Venerable fashion retailer Lands' End (NASDAQ:LE) surpassed its projected sales and profit benchmarks when it reported fiscal second-quarter 2019 earnings on Thursday morning before the start of trading. Much-beleaguered shares finally found a respite, surging as much as 18% higher in early trading, as investors warmed to the proposition that the company can eventually revive its retail growth prospects.
Below, we'll review the last three months in detail and look ahead to management's near-term guidance, which was raised from previous levels alongside earnings on Thursday.
All comparative numbers that follow refer to the prior-year quarter.
Lands' End: The raw numbers
|Metric||Q2 2019||Q2 2018||Change (Decline)|
|Revenue||$298.3 million||$308.0 million||(3.1%)|
|Net income (loss)||($3.0 million)||($5.3 million)||Loss narrowed 46%|
|Diluted earnings per share (loss)||($0.09)||($0.16)||Loss narrowed 43.8%|
What happened with Lands' End this quarter?
- Revenue of just over $298 million exceeded its guidance of $285 million to $295 million, while a diluted loss per share of $0.09 favorably outpaced the loss in a range of $0.16 to $0.23 that management had previously advised investors to expect.
- Same-store sales at U.S. company-operated stores increased by 7.5%.
- E-commerce sales improved by 7.3%, which management attributed to both higher demand and new-customer acquisition.
- Adjusting for roughly $20 million in lost sales from Lands' Ends Shops in 110 now-shuttered Sears stores, and the impact from last year's Delta Airlines uniform launch, core sales improved by 5.5%.
- The company announced the opening of a new buying and sourcing office in Hong Kong, which may eventually improve the efficiency of its supply chain and help sharpen profit margins.
- Gross margin slipped 110 basis points to 43.3%.
- Adjusted EBITDA of $6.8 million retraced from the $7.7 million booked in the comparable quarter; but the current-quarter total fell near the top of management's projected band of $4 million to $7 million.
- Lands' End incurred an operating loss of $561,000 versus operating income of $875,000 in the second quarter of 2018. But lower interest expense due to debt reduction, and an income tax benefit this quarter that exceeded the prior year's benefit by nearly $2.8 million, contributed to the reduction in net losses as shown in the table above.
What management had to say
In the earnings press release on Thursday, CEO Jerome Griffith outlined key factors behind the company's improving performance and increased investment potential, while also touching on its current strategy:
We were pleased to have delivered sales and net income above our expectations and adjusted EBITDA at the high end of our range, illustrating the strong progress we are making across our strategic initiatives. Product continued to resonate with consumers as we leverage data analytics to align our key item offerings with consumer demand. We believe our enhancements to our product offering combined with our marketing efforts are yielding overall growth in our customer file, which reflects high-teens growth in new customers.
We are also very pleased with our retail expansion strategy with U.S. stores operating at or above expectations. Looking ahead, we remain committed to the continued advancements of our growth strategies centered on getting the product right, operating as a digitally led company, executing a uni-channel strategy, and improving business processes and infrastructure. We believe the execution of these strategies positions us to achieve double-digit EBITDA growth annually beginning in fiscal 2020 and puts us on track to achieve our stated long-term financial objectives.
Turning our attention to the upcoming quarter, Lands' End expects net revenue of $345 million to $355 million, and diluted EPS of between $0.05 and $0.12.
With two quarters left in fiscal 2019, the company revised its full-year outlook on Thursday. While revenue remains pegged between $1.45 billion and $1.50 billion, net income is now slated to land in a range of $12 million to $17 million, in comparison with last quarter's outlook for $10 million to $16 million. Similarly, Lands' End now projects that diluted EPS will fall between $0.37 and $0.52, versus an earlier expectation of $0.30 to $0.50. The company left its adjusted EBITDA target unchanged for the fiscal year: Management still expects that adjusted profits will wind up between $70 million and $80 million by year-end.