Preliminary Q1 2020 Lands End Inc Earnings Call

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Ladies and gentlemen, please standby your conference call will begin momentarily once again, ladies and gentlemen, please stay on the line.

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Well, ladies and gentlemen, thank you for standing buying back to the wins and first quarter 2020 earnings call. At this time all participants are in listen only mode. After the speakers presentation they'll be a question and answer session to asked a question during the session need a press star one on your telephone if you require operator systems around the program. Please.

Our star than zero.

No actually just Roasteries conference call Mr., Bernard and secondly, maybe good.

Good morning, and thank you for joining the land and earnings call for a discussion of our preliminary first quarter fiscal 2020 results, which we released this morning can be found that our website lands' end up.

As noted in the released the results are preliminary pending the completion up our quarterly procedures and preparation in filing of our quarterly report on form 10-Q.

Which we expect will take longer this quarter due to covert Nike and therefore are subject to change.

On the call today, you will hear from Jerome Rip It our Chief Executive Officer, President and just huge our Chief operating officer, and Chief Financial Officer. After the company's prepared remarks, we will conduct a question and answer session.

Please also note that the information we're about to discuss include forward looking statements such statements involve risks 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.

SCC filings, including our annual report on form 10-K, and quarterly reports on form 10-Q.

The forward looking information that is provided by the company on this call represent 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 out what could change.

Oh, no disrespect opened 19 pin debit continues to have a significant impact on our business operations financial results and cash flow the uncertain and dynamic nature of person conditions and its duration could materially alter our out.

During this call 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 because 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 relation.

Section of our web site at lanes and Dot com.

With that I will turn the call over to drove grip.

Thank you Bernie good morning, and thank you all for joining our first quarter earnings conference call.

I hope that you and your families are healthy and safe.

The carbon 19 pandemic has created a complex environment on many fronts to say the least we believe that our business model provides the flexibility to mitigate some of these challenges that this 10 dynamic has created across the industry.

I'm extremely proud of our team's efforts in helping us navigate through this difficult period and encouraged by the more recent trends we have seen in our global ecommerce business.

I want to thank the lands in team for their hard work and commitment over the past few months.

I also want to extend my thanks to our business partners as we continue to work closely together to manage through this period.

We were extremely pleased with a continuation of strong trends, we saw entering the first quarter. While our results were impacted by the outbreak of covered 19, we're no less optimistic about our future for several reasons.

First we're a digitally driven company with 95% of total revenue coming from E Commerce.

I've that 95% approximately 80% is direct to consumer revenue.

Second we provide key item basics, a great value with great service at a time, when we're seeing growing demand for our offerings offerings.

So why do we saw significant impacting consumer demand at the onset of the virus. These attributes enabled a rebound in the following weeks.

Third we have demonstrated the adeptness and agility to appropriately adjust our cost structure as we reset the new normal.

And finally, we see opportunities to expand our customer base through more recent strategies, including the planned launch of lands end on calls Dot com and in 150 calls retail stores this coming fall I.

I will speak more to where growth opportunities following Jim's Jim's remarks.

Now I wanted to touch on our business response to the Coven 19 pandemic in March as the outbreak spread we took decisive actions to reduce our costs cut capital spending adjust our inventory receipts negotiate select terms with business partners and in general prudently manage our cash flow in order to create better financial flow.

Stability during this highly uncertain period.

Jim will discuss these actions in more detail, but it is important to note that our quick and deep actions where necessary to preserve the long term health of the lands and brand and we believe they will position us as an even stronger company on the other side of this crisis.

Looking back on the first quarter sales trends performance in the first five weeks were ahead of our expectations in mid March in conjunction with the spread of to covert 19 pandemic. We began to see an impact on both are U.S. consumer and business segments and on March 16th we temporarily closed or 26 U.S. stores.

We focused our marketing efforts to drive our ecommerce business, which led us to rebound in sales volume beginning mid April.

Which accelerated through May we're very pleased with these recent trends, which clearly demonstrate the resiliency of our business.

Our ecommerce business remains an important area first of strength for us.

The scale of our ecommerce business and supporting infrastructure enabled us to meet consumer demand and fulfill online orders as the retail industry shifted almost entirely online.

The vast majority of our inventory is located in our Wisconsin distribution centers, and we were able to remain operational and fulfill customer orders.

We also benefited from the heightened demand for comfort and value during the shelter in place restrictions.

We emphasize these product categories and our online presentation catalogs and customer communication and saw strong performance in apparel related categories as well as our home business.

We were also encouraged by a low double digit increase in new customer acquisition in April which accelerated to a high double digit growth in may.

We continue to focus on driving ecommerce sales through outreach to existing and new customers and we are in the process of a phase reopening of our retail stores, which we expects to complete by the end of June.

This is being done in accordance with governmental guidance and then adherence to CDC health and safety recommendations to ensure safety of our employees and our customers.

Our product offering has also been an important differentiator for us and this new industry landscape.

Lands' end as best known for high quality at a value price point offering our customers a composition of basics seasonal basics and newness.

Over the past few quarters, we have seen success in many of our casual comfort categories, which we expanded in the spring and will further build upon for the fall.

Consistent with the shifting customer dynamics as more people work from home, we're seeing strength in this offering as well as select multifunctional items will you be production within our swimwear category as people are ready to spend more time outdoors.

Home as another category for which we are seeing strength as consumers are creating a more comfortable living space with the increase in time spent at home.

And our outfitters business, we completed the American Airlines launch in the quarter, but due to cope with 19, we saw declines, particularly in our large national accounts and small and midsize businesses.

Relative to our other business segments, we expect outfitters to see a slower recovery.

In summary during the quarter, we continued to deliver against our core growth strategies across product digital unit channel and infrastructure. Despite the volatile landscape, while building new growth opportunities across channels, our dynamic ecommerce business limited retail footprint attractive value oriented basics product assortment.

Solid liquidity position and lean operating structure provides us with the firm foundation to navigate through this temporary disruption.

Looking ahead, when the environment improves and the consumer begins to recover we believe the secular shift to online shopping will continue and we're well positioned to capitalize on this change.

I will speak further on these points following Jim's review of our financial performance and detailed discussion on actions we have undertaken in response to covert 19.

With that I will turn the call over to Jim.

Thank you Jerome and good morning.

Before I get started I want to take this opportunity. Thank everyone on her team for their hard work and for their commitment throughout this very challenging period.

I'll begin with a review of our financial results before detailing the actions. We took him in response to cope with 19 to protect our business improve our financial flexibility and maintain early or liquidity.

Well the pandemic had an adverse impact on our results in the quarter.

Our business model is resilient, particularly our ecommerce channel and we expect all of our segments to recover albeit at different rates.

That's burning noted at the outset <unk> results are preliminary pending the completion of our quarterly procedures and filing of our 10-Q.

We started off the you're building on the momentum from the fourth quarter for February revenue was up 11.1% with strong performance across all of our <unk> business segments.

That's a pandemic began to impact the U.S. consumer in mid March.

All of our segments were pressured initially before we begin to see a recovery specifically in our global ecommerce starting in April.

As a result, our total company revenue for the first quarter decreased 17.3% to 217 million compared to 262.4 million last.

Sure.

You know U.S. ecommerce business sales decreased 16.5% while sales in our international ecommerce business remained relatively flat for the quarter.

Following its significant drop in consumer demand at the outset, a cobot 19, we saw sales rebound in April.

We're pleased to see this trend continuing to me with global ecommerce business accelerating to double digit revenue growth versus prior year.

Our efforts in this channel not only led to increased engagement with existing customers for drew new customers as well.

We saw strengthen our comfort assortment, including nuts lounge wear and you'd be protected basics as well as in our home categories.

These categories delivered strong double digit growth in the quarter. That's we emphasize these assortments with the drastic shifting consumers working from home.

While our overall buyer file declined in mid single digits for the quarter, we did see low double digit increase in our new customer file for April as consumer saw a comfort in value.

Within Outfitters, our sales decreased 26.2%, we completed the American Airlines launch during the first quarter totaling 4 million, bringing total revenue for the launch to approximately 44 million.

As to be expected the outfitter business has been slower to recover outfitters operates in threeg market segments large national accounts small and midsize businesses in schools.

Each of these segments represents approximately one third of the business.

As several of the larger national accounts or in the travel industry. This business has been hit particularly hard by the pandemic and we expect that it will take the long gets to recover.

And our small and midsize business segment, we it's we'd expect spending to recover at varying rates depending on the industries. These companies are.

Well the school uniform business was also adversely impacted the first quarter is the smallest season for school uniforms, and we expect this business to recover to prior year levels, assuming schools reopened on time.

Moving to our retail business I'd remind you that in contrast to traditional pillars. We only have 26 U.S. company operated stores in brick and mortar represents less than 5% of our total business.

We had a strong start to fiscal 2020 with comps up 14% in February however, as a result of our temporary store closures in mid March our U.S. retail sales decreased 65.2% in the first quarter.

From 10.2 million to 3.6 billion.

As Jerome mentioned, we expect a phased reopening of these stores and an additional five new stores open by the end of July.

Gross margin in the first quarter was down approximately 230 basis points to 43.4%.

The gross margin decrease was primarily due to increased markdown activity in response to a more aggressive promotional environment and additional inventory reserves.

Selling and administrative expenses declined approximately 11 million due to actions taken in response to go get 19. These include employee furloughs and temporary tiered salary reductions for the executive team and corporate staff.

As a percentage of sales that's that's junaid de leveraged to 48.8% of revenue compared to 44.5% in the first quarter of last year.

Interest expense decreased to 5.3 million as compared to 7.8 million largely due to the 100 million voluntary pay down of the debt slightly offset by interest, resulting from the borrowings under our ABL facility.

Income tax was a benefit of 9.2 million compared to 4.9 million last year.

The first quarter 2020 rate reflects the estimated tax benefits as result of the carriers Act.

Net loss for the quarter was 20.6 billion EUR 64 cents per share compared to net loss of 6.8 million or 21 cents for sure last year.

In addition to the GAAP measures that were outlined above adjusted EBITDA is an important profitability measure that we use a manager business internally.

For the quarter adjusted EBITDA was a negative 11.6 million.

That's down 14.6 million from a positive 3 million in the first quarter last year and it is directly attributable to the significant challenges related to cobot 90.

Turning to the balance sheet total cash at the end of the quarter was 59.1 million compared to 40.2 million last year.

Looking at inventories at the ended the quarter, we were at 383.2 million compared to 319.3 million a year ago.

This includes approximately 30 million in American Airlines inventory that we added to support Americans ongoing business.

In addition, higher inventory levels were the result of we can consumer demand directly related to the pandemic.

Well, we did end of quarter with some excess seasonal inventory overall levels remain manageable and we're very comfortable with our current composition as we navigate through this challenging period.

Our spring and summer inventory had large <unk> already been received but we were able to reduce our receipts for fall and holiday as a hedge against potential softness in consumer demand.

Based on our current inventory position, we expect to largely maintain or normal promotional cadence. However, we will respond accordingly based on the competitive environment and sales trends.

We also plan to leverage our demand forecasting system and expanded replenishment capabilities to quickly react to changes in consumer demand.

Turning to her I T initiatives, we're on track to deliver the final phases of our enterprise sort of management system in 2020, which will increase our inventory productivity and improve our ability to fulfill orders through additional channels and marketplaces.

We expect this implement implementation to drive both topline and working capital improvement.

For fiscal 2020, we expect to significantly limit our capital spending levels focusing on projects are largely concentrated on consumer facing enhancements.

As Jerome discuss we're focused on maintaining our financial flexibility through this challenging environment at the end of the quarter, we had $59 million in cash that's including 75 million from our ABL facility.

Based on the improvement in the global ecommerce trends in May we recently reduced these they'd be l. borrowings to 50 million.

With this reduction we currently have 141 billion in capacity remaining under our 200 million facility.

The facility also includes the potential of an increase to 275 million through an accordion feature.

With respect to our term loan <unk>, we remain in the process of working to refinance this one.

Due in April of 2021 as a reminder, we've continued to pay down the principal over the past few years and have 384 million.

Remains outstanding.

As Jerome highlighted we've taken decisive actions to preserve our liquidity through this pandemic as part of this we previously announced that we've undertaken a number of cost management initiatives, which I spoke to earlier and we'll continue to review further cost cutting opportunities within our expense structure.

In addition, we reduced our capital expenditure protection from 40 million to approximately 20 million.

Given the uncertainties in the rapid changes in the U.S. consumer behavior in response to Cobot 19 pandemic.

We're not providing full 2020 guidance at this time instead, we would like to provide our sales outlook for the second quarter.

As well as directional commentary on her view for the remainder of the year.

For the second quarter, we expect net revenue to decline between mid to high single digits versus prior year. This assumes high single digit growth in our glow.