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Tickers in this Article: LCUT
Lifetime Brands (LCUT) sells and distributes products in the housewares segment. This segment generates about $20 billion in revenues. The consumer in this segment is driven by strong preferences to brand names. LCUT has the #1 or #2 positions in several product categories with brands like: Farberware, KitchenAid, Pfaltzgraff, Cuisinart, Hoffritz and Sabatier among others.

The growth has been strong and steady in this segment of the market. There can now be an argument that the growth will accelerate.

The housing market is slowing (some will argue crashing) and this will prove to be a huge positive for spending in this market. As consumers begin to nest in their current homes, remodeling and upgrading home decor and items in these homes will pick-up spending.

LCUT's product line is perfectly positioned to take advantage of a current consumer trend in which up-sized kitchens in many of the newer homes have become entertainment centers and have been the beneficiary of high levels of spending to outfit these new showplaces.

In addition to offering these name brands at retail outlets and department stores across the country, LCUT is building a burgeoning customer direct business through its internet and catalogue presence. Currently, LCUT has a database of over 4 million active direct customers.

Sales are growing at a 20+% rate, which is beginning to provide additional operating leverage. SG&A costs remain in-line and actually fell approximately 100 basis points in the third quarter from the year ago period. As a result, net profit margin rose from 4.8% to 8.8% despite an approximate increase in LCUT's tax rate of 200 basis points.

The stock fell out of favor with investors after reaching an all-time high in April of just over $30/share. Since that peak, LCUT has fallen 36%, but the future for the company is still promising and solid.

Management's guidance for full-year sales and earnings are $489.35 million and $1.45-1.55/share, respectively. Street estimates for earnings are $1.48 this year and $1.92 next year. That represents a growth rate of 20% this year and 30% next year, at a time when many retailers are reducing guidance due to slower sales.

The company has stated goals of 20% per annum growth and to reach $1 billion in annual sales by 2009. That is nearly a 27% compounded growth rate based on 2006 expectations.


On a fundamental basis, the stock is very attractive. Since its 36% price decline, the stock has been trading around the $19 mark. This puts the valuation at approximately 0.6 price/sales and gives the stock a 0.8 PEG ratio.

These are levels rarely found for a company that is growing sales and earnings at over 20% per annum. Based on next year's estimates, the stock is trading at a P/E of about 10. The stock should begin to trade more in line with its peers over the next 12-18 months. With a peer group average for forward P/E of around 16x, LCUT's current level provides a potential upside of over 80% for the stock.

LCUT is a small cap stock (approx. $255 million) and not without risks. A dramatic pullback by the consumer will have a definite negative impact on LCUT's growth targets. There is a small level of protection in that LCUT pays a current dividend for about a 1.3% yield.

Overall, I would argue that given the current prospects for LCUT, there is a sale in housewares for investors.

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