Good morning, ladies and gentlemen, and welcome to the Lifetime Brands Second Quarter 2021 Earnings Conference Call and Webcast. [Operator Instructions]. 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 on 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…

Thanks, Rob. As we reported this morning, net income for the second quarter of 2021 was $5.8 million or $0.26 per diluted share versus a loss of $4 million or $0.19 per diluted share in the second quarter of 2020. Adjusted net income was $6.1 million for the 2021 second quarter or $0.28 per diluted share as compared to an adjusted loss of $3.1 million or $0.15 per diluted share in 2020. A table which reconciles this non-GAAP measure with the reported results was included in this morning's release. Income from operations was $11 million for the second quarter of 2021 as compared to income from operations of $4.3 million in the 2020 period. And adjusted EBITDA, a non-GAAP measure, that is reconciled to our GAAP results in the release was $96.7 million for the trailing 12-month period ended June 30, 2021. This represents a $5.8 million increase over the $90.9 million for the trailing 12 months ended in March 2021. Net sales in the 2021 quarter were $186.6 million compared to $150.1 million for the 2020 quarter. U.S. segment sales were up $34 million to $166.6 million. The increase came from category growth and increased market share in the Kitchenware product category. Almost all product lines in the category achieved increases. Category growth reflects high demand on the continuation of consumers preparing more meals at home, the reopening of brick-and-mortar customers and overall strength of our product lines. Market share gains reflect the benefit of the company's greater market share obtained in 2020 and further gains from 2021. Tableware products increase came from all product lines, most notably on Flatware sales from a new warehouse club program and Dinnerware sales to reopen brick-and-mortar customers and in e-commerce channels. In home solutions, home decor and measurement product sales growth was…

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

So just a small little 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.

Yes, 8.5% out of 100% of our stake. So 100% of our stake used to be 30% of the company. We've been looking to monetize, we view it as a stranded asset, and we've been looking to monetize it. We were able to monetize 8.5% of our total stake through some stock sales, and we are looking to try to monetize more in the future. So we still own from -- of the 30%, we own 91.5% of that 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 should start getting the price because we will start getting price increases to offset that. The question is where the shipping costs will normalize? And while our demand remains extraordinarily high, We are focused in continuing to gain availability over cost. So our shipping costs are a function of long-term negotiated contracts, but you -- there's not enough availability to fulfill all of our shipping costs through that avenue. So we buy incremental shipping costs on, for lack of a better description, it was called the spot market. And that has increased dramatically, but we would rather and we still make margin dollars increased availability, which we view will give us a competitive advantage and gain more market share if the opportunity arises, and that would have a negative impact temporarily on margins. But if in a steady state situation, you'd see the second quarter most likely, mix aside, being the low point. And again, as you know, when we have big shipments in a given quarter to club, which is lower margin but direct import, that has an impact in the quarterly margin.

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 mean -- I don't think so. We're not planning on that. And if it does, 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. I think our view is that people will spend U.S. dollars. And people use our products every day. So when there's more money in circulation, they'll spend more, and we will benefit from that. We'll have continuously looked at when there's new round of stimulus, and we'll advance feed certain channels to make sure there's adequate inventory so we don't get cut short because people kind of -- it pops and then comes back down. So the build benefit that usually is the first check, but not on a continued basis.

Okay. So is there any way to -- I mean was there some growth like predominantly consumption growth at the retail level? Or was there a fair amount of retail replenishment?

So a lot of our growth has been driven, just we pick up substantial market share. We've seen -- in 2021, we've seen a little pickup in food service, right, which was nonexistent. We've definitely seen pick up in 2021 in brick-and-mortar because particularly in the second quarter, right, because a lot of it was substantially closed a year ago, and that's picked up at the expense of e-commerce. But generally, overall, we've grown across categories and not just our feeling supported by NPD data. And that's driven -- driving and continues to drive a lot of our growth. It's not like in terms of stock levels, a lot of our retailers, we weren't blipped, so to speak, by certain retailers being out of stock and then all of a sudden needing to replan or replenish a tremendous amount. In Europe, we did see that this quarter, so we were negatively impacted particularly in e-commerce, where our largest customer didn't have room in their own distribution centers. So while we were out of stock on, if you went online to buy the goods, they couldn't replenish because their own warehouses are which we stock. So that's actually -- that is broken and we benefited from that in particularly July. But in general, if you look at our total numbers, it's just sell-through and continued sell-through. And as a matter of fact, as I mentioned, in the second quarter, there was a decent amount of orders we could not ship during shipping issues, so we would have -- we had demand and the ability to ship a lot more, but the shipping constraints hurt us, nonetheless, we put up very good numbers.

Okay. And then just on your price increases that you're implementing. Is it kind of broadly across the portfolio? Or are you really focused in on certain categories where you think you've got the most pricing power? And how is your effort similar or different from -- during the tariff period?

So on the first question, it's across all categories. And look, there are 2 buckets of price increases, and we're also focused on a lot higher where we can on the cost side. But on the price side -- pricing side, first, which we knew earlier, was just inflationary cost of goods sold pressure. And there is a difference in terms of the product categories on your cost inputs because we focus on not trying to overshoot. We really focus on the true math and sharing the true math. And therefore, we ask for only what is the price increase. In -- since that time and all the price increases have been focused on shipping costs, which is across the board, everything we do. The second question was on tariffs, right? I mean the approach is basically the same. So tariffs didn't uniformly impact us across all of our categories. So in the categories that they did, when an item 1 test, we would then sit down and explain the math and why we need the price increase. The problem -- the challenge, I should say, in the tariff was where the tariffs were set at a certain level, they were raised, they were lower. They were put on, they were taken off, and it was very difficult to pass on a price increase in that environment because no one knew where it was going to end up. And particularly in brick-and-mortar retail, you don't want to resticker everything and then have to change it. So that's the way the ability to get price increases. Whereas in this environment, it's well known and it's more that there is a agreed upon time line when they go into effect.

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 2 items, foreign currency translation loss, reclassified from [indiscernible] and then a gain on change in ownership in equity method investment, those 2 items. Where would those 2 adjustments occur in the income statement? Which line would those be in?

Yes, it's in the equity and earnings line. So exclusively it happened early -- during the quarter. Grupo Vasconia did a primary offering. They sold to raise money approximately 10 million shares. So because of that dilution, we actually had a -- we had a gain. But then we had previously realized a loss on translation, which is in this other comprehensive income. So now you have to reclass it to what we call like the regular P&L, a little convoluted. But we had a gain, but the translation gets reclassified from 1 type of -- for one section in this income statement to another. And it's separate from what Rob was describing about that we sold 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.

So first, I was just wondering, with this latest news about all these variances -- more specifically, Delta variant, spiking as far as the cases. Have you guys seen here as of late, any noticeable changes in buying patterns because of that?

Not really, Anthony. The variant -- our demand remains strong. We haven't seen any impact in any points in 2021. We have seen related to, not the variant, but the shipping problem that increasingly lesser-capitalized companies or just people who hadn't invested in inventory are having gaps and allows us to step in. So there are some opportunities there, more forward-looking. The variant, the major impact we've had on that, for us, has been more travel was returning and that kind of stopped, from a travel perspective. There is a very big food service show in August called NAFEM that we just canceled yesterday. So for us, you'll actually see the immediate benefit of that is cost savings, right? So it kind of looks good. But ultimately, that's not good. You want to have things like that to be able to grow in the long term. But so the only impact we've seen 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. And then -- so in terms of the certainly well-publicized pressures as far as shipping costs and labor and all that, so looking at the back half of your fiscal year here, so do you expect more of the impact to be on the gross margin versus distribution expenses or both? I mean how should we think about as far as adjusting our models here for sort of back half 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. And then I guess lastly, to kind of just steer a little bit. So Rob, you talked about the e-commerce kind of certainly being down as a percentage of the overall sales. But -- so I know there's a lot of noise with all the comparisons versus last year for sure. But ultimately, where do you think that settles after all this kind of -- hopefully, we get past this pandemic. I mean but overall, how do you view that? What are your thoughts on that?

Yes. And I tried to give everyone a little bigger -- because second quarter, it was a tough comparison because remembering brick-and-mortar substantially shut down in the second quarter of last year, right? And things substantially went online. So it's a tough comparison, which is why I tried to give everyone in my remarks, a broader view. It continues to grow. So while we were down in absolute dollars in the second quarter, still year-to-date, we're up about 10%, right, in the 6 months because e-commerce continues to grow. And that doesn't include, which we don't report separately on, is our shipments to omnichannel, which grew over 160% in 2020, continues to be very strong. So I mean as a retailer, we position ourselves, as you know, Anthony, to try to be wherever the consumer is going to shop. So we want to be relatively indifferent, whether a consumer buys something online or buy something in brick-and-mortar. And it's just we need to make sure we have adequate presence in all channels. So whether it ends up, it's going to be higher than 16%, right? So I mean likely 20% or more because that channel continues to grow. But it's hard to really handicap where it ends. People -- it's shown in 2021 that brick-and-mortar is strong, right? They've come back very strongly. Likely -- and if you look in Europe, it's much more -- our business is much more oriented towards independents. They come back with a vengeance, which is great. It's a great channel. We're very, very big in that channel. So people like to shop. Likely, the variant, if it continues in this direction, will damper those sales and people will go more online. So there will be some noise fluctuations. I don't know where we end up ultimately.

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.