Dive Brief:
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Lands’ End on Tuesday reported that fourth quarter net revenue was $458.8 million, down from $473.5 million in the year-ago period, just missing the FactSet consensus of $459.4 million cited by MarketWatch. Its catalog and e-commerce net revenue fell 2.6% to $398.5 million, and its retail segment net revenue fell 6.3% to $60.3 million in the quarter, primarily due to fewer Lands' End shops in Sears stores and a 1.7% drop in same-store sales. The apparel retailer wrote down $2.3 million of prior-season inventory from its Canvas brand, hitting gross margin (which was 38.6%, compared to 42% in the quarter last year) by a negative 50 basis points.
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For the full fiscal 2016 year, net revenue was $1.34 billion, down from $1.42 billion in fiscal 2015. Full-year catalog and e-commerce net revenue fell 5.4% to $1.15 billion, and retail segment net revenue fell 8.9% to $186.4 million due to a 6.0% decrease in same-store sales and a reduction in the number of Lands' End at Sears shops. Full-year gross margin was 43.2%, down from 46.0% last year, also hurt by the retailer’s $6.7 million write-down of prior-season Canvas inventory, which had a 50 basis point negative impact.
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Losses widened, but adjusted profit beat expectations. Q4 net loss was $94.8 million, or $2.96 per share, compared to a net loss of $39.5 million, or $1.23 per share at the same time last year. Q4 adjusted earnings were 41 cents per share, beating the FactSet consensus of 35 cents cited by MarketWatch.
Dive Insight:
Though its fourth-quarter results marked some improvement in its fortunes, Lands’ End continues to suffer from its association with Sears, which has been slouching toward death for years now and which spun off the apparel retailer in 2013. Luckily for Lands' End, long a catalog company, much of its sales still come from that catalog and its e-commerce operations, says GlobalData Retail managing director Neil Saunders.
“In our view, Lands' End should continue to look for opportunities to open its own outlets in high footfall locations in order to mitigate the pending collapse of Sears; however, this should be done selectively,” Saunders said in a note emailed to Retail Dive. “As much as the retail part of the business is under pressure, Lands' End is fortunate that its direct business accounts for the bulk of sales. While sales are not yet growing, we attribute the slower pace of decline in direct to some of the improvements made to both catalogs and the e-commerce operation. In terms of the former, it is notable that the latest catalogs are much clearer in terms of product layout and there is much greater emphasis on value-for-money products. Both of these things have helped improve conversion rates.” He said Lands' End's 3,900 square-foot store at Simon's Chicago Premium Outlets and its New York pop-up store helped drive retail sales over the holiday period and offset some of the Sears-related declines.
In his statement Tuesday, CEO Jerome Griffith said the retailer’s performance reflected improvements made in merchandising, marketing and e-commerce. “In order to drive long-term success, we need to strengthen our competitive position and develop and execute a strategic plan that leverages our iconic brand heritage, as well as our well-established e-commerce platform,” he also said. “To that end, we will create enhanced product assortments, develop and communicate a clear and consistent brand identity across channels, and better leverage our distribution channels. Overall, we will be focused on enhancing the business in ways that will drive growth, profitability and shareholder value over the long-term.”
Saunders acknowledged the truth of those claims, but noted that Lands' End has more work to do to clarify its brand, especially after the failure of the Canvas reboot. The retailer retains loyalty among many of its core customers, but that was muddied during the tenure of CEO Federica Marchionni, who arrived in 2015 from Dolce & Gabbana’s USA unit and stepped down in September. Marchionni ran things from New York and re-introduced the Canvas brand that failed to resonate with either core customers or its intended millennial customers.
Lands’ End must continue the sorts of efforts noted by Griffith, Saunders said. “Looking ahead, we think that more clarity in marketing and customer communication will continue to help results,” he said. “However, we also see a need for Lands' End to have a much clearer point of view in terms of what its ranges and brand stands for. The decision to scale back the Canvas collection reflects a failure of the company to properly define and market this sub-brand, and now make it more reliant on core collections. Although we do not believe Lands' End should move too strongly down the 'lifestyle' route, more discipline is needed in communicating and showcasing its points of difference.”