Lands’ End posted a surprise net income of $2.6 million after seeing first-quarter net revenue jump 48 percent to $321.3 million, and the successful performance has led the the Wisconsin-based company to raise full-year estimates across sales and earnings.
In a Nutshell: The American apparel retailer’s strongest-performing categories were focused on comfort and versatility, including swimwear, sleepwear and knits, with swim a standout in the quarter as customers begin to make travel plans again.
With comfort playing a bigger role in return-to-work attire, khakis and the brand’s wovens business are positioned to capitalize on the continued strength going forward, Lands’ End CEO Jerome Griffith said in an earnings call.
“Our product is well positioned to benefit from what we believe is a permanent shift to a more casual-comfort aesthetic,” Griffith said. “We expect the changes that we began to see at the start of the pandemic are here to stay.”
Griffith said the brand’s performance at Kohl’s and Amazon “exceeded expectations.” The retailer remains on track to expand distribution from 150 to 300 Kohl’s stores this year.
“We also remain pleased with the performance of our Lands’ End marketplace,” Griffith said. “While it is still early and our marketplace represents a small portion of our business, we believe this is an opportunity to expand our reach by providing customers with complementary products that address additional needs.”
The retailer saw 71 percent growth in new online customers, with a retention rate of more than 55 percent. Over 95 percent of the Lands’ End business originates online, according to Griffith. On average, new customers become profitable within their first year, he said.
The recovery in the company’s Outfitters apparel division exceeded expectations, led by travel-related national accounts and school uniform customers. Lands’ End expects this recovery to accelerate throughout 2021 and into 2022, said Jim Gooch, president and chief financial officer of Lands’ End.
Net inventories for the first quarter were $394.3 million, a 2.8 percent increase from the $383.2 million total on May 1, 2020.
Gooch said Lands’ End has started developing a new warehouse management system focused on parcel management, while optimizing its third-party carrier rates.
Gross margin was 46 percent, the retailer’s highest rate in four years. The rate expanded approximately 260 basis points (2.6 percentage points) compared to 43.4 percent in the first quarter of fiscal 2020 and approximately 30 basis points (0.3 percentage points) compared to 45.7 percent in the first quarter of fiscal 2019.
The gross margin increase was primarily due to merchandise margin expansion in the U.S. e-commerce channel driven by improved promotional strategies and continued use of analytics, which improved price optimization and inventory management. Margins were offset by increased shipping costs and surcharges as well as higher sales mix from the lower-margin third-party channel.
Cash and cash equivalents were $36.2 million as of April 30, 2021, compared to $59.1 million as of May 1, 2020. Net cash used in operations was $38.7 million for the quarter, compared to $80.2 million prior-year period. The company had $80 million of borrowings and $178.1 million of availability under its secured credit facility, with $268.1 million in debt.
The retailer also launched its first rainbow capsule collection, to be sold online, in celebration of Pride Month. The Pride-inspired collection will include an array of size-inclusive tops, bottoms, dresses and more.
Lands’ End will also be donating $25,000 to the Point Foundation, the U.S.’s largest scholarship-granting organization for LGBTQ+ students of merit. Lands’ End will sponsor a two-year scholarship named the “Lands’ End Community College Scholarship” with the nonprofit in addition to pledging a percentage of proceeds from rainbow capsule collection sales.
In recent years, Lands’ End has sought to foster a more diverse and inclusive culture by appointing a Diversity & Inclusion Council, offering employee training and facilitating a speaker series. In 2020, Lands’ End launched its first Business Resource Group (BRG) for LGBTQ+ employees and allies.
The retailer raised guidance for both the second quarter of 2021 as well as the full fiscal year after outperforming all first-quarter expectations.
For the first quarter, Lands’ End now expects revenue to be between $345 million and $355 million, ahead of the previous $325 million to $335 million estimate.
And instead of a net loss between $6 million and $3.5 million and a diluted loss-per-share range of 18 cents to 11 cents, the retailer now forecasts a profit. Second-quarter net income is expected to be between $1.5 million and $4 million, and diluted earnings per share to be between 5 cents and 12 cents.
Adjusted EBITDA is now in the range of $20 million to $23 million, ahead of the initially projected $10 million to $13 million.
For fiscal 2021, Lands’ End now expects net revenue to be between $1.61 billion and $1.65 billion, ahead of the preliminary $1.52 billion and $1.57 billion estimate. Net income is anticipated in the range of $27.5 million and $34 million on diluted earnings per share between 84 cents and $1.04, well ahead of initial range projections of $11 million and $19 million, and diluted earnings per share to be between 34 cents and 58 cents.
The range for adjusted EBITDA is now between $114 million and $122 million, up from $88 million to $98 million.
In line with initial estimates, capital expenditures are expected to remain at approximately $26 million.
Net Sales: Lands’ End saw first-quarter net revenue of $321.3 million, an increase of 48.1 percent from $217 million in the first quarter of fiscal 2020 and an increase of 22.4 percent from $262.4 million to start 2019.
Global e-commerce net revenue was $260 million, a 44.4 percent jump from $180 million in the year-ago period and an increase of 25.5 percent on a two-year basis. Compared to the first quarter of last year, U.S. e-commerce sales increased 46.6 percent and international e-commerce sales grew 37 percent.
Net revenue from the company’s Outfitters business apparel line was $40.7 million, a 27.9 percent year-over-year increase from $31.8 million the year before and a 5.6 percent decrease from $43.1 million in the first quarter of fiscal 2019. Stronger demand within the company’s travel-related national accounts and school uniform customers drove the year-over-year jump.
Third-party net revenue, which includes sales on third-party marketplaces and U.S. wholesale revenues, was $11.8 million in the first quarter compared to $1.5 million in the first quarter last year. The $10.3 million increase was attributed to the launch of Lands’ End product on Kohls.com and at 150 Kohl’s retail locations in the third quarter of 2020.
Net Earnings: Net income for the quarter was $2.6 million, or 8 cents per diluted share, swinging positive from last year’s first-quarter net loss of $20.6 million or a 64 cents per diluted share loss. Lands’ End saw net losses of $6.8 million or 21 cents per diluted share in the first quarter of fiscal 2019.
Adjusted EBITDA was $22.5 million in the first quarter of fiscal 2021, an increase of $34.1 million compared to a loss of $11.6 million in the first quarter of fiscal 2020 and an increase of $19.5 million compared to earnings of $3 million in the first quarter of fiscal 2019.
CEO’s Take: Griffith shared insight into how data analytics has improved the retailer’s ability to optimize its product assortment. In particular, he said the technology has helped Lands’ End better analyze the development time put in, how many styles should be developed and the “exact right” amount of styles and colorways to put into an assortment.
“If you look at the last several years since Jim and I have been here, we’ve cut the number of styles that we produce on an annual basis almost in half,” Griffith said. “That’s really helped us with [the] productivity of the line. And then when you look at your optimal sales curve, our AI programs will look at what the optimal sales curves are for each individual style and colorway, and can change pricing based upon demand in order to reach that optimal curve. Those things combined are really helping us very much with how many styles we’re producing, how many colorways, how many prints and then how we’re managing selling through to maximize gross margin.”