Q4 2020 Lands End Inc Earnings Call
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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Ladies and gentlemen, thank you for standing by and walked through the lands end fourth quarter and fiscal 2020 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer.
So ask the question during the session on you the press Star one on your telephone if you require any further assistance. Please press star Zero I would now like to do so for this conference call. Mr. Bernie Mccracken you may begin.
Good morning, and thank you for joining the lands end earnings call for a discussion of our fourth quarter and fiscal 2020 results, which we released this morning and can be found on our website lands' end dotcom well on the call today, you will hear from Jerome Griffith, Our Chief Executive Officer, and Jim Gooch, our President and Chief financial.
For sure after the company's prepared remarks, we will conduct the 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 <unk>.
<unk>, but are not limited to those items noted and included in the company's SEC filings, including our annual report on form 10-K quarterly reports on form 10-Q, and form 8-K date of June 2nd 2020.
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 of note. In this respect the COVID-19 pandemic continues to have an impact on our <unk>.
And its duration could materially alter our outlook.
During this call, we'll 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 web.
Site at lands end dotcom.
With that I will turn the call over to Jerome Griffith.
Thank you Bernie good morning, and thank you for joining us today for a discussion of our fourth quarter and full year results.
Looking back on 2020, I'm extremely proud of what our team has accomplished over the past year.
Retrospectively 'twenty 'twenty taught us a lot about the strength and resilience of our business model and the diligence and endurance of our team for which I am very grateful.
We moved quickly to protect our business our people and our customers while at the same time, maintaining our focus on the continued execution of our strategic pillars.
Getting the product right being of digitally driven company.
Implementing of unit channel distribution strategy, and enhancing our infrastructure and processes.
As the digitally led e-commerce business, we are uniquely positioned to capitalize on the accelerated shift to online shopping with.
We benefited from our investments in data analytics are E Commerce technology.
<unk> and business process improvements to drive sales from both existing and new customers. In fact, our new customer acquisition grew 21 per cent for the year end, 14% in the fourth quarter as a result of our data driven initiatives combined with our comfort of oriented product assortment.
To summarize our full year fiscal 2020 results. We grew adjusted EBITDA by approximately 12% at the $87 million and expanded adjusted EBITDA margin by approximately 70 basis points to $6 one per cent.
Revenue increased 1%, excluding the American airlines the launch in fiscal 2019.
Total revenue was driven by 9% growth in our global ecommerce business, largely offset by the impact of Covid across our three outfitters business segments, which Jim will discuss in more detail.
Turning to our fourth quarter in mid January we raised our fourth quarter guidance due to our strong holiday performance and we're pleased to have come in ahead of those expectations.
Our global ecommerce business in the fourth quarter was led by the continued emphasis on our lets get company initiative through the holiday season.
Our strongest performing categories were focused on the stay at home lifestyle, including sleepwear and loungewear and net.
Sleepwear, which we marketed for the whole family was the highlight of the quarter with customers responding very positively to the versatility of our product assortment.
In loungewear are offering of indoor outdoor sweat resonated with consumers and more time being spent on outdoor activities and the continued demand for comfort.
We also lean more heavily into the transitional outerwear during the quarter, which proved to be the right decision with strong reception across fleece and lightweight outerwear.
Our net business remains of top performing category as we continue to update our style and colors to meet customers' lifestyle needs.
Continue to see of strong desire for comfort quality and great value that we don't believe is going away.
Our E Commerce business in Europe was very strong in the fourth quarter up 38%, resulting from initiatives, we implemented to drive market share gains.
We are pleased with the strong acceptance of our brand in Europe with the more than 100 per cent increase of new customers during the holiday period versus last year.
We continue to see opportunity for growth over the long term in this region as we execute a similar playbook to what drove improved performance in the U S and advance our market share position.
Turning to our recent partnership with Kohl's, we remain pleased with the early results from the business, particularly Kohl's Dot com, we remain on track to expand distribution to 300 Kohl's doors in 2021 and look forward to continuing to grow this partnership.
Meanwhile, one of our newer initiatives the lands in the marketplace grew to 24, new sellers in fiscal 2020.
While still a very small business, we're encouraged by the response thus far.
We skew these offerings to home related brands over holiday to align with consumer demand for day core as they continue to spend most of their time at home.
Turning to marketing, we continue to emphasize our digital initiatives during the quarter, we significantly increased our social media presence, which drove increased traffic to our site.
We also continue to upgrade dynamic promotions through testing Orlando <unk> dot com to determine what customers best react too as we refine our promotional strategies to focus on driving sales at higher margins as.
As we begin to envision what the world will look like post Covid. We believe many of the changes the retail industry has experienced are here to stay.
This includes both the accelerated shift towards digital and the strong demand for casual both of which are at the core of what we do.
Our performance over the last few years for furthers, our confidence that we are well positioned to achieve long term profitable growth.
Before I turn it the Jim I'd like to address the press release, you may have seen earlier this week announcing his appointment to president of lands end.
Jim it's been an incredible partner as we executed the transformation of the business through the execution of our strategic pillars.
He will continue to serve as CFO. In addition to taking on the oversight of our E Commerce International Outfitters third party and retail businesses.
They are of Rasmussen executive Vice President and Chief customer Officer will assume oversight of the company's information technology and performance marketing functions Peter.
Peter Gray Executive Vice President Chief administrative officer, and General Counsel will assume responsibility for distribution center operations.
We have assembled an incredibly talented management team with these three executives. In addition to <unk> Executive Vice President Chief product Officer, and Matt trainer Senior Vice President and brand creative.
I will focus the majority of my time on our strategic direction and further growth opportunities as we continue our journey forward.
I'll further speak to this when I review of our three year financial targets following Jim's discussion.
With that I'll turn it over to Jim.
Thank you Jerome and good morning, we're very pleased with the strong results we delivered in the fourth quarter and throughout 2000 of 'twenty as we continue to make progress across our strategic initiatives for.
For the fourth quarter total revenue did decrease 2% to $538 4 million compared to $549 5 million last year.
However, after you exclude the sales from the American Airlines launch last year revenue increased almost 6%.
This was above our previously updated guidance of $528 million to $533 million.
<unk> in mid January.
Our global ecommerce sales increased 8%, we saw growth in our U S and international businesses with Europe, leading the way with an increase of 38% for the quarter.
Our better than the unexpected results were driven by strong performance across the number of our key categories, including fleece sleep wear and knits.
Growth in these categories was supported by marketing strategies that continue the message the comfort and value in our product assortments.
This quarter, we began breaking out sales for third party, which includes U S wholesale revenues and sales on third party marketplaces.
Revenue in this segment increased to $21 3 million of 298% increase as compared to last year.
This increase was driven by the launch of our entire product assortment on kohls com and a curated assortment of our key items and a 150 of their store locations.
Partially offsetting the strong global ecommerce from third party gross sales in our outfitter business was down 54 per cent.
After adjusting for the American Airlines launch last year sales and outfitters decreased approximately 21%.
The outfitters business remained challenged largely due the arent going to impact of Covid on our travel related national accounts, and our small and midsize businesses.
However, whats encouraging is based on the progress we've seen in each of our outfitter business segments. During the quarter, we expect the recovered to accelerate in 2021.
We expect this recovery to be led by our small and medium sized business segments and school uniforms, while national accounts are likely to take a bit longer to fully recover.
Gross margin in the fourth quarter decrease of approximately 30 basis points. The 39, 5% as compared to last year gross margin was impacted by higher shipping costs as well as sales mix from our growing lower margin third party business.
This was largely offset by our improved promotional strategies and continued use of data analytics for both of our pricing and inventory management.
As a percentage of sales SG&A increased slightly by 20 basis points due to the deleverage from the American Airlines launch last year.
Net income for the quarter was $19 9 million of 60 per share compared to net income of $25 5 million or <unk> 78 per share last year.
In addition to these GAAP measures adjusted EBITDA is an important profitability measure that we use to manage our business internally.
For the quarter adjusted EBITDA was $46 1 million, which was above our updated guidance of $43 million to $45 million.
Turning to the balance sheet inventories at the end of the quarter were $382 1 million compared to $375 7 million a year ago.
The strong sell through of our global ecommerce business, that's positioned us with healthy and lean inventories as we head into 2021.
Inventory levels for later outfitter business, our elevated although this is not seasonal or fashion product and therefore, we expect to work through this merchandise as these business segments continued to recover in 2021.
Before providing our outlook I would like to share an update on our Capex plans overall.
The projected capex to be approximately $26 million for 2021.
In addition to our increased spending for customer facing initiatives. We had started the initial planning for our new warehouse management system. The.
The first phase of this project will be focused on labor savings and packaged consolidation, while optimizing our third party carrier rates.
We expect this implementation to drive operational efficiencies and working capital improvements.
Now I'd like to discuss our outlook for the first quarter and first half of 2021 as well as our outlook for the full year.
As we think about the relative performance our outlook reflects strong growth over pre pandemic levels, particularly taking into account the 2021 will be of recovery period and of our outfitters business.
Beginning with the first quarter, we expect net revenue to be between 275 and $285 million driven by our global ecommerce business. We expect the net loss of $10 five to 8 million and diluted loss per share to be between 32 and 25.
We expect adjusted EBITDA to be in the range of $4 million to $7 million.
As a reminder of last year's first quarter was negatively impacted by the onset of Covid, which was followed by a recovery the double digit growth in our global ecommerce business in the second quarter.
For the first half we expect net revenue to be between 600 and $620 million driven by our global ecommerce business third party and the continued recovery of our outfitters business.
We expect the net loss of $16 five to $11 5 million and diluted loss per share to be between 50 and 36.
We expect adjusted EBITDA to be in the range of $14 million to $20 million.
For the full year, we expect net revenue to be between 1.52, and $1 57 billion, primarily driven by our global ecommerce business and the continued recovery in our outfitters business.
We expect net income of $11 million to $19 million and diluted earnings per share to be between 34 and 58 cents.
We expect adjusted EBITDA to be in the range of $88 million to $98 million.
With that I'll turn the call back over to Jerome to discuss the progress on our core growth strategies.
Thanks, Jim.
While we are extremely pleased with the progress we have made over the last for years. We remain excited about the significant growth opportunity that lies ahead as we further advance our initiatives across our core strategic pillars and adapt to the changing consumer environment.
Our efforts of clearly transition from executing a turnaround in our business performance beginning in 2017 to driving long term profitable growth.
As a reflection of the confidence and optimism in our business in January we provided new three year financial targets for.
For 2023, we expect revenue of $1 9 billion to $2 $1 billion.
Representing a CAGR of 10% to 14% over the next three years.
This revenue target assumes organic growth in both U S and international E Commerce businesses and extended recovery of new initiatives in our outfitters business.
<unk> growth and lands end as a marketplace and expansion of our third party distribution.
We expect to achieve adjusted EBITDA margin in the high single digit range, assuming a stable to slightly higher gross margin as well as an improved SG&A rate with cost efficiencies.
As previously mentioned, we were very pleased with the response to our product offering in the quarter. We will continue to lead with our let's get comfy theme as we begin to introduce new versatile net based products that consumers can aware of what they're doing the calls from home or as they begin to return to the office.
We will also maintain our focus on wear now apparel for the introduction of seasonal colors of nits and transitional outerwear as we head into spring.
As we look forward, we will continue to leverage our use of data analytics to inform product assortments as we adapt to consumer needs.
Our proven track record of getting the product right gives us confidence in our ability to continue to meet the ever changing needs of our growing active customer base.
Within digital we remain focused on driving traffic and growing market share as we refine and leverage our search engine optimization techniques as well as our promotional and markdown strategy to deliver growth.
Similar to our approach to product development, our data driven marketing enables us to optimize spend while we expand market share.
Next I'd like to spend a little time on how we see our outfitters business evolving.
While we expect to see the recovery continue in this business as the emerge from the pandemic.
Our increasing our focus on driving growth in our small and medium sized business segment.
We believe there is potential to drive a more consistent revenue stream in this segment given replenishment needs that in the large and that then in the large national accounts, which are driven by a larger launches.
To that end, we are taking steps to advance our position as the authority in branded apparel and hard goods for the small and medium sized business segment.
This initiative is underway with enhanced enhancements to our website to make it easier to find products and redesign of logo renderings.
We've also begun to evaluate our operational and supply chain capabilities.
And the next phase, we will implement marketing and pricing strategies by employing a test and react approach.
As we advance these capabilities, we believe that the small and medium sized segment will grow to more than half of our outfitters business over time.
In our school uniform business, we also plan to the steady growth at schools reopen.
Turning to our marketplace business, we're very pleased for the early reads on this initiative.
Whether the past practice, we continuously look for new innovative ways to drive brand awareness and develop new revenue streams.
As we learned from information derived from our search optimization tools, we recognize demand for products that were not core to the lands end assortment.
Through our marketplace strategy, we're addressing our consumers' needs with complementary product and we'll continue to explore opportunities to welcome third party brands to our site.
In addition to marketplace opportunities, we're excited about the Draper James Swimwear collection for the spring summer season, and we see potential for additional collaborations with current as well as new partners.
In addition to our growth strategies, we're maintaining our focus on profitability.
We believe we can achieve high single digit adjusted EBITDA margin through of stable to slightly higher gross margin stemming from continued improvements in dynamic promotions inventory management as well as product lifecycle and strategic sourcing initiatives.
Before we turn it over to Q&A I would like to share a brief update on our efforts towards diversity and sustainability.
We spoke a bit about our actions around ensuring of diverse and inclusive environment on our last call, which introduced the establishment of our diversity and inclusion council end business resource groups.
Our DNI Council has established training modules, which required of all employees and launched the speaker series, which has been very well received.
We're also doing our part to create a more sustainable future by minimizing our impact on the Earth.
Our focus will be unemployed and water saving techniques, obtaining polyester from recycled sources sourcing cotton sustainably and converting to 100% sustainable packaging and labeling by 2025.
Lastly, we're extremely proud to be focusing on our philanthropy on the lands end comfort fund and support of organizations that help fulfill the basic needs for human comfort food shelter and safety.
In conclusion, we cannot be more pleased with how the year progressed, given the difficult backdrop in the industry as well as the economy as a whole.
We recognize that these challenges may extend for some time and we're prepared to continue to manage the business effectively.
Still we're extremely confident that we will come out of this pandemic stronger on the other side with the strong foundation largely in place. We believe lands end will thrive in this digital first environment.
We look forward to updating you on our progress in future quarters, and with that we'll open it up for questions.
Ladies and gentlemen, if you have a question of our confidence at this time. Please press Star then the one key on your Touchtone telephone. If your question has been answered or you wish to move yourself from the queue. Please press the pound key.
Our first question comes from Alex from with Craig Hallum Capital.
Great. Thanks, very much for taking my question.
Really impressive to see continued double digit growth in the customer file is this the.
Business that you think can continue to be of double digit growth business for the next couple of years. Just curious how you think about translating that growth and customer file into the into your business over the next few years.
Well, Alex we've had this is the strategy I don't know since the end of 2016 as the continuing to grow our new customer acquisition and we're very focused on growing it would look of light customers. We think there's a big market out there several times, where we are today.
And.
There's a lot of opportunity for us. So obviously in the last year with Covid and the shift to having more demand than online shopping. Yes. This has been a trend one of the things I think that's going to happen going forward is I think that trend is going to continue I think that the trend of more and more people shopping online loving the convenience of it.
It's not kind of go away and that's even in a post COVID-19 world, but I don't know that I would guarantee double digit increases month end month out I think there'll be some fluctuations.
And in and out but one of the things. We are seeing is we're continually picking up market share domestically and internationally, we've seen that even in the advanced level of <unk>.
Picking up market share against competitors.
The one thing I'd add to that Alex if you look at our three year numbers that we put out in January.
We are projecting a top line growth of 10% to 14%. So we do anticipate that being driven by.
By continued strength in our current our buyer file.
Great. That's really helpful. Thank you and net can you talk a little bit more about what you expect the outfitters business to look like on the other side of the pandemic. It sounds like Youre really focusing on small and medium sized businesses, whereas it seemed like over the last couple of years.
Maybe been a little bit more discussion around around major customers like Delta and American Airlines.
Can you talk about the.
How it is kind of different going after companies of those sizes or the margin is pretty similar.
Do you have a pretty robust pipeline of customers you feel like to go after here or is there going to be of big marketing effort, we'd love to just hear more about that.
Well I think you've got a few different things in there you know as we've discussed before the outfitter business, it's really made up of three different components.
They were impacted of different rigs during COVID-19, and we do anticipate the recovery being different coming out.
School was definitely the quickest recovery you saw signs of that over the last couple of quarters, and we talked about that that business stabilizing we anticipate that going into this year of kids are back in person learning, we anticipate a fairly quick recovery.
Future growth in that business the SMB, the small and midsized businesses, we talked about in Jerome mentioned debt, we could see that growing to be half of that business, where historically they've been roughly one third one third one third.
There will be from some marketing against that for Youll see us pushing that a little bit more you should think of that a little bit more like of direct to consumer business, where historically, we had treated a little bit more like a beat of <unk> business and so much improved I think experience on our site with our SMB business coming later this year.
And then the final piece is the national Goodson's end.
And we've talked about this before tends to be very choppy with with new new accounts of new launches.
That'll continue to be the same going forward.
It's probably going to be the longest recovery because I'll remind you of getting that over half of that business is travel related.
But we do anticipate that that business recovering with the industry.
Great. That's really helpful. Thank you very much.
Our next question comes from Steve Marotta with C L King and associates.
Good morning, Jerome and Jim Congratulations on a nice fourth quarter and Jim Congratulations on the promotion Jerome Thank you Steve.
Please provide your thought process on reopening product categories, which youll investing you mentioned the comfort will will be a little bit more sustainable even sort.
The distancing guidelines are reduced.
Is it do you think there will be a tad bit more from the lack of of better phrase dress embedded in there from of men standpoint, maybe more khakis, something that's a little bit more presentable than just outdoor sweat pants and if so how do you think about investing within those categories of social distancing guidelines are reduced.
Well couple of things of that we think that from.
Return to the office of standpoint.
It's not going to be the same as what it was before pandemic I think the Monday through Friday 95 work days are gone.
I think that most companies that I've talked to quite honestly, our thinking from sort of a hybrid model and we believe that customers are not wanted to I don't want to give up the comfort factor now.
Invested in several things that we've done well end our swim business is quite strong knitwear has been really good for us across the board in both mens and womens.
Lounge wear athletic wear sleepwear have all been strong categories, and we believe those trends aren't really going to discontinue it.
When you look at like the the more dressy part of the of.
Of our assortment and which would be you know no iron khaki pants of button down shirt dresses for womens.
People will start to look at that again, but in a different way. So as an example, we've taken one of our best selling fabrics, which of sport net in women's and we wound that over the mens and put that into dress pants.
We did a test of the spring blew out. So we think that people are still going to love that comfy, feeling and I don't want to feel comfortable.
Comfortable in casual at the workplace and that won't go away.
I get that.
Great for what it's worth can you talk a little bit about Europe being up 38% during the quarter, obviously youre optimistic about.
Some of the initiatives there could you be specific about about what those initiatives are.
I'm assuming that there is.
Attractive tail on that at least 12 the <unk>.
For months of what would be at least above average growth and.
Talk a little bit about again, the specific initiatives around European growth.
Sure we changed management, there a couple of years ago and.
The new strategy has really been to get everything aligned globally and what I mean by that is you know we have done a lot of special product for our European or Asian markets, which we thought it's just going too far away from what the brand is and as we continue to hone the brand message.
In the U S. We said you know, let's let's make this a global message and that's resound did very well with the customers around the world.
We thought that there was an opportunity in Europe in particular to continue to grow market share what we've done this.
<unk> implemented a lot of the same marketing techniques.
The product messages that we use in the U S end surprise, they worked and they didn't just work they work really well. So we've continued to double down on a very clear global message and making sure that we're buying into the same things that we're marketing the same way.
And that we're putting dollars behind the same types of marketing similar to what we're doing in the U S and it's working extremely well for us.
That's very helpful. Jim when will the warehouse management system be fully operational.
Well, it's going to be a multiyear implementation, we talked about the first phase that should be up and going by the end of the sheer book, but the entire thing is going to take over the next two years.
Excellent. Okay. Thank you I'll take the rest of my questions offline. Thank you.
Thanks, Steve.
Ladies and gentlemen, this does conclude the Q&A portion of today's conference and also concludes the program you may now disconnect and have a wonderful day.
Okay.