Lands' End, Inc. (NASDAQ:LE) today announced financial results for
the third quarter ended October 28, 2016.
Third Quarter Fiscal 2016 Highlights:
- Net revenue was $311.5 million as compared to $334.4 million in
the third quarter last year. Direct segment net revenue decreased
5.5% to $272.1 million, as compared to the same period last year.
Retail segment net revenue decreased 15.6% to $39.3 million, as
compared to the same period last year, primarily due to a 14.3%
decrease in same store sales and fewer Lands' End Shops at
Sears.
- Gross margin was 42.9% as compared to 48.6% in the third
quarter last year. During the quarter, the Company wrote down
$4.4 million of prior-season inventory from the Company’s Canvas by
Lands’ End brand, which had a 140 basis point negative impact on
gross margin.
- Net loss was $7.2 million, or $0.23 per diluted share, as
compared to net income of $10.7 million, or $0.33 per diluted
share, in the third quarter last year. Net loss for the third
quarter of 2016 includes the aforementioned $4.4 million inventory
write-down ($3.0 million net of tax), as well as $1.2 million in
non-recurring personnel costs net of reversals ($0.8 million net of
tax), primarily related to the departure of the Company’s former
Chief Executive Officer. The inventory write-down and the
non-recurring personnel costs negatively impacted loss per share by
$0.09 and $0.03 respectively.
- Adjusted EBITDA(1) was $1.3 million compared to $26.5 million
in the third quarter of fiscal 2015.
James Gooch, Co-Interim Chief Executive Officer and Chief
Financial Officer stated, “While we are disappointed in our third
quarter sales and gross margin results, we aggressively managed our
costs and ended the quarter with clean inventory levels.
Following an in-depth review of our recent performance, we have
developed and begun to implement a number of initiatives that we
believe will enable us to better execute our business strategies
and drive improved financial performance. We were pleased to see
some of these initiatives begin to take hold in the second half of
the quarter, and look forward to building upon this momentum during
the holiday season and beyond.”
Joseph Boitano, Co-Interim Chief Executive Officer commented,
“We now have a more clearly defined and focused strategy in place,
which we believe will enable us to better execute on our goal to
deliver product that offers newness and innovation, as well as more
readily address the lifestyle needs of the Lands’ End
customer. Our first priority is to enhance our classic
offering with a focus on key categories that reflect the Lands’ End
brand heritage with great quality, fit and value. We have also
refined our marketing strategy with enhancements to our catalog
presentation and social media efforts. Taken together, we believe
these initiatives will position us to better engage our customers,
win back lapsed customers and attract new customers to Lands’
End.”
Balance Sheet and Cash Flow Highlights
Cash and cash equivalents were $131.5 million on October 28,
2016, compared to $105.0 million on October 30, 2015. Net cash used
in operations was $67.3 million for the 39 weeks ended October 28,
2016, compared to net cash used in operations of $94.8 million for
the same period last year.
Inventory decreased 2.6% to $425.3 million on October 28, 2016,
from $436.7 million on October 30, 2015.
The Company had $161.2 million of availability under its
asset-based senior secured credit facility and had $491.0 million
Long-term debt, net as of October 28, 2016.
Conference Call
The company will host a conference call on Thursday, December 1,
2016, at 8:00 a.m. ET to review its third quarter financial results
and related matters. The call may be accessed through the Investor
Relations section of the Company's website at
http://investors.landsend.com.
About Lands' End, Inc.
Lands' End, Inc. (NASDAQ:LE) is a leading
multi-channel retailer of clothing, accessories, footwear and home
products. We offer products through catalogs, online at
www.landsend.com, www.canvasbylandsend.com and affiliated specialty
and international websites, and through retail locations, primarily
at Lands' End Shops at Sears® and standalone Lands' End Inlet®
Stores. We are a classic American lifestyle brand with a passion
for quality, legendary service and real value, and seek to deliver
timeless style for men, women, kids and the home.
Forward-Looking Statements
Results are unaudited. This press release contains
forward-looking statements, including statements about our
strategies and our opportunities for growth. Forward-looking
statements are based upon the current beliefs and expectations of
our management and are subject to assumptions, uncertainties and
significant risks that may cause our actual results, performance or
achievements to be materially different from any future results,
performance or achievements expressed or implied by these
forward-looking statements. Forward-looking statements include,
without limitation, information concerning our future financial
performance, business strategy, plans, goals and objectives. There
can be no assurance that any of our initiatives will be
successful. The following additional factors, among others,
could cause our actual results, performance, and achievements to
differ from those described in the forward-looking statements: our
ability to offer merchandise and services that customers want to
purchase, including a product assortment with improved fit and
quality, changes in customer preference from our branded
merchandise; customers' use of our digital platform, including
customer acceptance of our efforts to enhance our e-commerce
websites; customer response to direct mail catalogs and
digital/social media marketing efforts; the success of our efforts
to improve catalog quality and optimize catalog productivity; the
success of our overall marketing strategies, some of which, if
successful, may not produce positive results in the short term; the
success of our efforts to optimize promotions to drive sales and
maximize gross margin dollars; our maintenance of a robust customer
list; our dependence on information technology and a failure of
information technology systems, including with respect to our
e-commerce operations, or an inability to upgrade or adapt our
systems; the success of our ERP implementation; the success of our
efforts to grow and expand into new markets and channels;
fluctuations and increases in costs of raw materials; impairment of
our relationships with our vendors; our failure to maintain the
security of customer, employee or company information; our failure
to compete effectively in the apparel industry; the performance of
our "store within a store" business; if Sears Holdings Corporation
sells or disposes of its retail stores, including pursuant to the
recapture rights granted to Seritage Growth Properties and other
parties or if its retail business does not attract customers or
does not adequately provide services to the Lands' End Shops at
Sears; legal, regulatory, economic and political risks associated
with international trade and those markets in which we conduct
business and source our merchandise; our failure to protect or
preserve the image of our brands and our intellectual property
rights; increases in postage, paper and printing costs; failure by
third parties who provide us with services in connection with
certain aspects of our business to perform their obligations; our
failure to timely and effectively obtain shipments of products from
our vendors and deliver merchandise to our customers; reliance on
promotions and markdowns to encourage customer purchases; our
failure to efficiently manage inventory levels; unseasonal or
severe weather conditions; the seasonal nature of our business; the
adverse effect on our reputation if our independent vendors do not
use ethical business practices or comply with applicable laws and
regulations; assessments for additional state taxes; our exposure
to periodic litigation and other regulatory proceedings, including
with respect to product liability claims; incurrence of charges due
to impairment of goodwill, other intangible assets and long-lived
assets; our failure to retain our executive management team and to
attract qualified new personnel; the impact on our business of
adverse worldwide economic and market conditions, including
economic factors that negatively impact consumer spending on
discretionary items; the inability of our past performance
generally, as reflected on our historical financial statements, to
be indicative of our future performance; the impact of increased
costs due to a decrease in our purchasing power following our
separation from Sears Holdings ("Separation") and other losses of
benefits associated with being a subsidiary of Sears Holdings; the
failure of Sears Holdings or its subsidiaries to perform under
various transaction agreements or our failure to have necessary
systems and services in place when certain of the transaction
agreements expire; our agreements related to the Separation and
certain agreements related to our continuing relationship with
Sears Holdings were negotiated while we were a subsidiary of Sears
Holdings and we may have received better terms from an unaffiliated
third party; potential indemnification liabilities to Sears
Holdings pursuant to the separation and distribution agreement; our
inability to engage in certain corporate transactions after the
Separation; the ability of our principal shareholders to exert
substantial influence over us; adverse effects of the Separation on
our business; potential liabilities under fraudulent conveyance and
transfer laws and legal capital requirements; declines in our stock
price due to the eligibility of a number of our shares of common
stock for future sale; our inability to pay dividends;
stockholders' percentage ownership in Lands' End may be diluted in
the future; and increases in our expenses and administrative burden
in relation to being a public company, in particular to maintain
compliance with certain provisions of the Sarbanes-Oxley Act of
2002; and other risks, uncertainties and factors discussed in the
"Risk Factors" section of our Annual Report on Form 10-K for the
fiscal year ended January 29, 2016. We intend the
forward-looking statements to speak only as of the time made and do
not undertake to update or revise them as more information becomes
available, except as required by law.
-Financial Tables Follow-
|
LANDS’ END,
INC. |
|
Condensed
Consolidated Balance Sheets |
|
(in
thousands, except share data) |
|
October 28, 2016 |
|
October 30, 2015 |
|
January 29, 2016* |
|
|
(unaudited) |
|
(unaudited) |
|
|
ASSETS |
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
131,532 |
|
|
$ |
104,986 |
|
|
$ |
228,368 |
|
Restricted cash |
|
3,300 |
|
|
3,300 |
|
|
3,300 |
|
Accounts receivable, net |
|
40,101 |
|
|
37,875 |
|
|
32,061 |
|
Inventories, net |
|
425,290 |
|
|
436,712 |
|
|
329,203 |
|
Prepaid expenses and other current
assets |
|
40,942 |
|
|
40,833 |
|
|
23,618 |
|
Total current
assets |
|
641,165 |
|
|
623,706 |
|
|
616,550 |
|
Property and equipment,
net |
|
115,871 |
|
|
105,661 |
|
|
109,831 |
|
Goodwill |
|
110,000 |
|
|
110,000 |
|
|
110,000 |
|
Intangible asset, net |
|
430,000 |
|
|
528,300 |
|
|
430,000 |
|
Other assets |
|
16,142 |
|
|
14,352 |
|
|
15,145 |
|
TOTAL ASSETS |
|
$ |
1,313,178 |
|
|
$ |
1,382,019 |
|
|
$ |
1,281,526 |
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Accounts payable |
|
$ |
180,608 |
|
|
$ |
151,429 |
|
|
$ |
146,097 |
|
Other current liabilities |
|
101,093 |
|
|
107,596 |
|
|
83,992 |
|
Total current
liabilities |
|
281,701 |
|
|
259,025 |
|
|
230,089 |
|
Long-term debt, net |
|
490,992 |
|
|
494,788 |
|
|
493,838 |
|
Long-term deferred tax
liabilities |
|
158,048 |
|
|
184,926 |
|
|
157,252 |
|
Other liabilities |
|
16,766 |
|
|
16,390 |
|
|
15,838 |
|
TOTAL
LIABILITIES |
|
947,507 |
|
|
955,129 |
|
|
897,017 |
|
Commitments and
contingencies |
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY |
|
|
|
|
|
|
Common stock, par value $0.01-
authorized: 480,000,000 shares; issued and outstanding: 32,029,359,
31,991,343, 31,991,668, respectively |
|
320 |
|
|
320 |
|
|
320 |
|
Additional paid-in capital |
|
343,319 |
|
|
344,156 |
|
|
344,244 |
|
Retained earnings |
|
34,368 |
|
|
88,787 |
|
|
49,329 |
|
Accumulated other comprehensive
loss |
|
(12,336 |
) |
|
(6,373 |
) |
|
(9,384 |
) |
Total stockholders’
equity |
|
365,671 |
|
|
426,890 |
|
|
384,509 |
|
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY |
|
$ |
1,313,178 |
|
|
$ |
1,382,019 |
|
|
$ |
1,281,526 |
|
*Derived from the audited consolidated financial statements
included in the Company's Annual Report on Form 10-K for the fiscal
year ended January 29, 2016.
|
LANDS’ END,
INC. |
|
Condensed
Consolidated Statements of Operations |
|
(Unaudited) |
|
|
|
13 Weeks Ended |
|
39 Weeks Ended |
(in
thousands except per share data) |
|
October 28, 2016 |
|
October 30, 2015 |
|
October 28, 2016 |
|
October 30, 2015 |
Net revenue |
|
$ |
311,476 |
|
|
$ |
334,434 |
|
|
$ |
876,919 |
|
|
$ |
946,235 |
|
Cost of sales (excluding
depreciation and amortization) |
|
177,825 |
|
|
172,019 |
|
|
477,446 |
|
|
492,756 |
|
Gross profit |
|
133,651 |
|
|
162,415 |
|
|
399,473 |
|
|
453,479 |
|
|
|
|
|
|
|
|
|
|
Selling and
administrative |
|
132,365 |
|
|
135,867 |
|
|
390,291 |
|
|
394,261 |
|
Depreciation and
amortization |
|
4,795 |
|
|
4,260 |
|
|
13,419 |
|
|
12,874 |
|
Other operating (income),
net |
|
(86 |
) |
|
(1,009 |
) |
|
(40 |
) |
|
(3,366 |
) |
Operating (loss)
income |
|
(3,423 |
) |
|
23,297 |
|
|
(4,197 |
) |
|
49,710 |
|
Interest expense |
|
6,149 |
|
|
6,204 |
|
|
18,493 |
|
|
18,615 |
|
Other (income) expense,
net |
|
(432 |
) |
|
796 |
|
|
(1,413 |
) |
|
(210 |
) |
(Loss) income before
income taxes |
|
(9,140 |
) |
|
16,297 |
|
|
(21,277 |
) |
|
31,305 |
|
Income tax (benefit)
expense |
|
(1,918 |
) |
|
5,572 |
|
|
(6,316 |
) |
|
11,395 |
|
NET (LOSS) INCOME |
|
$ |
(7,222 |
) |
|
$ |
10,725 |
|
|
$ |
(14,961 |
) |
|
$ |
19,910 |
|
NET (LOSS) INCOME PER COMMON
SHARE |
|
|
|
|
|
|
|
|
Basic: |
|
$ |
(0.23 |
) |
|
$ |
0.34 |
|
|
$ |
(0.47 |
) |
|
$ |
0.62 |
|
Diluted: |
|
$ |
(0.23 |
) |
|
$ |
0.33 |
|
|
$ |
(0.47 |
) |
|
$ |
0.62 |
|
|
|
|
|
|
|
|
|
|
Basic weighted average
common shares outstanding |
|
32,029 |
|
|
31,991 |
|
|
32,018 |
|
|
31,975 |
|
Diluted weighted average
common shares outstanding |
|
32,029 |
|
|
32,059 |
|
|
32,018 |
|
|
32,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Use and Definition of Non-GAAP Financial
Measures
(1)Adjusted EBITDA - In addition to our Net
income, for purposes of evaluating operating performance, we use an
Adjusted Earnings Before Interest, Taxes, Depreciation and
Amortization (“Adjusted EBITDA”), which is adjusted to exclude
certain significant items as set forth below.
Our management uses Adjusted EBITDA to evaluate
the operating performance of our business, as well as for executive
compensation metrics, for comparable periods. Adjusted EBITDA
should not be used by investors or other third parties as the sole
basis for formulating investment decisions as it excludes a number
of important cash and non-cash recurring items.
While Adjusted EBITDA is a non-GAAP measurement,
management believes that it is an important indicator of operating
performance, and is useful to investors, because:
- EBITDA excludes the effects of financings, investing activities
and tax structure by eliminating the effects of interest,
depreciation and income tax costs or benefits.
- Other significant items, while periodically affecting our
results, may vary significantly from period to period and have a
disproportionate effect in a given period, which affects
comparability of results. We have adjusted our results for these
items to make our statements more comparable and therefore more
useful to investors as the items are not representative of our
ongoing operations.
- We excluded a benefit related to the reversal of a portion of
the product recall accrual recognized in Fiscal 2014 as this was an
unusual event that affects the comparability of our financial
results.
- For the 13 weeks ended and 39 weeks ended October 28, 2016
and October 30, 2015, we excluded the gain or loss on disposal
of property and equipment as management considers the gains or
losses on disposal of assets to result from investing decisions
rather than ongoing operations.
|
Reconciliation
of Non-GAAP Financial Information to GAAP |
|
(Unaudited) |
|
|
|
|
|
|
|
13 Weeks Ended |
|
39 Weeks Ended |
|
|
October 28, 2016 |
|
October 30, 2015 |
|
October 28, 2016 |
|
October 30, 2015 |
(in thousands) |
|
$’s |
|
% of Net revenue |
|
$’s |
|
% of Net revenue |
|
$’s |
|
% of Net revenue |
|
$’s |
|
% of Net revenue |
NET (LOSS)
INCOME |
|
$ |
(7,222 |
) |
|
(2.3 |
)% |
|
$ |
10,725 |
|
|
3.2 |
% |
|
$ |
(14,961 |
) |
|
(1.7 |
)% |
|
$ |
19,910 |
|
|
2.1 |
% |
Income tax (benefit)
expense |
|
(1,918 |
) |
|
(0.6 |
)% |
|
5,572 |
|
|
1.7 |
% |
|
(6,316 |
) |
|
(0.7 |
)% |
|
11,395 |
|
|
1.2 |
% |
Other (income) expense,
net |
|
(432 |
) |
|
(0.1 |
)% |
|
796 |
|
|
0.2 |
% |
|
(1,413 |
) |
|
(0.2 |
)% |
|
(210 |
) |
|
— |
% |
Interest expense |
|
6,149 |
|
|
2.0 |
% |
|
6,204 |
|
|
1.9 |
% |
|
18,493 |
|
|
2.1 |
% |
|
18,615 |
|
|
2.0 |
% |
Operating (loss)
income |
|
(3,423 |
) |
|
(1.1 |
)% |
|
23,297 |
|
|
7.0 |
% |
|
(4,197 |
) |
|
(0.5 |
)% |
|
49,710 |
|
|
5.3 |
% |
Depreciation and
amortization |
|
4,795 |
|
|
1.5 |
% |
|
4,260 |
|
|
1.3 |
% |
|
13,419 |
|
|
1.5 |
% |
|
12,874 |
|
|
1.4 |
% |
Product recall |
|
(212 |
) |
|
(0.1 |
)% |
|
(1,007 |
) |
|
(0.3 |
)% |
|
(212 |
) |
|
— |
% |
|
(3,371 |
) |
|
(0.4 |
)% |
Loss (gain) on disposal of
property and equipment |
|
126 |
|
|
— |
% |
|
(2 |
) |
|
— |
% |
|
172 |
|
|
— |
% |
|
5 |
|
|
— |
% |
Adjusted EBITDA(1) |
|
$ |
1,286 |
|
|
0.4 |
% |
|
$ |
26,548 |
|
|
7.9 |
% |
|
$ |
9,182 |
|
|
1.0 |
% |
|
$ |
59,218 |
|
|
6.3 |
% |
LANDS’ END,
INC. |
|
Condensed
Consolidated Statements of Cash Flows |
|
(Unaudited) |
|
|
|
39 Weeks Ended |
(in
thousands) |
|
October 28, 2016 |
|
October 30, 2015 |
CASH FLOWS FROM
OPERATING ACTIVITIES |
|
|
|
|
Net (loss) income |
|
$ |
(14,961 |
) |
|
$ |
19,910 |
|
Adjustments to reconcile
net (loss) income to net cash used in operating activities: |
|
|
|
|
Depreciation and amortization |
|
13,419 |
|
|
12,874 |
|
Product recall |
|
(212 |
) |
|
(3,371 |
) |
Amortization of debt issuance
costs |
|
1,284 |
|
|
1,313 |
|
Stock-based compensation |
|
1,578 |
|
|
2,307 |
|
Loss on disposal of property and
equipment |
|
172 |
|
|
5 |
|
Deferred income taxes |
|
839 |
|
|
3,381 |
|
Change in operating assets and
liabilities: |
|
|
|
|
Inventories |
|
(99,997 |
) |
|
(134,690 |
) |
Accounts payable |
|
40,186 |
|
|
20,078 |
|
Other operating assets |
|
(25,100 |
) |
|
(18,124 |
) |
Other operating liabilities |
|
15,537 |
|
|
1,523 |
|
Net cash used in operating
activities |
|
(67,255 |
) |
|
(94,794 |
) |
CASH FLOWS FROM
INVESTING ACTIVITIES |
|
|
|
|
Proceeds from sale of property and
equipment |
|
44 |
|
|
— |
|
Purchases of property and
equipment |
|
(26,083 |
) |
|
(18,117 |
) |
Net cash used in investing
activities |
|
(26,039 |
) |
|
(18,117 |
) |
CASH FLOWS FROM
FINANCING ACTIVITIES |
|
|
|
|
Payments on term loan facility |
|
(3,863 |
) |
|
(3,863 |
) |
Net cash used in financing
activities |
|
(3,863 |
) |
|
(3,863 |
) |
Effects of exchange rate
changes on cash |
|
321 |
|
|
306 |
|
NET DECREASE IN
CASH AND CASH EQUIVALENTS |
|
(96,836 |
) |
|
(116,468 |
) |
CASH AND CASH
EQUIVALENTS, BEGINNING OF YEAR |
|
228,368 |
|
|
221,454 |
|
CASH AND CASH
EQUIVALENTS, END OF PERIOD |
|
$ |
131,532 |
|
|
$ |
104,986 |
|
Financial information by segment is presented in
the following tables for the 13 Weeks Ended and 39 Weeks Ended
October 28, 2016, and October 30, 2015.
|
|
13 Weeks Ended |
|
39 Weeks Ended |
(in thousands) |
|
October 28, 2016 |
|
October 30, 2015 |
|
October 28, 2016 |
|
October 30, 2015 |
Net revenue: |
|
|
|
|
|
|
|
|
Direct |
|
$ |
272,080 |
|
|
$ |
287,778 |
|
|
$ |
750,660 |
|
|
$ |
805,886 |
|
Retail |
|
39,340 |
|
|
46,597 |
|
|
126,077 |
|
|
140,166 |
|
Corporate / other
|
|
56 |
|
|
59 |
|
|
182 |
|
|
183 |
|
Total net revenue |
|
$ |
311,476 |
|
|
$ |
334,434 |
|
|
$ |
876,919 |
|
|
$ |
946,235 |
|
|
|
13 Weeks Ended |
|
39 Weeks Ended |
(in thousands) |
|
October 28, 2016 |
|
October 30, 2015 |
|
October 28, 2016 |
|
October 30, 2015 |
Adjusted
EBITDA(1): |
|
|
|
|
|
|
|
|
Direct |
|
$ |
13,904 |
|
|
$ |
36,951 |
|
|
$ |
41,516 |
|
|
$ |
85,316 |
|
Retail |
|
(3,583 |
) |
|
(1,714 |
) |
|
(7,063 |
) |
|
(907 |
) |
Corporate / other |
|
(9,035 |
) |
|
(8,689 |
) |
|
(25,271 |
) |
|
(25,191 |
) |
Total Adjusted
EBITDA(1) |
|
$ |
1,286 |
|
|
$ |
26,548 |
|
|
$ |
9,182 |
|
|
$ |
59,218 |
|
CONTACTS:
Lands' End, Inc.
James Gooch
Co-Interim Chief Executive Officer and Chief Financial Officer
(608) 935-9341
Investor Relations:
ICR, Inc.
Jean Fontana
1-646-277-1214
jean.fontana@icrinc.com
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