Good morning, ladies and gentlemen, and welcome to the Lifetime Brands Second Quarter 2021 Earnings Conference Call and Webcast. I would now like to introduce your host for today's conference, Andrew Squire. Mr. Squire, you may begin.

Thank you. Good morning, and thank you for joining Lifetime Brands' Second Quarter 2021 Earnings Call. With us today from management are Rob Kay, Chief Executive Officer; and Larry Winoker, 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 performance of the company, and these statements are intended to qualify for the safe harbor protection from liabilities established by the Private Securities Litigation Reform Act. Any such statements are not guarantees of future performance and factors that could influence our results are highlighted in today's press release and others are contained in our filings with the Securities and Exchange Commission. Such statements are based upon information available to the company as of the date hereof and are subject to change for future development. If it is required by law, the company does not undertake any obligation to update such statements. Our remarks this morning and today's press 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 to 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. Good morning, everyone, and thank you for joining us today to discuss Lifetime Brands second quarter 2021 financial results. Before we begin, I want to thank the Lifetime team for their dedication and hard work that has once again delivered exceptional results. Driven by the Lifetime 2.0 strategic plan that we implemented beginning in 2019, Lifetime continues to achieve strong results. During the second quarter of 2021, we continued our excellent momentum from the start of the year as well as from 2020. Our results this quarter reflect the continued strong demand for our products, leading to solid sales growth across our business, which combined with a continued focus on cost control and operating efficiencies continues to produce double-digit bottom line growth. Of note, Lifetime continues to outperform in the majority of our categories and across channels as we focus on providing products wherever consumers are shopping. During the quarter, we delivered top line growth of approximately 24%, driving net income of $5.8 million compared to a net loss of $4.0 million in the second quarter of 2020. We also delivered a gross margin dollar increase of roughly $12 million or 22% during the quarter as we successfully manage cost pressures throughout our business. In addition to strong top and bottom line results, we have continued to generate significant free cash flow. This cash flow generation has fortified our balance sheet, enabling us to continue to deleverage while also maintaining our rapid pace of investment in the business and inventory as well as funding our strategic growth initiatives, giving us a distinct competitive advantage. With that, let's turn to a review of our core U.S. business. I'm pleased to report that we've delivered our eighth consecutive quarter of year-over-year growth. Similar to prior quarters, our strong results were a result of increased market share and elevated demand across many of our product categories. During the quarter, we have also begun to see revenues from some incremental growth initiatives, such as our Beautiful launch at Walmart, and the rollout of our KitchenAid cutlery. While we continue to benefit from our strategy to invest in increased inventory levels to ensure product availability for our customers and consumers, we also experienced some pressure on margins driven by macroeconomic factors, including inflation and increases in labor and shipping costs. The current global shipping crisis meant that we were unable to fulfill all of our open orders for the quarter. I'll touch on this in more detail shortly. But as you can see by our results, we were still able to achieve very strong revenue growth of 24% for the quarter and 29.5% year-to-date despite the supply chain headwinds affecting our industry. Moving to e-commerce. This channel continues to show strong growth. It is worthwhile to point out the pandemic and post-pandemic impacts on brick-and-mortar as well as e-commerce channels makes a year-over-year comparison difficult. In the second quarter of 2020, brick-and-mortar stores were substantially shuttered. With stores in most geographies opened in 2021, consumers rapidly returning to brick-and-mortar locations has resulted in a decline of pure-play e-commerce sales as a percentage of our overall sales. For the second quarter, e-commerce sales as a percentage of revenues was 16.1%. This results from a decline in dollar growth compared to the second quarter of 2020 of 25.9%. However, year-to-date, our e-commerce sales have grown 9.7% compared to the prior year. For perspective, our e-commerce revenues in total have grown more than 60% since the beginning of the pandemic and by more than 70% compared to second quarter 2019 level. The slower growth rate year-to-date is reflective of the impact of COVID-19 related closings of brick-and-mortar retail locations, which drove sales to the e-commerce channel during the second quarter 2020. When viewed in this context, our online business continues to grow meaningfully, particularly on a pure dollar sales comparison given the growth in the overall business. E-commerce remains an important growth driver for Lifetime. And in addition to our pure-play growth, we continue to see very strong shipments with our omnichannel retailers, which we do not track separately. Moving to our international business. Our turnaround plan that we fully implemented in 2020 continues to deliver improved performance in our international operations. We continue to be on plan from a profitability perspective, although we have seen some impact to revenues due to continued COVID and Brexit-related challenges in Europe. However, the strength of our Asia Pacific business, coupled with our improving performance in Europe, allowed us to deliver solid bottom line results, and we expect to continue this momentum moving forward. Specifically, revenues for the quarter grew $2.6 million or 14.9% and EBITDA contribution grew $1.4 million or 67% compared to the comparable period a year ago. Year-to-date, EBITDA contribution has improved $5 million compared to the comparable period a year ago. As I mentioned at the outset, we have continued to invest in our growth initiatives and have seen encouraging progress across the board. With Mikasa Hospitality, we are strongly encouraged by the tenor and results from sales conversations, and we see continued opportunities from the disruption to the hospitality industry that has resulted from the COVID-19 pandemic. As we begin to build our book of business, we expect to start seeing revenues increase through this year, and Mikasa Hospitality remains on track to be profitable by the second half of 2022. Long term, we continue to see this as a huge market opportunity for us and one where we have a right to win. Our development stage online tabletop platform, Year & Day, is on track to relaunch in the fourth quarter of this year. As we have discussed previously, we are excited about this strategic acquisition, which will enable us to reach Millennials and Gen Z consumers and enhance our dinnerware offering for this high-value age group. We continue to expect the transaction to be accretive by 2022. And longer term, we see this brand as a potential $10 million revenue business. In terms of our other brands and product growth initiatives. As I mentioned previously, our Beautiful by Drew Barrymore brand of kitchen tools, gadgets and cutlery has now launched at Walmart and is currently in market and gaining traction. We see opportunities to continue to expand this product line moving forward. Our KitchenAid expansion also continues to gain traction, both with the introduction of new product lines, such as cutlery, as well as international growth as we take advantage of the strong global brand equity and roll out this line across various international markets. Finally, we are ramping up our new offerings in the barbecue, pet and storage and organization categories. We are still in the early stages of establishing these categories but initial product launches have been successful, and we are positioned to see more meaningful revenue contributions starting in 2022. Let me take a few minutes to touch on the current operating environment. Following the reopening of global economies, we have seen post-pandemic demand increase across numerous industries, including ours. However, despite continued strong global demand for our products, we are also managing certain macroeconomic headwinds. The lingering effects of COVID and new variants have resulted in key port closings in Asia and impacted the broader supply chain. As a result of a combination of factors, including these impacts from demand surges for goods from Asia, COVID complications and global shipping imbalances, we have seen shipping costs significantly elevated and other costs have also increased as a result of the current inflationary environment. We are actively working to mitigate these headwinds through a number of initiatives to drive down our operating costs, increase our flexibility and invest in inventory levels to ensure availability of our products. And we have implemented price increases that should start to show up in our results in the third quarter with more impactful results coming online in the fourth quarter. The ongoing global shipping and inflationary challenges will impact our margin percentages until we can fully mitigate these impacts, as we prioritize meeting strong demand levels and producing margin dollars over maintaining margin percentages in the near term. Before we turn to our financial guidance, I wanted to expand on a recent disclosure we made regarding our decision to sell a portion of our stake in Grupo Vasconia. As a reminder, we have had a passive 30% equity investment in Grupo Vasconia, the largest housewares company in Mexico. This investment was made in 2007. We recently disclosed an agreement to sell approximately 8.5% of our stake for approximately $3 million in net cash proceeds. As Grupo Vasconia is not core to our business and does not contribute materially to our earnings, we will continue to seek opportunities to monetize this asset. Now turning to our financial guidance. Despite the industry and macroeconomic environment, I just described, we continue to produce strong results and remain confident in our ability to execute in the second half of the year, resulting in double-digit growth for the year. We have talked about 2021 as a year of growth investment, and we have made a conscious decision not to scale back our planned investments despite increases in operating costs. We continue to manage costs prudently and in addition through the mitigating actions we have taken to offset the macro headwinds, we identified other areas of the business where we have opportunities to take out costs. Thanks to our strong balance sheet and financial performance, we are confident we can continue to support our long-term growth plans in the current environment while delivering profitable growth. As a result, we have raised our full year 2021 revenue and EBITDA value. As detailed in the press release we issued this morning, we now expect full year 2021 revenue between $870 million and $890 million, and adjusted EBITDA of $84 million to $88 million. As we look ahead, we remain focused on executing against our strategic plan and delivering value for all Lifetime Brands stakeholders. In closing, our remarkable progress gives me confidence that Lifetime is past an inflection point where we achieved a new level of business performance in our core business, created meaningful value from our international operations and positioned the company to capitalize on continued profitable growth opportunities. We are seeing sustained momentum across the business and executing well against our strategic initiatives. With the addition of several growth initiatives beginning in 2022, we believe that Lifetime is well ahead of the long-term plan we set out for ourselves in 2019 and updated earlier this year. We expect the investments we've made in our business to continue to deliver tangible results as we navigate the macroeconomic environment and react to the challenges and opportunities in the marketplace.

Thanks, Rob. This morning, we reported that our net income for the second quarter of 2021 was $5.8 million, or $0.26 per diluted share, compared to a loss of $4 million, or $0.19 per diluted share, in the same quarter of 2020. Our adjusted net income for the second quarter of 2021 was $6.1 million, or $0.28 per diluted share, compared to an adjusted loss of $3.1 million, or $0.15 per diluted share, in 2020. We included a table that reconciles this non-GAAP measure with the reported results in this morning's release. Income from operations for the second quarter of 2021 was $11 million, compared to $4.3 million in the same period last year. Our adjusted EBITDA, which is a non-GAAP measure reconciled to our GAAP results in the release, was $96.7 million for the trailing 12-month period ending June 30, 2021, reflecting a $5.8 million increase over $90.9 million for the trailing 12 months ending March 2021. Net sales in the 2021 quarter reached $186.6 million, up from $150.1 million in 2020. U.S. segment sales rose by $34 million to $166.6 million, driven by category growth and increased market share in the Kitchenware product category, with almost all product lines showing increases. This category growth is due to high demand as consumers continue to prepare more meals at home, the reopening of brick-and-mortar stores, and the overall strength of our product lines. Our market share gains are a result of the increased share we obtained in 2020, along with further gains in 2021. In Tableware products, we saw increases across all lines, particularly in Flatware sales linked to a new warehouse club program and Dinnerware sales due to re-opening brick-and-mortar customers and e-commerce channels. In home solutions, growth in home decor and measurement products was offset by a decline in hydration products, which did not match the previous year's warehouse club program. International segment sales increased by $2.6 million to $20.1 million on a reported basis or $400,000 in constant U.S. dollars. However, sales of our European business declined slightly due to lower e-commerce sales, even as we noted higher sales to re-open brick-and-mortar stores. Growth in our global trading business in Asia contributed to the rise in sales within this segment. The gross margin for the 2021 quarter stood at 35.4%, compared to 36.1% for the 2020 quarter. Despite this decline, gross margin dollars rose by 22%. For the U.S. segment, the gross margin was 35.8% in 2021, down from 37.6% last year. The decrease in gross margin percentage is primarily due to higher inbound freight costs resulting from a worldwide shortage of shipping containers and other supply chain challenges. We expect these higher freight costs could continue, along with increases in product costs due to commodity inflation experienced by our suppliers. We plan to mitigate these elevated costs through selling price hikes and negotiation opportunities with our suppliers and ocean-freight carriers. The gross margin percentage was also influenced by product mix. For the international segment, the gross margin was 32.3% in 2021, compared to 24.8% in 2020, attributed to the previous year's higher reserves for slow-moving inventory and customer mix issues. Distribution expenses for 2021 accounted for 10.1% of net sales, the same percentage as in 2020. For the U.S. segment, distribution expenses as a percentage of sales shipped from warehouses were 9.4% and 9% for the 2021 and 2020 quarters, respectively. This increase resulted from higher hourly labor costs and warehouse supply expenses, partially offset by the benefits of fixed cost leverage and higher sales volumes. For the international segment, distribution expenses as a percentage of sales shipped from warehouses, excluding moving and relocation costs for U.K. operations in 2020 were 17.5% and 50% for 2021 and 2020 quarters, respectively. This rise was mainly due to increased shipping costs for products sent from our U.K. warehouses to Continental Europe. Selling, general, and administrative expenses totaled $36.2 million for the 2021 quarter, compared to $34.4 million in 2020. U.S. segment expenses were $26.4 million in 2021 versus $25 million last year. The increase in expenses stemmed from lower costs in the prior period due to the company's cost-saving initiatives during the COVID-19 pandemic, which was partially offset by reduced bad debt allowances. As a percentage of net sales, SG&A expenses improved to 15.8% in the 2021 quarter from 18.9% in 2020, attributed to the leveraging of fixed costs on higher sales volumes. SG&A expenses for the international segment were $4.2 million in the 2021 quarter, down from $4.4 million in 2020, reflecting the timing of expenses related to advertising and marketing. Unallocated corporate expenses were $5.7 million in the 2021 quarter, compared to $5 million last year, driven by higher incentive compensation and a reversal of temporary savings from the COVID-19 pandemic, partially offset by lower professional fees. Interest expense stood at $3.8 million in 2021, down from $4.2 million in 2020 due to lower outstanding debt. The income tax rate for the quarter in 2021 was 25.3%, differing from the federal statutory rate of 21% due to state and local income tax expenses as well as foreign loss allowances, net of adjustments related to share-based compensation. In 2020, the company recorded a $3 million income tax expense on a $100,000 loss due to the impact of permanent items, including a nondeductible goodwill impairment charge. Concerning our debt and liquidity, our balance sheet and liquidity continue to improve. As of June 30, net debt was $218.8 million, with a net debt-to-EBITDA ratio of 2.3x. Our liquidity, which includes $33.3 million in cash and the availability under our credit facility, was approximately $180 million. Lastly, as mentioned in the release and reiterated by Rob earlier, our financial guidance for the full year of 2021 is as follows: net sales between $870 million and $890 million, representing an increase of 13.1% to 15.7% from last year; adjusted income from operations between $55 million and $58.5 million, an increase of 14.8% to 22.1% over last year; adjusted net income between $28.1 million and $30.8 million, an increase of 39% to 52.5%; and adjusted EBITDA between $84 million and $88 million, an increase of 8.7% to 13.8% from last year. This concludes our prepared comments. Operator, please open the line for questions.

I'll take our first question from Linda Bolton-Weiser with D.A. Davidson.

So just a small clarification on the Vasconia stake. Are you selling your whole stake or only 8.5% of your stake?

Linda. So we have sold 8.5%?

Yes.

We have sold 8.5% of our total stake, which used to represent 30% of the company. We consider it a stranded asset and are looking to monetize it further. Currently, we still own 91.5% of that original stake.

Okay. Yes, I understand. And then can you just talk about on your gross margin impact in the quarter, I mean it was down year-over-year. But you said pricing would start to make a little bit of a positive difference in the third quarter. So do you kind of think the gross margin year-over-year decline, was that at the worst point in the second quarter? Or do you think the year-over-year decline might actually get a little bit bigger in the third quarter?

Excellent question. I think that anyone would honestly say there's a tremendous amount of unknown right now. But we continue to react to the situation. We have already mitigated the inflationary cost of goods pressures through price increases. And what will flow through is incremental price increases through dealing with increased shipping costs. So without further gyrations in the marketplace, your assessment would be correct.

You mean that maybe it might be a little bit bigger year-over-year in the third quarter?

We expect to start seeing price increases to counterbalance shipping costs. The key question is when will shipping costs stabilize? Although our demand remains exceptionally high, we are committed to increasing availability rather than just focusing on cost. Our shipping expenses are tied to long-term contracts, but currently, there isn't enough availability to cover all of our shipping through those contracts. Consequently, we are purchasing extra shipping capacity on what you might describe as the spot market, which has surged in cost. However, we prefer to improve availability and maintain our margins, as we believe this will ultimately enhance our competitive edge and allow us to capture more market share when the chance arises, even if it temporarily affects margins. In a stable environment, we anticipate that the second quarter will likely be the low point for margins, primarily due to significant shipments to clubs, which are lower-margin direct imports and influence quarterly margins.

Okay. One of my other companies today on a call said that they were actually sensing a slight easing in the tightness of container availability. Are you starting to see that at all? Or are you seeing it just being just as bad?

I don't think anyone in this world can answer that question accurately.

But I thought you said, Rob.

No, I don't think so. We're not planning on that. If it happens, we'll only benefit from it. How about that?

Okay. So I mean clearly, you had terrific sales growth in the quarter. Did you feel that you got any benefit from the stimulus in the quarter?

Yes. We believe that consumers will continue to use U.S. dollars and our products daily. As more money circulates, spending should increase, which will benefit us. We consistently monitor new stimulus rounds and will proactively stock certain channels to ensure sufficient inventory, avoiding shortages during spikes in demand that may subside later. The initial benefits will be noticeable, but not sustained over time.

Was there notable growth primarily driven by consumption at the retail level, or was there a significant amount of retail replenishment?

A significant portion of our growth has come from gaining considerable market share. In 2021, we noticed a slight recovery in food service, which had previously been absent. We also experienced increased activity in brick-and-mortar stores, particularly in the second quarter, as many locations had been closed the prior year. This growth in physical stores came at the expense of e-commerce. Overall, we have seen growth across various categories, which is supported by NPD data and continues to drive our success. In terms of stock levels, our retailers were not significantly affected by stock shortages that required major replanning or replenishment. However, in Europe, we faced challenges this quarter, particularly in e-commerce, as our largest customer lacked space in their distribution centers. This meant that while we were out of stock online, they couldn't replenish because their warehouses were full. Fortunately, this issue was resolved, and we benefitted from it, especially in July. Overall, looking at our total numbers, the focus has been on sell-through and ongoing sell-through. In fact, I noted that in the second quarter, we had a good number of orders that could not be shipped due to shipping issues, so we had demand and the capacity to fulfill more orders, but shipping constraints impacted us. Nevertheless, we achieved strong results.

Okay. Regarding the price increases you are implementing, are they applied widely across your portfolio, or are you specifically targeting certain categories where you believe you have more pricing power? How does your approach compare to what you did during the tariff period?

On the first question, the price increases are applied across all categories. We have identified two main areas for price increases, and we are also concentrating on managing costs more effectively. Initially, the increases were primarily due to inflationary pressures on the cost of goods sold. Each product category has different cost inputs, and we aim to avoid overshooting our price adjustments. We focus on transparent calculations for price increases. Since the onset of the price increases, our main focus has been on rising shipping costs, which affect all our operations. Regarding tariffs, our approach remains consistent. Tariffs have not impacted all product categories uniformly. In categories where they have an effect, we would discuss the rationale behind any necessary price increase. The challenge with tariffs came from their fluctuating levels, which made it difficult to implement price adjustments since there was uncertainty about their final impact. In brick-and-mortar retail, frequent resticker changes would be cumbersome. In contrast, the current environment has clearer timelines for implementing price increases.

Okay. That's helpful. And then, actually, just my last question is just a little detailed thing from Larry. I'm seeing on your schedule of adjustments reconciling net income to adjusted net income. There's these two items, foreign currency translation loss, reclassified from and then a gain on change in ownership in equity method investment, those two items. Where would those two adjustments occur in the income statement? Which line would those be in?

Yes, it's in the equity and earnings line. It happened early in the quarter when Grupo Vasconia executed a primary offering, selling around 10 million shares to raise funds. This caused some dilution, resulting in a gain. However, we had previously recognized a loss on translation included in other comprehensive income. Now, we need to reclassify that translation into what we refer to as regular P&L. It's a bit complex, but essentially we had a gain, and the translation is being moved from one section of the income statement to another. This is separate from what Rob mentioned regarding the sale of shares in early July.

Well, we sold shares using this Grupo Vasconia need to raise money and they went to the public market. So we piggyback on that, and that's how we got liquidity partially in our Vasconia acquisition.

And we'll take our next question from Anthony Lebiedzinski with Sidoti & Company.

I was wondering if, with the recent news about the variants, particularly the Delta variant causing a spike in cases, you have noticed any significant changes in buying patterns lately.

Not really, Anthony. Our demand remains strong. We haven't seen any impact at any point in 2021. The challenges we've encountered are related to shipping issues that lesser-capitalized companies or those who haven't invested in inventory are facing, which has created opportunities for us. Looking ahead, the major impact from the variant for us has been related to travel, which was returning but then stalled. We recently canceled a significant food service show in August called NAFEM. While you'll notice immediate cost savings from that cancellation, it's not ideal since events like that are important for long-term growth. Ultimately, the only impact we've noticed is on travel.

Got it. Okay. And then so is it possible for you guys to quantify the level of price increases that you're doing in third and fourth quarters? Just wondered if there's any way you can quantify that.

We haven't really, and we're not at liberty to do that. We can say that the impact to us are double digits and the cost price increases, I should say, are double digit.

Got it. Okay. Regarding the well-publicized pressures related to shipping costs and labor, as you look at the second half of your fiscal year, do you anticipate more impact on gross margin or distribution expenses, or both? How should we adjust our models for the latter part of the year?

Anthony, in our guidance, we really haven't broken out gross margin. We've really focused on operating income.

Yes. But I mean the biggest impact is shipping expense. And there's a lot of mitigating line items, including on the cost of goods sold line, but the big impact of pricing, obviously, shows up in the gross margin.

Got it. Okay. That's helpful. Lastly, I want to shift the focus a bit. Rob, you mentioned that e-commerce has decreased as a percentage of overall sales. I understand there are many factors when comparing to last year. After we hopefully move past this pandemic, where do you think this will stabilize? Overall, how do you view this situation? What are your thoughts?

Yes. The second quarter was challenging due to significant brick-and-mortar closures last year, which drove more sales online. This created a difficult comparison for us. While our absolute dollar sales were down in the second quarter, we've seen about a 10% increase year-to-date over the last six months due to the ongoing growth of e-commerce. Additionally, our omnichannel shipments, which we don't report separately, grew over 160% in 2020 and remain strong. As a retailer, we aim to be available wherever consumers choose to shop, whether online or in-store, ensuring we have a solid presence across all channels. While we expect e-commerce to continue to grow beyond 16%, probably around 20% or more, the exact outcome is uncertain. This year, brick-and-mortar has rebounded strongly, especially in Europe where our business is heavily tied to independent retailers. However, any ongoing variants might dampen sales and push more shoppers online, leading to some fluctuations. Ultimately, it's hard to predict where we will end up.

There are no further questions at this time. I'll turn the call back over to you, Rob, for any additional remarks.

Thanks, Ashley. Thank you. Thank you, everyone, for joining us on this call. We will be continuing, Larry and I, to speak at conferences, and we'll either meet people there or we will look forward to everyone in our next call at the end of next quarter. Thank you.

Thank you. And this concludes today's program. Thank you for your participation. You may disconnect at any time.