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Lands’ End Forecasts Q1 Net Loss on Higher Shipping Costs

Lands’ End saw fourth quarter income fall 64.3 percent to $7.1 million, as revenue rose 3.2 percent to $555.4 million.

In a Nutshell: Lands’ End Inc., in reporting financial results for the full year and fourth quarter on Wednesday, provided outlooks that included a net loss of $2 million to $4 million and diluted loss per share between 6 cents and 12 cents.

The casual lifestyle merchant said net revenue for the first quarter is expected to be between $320 million and $335 million. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) is expected to be in the range of $12 million and $15 million.

The first quarter outlook assumes approximately $15 million of incremental shipping expenses due to the global supply chain challenges, Lands’ End said.

For fiscal 2022, the company expects net revenue to be between $1.68 billion and $1.75 billion and net income to be between $24 million and $35 million, with diluted earnings per share to be between 71 cents and $1.04. Adjusted EBITDA in the range of $105 million to $120 million was projected, with capital expenditures of approximately $37 million.

This full year outlook assumes approximately $40 million of incremental shipping expenses due to the global supply chain challenges.

“We are very pleased with the performance we delivered in 2021, despite the supply chain challenges in the back half of the year,” Jim Gooch, president and chief financial officer, said. “For fiscal 2022, we expect year-over-year sales growth to be higher in the back half of the year, as we lap strong demand from the first half of 2021 and inventory constraints we experienced in the back half of 2021. While we navigate the macro headwinds through the remainder of fiscal 2022, we remain confident in our business model and ability to meet our long-term targets.”

The company said fiscal 2021 was marked by the U.S. e-commerce total customer file increasing to a record of 5.8 million, while global e-commerce total customer file grew 5 percent with a record total of new customers.

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The Outfitters business continued to recover, driven by travel-related national accounts and school uniform customers. Expanded product assortment offered in an additional 150 Kohl’s retail locations, for a total of 300 locations, in the third quarter 2021.

In the quarter, selling and administrative expenses increased $5.5 million to $172.2 million or 31 percent of net revenue, compared to $166.7 million, which was also 31 percent of net revenue in the fourth quarter of last year. The flat basis point result was driven by the leverage on higher sales and continued expense controls, offset by continued investment in digital marketing and higher distribution center labor costs.

Cash and cash equivalents were $34.3 million as of Jan. 28, compared to $33.9 million on Jan. 29, 2021. Net cash provided by operations was $70.6 million compared to $91.6 million a year earlier.

Net inventory was $384.2 million as of Jan. 28, compared to $382.1 million a year earlier.

For the year, selling and administrative expenses increased $52.9 million to $571.8 million or 35 percent of net revenue, compared to $518.9 million or 36.4 percent, in fiscal 2020. The 140 basis points decrease was the result of leverage on higher sales and continued expense controls slightly offset by continued investment in digital marketing and higher distribution center labor costs.

Sales: Net revenue for the fourth quarter ended Jan. 28 increased 3.2 percent to $555.4 million, compared to $538.4 million in the fourth quarter of fiscal 2020.

Global e-commerce net revenue fell 4.4 percent to $441.5 million as a result of shipping delays caused by supply chain challenges. Compared to the fourth quarter of fiscal 2020, U.S. e-commerce decreased 2.2 percent and international e-commerce declined 14.6 percent.

Outfitters net revenue rose 43.6 percent to $61.8 million, driven by stronger demand within the company’s travel-related national accounts and school uniform customers.

Third party net revenue, which includes sales on third-party marketplaces and U.S. wholesale revenues, was $36.3 million in the fourth quarter compared to $21.3 million in the prior-year period. The $15 million increase was primarily attributable to growth in the Kohl’s partnership, including an expansion to 300 locations during the third quarter 2021, compared to 150 retail locations in the fourth quarter 2020.

For the year, net revenue increased 14.7 percent to $1.64 billion compared to $1.43 billion in the prior year.

Global e-commerce net revenue rose 5.3 percent, driven by U.S. e-commerce increasing 6.8 percent, partially offset by international e-commerce decreasing 0.8 percent.

Outfitters net revenue was up 45.9 percent on stronger demand within the company’s travel-related national accounts and school uniform customers. Third Party net revenue increased 116.6 percent with the launch of the Kohl’s business in third quarter of fiscal 2020 and the expansion from 150 to 300 locations in the third quarter fiscal 2021.

Gross margin decreased approximately 10 basis points to 42.3 percent compared to 42.4 percent in 2020. Gross margin declined due to increased shipping costs, largely offset by improved promotional strategies.

Earnings: Net income for the quarter fell 64.3 percent to $7.1 million, or 21 cents per diluted share, compared to net income of $19.9 million, or 60 cents per diluted share, in the fourth quarter of fiscal 2020.

Adjusted EBITDA decreased to $27.3 million compared to $46.1 million year over year.

Gross margin quarter decreased approximately 360 basis points to 35.9 percent compared to 39.5 percent in the fourth quarter last year. The decline was attributed to increased shipping costs driven by the global supply chain challenges.

For the year, net income was $33.4 million, or 99 cents earnings per diluted share, compared to net income of $10.8 million or 33 cent earnings per diluted share in 2020.

Adjusted EBITDA grew 39 percent to $120.9 million from $87 million the prior year.

CEO’s Take: Jerome Griffith, CEO, said: “Over the past year, we continued to demonstrate the strength of our business model and the resiliency of our teams. We generated the highest revenue the company has seen since 2011 and the highest adjusted EBITDA since 2014, as we advanced our strategic growth pillars while taking steps to mitigate the macro headwinds…Looking ahead, we remain confident in our long-term opportunity as we leverage the strength of our digital-first approach, brand and growing total addressable market.”