Lands' End FY2025 Q1 Earnings Call Summary and Q&A Highlights: European Growth and Strategic Alternatives in Focus
Earnings Call
06-05
Lands' End, Inc. (LE 11.44%) reported a 9% decrease in total revenue to $261 million for Q1 FY2025, with a net loss of $8.3 million, or $0.27 per share. Despite the decline, the company achieved a record gross margin rate of 51%, up 210 basis points from the previous year, attributed to the transition of kids' and footwear inventory to licensees. The company is focusing on customer-centric strategies, including AI-driven personalization and expanded SMS marketing, which have improved new customer acquisition and repeat purchase rates. The company is also exploring strategic alternatives, including a potential sale or merger, to maximize shareholder value. The supply chain has been diversified to reduce reliance on China, with less than 8% of purchase order dollars spent there in the last fiscal year.
Lands' End maintains its full-year guidance despite tariff risks and sourcing transitions. The company expects total revenue between $1.33 billion and $1.45 billion for FY2025, with GMV targeted at mid to high single-digit growth. Adjusted net income is projected at $15 million to $27 million, with adjusted diluted EPS expected to be $0.48-$0.86. Adjusted EBITDA is forecasted at $95 million-$107 million, and capital expenditures are projected at $25 million for FY2025. The company is also exploring strategic alternatives, including a potential sale or merger, to enhance shareholder value. The new supply chain structure has reduced reliance on China to less than 8% of purchase order dollars, with effective tariff mitigation strategies in place.
Lands' End reported a 9% year-over-year decrease in total revenue to $261 million for Q1 FY2025. Adjusted for transitioned licensing, revenue fell by 4%. The gross margin rate increased by 210 basis points to a record 51%, driven by the transition of kids' and footwear inventory to licensees. Adjusted EBITDA was $10 million, within guidance parameters. The U.S. eCommerce sales and gross profit remained flat, with strong outerwear sales offset by slow swim sales. European eCommerce sales increased by 28% year over year, driven by rebranding and marketing efforts. Licensing revenue grew by over 60% year over year, with new categories such as travel accessories and hosiery contributing to this growth. The Outfitters segment saw a 1% sales increase, supported by new business commitments in school uniforms. Third-party marketplace gross profit fell by 11% due to underperformance in one market, though April showed improvement. SG&A expenses decreased by $4 million year over year, but as a percentage of sales, they increased to 47% due to revenue decline. The company reported a net loss of $8.3 million, or $0.27 per share, with an adjusted net loss of $5.4 million or $0.18 per share.
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Answer: In markets where Apple Intelligence was introduced, the iPhone 16 series outperformed markets where the feature was not introduced. Users used features such as ‘Writing Tools,’ ‘Image Playground,’ and ‘Genmoji’ extensively, especially the ‘Clean Up’ feature. The ‘Clean Up’ feature received a lot of attention in Apple Store demos. Apple Intelligence is also continuing to expand language support, which is expected to further enhance user experience and demand.
Question 2: Typically, you provide guidance for the upcoming quarter. I didn't see anything, I think, in the release this time. Any color you can give us on the complexion of the year and the cadence of what you're looking for? And within that, tariff impacts. Holistically, how you're thinking about it, both in terms of pricing and on inventory?
Answer: Morning, Dana. As far as guidance goes, based on the near-term uncertainty with tariff rates, the company has provided annual guidance based on the current tariff rates, which, you know, we have talked about, which is the 10% baseline and the 30% for China. Which comes to about an effective 12% rate for us in the back half. And that we, you know, we put a lot of work into a transformation process to build mitigation efforts against that against those raised tariffs and feel strongly that we have the right mitigations to get to offset those for the year.
Andrew McLean: And then just a bit of color on the on your tariff impacts. Question. I mean, you know me. You know the company. It's like we're not gonna sit around and wait for a solve later in the year. We rolled up our sleeves actually towards the end of Q4 and started shifting heavily into Western Hemisphere. So we were taking big programs, not the small programs. We took Supima is one of our biggest programs, in fact, it is our biggest program, and we moved that to Western Hemisphere actually in process of co-sourcing that in Eastern Hemisphere as well so that we've got a lot of pacing to go after it, to move with it, and to be able to react to it. And so we're taking we're taking the pain of all those shifts way up front.
Question 2: Got it. And then congratulations on the new Delta agreement. That's very encouraging. How is it different than the last agreement that you have or had and or is it then on the marketplace's business, what are you seeing there? And it was encouraging to hear about Europe. What are your thoughts on the goals for Europe? Thank you.
Answer: Fair enough. Do you wanna take Delta? Sure. Definitely. Then Delta arrangement, is a two and a half year completion of a contract they signed with another vendor. That we will complete that, and we're in discussions on what the future of that will be beyond that. In terms of marketplaces, you know, we feel really good about marketplaces Nordstrom's continues to be the fastest growth marketplace for us. Actually, it's really driven off the back of a very high AOV. It's the highest AOVs we've ever recorded you know, as we as we just see a very premium customer come to the brand. So we're excited about that. Amazon's continued to grow for us along with along with Macy's. And, you know, we saw progress on Target as well that we were happy with. I believe your question probably has some calls embedded in it, and I do want to address that. We did have a tough quarter with calls, but I actually feel very optimistic about it and the trends that we're seeing out of the business. We had a reset with calls and feel good about the direction we're seeing there and the selling getting, which is driven by actually also an increase in AOV. So in terms of marketplaces in general, we feel very positive. Europe, I couldn't be more excited about. I actually think the opportunity for Lands' End, Inc. internationally is amazing. We just use the opportunity of the challenges we had late last year to really lean in and say, we want to create a halo for the US brand. It's like we should be continually evolving this brand upwards, and it's like Europe is a great place. To pick up on that cache. And we started to do a lot of work around segmentation as much as anything And we found that, you know, we can reach a customer from Debenhams to Next to the UK, to Germany. But, also, you know, we're looking at how we're really gonna lean in to France now. We see that as a very fashion-forward market. We've always had sales to France. But we see that as a significant opportunity for us. And we see more market expansion coming off the back of that. So what actually way more bullish on it than we necessarily were even three months ago.
Question 3: Hey, guys. Congratulations on the improvements. Could you talk a little bit about obviously swim was a highlight in the quarter. I'm curious about some of your other segments, you know, key segments like towels and things like that you guys have focused on. And could you also just talk a little bit about the changes happening here? The site has been outstanding. Really much more modern. You've storytelling. It feels more youthful. I guess, could you talk about what's happening behind the scenes? Even your fashion is really on trend, but not trendy. And could you kind of roll out what we could expect to see, especially with some big seasons coming up ahead? With back to school and then winter with your outerwear business.
Answer: Right now, all that money. Marni, you can just keep asking questions forever. It's great. You know, I think that we wanted to be curious with us. When we're the number one online brand for women over forty. And, you know, we felt we had the right actually and the opportunity to move the market. And I think we built a team from design to merchandising to tech design to sourcing that could really start to react to that. We gave them the opportunity to be curious with the franchises. So you take Douglas, and, you know, Douglas Mhmm. I think everybody who knows Douglas thinks about it as it's it does exactly what it says on the tin, but it always comes in black and it always comes in the same silo. And we just felt that there was such enough opportunity to reach a wider consumer. And, you know, in that, we just started to get curious about what we were seeing around the world. And you know, leveraging the comments that I was just making today about Europe, we see so much trend coming out of places like France. And it's like there's no reason that one, we shouldn't be servicing that. But there's another there's another, which is that we should be starting to channel that And so as you know, we looked at turning tubeless into swim dresses. It was like taking the back out of tugless, take making it into a two piece, and actually hitting some of the real trends about having a romper tug list. Mhmm. It's been really it's been really powerful. And what we see is you know, you heard the numbers about how our customers responding. It's really our existing customer response to the existing product. But we have a whole new customer responding to the new product. And we are really excited about the dynamics of the customer we're seeing coming into the brand. It's like they're they're less age oriented, and they're more oriented towards the fit and style and aesthetic of Lands' End, Inc., then that a handwriting that we're trying to develop across the business. And, you know, I've got Kim and Matt and team that's that's on the creative side of the business. Really leaning in and challenging us every day to think about you know, a different customer, a different consumer, and how we're going to consistently reach them. And so we're not gonna compromise on that. We see an opportunity to remake the brand. Tells I'm gonna talk about towels and totes. If you put a towel in the you can put a towel in the tote, and I think that I think what we've done is we've taken the tote and we've opened it up to mean, we have we have gen we have gen a, let alone gen z coming in. And, you know, grabbing at the toads. It's our number one acquisition vehicle for new customers. You saw the work that we did with the collabs over Memorial Day in, you know, we're selling back to that because the tone opens you up to sell the swim. To sell the towel, to sell the swim dress. I think that been incredibly powerful for us. The site you for the site. We've done a lot with the site. We think we can do more with the site, and what we're trying to do is open up the various channels to find different shoppers. So I talked about being on next.com or I talked about being on nordstroms.com. And I think that, you know, we find different customers there. I would point you to some of the work we're doing in Europe. You take a look at landsend.co.uk and the .de site as well. Get some perspective of how we're not even so much regionalizing, but personalizing to those markets is becoming key to us because I've always believed that it's about the individual customer and the experience they're having. And the more we can personalize that, the better. Fashion and trends that's coming up, drop our June catalog next week. I'm really curious to see what you think about it, and I'd love to talk to you about I'm gonna leave it at that.
Question 4: By the way, I just popped on to the UK site, and it's so different. It feels like a European site, not an American site, which is a good thing. Can I just ask you one quick follow-up? You're getting a lot of new people in on totes. Are you able to transition them into other products? And I guess where do they move from totes? Like, where's the next place? Do they go to towels, or is it swim, or is it dresses? I'm curious, like, what the transition what the path looks like for that customer.
Answer: The big yeah. It's a great question. We talk about this a lot. So a big pivot point the it covers swim and dresses. So they go to swim dresses. So if you look at our swim dresses Mhmm. A lot of women pick up our swim dresses. And they were the most regular dresses. You know, that whole trend that's out there right now of you know, speech to bar, you know Mhmm. Pool to dinner is really calling for having the ability to not have to your room and change. And I you know, what we are seeing a real growth in that swim dress trend and actually swim dress is outperform regular dresses. Now I don't wanna do regular dresses at the service. They continue to be strong, and we've seen some really strong trends in there. But where the customer goes where we're seeing a lot of action is on that is on that swim dress. And I it's it's so of a moment, and I think it's a franchise we can further build on going into the going into, you know, particularly next year.
Question 5: Good morning. I wanna talk a little bit about licensing here. You know, part of the kind of doing the apples to apples pieces that you licensing took this year are somewhat of a replacement for categories you already have. Are we now entering the part where licensing where we're seeing incremental categories that will start to add to the total revenue because they're not really replacing something that's already out there. And I guess I'd love to get an update on how you are happy on how you feel about the footwear and the kids' licenses in terms of helping drive business both online and with your partners.
Answer: Hey, Eric. Good to good to have you on. I'll start with just the strategy side of it, and I'll let Andrew move to the feelings about the current categories. You are correct in that, as you noticed, that we added a few new licenses in our announcement today, that were repeats from Q4 that we have signed. And those are white space, so those will be purely incremental. And start to build the brand and get us to additional channels. That we're very excited about. And as you'll realize that, you know, licensing just started in Q1 last year. So each quarter, we'll be building the historical license that we signed. They'll continue to grow Andrew, you wanna talk about footwear and Yeah. Shoot? I mean, in I mean, the other the other color in there, Eric, is the is the reach that we get by being in other channels. You know, being in the clubs and traditional department stores, as the brand continues to reach new customers and offers incredible price and value. During the quarter, we completed the negotiation of additional licenses for travel accessories, men's underwear and base layer, and women's intimates. Our activity continues into the second quarter as we recently executed licenses for hosiery and cold weather accessories. The skill sets that the company is developing around the licensing of its IP and its integration of leading channel and category experts to augment its core competencies in e-commerce continue to set it apart from competitors and offer Lands' End, Inc. strategic options for significant future growth. Specific to specific to Kids In Shoes, Kids came out of the gate strong. We've been really happy with the transition we made, and you know, kids was an emotional one for Lands' End, Inc. because it's always been in the kids business and, you know, inside a vertical retailer, that's something that almost every one of my employees wanted to hang on to. And, you know, I've I've felt that we needed to concentrate on our best at because we're not a ten billion dollar company, not yet. Give us a couple of years. You know, so it was who do you lead in and work with? And so we found that best what we believe for the best partner out there, and they've done a great job. We tremendous sales on our own website from kids, and it's not just discounted sales or it's not just add on sales. It's customers coming and buying at or near full price, and they're specifically buying for kids What a great adjunct that is for our School Uniform business. Which we're seeing a lot of growth from as well, where we, like, put the two side by side and like you've got, like, good symbiosis. I wanna put a plug in for. Backpack day, which is coming up. That's that's gonna be huge for us. And, again, it's something we work with our partner on. Their ability to actually increase the penetration of Lands' End, Inc. KIDSO into the other channels into a wider population. Again, I just can't diminish that. That is extremely powerful for us. Choose is gonna be slower. You know, it's the newness works really well for us. I think we were slow because we tried to reinvent that. So we tried to go with what the original, shoes were. I was gonna say silhouettes, but that doesn't work for shoes. We really you know, took the original assortment and we kept that. We've turned that on its head now. We've started to go to much more newness, and we've been more aggressive about that. And so we're seeing a lot we're seeing that work a lot, and it works back to swim. I'm sort of pick up on Marnie's question, which is, again, we'll we'll see her wearless slides. She's gonna wear the whole, you know, uniform from the beach, the whole uniform from the pool to go to dinner. And I think that gives us a lot of hope And we're seeing actually the clubs start to get interest and choose now. That we were happy with. I believe your question probably has some calls embedded in it, and I do want to address that. We did have a tough quarter with calls, but I actually feel very optimistic about it and the trends that we're seeing out of the business. We had a reset with calls and feel good about the direction we're seeing there and the selling getting, which is driven by actually also an increase in AOV. So in terms of marketplaces in general, we feel very positive. Europe, I couldn't be more excited about. I actually think the opportunity for Lands' End, Inc. internationally is amazing. We just use the opportunity of the challenges we had late last year to really lean in and say, we want to create a halo for the US brand. It's like we should be continually evolving this brand upwards, and it's like Europe is a great place. To pick up on that cache. And we started to do a lot of work around segmentation as much as anything And we found that, you know, we can reach a customer from Debenhams to Next to the UK, to Germany. But, also, you know, we're looking at how we're really gonna lean in to France now. We see that as a very fashion-forward market. We've always had sales to France. But we see that as a significant opportunity for us. And we see more market expansion coming off the back of that. So what actually way more bullish on it than we necessarily were even three months ago.
1. Analysts expressed a positive sentiment towards Lands' End's progress, particularly highlighting the company's strategic initiatives and growth in European markets. 2. Management maintained a confident tone, emphasizing their proactive approach to tariff mitigation and supply chain diversification. 3. Analysts showed interest in the company's new agreements, such as the Delta Airlines partnership, and were optimistic about the potential for growth in European markets and the licensing business.
Metric
Q1 FY2025
Q1 FY2024
YoY Change
Total Revenue
$261 million
Not provided
-9%
Adjusted Net Loss
$5.4 million, $0.18 per share
Not provided
Within guidance
Gross Margin Rate
51%
Not provided
+210 basis points
Adjusted EBITDA
$10 million
Not provided
Within guidance
Inventory
$262 million
$289 million
-9%
SG&A Expenses
47% of sales
44.3% of sales
+270 basis points
Net Loss
$8.3 million, $0.27 per share
Not provided
Within guidance
1. Revenue Decline: Total revenue decreased by 9% to $261 million in Q1 FY2025, with a net loss of $8.3 million, or $0.27 per share. Adjusted net loss was $5.4 million, or $0.18 per share. 2. SG&A Deleverage: SG&A expenses were 47% of sales in Q1 FY2025, an increase of approximately 270 basis points compared to 2024, primarily due to deleverage from lower revenues. 3. Third-Party Marketplace Headwinds: Gross profit dollars in the third-party marketplace business decreased by 11% as revenue fell by 9%, attributed to performance challenges in one marketplace. 4. Tariff Exposure: The company is facing a 30% tariff on China and 10% on the rest of the world for FY2025, maintaining an effective tariff rate near 12% for the second half of FY2025.
Lands' End, Inc. is navigating a challenging economic environment with a strategic focus on diversification and growth. Despite a 9% decline in total revenue for Q1 FY2025, the company achieved a record gross margin rate of 51%, attributed to strategic inventory transitions. European eCommerce showed significant growth, and the company is optimistic about further market expansion in Europe, particularly in France. The company is also exploring strategic alternatives, including a potential sale or merger, to maximize shareholder value. Management remains confident in their tariff mitigation strategies and supply chain diversification efforts, with a focus on expanding their licensing business and B2B outfitters segment. The company is also leveraging AI-driven personalization and expanded SMS marketing to improve customer acquisition and retention rates, with a focus on building long-term shareholder value.