Story was updated on Aug. 31 at 3:18 p.m.
In another sign consumers are curtailing their discretionary spending, Lands’ End on Thursday posted top- and bottom-line declines during the second quarter and reduced its forecast for the year.
The classic, all-American brand reported that it widened its net loss to $8 million, or $0.25 loss per diluted share in the quarter ended July 28, from a net loss of $2.2 million, or $0.07 per diluted share, in the year-ago period. Net revenue decreased 7.9 percent to $323.3 million last quarter compared to $351.2 million in the second quarter of fiscal 2022.
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But on the more positive side, adjusted earnings before interest, taxes, depreciation and amortization were $15.8 million in both the second quarter of fiscal 2023 and the second quarter of fiscal 2022, cash flow was healthy, and full-price selling was good, helping margins.
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Other retailers have also been experiencing consumers holding back on discretionary spending, among them Macy’s, which earlier this month reported a second-quarter 8 percent sales drop, and Target, which reported a second-quarter revenue decline of 4.9 percent. Both companies are cautious on the outlook for consumer spending for this year.
But Andrew McLean, Lands’ End’s chief executive officer, in an interview with WWD, said, “I don’t believe our results were consistent with that. “We drove $55 million in free cash flow, and what we did with our inventory and freshness factor was really amazing. It’s easy to dwell on the P&L, but we hit the same EBITDA with 30 percent less inventory. That means we made that inventory work all that much harder.”
As the quarter progressed, the company saw swim, sweaters and bottoms pick up, and this quarter, outerwear sales have begun to pick up, McLean said. “She also responded to outfitting really well. We saw AURs increase fairly consistently.”
McLean added that for holiday, due to climate change, “We think it’s going to be warmer and wetter. It’s about layering pieces,” and pieces that leave you dry. He’s also bullish on Lands’ End “solutions” business revolving around fashion most suitable for travel and vacations, being packable and wrinkle resistant.
“I think the consumer is relatively strong, in our top cohorts we saw the customer spend on full-price merchandise. Our full-price merchandise comps were higher than we’ve ever seen. If you are providing differentiated product and freshness, they respond. Customers are buying less commodity product and are more discerning in the product they want. If you give them that, you win,” McLean said. “What we didn’t have was the same comps with the clearance customer, [largely due to having less inventory to clear].”
Asked for his outlook on holiday, McLean said, “It’s going to be OK for Lands’ End. We see opportunity to do more with existing customers and to find new customers. We feel good about holiday and good about our assortments. She is gifting herself, and we see maybe a doubling down on that.”
McLean expressed satisfaction with the response to Lands’ End on the Macy’s, Target and Amazon marketplaces, though business with Kohl’s has been difficult. Kohl’s buys Lands’ End merchandise wholesale for its stores, while on the Kohl’s website it’s a marketplace arrangement.
Lands’ End entered into a licensed arrangement whereby Costco will carry a narrow assortment of Lands’ end product in men’s, women’s and swim beginning spring 2024. Land’s End will receive a royalty and a minimum. Also, Lands’ End worked with a sourcing partner to create a swim capsule collection. “We designed the line, they took on the production,” McLean said. “It never touches our facilities. We feel strongly about this as a go-forward model. It gets product to market faster.”
In his prepared statement, McLean said, “Our strong second quarter was characterized by a return to operating disciplines with a solutions focus on the customer. That resulted in a significant 220 basis point year-over-year improvement in gross margin, a 30 percent year-over-year reduction in our inventory position and adjusted EBITDA in line with the prior year and guidance.
“Significantly, our cash provided by operations turned positive with a favorable $172 million improvement over the prior year,” McLean added. “Newness, customer acceptance and results all benefit from our more disciplined inventory management approach, which is continuing into the second half of 2023.”
For the entire year, the company now expects net revenue between $1.5 billion and $1.55 billion, and between a net loss of $4.5 million to a net profit $1 million. On a diluted share basis, there could be somewhere between a net loss of $0.14 to a profit of $0.03.
Earlier this year, the company forecast net revenue for 2023 to come in at between $1.56 billion and $1.62 billion, and the bottom line to be between a net loss of $4.5 million and a profit of $2.5 million, or a diluted loss in earnings per share of $0.13 to a profit per share of $0.08.
In other results for the second quarter, cash and cash equivalents were $26.6 million, up from $23.5 million in the year-ago quarter.
Inventories were down 30.4 percent to $396.1 million last quarter compared to $569.2 million in the year-ago period.
Global e-commerce net revenue was $218.7 million, a decrease of 8.7 percent from $239.7 million in the second quarter of fiscal 2022. Second quarter of fiscal 2022 included Lands’ End Japan net revenue of $7.6 million. Lands’ End Japan closed at the end of fiscal 2022. Excluding Lands’ End Japan in the second quarter of fiscal 2022, global e-commerce net revenue decreased 5.8 percent.
For the third quarter of fiscal 2023, the company expects net revenue between $340 million and $355 million; a net loss of between $6.5 million and $4 million, and diluted loss per share to be between $0.20 and $0.13. Adjusted EBITDA is seen in the range of $13 million to $16 million.