Lands' End, Inc.
Q4 2020 Earnings Call Transcript

Published: 17 Mar 2021

[Operator:]

Ladies and gentlemen, thank you for standing by, and welcome to the Lands' End Fourth Quarter and Fiscal 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. . I would now like to introduce your host for this conference call, Mr. Bernie McCracken. You may begin.

[Bernard McCracken:]

Good morning, and thank you for joining the Lands' End earnings call for a discussion of our fourth quarter and fiscal 2020 results, which we released this morning and can be found on our website, landsend.com. On the call today, you will hear from Jerome Griffith, our Chief Executive Officer; and Jim Gooch, our President and Chief Financial Officer. After the company's prepared remarks, we will conduct a question-and-answer session.

[Jerome Griffith:]

Thank you, Bernie. Good morning, and thank you for joining us today for a discussion of our fourth quarter and full year results. Looking back on 2020, I'm extremely proud of what our team has accomplished over the past year. Retrospectively, 2020 told us a lot about the strength and resilience of our business model and the diligence and endurance of our team, for which I am very grateful. We moved quickly to protect our business, our people, and our customers, while at the same time maintaining our focus on the continued execution of our strategic pillars; getting the product right, being a digitally driven company, implementing an uni-channel distribution strategy, and enhancing our infrastructure and processes. As a digitally-led eCommerce business, we are uniquely positioned to capitalize on the accelerated shift to online shopping. We benefited from our investments in data analytics, our eCommerce technology, marketing, and business process improvements to drive sales from both existing and new customers. In fact, our new customer acquisition grew 21% for the year and 14% in the fourth quarter as a result of our data-driven initiatives combined with our comfort-oriented product assortment.

[James Gooch:]

Thank you, Jerome, and good morning. We're very pleased with the strong results we delivered in the fourth quarter and throughout 2020 as we continue to make progress across our strategic initiatives. For the fourth quarter, total revenue did decrease 2% to $538.4 million compared to $549.5 million last year. However, after you exclude the sales from the American Airlines launch last year, revenue increased almost 6%. This was above our previously updated guidance of $528 million to $533 million announced in mid-January.

[Jerome Griffith:]

Thanks, Jim. While we are extremely pleased with the progress we have made over the last 4 years, we remain excited about the significant growth opportunity that lies ahead as we further advance our initiatives across our core strategic pillars and adapt to the changing consumer environment.

[Operator:]

. Our first question comes from Alex Fuhrman with Craig-Hallum Capital.

[Alex Fuhrman:]

Really impressive to see continued double-digit growth in the customer file. Is this a business that you think can continue to be a double-digit growth business for the next couple of years? Just curious how you think about translating that growth in customer file into your business over the next few years.

[Jerome Griffith:]

Alex, we've had this as a strategy, I don't know, since the end of 2016 to continue to grow new customer acquisition, and we're very focused on growing it with look-alike customers. We think there's a big market out there several times where we are today and that there's a lot of opportunity for us. So obviously, in the last year, with COVID and the shift to having more demand in online shopping, yes, this has been a trend. One of the things I think that's going to happen going forward is, I think, that trend's going to continue. I think that the trend of more and more people shopping online, loving the convenience of it is not going to go away, and that's even in a post-COVID world, but I don't know that I would guarantee double-digit increases month in and month out. I think there'll be some fluctuations in and out, but one of the things we are seeing is we're continually picking up market share domestically. And internationally, we've seen that even an advanced level of picking up market share against competitors.

[James Gooch:]

One thing I'd add to that, Alex, if you look at our 3-year numbers that we'd put out in January, we are projecting a top-line growth of 10% to 14%, so we do anticipate that being driven by continued strength in our buyer file.

[Alex Fuhrman:]

Great. That's really helpful. And then can you talk a little bit more about what you expect the Outfitters business to look like on the other side of the pandemic? It sounds like you're really focusing on small and medium-sized businesses, whereas it seemed like, over the last couple of years, there's maybe been a little bit more discussion around major customers like Delta and American Airlines. Can you talk about the -- how it's kind of different going after companies of those sizes? Are the margins pretty similar? Do you have a pretty robust pipeline of customers you feel like to go after here? Or is there going to be a big marketing effort? I would love to just hear more about that pivot.

[James Gooch:]

Well, I think you got a few different things in there. As we've discussed before, the Outfitter business is really made up of 3 different components, and they were impacted at different rates during COVID, and we do anticipate the recovery being different coming out. School was definitely the quickest recovery. You saw signs of that over the last couple of quarters, and we talked about that business stabilizing. We anticipate that going into this year if kids are back in person learning, we anticipate a fairly quick recovery and future growth in that business. The SMB, the small and midsized businesses, we talked about, and Jerome mentioned, that we could see that growing to be half of this business where, historically, they've been roughly one-third, one-third, one-third. There will be some marketing against that, but you'll see us treating that a little bit more. You should think of that a little bit more like a direct-to-consumer business, where, historically, we had treated it a little bit more like a B2B business and so a much improved, I think, experience on our site with our SMB business coming later this year. And then the final piece is the national business, and we've talked about this before. It tends to be very choppy with new accounts and new launches. That will continue to be the same going forward. That's probably going to be the longest recovery because I'll remind you, again, that over half of that business is travel-related, but we do anticipate that business recovering with the industry.

[Operator:]

Our next question comes from Steve Marotta with CL King & Associates.

[Steve Marotta:]

Good morning, Jerome and Jim, congratulations on a nice fourth quarter. And Jim, congratulations on the promotion.

[James Gooch:]

Thank you, Steve.

[Steve Marotta:]

Jerome, can you please provide your thought process on reopening product categories which you'll invest in? You've mentioned that comfort will be a little bit more sustainable even as social distancing guidelines are reduced. Is it -- do you think there will be a tad bit more, for a lack of a better phrase, dress embedded in there? I mean from a men's standpoint, maybe more khakis, something that's a little bit more presentable than just outdoor sweatpants? And if so, how do you think about investing within those categories as social distancing guidelines are reduced?

[Jerome Griffith:]

Well, a couple of things with that. We think that from a return to the office standpoint, it's not going to be the same as what it was before pandemic. I think the Monday through Friday, 9 to 5 workdays are gone. I think that most companies that I've talked to, quite honestly, are thinking some sort of a hybrid model, and we believe that customers are not going to want to give up the comfort factor. Now, we've invested in several things that we've done well in. Our swim business is quite strong. Knitwear has been really good for us across the board in both men's and women's. Loungewear, athletic wear, sleepwear have all been strong categories, and we believe those trends aren't really going to discontinue. I think when you look at like the more dressy part of the -- of our assortment, which would be no-iron khaki pants, button-down shirts, dresses for women, people will start to look at that again but in a different way. So, as an example, we've taken one of our best-selling fabrics, which is sporting it in women's, and we've moved that over to men's and put that into dress pants. Lo and behold, we did test, the spring blew out. So we think that people are still going to love that comfy feeling and going to want to feel comfortable and casual at the workplace, and that won't go away.

[Steve Marotta:]

I get that and I agree for what it's worth. Can you talk a little bit about Europe being up 38% during the quarter? Obviously, you're optimistic about some of the initiatives there. Could you be specific about what those initiatives are? I'm assuming that there's an attractive tail on that at least 12 to 24 months of what would be at least above-average growth. Can you talk a little bit about, again, specific initiatives around European growth?

[Jerome Griffith:]

Sure. We changed management there a couple of years ago, and their new strategy had really been to get everything aligned globally. What I mean by that is we had done a lot of special product for our European and our Asian markets, which we thought it's just going too far away from what the brand is. And as we continue to hone the brand message, in the U.S., we said, let's make this a global message, and that's resounded very well with customers around the world. We thought that there was an opportunity in Europe, in particular, to continue to grow market share. What we've done is basically implemented a lot of the same marketing techniques and product messages that we use in the U.S. And surprise, they worked, and they didn't just work, they worked really well. So, we've continued to double down on a very clear global message and making sure that we're buying the same things that we're marketing the same way and that we're putting dollars behind the same types of marketing similar to what we're doing in the U.S., and it's working extremely well for us.

[Steve Marotta:]

That's very helpful. Jim, when will the warehouse management system be fully operational?

[James Gooch:]

Well, it's going to be a multiyear implementation. We talked about the first phase. That should be up and going by the end of this year, but the entire thing is going to take over the next 2 years.

[Operator:]

Ladies and gentlemen, this does conclude the Q&A portion of today's conference. That also concludes the program. You may now disconnect, and have a wonderful day.