Lands’ End, Inc. CEO Andrew McLean believes that the company’s robust second quarter results continue to prove that its solutions-based strategy is working.

“A focus on innovation across our business is evolving the Lands’ End brand and assortment, attracting new customers and further improving our supply chain and inventory position,” McLean added.

The company reported that Gross Merchandise Value (GMV) increased in the mid-single digits for the quarter ended August 2, compared to the second quarter of 2023. GMV is total order value of all merchandise sold to customers through business-to-consumer and business-to-business channels, as well as the retail value of the merchandise sold through third party distribution channels.

Net revenue decreased to $317.2 million in the second quarter, compared to $323.3 million in the second quarter of fiscal 2023.

Global e-commerce net revenue was $211.3 million, a decrease of $7.4 million from $218.7 million in net revenue in the second quarter of fiscal 2023.

  • U.S. e-commerce net revenue was $188.3 million, a decrease of 3.9 percent from $195.9 million in the second quarter of fiscal 2023. The decrease in U.S. e-commerce was was said to be primarily driven by the transition of Kids and Footwear products from a direct to a license model, lower promotional activity and improved inventory management resulting in increased gross profit from higher gross margins. Excluding the impact of transitioning the Kids and Footwear products to licensing arrangements, U.S. e-commerce revenue increased in the mid-single digits year-over-year (y/y).
  • International e-commerce net revenue increased 0.9 percent y/y, said to be primarily driven by an increase in full price sales, lower promotional activity and improved inventory management resulting in increased gross profit from higher gross margins.

Outfitters net revenue was $63.2 million in Q2, a decrease of $4.8 million, or 7.1 percent, from $68.0 million in the second quarter of fiscal 2023.

  • The School Uniform channel delivered a strong start to back-to-school season with a mid-single-digit revenue increase over last year’s Q2 period.
  • The Business Uniform channel decreased year-over-year primarily due to the timing changes with certain national accounts and some pricing resistance from smaller accounts as a result of macroeconomic challenges.

Third Party net revenue was $30.1 million, an increase of $5.7 million, or 23.4 percent, from $24.4 million in the second quarter of fiscal 2023. The increase was said to be primarily due to revenue generated from licensing and wholesale arrangements.

Income Statement Summary

Gross profit was $151.9 million, an increase of $12.3 million or 8.8 percent y/y from $139.6 million in the second quarter of fiscal 2023.

Gross margin increased approximately 470 basis points to 47.9 percent, compared to 43.2 percent in second quarter of fiscal 2023. The gross margin improvement was said to be primarily driven by “leveraging the strength in product solutions and newness across the channels, lower promotional activity, reduction in clearance inventory and improved supply chain costs.”

Selling and administrative expenses increased $11.6 million to $135.5 million, or 42.7 percent of net revenue in Q2, compared to $123.9 million, or 38.3 percent of net revenue in second quarter of fiscal 2023. The approximately 440 basis points increase was reportedly driven by higher digital marketing spend focused on new customer acquisition, third party professional services and higher incentive related personnel costs.

The company’s net loss for the quarter was $5.3 million, or a loss of 17 cents per diluted share, compared to a net loss of $8.0 million, or a loss of 25 cents per diluted share, in the second quarter of fiscal 2023.

The Adjusted net loss for Q2 was $0.7 million, or a loss of 2 cents per diluted share, reportedly driven by a non-cash charge related to long-lived asset impairment and restructuring costs, compared to an Adjusted net loss of $7.6 million, or a loss of 24 cents per diluted share, in the second quarter of fiscal 2023.

Adjusted EBITDA was $17.1 million in the second quarter, compared to Adjusted EBITDA of $15.8 million in the second quarter of fiscal 2023.

Second Quarter Business Highlights:

  • Delivered a 470 basis point improvement in gross margin, driven by strength in product solutions and newness across the channels, lower promotional activity and improved inventory management.
  • Achieved the sixth consecutive quarter improvement in inventory with a year-over-year 21 percent reduction through improved flow and productivity.
  • Global new customer acquisition increased mid-single digits.

Balance Sheet and Cash Flow Highlights

  • Cash and cash equivalents were $25.6 million as of August 2, compared to $26.6 million as of July 28, 2023.
  • Inventories, net, was $312.0 million at quarter-end, and $396.1 million as of July 28, 2023. The 21 percent decrease in inventory was reportedly driven by actions the company has taken to improve inventory efficiency by reducing inventory purchases and capitalizing on speed-to-market initiatives.
  • Net cash provided by operating activities was $4.9 million for the 26-week year-to-date (YTD) period ended August 2, compared to $54.8 million for the 2023 YTD period.

“Through our concerted efforts to decrease inventory levels during 2023, we provided cash of $30.4 million through the end of the second quarter 2023,” the company noted in a media release. “We have maintained our lower inventory level realized at the end of fiscal year 2023 through efficient inventory management and therefore we used cash of $10.3 million through the end of the second quarter 2024.”

The company had $20.0 million of borrowings outstanding and $117.5 million of availability under its ABL Facility at quarter-end, compared to $70.0 million of borrowings and $128.8 million of availability as of July 28, 2023. Additionally, as of August 2, the company had $253.5 million of term loan debt outstanding compared to $237.2 million outstanding as of July 28, 2023.

During the second quarter, the company repurchased $3.7 million of the company’s common stock under its share repurchase program announced on March 15, 2024. As of August 2, 2024, additional purchases of up to $20.3 million could be made under the program through March 31, 2026.

Outlook

Bernie McCracken, chief financial officer, stated, “We are pleased with our performance during the quarter, which resulted in net revenue and Adjusted EBITDA at the high end of our guidance range and strong growth in Gross Merchandise Value. Additionally, our deliberate efforts to prioritize profitability and balance sheet efficiency is evidenced by a 9 percent increase in gross profit, driven by our sixth consecutive quarter of gross margin expansion.”

For the third quarter of fiscal 2024 the Lands’ End expects:

  • Net revenue to be between $300.0 million and $340.0 million.
  • Gross Merchandise Value expected to deliver mid-to-high single digits percentage growth.
  • Net income (loss) to come in between a loss of $1.5 million and net income of $1.5 million and diluted (loss) earnings per share to come in between a loss of 5 cents per share and EPS of 5 cents per share.
  • Adjusted net income to come in between $0.0 million and $3.0 million and Adjusted diluted earnings per share to be between $0.00 and 10 cents per share.
  • Adjusted EBITDA in the range of $19.0 million to $23.0 million.

For fiscal 2024 the company now expects:

  • Net revenue to be between $1.35 billion and $1.43 billion.
  • Gross Merchandise Value expected to deliver mid- to high-single digits percentage growth.
  • Net income to range between $5.0 million and $11.0 million, and diluted earnings per share to range between 16 cents and 35 cents.
  • Adjusted net income in a range between $9.0 million and $15.0 million, and Adjusted diluted earnings per share to range between 29 cents and 48 cents.
  • Adjusted EBITDA in the range of $90.0 million to $98.0 million.
  • Capital expenditures of approximately $35.0 million.

Image courtesy Lands’ End