Q2 2020 Lands End Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the land in second quarter 2020 earnings Conference call.

At this time all participant lines are in listen only mode.

After the speakers presentation there'll be a question and answer session.

The question during the session you need the press Star then one on your telephone.

Please be advised of today's conference maybe recorded if you acquire any further assistance. Please press Star then zero I would now like the hand the competition, what's your speaker today, Bernie Mccracken Chief Accounting Officer. Please go ahead.

Good morning, and thank you for joining the land and earnings call for a discussion of our second quarter fiscal 2020 result, which we released this morning I can be found on our website lands' end battle.

Coal today, you will hear from girls Chief Executive Officer in such a Jennie O, Turkey property hopes or a 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 includes 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 FCC included.

We'll report on form 10-K quarterly reports on form 10-Q, and form 8-K dated June 2nd 20 Twond.

The forward looking information that is provided by the company on this call represents the company's outlook adds up to that 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 of note in this respect to cope with 18 pandemic continue sabic significant impact on our business and its duration to materially alper outlook.

During this call will be referring to non-GAAP measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles.

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 Williams and dots, though.

With that I will turn the call over to draw.

Thank you Bernie good morning, Thank you for joining our second quarter earnings Conference call.

I hope that you and your family's remains safe and healthy.

Before we begin I want to extend my deepest gratitude to all of our team members for their hard work and contributions as we continue to navigate this highly complex and challenging environment.

Looking at our business since I joined lands end in spring of 2017, we prioritized investments and resources that would enable us to capitalize on our ecommerce let organization.

We focus on product assortment through our key item strategy data analytics capabilities, our global ecommerce platform, including website presentation and functionality.

Marketing strategies and business processes and infrastructure.

The work we have done across these areas enabled us to drive momentum in our global ecommerce business and deliver strong growth in the second quarter of 2020.

We remain well positioned to manage through the challenges presented by coven 19 and to deliver long term profitable growth when we emerged from this crisis.

My confidence is due to several factors first organization as a digitally driven business with over 96% of total revenue from E Commerce.

Second.

You offer key item basis, as a great value with great service.

Third we have demonstrated the agility and disciplined necessary to align our cost structure to a new normal.

And lastly, we have a number of strategies in place to further expand our customer base, including the plan launch of lands end on calls Dot com and in 150 calls retail stores in late September.

As well as brand collaboration and the introduction of our third party marketplace I will speak to these initiatives and just a bit.

Looking back for a second quarter total revenue grew 4.6% and our global ecommerce business increased approximately 23% head of our expectation of high single digit business unit growth.

We more than tripled adjusted EBITDA to approximately $24 million through margin expansion attributable to more disciplined promotions and reduced expenses.

Importantly, we also took steps to enhance our liquidity position Jim will provide details on our financial results shortly.

Diving, a little deeper into our global consumer E Commerce business, our strategy remain to emphasize comfort and value across her E commerce site in our catalog and throughout our communication strategies.

Marketing programs focused on our lets get comfy campaign resonated with both existing and new customers.

Use data analytics and search engine optimization programs to capture new customers globally with high intend to purchase resulting in 34% growth and new customer acquisition.

The same time, we leveraged data on existing customers to deliver more personalized messaging.

Number of repeat purchases improve in the second quarter as we continue to tailor our messaging to customer preferences are rebuy rates reach nearly 60% for existing customers and nearly 30% for no. These are the highest in our company's history and we believe are among the best in class.

Our product offering provides the comfort and value proposition that perfectly matches the work from home lifestyle.

Or swimwear was a top performing category in the quarter. We saw strong response to the versatility in our assortment with board shorts and you'd be protected Twentys book, particularly strong performers.

Emphasis on a one closet strategy, enabling customers to mix and match key items also resonated.

In addition to swim sleepwear, especially mens and mix both performed very well.

Home also continues to be an area of strength as we extend our comfort messaging entered the living space.

Turning to our outfitters business results were severely impacted by covert 19, partially offsetting growth in our direct to consumer ecommerce business.

As we discussed last quarter, many of our national accounts operate and highly challenged travel related industries, while our small and midsize businesses were also negatively impacted by the pandemic.

Our school uniform business declined double digit and the second quarter. While we expect continued pressure in Q3 due to delayed school openings, we are seeing trends improved sequentially.

And we'll provide more details on this business and his remarks.

While we continue to face macro related headwinds in our outfitters business. We're extremely pleased with our direct to consumer E. Commerce business as we think about the second half of the year, we will continue to leverage our ecommerce capabilities and advance our growth strategies, while carefully managing inventory and cost to enhance liquidity and protect our business in the face of.

The regarding the pandemic.

Longer term, we remain confident our positioning within the new landscape given our dynamic ecommerce Foundation limited bricks and mortar exposure key items basic business that offers an attractive value proposition and lean operating structure.

I will speak more on our longer term strategies following Jim's remarks, with that I'll turn the call over to Jim.

Thank you Jerome and good morning.

That's Jerome mentioned, we're extremely pleased with the performance of our global ecommerce business and the second quarter.

As expected her outfitter business remains challenging.

While there continues to be uncertainty in the marketplace will remain focused on executing our strategies as well, it's a maintaining disciplined expense and inventory management and enhancing our liquidity.

While the pandemic continued to impact our business our strong results reflect its resiliency.

Total revenue increased 4.6% to 312.1 million compared to 298.3 million last year.

In our U.S. ecommerce business sales increased approximately 26% while sales in our international ecommerce business increased approximately 9% for the quarter.

We saw strength in a number of categories in the second quarter, including Swimwear Netspend launch work as well as in our home categories.

These categories delivered strong double digit growth in the quarter. That's we continue to emphasize comfort and our product assortment of marketing strategies with many consumers working from home.

Partially offsetting the strong global ecommerce growth sales in our ultimate her business were down approximately 43% due to continued pressure dates the result of cobot 19.

Within our large national account for approximately half of our partners operating travel related industries, including airline hotel and car rental businesses.

Our small and midsize businesses are reopening, but in many cases with a reduced number of workers.

Although we've seen improved trends in recent weeks sales in our school uniform business was down double digits in the second quarter through the uncertainty of schools reopening.

We expect continued pressure on her out for the business at least through the remainder of the year, which I'll speak to shortly.

Moving to our retail business, which I remind you represents less than 4% of our total business. Our U.S. retail sales decreased approximately 51% in the second quarter to 4.3 million.

As Tom mentioned, we completed the funniest reopening of our 26 stores by the beginning of August and we've also opened four new stores during the first half of the year.

Since reopening sales productivity levels at our stores are tracking at approximately 70% to last year.

Gross margin in the second quarter increased by approximately 10 basis points to 43.4%.

Gross margin benefited from a crude promotional strategies and continued use of analytics, which was partially offset by the liquidation of seasonal inventory that's with reopened our retail stores.

Selling and administrative expenses declined approximately 10.8 million due to strong controls across all of our expenses as well as actions. We recently announced in response to talk at 19.

As a percentage of sales opportunity by improved by approximately 530 basis points to 35.7 per cent compared to 41% in the second quarter of last year.

Income tax with some expense of $600000 preferred what benefit of 3.2 million last year.

Net income for the quarter was 4.4 million or 14 cents per share compared to net loss of 3 million or nine cents per share last year.

In addition to the GAAP measures that were outlined above adjusted EBITDA is an important profit building measure that we used to manage our business internally for the quarter. Adjusted EBITDA was 23.9 million. That's 70.1 billion increase 1.3 half times last years, adjusted EBITDA of 6.8 million.

Turning to the balance sheet inventories at the end of the quarter were 441.5 billion compared to 405.8 million a year ago.

This increase was entirely driven by our output or get some sense, specifically the inventory to support the new American Airlines business going forward.

Globally, Thomas mentioned strong sell through of our spring and summer inventory enabled us to end the quarter with lower inventories.

Healthy and lean position headed into the fall.

As Jerome discussed we're focused on maintaining our financial flexibility through this challenging environment.

Regarding our term loan, which matures next April we'd like to provide an update on the progress we're making on refinancing.

As you know the Coca 19 pandemic impacted the financial markets. That's what we saw the timing of our refinancing.

We've received nonbinding term sheets from multiple investors, who transactions that would allow the company to refinance a term loan and an active negotiations regarding.

Our debt structure is expected to be comprised of our yellow line.

Which has been upside for 275 million effective when we close the refinancing.

Last week 275 million additional debt secured by or non LTL assets.

We're talking to conclude a transaction before the end of the third quarter.

We recently completed the implementation of her enterprise sort of management system with a new systems in place, we expect to drive higher inventory productivity.

And improve our ability to fulfill orders placed on third party sites sites like Amazon and cold stacked town.

Our capex projection for the years expected to be approximately $25 million.

Turning to our outlook, where there's some stabilizing in the second quarter, we feel comfortable providing sales guidance for the remainder of the year.

For the third quarter, we expect net revenue to be down low single digits, the flat versus prior year. This assumes a low double digit growth in our global ecommerce business offset by decreased revenue in our outfitter basis, and lower sales in our retail stores as compared to last year.

While we're very pleased at our school uniform business has shown signs of improvement has delivered sequential improvement in August we still expect to see headwinds in the third quarter as fewer students who turned to school in the fall.

Gross margin is expected to be fairly flat for the quarter.

For the fourth quarter, we expect net revenue decline into low single digits versus prior year.

We expect the low double digit growth in our global ecommerce business driven by continued progress, we're making on our strategic priorities.

However, as a reminder will be lapping the largest portion approximately 40 million of our American Airlines launch during this period and continue to expect a slow recovery in the overall outfitter business.

In addition, despite continued benefit from our more disciplined promotional markdowns stretch sheets, we expect gross margin pressure due to shipping surcharges being implemented by carriers around the holiday period.

Lastly, we expect that our continued focus on managing our expenses will allow us to maintain or else junaid rate at historical percentages for the remainder of the year.

And with that I'll turn the call back over to its Ron will discuss the progress on our core growth strategies.

Thanks, Jim well uncertainty in the environment remains we believe we're strategically well positioned to manage through the crisis and maintain our strong competitive position within the evolving retail landscape as we continue to operate and this unprecedented period.

As I stated earlier the strategic initiatives, we have developed an executed over the past few years, we're driving momentum in our ecommerce business and enabled us to deliver exceptional exceptional growth in the second quarter of 2020.

Our four core strategies getting the product right being a digitally driven company implementing a unit channel distribution strategy and enhancing our infrastructure and processes remain our guiding principles.

We're very pleased with response to our product offering as we emphasize comfort across our categories.

We attribute this strong customer response to two main factors one our key items strategy focused on owning the water owning the weather layers layers layers and we couldn't everybody.

And to the work we have done leveraging our data to gain insights in the consumer preferences and to inform assortments.

As we look ahead to the fall season, our lets get company messaging will remain a major theme as people continue to work from home.

Our fall assortment more heavily reflects where now items, including fleece and layers sleepwear and home.

We will also continue to optimize our assortment of women's knit tops, which generate high rebuy rates, we plan to expand this offering with soft fabrications and comfortable civil less.

Within digital we continued to expand and analyze our comprehensive database to gain greater insights into our customer preferences.

These learnings will guide decisions on both product assortments marketing programs and messaging and future seasons.

Through the leveraging of data analytics and machine learning, we're improving our search engine optimization capabilities and driving customer outreach by identifying where shaw and win.

In terms of our marketing spend we're maintaining a flexible approach to digital and catalog spending to take advantage of opportunities in the marketplace.

Hi, promotional and markdown strategy continues to leverage AI to effectively promote products by determining optimal prices and driving conversion.

These effort to enable us to better understand consumer behavior and drive higher gross margin despite aggressive competitor promotions.

As we advance our test and learn strategy, we will continue to utilize our database to deepen our understanding of customer motivations.

Turning to our retail business, our brick and mortar stores have opened with a priority of health and safety.

Well some customers are still cautious to shop, we believed that our retail stores represent an important component of our customer service.

That said, we first and foremost remain an E Commerce Commerce company and our retail expansion strategy remains fluid based on the environment and customer behavior going forward.

I would now like to spend a few moments discussing some of the growth opportunities, we see beyond our own channels and brand.

First we remain very excited about our plan launch on calls dotcom and coal stores. Later this month as we believe the lands and brand will resonate with the calls customer.

Second we remain pleased with the continued success of our Amazon business with the completion of our ERP implementation. We now have the capability to fulfill orders from our own distribution center for Amazon and for calls.

Third with regards to the lands in marketplace. We're still in the early stages. We now have seven third party vendors selling product on our website under in the process of Onboarding additional third party sellers with the goal of reaching 25 before holiday peak.

And lastly, turning to our collaborations the launch of our just one more collaboration with Reese Witherspoon as apparel brand Draper James surpassed our expectations.

We are highly encouraged by these results and we will continue to explore similar opportunities to drive awareness.

In summary, we recognize that the challenges we face today will likely extend well into 2021, and we are taking a cautious approach to driving our business that said we are no less excited about our future. We will continue to build on a robust ecommerce foundation and offering a high quality value oriented product assortments with growth initiatives that expire.

And our customer reach.

I remain confident that we're strongly positioned within the new retail landscape and the strategies, we haven't place will enable us to deliver on our long term growth outlook when we're past the pandemic.

We look forward to updating you on our progress in future quarters.

Before I turn it over to Q and I want to take a moment to discuss our actions in response to the tragic events related to racial and equality.

As we continue to strive to be a great place to shop in work, we're making diversity and inclusion of strategic priority and to that end. We've had many conversations around these topics. We know we can do better we want to do better and the opportunity exists for us to continue to learn grow and be stronger together.

We know the dialogue must continue and based on the discussions to date, we have outlined the diversity and inclusion strategy along with several initiatives to get us started and support our ongoing commitment.

With that we'll open it up the questions.

Thank you as a reminder to ask that question you need to press Star then one on your telephone to withdraw your question. Please press the pound key.

Our first question comes on the line of Alex Herman.

Well Craig Hallum. Your line is now open.

Great. Thank very much for taking my question and congratulations on putting up such strong results.

With all the disruption out there in your business that that's quite an accomplishment.

Wanted to ask about.

The thing but to start with you it sounds like the reorder rates have been really strong.

Over the past couple of months can you talk about what's been driving that and do you think you can sustain that level of retention as we get into the holiday season and into next year.

Hey extra Ron.

Good to hear from you.

I think that what we're seeing is you know just a very high demand rate and one of the things that we enjoy is as lands end is a customer that is extremely loyal.

Customers been with us for upwards of 17 years, and they end up coming back and re buying from US Weve seen hi, rebuy rate I think it's also partially because it's the right product at the right time.

Sell a basics where more of a basics company are key item company and that's what customers are looking for at this point in time.

They're looking for comfort we have the let's let's kick you strategy going on right now and it's really resonating with the customer demand that you see in the marketplace right now.

That's great. Thanks, Thanks for that and then talk a little bit about be outfitters business I mean, obviously demand.

As has been weak year, you talk about the health of the business otherwise if have you continued to see good retention rate your key customers are there perhaps opportunities.

The next year to perhaps win new business given your your robust product assortment.

I think you have to look at break it down three parts that we have you've got school uniforms, which parents have been through the middle of the summer towards the end of this summer.

A little bit reluctant to buy because they didnt really know what was going on with the school systems, but what you saw is as Governor Cuomo Southern New York is coming back.

Cool and New York is a very large state for US you could see spikes in the business and as we've gotten closer to schools opening and cut and parents getting more clarity with what's happening with their school system, just start to see sequential improvement week on weak and the good thing about that business is again, it's the basics business that product doesn't go bad.

I just think the back feed and it's going to be more drawn out than than than what it's been in the past where it's been just a short few weeks.

On the national accounts.

That's very travel related of course, we have an American and Delta, but we also have avis rent a car and Hilton hotels and enhance and hotels. So we see that that's going to be continued pressure on that business for some time and then in the small and midsize business category retention rates are very good.

As it is in school uniforms is extremely high retention rates, there, but that's going to depend I think a lot on what happens with small and medium sized businesses.

Going into the back part of this year and then into 2021.

But I would say overall you know why we think it's going to build a little bit longer recovery period for the uniform business, we're pretty well set to take market share as companies want to come back into the fold through our personalization opportunities.

Okay. Thanks, Thanks, Jerome and then lastly, if I could just ask about the cold launch.

Is that a big driver.

Slide in the third and fourth quarter, and just bigger picture I mean, how big could something like that be or do you think it could ultimately be in a lot more stores than that I'm. Just anything you could you could help help us to decide that up would be great.

Yeah. It looks like it's late June we haven't given any guidance on how large are cools opportunity will be but keep in mind. It's just launching now and it's only going to be in 150 stores. So we're certainly very excited about the full assortment will be available on calls dot com.

As far as going forward, what will will first get the 150 stores open.

I think will work out all the cakes and then we'll have conversations with Kohl's and we'll update you with.

Any expansion opportunities.

That's terrific. Thank you very much.

Thank you. Our next question comes on the line of Steve Marotta outlook C.L. King Your line is now open.

Good morning, Jerome and Jim you talk a little bit about third party opportunities with other third party platforms, you mentioned that with the new ERP system that will allow you do a.

A little bit better ease.

Essentially dropship essentially fulfill.

Where can that business go are there additional platforms you can get on.

One other things and I've always said, Steve is that we're real head digitally native company you know we started selling online in 1995.

And one of the things that this company has really look to do is to continue to advance the technological investments that we've been making over the last several years, our ability to ship to other third parties, where we're on their websites like a coals are like an Amazon is something that we don't we're quite proud of.

We're able to really service a customer and the other thing that we're able to do now is bring on other third parties. We think this has a lot of legs. We did one as a test last holiday season, we're going to have about 25, new vendors of this holiday season, I think as we see what what happens with consumer demand.

On our platform will determine how big we think that can go but we think it could be a significant part of growth for us in the future.

That's helpful can you talk a little bit about potential product opportunities around the holiday season, if let's say you know dream a little bit Dream holiday comes in better than what you are currently expecting where do you think that growth will be driven from product wise.

Oh, we're concentrating right now on on footwear accessories home furnishings.

And seasonal items for this for this.

Pardon me here.

I understand and lastly.

You mentioned that search engine optimization is helping improve customer acquisition customer retention.

Can you can you tell a little bit into.

Current processes that your utilizing there and is there anything new technologically that might be coming on in the next six to 12 months that would enhance those capabilities as well.

Well, we've been first of all we have a great team of people that we've brought onboard in the last couple of years had been super helpful and making sure that were content rich and that we're employing the REIT strategies in going after the right product categories.

Secondly, we've been working with outside firms to use machine learning on how we're actually spending or dollars on marketing and that seems to be working quite well for us and if you combine that with the increase in demand as of late what you're seeing is not just new customers coming onboard, but higher rebuy rates from those customers and what you're also seeing as as we were transitioning into comforter.

Well clothing, particularly knitwear, which we call layers layers layers, they have higher rebuy rates than some of our previous product categories that customers are known as for and again that brings on more customers and turns them into active customers.

That's really helpful I'll take the balance offline. Thank you again.

Thanks, Dave.

Thanks, Steve.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Everyone have a great day.

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