OUTLOOK HITS LANDS’ END STOCK
Byline: Evan Clark
NEW YORK — Lands’ End Inc. shares plummeted 20.4 percent to 31 15/16 Monday after the direct marketing specialist warned that flat second-quarter sales would cut its earnings for the period in half.
The Dodgeville, Wis.-based company now projects earnings per share of 7 cents compared to year-ago earnings of 14 cents.
Analysts surveyed expected shares to earn 17 cents during the second quarter. Earnings were expected to be 22 cents a share until an earlier warning last month. Lands’ End downgraded sales expectations for the second time in as many months, moving from projections of an increase of more than 6 percent to one below that level.
For the year, earnings are now projected to finish at approximately $1.82, between 8 and 13 cents below Wall Street’s earlier estimates.
Buckingham Research’s Barbara Wyckoff attributed the company’s drop in earnings as the function of a generally soft apparel market but noted the effect was compounded by a lack of guidance from the company to Wall Street analysts. “The earnings estimates were all over the lot, because people were kind of guessing,” she observed.
Ellen Schlossberg, an analyst with William Blair & Co., said, “The sales shortfall is a continuation of weakness in specialty business, especially in kids.”
She added that competition in children’s wear has been most keen from Old Navy and Kohl’s.
Lands’ End’s shares hit a 52-week high of 83 1/2 last Nov. 10 but dropped 17 the following day when it warned of weaker fourth-quarter and 2000 sales. Less than a month later, on Dec. 8, the stock dropped 14 1/8, to 43 5/8, when the company reported disappointing November sales. Its high this year was 61 1/2, reached March 31.
Lands’ End recently has taken steps to focus catalog distribution by reducing unprofitable mailings. Catalog mailings declined 8.9 percent last year to 236 million from 259 million in 1998. Catalog content has changed as well, with recent offerings more sharply priced than their predecessors. “The books at the end of the quarter have been more promotional than last year,” said Schlossberg.
The first quarter also saw a revamping of the company’s merchandising. Schlossberg said she viewed recent offerings as “more fashion-forward” and cited an overall improvement in quality as a bright spot. Although this process is already apparent in women’s lines, Schlossberg hopes they will be reflected in men’s wear during the third quarter.
As a result of this ongoing merchandising transformation, Schlossberg has kept her predictions for the company on the conservative side: “To assume that everything was going to be all right while you’re changing your merchandising is risky.”
Lands’ End distributes casual wear through its Web site, Landsend.com, and catalogs, including Lands’ End, Beyond Buttondowns, First Person Singular, Coming Home, Kids Book and School Uniforms.
In May, the company announced that first-quarter earnings were a meager $292,000, or 1 cent a share, down from $6.5 million, or 21 cents, during the 1999 quarters. Sales totaled $266 million, an 8.1 percent drop from the $290 million registered during the prior-year period.
Soft sales in Japan, weakness in the kids division and poorly performing prospecting catalogs also were cited for the declines in sales and earnings. Sales for the fiscal year were predicted to increase somewhat more than 6 percent at that point. Sales were adversely affected by the elimination of the Willis & Geiger business in the prior year, which generated $11 million in liquidation volume.
The first quarter saw strong acceptance of the company’s updated merchandising in its primary catalogs. Corporate sales remained strong with double-digit growth, and Internet sales doubled from the same quarter last year.
The company began to prepare Wall Street for greater disappointments in June, when, citing weaker performance than expected in its specialty catalogs, it revised downward its projection for fiscal-year sales increases to about 6 percent. That warning caused Lands’ End shares to plunge more than 12 percent to 29 11/16 on June 8.
Monday’s fiscal-year adjustment to less than 6 percent comes just days before the end of the second quarter on July 28. Earnings for the second quarter are set to be announced Aug.10.
A company spokesperson said, “It is what it appears to be, an updating of previous comments.”
While critical of its guidance, Buckingham Research’s Wyckoff feels the company has been making necessary adjustments in its business. Perceptions were skewed by projections that were “overly optimistic” during a period of business difficulty.
“They were giving a best-case scenario instead of a worst-case,” Wyckoff said.
The Internet has been a bright spot for the company.
An early Internet player, Landsend.com saw sales more than double last year, to $138 million from $61 million in 1998. Without specifying amounts, Lands’ End previously reported that first-quarter Internet sales doubled from the last year’s first quarter.
David F. Dyer, president and chief executive of Lands’ End, earlier this year stated that 20 percent of the company’s Internet purchasers were new to Lands’ End.
WWD on Monday reported Landsend.com as the 11th most-visited apparel Web site, with 964,000 unique visitors.