Lands' End, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 weeks ended April 29, 2022, compared with the 13 weeks ended April 30, 2021. This differs from the request metadata identifying 2021 Q1.
Business context and results
Lands' End is a multi-channel retailer of apparel, accessories, footwear and home products, reporting one external segment. It sells through U.S. and international eCommerce, Outfitters, third-party channels and company-operated retail stores.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $303.7 million | $321.3 million |
| Gross profit / margin | $129.2 million / 42.5% | $147.7 million / 46.0% |
| Operating income | $3.9 million | $11.9 million |
| Net income (loss) | $(2.4) million | $2.6 million |
| Diluted EPS | $(0.07) | $0.08 |
| Adjusted EBITDA | $13.8 million | $22.5 million |
| Cash used in operating activities | $122.4 million | $38.7 million |
Material changes and drivers
- Revenue decreased 5.5%. U.S. eCommerce fell 14.1% and International fell 21.7%, which the company attributed to delayed product receipts and macroeconomic challenges.
- Outfitters revenue increased 32.6%, driven by stronger demand from business customers and school uniform households. Third-party revenue rose 83.3%, reflecting expanded Kohl's distribution, marketplace growth and a QVC launch. Retail revenue increased 2.2%; comparable-store sales rose 3.6%.
- Gross margin contracted about 350 basis points. The company cited $13.6 million of incremental transportation costs. Lower selling and administrative expense partly offset the gross-profit decline.
- Operating cash outflow increased year over year, principally due to inventory growth and changes in other current liabilities. Inventory was $436.9 million at quarter-end, up from $394.3 million a year earlier.
Cash, debt and liquidity
- Cash and cash equivalents were $22.0 million; restricted cash was $2.1 million. The company reported $552.4 million in current assets and $241.0 million in current liabilities.
- At April 29, 2022, ABL borrowings were $125.0 million, with $14.6 million of letters of credit and reported borrowing availability of $135.4 million, before consideration of the borrowing-base loan cap. Term-loan principal was $254.4 million, carrying a 10.76% interest rate. Total principal borrowings were approximately $379.4 million.
- The ABL facility is $275 million and matures no later than July 29, 2026, subject to an earlier maturity condition tied to the term loan. The term loan matures September 9, 2025. The company said it was compliant with debt covenants.
- Management expects cash on hand, operating cash flows and ABL availability to meet capital and operating needs for at least the next 12 months. Fiscal 2022 planned capital expenditures are approximately $37 million, primarily for technology and infrastructure.
Outlook, risks and unusual items
- No specific revenue, earnings or margin guidance is provided in the supplied filing text. Management expects supply-chain disruption, higher transportation and distribution costs, and inflationary pressures to continue through the rest of Fiscal 2022.
- Management noted manufacturing and shipping delays, elevated back orders, higher input costs and potential labor disruptions at major West Coast ports. Inflation and the war in Ukraine may weigh on discretionary demand and costs.
- The business is seasonal: historically, a significant share of annual revenue and earnings occurs in the fourth quarter, while inventory-related working-capital needs generally rise in the second and third quarters.
- Variable-rate debt creates interest-rate exposure. The filing estimates that a one-percentage-point rate change would alter annual cash interest expense by $2.5 million on the term loan and, if fully drawn, $2.8 million on the ABL facility.
- The company is defending lawsuits alleging health events and property damage related to uniforms it manufactured. It says it cannot estimate a potential loss range, is vigorously defending the cases, and believes resolution should not materially affect the company as a whole. The court denied class certification on specified claims; individual claims remain in litigation.
- Foreign-currency translation reduced comprehensive income by $3.1 million. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether supply-chain delays and transportation costs ease, and whether inventory levels convert into sales without elevated markdowns or further working-capital strain.
- Current ABL borrowing-base availability and covenant headroom, especially given increased revolver usage and the term loan's high interest rate.
- Progress toward the stated 12-month liquidity expectation and the approximately $37 million capital expenditure plan.
- Developments in the uniform-related litigation and any change in the company's ability to estimate potential exposure.
- Performance by channel and the durability of Outfitters and third-party growth relative to declines in U.S. and international eCommerce.