Lands’ End Sees Red in Q3, Lowers 2022 Outlook
Lands’ End, experiencing higher costs and margin pressures amid a “volatile” and promotional retail environment, fell into the red during the third quarter and lowered its outlook for fiscal 2022.
The net loss was $4.7 million, or $0.14 loss per diluted share, for the quarter ended Oct. 28, compared to net income of $7.4 million or $0.22 earnings per share in the third quarter of 2021.
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Net revenue decreased 1.3 percent to $371 million compared to $375.8 million in the third quarter of fiscal 2021. Like other retailers, Lands’ End saw business softening in October and early November, but some pickup in more recent weeks.
Gross margin decreased approximately 440 basis points to 40 percent, compared to 44.4 percent in third quarter of fiscal 2021, due to $6.8 million in incremental transportation costs, increased industry-wide promotional activity, as well as margin mix from growth in the brand’s third-party business with Amazon, Kohl’s, Walmart and Target, among others.
Inventory was up 18 percent as a result of early receipts and a carry over of basics from prior seasons, though the company has been reducing purchases for seasons ahead, and expects inventories to normalize by the end of spring 2023.
“The current environment is very uncertain and volatile,” Jerome Griffith, Lands’ End chief executive officer, said during a conference call with retail analysts on Thursday. “People are looking for a deal,” with food and energy costs inflated, he said.
“Last year, everybody shopped before Veteran’s Day. This year, we are going to get more traffic toward the end of the year. Traffic patterns are getting back to 2019 patterns.” While retailing is highly promotional, Griffith said there haven’t been “huge big blockbuster events. You don’t see it. It’s a lot more of a friendly shopping environment.…You will see people shopping up till the last shipping days and the day before Christmas, though it still will be a pretty promotional environment through the holiday season and into January.”
With Lands’ End missing expectations, the stock price fell nearly 24 percent Thursday morning to $8.83.
Recapping Lands’ End performance by category, Griffith said dresses, sweater jackets, denim, chino pants, men’s jackets, transitional outerwear including fleece, rainwear and lighter-weight down vests, “outperformed.” He said versatile looks suitable for wearing at home or at work were selling well.
On the other hand, “It hasn’t been cold enough for heavy outerwear to perform,” he said. He also cited softness in kids, sleepwear and home products such as sheets and towels, but said the company is “moving through inventories. It will be fine, but it’s going to be at a price.”
During the quarter, the company said it successfully launched its Blake Shelton x Lands’ End collection, which offers men’s, women’s and kids apparel as well as home items.
In his prepared statement, Griffith cited “strong conversion rates throughout the quarter indicating favorable responses to our product offerings. While the current environment remains volatile, we are optimistic about the future as we focus on making progress against our strategic initiatives. Our long-tenured customer base and our digitally driven e-commerce model gives me confidence that Lands’ End is in a strong position for long-term success.”
Griffith is retiring at the end of the fourth quarter and will be succeeded by Andrew McLean, who was formerly with American Eagle Inc.
By division, global e-commerce net revenue decreased 4.6 percent to $249.2 million in the quarter, U.S. e-commerce decreased 1.3 percent and international e-commerce decreased 19.6 percent, both primarily driven by lower consumer demand resulting from macroeconomic challenges.
Outfitters net revenue decreased 6.2 percent to $80.8 million primarily driven by the normalization of purchases in travel-related national accounts compared to last year.
Third-party net revenue increased 59.9 percent to $30.9 million for the third quarter, primarily attributed to growth in the Kohl’s online marketplace, and business at other marketplaces, such as Amazon, Walmart and Target.
Retail net revenue increased 9.7 percent to $10.1 million with same-store sales increasing 13 percent.
Gross profit was $148.4 million, a decrease of $18.4 million or 11 percent from $166.8 million during the third quarter of fiscal 2021. Adjusted EBITDA decreased to $16.7 million compared to $29.8 million in the third quarter of fiscal 2021.
“We took a concerted effort to improve our in-stock positions by increasing our lead times and receipting our fall/holiday inventory earlier,” said Jim Gooch, president and chief financial officer. “While this largely drove our 18 percent increase in inventories at the end of the third quarter, we are well positioned to meet our customers’ needs as we move through the holiday season.
“We have revised our full-year outlook to account for the uncertain macro environment. We anticipate that the fourth quarter will be highly promotional and we plan to remain competitive with our pricing to drive traffic through the holiday season,” Gooch said.
For fiscal 2022, the company now expects net revenue between $1.54 billion and $1.56 billion; a net loss between $9 million and $6 million, and diluted loss per share to be between $0.27 and $0.18.
Previously, the company projected net revenue between $1.6 billion and $1.64 billion; net income between $16.5 million and $23.5 million, and EPS of $0.49 and $0.70.
For the fourth quarter, the company expects net revenue between $510 million and $530 million, and net income to be between zero and $3 million and diluted earnings per share to be between zero and $0.09. Adjusted EBITDA is seen in the range of $20 million to $25 million.
