Lands' End, Incorporated
Dec 1, 2016

Lands' End Announces Third Quarter Fiscal 2016 Results

DODGEVILLE, Wis., Dec. 01, 2016 (GLOBE NEWSWIRE) -- Lands' End, Inc. (NASDAQ:LE) today announced financial results for the third quarter ended October 28, 2016.

Third Quarter Fiscal 2016 Highlights:

James Gooch, Co-Interim Chief Executive Officer and Chief Financial Officer stated, "While we are disappointed in our third quarter sales and gross margin results, we aggressively managed our costs and ended the quarter with clean inventory levels.  Following an in-depth review of our recent performance, we have developed and begun to implement a number of initiatives that we believe will enable us to better execute our business strategies and drive improved financial performance. We were pleased to see some of these initiatives begin to take hold in the second half of the quarter, and look forward to building upon this momentum during the holiday season and beyond."

Joseph Boitano, Co-Interim Chief Executive Officer commented, "We now have a more clearly defined and focused strategy in place, which we believe will enable us to better execute on our goal to deliver product that offers newness and innovation, as well as more readily address the lifestyle needs of the Lands' End customer.  Our first priority is to enhance our classic offering with a focus on key categories that reflect the Lands' End brand heritage with great quality, fit and value. We have also refined our marketing strategy with enhancements to our catalog presentation and social media efforts. Taken together, we believe these initiatives will position us to better engage our customers, win back lapsed customers and attract new customers to Lands' End."

Balance Sheet and Cash Flow Highlights

Cash and cash equivalents were $131.5 million on October 28, 2016, compared to $105.0 million on October 30, 2015. Net cash used in operations was $67.3 million for the 39 weeks ended October 28, 2016, compared to net cash used in operations of $94.8 million for the same period last year.

Inventory decreased 2.6% to $425.3 million on October 28, 2016, from $436.7 million on October 30, 2015.

The Company had $161.2 million of availability under its asset-based senior secured credit facility and had $491.0 million Long-term debt, net as of October 28, 2016.

Conference Call

The company will host a conference call on Thursday, December 1, 2016, at 8:00 a.m. ET to review its third quarter financial results and related matters. The call may be accessed through the Investor Relations section of the Company's website at http://investors.landsend.com.

About Lands' End, Inc.

Lands' End, Inc. (NASDAQ:LE) is a leading multi-channel retailer of clothing, accessories, footwear and home products. We offer products through catalogs, online at www.landsend.com, www.canvasbylandsend.com and affiliated specialty and international websites, and through retail locations, primarily at Lands' End Shops at Sears® and standalone Lands' End Inlet® Stores. We are a classic American lifestyle brand with a passion for quality, legendary service and real value, and seek to deliver timeless style for men, women, kids and the home.

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 based upon the current beliefs and expectations of our management and are subject to assumptions, uncertainties and significant risks 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 initiatives will be successful.  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, including a product assortment with improved fit and quality, changes in customer preference from our branded merchandise; customers' use of our digital platform, including customer acceptance of our efforts to enhance our e-commerce websites; customer response to direct mail catalogs and digital/social media marketing efforts; the success of our efforts to improve catalog quality and optimize catalog productivity; the success of our overall marketing strategies, some of which, if successful, may not produce positive results in the short term; the success of our efforts to optimize promotions to drive sales and maximize gross margin dollars; 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; the success of our efforts to grow and expand into new markets and channels; fluctuations and increases in 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; if Sears Holdings Corporation sells or disposes of its retail stores, including pursuant to the recapture rights granted to Seritage Growth Properties and other parties 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 customer 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 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 certain agreements related to 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 Lands' End may be diluted in the future; and increases in our expenses and administrative burden in relation to being a public company, in particular to maintain compliance with certain provisions of the Sarbanes-Oxley Act of 2002; and other risks, uncertainties and factors discussed in the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year ended January 29, 2016.  We intend the forward-looking statements to speak only as of the time made and do not undertake to update or revise them as more information becomes available, except as required by law.

-Financial Tables Follow-

 
LANDS' END, INC.
 
Condensed Consolidated Balance Sheets
 
(in thousands, except share data) October 28, 2016 October 30, 2015 January 29, 2016*
  (unaudited) (unaudited)  
ASSETS      
Current assets      
Cash and cash equivalents $131,532  $104,986  $228,368 
Restricted cash 3,300  3,300  3,300 
Accounts receivable, net 40,101  37,875  32,061 
Inventories, net 425,290  436,712  329,203 
Prepaid expenses and other current assets 40,942  40,833  23,618 
Total current assets 641,165  623,706  616,550 
Property and equipment, net 115,871  105,661  109,831 
Goodwill 110,000  110,000  110,000 
Intangible asset, net 430,000  528,300  430,000 
Other assets 16,142  14,352  15,145 
TOTAL ASSETS $1,313,178  $1,382,019  $1,281,526 
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities      
Accounts payable $180,608  $151,429  $146,097 
Other current liabilities 101,093  107,596  83,992 
Total current liabilities 281,701  259,025  230,089 
Long-term debt, net 490,992  494,788  493,838 
Long-term deferred tax liabilities 158,048  184,926  157,252 
Other liabilities 16,766  16,390  15,838 
TOTAL LIABILITIES 947,507  955,129  897,017 
Commitments and contingencies      
STOCKHOLDERS' EQUITY      
Common stock, par value $0.01- authorized: 480,000,000 shares; issued and outstanding: 32,029,359, 31,991,343, 31,991,668, respectively 320  320  320 
Additional paid-in capital 343,319  344,156  344,244 
Retained earnings 34,368  88,787  49,329 
Accumulated other comprehensive loss (12,336) (6,373) (9,384)
Total stockholders' equity 365,671  426,890  384,509 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,313,178  $1,382,019  $1,281,526 

*Derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2016.

 
LANDS' END, INC.
 
Condensed Consolidated Statements of Operations
 
(Unaudited)
 
  13 Weeks Ended 39 Weeks Ended
(in thousands except per share data) October 28,
2016
 October 30,
2015
 October 28,
2016
 October 30,
2015
Net revenue $311,476  $334,434  $876,919  $946,235 
Cost of sales (excluding depreciation and amortization) 177,825  172,019  477,446  492,756 
Gross profit 133,651  162,415  399,473  453,479 
         
Selling and administrative 132,365  135,867  390,291  394,261 
Depreciation and amortization 4,795  4,260  13,419  12,874 
Other operating (income), net (86) (1,009) (40) (3,366)
Operating (loss) income (3,423) 23,297  (4,197) 49,710 
Interest expense 6,149  6,204  18,493  18,615 
Other (income) expense, net (432) 796  (1,413) (210)
(Loss) income before income taxes (9,140) 16,297  (21,277) 31,305 
Income tax (benefit) expense (1,918) 5,572  (6,316) 11,395 
NET (LOSS) INCOME $(7,222) $10,725  $(14,961) $19,910 
NET (LOSS) INCOME PER COMMON SHARE        
Basic: $(0.23) $0.34  $(0.47) $0.62 
Diluted: $(0.23) $0.33  $(0.47) $0.62 
         
Basic weighted average common shares outstanding 32,029  31,991  32,018  31,975 
Diluted weighted average common shares outstanding 32,029  32,059  32,018  32,042 
             

Use and Definition of Non-GAAP Financial Measures

(1)Adjusted 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 EBITDA is a non-GAAP measurement, management believes that it is an important indicator of operating performance, and is useful to investors, because:

 
Reconciliation of Non-GAAP Financial Information to GAAP
 
(Unaudited)
     
  13 Weeks Ended 39 Weeks Ended
  October 28, 2016 October 30, 2015 October 28, 2016 October 30, 2015
(in thousands) $'s % of Net
revenue
 $'s % of Net
revenue
 $'s % of Net
revenue
 $'s % of Net
revenue
NET (LOSS) INCOME $(7,222) (2.3)% $10,725  3.2% $(14,961) (1.7)% $19,910  2.1%
Income tax (benefit) expense (1,918) (0.6)% 5,572  1.7% (6,316) (0.7)% 11,395  1.2%
Other (income) expense, net (432) (0.1)% 796  0.2% (1,413) (0.2)% (210) %
Interest expense 6,149  2.0% 6,204  1.9% 18,493  2.1% 18,615  2.0%
Operating (loss) income (3,423) (1.1)% 23,297  7.0% (4,197) (0.5)% 49,710  5.3%
Depreciation and amortization 4,795  1.5% 4,260  1.3% 13,419  1.5% 12,874  1.4%
Product recall (212) (0.1)% (1,007) (0.3)% (212) % (3,371) (0.4)%
Loss (gain) on disposal of property and equipment 126  % (2) % 172  % 5  %
Adjusted EBITDA(1) $1,286  0.4% $26,548  7.9% $9,182  1.0% $59,218  6.3%


LANDS' END, INC.
 
Condensed Consolidated Statements of Cash Flows
 
(Unaudited)
 
  39 Weeks Ended
(in thousands) October 28,
2016
 October 30,
2015
CASH FLOWS FROM OPERATING ACTIVITIES    
Net (loss) income $(14,961) $19,910 
Adjustments to reconcile net (loss) income to net cash used in operating activities:    
Depreciation and amortization 13,419  12,874 
Product recall (212) (3,371)
Amortization of debt issuance costs 1,284  1,313 
Stock-based compensation 1,578  2,307 
Loss on disposal of property and equipment 172  5 
Deferred income taxes 839  3,381 
Change in operating assets and liabilities:    
Inventories (99,997) (134,690)
Accounts payable 40,186  20,078 
Other operating assets (25,100) (18,124)
Other operating liabilities 15,537  1,523 
Net cash used in operating activities (67,255) (94,794)
CASH FLOWS FROM INVESTING ACTIVITIES    
Proceeds from sale of property and equipment 44   
Purchases of property and equipment (26,083) (18,117)
Net cash used in investing activities (26,039) (18,117)
CASH FLOWS FROM FINANCING ACTIVITIES    
Payments on term loan facility (3,863) (3,863)
Net cash used in financing activities (3,863) (3,863)
Effects of exchange rate changes on cash 321  306 
NET DECREASE IN CASH AND CASH EQUIVALENTS (96,836) (116,468)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 228,368  221,454 
CASH AND CASH EQUIVALENTS, END OF PERIOD $131,532  $104,986 

Financial information by segment is presented in the following tables for the 13 Weeks Ended and 39 Weeks Ended October 28, 2016, and October 30, 2015.

  13 Weeks Ended 39 Weeks Ended
(in thousands) October 28, 2016 October 30, 2015 October 28, 2016 October 30, 2015
Net revenue:        
Direct $272,080  $287,778  $750,660  $805,886 
Retail 39,340  46,597  126,077  140,166 
Corporate / other                 56  59  182  183 
Total net revenue $311,476  $334,434  $876,919  $946,235 


  13 Weeks Ended 39 Weeks Ended
(in thousands) October 28, 2016 October 30, 2015 October 28, 2016 October 30, 2015
Adjusted EBITDA(1):        
Direct $13,904  $36,951  $41,516  $85,316 
Retail (3,583) (1,714) (7,063) (907)
Corporate / other (9,035) (8,689) (25,271) (25,191)
Total Adjusted EBITDA(1) $1,286  $26,548  $9,182  $59,218 

 

CONTACTS:

Lands' End, Inc.
James Gooch
Co-Interim Chief Executive Officer and Chief Financial Officer
(608) 935-9341

Investor Relations:
ICR, Inc.
Jean Fontana
1-646-277-1214
jean.fontana@icrinc.com