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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended April 29, 2022

-OR-

Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to                      to                     .

Commission File Number: 001-09769

 

Lands’ End, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

 

36-2512786

 

 

 

(State or Other Jurisdiction of
Incorporation of Organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

1 Lands’ End Lane

Dodgeville, Wisconsin

 

53595

 

 

 

(Address of Principal Executive Offices)

 

(Zip Code)

(608) 935-9341

(Registrant’s Telephone Number Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

LE

 

The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.  

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No  

As of May 27, 2022, the registrant had 33,413,971 shares of common stock, $0.01 par value, outstanding.

 

 


 

 

 

LANDS’ END, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED APRIL 29, 2022

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

1

 

 

 

 

 

Condensed Consolidated Statements of Operations

 

1

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Operations

 

2

 

 

 

 

 

Condensed Consolidated Balance Sheets

 

3

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows

 

4

 

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders' Equity

 

5

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

15

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

24

 

 

 

 

Item 4.

Controls and Procedures

 

25

 

 

 

 

 

PART II. OTHER INFORMATION

 

26

 

 

 

 

Item 1.

Legal Proceedings

 

26

 

 

 

 

Item 1A.

Risk Factors

 

26

 

 

 

 

Item 6.

Exhibits

 

27

 

 

 

 

 

Signatures

 

28

 

 

 


Table of Contents

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

LANDS’ END, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

13 Weeks Ended

 

(in thousands, except per share data)

 

April 29,

2022

 

 

April 30,

2021

 

Net revenue

 

$

303,665

 

 

$

321,297

 

Cost of sales (excluding depreciation and amortization)

 

 

174,490

 

 

 

173,560

 

Gross profit

 

 

129,175

 

 

 

147,737

 

 

 

 

 

 

 

 

 

 

Selling and administrative

 

 

115,693

 

 

 

125,522

 

Depreciation and amortization

 

 

9,584

 

 

 

9,904

 

Other operating expense, net

 

 

 

 

 

443

 

Operating income

 

 

3,898

 

 

 

11,868

 

Interest expense

 

 

8,169

 

 

 

9,060

 

Other (income), net

 

 

(161

)

 

 

(167

)

(Loss) income before income taxes

 

 

(4,110

)

 

 

2,975

 

Income tax (benefit) expense

 

 

(1,739

)

 

 

336

 

NET (LOSS) INCOME

 

$

(2,371

)

 

$

2,639

 

NET (LOSS) INCOME PER COMMON SHARE

 

 

 

 

 

 

 

 

Basic:

 

$

(0.07

)

 

$

0.08

 

Diluted:

 

$

(0.07

)

 

$

0.08

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

33,163

 

 

 

32,769

 

Diluted weighted average common shares outstanding

 

 

33,163

 

 

 

33,712

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

1


Table of Contents

 

 

LANDS’ END, INC.

Condensed Consolidated Statements of Comprehensive Operations

(Unaudited)

 

 

 

13 Weeks Ended

 

(in thousands)

 

April 29, 2022

 

 

April 30, 2021

 

NET (LOSS) INCOME

 

$

(2,371

)

 

$

2,639

 

Other comprehensive (loss) income, net of tax

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(3,094

)

 

 

311

 

COMPREHENSIVE (LOSS) INCOME

 

$

(5,465

)

 

$

2,950

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

2


Table of Contents

 

LANDS’ END, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

(in thousands, except per share data)

 

April 29, 2022

 

 

April 30, 2021

 

 

January 28, 2022

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

22,027

 

 

$

36,181

 

 

$

34,301

 

Restricted cash

 

 

2,145

 

 

 

2,327

 

 

 

1,834

 

Accounts receivable, net

 

 

52,134

 

 

 

41,350

 

 

 

49,668

 

Inventories, net

 

 

436,859

 

 

 

394,287

 

 

 

384,241

 

Prepaid expenses and other current assets

 

 

39,197

 

 

 

36,527

 

 

 

36,905

 

Total current assets

 

 

552,362

 

 

 

510,672

 

 

 

506,949

 

Property and equipment, net

 

 

127,430

 

 

 

139,991

 

 

 

129,791

 

Operating lease right-of-use asset

 

 

33,332

 

 

 

34,258

 

 

 

31,492

 

Goodwill

 

 

106,700

 

 

 

106,700

 

 

 

106,700

 

Intangible asset

 

 

257,000

 

 

 

257,000

 

 

 

257,000

 

Other assets

 

 

4,740

 

 

 

4,056

 

 

 

4,702

 

TOTAL ASSETS

 

$

1,081,564

 

 

$

1,052,677

 

 

$

1,036,634

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

13,750

 

 

$

13,750

 

 

$

13,750

 

Accounts payable

 

 

130,955

 

 

 

105,597

 

 

 

145,802

 

Lease liability – current

 

 

5,557

 

 

 

4,962

 

 

 

5,617

 

Other current liabilities

 

 

90,777

 

 

 

145,206

 

 

 

146,263

 

Total current liabilities

 

 

241,039

 

 

 

269,515

 

 

 

311,432

 

Long-term borrowings on ABL Facility

 

 

125,000

 

 

 

80,000

 

 

 

 

Long-term debt, net

 

 

231,703

 

 

 

242,790

 

 

 

234,474

 

Lease liability – long-term

 

 

34,855

 

 

 

36,693

 

 

 

32,731

 

Deferred tax liabilities

 

 

45,612

 

 

 

47,441

 

 

 

46,191

 

Other liabilities

 

 

4,950

 

 

 

6,085

 

 

 

5,110

 

TOTAL LIABILITIES

 

 

683,159

 

 

 

682,524

 

 

 

629,938

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

Common stock, par value $0.01 authorized: 480,000 shares;

   issued and outstanding: 33,413, 32,977 and 32,985, respectively

 

 

334

 

 

 

330

 

 

 

330

 

Additional paid-in capital

 

 

371,583

 

 

 

366,868

 

 

 

374,413

 

Retained earnings

 

 

42,224

 

 

 

13,865

 

 

 

44,595

 

Accumulated other comprehensive (loss)

 

 

(15,736

)

 

 

(10,910

)

 

 

(12,642

)

TOTAL STOCKHOLDERS’ EQUITY

 

 

398,405

 

 

 

370,153

 

 

 

406,696

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

1,081,564

 

 

$

1,052,677

 

 

$

1,036,634

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

3


Table of Contents

 

LANDS’ END, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

13 Weeks  Ended

 

(in thousands)

 

April 29, 2022

 

 

April 30, 2021

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(2,371

)

 

$

2,639

 

Adjustments to reconcile net (loss) income to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

9,584

 

 

 

9,904

 

Amortization of debt issuance costs

 

 

765

 

 

 

775

 

Loss on disposal of property and equipment

 

 

 

 

 

443

 

Stock-based compensation

 

 

1,484

 

 

 

2,513

 

Deferred income taxes

 

 

244

 

 

 

8

 

Other

 

 

(232

)

 

 

276

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(2,824

)

 

 

(3,915

)

Inventories, net

 

 

(56,320

)

 

 

(11,932

)

Accounts payable

 

 

(15,331

)

 

 

(28,545

)

Other operating assets

 

 

(2,862

)

 

 

4,820

 

Other operating liabilities

 

 

(54,547

)

 

 

(15,688

)

Net cash used in operating activities

 

 

(122,410

)

 

 

(38,702

)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(6,965

)

 

 

(4,942

)

Net cash used in investing activities

 

 

(6,965

)

 

 

(4,942

)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Proceeds from borrowings under ABL Facility

 

 

126,000

 

 

 

75,000

 

Payments of borrowings under ABL Facility

 

 

(1,000

)

 

 

(20,000

)

Payments on term loan

 

 

(3,438

)

 

 

(3,438

)

Payments for taxes related to net share settlement of equity awards

 

 

(4,310

)

 

 

(5,013

)

Payment of debt-issuance costs

 

 

 

 

 

(35

)

Net cash provided by financing activities

 

 

117,252

 

 

 

46,514

 

Effects of exchange rate changes on cash, cash equivalents and restricted cash

 

 

160

 

 

 

(156

)

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND

      RESTRICTED CASH

 

 

(11,963

)

 

 

2,714

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH,

      BEGINNING OF PERIOD

 

 

36,135

 

 

 

35,794

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD

 

$

24,172

 

 

$

38,508

 

SUPPLEMENTAL CASH FLOW DATA

 

 

 

 

 

 

 

 

Unpaid liability to acquire property and equipment

 

$

3,433

 

 

$

3,227

 

Income taxes paid, net of refunds

 

$

16

 

 

$

(5,152

)

Interest paid

 

$

7,127

 

 

$

7,911

 

Lease liabilities arising from obtaining operating lease right-of-use assets

 

$

3,722

 

 

$

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

4


Table of Contents

 

LANDS’ END, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

 

 

Common Stock Issued

 

 

Additional

Paid-in

 

 

Retained

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

(in thousands)

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

(Loss)

 

 

Equity

 

Balance at January 28, 2022

 

 

32,985

 

 

$

330

 

 

$

374,413

 

 

$

44,595

 

 

$

(12,642

)

 

$

406,696

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,371

)

 

 

 

 

 

(2,371

)

Cumulative translation adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,094

)

 

 

(3,094

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,484

 

 

 

 

 

 

 

 

 

1,484

 

Vesting of restricted shares

 

 

660

 

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

Common stock withheld related to net share

      settlement of equity awards

 

 

(232

)

 

 

 

 

 

(4,310

)

 

 

 

 

 

 

 

 

(4,310

)

Balance at April 29, 2022

 

 

33,413

 

 

$

334

 

 

$

371,583

 

 

$

42,224

 

 

$

(15,736

)

 

$

398,405

 

 

 

 

 

Common Stock Issued

 

 

Additional

Paid-in

 

 

Retained

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

(in thousands)

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

(Loss)

 

 

Equity

 

Balance at January 29, 2021

 

 

32,614

 

 

$

326

 

 

$

369,372

 

 

$

11,226

 

 

$

(11,221

)

 

$

369,703

 

Net income

 

 

 

 

 

 

 

 

 

 

 

2,639

 

 

 

 

 

 

2,639

 

Cumulative translation adjustment, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

311

 

 

 

311

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,513

 

 

 

 

 

 

 

 

 

2,513

 

Vesting of restricted shares

 

 

553

 

 

 

4

 

 

 

(4

)

 

 

 

 

 

 

 

 

 

Common stock withheld related to net share

      settlement of equity awards

 

 

(190

)

 

 

 

 

 

(5,013

)

 

 

 

 

 

 

 

 

(5,013

)

Balance at April 30, 2021

 

 

32,977

 

 

$

330

 

 

$

366,868

 

 

$

13,865

 

 

$

(10,910

)

 

$

370,153

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

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LANDS’ END, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1. BACKGROUND AND BASIS OF PRESENTATION

 

Description of Business

 

Lands’ End, Inc. (“Lands’ End” or the “Company”) is a leading uni-channel retailer of casual clothing, accessories, footwear and home products. Lands’ End offers products online at www.landsend.com, through Company Operated stores and through third-party distribution channels. Lands’ End is a classic American lifestyle brand with a passion for quality, legendary service and real value and seeks to deliver timeless style for women, men, kids and the home. References to www.landsend.com do not constitute incorporation by reference of the information at www.landsend.com, and such information is not part of this Quarterly Report on Form 10-Q or any other filings with the SEC, unless otherwise explicitly stated.

 

Terms that are commonly used in the Company’s Notes to Condensed Consolidated Financial Statements are defined as follows:

 

 

ABL Facility – Asset-based senior secured credit agreement, providing for a revolving facility, dated as of November 16, 2017, with Wells Fargo Bank, N.A. and certain other lenders, as amended to date

 

 

Adjusted EBITDA – Net income (loss) appearing on the Condensed Consolidated Statements of Operations net of Income tax expense/(benefit), Interest expense, Depreciation and amortization and certain significant items

 

 

ASC – Financial Accounting Standards Board Accounting Standards Codification, which serves as the source for authoritative GAAP, as supplemented by rules and interpretive releases by the SEC which are also sources of authoritative GAAP for SEC registrants

 

 

Company Operated stores – Lands’ End retail stores in the Retail distribution channel

 

 

Debt Facilities – Collectively, the Term Loan Facility and ABL Facility

 

 

Deferred Awards – Time vesting stock awards

 

 

EPS – Earnings per share

 

 

First Quarter 2022 – The 13 weeks ended April 29, 2022

 

 

First Quarter 2021 – The 13 weeks ended April 30, 2021

 

 

First Quarter 2019 – The 13 weeks ended May 3, 2019

 

 

GAAP – Accounting principles generally accepted in the United States

 

 

LIBOR – London inter-bank offered rate

 

 

Option Awards – Stock option awards

 

 

Performance Awards – Performance-based stock awards

 

 

SEC – United States Securities and Exchange Commission

 

 

Term Loan Facility – Term loan credit agreement, dated as of September 9, 2020, among the Company, Fortress Credit Corp., as Administrative Agent and Collateral Agent, and the lenders party thereto

 

Basis of Presentation

 

The Condensed Consolidated Financial Statements include the accounts of Lands’ End, Inc. and its subsidiaries. All intercompany transactions and balances have been eliminated.

 

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The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all material adjustments which are of a normal and recurring nature necessary for a fair presentation of the results for the periods presented have been reflected. Dollar amounts are reported in thousands, except per share data, unless otherwise noted. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Lands’ End Annual Report on Form 10-K filed with the SEC on March 24, 2022.

 

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

 

There were no new accounting standards adopted that had an impact on the Company’s financial statements during the 13 weeks ended April 29, 2022.

 

NOTE 3. EARNINGS (LOSS) PER SHARE

 

The numerator for both basic and diluted EPS is net income (loss). The denominator for basic EPS is based upon the number of weighted average shares of Lands’ End common stock outstanding during the reporting periods. The denominator for diluted EPS is based upon the number of weighted average shares of Lands’ End common stock and common stock equivalents outstanding during the reporting periods using the treasury stock method in accordance with GAAP. Potentially dilutive securities for the diluted EPS calculations consist of non-vested equity shares of common stock and in-the-money outstanding options where the current stock price exceeds the option strike price.

 

The following table summarizes the components of basic and diluted EPS:

 

 

 

13 Weeks Ended

 

(in thousands, except per share amounts)

 

April 29, 2022

 

 

April 30, 2021

 

Net (loss) income

 

$

(2,371

)

 

$

2,639

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

33,163

 

 

 

32,769

 

Dilutive effect of stock awards

 

 

 

 

 

943

 

Diluted weighted average common shares outstanding

 

 

33,163

 

 

 

33,712

 

 

 

 

 

 

 

 

 

 

Basic (loss) earnings per share

 

$

(0.07

)

 

$

0.08

 

Diluted (loss) earnings per share

 

$

(0.07

)

 

$

0.08

 

 

Stock awards are considered anti-dilutive based on the application of the treasury stock method or in the event of a net loss. Anti-dilutive shares excluded from the diluted weighted average shares outstanding were 1,427,987 and 115,345 in the 13 weeks ended April 29, 2022 and April 30, 2021, respectively.

 

NOTE 4. OTHER COMPREHENSIVE (LOSS) INCOME

 

Other comprehensive (loss) income encompasses all changes in equity other than those arising from transactions with stockholders and is comprised solely of foreign currency translation adjustments.

 

 

 

13 Weeks Ended

 

(in thousands)

 

April 29, 2022

 

 

April 30, 2021

 

Beginning balance: Accumulated other comprehensive (loss)

      (net of tax of $3,361 and $2,987, respectively)

 

$

(12,642

)

 

$

(11,221

)

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments (net of tax of $823 and $(87), respectively)

 

 

(3,094

)

 

 

311

 

Ending balance: Accumulated other comprehensive (loss)

      (net of tax of $4,184 and $2,900, respectively)

 

$

(15,736

)

 

$

(10,910

)

 

No amounts were reclassified out of Accumulated other comprehensive (loss) during any of the periods presented.

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NOTE 5. DEBT

 

ABL Facility

 

The Company’s $275.0 million revolving ABL Facility includes a $70.0 million sublimit for letters of credit and is available for working capital and other general corporate liquidity needs. On July 29, 2021, the Company executed the Third Amendment to the ABL Facility resulting in favorable financial terms and extension of the maturity date of the ABL Facility, as discussed below. The amount available to borrow is subject to the Loan Cap, as defined in the agreement, which considers the Borrowing Base calculated from eligible inventory, trade receivables and credit card receivables as defined in the agreement.

 

The following table summarizes the Company’s borrowing availability, before consideration of the Loan Cap, under the ABL Facility:

 

 

April 29, 2022

 

 

April 30, 2021

 

 

January 28, 2022

(in thousands)

 

Amount

 

 

Interest Rate

 

 

Amount

 

 

Interest Rate

 

 

Amount

 

 

Interest Rate

ABL Facility maximum borrowing

 

$

275,000

 

 

 

 

 

 

$

275,000

 

 

 

 

 

 

$

275,000

 

 

 

Less: Outstanding borrowings

 

 

125,000

 

 

1.84%

 

 

 

80,000

 

 

2.75%

 

 

 

 

 

―%

Less: Outstanding letters of credit

 

 

14,619

 

 

 

 

 

 

 

16,920

 

 

 

 

 

 

 

23,521

 

 

 

Borrowing availability under ABL Facility

 

$

135,381

 

 

 

 

 

 

$

178,080

 

 

 

 

 

 

$

251,479

 

 

 

 

Long-Term Debt

 

On September 9, 2020, the Company entered into the Term Loan Facility which provided borrowings of $275.0 million. Origination costs, including an Original Issue Discount (“OID”) of 3% and $5.1 million in debt origination fees, were paid in connection with entering into the Term Loan Facility. The OID and the debt origination fees are presented as a direct deduction from the carrying value of the Term Loan Facility and are amortized over the term of the loan to Interest expense in the Condensed Consolidated Statements of Operations.

 

The Company’s long-term debt consisted of the following:

 

 

 

April 29, 2022

 

 

April 30, 2021

 

 

January 28, 2022

 

(in thousands)

 

Amount

 

 

Interest Rate

 

 

Amount

 

 

Interest Rate

 

 

Amount

 

 

Interest Rate

 

Term Loan Facility

 

$

254,375

 

 

10.76%

 

 

$

268,125

 

 

10.75%

 

 

$

257,813

 

 

10.75%

 

Less: Current portion of long-term debt

 

 

13,750

 

 

 

 

 

 

 

13,750

 

 

 

 

 

 

 

13,750

 

 

 

 

 

Less: Unamortized debt issuance costs

 

 

8,922

 

 

 

 

 

 

 

11,585

 

 

 

 

 

 

 

9,589

 

 

 

 

 

Long-term debt, net

 

$

231,703

 

 

 

 

 

 

$

242,790

 

 

 

 

 

 

$

234,474

 

 

 

 

 

 

 

Interest; Fees

 

The Third Amendment to the ABL Facility, effective July 31, 2021, lowered the applicable margin interest rates applicable to the referenced rate, selected at the borrower’s election, either (1) adjusted LIBOR or (2) a base rate which the greater of (a) the federal funds rate plus 0.50%, (b) the one month LIBOR rate plus 1.00%, or (c) the Wells Fargo “prime rate”. For all loans, the borrowing margin is based upon the average daily total loans outstanding for the previous quarter. The applicable borrowing margin for LIBOR loans is (i) less than $95.0 million, 1.25%, (ii) equal to or greater than $95.0 million but less than $180.0 million, 1.50%, and (iii) greater than or equal to $180.0 million, 1.75%. For base rate loans, the applicable borrowing margin is (i) less than $95.0 million for the previous quarter, 0.50%, (ii) equal to or greater than $95.0 million but less than $180.0 million, 0.75%, and (iii) greater than or equal to $180.0 million, 1.00%. The Third Amendment to the ABL Facility replaced the 0.75% LIBOR floor with a 0.00% LIBOR floor.

 

The interest rates per annum applicable to the loans under the Term Loan Facility are based on a fluctuating rate of interest measured by reference to, at the borrower’s election, either (1) an adjusted LIBOR rate (with a minimum rate of 1.00%) plus 9.75%, or (2) an alternative base rate (which is the greater of (i) the prime rate published in the Wall Street Journal, (ii) the federal funds rate, which shall be no lower than 0.00% plus ½ of 1.00%, or (iii) the one month LIBOR rate plus 1.00% per annum) plus 8.75%.

 

The ABL Facility fees include (i) commitment fees of 0.25% based upon the average daily unused commitment (aggregate commitment less loans and letter of credit outstanding) under the ABL Facility for the preceding fiscal quarter and (ii) customary letter of credit fees. As of April 29, 2022, the Company had borrowings of $125.0 million on the ABL Facility.

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Customary agency fees are payable in respect of the Debt Facilities.  

 

Maturity; Amortization and Prepayments

 

The Third Amendment to the ABL Facility extended the maturity from November 16, 2022 to the earlier of (a) July 29, 2026 and (b) June 9, 2025 if, on or prior to such date, the Term Loan Facility has not been refinanced, extended or repaid in full in accordance with the terms thereof and not replaced with other indebtedness.

 

The Term Loan Facility matures on September 9, 2025 and amortizes at a rate equal to 1.25% per quarter. It is subject to mandatory prepayments in an amount equal to a percentage of the borrower’s excess cash flows in each fiscal year, ranging from 0% to 75% depending on the Company’s total leverage ratio, and with the proceeds of certain asset sales, casualty events and extraordinary receipts. The loan may not be voluntarily prepaid during the first two years of its term, without significant penalties. After the initial two-year period, a prepayment premium of 3% applies to voluntary prepayments and certain mandatory prepayments made after September 9, 2022 and on or prior to September 9, 2023, 1% for such prepayments made after September 9, 2023 and on or prior to September 9, 2024 and no premium on such prepayments thereafter.

 

Guarantees; Security

 

All obligations under the Debt Facilities are unconditionally guaranteed by Lands’ End, Inc. and, subject to certain exceptions, each of its existing and future direct and indirect subsidiaries. The ABL Facility is secured by a first priority security interest in certain working capital of the borrowers and guarantors consisting primarily of accounts receivable and inventory. The Term Loan Facility is secured by a second priority security interest in the same collateral with certain exceptions.

 

The Term Loan Facility is secured by a first priority security interest in certain property and assets of the borrowers and guarantors, including certain fixed assets such as real estate, stock of the subsidiaries and intellectual property, in each case, subject to certain exceptions. The ABL Facility is secured by a second priority interest in the same collateral, with certain exceptions.

 

Representations and Warranties; Covenants

 

Subject to specified exceptions, the Debt Facilities contain various representations and warranties, and restrictive covenants that, among other things, restrict Lands’ End, Inc.’s and its subsidiaries’ ability to incur indebtedness (including guarantees), grant liens, make investments, make dividends or distributions with respect to capital stock, make prepayments on other indebtedness, engage in mergers or change the nature of their business.

 

The Term Loan Facility contains certain financial covenants, including a quarterly maximum total leverage ratio test, a weekly minimum liquidity test and an annual maximum capital expenditure amount.  

 

Under the ABL Facility, if excess availability falls below the greater of 10% of the Loan Cap amount or $15.0 million, the Company will be required to comply with a minimum fixed charge coverage ratio of 1.0 to 1.0.

 

The Debt Facilities contain certain affirmative covenants, including reporting requirements such as delivery of financial statements, certificates and notices of certain events, maintaining insurance, and providing additional guarantees and collateral in certain circumstances.

As of April 29, 2022, the Company was in compliance with its financial covenants in the Debt Facilities.

Events of Default

 

The Debt Facilities include customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, cross defaults related to certain other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of guarantees or security interests, and material judgments and change of control.

 

NOTE 6. STOCK-BASED COMPENSATION

 

The Company expenses the fair value of all stock awards over their respective vesting periods, ensuring that the amount of cumulative stock-based compensation expense recognized at any date is at least equal to the portion of the grant-date fair value of the award that is vested at that date. The Company has elected to adjust stock-based compensation expense for an estimated forfeiture rate for those shares not expected to vest and to recognize stock-based compensation expense on a straight-line basis for awards that only have a service requirement with multiple vest dates.

 

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The Company has granted the following types of stock awards to employees at management levels and above, each of which are granted under the Company’s stockholder approved stock plans, other than inducement grants outside of the Company’s stockholder approved stock plans in accordance with NASDAQ Listing Rule 5635(c)(4):

 

 

Deferred Awards are in the form of restricted stock units and only require each recipient to complete a service period for the awards to be earned. Deferred Awards generally vest over three years. The fair value of Deferred Awards is based on the closing price of the Company's common stock on the grant date. Stock-based compensation expense is recognized ratably over the service period and is reduced for estimated forfeitures of those awards not expected to vest due to employee turnover.

 

 

Performance Awards are in the form of restricted stock units and have, in addition to a service requirement, performance criteria that must be achieved for the awards to be earned. For Performance Awards granted, the Target Shares earned can range from 50% to 200% once minimum thresholds have been reached and depend on the achievement of Adjusted EBITDA and revenue performance measures for the cumulative period comprised of three-consecutive fiscal years beginning with the fiscal year of the grant date. The applicable percentage of the Target Shares, as determined by performance, vest after the completion of the applicable three-year performance period and upon determination of achievement of the performance measures by the Compensation Committee of the Board of Directors, and unearned Target Shares are forfeited. The fair value of the Performance Awards granted are based on the closing price of the Company’s common stock on the grant date. Stock-based compensation expense is recognized ratably over the related service period reduced for estimated forfeitures of those awards not expected to vest due to employee turnover and adjusted based on the Company’s estimate of the percentage of the aggregate Target Shares expected to be earned. Typically, the Company accrues for Performance Awards on a 100% payout unless it becomes probable that the outcome will be significantly different, or the performance can be accurately measured. The performance period has been completed for the Performance Awards granted during First Quarter 2019 and, based on the Company’s performance relative to the Adjusted EBITDA and revenue performance measures, these awards vested on March 25, 2022 at 118% of Target Shares. The stock-based compensation expense associated with the Performance Awards granted to employees during First Quarter 2022 and First Quarter 2021 is accrued at 100% and 114% payout, respectively.  

 

 

Option Awards provide the recipient with the option to purchase a set number of shares at a stated exercise price over the term of the contract, which is ten years for all Option Awards currently outstanding. Options are granted with a strike price equal to the stock price on the date of grant and vest ratably over a four-year period. The fair value of each Option Award is estimated on the grant date using the Black-Scholes option pricing model.

 

The following table provides a summary of the Company’s stock-based compensation expense, which is included in Selling and administrative expense in the Condensed Consolidated Statements of Operations:

 

 

 

13 Weeks Ended

 

(in thousands)

 

April 29, 2022

 

 

April 30, 2021

 

Deferred awards

 

$

1,555

 

 

$

1,361

 

Performance awards (1)