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Lands' End Announces First Quarter of Fiscal 2014 Results

Lands' End Announces First Quarter of Fiscal 2014 Results  DODGEVILLE, Wis., June 12, 2014 (GLOBE NEWSWIRE) -- Lands' End, Inc. (Nasdaq:LE) today announced financial results for the first quarter ended May 2, 2014.  First Quarter Highlights:    *The Lands' End separation from Sears Holdings Corporation was completed on     April 4, 2014.        *Merchandise sales and services, net increased 3.6% to $330.5 million from     the first quarter last year. This was comprised of an increase in the     Direct segment of 4.8% to $276.0 million and a decrease in the Retail     segment of 2.3% to $54.4 million; same store sales increased 3.4%.        *Gross margin increased approximately 60 basis points to 49.0% from the     first quarter last year.        *Selling and administrative expenses increased 0.9% to $138.2 million and     included approximately $1.0 million of stand-alone public company related     costs as compared to the first quarter last year. As a percentage of     Merchandise sales and services, net, Selling and administrative expenses     decreased 110 basis points to 41.8% compared to the first quarter last     year.        *Operating income increased 57.1% to $18.8 million compared to $12.0     million last year.        *Net income increased 48.1% to $10.9 million compared to $7.3 million last     year.        *Diluted earnings per share increased 48.1% to $0.34 from $0.23 last year.        *Adjusted EBITDA^1 increased 35.2% to $23.8 million compared to $17.6     million last year.  Edgar Huber, Lands' End's President and Chief Executive Officer, stated, "We are very pleased with our first quarter results and our progress towards growing the business and building Lands' End into a global lifestyle brand. We are encouraged by the positive customer response to our merchandising and marketing strategies and remain focused on improving the contemporary relevance of the Lands' End brand.Despite a very challenging retail apparel environment, we drove strong earnings growth through an improved merchandise assortment architecture, more targeted promotions, improved inventory management and continued expense controls. In the first quarter, merchandise sales and services revenue increased 3.6% to $330.5 million while gross margin improved approximately 60 basis points to 49.0% and operating income increased 57.1% to $18.8 million. We are excited to be operating, once again, as an independent public company and believe we are well positioned to execute against our strategic initiatives to drive sales and earnings growth."  First Quarter Results  Merchandise sales and services, net increased 3.6% to $330.5 million in the first quarter of 2014 from $319.0 million in the first quarter of 2013. Merchandise sales and services, net in the Direct segment increased 4.8% to $276.0 million and was driven by growth in the U.S. consumer business. Merchandise sales and services, net in the Retail segment decreased 2.3% to $54.4 million driven by a decrease in the number of Lands' End Shops at Sears and a decrease in Shop Your Way redemption credits resulting from the commercial agreements entered into with Sears Holdings Corporation and its subsidiaries as part of the Company's separation, partially offset by an increase in same store sales. Same store sales in the Retail segment increased 3.4%, driven by higher sales in the Company's Lands' End Shops at Sears. On May 2, 2014, the Company operated 251 Lands' End Shops at Sears and 14 independent Inlet stores.  Gross margin increased 4.8% to $162.0 million and increased approximately 60 basis points to 49.0% in the first quarter of 2014 compared to the first quarter of 2013. The increase in Gross margin was driven primarily by an increase in Gross margin in the Direct segment, which improved 160 basis points to 49.6%, and was fueled by significantly higher Gross margin in the U.S. consumer business attributable to improved merchandise assortment architecture and more targeted promotions. Gross margin in the Retail segment decreased approximately 450 basis points to 46.1% driven primarily by lower gross margins associated with an increased mix of clearance units and by incremental net costs associated with the Shop Your Way program.  Selling and administrative expenses increased 0.9% to $138.2 million in the first quarter of 2014 compared to the first quarter of 2013 primarily due to approximately $1.0 million of stand-alone public company related expenses. As a percentage of Merchandise sales and services, net, Selling and administrative expenses decreased 110 basis points to 41.8%.  Depreciation and amortization expense decreased 11.5% to $5.0 million in the first quarter of 2014 from $5.7 million in the first quarter of 2013 primarily attributable to an increase in fully depreciated assets.  As a result of the above factors, Operating income in the first quarter of 2014 increased 57.1% to $18.8 million compared to $12.0 million in the first quarter of 2013.  Interest expense was $1.9 million in the first quarter and was attributable to higher debt levels and costs related to the issuance of the term loan used to pay a $500 million dividend to a subsidiary of Sears Holdings Corporation immediately prior to the separation.  Income tax expense was $6.1 million for the first quarter of 2014 compared to $4.6 million in the first quarter of 2013. The effective tax rate was 36.1% in the first quarter of 2014 compared to 38.7% in the first quarter of 2013. The change in our effective tax rate was primarily due to decreased effective state tax rates and one-time separation related items.  Net income increased 48.1% to $10.9 million, or $0.34 per diluted share, in the first quarter of 2014 compared to $7.3 million, or $0.23 per diluted share, in the first quarter of 2013.  Adjusted EBITDA^1 increased 35.2% to $23.8 million in the first quarter of 2014 from $17.6 million in the first quarter of 2013.  Cash flow generated from operating activities was $31.4 million for the first quarter of 2014 compared to $19.5 million in the first of quarter of 2013. The increase was primarily attributable to more efficient inventory management and an increase in Net income.  Balance Sheet Highlights  Cash was $65.0 million on May 2, 2014 compared to $21.8 million on May 3, 2013. The increase in cash was driven by our retention of cash beginning with our separation April 4, 2014 from Sears Holdings Corporation, more efficient inventory management and an increase in Net income.  The Company had $160.2 million of availability under its asset-based senior secured credit facility and had long-term debt of $509.9 million as of May 2, 2014. Inventory decreased 5.4% to $327.0 million and Accounts receivable increased 43.1% to $39.8 million on May 2, 2014 from Inventory of $345.6 million and Accounts receivable of $27.8 million on May 3, 2013. The increase in Accounts receivable was primarily related to amounts owed from Sears Holdings Corporation following the separation, and the timing of sales in the Lands' End Business Outfitters business.   About Lands' End, Inc.  Lands' End® is a classic American lifestyle brand with a passion for quality, legendary service, real value and a simple two-word promise to stand behind everything it sells: Guaranteed. Period.® Lands' End delivers timeless style for Men, Women, Kids and the Home at landsend.com, 1-800-800-5800, Lands' End Shops at Sears, Lands' End Inlets and around the world. Lands' End is publicly traded and listed on NASDAQ under the trading symbol (LE).  Forward-Looking Statements  Certain statements in this press release and oral statements made from time to time by representatives of the Company are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements regarding the Company's guidance, outlook, future financial and operating results and any other statements about the Company's future expectations, beliefs or prospects expressed by management are forward-looking statements. These forward-looking statements are based on management's current expectations and beliefs, but they involve a number of risks and uncertainties that could cause actual results or events to differ materially from those indicated by such forward-looking statements.Statements preceded or followed by, or that otherwise include, the words "believes," "expects," "anticipates," "intends," "project," "estimates," "plans," "forecast," "is likely to" and similar expressions or future or conditional verbs such as "will," "may," "would," "should" and "could" are generally forward-looking in nature and not historical facts. Such statements are based upon the current beliefs and expectations of our management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements.  Important factors that could cause actual results to differ materially from expectations are disclosed under the "Risk Factors" section of the 10-K for the fiscal year ended January 31, 2014, filed with the Securities and Exchange Commission on March 25, 2014, and in the Company's Form 10 filed with the Securities and Exchange Commission on March 17, 2014. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date such statements are made. While we believe that our forecasts and assumptions are reasonable, we caution that actual results may differ materially. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Consequently, actual events and results may vary significantly from those included in or contemplated or implied by our forward-looking statements. The Company does not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.                            -Financial Tables Follow-                                            LANDS' END, INC. Condensed Consolidated and Combined Balance Sheets (Unaudited)  (in thousands, except share data)          May 2,      May 3,      January 31,                                            2014       2013       2014 ASSETS                                                            Current assets                                                    Cash                                       $ 64,976    $ 21,755    $ 22,411 Restricted cash                            3,300       3,300       3,300 Accounts receivable, net                   39,800      27,819      33,617 Inventories, net                           326,973     345,606     369,928 Prepaid expenses and other current assets  29,663      28,217      21,993 Total current assets                       464,712     426,697     451,249 Property and equipment                                            Land, buildings and improvements           105,266     103,043     104,812 Furniture, fixtures and equipment          78,260      71,088      75,625 Computer hardware and software             64,942      62,724      65,810 Leasehold improvements                     12,347      12,668      12,517 Gross property and equipment               260,815     249,523     258,764 Less accumulated depreciation              162,159     144,530     157,668 Total property and equipment, net          98,656      104,993     101,096 Goodwill                                   110,000     110,000     110,000 Intangible assets, net                     530,683     533,314     531,342 Other assets                               23,703      725         588 TOTAL ASSETS                               $ 1,227,754 $ 1,175,729 $ 1,194,275 LIABILITIES AND STOCKHOLDERS' EQUITY                              Current liabilities                                               Accounts payable                           $ 76,091    $ 70,967    $ 115,387 Deferred tax liabilities                   3,732       3,171       4,019 Other current liabilities                  108,776     98,026      83,955 Total current liabilities                  188,599     172,164     203,361 Long-term debt                             509,850     —           — Long-term deferred tax liabilities         168,349     195,579     195,534 Other liabilities                          15,630      3,086       3,066 TOTAL LIABILITIES                          882,428     370,829     401,961 Commitments and contingencies                                     STOCKHOLDERS' EQUITY                                              Common stock, par value $0.01- authorized: 480,000,000 shares; issued and             320         —           — outstanding: 31,956,521 Additional paid-in capital                 340,176     —           — Retained earnings                          5,946       —           — Net parent company investment              —           808,866     794,309 Accumulated other comprehensive loss       (1,116)     (3,966)     (1,995) Total stockholders' equity                 345,326     804,900     792,314 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,227,754 $ 1,175,729 $ 1,194,275    LANDS' END, INC. Condensed Consolidated and Combined Statements of Comprehensive Operations (Unaudited)                                            13 Weeks Ended (in thousands except per share data)       May 2, 2014       May 3, 2013 REVENUES                                                     Merchandise sales and services, net        $ 330,483         $ 319,035 COSTS AND EXPENSES                                           Cost of sales (excluding depreciation and  168,461           164,447 amortization) Selling and administrative                 138,206           136,976 Depreciation and amortization              5,002             5,652 Other operating expense, net               20                — Total costs and expenses                   311,689           307,075 Operating income                           18,794            11,960 Interest expense                           1,925             — Other income, net                          137               1 Income before income taxes                 17,006            11,961 Income tax expense                         6,138             4,625 NET INCOME                                 $ 10,868          $ 7,336 Other comprehensive income (loss), net of                    tax Foreign currency translation adjustments   879               (805) COMPREHENSIVE INCOME                       $ 11,747          $ 6,531 NET INCOME PER COMMON SHARE ATTRIBUTABLE                     TO STOCKHOLDERS Basic:                                     $ 0.34            $ 0.23 Diluted:                                   $ 0.34            $ 0.23                                                             Basic weighted average common shares       31,957            31,957 outstanding^(a) Diluted weighted average common shares     31,957            31,957 outstanding^(a)  (a) On April4, 2014, Sears Holdings Corporation distributed 31,956,521 shares of Lands' End common stock. The computation of basic and diluted shares for all periods through April 4, 2014 were calculated using the shares distributed on April4, 2014.   Use and Definition of Non-GAAP Financial Measures  ^1Adjusted EBITDA—In addition to our Net income determined in accordance with accounting principles generally accepted in the United States ("GAAP"), for purposes of evaluating operating performance, we use an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA"), which is adjusted to exclude certain significant items as set forth below. Our management uses Adjusted EBITDA to evaluate the operating performance of our business, as well as for executive compensation metrics, for comparable periods. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items.  While Adjusted EBITDA is a non-GAAP measurement, management believes that it is an important indicator of operating performance, and useful to investors, because:    *EBITDA excludes the effects of certain on-going financing and investing     activities from earnings by eliminating the effects of interest and     depreciation costs.        *Other significant items, while periodically affecting our results, may     vary significantly from period to period and have a disproportionate     effect in a given period, which affects comparability of results. We have     adjusted our results for these items to make our statements more     comparable and therefore more useful to investors as the items are not     representative of our ongoing operations. For the 13 weeks ended May 2,     2014, we excluded the loss on disposal of property and equipment as     management considers the gains or losses on disposal of assets to result     from investing decisions rather than ongoing operations.    LANDS' END, INC. Adjusted EBITDA Reconciliation (Unaudited)                                                                              13 Weeks Ended                                       May 2, 2014        May 3, 2013 (in thousands)                         $'s      % of      $'s      % of                                                 NetSales          NetSales Net income                             $ 10,868 3.3%      $ 7,336  2.3% Income tax expense                     6,138    1.9%      4,625    1.4% Other income, net                      (137)    —%        (1)      —% Interest expense                       1,925    0.6%      —        —% Operating income                       18,794   5.7%      11,960   3.7% Depreciation and amortization          5,002    1.5%      5,652    1.8% Loss on disposal of property and       20       —%        —        —% equipment Adjusted EBITDA                        $ 23,816 7.2%      $ 17,612 5.5%                                            LANDS' END, INC. Condensed Consolidated and Combined Statements of Cash Flows (Unaudited)                                                                                                                          13 Weeks Ended (in thousands)                                         May 2, 2014 May 3, 2013 CASH FLOWS FROM OPERATING ACTIVITIES                               Net income                                             $ 10,868    $ 7,336 Adjustments to reconcile net income to net cash                    provided by operating activities: Depreciation and amortization                          5,002       5,652 Amortization of debt issuance costs                    155         — Loss on disposal of property and equipment             20          — Deferred income taxes                                  2,774       (204) Change in operating assets and liabilities:                        Inventories                                            44,135      31,972 Accounts payable                                       (39,543)    (36,617) Other operating assets                                 (7,344)     (3,102) Other operating liabilities                            15,310      14,438 Net cash provided by operating activities              31,377      19,475 CASH FLOWS FROM INVESTING ACTIVITIES                               Purchases of property and equipment                    (1,548)     (818) Net cash used in investing activities                  (1,548)     (818) CASH FLOWS FROM FINANCING ACTIVITIES                               Contributions from / (distributions to) parent         8,784       (24,868) company, net Proceeds from issuance of long-term debt               515,000     — Debt issuance costs                                    (11,311)    — Dividend paid to a subsidiary of Sears Holdings        (500,000)   — Corporation Net cash provided by (used in) financing activities    12,473      (24,868) Effects of exchange rate changes on cash               263         (291) NET INCREASE (DECREASE) IN CASH                        42,565      (6,502) CASH, BEGINNING OF PERIOD                              22,411      28,257 CASH, END OF PERIOD                                    $ 64,976    $ 21,755 SUPPLEMENTAL INFORMATION:                                          Supplemental Cash Flow Data:                                       Unpaid liability to acquire property and equipment     $ 391       $ 1,196 Income taxes paid                                      $ 2,079     $ 1,325                                                                    Financial information by segment is presented in the following tables for the 13 weeks ended May2, 2014 and May3, 2013.  SUMMARY OF SEGMENT DATA    LANDS' END, INC. Segment Financial Information (Unaudited)   (in thousands)                     Direct      Retail   Corporate/ Total                                                         Other 13 Weeks Ended May 2, 2014                                       Merchandise sales and services,    $ 276,041   $ 54,430 $ 12       $ 330,483 net Costs and expenses:                                              Cost of sales (excluding           139,112     29,349   —          168,461 depreciation and amortization) Selling and administrative         107,666     22,755   7,785      138,206 Depreciation and amortization      4,015       644      343        5,002 Other operating expense, net       —           —        20         20 Total costs and expenses           250,793     52,748   8,148      311,689 Operating income (loss)            25,248      1,682    (8,136)    18,794 Interest expense                   —           —        1,925      1,925 Other income, net                  —           —        137        137 Income (loss) before income taxes  25,248      1,682    (9,924)    17,006 Interest expense                   —           —        1,925      1,925 Other income, net                  —           —        137        137 Depreciation and amortization      4,015       644      343        5,002 Loss on disposal of property and   —           —        20         20 equipment Adjusted EBITDA                    $29,263    $2,326  $(7,773)  $23,816 Total assets                       $ 1,077,769 $ 66,808 $ 83,177   $ 1,227,754                                          LANDS' END, INC. Segment Financial Information (Unaudited)                                                                 (in thousands)                     Direct      Retail   Corporate/ Total                                                         Other 13 Weeks Ended May 3, 2013                                       Merchandise sales and services,    $ 263,322   $ 55,700 $ 13       $ 319,035 net Costs and expenses:                                              Cost of sales (excluding           136,901     27,546   —          164,447 depreciation and amortization) Selling and administrative         105,134     24,968   6,874      136,976 Depreciation and amortization      4,428       887      337        5,652 Total costs and expenses           246,463     53,401   7,211      307,075 Operating income (loss)            16,859      2,299    (7,198)    11,960 Other income, net                  —           —        1          1 Income (loss) before income taxes  16,859      2,299    (7,197)    11,961 Other income, net                  —           —        1          1 Depreciation and amortization      4,428       887      337        5,652 Adjusted EBITDA                    $21,287    $3,186  $(6,861)  $17,612 Total assets                       $ 1,065,611 $ 69,450 $ 40,668   $ 1,175,729  CONTACT: ICR          John Rouleau / Rachel Schacter          203-682-8200          John.Rouleau@icrinc.com          Rachel.Schacter@icrinc.com                   Lands' End, Inc.          Michele Casper          Senior Director of Public Relations          (608) 935-4633          Michele.Casper@landsend.com                   Lands' End, Inc.          Mike Rosera          Chief Operating Officer and Chief Financial Officer          (608) 935-9341  Lands' End Company Logo  
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