Lands’ End Inc. finished its first year of separation from Sears Holdings Corp. with sharp declines in sales and earnings.
The Dodgeville, Wisc.-based direct marketer and retailer of casual clothing and related products also reported a recall of children’s sleepwear products in the fourth quarter and the departure of Michele Donnan-Martin as its executive vice president and chief merchandising and design officer.
Former Dolce & Gabbana executive Federica Marchionni succeeded Edgar Huber as chief executive officer on Feb. 17.
In the fourth quarter ended Jan. 30, net income fell 28 percent to $33.1 million, or $1.03 a diluted share, from $45.9 million, or $1.44, in the prior-year quarter. Without the product recall, which involved 25 styles of children’s sleepwear that failed to meet federal flammability standards, EPS would have been $1.12.
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Revenues in the quarter slid 4.9 percent to $504.6 million from $530.4 million as direct sales were off 2.6 percent to $431.8 million. Retail sales, hampered by the operation of fewer shops within Sears stores and a 7.9 percent decline in same-store sales, were down 16.6 percent to $72.8 million.
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The separation from Sears, completed on April 4, also resulted in a decline in Shop Your Way redemption credits by Lands’ End.
While top-line results declined, the company did see a pick-up in gross margin, which rose to 44 percent of sales in the quarter from 43.7 percent and to 47.3 percent for the full year from 45.5 percent in 2013.
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The sleepwear issue was discovered after the company announced estimated financial results for the fourth quarter and full year, the company said. In addition to an estimated $2.8 million negative impact on net income, it cost the company $3.4 million in sales.
Lands’ End noted that there might be additional costs attributable to the recall in subsequent quarters, but they aren’t expected to have a material effect on financial results.
Separately on Wednesday, the company filed a Form 8-K with the Securities and Exchange Commission disclosing Donnan-Martin’s resignation as chief merchant. Lands’ End expects to conduct an external search to find her successor, the filing said.
Donnan-Martin joined Lands’ End in late 2013 following merchandising positions with American Eagle Outfitters Inc., where she headed design for the now defunct Martin + Osa unit; J. Crew Group; Abercrombie & Fitch Co.; Coldwater Creek and Williams-Sonoma Inc.
For the full year, net income declined 6.4 percent, to $73.8 million, or $2.31 a diluted share, while revenues were off 0.5 percent to $1.56 billion. Direct sales rose 1.3 percent, to $1.32 billion, while retail revenues descended 9.4 percent to $234.6 million.