Lifetime Brands (NASDAQ: LCUT) is not a household name, but the company sells a variety of kitchen products under well-known brands. Its common stock has lagged behind those of larger competitors, including Williams-Sonoma (NYSE: WSM) and Jarden (NYSE: JAH), and is significantly undervalued. Because of its smaller size, attractive fundamentals, international exposure and well-known kitchen products, Lifetime Brands offers a unique investment opportunity.
In addition, the company could be acquired by a larger competitor or a private equity firm because of its smaller size and advanced age of its veteran Chairman, CEO and President, Jeffrey Siegel (70+). Coincidentally, Siegel’s current employment agreement with the company ends on Dec. 31, 2013 and has an option to be renewed for one additional year.
Fundamentals and valuation
Lifetime owns the Mikasa, Platzgraff, Kamenstein, Elements, Melannco, Wallace Silversmiths, and Fred brands and licenses certain kitchenware made under the Farberware (183 years free license to utilize the brand in kitchenware and tabletop products), KitchenAid, Cusinart, Misto, V&A, and Royal Botanic Gardens Kew brands. The company sells its products wholesale (95.5% of 2012 sales) and direct retail through its own web sites (4.5%). Lifetime’s product category is kitchenware (55.1% of 2012 sales) followed by tabletop (24.5%), home solutions (11.2%) and creative tops (9.7%). It should benefit from its exclusive focus on the kitchen and table top products, strong relationships with leading online (Amazon.com) and brick and mortar retailers (Target, Wal-Mart and Kohl’s), and a recovering U.S. economy led by housing and consumer confidence.
As seen from the table below, Lifetime common stock has a number of valuation and fundamental measures that are more attractive than those of major competitors, Williams-Sonoma and Jarden. Importantly, Lifetime has no physical stores and can operate more efficiently than Williams-Sonoma. Also it focuses on fewer product categories than both Williams-Sonoma and Jarden. For example, Jarden sells over 100 consumer products brands ranging from products in outdoor recreation to animal solutions and consumer staples. On the negative side, Lifetime has the lowest margin as measured by EBITDA. On the upside, a margin expansion is likelier from Lifetime’s current low level.
|Enterprise value [EV]
|International sales %
|1-year total return (a/o April 5, 2013)
|Insider equity ownership (2012 proxy)
|Debt to equity
Source: Capital IQ, Thomson Reuters, SEC filings and author’s calculations; EBITDA – earnings before interest, tax, depreciation and amortization; CFO – cash flow from operations; PEG – price-to-earnings-to-growth
Lifetime’s international sales are more than 10% of its total sales. This is more than Williams-Sonoma’s but less than Jarden’s international sales. Importantly, Lifetime owns 30% and 40% of the equity of Grupo Vasconia (Mexico) and GS Internacional (Brazil), respectively. In addition, Lifetime has a 50% and 40% interest in China and Hong-Kong based partnerships, respectively. Lifetime accounts for these four investments under the equity method of accounting and in 2012 it generated $6.1 million of net income from these international partnerships. This represents 29% of Lifetime’s net income in 2012 of $20.95 million. Since three out of the four international investments were made in the past two years, it is likely that international exposure will rise from current levels.
Lifetime is a company that has solid growth prospects. In the U.S., the company should benefit from its focus on a relatively narrow market, increased consumer confidence, and a housing market stabilization and recovery. Internationally, it is well positioned to improve its participation in the kitchenware and table top markets in the emerging economies of Latin America and Asia.
At current valuation levels, the common stock appears to be trading more like a value stock. Instead it should have higher multiples as Lifetime is likely to continue growing in the next several years. An additional catalyst could be the sale of the company to a strategic or financial buyer. Lifetime’s executives and directors hold over 20% of the shares and it will not be a surprise if a shareholder-friendly transaction occurs in the near future. This is an especially popular exit for long-term CEOs who are also the major shareholder in smaller companies such as Lifetime.