LIFETIME BRANDS, INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations This Quarterly Report on Form 10-Q of Lifetime Brands, Inc. (the “Company” and, unless the context otherwise requires, references to the “Company” shall include its consolidated subsidiaries), contains “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. These forward-looking statements include information concerning the Company’s plans, objectives, goals, strategies, future events, future revenues, performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, in Management’s Discussion and Analysis of Financial Condition and Results of Operations. When used in this Quarterly Report on Form 10-Q, the words “estimates,” “expects,” “intends,” “predicts,” “plans,” “believes,” “may,” “should,” “would,” and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including, without limitation, those based on the Company’s examination of historical operating trends, are based upon the Company’s current expectations and various assumptions. The Company believes there is a reasonable basis for its expectations and assumptions, but there can be no assurance that the Company will realize its expectations or that the Company’s assumptions will prove correct. There are a number of risks and uncertainties that could cause the Company’s actual results to differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Important factors that could cause the Company’s actual results to differ materially from those expressed as forward-looking statements include, without limitation, those set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the “2024 Annual Report on Form 10-K”) in Part I, Item 1A under the heading Risk Factors, and in the Company’s subsequent filings with the U.S. Securities and Exchange Commission (the “SEC”). Such risks, uncertainties and other important factors include, among others, risks related to: • Macroeconomic conditions, including labor disputes, depreciation of the U.S. dollar, volatility in the capital markets, inflationary impacts and disruptions to the global supply chain; • Increase in supply chain costs, including raw materials, sourcing, transportation and energy; • The impact of tariffs and trade policies, particularly with respect to China; • Indebtedness, compliance with credit agreements, and access to credit markets; • Access to the capital markets and credit markets; • The seasonality of the Company’s cash flows; • The Company’s ability to complete acquisitions or successfully integrate acquisitions; • Intense market competition, changing customer practices or preferences and inventory rationalization among retailers; • Dependence on third-party manufacturers; • Technology, cybersecurity and data privacy risks; • Geopolitical conditions, including political instability in the U.S. and abroad, unrest and sanctions, war, conflict, including the ongoing conflicts between Russia and the Ukraine, conflicts in the Middle East, and increasing tensions between China and Taiwan; • Legislative and regulatory risk, including those relating to the recent enactment of the OBBBA and the impact of a continued shutdown of the U.S. government; • Product liability claims; and • Reputational risks. There may be other factors that may cause the Company’s actual results to differ materially from the forward-looking statements. Except as may be required by law, the Company undertakes no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events. The Company is required to file its Annual Reports on Forms 10-K, Quarterly Reports on Forms 10-Q, Current Reports on Form 8-K, and other reports and documents as required from time to time with the SEC. The Company also maintains a website at http://www.lifetimebrands.com . Information contained on this website is not a part of or incorporated by reference into this Quarterly Report on Form 10-Q. The Company makes available on its website the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to these reports as soon as reasonably - 30 - Table of Contents practicable after these reports are filed with or furnished to the SEC. Users can access these reports free of charge on the Company’s website. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding the Company’s electronic filings with the SEC at http://www.sec.gov. The Company intends to use its website as a means of disclosing material non-public information and for complying with its disclosure obligations under Regulation FD. Such disclosures will be included on the Company’s website in the ‘Investor Relations’ section. Accordingly, investors should monitor such portion of the Company’s website, in addition to following the Company's press releases, SEC filings and public conference calls and webcasts. ABOUT THE COMPANY The Company designs, sources and sells branded kitchenware, tableware and other products used in the home. The Company’s product categories include two categories of products used to prepare, serve, and consume foods: Kitchenware (kitchen tools, cutlery, kitchen scales, thermometers, cutting boards, shears, cookware, pantryware, spice racks, and bakeware) and Tableware (dinnerware, stemware, flatware, and giftware); and one category, Home Solutions, which comprises other products used in the home (thermal beverageware, bath scales, weather and outdoor household products, food storage, neoprene travel products and home décor). The Company markets several product lines within each of its product categories and under most of the Company’s brands, primarily targeting moderate price points through virtually every major level of trade. The Company believes it possesses certain competitive advantages based on its brands, its emphasis on innovation and new product development, and its sourcing capabilities. The Company owns or licenses a number of leading brands in its industry, including Farberware ® , KitchenAid ® Mikasa ® , Taylor ® , Pfaltzgraff ® , Built NY ® , S’well ® , Fred ® & Friends, KitchenCraft ® , Rabbit ® , Kamenstein ® , and Dolly ® . Historically, the Company’s sales growth has come from expanding product offerings within its product categories, by developing existing brands, acquiring new brands (including complementary brands in markets outside the United States), and establishing new product categories. Key factors in the Company’s growth strategy have been the selective use and management of the Company’s brands and the Company’s ability to provide a stream of new products and designs. A significant element of this strategy is the Company’s in-house design and development teams that create new products, packaging and merchandising concepts. RECENT DEVELOPMENTS The Company sources almost all of its product from third-party manufacturers outside the U.S., primarily in China. This geographic concentration in suppliers exposes the Company to risks associated with doing business globally, including risks relating to changes in U.S. tariff and trade policies. New or increased tariffs, quotas, embargoes, or other trade barriers could adversely impact our supply chain and cost structure. To mitigate the impact of these tariffs, the Company has negotiated price increases to its U.S. customers, negotiated lower product costs with its foreign suppliers and pursues diversification of its foreign sourced products to countries that are expected to be subject to lower tariffs. The Company's tariff mitigation strategy is intended to maintain the Company's gross margin dollars and therefore, may result in a decline in gross margin percentage. If tariffs rates were to increase further and the Company is unable to mitigate the impact of the increase cost, it would result in lower gross margin from the sale of its products. The broader macroeconomic impacts related to the changes in tariff policies including potential mitigation efforts by retailers may negatively impact consumer spending and buying patterns of the Company's products. This could materially adversely affect the Company’s results of operations and financial condition. In January 2025, the Company announced the relocation of the Company’s east coast distribution operations currently located in Robbinsville, NJ (the “Robbinsville Facility”) to Hagerstown, Maryland (the “Hagerstown Facility”). In connection with the relocation, the Company expects to incur exit costs of approximately $7.0 million for employee severance, certain employee relocation costs, and remaining lease costs for the Robbinsville Facility, which costs are expected to be incurred in 2025 and 2026. The Hagerstown Facility will require capital expenditures for equipment and certain leasehold improvements of approximately $9.0 million. Start-up costs are estimated to be approximately $7.0 million, which includes recruitment, relocation of inventory, set up costs and lease expenses prior to the Hagerstown Facility being fully operational. These one-time costs are expected to be incurred in 2026. The Company expects that the Hagerstown Facility will be operational in the second quarter of 2026. Additionally, in connection with the relocation to the Hagerstown Facility, the Company will receive tax abatement and incentives over the term of the lease from the State of Maryland and Washington County, Maryland totaling approximately $13.1 million. These incentives include real property tax abatement, employee state withholding tax credit, conditional grants and income tax credits. - 31 - Table of Contents In January 2025, the Company launched Project Concord, management's comprehensive plan to propel growth and streamline the cost structure of its International operations. The Company expects this plan to improve future results of its International segment through sales growth and the identified costs efficiencies. On July 8, 2025, the Company announced a reorganization of its international workforce in connection with Project Concord. The reorganization primarily affected the structure of the International segment's merchandising and sales workforce. The restructuring expenses related to severance associated with the reorganization of $0.3 million was recorded in the third quarter of 2025. BUSINESS SEGMENTS The Company operates in two reportable segments: U.S. and International. The U.S. segment is the Company’s domestic business that designs, markets and distributes its products to retailers and distributors, as well as directly to consumers through third parties and its own internet websites primarily in the U.S.. The International segment is the Company’s international business that sells and distributes products to consumers primarily in the U.K., the European Union and the Asia Pacific region. Additional information regarding the Company’s reportable segments is included in NOTE 11 – BUSINESS SEGMENTS of the Notes to the condensed consolidated financial statements included in Item 1. SEASONALITY The Company’s business and working capital needs are seasonal, with a majority of sales occurring in the third and fourth quarters. In 2024 and 2023, net sales for the third and fourth quarters accounted for 58% and 57% of total annual net sales, respectively. In anticipation of the pre-holiday shipping season, inventory levels increase primarily in the June through October time period. Consistent with the seasonality of the Company’s net sales and inventory levels, the Company also experiences seasonality in its inventory turnover and turnover days from one quarter to the next. CRITICAL ACCOUNTING ESTIMATES There have been no material changes to the Company’s critical accounting estimates discussed in the 2024 Annual Report on Form 10-K in Item 7 under the heading Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates . - 32 - Table of Contents RESULTS OF OPERATIONS The following table sets forth statements of operations data of the Company as a percentage of net sales for the periods indicated: Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 64.9 63.3 63.5 61.6 Gross margin 35.1 36.7 36.5 38.4 Distribution expenses 10.4 10.9 12.0 11.0 Selling, general and administrative expenses 20.6 21.1 23.5 24.9 Goodwill impairment — — 7.5 — Restructuring expenses 0.2 — 0.1 — Income (loss) from operations 3.9 4.7 (6.6) 2.5 Interest expense (2.9) (3.2) (3.4) (3.5) Mark to market loss on interest rate derivatives — (0.5) (0.2) (0.3) Loss on equity securities — — — (3.0) Income (loss) before income taxes and equity in losses 1.0 1.0 (10.2) (4.3) Income tax (provision) benefit (1.7) (0.8) — (0.4) Equity in losses, net of taxes — — — (0.4) Net (loss) income (0.7) % 0.2 % (10.2) % (5.1) % - 33 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS THREE MONTHS ENDED SEPTEMBER 30, 2025 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2024 Net Sales Consolidated net sales for the three months ended September 30, 2025 were $171.9 million, representing a decrease of $11.9 million, or 6.5%, as compared to net sales of $183.8 million for the corresponding period in 2024. In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2025 average rates to 2024 local currency amounts, consolidated net sales decreased by $12.5 million, or 6.8%, as compared to consolidated net sales in the corresponding period in 2024. Net sales for the U.S. segment for the three months ended September 30, 2025 were $158.1 million, a decrease of $12.1 million, or 7.1%, as compared to net sales of $170.2 million for the corresponding period in 2024. For the three months ended September 30, 2025, net sales were favorably impacted by higher selling prices, reflecting the implementation of price increases for the Company's U.S. customers that became effective during the third quarter of 2025. This impact was offset by lower sales volume, as price increases softened consumer demand and certain retailers shifted the timing of orders. Net sales for the U.S. segment’s Kitchenware product category were $98.6 million for the three months ended September 30, 2025, an increase of $1.3 million, or 1.3%, as compared to $97.3 million for the corresponding period in 2024. The increase was driven by higher sales for cutlery and boards and kitchen measurement products. These increases were offset by a reduction in sales for bakeware and barware products. Net sales for the U.S. segment’s Tableware product category were $31.6 million for the three months ended September 30, 2025, a decrease of $9.3 million, or 22.7%, as compared to $40.9 million for the corresponding period in 2024. The decrease was attributable to lower warehouse club programs for dinnerware and flatware. Net sales for the U.S. segment’s Home Solutions product category were $27.9 million for the three months ended September 30, 2025, a decrease of $4.1 million, or 12.8%, as compared to $32.0 million for the corresponding period in 2024. The decrease was attributable to lower sales for home décor and bath measurement products, which was partially offset by higher sales in the back-to-school lunch box category. Net sales for the International segment were $13.8 million for the three months ended September 30, 2025, an increase of $0.2 million, or 1.5%, as compared to net sales of $13.6 million for the corresponding period in 2024. In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations, net sales decreased by $0.4 million, or 2.7%, as compared to consolidated net sales in the corresponding period in 2024. The decrease in constant currency net sales was driven by lower sales in the U.K., partially offset by higher sales in the Asia Pacific region. Gross margin Gross margin for the three months ended September 30, 2025 was $60.4 million, or 35.1%, as compared to $67.4 million, or 36.7%, for the corresponding period in 2024. Gross margin for the U.S. segment was $55.5 million, or 35.1%, for the three months ended September 30, 2025, as compared to $62.7 million, or 36.8%, for the corresponding period in 2024. The decrease in the gross margin percentage was attributable to higher selling prices, offset by higher tariffs. The decrease in gross margin dollars was driven by lower sales volume. Gross margin for the International segment was $4.9 million, or 35.5%, for the three months ended September 30, 2025, as compared to $4.7 million, or 34.6%, for the corresponding period in 2024. The increase in gross margin percentage was driven by customer and product mix. Distribution expenses Distribution expenses for the three months ended September 30, 2025 were $17.9 million, as compared to $20.0 million for the corresponding period in 2024. Distribution expenses as a percentage of net sales were 10.4% for the three months ended September 30, 2025, as compared to 10.9% for the three months ended September 30, 2024. Distribution expenses as a percentage of net sales for the U.S. segment were 9.0% and 9.7% for the three months ended September 30, 2025 and 2024, respectively. Distribution expense during the three months ended September 30, 2025 and 2024 included $0.1 million and $0.6 million, respectively, for redesign costs related to the Company's warehouses. As a percentage - 34 - Table of Contents of sales shipped from the Company’s U.S. warehouses, excluding non-recurring expenses, distribution expenses were 8.5% and 10.1% for the three months ended September 30, 2025 and 2024, respectively. The decrease in expenses as a percentage of sales was attributable to lower depreciation expense due to changes in asset retirement obligation estimates in the prior year, improved labor management efficiencies resulting in a decrease of employee expenses and higher sales volume due to sales mix resulting in a favorable impact of fixed expenses. The decrease was partially offset by higher software expenses due to the launch of a new warehouse management system at the Company's west coast distribution center in September 2024. Distribution expenses as a percentage of net sales for the International segment were 27.1% for the three months ended September 30, 2025, compared to 25.4% for the corresponding period in 2024. As a percentage of sales shipped from the Company’s international warehouses distribution expenses were 22.6% and 24.2% for the three months ended September 30, 2025 and 2024, respectively. The decrease in expenses as a percentage of sales was due to lower freight-out expenses and higher shipment volume due to sales mix resulting in favorable impact of fixed expenses, partially offset by an increase in expense due to expanded distribution of the Company's products within the Asia Pacific region. Selling, general and administrative expenses Selling, general and administrative expenses for the three months ended September 30, 2025 were $35.5 million, a decrease of $3.3 million, or 8.5%, as compared to $38.8 million for the corresponding period in 2024. Selling, general and administrative expenses for the U.S. segment were $28.4 million for the three months ended September 30, 2025, as compared to $29.9 million for the corresponding period in 2024. As a percentage of net sales, selling, general and administrative expenses were 18.0% and 17.6% for the three months ended September 30, 2025 and 2024, respectively. The decrease in selling, general and administrative expenses was attributable to lower employee expenses, including incentive compensation, partially offset by an increase in amortization expense related to an indefinite-lived trade name, which was reclassified to a finite-lived trade name in the fourth quarter 2024. The increase in selling, general and administrative expenses as a percentage of net sales, was attributable to the impact of fixed costs on lower sales volume. Selling, general and administrative expenses for the International segment were $3.4 million for the three months ended September 30, 2025, as compared to $4.5 million for the corresponding period in 2024. As a percentage of net sales, selling, general and administrative expenses were 24.6% and 33.1% for the three months ended September 30, 2025 and 2024, respectively. The decrease in expenses was due to lower employee expenses, lower advertising and commission expenses, and the prior year expense included penalties related to tax filings. Unallocated corporate expense for the three months ended September 30, 2025 was $3.7 million, as compared to $4.3 million for the corresponding period in 2024. The decrease compared to the prior period was due to lower incentive compensation and legal expenses. Restructuring expense Restructuring expenses for the International segment were $0.3 million for the three months ended September 30, 2025, which was related to severance associated with the reorganization of the International segment's workforce. The reorganization is in connection with Project Concord and primarily affects the structure of the International segment's merchandising and sales workforce. Interest expense Interest expense was $5.0 million and $5.8 million for the three months ended September 30, 2025 and 2024, respectively. The decrease in expense was a result of lower average outstanding borrowings in the current period, and lower interest rates on outstanding borrowings. Mark to market loss on interest rate derivatives Mark to market loss on interest rate derivatives was $0.01 million for the three months ended September 30, 2025, as compared to $0.9 million for the three months ended September 30, 2024. The loss recognized for the three months ended September 30, 2025 and 2024, respectively, was attributable to the change in the fair value due to the change in the projected interest rate environment. The mark to market amount represents the change in fair value on the Company’s interest rate derivatives that have not been designated as hedging instruments. These derivatives were entered into for purposes of locking-in a fixed interest rate on a portion of the Company’s variable interest rate debt. As of September 30, 2025, the intent of the Company is to hold these derivative contracts until their maturity. Income taxes - 35 - Table of Contents Income tax provision of $2.9 million and $1.5 million for the three months ended September 30, 2025 and 2024, respectively, represent taxes on both U.S. and foreign earnings at a combined effective income tax provision rate of 171.1% and 81.4%, respectively. The effective tax rate for the three months ended September 30, 2025 differs from the federal statutory income tax rate of 21.0% primarily due to the impact of non-deductible expenses, foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance and a partial valuation allowance on U.S. deferred tax assets that are not more likely than not to be realized as a result of the goodwill impairment in the second quarter. The effective tax rate for the three months ended September 30, 2024 differs from the federal statutory income tax rate of 21.0% primarily due to foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance. MANAGEMENT’S DISCUSSION AND ANALYSIS NINE MONTHS ENDED SEPTEMBER 30, 2025 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2024 Net Sales Consolidated net sales for the nine months ended September 30, 2025 were $443.9 million, a decrease of $23.8 million, or 5.1%, as compared to net sales of $467.7 million for the corresponding period in 2024. In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2025 average rates to 2024 local currency amounts, consolidated net sales decreased by $24.9 million, or 5.3%, as compared to consolidated net sales in the corresponding period in 2024. Net sales for the U.S. segment for the nine months ended September 30, 2025 were $406.0 million, a decrease of $25.2 million, or 5.8%, as compared to net sales of $431.2 million for the corresponding period in 2024. For the nine months ended September 30, 2025, net sales were favorably impacted by higher selling prices, reflecting the implementation of price increases for the Company's U.S. customers that became effective during the third quarter of 2025. This impact was offset by lower sales volume, as price increases softened consumer demand and certain retailers shifted the timing of orders. Net sales for the U.S. segment’s Kitchenware product category were $260.7 million for the nine months ended September 30, 2025, a decrease of $1.0 million, or 0.4%, as compared to $261.7 million for the corresponding period in 2024. The decrease was driven by lower sales for kitchen tools, bakeware and barware, partially offset by higher sales for cutlery and boards and kitchen measurement products. Net sales for the U.S. segment’s Tableware product category were $80.5 million for the nine months ended September 30, 2025, a decrease of $12.5 million, or 13.4%, as compared to $93.0 million for the corresponding period in 2024. The decrease was driven by lower flatware sales due to a warehouse club program not repeated, partially offset by higher sales in dinnerware in the dollar channel. Net sales for the U.S. segment’s Home Solutions product category were $64.8 million for the nine months ended September 30, 2025, a decrease of $11.7 million, or 15.3%, as compared to $76.5 million for the corresponding period in 2024. The decrease was attributable to lower sales of hydration products and bath measurement products. The decrease was partially offset by higher sales in the back-to-school lunch box category. Net sales for the International segment were $37.9 million for the nine months ended September 30, 2025, an increase of $1.4 million, or 3.8%, as compared to net sales of $36.5 million for the corresponding period in 2024. In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations, net sales increased by $0.3 million, or 0.9%, as compared to consolidated net sales in the corresponding period in 2024. The increase was attributable to higher sales in the Asia Pacific region, partially offset by lower sales in the U.K. Gross margin Gross margin for the nine months ended September 30, 2025 was $161.9 million, or 36.5%, as compared to $179.5 million, or 38.4%, for the corresponding period in 2024. Gross margin for the U.S. segment was $148.9 million, or 36.7%, for the nine months ended September 30, 2025, as compared to $166.5 million, or 38.6%, for the corresponding period in 2024. The decrease in the gross margin percentage was attributable to higher selling prices, offset by higher tariffs. The decrease in gross margin dollars was driven by lower sales volume. - 36 - Table of Contents Gross margin for the International segment was $13.0 million, or 34.3%, for the nine months ended September 30, 2025, as compared to $13.0 million, or 35.6%, for the corresponding period in 2024. The decrease in gross margin percentage was driven by customer and product mix. Distribution expenses Distribution expenses for the nine months ended September 30, 2025 were $53.3 million, as compared to $51.3 million for the corresponding period in 2024. Distribution expenses as a percentage of net sales were 12.0% for the nine months ended September 30, 2025, as compared to 11.0% for the nine months ended September 30, 2024. Distribution expenses as a percentage of net sales for the U.S. segment were 10.5% and 9.6% for the nine months ended September 30, 2025 and 2024, respectively. Distribution expenses during the nine months ended September 30, 2025 and 2024 included $0.2 million and $0.7 million, respectively, for redesign costs related to the Company's warehouses. As a percentage of sales shipped from the Company’s U.S. warehouses, excluding non-recurring expenses, distribution expenses were 10.3% and 10.0% for the nine months ended September 30, 2025 and 2024, respectively. The increase in expenses as a percentage of sales was attributable to an increase in freight-out expenses, higher software expenses due to the launch of a new warehouse management system at the Company's west coast distribution center in September 2024, partially offset by lower depreciation expense due to changes in asset retirement obligation estimates in the prior year. Distribution expenses as a percentage of net sales for the International segment were 28.4% for the nine months ended September 30, 2025, compared to 26.9% for the corresponding period in 2024. As a percentage of sales shipped from the Company’s international warehouses, distribution expenses were 24.6% and 24.3% for the nine months ended September 30, 2025 and 2024, respectively. The increase in expenses as a percentage of sales was primarily attributed to higher warehouse expenses related to the expanded distribution of the Company's products within the Asia Pacific region, partially offset by a decrease in freight-out expenses. Selling, general and administrative expenses Selling, general and administrative expenses for the nine months ended September 30, 2025 were $104.5 million, a decrease of $12.1 million, or 10.4%, as compared to $116.6 million for the corresponding period in 2024. Selling, general and administrative expenses for the U.S. segment were $87.9 million for the nine months ended September 30, 2025, as compared to $90.2 million for the corresponding period in 2024. As a percentage of net sales, selling, general and administrative expenses were 21.7% and 20.9% for the nine months ended September 30, 2025 and 2024, respectively. The decrease in selling, general and administrative expenses was attributable to lower employee expenses, including incentive compensation, partially offset by an increase in provision for doubtful accounts in the current period, and an increase in amortization expense related to an indefinite-lived trade name, which was reclassified to a finite-lived trade name in the fourth quarter 2024. The increase in selling, general and administrative expenses as a percentage of net sales, was attributable to the impact of fixed costs on lower sales volume. Selling, general and administrative expenses for the International segment were $10.8 million for the nine months ended September 30, 2025, as compared to $12.5 million for the corresponding period in 2024. As a percentage of net sales, selling, general and administrative expenses were 28.5% and 34.2% for the nine months ended September 30, 2025 and 2024, respectively. The decrease was primarily attributable to foreign currency exchange gains, lower advertising expenses and commissions, and the prior year expense included penalties related to tax filings. Unallocated corporate expenses for the nine months ended September 30, 2025 were $5.8 million, as compared to expenses of $13.9 million for the corresponding period in 2024. The decrease in expenses was driven by the recognition of a net legal settlement gain of $6.4 million in the current period, lower incentive compensation, legal expenses and professional fees, partially offset by an increase in stock compensation expense. Goodwill impairment During the second quarter of 2025, the Company’s qualitative assessment of goodwill indicated triggering events had occurred in its U.S. reporting unit. The Company performed an interim impairment test of the goodwill in the U.S. reporting unit as of June 30, 2025, that resulted in a $33.2 million non-cash goodwill impairment charge. Restructuring expense Restructuring expenses for the International segment were $0.3 million for the nine months ended September 30, 2025, which was related to severance associated with the reorganization of the International segment's workforce. The reorganization is in - 37 - Table of Contents connection with Project Concord and primarily affects the structure of the International segment's merchandising and sales workforce. Interest expense Interest expense was $15.0 million and $16.6 million for the nine months ended September 30, 2025 and 2024, respectively. The decrease in expense was a result of lower average outstanding borrowings in the current period, and lower interest rates on outstanding borrowings. Mark to market loss on interest rate derivatives Mark to market loss on interest rate derivatives was $0.8 million for the nine months ended September 30, 2025, as compared to $1.2 million for the nine months ended September 30, 2024. The decrease was attributable to the change in the fair value based on the increase in interest rates. The mark to market amount represents the change in fair value on the Company’s interest rate derivatives that have not been designated as hedging instruments. These derivatives were entered into for purposes of locking-in a fixed interest rate on a portion of the Company’s variable interest rate debt. As of September 30, 2025, the intent of the Company is to hold these derivative contracts until their maturity. Loss on equity securities Loss on equity securities was $14.2 million for the nine months ended September 30, 2024. In the second quarter of 2024, the Company lost significant influence over its investment in Vasconia and discontinued the equity method of accounting. This change resulted in the reclassification of previously recognized accumulated other comprehensive losses to the investment balance and subsequently resulted in a non-cash loss of $14.2 million, to reduce the investment to its fair value. NOTE 4 —INVESTMENT for additional information. Income taxes Income tax benefit of $(0.1) million and income tax provision of $1.7 million for the nine months ended September 30, 2025 and 2024, respectively, represent taxes on both U.S. and foreign earnings at a combined effective income tax benefit rate of 0.14% and provision rate of (8.2)%, respectively. The effective tax rate for the nine months ended September 30, 2025 differs from the federal statutory income tax rate of 21.0% primarily due to a partial valuation allowance on U.S. deferred tax assets that are not more likely than not to be realized as a result of the goodwill impairment in the second quarter. The negative rate for the nine months ended September 30, 2024 reflects tax expense on a pretax financial reporting loss. The effective tax rate for the nine months ended September 30, 2024 differs from the federal statutory income tax rate of 21.0% primarily due to the impact of non-deductible expenses and foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance. Equity in losses, net of taxes Equity in losses of Vasconia, net of taxes , was $2.1 million for the nine months ended September 30, 2024. - 38 - Table of Contents LIQUIDITY AND CAPITAL RESOURCES The Company’s principal sources of cash to fund liquidity needs are: (i) cash provided by operating activities and (ii) borrowings available under its revolving credit facility under the ABL Agreement, as defined below. The Company’s primary uses of funds consist of working capital requirements, capital expenditures, acquisitions and investments, payments of dividends, and payments of principal and interest on its debt. At September 30, 2025, the Company had cash and cash equivalents of $12.1 million, compared to $2.9 million at December 31, 2024. Working capital was $236.4 million at September 30, 2025, compared to $221.8 million at December 31, 2024. Liquidity as of September 30, 2025 was $50.9 million, consisting of $12.1 million of cash and cash equivalents, $25.2 million of availability under the ABL Agreement, limited by the Term Loan financial covenant, and $13.6 million of available funding under the Receivables Purchase Agreement. Inventory, a large component of the Company’s working capital, is expected to fluctuate from period to period, with inventory levels higher primarily in the June through October time period. The Company also expects inventory turnover to fluctuate from period to period based on product and customer mix. Certain product categories have lower inventory turnover rates as a result of minimum order quantities from the Company’s vendors or customer replenishment needs. Certain other product categories experience higher inventory turns due to lower minimum order quantities or trending sale demands. For the three months ended September 30, 2025, inventory turnover was 2.0 times, or 181 days, as compared to 2.1 times, or 175 days, for the three months ended September 30, 2024. Inventory turns have remained relatively consistent. The Company believes that availability under the revolving credit facility under its ABL Agreement, cash on hand and cash flows from operations are sufficient to fund the Company’s operations for the next twelve months. However, if circumstances were to adversely change, the Company may seek alternative sources of liquidity including debt and/or equity financing. However, there can be no assurance that any such alternative sources would be available or sufficient. The Company closely monitors the creditworthiness of its customers. Based upon its evaluation of changes in customers’ creditworthiness, the Company may modify credit limits and/or terms of sale. However, notwithstanding the Company’s efforts to monitor its customers’ financial condition, the Company could be materially adversely affected by future changes in these conditions. Indebtedness On August 26, 2022, the Company entered into Amendment No. 2 (the “Amendment”) to the Company’s credit agreement, dated as of March 2, 2018 (as amended, the “ABL Agreement”) among the Company, as a Borrower, certain subsidiaries of the Company, as Borrowers and/or Loan Parties, JPMorgan Chase Bank, N.A., as Administrative Agent and a Lender. The ABL Agreement provides for a senior secured asset-based revolving credit facility in the maximum aggregate principal amount of $200.0 million, which facility will mature on August 26, 2027. On November 14, 2023, the Company entered into Amendment No. 2 to amend the Loan Agreement, dated as of March 2, 2018, among the Company, as borrower, the other loan parties from time to time party thereto, the lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., as Administrative Agent (as amended, the “Term Loan” and together with the ABL Agreement, the “Debt Agreements”). The Term Loan has a principal amount of $150.0 million, and matures on August 26, 2027. The Term Loan requires the Company to make quarterly payments of principal each equal to 1.25% of the aggregate principal amount of the Term Loan, which commenced on March 31, 2024, with the remaining balance payable on the maturity date. The Term Loan requires the Company to make an annual prepayment of principal, beginning with those for the fiscal year ending December 31, 2024, based upon a percentage of the Company’s excess cash flow, (“Excess Cash Flow”), if any. The percentage applied to the Company’s Excess Cash Flow is based on the Company’s Total Net Leverage Ratio (as defined in the Debt Agreements). When an Excess Cash Flow payment is required, each lender has the option to decline a portion or all of the prepayment amount payable to it. Per the Term Loan, when the Company makes an Excess Cash Flow prepayment, the payment is first applied to satisfy the next eight (8) scheduled future quarterly required payments of the Term Loan in order of maturity and then to the remaining scheduled installments on a pro rata basis. The maximum borrowing amount under the ABL Agreement may be increased to up to $250.0 million if certain conditions are met. One or more tranches of additional term loans (the “Incremental Term Facilities”) may be added under the Term Loan if certain conditions are met. The Incremental Facilities may not exceed the sum of (i) $50.0 million plus (ii) an unlimited amount so long as, in the case of (ii) only, the Company’s secured net leverage ratio, as defined in and computed on a pro forma basis - 39 - Table of Contents pursuant to the Term Loan, after giving effect to such increase, is no greater than 3.25 to 1.00, subject to certain limitations and for the period defined pursuant to the Term Loan but not to mature earlier than the maturity date of the then existing term loans. As of September 30, 2025 and December 31, 2024, the total availability under the ABL Agreement were as follows (in thousands): September 30, 2025 December 31, 2024 Maximum aggregate principal allowed $ 200,000 $ 176,329 Outstanding borrowings under the ABL Agreement (62,411) (42,693) Standby letters of credit (11,564) (8,828) Total availability under the ABL Agreement $ 126,025 $ 124,808 Availability under the ABL Agreement is limited to the lesser of the $200.0 million commitment thereunder and the borrowing base and therefore depends on the valuation of certain current assets comprising the borrowing base. The borrowing capacity under the ABL Agreement will depend, in part, on eligible levels of accounts receivable and inventory that fluctuate regularly. Due to the seasonality of the Company’s business, the Company may have greater borrowing availability during the third and fourth quarters of each year. Consequently, the $200.0 million commitment thereunder may not represent actual borrowing capacity. The Company’s borrowing capacity may be further limited by the Term Loan financial covenant of 5.00 to 1.00 maximum Total Net Leverage Ratio. As of September 30, 2025, the availability under the ABL Agreement, limited by the Term Loan financial covenant, was $25.2 million. The current and non-current portions of the Company’s Term Loan included in the condensed consolidated balance sheets were as follows (in thousands): September 30, 2025 December 31, 2024 Current portion of Term Loan: Term Loan payment $ 7,500 $ 7,500 Estimated unamortized debt issuance costs (2,513) (2,609) Total Current portion of Term Loan $ 4,987 $ 4,891 Non-current portion of Term Loan: Term Loan, net of current portion $ 129,375 $ 135,000 Estimated unamortized debt issuance costs (2,179) (4,051) Total Non-current portion of Term Loan $ 127,196 $ 130,949 The 2024 excess cash flow payment of $1.2 million was paid on April 4, 2025 and reduced the scheduled quarterly payment due on June 30, 2025. As of September 30, 2025, the Company estimates no excess cash flow payment will be due for 2025. The Company’s payment obligations under its Debt Agreements are unconditionally guaranteed by its existing and future U.S. subsidiaries with certain minor exceptions. Certain payment obligations under the ABL Agreement are also direct obligations of its foreign subsidiary borrowers designated as such under the ABL Agreement and, subject to limitations on such guaranty, are guaranteed by the foreign subsidiary borrowers, as well as by the Company. The obligations of the foreign subsidiary borrowers under the ABL Agreement are secured by security interests in substantially all of the assets of, and stock in, such foreign subsidiary borrowers, subject to certain limitations. The obligations of the Company under the Debt Agreements and any hedging arrangements and cash management services and the guarantees by its domestic subsidiaries in respect of those obligations are secured by security interests in substantially all of the assets and stock (but in the case of foreign subsidiaries, limited to 65% of the capital stock in first-tier foreign subsidiaries and not including the stock of subsidiaries of such first-tier foreign subsidiaries) owned by the Company and the U.S. subsidiary guarantors, subject to certain exceptions. Such security interests consist of (1) a first-priority lien, subject to certain permitted liens, with respect to certain assets of the Company and certain of its subsidiaries (the “ABL Collateral”) pledged as collateral in favor of lenders under the ABL Agreement and a second-priority lien in the ABL Collateral in favor of the lenders under the Term Loan and (2) a first-priority lien, subject to certain permitted liens, with respect to certain assets of the Company and certain of its subsidiaries (the “Term Loan Collateral”) pledged as collateral in favor of lenders under the Term Loan and a second-priority lien in the Term Loan Collateral in favor of the lenders under the ABL Agreement. - 40 - Table of Contents Borrowings under the revolving credit facility bear interest, at the Company’s option, at one of the following rates: (i) an alternate base rate, defined, for any day, as the greater of the prime rate, a federal funds and overnight bank funding based rate plus 0.5% or one-month Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus 1.0% as of a specified date in advance of the determination, but in each case not less than 1.0%, plus a margin of 0.25% to 0.50%, or (ii) Adjusted Term SOFR, which is the Term SOFR Rate for the selected 1, 3 or 6 month interest period plus 0.10% (or Euro Interbank Offered Rate “EURIBOR” for borrowings denominated in Euro; or Sterling Overnight Index Average “SONIA” for borrowings denominated in Pounds Sterling), but in each case not less than zero, plus a margin of 1.25% to 1.50%. The respective margins are based upon average quarterly availability, as defined in and computed pursuant to the ABL Agreement. In addition, the Company pays a commitment fee of 0.20% to 0.25% per annum based on the average daily unused portion of the aggregate commitment under the ABL Agreement. The interest rate on outstanding borrowings under the ABL Agreement at September 30, 2025 was between 3.27% and 5.76%. The Company paid a commitment fee of 0.25% on the unused portion of the ABL Agreement during the nine months ended September 30, 2025. The Term Loan bears interest, at the Company’s option, at one of the following rates: (i) alternate base rate, defined, for any day, as the greater of (x) the prime rate, (y) a federal funds and overnight bank funding based rate plus 0.5% or (z) one-month Adjusted Term SOFR, but not less than 1.0%, plus 1.0%, plus a margin of 4.5% or (ii) Adjusted Term SOFR (Term SOFR plus the Term SOFR Adjustment) for the applicable interest period, but not less than 1.0%, plus a margin of 5.5%. The interest rate on outstanding borrowings under the Term Loan at September 30, 2025 was 9.75%. The Debt Agreements provide for customary restrictions and events of default. Restrictions include limitations on additional indebtedness, liens, acquisitions, investments and payment of dividends, among other things. Under the Term Loan, the Total Net Leverage Ratio is not permitted to be greater than 5.00 to 1.00 determined as of the end of each fiscal quarters. Further, the ABL Agreement provides that during any period (a) commencing on the last day of the most recently ended four consecutive fiscal quarters on or prior to the date availability under the ABL Agreement is less than the greater of $20.0 million and 10% of the aggregate commitment under the ABL Agreement at any time and (b) ending on the day after such availability has exceeded the greater of $20.0 million and 10% of the aggregate commitment under the ABL Agreement for 45 consecutive days, the Company is required to maintain a minimum fixed charge coverage ratio of 1.10 to 1.00 as of the last day of any period of four consecutive fiscal quarters. The Company was in compliance with the covenants of the Debt Agreements at September 30, 2025. The Company expects that it will continue to borrow, subject to availability, and repay funds under the ABL Agreement based on working capital and other corporate needs. Covenant Calculations Adjusted EBITDA (a non-GAAP financial measure), which is defined in the Company’s Debt Agreements, is used in the calculation of the Fixed Charge Coverage Ratio, Secured Net Leverage Ratio, Total Leverage Ratio and Total Net Leverage Ratio, which are required to be provided to the Company’s lenders pursuant to its Debt Agreements. The Company’s adjusted EBITDA (including pro forma adjustments), for the trailing twelve months ended September 30, 2025 was $47.2 million. Capital expenditures for the nine months ended September 30, 2025 were $3.2 million. Non-GAAP financial measure Adjusted EBITDA is a non-GAAP financial measure within the meaning of Regulation G and Item 10(e) of Regulation S-K, each promulgated by the SEC. This measure is provided because management of the Company uses this financial measure in evaluating the Company’s on-going financial results and trends, and management believes that exclusion of certain items allows for more accurate period-to-period comparison of the Company’s operating performance by investors and analysts. Management also uses this non-GAAP information as an indicator of business performance. Adjusted EBITDA, as discussed above, is also one of the measures used to calculate financial covenants required to be provided to the Company’s lenders pursuant to its Debt Agreements. Investors should consider this non-GAAP financial measure in addition to, and not as a substitute for, the Company’s financial performance measures prepared in accordance with U.S. GAAP. Further, the Company’s non-GAAP information may be different from the non-GAAP information provided by other companies including other companies within the home retail industry. - 41 - Table of Contents The following is a reconciliation of the net income (loss), as reported, to Adjusted EBITDA, for each of the last four quarters and the 12 months ended September 30, 2025: Quarter Ended Twelve Months Ended September 30, 2025 December 31, 2024 March 31, 2025 June 30, 2025 September 30, 2025 (in thousands) Net income (loss) as reported $ 8,918 $ (4,201) $ (39,699) $ (1,189) $ (36,171) Income tax provision (benefit) 1,671 (142) (2,782) 2,861 1,608 Interest expense 5,603 4,915 5,054 5,013 20,585 Depreciation and amortization 6,073 5,698 5,437 5,398 22,606 Gain on disposition of fixed assets — — — (94) (94) Mark to market (gain) loss on interest rate derivatives (718) 527 220 8 37 Goodwill impairment — — 33,237 — 33,237 Stock compensation expense 1,034 1,062 1,044 994 4,134 Legal settlement gain, net (1) — (4,578) — — (4,578) Severance expense — — 270 — 270 Acquisition related expenses 143 — 123 49 315 Restructuring expenses — — — 304 304 Warehouse redesign expenses (2) 249 — 139 76 464 Pro forma adjustments (3) 4,500 Adjusted EBITDA (4) $ 22,973 $ 3,281 $ 3,043 $ 13,420 $ 47,217 (1) For the twelve months ended September 30, 2025, legal settlement gain, net included a net settlement of $6.4 million discussed in NOTE 12 — CONTINGENCIES, and adjusted for legal fees incurred from March 2, 2018 through March 31, 2025 of $1.8 million. (2) For the twelve months ended September 30, 2025, the warehouse redesign expenses were related to the U.S. segment. (3) Pro forma adjustments represent the amount of operating expense reductions projected by the Company as a result of actions taken through September 30, 2025 or expected to be taken within 18 months of September 30, 2025, net of the benefits realized during the twelve months ended September 30, 2025. These actions include cost savings initiatives for the U.S. segment related to reductions in employee expenses (i.e., including terminated employees, furloughed employees and temporary salary reductions) and costs saving for the International segment related to Project Concord. (4) Adjusted EBITDA is a non-GAAP financial measure that is defined in the Company’s debt agreements. Adjusted EBITDA is defined as net income (loss), adjusted to exclude income tax provision (benefit), interest expense, depreciation and amortization, gain on disposition of fixed assets, mark to market (gain) loss on interest rate derivatives, goodwill impairment, stock compensation expense, legal settlement gain, net and other items detailed in the table above that are consistent with exclusions permitted by our debt agreements. Accounts Receivable Purchase Agreement To improve its liquidity during seasonally high working capital periods, the Company has an uncommitted Receivables Purchase Agreement with HSBC Bank USA, National Association (“HSBC”) as Purchaser (the “Receivables Purchase Agreement”). Under the Receivables Purchase Agreement, the Company may offer to sell certain eligible accounts receivable (the “Receivables”) to HSBC, which may accept such offer, and purchase the offered Receivables. Under the Receivables Purchase Agreement, following each purchase of Receivables, the outstanding aggregate purchased Receivables shall not exceed $30.0 million. HSBC will assume the credit risk of the Receivables purchased, and the Company will continue to be responsible for all non-credit risk matters. The Company will service the Receivables, and as such servicer, collect and otherwise enforce the Receivables on behalf of HSBC. The term of the agreement is for 364 days and shall automatically be extended for annual successive terms unless terminated. Either party may terminate the agreement at any time upon sixty days’ prior written notice to the other party. The Company did not sell receivables to HSBC during the three and nine months ended September 30, 2025 and September 30, 2024. At September 30, 2025, $13.6 million of accounts receivables were available for sale to HSBC, net of applicable charges. Derivatives The Company’s risk management strategy includes the use derivative financial instruments to manage its exposure to interest rate movements and to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates primarily to offset the earnings impact related to inventory purchases. The Company does not enter into derivative - 42 - Table of Contents transactions for trading purposes. The Company classifies cash flows from its derivative transactions as cash flows from operating activities in the consolidated statements of cash flows. The Company’s derivatives expose it to credit risks from possible non-performance by counterparties. The Company has limited its credit risk by entering into derivative transactions exclusively with investment-grade rated financial institutions and monitors the creditworthiness of these financial institutions on an ongoing basis. The Company utilizes standard counterparty master netting agreements that net certain foreign currency and interest rate swap transactions in the event of the insolvency of one of the parties to the transaction. These master netting arrangements permit the Company to net amounts due from the Company to counterparty with amounts due to the Company from the same counterparty. Although all of the Company’s recognized derivative assets and liabilities are subject to enforceable master netting arrangements, the Company has elected to present these assets and liabilities on a gross basis. The Company does not anticipate non-performance by any of its counterparties. Interest Rate Swaps To manage its exposures to interest rate movements, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. These interest rate swaps involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. In March 2024 and October 2024, the Company entered into interest rate swap agreements, each with an aggregate notional value of $25.0 million and expire in August 2027. These non-designated interest rate swaps serve as cash flow hedges of the Company’s exposure to the variability of the payment of interest on a portion of its Term Loan borrowings. The Company’s total outstanding notional value of interest rate swaps was $50.0 million at September 30, 2025. Foreign Exchange Contracts To reduce the impact of changes in foreign currency exchange rates on its results, from time to time the Company is a party to certain foreign exchange contracts, primarily to offset the earnings impact related to fluctuations in foreign currency exchange rates associated with inventory purchases. The Company designates these contracts for accounting purposes as cash flow hedges. The Company purchases foreign currency forward contracts with terms less than 18 months. The aggregate gross notional value of foreign exchange contracts at September 30, 2025 was $3.4 million. Operating activities Net cash provided by operating activities was $3.9 million for the nine months ended September 30, 2025, as compared to net cash used in operating activities of $1.7 million for the nine months ended September 30, 2024. The increase from 2025 compared to 2024 was attributable to a net legal settlement gain received in the current period, lower investment in inventory, and timing of collections related to the Company's accounts receivables, partially offset by timing of payments for accounts payable and accrued expenses. Investing activities Net cash used in investing activities was $3.1 million and $1.6 million for the nine months ended September 30, 2025 and 2024, respectively. The increase in investment activities was driven by purchases of equipment for the Hagerstown Facility. Financing activities Net cash provided by financing activities was $8.3 million for the nine months ended September 30, 2025, as compared to net cash used in financing activities of $6.9 million for the nine months ended September 30, 2024. The change was attributable to higher net proceeds from revolving credit facility in the 2025 period, compare to net repayments of revolving credit facility in the 2025 period. Stock repurchase program On March 14, 2022, the Company announced that its Board of Directors of the Company authorized the repurchase of up to $20.0 million of the Company’s common stock, replacing the Company’s previously-authorized $10.0 million share repurchase program. The repurchase authorization permits the Company to effect repurchases from time to time through open market purchases and privately negotiated transactions. No shares were repurchased during the nine months ended September 30, 2025. As of September 30, 2025, the remaining dollar amount available for repurchases under the Board of Directors’ authorized plan was $11.1 million. - 43 - Table of Contents Item 3. Quantitative and Qualitative Disclosures About Market Risk There were no material changes in market risk for changes in foreign currency exchange rates and interest rates from the information provided in Item 7A – Quantitative and Qualitative Disclosures About Market Risk in the 2024 Annual Report on Form 10-K.