Byline: Melanie Kletter

NEW YORK — With new management, new fashions in the pipeline and intensified online efforts, Lands’ End is deep into a major restructuring effort that could turn its fortunes around from last year’s downturn.
However, the moves seem to be generating some skepticism on Wall Street, and investors are getting impatient over disappointing sales volumes.
Shares of Lands’ End fell sharply to 43 5/8, losing 14 1/8, or 24.5 percent, on the New York Stock Exchange Wednesday after the direct merchant said sales for the five weeks ended Dec. 3 were lower than expected. Lands’ End last month had warned that sales would be soft in the fourth quarter and into next year, but the 18 percent sales drop in the November period was worse than the company anticipated. In last year’s fourth quarter, the company had sales of $541.2 million.
On Wednesday, the firm attributed the sales shortfall to a decrease in catalog pages being circulated, as the firm puts more emphasis online and offers fewer sales promotions. The company also cited softness in cold weather categories and the shift of a clearance catalog from the fourth quarter into the third quarter.
Analysts said it is unlikely Lands’ End will meet Wall Street consensus earnings estimates of $1.42 a share in the fourth quarter.
Analyst Holly Guthrie, Janney Montgomery Scott, said she cut her fourth-quarter estimate by at least 23 cents to about $1.25 a share. Last year, Lands’ End earned $1.07 a share, excluding restructuring charges. Kevin Silverman, ABN Amro, slashed his estimates by 28 cents to $1.20.
Guthrie also downgraded the stock to “hold” from “buy.”
“They reduced page count too much, too quickly,” Guthrie told WWD.
“They need to review their entire program and do some heavy soul searching. Sales are way below plan. Other apparel retailers faced the same warm weather that Lands’ End did, and yet their sales were still up modestly in November.”
The Dodgeville, Wis.-based retailer said page circulation [a figure reflecting the amount of pages per catalog and number of catalogs distributed] in the last six months has been reduced by about 20 percent. The firm had hiked catalog circulation and page circulation earlier this year in large part to clear out excess inventory from the fourth quarter of last year.
Guthrie noted that the lack of clearance merchandise in the last month may have eliminated potential business from shoppers seeking deals.
Last year, the company’s earnings plunged 51.4 percent from the prior year.
The dismal performance triggered a major restructuring, eliminating almost 100 positions, or nearly 10 percent of the salaried staff.
In addition, the Willis & Geiger catalog division, for more upscale outdoor apparel and gear, was discontinued, and three of its 19 outlets were closed.
The company also suffered from high inventories. The Lands’ End catalog sells primarily casual apparel, basics and outerwear. In addition to the core Land’s End book, the company offers a group of specialty catalogs for children’s wear, corporate sales, home products and other categories.
Lands’ End’s business improved through the first half of this year, and its stock price enjoyed a huge run up, with Wall Street praising its aggressive e-commerce strategy and rating the firm as among the top apparel sellers on the Web.
But things turned down again in the third quarter, with apparel sales softening, and Wall Street began questioning the restructuring efforts.
In the last 52 weeks, Lands’ End has traded as high as 83 1/2 and as low as 19 13/16.
The company, which launched in 1995, is among the few retailers to break out e-commerce sales, in an apparent move to spotlight a brighter side of its business to investors. E-commerce sales totaled $61 million in 1998, up from $18 million in 1997, and are expected to reach about $151 million this year, according to analysts.
The site includes more than 1,000 items and ships to 185 countries.
David D. Dyer, president and chief executive officer, said earlier this year that Lands’ End wants to derive a significant portion of sales from the Internet, which has lower expenses. Dyer last December recruited a new head merchant, Mindy C. Meads, to bring a fresh merchandise direction to the company. More fashionable items including some contemporary items bearing stretch fabrics and more vivid colors will be seen in spring and summer offerings, a company spokeswoman said.
“They have hired a number of new merchants, buyers and designers, and are spending more to develop ideas, but that they are not maximizing that due to the circulation pullback,” Guthrie observed.
Analyst Derek Leckow, Barrington Research Associates, took a more optimistic view of the situation.
“Lands’ End has some really good things going on now that will pay off in the next few years,” Leckow said.
“Its investments are the right ones. This is a transition period. They have organized themselves to be more profitable, and they are more profitable.”
Leckow further noted that consumers are shopping later and later during the holiday season, and said he expects to see an uptick in sales this month.

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