Lands' End, Inc.
Q3 2020 Earnings Call Transcript

Published: 3 Dec 2020

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Lands' End Third Quarter 2020 Earnings Conference Call. At this time, all participants' lines are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now hand the conference over to Bernard McCracken, Chief Accounting Officer. Please go ahead.

[Bernard McCracken:]

Good morning, and thank you for joining the Lands' End earnings call for a discussion of our third quarter fiscal 2020 results, which we released this morning and can be found on our website landsend.com.

[Jerome Griffith:]

Thank you, Bernie. Good morning and thank you for joining us today for a discussion of our third quarter results. We were extremely pleased with our third quarter performance. Our teams executed at an exceptional level to achieve strong results despite the challenges created by COVID. I am both proud and grateful for their efforts. The investments we've put toward leveraging data analytics to inform our strategies around product, ecommerce, and marketing continued to pay dividends and driving growth to new customers and strong retention rates. We have also made great strides in driving improved profitability. To that end, in addition to once again generating double-digit growth on our global e-commerce business, we delivered 52% adjusted EBITDA growth in the third quarter. This performance underscores the momentum behind the Lands' End brand and the progress we're making in delivering long-term profitable growth.

[Jim Gooch:]

Thank you, Jerome and good morning. Our global e-commerce business once again delivered strong performance in the third quarter. Well as expected our outfitter business remain challenged as a result of the pandemic. We continue to make great progress on the strategies we have outlined while leveraging our strong foundation to advance our growth initiatives. Total revenue increased 5.9% to 360 million, compared to 340 million last year. Momentum continued in our global e-commerce business, which increased 20% with strong results in our U.S. e-commerce business, which grew approximately 14% and our international e-commerce business with a 51% increase for the quarter. During the quarter, we saw strength in a number of our categories, including fleece, sleepwear, loungewear, and knits, as well as in our home business. With many consumers still working from home these categories deliver double-digit growth in the quarter as our marketing strategies emphasize the comfort and value in our product assortments. Partially offsetting the strong global e-commerce growth, sales in our Outfitter business were down 26% due to ongoing pressure as a result of COVID-19. The Outfitters results reflect overall sequential improvement versus last quarter, although our travel related national accounts in our small and midsize businesses remain challenged. The most significant improvement came in our school uniform business where sales were approximately flat to last year for the quarter.

[Jerome Griffith:]

Thanks, Jim. Despite the continued uncertainty related to COVID, we continue to demonstrate our ability to manage our business effectively and deliver meaningful EBITDA growth during a very difficult environment. We remain focused on driving market share gains through continuously enhancing our engagement with existing customers and gaining market share through our own channel, as well as through new partnerships and collaborations. Our four core growth strategies remain

[Operator:]

Thank you. Our first question comes from the line of Alex Fuhrman with Craig-Hallum. Your line is now open.

[Alex Fuhrman:]

Great, thank you very much for taking my question and congratulations on a really strong quarter. You know, I wanted to ask about what you've been seeing so far. It sounds like the unseasonably warm weather has had a little bit of an impact on your outerwear business. Anything to call out, you know, now that we're just on the other side of Thanksgiving weekend, about, you know how your brands performed during Black Friday and through Cyber Monday, any anything notable to call out there?

[Jerome Griffith:]

Hey, Alex, thanks for the question. I think like everybody else, we're seeing a shift in consumer behavior this holiday season with obviously an emphasis on online shopping. Black Friday itself was a positive day for us both domestically and internationally. We saw solid growth in our business year-over-year. And we're pretty encouraged by the continued resilience and performance of our global e-commerce business. But the fourth quarter got off to a slower start in the U.S., particularly due to our heavy outerwear category. I don't like to bring up weather; I always think weather is kind of a cheap excuse. But I think as everybody knows cold weather hasn't really started yet. And if we couple that with people staying home and indoors and not commuting because of COVID, the demand for heavy outerwear just isn't there yet. But if you look at our other categories, as you would expect, our other categories are performing well, same categories in third quarter going into the fourth quarter the people have had good .

[Alex Fuhrman:]

Great, that's really helpful. Thanks. And then it sounds like you guys are acquiring a lot of new customers here or at least in the third quarter. Where has that been coming from? Has there been any, you know, particular marketing channel that's been effective or new products that have been bringing new customers in or is that some kind of a continuation of the efforts that you've been putting in place for a while now?

[Jerome Griffith:]

It's a bit of a mix. I mean, obviously, search has always been, you know, the lion's share of where we have new customers coming in from a marketing standpoint, but what we've seen is that a couple of other areas are performing super well for us. Even though we put smaller dollars into it, social media has been doing really well. And we've got some video out on connected TV, which seems to be doing a pretty good job for us. Couple that with, you know big increases in knitwear, loungewear, active wear, which is bringing in a lot of newer customers for us. And those customers tend to be on the younger side from where our existing customer base is. So that looks pretty good for us.

[Alex Fuhrman:]

Great, that's helpful. And then, you know, lastly, if I could just ask, you know, on the Outfitters side of the business, I mean, obviously that's pretty, you know, closely impacted by the pandemic, just curious, I mean you work with a lot of the biggest companies out there in retail and transportation, what's the outlook for next year? I mean, at what point do you think things are going to start turning around for some of your big customers?

[Jerome Griffith:]

I think that what you're going to see is a longer call back in any of the travel related products. Anybody that's really related to travel right now, we're seeing increases albeit small increases. I think we're really going to be concentrating in the Outfitters business is going to be on the small and mid-size businesses and making their customer experience easier. We think that there's a big opportunity for us to improve the customer experience online of getting your product logo or getting your product customized in multiple ways and making that an easier customer experience. And we're going to see a lot of concentration in that part of the business.

[Jim Gooch:]

You know, Alex, I think you touched on that, as far as the Outfitters. It's really three different businesses. If you remember, it's about one-third school, one-third, small and midsize business, and one-third is large national accounts. So, Jerome mentioned that. The large national accounts is probably going to be the slowest recovery. We're very excited to see the sequential improvement that we mentioned in the school business, and that business was actually fairly flat for the quarter.

[Alex Fuhrman:]

That's great. Well, thanks. Thanks very much both of you.

[Operator:]

Thank you. Our next question comes from the line of Steve Marotta with C.L. King & Associates. Your line is now open.

[Steve Marotta:]

Good morning Jerome and Jim, congratulations on the third quarter as well. As far as, Jerome, you just touched on it as it relates to staying at home for Outerwear, assuming we get a relatively normal winter season from this moment forward, could there still be a negative impact on that category? Just because people aren't going out as much, and if so, how do you quantify that?

[Jerome Griffith:]

I think Steve from what we put out with guidance we've taken that into account for what we think will be happening over the course of the next few months. As you know, the COVID is really in front of us, not behind us based upon the date so far. So, I think we've taken that into account in the guidance.

[Jim Gooch:]

I think as far as the quantification, Steve, to Jerome's point, it's in the guidance. I think the other thing we feel really good about, and we mentioned this, because we had such a healthy back end of the second quarter and the third quarter. Our inventory positions are so healthy, so lean that even though we might have a little bit of challenge in some of the heavy outerwear, you know, we don't think there's a lasting impact there.

[Steve Marotta:]

Got you. International commerce was up really, really well, can you come in on the tactics that helped that? What is that as a percent of sales right now? And how can you capitalize on that segment of the business going forward?

[Jim Gooch:]

I think a lot of the things that are working there internationally are a lot of the things that you hear us doing on the U.S. side. So, many of those things we've been doing for the last several quarters there from what we've been doing from a digital perspective, from what we've been doing from a data analytics perspective, from what we've been doing with capturing new customers. We're now rolling many of those things out, especially in Europe. And we've really seen significant positive impacts there.

[Steve Marotta:]

And how big a percent of the sales was that in the third quarter?

[Jim Gooch:]

I don't think we give that as a specific number, but I think you can go back to history and do some of the math obviously continues to grow. The overall global e-commerce business is now probably up over 80% as a percent of our total with some of the challenges in the Outfitter business and that continued growth on the e-commerce side.

[Steve Marotta:]

Got you. Okay, very helpful. Thank you. I'll take the rest of my questions offline. Thank you.

[Jim Gooch:]

Thanks Steve.

[Operator:]

Thank you. There are no further questions at this time. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.