Investors looked past higher profits and margins at Lands’ End Inc. and, on Wednesday, sent its shares down as much as 14 percent on third-quarter sales that fell far short of expectations.
The declines moderated late in the day, and shares closed at $46.95, down $3.71, or 7.3 percent.
In the three months ended Oct. 31, the Dodgeville, Wis.-based marketer of casual apparel and accessories generated net income of $18 million, or 56 cents a diluted share, versus year-ago profits of $14.3 million, or 45 cents. Analysts tracking the firm, on average, expected earnings per share of 40 cents.
But revenues fell far short of estimates, slipping 2.8 percent to $373.1 million from $383.9 million, well below the $404.1 million expected by analysts. Direct sales were down 1.2 percent to $320.3 million, and retail sales were off 11.5 percent to $52.8 million. Revenues were pulled down by both a 3.1 percent decline in same-store sales and a 12 percent reduction in Lands’ End Shops at Sears stores, to 242 from 275.
Lands’ End noted that sales also were hurt by a decrease in “Shop Your Way” redemption credits, due to the terms of its separation from Sears Holdings Corp. in April, as well as declines in international business, offset by an increase in its business apparel and school uniform sales.
Gross margin improved to 49.1 percent of sales from 45.4 percent in the 2013 period, while inventories declined 12.9 percent to $403.9 million.
The company didn’t provide fourth-quarter guidance and did not hold a conference call to discuss the results or its outlook.
“We delivered another quarter of strong operating margin increases driven by a better assortment of product, a more targeted promotional strategy and disciplined expense controls,” said Edgar Huber, president and chief executive officer. “Profitable growth and price integrity are critical components of the Lands’ End brand strategy, and this represents the sixth consecutive quarter in which we have delivered better than 20 percent growth in operating income.”
Operating income in the quarter rose 50.8 percent to $35.1 million from $23.3 million and represented 9.4 percent of sales versus 6.1 percent in the year-ago quarter.
The company had $105.6 million in cash and cash equivalents at the end of the quarter, more than six times the cash position of a year ago, when it was still a part of Sears. Interest expense was $6.2 million, which was due to higher debt levels and costs related to the term loan it issued to pay a $500 million dividend to Sears prior to its separation from its former parent.
Since its initial public offering in March, Lands’ End shares have traded as high as $51, on Monday, and as low as $25.35, on April 11.
Year-to-date net income rose 23.7 percent to $40.7 million, or $1.27 a diluted share, as revenues rose 1.8 percent to $1.05 billion.
In addition to its shops within Sears and other retailers, including London’s House of Fraser, the company operates 14 Lands’ End Inlet stores, two fewer than it did one year ago.