Lands’ End Stock Up Despite Lower Forecast for Year
Lands’ End deepened its loss in the third quarter due to a large impairment charge yet newness and strong inventory management led to improved margins.
On Tuesday, the Dodgeville, Wisc.-based Land’s End reported a net loss of $112.4 million, or $3.52 a share, in the quarter ended Oct. 27, compared to a net loss of $4.7 million, or 14 cents a share, in the year-ago period. The loss last quarter included a non-cash goodwill impairment charge of $106.7 million due to the decline in the company’s stock price and market capitalization.
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Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) last quarter was $17.3 million compared to $16.7 million in the third quarter of fiscal 2022. Gross profit grew to $152.6 million, an increase of $4.2 million, or 2.8 percent, from $148.4 million in the third quarter of 2022.
The adjusted net loss was $3.6 million, or 11 cents per diluted share, compared to adjusted net loss of $1.7 million, or 5 cents per share, in the third quarter of fiscal 2022.
Net revenues at the classic, all-American brand decreased 12.5 percent to $324.7 million compared to $371 million in the year-ago period.
Wall Street apparently approved of the results, impressed by the margin and inventory improvements. As of close Tuesday, Lands’ End stock price was up 9.6 percent, or 64 cents, to $7.29.
“Our third-quarter results reflect the continued strong execution of our solutions-based strategy to deliver compelling product for our customers and value to our shareholders,” Andrew McLean, chief executive officer, said in a statement Tuesday.
“Our deliberate efforts to generate more profitable sales resulted in increased gross profit dollars and gross margin expansion of approximately 700 basis points and adjusted EBITDA above the high end of our guidance range,” McLean added. “We continued to build on our positive momentum injecting newness across our assortment and increasing inventory turns, resulting in a 25 percent reduction in year-over-year inventory. Looking ahead, by continuing to play to our strengths and delivering our customers the solutions they need, we’re confident in our ability to drive profitable sales through the holiday season to finish the year strong.”
McLean said the gross margin improvement was driven by new products, transitional outerwear and adjacent categories and improved inventory management, including a 25 percent reduction in year-over-year inventory.
Other highlights of the quarter include stronger traffic across all channels on Black Friday through Cyber Monday; the launch of an exclusive women’s swim collection at Target in late November, which will roll out to 200 doors by early January, and the formation of a license for all kids categories, except for school uniforms, starting in fiscal 2024. Cash and cash equivalents came to $36.8 million as of Oct. 27, compared to $28.8 million as of Oct. 28, 2022.
For all of fiscal 2023, the company now expects net revenue between $1.45 billion and $1.48 billion, a net loss between $118 million and $115 million, and diluted loss per share between $3.70 and $3.60. Adjusted EBITDA is seen in the range of $80 million and $84 million.
That compares to the previous outlook for 2023 net revenue of between $1.5 billion and $1.55 billion, a net loss of $4.5 million to a net profit of $1 million, and diluted earnings per share of a loss of 14 cents to a profit of 3 cents. Adjusted EBITDA was seen in the range of $77 million to $84 million.
Lands’ End expects fourth quarter net revenue between $490 million and $520 million, net income between $4 million and $7 million, and diluted earnings per share between 13 cents and 22 cents. Adjusted EBITDA is seen in the range of $27.5 million to $31.5 million.
In other results for the third quarter of 2023:
E-commerce net revenue was $216 million, a decrease of 13.2 percent from $249.2 million in the third quarter of 2022. Third quarter of fiscal 2022 included revenue of $9.5 million from Lands’ End Japan, which closed at the end of fiscal 2022. Excluding the Japan business, e-commerce revenue decreased 9.7 percent.
U.S. e-commerce net revenue decreased 10 percent primarily driven by a concerted effort to reduce promotional activity and improved inventory management compared to the prior year, resulting in higher margins with lower clearance inventory sales, the company said.
European e-commerce net revenue decreased 8 percent primarily driven by assortment editing with a focus on key categories, reduced clearance inventory sales and continued macroeconomic challenges.
The Outfitters division had net revenues of $74.3 million last quarter, a decrease of $6.5 million, or 8 percent, from the $80.8 million in the year-ago period. The decrease was primarily driven by the conclusion of the Delta Air Lines contract in the first quarter of fiscal 2023 and the timing of school uniform shipments compared to the prior year, partially offset by midsingle-digit growth year-over-year with other business customers. Excluding the $4.2 million decrease in year-over-year revenue from the Delta Air Lines business, net revenue for the Outfitters business declined 3 percent.
Third-party revenue was $24 million, a decrease of 22.4 percent from $30.9 million in the year-ago quarter, primarily attributed to weaker performance at Kohl’s partially offset by continued growth of sales through marketplaces.
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