Good morning, ladies and gentlemen and welcome to Lifetime Brands First Quarter 2022 Earnings Conference Call. [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 first quarter 2022 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 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 developments. 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 contained 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’ first quarter 2022 financial results. Lifetime has achieved strong results for several years and we have maintained this performance during the first quarter of 2022. This quarter is only the second time in the company’s history where we achieved profitability during the first quarter of the year as the seasonal nature of our business usually delays profitability until later in the year. This continued strong result shows the strength of our business model. Compared to the first quarter of 2021 which was a record first quarter for Lifetime our net revenues, operating income and adjusted EBITDA declined driven by the impact of inflation, supply chain disruptions, and other macro factors such as the war in Ukraine. Our gross margin also declined year-over-year in the first quarter as a result of these impacts. However, compared to the 2019 quarter, which is a relevant benchmark prior to the significant macroeconomic impacts of COVID 19, inflation and supply chain disruptions, our growth in net sales, operating income, and adjusted EBITDA is 22%, 290%, and 109% respectively. Overall, we are pleased with our operational performance and the progress in the business during the quarter. We have generated $91.1 million in adjusted EBITDA over the last 12 months and we remain on track to achieve our long-term targets, which I will touch on in more detail later. Sales in the quarter were negatively impacted by a delay among large omnichannel retailers in their planogram resets, which have shifted to the second quarter from the first quarter. A streamlining of inventory positions in many retailers and a softening of order flow, particularly in the online channel. Aided by a favorable mix, we were able to improve gross margin percentage through…

Thanks, Rob. As we reported this morning, net income for the first quarter of 2022 was approximately $400,000 or $0.02 per diluted share versus net income of $3.1 million or $0.14 per diluted share in the first quarter of 2021. Adjusted net income was $1.4 million for the 2022 quarter or $0.06 per diluted share as compared to adjusted net income of $2.8 million or $0.13 per diluted share in 2021. Income from operations was $4.4 million within 2022 quarter as compared to $9.2 million in the 2021 period. And adjusted income from operations for the first quarter of ‘22 was $6.8 million as compared to $9.4 million in the 2021 period. Adjusted EBITDA was $91.1 million and $95.1 million for the trailing 12-month period ended March 31, 2022 and December 31, 2021 respectively. Pro forma adjusted EBITDA, which includes historical results as well and pro forma projected synergies adjustments was $95.1 million for the trailing 12-month period in March 2022 and also for the December 2020 period. Adjusted net income, adjusted income from operations and pro forma adjusted EBITDA are all non-GAAP measures and are reconciled to our GAAP measures in the earnings release. The new items in the current quarter for non-GAAP measures relate to the acquisition of S’well and the opening of the Netherlands third-party operated distribution facility. Following comments over the first quarter of 2022 versus 2021 unless stated otherwise. Consolidated net sales declined by 6.6% despite approximately 5% product price increase. But as Rob commented compared to the first quarters of 2020 and 2019, consolidated sales rose 26% and 22% respectively. And if you look at this same metric for the U.S. business, first quarter of 2022 net sales compared to the first quarters of 2020 and 2019, rose in 29% and 31% respectively. The…

[Operator Instructions] Our first questions come from the line of Linda Bolton-Weiser with D.A. Davidson. Please proceed with your question.

Hello. How are you doing?

We are doing fine and hopefully you are.

Yes. Thank you. So, I forgot if you said – I mean, you mentioned the shift of some revenue due to the timing of planogram changes. Did you actually quantify the magnitude of that shift or can you do so for us?

We heard the question, it was a little fuzzy, you talked about the timing of the planogram shift?

Yes. Can you quantify the amount of revenue?

Not offhand, but most of the major retailers in the U.S. in response to ongoing supply chain issues made the decision to postpone the planogram resets from the first quarter to the second quarter. And the good news, bad news is that if – on the bad news side, anything new we have won on a planogram, we are not shipping yet. And the good news is we have significant market shares, it continues, right. But when the planogram resets do aid in volume at the time of the reset and that was just postponed this year from Q1 to Q2.

Okay. And then can you like – I think you mentioned there about the Amazon channel the pure-play e-commerce retailers that actually improved somewhat in April, I think you said. So, would that be because the demand trends improved or because they were just now replenishing inventory or can you give more color around that improvement?

Yes. So, in general, Amazon might just release their earnings and you saw the decline. We have seen, including last year, the pace of growth in 2021 was higher in brick and mortar than it was in e-commerce 2021. And a lot of factors, but some of that is people just wanted to go back to shopping in person in 2020 when obviously was a big increase in e-commerce revenues across the world. Two factors that impacted we believe are shipments into that channel. Noticeably in the first quarter was, a, there has been a softening demand, and so across categories, not uniformly, but we saw that as the categories just dipped, so the whole boats went down a little bit. But also, particularly in Amazon, the warehouses and their distribution centers were clogged and, therefore, there was a disconnect between selling and sell-through, right, if you are selling what would be called one piece on a wholesale basis. And there was a lag in most of our categories between what the sell-through was and the replenishment of those inventory positions at the e-commerce retailers, particularly Amazon. We have seen that it’s been the biggest impact in April, where we have seen the order flow pick up a lot, which makes sense because they are now under inventory in many cases, or skews, because of what I just described.

Okay. Thank you. And then, so your gross margin was certainly impressive. I guess one of the items you mentioned was the tariff benefit that you received. So, is that something that will recur, or like, can you say if you expect gross margin to continue to increase year-over-year, because it was so impressive in the first quarter?

Yes. On the tariff issue, maybe I get wrong, I will correct. So, there has been removal of certain tariffs. Now, you never know, but it’s not like there is a plan to put them back, right. So, we stopped paying those tariffs, and that’s a positive. And again, I am not predicting, ongoing trade wars and the like, but it’s not like they – the current administration has not put tariffs on and off, which was actually not uncommon in the prior administration. So, that should be a permanent benefit, so to speak. But if you look at our margin, there is so many – there is so much noise. To begin with, you know as we have transformed the business starting in 2018, really more impactful in ‘19, we have changed mix, and that continues to benefit because we are selling products and categories where we make more margin, and that’s just a permanent positive. And we have done a lot of that. So, it’s not like today, there is a big transformation which is going to change our margin profile for ‘23 and ‘24, except, from the growth initiatives, such as Mikasa Hospitality just off to the high margin basis. Mix makes a difference. The channel and product category mix makes a difference. And you see that one of the big impacts this quarter and we changed the margin profile purposely by what we sell dramatically in our international business. But probably the biggest impact for this quarter is that our lowest margin sales of any international market is in Australia, New Zealand, and that was down a lot. So, that helped. So, again, there is a lot of noise, but we continue to focus. And again, our gross margin percentage will remain strong. We are in a highly inflationary environment.

Okay. And just to remind me, I mean Mikasa Hospitality, that’s a little bit of a lower gross margin business, is that correct?

No, that is incorrect. It is a higher gross margin business. In that business, there is a tremendous amount of program costs. So, our contribution margin is very strong at the high end of what we do, but the gross margins, because it doesn’t factor that all, all the program costs in are among the highest of what we sell.

Okay. Got it. And then just in a broader sense, we are hearing from all kinds of companies different things about even in the U.S. consumer demand kind of softening a bit. Are you kind of sensing that or, like, what are you kind of seeing from the big mass retailers? Like, what are you thinking in terms of the consumer demand trend?

Yes, that’s probably, like, we posted numbers versus ‘19, right. That was the last, sort of, pure, without noise year and it was a strong year, right. For us, ‘20, was a good year and ‘21 as well. We have seen a softening in demand. And we factor that into our guidance. But the demand levels still remain as, I said in my remarks, very high historically, right. So, we do see it softening versus ‘21 slightly, but greatly ahead of ‘19 and ‘20.

Okay. Thank you so much. I appreciate it.

No problem. Thank you.

Thank you.

Thank you. Our next questions come from the line of Anthony Lebiedzinski with Sidoti. Please proceed with your question.

Yes. Good morning and thank you for taking the questions. Hope, you guys are doing well. So, just wanted to follow-up on the last question from Linda, as far as the softening of demand, are there any specific product categories that stand out? If you guys could give a little bit of more detail as far as, what you are seeing there in terms of the different product categories and the demand levels?

Not necessarily a little more in dinnerware and tabletop in general, partly because those are very heavy and are cumbersome from a shipping perspective. So, both freight-in and freight-out, so, ocean and truck, it has a much bigger impact. And therefore, to maintain your margin profile, the price increases have been substantial and have had some impact on the end market, at least preliminarily. But, we are not a startup and you always like to use the example of can openers, right. We sell about 7.5 million can openers, manual can openers per year, we are by far the largest player. And we are selling those can openers at $599 or $799. It’s proved historically, very, very inelastic. And it’s not very impactful. That’s probably true, the average ticket we sell is $10 and under. The company has done very well in challenging economic times. And hey, we don’t know, and we are not saying here, that the company, the world economies on the precipice of a recession, but many people are talking about that, particularly in Europe, which could pull the whole thing is. We do well in those environments. But the shipping impacts definitely have an impact on tabletop because of the weight and other challenges of shipping that product around the globe and to the consumer.

Got it. Okay. Thank you for that additional color on that. And in terms of your inventory increase, obviously, I know you guys have brought in more inventory because of all this supply chain noise and everything. But just wondering, how much of the inventory increase is actually because of higher pricing. I don’t need an exact number, but just kind of ballpark estimate, if you guys could provide some additional color.

Yes. Anthony, our estimate there is about $20 million of additional basis value at our cost in our inventory because of the ocean freight containers. It’s also about this quarter now about [indiscernible] of inventory related to the S’well acquisition. So, if you back that out on apples-to-apples basis, you can see what the increase is.

Including the price increase, though, there is about an extra $65 million worth of inventory that we are carrying. That in a normalized environment, we just convert to cash.

Got it. Okay. And then in terms of the lockdowns in China, have that had– I know you guys do source a lot from China, but I don’t know if it’s more or less from Shanghai or has that really been a material impact to your business thus far?

Definitely from a challenge perspective, so our Chinese headquarters and most of our people in Shanghai. But we have been able to manage through it effectively. But when they shutdown a port, you really have to scramble. So, yes, it is something we monitor closely, but it’s one of many factors going on in the world right now. And we have been able to mitigate. And by the way, carrying those inventory levels have dramatically helped us to mitigate that. And it’s given us an opportunity, but we are shipping things continuously and some people we compete against are not.

Okay. That’s good to hear. And in terms of the seasonality of the business, so I mean, obviously, you talked about that a little bit, how that has been impacting you guys. So, as we look to update our models, I know there is lots of puts and takes. I know you had some delayed planogram recess, which should help out the Q2, but there is some moderation demand. So, I mean broadly speaking, I mean, well, Q2 kind of, you think looks similar to Q1 or just kind of directionally, if you could just kind of help us understand, help as far as updating the models, that would be great.

We anticipate 2021 looking more like a normal year 2000 and – I am sorry, ‘22, actually I am to say. 2021 was an aberration for the reasons we have discussed in the past. So, the first quarter and second quarter were higher than normal than what the seasonality would dictate.

Okay. That’s helpful color. And I know you guys did buyback some shares in the quarter. Can you just remind us how many shares you bought back and how much you have left on your buyback authorization?

Yes. We only bought back – we just got started in the quarter, about $600,000 worth of stock, about $12, $13 per share. So, we have 19 plus million technically that remains.

Okay. Thank you and best of luck going forward.

Thanks Anthony.

Thank you. There are no further questions at this time. I would like to hand the call back over to Rob Kay for any closing comments.

Thanks Sheryl. Once again, thank you for your interest and your support of Lifetime Brands. We will be speaking at a conference next week. For those on the call, I look forward to seeing you. And Larry and I always remain available for investor queries, and we look forward to speaking to everyone next quarter. Have a good day.

Thank you. This does conclude today’s teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.