Consumers right now are battling “unprecedented inflation” in “food and fuel,” Lands’ End CEO Jerome Griffith told Wall Street analysts Thursday to explain the company’s first-quarter slowdown in apparel sales against 12 months ago when people were “looking for comfortable clothing to work at home.”
In a Nutshell: Ongoing supply chain delays clipped the flow of new styles and colors in Q1, Griffith said.
“In addition, we saw an industry-wide slowdown in e-commerce traffic, particularly in the apparel category,” he said.
“Given our highly loyal customer base with an average tenure of 18 years, we are confident that as inventory flow normalizes as the macro headwinds subside, these customers will return, and we will be ready to meet their needs,” Griffith added.
Lands’ End shoppers are looking for comfortable fabrics that suit a variety of occasions. Performance chinos, five-pocket jeans and women’s “cowl neck tunics and leggings” performed well in the quarter, Griffith said, citing swimwear and outerwear as additional standouts.
“As our customers’ needs evolve, we plan to leverage our data analytics to adjust product assortment to adapt to these changes,” he added.
Lands’ End plans to expand its assortment at Kohl’s from 300 to 500 doors by fall, with the total store count to hit over 600 stores by the end of the year. The full assortment is available at kohls.com. “We will continue to build on our existing partnerships, while simultaneously seeking new partnership opportunities in additional channels,” he said, noting that the company will launch one or two new partnerships this year. It had deals with Draper James, Rockport shoes, Danskin and others.
Chief financial officer Jim Gooch said gross margin fell 42.5 percent, or a 350-basis-point decline from 2021, with margin pressure attributed to an incremental $14 million in supply chain costs versus the year-ago quarter.
“We expect these costs to remain elevated through the remainder of the year,” Gooch said. “That said, we are encouraged to see some stabilization in transportation costs, as carriers have now begun honoring contracted rates.”
Net Sales: For the three months ended April 29, net revenue fell 5.5 percent to $303.7 million from $321.3 million. The company’s retail business posted $9 million in revenue, with U.S. same-store sales up 4 percent.
The retailer said global e-commerce net revenue fell 15.7 percent for the quarter, while net revenue for U.S. e-commerce fell 14.1 percent and international decreased by 21.7 percent. The declines were driven by delayed receipts of key products due to global supply chain and macroeconomic challenges, the company said.
The company’s Outfitters B2B business, including school uniforms, saw revenue rise 32.6 percent in the quarter, while third-party net revenue rose 83.8 percent, attributed mostly to the expansion of Kohl’s stores that carry Lands’ End goods, online marketplaces and on-air QVC launch of select swimwear.
The company said adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $13.8 million—down from $22.5 million a year ago—met the retailer’s internal expectations.
Earnings: The retailer posted a net loss of $2.4 million, or 7 cents a diluted share, against net income of $2.6 million, or 8 cents, in the same year-ago quarter.
Wall Street was expecting an adjusted diluted loss per share of 1 cent on revenue of $328 million.
For the second quarter, Lands’ End said it expects a diluted loss per share of between 9 cents to 18 cents on a revenue range of $335.0 million to $350.0 million. The guidance includes $13.0 million of incremental transportation expenses due to global supply chain challenges.
For the year, the retail guided diluted earnings per share in the range of 60 cents to 88 cents on revenue between $1.62 billion and $1.68 billion. The full-year guidance presumes $35.0 million of incremental transit expenses connected with supply chain issues, and gross margin improvement in the second half as the retailer laps higher supply chain costs from the year-ago period.
Gooch said that even though the company has higher inventory levels, that’s more about pulling forward receipts than it is about excess goods coming out of the season, adding that added freight costs are capitalized into the inventory and driving up value. “We don’t have a significant amount of added markdowns built into [guidance] because our inventory is in pretty good shape,” Gooch said.
Wall Street was optimistic about Lands’ End’s future prospects.
“We suspect that demand metrics remain strong and guidance assumes that when current out-of-stocks abates in [the second half], revenue and earnings will be positively impacted,” CL King analyst Steven Marotta said.
“We continue to see long-term growth prospects for LE based on its attractive, loyal and growing customer base, diversified distribution model, and digital focus,” Dana Telsey, chief strategy officer at Telsey Advisory Group, said.
CEO’s Take: “With our proven digitally led business model, combined with our strategic pillars of growth and proven success in executing our strategic initiatives, we remain confident in the long-term growth potential of our business, despite the challenging period,” Griffith told investors.