Lands' End, Inc.

Good day and welcome to the Land's End fourth quarter and full year fiscal 2022 results call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would now like to turn the call over to Bernie McCracken, Interim Chief Financial Officer. You may begin.

Good morning, and thank you for joining the Lands End earnings call for a discussion of our fourth quarter and full year fiscal 2022 results, which we released this morning and can be found on our website, landsend.com. I'm Bernie McCracken, Interim Chief Financial Officer, and I'm pleased to join you today with Andrew McClain, our Chief Executive Officer. After the prepared remarks, we will conduct a question and answer session. Please also note that the information we're about to discuss includes forward-looking statements. Such statements involve risks and uncertainties. The company's actual results could differ materially from those discussed on this call. Factors that could contribute to such differences include but are not limited to those items noted and included in the company's SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q. The forward-looking information that is provided by the company on this call represents the company's outlook as of today, and we do not undertake any obligations to update forward-looking statements made by us. Subsequent events and developments may cause the company's outlook to change. During this call, we'll be referring to non-GAAP measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release. Issued earlier today, a copy of which is posted on the investor relations section of our website at Land's End.com. With that, I will turn the call over to Andrew.

Thank you, Bernie. Good morning, and thank you for joining us today. On today's call, we'll discuss Land's End's fourth quarter and full year 2022 results. We'll also discuss our strategy and the work we're doing to ensure Land's End effectively serves all of our stakeholders in the years ahead. I'll begin by saying just how excited I am to have joined Land's End and for the opportunity to lead this iconic American brand. Land's End has a fantastic 60-year history, and thanks to the hard work of our talented and dedicated team, we have a strong platform for continued growth and profitability. We'll speak to our performance in the fourth quarter in a moment, but as this is my first earnings call addressing you as CEO, I want to provide my perspective on the business and how we plan to build on all the progress made by Jerome Griffiths and the entire Land's End team over the past several years. At our core, Land's End is in the business of providing products that solve life issues. We deliver consumers the high-quality products they're looking for, for themselves and their families. We plan to continue focusing on our successful franchises and product strengths while driving innovation across the enterprise and, as always, placing the customer at the center of our decisions. The leadership team and I have spent the last few months refining our strategy, thinking about how we can best leverage our strengths to execute. And I'm pleased to share some more details today. To be clear, the evolution of our strategic value drivers builds on a strong foundation from which to drive enhanced growth and profitability. And we will prioritize execution and innovation to position Land's End for long-term success. I mentioned it earlier, but it's worth repeating. Land's End is in the business of providing products that solve life's issues. Whether for individuals, families, schools, or businesses, we provide the high-quality products they're looking for when they're looking for them. By simplifying the interaction we have with consumers, we can drive meaningful and sustainable value for all stakeholders. To continue to meet consumers' needs, we need to innovate our product strategy and put greater focus towards the categories that they're looking for most from us. Moving forward, we plan to sharpen our focus on the categories that drive outside value creation and bring customers back time and time again, including Swim and Outerwear, some of our top performers. Within Swim, we'll weight our marketing towards the vacation story, extending the reach of the category to include essentials such as totes, towels, cover-ups, sun protection, and footwear. Within outerwear, we see great potential in layering, which endure throughout the seasons and complement heavy outerwear pieces for colder months. Through this product management strategy, we expect to drive sales and margin growth over the long term. We're confident this product focus will help us better serve the consumer by providing Land's End branded merchandise to consumers wherever they're looking for it, including on our website and third-party websites, in our catalogs, and in our stores. It's worth noting that while we seek to meet customers where they are, over 90% of our revenue comes from a click, so we will continue to emphasize digital channels for serving existing and new customers. At Land's End, we're customer-obsessed. The key to executing this product strategy is making sure we reach our customers in the right cadence with the right products at the right time, helping them to build their baskets across categories. In essence, we're going to take a page from our history and focus on engaging directly with our customers while encouraging them to shop across the preferred channel. Land's End already has a robust buyer file, nearly 7 million strong. and we are going to double down on our approach to understanding our customers, both current and potential, and seek to grow our share of our addressable market by leveraging our proprietary data. Our focus will be on deepening relationships with existing customers while simultaneously bringing in new customers to the brand. This will involve qualitative and quantitative assessments that are just kicking off, which will provide us with an even better understanding of our customers including how they view our brand, what other products and product adjacencies they may be looking for and how we can best engage with them. We'll also use our proprietary data to better understand our own operations, providing our product teams the tools they need to make better design, sourcing and buying decisions. We'll work to better connect our merchants, planners and data teams to facilitate knowledge sharing and ensure we're always delivering what consumers want when they want it. The theme I hope you're hearing is that we are going to be innovative in every aspect of our business with decisions driven by our robust data and consumer demands. From how we engage with and deliver for our consumers to the way we operate on a daily basis, innovation will come to the forefront and we're confident that this will help drive both top and bottom line growth over the long term. We'll share updates on our progress along the way. But let me just say that I am fully confident in our team's ability to execute. We'll strive to give our people the tools and structure to succeed, our customers the products they want, and our shareholders the growth and value they expect. Now, turning to our fourth quarter results, we executed well in the face of continued economic headwinds, which are beginning to moderate. As we previewed on our last call, We entered the fourth quarter with a bit of carryover softness in consumer activity, which normalized as we worked through the quarter. We were pleased to see sequential improvement in each month in the quarter, including sales and margin performance. We are seeing some of those trends carry over into Q1, particularly in our core swim category. In the fourth quarter, our sales came in at the high end of our guidance range, with $530 million in revenue, down five percent year over year while we're pleased with the sales number it's worth noting that like many other retailers we introduced promotions earlier and ran them longer during the quarter we previewed these promotions on our last call and while strong consumer demand without promotions is always preferred i'm proud of the way the team responded to ensure we were serving our customers needs throughout the all-important holiday season regarding inventory Sales through the quarter, particularly in some of our high-value categories, have helped us move closer to historical inventory levels. We expect to be back to normalized levels by the end of the first quarter. Consistent with our strategy, we're working to better manage inventory in a way that's consistent with the products our customers are looking for when they're looking for them. We're confident that through our enhanced use of data and analytics, our teams will be better able to predict and manage appropriate inventory levels, reducing that expense without impacting the customer experience. Similarly, global supply chains seem to be improving. So while the efforts we took to ensure we had product for the 2022 holiday season were important, we expect to be more targeted moving forward. To that end, we expect our cost of goods sold in 2023 will continue to improve as we have more stability and predictability in the global supply chain. Altogether, we expect our actions to better manage inventory paired with more normalized supply chains will lead to enhanced gross margin moving forward. Looking at the products our customers were shopping for, we saw greater demand for women's swim and outerwear. with less demand for heavy outerwear as a result of the warmer than usual winter in the US and Europe. We continue to see challenges across a few categories, including kids and homes. The promotions through the quarter helped us to reduce the inventory in these and other areas. Sleep, which was largely overinvested in by retailers industry-wide, performed below expectations in the quarter. However, it continues to be a positive category for us and where we have carved a niche, with sales growing over 60% from 2019 to 2022. As we discussed last quarter, we believe the trends in casualization and demand for hybrid life are here to stay, and we're well positioned in those areas. In line with the product strategy I discussed earlier, we're going to leverage data to refine our assortment and make sure we're making better product decisions based on what consumers are looking for. As it relates to our distribution channels, we saw strong engagement and performance from landzen.com and continue to be pleased with our third-party online partnerships, including Kohl's and Target, Walmart, and Amazon. We're in the process of launching with Macy's and expect that we'll fully launch by the end of Q2. On marketing, we focused our efforts on engaging with our existing customer base, driven by our robust customer files. we will continue to leverage a multi-platform approach for that engagement whether through email search or catalog we're working to convert sales and build further affinity for the brand for example our customers gravitate to our apparel collection where they appreciate the look fit and price and we'll continue to factor those types of insights into our marketing as i mentioned earlier we'll have a lot more to share on those efforts over the coming months as we take a fresh look at our data and ways to best engage with consumer journeys. With that, I will turn it over to Bernie, who has moved into the interim CFO role without missing a beat.