Lands’ End shares plunge 13% after weak sales forecast stuns investors

Shares of Lands’ End, Inc., a retailer renowned for its solution-focused apparel, outerwear, and home products, tumbled nearly 13% after the company revealed a fourth-quarter sales outlook that fell short of analyst expectations. This weaker guidance raised concerns about the company’s revenue trajectory, pushing Lands’ End stock down 12.5% to $14.06 by Thursday’s close. Despite this setback, the stock remains up over 47% for the year, highlighting significant prior gains.

The Dodgeville, Wisconsin-based company’s third-quarter financial results showcased both progress and challenges. While profitability measures showed marked improvement, eCommerce revenue decline and higher marketing expenses weighed on overall performance.

Profitability improves but revenue challenges persist

Lands’ End narrowed its net loss to $593,000, or $0.02 per share, compared to a $112.4 million loss, or $3.52 per share, in the same quarter a year ago. This dramatic improvement stemmed largely from gross margin improvement and the absence of last year’s substantial non-cash impairment charges. Adjusted earnings increased to $0.06 per share, reflecting operational efficiency gains.

However, third-quarter revenue dropped 1.9% year-over-year to $318.6 million. The decline was attributed to the transition of kids and footwear products to licensing arrangements, which reduced direct sales. Excluding this impact, the company reported modest revenue growth, underscoring its ability to generate high-quality sales.

Gross profit rose 5.6% to $161.1 million, with gross margin improvement reaching approximately 360 basis points. CEO Andrew McLean emphasized that reduced promotional activity and streamlined supply chains were critical to achieving these results.

McLean also noted that new customer acquisition surged 20% year-over-year during the quarter. This uptick is central to the company’s strategy of driving higher-quality sales while expanding its loyal customer base.

Sluggish eCommerce revenue impacts growth

One notable hurdle for Lands’ End was the eCommerce revenue decline in key segments. In the United States, sales dropped 2.2% to $186.1 million due to the licensing transition for kids and footwear products. Adjusted for this shift, U.S. eCommerce revenue grew by low-double digits, highlighting the strength of its remaining portfolio.

Internationally, eCommerce revenue decline continued with a 4.6% drop, driven by reduced markdowns and clearance sales. The Outfitters division, which includes business and school uniforms, saw a marginal revenue decline of 1.2%, primarily due to timing changes in customer orders for school uniforms.

Conversely, third-party channel sales improved, rising 6.3%, thanks to new licensing arrangements that are part of the company’s evolving inventory management strategy.

Operational efficiency gains drive optimism

Lands’ End reported its seventh consecutive quarter of inventory reductions, achieving a 20% year-over-year decrease. This accomplishment reflects the company’s disciplined inventory management strategy and its efforts to align supply with demand. Adjusted EBITDA increased 17% to $20.3 million, showcasing operational efficiency gains despite revenue pressures.

However, these gains came alongside increased selling and administrative expenses, driven by higher digital marketing spend to support new customer acquisition. This spending reflects the company’s focus on sustaining growth in its business-to-consumer channels.

Cautious fourth-quarter sales outlook

While Lands’ End showed progress in profitability and inventory control, its fourth-quarter sales outlook dampened investor sentiment. The company expects net revenue between $440 million and $480 million, alongside diluted earnings per share of $0.58 to $0.67. Management projects low-to-mid single-digit growth in gross merchandise value (GMV), reflecting moderate expectations amid market challenges.

For fiscal 2024, Lands’ End forecasts net revenue of $1.36 billion to $1.40 billion, with adjusted earnings per share ranging from $0.35 to $0.45.

Expert insights highlight challenges

Analysts view Lands’ End’s focus on gross margin improvement and operational efficiency gains as positive, but concerns linger over its reliance on licensing transitions and the potential for sustained eCommerce revenue decline. The company’s ability to maintain new customer acquisition momentum will be critical, especially as it navigates a competitive holiday season.

The fourth-quarter period, which traditionally bolsters retail performance, is expected to be pivotal. The company’s ability to execute its inventory management strategy and balance promotional activities will likely determine its success heading into 2025.