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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Lands' End Announces First Quarter of Fiscal 2014 Results
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