Lifetime Brands (LCUT) Q4 2006 earnings summary

Executive summary

• 2006 net sales rose 48.6% to $457.4 million; net income increased to $15.5 million, while diluted EPS fell to $1.14 from $1.23, reflecting higher share counts after equity and convertible-note issuances.

• Growth combined 13.9% wholesale organic sales growth, acquired Syratech and a full year of Pfaltzgraff direct-to-consumer operations; integration and infrastructure investments supported longer-term expansion plans.

Financial highlights

• Net sales were $457.4 million, up 48.6% YoY; income from operations was $29.8 million versus $25.2 million, and net income was $15.532 million versus $14.109 million.

• Diluted EPS from continuing operations was $1.14 versus $1.23; weighted-average diluted shares rose to 14.716 million from 11.506 million.

• Cost of sales was 58.1% of sales versus 57.9%; SG&A was 24.5% versus 22.7%, and operating income was 6.5% versus 8.2% of sales.

• Operating cash flow was negative $11.5 million; investing cash use was $64.9 million, financing cash provided was $75.7 million, and year-end cash was $150,000.

Outlook and guidance

• 2007 product development target: nearly 25% more introductions, or approximately 3,600 items; retail placement was expected to expand, including private-label programs at two major customers.

• Planned 2007 capital expenditures were $14.0 million, expected to be funded from operations and, if needed, credit-facility borrowings; liquidity was expected to cover operations for the next 12 months.

• First- and second-quarter 2007 net losses were expected due to seasonal sales patterns and fixed costs in direct-to-consumer and Syratech operations.

• Direct-to-consumer priorities for 2007 included higher sales per store, improved margins and tighter SG&A control; management aimed to substantially improve operating results.