8-K



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 

FORM 8-K
 

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): September 3, 2015

LANDS' END, INC.
(Exact Name of Registrant as Specified in its Charter)

 
Delaware
 
001-09769
 
36-2512786
 
 
 
 
 
(State or Other Jurisdiction of
Incorporation)
 
(Commission File Number)
 
(IRS Employer
Identification No.)
1 Lands’ End Lane
Dodgeville, Wisconsin
 
53595
(Address of Principal Executive Offices)
 
(Zip Code)

Registrant’s telephone number, including area code: (608) 935-9341
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions (See General Instructions A.2. below):
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))







Item 2.02     Results of Operations and Financial Condition.
Lands’ End, Inc. (the “Company”) is furnishing herewith a press release issued on September 3, 2015 as Exhibit 99.1, which is included herein. This press release was issued to report the Company’s second quarter 2015 results.
Any website address referred to in this report (including exhibits) is included for reference only and is not intended to be an active hyperlink. The information contained on any such website is not a part of this report and is not incorporated by reference in this report.
Item 9.01    Financial Statements and Exhibits.
(d) Exhibits
Exhibit Number
 
Description
99.1
 
Press Release of Lands’ End, Inc. dated September 3, 2015










SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
LANDS' END, INC.
 
 
 
Date: September 3, 2015
By:
/s/ Michael P. Rosera
 
 
Michael P. Rosera
 
 
Title: Executive Vice President, Chief Operating Officer/Chief Financial Officer and Treasurer (Principal Financial Officer)







EXHIBIT INDEX
Exhibit No.
 
Description
99.1
 
Press Release of Lands’ End, Inc. dated September 3, 2015




Exhibit
Lands’ End Announces Second Quarter of Fiscal 2015 Results

Dodgeville, WI - September 3, 2015 - Lands’ End, Inc. (NASDAQ: LE) today announced financial results for the second quarter ended July 31, 2015.

Second Quarter Summary:
Net revenue decreased 10.0% to $312.4 million from the second quarter last year. Changes in currency exchange rates negatively impacted Net revenue by approximately $8 million. The Direct segment decreased 9.5% to $264.7 million and the Retail segment decreased 12.9% to $47.6 million.
Gross margin decreased 220 basis points to 46.3% from the second quarter last year.
Net income decreased to $7.5 million from $11.8 million in the second quarter last year.
Adjusted EBITDA1 decreased to $19.6 million from $30.1 million in the second quarter last year.
Cash and cash equivalents at the end of the second quarter of fiscal 2015 was $208.4 million.

Federica Marchionni, President and Chief Executive Officer, commented, "The second quarter results were challenging and did not meet company expectations.  However, we believe we have a firm understanding of the areas of weakness that led to the performance decline and are in the process of addressing them.  While many of our initiatives are in early stages of implementation, we are taking specific actions intended to deliver a stronger product offering, a cohesive marketing proposition, an effective go-to-market strategy, and a state of the art operating platform to support our strategic growth plans for the future.”

Second Quarter Results
Net revenue decreased 10.0% to $312.4 million in the second quarter of fiscal 2015 from $347.2 million in the second quarter of fiscal 2014. Direct segment Net revenue decreased 9.5% to $264.7 million. The decrease was attributable to declines in all of our markets. We realized declining performance in all of our major product categories, as customer acceptance of our Spring/Summer collection and our reduced promotional approach fell short of last year. The international markets were also impacted by changes in currency exchange rates which negatively impacted reported revenue by $8 million. Net revenue in the Retail segment decreased 12.9% to $47.6 million driven by a decrease in same store sales and a decrease in the number of Lands’ End Shops at Sears. Same store sales in the Retail segment decreased 7.5%, driven by lower sales in the Company’s Lands’ End Shops at Sears. On July 31, 2015, the Company operated 229 Lands’ End Shops at Sears, 14 global Lands’ End Inlet stores and four international shop-in-shops compared to 247 Lands’ End Shops at Sears and 14 global Lands’ End Inlets stores on August 1, 2014.

Gross profit decreased 14.2% to $144.5 million and gross margin decreased 220 basis points to 46.3% in the second quarter of fiscal 2015 compared with gross profit of $168.4 million and gross margin of 48.5% in the second quarter of fiscal 2014. Gross margin was negatively impacted by approximately 100 basis points from changes in currency exchange rates; and a decrease in merchandise margin driven by an increasingly competitive marketplace and air freight costs related to the west coast port congestion that is now resolved.

Selling and administrative expenses decreased 9.7% to $124.9 million in the second quarter from $138.3 million in the second quarter of fiscal 2014. Of the $13.4 million decrease in the second quarter, changes in currency exchange rates favorably impacted S&A expenses by approximately $4.1 million. The currency neutral savings were primarily attributable to decreases in incentive compensation expenses and lower marketing spend. As a percentage of Net revenue, Selling and administrative expenses increased approximately 20 basis points to 40.0% in the second quarter of fiscal 2015 from 39.8% in the second quarter of fiscal 2014. The deleveraging of Selling and administrative expenses was attributable to decreased sales, offset by lower costs.




Depreciation and amortization expense decreased 15.8% to $4.1 million in the second quarter of fiscal 2015 from $4.8 million in the second quarter of fiscal 2014, primarily attributable to an increase in fully depreciated assets.

Other operating income, net was primarily related to the reversal of approximately $2.4 million of the product recall reserve that was recognized in the fourth quarter of 2014. The customer return rates for the recalled products have been below estimates despite efforts by the Company to contact impacted customers.

As a result of the above factors, Operating income decreased to $17.9 million in the second quarter of fiscal 2015 from $25.3 million in the second quarter of fiscal 2014.

Interest expense was $6.2 million in the second quarter of fiscal 2015, unchanged from the second quarter of 2014.

Income tax expense was $4.7 million for the second quarter of fiscal 2015 compared with $7.5 million in the second quarter of fiscal 2014 primarily due to lower Operating income. The effective tax rate was 38.8% in the second quarter of fiscal 2015 compared with 38.6% in the second quarter of fiscal 2014.
 
Net income decreased to $7.5 million and diluted earnings per share decreased to $0.23 in the second quarter of fiscal 2015 compared with Net income of $11.8 million and diluted earnings per share of $0.37 in the second quarter of fiscal 2014. Earnings per share were positively impacted by approximately $0.05 as a result of the reversal of the product recall accrual.

As a result of the factors above, Adjusted EBITDA1 decreased 34.9% to $19.6 million in the second quarter of fiscal 2015 from $30.1 million in the second quarter of fiscal 2014. Adjusted EBITDA1 excludes the impact of the reversal of the product recall accrual.

Balance Sheet and Cash Flow Highlights
Cash and cash equivalents were $208.4 million on July 31, 2015 compared to $132.8 million on August 1, 2014. Net cash provided by operations for the 26 weeks ended July 31, 2015 was $3.4 million compared to net cash provided by operations of $105.2 million in the same period last year primarily due to:

Increased inventory receipts to replenish inventory levels as beginning inventory for fiscal 2015 was $69 million less than beginning inventory for fiscal 2014
Lower operating earnings
One-time impact of items in the prior year that were settled through intercompany transactions with our former parent prior to the separation

Inventory increased less than 1% to $367.8 million on May 1, 2015 from $366.2 million on August 1, 2014 despite an increase in product in-transit from overseas manufacturers of approximately $15 million.


The Company had $163.7 million of availability under its asset-based senior secured credit facility and had long-term debt of $503.4 million as of July 31, 2015.
Conference Call
The company will host a conference call on Thursday, September 3, 2015 at 8:00 a.m. EDT to review its second 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 casual clothing, accessories, footwear and home products. We offer products through catalogs, online at www.landsend.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 subject to risks and uncertainties that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements include, without limitation, information concerning our future financial performance, business strategy, plans, goals and objectives. There can be no assurance that any of our efforts initiatives will be successful. Statements preceded or followed by, or that otherwise include, the words “believes,” “expects,” “anticipates,” “intends,” “project,” “estimates,” “plans,” “forecast,” “is likely to” and similar expressions or future or conditional verbs such as “will,” “may,” “would,” “should” and “could” are generally forward-looking in nature and not historical facts. Such statements are based upon the current beliefs and expectations of our management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements. The following additional factors, among others, could cause our actual results, performance, and achievements to differ from those described in the forward-looking statements: our ability to offer merchandise and services that customers want to purchase; changes in customer preference for our branded merchandise; customers’ use of our digital platform, including our e-commerce websites, and response to direct mail catalogs and digital marketing; the success of our overall marketing strategies, including our maintenance of a robust customer list; our dependence on information technology and a failure of information technology systems, including with respect to our e-commerce operations, or an inability to upgrade or adapt our systems; the success of our ERP implementation; fluctuations and increases in the costs of raw materials; impairment of our relationships with our vendors; our failure to maintain the security of customer, employee or company information; our failure to compete effectively in the apparel industry; the performance of our “store within a store” business model; if Sears Holdings sells or disposes of its retail stores or if its retail business does not attract customers or does not adequately provide services to the Lands’ End Shops at Sears; legal, regulatory, economic and political risks associated with international trade and those markets in which we conduct business and source our merchandise; our failure to protect or preserve the image of our brands and our intellectual property rights; increases in postage, paper and printing costs; failure by third parties who provide us with services in connection with certain aspects of our business to perform their obligations; our failure to timely and effectively obtain shipments of products from our vendors and deliver merchandise to our customers; reliance on promotions and markdowns to encourage consumer purchases; our failure to efficiently manage inventory levels; unseasonal or severe weather conditions; the seasonal nature of our business; the adverse effect on our reputation if our independent vendors do not use ethical business practices or comply with applicable laws and regulations; assessments for additional state taxes; our exposure to periodic litigation and other regulatory proceedings, including with respect to product liability claims; incurrence of charges due to impairment of goodwill, other intangible assets and long-lived assets; our failure to retain our executive management team and to attract qualified new personnel; the impact on our business of adverse worldwide economic and market conditions, including economic factors that negatively impact consumer spending on discretionary items; the inability of our past performance generally, as reflected on our historical financial statements, to be indicative of our future performance; the impact of increased costs due to a decrease in our purchasing power following our separation from Sears Holdings (“Separation”) and other losses of benefits associated with being a subsidiary of Sears Holdings; the failure of Sears Holdings or its subsidiaries to perform under various transaction



agreements that have been executed in connection with the Separation or our failure to have necessary systems and services in place when certain of the transaction agreements expire; our agreements related to the Separation and our continuing relationship with Sears Holdings were negotiated while we were a subsidiary of Sears Holdings and we may have received better terms from an unaffiliated third party; potential indemnification liabilities to Sears Holdings pursuant to the separation and distribution agreement; our inability to engage in certain corporate transactions after the Separation; the ability of our principal shareholders to exert substantial influence over us; adverse effects of the Separation on our business; potential liabilities under fraudulent conveyance and transfer laws and legal capital requirements; declines in our stock price due to the eligibility of a number of our shares of common stock for future sale; our inability to pay dividends; stockholders’ percentage ownership in 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 30, 2015. 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.


Contacts


Lands’ End, Inc.
Michele Casper
Director of Public Relations
(608) 935-4633
Michele.Casper@landsend.com

Lands’ End, Inc.
Mike Rosera
Chief Operating Officer and Chief Financial Officer
(608) 935-9341



-Financial Tables Follow-






LANDS’ END, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share data)
 
July 31, 2015
 
August 1, 2014
 
January 30, 2015
ASSETS
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
Cash and cash equivalents
 
$
208,375

 
$
132,837

 
$
221,454

Restricted cash
 
3,300

 
3,300

 
3,300

Accounts receivable, net
 
22,550

 
24,818

 
30,073

Inventories, net
 
367,823

 
366,192

 
301,367

Deferred tax assets
 

 

 
3,438

Prepaid expenses and other current assets
 
35,182

 
28,060

 
31,408

Total current assets
 
637,230

 
555,207

 
591,040

Property and equipment, net
 
105,976

 
98,574

 
101,223

Goodwill
 
110,000

 
110,000

 
110,000

Intangible assets, net
 
528,300

 
530,027

 
528,712

Other assets
 
21,858

 
23,286

 
22,462

TOTAL ASSETS
 
$
1,403,364

 
$
1,317,094

 
$
1,353,437

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
Accounts payable
 
$
192,472

 
$
163,249

 
$
132,796

Deferred tax liabilities
 
2,332

 
3,681

 

Other current liabilities
 
88,980

 
97,845

 
107,553

Total current liabilities
 
283,784

 
264,775

 
240,349

Long-term debt
 
503,413

 
508,563

 
505,988

Long-term deferred tax liabilities
 
183,830

 
170,461

 
184,483

Other liabilities
 
17,218

 
15,839

 
18,424

TOTAL LIABILITIES
 
988,245

 
959,638

 
949,244

Commitments and contingencies
 
 
 
 
 
 
STOCKHOLDERS' EQUITY
 
 
 
 
 
 
Common stock, par value $0.01- authorized: 480,000,000 shares; issued and outstanding: 31,991,100, 31,956,521, 31,956,521
 
320

 
320

 
320

Additional paid-in capital
 
343,370

 
340,958

 
342,294

Retained earnings
 
78,062

 
17,791

 
68,877

Accumulated other comprehensive loss
 
(6,633
)
 
(1,613
)
 
(7,298
)
Total stockholders’ equity
 
415,119

 
357,456

 
404,193

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
 
$
1,403,364

 
$
1,317,094

 
$
1,353,437









LANDS’ END, INC.
Condensed Consolidated and Combined Statements of Operations
(Unaudited)
 
 
13 Weeks Ended
 
26 Weeks Ended
(in thousands except per share data)
 
July 31, 2015
 
August 1, 2014
 
July 31, 2015
 
August 1, 2014
Merchandise sales and services, net
 
$
312,414

 
$
347,222

 
$
611,801

 
$
677,705

Cost of sales (excluding depreciation and amortization)
 
167,914

 
178,816

 
320,737

 
347,277

Gross profit
 
144,500

 
168,406

 
291,064

 
330,428

 
 
 
 
 
 
 
 
 
Selling and administrative
 
124,880

 
138,283

 
258,394

 
276,489

Depreciation and amortization
 
4,061

 
4,825

 
8,614

 
9,827

Other operating (income) / expense, net
 
(2,359
)
 

 
(2,357
)
 
20

Operating income
 
17,918

 
25,298

 
26,413

 
44,092

Interest expense
 
6,225

 
6,205

 
12,411

 
8,130

Other income, net
 
498

 
203

 
1,006

 
340

Income before income taxes
 
12,191

 
19,296

 
15,008

 
36,302

Income tax expense
 
4,730

 
7,451

 
5,823

 
13,589

NET INCOME
 
$
7,461

 
$
11,845

 
$
9,185

 
$
22,713

NET INCOME PER COMMON SHARE
 
 
 
 
 
 
 
 
Basic:
 
$
0.23

 
$
0.37

 
$
0.29

 
$
0.71

Diluted:
 
$
0.23

 
$
0.37

 
$
0.29

 
$
0.71

 
 
 
 
 
 

 

Basic weighted average common shares outstanding
 
31,978

 
31,957

 
31,967

 
31,957

Diluted weighted average common shares outstanding
 
32,047

 
31,962

 
32,049

 
31,959







 

Use and Definition of Non-GAAP Financial Measures
1Adjusted EBITDA-In addition to our Net income, for purposes of evaluating operating performance, we use an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”), which is adjusted to exclude certain significant items as set forth below. Our management uses Adjusted EBITDA to evaluate the operating performance of our business, as well as for executive compensation metrics, for comparable periods. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items.

While Adjusted EBITDA1 is a non-GAAP measurement, management believes that it is an important indicator of operating performance, and is useful to investors, because:
EBITDA excludes the effects of financings, investing activities and tax structure by eliminating the effects of interest, depreciation and income tax costs.
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 and 26 weeks ended July 31, 2015, we exclude a benefit related to the reversal of a portion of the product recall accrual recognized in Fiscal 2014 as this was an unusual event that affects the comparability of our financial results.
For the 13 and 26 weeks ended July 31, 2015 and August 1, 2014, we exclude the loss on disposal of property and equipment as management considers the gains or losses on disposal of assets to result from investing decisions rather than ongoing operations.

Reconciliation of Non-GAAP Financial Information to GAAP
(Unaudited)


 
 
13 Weeks Ended
 
26 Weeks Ended
 
 
July 31, 2015
 
August 1, 2014
 
July 31, 2015
 
August 1, 2014
(in thousands)
 
$’s
 
% of
Net Sales
 
$’s

% of
Net Sales
 
$’s
 
% of
Net Sales
 
$’s
 
% of
Net Sales
Net income
 
$
7,461

 
2.4
 %
 
$
11,845

 
3.4
%
 
$
9,185

 
1.5
 %
 
$
22,713

 
3.4
%
Income tax expense
 
4,730

 
1.5
 %
 
7,451

 
2.1
%
 
5,823

 
1.0
 %
 
13,589

 
2.0
%
Other income, net
 
498

 
0.2
 %
 
203

 
0.1
%
 
1,006

 
0.2
 %
 
340

 
0.1
%
Interest expense
 
6,225

 
2.0
 %
 
6,205

 
1.8
%
 
12,411

 
2.0
 %
 
8,130

 
1.2
%
Operating income
 
17,918

 
5.7
 %
 
25,298

 
7.3
%
 
26,413

 
4.3
 %
 
44,092

 
6.5
%
Depreciation and amortization
 
4,061

 
1.3
 %
 
4,825

 
1.4
%
 
8,614

 
1.4
 %
 
9,827

 
1.5
%
Product recall
 
(2,364
)
 
(0.8
)%
 

 
%
 
(2,364
)
 
(0.4
)%
 

 
%
Loss on disposal of property and equipment
 
5

 
 %
 

 
%
 
7

 
 %
 
20

 
%
Adjusted EBITDA (1)
 
$
19,620

 
6.3
 %
 
$
30,123

 
8.7
%
 
$
32,670

 
5.3
 %
 
$
53,939

 
8.0
%





LANDS’ END, INC.
Condensed Consolidated and Combined Statements of Cash Flows
(Unaudited)
 
 
26 Weeks Ended
(in thousands)
 
July 31, 2015
 
August 1, 2014
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net income
 
$
9,185

 
$
22,713

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
8,614

 
9,827

Product Recall
 
(2,364
)
 

Amortization of debt issuance costs
 
885

 
621

Stock-based compensation
 
1,521

 
782

Loss on disposal of property and equipment
 
2

 
20

Deferred income taxes
 
4,757

 
4,250

Change in operating assets and liabilities:
 
 
 
 
Inventories
 
(65,667
)
 
4,801

Accounts payable
 
60,609

 
50,319

Other operating assets
 
2,829

 
9,012

Other operating liabilities
 
(16,925
)
 
2,842

Net cash provided by operating activities
 
3,446

 
105,187

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Purchases of property and equipment
 
(13,520
)
 
(5,716
)
Net cash used in investing activities
 
(13,520
)
 
(5,716
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Contributions from Sears Holdings, net
 

 
8,784

Proceeds from issuance of long-term debt
 

 
515,000

Payments on term loan facility
 
(2,575
)
 
(1,287
)
Debt issuance costs
 

 
(11,396
)
Dividend paid to a subsidiary of Sears Holdings Corporation
 

 
(500,000
)
Net cash (used in) provided by financing activities
 
(2,575
)
 
11,101

Effects of exchange rate changes on cash
 
(430
)
 
(146
)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
 
(13,079
)
 
110,426

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
 
221,454

 
22,411

CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
208,375

 
$
132,837

SUPPLEMENTAL CASH FLOW INFORMATION:
 
 
 
 
Unpaid liability to acquire property and equipment
 
$
3,235

 
$
1,646

Income taxes paid
 
$
13,925

 
$
7,853

Interest paid
 
$
11,372

 
$
7,959






Financial information by segment is presented in the following tables for the 13 and 26 weeks ended July 31, 2015 and August 1, 2014.

 
 
13 Weeks Ended
 
26 Weeks Ended
(in thousands)
 
July 31, 2015
 
August 1, 2014
 
July 31, 2015
 
August 1, 2014
Merchandise sales and services, net:
 
 
 
 
 
 
 
 
Direct
 
$
264,735

 
$
292,562

 
$
518,108

 
$
568,603

Retail
 
47,577

 
54,625

 
93,569

 
109,055

Corporate/ other
 
102

 
35

 
124

 
47

Total Merchandise sales and services, net
 
$
312,414

 
$
347,222

 
$
611,801

 
$
677,705


 
 
13 Weeks Ended
 
26 Weeks Ended
(in thousands)
 
July 31, 2015
 
August 1, 2014
 
July 31, 2015
 
August 1, 2014
Adjusted EBITDA:
 
 
 
 
 
 
 
 
Direct
 
$
26,687

 
$
38,520

 
$
48,365

 
$
67,783

Retail
 
663

 
960

 
807

 
3,286

Corporate/ other
 
(7,730
)
 
(9,357
)
 
(16,502
)
 
(17,130
)
Total adjusted EBITDA
 
$
19,620

 
$
30,123

 
$
32,670

 
$
53,939