Lands' End Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 31, 2023

There are 5 speakers on the call.

Operator

Good day, everyone, and welcome to the Lands' End Second Quarter Earnings Call.

Speaker 1

At this time, all participants are in a listen only mode.

Operator

Please note this call will be recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference Over to Bernie McCracken, Interim Chief Financial Officer. Please go ahead.

Speaker 2

Good morning and thank you for joining the Lands' and earnings call for a discussion of our Q2 2023 results, which we released this morning and can be found on our website landsend.com. I'm Bernie McCracken, Interim Chief Financial Officer, and I'm pleased to join you today with Andrew MacLean, our Chief Executive Officer. After the prepared remarks, we will conduct a question and answer session. Please also note that the information we're about to discuss includes forward looking statements. Such statements involve risks and uncertainties.

Speaker 2

The company's actual results could differ materially from those discussed on this call. Factors that could contribute to such differences include, but are not limited to, those items noted and included in the company's SEC filings, including our annual report on Form 10 ks and quarterly reports on Form 10 Q. The forward looking information that is provided by the company on this call represents the company's outlook as of today, and we do not undertake any obligation to update forward looking statements made by us. Subsequent events and developments may cause the company's outlook to change. During this call, we'll be referring to non GAAP measures.

Speaker 2

These non GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of non GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release issued earlier today, a copy of which is posted in the Investor Relations section of our website atlandsend.com. With that, I will turn the call over to Andrew.

Speaker 1

Thank you, Bernie. Good morning and thank you for joining us today. Before I dive into a review of our Q2 performance, I want to take a moment To highlight a few key callouts for the period, we successfully injected NU NIS across our assortment. We gained market share in our solutions based swim category. We strategically right sized our inventory position, ending the quarter well below prior year levels and in a strengthened quality and content position paving the way for greater levels of newness to come.

Speaker 1

Leveraging our buyer file, we have identified and are prioritizing 2 key high value cohorts. We began executing on our expanded focus on licensing and entered into a new licensing agreement for footwear as well as the license for the Costco channel we mentioned in our last call. We developed a model to deliver a swim capsule for wholesale partners. In outfitters, our school uniform business performed well and we began our work for a new partnership with Santander. In our 3rd party marketplace business, we took a conscious decision to curtail short term discounted demand at Kohl's in favor of long term brand profits and positioning.

Speaker 1

And most important, we generated strong net cash from operations. Our results for the quarter reflect a considered approach to executing our strategic plan and delivering results that drive shareholder value. Our revenue of $323,000,000 and adjusted EBITDA of $16,000,000 are within our guidance range and demonstrate the concerted effort We're taking to increase cash flow, reduce inventory and lower our debt levels. Fundamental to these improvements with a focus on growing gross margin that saw us deliver a 220 basis point improvement from a combination of more valuable transactions and continued improvement in supply chain costs. Commercially, this quarter was characterized by our solutions based customer focus that put a greater emphasis on driving quality sales over simply moving units and positioning our balance sheet for long term success.

Speaker 1

As a result, our year to date net free cash flow was a record in the post spin off period. As I've discussed the last couple of quarters, the entire Lands' End team has been focused on our strategic initiatives to enhance value for our customers, employees and shareholders. We are taking actions to capitalize on our strengths as an iconic American lifestyle brand, simplify our approach and drive improved profitability. This quarter, we made Significant progress in these efforts, achieving key milestones while driving strong execution across the company. On the product side, our merchandising strategy, which is focused on growing gross margin and injecting newness across categories, is working extremely well.

Speaker 1

Our customers are responding positively to newness, providing our merchants Great insights into the products our customers are seeking and how to pace the introduction of that new list throughout the year. Lands' End's competitive advantage is that we are a solutions company. Our customers look to us for products that solve life's issues. Swim continued to perform well during the Q2, building on the momentum of the Q1 and we are confident that we're continuing to pick up market share. In particular, I would call out swim dresses as a high performance silhouette during the quarter.

Speaker 1

We're pleased that Lands' End continues to leverage our authority in swim to drive performance. Swim is a top priority for us, not only because of the sales and margin it's generating, but because it also drives sales in its natural vacation adjacencies like totes, towels and cover ups. Women's woven tops and dresses and men's summer shirts and casual pants were also strong contributors to our vacation story during Q2. Linen continued to perform well in the U. S.

Speaker 1

And Europe following a strong Q1 and we achieved solid performance in our Home division during the quarter. Consistent with Swim, the units we injected across these categories performed well. As an organization, we have spent considerable strategic energy on optimizing our inventory, delivering it at the right time and in quantities and qualities that place margin dollars ahead of demand dollars. As a company, We are increasingly committed to delivering higher gross margins in both rate and dollars. We moved swiftly in the quarter to reduce remaining pockets of lower value merchandise and position ourselves to drive a more appropriate level of churn and increase our freshness factor, ensuring we have the right products at the right time.

Speaker 1

We are pleased by the progress we've made in this effort, which Consistent with where we said we'd be last quarter resulted in inventory below pre pandemic levels. As a result of the team's strong work to drive inventory productivity and reduce markdowns, combined with more normalized supply chains, We're well positioned to bring Ulyss to more of our assortment. As I mentioned at the top of the call, We grew our gross margin by 220 basis points over the prior year through a range of actions. This includes increasing the speed of throughput and positioning our tried and true fabrics while at the same time introducing new ones. Combined with improved cash flow from the increased turns of our inventory, we have greater flexibility to invest in our strategic initiatives to drive growth and value creations for all stakeholders.

Speaker 1

As a digitally native company, we are prioritizing our focus on innovation to improve execution across the enterprise, including taking advantage of emerging technologies like generative AI, Whether in customer service and engagement, gaining analytics, decision making or go to market strategies, Our increasing use of these technologies is driving efficiency and effectiveness in our work. For example, We have developed an internal app for our merchants and designers that uses chat GPT to analyze our customer data to identify gaps in our assortment to improve buying decisions. We also made progress this quarter on our efforts to place the customer at the center of our decisions. We recently launched a partnership with Happy Returns to offer a streamlined return process, allowing customers to drop their 1 of more than 9,000 return dollars nationwide. In addition to improving the customer experience, The happy returns process is better for the environment and reduces the carbon footprint associated with shipping back individual return packages.

Speaker 1

Another aspect of our innovation focus is how we have begun to leverage the proprietary data from our bar file to better understand our customers. Rather than focus on demographics, we're instead zeroing in on the behaviors of our key customer cohorts. We have prioritized 2 high value customer cohorts to target, each defined by a unique set of characteristics. We have defined them as resolvers And revolvers. Resolvers are the largest cohort of our existing base.

Speaker 1

This customer is a solutions oriented dresser that prefers classic styles and values quality over trends. They shop primarily on necessity 2 to 3 times a year. Embolvers are the 2nd largest cohort and a potential area for growth. This customer is discovering and refining their style as an ongoing journey and they dress what fits their current moments in life. When compared to resolvers, they gravitate towards trend and quality, have buying potential and spend more.

Speaker 1

This evolved approach of keying on behaviors enables us to define, prioritize, reach and cater to the customers that matter to land's end most, while also focusing on expanding our customer base over time. With those strategic drivers in mind, I want to spend a minute speaking to our 2nd quarter performance. Our U. S. E commerce business, our largest direct Consumer channel delivered strong margin performance in the quarter and slightly lower demand.

Speaker 1

It is pleasing to note But for the period, our customer file remains flat while our rebuy rate improved. Both of these metrics build against declines experienced from late 2021 through all of 2022. We are seeing early success as we transform our go to market strategy with more focused promotions around key holidays and market events like Memorial Day, like July 4 and like Amazon Prime Day. For the quarter and go forward, we made a conscious decision to avoid prior levels of discounting to drive market share, preferring to show conviction in our solutions based categories, leading to improved margins. During the quarter, we continued executing on our licensing strategy, which adds minimum royalty guarantees and new income streams, allowing us to continue to focus on our core capabilities.

Speaker 1

In addition to licensing the Costco channel, which I mentioned on our last call, We have entered into a new multi year, multi geography footwear license. Footwear continues to be an important category for us and we chose a partner that best fits with the ethos of Lands' End and our evolving focus on solutions that address customers' needs. We expect to begin seeing results in 2024 from these two licenses and anticipate adding additional licenses as appropriate and with our strategy. In addition, we developed a turnkey solution with 1 of our vendors to deliver our land's end design swim capsule to new distribution channels and expect to announce a launch later this year. This model allows us to avoid the distraction of maintaining a whole Calendar limits our inventory ownership to a pass through and can be leveraged across multiple retailers and geographies.

Speaker 1

Turning to the Outfitters business, we are pleased to note that revenue increased year on year, now of the Delta relationship. We made good progress with our school uniform business seeing a 20 plus point increase in customer satisfaction over the prior year as we focused on long term relationship reinforcement and retention following pandemic related fulfillment challenges. These efforts Around time to ship, in stock of what matters and customer service response types delighted our customers and augur well for long term growth. We now see opportunity to build next year while showing margin improvement. Overall, we are Confident in the opportunity that the Outfitters business presents both on its own and has a potential customer acquisition engine for our consumer business.

Speaker 1

An example of this opportunity is our recent 5 year extension with American Airlines and a recent agreement with Santander Bank for their U. S. Business, which is expected to launch in December and will outfit nearly 3,000 of their branch network employees. As we noted during our last call, Jim O'Connor joined Lands' End to lead the outfitters business and help enhance performance over the long term. Jim has hit the ground running and is working on a number of initiatives to ensure we're taking advantage of all opportunities to serve business and school customers and generate growth.

Speaker 1

These include implementation of better tools and processes for reaching new and prospective customers, More targeted outreach to convert pipeline to sales and enhanced use of data and analytics to ensure our engagement is the most effective it can be. More on this work to come. Moving to our 3rd party business, which remains an important growth avenue. The top line results for our 3rd party business are not where we want them to be, but consistent with our B2C strategy, We focused our online marketplace offering during the quarter on quality of sales, improving gross margin and better inventory turn and freshness. The results were productive with targeted MACI throughout the quarter.

Speaker 1

Demand at Kohl's changed mid quarter, transitioning from strong performance to a significant decline during the final weeks. In conversation with Kohl's, we choose to stick with our plan and protect our focus on gross margin. Our marketplace strategy provides strong sales and margin opportunities, and we plan to strategically grow these existing partnerships and explore new opportunities to expand our brand reach. Lastly, I'll touch on our international business. In a number of ways, we have been using the business to test strategies that have been both discussed and implemented in the U.

Speaker 1

S. Business, namely tighter inventory control, driving freshness and higher gross margins. The results coupled with expense management have allowed us to deliver Profitability consistent with prior years, but with smaller demand and revenues. We have eliminated poor selling items that can focus on what we were good at, prioritizing key items like linen and dresses and incorporating newness into the assortment. Gross margin in Europe this quarter grew nicely by approximately 190 basis points year over year.

Speaker 1

We have also focused on owning the vacation in Europe with swim and linen as strong opportunities to capture market share in that segment as we look forward. Before turning the call over to Bernie, I want to spend a moment talking about something that I referenced earlier. As we continue the Successful execution of our strategy and generate strong operating cash flow from increased turns of merchandise and lower inventory carrying costs. We have the flexibility to invest more cash in the business to drive sustainable value creation. We are being deliberate with these investments, targeting areas where we can inject newness into the brand to serve new and existing customers with the solutions they're looking for while operating and executing more efficiently.

Speaker 1

More on that to come, but for now, I'll turn the call over to Bernie to discuss our 2nd quarter performance and third quarter outlook.

Speaker 2

Thank you, Andrew. For the Q2, total revenue performance was within our guidance range at $323,000,000 a decrease of 8% compared to last year. Our U. S. E commerce business saw sales decrease 4% compared to the Q2 of 2022, driven by continued promotional effectiveness within swim and our adjacent product categories offset by lower markdown inventory sales.

Speaker 2

Critically, as Andrew mentioned, We achieved strong bottom line performance and improved overall gross margin in U. S. E Commerce. Our Europe e Commerce business in the quarter was down 21% year over year, reflecting product assortment editing focused on Key categories and continued macroeconomic challenges. It's important to note that we are beginning to see some stabilization in the market as we saw sequential improvement compared to the Q1.

Speaker 2

Global e commerce sales decreased 9% from 2022 or 6% when adjusting for Japan, which closed last year and accounted for $8,000,000 of revenue in the Q2 last year. Sales from Lands' End Outfitters were down 4% from the Q2 of 2023. Excluding the $5,000,000 difference in year over year revenue from Delta, the Lands' End outfitters business was up 4%, primarily driven by High single digit growth in our school uniform business. Revenue for our 3rd party business was down 11% compared to the prior year, primarily driven by weaker than expected online performance at Kohl's, partially offset by strong performance at Macy's, Target and Amazon. Women's swim continued to be a winning category for us overall and that included selling swim inventory through these important partners.

Speaker 2

Our newly launched Macy's marketplace has been performing better than planned, driven by strong sales in women's knits and bottoms and we look forward to seeing more to come from this partnership. Gross margin in the second quarter was 43%, and approximately 220 basis point improvement from 2022. The margin improvement was primarily driven by the strength SWIM and adjacent vacation product categories, reduction in markdown inventory and improvements in supply chain costs. As a percentage of sales, SG and A was 38%, which was an increase of 170 basis points compared to 2022 due to deleveraging from lower revenues, partially offset by lower digital marketing spend and cost controls across the entire business. Since the close of the Q2, we have taken actions to reorganize our global sourcing team and consolidating our vendor base, which will reduce our supply chain fixed expenses.

Speaker 2

Our performance led to a net loss for quarter of $8,000,000 or $0.25 per share compared to a net loss of $2,000,000 or $0.07 per share in 2022. In addition to these GAAP measures, adjusted EBITDA is an important profitability measure that we use to manage our business internally. For the Q2, adjusted EBITDA was $16,000,000 roughly flat year over year and in line with our expectations. Moving to our balance sheet, inventories at the end of the second quarter were $396,000,000 compared to $569,000,000 a year ago. The 30% improvement in our inventory position was a result of our supply chain team's continued effort to improve efficiency and receive inventory closer to its selling season.

Speaker 2

We achieved the objective shared on our prior call, bringing our inventory to pre pandemic levels. Accordingly, year to date net cash provided by operations was $172,000,000 better than last year, primarily due to this improved inventory flow and productivity. In terms of our debt at the end of the second quarter, Our term loan balance was $237,000,000 and our $275,000,000 ABL at $70,000,000 of borrowings outstanding, which was $65,000,000 lower than the Q2 last year. Despite lower borrowings outstanding on the ABL, we continue to have elevated interest expense driven by higher market rates. We continue to explore opportunities to refinance our debt and are committed to doing so subject to favorable market conditions.

Speaker 2

During the Q2, we repurchased $3,000,000 worth of shares under the company's previously announced $50,000,000 share repurchase authorization, bringing the balance of the remaining authorization to $35,000,000 as of the end of the quarter. Now moving to guidance. The product teams have done a fantastic job managing inventory, which enables us to introduce more newness in the back half. With fresher inventory and less clearance sales, we expect to continue our gross margin expansion. We expect these higher quality sales will continue to improve our inventory efficiency and cash flow in this high interest rate environment.

Speaker 2

In the Q3, we expect net revenue to be between $340,000,000 $355,000,000 We expect a net loss of $6,500,000 to $4,800,000 and diluted loss per share to be between $0.20 $0.13 We expect adjusted EBITDA to be in the range of $13,000,000 to $16,000,000 which takes into account SG and A headwinds related to normalized compensation accruals. Based on our Q2 results, we are updating our full year guidance and now expect net revenue of $1,500,000,000 to $1,550,000,000 We expect net income to Be in the range of a net loss of $4,500,000 to net income of $1,000,000 And net and diluted loss per share of $0.14 to earnings per share of $0.03 We expect adjusted EBITDA to be in a range of $77,000,000 to $84,000,000 Our guidance for the full year incorporates approximately $35,000,000 in capital expenditures. Additionally, as we have discussed, Our improved inventory management will enable us to maintain inventory at normalized levels going forward. With that, I will turn the call back over to Andrew.

Speaker 1

Thank you, Bernie. We're confident that our actions to transform the business are positioning us to drive shareholder returns in the second half of the year. Our Vacation Solutions business is continuing to develop with the Core Swim offering seasonally replaced with our long held authority in outerwear. Our Packables line of outerwear using our Wonderweight fabric, a new solution, has already begun performing ahead of patients in both the U. S.

Speaker 1

And Europe. We're not content to rest there, building on related and long held authorities in knits, especially Supima and bottoms to outfit our customers for their vacation and allow them to own their destination. Before we open it up for Q and A, I'd like to reiterate A few key takeaways from the Q2. First, we're focused on ensuring the customer is at the center All decision making and we'll continue to lean into our competitive advantage as a solutions company with strong customer loyalty. 2nd, we plan to continue to take actions to drive margin expansion across our business and improve the overall efficiency of the enterprise.

Speaker 1

With a talented leadership team in place, we are poised to execute against these initiatives. And 3rd, we believe we are well positioned from our enhanced cash flow to thoughtfully invest in our business to drive growth and value creation for our shareholders and other stakeholders. That concludes our prepared remarks. We look forward to your questions.

Operator

Our first question comes from Dana Telsey with Telsey Group. Please go ahead.

Speaker 3

Hi. Good morning, everyone. And nice to see the improvement on the gross margin. As you unpack the quarter in the current macro environment, How much of what's happening on the sales side would you say is the macro and consumer health? How much adjustments that you're making to the internal business?

Speaker 3

And beyond swim, what other what did you see from other categories during the quarter? And was the exit rate of the quarter, how was the cadence for the quarter? And then I just have a quick follow-up.

Speaker 1

Okay. I'm just writing it down. Hi, Dana. How are you doing?

Speaker 3

Hi. Good. How are

Speaker 1

you? I'm good. Dana, I think we understand Our customer really well. We really got the grips with the database. And I think that as we looked at it, from our perspective, It's not just about the demographics.

Speaker 1

It's about really understanding the cohorts of the customer. We put a lot of time and effort into looking at Really the largest cohort which we serve, which is the resolver, continues to be strong for us, but we're seeing a growing Which is the Evolver and it's tempting to categorize them as younger or different, But really, they're an adjacent category to us. They live in that sort of Gen X, Uber World, late millennials. And it's like we're able to tap When you asked me about the sentiment of that consumer, we cut 7,000,000 customers and the available market with adjacencies of $120,000,000 to run after. So there's plenty of room for us to lean in and take share and take new customers.

Speaker 1

So the actions that you saw and the numbers that have come out of the quarter are really actions we took to write the business. We didn't want to chase That last dollar of demand, we wanted to be known for our newness, we wanted to be paid for our newness, and we wanted to be disciplined in what we bought and actually get point where we ran out of items versus sort of having an endless stream of product that you're just finding ways to sell progressively through the season. So there was an operating discipline that really dominated this conversation. In terms of other categories, I'm happy to come back to the first In terms of other categories for us, what's been just amazing to see is the blossoms business has really stepped As I think about bottoms and the companies I've worked for where they've had strong bottoms business It's like you get a very loyal customer. They always come back.

Speaker 1

And I look at the development that we've made. It's not just about fit. It's not just It's about the quality, it's about how you feel and being able to deliver newness in those bottoms on a consistent basis. That's been really powerful to us. We We reintroduced denim into the assortment right at the end of Q2.

Speaker 1

It's mostly going to be a back half thing for us. But As we introduced that assortment, we saw real strength in it. The customer really embraced it, much more evolved, much more thoughtful and it's like we're catering We're catering to these 2 cohorts. It's like it's very powerful to see the selling that's going on underneath the covers. So this was a Conscious decision.

Speaker 1

We chose to run the business on our newness to continue to deliver that newness to make it about Our core channels, the B2C and the B2C businesses and then really be thoughtful about driving cash flow. We saw different paths Just hitting our numbers and delivering shareholder value. And I think the results come through. Happy with the EBITDA. It was within our guidance.

Speaker 1

We're happy with the EBITDA. It was the same as last year, but we did that on 30% less inventory and we saw cash flow that this business hasn't seen since the spin. So It's been strong. It's been powerful and we're continuing to see that trend evolve. I think you asked me about how Q3 Well, just I'll throw in Dana that the cadence that you asked for on how

Speaker 2

the quarter progressed, our business improved Sequentially each month and got better each month and through July and

Speaker 1

that has continued into August. I think just to take up on it for you, Dana, is that we're seeing a natural transition going on as wind begins to act We come towards the end of the season. And it's like what we've really seen is the outerwear category start to pick up the pace and pick up the ownership. And We've changed our assortment for the back half of the year. I talked about this in the last call.

Speaker 1

But we're really we would Traditionally focused on heavier outerwear pieces. And I think as we look at climate change, we look at the fact We're probably going to have an El Nino winter. We think it's going to be about layering. We think it's going to be about rainwear. We really wanted to get behind those and we've implemented new fabrications, our Wonderweight fabrication and our packables.

Speaker 1

They're absolutely fantastic products. I can't wait to I wish we were on video right now, but I think they're really going to help us carry through Q3 and build it into a strong Q4.

Speaker 3

Got it. Thank you. And then 2 other quick things. On the gross margin, drivers of sustainability to see the continued improvement? And And on the piece with Kohl's, what steps are being taken to improve that business and how do you see that unfolding?

Speaker 3

Thank you.

Speaker 1

Perfect. I'll take Coles and then I'll let Bernie take gross margin. We're We like our relationship with GOLF. It's another Wisconsin company. We've been together for a long time.

Speaker 1

We really introduced this new Tune in with them in our sort of digital ecosphere and it's been very powerful and it's grown well. We found ourselves in the quarter faced with a dilemma though as we continue to improve our margins and our pricing and our quality and our newness in our core business goals were still at a point where they really wanted to be focused on sort of An older strategy which involves more discounts. And we made a decision that we wanted to put our business and our First, we like to put the customer at the center of everything. We like the product strategy that we have. We like the pricing architecture that we're building, and we're going to do whatever it takes to protect that.

Speaker 1

And with Kohl's, we see a long term opportunity here This isn't something that is going to be on the way forever. They're at an inflection point. We're at an inflection point. We wish them Really well. They're a great group of people for the future and we will find a way to continue our partnership, evolve it and build it.

Speaker 1

Clearly, as we put Q3 and Q4 together, you can see it in the guidance, which we feel good about. We've got other routes to building the EBITDA number and to our profitability to building shareholder value and we'll continue to layer those in specifically to marketplace. And we feel really good about where we are with the growth in Target, the growth in Amazon And it was in Macy's. And I think it's only a matter of time before we really start to see that growth come back because I do think the strategy Kohl's is going to go after will support and meet the brands like Land Tech.

Speaker 2

And then I'll add on to tolls. One of the important features of our marketplace strategy is that It's a single use inventory. We fulfill for all our marketplaces. So it allows us to diversify and sell through other distribution channels without Having what a normal retailer's risk would be in inventory just specifically for that distribution channel. So it really de risks our overall use of the inventory and we can sell it through other distribution channels.

Speaker 2

And then Dana, going on to the gross margin, we really benefited in Q2 from our Authority in our swim and its halo effect on the adjacent categories, our Reduction in markdown inventory, which is down 10% over last year and will continue to improve throughout the rest through the back half. And then also we're continuing to benefit from supply chain costs. And each of these areas is going to support A gross margin expansion through the rest of the year. And then as Andrew discussed, our consolidation of Supply chain and our reorganization of our sourcing group, those are benefits that That will benefit us in 2024. As you would know, our sourcing department is capitalized in our inventory.

Speaker 2

So those savings will more and lend towards the 2024 benefit.

Speaker 3

Thank you.

Operator

Thank you. We'll take our next question from Alex Fuhrman with Craig Hallum Capital Group.

Speaker 4

Hey, guys. Thanks for taking

Speaker 1

my question. Just a quick one

Speaker 4

for me. I mean, it seems very impressive that you're able You know, raise the EBITDA guidance for the year at the midpoint even as demand is probably not as strong as you had hoped 4. What's kind of the outlook for the next couple of years just from a high level in terms of margin recovery? Do you feel like there's more To go based on the levers you have to pull at this current revenue level? Or You really need some more significant revenue growth to start to see substantial margin expansion.

Speaker 1

Alex, First of all, Alex, how are you doing? Alex, we're going to continue to grow our gross margin. This business and its future is continuing upon growing its gross margin, managing its inventory and delivering cash flow. We see running room to do that. We see right now that we're we benefited at cost of this year, particularly in Q1 from Tailwinds in shipping costs, but really we're really getting to grips with our manufacturing base, our sourcing base, our own sourcing organization and we See opportunities to really leverage the AUC before we even get to the conversation around fashion.

Speaker 1

And Once you start to layer the newness on top of that, I think you've got another upside opportunity that can continue over the next 3 to 5 years of upward motion and trajectory on our gross margin and that is going to come through in gross margin dollars. It's going to come through and increased operating profits for the company and it will come through in a more flexible balance sheet for us as we see churn Continue to increase as we like move that inventory faster and we really put our inventory to work versus our cash to work. So we do see this as an inflection point. You probably think about your model and recognize that it's changed, but I It's changed if necessary as we build that and we see those increased AURs, the sales and the demand will come. You want to think about it this way, what profit and cash led versus demand led, Where if there used to be demand led and then the profits would fall.

Speaker 1

And I think that's a conscious decision on our part, It's a conscious decision to sort of wrap ourselves around the customer.

Speaker 4

Great. That's really helpful. Thank you.

Speaker 2

You're welcome.

Operator

Thank you. And at this time, we have no further questions in queue. This will conclude the Lands' End 2nd quarter earnings call. You may disconnect your line at this time and have a wonderful day.

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Key Takeaways

  • In Q2, Lands’ End reported $323 million in revenue (-8% YoY) and $16 million of adjusted EBITDA, drove a 220 basis point gross margin improvement, and generated record post-spin-off free cash flow.
  • Inventories were cut by 30% to $396 million—below pre-pandemic levels—boosting net cash provided by operations by $172 million YoY and supporting debt reduction and a $3 million share repurchase.
  • The company executed a solutions-based product strategy—gaining swim market share (notably swim dresses) and injecting newness across linen, home, and vacation-focused assortments.
  • Lands’ End expanded its licensing model with new multi-year footwear and Costco agreements and introduced a pass-through swim capsule solution for wholesale, slated to contribute in 2024.
  • Leveraging customer data and generative AI, the firm defined two behavioral cohorts—resolvers and evolvers—to sharpen merchandising, marketing, and drive targeted loyalty initiatives.
AI Generated. May Contain Errors.
Earnings Conference Call
Lands' End Q2 2024
00:00 / 00:00