Lands' End, Inc. is a leading digital retailer of solution-based apparel, swimwear, outerwear, accessories, footwear, home products and uniforms. The company offers products online at www.landsend.com, through third-party distribution channels, its own Company Operated stores, and third-party license agreements. Lands' End also provides products to businesses and schools for their employees and students through the Outfitters distribution channel.

Business Overview

Lands' End was founded in 1963 as a sailboat hardware and equipment catalog company. Over the years, the company has evolved its product focus significantly while maintaining its founder's motto of "Take care of the customer, take care of the employee and the rest will take care of itself." Today, Lands' End is a classic American lifestyle brand that creates solutions for life's every journey.

The company operates in five separate distribution channels for revenue reporting purposes: U.S. eCommerce, International, Outfitters, Third Party, and Retail. During the first quarter of fiscal 2024, the company's operating segments consisted of these five channels.

In the first quarter of fiscal 2024, Lands' End delivered results with net revenue of $285.5 million, a decrease of 7.8% compared to the prior year period. Excluding the impact of the conclusion of the Delta Air Lines contract in the first quarter of fiscal 2023, net revenue increased 1.0% year-over-year. Gross merchandise value (GMV) increased in the low single digits, in line with the company's guidance.

Gross profit increased 0.8% to $139.0 million, with gross margin expanding approximately 410 basis points to 48.7%. This margin improvement was driven by new products across the assortment, strength in transitional outerwear, swimwear and adjacent product categories, lower promotional activity, reduction in clearance inventory sales, and improvements in supply chain costs.

The company's U.S. eCommerce business, its largest direct-to-consumer channel, saw a 4% decrease in sales but a 10% increase in gross profit dollars due to continued efforts to prioritize higher quality sales. The International eCommerce business increased gross profit dollars by 27% despite a 2% decline in sales, reflecting the success of the company's strategy to localize assortments in European markets.

Lands' End's Outfitters business, which sells uniform and logo apparel to businesses and student households, saw a 42% decrease in sales, primarily due to the conclusion of the Delta Air Lines contract. Excluding the impact of Delta, the Outfitters business was down 9%. The company's Third Party business, which sells Lands' End products through third-party marketplaces and wholesale relationships, increased gross profit dollars by over 40% on a 62.9% increase in revenue, driven by licensing arrangements and the expansion of the company's higher quality sales strategy to third-party partners.

Financials

For the full fiscal year 2023, Lands' End reported annual net income of -$130,684,000, annual revenue of $1,472,508,000, annual operating cash flow of $130,565,000, and annual free cash flow of $95,649,000.

In the first quarter of fiscal 2024, the company reported a net loss of $6.4 million, or $0.20 per share. Adjusted net loss, which excludes certain non-recurring or non-operational items, was $6.2 million, or $0.20 per share, better than the company's guidance range.

Liquidity

As of the end of the first quarter of fiscal 2024, Lands' End had $27.4 million in cash and cash equivalents, and $2.5 million in restricted cash. The company's $275 million committed revolving ABL Facility had $40 million in outstanding borrowings and $133.8 million in available borrowing capacity.

On December 29, 2023, the company entered into a new $260 million term loan facility, the proceeds of which were used to repay the previous term loan. Lands' End ended the first quarter with $256.8 million in total long-term debt, including the current portion.

The company's improved inventory management enabled it to reduce inventory levels by 23% year-over-year to $288.6 million at the end of the first quarter. Lands' End expects its improved inventory position to support further gross margin expansion moving forward.

Outlook

For the second quarter of fiscal 2024, Lands' End expects net revenue between $290 million and $320 million, with GMV expected to be in the mid-to-high single-digit growth range. The company expects an adjusted net loss of $4.5 million to $2 million, and adjusted EBITDA of $14 million to $17 million.

For the full fiscal year 2024, Lands' End raised the low end of its revenue guidance and now expects net revenue between $1.36 billion and $1.45 billion, with GMV expected to be in the low to mid-single-digit growth range. The company now expects adjusted net income of $5.5 million to $13 million, and adjusted EBITDA of $88 million to $97 million.

Lands' End's guidance incorporates approximately $30 million in capital expenditures, as the company continues to invest in strategic initiatives and infrastructure, primarily in technology and general corporate needs.

Geographic and Segment Performance

In the first quarter of fiscal 2024, Lands' End's net revenue from the United States was $257.5 million, while net revenue from Europe was $25.3 million, and net revenue from other international markets was $2.7 million.

By distribution channel, the U.S. eCommerce business generated $170.5 million in net revenue, the International business generated $25.0 million, the Outfitters business generated $42.7 million, the Third Party business generated $37.5 million, and the Retail business generated $9.8 million.

The company's focus on higher quality sales and improved inventory management drove strong gross margin expansion across its business segments. The U.S. eCommerce business saw a 10% increase in gross profit dollars, the International eCommerce business increased gross profit dollars by 27%, and the Third Party business increased gross profit dollars by over 40%.

Risks and Challenges

Lands' End operates in a highly competitive retail environment, facing competition from other apparel and lifestyle brands, both online and in physical retail locations. The company's success is dependent on its ability to anticipate and respond to changing consumer preferences and trends.

Additionally, Lands' End is subject to risks related to its international operations, including foreign currency exchange rate fluctuations and political and economic instability in certain regions. The company's supply chain and logistics operations are also vulnerable to disruptions that could impact its ability to meet customer demand.

Conclusion

Lands' End is executing well on its strategy to become the innovative solutions-based brand that is ready for life's every journey. The company's focus on higher quality sales, improved inventory management, and strategic investments in technology and marketing are driving financial performance, with significant gross margin expansion in the first quarter of fiscal 2024.

With a strengthened balance sheet, a diversified distribution platform, and a growing portfolio of licensed products, Lands' End is well-positioned to continue its transformation and capture market share in the evolving retail landscape. The company's guidance for fiscal 2024 suggests potential challenges, and investors should closely monitor Lands' End's progress as it works to further differentiate its brand and drive sustainable growth.