Lands' End (LE 28.55, +5.05, +21.49%) is trading sharply higher today after reporting
better than expected Q1 (Apr) results this morning. It shows that they are
making progress on their turnaround.
Lands' End is a retailer of casual classic American lifestyle clothing, accessories, footwear, and home products. It offers products through catalogs, online, and affiliated specialty and international websites, and through retail locations. Most of its sales are direct to customers (catalogs, online) while only a small portion of revenue comes from retail stores.
Its Retail segment, which accounted for 12.3% of FY17 revenue, depends on the performance of its Lands' End Shops at Sears (SHLD). LE operated 174 Lands' End Shops at Sears as of the end of FY17. These stores had revenue of approximately $150 mln, representing 87% of LE's Retail segment sales and 11% of overall sales. The Lands' End Shops at Sears may decrease or be eliminated as Sears has been closing stores.
Lands' End has been struggling in recent years. After trading at $55 per share in late 2014, the stock went on a prolonged decline, hitting a low of $10.55 in late 2017. However, the stock has been making a comeback over the past few months. In FY17, Lands' End stabilized its brand by reconnecting with core customers. In FY18, LE plans to build on this momentum.
A big part of the problem was a shift in its brand's focus. Former CEO Federica Marchionni,whose background was in Dolce & Gabbana, tried to make the brand more upscale.. She shifted the brand to focus on slimmer silhouettes and targeted marketing campaigns. This did not go well as it turned off LE's core customers who want looser, larger sizes, and less expensive clothes..
In March 2017, LE hired Jerome Griffith, former CEO at Tumi Holdings, as its new CEO. Before that, we worked at several apparel and accessory retailers, including Gap, Tommy Hilfiger, and Esprit Holdings. He said he would shift LE's focus back to what its core customers want and to expand LE's e-commerce capabilities. LE also laid out plans to open new standalone Lands' End stores (i.e. not in a Sears store) to create an omni-channel experience with an initial focus new stores in the Chicago area. LE is also focusing on growing its uniform business with innovative products.
Turning to the Q1 (Apr) results, LE reported a loss of $(0.08) per share which was much better than the $(0.24) loss in the prior year period and it was well above market expectations. Revenue rose 11.7% year/year to $299.8 mln, which also was better than expected. Direct segment revenue increased 19.7% to $273.4 mln while retail segment revenue decreased 34.0% to $26.5 mln, primarily due to fewer Lands' End Shops at Sears. Same store sales declined -18.9%, as compared to the same period last year. Same store sales in Lands' End Shops at Sears locations declined -20.4% while same store sales in company-operated stores declined -9.9%.
Overall, LE says it's pleased to be starting off the year on a strong note. Its AprQ results represent the fourth straight quarter of top line growth and third quarter of profitability growth. LE saw excellent growth in its uniform business with the successful launch of its Delta Airline business. Looking ahead, data analytics will remain the driving force behind everything LE does.
In sum, Lands' End is in turnaround mode and the AprQ results were a good step in the right direction. Its relationship with Sears is a bit of a headwind as Sears has been struggling and closing stores, but hopefully Lands' End can right its own ship.
- OUR VIEW
- LEARNING CENTER