Lands’ End Reports Net Gains Despite Sales Headwinds

The Dodgeville, Wisc.-based all-American brand has an upbeat outlook on holiday and the year.

cents in earnings per diluted share, as compared to $3.3 million, or 10 cents, in the year-ago period. Adjusted earnings before interest, taxes, depreciation and amortization were $18.8 million compared to $15.7 million in the year-ago quarter.

He acknowledged that colder weather during November and December has been spurring business, but there was softness earlier in the quarter due to relatively warm weather.

Wall Street was impressed by the results, sending Lands’ End stock up 21 percent, or $2.47, to close at $14.24 in trading Tuesday.

Based on the third-quarter results, Lands’ End raised its earnings guidance for 2019. The company now expects net income of between $18 million and $21 million compared to an earlier forecast of $12 million to $17 million. Diluted EPS is now seen coming in between 55 cents and 64 cents, compared to the earlier forecast of between 37 cents and 52 cents.

Revenues, however, could be slightly down. They’re seen reaching between $1.45 billion and $1.46 billion, whereas the earlier forecast was for between $1.45 billion and $1.5 billion. Part of the decline is due to continued closing of Lands’ End shops inside Sears. Lands’ End is down to 36 shops at Sears, all of which are liquidating this year.

Net revenue for the third quarter decreased 0.5 percent to $340 million as compared to the same period last year, reflecting 89 fewer Lands’ End shops at Sears, reducing revenues by $17 million. Excluding the Sears impact, revenues would have increased by 4.7 percent.

Same-store sales for U.S. companyoperated stores increased by 8.3 percent. There are 25 operating.

“While sales were burdened by unseasonably warm temperatures, our transitional product resonated with customers and sales trends improved as the colder weather arrived. Our U.S. company-operated stores continued to deliver strong comparable-sales growth, with our 2018 openings comping above expectations.”

Last quarter, knits, sleepwear, denim and an expanded transitional array sold best. “Transitional plays a key role look to provide buy-now-wear-now,” styles, said Griffith. Raincoats, squalls, three-inone outerwear, thermal fleece, and the Expedition Collection also sold well, while sweaters and heavier outerwear began to improve late in the third quarter as the weather got colder.

Gross margin increased to 45.3 percent in the quarter compared to 44.2 percent in the third quarter last year primarily due to a more disciplined promotional strategy. “Gross margin expansion and expense management enabled us to achieve adjusted EBITDA growth of approximately 20 percent,” Griffith pointed out.

“Looking ahead, our growth strategies remain centered on delivering product with a purpose, operating as a digitally led company, executing a uni-channel strategy and improving business processes and infrastructure. Overall, we are pleased with our progress and remain on track to achieve our long-term financial targets.”

Among the growth strategies cited by Griffith:

• Leveraging IT investments.

The company just began to implement an enterprise order management system, to increase inventory productivity, ordering efficiency, top-line growth and working capital.

• Exploring new growth avenues, particularly third-party marketplaces to expand the brand’s reach.

• Growing business generated through Amazon.

• “Selectively” entering licensing agreements for products and categories.

• Pursuing collaborations. In 2020, Lands’ End is collaborating with Reese Witherspoon’s Draper James brand on swimwear.

Tariffs related to China will have an $8 million to $10 million impact in the current fiscal year. Fifty percent of the impact of tariffs was offset by renegotiating prices and relocating sourcing. In 2020, 20 percent of Lands’ End’s total shipments will be from China. The tariff impact beginning is seen at $7 million to $9 million per year beginning next year.

One negative is that the company’s inventory level was at $499.9 million as of Nov. 1 this year compared to $432 million as of Nov. 2 last year. Executives said this increase was primarily driven by receipts supporting the fourth- quarter American Airlines uniform launch and accelerated shipments to beat the implementation of tariffs.

Nevertheless, Griffith said, “We feel very confident in the composition of the inventory. It’s very seasonal appropriate.”