Good morning, everyone, and welcome to Lifetime Brands Second Quarter 2024 Earnings Conference Call. I want to let all participants know that their lines will be muted for listening only. Following the speaker's comments, we will have a question-and-answer session. I would now like to introduce your host for today, Carly King. Ms. King, please go ahead.

Thank you. Good morning, and thank you for joining Lifetime Brands' Second Quarter 2024 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 liability 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 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 the date hereof 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 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 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. Good morning, everyone, and thank you for joining us today. Our second quarter results were in line with our expectations, even though macroeconomic pressures led to weakened demand across end markets. Despite these headwinds, we are pleased to report that we continue to execute on our plan for the full year and are making progress towards completing several strategic initiatives which will bolster our full year performance. This includes increasing market share in the majority of our categories, delivering year-over-year e-commerce growth in our core US market, and expanding gross margins. Our ability to deliver solid performance despite challenges in our operating environment is a testament to the work we have done to strengthen our business model, and we are pleased to have delivered another quarter of outperformance in comparison to the market and our peers. In the second quarter, we delivered $141.7 million in net sales, compared to $146.4 million in the same period last year. Over the last 12 months, we have generated adjusted EBITDA of $56.6 million. The drag on net sales reflected a sluggish market in combination with overall seasonal timing impacts in the second quarter for our core US business. Despite weakened demand, we grew market share across the majority of our categories on a year-over-year basis, a testament to the fact that our leading portfolio of brands continues to resonate with customers. The level of decline observed this quarter was in line with our expectations, and the macroeconomic headwinds were largely baked into the guidance we provided last year for the full year. We believe that Lifetime's results will improve through the back half of the year as we execute our operational plan, and we continue to expect to deliver in line with our expectations for 2024. Turning to our international segment. In Europe, the impact of the UK's economic recession has persisted, which has prevented any meaningful recovery in demand. We continue to take action to offset the recessionary impacts, including implementing changes to our UK sales strategy to shift our legacy focus away from independent retailers and specialty cook shops and prioritizing larger national accounts. This pivot is already paying dividends as we were able to maintain relatively flat sales for the segment despite turbulent market conditions. We are also seeing the impact of the ongoing conflict in the Red Sea, as rerouted shipments are taking longer to reach Europe. This has resulted in a need to increase safety stock and therefore, an increased investment in additional inventory, which will help mitigate these impacts. In Asia Pacific, we continue to gain traction in terms of both listings and brands in Australia and New Zealand, as a result of our change in go-to-market strategy. We are now in the second phase of this two-step process where we would discontinue our partnership with our distributor in the region and move to building out our own infrastructure. Once complete, this will allow us to implement a fully direct APAC sales strategy. Turning now to some of our growth initiatives. We are pleased with the incredible success of our Dolly Parton line of products, which was successfully launched in this second quarter and has performed above our and our customers' expectations. While last quarter we signaled that we did not expect to be able to begin shipping until the third quarter, we were able to begin shipments in the second quarter. While the majority of the shipments have not yet completed, initial sell-through numbers have greatly exceeded expectations. We expect that this outperformance will continue through the rest of the year and translate to revenue impact in the third and fourth quarters. We now believe shipments of Dolly to the dollar channel will exceed $10 million in 2024. Building on this strong initial momentum, we are already in discussions with additional customers for 2025 shipments. In our food service business, though we experienced a slight slowdown in these end markets this quarter, we continue to gain market share and remain optimistic based on the continued new listings that we have won that we'll see meaningful growth this year and in 2025. Our e-commerce business continues to be a major growth driver. This quarter, e-commerce sales represented 18.9% of revenues compared to 18.1% in the same period last year. We once again had a very successful Amazon Prime Day with total company sales up 23% over the prior year. This compares favorably with the overall Amazon Prime Day sales growth of 11%. Turning now to our supply chain. While ocean freight costs have been increasing as a result of geopolitical conditions and due to vessel and container availability levels, we believe these levels have now stabilized and will remain fixed at the higher base for the foreseeable future. We are managing all input costs across the business and have been successful in decreasing product COGS in many areas. This has translated to margin expansion this quarter despite these ocean freight increases. In Mexico, our plastics manufacturing facility remains on schedule to reach full production capacity this year. We have taken a measured approach to ramping up this facility to ensure we achieve high-quality output and build the appropriate product mix being produced in this facility. Additionally, we continue to drive forward on our efforts to have approximately 25% of our spend on goods being sourced outside of China and remain on track to meeting this target. We are focused on expanding our sourcing capability in additional geographies with a primary focus on Southeast Asia and expect to begin shipping out of new locations in the near term. Our manufacturing partners in the region are working with us to set up new factories outside of China in order to accommodate this expansion, and we are already in the process of transferring production of one of our largest SKUs, which represents nearly 10 million-unit sales a year, to one such facility. I'd now like to provide some high-level color around our balance sheet which Larry will discuss in greater detail shortly. Typically, liquidity is most strained during the second quarter as a result of seasonal business trends. However, our continued focus on operating the business efficiently and using disciplined cash management has allowed us to maintain strong levels of liquidity. For example, we are paying close attention to challenges facing retailers in this environment and have placed certain customers on credit hold to limit our exposure. While a credit hold has a negative impact on near-term sales, we believe this is operationally prudent. We are comfortable with our leverage ratio and pleased with our cash generation levels, despite headwinds in the environment. We continue to view the market as favorable for acquisitions and have an active slate of M&A opportunities in our pipeline. We expect to continue to progress discussions regarding these potential opportunities in the coming months and we'll keep the market updated on all strategic initiatives. I'd like to briefly touch on the non-cash loss we recorded in the second quarter related to our equity investment in Grupo Vasconia, a housewares company in Mexico. In the second quarter, the company discontinued the equity method of accounting for this investment, which resulted in a non-cash loss of $14.2 million to record the investment at its fair value. It is important to note that this does not negatively impact our cash flow and is consistent with our view that this stranded asset from an investment made in 2007 is not strategic to our company. Let me expand further on our financial guidance for the full year of 2024. In our press release this morning, we revised our guidance for net loss as a result of the non-cash loss related to the non-cash write-down of $14.2 million on our Grupo Vasconia investment. Apart from this adjustment, we continue to expect results for the full year in line with our previously shared expectations for all other metrics. We are carefully monitoring the headwinds we saw over the last few months, and as we head into the next quarter, however, our reiterated outlook reflects our confidence in our ability to continue executing and delivering results, driven by the strategic initiatives we have in place. As we look ahead to the remainder of the year, we believe we are well positioned to continue to grow market share and create value as demand rebounds. We have a strong foundation in place thanks to the significant work completed over the last several years to increase the resiliency of our business model. We look forward to keeping you updated on our progress, as we continue expanding our leading portfolio of brands, driving innovation, and delivering operational excellence. With that, I'll now turn the call over to Larry.

Thanks, Rob. As we reported this morning, the net loss for the second quarter of 2024 was $18.2 million or $0.85 per diluted share, as compared to a $6.5 million loss or $0.31 per diluted share in the second quarter of 2023. The net loss for the current period included a non-cash loss of $14.2 million, related to our investment in Grupo Vasconia. Adjusted net loss was $0.6 million for the second quarter of 2024, or $0.03 per diluted share, as compared to $0.3 million or $0.02 per diluted share in 2023. Income from operations was $1.2 million in the second quarter of 2024 as compared to income of $4.4 million in the 2023 period. Adjusted income from operations for the second quarter of 2024 was $5.6 million, compared to $8.4 million in the 2023 period. And adjusted EBITDA for the trailing 12-month period ended June 30, 2024, was $56.6 million. Adjusted net loss, adjusted income from operations, and adjusted EBITDA are non-GAAP financial measures, which are reconciled to our GAAP financial measures in the earnings release. Following comments are for the second quarter of 2024 and 2023 unless stated otherwise. Consolidated sales declined by 3.2%. US segment sales decreased by 3.3% to $130.5 million. As Rob commented, macroeconomic pressures have led to weakened demand across end markets. Within this segment, the decrease occurred in the kitchenware and home solutions categories. Kitchenware decline was from kitchen tools and measurement products. Home solutions decline was due to lower hydration products and Taylor bath measurement products. The segment's decrease was partially offset by sales for a new licensed product brand in the kitchenware and home solutions categories and an increase in the tableware category from a new warehouse club program. International segment sales were down by 2.6% or $0.2 million or $0.3 million in constant US dollars to $11.2 million. As Rob commented, the impact of the UK's economic recession has persisted, which has prevented a meaningful recovery in demand. The decrease was due to lower replenishment orders for e-commerce and brick-and-mortar customers, partially offset by higher sales in Asia. Consolidated gross margin increased to 38.5% from 38.2%. US segment gross margin increased to 38.7% from 38.3%. This improvement was due to favorable product mix. For international gross margin, which decreased to 36.6% from 37.7%, was driven by higher mix of distributor sales to Australia. US segment distribution expenses as a percentage of goods shipped from its warehouses was 9.5% for 2024 and versus 9.7% in 2023. Lower freight-out expenses more than offset the impact of lower shipments. And despite inflationary pressures, continuous improvements in labor and other expense management and lower inventory levels mitigated the impact. International segment distribution expenses as a percentage of goods shipped from its warehouses was 25.1% for both 2024 and 2023, as higher occupancy costs were offset by favorable freight rates. Consolidated selling, general, and administrative expenses increased by 6.7% to $38.3 million. US segment expenses increased by $2 million to $29.4 million. As a percentage of net sales, expenses increased to 22.5% from 20.3%. The increase was driven by inflationary factors, most of which related to employee costs, the largest component of SG&A. Other increases included expenses related to the start-up of manufacturing operations in Mexico. This was partially offset by a decrease in the provision for doubtful accounts. International SG&A expenses decreased by $0.2 million to $3.8 million, and as a percentage of net sales, it decreased to 33.9% from 35.1%. The decrease was driven by lower advertising and commission expenses, partially offset by higher employee expenses. Additionally, unallocated corporate expenses increased by $0.6 million to $5.1 million due to high incentive compensation and professional fees. Our interest expense, excluding mark-to-market adjustment for swaps, decreased by $0.3 million due to lower average borrowings, partially offset by higher interest rates on our variable rate debt. And as Rob discussed, with respect to Vasconia, due to a reorganization resolution by Vasconia under the Mexico bankruptcy law, a company in which we have a 24.7% investment, we determined that we no longer had significant influence over our investment. This resulted in the discontinuance of the use of the equity method of accounting. Upon discontinuation, $14.2 million of related foreign currency translation losses previously reported in accumulated other comprehensive loss were reclassified to the investment balance and then written off. This write-off was non-cash and had no effect on our ongoing operations or business strategy. For income taxes in the current period, the effective income tax rate differs from the federal statutory rate, primarily due to equity-based awards where the book expense exceeded the tax deduction and foreign losses for which no benefit was recognized. The effective tax rate for the prior quarter differs from the federal statutory rate, primarily due to state and local tax expense, the impact of non-deductible expenses, and foreign losses for which no tax benefit is recognized. Turning to our balance sheet. It continues to be quite strong. As of June 30, 2024, our liquidity was approximately $119 million, which included cash plus availability under our credit facility and Receivables Purchase Agreement. Since year-end 2023, we further de-levered our balance sheet, reducing our net debt by $70 million, and as of June 30 of this year, our net debt to adjusted EBITDA leverage ratio was 3.3 times. As provided in the release, we are reiterating our financial guidance for the full year of 2024, except for the non-cash loss of $14.2 million related to the investment in Vasconia. 2024 financial guidance is as follows: net sales of $690 million to $730 million, adjusted income from operations of $49 million to $54 million, adjusted net income of $15 million to $17 million, and adjusted EBITDA of $57.5 million to $62.5 million. This concludes our prepared comments. Operator, please open the line for questions.

Thank you. And your first question comes from the line of Anthony Lebiedzinski with Sidoti. Please go ahead.

Hey, good morning, gentlemen, and thank you for taking the questions. So Rob, you talked about the sluggish demand in the second quarter, also seasonal timing of shipments, just wondering if you guys could provide any more details regarding that, whether or not more of the sales decline was because of just market sluggishness or just help us out, maybe just understand as far as how the quarter progressed?

Yes. Good morning, Anthony. As we talked about in our remarks, we saw a lot of this coming when we issued the full year guidance. So we directionally were not surprised. The end market demand was a little greater than we thought, offset by some new initiatives, particularly Dolly, and success in growing our e-commerce sales offset that. Our market shares, as we talked about, overall increased, which again offset the greater market direction. Aside from that, and as we had expected, some timing, which particularly applies to clubs, which are sizable orders, on a year-over-year basis will be in the second half, whereas we had more in the first half of the year last year in that channel, and that accounts for the remainder of the decline in the second quarter.

Okay. Got it. That's very helpful. Regarding Dolly Parton products, did you mention how much of that was in the second quarter, or is there anything significant to highlight?

We didn't expect it to be that much, but we ended up shipping $4 million in the second quarter.

Got you. Okay. So for the full year, I think you said you expect to exceed $10 million for Dolly Parton products?

Correct. Into the dollar channel, we may have some sales beyond the dollar channel that will hit 2024. I'm not certain yet whether that'll hit 2024 and 2025 based upon availability since it's exceeded our expectations, getting availability of product in time.

Got it. Good. For my last question, as we prepare to update our models for the third and fourth quarters, is there anything we should know about shipment timing aside from what you've mentioned, or are there any cost timing considerations we should be aware of?

No. I mean, nothing that we haven't stated. The big cost increase besides the overall inflation, I think the big cost increase has been ocean freight, which we have experienced as we mentioned, it's stabilized. We don't expect it to change from where it is. So on a year-over-year basis, ocean freight is up but stabilized at a level less than our expectations, which is good. So we factored it all in and we don't expect it to change much. And the big driving factor is, in geopolitical conditions, a big driving factor are the ocean carriers and them taking a lot of tonnage offline, therefore, supply and demand created an increase in the costs that they were able to charge. We've offset that, particularly, on a cost of goods sold basis by driving the cost of what we're paying for our goods. So there should be no change beyond our expectations, and from a timing perspective, there is some upside if we can get more product for demand on Dolly, but basically everything.

Your next question comes from the line of Linda Bolton Weiser with D.A. Davidson. Please go ahead.

Yes. Hello, hi. So I was just curious if you could give us an update on the S'well acquisition, sort of a State of the Union on how that brand is doing since you acquired it?

As we mentioned during the acquisition, the primary challenge was related to inventory in international markets and e-commerce, especially with Amazon. We anticipated some delays, but those have been resolved, and as a result, we are seeing improvements. Additionally, we have introduced many new products, which we needed since there was almost no existing pipeline when we took over. This freshness in our offerings is generating new opportunities, particularly in e-commerce. When you only sell the same product, demand tends to decline. However, since we have replenished our range, we have observed a positive increase on platforms like swell.com, Amazon, and others. One unexpected aspect of the acquisition was how attractive the promotional direct corporate channel was, which brought in a lot of talented individuals. While the talent has surpassed our expectations, we realized that the existing relationships needed to be completely restructured. This led to a charge last year, but we have made significant improvements this year. We experienced a notable increase that positively impacted our second quarter as we addressed last year's challenges effectively. Overall, S'well is performing well. It's important to note that the entire BUILT and S'well division operates as one. Although Stanley has shown significant growth, other brands in the category have struggled. We are gradually regaining market share, which should benefit us moving forward.

Okay. And then we get the Nielsen data, the POS data, which covers just the US and it doesn't include e-commerce. So it's only tracked channels. So it only covers some of your sales. But nevertheless, it shows a really bad trend like really big year-over-year declines. So is there any way you can explain to us why the declines in the Nielsen data look so much bigger than the decline in revenue you actually report?

We purchase a significant amount of Circana data, including NPD and IRI, which covers a wide range of the market. However, there is limited data available internationally. We do have some, but not to the same extent. In terms of channels, we've seen growth in the dollar channel, which may not be tracked by Nielsen and could be part of the discrepancy you mentioned. When we analyze the data we obtain on a year-over-year basis, particularly comparing this year to last, we've generally increased our market share across most of our categories. In Walmart and Target, we've made gains in numerous areas, though we did experience a decline in our KitchenAid line with those retailers, which affected our year-over-year performance in the second quarter and could be influencing the perception of our shipments versus actual sales.

Okay. Given that we're expecting around $6 million in shipments of the Dolly Parton products, possibly more in the second half of the year, I believe more of that will occur in the third quarter than in the fourth quarter. Would it be accurate to say that your sales growth and year-over-year change in the third quarter will likely be better than in the fourth quarter, or is that a wrong assumption?

It's a good question. I don't have the answer. I can say that we will exceed the $10 million, right? So you can expect more than the $6 million. And we're not sure how that all falls in the third quarter versus fourth quarter yet. We're still working on that based upon, again, timing of the shipments and the like. Most of it is replenishment, so the majority of that comes through our warehouses, not directed for, right? So it's working with the customers and when it ships. So that's not necessarily the case.

Okay. And then my last question has to do with when you talk about a little bit of a change in your marketing focus in Europe to go a little bit more for the larger retailer accounts instead of the smaller ones. I'm wondering if that changes the margin profile of the business there? Do you expect similar margins or lower or higher as you kind of change that channel strategy? Thanks.

Yes. No, good question. So just to explain, the core businesses that Lifetime had acquired, their core customers were independent stores and what's called cookshops, particularly in the UK. They're in big decline. So we've been shifting to the larger accounts like Dunelm and Next, who are doing well. The growth in those have been offsetting the general growth or a decline in the homewares market in there. In general, the answer definitely is, yes, that the margins that you're selling to those customers would be lower than you're getting in a cookshop. Though the caveat is the reason why we're not necessarily experiencing that, and what you're seeing flowing through the numbers is we've cleaned up a lot of business and improved the gross margin in what we sell in terms of what we're selling product-wise. So that's picking up and offsetting what you're seeing otherwise. If you were just substituting one for the other, you would have seen a bigger decline in margin. That makes sense, Linda?

Yes. Yes. Thank you. Thanks very much, and good luck with everything.

Thank you.

Your next question comes from the line of Brian McNamara with Canaccord Genuity. Please go ahead.

Good morning, guys. Thanks for taking the questions.

Thanks. Brian, good to hear.

So sales growth has proven a bit elusive over the last few years kind of post-COVID, and your H2 guide, I think, implies a plus-8% kind of run rate. What gives you confidence in that kind of hockey stick recovery, particularly with $4 million of Dolly Parton product maybe being pulled ahead as we haven't seen kind of growth like that since 2021?

There are a few factors driving our performance. First, seasonal timing on a year-over-year basis is significant. It involves the comparison of what we shipped in the first half of 2023 versus the second half and the shipping cadence for this year. This is contributing to growth. Additionally, new products like Dolly are bringing in incremental business. We've also modified much of our online strategy, which has already led to impressive performance in e-commerce sales, and we are confident this trend will continue. Lastly, as we expand our presence, particularly in Europe and the U.K., we're gaining new listings at retailers like Leclerc, Carrefour, and Lidl. In Australia and New Zealand, we used to focus on selling only one brand to one customer, but now we’re diversifying by offering multiple products and brands to many retailers, including a major one in Australia. This shift will also enhance our growth compared to the previous year, and we do not anticipate a market pickup to be the driver of this growth.

Okay. What's your view on innovation in light of today's consumer expectations for products that kind of perpetually keep increasing? Are you guys investing more in R&D to kind of propel sustainable growth?

One significant factor driving substantial growth this year, based on our firm orders, is provision. We launched Build-A-Board for Farberware, which has been incredibly successful. We anticipate it will be the biggest launch Lifetime has ever done, contributing all new products and business to our existing customers. Currently, this initiative is focused on the US market, although we plan to expand it internationally in the future.

All right. Then just one more. International just continues to be kind of a tough slog there. I'm wondering if it still makes sense to be there despite your strong internal efforts to restructure the business, you've made a lot of effort there. It's a $55 million kind of annual run rate business despite these new listings that you're talking about. Does it require too much management focus just given size relative to the total business?

No. Management focus is not the issue there. It is not draining management resources; that is not the problem. We do recognize that we need to show progress there and take action accordingly based upon how it rolls out.

There are no further questions. I will now turn the call over to Mr. Rob Kay for the closing remarks. Please go ahead.

Thank you, Angela. Thank you, everyone, for listening to our call today and for participating in this and your interest in Lifetime Brands. We hope that we were able to answer your questions on the second quarter and for the full year, and we look forward to further discussions with everyone in the future. Have a good day.

That concludes today's call. Thank you all for joining. You may now disconnect.