LIFETIME BRANDS, INC 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the consolidated financial statements for the Company and Notes thereto set forth in Item 15. This discussion contains forward-looking statements relating to future events and the future performance of the Company based on the Company’s current expectations, assumptions, estimates and projections about it and the Company’s industry. These forward-looking statements involve risks and uncertainties. The Company’s actual results and timing of various events could differ materially from those anticipated in such forward-looking statements as a result of a variety of factors, as more fully described in this section and elsewhere in this Annual Report including those discussed under “Disclosures Regarding Forward-Looking Statements,” “Risk Factors Summary” under Item 1A “Risk Factors” and under Item 7A “Quantitative and Qualitative Disclosures Regarding Market Risk.” The Company undertakes no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future, other than as required by law. 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®, and Kamenstein®. 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. 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. The Company has segmented its operations to reflect the manner in which management reviews and evaluates its results of operations. 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, 2023 and 2022, net sales for the third and fourth quarters accounted for 58%, 57% and 54% 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. RESTRUCTURING During the year ended December 31, 2023, the Company incurred $0.8 million of restructuring expense in connection with the termination of the Company’s Executive Chairman as described below. In 2022, the Company’s international segment incurred $0.4 million of restructuring expenses related to severance associated with the reorganization of the International segment’s workforce. The reorganization was the result of the Company’s efforts to realign the management and operating structure of the European business in response to changing market conditions. In 2022, the Company’s U.S. segment incurred $0.4 million of restructuring expense in connection with the reorganization of the U.S. segment’s sales management structure. The payment was made in 2023. 29 Table of Contents In 2022, the Company incurred $0.6 million of unallocated expense related to the termination payment with its Executive Chairman, Jeffrey Siegel. On November 1, 2022, the Company entered into a transition agreement with Jeffrey Siegel, which terminated his employment with the Company, effective March 31, 2023. The transition agreement amended Mr. Siegel’s employment agreement which was to expire on December 31, 2022. The employment agreement provided for a one-time payment, which was paid on April 7, 2023. The one-time payment of $1.4 million, was recognized over the remaining employment period with $0.6 million recognized in the fourth quarter of 2023 and the remaining $0.8 million recognized in 2023. RECENT DEVELOPMENTS In early 2025, the U.S. government announced and, in some cases, implemented additional tariffs on certain foreign goods, including certain finished products and raw materials such as steel and aluminum. These tariffs are likely to result in increased prices for these imported goods and materials and may limit the amount of these goods and materials that may be imported into the U.S. The Company purchases a high concentration of products from unaffiliated manufacturers located in China and other counties outside the U.S. This concentration exposes the Company to risks associated with doing business globally, including risks relating to tariffs. In January 2025, the Company announced the relocation of the Company’s east coast distribution facility currently located in Robbinsville, NJ (the “Robbinsville Facility”) to a warehouse and distribution space in Hagerstown, Maryland (the “Hagerstown Facility”). In connection with the relocation, the Company will exit the Robbinsville Facility. The Company expects to incur one-time exit costs up to $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 $10.0 million. One-time relocation costs are estimated to be up to $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 by 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 million. These incentives include real property tax abatement, employee state withholding tax credit, conditional grants and income tax credits. EFFECT OF ADOPTION OF ACCOUNTING PRINCIPLES Adopted accounting pronouncements In December 2024, the Company adopted Accounting Standards Update No. (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures: which enhances the disclosures required for operating segments in the Company’s annual and interim consolidated financial statements. The Company adopted this guidance on a retrospective basis and the adoption did not have a material impact on the Company’s consolidated financial statements. Refer to NOTE 12 — BUSINESS SEGMENTS New accounting pronouncements Updates not listed below were assessed and either determined to not be applicable or are expected to have a minimal effect on the Company’s financial position, results of operations, and disclosures. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures: This guidance is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. Early adoption is permitted. The new guidance is effective for public business entities for annual periods beginning after December 15, 2024 on a prospective basis. Retrospective application is permitted. Management is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The guidance requires additional disclosure in the notes to the financial statements for specified information about certain costs and expenses. The new guidance is effective for public business entities for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted. The amendments in this ASU may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of this ASU or (2) retrospectively to all prior periods presented in the financial statements. Management is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures. 30 Table of Contents RESULTS OF OPERATIONS The results of operations below focuses on the results of the year ended December 31, 2024 compared to the year ended December 31, 2023. For a discussion of 2023 compared to 2022 refer to “Management's Discussion and Analysis of Financial Condition and Results of Operations”, in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. The following table sets forth statement of operations data of the Company as a percentage of net sales for the periods indicated below. Year Ended December 31, 2024 2023 2022 Net sales 100.0 % 100.0 % 100.0 % Cost of sales 61.8 62.9 64.2 Gross margin 38.2 37.1 35.8 Distribution expenses 10.8 10.1 10.3 Selling, general and administrative expenses 23.4 22.2 21.3 Restructuring expenses — 0.1 0.2 Wallace facility remediation expense — — 0.7 Income from operations 4.0 4.7 3.3 Interest expense (3.3) (3.2) (2.4) Mark to market (loss) gain on interest rate derivatives (0.1) (0.1) 0.3 Gain on extinguishments of debt, net — 0.1 — Loss on equity securities (2.0) — — (Loss) income before income taxes and equity in losses (1.4) 1.5 1.2 Income tax provision (0.5) (0.9) (0.8) Equity in losses, net of taxes (0.3) (1.8) (1.2) Net loss (2.2) % (1.2) % (0.8) % 31 Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS 2024 COMPARED TO 2023 Net Sales Net sales for the year ended December 31, 2024 were $683.0 million, a decrease of $3.7 million, or 0.5%, compared to net sales of $686.7 million 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, net sales decreased $5.1 million, or 0.7%, as compared to consolidated net sales in the corresponding period in 2023. Net sales for the U.S. segment in 2024 were $627.2 million, a decrease of $5.9 million, or 0.9%, compared to net sales of $633.1 million in 2023. Net sales for the U.S. segment’s Kitchenware product category in 2024 were $384.3 million, a decrease of $2.4 million, or 0.6%, compared to net sales of $386.7 million in 2023. The net sales decrease in the U.S. segment’s Kitchenware product category was driven by lower sales for kitchen tools and barware products. The decrease was partially offset by higher sales for cutlery and board, and bakeware products driven by new warehouse programs in 2024 and the launch of new product lines. Net sales for the U.S. segment’s Tableware product category in 2024 were $132.8 million, a decrease of $5.5 million, or 4.0%, compared to net sales of $138.3 million for 2023. The decrease was attributable to lower warehouse club programs in 2024 as well as other brick-and-mortar customers. This decline was partially offset by sales e-commerce customers. Net sales for the U.S. segment’s Home Solutions products category in 2024 were $110.1 million, an increase of $2.0 million, or 1.9%, compared to net sales of $108.1 million in 2023. The increase was driven by higher sales for Home Décor products driven by a new warehouse club program in 2024 and sales of a new licensed product brand, partially offset by lower hydration product sales and Taylor branded bath measurement products. Net sales for the International segment in 2024 were $55.8 million, an increase of $2.2 million, or 4.1%, compared to net sales of $53.6 million for 2023. In constant currency, a non-GAAP financial measure, which excludes the impact of foreign exchange fluctuations and was determined by applying 2024 average exchange rates to 2023 local currency amounts, net sales increased approximately 1.6%. The increase was driven by higher sales with global trading business in Asia. Gross margin Gross margin for 2024 was $260.7 million, or 38.2%, compared to $254.6 million, or 37.1%, for the corresponding period in 2023. Gross margin for the U.S. segment was $240.3 million, or 38.3%, for 2024, compared to $236.5 million, or 37.4%, for 2023. The increase in gross margin percentage was due to lower inbound freight costs and favorable product mix. Gross margin for the International segment was $20.4 million, or 36.6%, for 2024, compared to $18.1 million, or 33.8%, for 2023. The increase in gross margin percentage was driven by lower inventory reserves in the current period. Distribution expenses Distribution expenses were $73.8 million for the 2024 period as compared to $69.2 million for the 2023 period. Distribution expenses as a percentage of net sales were 10.8% and 10.1% in 2024 and 2023. Distribution expenses as a percentage of net sales for the U.S. segment were approximately 9.6% in 2024 and 8.8% in 2023. Distribution expenses in 2024 and 2023 included $1.0 million and $0.6 million, respectively, for redesign costs related to the Company’s U.S. warehouses. As a percentage of sales shipped from the Company’s warehouses, excluding warehouse redesign expenses, distribution expenses were 9.7% and 9.4% f or 2024 and 2023. The increase in the expenses as a percentage of sales was a result of higher depreciation expense due to changes in asset retirement obligation estimates and less labor management efficiencies resulting in an increase of employee expenses, partially offset by lower storage expenses. Distribution expenses as a percentage of net sales for the International segment were approximately 24.7% in 2024 and 25.0% in 2023, respectively. As a percentage of sales shipped from the Company’s international warehouses, distribution expenses were 22.1% and 22.3% f or 2024 and 2023, re spectively. The decrease in the expense as a percentage of sales was primarily attributed to favorable freight rates, partially offset by lower shipment volume in U.K. resulting in an unfavorable impact of fixed warehouse expenses. 32 Table of Contents Selling, general and administrative expenses Selling, general and administrative (“SG&A”) expenses for 2024 w ere $159.8 million, an increase of $7.2 million, or 4.7%, as compared to $152.6 million for 2023. SG&A expenses for 2024 for the U.S. segment we re $123.0 million, an increase of $5.6 million, or 4.8%, compared to $117.4 million for 2023. As a percentage of net sales, SG&A expenses were 19.6% for 2024, compared to 18.5% for 2023. The increase in the expenses was attributable to higher employee expenses, amortization expense related to an indefinite trade name, which was reclassified to a definite lived trade name in 2024, 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. SG&A expenses for 2024 for the International segment were $17.2 million, an increase of $1.5 million, or 9.6%, compared to $15.7 million for 2023. As a percentage of net sales, SG&A expense s were 30.8% for 2024, compared to 29.3% for 2023. The increase in the expenses was primarily attributable to higher employee expenses, penalties related to tax filings incurred in the current period, and higher foreign currency exchange losses. Unallocated corporate expenses for 2024 were $19.6 million, compared to $19.5 million for 2023. The increase was driven by lower insurance expenses. Restructuring expenses During the year ended December 31, 2023, the Company incurred $0.8 million of unallocated corporate expenses related to the termination payment with its Executive Chairman. Interest expense Interest expense for 2024 was $22.2 million, compared to $21.7 million for 2023 . The increase was a result of higher interest rates on outstanding borrowings in the current period, partially offset by lower average outstanding borrowings. Mark to market (loss) gain on interest rate derivatives Mark to market loss on interest rate derivatives was $0.5 million for both the year ended December 31, 2024, and December 31, 2023 . The mark to market amount represents the change in the 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 the Company's variable interest rate debt. As of December 31, 2024, the intent of the Company is to hold these derivative contracts until their maturity. Gain on extinguishments of debt, net Gain on extinguishments of debt, net was $0.8 million for the year ended December 31, 2023, consisting of a $1.5 million gain in connection with the repurchase of $47.2 million in principal amount of the Term Loan, and $0.7 million of loss recorded on the prepayment of Term Loan principal in connection with Amendment No. 2 to the Term Loan. Refer to NOTE 7 — DEBT for further details of these transactions. Loss on equity securities Loss on equity securities was $14.2 million for the year ended December 31, 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 5 — EQUITY INVESTMENTS for additional information. Income tax provision The income tax provision was $3.3 million in 2024 and $6.2 million in 2023. The Company’s effective tax rate for 2024 was (34.2)%, compared to 59.4% for 2023. The negative rate for 2024 reflects tax expense on pretax financial reporting loss. The effective tax rate in 2024 differs from the federal statutory rate primarily due to state and local tax expense, nondeductible expenses and losses, and UK foreign losses for which no tax benefit is recognized as such amounts are fully offset with a valuation allowance, offset by a reduction in the Company’s accrual for uncertain tax positions and the release of the valuation allowance on foreign losses in the Netherlands. 33 Table of Contents The effective tax rate in 2023 differs from the federal statutory rate primarily due to state and local tax expense, nondeductible 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 year ended December 31, 2024, as compared to $12.7 million for the year ended December 31, 2023. During the year ended December 31, 2023, equity in losses included a non-cash impairment charge of $6.8 million, to reduce the carrying value of the Company’s investment in Vasconia to its fair value. CRITICAL ACCOUNTING POLICIES AND ESTIMATES Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s audited consolidated financial statements which have been prepared in accordance with GAAP and with the instructions to Form 10-K and Article 10 of Regulation S-X. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments based on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The Company evaluates these estimates including those related to revenue recognition, allowances for doubtful accounts, reserves for sales returns and allowances and customer chargebacks, inventory mark-down provisions, estimates for unpaid healthcare claims, impairment of goodwill, tangible and intangible assets, stock compensation expense, accruals related to the Company’s tax positions and tax valuation allowances. Actual results may differ from these estimates using different assumptions and under different conditions and changes in these estimates are recorded when known. The Company’s significant accounting policies are more fully described in NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES in the Notes to the consolidated financial statements included in Item 15. The Company believes that the following discussion addresses its most critical accounting policies, which are those that are most important to the portrayal of the Company’s consolidated financial condition and results of operations and require management’s most difficult, subjective and complex judgments. Goodwill, intangible assets and long-lived assets Goodwill and intangible assets deemed to have indefinite lives are not amortized but, instead, are subject to an annual impairment assessment on October 1. Additionally, if events or conditions were to indicate the carrying value of a reporting unit may not be recoverable, the Company would evaluate goodwill and other intangible assets for impairment at that time. As it relates to the goodwill assessment, the Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative goodwill impairment testing described in the FASB’s ASC Topic 350, Intangibles – Goodwill and Other. If, after assessing qualitative factors, the Company determines that it is more likely than not that the fair value of a reporting unit exceed its carrying amount, then no further testing is performed for that reporting unit. However, if based on the Company’s qualitative assessment it concludes that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or if the Company elects to bypass the qualitative assessment, the Company will proceed with performing the quantitative impairment test. The Company reviews goodwill and other intangibles that have indefinite lives for impairment annually as of October 1st or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. For goodwill, impairment testing is based upon the best information available using a combination of the discounted cash flow method, a form of the income approach, and the guideline public company method, a form of the market approach. The significant assumptions used under the income approach, or discounted cash flow method, are projected net sales, projected earnings before interest, tax, depreciation and amortization (“EBITDA”) and the cost of capital. Projected net sales and projected EBITDA were determined to be significant assumptions because they are the primary drivers of the projected cash flows in the discounted cash flow fair value model. Cost of capital was also determined to be a significant assumption as it is the discount rate used to calculate the current fair value of those projected cash flows. Determining fair value using a market approach considers multiples of financial metrics based on both acquisitions and trading multiples of a selected peer group of companies. From the comparable companies, a representative market multiple is determined which is applied to financial metrics to estimate the fair value of a reporting unit . Although the Company believes the assumptions and estimates made are reasonable and appropriate, different assumptions and estimates could materially impact its reported financial results. In addition, sustained declines in the Company’s stock price and related market capitalization could impact key assumptions in the overall estimated fair values of its reporting units and could result in 34 Table of Contents non-cash impairment charges that could be material to the Company’s consolidated balance sheet or results of operations. Should the carrying value of a reporting unit be in excess of the estimated fair value of that reporting unit, an impairment charge will be recorded to reduce the reporting unit to fair value. The Company also evaluates qualitative factors to determine whether or not its indefinite-lived intangible have been impaired and then performs quantitative tests if required. These tests can include the relief from royalty model or other valuation models. The significant assumptions used in the relief from royalty model are future net sales for the related brand, royalty rate and the cost of capital to determine the fair value of the indefinite lived intangible. Projected net sales for the related brand and royalty rate were determined to be significant assumptions because they are the primary drivers of the projected cash flows in the relief from royalty model. Cost of capital was also determined to be a significant assumption as it is the discount rate used to calculate the current fair value of those projected cash flows. Goodwill The Company performed its annual impairment assessment of its U.S. reporting unit as of October 1, 2024 by comparing the fair value of the reporting unit with its carrying value. The Company performed the analysis using a discounted cash flow and market multiple method. As of October 1, 2024, the fair value of the U.S. reporting unit exceeded the carrying value of goodwill by 5.4%. As of December 31, 2024, the Company assessed the carrying value of goodwill and determined, based on qualitative factors, that no impairment indicators existed for goodwill. The carrying value of the goodwill for the U.S reporting unit was $33.2 million as of December 31, 2024. Indefinite-lived trade name The Company bypassed the optional qualitative impairment analysis for its indefinite-lived trade name asset annual October 1, 2024 impairment test. The Company completed the quantitative impairment analysis by comparing the fair value of the indefinite-lived trade name to its carrying value using a relief from royalty approach, which assumes the value of the trade name is the discounted cash flows of the amount that would be paid by a hypothetical market participant had they not owned the trade name and instead licensed the trade name from another company. The Company determined that the fair value exceeded its carrying value as of October 1, 2024, and therefore the indefinite-lived intangible asset was not impaired. As of October 1, 2024, the fair value of the Company’s indefinite-lived trade name exceeded its carrying value by 2.4%. In connection with the annual impairment analysis, the Company determined that the trade name, previously estimated to contribute to cash flows indefinitely, has a definite life. Accordingly, the trade name was reclassified from indefinite-lived to finite-lived or amortizable intangible asset as of October 1, 2024. The trade name will be amortized over an estimated useful life of 15 years. Long-lived assets Long-lived assets, including intangible assets deemed to have finite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment indicators include, among other conditions, cash flow deficits, historic or anticipated declines in revenue or operating profit or material adverse changes in the business climate that indicate that the carrying amount of an asset may be impaired. When impairment indicators are present, the recoverability of the asset is measured by comparing the carrying value of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of the asset is not recoverable, the impairment to be recognized is measured by the amount by which the carrying amount of each long-lived asset exceeds the fair value of the asset. Revenue recognition The Company sells products wholesale, to retailers and distributors, and retail, directly to consumers. Wholesale sales and retail sales are recognized at the point in time the customer obtains control of the products in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products. To indicate the transfer of control, the Company must have a present right to payment, legal title must have passed to the customer, the customer must have the significant risks and rewards of ownership, and where acceptance is not a formality, the customer must have accepted the product or service. The Company’s principal terms of sale are Free On Board (“FOB”) Shipping Point, or equivalent, and, as such, the Company primarily transfers control and records revenue for product sales upon shipment. Sales arrangements with delivery terms that are not FOB Shipping Point are not recognized upon shipment and the transfer of control for revenue recognition is evaluated based on the associated shipping terms and customer obligations. Shipping and handling fees that are billed to customers in sales transactions are included in net sales. Net sales exclude taxes that are collected from customers and remitted to the taxing authorities. The Company offers various sales incentives and promotional programs to its wholesale customers from time to time in the normal course of business. These incentives and promotions typically include arrangements such as cooperative advertising, buydowns, volume rebates and discounts. These sales incentives and promotions represent variable consideration and are reflected as reductions 35 Table of Contents in net sales in the Company’s consolidated statements of operations. While many of the sales incentives and promotions are contractually agreed upon with the Company’s customers, certain of the sales incentives and promotions are non-contractual and require the Company to estimate the amount of variable consideration based on historical experience and other known factors or as the most likely amount in a range of possible outcomes. On a quarterly basis, variable consideration is assessed on a portfolio approach in estimating the extent to which the components of variable consideration are constrained. Payment terms vary by customer, but generally range from 30 to 90 days or at the point of sale for the Company’s retail direct sales. The Company incurs certain direct incremental costs to obtain contracts with customers, such as sales-related commissions, where the recognition period for the related revenue is less than one year. These costs are expensed as incurred and recorded within selling, general and administrative expenses in the consolidated statement of operations. Incidental items that are immaterial in the context of the contract are expensed as incurred. 36 Table of Contents LIQUIDITY AND CAPITAL RESOURCES The Company’s principal sources of funds consists of cash provided by operating activities, borrowings available under its revolving credit facility and from time-to-time working capital reductions. The Company’s primary uses of funds consist of payments of principal and interest on its debt, working capital requirements, capital expenditures and dividends. From time-to-time uses also include acquisitions and repurchases of its common stock. At December 31, 2024 and 2023, the Company had cash and cash equivalents of $2.9 million and $16.2 million, respectively, and working capital of $221.8 million at December 31, 2024, compared to $224.4 million at December 31, 2023. The current ratio (current assets to current liabilities) was 2.5 to 1.0 at December 31, 2024, and December 31, 2023. The current ratio has remained relatively consistent. At December 31, 2024, borrowings under the Company’s ABL Agreement were $42.7 million and $142.5 million was outstanding under the Term Loan. At December 31, 2023, borrowings under the Company’s ABL Agreement were $60.4 million and $150.0 million was outstanding under the Term Loan. Liquidity as of December 31, 2024 was $111.7 million, consisting of $2.9 million of cash and cash equivalents, $82.8 million of availability under the ABL Agreement, limited by the Term Loan financial covenant, and $26.0 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. 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 December 31, 2024 inventory turnover was 2.4 times, or 150 days, as compared to 2.5 times, or 145 days, for the three months ended December 31, 2023. Inventory turns have remained relatively consistent. The increase in inventory levels at December 31, 2024 compared to December 31, 2023 was due to a proactive measure to mitigate impact of the tariffs expected in 2025. On January 19, 2025, in connection with the lease agreement for the Hagerstown Facility, the Company provided financial assurance of $2.7 million in the form of a letter of credit. This reduced the availability under the revolving credit facility by the same amount. 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 12 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 will be repaid in 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 37 Table of Contents 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 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 December 31, 2024 and 2023, the total availability under the ABL Agreement were as follows (in thousands): December 31, 2024 December 31, 2023 Maximum aggregate principal allowed $ 176,329 $ 181,919 Outstanding borrowings under the ABL Agreement (42,693) (60,395) Standby letters of credit (8,828) (2,894) Total availability under the ABL agreement $ 124,808 $ 118,630 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 December 31, 2024, the availability under the ABL Agreement, limited by the Term Loan financial covenant, was $82.8 million. The current and non-current portions of the Company’s Term Loan included in the consolidated balance sheets were as follows (in thousands): December 31, 2024 December 31, 2023 Current portion of Term Loan: Term Loan payment $ 7,500 $ 7,500 Estimated unamortized debt issuance costs (2,609) (2,758) Total Current portion of Term Loan $ 4,891 $ 4,742 Non-current portion of Term Loan: Term Loan, net of current portion $ 135,000 $ 142,500 Estimated unamortized debt issuance costs (4,051) (6,666) Total Non-current portion of Term Loan $ 130,949 $ 135,834 The estimated 2024 excess cash flow payment of $1.3 million will be applied to the 2025 scheduled quarterly payments of the Term Loan, per the terms of the debt agreement. As of December 31, 2024, the future principal payments of the Term Loan are as follows (in thousands): 2025 $ 7,500 2026 7,500 2027 127,500 Total $ 142,500 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 38 Table of Contents 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. 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 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 0.5%, 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 December 31, 2024 was between 4.29% and 7.88%. The Company paid a commitment fee of 0.25% on the unused portion of the ABL Agreement during the year ended December 31, 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 December 31, 2024 was 10.06%. 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 December 31, 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. The repurchase was executed by way of a reverse Dutch auction, pursuant to and in accordance with the terms and conditions provided for in the Term Loan. 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 was $1.5 million, net of fees and expenses. In connection with the Term Loan Amendment, the Company reduced its outstanding principal by a net amount of $48.7 million through a voluntary prepayment of principal (in accordance with the terms of the original Term Loan Agreement), net of the issuance of new proceeds and an extension of a portion of existing Term Loan. In connection with the Term Loan Amendment that Company incurred fees of $9.1 million, which will be amortized over the life of the debt using the effective interest method. The Company recognized a loss of $0.7 million of unamortized debt issuance costs on the partial extinguishment for the portion of the Term Loan that was repaid. 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. 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 39 Table of Contents Company’s on-going financial results and trends. 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 these non-GAAP financial measures in addition to, and not as a substitute for, the Company’s financial performance measures prepared in accordance with 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. The following is a reconciliation of net (loss) income as reported to adjusted EBITDA for the years ended December 31, 2024 and 2023 and each fiscal quarter of 2024 and 2023: Three Months Ended Year Ended March 31, 2024 June 30, 2024 September 30, 2024 December 31, 2024 December 31, 2024 (in thousands) Net (loss) income as reported $ (6,260) $ (18,167) $ 344 $ 8,918 $ (15,165) Loss on equity securities — 14,152 — — 14,152 Equity in losses, net of taxes 2,092 — — — 2,092 Income tax provision (benefit) 210 (57) 1,507 1,671 3,331 Interest expense 5,614 5,157 5,834 5,603 22,208 Depreciation and amortization 4,939 4,894 6,408 6,073 22,314 Mark to market loss (gain) on interest rate derivatives 174 82 928 (718) 466 Stock compensation expense 807 1,037 1,042 1,034 3,920 Acquisition related expenses 95 641 210 143 1,089 Warehouse redesign expenses (1) 18 35 662 249 964 Adjusted EBITDA (2) $ 7,689 $ 7,774 $ 16,935 $ 22,973 $ 55,371 (1) For the year ended December 31, 2024, the warehouse redesign expenses were related to the U.S. segment. (2) Adjusted EBITDA is a non-GAAP financial measure that is defined in the Company’s debt agreements. Adjusted EBITDA is defined as net (loss) income, adjusted to exclude loss on equity securities, equity in losses, net of taxes, income tax provision (benefit), interest expense, depreciation and amortization, mark to market loss (gain) on interest rate derivatives, stock compensation expense, and other items detailed in the table above that are consistent with exclusions permitted by our debt agreements . 40 Table of Contents Three Months Ended Year Ended March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023 December 31, 2023 (in thousands) Net (loss) income as reported $ (8,805) $ (6,520) $ 4,206 $ 2,707 $ (8,412) Equity in losses, net of taxes 2,777 5,863 1,047 2,978 12,665 Income tax (benefit) provision (1,348) 1,242 3,015 3,313 6,222 Interest expense 5,336 5,528 5,246 5,618 21,728 Depreciation and amortization 4,870 4,925 4,821 4,955 19,571 Mark to market loss (gain) on interest rate derivatives 234 (197) 98 364 499 Stock compensation expense 861 1,011 898 917 3,687 Contingent consideration fair value adjustment — (50) — (600) (650) (Gain) loss on extinguishments of debt, net — (1,520) — 759 (761) Acquisition related expenses 490 242 186 407 1,325 Restructuring expenses 856 — — — 856 Warehouse redesign expenses (1) 194 157 176 51 578 Adjusted EBITDA (2) $ 5,465 $ 10,681 $ 19,693 $ 21,469 $ 57,308 (1) For the year ended December 31, 2023, the warehouse redesign expenses related to the U.S. segment. (2) Adjusted EBITDA is a non-GAAP financial measure which is defined in the Company’s debt agreements. Adjusted EBITDA is defined as net (loss) income, adjusted to exclude equity in losses, net of taxes, income tax (benefit) provision, interest expense, depreciation and amortization, mark to market loss (gain) on interest rate derivatives, stock compensation expense, (gain) loss on extinguishments of debt, net, and other items detailed in the table above that are consistent with exclusions permitted by our debt agreements. Capital expenditures Capital expenditures for the year ended December 31, 2024 were $2.2 million. 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 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 Swap Agreements 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 June 2019 the Company entered into interest rate swap agreements, with an aggregate notional value of $25.0 million and expire in February 2025. In March 2024 and October 2024, the Company entered into new interest rate swap agreements, each with an aggregate notion 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 $75.0 million at December 31, 2024. 41 Table of Contents 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 December 31, 2024. 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 values of foreign exchange contracts at December 31, 2024 and 2023 was $8.0 million and $9.8 million, respectively. Dividends Dividends were declared in 2024 and 2023 as follows: Dividend per share Date declared Date of record Payment date $0.0425 March 8, 2023 May 1, 2023 May 15, 2023 $0.0425 June 22, 2023 August 1, 2023 August 15, 2023 $0.0425 August 2, 2023 November 1, 2023 November 15, 2023 $0.0425 November 7, 2023 February 1, 2024 February 15, 2024 $0.0425 March 8, 2024 May 1, 2024 May 15, 2024 $0.0425 June 20, 2024 August 1, 2024 August 15, 2024 $0.0425 August 6, 2024 November 1, 2024 November 15, 2024 $0.0425 November 5, 2024 January 31, 2025 February 14, 2025 On March 11, 2025, the Board of Directors declared a quarterly dividend of $0.0425 per share payable on May 15, 2025 to shareholders of record on May 1, 2025. Cash provided by operating activities Net cash provided by operating activities was $18.6 million in 2024, compared to $56.4 million in 2023. The decrease from 2024 compared to 2023 was attributable to increased use of cash related to inventory purchases, and timing of payments for accounts payable and accrued expenses, partially offset by timing of collections related to the Company’s accounts receivable. Cash used in investing activities Net cash used in investing activities was $2.2 million in 2024, compared to $2.8 million in 2023. Cash used in financing activities Net cash used in financing activities was $29.5 million in 2024 compared to $61.1 million in 2023. The change from 2024 compared to 2023 was attributable to higher repayments of the Term Loan in the 2023 period and financing costs incurred in connection with the Amendment No. 2 to the Term Loan. This was partially offset by higher proceeds from the revolving credit facility in the 2023 and no stock repurchases activities in the 2024 period. MATERIAL CASH REQUIREMENTS The Company’s material cash requirements include the following: Debt As of December 31, 2024, the Company had an outstanding Term Loan facility, which matures on August 26, 2027, for an aggregate principal amount of $142.5 million, with $7.5 million amounts due within 12 months. Future interest obligations associated with debt and interest rate swaps total $40.9 million, with $17.1 million payable within 12 months. The future interest obligations are estimated by assuming the amounts outstanding under the Company’s debt agreements and the interest rates as of December 31, 2024 remain consistent to the end of the debt agreements. Actual amounts borrowed and interest rates may vary over time. Leases The Company has operating leases for corporate offices, distribution facilities, manufacturing plants, and certain vehicles. As of December 31, 2024, the Company had fixed lease payment obligations of $85.7 million, with $19.2 million payable within 12 months. 42 Table of Contents Royalties The Company has license agreements that require the payment of minimum royalties on sales of licensed products. As of December 31, 2024, the estimated minimum royalties payable under the noncancellable term of these agreements amounted to $8.2 million payable within 12 months. Post-retirement benefit The Company assumed retirement benefit obligations, which are paid to certain former executives of a business acquired in 2006. As of December 31, 2024, the estimated discounted obligations under the agreements with the former executives amounted to $4.7 million, with $0.4 million payable within 12 months. Wallace EPA Matter As of December 31, 2024, in connection with the Wallace EPA Matter, the Company’s estimated remediation liability amounted to $5.4 million, with $1.0 million is expected to be paid within 12 months. On February 7, 2024, the Company provided financial assurance of $5.6 million in the form of a letter of credit. Hagerstown Facility Relocation In connection with the relocation of the Company’s east coast distribution center to Hagerstown Facility the Company expects to incur the following: i) Fixed lease payment obligations of $123.4 million, with $5.0 million payable in within the first 12 months of the lease which is expected to commence in March 2026. ii) Capital expenditures of approximately $10.0 million related to equipment and certain leasehold improvements, of which $6.0 million is expected to be purchased in 2025. iii) The Company expects to incur one-time exit costs to close its operations in Robbinsville of up to $7.0 million. This includes employee severance, certain employee relocation costs and remaining lease costs for the Robbinsville Facility through the end of the term. These costs are expected to be incurred in 2025. iv) The asset retirement obligations related to the Robbinsville fixed assets of $1.3 million is expected to be paid 2026. iv) The Company expects to one-time relocation costs to be up to $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.