Lands' End Announces Second Quarter Fiscal 2020 Results
Strong Global eCommerce revenue and profit trends
Global eCommerce grew revenue 23.6% compared to the same period last year
Net income of
Adjusted EBITDA more than triples to
Second Quarter Fiscal Highlights:
- For the second quarter, net revenue increased 4.6% to
$312.1 million , compared to$298.3 million in the second quarter last year.
○ Global eCommerce net revenue increased 23.6% for the second quarter, driven by US eCommerce increasing 26.2% and International eCommerce growing 9.4% as compared to the prior period.
○ Outfitters net revenue declined 42.8% due to the negative impact of the COVID-19 pandemic.
- Gross margin increased approximately 10 basis points to 43.4% as compared to 43.3% in the second quarter last year. The increase was due to disciplined promotional strategies and continued use of analytics, partially offset by the liquidation of seasonal inventory as retail stores reopened.
- Selling and administrative expenses decreased
$10.8 million to$111.5 million or 35.7% of net revenue, compared to$122.3 million or 41.0% of net revenue, in second quarter last year. The approximately 530 basis point decrease was driven by strong control of operating expenses and structural costs.
- Net income was
$4.4 million or$0.13 per diluted share, as compared to net loss of$3.0 million or$0.09 loss per diluted share in the second quarter of fiscal 2019.
- Adjusted EBITDA(1) increased 250.8% to
$23.9 million compared to$6.8 million in the second quarter of fiscal 2020.
Balance Sheet and Cash Flow Highlights
Cash and cash equivalents were
Net cash provided by operations was
Inventories, net, was
The Company had no ABL Facility borrowings and
Outlook
Based on the stabilization and improved visibility in the business, the Company is now providing its outlook for the remainder of the year. The following outlook does not incorporate a potential second wave of COVID-19 or additional government-mandated closures.
For the third quarter of fiscal 2020 the Company expects:
- Net revenue to decline low single digits to flat as compared to the same period last year assuming:
○ Low double digit growth year over year in its global eCommerce business.
○ Revenue decline in its Outfitters business due to decreased demand from business customer in both its national and small and medium sized accounts as well as a slower recovery of the school uniform business as schools delay reopenings. - Gross margin to be flat as compared to the prior year.
- SG&A expense as a percent of revenue to be in line with prior year.
For the fourth quarter of fiscal 2020 the Company expects:
- Net revenue to decline low single digits as compared to the same period last year assuming:
○ Low double digit growth year over year in its global eCommerce business.
○ Revenue decline in its Outfitters business due to the anniversary of theAmerican Airlines launch from the fourth quarter 2019, as well as decreased demand from business customers in both its national and small and medium sized accounts. - Gross margin to be pressured, driven by shipping surcharges implemented by carriers during the holiday period.
- SG&A expense as a percent of revenue to be in line with prior year.
Conference Call
The Company will host a conference call on
About
Forward-Looking Statements
This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding the momentum of the global eCommerce business; the execution and expected benefits of the Company’s strategies; the Company’s longer-term prospects in the post-pandemic landscape; the Company’s assessment of its prospects of refinancing the term loan, the expected debt structure, and the expected result and timing of a refinancing; and the Company’s outlook and expectations as to net revenue on a consolidated basis, and within global eCommerce and Outfitters, gross margin and SG&A in the third and fourth quarters of fiscal 2020. The following important factors and uncertainties, among others, could cause actual results to differ materially from those described in these forward-looking statements; the impact of COVID-19 on operations, customer demand and the Company’s supply chain, as well as its consolidated results of operation, financial position and cash flows; the Company may be unsuccessful in implementing its strategic initiatives, or its initiatives may not have their desired impact on its business; the Company may be unable to obtain additional financing on commercially acceptable terms or at all, as the Company seeks to refinance its term loan, due to, in addition to other factors, the condition of the lending and debt markets, and such factors could impact the expected timing of any transaction; the Company’s ability to offer merchandise and services that customers want to purchase; changes in customer preference from the Company’s branded merchandise; the Company’s results may be materially impacted if tariffs on imports to
CONTACTS
Chief Operating Officer and Chief Financial Officer
(608) 935-9341
Investor Relations:
(646) 277-1214
Jean.Fontana@icrinc.com
-Financial Tables Follow-
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except per share data) | July 31, 2020 | |||||||||||
ASSETS | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 62,624 | $ | 82,616 | $ | 77,148 | ||||||
Restricted cash | 1,843 | 1,826 | 2,149 | |||||||||
Accounts receivable, net | 24,367 | 24,632 | 50,953 | |||||||||
Inventories, net | 441,510 | 405,793 | 375,670 | |||||||||
Prepaid expenses and other current assets | 48,095 | 39,391 | 39,458 | |||||||||
Total current assets | 578,439 | 554,258 | 545,378 | |||||||||
Property and equipment, net | 153,003 | 153,933 | 157,665 | |||||||||
Operating lease right-of-use asset | 37,882 | 28,980 | 38,665 | |||||||||
106,700 | 110,000 | 110,000 | ||||||||||
Intangible asset, net | 257,000 | 257,000 | 257,000 | |||||||||
Other assets | 4,300 | 5,333 | 4,921 | |||||||||
TOTAL ASSETS | $ | 1,137,324 | $ | 1,109,504 | $ | 1,113,629 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Current liabilities | ||||||||||||
Current borrowings on Term Loan | $ | 381,909 | $ | 5,150 | $ | 5,150 | ||||||
Accounts payable | 202,629 | 230,158 | 158,436 | |||||||||
Lease liability - current | 5,676 | 6,997 | 5,864 | |||||||||
Other current liabilities | 99,016 | 87,807 | 114,116 | |||||||||
Total current liabilities | 689,230 | 330,112 | 283,566 | |||||||||
Long-term debt, net | — | 380,555 | 378,657 | |||||||||
Lease liability - long-term | 40,588 | 26,911 | 39,841 | |||||||||
Deferred tax liabilities | 65,619 | 55,516 | 57,651 | |||||||||
Other liabilities | 5,530 | 4,145 | 5,532 | |||||||||
TOTAL LIABILITIES | 800,967 | 797,239 | 765,247 | |||||||||
Commitments and contingencies | ||||||||||||
STOCKHOLDERS’ EQUITY | ||||||||||||
Common stock, par value |
326 | 324 | 324 | |||||||||
Additional paid-in capital | 364,773 | 356,324 | 360,656 | |||||||||
(Accumulated deficit) Retained earnings | (15,877 | ) | (28,732 | ) | 390 | |||||||
Accumulated other comprehensive loss | (12,865 | ) | (15,651 | ) | (12,988 | ) | ||||||
TOTAL STOCKHOLDERS' EQUITY | 336,357 | 312,265 | 348,382 | |||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,137,324 | $ | 1,109,504 | $ | 1,113,629 |
*Derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended
Condensed Consolidated Statements of Operations
(Unaudited)
13 Week Period Ended | 26 Week Period Ended | |||||||||||||||
(in thousands, except per share data) | July 31, 2020 |
2019 |
July 31, 2020 |
2019 |
||||||||||||
Net revenue | $ | 312,083 | $ | 298,267 | $ | 529,091 | $ | 560,700 | ||||||||
Cost of sales (excluding depreciation and amortization) | 176,661 | 169,182 | 299,514 | 311,741 | ||||||||||||
Gross profit | 135,422 | 129,085 | 229,577 | 248,959 | ||||||||||||
Selling and administrative | 111,478 | 122,260 | 217,276 | 239,104 | ||||||||||||
Depreciation and amortization | 9,378 | 7,408 | 18,164 | 15,026 | ||||||||||||
Other operating expense (income), net | 3,373 | (22 | ) | 7,656 | 126 | |||||||||||
Operating income (loss) | 11,193 | (561 | ) | (13,519 | ) | (5,297 | ) | |||||||||
Interest expense | 4,916 | 6,235 | 10,227 | 14,069 | ||||||||||||
Other expense (income), net | 1,333 | (608 | ) | 1,160 | (1,475 | ) | ||||||||||
Income (loss) before income taxes | 4,944 | (6,188 | ) | (24,906 | ) | (17,891 | ) | |||||||||
Income tax expense (benefit) | 568 | (3,174 | ) | (8,639 | ) | (8,059 | ) | |||||||||
NET INCOME (LOSS) | $ | 4,376 | $ | (3,014 | ) | $ | (16,267 | ) | $ | (9,832 | ) | |||||
NET INCOME (LOSS) PER COMMON SHARE | ||||||||||||||||
Basic: | $ | 0.13 | $ | (0.09 | ) | $ | (0.50 | ) | $ | (0.30 | ) | |||||
Diluted: | $ | 0.13 | $ | (0.09 | ) | $ | (0.50 | ) | $ | (0.30 | ) | |||||
Basic weighted average common shares outstanding | 32,600 | 32,368 | 32,524 | 32,314 | ||||||||||||
Diluted weighted average common shares outstanding | 32,838 | 32,368 | 32,524 | 32,314 |
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 several important cash and non-cash recurring items.
The methods used by the Company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures presented herein may not be comparable to similar measures provided by other companies.
While Adjusted EBITDA1 is a non-GAAP measurement, management believes that they are important indicators of operating performance, and 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.
- 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.
○ For the 13 weeks endedJuly 31, 2020 and the 26 weeks endedJuly 31, 2020 andAugust 2, 2019 , we excluded the impacts of corporate restructuring which includes the severance for the reduction in corporate staff in the Second Quarter 2020.
○ For the 13 weeks endedJuly 31, 2020 we excluded the impacts of long-lived asset impairment.
○ For the 26 weeks endedJuly 31, 2020 we excluded the impacts of impairment including goodwill impairment and non-cash write downs long-lived assets.
○ For the 13 weeks and 26 weeks endedJuly 31, 2020 andAugust 2, 2019 we excluded the impacts of gain or loss on property and equipment as management considers the gains or losses on asset valuation to result from investing decisions rather than ongoing operations.
Reconciliation of Non-GAAP Financial Information to GAAP
(Unaudited)
13 Weeks Ended | ||||||||||||||||
July 31, 2020 | ||||||||||||||||
(in thousands) | $’s | % of Net revenue |
$’s | % of Net revenue |
||||||||||||
Net income (loss) | $ | 4,376 | 1.4 | % | $ | (3,014 | ) | (1.0 | )% | |||||||
Income tax expense (benefit) | 568 | 0.2 | % | (3,174 | ) | (1.1 | )% | |||||||||
Other expense (income), net | 1,333 | 0.4 | % | (608 | ) | (0.2 | )% | |||||||||
Interest expense | 4,916 | 1.6 | % | 6,235 | 2.1 | % | ||||||||||
Operating income (loss) | 11,193 | 3.6 | % | (561 | ) | (0.2 | )% | |||||||||
Depreciation and amortization | 9,378 | 3.0 | % | 7,408 | 2.5 | % | ||||||||||
Corporate restructuring | 2,925 | 0.9 | % | — | 0.0 | % | ||||||||||
Long-lived asset impairment | 400 | 0.1 | % | — | 0.0 | % | ||||||||||
Loss (gain) on property and equipment | 48 | 0.0 | % | (22 | ) | (0.0 | )% | |||||||||
Adjusted EBITDA(1) | $ | 23,944 | 7.7 | % | $ | 6,825 | 2.3 | % |
26 Week Period Ended | ||||||||||||||||
July 31, 2020 | ||||||||||||||||
(in thousands) | $’s | % of Net revenue |
$’s | % of Net revenue |
||||||||||||
Net loss | $ | (16,267 | ) | (3.1 | )% | $ | (9,832 | ) | (1.8 | )% | ||||||
Income tax benefit | (8,639 | ) | (1.6 | )% | (8,059 | ) | (1.4 | )% | ||||||||
Other income (loss), net | 1,160 | 0.2 | % | (1,475 | ) | (0.3 | )% | |||||||||
Interest expense | 10,227 | 1.9 | % | 14,069 | 2.5 | % | ||||||||||
Operating loss | (13,519 | ) | (2.6 | )% | (5,297 | ) | (0.9 | )% | ||||||||
Depreciation and amortization | 18,164 | 3.4 | % | 15,026 | 2.7 | % | ||||||||||
Corporate restructuring | 2,925 | 0.6 | % | 207 | 0.0 | % | ||||||||||
3,844 | 0.7 | % | — | 0.0 | % | |||||||||||
Loss (gain) on property and equipment | 887 | 0.2 | % | (81 | ) | (0.0 | )% | |||||||||
Adjusted EBITDA(1) | $ | 12,301 | 2.3 | % | $ | 9,855 | 1.8 | % |
Condensed Consolidated Statements of Cash Flows
(Unaudited)
26 Week Period Ended | ||||||||
(in thousands) | July 31, 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (16,267 | ) | $ | (9,832 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 18,164 | 15,026 | ||||||
Amortization of debt issuance costs | 858 | 864 | ||||||
Loss (gain) on property and equipment | 887 | (141 | ) | |||||
Stock-based compensation | 4,542 | 4,303 | ||||||
Deferred income taxes | 7,936 | (1,877 | ) | |||||
3,300 | — | |||||||
Other | 1,115 | 830 | ||||||
Change in operating assets and liabilities: | ||||||||
Inventories | (65,553 | ) | (86,350 | ) | ||||
Accounts payable | 48,858 | 111,427 | ||||||
Other operating assets | 15,605 | 6,358 | ||||||
Other operating liabilities | (11,461 | ) | (23,570 | ) | ||||
Net cash provided by operating activities | 7,984 | 17,038 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of property and equipment | (19,758 | ) | (24,843 | ) | ||||
Net cash used in investing activities | (19,758 | ) | (24,843 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from borrowing under ABL Facility | 75,000 | — | ||||||
Payments of borrowings under ABL Facility | (75,000 | ) | — | |||||
Payments of term-loan | (2,575 | ) | (102,575 | ) | ||||
Payments of employee withholding taxes on share-based compensation | (423 | ) | (708 | ) | ||||
Net cash used in financing activities | (2,998 | ) | (103,283 | ) | ||||
Effects of exchange rate changes on cash, cash equivalents and restricted cash | (58 | ) | 177 | |||||
(14,830 | ) | (110,911 | ) | |||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD | 79,297 | 195,353 | ||||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | 64,467 | $ | 84,442 | ||||
SUPPLEMENTAL CASH FLOW DATA | ||||||||
Unpaid liability to acquire property and equipment | $ | 2,303 | $ | 5,222 | ||||
Income taxes paid, net of refunds | $ | (47 | ) | $ | 3,036 | |||
Interest paid | $ | 9,087 | $ | 12,702 | ||||
Lease liabilities arising from obtaining Operating lease right-of-use assets | $ | 3,525 | $ | 6,705 |
Source: Lands' End