Lands' End Announces First Quarter of Fiscal 2014 Results

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| Source: Lands' End

DODGEVILLE, Wis., June 12, 2014 (GLOBE NEWSWIRE) -- Lands' End, Inc. (Nasdaq:LE) today announced financial results for the first quarter ended May 2, 2014.

First Quarter Highlights:

  • The Lands' End separation from Sears Holdings Corporation was completed on April 4, 2014.
     
  • Merchandise sales and services, net increased 3.6% to $330.5 million from the first quarter last year. This was comprised of an increase in the Direct segment of 4.8% to $276.0 million and a decrease in the Retail segment of 2.3% to $54.4 million; same store sales increased 3.4%.
     
  • Gross margin increased approximately 60 basis points to 49.0% from the first quarter last year.
     
  • Selling and administrative expenses increased 0.9% to $138.2 million and included approximately $1.0 million of stand-alone public company related costs as compared to the first quarter last year. As a percentage of Merchandise sales and services, net, Selling and administrative expenses decreased 110 basis points to 41.8% compared to the first quarter last year.
     
  • Operating income increased 57.1% to $18.8 million compared to $12.0 million last year.
     
  • Net income increased 48.1% to $10.9 million compared to $7.3 million last year.
     
  • Diluted earnings per share increased 48.1% to $0.34 from $0.23 last year.
     
  • Adjusted EBITDA1 increased 35.2% to $23.8 million compared to $17.6 million last year.

Edgar Huber, Lands' End's President and Chief Executive Officer, stated, "We are very pleased with our first quarter results and our progress towards growing the business and building Lands' End into a global lifestyle brand.  We are encouraged by the positive customer response to our merchandising and marketing strategies and remain focused on improving the contemporary relevance of the Lands' End brand.  Despite a very challenging retail apparel environment, we drove strong earnings growth through an improved merchandise assortment architecture, more targeted promotions, improved inventory management and continued expense controls.  In the first quarter, merchandise sales and services revenue increased 3.6% to $330.5 million while gross margin improved approximately 60 basis points to 49.0% and operating income increased 57.1% to $18.8 million. We are excited to be operating, once again, as an independent public company and believe we are well positioned to execute against our strategic initiatives to drive sales and earnings growth."

First Quarter Results

Merchandise sales and services, net increased 3.6% to $330.5 million in the first quarter of 2014 from $319.0 million in the first quarter of 2013. Merchandise sales and services, net in the Direct segment increased 4.8% to $276.0 million and was driven by growth in the U.S. consumer business. Merchandise sales and services, net in the Retail segment decreased 2.3% to $54.4 million driven by a decrease in the number of Lands' End Shops at Sears and a decrease in Shop Your Way redemption credits resulting from the commercial agreements entered into with Sears Holdings Corporation and its subsidiaries as part of the Company's separation, partially offset by an increase in same store sales. Same store sales in the Retail segment increased 3.4%, driven by higher sales in the Company's Lands' End Shops at Sears. On May 2, 2014, the Company operated 251 Lands' End Shops at Sears and 14 independent Inlet stores.

Gross margin increased 4.8% to $162.0 million and increased approximately 60 basis points to 49.0% in the first quarter of 2014 compared to the first quarter of 2013. The increase in Gross margin was driven primarily by an increase in Gross margin in the Direct segment, which improved 160 basis points to 49.6%, and was fueled by significantly higher Gross margin in the U.S. consumer business attributable to improved merchandise assortment architecture and more targeted promotions. Gross margin in the Retail segment decreased approximately 450 basis points to 46.1% driven primarily by lower gross margins associated with an increased mix of clearance units and by incremental net costs associated with the Shop Your Way program.

Selling and administrative expenses increased 0.9% to $138.2 million in the first quarter of 2014 compared to the first quarter of 2013 primarily due to approximately $1.0 million of stand-alone public company related expenses. As a percentage of Merchandise sales and services, net, Selling and administrative expenses decreased 110 basis points to 41.8%.

Depreciation and amortization expense decreased 11.5% to $5.0 million in the first quarter of 2014 from $5.7 million in the first quarter of 2013 primarily attributable to an increase in fully depreciated assets.

As a result of the above factors, Operating income in the first quarter of 2014 increased 57.1% to $18.8 million compared to $12.0 million in the first quarter of 2013.

Interest expense was $1.9 million in the first quarter and was attributable to higher debt levels and costs related to the issuance of the term loan used to pay a $500 million dividend to a subsidiary of Sears Holdings Corporation immediately prior to the separation. 

Income tax expense was $6.1 million for the first quarter of 2014 compared to $4.6 million in the first quarter of 2013. The effective tax rate was 36.1% in the first quarter of 2014 compared to 38.7% in the first quarter of 2013. The change in our effective tax rate was primarily due to decreased effective state tax rates and one-time separation related items.

Net income increased 48.1% to $10.9 million, or $0.34 per diluted share, in the first quarter of 2014 compared to $7.3 million, or $0.23 per diluted share, in the first quarter of 2013.

Adjusted EBITDA1 increased 35.2% to $23.8 million in the first quarter of 2014 from $17.6 million in the first quarter of 2013. 

Cash flow generated from operating activities was $31.4 million for the first quarter of 2014 compared to $19.5 million in the first of quarter of 2013. The increase was primarily attributable to more efficient inventory management and an increase in Net income.   

Balance Sheet Highlights

Cash was $65.0 million on May 2, 2014 compared to $21.8 million on May 3, 2013. The increase in cash was driven by our retention of cash beginning with our separation April 4, 2014 from Sears Holdings Corporation, more efficient inventory management and an increase in Net income.

The Company had $160.2 million of availability under its asset-based senior secured credit facility and had long-term debt of $509.9 million as of May 2, 2014. Inventory decreased 5.4% to $327.0 million and Accounts receivable increased 43.1% to $39.8 million on May 2, 2014 from Inventory of $345.6 million and Accounts receivable of $27.8 million on May 3, 2013. The increase in Accounts receivable was primarily related to amounts owed from Sears Holdings Corporation following the separation, and the timing of sales in the Lands' End Business Outfitters business.    

About Lands' End, Inc.

Lands' End® is a classic American lifestyle brand with a passion for quality, legendary service, real value and a simple two-word promise to stand behind everything it sells: Guaranteed. Period.® Lands' End delivers timeless style for Men, Women, Kids and the Home at landsend.com, 1-800-800-5800, Lands' End Shops at Sears, Lands' End Inlets  and around the world.  Lands' End is publicly traded and listed on NASDAQ under the trading symbol (LE).

Forward-Looking Statements

Certain statements in this press release and oral statements made from time to time by representatives of the Company are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements regarding the Company's guidance, outlook, future financial and operating results and any other statements about the Company's future expectations, beliefs or prospects expressed by management are forward-looking statements. These forward-looking statements are based on management's current expectations and beliefs, but they involve a number of risks and uncertainties that could cause actual results or events to differ materially from those indicated by such forward-looking statements. 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.

Important factors that could cause actual results to differ materially from expectations are disclosed under the "Risk Factors" section of the 10-K for the fiscal year ended January 31, 2014, filed with the Securities and Exchange Commission on March 25, 2014, and in the Company's Form 10 filed with the Securities and Exchange Commission on March 17, 2014. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date such statements are made. While we believe that our forecasts and assumptions are reasonable, we caution that actual results may differ materially. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Consequently, actual events and results may vary significantly from those included in or contemplated or implied by our forward-looking statements. The Company does not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

-Financial Tables Follow-

 

 
 
LANDS' END, INC.
Condensed Consolidated and Combined Balance Sheets
(Unaudited)
 
(in thousands, except share data) May 2,
 2014
May 3,
 2013
January 31,
2014
ASSETS      
Current assets      
Cash $ 64,976 $ 21,755 $ 22,411
Restricted cash 3,300 3,300 3,300
Accounts receivable, net 39,800 27,819 33,617
Inventories, net 326,973 345,606 369,928
Prepaid expenses and other current assets 29,663 28,217 21,993
Total current assets 464,712 426,697 451,249
Property and equipment      
Land, buildings and improvements 105,266 103,043 104,812
Furniture, fixtures and equipment 78,260 71,088 75,625
Computer hardware and software 64,942 62,724 65,810
Leasehold improvements 12,347 12,668 12,517
Gross property and equipment 260,815 249,523 258,764
Less accumulated depreciation 162,159 144,530 157,668
Total property and equipment, net 98,656 104,993 101,096
Goodwill 110,000 110,000 110,000
Intangible assets, net 530,683 533,314 531,342
Other assets 23,703 725 588
TOTAL ASSETS $ 1,227,754 $ 1,175,729 $ 1,194,275
LIABILITIES AND STOCKHOLDERS' EQUITY      
Current liabilities      
Accounts payable $ 76,091 $ 70,967 $ 115,387
Deferred tax liabilities 3,732 3,171 4,019
Other current liabilities 108,776 98,026 83,955
Total current liabilities 188,599 172,164 203,361
Long-term debt 509,850
Long-term deferred tax liabilities 168,349 195,579 195,534
Other liabilities 15,630 3,086 3,066
TOTAL LIABILITIES 882,428 370,829 401,961
Commitments and contingencies      
STOCKHOLDERS' EQUITY      
Common stock, par value $0.01- authorized: 480,000,000 shares; issued and outstanding: 31,956,521 320
Additional paid-in capital 340,176
Retained earnings 5,946
Net parent company investment 808,866 794,309
Accumulated other comprehensive loss (1,116) (3,966) (1,995)
Total stockholders' equity 345,326 804,900 792,314
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,227,754 $ 1,175,729 $ 1,194,275
 
 
LANDS' END, INC.
Condensed Consolidated and Combined Statements of Comprehensive Operations
(Unaudited)
 
  13 Weeks Ended
(in thousands except per share data) May 2, 2014 May 3, 2013
REVENUES    
Merchandise sales and services, net $ 330,483 $ 319,035
COSTS AND EXPENSES    
Cost of sales (excluding depreciation and amortization) 168,461 164,447
Selling and administrative 138,206 136,976
Depreciation and amortization 5,002 5,652
Other operating expense, net 20
Total costs and expenses 311,689 307,075
Operating income 18,794 11,960
Interest expense 1,925
Other income, net 137 1
Income before income taxes 17,006 11,961
Income tax expense 6,138 4,625
NET INCOME $ 10,868 $ 7,336
Other comprehensive income (loss), net of tax    
Foreign currency translation adjustments 879 (805)
COMPREHENSIVE INCOME $ 11,747 $ 6,531
NET INCOME PER COMMON SHARE ATTRIBUTABLE TO STOCKHOLDERS    
Basic: $ 0.34 $ 0.23
Diluted: $ 0.34 $ 0.23
     
Basic weighted average common shares outstanding(a) 31,957 31,957
Diluted weighted average common shares outstanding(a) 31,957 31,957
 
(a) On April 4, 2014, Sears Holdings Corporation distributed 31,956,521 shares of Lands' End common stock. The computation of basic and diluted shares for all periods through April 4, 2014 were calculated using the shares distributed on April 4, 2014.
 

Use and Definition of Non-GAAP Financial Measures

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

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

  • EBITDA excludes the effects of certain on-going financing and investing activities from earnings by eliminating the effects of interest and depreciation 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 weeks ended May 2, 2014, we excluded 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.
 
 
LANDS' END, INC.
Adjusted EBITDA Reconciliation
(Unaudited)
   
  13 Weeks Ended
  May 2, 2014 May 3, 2013
(in thousands)
$'s
% of
Net Sales

$'s
% of
Net Sales
Net income $ 10,868 3.3% $ 7,336 2.3%
Income tax expense 6,138 1.9% 4,625 1.4%
Other income, net (137) —% (1) —%
Interest expense 1,925 0.6% —%
Operating income 18,794 5.7% 11,960 3.7%
Depreciation and amortization 5,002 1.5% 5,652 1.8%
Loss on disposal of property and equipment 20 —% —%
Adjusted EBITDA $ 23,816 7.2% $ 17,612 5.5%

 

 
 
LANDS' END, INC.
Condensed Consolidated and Combined Statements of Cash Flows
(Unaudited)
 
     
  13 Weeks Ended
(in thousands) May 2, 2014 May 3, 2013
CASH FLOWS FROM OPERATING ACTIVITIES    
Net income $ 10,868 $ 7,336
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 5,002 5,652
Amortization of debt issuance costs 155
Loss on disposal of property and equipment 20
Deferred income taxes 2,774 (204)
Change in operating assets and liabilities:    
Inventories 44,135 31,972
Accounts payable (39,543) (36,617)
Other operating assets (7,344) (3,102)
Other operating liabilities 15,310 14,438
Net cash provided by operating activities 31,377 19,475
CASH FLOWS FROM INVESTING ACTIVITIES    
Purchases of property and equipment (1,548) (818)
Net cash used in investing activities (1,548) (818)
CASH FLOWS FROM FINANCING ACTIVITIES    
Contributions from / (distributions to) parent company, net 8,784 (24,868)
Proceeds from issuance of long-term debt 515,000
Debt issuance costs (11,311)
Dividend paid to a subsidiary of Sears Holdings Corporation (500,000)
Net cash provided by (used in) financing activities 12,473 (24,868)
Effects of exchange rate changes on cash 263 (291)
NET INCREASE (DECREASE) IN CASH 42,565 (6,502)
CASH, BEGINNING OF PERIOD 22,411 28,257
CASH, END OF PERIOD $ 64,976 $ 21,755
SUPPLEMENTAL INFORMATION:    
Supplemental Cash Flow Data:    
Unpaid liability to acquire property and equipment $ 391 $ 1,196
Income taxes paid $ 2,079 $ 1,325
     

Financial information by segment is presented in the following tables for the 13 weeks ended May 2, 2014 and May 3, 2013.

SUMMARY OF SEGMENT DATA

 
 
LANDS' END, INC.
Segment Financial Information
(Unaudited)
 
 
(in thousands)
Direct

Retail
Corporate/
Other

Total
13 Weeks Ended May 2, 2014        
Merchandise sales and services, net $ 276,041 $ 54,430 $ 12 $ 330,483
Costs and expenses:        
Cost of sales (excluding depreciation and amortization) 139,112 29,349 168,461
Selling and administrative 107,666 22,755 7,785 138,206
Depreciation and amortization 4,015 644 343 5,002
Other operating expense, net 20 20
Total costs and expenses 250,793 52,748 8,148 311,689
Operating income (loss) 25,248 1,682 (8,136) 18,794
Interest expense 1,925 1,925
Other income, net 137 137
Income (loss) before income taxes 25,248 1,682 (9,924) 17,006
Interest expense 1,925 1,925
Other income, net 137 137
Depreciation and amortization 4,015 644 343 5,002
Loss on disposal of property and equipment 20 20
Adjusted EBITDA $ 29,263 $ 2,326 $ (7,773) $ 23,816
Total assets $ 1,077,769 $ 66,808 $ 83,177 $ 1,227,754

 

LANDS' END, INC.
Segment Financial Information
(Unaudited)
         
(in thousands)
Direct

Retail
Corporate/
Other

Total
13 Weeks Ended May 3, 2013        
Merchandise sales and services, net $ 263,322 $ 55,700 $ 13 $ 319,035
Costs and expenses:        
Cost of sales (excluding depreciation and amortization) 136,901 27,546 164,447
Selling and administrative 105,134 24,968 6,874 136,976
Depreciation and amortization 4,428 887 337 5,652
Total costs and expenses 246,463 53,401 7,211 307,075
Operating income (loss) 16,859 2,299 (7,198) 11,960
Other income, net 1 1
Income (loss) before income taxes 16,859 2,299 (7,197) 11,961
Other income, net 1 1
Depreciation and amortization 4,428 887 337 5,652
Adjusted EBITDA $ 21,287 $ 3,186 $ (6,861) $ 17,612
Total assets $ 1,065,611 $ 69,450 $ 40,668 $ 1,175,729
ICR
John Rouleau / Rachel Schacter
203-682-8200



Lands' End, Inc.
Michele Casper
Senior Director of Public Relations
(608) 935-4633


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