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Lands' End Announces Fourth Quarter and Fiscal 2017 Results

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DODGEVILLE, Wis., March 22, 2018 (GLOBE NEWSWIRE) -- Lands' End, Inc. (NASDAQ:LE) today announced financial results for the 14-week fourth quarter and 53-week fiscal year ended February 2, 2018, compared to the 13-week fourth quarter and 52-week fiscal year ended January 27, 2017.

Fourth Quarter Fiscal 2017 Highlights:

  • Net revenue for the fourth quarter increased 11.3% to $510.6 million, which includes $25.9 million from the 53rd week, compared to $458.8 million in the fourth quarter last year. Direct segment net revenue increased 14.3% to $455.6 million, including $24.2 million from the 53rd week, as compared to the same period last year. Retail segment net revenue decreased 8.7% to $55.1 million, including $1.7 million from the 53rd week, as compared to the same period last year, primarily due to fewer Lands' End Shops at Sears. Same store sales on a comparable 13-week basis increased 5.0%.

  • Gross margin was 38.9% as compared to 38.6% in the fourth quarter last year.

  • The Company recorded a tax benefit during the quarter of $21.9 million primarily due to the U.S. Tax Cuts and Jobs Act ("Tax Reform").

  • Net income was $39.8 million, or $1.24 per diluted share. This compares to a Net loss of $94.8 million, or $2.96 per diluted share in the fourth quarter of fiscal 2016.

  • Adjusted EBITDA(2) was $37.3 million compared to $30.7 million in the fourth quarter of fiscal 2016.

Jerome S. Griffith, Chief Executive Officer, stated, "We are pleased with our strong performance in the fourth quarter, as we continued to gain momentum behind our merchandising, marketing, and digital initiatives, and ended the year on a solid note. During 2017, we stabilized the brand, grew our buyer file, reconnected with our core customer, improved our business processes, and drove growth across our four key categories. As we look forward, we will continue to execute on our strategic plan and continue to focus on driving consistent performance across the business."

Full Year Fiscal 2017 Highlights:

  • Net revenue for fiscal 2017 increased 5.3% to $1.41 billion, which includes $25.9 million from the 53rd week, compared to $1.34 billion last year. Direct segment net revenue increased 7.4% to $1.23 billion, including $24.2 million from the 53rd week. Retail segment net revenue decreased 7.5% to $172.6 million, including $1.7 million from the 53rd week, primarily due to fewer Lands' End Shops at Sears, partially offset by a 2.7% increase in same store sales on a comparable 52-week basis.

  • Gross margin was 42.5% as compared to 43.2% last year.

  • The Company recorded a tax benefit for the year of $27.7 million primarily due to the Tax Reform.

  • Net income was $28.2 million, or $0.88 per diluted share. This compares to a Net loss of $109.8 million, or $3.43 per diluted share, in fiscal 2016.

  • Adjusted EBITDA(2) was $58.3 million compared to $39.8 million in fiscal 2016. 

Balance Sheet and Cash Flow Highlights

Cash and cash equivalents were $195.6 million as of February 2, 2018, compared to $213.1 million as of January 27, 2017. Net cash provided by operations was $28.4 million for the 53 weeks ended February 2, 2018, compared to net cash provided by operations of $24.1 million for the 52 weeks ended January 27, 2017.

Inventory was $332.3 million as of February 2, 2018, and $325.3 million as of January 27, 2017.

The Company had $152.7 million of availability under its asset-based senior secured credit facility and had $486.2 million of Long-term debt, net as of February 2, 2018.

Conference Call

The Company will host a conference call on Thursday, March 22, 2018, at 8:30 a.m. ET to review its fourth quarter and fiscal 2017 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.

About Lands' End, Inc.

Lands' End, Inc. (NASDAQ:LE) is a leading multi-channel retailer of casual clothing, accessories, footwear and home products. We offer products through catalogs, online at www.landsend.com and affiliated specialty and international websites, 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 about the Company's momentum, the expected results from executing on our initiatives and strategies, and driving consistent results. All statements other than statements of historical fact, including without limitation, those with respect to the Company's goals, plans, expectations and strategies set forth herein are forward-looking statements. The following important factors and uncertainties, among others, could cause actual results to differ materially from those described in these forward-looking statements: we may be unsuccessful in implementing our strategic initiatives, or our initiatives may not have their desired impact on our business; our ability to offer merchandise and services that customers want to purchase; changes in customer preference from our branded merchandise; customers' use of our digital platform, including customer acceptance of our efforts to enhance our e-commerce websites; customer response to our marketing efforts across all types of media; our maintenance of a robust customer list; our dependence on information technology and a failure of information technology systems, including with respect to our e-commerce operations, or an inability to upgrade or adapt our systems; the success of our ERP implementation; fluctuations and increases in costs of raw materials; impairment of our relationships with our vendors; our failure to maintain the security of customer, employee or company information; our failure to compete effectively in the apparel industry; if Sears Holdings Corporation sells or disposes of its retail stores, including pursuant to the recapture rights granted to Seritage Growth Properties, and other parties or if its retail business does not attract customers or does not adequately provide services to the Lands' End Shops at Sears; legal, regulatory, economic and political risks associated with international trade and those markets in which we conduct business and source our merchandise; our failure to protect or preserve the image of our brands and our intellectual property rights; increases in postage, paper and printing costs; failure by third parties who provide us with services in connection with certain aspects of our business to perform their obligations; our failure to timely and effectively obtain shipments of products from our vendors and deliver merchandise to our customers; reliance on promotions and markdowns to encourage customer purchases; our failure to efficiently manage inventory levels; unseasonal or severe weather conditions; the adverse effect on our reputation if our 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 our business of adverse worldwide economic and market conditions, including economic factors that negatively impact consumer spending on discretionary items; the failure of Sears Holdings or its subsidiaries to perform under various agreements or our failure to have necessary systems and services in place when such agreements expire; potential indemnification liabilities to Sears Holdings pursuant to the separation and distribution agreement; the ability of our principal shareholders to exert substantial influence over us; 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 our Annual Report on Form 10-K for the fiscal year ended January 27, 2017. We intend the forward-looking statements to speak only as of the time made and do not undertake to update or revise them as more information becomes available, except as required by law.

CONTACTS

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

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

-Financial Tables Follow-


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

(in thousands, except share data)   February 2,
 2018
  January 27,
 2017
ASSETS        
Current assets        
Cash and cash equivalents   $ 195,581     $ 213,108  
Restricted cash   2,356     3,300  
Accounts receivable, net   49,860     39,284  
Inventories, net   332,297     325,314  
Prepaid expenses and other current assets   26,659     26,394  
Total current assets   606,753     607,400  
Property and equipment, net   136,501     122,836  
Goodwill   110,000     110,000  
Intangible asset, net   257,000     257,000  
Other assets   13,881     17,155  
Total assets   $ 1,124,135     $ 1,114,391  
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities        
Accounts payable   $ 155,874     $ 162,408  
Other current liabilities   100,257     86,446  
Total current liabilities   256,131     248,854  
Long-term debt, net   486,248     490,043  
Long-term deferred tax liabilities   59,137     90,467  
Other liabilities   15,526     13,615  
Total liabilities   817,042     842,979  
Commitments and contingencies        
STOCKHOLDERS' EQUITY        
Common stock, par value $0.01- authorized: 480,000,000 shares; issued and outstanding: 32,101,793 and 32,029,359, respectively   320     320  
Additional paid-in capital   347,175     343,971  
Accumulated deficit   (29,810 )   (60,453 )
Accumulated other comprehensive loss   (10,592 )   (12,426 )
Total stockholders' equity   307,093     271,412  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 1,124,135     $ 1,114,391  
                 


LANDS' END, INC.

Consolidated Statements of Operations
(Unaudited)

    14 Weeks Ended   13 Weeks Ended   53 Weeks Ended   52 Weeks Ended
(in thousands except per share data)   February 2, 2018   January 27, 2017   February 2, 2018   January 27, 2017
REVENUES                
Net revenue   $ 510,633     $ 458,841     $ 1,406,677     $ 1,335,760  
Cost of sales (excluding depreciation and amortization)   312,212     281,906     809,474     759,352  
Gross profit   198,421     176,935     597,203     576,408  
                 
Selling and administrative   161,135     146,285     538,939     536,576  
Depreciation and amortization   5,879     5,584     24,910     19,003  
Intangible asset impairment       173,000         173,000  
Other operating expense, net   1,717     500     4,269     460  
Operating income (loss)   29,690     (148,434 )   29,085     (152,631 )
Interest expense   7,287     6,137     25,929     24,630  
Other expense, net   4,520     3,032     2,708     1,619  
Income (loss) before income taxes   17,883     (157,603 )   448     (178,880 )
Income tax benefit   (21,869 )   (62,782 )   (27,747 )   (69,098 )
NET INCOME (LOSS)   $ 39,752     $ (94,821 )   $ 28,195     $ (109,782 )
NET INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE TO STOCKHOLDERS                
Basic:   $ 1.24     $ (2.96 )   $ 0.88     $ (3.43 )
Diluted:   $ 1.24     $ (2.96 )   $ 0.88     $ (3.43 )
                 
Basic weighted average common shares outstanding   32,098     32,029     32,076     32,021  
Diluted weighted average common shares outstanding   32,166     32,029     32,110     32,021  


Use and Definition of Non-GAAP Financial Measures

1 Adjusted net income (loss) and Adjusted earnings (loss) per share - As a result of the Tax Reform, intangible asset impairment, transfer of corporate functions and impacts of product recall, the Company is presenting a reconciliation of Net income (loss) and Earnings per share determined in accordance with accounting principles generally accepted in the United States ("GAAP") to Adjusted Net income and Adjusted Earnings per share which excludes the impact of the Tax Reform, intangible asset impairment and the product recall.

2 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 a number of important cash and non-cash recurring items.

3 The sum of net income (loss) and adjustments per diluted common share may not equal the Adjusted earnings per share due to rounding.

While Adjusted net income (loss)1, Adjusted earnings (loss) per share1 and Adjusted EBITDA2 are non-GAAP measurements, 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 costs, and
    ° For the 14 and 53 weeks ended February 2, 2018 and the 13 and 52 weeks ended January 27, 2017, we exclude the loss on disposal of property and equipment as management considers the gains or losses on disposal of assets to result from investing decisions rather than ongoing operations.
  • 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 and 52 weeks ended January 27, 2017, we exclude the impairment of our indefinite-lived trade name asset as this is a non-cash charge that is an unusual event that affects the comparability of our financial results.
    ° For the 14 and 53 weeks ended February 2, 2018, we exclude the impacts of the transfer of corporate functions, including severance and contract losses associated with a transition of certain corporate activities from our New York office to our Dodgeville headquarters.
    ° For the 14 and 53 weeks ended February 2, 2018, we exclude the impacts of the Tax Reform as they are a result of a nonrecurring event that affects the comparability of our financial results.
    ° For the 52 weeks ended January 27, 2017, an amount of a previously recorded recall was reversed due to lower than estimated customer return rates for the recalled products despite our efforts to contact impacted customers. These are unusual events that affect the comparability of our financial results.
 
Reconciliation of Non-GAAP Financial Information to GAAP
(Unaudited)
    14 Weeks Ended
(in thousands except per share data)   February 2, 2018
    Pre-tax   Tax impact   After-Tax   Adjusted Diluted EPS
Net income (loss) and earnings (loss) per share   $ 17,883     $ (21,869 )   $ 39,752     $ 1.24  
                 
Transfer of corporate functions   1,520     567     952     0.03  
Tax Reform       28,370     (28,370 )   (0.88 )
Adjusted net income (loss) and adjusted earnings (loss) per share (1)(3)   $ 19,403     $ 7,068     $ 12,334     $ 0.38  
                                 


     
    13 Weeks Ended
(in thousands except per share data)   January 27, 2017
    Pre-tax   Tax impact   After-Tax   Adjusted Diluted EPS
Net (loss) income and (loss) earnings per share   $ (157,603 )   $ (62,782 )   $ (94,821 )   $ (2.96 )
                 
Intangible asset impairment   173,000     65,169     107,831     3.37  
Adjusted net income (loss) and adjusted earnings (loss) per share (1)(3)   $ 15,397     $ 2,387     $ 13,010     $ 0.41  
                                 


     
    53 Weeks Ended
(in thousands except per share data)   February 2, 2018
    Pre-tax   Tax impact   After-Tax   Adjusted Diluted EPS
Net income (loss) and earnings (loss) per share   $ 448     $ (27,747 )   $ 28,195     $ 0.88  
                 
Transfer of corporate functions   3,921     1,433     2,488     0.08  
Tax Reform       28,370     (28,370 )   (0.88 )
Adjusted net income (loss) and adjusted earnings (loss) per share (1)(3)   $ 4,369     $ 2,056     $ 2,313     $ 0.07  
                                 


     
    52 Weeks Ended
(in thousands except per share data)   January 27, 2017
    Pre-tax   Tax impact   After-Tax   Adjusted Diluted EPS
Net (loss) income and (loss) earnings per share   $ (178,880 )   $ (69,098 )   $ (109,782 )   $ (3.43 )
                 
Intangible asset impairment   173,000     65,169     107,831     3.37  
Product recall   (212 )   (87 )   (125 )    
Adjusted net income (loss) and adjusted earnings (loss) per share (1)(3)   $ (6,092 )   $ (4,016 )   $ (2,076 )   $ (0.06 )
                                 


       
  14 Weeks Ended   13 Weeks Ended
  February 2, 2018   January 27, 2017
(in thousands) $'s   % of
Net Sales
  $'s   % of
Net Sales
Net income (loss) $ 39,752     7.8 %   $ (94,821 )   (20.7 )%
Income tax benefit (21,869 )   (4.3 )%   (62,782 )   (13.7 )%
Other expense, net 4,520     0.9 %   3,032     0.7 %
Interest expense 7,287     1.4 %   6,137     1.3 %
Operating income (loss) 29,690     5.8 %   (148,434 )   (32.3 )%
Intangible asset impairment     %   173,000     37.7 %
Depreciation and amortization 5,879     1.2 %   5,584     1.2 %
Transfer of corporate functions 1,520     0.3 %       %
Loss on disposal of property and equipment 197     %   500     0.1 %
Adjusted EBITDA (2) $ 37,286     7.3 %   $ 30,650     6.7 %
                           


       
  53 Weeks Ended   52 Weeks Ended
  February 2, 2018   January 27, 2017
(in thousands) $'s   % of
Net Sales
  $'s   % of
Net Sales
Net income (loss) $ 28,195     2.0 %   $ (109,782 )   (8.2 )%
Income tax benefit (27,747 )   (2.0 )%   (69,098 )   (5.2 )%
Other expense, net 2,708     0.2 %   1,619     0.1 %
Interest expense 25,929     1.8 %   24,630     1.8 %
Operating income (loss) 29,085     2.1 %   (152,631 )   (11.4 )%
Intangible asset impairment     %   173,000     13.0 %
Depreciation and amortization 24,910     1.8 %   19,003     1.4 %
Product recall     %   (212 )   %
Transfer of corporate functions 3,921     0.3 %       %
Loss on disposal of property and equipment 348     %   672     0.1 %
Adjusted EBITDA (2) $ 58,264     4.1 %   $ 39,832     3.0 %
                           


 
LANDS' END, INC.
Consolidated and Combined Statements of Cash Flows
for Fiscal Years Ended
(Unaudited)
         
(in thousands)   February 2, 2018   January 27, 2017
CASH FLOWS FROM OPERATING ACTIVITIES        
Net income (loss)   $ 28,195     $ (109,782 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:        
Depreciation and amortization   24,910     19,003  
Intangible asset impairment       173,000  
Product recall       (212 )
Amortization of debt issuance costs   1,904     1,712  
Loss on disposal of property and equipment   348     672  
Stock-based compensation   3,951     2,230  
Deferred income taxes   (32,757 )   (67,253 )
Change in operating assets and liabilities:        
Inventories   (2,709 )   755  
Accounts payable   (6,950 )   16,951  
Other operating assets   (3,234 )   (12,356 )
Other operating liabilities   14,779     (631 )
Net cash provided by operating activities   28,437     24,089  
CASH FLOWS FROM INVESTING ACTIVITIES        
Proceeds from sale of property and equipment   68     47  
Change in restricted cash   944      
Purchases of property and equipment   (38,145 )   (33,319 )
Net cash used in investing activities   (37,133 )   (33,272 )
CASH FLOWS FROM FINANCING ACTIVITIES        
Payments of employee withholding taxes on share-based compensation   (747 )   (396 )
Debt issuance costs   (1,515 )    
Payments on term loan facility   (5,150 )   (5,150 )
Net cash used in financing activities   (7,412 )   (5,546 )
Effects of exchange rate changes on cash   (1,419 )   (531 )
NET DECREASE IN CASH AND CASH EQUIVALENTS   (17,527 )   (15,260 )
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR   213,108     228,368  
CASH AND CASH EQUIVALENTS, END OF YEAR   $ 195,581     $ 213,108  
SUPPLEMENTAL INFORMATION:        
Supplemental Cash Flow Data:        
Unpaid liability to acquire property and equipment   $ 7,756     $ 8,419  
Income taxes paid   $ 3,379     $ 3,653  
Interest paid   $ 23,458     $ 22,484  
                 

Financial information by segment is presented in the following tables for the 14 and 53 weeks ended February 2, 2018 and the 13 and 52 weeks January 27, 2017.

                 
    14 Weeks Ended   13 Weeks Ended   53 Weeks Ended   52 Weeks Ended
(in thousands)   February 2, 2018   January 27, 2017   February 2, 2018   January 27, 2017
Net revenue                
Direct   $ 455,557     $ 398,489     $ 1,234,115     $ 1,149,149  
Retail   55,076     60,352     172,562     186,611  
Total Net revenue   $ 510,633     $ 458,841     $ 1,406,677     $ 1,335,760  
                                 


                 
    14 Weeks Ended   13 Weeks Ended   53 Weeks Ended   52 Weeks Ended
(in thousands)   February 2, 2018   January 27, 2017   February 2, 2018   January 27, 2017
Adjusted EBITDA(2):                
Direct   $ 50,608     $ 37,065     $ 104,632     $ 78,582  
Retail   (629 )   1,541     (7,866 )   (5,339 )
Corporate/ other   (12,693 )   (7,956 )   (38,502 )   (33,411 )
Total Adjusted EBITDA(2)   $ 37,286     $ 30,650     $ 58,264     $ 39,832  
                                 

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