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Lands' End Keeps Nudging Profitability Higher

By Asit Sharma – Updated Apr 14, 2019 at 7:38PM

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The company's transition to a higher-return business model is producing tangible, if gradual, results.

Multichannel apparel retailer Lands' End, Inc. (LE 0.70%) issued its fiscal fourth-quarter 2018 earnings results before markets opened on Thursday. Despite lost revenue from Sears' store closings and a 13-week quarter compared to the prior year's 14-week fourth quarter, the company managed to improve its operating income over the last three months. Let's review raw numbers and salient details from the quarter directly below.

Please note that all comparative numbers that follow refer to the prior-year quarter (the fourth quarter of fiscal 2017).

Lands' End: The raw numbers

Metric Q4 2018 Q4 2017 Change (Year Over Year)
Revenue $502.3 million $510.6 million (1.6%)
Net income $16.2 million $39.8 million (59.3%)
Diluted earnings per share $0.50 $1.24 (59.7)

Data source: Land's End.

Young woman in bobble hat and sweater smiling in a fall landscape.

Image source: Getty Images.

What happened with Lands' End this quarter?

  • Adjusting for the extra week in the fiscal fourth quarter of 2017 and $21.4 million in lost sales from Lands' End Shops in now-closed Sears stores, revenue would have advanced by 8.4%.
  • Total same-store sales increased by 9.1%, while same-store sales at company-operated stores recorded an even healthier advance of 15.1%.
  • Lands' End's gross margin of 38.9% was essentially flat against the prior-year quarter.
  • Operating profits crept up despite the lower revenue level as the company controlled selling, general, and administrative expenses over the last three months. Operating margin rose by 30 basis points, to 6.1%.
  • The improvement in operating profit is indicative of a larger trend, as Lands' End's shift toward multichannel selling (with an emphasis on e-commerce) has improved its profitability. The slow and steady closing of Sears stores over the last few years, while dampening Lands' End's top line, has helped widen profit margins.
  • Most of the disparity in net earnings between periods shown in the table above is due to a $21.9 million income tax benefit the company booked in the fourth quarter of fiscal 2017 due to U.S. tax legislation.

Check out the latest earnings call transcript for Lands' End.

What management had to say

In Lands' End's earnings conference call, CEO Jerome Griffith discussed the company's widening profits and reiterated long-term financial goals:

Our progress is clearly reflected in our performance. We have nearly doubled adjusted EBITDA over the last two years and our recent results show continued momentum. This marks our sixth consecutive quarter of adjusted EBITDA growth and the seventh straight quarter of revenue growth when adjusted for the 53rd week.

As an organization, we have leveraged our iconic American brand, which was founded on the principles of delivering great quality, uncompromising service, and exceptional value to our customers. These core principles provide us with an advantage as they distinguish us from our competitors. Combining these principles with the progress we've made across our strategic initiatives and our disciplined execution, we are well-positioned to achieve the long-term objectives I first laid out in January 2018, which are $1.8 billion to $2 billion of revenue and high-single-digit EBITDA margin.

Looking forward

Lands' End issued forward guidance for the first quarter of fiscal 2019, as well as the full year, alongside earnings. For the first quarter, management expects net revenue of $255 million-$265 million and a diluted loss per share of between $0.25 and $0.45.

For the entire 2019 year, management anticipates revenue of $1.45 billion to $1.50 billion and diluted earnings per share (EPS) of $0.25 to $0.45. At the midpoint of the EPS range, Lands' End's earnings will essentially fall flat against the $0.36 earned in fiscal 2018. However, given the slow but sure transformation of its business model, the company may yet hit or exceed the top end of its projected earnings band.

Asit Sharma has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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