December 8, 1995
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we are
transmitting herewith the attached Form 10-Q for the quarter ended October 27,
1995.
Sincerely,
KATHY GIES
Lands' End, Inc.
One Lands' End Lane
Dodgeville, WI 53595
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarter Ended October 27, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ...... to ......
Commission file number 1-9769
LANDS' END, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2512786
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Lands' End Lane, Dodgeville, WI 53595
(Address of principal executive (Zip code)
offices)
Registrant's telephone number, 608-935-9341
including area code
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 X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of December 8, 1995:
Common stock, $.01 par value 33,689,990 shares outstanding
LANDS' END, INC. & SUBSIDIARIES
INDEX TO FORM 10-Q
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Financial Statements
Consolidated Statements of Operations for the
Three Months Ended October 27, 1995, and
October 28, 1994.................................. 3
Consolidated Statements of Operations for the
Nine Months Ended October 27, 1995, and
October 28, 1994.................................. 4
Consolidated Balance Sheets at October 27, 1995,
and January 27, 1995.............................. 5
Consolidated Statements of Cash Flows for the
Nine Months Ended October 27, 1995, and
October 28, 1994.................................. 6
Notes to Consolidated Financial Statements........... 7-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 14-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................... 17
Item 4. Submission of Matters to a Vote of
Security Holders.................................. 17
Item 6. Exhibits and Reports on Form 8-K..................... 17
Signature..................................................... 18
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Three months ended
October 27, October 28,
1995 1994
(unaudited)
Net sales $235,887 $246,209
Cost of sales 135,977 146,033
Gross profit 99,910 100,176
Selling, general and
administrative expenses 98,399 93,539
Income from operations 1,511 6,637
Other income (expense):
Interest expense, net (1,296) (971)
Other 2,726 665
Total other income
(expense), net 1,430 (306)
Income before income taxes 2,941 6,331
Income tax provision 1,175 2,498
Net income $ 1,766 $ 3,833
Net income per share $ 0.05 $ 0.11
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
3
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Nine months ended
October 27, October 28,
1995 1994
(unaudited)
Net sales $632,073 $613,053
Cost of sales 358,231 355,836
Gross profit 273,842 257,217
Selling, general and
administrative expenses 268,176 237,053
Income from operations 5,666 20,164
Other income (expense):
Interest expense, net (2,379) (1,218)
Other 4,659 1,102
Total other income, net 2,280 (116)
Income before income taxes 7,946 20,048
Income tax provision 3,178 7,916
Net income $ 4,768 $ 12,132
Net income per share $ 0.14 $ 0.34
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
4
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
October 27, January 27,
1995 1995
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 3,201 $ 5,426
Receivables 8,171 4,459
Inventory 260,091 168,652
Prepaid expenses 27,395 11,219
Deferred income tax benefit 9,592 8,412
Total current assets 308,450 198,168
Property, plant and equipment, at cost:
Land and buildings 71,668 69,798
Fixtures and equipment 82,943 74,745
Leasehold improvements 2,349 1,862
Total property, plant and equipment 156,960 146,405
Less-accumulated depreciation and amortization 58,365 49,414
Property, plant and equipment, net 98,595 96,991
Intangibles, net 2,351 2,453
Total assets $409,396 $297,612
Liabilities and shareholders' investment
Current liabilities:
Lines of credit $104,066 $ 7,539
Current maturities of long-term debt 40 40
Accounts payable 94,291 52,762
Reserve for returns 4,369 5,011
Accrued liabilities 22,079 25,952
Accrued profit sharing 500 1,679
Income taxes payable 1,620 9,727
Total current liabilities 226,965 102,710
Deferred income taxes 5,379 5,379
Long-term liabilities 258 395
Shareholders' investment:
Common stock, 40,221 shares issued 402 402
Donated capital 8,400 8,400
Paid-in capital 25,830 25,817
Deferred compensation (1,242) (1,421)
Currency translation adjustments (46) 284
Retained earnings 234,322 229,554
Treasury stock, 6,470 and 5,395
shares at cost, respectively (90,872) (73,908)
Total shareholders' investment 176,794 189,128
Total liabilities and shareholders' investment $409,396 $297,612
The accompanying notes to consolidated financial statements are an integral
part of these consolidated balance sheets.
5
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Nine Months Ended
October 27, October 28,
1995 1994
(unaudited)
Cash flows (used for) from operating activities:
Net income $ 4,768 $ 12,132
Adjustments to reconcile net income to net
cash flows from operating activities-
Depreciation and amortization 9,469 8,339
Deferred compensation expense 179 415
Loss on sales of fixed assets - 96
Deferred income taxes (1,180) -
Changes in current assets and liabilities
excluding the effects of acquisitions:
Receivables (3,712) 891
Inventory (91,439) (102,408)
Prepaid expenses (16,176) (5,010)
Income taxes receivable - (417)
Accounts payable 41,529 17,740
Reserve for returns (642) 736
Accrued liabilities (3,873) 4,479
Accrued profit sharing (1,179) (1,816)
Income taxes payable (8,107) (12,528)
Other (467) 335
Net cash flows used for operating activities (70,830) (77,016)
Cash flows (used for) from investing activities:
Cash paid for capital additions and
businesses acquired (10,971) (26,489)
Net cash flows used for investing activities (10,971) (26,489)
Cash flows (used for) from financing activities:
Proceeds from short-term debt 96,527 106,252
Tax effect of exercise of stock options 13 614
Purchases of treasury stock (16,964) (23,910)
Net cash flows from financing activities 79,576 82,956
Net increase (decrease) in cash
and cash equivalents (2,225) (20,549)
Beginning cash and cash equivalents 5,426 21,569
Ending cash and cash equivalents $ 3,201 $ 1,020
Supplemental cash flow disclosures:
Interest paid $ 1,916 $ 902
Income taxes paid 14,030 20,107
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
6
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to October 27, 1995, and the three months
ended October 27, 1995, and October 28, 1994, is unaudited)
The condensed consolidated financial statements included herein have been
prepared by Lands' End, Inc. (the company), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission, and in the
opinion of management contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the company believes that the disclosures are adequate
to make the information presented not misleading. The results of operations
for the interim periods disclosed within this report are not necessarily
indicative of future financial results. These consolidated financial
statements are condensed and should be read in conjunction with the financial
statements and the notes thereto included in the company's latest Annual
Report on Form 10-K, which includes financial statements for the year ended
January 27, 1995.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Lands' End, Inc., (the company) is a direct marketer of traditionally styled
apparel, domestics (primarily bedding and bath items), soft luggage, and other
products.
Principles of consolidation
The consolidated financial statements include the accounts of the company and
its subsidiaries after elimination of intercompany accounts and transactions.
Fiscal year
The company utilizes a 52-53 week fiscal year ending on the Friday nearest
January 31. Fiscal 1996 will be a 53-week year ending on February 2, 1996.
The additional week will be added in the fourth quarter of fiscal 1996.
Fair values of financial instruments
The fair value of financial instruments does not materially differ from their
carrying values.
Inventory
Inventory, primarily merchandise held for sale, is stated at last-in, first-
out (LIFO) cost, which is lower than market. If the first-in, first-out
(FIFO) method of accounting for inventory had been used, inventory would have
been approximately $20.6 million and $18.9 million higher than reported at
October 27, and January 27, 1995, respectively.
Catalog costs
Prepaid expenses primarily consist of catalog production and mailing costs
that have not yet been fully amortized over the expected revenue stream, which
is within six months from the date catalogs are mailed. The company's
reporting of such advertising costs is in conformance with the provisions of
the AICPA Statement of Position No. 93-7, "Reporting on Advertising Costs,"
which became effective for the company in the first quarter of fiscal 1996.
7
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to October 27, 1995, and the three months
ended October 27, 1995, and October 28, 1994, is unaudited)
Depreciation
Depreciation expense is calculated using the straight-line method over the
estimated useful lives of the assets, which are 20 to 30 years for buildings
and land improvements and 5 to 10 years for leasehold improvements and
furniture, fixtures, equipment, and software. The company provides one-half
year of depreciation in the year of addition and retirement.
Intangibles
Intangible assets consist of goodwill in excess of the fair market value of
net assets of businesses purchased. Goodwill is being amortized over 40 years
on a straight-line basis. Other intangibles are amortized over a shorter
life. Total accumulated amortization of these intangibles was $0.4 million
and $0.3 million as of October 27, and January 27, 1995, respectively.
Net income per share
Net income per share is computed by dividing net income by the weighted
average number of common shares outstanding during each period. The weighted
average common shares outstanding were 33.9 million and 34.9 million for the
three-month periods ended October 27, 1995, and October 28, 1994,
respectively; and 34.4 million and 35.3 million for the nine-month periods
ended October 27, 1995, and October 28, 1994, respectively. Common stock
equivalents includes awards, grants and stock options which have been issued
by the company. The common stock equivalents do not significantly dilute
basic earnings per share.
Reserve for losses on customer returns
At the time of sale, the company provides a reserve equal to the gross profit
on projected merchandise returns, based on its prior returns experience.
Financial instruments with off-balance-sheet risk
The company is party to financial instruments with off-balance-sheet risk in
the normal course of business to reduce its exposure to fluctuations in
foreign currency exchange rates and to meet financing needs.
The company enters into forward exchange contracts to hedge anticipated
foreign currency transactions during the upcoming seasons. The purpose of the
company's foreign currency hedging activities is to protect the company from
the risk that the eventual dollar cash flows resulting from these transactions
will be adversely affected by changes in exchange rates. At October 27, 1995,
the company had forward exchange contracts, maturing through January 1997, to
sell approximately 2.1 billion yen and 2.4 million British pounds, and to
purchase approximately 1.8 million Canadian dollars. The gains and losses on
the outstanding forward exchange contracts are reflected in the financial
statements in the period in which the currency fluctuation occurs.
The company also uses import letters of credit to purchase foreign-sourced
merchandise. The letters of credit are primarily U.S. dollar-denominated and
are issued through third-party financial institutions to guarantee payment for
such merchandise within agreed upon time periods. At October 27, 1995, the
company had outstanding letters of credit of approximately $20.2 million, all
of which had expiration dates of less than 1 year.
8
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to October 27, 1995, and the three months
ended October 27, 1995, and October 28, 1994, is unaudited)
The counterparty to the financial instruments discussed above is primarily two
large financial institutions; management believes the risk of counterparty
nonperformance on these financial instruments is not significant.
Foreign currency translation
Financial statements of the foreign subsidiaries are translated into U.S.
dollars in accordance with the provisions of SFAS 52. Translation adjustments
are accumulated in a separate component of stockholder's equity. Foreign
currency translation gains were not material for the nine-month periods ended
October 27, 1995 and October 28, 1994, respectively.
Postretirement benefits
The company does not currently provide any postretirement benefits for
employees other than profit sharing.
Reclassification
Certain financial statement amounts have been reclassified to be consistent
with the fiscal 1996 presentation.
NOTE 2. ACCOUNTING CHANGES
The Financial Accounting Standards Board has issued Statement Nos. 112 and
115, "Employer's Accounting for Post-employment Benefits" and "Accounting for
Certain Investments in Debt and Equity Securities," respectively. The company
adopted these standards in fiscal 1995, and there is no material impact on its
financial statements.
NOTE 3. SHAREHOLDERS' INVESTMENT
Capital stock
The company currently has 160 million shares of $0.01 par value common stock.
The company has authorized 5 million shares of preferred stock, $0.01 par
value. The company's board of directors has the authority to issue shares and
to fix dividends, voting and conversion rights, redemption provisions,
liquidation preferences, and other rights and restrictions of the preferred
stock.
Treasury stock
The company's board of directors has authorized the purchase of a total of 8.2
million shares of the company's common stock. A total of 7.3 million and 6.2
million shares had been purchased as of October 27, and January 27, 1995,
respectively.
Stock awards and grants
The company has a restricted stock award plan. Under the provisions of the
plan, a committee of the company's board of directors may award shares of the
company's common stock to its officers and key employees. Such shares vest
over a ten-year period on a straight-line basis from the date of the award.
In addition, the company granted shares of its common stock to individuals as
an inducement to enter the employ of the company.
9
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to October 27, 1995, and the three months
ended October 27, 1995, and October 28, 1994, is unaudited)
The following table reflects the activity under the stock award and stock
grant plans:
Awards Grants
Balance at January 29, 1993 141,320 12,000
Granted 27,200 -
Forfeited (3,600) -
Vested (15,760) (2,000)
Balance at January 28, 1994 149,160 10,000
Granted - -
Forfeited (15,940) (10,000)
Vested (17,860) -
Balance at January 27, 1995 115,360 0
Granted - -
Forfeited (2,700) -
Vested (8,240) -
Balance at October 27, 1995 104,420 0
The granting of these awards and grants has been recorded as deferred
compensation based on the fair market value of the shares at the date of
grant. Compensation expense under these plans is recorded as shares vest.
Stock options
The company has 2.5 million shares of common stock, either authorized and
unissued shares or treasury shares, that may be issued pursuant to the
exercise of options granted under the company's stock option plan. Options
are granted at the discretion of a committee of the company's board of
directors to officers and key employees of the company. No option may have an
exercise price less than the fair market value per share of the common stock
at the date of grant.
Activity under the stock option plan is as follows:
Average
Exercise Vested
Options Price Options
Balance at January 29, 1993 1,060,000 $ 9.81 216,000
Granted 637,200 $19.12
Exercised (8,000) $12.69
Balance at January 28, 1994 1,689,200 $13.31 340,000
Granted - -
Exercised (294,000) $ 6.72
Forfeited (928,800) $15.27
Balance at January 27, 1995 466,400 $13.56 195,480
Granted 342,100 $16.50
Exercised (16,000) $13.78
Forfeited (50,800) $16.29
Balance at October 27, 1995 741,700 $14.72 223,120
10
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to October 27, 1995, and the three months
ended October 27, 1995, and October 28, 1994, is unaudited)
The above options currently outstanding vest over a 5 year period from the
date of grant. The outstanding options expire as follows:
1995 - 100,000
2001 - 72,000
2002 - 40,000
2003 - 201,600
2005 - 328,100
741,700
NOTE 4. INCOME TAXES
Under the liability method prescribed by the Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," deferred taxes are provided
based upon enacted tax laws and rates applicable to the periods in which taxes
become payable.
Temporary differences that give rise to deferred tax assets and liabilities as
of October 27, and January 27, 1995, are as follows (in thousands):
Current Deferred Long-term Deferred
Tax Benefit Tax Liabilities
Oct. 27, Jan. 27, Oct. 27, Jan. 27,
1995 1995 1995 1995
Catalog advertising $(1,539) $(1,539) $ - $ -
Inventory 6,792 7,052 - -
Employee benefits 1,243 1,243 - -
Reserve for returns 1,406 1,406 - -
Depreciation - - 5,379 5,379
Foreign operating loss
carryforwards - - (807) (807)
Valuation allowance - - 807 807
Other 1,690 250 - -
Total $ 9,592 $ 8,412 $ 5,379 $ 5,379
The valuation allowance required under SFAS No. 109 has been established for
the deferred income tax benefits related to certain subsidiary loss
carryforwards, which may not be realized.
In the periods presented, the differences between income taxes at the
statutory federal income tax rate of 35 percent, and income taxes reported in
the consolidated statements of operations are due primarily to the effect of
state income taxes.
NOTE 5. LINES OF CREDIT
The company has unsecured lines of credit with various banks totaling $110
million. There was $90.7 million outstanding at October 27, at interest rates
averaging 6.3%, compared to no outstanding amount on January 27, 1995.
In addition, the company has unsecured lines of credit with foreign banks
totaling the equivalent of $23 million for a wholly owned foreign subsidiary.
There was $13.4 million outstanding at October 27, at interest rates averaging
1.8%, compared to $7.5 as of January 27, 1995.
11
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to October 27, 1995, and the three months
ended October 27, 1995, and October 28, 1994, is unaudited)
NOTE 6. LONG-TERM DEBT
There was no long-term debt as of October 27, and January 27, 1995.
The company has an agreement that expires December 31, 1995, with a bank for a
$20 million credit facility available to fund treasury stock purchases and
capital expenditures.
NOTE 7. LEASES
The company leases store and office space and equipment under various leasing
arrangements. The leases are accounted for as operating leases. Total rental
expense under these leases was $3.0 million and $1.8 million for the three-
month periods ended October 27, 1995, and October 28, 1994, respectively.
Rental expense for the nine-month periods ended October 27, 1995, and July 29,
1994, was $8.6 million and $5.8 million, respectively.
Total future fiscal year commitments under these leases as of October 27,
1995, are as follows (in thousands):
1996 (three months) $ 2,470
1997 9,197
1998 6,420
1999 3,969
2000 2,714
After 2000 4,025
$28,795
NOTE 8. RETIREMENT PLAN
The company has a retirement plan which covers most regular employees and
provides for annual contributions at the discretion of the board of directors.
Also included in the plan is a 401(k) feature which allows employees to make
contributions and the company matches a portion of those contributions. Total
expense provided under this plan was $0.8 million and $0.7 million for the
three-month periods ended October 27, 1995, and October 28, 1994,
respectively. Total expenses were $1.7 million and $1.8 million for the nine-
month periods ended October 27, 1995, and October 28, 1994, respectively.
As of October 1, 1995, the "Lands' End, Inc. Retirement Plan" was amended to
allow certain participants to invest participant elective contributions,
employer matching contributions, and profit sharing contributions in a "Lands'
End, Inc. Stock Fund" established primarily for investing in common stock of
the company at the fair market value. The company has assigned 200,000 shares
for this plan.
NOTE 9. ACQUISITION AND ANTICIPATED DISPOSITION
In July 1994, the company formed a wholly-owned subsidiary that acquired the
marketing rights and assets of MontBell America, Inc., which designs, develops
and distributes premier technical outdoor clothing and equipment through the
wholesale channel to outdoor specialty stores, primarily in the United States.
In February 1995, the company announced its intention to sell its wholly-owned
subsidiary MontBell America, Inc.
12
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to October 27, 1995, and the three months
ended October 27, 1995, and October 28, 1994, is unaudited)
In March 1993, the company purchased a majority interest in a catalog company,
The Territory Ahead. Merchandise offered in the catalog consists of private
label sportswear, accessories and luggage. Beginning in 2003, the minority
shareholders have the option to require the company to purchase their shares,
and the company will have the option to require the minority shareholders to
sell their shares in The Territory Ahead. The price per share would be based
on the fair market value of The Territory Ahead.
Results of operations of MontBell America, Inc., and The Territory Ahead were
not material to the company, and as a result, no pro forma data is presented.
The transactions were accounted for using the purchase method. The excess of
the purchase price over the fair value of net assets was recorded as goodwill.
The operating results of MontBell America, Inc., and The Territory Ahead are
included in the consolidated financial statements of the company from their
respective dates of acquisition.
NOTE 10: SALES AND USE TAX
A 1992 Supreme Court decision confirmed that the Commerce Clause of the
United States Constitution prevents a state from requiring the collection of
its use tax by a mail order company unless the company has a physical presence
in the state. However, there continues to be uncertainty due to inconsistent
application of the Supreme Court by state and federal courts. The company
attempts to conduct its operations in compliance with its interpretation of
the applicable legal standard, but there can be no assurance that such
compliance will not be challenged. In recent challenges various states have
sought to require companies to begin collection of use taxes and/or pay use
taxes from previous sales.
The Supreme Court decision also established that Congress has the power to
enact legislation which would permit states to require collection of use taxes
by mail order companies. Congress has from time to time considered proposals
for such legislation. The company anticipates that any legislative change,
if adopted, would be applied only on a prospective basis.
13
Item 2. Management's Discussion
and Analysis
Results of Operations
Three Months Ended October 27, 1995, compared with
Three Months Ended October 28, 1994
The company's net sales in the third quarter of fiscal 1996 decreased 4.2
percent to $235.9 million from $246.2 million in the third quarter of fiscal
1995. During the quarter just ended, sales from the company's core business,
represented by the monthly and prospecting catalogs, were lower than the prior
year. While the number of catalogs mailed was increased during the quarter
just ended, the average number of pages per catalog was reduced. The decline
in sales was partially offset by strong sales increases from the company's
international businesses. The lower sales trend in the company's core business
has continued into the fourth quarter.
The third quarter ending inventory was about $260 million, compared with about
$255 million a year ago.
Gross profit in the quarter just ended was $99.9 million, or 42.4 percent of
net sales, compared with $100.2 million, or 40.7 percent of net sales, in the
third quarter of the prior year. The increase in gross profit margin was due
to lower merchandise costs, primarily the result of sourcing improvements, and
stronger growth in higher margin businesses. Liquidations of excess inventory
were about 13 percent of net sales in the quarter just ended, compared with
about 15 percent last year.
For the third quarter this year, selling, general and administrative expenses
increased 5.2 percent to $98.4 million, compared with $93.5 million for the
similar quarter last year. As a percentage of net sales, SG&A was 41.7
percent, compared with 38.0 percent in the same period last year. The
increase in the SG&A ratio was primarily the result of higher paper prices and
postal rates, as well as lower sales per catalog mailed in the U.S.
International and new businesses, which have higher operating costs,
experienced stronger growth rates during the quarter compared with the
company's core and specialty businesses. This also had a negative impact on
the SG&A ratio.
Net income for the quarter just ended was $1.8 million, or 5 cents per share,
down 54 percent from the $3.8 million, or 11 cents per share, earned in the
prior year. Net income after taxes for the current year's third quarter
includes $1.4 million attributable to foreign currency exchange gains,
recorded as other income. Foreign currency exchange gains or losses will
occur in response to currency market movements and the company's hedging
strategy.
Nine Months Ended October 27, 1995, compared with
Nine Months Ended October 28, 1994
The company's net sales in the first nine months of fiscal 1996 increased 3.1
percent to $632.1 million from $613.1 million in the same period last year.
The company's international businesses, as well as its new and specialty
businesses, accounted for the increase in net sales.
14
Gross profit of $273.8 million for the first nine months of fiscal 1996
increased 6.5 percent from $257.2 million in the same nine-month period last
year. As a percentage of net sales, gross profit increased from 42.0 percent
in fiscal 1995 to 43.3 percent in fiscal 1996. The increase in gross profit
was due principally to the same factors disclosed above for the third quarter
ended October 27, 1995. Year-to-date liquidation sales were about 11 percent,
compared with 12 percent during the same period last year.
Selling, general and administrative expenses increased 13.1 percent to $268.2
million in the first nine months of fiscal 1996 from $237.1 million in the
same period last year. As a percentage of net sales, selling, general and
administrative expenses increased to 42.4 percent in fiscal 1996 from 38.7
percent in fiscal 1995. The increase in selling, general and administrative
expenses was the result of the same factors mentioned above for the third
quarter ended October 27, 1995.
Net income in the first nine months of fiscal 1996 was $4.8 million, or 14
cents per share, compared with $12.1 million, or 34 cents per share in the
prior year.
Seasonality of Business
The company's business is highly seasonal. Historically, a disproportionate
amount of the company's net sales and a majority of its profits have been
realized during the fourth quarter. If the company's sales were materially
different from seasonal norms during the fourth quarter, the company's annual
operating results could be materially affected. In addition, as the company
continues to refine its marketing efforts by experimenting with the timing of
its catalog mailings, quarterly results may fluctuate. Accordingly, results
for the individual quarters are not necessarily indicative of the results to
be expected for the entire year.
Liquidity and capital resources
To date, the bulk of the company's working capital needs have been met through
funds generated from operations and from short-term bank loans. The company's
principal need for working capital has been to meet peak inventory
requirements associated with its seasonal sales pattern. In addition, the
company's resources have been used to purchase treasury stock, make asset
additions, and acquire new businesses.
During fiscal 1995, the board of directors evaluated its dividend practice
whereby it had paid annual dividends. Given the company's intent to buy back
additional shares, the board determined that the current practice was no
longer desirable and payment of a cash dividend is not planned for the
foreseeable future.
The company continues to explore investment opportunities arising from the
expansion of its international businesses, the development of new businesses
and the acquisition of existing businesses. While this investment spending
has had a negative impact on earnings, it is not expected to have a material
effect on liquidity.
At October 27, 1995, the company had unsecured domestic credit facilities
totaling $110 million, of which the company had used $90.7 million primarily
to fund inventory purchases. The company also maintains foreign credit lines
for use in foreign operations totaling the equivalent of approximately $23
million, of which $13.4 million was used at October 27, 1995.
15
The company has a separate $20 million bank facility available to fund
treasury stock purchases and capital expenditures. This facility runs through
December 31, 1995.
Since June 1989, the company's board of directors has authorized the company
from time to time to purchase a total of 8.2 million shares of treasury stock,
of which 7.4 million shares have been purchased as of December 8, 1995. For
further information, see note 3 to the consolidated financial statements.
Capital expenditures for fiscal 1996 are currently planned to be about $16
million, of which about $11 million had been expended through October 27,
1995. Major projects include new computer hardware and software and material
handling equipment.
Possible future changes
A 1992 Supreme Court decision confirmed that the Commerce Clause of the
United States Constitution prevents a state from requiring the collection of
its use tax by a mail order company unless the company has a physical presence
in the state. However, there continues to be uncertainty due to inconsistent
application of the Supreme Court by state and federal courts. The company
attempts to conduct its operations in compliance with its interpretation of
the applicable legal standard, but there can be no assurance that such
compliance will not be challenged. In recent challenges various states have
sought to require companies to begin collection of use taxes and/or pay use
taxes from previous sales.
The Supreme Court decision also established that Congress has the power to
enact legislation which would permit states to require collection of use taxes
by mail order companies. Congress has from time to time considered proposals
for such legislation. The company anticipates that any legislative change,
if adopted, would be applied only on a prospective basis.
16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings presently pending, except for
routine litigation incidental to the business, to which Lands' End,
Inc., is a party or of which any of its property is the subject.
Items 2 and 3 are not applicable and have been omitted.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders for the
quarter ended October 27, 1995.
Item 5 is not applicable and has been omitted.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibit is filed as part of this report:
Table Exhibit
Number Description Number
(11) Statement of recomputation of
earnings per share 1
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the three-month
period ended October 27, 1995.
17
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, its duly authorized officer and chief financial officer.
LANDS' END, INC.
Date: December 8, 1995 By /s/ STEPHEN A. ORUM
Stephen A. Orum
Executive Vice President,
Chief Operating Officer and
Chief Financial Officer
18
LIST OF DOCUMENTS INCORPORATED BY REFERENCE
In addition to the exhibits filed with this report, the exhibits listed below
have been heretofore filed with the Securities and Exchange Commission as
exhibits to the company's registration statement on Form S-8 (File No. 33-
46133) and on Form S-1 (File No. 33-08217) or to other filings with the
Commission and are incorporated herein as exhibits by reference, pursuant to
Rule 24 of the SEC Rules of Practice. The exhibit number of each document so
filed is stated next to the description of such exhibit. The file number for
all other documents is 1-9769.
Table Exhibit Document
Number Description of Item Number Description
(3) Articles of Incorporation and By-Laws:
Certificate of Incorporation of the
company, as amended through
October 3, 1986. 1 S-1
Amendment to Certificate of
Incorporation of the company, 3 10-Q
dated August 10, 1987. October 1987
Amendment to Certification of Incorporation 4 10-Q
of the company, dated May 20, 1994 July 1994
Amended and Restated by-Laws of
the company. 2 10-K 1993
(4) Equity Instrument and Agreements
relating to Debt Obligations:
Form of Certificate to evidence 1 10-Q
the Common stock. August 1990
First Amendment to the Lands' End S-8
Retirement Plan 2 October 1995
(10) Material Contracts:
Form of letter from bank approving
the company's unsecured line of
credit and corresponding note. 7 10-K 1992
Term Loan Note and Loan Agreement
between the company and the
American National Bank and Trust 11 10-Q
Company of Chicago. August 1990
Fourth Amendment to Loan Agreement
between the company and the
American National Bank and Trust
Company of Chicago, dated
December 1, 1993. 1 10-K 1994
19
Exhibit Document
Number Description of Item Number Description
(10) Fifth Amendment to Loan Agreement
between the company and the
American National Bank and Trust
Company of Chicago, dated 2 10-Q
November 22, 1994. October 1994
Buying Agreement between the company 7 10-Q
and European Buying Agency, Ltd. November 1990
Salaried Incentive Bonus Plan 9 S-1
Second Amended and Restated 1989
Restricted Stock Plan of the 12 10-Q
company. November 1991
Stock Option Plan of the company 1 10-K 1995
Amended and Restated Retirement Plan,
dated February 1, 1992. 3 10-K 1994
Form of Director Deferred Compensation 10-Q
Agreement 1 July 1995
(13) Annual Report to Shareholders for the
fiscal year ended January 27, 1995 10-K 1995
20
Exhibit 11.1
COMPUTATION OF EARNINGS PER SHARE
LANDS' END, INC. & SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
Three months ended Nine Months Ended
10/27/95 10/28/94 10/27/95 10/28/94
Net income............................. $ 1,766 $ 3,833 $ 4,768 $ 12,132
Average shares of common stock
outstanding during the period.......... 33,918 34,872 34,417 35,252
Incremental shares from assumed
exercise of stock options (primary).... 93 353 93 407
34,011 35,225 34,510 35,659
Primary earnings per share............. $ 0.05 $ 0.11 $ 0.14 $ 0.34
Average shares of common stock
outstanding during the period.......... 33,918 34,872 34,417 35,252
Incremental shares from assumed exercise
of stock options (fully diluted)....... 93 353 93 407
34,011 35,225 34,510 35,659
Fully diluted earnings per share....... $ 0.05 $ 0.11 $ 0.14 $ 0.34
Average shares of common stock
outstanding during the period.......... 33,918 34,872 34,417 35,252
Basic earnings per share............... $ 0.05 $ 0.11 $ 0.14 $ 0.34
5
1,000
9-MOS
FEB-2-1996
OCT-27-1995
$3201
0
8171
0
260091
308450
156960
58365
409396
226965
0
402
0
0
176392
409396
632073
632073
358231
268176
(4659)
0
2379
7946
3178
4768
0
0
0
$4768
$0.14
$0.14
