’s U.S. warehouses, loss on early retirement of debt, restructuring expenses, the unrealized (gain) loss on foreign currency contracts, deferred tax expense related to our equity earnings of Vasconia due to recording the tax benefit of cumulative translation losses through other comprehensive income and the related income tax effect on adjustments.

LIFETIME BRANDS, INC.
Supplemental Information
(In thousands- except per share data)

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

Constant Currency:

                                               
     As Reported   Constant Currency (1)                      
    Three Months Ended   Three Months Ended       Year-Over-Year
    December 31,   December 31,       Increase (Decrease)
  Net sales 2017    2016   Increase
(Decrease)
   2017    2016   Increase
(Decrease)
  Currency
Impact
  Excluding
Currency
    Including
Currency
    Currency
Impact
 
  U.S. Wholesale $   143,330   $   156,368   $   (13,038 )   $   143,330   $   156,390   $   (13,060 )   $   22       (8.4 )  %      (8.3 )  %      0.0    % 
  International     31,834       29,101       2,733         31,834       31,073       761         1,972       2.4    %      9.4    %      6.9    % 
  Retail Direct     7,606       8,051       (445 )       7,606       8,051       (445 )       -        (5.5 )  %      (5.5 )  %      -     % 
  Total net sales $   182,770   $   193,520   $   (10,750 )   $   182,770   $   195,514   $   (12,744 )   $   1,994       (6.5 )  %      (5.6 )  %      1.0    % 
                                               
                                               
                                               
     As Reported   Constant Currency (1)                      
    Year Ended   Year Ended       Year-Over-Year
    December 31,   December 31,       Increase (Decrease)
  Net sales  2017    2016   Increase
(Decrease)
   2017    2016   Increase
(Decrease)
  Currency
Impact
  Excluding
Currency
    Including
Currency
    Currency
Impact
 
  U.S. Wholesale $   462,588   $   470,981   $   (8,393 )   $   462,588   $   471,032   $   (8,444 )   $   51       (1.8 )  %      (1.8 )  %      0.0    % 
  International     97,757       101,070       (3,313 )       97,757       97,552       205         (3,518 )     0.2    %      (3.3 )  %      (3.5 )  % 
  Retail Direct     19,131       20,568       (1,437 )       19,131       20,568       (1,437 )       -        (7.0 )  %      (7.0 )  %      -     % 
  Total net sales $   579,476   $   592,619   $   (13,143 )   $   579,476   $   589,152   $   (9,676 )   $   (3,467 )     (1.6 )  %      (2.2 )  %      (0.6 )  % 
                                               

(1)  Constant Currency" is determined by applying the 2017 average exchange rates to the prior year local currency sales amounts, with the difference between the change in "As Reported" net sales and "Constant Currency" net sales,  reported in the table as "Currency Impact". Constant currency sales growth is intended to exclude the impact of currency.

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Source: Lifetime Brands, Inc.