What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-08 · 155 added, 167 removed, 278 unchanged (54% of the section changed)

12 unchanged sentences

Such risks, uncertainties and other important factors include, among others, risks related to:

• Macroeconomic conditions, including inflationary impacts and disruptions to the global supply chain;

• Macroeconomic conditions, including labor disputes, inflationary impacts and disruptions to the global supply chain;

• Increase in supply chain costs, including raw materials, sourcing, transportation and energy;

• The impact of the United Kingdom’s exit from the European Union on the Company’s U.K.

• The impact of tariffs and trade policies, particularly with respect to China;

8 unchanged sentences

• Geopolitical conditions, including political instability in the U.S.

and abroad, war, conflict, unrest and sanctions, including those related to the conflicts in Ukraine, Israel and surrounding areas;

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;

• Product liability claims;

27 unchanged sentences

Shifts in consumer spending and buying patterns may directly impact our retailer ordering patterns, which may adversely impact the Company’s results.

In addition, disruptions in the global supply chain due to attacks on commercial vessels in the Red Sea, have and may continue to adversely impact the Company’s results due to supply delays leading to an increase in safety stock levels and an increase in transportation costs.

In addition, disruptions in the global supply chain, including the heightened risks of attacks on commercial vessels in the Red Sea and the potential longshoremen strike in the U.S., have and may continue to adversely impact the Company’s results due to supply delays leading to an increase in safety stock levels and an increase in transportation costs.

The Company expects continued uncertainty as result of these trends in 2024.

10 unchanged sentences

EQUITY INVESTMENT

As of June 30, 2024, the Company owned 24.7% of the outstanding capital stock of Grupo Vasconia S.A.B.

As of September 30, 2024, the Company owned 24.7% of the outstanding capital stock of Grupo Vasconia S.A.B.

(“Vasconia”), an integrated manufacturer of aluminum products and a housewares company in Mexico.

2 unchanged sentences

During the second quarter of 2024, Vasconia’s shareholders’ approved a resolution to a reorganization process in terms of the Law of Commercial Bankruptcy in Mexico and subsequently a bankruptcy suit was filed against Vasconia by one of its largest suppliers.

The Company concluded that the recent events constituted a loss of significant influence and resulted in the discontinuation of the

equity method of accounting.

The Company will account for its Vasconia investment at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 321:

The Company concluded that the recent events constituted a loss of significant influence and resulted in the

discontinuation of the equity method of accounting.

The Company accounts for its Vasconia investment at fair value in accordance with Accounting Standards Codification (“ASC”) Topic 321:

Investments — Equity Securities , with any changes in fair value recorded within income (loss) on equity securities on the consolidated statements of operations.

As a result of the loss of significant influence, the accumulated other comprehensive losses previously recognized under the equity method of accounting was reclassified to the carrying value of the Vasconia investment and subsequently resulted in a non-cash loss of $14.2 million to reduce the investment to its fair value.

The fair value of the Vasconia investment was not material as of June 30, 2024.

As a result of the loss of significant influence, the accumulated other comprehensive losses previously recognized under the equity method of accounting were reclassified to the carrying value of the Vasconia investment and subsequently resulted in a non-cash loss of $14.2 million to reduce the investment to its fair value during the three months ended June 30, 2024.

The fair value of the Vasconia investment was not material as of September 30, 2024.

The Company’s business and working capital needs are seasonal, with a majority of sales occurring in the third and fourth quarters.

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2024 2023 2024 2023

8 unchanged sentences

Interest expense (3.2) (2.7) (3.5) (3.4)

Mark to market (loss) gain on interest rate derivatives

Mark to market loss on interest rate derivatives

(0.5) (0.1) (0.3) —

Gain on early retirement of debt — 1.0 — 0.5

Gain on extinguishments of debt, net

Loss on equity securities

(10.0) — (5.0) —

(Loss) income before income taxes and equity in losses

Income (loss) before income taxes and equity in losses

1.0 4.3 (4.3) 0.3

Income tax benefit (provision)

Income tax provision

(0.8) (1.6) (0.4) (0.6)

1 unchanged sentence

— (0.5) (0.4) (2.0)

Net income (loss)

0.2 % 2.2 % (5.1) % (2.3) %

MANAGEMENT’S DISCUSSION AND ANALYSIS

THREE MONTHS ENDED JUNE 30, 2024 COMPARED TO THE THREE MONTHS ENDED

JUNE 30, 2023

Consolidated net sales for the three months ended June 30, 2024 were $141.7 million, representing a decrease of $4.7 million, or 3.2%, as compared to net sales of $146.4 million for the corresponding period in 2023.

THREE MONTHS ENDED SEPTEMBER 30, 2024 COMPARED TO THE THREE MONTHS ENDED

SEPTEMBER 30, 2023

Consolidated net sales for the three months ended September 30, 2024 were $183.8 million, representing a decrease of $7.9 million, or 4.1%, as compared to net sales of $191.7 million for the corresponding period in 2023.

In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2024 average rates to 2023 local currency amounts, consolidated net sales decreased by $8.1 million, or 4.2%, as compared to consolidated net sales in the corresponding period in 2023.

Net sales for the U.S.

segment for the three months ended June 30, 2024 were $130.5 million, a decrease of $4.5 million, or 3.3%, as compared to net sales of $135.0 million for the corresponding period in 2023.

segment for the three months ended September 30, 2024 were $170.2 million, a decrease of $9.2 million, or 5.1%, as compared to net sales of $179.4 million for the corresponding period in 2023.

Net sales for the U.S.

segment’s Kitchenware product category were $80.8 million for the three months ended June 30, 2024, a decrease of $3.2 million, or 3.8%, as compared to $84.0 million for the corresponding period in 2023.

The decrease was driven by a reduction in sales for kitchen tools and gadgets and kitchen measurement products.

This was partially offset by higher sales for bakeware products driven by sales of a new licensed product brand.

segment’s Kitchenware product category were $97.3 million for the three months ended September 30, 2024, a decrease of $0.4 million, or 0.4%, as compared to $97.7 million for the corresponding period in 2023.

The decrease was driven by a reduction in sales for kitchen tools and gadgets, partially offset by higher sales for bakeware and cutlery and boards.

Net sales for the U.S.

segment’s Tableware product category were $26.3 million for the three months ended June 30, 2024, an increase of $0.2 million, or 0.8%, as compared to $26.1 million for the corresponding period in 2023.

The increase was attributable to higher dinnerware sales due to a new warehouse club program introduced in 2024.

segment’s Tableware product category were $40.9 million for the three months ended September 30, 2024, a decrease of $8.0 million, or 16.4%, as compared to $48.9 million for the corresponding period in 2023.

The decrease was attributable to lower dinnerware sales due to the timing of warehouse club programs in 2024 compared to the prior period and lower sales to brick-and-mortar customers.

Net sales for the U.S.

segment’s Home Solutions product category were $23.4 million for the three months ended June 30, 2024, a decrease of $1.5 million, or 6.0%, as compared to $24.9 million for the corresponding period in 2023.

The decrease was attributable to lower sales of hydration products and decreased sales of Taylor branded bath measurement products.

The decrease was partially offset by higher sales for Home Décor products driven by sales of a new licensed product brand.

Net sales for the International segment were $11.2 million for the three months ended June 30, 2024, a decrease of $0.2 million, or 1.8%, as compared to net sales of $11.4 million for the corresponding period in 2023.

In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations, net sales decreased $0.3 million, or 2.8%, as compared to consolidated net sales in the corresponding period in 2023.

The decrease was attributable to lower replenishment orders for e-commerce and brick-and-mortar customers, partially offset by higher sales in Australia for the Company's global trading business in Asia.

Gross margin for the three months ended June 30, 2024 was $54.6 million, or 38.5%, as compared to $56.0 million, or 38.2%, for the corresponding period in 2023.

segment’s Home Solutions product category were $32.0 million for the three months ended September 30, 2024, a decrease of $0.8 million, or 2.4%, as compared to $32.8 million for the corresponding period in 2023.

The decrease was attributable to lower sales of hydration products and Taylor branded bath measurement products.

The decrease was partially offset by higher sales for Home Décor products driven by sales for a new warehouse club program introduced in 2024.

Net sales for the International segment were $13.6 million for the three months ended September 30, 2024, an increase of $1.3 million, or 10.6%, as compared to net sales of $12.3 million for the corresponding period in 2023.

In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations, net sales increased $1.1 million, or 8.4%, as compared to consolidated net sales in the corresponding period in 2023.

The increase was driven by higher sales in the U.K.

and continental Europe.

Gross margin for the three months ended September 30, 2024 was $67.4 million, or 36.7%, as compared to $71.0 million, or 37.0%, for the corresponding period in 2023.

Gross margin for the U.S.

segment was $50.5 million, or 38.7%, for the three months ended June 30, 2024, as compared to $51.7 million, or 38.3%, for the corresponding period in 2023.

The increase in the gross margin percentage was driven by favorable product mix.

Gross margin for the International segment was $4.1 million, or 36.6%, for the three months ended June 30, 2024, as compared to $4.3 million, or 37.7%, for the corresponding period in 2023.

The decrease in the gross margin percentage was driven by customer mix.

segment was $62.7 million, or 36.8%, for the three months ended September 30, 2024, as compared to $67.0 million, or 37.3%, for the corresponding period in 2023.

The decrease in the gross margin percentage was driven by product mix.

Gross margin for the International segment was $4.7 million, or 34.6%, for the three months ended September 30, 2024, as compared to $4.0 million, or 32.5%, for the corresponding period in 2023.

The increase in the gross margin percentage was driven by customer and product mix.

Distribution expenses

Distribution expenses for the three months ended June 30, 2024 were $15.1 million, as compared to $15.7 million for the corresponding period in 2023.

Distribution expenses as a percentage of net sales were 10.6% for the three months ended June 30, 2024, as compared to 10.7% for the three months ended June 30, 2023.

Distribution expenses for the three months ended September 30, 2024 were $20.0 million, as compared to $17.1 million for the corresponding period in 2023.

Distribution expenses as a percentage of net sales were 10.9% for the three months ended September 30, 2024, as compared to 8.9% for the three months ended September 30, 2023.

Distribution expenses as a percentage of net sales for the U.S.

segment were 9.1% and 9.3% for the three months ended June 30, 2024 and 2023, respectively.

Distribution expense during the three months ended June 30, 2023 included $0.1 million for redesign costs related to upgrading the Company's U.S.

warehouse management system.

segment were 9.7% and 7.8% for the three months ended September 30, 2024 and 2023, respectively.

Distribution expense during the three months ended September 30, 2024 and 2023 included $0.6 million and $0.2 million, respectively, for redesign costs related to the Company’s warehouse.

As a percentage of sales shipped from the Company’s U.S.

warehouses, excluding non-recurring expenses, distribution expenses were 9.5% and 9.7% for the

three months ended June 30, 2024 and 2023, respectively.

The decrease in expenses as a percentage of sales was a result of lower freight out expenses.

Distribution expenses as a percentage of net sales for the International segment were 28.5% for the three months ended June 30, 2024, compared to 27.7% for the corresponding period in 2023.

As a percentage of sales shipped from the Company’s international warehouses distribution expenses were 25.1% for the three months ended June 30, 2024 and 2023.

The increase in expenses as a percentage of net sales was primarily attributed to lower sales, partially offset by lower freight out expense rates.

warehouses, excluding non-recurring expenses, distribution expenses were 10.1% and 9.1% for the three months ended September 30, 2024 and 2023, respectively.

The increase in expenses as a percentage of sales

was attributable to higher depreciation expense due to changes in asset retirement obligation estimates, higher software expenses due to the launch of a new warehouse management system at the Company's west coast distribution center, higher pallet expenses and higher labor rates.

These increases were partially offset by lower freight out expenses.

Distribution expenses as a percentage of net sales for the International segment were 25.4% for the three months ended September 30, 2024, compared to 26.1% for the corresponding period in 2023.

As a percentage of sales shipped from the Company’s international warehouses distribution expenses were 24.2% and 22.4% for the three months ended September 30, 2024 and 2023, respectively.

The decrease in expenses as a percentage of net sales was primarily attributed to higher sales, partially offset by higher expenses for the distribution of the Company's products within its global trading business in Asia.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended June 30, 2024 were $38.3 million, an increase of $2.4 million, or 6.7%, as compared to $35.9 million for the corresponding period in 2023.

Selling, general and administrative expenses for the three months ended September 30, 2024 were $38.8 million, a decrease of $1.4 million, or 3.5%, as compared to $40.2 million for the corresponding period in 2023.

Selling, general and administrative expenses for the U.S.

segment were $29.4 million for the three months ended June 30, 2024, as compared to $27.4 million for the corresponding period in 2023.

As a percentage of net sales, selling, general and administrative expenses were 22.5% and 20.3% for the three months ended June 30, 2024 and 2023, respectively.

The increase in expenses was attributable to higher employee expenses, including incentive compensation, expenses related to the start-up of the Company's manufacturing operations in Mexico, and inflationary increases across several expense categories.

This was partially offset by a decrease in the provision for doubtful accounts in the current period.

Selling, general and administrative expenses for the International segment were $3.8 million for the three months ended June 30, 2024, as compared to $4.0 million for the corresponding period in 2023.

As a percentage of net sales, selling, general and administrative expenses were 33.9% and 35.1% for the three months ended June 30, 2024 and 2023, respectively.

The decrease in expenses was attributable to lower advertising and commission expenses, partially offset by higher employee expenses.

Unallocated corporate expenses for the three months ended June 30, 2024 were $5.1 million, as compared to $4.5 million for the corresponding period in 2023.

The current period increase was driven by higher incentive compensation, legal expenses and professional fees.

segment were $30.0 million for the three months ended September 30, 2024, as compared to $31.6 million for the corresponding period in 2023.

As a percentage of net sales, selling, general and administrative expenses were 17.6% for both the three months ended September 30, 2024 and 2023.

The decrease in expenses was attributable to lower employee expenses, primarily due to lower incentive compensation, and a decrease in the provision for doubtful accounts in the current period.

This was partially offset by inflationary increases across several expense categories.

Selling, general and administrative expenses for the International segment were $4.5 million for the three months ended September 30, 2024, as compared to $3.7 million for the corresponding period in 2023.

As a percentage of net sales, selling, general and administrative expenses were 33.1% and 30.1% for the three months ended September 30, 2024 and 2023, respectively.

The increase in expenses was attributable to higher employee expenses and penalties related to tax filings incurred in the current period.

Unallocated corporate expenses for the three months ended September 30, 2024 were $4.3 million, as compared to $4.9 million for the corresponding period in 2023.

The current period decrease was driven by lower incentive compensation, partially offset by higher legal expenses and professional fees.

Interest expense

Interest expense was $5.2 million and $5.5 million for the three months ended June 30, 2024 and 2023, respectively.

The decrease in expense was a result of lower average outstanding borrowings, partially offset by higher interest rates on outstanding borrowings.

Mark to market (loss) gain on interest rate derivatives

Mark to market loss on interest rate derivatives was $0.1 million for the three months ended June 30, 2024, as compared to a mark to market gain on interest rate derivatives of $0.2 million for the three months ended June 30, 2023.

The loss and gain recognized for the three months ended June 30, 2024 and 2023, respectively, was attributable to the change in the fair value due to the change in the projected interest rate environment.

Interest expense was $5.8 million and $5.2 million for the three months ended September 30, 2024 and 2023, respectively.

The increase in expense was a result of higher interest rates on outstanding borrowings, partially offset by lower average outstanding borrowings in the current period.

Mark to market loss on interest rate derivatives

Mark to market loss on interest rate derivatives was $0.9 million for the three months ended September 30, 2024, as compared to a mark to market loss on interest rate derivatives of $0.1 million for the three months ended September 30, 2023.

The loss recognized for the three months ended September 30, 2024 and 2023, 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 June 30, 2024, the intent of the Company is to hold these derivative contracts until their maturity.

Gain on early retirement of debt

Gain on early retirement of debt was $1.5 million for the three months ended June 30, 2023.

The gain recognized for the three months ended June 30, 2023 was attributable to the repurchase of $47.2 million in principal amount of the Term Loan.

Refer to NOTE 6 — DEBT for additional information.

Loss on equity securities

Loss on equity securities was $14.2 million for the three months ended June 30, 2024.

In the second quarter of 2024, the Company loss 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 tax benefit of $0.1 million and income tax provision of $1.2 million for the three months ended June 30, 2024 and 2023, respectively, represent taxes on both U.S.

and foreign earnings at a combined effective income tax benefit rate of 0.3% and provision rate of 212.3%, respectively.

The effective tax rate for the three months ended June 30, 2024 differs from the federal statutory income tax rate of 21.0% primarily due to the expiration of non-qualified stock options and the vesting of equity-based awards, where the book expense exceeded the tax deduction upon vesting, and foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance.

The effective tax rate for the three months ended June 30, 2023 differs from the federal statutory income tax rate of 21.0% primarily due to state and local tax expense, 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, partially offset by a benefit for federal credits.

As of September 30, 2024, the intent of the Company is to hold these derivative contracts until their maturity.

Income tax provision of $1.5 million and $3.0 million for the three months ended September 30, 2024 and 2023, respectively, represent taxes on both U.S.

and foreign earnings at a combined effective income tax provision rate of 81.4% and 36.5%, respectively.

The effective tax rate for the three months ended September 30, 2024 and 2023 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.

Equity in losses, net of taxes

Equity in losses of Vasconia, net of taxes, was $5.9 million for the three months ended June 30, 2023.

Equity in losses of Vasconia, net of taxes, was $1.0 million for the three months ended September 30, 2023.

Equity in losses included a non-cash impairment charge of $0.3 million, to reduce the carrying value of the Company’s equity method investment in Vasconia to its fair value.

MANAGEMENT’S DISCUSSION AND ANALYSIS

SIX MONTHS ENDED JUNE 30, 2024 COMPARED TO THE SIX MONTHS ENDED

JUNE 30, 2023

Consolidated net sales for the six months ended June 30, 2024 were $283.9 million, a decrease of $8.0 million, or 2.7%, as compared to net sales of $291.9 million for the corresponding period in 2023.

NINE MONTHS ENDED SEPTEMBER 30, 2024 COMPARED TO THE NINE MONTHS ENDED

SEPTEMBER 30, 2023

Consolidated net sales for the nine months ended September 30, 2024 were $467.7 million, a decrease of $15.8 million, or 3.3%, as compared to net sales of $483.5 million for the corresponding period in 2023.

In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2024 average rates to 2023 local currency amounts, consolidated net sales decreased by $16.5 million, or 3.4%, as compared to consolidated net sales in the corresponding period in 2023.

Net sales for the U.S.

segment for the six months ended June 30, 2024 were $261.0 million, a decrease of $7.5 million, or 2.8%, as compared to net sales of $268.5 million for the corresponding period in 2023.

segment for the nine months ended September 30, 2024 were $431.2 million, a decrease of $16.7 million, or 3.7%, as compared to net sales of $447.9 million for the corresponding period in 2023.

Net sales for the U.S.

segment’s Kitchenware product category were $164.3 million for the six months ended June 30, 2024, a decrease of $5.4 million, or 3.2%, as compared to $169.7 million for the corresponding period in 2023.

The decrease was mainly driven by lower consumer demand for kitchen tools and gadgets and barware products, partially offset by higher sales for cutlery & boards and bakeware products.

segment’s Kitchenware product category were $261.7 million for the nine months ended September 30, 2024, a decrease of $5.7 million, or 2.1%, as compared to $267.4 million for the corresponding period in 2023.

The decrease was mainly driven by lower consumer demand for kitchen tools and gadgets, kitchen measurement and barware products, partially offset by higher sales for bakeware and cutlery and boards products.

Net sales for the U.S.

segment’s Tableware product category were $52.1 million for the six months ended June 30, 2024, an increase of $2.0 million, or 4.0%, as compared to $50.1 million for the corresponding period in 2023.

The increase was primarily driven by dinnerware sales primarily due to a new warehouse club program introduced in 2024.

segment’s Tableware product category were $93.0 million for the nine months ended September 30, 2024, a decrease of $6.0 million, or 6.1%, as compared to $99.0 million for the corresponding period in 2023.

The decrease was across both dinnerware and flatware sales due to lower warehouse club programs in 2024 compared to 2023 and lower sales to brick-and-mortar customers.

Net sales for the U.S.

segment’s Home Solutions product category were $44.6 million for the six months ended June 30, 2024, a decrease of $4.1 million, or 8.4%, as compared to $48.7 million for the corresponding period in 2023.

segment’s Home Solutions product category were $76.5 million for the nine months ended September 30, 2024, a decrease of $5.0 million, or 6.1%, as compared to $81.5 million for the corresponding period in 2023.

The decrease was attributable to lower sales of hydration products and decreased sales of Taylor branded bath measurement products.

The decrease was partially offset by higher sales for Home Décor products driven by sales of a new licensed product brand.

Net sales for the International segment were $22.9 million for the six months ended June 30, 2024, a decrease of $0.5 million, or 2.1%, as compared to net sales of $23.4 million for the corresponding period in 2023.

In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations, net sales decreased $1.0 million, or 4.1%, as compared to consolidated net sales in the corresponding period in 2023.

Gross margin for the six months ended June 30, 2024 was $112.1 million, or 39.5%, as compared to $109.8 million, or 37.6%, for the corresponding period in 2023.

The decrease was partially offset by higher sales for Home Décor products driven by a new warehouse club program in 2024 and sales of a new licensed product brand.

Net sales for the International segment were $36.5 million for the nine months ended September 30, 2024, an increase of $0.9 million, or 2.5%, as compared to net sales of $35.6 million for the corresponding period in 2023.

In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations, net sales stayed flat, as compared to consolidated net sales in the corresponding period in 2023.

The increase was attributable to higher sales in Australia for the Company's global trading business in Asia and sales in continental Europe, partially offset by lower replenishment orders for e-commerce.

Gross margin for the nine months ended September 30, 2024 was $179.5 million, or 38.4%, as compared to $180.8 million, or 37.4%, for the corresponding period in 2023.

Gross margin for the U.S.

segment was $103.8 million, or 39.8%, for the six months ended June 30, 2024, as compared to $100.6 million, or 37.5%, for the corresponding period in 2023.

segment was $166.5 million, or 38.6%, for the nine months ended September 30, 2024, as compared to $167.6 million, or 37.4%, for the corresponding period in 2023.

The improvement in gross margin percentage was due to lower inbound freight costs and product mix.

Gross margin for the International segment was $8.3 million, or 36.2%, for the six months ended June 30, 2024, as compared to $9.2 million, or 39.3%, for the corresponding period in 2023.

The decrease in gross margin was driven by lower sales.

Gross margin for the International segment was $13.0 million, or 35.6%, for the nine months ended September 30, 2024, as compared to $13.2 million, or 37.1%, for the corresponding period in 2023.

The decrease in gross margin percentage was driven by higher product costs due to unfavorable fluctuations in foreign currency exchange rates.

Distribution expenses

Distribution expenses for the six months ended June 30, 2024 were $31.2 million, as compared to $32.6 million for the corresponding period in 2023.

Distribution expenses as a percentage of net sales were 11.0% for the six months ended June 30, 2024, as compared to 11.2% for the six months ended June 30, 2023.

Distribution expenses for the nine months ended September 30, 2024 were $51.3 million, as compared to $49.7 million for the corresponding period in 2023.

Distribution expenses as a percentage of net sales were 11.0% for the nine months ended September 30, 2024, as compared to 10.3% for the nine months ended September 30, 2023.

Distribution expenses as a percentage of net sales for the U.S.

segment were 9.5% and 9.7% for the six months ended June 30, 2024 and 2023, respectively.

Distribution expenses during the six months ended June 30, 2024 and 2023 include $0.1 million and $0.4 million, respectively, for redesign costs related to upgrading the Company's U.S.

warehouse management system.

As a percentage of sales shipped from the Company’s U.S.

warehouses, excluding non-recurring expenses, distribution expenses were 10.0% and for the six months ended June 30, 2024 and 2023.

The decrease in expenses as a percentage of net sales was a result of improved labor management efficiencies resulting in a decrease of employee expenses, lower storage expenses from lower inventory levels, and lower pallet expenses, partially offset by higher labor rates and software maintenance expenses.

Distribution expenses as a percentage of net sales for the International segment were 27.7% for the six months ended June 30, 2024, compared to 27.6% for the corresponding period in 2023.

As a percentage of sales shipped from the Company’s international warehouse, distribution expenses were 24.3% and 24.5% for the six months ended June 30, 2024 and 2023, respectively.

The decrease in expenses as a percentage of sales was a result of lower freight out expenses, partially offset by lower shipment volume.

segment were 9.6% and 8.9% for the nine months ended September 30, 2024 and 2023, respectively.

Distribution expenses during the nine months ended September 30, 2024 and 2023 included $0.7 million and $0.5 million, respectively, for redesign costs related to the Company's U.S.

percentage of sales shipped from the Company’s U.S.

warehouses, excluding non-recurring expenses, distribution expenses were 10.0% and 9.7% for the nine months ended September 30, 2024 and 2023, respectively.

The increase in expenses as a percentage of net sales was a result of higher depreciation expense due to changes in asset retirement obligation estimates, higher labor rates, and higher software expenses due to the launch of a new warehouse management system at the Company's west coast distribution center.

These increases were partially offset by lower storage expenses, improved labor management efficiencies resulting in a decrease of employee expenses, and lower pallet expenses.

Distribution expenses as a percentage of net sales for the International segment were 26.9% for the nine months ended September 30, 2024, compared to 27.2% for the corresponding period in 2023.

As a percentage of sales shipped from the Company’s international warehouse, distribution expenses were 24.3% and 23.8% for the nine months ended September 30, 2024 and 2023, respectively.

The decrease in expenses as a percentage of net sales was primarily attributed to lower freight out expenses, higher sales, partially offset by higher expenses for the distribution of the Company's products within its global trading business in Asia.

Selling, general and administrative expenses

Selling, general and administrative expenses for the six months ended June 30, 2024 were $77.9 million, an increase of $4.1 million, or 5.6%, as compared to $73.8 million for the corresponding period in 2023.

Selling, general and administrative expenses for the nine months ended September 30, 2024 were $116.6 million, an increase of $2.6 million, or 2.3%, as compared to $114.0 million for the corresponding period in 2023.

Selling, general and administrative expenses for the U.S.

segment were $60.3 million for the six months ended June 30, 2024, as compared to $56.7 million for the corresponding period in 2023.

As a percentage of net sales, selling, general and administrative expenses were 23.1% and 21.1% for the six months ended June 30, 2024 and 2023, respectively.

The increase in expenses was attributable to higher employee expenses, including incentive compensation, expenses related to the start-up of the Company's manufacturing operations in Mexico, legal expenses, and inflationary increases across several expense categories.

segment were $90.2 million for the nine months ended September 30, 2024, as compared to $88.3 million for the corresponding period in 2023.

As a percentage of net sales, selling, general and administrative expenses were 20.9% and 19.7% for the nine months ended September 30, 2024 and 2023, respectively.

The increase in expenses was attributable to higher employee expenses, expenses related to the start-up of the Company’s manufacturing operations in Mexico, legal expenses, and inflationary increases across several expense categories.

This was partially offset by a decrease in the provision for doubtful accounts in the current period.

Selling, general and administrative expenses for the International segment were $8.0 million for the six months ended June 30, 2024, as compared to $7.5 million for the corresponding period in 2023.

The increase was primarily attributable to higher employee expenses, partially due to unfavorable currency translation.

Unallocated corporate expenses for the six months ended June 30, 2024 were $9.6 million, as compared to $9.5 million for the corresponding period in 2023.

The increase was driven by higher incentive compensation, legal expenses, partially offset by lower professional services.

Selling, general and administrative expenses for the International segment were $12.5 million for the nine months ended September 30, 2024, as compared to $11.3 million for the corresponding period in 2023.

The increase was primarily attributable to higher employee expenses and penalties related to tax filings incurred in the current period.

Unallocated corporate expenses for the nine months ended September 30, 2024 were $13.9 million, as compared to $14.4 million for the corresponding period in 2023.

The decrease was driven by lower incentive compensation and insurance expenses.

Restructuring expenses

For the six months ended June 30, 2023, the Company incurred $0.8 million of unallocated corporate expense related to the termination payment with its Executive Chairman.

For the nine months ended September 30, 2023, the Company incurred $0.8 million of unallocated corporate expense related to the termination payment with its Executive Chairman.

Interest expense

Interest expense was $10.8 million and $10.9 million for the six months ended June 30, 2024 and 2023, respectively.

The decrease in expense was a result of lower average outstanding borrowings, partially offset by higher interest rates on outstanding borrowings.

Mark to market (loss) gain on interest rate derivatives

Mark to market loss on interest rate derivatives was $0.3 million for the six months ended June 30, 2024, as compared to $0.04 million for the six months ended June 30, 2023.

Interest expense was $16.6 million and $16.1 million for the nine months ended September 30, 2024 and 2023, respectively.

The increase in expense was a result of higher interest rates on outstanding borrowings, partially offset by lower average outstanding borrowings in the current period.

Mark to market loss on interest rate derivatives

Mark to market loss on interest rate derivatives was $1.2 million for the nine months ended September 30, 2024, as compared to $0.1 million for the nine months ended September 30, 2023.

The increase was attributable to the change in the fair value based on the increase in interest rates.

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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 June 30, 2024, the intent of the Company is to hold these derivative contracts until their maturity.

Gain on early retirement of debt

Gain on early retirement of debt was $1.5 million for the six months ended June 30, 2023.

The gain recognized for the six months ended June 30, 2023 was attributable to the repurchase of $47.2 million in principal amount of the Term Loan.

As of September 30, 2024, the intent of the Company is to hold these derivative contracts until their maturity.

Gain on extinguishments of debt

Gain on extinguishments of debt was $1.5 million for the nine months ended September 30, 2023.

The gain recognized for the nine months ended September 30, 2023 was attributable to the repurchase of $47.2 million in principal amount of the Term Loan.

Refer to NOTE 6 — DEBT for additional information.

Loss on equity securities

Loss on equity securities was $14.2 million for the six months ended June 30, 2024.

In the second quarter of 2024, the Company loss significant influence over its investment in Vasconia and discontinued the equity method of accounting.

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.

NOTE 4 —INVESTMENT for additional information.

Income tax provision of $0.2 million and income tax benefit of $0.1 million for the six months ended June 30, 2024 and 2023, respectively, represent taxes on both US and foreign earnings at a combined effective income tax provision rate of (0.7)% and an income tax benefit rate of 1.6%, respectively.

The negative rate for the six months ended June 30, 2024 reflects tax expense on a pretax financial reporting loss.

The effective tax rate for the six months ended June 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.

The effective tax rate for the six months ended June 30, 2023 differs from the federal statutory income tax rate of 21.0% primarily due to state and local tax expense and foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance.

Income tax provision of $1.7 million and $2.9 million for the nine months ended September 30, 2024 and 2023, respectively, represent taxes on both U.S.

and foreign earnings at a combined effective income tax provision rate of (8.2)% and 197.0%, respectively.

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 and 2023 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 six months ended June 30, 2024, as compared to $8.6 million for the six months ended June 30, 2023.

For the six months ended June 30, 2023, equity in losses included a non-cash impairment charge of $6.5 million to reduce the carrying value of the Company’s equity method investment in Vasconia to its fair value.

Equity in losses of Vasconia, net of taxes , was $2.1 million for the nine months ended September 30, 2024, as compared to $9.7 million for the nine months ended September 30, 2023.

For the nine months ended September 30, 2023, equity in losses included a non-cash impairment charge of $6.8 million to reduce the carrying value of the Company’s equity method investment in Vasconia to its fair value.

LIQUIDITY AND CAPITAL RESOURCES

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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 June 30, 2024, the Company had cash and cash equivalents of $3.4 million, compared to $16.2 million at December 31, 2023.

Working capital was $197.5 million at June 30, 2024, compared to $224.4 million at December 31, 2023.

Liquidity as of June 30, 2024 was $119.3 million, consisting of $3.4 million of cash and cash equivalents, $97.2 million of availability under the ABL Agreement, limited by the Term Loan financial covenant, and $18.7 million of available funding under the Receivables Purchase Agreement.

At September 30, 2024, the Company had cash and cash equivalents of $6.0 million, compared to $16.2 million at December 31, 2023.

Working capital was $230.2 million at September 30, 2024, compared to $224.4 million at December 31, 2023.

Liquidity as of September 30, 2024 was $75.6 million, consisting of $6.0 million of cash and cash equivalents, $51.6 million of availability under the ABL Agreement, limited by the Term Loan financial covenant, and $18.0 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.

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Certain other product categories experience higher inventory turns due to lower minimum order quantities or trending sale demands.

For the three months ended June 30, 2024, inventory turnover was 1.8 times, or 208 days, as compared to 1.7 times, or 213 days, for the three months ended June 30, 2023.

For the three months ended September 30, 2024, inventory turnover was 2.1 times, or 175 days, as compared to 2.2 times, or 164 days, for the three months ended September 30, 2023.

Inventory turns have remained relatively consistent.

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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.

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 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 June 30, 2024 and December 31, 2023, the total availability under the ABL Agreement were as follows (in thousands):

June 30, 2024

As of September 30, 2024 and December 31, 2023, the total availability under the ABL Agreement were as follows (in thousands):

September 30, 2024

December 31, 2023

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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 June 30, 2024, the availability under the ABL Agreement, limited by the Term Loan financial covenant, was $97.2 million.

As of September 30, 2024, the availability under the ABL Agreement, limited by the Term Loan financial covenant, was $51.6 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):

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Current portion of Term Loan:

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Total Non-current portion of Term Loan $ 130,170 $ 135,834

The estimated Excess Cash Flow principal payment recorded at June 30, 2024 represents the Company’s estimate for the Excess Cash Flow Payment due in 2025.

The estimated Excess Cash Flow principal payment recorded at September 30, 2024 represents the Company’s estimate for the Excess Cash Flow Payment due in 2025.

There was no Excess Cash Flow payment due in 2024.

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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 June 30, 2024 was between 4.91% and 8.75%.

The Company paid a commitment fee of 0.25% on the unused portion of the ABL Agreement during the six months ended June 30, 2024.

The interest rate on outstanding borrowings under the ABL Agreement at September 30, 2024 was between 4.79% and 6.68%.

The Company paid a commitment fee of 0.25% on the unused portion of the ABL Agreement during the nine months ended September 30, 2024.

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 June 30, 2024 was 10.94%.

The interest rate on outstanding borrowings under the Term Loan at September 30, 2024 was 10.73%.

The Debt Agreements provide for customary restrictions and events of default.

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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 June 30, 2024.

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, 2024.

On June 8, 2023, the Company completed the repurchase of $47.2 million in principal amount of the Term Loan, for $95 per $100 of principal.

1 unchanged sentence

In connection therewith, debt issuance costs of $0.5 million were written off and fees of $0.4 million were incurred.

The gain on the early retirement of the Term Loan of $1.5 million, net of fees and expenses, was recognized during the three and six months ended June 30, 2023.

The gain on the early retirement of the Term Loan of $1.5 million, net of fees and expenses, was recognized during the three and nine months ended September 30, 2023.

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.

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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 for the trailing twelve months ended June 30, 2024 was $56.6 million.

Capital expenditures for the six months ended June 30, 2024 were $1.1 million.

The Company’s adjusted EBITDA for the trailing twelve months ended September 30, 2024 was $53.9 million.

Capital expenditures for the nine months ended September 30, 2024 were $1.6 million.

Non-GAAP financial measure

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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.

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 June 30, 2024:

Quarter Ended Twelve Months Ended June 30, 2024

September 30, 2023 December 31,

2023 March 31,

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, 2024:

Quarter Ended Twelve Months Ended September 30, 2024

December 31, 2023 March 31,

2024 June 30,

2024 September 30,

(in thousands)

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$ 21,469 $ 7,689 $ 7,774 $ 16,935 $ 53,867

(1) For the twelve months ended June 30, 2024, the warehouse redesign expenses were related to the U.S.

(1) For the twelve months ended September 30, 2024, the warehouse redesign expenses were related to the U.S.

(2) Adjusted EBITDA is a non-GAAP financial measure that is defined in the Company’s debt agreements.

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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 six months ended June 30, 2024 and June 30, 2023.

At June 30, 2024, $18.7 million of accounts receivables were available for sale to HSBC, net of applicable charges.

The Company did not sell receivables to HSBC during the three and nine months ended September 30, 2024 and September 30, 2023.

At September 30, 2024, $18.0 million of accounts receivables were available for sale to HSBC, net of applicable charges.

Interest Rate Swaps

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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 June 30, 2024.

The Company’s total outstanding notional value of interest rate swaps was $50.0 million at September 30, 2024.

The Company’s interest rate swaps that were designated 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 expired in March 2023.

The Company has no designated interest rate swaps at June 30, 2024.

The Company has no designated interest rate swaps at September 30, 2024.

Foreign Exchange Contracts

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The Company does not hedge the translation of foreign currency profits into USD, as the Company regards this as an accounting exposure rather than an economic exposure.

The aggregate gross notional value of foreign exchange contracts at June 30, 2024 was $5.2 million.

The aggregate gross notional value of foreign exchange contracts at September 30, 2024 was $2.8 million.

These foreign exchange contracts have been designated as hedges in order to apply hedge accounting.

4 unchanged sentences

All foreign currency forward contracts that the Company enters into are components of hedging programs and are entered into for the sole purpose of hedging an existing or anticipated currency exposure.

The Company does not enter into such contracts for speculative purposes, and as of June 30, 2024, these foreign exchange contracts have been designated as hedges in to order to apply hedge accounting.

The Company does not enter into such contracts for speculative purposes, and as of September 30, 2024, these foreign exchange contracts have been designated as hedges in to order to apply hedge accounting.

Operating activities

Net cash provided by operating activities was $20.9 million for the six months ended June 30, 2024, as compared to net cash provided by operating activities of $29.0 million for the six months ended June 30, 2023.

The decrease from 2024 compared to 2023 was attributable to higher use of cash related to inventory purchases, partially offset by timing of collections related to the Company's accounts receivables.

Net cash used in operating activities was $1.7 million for the nine months ended September 30, 2024, as compared to net cash provided by operating activities of $17.0 million for the nine months ended September 30, 2023.

The decrease from 2024 compared to 2023 was attributable to increased use of cash related to inventory purchases and higher net loss, partially offset by timing of collections related to the Company's accounts receivables, and timing of payments for accounts payable and accrued expenses.

Investing activities

Net cash used in investing activities was $1.1 million and $1.0 million for the six months ended June 30, 2024 and 2023, respectively.

Net cash used in investing activities was $1.6 million and $1.8 million for the nine months ended September 30, 2024 and 2023, respectively.

Financing activities

Net cash used in financing activities was $32.5 million for the six months ended June 30, 2024, as compared to net cash used in financing activities of $36.5 million for the six months ended June 30, 2023.

The change was attributable to the repurchase of a portion of the term loan and stock repurchases in the 2023 period, partially offset by higher repayments of revolving credit facility in the 2024 period.

Net cash used in financing activities was $6.9 million for the nine months ended September 30, 2024, as compared to net cash used in financing activities of $32.4 million for the nine months ended September 30, 2023.

The change was attributable to the repurchase of a portion of the term loan and stock repurchases in the 2023 period, partially offset by lower net proceeds from revolving credit facility in the 2024 period.

Stock repurchase program

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The repurchase authorization permits the Company to effect the repurchases from time to time through open market purchases and privately negotiated transactions.

No repurchases were effected during the six months ended June 30, 2024.

As of June 30, 2024, the remaining dollar amount available for repurchases under the Board authorized plan was $11.1 million.

No repurchases were effected during the nine months ended September 30, 2024.

As of September 30, 2024, the remaining dollar amount available for repurchases under the Board authorized plan was $11.1 million.

Quantitative and Qualitative Disclosures About Market Risk

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis