Lands’ End Inc. reported earnings more than tripled in the second quarter ended July 30 as sales grew 23.1 percent.
Jerome Griffith, CEO, said, “We are very pleased with our performance this quarter, delivering record second-quarter revenue and strength across all of our financial metrics. Our improved product assortment and increased digital marketing spend drove the strength in our Global eCommerce business. With our strategic pillars of growth and an expanded addressable market, we remain very optimistic about the long-term potential of our business.”
Fiscal Second Quarter Financial Highlights
- For the second quarter, net revenue was $384.1 million, an increase of 23.1 percent from $312.1 million in the second quarter of fiscal 2020 and an increase of 28.8 percent from $298.3 million in the second quarter of fiscal 2019.
- Global e-commerce net revenue was $285.4 million, an increase of 7.7 percent from $265.1 million in the second quarter of fiscal 2020 and an increase of 32.5 percent from $215.5 million in the second quarter of fiscal 2019. Compared to the second quarter of last year, U.S. eCommerce increased 7.6 percent and International eCommerce grew 8.2 percent.
- Outfitters net revenue was $65.6 million, an increase of 75.4 percent from $37.4 million in the second quarter of fiscal 2020 and approximately flat compared to the second quarter of fiscal 2019. Compared to the second quarter last year, the increase was driven by stronger demand within the company’s travel-related national accounts and school uniform customers.
- Third-party net revenue, which includes sales on third-party marketplaces and U.S. wholesale revenues, was $19.1 million in the second quarter compared to $5.1 million in the second quarter last year. The $14.0 million increase was attributed to the launch of Lands’ End product on Kohls.com and at 150 retail locations in third quarter 2020.
- Gross margin was 46.3 percent, expanding approximately 290 basis points compared to 43.4 percent in the second quarter of fiscal 2020. The Gross margin increase was primarily due to merchandise margin expansion in the U.S. eCommerce channel driven by enhanced promotional strategies and continued use of analytics, offset by increased shipping costs and surcharges as well as higher sales mix from the lower-margin third party channel.
- Selling and administrative expenses increased $25.1 million to $136.6 million or 35.6 percent of net revenue, compared to $111.5 million or 35.7 percent of net revenue, in the second quarter of last year. The increase in expense is due to continued investment in digital marketing and lower operating expenses in second quarter of fiscal 2020 due to actions taken at the onset of the pandemic to reduce operating expenses and structural costs. The approximately 10 basis point decrease was driven by improved leverage from higher sales and continued expense controls mostly offset by continued investment in digital marketing and lower operating expenses in the second quarter of fiscal 2020 due to actions taken at the onset of the pandemic. This was also an approximately 540 basis point improvement compared with the second quarter of 2019 despite the higher digital marketing expenses.
- Net income was $16.2 million or $0.48 per diluted share, as compared to net income of $4.4 million or $0.13 per diluted share in the second quarter of fiscal 2020.
- Adjusted EBITDA was $41.4 million in the second quarter of fiscal 2021, an increase of $17.5 million compared to $23.9 million in the second quarter of fiscal 2020.
Fiscal Second Quarter Business Highlights
- Total Global eCommerce new customer growth of 8 percent;
- Recovery in outfitters business exceeded expectations led by travel-related national accounts and school uniform customers;
- Drove higher merchandise margins through the use of data analytics and improved inventory management; and
- Offered swimwear assortment in an additional 150 Kohl’s retail locations.
Balance Sheet and Cash Flow Highlights
- Net cash provided by operations was $30.5 million for the 26 weeks ended July 30, 2021, compared to Net cash provided by operations of $8.0 million for the 26 weeks ended July 31, 2020.
- Inventories, net, were $464.3 million as of July 30, 2021, and $441.5 million as of July 31, 2020.
- On July 29, 2021, the company amended its asset-based senior secured credit facility with its lending organizations to extend the debt duration and reduce applicable interest rates.
- As of July 30, 2021, the company had $25.0 million of borrowings and $233.3 million of availability under its asset-based senior secured credit facility. Additionally, as of July 30, 2021, the company had $264.7 million of Term Loan Facility debt.
Jim Gooch, president and CFO, stated, “We delivered strong results in the second quarter as we continued to make great progress across our strategic initiatives despite the still difficult environment. We are seeing strong momentum in consumer demand, which we expect to continue through the remainder of the year, and are extremely pleased with the margin performance we’ve achieved as a result of the execution of our strategic initiatives. That said, due to the significant industry-wide challenges in the supply chain, we expect our gross margin trends to moderate in the back half of fiscal 2021. Therefore, we are raising our adjusted EBITDA guidance to reflect the better than expected performance in the second quarter and maintaining our second half outlook despite strong consumer demand.”
For the third quarter of fiscal 2021 the company now expects:
- Net revenue to be between $390.0 million and $405.0 million;
- Net income to be between $6.5 million and $9.0 million, and diluted earnings per share to be between $0.19 and $0.27; and
- Adjusted EBITDA in the range of $27.0 million to $30.0 million.
For fiscal 2021 the company now expects:
- Net revenue to be between $1.67 billion and $1.71 billion;
- Net income to be between $45.5 million and $51.0 million, and diluted earnings per share to be between $1.35 and $1.51;
- Adjusted EBITDA in the range of $136.0 million to $143.0 million; and
- Capital Expenditures of approximately $26.0 million.
The company’s outlook reflects its current visibility into supply chain-related challenges including higher shipping costs and surcharges, shipping delays, manufacturing interruptions, particularly in Vietnam, and port congestion.
Photo courtesy Land’s End