What happened
Shares of Lands' End (LE 4.48%) were down 26% as of 10:53 a.m. ET on Thursday after delivering disappointing earnings results for the fiscal third quarter.
Revenue was lower than analysts expected, which also led to a loss on the bottom line, as higher transportation costs and supply problems continue to pressure the business. Uncertainty over consumer spending has been a headache for retailers all year. Year to date, Lands' End stock has fallen 56%, and the situation may get worse before it gets better.
NASDAQ: LE
Key Data Points
So what
Lands' End reported revenue of $249 million, down 4.6% year over year. The bright spot was a 60% year-over-year increase in third-party revenue, representing strong growth from Kohl's and other online marketplaces that sell Lands' End.
While management believes they have enough inventory to satisfy demand during the holidays, they don't expect inventory to normalize until the spring or summer of next year. Elevated inventory has pressured the company's free cash flow this year, with gross profit falling 11% over the year-ago quarter. This problem may continue to weigh on the company's profitability in the new year.
Now what
Investors certainly didn't like the revised outlook. Management now expects full-year revenue to be between $1.54 billion to $1.56 billion, down from the previous guidance of $1.6 billion to $1.64 billion. Most concerning was the downward revision to earnings, which is now expected to come in at a loss instead of a profit.
The inflation and supply chain headwinds are continuing to take their toll on the consumer, as reflected by earnings results across the industry. Investors should be cautious before pulling the trigger right now. There are good values in the retail industry, but some stocks could hit new lows before the business outlook improves.
The safest course is to focus on apparel companies that are holding profits up in this environment, as they will be in the best position to deliver satisfactory returns over the long term.
