Lands' End Announces First Quarter of Fiscal 2015 Results
First Quarter Summary:
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Merchandise sales and services, net decreased 9.4% to
$299.4 million from the first quarter last year. Changes in currency exchange rates negatively impacted Merchandise sales and services, net by approximately$9 million . The Direct segment decreased 8.2% to$253.4 million and the Retail segment decreased 15.5% to$46.0 million .
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Gross margin was unchanged at 49.0% from the first quarter last year
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Operating income decreased to
$8.5 million from$18.8 million in the first quarter last year
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Net income decreased to
$1.7 million from$10.9 million in the first quarter last year and included two additional months of interest on the debt issued inApril 2014
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Adjusted EBITDA1 decreased to
$13.1 million from$23.8 million in the first quarter last year
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Cash and cash equivalents at the end of the first quarter of fiscal 2015 was
$177.8 million
First Quarter Results
Merchandise sales and services, net decreased 9.4% to
Gross profit decreased 9.5% to
Selling and administrative expenses excluding depreciation and amortization decreased 3.4% to
Depreciation and amortization expense decreased 9.0% to
As a result of the above factors, Operating income decreased to
Interest expense increased to
Income tax expense was
Net income decreased to
Adjusted EBITDA1 decreased 45.2% to
Balance Sheet and Cash Flow Highlights
Cash and cash equivalents were
- One-time impact of items that were settled through intercompany transactions with our former parent prior to the separation
- Decreased Merchandise sales and services, net
Inventory decreased 13.0% to
The Company had
About
Forward-Looking Statements
Results are unaudited. This press release contains forward-looking statements, including statements about our strategies and our opportunities for growth. Forward-looking statements are subject to risks and uncertainties that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, without limitation, information concerning our future financial performance, business strategy, plans, goals and objectives. There can be no assurance that any of our efforts initiatives will be successful. Statements preceded or followed by, or that otherwise include, the words "believes," "expects," "anticipates," "intends," "project," "estimates," "plans," "forecast," "is likely to" and similar expressions or future or conditional
verbs such as "will," "may," "would," "should" and "could" are generally forward-looking in nature and not historical facts. Such statements are based upon the current beliefs and expectations of our management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements. The following additional factors, among others, could cause our actual results, performance, and achievements to differ from those described in the forward-looking statements: our ability to offer merchandise and services that customers want to purchase; changes in customer preference for our branded merchandise; customers' use of our digital platform, including our e-commerce websites, and response to direct mail catalogs and digital marketing; the success of our overall marketing strategies, including our maintenance of a robust
customer list; our dependence on information technology and a failure of information technology systems, including with respect to our e-commerce operations, or an inability to upgrade or adapt our systems; the success of our ERP implementation; fluctuations and increases in the costs of raw materials; impairment of our relationships with our vendors; our failure to maintain the security of customer, employee or company information; our failure to compete effectively in the apparel industry; the performance of our "store within a store" business model; if Sears Holdings sells or disposes of its retail stores or if its retail business does not attract customers or does not adequately provide services to the Lands' End Shops at Sears; legal, regulatory, economic and political risks associated with international trade and those markets in which we conduct business and source our
merchandise; our failure to protect or preserve the image of our brands and our intellectual property rights; increases in postage, paper and printing costs; failure by third parties who provide us with services in connection with certain aspects of our business to perform their obligations; our failure to timely and effectively obtain shipments of products from our vendors and deliver merchandise to our customers; reliance on promotions and markdowns to encourage consumer purchases; our failure to efficiently manage inventory levels; unseasonal or severe weather conditions; the seasonal nature of our business; the adverse effect on our reputation if our independent vendors do not use ethical business practices or comply with applicable laws and regulations; assessments for additional state taxes; our exposure to periodic litigation and other regulatory proceedings, including with
respect to product liability claims; incurrence of charges due to impairment of goodwill, other intangible assets and long-lived assets; our failure to retain our executive management team and to attract qualified new personnel; the impact on our business of adverse worldwide economic and market conditions, including economic factors that negatively impact consumer spending on discretionary items; the inability of our past performance generally, as reflected on our historical financial statements, to be indicative of our future performance; the impact of increased costs due to a decrease in our purchasing power following our separation from Sears Holdings ("Separation") and other losses of benefits associated with being a subsidiary of Sears Holdings; the failure of Sears Holdings or its subsidiaries to perform under various transaction agreements that have been executed in connection
with the Separation or our failure to have necessary systems and services in place when certain of the transaction agreements expire; our agreements related to the Separation and our continuing relationship with Sears Holdings were negotiated while we were a subsidiary of Sears Holdings and we may have received better terms from an unaffiliated third party; potential indemnification liabilities to Sears Holdings pursuant to the separation and distribution agreement; our inability to engage in certain corporate transactions after the Separation; the ability of our principal shareholders to exert substantial influence over us; adverse effects of the Separation on our business; potential liabilities under fraudulent conveyance and transfer laws and legal capital requirements; declines in our stock price due to the eligibility of a number of our shares of common stock for future sale; our
inability to pay dividends; stockholders' percentage ownership in
-Financial Tables Follow-
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| Condensed Consolidated Balance Sheets | |||
| (Unaudited) | |||
| (in thousands, except share data) |
2015 |
2014 |
2015 |
| ASSETS | |||
| Current assets | |||
| Cash and cash equivalents |
|
|
|
| Restricted cash | 3,300 | 3,300 | 3,300 |
| Accounts receivable, net | 36,423 | 39,800 | 30,073 |
| Inventories, net | 284,589 | 326,973 | 301,367 |
| Deferred tax assets | 2,349 | — | 3,438 |
| Prepaid expenses and other current assets | 37,899 | 29,663 | 31,408 |
| Total current assets | 542,374 | 464,712 | 591,040 |
| Property and equipment, net | 105,393 | 98,656 | 101,223 |
| Goodwill | 110,000 | 110,000 | 110,000 |
| Intangible assets, net | 528,300 | 530,683 | 528,712 |
| Other assets | 22,099 | 23,703 | 22,462 |
| TOTAL ASSETS |
|
|
|
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||
| Current liabilities | |||
| Accounts payable |
|
|
|
| Deferred tax liabilities | — | 3,732 | — |
| Other current liabilities | 101,491 | 108,776 | 107,553 |
| Total current liabilities | 195,463 | 188,599 | 240,349 |
| Long-term debt | 504,700 | 509,850 | 505,988 |
| Long-term deferred tax liabilities | 184,274 | 168,349 | 184,483 |
| Other liabilities | 16,768 | 15,630 | 18,424 |
| TOTAL LIABILITIES | 901,205 | 882,428 | 949,244 |
| Commitments and contingencies | |||
| STOCKHOLDERS' EQUITY | |||
|
Common stock, par value |
320 | 320 | 320 |
| Additional paid-in capital | 342,975 | 340,176 | 342,294 |
| Retained earnings | 70,601 | 5,946 | 68,877 |
| Accumulated other comprehensive loss | (6,935) | (1,116) | (7,298) |
| Total stockholders' equity | 406,961 | 345,326 | 404,193 |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
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| Condensed Consolidated and Combined Statements of Operations | ||
| (Unaudited) | ||
| 13 Weeks Ended | ||
| (in thousands except per share data) |
|
|
| Merchandise sales and services, net |
|
|
| Cost of sales (excluding depreciation and amortization) | 152,823 | 168,461 |
| Gross profit | 146,564 | 162,022 |
| Selling and administrative | 133,514 | 138,206 |
| Depreciation and amortization | 4,553 | 5,002 |
| Other operating expense, net | 2 | 20 |
| Operating income | 8,495 | 18,794 |
| Interest expense | 6,186 | 1,925 |
| Other income, net | 508 | 137 |
| Income before income taxes | 2,817 | 17,006 |
| Income tax expense | 1,093 | 6,138 |
| NET INCOME |
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| NET INCOME PER COMMON SHARE | ||
| Basic: |
|
|
| Diluted: |
|
|
| Basic weighted average common shares outstanding | 31,957 | 31,957 |
| Diluted weighted average common shares outstanding | 32,060 | 31,957 |
Use and Definition of Non-GAAP Financial Measures
1Adjusted EBITDA-In addition to our Net income, for purposes of evaluating operating performance, we use an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA"), which is adjusted to exclude certain significant items as set forth below. Our management uses Adjusted EBITDA to evaluate the operating performance of our business, as well as for executive compensation metrics, for comparable periods. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items.
While Adjusted EBITDA1 is a non-GAAP measurement, management believes that it is an important indicator of operating performance, and is useful to investors, because:
- EBITDA excludes the effects of financings, investing activities and tax structure by eliminating the effects of interest, depreciation and income tax costs.
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Other significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of results. We have adjusted our results for these items to make our statements more comparable and therefore more useful to investors as the items are not representative of our ongoing operations.
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For the 13 weeks ended
May 1, 2015 andMay 2, 2014 , we exclude the loss on disposal of property and equipment as management considers the gains or losses on disposal of assets to result from investing decisions rather than ongoing operations.
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For the 13 weeks ended
| Reconciliation of Non-GAAP Financial Information to GAAP | ||||
| (Unaudited) | ||||
| 13 Weeks Ended | ||||
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| (in thousands) | $'s |
% of Net Sales |
$'s |
% of Net Sales |
| Net income |
|
0.6% |
|
3.3% |
| Income tax expense | 1,093 | 0.4% | 6,138 | 1.9% |
| Other income, net | (508) | 0.2% | (137) | —% |
| Interest expense | 6,186 | 2.1% | 1,925 | 0.6% |
| Operating income | 8,495 | 2.8% | 18,794 | 5.7% |
| Depreciation and amortization | 4,553 | 1.5% | 5,002 | 1.5% |
| Loss on disposal of property and equipment | 2 | —% | 20 | —% |
| Adjusted EBITDA (1) |
|
4.4% |
|
7.2% |
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| Condensed Consolidated and Combined Statements of Cash Flows | ||
| (Unaudited) | ||
| 13 Weeks Ended | ||
| (in thousands) |
|
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| CASH FLOWS FROM OPERATING ACTIVITIES | ||
| Net income |
|
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| Adjustments to reconcile net income to net cash (used in) provided by operating activities: | ||
| Depreciation and amortization | 4,553 | 5,002 |
| Amortization of debt issuance costs | 490 | 155 |
| Stock-based compensation | 681 | — |
| Loss on disposal of property and equipment | 2 | 20 |
| Deferred income taxes | 684 | 2,774 |
| Change in operating assets and liabilities: | ||
| Inventories | 16,766 | 44,135 |
| Accounts payable | (36,025) | (39,543) |
| Other operating assets | (13,076) | (7,344) |
| Other operating liabilities | (7,287) | 15,310 |
| Net cash (used in) provided by operating activities | (31,488) | 31,377 |
| CASH FLOWS FROM INVESTING ACTIVITIES | ||
| Purchases of property and equipment | (10,974) | (1,548) |
| Net cash used in investing activities | (10,974) | (1,548) |
| CASH FLOWS FROM FINANCING ACTIVITIES | ||
| Contributions from Sears Holdings, net | — | 8,784 |
| Proceeds from issuance of long-term debt | — | 515,000 |
| Payments on term loan facility | (1,288) | — |
| Debt issuance costs | — | (11,311) |
| Dividend paid to a subsidiary of Sears Holdings Corporation | — | (500,000) |
| Net cash (used in) provided by financing activities | (1,288) | 12,473 |
| Effects of exchange rate changes on cash | 110 | 263 |
| NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (43,640) | 42,565 |
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 221,454 | 22,411 |
| CASH AND CASH EQUIVALENTS, END OF PERIOD |
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| SUPPLEMENTAL INFORMATION: | ||
| Supplemental Cash Flow Information: | ||
| Unpaid liability to acquire property and equipment |
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| Income taxes paid |
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| Interest paid |
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$ — |
Financial information by segment is presented in the following tables for the 13 weeks ended
| 13 Weeks Ended | ||
| (in thousands) |
|
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| Merchandise sales and services, net: | ||
| Direct |
|
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| Retail | 45,992 | 54,430 |
| Corporate/ other | 22 | 12 |
| Total Merchandise sales and services, net |
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| 13 Weeks Ended | ||
| (in thousands) |
|
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| Adjusted EBITDA: | ||
| Direct |
|
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| Retail | 144 | 2,326 |
| Corporate/ other | (8,772) | (7,773) |
| Total adjusted EBITDA |
|
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CONTACT: ICR
John Rouleau / Rachel Schacter
203-682-8200
John.Rouleau@icrinc.com
Rachel.Schacter@icrinc.com
Lands' End , Inc.
Michele Casper
Director of Public Relations
(608) 935-4633
Michele.Casper@landsend.com
Lands' End , Inc.
Mike Rosera
Chief Operating Officer and Chief Financial Officer
(608) 935-9341
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