Lifetime Brands(LCUT) - 2024 Q4 - Annual Report

Part I Business Lifetime Brands, Inc. designs, sources, and sells kitchenware, tableware, and home products through U.S. and International segments, relying on global sourcing and diverse customer channels, with seasonal sales concentrated in Q3 and Q4 - The company's business is divided into three main product categories: Kitchenware, Tableware, and Home Solutions[33] Top Brands and Product Categories | Brand | Licensed/Owned | Product Category | | :--- | :--- | :--- | | Farberware® | (1) Licensed | Kitchenware | | Mikasa® | Owned | Tableware and Home Solutions | | KitchenAid® | Licensed | Kitchenware | | Taylor® | Owned | Kitchenware and Home Solutions | | Pfaltzgraff® | Owned | Kitchenware, Tableware and Home Solutions | | Fred® & Friends | Owned | Kitchenware | | Kamenstein® | Owned | Kitchenware | | BUILT NY® | Owned | Home Solutions | | S'well® | Owned | Home Solutions | | Rabbit® | Owned | Kitchenware | - The company operates through two reportable segments: U.S. and International, with the U.S. segment handling domestic operations and the International segment covering business primarily in the U.K., E.U., and Asia Pacific[40][166] Key Customer Sales Concentration (2022-2024) | Customer | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Walmart | 19% | 21% | 19% | | Costco | 11% | 11% | 13% | | Amazon | 13% | 11% | 11% | - The business is seasonal, with 58% of total annual net sales in 2024 occurring in the third and fourth quarters, leading to increased inventory levels from June to October[63] Risk Factors The company faces macroeconomic, financial, customer, supply chain, intellectual property, and operational risks, including substantial debt, customer concentration, and reliance on international suppliers and key licenses - Macroeconomic risks include adverse effects from market conditions, inflation, and the imposition of duties and tariffs by governments, which could significantly increase product costs[65][67][68] - The company has substantial indebtedness of $185.2 million as of December 31, 2024, and its debt agreements contain financial covenants, such as a maximum Total Net Leverage Ratio, which could limit its operational flexibility[71][75] - A significant portion of sales is concentrated with three major customers: Walmart (19%), Costco (11%), and Amazon (13%) in 2024, where a material reduction in sales could have a significant adverse effect[98][99] - The company relies heavily on international suppliers, primarily in China, subjecting it to geopolitical, regulatory, and economic risks, including supply chain disruptions from conflicts in regions like the Red Sea[106] - The business is dependent on key licenses, with the Farberware® license representing a material portion of sales and expiring in 2195 (subject to earlier termination), and the KitchenAid® license expiring in December 2026[113][115] - The company is subject to cybersecurity risks and must comply with complex data protection regulations like GDPR and the California Consumer Privacy Act, where a failure or compromise of its IT systems could disrupt business and cause losses[131][132] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[141] Cybersecurity Cybersecurity risk management is integrated into the company's ERM, overseen by the Board, with day-to-day management by the Infrastructure Director, and supported by third-party experts - Cybersecurity risk management is integrated into the company's broader enterprise risk management (ERM) through defined training and incident response plans[144] - The full Board of Directors is responsible for overseeing cybersecurity risk management, with regular updates from the EVP, Global Supply Chain & Import[146] - The company engages third-party experts, including a Security Operations Center (SOC) and Endpoint Detection and Response (EDR) providers, to assist in evaluating and detecting security risks[148] Properties The company utilizes owned and leased properties for operations, including key distribution centers, and plans to relocate its primary East Coast distribution facility to Hagerstown, Maryland by Q2 2026 Principal Properties as of December 31, 2024 | Location | Description | Size (sq ft) | Owned/Leased | | :--- | :--- | :--- | :--- | | Rialto, California | West Coast warehouse and distribution facility | 703,000 | Leased | | Robbinsville, New Jersey | Principal East Coast warehouse and distribution facility | 700,000 | Leased | | Aston, England | Offices, showroom, warehouse and distribution facility | 250,000 | Leased | | Winchendon, Massachusetts | Warehouse, distribution, and spice packing | 175,000 | Owned | | Garden City, New York | Corporate headquarters/main showroom | 159,000 | Leased | - In January 2025, the company entered a lease for a new primary east coast distribution facility in Hagerstown, Maryland, which will replace the existing Robbinsville, New Jersey facility whose lease expires in November 2026[152] Legal Proceedings Information regarding the company's legal proceedings is incorporated by reference from Note 13 of the consolidated financial statements - For a description of legal proceedings, refer to NOTE 13 — COMMITMENTS AND CONTINGENCIES in the consolidated financial statements[154] Mine Safety Disclosures This item is not applicable to the company - Not applicable[155] Part II Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "LCUT", with approximately 3,782 record holders, and the Board intends to continue paying cash dividends - The company's common stock trades on the Nasdaq Global Select Market under the symbol "LCUT"[157] - As of February 28, 2025, there were approximately 3,782 record holders of the company's common stock[158] - The Board of Directors intends to continue paying cash dividends for the foreseeable future, but this is subject to change at their discretion[159] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2024, net sales slightly decreased to $683.0 million, gross margin improved to 38.2%, but a net loss of $15.2 million was recorded, significantly impacted by a non-cash loss on an equity investment Results of Operations (2024 vs 2023) For 2024, consolidated net sales decreased by 0.5% to $683.0 million, gross margin improved to 38.2%, but a net loss of $15.2 million was reported, primarily due to a $14.2 million non-cash loss on equity securities Net Sales Performance (2024 vs 2023) | Metric | 2024 | 2023 | Change | | :--- | :--- | :--- | :--- | | Consolidated Net Sales | $683.0M | $686.7M | -0.5% | | U.S. Segment Sales | $627.2M | $633.1M | -0.9% | | International Segment Sales | $55.8M | $53.6M | +4.1% | - Gross margin increased to 38.2% in 2024 from 37.1% in 2023, primarily due to lower inbound freight costs and a favorable product mix in the U.S. segment, and lower inventory reserves in the International segment[190][191] - A non-cash loss of $14.2 million was recorded in Q2 2024 after the company lost significant influence over its investment in Vasconia and discontinued the equity method of accounting, reducing the investment to its fair value[203] - The effective tax rate for 2024 was (34.2)%, reflecting tax expense on a pretax financial reporting loss, compared to 59.4% for 2023[204] Critical Accounting Policies and Estimates Critical accounting policies involve significant judgment in goodwill and intangible asset impairment testing, with the U.S. reporting unit's fair value exceeding carrying value by 5.4% in 2024, and revenue recognized upon transfer of control - Goodwill and indefinite-lived intangible assets are tested for impairment annually on October 1, with the 2024 test for the U.S. reporting unit's goodwill showing its fair value exceeded its carrying value by 5.4%[208][216] - Following the October 1, 2024 impairment analysis, a trade name previously classified as indefinite-lived was reclassified to a finite-lived asset and will be amortized over an estimated useful life of 15 years[218] - Revenue is recognized when control transfers to the customer, typically upon shipment (FOB Shipping Point), with net sales reduced by variable consideration, which includes estimates for sales incentives, promotions, and returns[220][221] Liquidity and Capital Resources As of December 31, 2024, total liquidity was $111.7 million, with net cash from operating activities decreasing to $18.6 million, and significant future cash requirements for debt service and distribution facility relocation - Total liquidity was $111.7 million as of December 31, 2024, consisting of $2.9 million in cash, $82.8 million available under the ABL Agreement, and $26.0 million under the Receivables Purchase Agreement[229] - Net cash from operating activities decreased significantly to $18.6 million in 2024 from $56.4 million in 2023, attributed to higher inventory purchases and timing of accounts payable[264] Adjusted EBITDA Reconciliation (Non-GAAP) | (in thousands) | Year Ended Dec 31, 2024 | Year Ended Dec 31, 2023 | | :--- | :--- | :--- | | Net loss as reported | $(15,165) | $(8,412) | | Loss on equity securities | 14,152 | — | | Equity in losses, net of taxes | 2,092 | 12,665 | | Income tax provision | 3,331 | 6,222 | | Interest expense | 22,208 | 21,728 | | Depreciation and amortization | 22,314 | 19,571 | | Other adjustments | 6,439 | 5,534 | | Adjusted EBITDA | $55,371 | $57,308 | - The company plans to relocate its east coast distribution center to Hagerstown, MD, which will require approximately $10.0 million in capital expenditures and up to $14.0 million in one-time exit and relocation costs[272][273][274] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate and foreign currency risks, with a hypothetical 10% exchange rate change impacting SG&A by $0.8 million and a 100 basis point interest rate increase raising annual interest expense by $2.2 million - The company is exposed to foreign currency risk, primarily from sales denominated in U.K. pounds, Euros, and Canadian dollars, where a hypothetical 10% change in exchange rates would result in an approximate $0.8 million change in SG&A expenses[276] - The company is exposed to interest rate risk on its variable-rate debt, and as of December 31, 2024, a hypothetical 100 basis point increase in variable rates would increase annual interest expense by approximately $2.2 million[278] - To manage risk, the company uses interest rate swaps with a total notional value of $75.0 million and foreign exchange forward contracts with a notional value of $8.0 million as of December 31, 2024[277][278] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2024, with no material changes during the quarter - The CEO and CFO concluded that as of December 31, 2024, the company's disclosure controls and procedures were effective[283] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[284] - Management's report on internal control over financial reporting concluded that the controls were effective as of December 31, 2024, based on the COSO 2013 framework, and this assessment was audited by Ernst & Young LLP, which issued an unqualified opinion[289][290][293] Part IV Exhibits and Financial Statement Schedules This section includes consolidated financial statements, independent auditor's report, and detailed notes covering significant accounting policies, revenue, debt, derivatives, and contingencies Financial Statements The consolidated financial statements for 2024 show total assets of $634.3 million, a net loss of $15.2 million, and a decrease in cash to $2.9 million, with total stockholders' equity at $229.9 million Consolidated Statement of Operations Highlights (in thousands) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net sales | $682,952 | $686,683 | $727,662 | | Gross margin | $260,703 | $254,639 | $260,316 | | Income from operations | $27,084 | $31,941 | $24,263 | | Net Loss | $(15,165) | $(8,412) | $(6,166) | | Diluted Loss Per Share | $(0.71) | $(0.40) | $(0.29) | Consolidated Balance Sheet Highlights (in thousands) | Metric | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $373,568 | $376,355 | | Total Assets | $634,310 | $667,142 | | Total Current Liabilities | $151,743 | $151,968 | | Total Debt (Revolver + Term Loan) | $173,642 | $196,229 | | Total Stockholders' Equity | $229,923 | $230,879 | Consolidated Cash Flow Highlights (in thousands) | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $18,569 | $56,431 | | Net Cash from Investing Activities | $(2,227) | $(2,801) | | Net Cash from Financing Activities | $(29,490) | $(61,062) | | Decrease in Cash | $(13,260) | $(7,409) | Notes to Financial Statements The notes detail revenue disaggregation, debt covenants, derivative use, goodwill impairment, the $14.2 million loss on Vasconia investment, and a $5.4 million liability for the Wallace EPA matter Net Sales by Segment (in thousands) | Segment | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | U.S. segment | $627,202 | $633,079 | $669,179 | | International segment | $55,750 | $53,604 | $58,483 | | Total net sales | $682,952 | $686,683 | $727,662 | - In Q2 2024, the company lost significant influence over its investment in Grupo Vasconia S.A.B, leading to the discontinuation of the equity method of accounting and a non-cash loss of $14.2 million to reduce the investment to its fair value[422] - As of December 31, 2024, the company was in compliance with all covenants of its Debt Agreements, which include a maximum Total Net Leverage Ratio of 5.00 to 1.00[453][454] - The company has a remaining liability of $5.4 million as of December 31, 2024, related to the San Germán Ground Water Contamination site (Wallace EPA Matter)[532] - In February 2025, the company received a net settlement of $6.4 million related to a legal action commenced in 2015 by Taylor Precision Products, Inc., with this gain to be recognized in Q1 2025[533]