Lands' End (LE 8.92%) issued fiscal third-quarter results on Tuesday, and for the second consecutive quarter, the company broadened its full-year earnings outlook. Shares jumped 21% as investors absorbed this latest evidence that the company has turned its once-flailing operations around. The LE ticker symbol is now flat year to date as it continues to emerge from a multiyear slump. As we walk through highlights of the last three months, note that all comparative numbers refer to the prior-year quarter.
Lands' End: The headline numbers
|Metric||Q3 2019||Q3 2018||Change (Decline)|
|Revenue||$340.0 million||$341.6 million||(0.4%)|
|Net income||$3.6 million||$3.3 million||9%|
|Diluted earnings per share||$0.11||$0.10||10%|
Essential details from the quarter
- The company's top line fell short of management's projected range of $345 million to $355 million, while diluted earnings per share (EPS) hit the high end of a projected band of $0.05 to $0.12.
- Management said that the company had 89 fewer of its Lands' End Shops at Sears in the current quarter than a year ago. Inclusive of these stores' sales, Lands' End's revenue would have increased by 4.7%.
- Same-store sales continued a recent trend of acceleration, rising 8.3%.
- Exhibiting nearly identical growth to the second quarter, e-commerce sales rose 7.4%, due to rising product demand and a high-single-digit increase in new customer acquisitions.
- Gross margin improved by 110 basis points to 45.3%, which management attributed to more-disciplined promotional spending.
- Adjusted EBITDA of $18.8 million landed inside the range of the company's projection of $17 million to $20 million.
- Lands' End noted that after quarter-end, it began the fulfillment of a previously announced order for new American Airlines uniforms. The company shipped $20 million in uniforms in November, as part of what's expected to be a $40 million to $50 million uniform launch. The majority of the order is slated for completion in the fourth quarter.
Management's comments on the last three months
As I've recently discussed in detail on a Motley Fool Industry Focus podcast, Lands' End is a sleeper stock in the retail investment arena. Though it has severed its value-destroying relationship with Sears, investors haven't completely warmed to its steady (if cautious) brick-and-mortar expansion. Nor have they valued the potential of a rejuvenated brand that has exhibited admirable staying power over the decades.
In the company's earnings press release, CEO Jerome Griffith provided several details that illuminate consistently improving financial performance and argue for a closer look at the retailer's prospects:
We were pleased to have delivered strong financial results for the third quarter as gross margin expansion and expense management enabled us to achieve Adjusted EBITDA growth of approximately 20%. While sales were burdened by unseasonably warm temperatures, our transitional product resonated with customers, and sales trends improved as the colder weather arrived. Our U.S. Company Operated stores continued to deliver strong comparable sales growth, with our 2018 openings comping above expectations. Looking ahead, our growth strategies remain centered on delivering product with a purpose, operating as a digitally led company, executing a uni-channel strategy and improving business processes and infrastructure. Overall, we are pleased with our progress and remain on track to achieve our long-term financial targets.
Heading into the final quarter of fiscal 2019, Lands' End beefed up its full-year guidance on Tuesday for the second time in as many quarters. Management tightened the expected revenue range to $1.45 billion to $1.46 billion, from its earlier band of $1.45 billion to $1.50 billion. The outlook for net income has been boosted considerably, to a range of $18 million to $21 million, versus the prior expectation of $12 million to $17 million. Similarly, diluted earnings per share for 2019 are chalked in at $0.55 to $0.64, a considerable revision from last quarter's estimate of $0.37 to $0.52.