Lifetime Brands, Inc. (LCUT) Q3 2026 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Lifetime Brands Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to introduce your host for today's call, Jamie Kirchen. Mr. Kirchen, you may go ahead now.

Good morning, and thank you for joining Lifetime Brands' Third Quarter 2026 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 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 our earnings 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 our 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.

Thank you, Chuck. Thank you, and good morning, everyone. The third quarter was a quarter of notable progress for Lifetime. Net sales grew 3.4% to $177.7 million. Gross margin expanded 140 basis points to 36.5%, and that is after absorbing a $3.3 million inventory charge tied to a SKU rationalization I'll elaborate upon shortly. Adjusted net income was $8.4 million or $0.37 per diluted share, up from $0.11 a year ago. EBITDA also grew noticeably in the quarter. Note that this morning's press release reported current period adjusted LTM EBITDA of approximately $84 million. The number should have read $92.4 million. LTM adjusted EBITDA before limitations was strong at that $92.4 million compared to prior quarter LTM adjusted EBITDA of $90.1 million, calculated under the terms of our credit agreement. We grew over last year, but we should have grown more. Bringing a distribution center the size of our new Hagerstown, Maryland facility online is no small undertaking. And while we planned for start-up costs and challenges, the ramp took longer than we had planned. As we noted on our second quarter call, we anticipated carryover of start-up issues into the third quarter, and the transition resulted in missed shipments and added cost. These ramp-up issues have been addressed, and we are shipping in a normal cadence as of the beginning of the fourth quarter. We are confident the ramp-up phase is complete and now behind us. Hagerstown is a 1 million-plus-square-foot facility built to consolidate our East Coast distribution and to be our most efficient building. It is now positioned as the linchpin of Lifetime's North American operations. Now that it is fully operational, Hagerstown is already contributing to our operational efficiency. In October, our peak shipping month, Lifetime shipped approximately $7 million of product, a near record for our company excluding the COVID period. While the third quarter was adversely impacted by missed shipments due to these ramp-up issues, we do expect to recover some, but not all, of the shipments missed during the fourth quarter. And as we move into 2027, we will have the full efficiency benefit of this building without the start-up costs. Notwithstanding the Hagerstown ramp-up, the underlying business is performing well in an end market that remains soft in consumer durables. The end markets continue to exhibit divergent performance across channels. Off-price remains the strongest part of the market, and we continue to grow there. Mass is performing solidly, and club has been a standout. We have grown meaningfully in the club channel this year, well ahead of the broader category. There is a consistent theme here. When times are tougher, people eat at home more and they cook and entertain at home more. And that plays directly to our portfolio. Kitchenware, our largest category, is performing well. The Farberware relaunch, our largest brand, is in the market and performing. As with any relaunch of that scale, we are refining the assortment based on what we're seeing on the shelf, but sell-through has been encouraging. Tableware was our largest growth driver in the quarter, up 31%, led by flatware and the warehouse club channel. Home decor continues to be a growth engine, driving growth in Home Solutions. Demand for the Dolly Parton collection has stepped up significantly, and the line has become something of a collectible. For 2026, we are largely sold through supply of Dolly products. We see strong demand going into 2027, and we expect the program to be a solid contributor. The program has also expanded beyond its launch partner. That launch partner is Dollar General, and it has become one of our best growth stories. We had essentially no business with Dollar General in 2023. This year, we expect wholesale sales to approach $20 million. We are now working with Dollar General on additional brands, and we see a long runway for that relationship. Project Concord is working. International sales grew 18.8% in the quarter, and the segment approached breakeven. Asia Pacific, which had been losing money, is profitable year-to-date. In Australia and New Zealand, the top line is growing nicely, and we're focused on operations for that locale. We have one significant step left in Concord in the U.K., which we expect to contribute meaningfully to the profitability of this segment, and we hope to share more on that in the coming months. This quarter, we took a $3.3 million charge, primarily in the U.S., with a smaller portion in the U.K. to mark down and exit slow-moving inventory. This timing was deliberate. When you're closing one building and opening another, it makes no sense to pay to move product, which is slow moving. This makes us leaner and more profitable going forward, and we have excluded it from our adjusted results. As previously disclosed, we completed a full refinancing of our debt this year. We expanded our low-cost asset-based facility and replaced our larger term loan with a much smaller one, which can be scaled up if we need it. The result is a meaningfully lower cost of capital and a more flexible structure. You can already see it in the numbers. Interest expense was $2.1 million this quarter versus $5 million a year ago. And Larry will walk you through the details. Our new structure also removes restrictions that limited our ability to buy back stock under our old agreement. As announced this morning, our Board has increased our repurchase authorization to $20 million from approximately $11 million remaining under the prior program. We view this as an important tool to have in place, and we now have the full flexibility to use it opportunistically. Put simply, we have rebuilt our balance sheet, and we now have significant capacity and flexibility to invest in growth, including acquisitions. We plan to lay out our full capital allocation strategy at our Investor Day in New York on December 1. Turning to guidance. We are raising the low end of our net sales range to $660 million to $700 million. We are maintaining our adjusted income from operations and adjusted EBITDA ranges. Our GAAP earnings guidance reflects the onetime costs discussed today. Looking ahead, we see a number of tailwinds built into 2027. Hagerstown start-up costs and disruptions will be behind us. We'll have the full efficiency of that building. We'll have the full-year benefit of Project Concord in international, and our refinancing lowers our interest costs. Additionally, we are growing with programs with many retailers, including Dollar General, as I discussed, and we have momentum in many of our categories, as I just described. We look forward to going into detail of our plans and strategies during our upcoming Investor Day. We'll lay all of this out in detail on December 1, and I hope many of you will join us. With that, I'll turn it over to Larry.

Thanks, Rob. As we reported this morning, net loss for the third quarter of 2026 was $4.2 million or $0.19 per diluted share as compared to net loss of $1.2 million or $0.05 per diluted share in the third quarter of '25. Adjusted net income was $8.4 million for the third quarter of '26 or $0.37 per diluted share compared to net income of $2.5 million or $0.11 per diluted share in '25. Loss from operations was 0 in the third quarter of '26 as compared to income from operations of $6.7 million in the 2025 period. Loss from operations for the current period included a charge for an inventory reserve for SKU rationalization of $3.3 million. Adjusted income from operations for the third quarter of '26 was $13.8 million as compared to $11.5 million last 2025 period. The 2026 period included adjustments for acquisition-related intangible amortization of $4.3 million, warehouse relocation and redesign of $5.3 million, SKU rationalization of $3.3 million, and other expenses of approximately $900,000. The 2025 period also included adjustments for acquisition-related intangible amortization of $4.4 million; restructuring of $300,000; and warehouse relocation, redesign of approximately $100,000. Adjusted EBITDA for the trailing 12-month period ended September 30, 2026, was $92.4 million before limitations. Note that in this morning's earnings release, we reported $84.5 million, which is after limitations. While we had no limitations in the 2Q report, it was our intention to be consistent and report before limitations. The limitations in this quarter were due to onetime expenses incurred for the move of our East Coast distribution operations and SKU rationalization. Reporting before limitations is consistent with how we reported our full year guidance. Again, adjusted EBITDA for the trailing 12-month period ended September '26 was $92.4 million before limitations, an increase of $2.3 million for the current quarter. Adjusted income -- adjusted information noted on non-GAAP financial measures, which are reconciled to our GAAP financial measures in the earnings release. The following comments are for the third quarter of 2026 and 2025 unless stated otherwise. Consolidated net sales increased by 3.4% to $177.7 million. U.S. segment sales increased by 2% to $161.3 million. Within this segment, product line increases were in tableware and Home Solutions, driven by warehouse clubs, partially offset by decreases in kitchenware, driven by lower warehouse club e-commerce sales, which included the impact to ramp up the new East Coast distribution facility in Hagerstown, Maryland. International segment sales increased by 18.8% to $16.4 million. The increase was driven by higher selling prices in all regions and continued growth with retail customers in Australia and New Zealand. Consolidated gross margin increased to 36.5% from 35.1%. The U.S. segment gross margin increased to 36.8% from 35.1%. The improvement in the gross margin percentage was attributable to lower-cost products resulting from reduced tariffs relative to the prior year and favorable product mix, partially offset by a $2 million SKU rationalization charge. International gross margin decreased to 34.1% from 35.5%, driven by the $1.3 million SKU rationalization recorded there, partially offset by expanded gross margin resulting from higher selling price and favorable customer mix. U.S. segment distribution expenses as a percentage of goods shipped from its warehouses, excluding non-recurring expenses, was 11.3% versus 8.5%. The increase was due to lower shipment volume resulting in an unfavorable absorption of fixed expenses, higher occupancy and depreciation for the new facility. Also included were inefficiencies associated with operating the old and new facility concurrently. Freight-out expenses increased due to higher freight rates and customer mix. Non-recurring warehouse expenses for the current period were $5.3 million, which related to onetime expenses to start up the new facility and exit the old one. These included labor, relocation of inventory, recruiting and training, setup costs, and duplicate rent for the non-operational portion of the 2 facilities. International segment distribution expenses as a percentage of goods shipped from its warehouses improved to 24.4% from 22.6%. The improvement was due to higher sales resulting in a favorable impact on fixed expenses. Selling, general, and administrative expenses increased by 7.6% to $38.2 million. U.S. segment expenses increased $1.7 million or 6% to $30.1 million. As a percentage of net sales, expenses increased to 18.7% from 18%. The increase in expenses was driven by higher incentive compensation. International SG&A increased to $3.7 million from $3.4 million. This increase was driven by foreign currency exchange losses. As a percentage of net sales, expenses decreased to 22.6% from 24.6%. The increased -- the decreased percentage was due to the impact of fixed costs on higher sales volumes. Unallocated corporate expenses were $4.4 million compared to $3.7 million in '25. The increase was due to incentive compensation and higher professional fees. In addition, we restored salary cuts implemented last year to partially mitigate the adverse impact of tariffs. Restructuring expenses were $600,000 compared to $300,000 last year. In the current year, $500,000 was for employee severance related to exiting the old facility, and $100,000 was for the U.K. Project Concord employee severance. Interest expense, excluding mark-to-market adjustments for swaps, decreased from $5 million to $2.1 million due to lower average outstanding borrowings, favorable mix of the new debt structure and $1.4 million of interest income received from tariff refunds. The loss on extinguishment of debt of $2.5 million relates to the write-off of the unamortized issuance costs related to the recent refinancing. The effective tax rate was 9.3% and 171.1% last year. These rates differ from the federal statutory rate of 21%, primarily due to the impact of non-deductible expenses in the current quarter and a partial valuation allowance recorded on deferred tax assets related to the goodwill impairment in the 2025 period. Looking at debt and our liquidity, our balance sheet was further strengthened by the August debt refinancing. We amended our revolving credit facility and refinanced our term loan, which, among other things, extended all our debt maturities to 2031. The new term loan, like the credit facility, is asset-based. The terms of the agreement will provide us with more liquidity and flexibility in the use of our capital. Quarter end, our liquidity was approximately $123 million, which included cash plus availability under our credit facility and receivable purchase agreement. This concludes our prepared comments. Operator, please open the line for questions.

[Operator Instructions] Our first question today will come from Matthew Koranda with ROTH Capital.

You mentioned, I think, in the prepared remarks, about $5.3 million in adjustments for warehouse start-up costs. I assume that's all for Hagerstown. Are there any inefficiencies, I guess, at that facility that you can call out that weren't added back? And then now that it's shipping normally as of the fourth quarter, can you just call out the benefits to operating expenses, how those show up in the P&L going forward?

All of the costs are related to Hagerstown. Larry went through a lot of the costs. There's different buckets of those costs, but there's inefficiencies as you're ramping up. No, not everything is added back, particularly lost revenues. When we had problems from the ramp-up experienced, that's just lost and flows through our numbers, and it's not added back. It's really just the cost of ramping up the facility, the redundancy from a labor perspective having 2 facilities and a lot of things that Larry walked through. The biggest benefit we're going to see on a go-forward basis is now that the facility is up and running, we won't have the ramp-up costs, and Robbinsville, the New Jersey facility, is empty, will be shut by the end of the year. So it's just cleanup and dilapidation at this point. And that will all disappear, and we'll be on a pristine, clean basis on a go-forward basis with no noise.

Yes, Matt, just to make -- let me just add something in response to your question. So what we didn't add back, to be more specific if I can, is that in the new facility, because -- I want to get into GAAP issues here. But because we have a new lease, you have the straight-line rent over the lease period of 15 years. So your rent expense is going up, but our cash rent is actually approximately what we're paying in our old facility. Nevertheless, GAAP, you have to record it that way. So that's going to be -- that will persist as well as we bought new equipment for the facility. So our depreciation expense will be higher. Both of those don't get added back. The other thing is that it's just inherent inefficiency operating 2 facilities. And normally, that would be very efficient, right? You move into one, but during this period, we just have normal inefficiencies not because of the actual move in training people, but because you have to -- let's say you have a line and -- 2 lines in each location, and you'd normally have 1 supervisor. Well, if you have one in Maryland, you have to also have one in New Jersey. So those inefficiencies, you don't get to add back over, let's say, maybe not the fourth quarter but I think certainly in 2027, you'll see the distribution expense as a percent of shipping be pretty much as it had been before we moved.

Okay. That's very clear. Appreciate the color on that stuff, guys. And then just for, I guess, the implied outlook for the fourth quarter, looks good on sales, but you kind of held the adjusted EBITDA outlook unchanged for '26. Maybe I just wanted to hear a little bit about the drivers there that underpin the implied fourth quarter outlook and how to think about the margin sort of flow through the end of the year.

Yes, I think the big unknown that'll play out in the quarter is any hangover from now that Hagerstown is operating as normal and recovery of some, as I said, but definitely not all, of some missed shipments that we had. So there's definitely upside, but there's a lot of unknowns. So we left things unchanged in terms of our guidance. But on sales, we saw we were definitely running ahead, and that's why we wanted to narrow the range and moved up from the low end.

Okay. Makes sense. Maybe this last one on Project Concord, just an update there, I guess, since we're kind of hitting breakeven in terms of profit contribution there. Wanted to hear a little bit about sort of how that may shift to a contributor in '27 versus being a drag for the last couple of years. And then what's driving the really strong growth in the EU region? It looks really positive in the quarter. And how sustainable is that growth rate that you put up?

So I'm going to punt on the first question mostly by saying that we'll give you full details, a lot of next year in December 1 on Investor Day. But the business actually on a pro forma basis was breakeven for the quarter, and a lot of the growth is -- we changed the business strategy. We also changed the product offering. And if you look at the U.K. historically, which is the bulk of the business, historically, that business was sold to a dine and cook shop, which would be the equivalent in the U.S. of independent gourmet shops. And we've -- it's taken time, but we've transitioned that to the larger national accounts, such as Dunelm and Next and Tesco and the like. And we're getting good traction there, and that's -- which we've talked about. But those wins that we've had there are running through our shipments and financial statements now, and we're getting the benefit from that. So that's been driving us. Unfortunately, the independent sector has, particularly since COVID, continued to decline. So it's really the shift. And as we've shifted our product strategy to really products, a lot of them from the U.S. such as KitchenAid, is driving a lot of growth throughout the whole European continent for us and international as well. It's driving a lot of growth in Asia Pacific and Australia and New Zealand for us as well.

The next question will come from Anthony Lebiedzinski with Sidoti & Company.

As we look at the reported numbers for revenue, how do we think about the pricing impact versus unit volumes overall for the quarter?

Yes, there were some reductions in pricing, reflective of the lower cost in sourcing the goods because of tariffs, in which, by the way, helped our margins just because we kept the gross profit the same. Just as when we implemented higher prices, we only increased it by the amount of our costs. So the gross profit percentage went down, so we've had obviously the opposite effect. And do you want to talk about units?

Yes. I mean, in general, the market is -- been relatively flat on a dollar basis but down unit, like, overall. And we've seen some of that, so we've been able to pick up some share. We've had some successes, as I talked about, and that's been helping us on both but stronger on dollar than unit.

That's very helpful context. And as we think about the SKU rationalization that you guys did in the third quarter, so on a go-forward basis, how do we think about the structural gross margin benefits from the SKU rationalization?

So our go-forward margin profile should be as we've expected and experienced in the past. If you look at what we did, again, when you're moving facilities -- in one big facility, there's stuff that we could sell, but we didn't -- it's more efficient and ultimately more economically beneficial to write off. And we're preparing to do something similar in the U.K. So the U.K. facility that we operate in is maybe 50% utilized. So the last step in Project Concord is we're looking to exit that facility, and in anticipation of that, we did a SKU rat there as well, and we're doing it all at once.

Okay. That's very helpful. Okay. And then you guys mentioned that you had some missed shipments and added costs for Q3 because of the move to the Hagerstown facility. Any way to try to quantify that? Or just basically, how impactful do you think that was in the quarter?

Not very easy to quantify it in total detail, so we're still working on that, but we believe it to be between $7 million and $10 million in impact, negatively obviously, in the third quarter. That's why my comments, Anthony, was we did well and we grew. We would have done a lot better.

Okay. Well -- right. So that certainly helps to kind of frame things. Okay. Got it. All right. And then lastly, as far as the share buyback that you announced today here, is this something that you think you'll be looking to do right away? Or like what's the timeframe for that, do you think, as far as when you think you can put that to use?

So as we've discussed with the whole public and in view, we believe that the intrinsic value, the economic value is not reflected currently in this trading price. So we would use a stock buyback to, we think, create value to all of our shareholders by buying back the stock at this level.

The next question will come from Linda Bolton-Weiser with Water Tower Research.

So you mentioned maybe a quarter or 2 ago on your call that you were still looking to diversify your outsourced manufacturing base. We'll probably hear more about this in December. But can you talk about what areas you're looking at? And also, can you remind us what you're doing with the facility in Mexico? I think there was something there that you were working on, and I haven't heard you mention it. Can you give us a little update on that?

Sure, Linda. When we looked throughout the world over -- starting a bunch of years ago when we came to the conclusion that the West, I guess now the U.S., has decoupled with China, and so we started everything from Turkey, which we didn't do much. We didn't find, for a lot of reasons, that to be appropriate. Mexico, as you mentioned, we looked at resourcing in the U.S. It made no economic sense. What made most economic sense was throughout many geographies in Southeast Asia is where we moved a lot of our facilities. And we did that in conjunction with our key factory vendor relationships where we had not a controlling ownership interest, but we control the majority of the output of those factories. And those factories invested throughout Southeast Asia, Malaysia, Cambodia, Vietnam, where we've already had a big presence, but other things moved there and built new factories with their capital and their management. And these had ramped up. However, in 2025, because the all-in tariff-impacted cost of shipping product was cheaper coming out of China, we moved a lot of that stuff back. Now in almost all those cases, it was to a factory that might have been in Malaysia, same ownership, same factory that we moved back in China, so it's within the same vendor. But we shipped mostly out of China in 2025 because the economics made more sense, right? That's not, we believe, sustainable from a political environment, and that will ultimately migrate back to all these geographies. In China -- sorry, in Mexico, we had an opportunity to make a small acquisition of a factory that we knew had a lot of benefits. And at the time that we did this, the -- it was very cost beneficial because of the various tariffs throughout the world to move product there. Over time, as trade and tariffs shifted throughout the world, it became uneconomical. It was very small, and it led us to the conclusion, as there's more stability in terms of outlook from a relative trade situation, we shut that down. So that's why you don't hear us talk about it. It was small. We were looking to ramp it up as we were looking at all different avenues several years ago. But as things worked out over time, it was not economical. We shut it down.

Okay. And then you're talking a lot about the success of the club channel and your programs there. I am curious, sometimes for companies, club channel sales can be lumpy because there are programs that come in and out. Do you have a fair amount of regular program presence at the club channel? Or is it just these programs that are going to come in and out? And how should we think about the sustainability of that growth that we're seeing there?

That's a great question. And we like to use the word it's like quicksand in the club channel. So you could have a great program. It does really well, and it doesn't anniversary. Our relationship in the club channel has done very well over time, and there might be programs that we run that shift. Like Rabbit for a long time running, I think 4 straight years, had big programs at Costco. And the volumes are obviously very big. It did not anniversary, but we still grew at Costco because we're doing other things. So one of the competitive advantages of a company like Lifetime versus a lot of our peers that we compete against is we can offer many brands, many different price points, many different categories, and that is how we operate in the club channel. So the mix may change, and there are certain things that do -- like Mikasa has a very strong presence there, that do stay as a brand category, but the product does change. But we shift what we're selling. So we're very confident in terms of where we are and the future. Like home decor has done very well in club. If you look several years ago, we did nothing. So it shifts, and we should have a steady progression. But that's how we get around the lumpiness of what you see traditionally in other companies.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Rob Kay for any closing remarks. Please go ahead.

Thanks, Chuck. Well, thank you, everyone, for participating in our call. As we -- I will remind people once again that on December 1 in our NASDAQ site in New York City, we will be hosting an Investor Day starting at 11 a.m. We hope to see people there. You can always listen in. And again, thank you for your interest and support.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.