Lifetime Brands, Inc. — FY2021 Form 10-K Summary
Business context and reporting period
Lifetime Brands designs, sources and sells branded kitchenware, tableware and home products, including Farberware, KitchenAid, Mikasa, Taylor, BUILT NY, KitchenCraft, Kamenstein, Pfaltzgraff, Rabbit and MasterClass. Products are sold primarily through mass merchants, specialty retailers, warehouse clubs, grocery stores and e-commerce channels. The Company reports U.S. and International operating segments.
This Form 10-K covers the fiscal year ended December 31, 2021, with comparisons to fiscal 2020 and 2019. The business is highly seasonal: 56% of 2021 net sales occurred in the third and fourth quarters.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net sales | $862.9 million | $769.2 million | +12.2% |
| Gross margin | $303.3 million; 35.2% | $274.0 million; 35.6% | Margin down 40 bps |
| Income from operations | $50.8 million; 5.9% | $25.0 million; 3.2% | +103.6% |
| Net income (loss) | $20.8 million | $(3.0) million | Returned to profitability |
| Diluted EPS | $0.94 | $(0.14) | Improved |
| Adjusted EBITDA | $95.1 million | $77.3 million | +23.0% |
| Cash flow from operations | $37.0 million | $44.8 million | Down $7.8 million |
U.S. net sales increased 12.7% to $770.6 million, led by Kitchenware sales of $487.8 million, up 14.3%, and Tableware sales of $167.2 million, up 18.5%. Home Solutions sales were essentially flat at $115.7 million. International net sales increased to $92.3 million from $85.7 million; constant-currency growth was approximately 1.6%.
Gross margin declined primarily because of higher inbound freight costs, product mix and the absence of a 2020 duty-exclusion benefit, partly offset by higher selling prices. SG&A increased only 0.6% to $156.9 million and declined to 18.2% of sales from 20.3%, while distribution expenses increased to $80.8 million but declined slightly as a percentage of sales to 9.4%.
At December 31, 2021, cash and cash equivalents were $28.0 million, accounts receivable were $175.1 million and inventory was $270.5 million, up from $203.2 million in 2020. Working capital was $270.8 million and the current ratio was 2.3 to 1.0.
Debt, liquidity and capital allocation
- Term Loan debt was $252.1 million, including $7.2 million estimated payable within 12 months; the Term Loan matures February 28, 2025.
- No borrowings were outstanding under the $150.0 million ABL facility at year-end. Reported ABL availability was $146.3 million after standby letters of credit.
- The Term Loan carried a 4.5% interest rate at December 31, 2021. Approximately $177.1 million of debt remained exposed to variable interest rates; the Company estimated that a 100-basis-point increase would raise annual interest expense by approximately $2.4 million.
- The Company was in compliance with debt covenants at year-end and believes cash flows and ABL availability are sufficient to fund operations for the next 12 months.
- Capital expenditures were $4.0 million. Cash dividends declared totaled $0.17 per share for 2021, and the Board declared another $0.0425 quarterly dividend payable in May 2022.
- Fixed operating lease commitments totaled $129.3 million, including $18.5 million payable in 2022. Estimated minimum future royalties totaled $13.4 million.
Material changes versus the prior comparable period
- Sales growth reflected stronger demand for kitchen and tableware products, higher selling prices, continued e-commerce demand and recovery among brick-and-mortar customers.
- Profitability improved materially despite lower gross margin, supported by sales growth, SG&A leverage, lower interest expense and a $1.1 million mark-to-market gain on interest-rate derivatives versus a $2.1 million loss in 2020.
- Operating cash flow decreased because of a $67.5 million investment in inventory and timing of payables and accrued expenses. Inventory turnover for the fourth quarter fell to 2.5 times, or 145 days, from 3.1 times, or 117 days.
- The International segment recorded a $14.8 million non-cash impairment charge on finite-lived intangible assets in the fourth quarter because of lower operating results associated with COVID-19 and Brexit-related effects. No goodwill impairment was recorded in 2021.
- The Company did not incur restructuring expense in 2021, compared with $0.2 million in 2020.
- The Company reduced its ownership in Grupo Vasconia to 24.7% through dilution and the sale of 2.2 million shares, receiving approximately $3.1 million in cash. Vasconia contributed $1.8 million of equity earnings before ownership-related losses and adjustments; total reported equity in earnings was $1.0 million.
- On February 26, 2021, the Company acquired the Year & Day business for $0.2 million. The acquisition was not material to 2021 results.
Guidance, outlook, management commentary and risks
The filing does not provide formal quantitative revenue or earnings guidance. Management expects supply-chain pressures, including freight costs, container shortages, port congestion, product-cost inflation and trucking constraints, to continue into 2022. The Company expects to expand distribution capacity in the Netherlands to support shipments from the U.K. to continental Europe.
Management identifies COVID-19, inflation, transportation costs, tariffs, international sourcing, Brexit, foreign exchange, customer concentration and retail-channel changes as significant uncertainties. Walmart represented 18% of 2021 sales, Costco 12% and Amazon 12%. Almost all products are sourced outside the United States, primarily from China, and most products are manufactured by third parties.
The Company holds a KitchenAid license that was scheduled to expire in December 2022 and relies on licensed brands for approximately 15% of gross sales. The Farberware license is royalty-free and extends to 2195, subject to earlier termination under specified circumstances.
In August 2021, a Puerto Rico subsidiary received an EPA-related Notice of Liability concerning groundwater contamination. The Company reserved $0.5 million for probable and estimable testing and remedial-design liabilities, but stated that its ultimate share of liability cannot currently be estimated and could be material. A separate U.S. Customs and Border Protection investigation could result in approximately $1.7 million of additional duties and potential penalties of up to $3.4 million for negligence or $6.8 million for gross negligence; the Company considers the potential loss reasonably possible but not probable.
On March 2, 2022, after year-end, the Company acquired certain S'well assets for $18.0 million in cash, subject to working-capital adjustments, plus up to $5.0 million of contingent consideration.
Most important facts for investors to verify
- Whether inventory levels and turnover normalize after the 2021 supply-chain-driven buildup.
- Whether higher freight, sourcing, labor and tariff costs can be recovered through pricing without further gross-margin erosion.
- The sustainability of U.S. segment operating performance and the potential for additional International asset impairments.
- Liquidity through the ABL maturity in March 2023 and Term Loan maturity in February 2025, including required excess-cash-flow repayments and covenant compliance.
- Renewal terms and economics of the KitchenAid license and continued access to other licensed brands.
- Progress and potential exposure related to the EPA Wallace matter and the CBP tariff-classification investigation.
- The integration, financing impact and contingent consideration associated with the S'well acquisition.
- Customer concentration and dependence on Walmart, Costco and Amazon, which together represented approximately 42% of 2021 sales.