Lands’ End, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 weeks ended April 29, 2016 (first quarter fiscal 2016), compared with the 13 weeks ended May 1, 2015. The request metadata says 2015 Q1, but the filing itself reports 2016 Q1.
Business context and financial performance
Lands’ End is a multichannel apparel, accessories, footwear and home-products retailer. It reports Direct (e-commerce and catalogs) and Retail segments, including Lands’ End Shops at Sears, outlet stores and international shop-in-shops.
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Net revenue | $273.4 million | $299.4 million |
| Gross profit / margin | $129.7 million / 47.4% | $146.6 million / 49.0% |
| Operating income (loss) | $(3.5) million | $8.5 million |
| Net income (loss) | $(5.8) million | $1.7 million |
| Diluted EPS | $(0.18) | $0.05 |
| Adjusted EBITDA | $0.6 million | $13.1 million |
| Cash used in operating activities | $50.2 million | $31.5 million |
Cash and cash equivalents were $169.1 million at April 29, 2016, down from $228.4 million at January 29, 2016. Total assets were $1.212 billion and stockholders’ equity was $381.6 million. Term-loan principal was $504.7 million; reported long-term debt was $492.9 million after current maturities and unamortized issuance costs. The ABL Facility was undrawn apart from letters of credit, with $161.8 million of availability. Interest expense was $6.2 million.
Material changes versus the prior-year quarter
- Revenue fell $26.0 million, or 8.7%. Direct revenue declined 8.4% to $232.2 million; Retail revenue declined 10.4% to $41.2 million.
- Retail same-store sales fell 7.1%. The company had 225 Lands’ End Shops at Sears versus 235 a year earlier.
- Gross margin contracted 160 basis points. Management attributed the decline to increased promotions, deeper discounts and unfavorable sales mix; earlier markdowns accounted for about 200 basis points of Retail’s margin decline.
- Selling and administrative expense declined to $129.0 million, but rose as a share of revenue to 47.2% from 44.6%. Lower advertising costs reflected reduced catalog circulation.
- Operating cash use increased by $18.7 million, primarily reflecting lower results, inventory movements and higher payments on accounts payable.
Outlook, risks and notable items
- Management said cash on hand, operating cash flows and the ABL Facility were expected to meet capital and operating needs for the next 12 months. Fiscal 2016 capital expenditures were planned at approximately $40–$45 million, primarily for ERP, technology and infrastructure.
- The company’s results are seasonal, with about 34% of revenue historically generated in the fourth quarter; interim results are not necessarily indicative of full-year performance. No specific revenue or earnings guidance was provided in the filing text.
- Management cited a weak retail environment, aggressive discounting, lower website traffic, reduced catalog circulation and weaker traffic at Sears locations. Sears store closures, sales or lease recapture and relocation rights could adversely affect the Retail segment.
- The company reported no Q1 2016 trade-name impairment. It had recorded a $98.3 million noncash impairment in fiscal 2015 and warned that weaker-than-estimated future revenue could lead to further impairment.
- Potential additional recovery of $2.8–$4.6 million from Dodgeville property-tax claims remained unresolved and was not recorded. Management said pending legal matters were not expected to have a material adverse effect, taken as a whole.
- Other risks include promotional and inventory management, technology and ERP execution, foreign currency and variable-rate debt exposure, and dependence on Sears-related arrangements. The company reported compliance with debt covenants and effective disclosure controls.
Important facts for investors to verify
- Whether the decline in Direct traffic and Retail same-store sales persists, and whether marketing and catalog changes improve demand.
- Whether promotional intensity and markdowns continue to pressure gross margins and adjusted EBITDA.
- How Sears store actions and Seritage/JV recapture or relocation rights affect Lands’ End Shops and Retail revenue.
- Cash-flow and inventory trends, planned capital spending, and continued access to ABL borrowing availability.
- Assumptions supporting the trade-name valuation, the status of tax and property-tax contingencies, and the company’s related-party arrangements with Sears Holdings.