Lifetime Brands, Inc. 2026 Q2 Earnings Call

Good morning, thank you for joining Lifetime Brands second quarter 2026 earnings call. With us today from management are Rob Kay, Chief Executive Officer, and Larry Winokur, 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. 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. Factors that could influence our results are highlighted in our earnings release. Any 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 earnings 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.

Please go ahead, Rob. Thank you, good morning.

We are pleased with our performance during the second quarter, which showed year-over-year growth as expected. The increase in gross margin and our bottom line was meaningfully driven by a benefit recognized from IEEPA tariff refunds. Top-line growth was notable, with net sales up 7.4% to $141.6 million, despite some timing delays on a few programs, which shifted revenues from these programs into the third and fourth quarter. The earnings growth we generated includes a benefit for the expected recovery of $40.1 million of tariffs we paid in 2025. Larry is going to walk through the numbers in detail. I wanted to spend a few minutes upfront on that refund, what it is, how it's accounted for, and what we're doing with it. Then get into how the underlying business performed.

Some of you will remember that on our last call, we were asked about the potential IEEPA tariff refund, and we said at the time that we weren't recognizing anything in our numbers or in our guidance, that we had paid $41.7 million and believed we were legally entitled to a refund, but there was still a path to travel, including the possibility of an appeal. That path has now largely played out. We have recorded a benefit of $40.1 million of tariff refunds and to date have received approximately $36 million in cash. The accounting is straightforward. We paid the tariffs in 2025, and they ran through cost of goods sold. Accordingly, the refund runs through cost of goods sold as well, which is reflected in our results for the second quarter.

That's why gross margin was 65.9% this quarter and why you're seeing such strong growth in operating income and EBITDA. I want to be straightforward about what we're doing with that money. First, we'll be paying taxes on it. Second, this income will be used to mitigate inflationary pressures that are being experienced in the economy and we are seeing flow through to Lifetime. We are also using this cash inflow to restore reductions in the business that we pulled back in 2025 to protect our bottom line against the tariff impact. We've already begun restored spending levels for growth and product investment back since the beginning of 2026. Finally, we're using it to strengthen our balance sheet, particularly through deleveraging. The tariffs meant we were carrying meaningfully more inventory value.

We paid duties before we ever sold the goods, and we had to shift production across our supply base to other geographies to manage the exposure. The tariff refund, combined with the cash flow the business is generating organically, lets us pay that borrowing back down. Since the end of the first quarter, we've repaid $40 million of term debt, $20 million in the second quarter and another $20 million in early July, funded by a combination of operating cash flow and the tariff refund. Separately, we're in the process of refinancing our outstanding debt, which includes the company's existing line of credit and its Term Loan B facility. As part of that, we expect to improve the mix and tenor of our debt and expect a reduction in our ongoing annualized interest expense.

On the underlying business, we beat last year's second quarter by nearly $10 million in net sales, so it was a relatively easy comparison. A year ago, right after the initial tariff actions, including the 145% rate on China and elevated rates across many other countries, resulted in us largely stopping shipping during that quarter. Against that backdrop, the 2026 second quarter was in line with our expectations. End markets remain soft across the majority of consumer durable categories, and some shipments shifted out of the second quarter into the third and fourth, driven both by market conditions and internal challenges related to our new Hagerstown, Maryland, distribution center, of which I will elaborate more shortly. Growth was led by our warehouse club programs and e-commerce. Setting the refund aside, gross margin in the underlying business also reflects mix.

We added meaningful club channel volume this year that carries a lower margin than our average. Additionally, as we have previously discussed in the impact of tariffs and our pricing mitigation strategy, this has led to lower gross margin percentages as we focus on maintaining gross margin dollars. Today, we are maintaining our full-year net sales guidance as issued at $650 million to $700 million. We're raising our earnings and adjusted EBITDA guidance to reflect the tariff refund, offset by the cost of the additional investments I referenced above, which has also factored in inflationary and other impacts related to increased investment. That's not a change to our organic outlook for the underlying business.

We continue to watch the ongoing impact of geopolitical conditions and inflation, including higher ocean freight costs on our end markets for the rest of the year. We built a degree of caution into our guidance as a result. On new product, our newly redesigned Farberware kitchen tool line relaunched in the second quarter. Early sell-through has been very encouraging. We started this program about a year ago as a refresh to our very popular and successful product line with a redesigned look while holding competitive price points on shelf. We also extended our Dolly Parton license for another three years, a good reflection of how that partnership continues to perform for us. International continues to narrow its losses. Sales were up. Year-to-date losses were meaningfully lower than the same period last year, with most of that improvement coming in the second quarter.

Project Concorde remains on plan. We're implementing the final cost actions now. We're actively evaluating options around the U.K. facility that could further improve this segment's performance. We remain on track for International to reach break even on a pro forma basis in 2026. The Hagerstown D.C. is online. As we've discussed before, bringing up a facility of this scale comes with start-up costs and operational disruption. That had a negative effect on the second quarter as efficiencies started out low. Shipments were adversely impacted. We expect to continue the smaller impact in the third quarter as we finish the ramp. We expect to be fully operational by the fourth quarter. At this point, we believe that our full-year guidance, as presented, captured these incremental one-time costs. If operational disruptions continue, one-time start-up costs could exceed our previously disclosed estimates.

As we have previously announced, we look forward to presenting our longer-term strategy at our Investor Day this December, which we will be providing more details on shortly. To sum up, a good quarter for the underlying business against a still soft end market backdrop and an exceptional one on a reported basis given the $40.1 million tariff refund. We're using that money to pay the associated taxes, restore reductions we pulled back in 2025, and strengthen our balance sheet, including $40 million of term debt paid down since the end of the first quarter. We're reaffirming our net sales guidance, raising our earnings guidance to reflect the refund. We're staying focused on the fundamentals, getting Hagerstown to full operation, Project Concorde and International's path to break even, and continued momentum from our core lines, including Farberware and from our licensed portfolio.

With that, let me turn it over to Larry to go through the financials in more detail.