Lands' End Q3 2025 Earnings Call Transcript

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Provided by Quartr
December 5, 2024

Key Takeaways

  • In Q3, Lands’ End reported net revenue of $319 M, adjusted EBITDA up 17% YoY to $20 M, low-double-digit GMV growth, and a gross margin expanded ~360 bps to 51%.
  • Inventory position improved 20% YoY and churn rose double digits, driven by faster “wear now” products and supply-chain optimization via nearshoring to the Western Hemisphere.
  • Marketing enhancements, including personalization and a targeted tote bag campaign, boosted new-customer acquisitions by 20% in Q3, with younger consumers joining the brand.
  • Across channels, US e-commerce margin improved ~350 bps, European e-commerce margin rose ~900 bps with 13% profit growth, 3rd-party marketplace gross profit grew 20%, and B2B uniform revenue increased 7%.
  • For Q4, the company forecasts net revenue of $440 M–$480 M, low-mid single-digit GMV growth, and adjusted EBITDA of $43 M–$47 M; full-year net revenue is guided to $1.36 B–$1.40 B with EBITDA of $92 M–$96 M.
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Earnings Conference Call
Lands' End Q3 2025
00:00 / 00:00

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Operator

Good day, everyone, and welcome to today's Lands' End 3Q earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing the star and one on your telephone keypad. You may withdraw yourself from the queue by pressing star two. Please note this call is being recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Tom Altholz.

Tom Altholz
Tom Altholz
Senior Director of Financial Planning and Analysis at Lands' End

Good morning, and thank you for joining the Lands' End Earnings Call for a discussion of our third quarter 2024 results, which we released this morning and can be found on our website, landsend.com. I'm Tom Altholz, Lands' End Senior Director of Financial Planning and Analysis, and I'm pleased to join you today with Andrew McLean, our Chief Executive Officer, and Bernie McCracken, our Chief Financial 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 risk and uncertainties. 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-K and quarterly reports on Form 10-Q.

Tom Altholz
Tom Altholz
Senior Director of Financial Planning and Analysis at Lands' End

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 the forward-looking statements made by us. Subsequent events and developments may cause the company's outlook to change. During this call, we will be referring to non-GAAP measures. 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 at landsend.com. With that, I will turn the call over to Andrew.

Andrew McLean
Andrew McLean
CEO at Lands' End

Thank you, Tom. Good morning, and thank you for joining us today. Our performance in the third quarter of 2024 was characterized by the continued execution of our solutions-based strategy and customer focus to drive higher quality sales. In the third quarter, we delivered net revenue of $319 million, adjusted EBITDA of $20 million, a year-over-year increase of 17%, and a low double-digit % growth in GMV. Through the evolution of our strategy, we're further solidifying our position as a classic American lifestyle brand that creates solutions for life's every journey and attracting new and existing customers to our wide-ranging assortment of fresh, on-trend items. At the same time, we're leveraging new and innovative tactics, including greater personalization across our marketing programs, to best engage customers and drive greater buying throughout the year.

Andrew McLean
Andrew McLean
CEO at Lands' End

Paired with our strong execution, we also delivered growth in gross margin and gross profit dollars in the third quarter. When looking at our inventories, our efforts are continuing to yield results. In the third quarter, we drove a 20% year-over-year improvement in our inventory position and a double-digit increase in our churn rate. Our focus on newness and where-to-products remain key to this success. By bringing customers relevant items faster, we're able to increase full-price sales of quality inventory that fit the moment, thereby reducing the depth of promotions. One way we're optimizing our supply chain is by moving fabric closer to production with a focus on the Western Hemisphere, which helps reduce shipping time while diversifying our sourcing relationships. We're always focused on identifying efficiencies across our supply chain, and we will continue to take steps to innovate and enhance our resiliency.

Andrew McLean
Andrew McLean
CEO at Lands' End

Critically, our ongoing efforts to redefine and elevate our brand across our marketing channels are proving fruitful. As we continue to showcase Lands' End as a quality brand that appeals to a wide range of consumers across price points, we're becoming a bigger part of the conversation on social media channels and ultimately more culturally relevant. Put another way, we're seeing greater impact from our work to build the brand from our deliberate investments in marketing rather than by relying on discounting. For example, our recent campaign to promote our family of iconic tote bags has been a success thanks to a strategic marketing campaign, targeted promotional activity, and the first-of-its-kind tote pop-up in New York City.

Andrew McLean
Andrew McLean
CEO at Lands' End

As a result, tote sales are up substantially year-over-year, and our new customer acquisition from tote customers outpaced overall new customer acquisition for the quarter, largely driven by consumers much younger than our typical customers. Our totes make great gifts for everyone, so order yours by December the 8th and get it monogrammed in time for the holiday season. Thanks to our marketing efforts, we drove a 20% increase in new customer acquisition in the third quarter, and year-to-date, we've delivered mid-teens % growth in our new-to-brand customers when compared to last year. Turning to product, our transitional outerwear, including our Wanderweight franchise of fleeces and vests, performed especially well in the third quarter, as did wear-now items like our Anyweather fleece and Barn coats. Additionally, sales of our layering products like woven tops, sweaters, and flannels continued their momentum from Q2 despite a warmer fall.

Andrew McLean
Andrew McLean
CEO at Lands' End

We saw strength in sweaters throughout the quarter, and holiday sweaters performed especially well. We're also pleased with the strong response in home from our efforts to evolve and elevate that assortment. We're building a more authentic and innovative Lands' End digital experience to drive improvements in speed, personalization, loyalty, promotions, and merchandising. As we discussed last quarter, supporting the execution of our strategy, we're in the process of implementing a new ERP to increase collaboration and planning across the business and with our partners. Turning to the performance of our various businesses, as a reminder, consistent with the evolution of our brand, we now discuss our business in terms of B2C and B2B channels.

Andrew McLean
Andrew McLean
CEO at Lands' End

Beginning with our B2C activities, our U.S. e-commerce business delivered its seventh consecutive quarter of margin improvement with an increase of approximately 350 basis points as a result of our evolved marketing strategy and a more measured approach to promotions, which continued to drive higher quality sales, new-to-buy customer growth, and improved inventory management. Our strategy to maximize key events paid off well in the third quarter. We did so with lower levels of promotional activity, which contributed to our strong gross margin performance. I'll discuss our plan to continue these efforts into the holidays in a few moments. Our European business continued its momentum during the third quarter, more than offsetting consumer headwinds across the continent, with gross margin up approximately 900 basis points and gross profit up 13% year-over-year.

Andrew McLean
Andrew McLean
CEO at Lands' End

This gross margin performance exceeded our expectations in both the U.K. and Germany, with the brand attracting new and existing customers to its balanced offering of weatherproof outerwear and elevated knits. We remain confident about the trajectory of our international business, have begun to look at geographic expansion both inside and outside of Europe, and are continuing to focus on new customer acquisition efforts while at the same time driving more full-price sales in the region. Turning to third-party, we continue to see success in our strategy of focusing on assortments tailored to individual marketplaces and working with partners that both share our vision for customer-focused solutions and elevate our brand. Our recently launched partnership with Nordstrom Online Marketplace performed well in the third quarter, further proof that Lands' End is strengthening our position as an elevated brand.

Andrew McLean
Andrew McLean
CEO at Lands' End

We're seeing great traction with significant full-price selling on the platform driven by outerwear. Now on to licensing. Licensing continued to grow in the third quarter. Our asset-light licensing strategy continues to be a powerful part of our brand evolution and our customer acquisition strategy, helping to boost our relevancy with a large, attractive base of customers. Our clubs channel performed well, and we expect that strength to continue in the fourth quarter. Looking at 2025, we are actively negotiating additional license arrangements and continue to believe in the capital-light, growth-oriented results that this channel provides. While we recognize on the licensing royalties and fulfillment fees on our P&L, the GMV associated with this business allowed us to drive low double-digit overall brand growth, build market share, and reach a much broader consumer base.

Andrew McLean
Andrew McLean
CEO at Lands' End

Turning to our B2B outfitter business, our B2B business began to hit its stride during the quarter. We built a substantial new customer pipeline, emphasizing our leading market positions in banking, travel, and health-related sectors. We relaunched our website and catalog with a more contemporary feel and reorganized our sales team to emphasize these business segment-oriented categories. As we elevate and expand our B2C channels, we are seeing the impact in our B2B channel as customers recognize us for our strong product capabilities, elevated assortments, and competence in managing asset-light, faster churning, quicker speed-to-market business. Revenue from our business uniform channel increased 7% year-over-year, primarily due to key wins, including the ramp-up of our partnership with Wells Fargo to outfit approximately 35,000 employees across over 4,000 branches.

Andrew McLean
Andrew McLean
CEO at Lands' End

Looking ahead, we are ambitious about this channel, believe we have a well-defined market position, and look forward to further leveraging it to provide recurring revenues and relatively high barriers to change. School uniform had a terrific end to the season. Once again, we were able to meet the seasonal peak and deliver on the expectations of both our school customers and their parent purchasers. We're the leading market share provider in the channel and continue to pursue growth with both existing and new uniform customers. Our sales team has been notably busy since October with the exit of a significant industry player. Their diligence has provided opportunity to add a meaningful amount of customers, revenue, and profit to the Lands' End school uniform business.

Andrew McLean
Andrew McLean
CEO at Lands' End

I'm taking this moment to also reassure our existing customers that we have the capabilities to continue to deliver on our school uniform's promise while accommodating the incremental business. I'll now turn it over to Bernie to discuss our third quarter performance in more detail.

Bernard McCracken
Bernard McCracken
CFO at Lands' End

Thank you, Andrew. For the third quarter, total revenue performance came in at the middle of our guidance range at $319 million, a decrease of 2% compared to last year. When excluding the impact of transitioning the kids and footwear products to licensing agreements, total revenue grew by low single digits year-over-year. GMV increased low double digits for the third quarter of 2024, which exceeded our guidance. We delivered adjusted EBITDA of $20 million in the third quarter, which came within our guidance range and was a 17% increase over last year. These results reflect our continued efforts to prioritize profitability and balance sheet efficiency versus only the top line. We continue to improve profit margin across our business units, which has allowed us to continue to reinvest in the business. Gross profit increased by 6% compared to last year, driven by our seventh straight quarter of gross margin expansion.

Bernard McCracken
Bernard McCracken
CFO at Lands' End

Gross margin in the third quarter was 51% and approximately 360 basis points improvement from the third quarter of 2023. The margin improvement was driven by newness across the assortment and lower promotional activity. Our U.S. e-commerce business saw a sales decrease of 2% compared to the third quarter of 2023. Excluding the impact of kids and footwear, U.S. e-commerce sales increased low double digits year-over-year. We generated a 6% increase in gross profit dollars driven by continued efforts to prioritize higher quality sales. Our European e-commerce business increased gross margin by approximately 900 basis points and gross profit dollars by 13% compared to the third quarter of 2023, with sales decreasing 5% year-over-year. Sales from Lands' End Outfitters were down 1% from the third quarter of 2023. Sales from business uniform channel increased 7% over last year, primarily due to the ramp-up of our partnership with Wells Fargo.

Bernard McCracken
Bernard McCracken
CFO at Lands' End

Sales from our school uniform channel were down 8% year-over-year, driven primarily by the timing of customer orders compared to the prior year. Consequently, we are seeing the benefits of our higher quality sales approach in this channel, demonstrated by a profitable back-to-school selling season that has driven high single-digit growth in gross profit year-to-date. Our third-party business gross profit dollars increased by over 20% compared to the third quarter of 2023, with revenue increasing by over 6% year-over-year. The increase was primarily due to revenue generated from licensing arrangements. Licensing and our presence across our third-party marketplace partners continue to help the business diversify and reduce risk to any one individual partner. As a percentage of sales, SG&A was 44%, which was an increase of approximately 250 basis points compared to 2023, primarily driven by reinvesting in the business through higher digital marketing spend focused on new customer acquisition.

Bernard McCracken
Bernard McCracken
CFO at Lands' End

For the third quarter, we had a net loss of $0.6 million or $0.02 per share. We had an adjusted net income of $1.8 million or $0.06 per share, which was within our guidance range. Moving to our balance sheet, inventories at the end of the third quarter were $336 million compared to $422 million a year ago. The 20% improvement in our inventory position benefited from our supply chain team's ongoing efforts to drive efficiencies, paired with our strategy to increase turns of our assortment. In terms of our debt, at the end of the third quarter, our term loan was $250 million, and our ABL had $60 million of borrowings outstanding, which was $50 million lower than the third quarter last year.

Bernard McCracken
Bernard McCracken
CFO at Lands' End

During the third quarter, we repurchased $4 million worth of shares under our $25 million share repurchase authorization announced in March, bringing the balance of the remaining authorization to $16 million as of the end of the quarter. Now moving to guidance, we are continuing to prioritize high-quality sales and improved cash flows, which we expect to drive continued gross profit and margin expansion during the fall and holiday selling season. In the fourth quarter, we expect net revenue to be between $440 million and $480 million, with gross merchandise value, or GMV, expected to be low to mid-single digit growth. We expect an adjusted net income of $16 million to $19 million and adjusted diluted earnings per share to be between $0.51 and $0.61. We expect adjusted EBITDA to be in the range of $43 million to $47 million.

Bernard McCracken
Bernard McCracken
CFO at Lands' End

For the full year, we now expect net revenue to be between $1.36-$1.4 billion, while GMV is expected to be low to mid-single digit growth. We now expect adjusted net income of $11-$14 million and adjusted diluted earnings per share of $0.35-$0.45. We now expect our adjusted EBITDA to be in the range of $92-$96 million. Our guidance for the full year incorporates approximately $35 million in capital expenditures. As we have discussed, we expect our improved inventory management to enable us to maintain inventory at normalized levels and bolster our work to further expand gross margin moving forward. With that, I turn the call back over to Andrew.

Andrew McLean
Andrew McLean
CEO at Lands' End

Thank you, Bernie. I want to spend a minute discussing our initial read on the Black Friday-Cyber Monday weekend. This kickoff to the holiday season was in line with our expectations and was further demonstration that our strategy is working. Throughout the weekend, we saw both longer tenures and newer to Lands' End customers visit, engage, and purchase directly from Lands' End. We also saw balance across our channels, continued strength and growth in our licensed products, and strong performance in our marketplace business. Taken together, we're pleased with this start to the holiday season. Before we conclude, I'd like to highlight two updates to our leadership team. First, I'd like to congratulate Kym Maas on her appointment as Lands' End's Chief Creative Officer. Kim previously served as our Senior Vice President of Product and Merchandising, where she played a key part in our brand evolution efforts.

Andrew McLean
Andrew McLean
CEO at Lands' End

I look forward to her future contributions in her new role, where she leads all elements of the creative vision for Lands' End global brand. Secondly, in October, we announced that after over 30 years at Lands' End, Angie Rieger, our Chief Transformation Officer, will retire effective April 15, 2025. Angie is a consummate leader who has not only been instrumental to the execution of our inventory strategy but has become a trusted advisor. On behalf of the entire Lands' End team, I want to thank Angie for all her contributions. We wish her nothing but the best in her well-deserved retirement. As always, I want to thank all of the Lands' End employees, wherever they are, for their dedication to the brand, the company, and our continued success. With that, we look forward to your questions.

Operator

At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question. We will pause for a moment to allow questions to queue. And we'll take our first question from Dana Telsey with Telsey Advisory Group. Your line is open.

Dana Telsey
Dana Telsey
CEO and Chief Research Officer at Telsey Advisory Group

Hi, good morning, everyone. The new customer acquisition, hi, the new customer acquisition increase of 20% is definitely a call-out. What are you seeing working there? What are the demographics of these new customers, and how is it informing your product development? And then just getting some more color on the Black Friday weekend and the kickoff to this, well, we're in the fourth quarter. What are you seeing in terms of the promotional landscape, given the fact of the strength of your margins? How much is internal versus external? And lastly, China, any percentage of goods from China and thoughts on tariff impact and what it may mean for pricing for you? Thank you.

Andrew McLean
Andrew McLean
CEO at Lands' End

Great. I'll kick off with China, Dana. We've worked to put some real agility into our supply chain over the last couple of years, and China now accounts for less than 6% of our open-to-buy. We had been progressively moving towards the Western Hemisphere. We have taken a view that the closer we can get the product to our customer, the quicker we're going to be able to turn, and that works with our margin model really well. So we're not feeling much pressure around China. If there's anything specifically, it would be around Kashmir, but that tends to be a smaller part of our assortment in any case. So we're good there. In terms of, they kind of go together, the new customer and the promotional landscape in the fourth quarter.

Andrew McLean
Andrew McLean
CEO at Lands' End

If we look at the new customer, we're really seeing a couple of cohorts, which we talked about before on prior calls. We've got the resolvers, which tend to be our traditional customer, come back, tend to buy the same items, wear it out, and come back. And then we've got a resolver who tends to be a newer customer. We continue to see the path with adding, sorry, evolvers as our new customers. They tend to be 10 to 12 years younger. We see them coming in from all avenues: our website, our third-party business, our stores. And I can talk about the pop-up that we had in Soho because it sort of really spoke to sort of a cultural moment that we're having with our tote bags, where we're able to reach out via influencers and target a customer who's in their late 20s to early 30s.

Andrew McLean
Andrew McLean
CEO at Lands' End

We're continuing to halo down and reach this new group. They come with very much a sort of fashion-forward perspective. You're seeing that in our assortment. I know that you spend time on our site, Dana. I think you'll see that there's more fashion on there, and we've modernized whole parts of the assortment. Even if I take something as traditional as our Starfish pant, which is probably 30 years old at this point, we have modernized it so you can buy the existing pant for the traditional customer, and you can buy an elevated version of it or a more fashionable version of it for our newer customer. It is a trick to be able to keep these two customer cohorts together because we want both of them. It isn't a matter of needing both of them. We want both of them.

Andrew McLean
Andrew McLean
CEO at Lands' End

We want to be a family lifestyle brand. And being able to have these two cohorts and be able to reach them via the appropriate marketing is absolutely critical. I would say to that, where there might be more traditional reaches from, say, Facebook to our more Resolver-based customer, we would use pop-ups, or we would use social media, or we would use influencers to our newer Evolver customer. And actually, coming out of the work that we did with the pop-up in New York, we've actually moved on, and we're working with an influencer now called Parke, who has a pop-up in Miami and a website where she's customizing Lands' End tote. In terms of the promotional landscape, we're not going to buy into the promotional landscape, Dana.

Andrew McLean
Andrew McLean
CEO at Lands' End

It's like we have our model for our business, and we're going to stay very firmly on it, which is managing our inventories tightly, bringing the best product to market that we can, and being far less promotional than we have been in the past, and we will continue to drive gross margins, so it should come as no surprise that the third quarter gross margin was the highest that I could find in any quarter, going all the way back to the IPO. I think that's a pattern that we'll continue with, and we see that that's a way to win versus just playing the promotional game.

Dana Telsey
Dana Telsey
CEO and Chief Research Officer at Telsey Advisory Group

Thank you.

Andrew McLean
Andrew McLean
CEO at Lands' End

Thank you.

Operator

Thank you. We'll take our next question from Eric with SCC Research. Your line is open.

Eric Beder
CEO at SCC Research

Good morning.

Andrew McLean
Andrew McLean
CEO at Lands' End

Good morning, Eric.

Eric Beder
CEO at SCC Research

Hey. Let's talk a little bit about licensing. First of all, I know you talked about aggressively kind of adding more licenses. What is kind of the criteria when you look for new licenses, and where do you want to go? And that's one. Could you remind us of what is new beyond the two licenses you have coming up for 2025? And how should we be thinking about longer-term, the split kind of here between licensed product and non-licensed product?

Andrew McLean
Andrew McLean
CEO at Lands' End

Sorry, what was the last part? You broke up on me there, Eric.

Eric Beder
CEO at SCC Research

I'm sorry. The split between longer-term, what should be the split between the amount of licensed products sold versus non-licensed product?

Andrew McLean
Andrew McLean
CEO at Lands' End

I'll start with that one. It's an 80/20 rule in there. I think about 20% of what we should be doing should be coming from licenses. I've been doing this for a lot of my career, and I think when you start to become over-licensed, you probably give up too much brand control. Mostly, it's about just trying to keep the whole concept of playing to the same beat. And if you have too many licenses, that becomes a challenge. And I've talked before about just trying to manage between five and 10 licenses for the whole of the business. For licenses that we'll be adding on top of the ones we've discussed, Home starts in 2025.

Andrew McLean
Andrew McLean
CEO at Lands' End

We will continue to provide our own home merchandise on our site, although we've given ourselves the option to be able to buy from our licensed partner, and we can evaluate that as we go forward. But we just didn't have the experience of selling it outside of our digital channels. We're looking at non-core categories, so I would think beauty is one that we continue to look at. We look at things like luggage. We look at things like fragrance. There's a number of areas that we can lean into in that space, and we'll continue to do that. The other big one that's going to be coming up is international. There's the three license groups that we've talked about. One's product, one's channel, and one's geographic.

Andrew McLean
Andrew McLean
CEO at Lands' End

And I think what you'll see as we build the brand up over the coming months is that we'll start to look more towards international. And we're already out talking to a number of potential partners about it, and I think that could be very positive for the business and really start to balance out that sort of heavy North American reliance that we have. If you can ask me a question on licensing criteria, the criteria is, first of all, the partner has to be established in this space. I've seen a lot of deals in my career that just don't work out because you went with the highest, most attractive set of economics, but the partner wasn't able to deliver on it.

Andrew McLean
Andrew McLean
CEO at Lands' End

And in particular, I've seen vendors struggle with this the most or manufacturers struggle with this the most, where they think they're going to capture 70, 80 points of margin, and the reality is they forgot about the whole cost structure. So we need established partners that we can lean in, who've got a proven track record in this space. And then really, they have to mesh up with our brand values. I mean, they have to be ready for life's every journey. It's the promise we make to our customer, and we view our customer who shops licensed product or licensed channels just as importantly as we view the customers who shop our own channels. And we have to have that promise kept. So that's going to be the materially important part.

Andrew McLean
Andrew McLean
CEO at Lands' End

Obviously, behind that, we're going to look at the economics, which is going to be a combination of royalty and minimum payments. And we like that. It gives us good longevity and protection to both our P&L and balance sheet. I would say this, just to underscore it all, that asset-like capital model of licensing is really important to us. And I think it came through very clearly in the numbers where we had a strong double-digit GMV growth as a company. So Lands' End is gaining market share, and it very clearly is starting to come through in our profitability.

Eric Beder
CEO at SCC Research

Great. One last quick inventory. You've done a tremendous job of reducing inventories and listening kind of to the licensing and kind of where you're resetting the manufacturing. It sounds like there's actually probably still more there. How should we be thinking about the opportunities inventories, even though you've spent the last seven quarters reducing the inventory amount? Thank you.

Andrew McLean
Andrew McLean
CEO at Lands' End

Yeah, Eric. We expect to normalize inventory levels going forward. As we continue to improve our infrastructure and our supply chain processes, there will be some efficiencies built into that where we'll be able to, as Andrew said, near shore more product and not have to have it on our balance sheet and be able to buy closer to trend. So we're excited about that going forward, but you can think of our inventory levels now as being our normalized levels going forward as we build those efficiencies.

Eric Beder
CEO at SCC Research

Okay. Great. Thank you, and good luck with the rest of the holiday season.

Andrew McLean
Andrew McLean
CEO at Lands' End

Thanks, Eric. Take care.

Operator

Thank you. We'll take our next question from Alex Fuhrman with Craig-Hallum Capital Group. Your line is open.

Alex Fuhrman
Alex Fuhrman
Managing Director at Craig-Hallum Capital Group

Hey, guys. Thanks for taking my question, and congratulations on a strong quarter during what seems like has been a pretty promotional holiday season for a lot of retailers here. Wanted to ask just about the guidance, if we could just drill into the revenue versus GMV. Looks like a little bit lower GMV guidance despite revenue guidance being within the prior range, albeit a little bit lower at the midpoint. Is there a simple explanation there, or is it just a matter of a small move lower, and that's all there is to it?

Bernard McCracken
Bernard McCracken
CFO at Lands' End

Yeah, Eric. Of course, our U.S. e-commerce has the impact of transitioning our kids and footwear products to licensing arrangements. So naturally, the revenue year on year will be lower in that business. But those businesses lean heavier into Q4, so there'll be a little more effect on the revenue line in Q4. But that does not affect GMV, as those businesses will be selling Lands' End branded product.

Alex Fuhrman
Alex Fuhrman
Managing Director at Craig-Hallum Capital Group

Okay. That's helpful, Bernie. And then just big picture marketing, over the last year or so, you guys have been spending a lot more on marketing and seem to be getting a very strong return on that. Are there opportunities to continue to increase marketing spending next year and in future years off of this base, or do you feel like you've found a pretty good level for now?

Bernard McCracken
Bernard McCracken
CFO at Lands' End

We've spent the year investing in our marketing. As you can tell, it's driven a very nice new customer acquisition, which we expect to create a flywheel and drive additional business going forward. As we generate those additional revenues, we expect to then still spend a percentage of that, an equal percentage on marketing, to keep that flywheel going. So we feel strongly that it'll stay on a percentage basis, and we'll be able to start, as we improve our gross margins over the year, we've spent some of that investing in this marketing and new customer acquisition. And I think we'll be able to start leveraging that going forward.

Alex Fuhrman
Alex Fuhrman
Managing Director at Craig-Hallum Capital Group

Okay. That's really helpful. Thank you.

Operator

Thank you. We'll take our last question from Steve Silver with Argus Research. Your line is open.

Steve Silver
Senior Equity Analyst at Argus Research Company

Thanks, operator, and thanks for taking the questions. I was curious about the rollout of the third-party business. Over the last couple of quarters, there's been a lot of talk about the expansion of the roster, including Nordstrom and Costco, among others. I'm curious as to how long you expect that will take to kind of translate into increased traffic to the Lands' End website, which you guys have talked about in previous quarters, and the double-digit increase in GMV in Q3. I'm curious as to how much of that you attribute to the third-party expansion versus other channels, and just trying to get a sense as to the data you're capturing from these third-party businesses in terms of your new customer acquisitions, in terms of what percentage of that is organic versus coming to you from these third parties.

Bernard McCracken
Bernard McCracken
CFO at Lands' End

Yeah. First of all, good morning, Steve. How are you doing?

Steve Silver
Senior Equity Analyst at Argus Research Company

I'm well, thank you.

Andrew McLean
Andrew McLean
CEO at Lands' End

It's a great couple of questions. I'm going to take the first one on the third-party business. We started Nordstrom's in the summer, and it has exceeded all our expectations. What's been interesting is that we're tailoring each of these businesses to a specific customer, so we will merchandise accordingly from both an assortment and a price point, so for example, with Nordstrom, we've already found that there's a very strong school customer on there, and we're finding that we're able to be actually, at the moment, Nordstrom's only resource for school, and it's really opened up a new avenue for us, and so there is a lag between seeing those customers from the Nordstrom website onto the Lands' End website, but we do see them because we curtail the inventory. We curtail the assortment. We make it quite specific, and then we use that to find their way back.

Andrew McLean
Andrew McLean
CEO at Lands' End

Our data. We do spend a lot of time on this. Third-party continues to be one of the biggest areas from which we grab customers. Now, there's a second part to this question, which is Costco. Costco's managed at arm's length. It's a licensed partner where we manage that Nordstrom's relationship very specifically ourselves. And that's supplied from our inventory, but with Costco, that's supplied from a partner inventory. So it's harder for us to get the data. Here's how I view it, though. Having that physical manifestation of the brand in like-minded retailers, and while Costco is a club, I very much view it as a like-minded retailer given the demographics of the customer. It presents almost as a store in many ways. And it opens us up not just to our existing consumer shopping there, but very much to a new consumer.

Andrew McLean
Andrew McLean
CEO at Lands' End

And we do see the benefit as we go back and look at our customers and try and match up against those that we survey to see if there's a growing percentage of them come from Costco, for example. And we do see that coming through. But in terms of hard and fast being able to tie that together, we don't have the insights given the arm's length nature of that licensing agreement versus owning the third party.

Bernard McCracken
Bernard McCracken
CFO at Lands' End

Yeah. And to add on to that, Steve, the new customers in marketplaces, 80% of our sales on marketplaces are from customers who either have never shopped or haven't shopped with Lands' End in over five years. So it's a new customer we're attracting there. And then the benefit of the marketplaces, Andrew says, is we are fulfilling that product from our single source of inventory.

Bernard McCracken
Bernard McCracken
CFO at Lands' End

One, it de-risks our inventory, but two, more importantly, from a customer acquisition standpoint, is we are getting the information on that customer and knowing what that journey is for that customer, which, as we're only a year or a couple of years into our expanded marketplace, that we're starting to build those customer journeys and truly understand where their next purchase is from. Is it from that same marketplace? Is it on Lands' End.com? And it's data analytics that we're very excited to keep learning from.

Andrew McLean
Andrew McLean
CEO at Lands' End

And we're seeing customers come from many avenues. We're really only a year into our journey on Instagram, and we have 200,000 followers now. So we're able to see customers from places where we've never seen them before. So what Bernie's saying is right. We've invested against understanding that customer journey is why.

Andrew McLean
Andrew McLean
CEO at Lands' End

We're so excited about the new customers that we're seeing file in the third quarter and into the fourth quarter, where they're coming in. They're younger. They come from many venues, and they're much more about occasion buyers than they are necessarily about an event buyer. I think that high intent is really transferring through to much, much stronger margins for us, and we'll continue to do so.

Bernard McCracken
Bernard McCracken
CFO at Lands' End

Great. I appreciate all the color, and again, best of luck for the rest of the holiday season.

Andrew McLean
Andrew McLean
CEO at Lands' End

Hey, thank you very much. Take care. Happy holidays.

Operator

Thank you. And that concludes today's teleconference. Thank you for your participation. You may now disconnect.

Executives
    • Andrew McLean
      Andrew McLean
      CEO
    • Tom Altholz
      Tom Altholz
      Senior Director of Financial Planning and Analysis
    • Bernard McCracken
      Bernard McCracken
      CFO
Analysts
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