After a Tough 2022, What’s Ahead for Lands’ End
For Lands’ End, business has been tough for several quarters, although now the classic all-American fashion brand sees some daylight ahead.
Even as continued losses are projected for the near future, Andrew McLean, Lands’ End’s chief executive officer since last September, told WWD, “At least for the first half of the year, we see ourselves turning back to some semblance of growth. We’ve had five quarters where we haven’t grown the business. And I think now we see opportunity for revenues to start to flatten and maybe go in the right direction as we take share.”
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Interviewed Thursday, just after the company reported top- and bottom-line declines for the fourth quarter, McLean said the strategy focuses on investing most where the company does best — swimwear, outerwear, layering and catalogues.
“I feel good about where the customers are at and what he and she are telling us is that they’re confident and they’re taking the economic impacts in stride. We are midway through the first quarter so we have a fair idea of what is going on.” He sees either “minor contraction to minor growth” in revenues in the near future, but he added it’s not clear to him whether there will be a recession or what the impact of the recent U.S. bank failures will be.
While there is some optimism on the first half, McLean said the second half of 2023 at this point at least seems “opaque,” meaning difficult to speculate or forecast.
“It’s about taking the key categories we’re best at and leaning into those,” McLean said. “We’ve got 7 million customers so there is plenty to work with there for a business of our size.
“There are three areas that I’ve been really impressed with since I got into the business. From a product standpoint, there’s swim and outerwear, and then there’s the fit. We have the number-one market share in swim and that came through the efforts of Jerome over the last five years,” McLean said, referencing Lands’ End’s former CEO Jerome Griffith.
“What makes our swimwear so good is that we’re not trying to compete for the athletic sector. We’re not trying to chase markets we shouldn’t be chasing. We’re very focused on what we do well, which is owning the vacation and the beach,” part of swim. “I don’t think you’ll see the U.S. swim team wearing Lands’ End for anything other than relaxing on the beach. But don’t get me wrong, I’d love it if the call came in.”
The swim category represents 19 percent of Lands’ End’s business to consumer revenues. “Somewhere in the order of half of our growth this year is going to come from swim,” McLean said. “It’s a one-piece cycle this year.”
The Dodgeville, Wisconsin-based retailer posted a net loss for the fourth quarter ended Jan. 28 of $3.3 million, or $0.10 loss a diluted share, compared to net income of $7.1 million, or $0.21 a diluted share, in the fourth quarter of fiscal 2021.
Adjusted earnings before interest, taxes, depreciation and amortization were $24.2 million compared to $27.3 million in the fourth quarter of fiscal 2021. Net revenue decreased 4.6 percent to $529.6 million, compared to $555.4 million in the year-ago quarter.
In addition to swimwear, “everything that you wear to go on vacation” represents growth opportunities, McLean said, citing totes, hats and slides, and swim dresses as a subcategory.
Traditional heavyweight outerwear, particularly parkas, which Lands’ End is well-known for, did not sell well during the fourth quarter, so McLean said there will be greater focus on lighterweight outerwear including raincoats, the classic squall and vests. “With the way the weather is now, she wants rain protection, and then she wants to layer underneath that. And that’s a pivot for us. It’s not that we haven’t been doing it, I would say we haven’t [addressed] it as much because we’ve always talked to the heavier outerwear.”
Kohl’s is the only third-party that sells Lands’ End in its stores, though Lands’ End can be purchased on several marketplaces including Macy’s, Amazon, as well as the Kohl’s website. He said Lands’ End is in discussions to sell inside the stores of another retailer but he declined to specify which one.
“Our catalogue does for us what stores do for other retailers,” McLean said. “So many companies have walked away from catalogue. We have; we stayed with it. We’ve kept that expertise, and we’re able to use it to connect with our loyal customers and to connect with new customers. It’s a great prospecting tool. It continues to drive the kind of customer demand that we could get out of stores,” McLean said, noting Lands’ End has only 33 stores and no plans currently to open more.
He said Lands’ End tailors its catalogue distribution based on gender or having kids, or being most interested in swimwear, and some customers get catalogues with more pages, others get catalogues with fewer ones.
McLean’s view to the near future is based in part on the company’s obtaining sequential sales and margin improvement in each month of the fourth quarter, resulting in revenue and adjusted EBITDA at the higher end of expectations. Apparently that pushed the stock price up. It rose 16.8 percent to $8.07 by the closing bell Thursday.
In a statement earlier in the day, McLean said, “We also plan to foster innovation in our operations, with a focus on driving stronger results and best anticipating and serving evolving customer needs, as well as strengthening our digitally native capabilities through enhanced use of data analytics, which we expect will drive deeper brand affinity and grow our share of our addressable market.…We are confident that through our sharpened focus on execution and innovation, we are well positioned to build on our strong foundation and drive enhanced growth and profitability, as reflected in our first quarter and fiscal 2023 outlook.”
For the first quarter of fiscal 2023 the company expects:
Net revenue between $295 million and $310 million.
Net loss to be between $5 million and $3 million and diluted loss per share to be between $0.15 and $0.09.
Adjusted EBITDA in the range of $13 million to $16 million.
For fiscal 2023 the company expects:
Net revenue to be between $1.56 billion and $1.62 billion.
Net loss to be between $6 million and $1 million and diluted loss earnings per share to lose between $0.18 and $0.03.
Adjusted EBITDA in the range of $72 million to $82 million.
In other results last quarter, global e-commerce net revenue was $414.5 million, a decrease of 6.1 percent from $441.5 million in the fourth quarter of fiscal 2021 as a result of industry-wide promotional activity and macroeconomic challenges impacting consumer discretionary spending. Compared to the fourth quarter of fiscal 2021, U.S. e-commerce decreased 1.5 percent and international e-commerce decreased 30.8 percent, which includes the previously announced closure of the Japan e-commerce business.
Outfitters net revenue was $60.5 million, a decrease of 2.1 percent from $61.8 million in the fourth quarter of fiscal 2021 driven by the fulfillment of school uniforms in fiscal 2022 in line with the back-to-school selling season, slightly offset by demand within the company’s travel-related national accounts. Third-party net revenue, which includes sales on third-party marketplaces and U.S. wholesale revenues, was $39.2 million, an increase of 8 percent compared to $36.3 million in the fourth quarter of fiscal 2021. The increase was largely driven by sales growth in the Kohl’s marketplace and existing and new online marketplaces.
U.S. company-operated stores experienced a 3.9 percent decline in same-store sales.
For the fiscal year, net revenue decreased 5 percent to $1.56 billion compared to $1.64 billion in the prior year. The net loss was $12.5 million, or $0.38 loss per diluted share, compared to net income of $33.4 million or $0.99 earnings per diluted share in fiscal 2021.
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