Lifetime Brands: Homing in on the holidays
There’s a lot going on the kitchen, which is a good thing for Lifetime Brands, Inc. (Nasdaq: LCUT). From cutting boards, cookware, bakeware, glassware and cutlery, the company sells a growing menu of kitchen brands for the pickiest chefs and everyday cooks. Seasonal strength is about to meet an uncertain consumer: Lifetime’s kitchen is ready for the test.
Unknown to many, one could have an entire meal cleaned, chopped, cooked, baked, plated and served all with Lifetime’s brands without realizing it. Their more than 35 labels include Cuisinart, Sasaki, KitchenAid, Towle Silversmiths, Pfaltzgraff, Salton, Farberware, Calvin Klein Home and Elements. Operating in three areas—food preparation, tabletop and home décor—Lifetime is a glutton for names. Its strategy hinges on owning multiple brands in each product category, allowing it to attract consumers at various retail levels and broaden its distribution channels.
Garden City, N.Y.-based Lifetime believes sector growth is skewed toward mid- and premium-priced wares and away from the cheap goods of the Ma and Pa Kettles (they sell them too). The company markets through a variety of means including outlets, supermarkets, department stores, specialty shops, online retailers and major discount chains, creating a surfeit of sales avenues that result in Lifetime not being dependent on one or more major customers. Wal-Mart and Sam’s Club, for example, accounted for just 17% of fiscal 2006 sales; no other buyer had more than 10%.
Lifetime has been on a binge to build its stable of brands. Over the past ten years, the company has integrated ten acquisitions. This July, it completed its acquisition of the Gorham flatware business; in June, it signed an agreement to buy 30% of Ekco, S.A.B., a Mexican housewares company. As part of the purchase, Lifetime will launch a line of Vasconia brand kitchenware in early 2008 designed to appeal to the Latino/Hispanic market, 45 million strong and growing. The response to Vasconia from retailers has been positive, Lifetime says.
The fragmented industry also offers Lifetime opportunities to extend its acquisition program. There are more than 2,000 companies in the housewares market, many of whom are squeezed by the megastore-need to buy from suppliers who can deliver many products on a dependable schedule. Inherent costs of the business—cheaper imported goods and raw material prices—also push others aside.
Marketing and acquisitions notwithstanding, Lifetime understands that innovative products drive the market. The company has an in-house design team of about 100 people and in 2006 redesigned more than 3,000 products. It expects to do the same for about 3,600 in 2007.
An excellent idea, considering the kitchen is an innovation hot spot. Homeowners, while phasing out the fad for McMansions (fingers crossed), are maximizing kitchens. Long a gathering spot, kitchens now are outfitted as the home centerpiece, often spreading to outdoor space and into additional quarters used for food preparation to keep the mess out of guest view. According to the American Institute of Architects, kitchen area and the number of cooking spaces are increasing; a survey released in 2006 showed larger pantries and higher-end appliances were popular with the majority of buyers. Apparently, there’s ample room for that long-coveted pizza stone or tandoori oven.
A good dinner party topic would be Lifetime’s recent lesson as a growth company. Since 2002, its sales grew 37% each year through fiscal 2006, including input from its numerous acquisitions. Even without those, the company still has enviable organic revenue growth of 17%. Earnings per share in the same period increased 35% annually, and EBITDA advanced 38%. Lifetime’s market cap is now $260 million.
Shares have reflected that growth, moving up from about $5.00 in 2003; on Wednesday they settled at $19.36. But they hit a high in April last year of $30.06 and have yet to seriously challenge that level. Although the company has traded publicly since 1991, let’s call it a brush with maturity: Lifetime is fighting losses in its direct-to-market category, as well as struggling against the turbulent economy and perceptions that the housewares market will worsen with the home market.
Through the second quarter ended June 30, the company reported net sales of $91 million, up from $84 million in the same period of 2006. The company had a net loss of $0.15 per share, down from a loss of $0.11 in 2006. The loss was not unexpected because of the seasonality of Lifetime’s business. Long-term debt was 32% of capitalization, lower than many in the industry.
The company, citing general economic factors, also lowered revenue guidance for the 2007 fiscal year to $550 million, from $530 million, still up 15% from $467 million in 2006. Lifetime now expects earnings at $1.40 to $1.60 per share, up 32% from $1.14. The company previously forecasted earnings between $1.40 to $1.70 per share, and revenue at $540 million to $575 million. The guidance puts Lifetime’s PE at an attractive 13.
On its August 2 second quarter conference call, Lifetime said it expects double-digit organic sales growth this year and for the next three to five years. To back its optimism, the company announced a $20 million stock repurchase program.
Lifetime has two key rollouts in the third quarter: its launch of kitchen tools and gadgets for the Martha Stewart Collection at Macy’s and the launch of a line of Food Network-branded kitchen tools for Kohl’s. Lifetime’s third and fourth quarters are already seasonally strong, and the company is optimistic these rollouts will recharge the second half of the year. CEO Jeffrey Siegel, on the conference call, stressed that he sees the Vasconia line as a special opportunity.
As for the underlying business: “The segments that we’re in in housewares are doing very well…housewares (have not been) affected like major appliances or furniture,” Siegel said. Retailers are not moving purchases forward because of inventory buildup, nor are they squeezing price points. “Every retailer is focused on trying to sell a more expensive peeler or can opener” than they did last year, he said. “There are no major changes in the market.”
In the past year, Lifetime shares are up 1%, beating the underperforming personal and household products segment, which is down about 8%. There’s an industry word of caution from Standard & Poor’s, too, which expects gift items and travel-related goods to sell well but sees slower growth in storage and kitchen-oriented products.
The table is set for fall and winter baking and cooking, and home-for-the-holidays entertaining. Now it’s up to Lifetime to make it a season of giving to investors.
