Conference Transcript - LCUT 2026-05-19

Operator

Good morning, ladies and gentlemen, and welcome to the Lifetime Brands 2nd 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 today is being recorded. I would now like to turn the conference over to Jamie Kirchhen. Mr. Kirchhen, you may now go ahead.

Jamie Kirchen, Head of Investor Relations

Good morning, and thank you for joining Lifetime Brand's second quarter 2026 earnings call. With us today from management are Rob Kang, Chief Executive Officer, and Larry Winogre, 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. These statements are intended to qualify for the 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 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 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 Kaye. Please go ahead, Rob. Thank you, and good morning.

Rob Kay, CEO

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 The earnings growth we generated includes a benefit for the expected recovery of $40.1 million of tariffs we paid in 2025. five. 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 We had paid $41.7 million and believed we were legally entitled to a refund, but there was 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 to 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 2026. 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 paid $40 million of term debt, $20 million in the second quarter, and another $20 million in early July, funded 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 remained 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 Hagertown, Maryland Distribution Center, of 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. dollars. 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. Our new product, our newly redesigned Farberware 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 a 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 a good 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 second order. 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 breakeven 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, and that had a negative impact, 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 end market backdrop and an exceptional one on a reported basis given the $40.1 million 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, Project Concord and International's path to breakeven, and continued momentum from our core lines including Farberware and from our licensed portfolio. With that, let me turn it over Larry to go through the financials in more detail.

Larry Winoker, CFO

Thanks, Rob. As we reported this morning, net income for the second quarter of 2026 was $19.6 million or $0.87 for diluted shares compared to an net loss of $39.7 million or $1.83 for diluted share in 25. Adjusted net income was $26.6 million for the second quarter of 26 or $1.18 for diluted 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 of 26 as 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 loss from 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 $41.1 million as compared to $900,000 in the 25 period. The 2026 period included 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 Eve adopted the trillion 12-month period ended June 30th, 26th, with $92 million. This adjusted information noted are non-GAAP financial financial measures which are reconciled to our gap financial measure in the earnings release. Following comments are for the second quarter of 26 and 25 unless stated otherwise. Consolidated sales increased 7.4% to 141.6 million. In the U.S. 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. US 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 of 40.1 million in the current period partially offset by unfavorable product mix and international gross margins increased to 42.5 percent and 32.5 driven by favorable customer mix u.s segment distribution expense as a percentage of goods shipped from its warehouses excluding non-recurring expenses was 11.9 percent versus 11 percent 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 the 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 facilities international segment the distribution expenses as a percentage of its ship of its goods shipped from its warehouses improved to 24.2 percent 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 $24.7. The decrease as a percentage was attributable to the impact of fixed costs on higher sales volume international sgna decreased to 3.3 million from 3.7 the decrease was due to lower employee and commission expenses and as a percentage of net sales it 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 the 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 differed 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 dollars for the current quarter and approximately 39 million since year-end 25. at quarter end our liquidity was approximately 151 million dollars 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, and adjusted EBITDA of $90.5 to $93 million. This concludes our prepared comments. Operator, please open the line for questions.

Operator

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.

Matt Coranda, Analyst — ROTH Capital

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 to 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. Will that be recognized for the P&L or maybe just a little bit of help on sort of how it flows through?

Rob Kay, CEO

Yeah. 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 you lever, which flows through, and obviously pay taxes, and then restore investments. For instance, we cut a bunch of expenses, we cut a lot of heads, we're not restoring that, but we also cut compensation levels and salary levels through most of the company. We've restored those, and we're making investment in new products that we had curtailed.

Larry Winoker, CFO

So that is that delta 3 million that you point out, and Larry, you want to answer? yes so the 40 reflects an accrual for um what we received um in july as well as what we expect to receive however we don't know um i don't think anybody knows when that uh if and when that will be received but but based on analysis we believe um it was appropriate to accrue it and and as larry pointed out we've received in cash 36 million dollars um as of july got it okay yeah that's helpful all right so just a couple million left i guess to to receive but it's all been accrued for

Matt Coranda, Analyst — ROTH Capital

uh in the second quarter um makes sense on the hagerstown um ramp up i guess is there any way to quantify the impact to the second quarter um that you saw i guess in terms of the drag on inefficiencies um 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 um the drag it created and then any fixes that are in place i guess that that you feel confident about that it'll it'll be done by the third quarter yeah so so um we anticipated

Rob Kay, CEO

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 um issues um you know you're building up staff our availability of staff and 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 in our guidance in our initial guidance right so so no impact uh there at all um the second quarter uh uh impact in terms of expense um so we had to run uh like a shift and a half yes it's just more people to try to get things uh through the system uh as uh it ramps up that that'll continue That was at 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 inefficiencies 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. uh once that's done over the next two to three weeks providing there's nothing else that you know becomes uh an issue will be uh at uh fully flow through um so not full capability because we're still shifting some of the uh inventory out of robbinsville new jersey into hagerstown and We'll have that mostly done by the beginning of the fourth quarter, you know, when the Maryland facility will be fully operational, and by the end of the year, the New Jersey facility will be not operating anymore.

Speaker 5

Okay.

Matt Coranda, Analyst — ROTH Capital

All right. So that answered most frequently. Yeah, I think so. Maybe just last one. And it sounds like you're kind of circling in on the debt refi, given the mention of 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 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.

Rob Kay, CEO

Yeah, we'll have more information very shortly and share that, but our concept is to more fully utilize our asset-based 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 we're we're actually passing uh we're actually passed negotiation i mean we're in the in the final stage we may uh file um consummate this as early possibly as tomorrow but next week so well we know all the terms we just not don't want to um cite them until they're um yeah it's not fine but it could be signed imminently and you'll see an ak very shortly and we're happy to discuss it once it is.

Larry Winoker, CFO

And we'll have capacity to do what we call tough acquisitions.

Rob Kay, CEO

Again, right, we're sitting today at $150 million of liquidity, right?

Speaker 5

Yeah. Okay. Gotcha. I'm clear. Thanks, guys.

Operator

And the next question is from Anthony Liebczynski with Sidoti and Company. Please go ahead.

Anthony Liebczynski, Analyst — Sidoti & Company

Thank you. Good morning, everyone. Thanks for taking the questions. Sort of a nice performance here in the quarter. Just wondering, you know, 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 any way, Rob, that maybe you can quantify what you think that 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?

Rob Kay, CEO

Yeah, Anthony, hi. So the two factors that shifted, and by the other quarter kind of came in for our expectations. You know, we knew there'd be growth as you did as well in your estimates versus prior year. But there were some sizable orders that shifted from our customers' preference into the third quarter, a little bit maybe the fourth, but mostly the third. And it was timing part of that just merchandising strategy on certain accounts. Part of that is if you look at retailers, there's some slowness and they wanted to push some new sets out. The other delay that shifted in the second, third quarter was what we were just talking about in the ramp up of New Hagerstown. So we had, when we first started operational on a large scale basis, really started with receiving goods, which then ended up in terms of shipping goods. And this was really impacting us, started to impact us in the last month of the quarter. So it shifted out of the second quarter. You know, we expect, again, you know, we believed our issues there have been addressed. So things will ship. If they were not addressed and they lasted for a period of time, we would lose business, not permanently, but obviously it wouldn't shift this year and you'd lose a turn. But the shifting as a result of those factors that I mentioned, I think. Price volume, what I can say, consistent with us as well. We've done, I think, a little better than what we've seen in the marketplace. But if you just look at the main Sarkana data and you look at all the categories that we're in and consumer durables uh in general the market's relatively flat on a dollar basis uh and actually if you look at particularly our categories and you add them up they're down uh in the neighborhood of um two to three percent on a dollar basis or you know i'm referring to third-party data now the whole market um but then if you then drill into those details and look at it on a unit basis, they're down, right? Much more than that, anywhere from seven and a half to 10%. And we did better than that, but, you know, along those lines.

Anthony Liebczynski, Analyst — Sidoti & Company

Okay, that's very helpful color. Gotcha.

Rob Kay, CEO

And then as far as the Dolly Parton product line, um you know the good that you were able to extend that relationship certainly um anything to call out in terms of revenue related to dolly parton products in the second quarter um nope pretty much as expected there was some dolly stuff that shifted um uh particularly some stuff to dollar general we are now shipping multiple accounts um more the second half of the year there was some dollar general dollar apart and stuff that shifted out of the second quarter. But the program continues to go well, continues to do really well on shelf, which is also helping why a bunch of the other retailers are picking it up, some of our other customers.

Anthony Liebczynski, Analyst — Sidoti & Company

Gotcha. Okay. And then just going back to the earlier question about the delta between the tariff refund amount of $40 million and the $37 million increase in adjusted operating income. So thinking about that $3 million, is that going to be mostly SG&A or perhaps maybe some other line items to think about? I know you mentioned ocean freight costs being higher as well, but if you could just kind of speak to that as well, that would be very helpful.

Rob Kay, CEO

Yeah, so most of it is just investment. It's restoring some cuts we had done and just investing in product. So, I mean, looking at it in another way is, you know, our earnings and our cash flow greatly increased. And we're redeploying that money into the business for future growth capability. As opposed to just pocketing, we're not trying to just pocket it. You know, obviously, from the balance sheet perspective, you know, in the tariff environment, you know, two major things required capital. One is shifting to a geographically dispersed geographic footprint for sourcing a lot of money to do that. But also just the tariffs themselves, paying those tariffs, right? You pay them, they're sitting in your inventory, so you're carrying much higher values. The units didn't change, right? But the value of your inventory, you have to fund that, right? So, you know, we helped, we were able to do that because we have a strong balance sheet, you know, our public peers as well, but a lot of people that we compete against were not, right, able to do that. But now with this refund, we've replenished that. So, you know, that's a big source of use of this cash.

Anthony Liebczynski, Analyst — Sidoti & Company

Well, thank you very much and best of luck. Thank you.

Operator

And the next question is from Brian McNamara. with Canaccord Genuity. Please go ahead.

Brian McNamara, Analyst — Canaccord Genuity

Hey, good morning, guys. Thanks for taking the questions. So sales are pretty much where they were in 2024, both in Q2 and H1. When do you think this business starts to sustainably grow again, and what are the levers for that growth?

Rob Kay, CEO

Yeah, so, I mean, any different quarter, right, there's going to be, as you know, different flows and mixes. So if you look at the full-year guidance, right, um we think we'll hit those numbers um obviously growth in the end market is going to help we're not factoring that into uh our guidance um so when there's growth in the end market when that starts growing we will benefit from that accordingly and that will be over and above what we have in the guidance that we've issued what's the the annual run rate for uh for sales for dolly parton and how much has that affected the girl this year?

Brian McNamara, Analyst — Canaccord Genuity

And then similar to my previous question, what brands are up today versus 2024?

Rob Kay, CEO

So KitchenAid has grown. Farberware, a big chunk of Farberware since we relaunched, and the POS is really good, but we've also had to take out the existing business and discount that. So there's a lot of noise in those numbers that will be growing, though, in the second half of the year uh dolly parton which has grown in the last couple years uh it's not going to grow at the same rate this year uh we'll maintain we'll grow a little bit uh it's about a 20 million dollar uh business uh for us so it's grown from nothing to you know about our fifth largest brand uh and we've seen um meaningful growth uh this year uh in micasa uh which uh both uh on the dinnerware and the flatware side um which dropped in 25 and we've seen nice growth in that in in uh 2026 and will continue great that's helpful and then just one

Brian McNamara, Analyst — Canaccord Genuity

last one from for me um sales guidance remains pretty wide despite having uh shipments moved out of q2 into q3 is that subtly acknowledging that that those shipments might not happen you mentioned the market environment, and why would that be? Presumably visibility is maybe better this year than you've seen in some time, but correct me if I'm wrong. Thanks.

Rob Kay, CEO

Yeah, no, visibility is, well, no one knows what's happening with the end market, and obviously the war and inflation, you know, will impact, may have an impact in our business. But yeah, visibility is pretty good. um and um basically we we looked at the year uh no there's no subtle underlying message that we're going to lose that business we think it shifts um so we don't think there's an impact as we mentioned you know we the guidance uh our approach to it was conservative and there's upside to it but we'd rather be in a position to raise guidance um as the year unfolds than to lower it.

Operator

And this does conclude our question and answer session for today. I would like to turn the conference back over to Rob Kay for any closing remarks.

Rob Kay, CEO

Again, thanks everyone for their interest and their time. As we mentioned before, we will have a lengthy investor day, which we will host in New York City in the beginning of December, and we will be sending out to the public more information shortly on that. Thank you and have a good day.

Operator

The conference is now concluded. Thank Thank you for attending today's presentation and you may now disconnect your lines.