Lands’ End, Inc. reported a loss of $3.3 million in the fourth quarter ended January 27 as sales declined 4.6 percent and gross margins eroded 340 basis points due to promotional activity.

Andrew McLean, chief executive officer, said, “We executed well throughout the fourth quarter to deliver sequential sales and margin improvement in each month of the quarter, resulting in revenue and adjusted EBITDA at the higher end of our expectations. We are pleased to see this momentum continue in the first quarter, particularly in our core swim category.

“Looking ahead in 2023 and beyond, we plan to continue to focus on providing high-quality products in key categories that customers want and that present opportunity to drive outsized value creation, including swim and outerwear. We also plan to foster innovation in our operations, with a focus on driving stronger results and best anticipating and serving evolving customer needs, as well as strengthening our digitally native capabilities through enhanced use of data analytics, which we expect will drive deeper brand affinity and grow our share of our addressable market. Our highly talented team is aligned and energized around our strategic priorities. We are confident that through our sharpened focus on execution and innovation, we are well positioned to build on our strong foundation and drive enhanced growth and profitability, as reflected in our first quarter and fiscal 2023 outlook.”

Fourth Quarter Financial Highlights

  • Net revenue in the fourth quarter decreased 4.6 percent to $529.6 million, compared to $555.4 million in the fourth quarter of fiscal 2021.

    • Global eCommerce net revenue was $414.5 million, a decrease of 6.1 percent from $441.5 million in the fourth quarter of fiscal 2021 as a result of industry-wide promotional activity and macroeconomic challenges impacting consumer discretionary spending. Compared to the fourth quarter of fiscal 2021, U.S. eCommerce new revenue decreased 1.5 percent and International eCommerce decreased 30.8 percent, which includes the previously announced closure of the Japan eCommerce business.
    • Outfitters net revenue was $60.5 million, a decrease of 2.1 percent from $61.8 million in the fourth quarter of fiscal 2021 driven by the fulfillment of school uniforms in fiscal 2022 in line with the back-to-school selling season slightly offset by demand within the company’s travel-related national accounts.
    • Third-party net revenue, which includes sales on third-party marketplaces and U.S. wholesale revenues, was $39.2 million, an increase of 8.0 percent, compared to $36.3 million in the fourth quarter of fiscal 2021. The increase was largely driven by sales growth in Kohl’s marketplace and existing and new online marketplaces.
    • Retail net revenue was $15.4 million in the fourth quarter compared to $15.8 million in the fourth quarter of fiscal 2021. The U.S. company-operated stores experienced a decrease of 3.9 percent in Same Store Sales as compared to the fourth quarter of fiscal 2021.
  • Gross margin decreased approximately 340 basis points to 32.5 percent as compared to 35.9 percent in the fourth quarter of fiscal 2021. Gross margin decreased due to increased industry-wide promotional activity and a focused effort to move through less productive units, slightly offset by lower inbound transportation costs.
  • Selling and administrative expenses decreased $21.9 million to $150.3 million or 28.4 percent of net revenue, compared to $172.2 million or 31.0 percent of net revenue in the fourth quarter of fiscal 2021. The 260 basis point improvement was driven by continued expense controls across the business.
  • Net loss was $3.3 million or $0.10 loss per diluted share, as compared to net income of $7.1 million or $0.21 per diluted share in the fourth quarter of fiscal 2021.
  • Adjusted EBITDA was $24.2 million compared to $27.3 million in the fourth quarter of fiscal 2021.

Sales of  $529.6 million compared with company guidance between $510.0 million and $530.0 million. The loss of $3.3 million, or 10 cents a share, compared to guidance calling for net income to be between $0.0 million and $3.0 million, or 0 cents to 9 cents. Adjusted EBITDA was $24.2 million compared with guidance in the range of $20.0 million to $25.0 million.

Full Year Financial Highlights

  • For the fiscal year, net revenue decreased 5.0 percent to $1.56 billion compared to $1.64 billion in the prior year.

    • Global eCommerce net revenue decreased 10.1 percent to $1.1 billion for the fiscal year. Net revenue in U.S. eCommerce decreased 7.0 percent and International eCommerce decreased 24.6 percent, both primarily driven by lower consumer demand as a result of delayed receipts of key products caused by the global supply chain challenges in the first half of fiscal 2022, macroeconomic challenges impacting consumer discretionary spending and industry-wide promotional activity.
    • Outfitters net revenue increased 4.6 percent to $265.9 million, driven by demand within the company’s travel-related national accounts and school uniform customers returning to historical purchasing patterns.
    • Third-party net revenue increased 37.5 percent to $119.0 million, primarily attributed to sales growth in Kohl’s marketplace and existing and new online marketplaces.
    • Retail net revenue increased 0.8 percent to $48.2 million. The U.S. company-operated stores experienced an increase of 1.5 percent in Same Store Sales as compared to fiscal 2021.
  • Gross margin decreased approximately 410 basis points to 38.2 percent, compared to 42.3 percent in fiscal 2021 due to incremental transportation costs due to global supply chain challenges in addition to increased promotional activity.
  • Selling and administrative expenses decreased $44.4 million to $527.4 million or 33.9 percent of net revenue, compared to $571.8 million or 35.0 percent of net revenue in fiscal 2021. The 110 basis point improvement was the result of continued expense controls across the business.
  • Net loss was $12.5 million, or $0.38 loss per diluted share. This compares to a net income of $33.4 million or $0.99 earnings per diluted share in fiscal 2021.
  • Adjusted EBITDA was $70.5 million compared to $120.9 million in fiscal 2021.

Balance Sheet and Cash Flow Highlights
Cash and cash equivalents were $39.6 million as of January 27, 2023, compared to $34.3 million as of January 28, 2022.

Net cash used in operations was $36.4 million for the 52 weeks ended January 27, 2023, compared to net cash provided by operations of $70.6 million for the 52 weeks ended January 28, 2022.

Inventories, net, was $425.5 million as of January 27, 2023, and $384.2 million as of January 28, 2022. The increase in inventory was primarily driven by early receipts of swim product for the spring and summer selling seasons, carry over full price swim product driven by late receipts last year due to the supply chain challenges and excess inventory in its kid’s category.

As of January 27, 2023, the company had $100.0 million borrowings outstanding and $163.8 million of availability, based upon the loan cap calculated in the borrowing base, under its asset-based senior secured credit facility compared to no borrowings outstanding and $204.4 million of availability at the end of last year. Additionally, as of January 27, 2023, the company had $244.1 million of term loan debt outstanding compared to $257.8 million of term loan debt outstanding at the end of last year. The company continues to explore opportunities to refinance the term loan debt, subject to favorable market conditions.

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

  • Net revenue between $295.0 million and $310.0 million;
  • Net loss between $5.0 million and $3.0 million, and diluted loss per share to be between $0.15 and $0.09; and
  • Adjusted EBITDA in the range of $13.0 million to $16.0 million.

For fiscal 2023 the  company expects:

  • Net revenue between $1.56 billion and $1.62 billion;
  • Net loss income to be between $(6.0) million and $1.0 million and diluted (loss) earnings per share to be between $(0.18) and $0.03;
  • Adjusted EBITDA in the range of $72.0 million to $82.0 million; and
  • Capital expenditures of approximately $35.0 million.

Photo courtesy Lands’ End