GlobeNewswire Inc | Sep 2, 2020 06:45AM EDT

September 02, 2020

Strong Global eCommerce revenue and profit trendsGlobal eCommerce grew revenue 23.6% compared to the same period last yearNet income of $4.4 million, compared to Net loss of $3.0 million in the same period last yearAdjusted EBITDA more than triples to $23.9 million compared to the same period last year

DODGEVILLE, Wis., Sept. 02, 2020 (GLOBE NEWSWIRE) -- Lands' End, Inc. (NASDAQ: LE) today announced financial results for the second quarter ended July 31, 2020.

Second Quarter Fiscal Highlights:

-- For the second quarter, net revenue increased 4.6% to $312.1 million, compared to $298.3 million in the second quarter last year.Global eCommerce net revenue increased 23.6% for the second quarter, driven by US eCommerce increasing 26.2% and International eCommerce growing 9.4% as compared to the prior period.Outfitters net revenue declined 42.8% due to the negative impact of the COVID-19 pandemic.

-- Gross margin increased approximately 10 basis points to 43.4% as compared to 43.3% in the second quarter last year. The increase was due to disciplined promotional strategies and continued use of analytics, partially offset by the liquidation of seasonal inventory as retail stores reopened.

-- Selling and administrative expenses decreased $10.8 million to $111.5 million or 35.7% of net revenue, compared to $122.3 million or 41.0% of net revenue, in second quarter last year. The approximately 530 basis point decrease was driven by strong control of operating expenses and structural costs.

-- Net income was $4.4 million or $0.13 per diluted share, as compared to net loss of $3.0 million or $0.09 loss per diluted share in the second quarter of fiscal 2019.

-- Adjusted EBITDA(1) increased 250.8% to $23.9 million compared to $6.8 million in the second quarter of fiscal 2020.

Jerome Griffith, Chief Executive Officer and President, stated, We are very pleased to have delivered a strong second quarter leveraging the strong momentum in our global eCommerce business. Our performance reflects the execution of our strategies related to product innovation, our global eCommerce platform, data-driven marketing and commitment to optimizing our business processes and infrastructure. We will continue to build on our offering of high-quality value-oriented product assortments with growth strategies that expand our customer reach. Longer term, we remain confident in our positioning within the new landscape given our dynamic eCommerce foundation, limited bricks and mortar exposure, key item basics business that offers an attractive value proposition and lean operating structure.

Balance Sheet and Cash Flow Highlights

Cash and cash equivalents were $62.6 million as of July 31, 2020, compared to $82.6 million as of August 2, 2019.

Net cash provided by operations was $8.0 million for the 26 weeks ended July 31, 2020, compared to $17.0 million for the 26 weeks ended August 2, 2019.

Inventories, net, was $441.5 million as of July 31, 2020, and $405.8 million as of August 2, 2019. The change is due to an increase in Outfitters inventory to support the American Airlines business.

The Company had no ABL Facility borrowings and $188.0 million of availability under its asset-based senior secured credit facility at July 31, 2020. The Company had Other short-term debt of $382.8 million at July 31, 2020 representing amounts owed under the Term Loan Facility.

Outlook

Jim Gooch, Chief Operating Officer and Chief Financial Officer, stated, While our business continues to be impacted by the pandemic, our strong second quarter results exemplify the resiliency of our business model. We continue to prioritize maintaining financial flexibility through this challenged period. Regarding our term loan, which matures in April 2021, we have received non-binding term sheets from multiple investors for transactions which would allow the Company to refinance the Term Loan Facility debt, and are in active discussions and negotiations regarding a refinancing. Our debt structure is expected to be comprised of our ABL line, which has been upsized to $275 million, effective when we close a refinancing, and approximately $275 million of additional debt secured by our non-ABL assets. We are targeting to conclude a transaction by the end of the third fiscal quarter.

Based on the stabilization and improved visibility in the business, the Company is now providing its outlook for the remainder of the year. The following outlook does not incorporate a potential second wave of COVID-19 or additional government-mandated closures.

For the third quarter of fiscal 2020 the Company expects:

-- Net revenue to decline low single digits to flat as compared to the same period last year assuming:Low double digit growth year over year in its global eCommerce business.Revenue decline in its Outfitters business due to decreased demand from business customer in both its national and small and medium sized accounts as well as a slower recovery of the school uniform business as schools delay reopenings. -- Gross margin to be flat as compared to the prior year. -- SG&A expense as a percent of revenue to be in line with prior year.

For the fourth quarter of fiscal 2020 the Company expects:

-- Net revenue to decline low single digits as compared to the same period last year assuming:Low double digit growth year over year in its global eCommerce business.Revenue decline in its Outfitters business due to the anniversary of the American Airlines launch from the fourth quarter 2019, as well as decreased demand from business customers in both its national and small and medium sized accounts. -- Gross margin to be pressured, driven by shipping surcharges implemented by carriers during the holiday period. -- SG&A expense as a percent of revenue to be in line with prior year.

Conference Call

The Company will host a conference call on Wednesday, September 2, 2020, at 8:30 a.m. ET to review its second quarter financial results and related matters. The call may be accessed through the Investor Relations section of the Company's website at http://investors.landsend.com or by dialing (866) 753-5836.

About Lands' End, Inc.

Lands' End, Inc. (NASDAQ:LE) is a leading uni-channel retailer of casual clothing, accessories, footwear and home products. We offer products online at www.landsend.com, on third party online marketplaces and through retail locations. We are a classic American lifestyle brand with a passion for quality, legendary service and real value, and seek to deliver timeless style for women, men, kids and the home.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties, including statements regarding the momentum of the global eCommerce business; the execution and expected benefits of the Companys strategies; the Companys longer-term prospects in the post-pandemic landscape; the Companys assessment of its prospects of refinancing the term loan, the expected debt structure, and the expected result and timing of a refinancing; and the Companys outlook and expectations as to net revenue on a consolidated basis, and within global eCommerce and Outfitters, gross margin and SG&A in the third and fourth quarters of fiscal 2020. The following important factors and uncertainties, among others, could cause actual results to differ materially from those described in these forward-looking statements; the impact of COVID-19 on operations, customer demand and the Companys supply chain, as well as its consolidated results of operation, financial position and cash flows; the Company may be unsuccessful in implementing its strategic initiatives, or its initiatives may not have their desired impact on its business; the Company may be unable to obtain additional financing on commercially acceptable terms or at all, as the Company seeks to refinance its term loan, due to, in addition to other factors, the condition of the lending and debt markets, and such factors could impact the expected timing of any transaction; the Companys ability to offer merchandise and services that customers want to purchase; changes in customer preference from the Companys branded merchandise; the Companys results may be materially impacted if tariffs on imports to the United States increase and it is unable to offset the increased costs from current or future tariffs through pricing negotiations with its vendor base, moving production out of countries impacted by the tariffs, passing through a portion of the cost increases to the customer, or other savings opportunities; customers' use of the Companys digital platform, including customer acceptance of its efforts to enhance its eCommerce websites; customer response to the Companys marketing efforts across all types of media; the Companys maintenance of a robust customer list; the Companys retail store strategy may be unsuccessful; the Companys dependence on information technology and a failure of information technology systems, including with respect to its eCommerce operations, or an inability to upgrade or adapt its systems; fluctuations and increases in costs of raw materials; impairment of the Companys relationships with its vendors; the Companys failure to maintain the security of customer, employee or company information; the Companys failure to compete effectively in the apparel industry; legal, regulatory, economic and political risks associated with international trade and those markets in which the Company conducts business and sources its merchandise; the Companys failure to protect or preserve the image of its brands and its intellectual property rights; increases in postage, paper and printing costs; failure by third parties who provide the Company with services in connection with certain aspects of its business to perform their obligations; the Companys failure to timely and effectively obtain shipments of products from its vendors and deliver merchandise to its customers; reliance on promotions and markdowns to encourage customer purchases; the Companys failure to efficiently manage inventory levels; unseasonal or severe weather conditions; the adverse effect on the Companys reputation if its independent vendors do not use ethical business practices or comply with applicable laws and regulations; assessments for additional state taxes; incurrence of charges due to impairment of goodwill, other intangible assets and long-lived assets; the impact on the Companys business of adverse worldwide economic and market conditions, including economic factors that negatively impact consumer spending on discretionary items; potential indemnification liabilities to Sears Holdings pursuant to the separation and distribution agreement in connection with the Companys separation from Sears Holdings; the ability of the Companys principal shareholders to exert substantial influence over the Company; potential liabilities under fraudulent conveyance and transfer laws and legal capital requirements; and other risks, uncertainties and factors discussed in the "Risk Factors" section of the Companys Annual Report on Form 10-K for the fiscal year ended January 31, 2020, and in the Companys Current Report on Form 8-K dated June 2, 2020. The Company intends the forward-looking statements to speak only as of the time made and does not undertake to update or revise them as more information becomes available, except as required by law.

CONTACTS

Lands' End, Inc.James GoochChief Operating Officer and Chief Financial Officer(608) 935-9341

Investor Relations:ICR, Inc.Jean Fontana(646) 277-1214Jean.Fontana@icrinc.com

-Financial Tables Follow-

LANDS END, INC.Condensed Consolidated Balance Sheets(Unaudited)

(in thousands, except per July31, August 2, January 31, share data) 2020 2019 2020ASSETS Current assets Cash and cash equivalents $ 62,624 $ 82,616 $ 77,148 Restricted cash 1,843 1,826 2,149 Accounts receivable, net 24,367 24,632 50,953 Inventories, net 441,510 405,793 375,670 Prepaid expenses and other 48,095 39,391 39,458 current assetsTotal current assets 578,439 554,258 545,378 Property and equipment, net 153,003 153,933 157,665 Operating lease right-of-use 37,882 28,980 38,665 assetGoodwill 106,700 110,000 110,000 Intangible asset, net 257,000 257,000 257,000 Other assets 4,300 5,333 4,921 TOTAL ASSETS $ 1,137,324 $ 1,109,504 $ 1,113,629 LIABILITIES AND STOCKHOLDERS? EQUITYCurrent liabilities Current borrowings on Term Loan $ 381,909 $ 5,150 $ 5,150 Accounts payable 202,629 230,158 158,436 Lease liability - current 5,676 6,997 5,864 Other current liabilities 99,016 87,807 114,116 Total current liabilities 689,230 330,112 283,566 Long-term debt, net ? 380,555 378,657 Lease liability - long-term 40,588 26,911 39,841 Deferred tax liabilities 65,619 55,516 57,651 Other liabilities 5,530 4,145 5,532 TOTAL LIABILITIES 800,967 797,239 765,247 Commitments and contingencies STOCKHOLDERS? EQUITY Common stock, par value $0.01authorized: 480,000 shares; 326 324 324 issued and outstanding: 32,604,32,370 and 32,382, respectivelyAdditional paid-in capital 364,773 356,324 360,656 (Accumulated deficit) Retained (15,877 ) (28,732 ) 390 earningsAccumulated other comprehensive (12,865 ) (15,651 ) (12,988 )lossTOTAL STOCKHOLDERS' EQUITY 336,357 312,265 348,382 TOTAL LIABILITIES AND $ 1,137,324 $ 1,109,504 $ 1,113,629 STOCKHOLDERS? EQUITY

*Derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2020.

LANDS END, INC.Condensed Consolidated Statements of Operations(Unaudited)

13 Week Period Ended 26 Week Period Ended (in thousands, July31, August 2, July31, August 2,except per 2020 2019 2020 2019 share data)Net revenue $ 312,083 $ 298,267 $ 529,091 $ 560,700 Cost of sales(excludingdepreciation 176,661 169,182 299,514 311,741 andamortization)Gross profit 135,422 129,085 229,577 248,959 Selling and 111,478 122,260 217,276 239,104 administrativeDepreciationand 9,378 7,408 18,164 15,026 amortizationOtheroperating 3,373 (22 ) 7,656 126 expense(income), netOperating 11,193 (561 ) (13,519 ) (5,297 )income (loss)Interest 4,916 6,235 10,227 14,069 expenseOther expense 1,333 (608 ) 1,160 (1,475 )(income), netIncome (loss)before income 4,944 (6,188 ) (24,906 ) (17,891 )taxesIncome taxexpense 568 (3,174 ) (8,639 ) (8,059 )(benefit)NET INCOME $ 4,376 $ (3,014 ) $ (16,267 ) $ (9,832 )(LOSS)NET INCOME(LOSS) PER COMMON SHAREBasic: $ 0.13 $ (0.09 ) $ (0.50 ) $ (0.30 )Diluted: $ 0.13 $ (0.09 ) $ (0.50 ) $ (0.30 ) Basic weightedaverage common 32,600 32,368 32,524 32,314 sharesoutstandingDilutedweightedaverage common 32,838 32,368 32,524 32,314 sharesoutstanding

Use and Definition of Non-GAAP Financial Measures

1 Adjusted EBITDA - In addition to our Net income, for purposes of evaluating operating performance, we use an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA"), which is adjusted to exclude certain significant items as set forth below. Our management uses Adjusted EBITDA to evaluate the operating performance of our business, as well as for executive compensation metrics, for comparable periods. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes several important cash and non-cash recurring items.

The methods used by the Company to calculate its non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures presented herein may not be comparable to similar measures provided by other companies.

While Adjusted EBITDA1 is a non-GAAP measurement, management believes that they are important indicators of operating performance, and useful to investors, because:

-- EBITDA excludes the effects of financings, investing activities and tax structure by eliminating the effects of interest, depreciation and income tax. -- Other significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects comparability of results. We have adjusted our results for these items to make our statements more comparable and therefore more useful to investors as the items are not representative of our ongoing operations.For the 13 weeks ended July 31, 2020 and the 26 weeks ended July 31, 2020 and August 2, 2019, we excluded the impacts of corporate restructuring which includes the severance for the reduction in corporate staff in the Second Quarter 2020.For the 13 weeks ended July 31, 2020 we excluded the impacts of long-lived asset impairment.For the 26 weeks ended July 31, 2020 we excluded the impacts of impairment including goodwill impairment and non-cash write downs long-lived assets.For the 13 weeks and 26 weeks ended July 31, 2020 and August 2, 2019 we excluded the impacts of gain or loss on property and equipment as management considers the gains or losses on asset valuation to result from investing decisions rather than ongoing operations.

Reconciliation of Non-GAAP Financial Information to GAAP(Unaudited)

13 Weeks Ended July31, 2020 August 2, 2019 % of % of(in thousands) $?s Net $?s Net revenue revenueNet income (loss) $ 4,376 1.4 % $ (3,014 ) (1.0 ) %Income tax expense (benefit) 568 0.2 % (3,174 ) (1.1 ) %Other expense (income), net 1,333 0.4 % (608 ) (0.2 ) %Interest expense 4,916 1.6 % 6,235 2.1 %Operating income (loss) 11,193 3.6 % (561 ) (0.2 ) %Depreciation and 9,378 3.0 % 7,408 2.5 %amortizationCorporate restructuring 2,925 0.9 % ? 0.0 %Long-lived asset impairment 400 0.1 % ? 0.0 %Loss (gain) on property and 48 0.0 % (22 ) (0.0 )equipment %Adjusted EBITDA^(1) $ 23,944 7.7 % $ 6,825 2.3 %

26 Week Period Ended July31, 2020 August 2, 2019 % of % of(in thousands) $?s Net $?s Net revenue revenueNet loss $ (16,267 ) (3.1 ) $ (9,832 ) (1.8 ) % %Income tax benefit (8,639 ) (1.6 ) (8,059 ) (1.4 ) % %Other income (loss), net 1,160 0.2 % (1,475 ) (0.3 ) %Interest expense 10,227 1.9 % 14,069 2.5 %Operating loss (13,519 ) (2.6 ) (5,297 ) (0.9 ) % %Depreciation and 18,164 3.4 % 15,026 2.7 %amortizationCorporate restructuring 2,925 0.6 % 207 0.0 %Goodwill and long-lived 3,844 0.7 % ? 0.0 %asset impairmentLoss (gain) on property and 887 0.2 % (81 ) (0.0 )equipment %Adjusted EBITDA^(1) $ 12,301 2.3 % $ 9,855 1.8 %

LANDS END, INC.Condensed Consolidated Statements of Cash Flows(Unaudited)

26 Week Period Ended (in thousands) July31, August 2, 2020 2019CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (16,267 ) $ (9,832 )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization 18,164 15,026 Amortization of debt issuance costs 858 864 Loss (gain) on property and equipment 887 (141 )Stock-based compensation 4,542 4,303 Deferred income taxes 7,936 (1,877 )Goodwill impairment 3,300 ? Other 1,115 830 Change in operating assets and liabilities: Inventories (65,553 ) (86,350 )Accounts payable 48,858 111,427 Other operating assets 15,605 6,358 Other operating liabilities (11,461 ) (23,570 )Net cash provided by operating activities 7,984 17,038 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (19,758 ) (24,843 )Net cash used in investing activities (19,758 ) (24,843 )CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowing under ABL Facility 75,000 ? Payments of borrowings under ABL Facility (75,000 ) ? Payments of term-loan (2,575 ) (102,575 )Payments of employee withholding taxes on (423 ) (708 )share-based compensationNet cash used in financing activities (2,998 ) (103,283 )Effects of exchange rate changes on cash, cash (58 ) 177 equivalents and restricted cashNET DECREASE IN CASH, CASH EQUIVALENTS AND (14,830 ) (110,911 )RESTRICTED CASHCASH, CASH EQUIVALENTS AND RESTRICTED CASH, 79,297 195,353 BEGINNING OF PERIODCASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF $ 64,467 $ 84,442 PERIODSUPPLEMENTAL CASH FLOW DATA Unpaid liability to acquire property and equipment $ 2,303 $ 5,222 Income taxes paid, net of refunds $ (47 ) $ 3,036 Interest paid $ 9,087 $ 12,702 Lease liabilities arising from obtaining Operating $ 3,525 $ 6,705 lease right-of-use assets