Lands’ End saw its sales and profits fall in the second quarter, yet the stock shot up 5 percent on Thursday after the numbers were issued and the brand’s chief executive officer emphasized that the results don’t reflect new initiatives and the company’s potential.
“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,” said Federica Marchionni, president and chief executive officer.
“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,” she added.
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The company, known for its all-American, classic appeal, posted a 36.4 percent drop in net income to $7.5 million in the quarter ended July 31, from $11.8 million in the year-ago period. Revenues fell 10 percent to $312.4 million from $347.2 million in the same period a year ago. Declines were seen in all channels and across all major categories. The direct segment, including catalogues and online, decreased 9.5 percent to $264.7 million. The retail segment fell 12.9 percent to $7.6 million.
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The company also cited the impact of change in currency exchange and the number of Lands’ End shops from 247 to 229 inside Sears as negatively impacting revenues. The company also has 14 Lands’ End stores called Inlets, and four shops-in-shop at House of Fraser in the U.K.
Nevertheless, the stock rose 5.1 percent, or $1.33, to $27.45, reflecting less-than-expected declines and confidence in Marchionni’s turnaround program. She joined Lands’ End from Dolce & Gabbana last February and her real impact will be felt next spring.
“We have a firm grasp of areas of weakness that led to a declining performance,” Marchionni said in a conference call.
On the downside, Marchionni said much of the women’s assortment, which is the largest category for the brand, was too “upmarket” and that there were too many solids in the assortment. Much of the men’s wear was too forward, and footwear was weak too, she noted.
Marchionni also said she was not happy with Lands’ End’s level of brand awareness, but added, “We have begun a marketing and messaging campaign that is intended to improve our brand identity and awareness as well as expect to generate additional revenue.”
The company apparently misread the competitive promotional atmosphere, and cut back on promotions initially but ramped them up in the second half of the quarter to clear merchandise and bring in fresh goods for the third quarter.That led to a gross margin decrease of 220 basis points.
On the positive side, executives said they are pleased with current inventory, and Lands’ End’s uniform business has been strong. Also, Marchionni said she is pleased with the workwear launch a few days ago.
“To present a more compelling product offer to our consumer, I’ve worked closely with our design team and hired new designers so that we could impart a higher sensibility onto our ready-to-wear merchandise for spring 2016,” Marchionni said. “In addition, we have also partnered with experienced professionals to design, develop and manufacture a new footwear line that will be launched at the same time. All of these serve as examples of the initiatives that we immediately set in motion that are expected to have a material impact on the product offering early next year.”
Other initiatives taken by Marchionni or underway include reducing the catalogue circulation to target mailings better and shift dollars to digital marketing; creating a slimmer, European fit to attract new audiences; raising the brand profile with more sophisticated lifestyle imagery and advertising; reducing lead times in the production cycle, and enhancing the Web site with easier navigation, faster checkouts, a redesigned site index, and launching the first e-catalogue.
Marchionni also hopes to start wholesaling to U.S. department stores beginning with swimwear, activewear and outerwear, and open flagship stores.