Apparel retailer Lands’ End is adjusting its outlook for the rest of the year, citing an “uncertain” and “volatile” macro environment.
The company missed sales and earnings expectations for its third fiscal quarter, surprising investors and sending its shares plunging nearly 30% on Thursday. Lands’ End reported a net loss of $4.7 million for the third quarter of 2022, compared to a net income of $7.4 million for the third quarter of 2021. Total revenue for the quarter decreased 1.3% year on year.
Speaking on the earnings call, Jim Gooch, president and chief financial officer, attributed the lower-than-expected revenue to a “slowdown across the industry in consumer demand,” while citing margin pressure from “shipping expenses, increased industry-wide promotional activity and margin mix from our growth in our third party business.”
“Our fourth-quarter and full-year revised outlook reflects the headwinds presented by the macro economic environment and inflationary pressures on the consumer,” he said.
Lands’ End has roughly 30 of its own stores in the U.S., and reported that same-store sales were up 13.0% in the third quarter of 2022 compared to the third quarter of 2021. More and more retailers are benefitting from customers resuming in-store shopping; in-store spending made up more than 4 out of 5 retail sales from January through August 2022, according to Mastercard SpendingPulse.
But while e-commerce spiked in the early days of the pandemic, it’s since fallen back down to earth. At Lands’ End, global net revenue for e-commerce dropped 4.6% in the third quarter. Within the U.S., it decreased 1.3%. Outside of the U.S., it dropped nearly 20%, “negatively impacted by inflation and geopolitical turmoil in Europe,” Gooch explained.
Like other retailers with a lot of product on their hands, Lands’ End plans to increase promotions for the fourth quarter to stay competitive. Right now, it’s offering customers 70% off with an online code. This year, Lands’ End increased its lead times and receipts to make sure it had enough inventory to meet demand for the fall and holiday season. Its inventory totaled $564.9 million as of Oct. 28, 2022, a nearly 18% jump from the same time last year. Lands’ End doesn’t expect inventories to normalize until the spring or summer of 2023.
In a bright spot for the retailer, Lands’ End saw a 60% year-over-year increase in third-party revenue. Some of this came from Kohl’s, whose partnership with Lands’ End has steadily expanded over the last couple years. Other sales came from Walmart.com and Target.com, where Lands’ End began selling merchandise this quarter. It also has products listed on Amazon and QVC.
“If you go back four or five years, you could buy Lands’ End product in two places, LandsEnd.com and Sears,” CEO Jerome Griffith told Modern Retail in September. “The Sears relationship wasn’t exactly ideal because the Sears customer attributes didn’t overlap with the Lands’ End customer attributes, so there wasn’t a really good synergy there. We believe as one of our growth strategy pillars, that we want to be a unit challenge distributor, meaning we want to sell to our customer where our customer shops. Our customer shops at Amazon and Walmart and Kohl’s and Target, and we want to be present where they spend their dollars because they spend their dollars there for a reason.”
As Lands’ End expands, it’s also branched out into new categories such as intimates apparel, with a soft launch planned before the end of the year and a bigger launch planned for the spring. The company, too, has “swung more towards versatile clothing that you can wear to work, but it’s also very comfortable,” Griffith told Modern Retail. Griffith will retire at the end of January, with Andrew McLean, formerly president of international at American Eagle Outfitters, set to be his successor.
This last quarter, Lands’ End saw a “pretty positive” response to its lighter transitional outerwear, including rainwear and lightweight down vests, Griffith said on Thursday’s call. Across the industry, outerwear — which takes up a significant portion of Lands’ End’s offering — is returning to 2019 sales levels after a slow past couple years. The NPD Group forecasts outerwear dollar sales to grow 6% in the fourth quarter, versus last year, as prices rise. In its recent survey, 30% of adults said they wanted to replace their outerwear for the winter season, along with jeans (36%) and socks (33%).
“Outerwear is showing growth across nearly all U.S. regions, with the exception of the West, which may still be recuperating from late September heatwaves,” Maria Rugolo, a fashion apparel industry analyst for the NPD Group, told Modern Retail. “In all other regions, we are seeing continued growth for this year. Stores are also putting much of their outerwear front and center this holiday season. From heavy outerwear to more layering pieces, we see a real focus in this space for the season.”
While Lands’ End’s earnings and outlook were “disappointing,” Telsey Advisory Group said in a note on Thursday, “we continue to see long-term growth prospects for LE based on its loyal and growing customer base, diversified distribution model… and digital focus.”