It’s holiday time and Lands’ End is liking it, particularly after a healthy third quarter injecting some momentum into the all-American brand.
“We saw a lot of gift-shopping activity over the weekend,” said Jerome Griffith, president and chief executive officer of Lands’ End, said Tuesday, just after the company reported that its third-quarter net rose to $3.6 million, or 11 cents in earnings per diluted share, as compared to $3.3 million, or 10 cents, in the year-ago period. Adjusted earnings before interest, taxes, depreciation and amortization was $18.8 million compared to $15.7 million in the year-ago quarter.
“I’m very pleased holiday shopping has fallen in line with expectations,” Griffith said, adding that some top-selling categories so far have been turtlenecks, pajamas, down vests and flannel shirts. “People have been personalizing a lot of products,” Griffith said.
He acknowledged that colder weather during November and December has been spurring business, but there was softness earlier in the quarter due to relatively warm weather.
Wall Street was impressed by the results, sending Lands’ End stock up 21 percent, or $2.47, to close at $14.24 in trading Tuesday.
Based on the third-quarter results, Lands’ End raised its earnings guidance for 2019. The company now expects net income between $18 million and $21 million compared to an earlier forecast of $12 million to $17 million. Diluted EPS is now seen coming in between 55 cents and 64 cents compared to the earlier forecast of between 37 cents and 52 cents.
Revenues could be slightly down. They’re seen reaching between $1.45 billion and $1.46 billion whereas the earlier forecast was for between $1.45 billion and $1.5 billion. Part of the decline is due to continued closing of Lands’ End shops inside Sears. Lands’ End is down to 36 shops at Sears, all of which are liquidating this year.
Net revenue for the third quarter decreased 0.5 percent to $340 million as compared to the same period last year, reflecting 89 fewer Lands’ End shops at Sears reducing revenues by $17 million. Excluding the Sears impact, revenues would have increased by 4.7 percent.
Same-store sales for U.S. company-operated stores increased by 8.3 percent. There are 25 operating.
“While sales were burdened by unseasonably warm temperatures, our transitional product resonated with customers and sales trends improved as the colder weather arrived. Our U.S. company-operated stores continued to deliver strong comparable-sales growth, with our 2018 openings comping above expectations.”
Last quarter, knits, sleepwear, denim and an expanded transitional array sold best. “Transitional plays a key role look to provide buy-now-wear-now [styles],” Griffith said. Raincoats, squalls, three-in-one outerwear, thermal fleece and the Expedition Collection also sold well, while sweaters and heavier outerwear began to improve late in the third quarter as the weather got colder.
Gross margin increased to 45.3 percent in the quarter compared to 44.2 percent in the third quarter last year primarily due to a more disciplined promotional strategy. “Gross margin expansion and expense management enabled us to achieve adjusted EBITDA growth of approximately 20 percent,” Griffith pointed out.
“Looking ahead, our growth strategies remain centered on delivering product with a purpose, operating as a digitally led company, executing a uni-channel strategy and improving business processes and infrastructure. Overall, we are pleased with our progress and remain on track to achieve our long-term financial targets.”
In other news, David Witkewicz was named vice president and head of design, reporting to Chieh Tsai, chief product officer. Witkewicz will oversee concept, print, pattern, color and product design across all divisions. Witkewicz was at Kenneth Cole as vice president of women’s design. Earlier, he was part of the design teams at New York & Co., Coach, Target Corp. and Saks Fifth Avenue.
Among the growth strategies cited by Griffith:
• Leveraging IT investments. The company just began to implement an enterprise order management system, to increase inventory productivity, ordering efficiency, top-line growth and working capital.
• Exploring new growth avenues, particularly third-party marketplaces to expand the brand’s reach.
• Growing business generated through Amazon.
• “Selectively” entering licensing agreements for products and categories.
• Pursuing collaborations. In 2020, Lands’ End is collaborating with Reese Witherspoon’s Draper James brand on swimwear.
“We are excited about the strength in our core businesses and the progress made in initiatives,” Griffith said. “We believe we have a strong competitive edge with the brand heritage.”
Tariffs related to China will have an $8 million to $10 million impact in the current fiscal year. Fifty percent of the impact of tariffs was offset by renegotiating prices and relocating sourcing. In 2020, 20 percent of Lands’ End’s total shipments will be from China. The tariff impact beginning is seen at $7 million to $9 million per year beginning next year.
One negative is that the company’s inventory level was at $499.9 million as of Nov. 1 this year compared to $432 million as of Nov. 2 last year. Executives said this increase was primarily driven by receipts supporting the fourth-quarter American Airlines uniform launch and accelerated shipments to beat the implementation of tariffs.
Nevertheless, Griffith said, “We feel very confident in the composition of the inventory. It’s very seasonal appropriate.”