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The stores that will close are projected to generate losses on an annual basis. The company has entered into an agreement with Gordon Brothers Retail Partners LLC to manage and operate inventory clearance sales at those locations, which are expected to be completed by the end of the first quarter of 2008. Lifetime has also entered into an agreement with RCS Real Estate Advisors with respect to terminating the leases for the affected stores. Following these store closings, the company will continue to operate 37 Pfaltzgraff stores and nine Farberware stores, as well as the Pfaltzgraff catalog business and its www.pfaltzgraff.com website.
The company estimates it will record pre-tax charges related to these store closings of up to $2.0 million, equal to net income (loss) of approximately ($0.08) per diluted share, in 2007, primarily representing non-cash write-downs of retail store fixed assets; and up to $5.0 million, equal to net income (loss) of approximately ($0.19) per diluted share in 2008. The foregoing estimates do not take into account the results of the inventory clearance sales or, for 2008, any mitigation of its store lease obligations. In addition to lease termination expense and the write-downs of fixed assets, the charges will include the costs of retention bonuses, severance payments and other expenses. As a result, the company now expects diluted earnings per share for 2007 to be between $1.02 and $1.12, as compared to diluted earnings per share of $1.14 in 2006.
“While we are very pleased with the progress that our Direct to Consumer management team has made in revitalizing our retail stores, we determined that certain locations do not have the potential to show meaningful profits and should be closed,” said Jeffrey Siegel, Lifetime’s chairman, president and chief executive officer. “We are confident that our remaining stores and our direct response businesses do have that potential. We will, of course, continue to monitor our ongoing store base closely and will open and/or close stores in the ordinary course as circumstances warrant.”
Separately, Lifetime confirmed that the previously announced sale of its Westbury, N.Y., office building closed on November 30, 2007. The company applied the net proceeds of approximately $8.8 million from the sale to pay down borrowings under its revolving credit facility. The pre-tax gain on the sale of approximately $3.7 million is equal to net income of $0.15 per diluted share.
In addition, Lifetime will open a new West Coast distribution center in Fontana, Calif. When fully operational in early 2008, the new 753,000-square-foot facility will replace a former Syratech Corp. warehouse in Mira Loma, Calif., and another distribution center, also located in Mira Loma, operated by a third-party logistics provider.
The company also announced that its board of directors has doubled the size of the company’s stock repurchase authorization to $40 million from $20 million. “Our board unanimously agreed to increase the size of our stock repurchase program,” said Siegel. “This underscores our belief that Lifetime is in a strong position to achieve its goals for aggressive growth and increased profitability in 2008 and beyond.”
As of November 30, 2007, Lifetime had repurchased approximately 1,363,000 shares of common stock on the open market for a total purchase price of approximately $22.7 million under the share buyback program the company announced in August 2007.
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