Fresh from its spin-off from Sears Holdings Corp., Lands’ End is showing improved results, building up its offering and getting investors excited.
On Wednesday, after Lands’ End reported earnings and sales that readily beat estimates, the stock jumped 20.6 percent, closing at $40.20, up $6.86, on Nasdaq. Volume was nearly 3 million shares, about seven times the average.
“There is a good spirit in the company. We’re working on a lot of new ideas,” Edgar Huber, Lands’ End’s president and chief executive officer, told WWD. “I feel extremely good about the third quarter and the fourth quarter.”
In the second quarter, “Overall, the women’s business was very strong. Outerwear is already doing extremely well, dresses, too, and we had a good back-to-school performance in kids,” Huber said, noting that the pink duffle coats have been particularly popular.
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Weathering the tough retail climate, Lands’ End reported a 4.9 percent net income gain in the second quarter ended Aug. 1 to $11.8 million, or 37 cents a diluted share, and even better operating results. Adjusted earnings before interest, taxes, depreciation and amortization increased 26.6 percent to $30.1 million. The market had estimated EPS at 17 cents.
In the year-ago quarter, Lands’ End reported net income of $11.3 million or 35 cents a share, and adjusted EBITDA of $23.78 million.
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Huber said the most recent net would have been higher except the company had to absorb some of the costs of separating from Sears and some bonus payouts. Nevertheless, gains despite the challenging economic environment can be attributed to the spin-off from Sears and the resulting downsizing that’s leading to higher productivity, as well as expense controls, inventory management and elevated merchandising and marketing.
“We are right-sizing our retail footprint in Sears,” Huber said. “We have closed some shops at Sears and [are] reducing some of the square footage in certain Sears stores and increasing the square footage in others. The revenues are declining because we are in fewer Sears stores, but the comps are up.”
Same-store sales increased 2.8 percent last quarter. Total revenues rose 5.4 percent to $347.2 million, while the market had expected $331.1 million in sales. In last year’s quarter, Lands’ End generated $329.6 million in sales.
Retail sales in the latest quarter decreased 2.9 percent to $54.6 million, partly due to the decrease in shops inside Sears stores. Direct sales rose 7.1 percent to $292.6 million. Gross margins in the latest quarter rose 310 basis points to 48.5 percent.
Huber pointed out that turnaround efforts were in progress well before April’s spin-off and that he felt the company was now out of turnaround mode. “We started to turn the business around before the spin-off. Since then, we have been able to focus even more on getting everything right, developing a stronger international business and focusing on a digital transformation,” he said. Huber joined the company three years ago and has been instituting expense controls, more fashionable products to modernize the image, a wider range of fits, and some new categories, such as performance wear, which was introduced last spring. “We have a plan to make it much bigger,” Huber said.
Among other initiatives, Huber said he’s evaluating the possibility of a retail rollout in the U.S.
Abroad, Lands’ End opened two shops-in-shop in House of Fraser in the U.K. this month, marking the brand’s first brick-and-mortar foray overseas. Three more shops inside House of Fraser are planned in the coming weeks. Huber is also working on partnerships in Japan.
In the U.S., Lands’ End operates five regular stores, six outlets and more than 200 shops inside Sears stores. In September 2013, Lands’ End launched a global extension of its core e-commerce platform, allowing international customers to view pricing and place orders in 60 local currencies at landsend.com. Currently, the company distributes to more than 136 countries. The company has substantial operations in Germany‚ Japan and the U.K. as well as catalogue and e-commerce channels in Austria, France and Canada.
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