Lands’ End, Inc. saw third-quarter net revenue decrease 12.5 percent to $324.7 million for the period ended October 27, compared to $371.0 million in the third quarter of fiscal 2022.

Global e-commerce net revenue was $216.4 million, a decrease of 13.2 percent from $249.2 million in the third quarter of fiscal 2022. 

Last year’s third quarter included Lands’ End Japan’s net revenue of $9.5 million. Lands’ End Japan closed at the end of fiscal 2022. Excluding Lands’ End Japan in the third quarter last year, Global e-commerce net revenue decreased 9.7 percent.

U.S. e-commerce net revenue decreased 10.0 percent year-over-year (YoY), primarily driven by a concerted effort to reduce promotional activity and improve inventory management compared to the prior-year quarter, resulting in higher margins with lower clearance inventory sales.

International e-commerce net revenue decreased 30.9 percent compared to the third quarter of last year, which included the results of Lands’ End Japan.

Europe e-commerce net revenue decreased 8.0 percent YoY, driven primarily by assortment editing focused on key categories, reduced clearance inventory sales and continued macroeconomic challenges.

The outfitter’s net revenue was $74.3 million for Q3, a decrease of $6.5 million, or 8.0 percent, from $80.8 million in Q3 last year. The decrease was primarily driven by the conclusion of the Delta Air Lines contract in the first quarter of fiscal 2023 and the timing of school uniform shipments compared to the prior-year quarter, partially offset by mid-single-digit YoY growth in its other business-to-business (B2B) customers. Excluding the $4.2 million decrease in YoY revenue from the Delta Air Lines business, net revenue decreased 3.0 percent.

Third-party net revenue was $24.0 million, a decrease of 22.4 percent from $30.9 million in the third quarter of fiscal 2022, primarily attributed to weaker performance at Kohl’s partially offset by continued growth of marketplace sales through other existing marketplaces.

Gross margin increased approximately 700 basis points to 47.0 percent of net revenue, compared to 40.0 percent in the third quarter of fiscal 2022. The gross margin improvement was said to be primarily driven by new products across the brand, strength in transitional outerwear and adjacent product categories, reduction in sales of clearance inventory, and improvements in supply chain costs in the third quarter of fiscal 2023 compared to the prior year.

Selling and administrative expenses increased $2.5 million to $135.3 million, or 41.7 percent of net revenue, compared to $132.8 million, or 35.8 percent of net revenue in the third quarter of fiscal 2022. The approximately 590 basis points increase was driven by deleveraging from lower revenues and higher incentive-related personnel costs, partially offset by lower marketing spending and continued cost controls.

The net loss for the third quarter was $112.4 million, or $3.52 loss per diluted share, compared to a net loss of $4.7 million, or 14 cents loss per diluted share, in the third quarter of fiscal 2022. The net loss in the third quarter of fiscal 2023 includes a non-cash $106.7 million impairment of goodwill due to the company’s stock price and market capitalization decline.

Adjusted EBITDA was $17.3 million in the third quarter, compared to Adjusted EBITDA of $16.7 million in the third quarter of fiscal 2022.

The Adjusted net loss was $3.6 million, or 11 cents loss per diluted share, compared to Adjusted net loss of $1.7 million, or 5 cents loss per diluted share, in the third quarter of fiscal 2022.

Business Highlights

  • Delivered 700 basis points year-over-year improvement in Gross margin driven by new products across the brand, strength in transitional outerwear and adjacent product categories and improved inventory management;
  • Achieved a 25 percent reduction in year-over-year inventory through improved inventory management;
  • Drove stronger traffic across company channels on Black Friday through Cyber Monday, compared to prior years, emphasizing driving higher quality sales resulting in increased gross profit dollars;
  • Launched a women’s swim collection at Target in late November, which will roll out to 200 total doors by early January 2024; and
  • Executed a license for all Kids categories, excluding school uniforms, starting in fiscal 2024, in line with the company’s asset-light licensing strategy to improve profitability.

Balance Sheet and Cash Flow Highlights

  • Cash and cash equivalents were $36.8 million as of October 27, 2023, compared to $28.8 million as of October 28, 2022.
  • The net inventories were $422.2 million as of October 27, 2023, and $564.9 million as of October 28, 2022. The 25.3 percent decrease in inventory was said to be driven by the company’s actions to improve inventory efficiency by reducing inventory purchases and capitalizing on speed-to-market initiatives.
  • Net cash provided by operations was $36.7 million for the 39 weeks ended October 27, 2023, compared to net cash used in operations of $126.0 million for the 39 weeks ended October 28, 2022. The $162.7 million improvement in cash provided by operating activities was primarily due to the year-over-year improvement in inventory flow and productivity.

As of October 27, 2023, the company had $110.0 million of borrowings outstanding and $156.1 million of availability under its ABL Facility, compared to $160.0 million of borrowings and $ 103.2 million of availability as of October 28, 2022. Additionally, as of October 27, 2023, the company had $233.8 million of outstanding term loan debt compared to $247.5 million of outstanding term loan debt as of October 28, 2022.

Share Re-Purchase
During the third quarter, the company repurchased $3.0 million of its common stock under its previously announced share repurchase program. As of October 27, 2023, additional purchases of up to $31.8 million could be made under the program through February 2, 2024.

Outlook
For the fourth quarter of fiscal 2023, the company expects:

  • Net revenue to be between $490 million and $520 million;
  • Net income to be between $4.0 million and $7.0 million and diluted earnings per share to be between 13 cents and 22 cents;
  • Adjusted EBITDA in the range of $27.5 million to $31.5 million; and
  • Adjusted net income to be between $8.0 million and $11.0 million and Adjusted diluted earnings per share to be between 25 cents and 34 cents.

For fiscal 2023 the company now expects:

  • Net revenue to be between $1.45 billion and $1.48 billion;
  • Net loss to be between $118.0 million and $115.0 million and diluted loss per share to be between $3.70 and $3.60;
  • Adjusted EBITDA in the range of $80.0 million to $84.0 million;
  • Adjusted net loss to be between $5.0 million and $2.0 million and Adjusted diluted loss per share to be between 16 cents and 7 cents; and
  • Capital expenditures of approximately $35.0 million.

Photo courtesy Lands’ End