Lands’ End, Inc. reported second-quarter net revenue decreased 7.9 percent to $323.3 million in the three-month period ended July 28, compared to $351.2 million in the second quarter of fiscal 2022.

“Our strong second quarter was characterized by a return to operating disciplines with a solution focus on the customer,” said company CEO Andrew McLean in a release. “That resulted in a significant 220 basis point year-over-year improvement in gross margin, a 30 percent year-over-year reduction in our inventory position and Adjusted EBITDA in line with the prior year and guidance. Significantly, our cash provided by operations turned positive with a favorable $172 million improvement over the prior year.”

Global e-commerce net revenue was $218.7 million, a decrease of 8.7 percent from $239.7 million in the second quarter of fiscal 2022. Second quarter of fiscal 2022 included Lands’ End Japan net revenue of $7.6 million. Lands’ End Japan closed at the end of fiscal 2022.

  • Excluding Lands’ End Japan in the second quarter of fiscal 2022, Global e-commerce net revenue decreased 5.8 percent.
  • U.S. e-commerce net revenue decreased 3.6 percent year-over-year (YoY), “primarily driven by continued promotional productivity within swim and adjacent product categories more than offset by lower markdown inventory sales,” the company reported.
  • Compared to second quarter of fiscal 2022, which included the results of Lands’ End Japan, International e-commerce net revenue decreased 37.3 percent.
  • Europe e-commerce net revenue decreased 20.8 percent YoY in Q2, “primarily driven by assortment editing with a focus on key categories, reduced markdown inventory sales and continued macroeconomic challenges.”

Outfitters’ net revenue was $68.0 million in Q2, a decrease of 3.8 percent from $70.7 million in the second quarter last year, which was said to be primarily driven by the conclusion of the Delta Air Lines contract in the first quarter 2023 partially offset by school uniform revenue increasing in high-single-digits year-over-year. Excluding the $4.9 million difference year-over-year from the Delta Air Lines business, revenue for the Outfitters business increased by 3.5 percent.

Third-Party net revenue was $24.4 million in Q2, a decrease of 10.6 percent from $27.3 million in the second quarter of fiscal 2022, primarily attributed to weaker-than-expected online demand performance at Kohl’s, partially offset by continued growth of marketplace sales through Target, Macy’s and Amazon.

Gross margin increased approximately 220 basis points to 43.2 percent of sales in the quarter, compared to 41.0 percent in the second quarter of fiscal 2022. The gross margin improvement was said to be primarily driven by the strength in the swim and adjacent product categories across the channels, reduction in markdown inventory and improvements in supply chain costs in the second quarter of fiscal 2023 compared to the prior year.

Selling and administrative expenses decreased $4.7 million to $123.9 million, or 38.3 percent of net revenue, in Q2, compared to $128.6 million, or 36.6 percent of net revenue, in the second quarter of fiscal 2022. The approximately 170 basis points increase was reportedly driven by deleveraging from lower revenues, partially offset by lower digital marketing spend and continued cost controls.

Net loss for the second quarter was $8.0 million, or a 25 cents loss per diluted share, compared to a net loss of $2.2 million, or a 7 cents loss per diluted share in the second quarter of fiscal 2022.

Adjusted EBITDA was $15.8 million in both the second quarter of fiscal 2023 and the second quarter of fiscal 2022.

Balance Sheet and Cash Flow
Cash and cash equivalents were $26.6 million at quarter-end, compared to $23.5 million as of July 29, 2022.

Inventories, net, was $396.1 million at quarter-end, and $569.2 million as of July 29, 2022. The 30.4 percent decrease in inventory was said to be driven by the actions the company has taken to “leverage normalized supply chain lead times to receive spring and summer inventory closer to the selling season.”

Net cash provided by operations was $54.8 million for the 26 weeks ended July 28, compared to net cash used in operations of $117.5 million for the 26 weeks ended July 29, 2022. The $172.3 million improvement in cash provided by operating activities was said to be primarily due to the year-over-year improvement in inventory flow and productivity.

The company had $70.0 million of borrowings outstanding and $128.8 million of availability under its ABL Facility at quarter-end, compared to $135.0 million of borrowings and $126.2 million of availability as of July 29, 2022. Additionally, as of July 28, the company had $237.2 million of term loan debt outstanding compared to $250.9 million of term loan debt outstanding as of July 29, 2022.

Outlook
For the third quarter of fiscal 2023 the company expects:

  • Net revenue to be between $340.0 million and $355.0 million;
  • Net loss to be between $6.5 million and $4.0 million and a diluted loss per share between 20 cents and 13 cents a share; and
  • Adjusted EBITDA in the range of $13.0 million to $16.0 million.

For fiscal 2023 the company now expects:

  • Net revenue between $1.50 billion and $1.55 billion;
  • Net income to be between a net loss of $4.5 million and net income of $1.0 million, and diluted EPS to be between a loss of 14 cents a share and EPS of 3 cents a share;
  • Adjusted EBITDA in the range of $77.0 million to $84.0 million; and
  • Capital expenditures of approximately $35.0 million.

Photo courtesy Lands’ End