Strong Quarter
● The classic, all-American brand sailed through the third quarter, but it is hoping for temperatures to drop to spur outerwear sales in the fourth.
Lands’ End bucked the pandemic to double profits in the third quarter.
Lands’ End doubled its profits in the third quarter, capitalizing on its “let’s get comfy” marketing mantra, the launch of the line at Kohl’s, and a business model built almost entirely on digital selling.
“Probably the biggest thing is that over 96 percent of our business is through the e-commerce channel. We have an extremely large direct-to-consumer business,” Jerome Griffith, president and chief executive officer of Lands’ End, told WWD after the company reported Thursday that net income last quarter reached $7.2 million, compared to $3.6 million in the year-ago quarter, and that revenues rose 5.9 percent to $360 million, from $340 million a year ago.
Last quarter, sleepwear, loungewear, knits, fleece and home furnishings were the best-selling categories.
“We have over 90 million active customers in our data base,” Griffith said in an interview. “Customers are more and more shopping online, and less in stores, and I don’t think that’s going to change even in a post-COVID-19 world because of the convenience factor.”
The classic, all-American brand also reported that adjusted EBITDA increased 52.3 percent to $28.6 million in the quarter ended Oct. 30, compared to $18.8 million in the year-ago period.
Based on results from the September launch of Lands’ End product on kohls. com and in 150 Kohl’s stores, in 2021 Lands’ End will widen the distribution to 300 Kohl’s stores and expand its assortment inside the retailer, which means providing additional square footage for the brand. Currently, Lands’ End shops in Kohl’s average about 600 square feet. Lands’ End already offers its entire assortment on kohls.com.
Asked if sell-throughs at Kohl’s are any different than those at Lands’ End, Griffith replied, “The bestsellers are the bestsellers, whether it’s sleepwear, loungewear, knits, activewear, fleece, athletic bottoms or slippers. What is surprising is how good the kids business has been at Kohl’s. It’s a real overachiever.” Griffith noted that Kohl’s shoppers and Lands’ End shoppers share the same demographic features, so it’s a good fit.
He also highlighted Lands’ End use of machine learning to determine the best prices to sell product. “We call it dynamic promoting to get the best prices in front of shoppers,” Griffith said. “It reduces our markdown percentage and increases gross margin.”
Griffith underscored the company’s limited brick-and-mortar exposure as a particular advantage at at time when shoppers are avoiding stores due to the health crisis. The company has just 31 stores and no plans to open more next year. In the latest quarter, the brand’s brick-and-mortar business was down 44 percent to $8 million.
The Dodgeville, Wisc.-based Lands’ End sees further growth by continuing to add third-party vendors to its web site. By year end, Lands’ End expects to have 20 to 25 third-party vendors on the site, from 13 currently. The thirdparty vendors provide merchandise that Lands’ End doesn’t manufacture, including certain home furnishings, intimates and shoes.
On the down side, “The fourth quarter got off to a slower start. The demand for outerwear just wasn’t there,” said Griffith, due to the unusually warm November and people sheltering in from COVID-19. “We don’t think there is lasting impact there. Inventories are lean,” the ceo said.
Temperatures have begun to drop in December, which is expected to be colder and drier than last year.
“Our ‘Let’s get comfy’ messaging continues to resonate with consumers and will remain front and center through the holiday season,” Griffith said during a conference call.
“We were very pleased with our third-quarter performance,” he said. “Our teams executed at an exceptional level to achieve strong results despite the challenges created by COVID-19. The investments we put toward leveraging data analytics to inform our strategies around product, e-commerce and marketing continued to pay dividends in driving growth in new customers and strong retention rates.”
In another third-quarter highlight, the company completed a closing of a $275 million term loan and an increase in its asset-based senior secured credit facility to a maximum of $275 million in borrowings.
“We are pleased to have refinanced our term loan during the third quarter, in a very difficult debt market,” said Jim Gooch, chief operating officer and chief financial officer.
“We believe the strong momentum in our business, along with our enhanced financial flexibility, positions us optimally to continue to execute our long-term growth strategies, as we continue to navigate the continued challenges of the COVID-19 pandemic,” Gooch said. “While we are encouraged by the continued resilience and performance of our global e-commerce business, the fourth quarter has gotten off to a slow start in the U.S., due to the impact of unseasonably warm weather on our heavy outerwear category.
For the fourth quarter, Lands’ End expects net revenue to be between
$500 million and $520 million, net income between $13.5 million and $17.5 million, and diluted earnings per share between $0.41 and $0.53. Adjusted EBITDA is seen in the range of $38 million to $43 million.