Lands’ End, Inc. — Form 10-K Summary
Period clarification: The supplied filing is for fiscal 2020, the 52 weeks ended January 29, 2021, compared with fiscal 2019 ended January 31, 2020. It is not a 2019 Q4 filing; the metadata period does not match the filing.
Business context
Lands’ End is a single-reportable-segment, multi-channel retailer of apparel, accessories, footwear and home products. It sells through U.S. eCommerce, International, Outfitters, Third Party and company-operated retail channels. Fiscal 2020 was materially affected by COVID-19: online demand rebounded after a first-quarter decline, while Outfitters and retail sales weakened.
Financial performance
| Metric | Fiscal 2020 | Fiscal 2019 |
|---|---|---|
| Revenue | $1,427.4 million | $1,450.2 million |
| Gross profit / margin | $605.9 million / 42.4% | $621.9 million / 42.9% |
| Operating income / margin | $41.1 million / 2.9% | $45.4 million / 3.1% |
| Net income | $10.8 million | $19.3 million |
| Diluted EPS | $0.33 | $0.60 |
| Adjusted EBITDA | $87.0 million (6.1% of revenue) | $77.9 million (5.4% of revenue) |
| Operating cash flow | $91.6 million | $27.3 million |
| Capital expenditures | $30.1 million | $38.9 million |
Revenue declined 1.6%; gross margin fell 50 basis points, primarily due to higher shipping costs and surcharges. Selling and administrative expense declined to $518.9 million, or 36.4% of revenue, from $544.0 million, or 37.5%, reflecting cost controls partly offset by increased digital marketing. Net income fell 43.8%, despite higher Adjusted EBITDA, which excludes specified items and is a non-GAAP measure.
- Channel mix: U.S. eCommerce rose 5.7% to $961.9 million; International increased 23.1% to $222.9 million; Third Party grew to $39.9 million, largely following the Kohl’s launch. Outfitters declined 39.0% to $174.3 million, and Retail declined 52.2% to $28.5 million.
- Cash and liquidity: Cash and cash equivalents were $33.9 million at year-end, down from $77.1 million; restricted cash was $1.9 million. ABL borrowings were $25 million, with reported borrowing availability of $222.9 million after outstanding loans and letters of credit. Management expected cash, operating cash flow and ABL access to meet needs for at least 12 months.
- Debt: Year-end term-loan principal was $271.6 million and ABL borrowings were $25 million. The new term loan carries a reported 10.75% rate, matures September 2025 and has quarterly amortization; the ABL facility matures November 2022. The company reported compliance with debt covenants.
- Other balance-sheet items: Inventory was $382.1 million, versus $375.7 million; the excess and obsolete inventory reserve increased to $22.8 million from $11.0 million. Goodwill was $106.7 million and the indefinite-lived trade name was $257.0 million.
Changes, outlook and notable matters
- The company refinanced its former term loan in September 2020 with a $275 million term facility, using the proceeds and ABL borrowings to repay the former facility and cover financing costs. The new facility’s stated interest rate was substantially higher than the former loan’s reported 5.05% rate.
- It increased ABL capacity from $175 million to $275 million during the year. The ABL facility is subject to a borrowing base and expires in November 2022; the filing identifies refinancing as a future need.
- COVID-19 response included temporary furloughs and salary reductions, suspension of the 401(k) match until January 30, 2021, reduced discretionary spending and lower planned capital expenditures. About 10% of corporate positions were eliminated; related severance was approximately $2.9 million.
- A $3.3 million impairment fully wrote off Japan eCommerce goodwill. No trade-name impairment was recorded. Fiscal 2020 income tax included a $3.1 million CARES Act benefit.
- For Fiscal 2021, management planned approximately $26 million in capital expenditures, continued digital and analytics investments, a multi-year warehouse-management-system project, and expansion of Kohl’s distribution to approximately 300 stores. The filing provides no specific Fiscal 2021 revenue or earnings guidance.
- Risks highlighted include pandemic-related demand and supply uncertainty, freight cost and delivery pressures, seasonal inventory and markdown exposure, variable-rate debt and restrictive covenants, ABL refinancing, cybersecurity and technology implementation, and reliance on foreign vendors. More than 50% of Outfitters national-account sales were to travel-related companies.
- Three lawsuits allege health events and property damage involving uniforms supplied to Delta employees; the company disputes the claims. Management said it could not predict the outcome or estimate a loss range, while stating it did not expect the proceedings collectively to materially affect results, cash flows or financial position.
- ESL beneficially owned 55.0% of shares as of March 1, 2021. The filing also describes litigation challenging transactions related to the 2014 separation from Sears Holdings.
Most important facts to verify
- Confirm the intended reporting period: this filing covers Fiscal 2020, not 2019 Q4.
- Review debt terms, covenant headroom, borrowing-base availability and the plan to refinance the ABL facility before its November 2022 maturity.
- Assess whether eCommerce growth and Kohl’s expansion can offset continued weakness in Outfitters and company-operated retail.
- Track inventory quality, reserve adequacy, freight costs and gross-margin recovery.
- Follow the Delta uniform lawsuits and the litigation challenging the Sears separation, including any changes in estimated exposure.
- Evaluate execution, cost and expected benefits of the warehouse-management-system project and other technology investments.