Lands' End, Inc.

Good day and welcome to the Land's End Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the speaker's remarks, the floor will be open for questions. If you would like to ask a question at that time, please press star 1 on your telephone keypad. You may remove yourself from the queue by pressing star 2. Please note today's call will be recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the call over to Bernie McCracken, Lands End's Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining the Lands End earnings call for a discussion of our fourth quarter and fiscal 2023 results, which we released this morning and can be found on our website, landsend.com. I'm Bernie McCracken, Land's Ends 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 obligation 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 in the investor relations section of our website at landsend.com. With that, I will turn the call over to Andrew.

Thanks, Bernie. Good morning, and thank you for joining us today. Our results for the fourth quarter and full year 2023 reflect the continued execution of Landsend's value creation strategy. We delivered strong performance in the fourth quarter, including throughout the holiday season, closing out a fiscal year where we generated positive momentum across the organization and drove increased profitability. Our deliberate efforts to generate more profitable sales continued to deliver in Q4 and resulted in a 14% increase in gross profit dollars, adjusted EBITDA of approximately $32 million, which was above the high end of our guidance range, and gross margin expansion of approximately 550 basis points. Q4 marked our fourth consecutive quarter of significant inventory improvement. With inventory down 29% year-over-year in the quarter, we were able to be nimble and disciplined throughout the holiday season, prioritizing newness during what is a highly promotional period for our industry. Looking ahead, we remain focused on further improving our inventory turn from the speed and efficiency initiatives we are implementing across our supply chain. As a solutions-oriented business, we're deepening our focus on building the brand to best align our assortment with customer shopping behaviors. We're bringing our two key customer cohorts, resolvers and devolvers, the items they love and are looking for, while introducing freshness across our assortment more frequently throughout the year via new styles, colors, and fabrics. We're doing so with more full-price selling, lower levels of clearance sales, and less promotional activity. Our authority in outerwear solutions was a key driver of our strong margin performance in the fourth quarter, both in the U.S. and internationally. As discussed last quarter, we reduced our investment in heavy outerwear and moved towards lighter fabrics and materials. Our Wonderweight offering of middleweight, packable jackets performed exceptionally well. As a transitional outerwear solution ideal for layering, we are weatherproofing our assortment and using this offering to extend the outerwear buying season. Across our digital channels, we're creating more compelling and more personal customer journeys, which is driving increased traffic and engagement from new and existing customers, with social media working particularly well. As we've said before, we're taking a more outfit-centric approach to our assortment that features significantly more productive inventory and facilitates demand across natural adjacencies. Our success in outerwear helped facilitate sales of layering products, effectively supporting the new seasonal launches of our women's tops and bottoms businesses. Sweaters had a wonderful season, with the customer migrating to new silhouettes, like our quarter zip drifter sweater, hitting a trend that was easy for all our customer cohorts to lean in on, and tying back to our Supima luxury tee programs, another of our brand USPs, or unique selling points. Launches of new, age, and size-appropriate jeans and chinos, incorporating solutions for heat and comfort, have been additional strengths for us, with our boyfriend jean bringing an unrivaled level of comfort and fit, while our striped chino pant sold through in days, which helped to deliver a message to our customer, don't wait for the discounts or you'll miss out. Our performance across our swim and vacation solutions was also encouraging. We continue to introduce newness across our swim categories, including new colors and textures, which customers responded well to throughout the full year. It is notable in swim that we are building on the successes of our franchise products. Tugless, for 40 years our go-to swimsuit, expanded its footprint this year, adding new products, including a crossback strap and a texture fabrication. This innovation, leveraging existing brand franchises, is part of our plan to maintain our authority as a leading swim brand in America. Before I turn to performance in our various businesses, beginning in Q1, we expect to change the way we talk about our performance to be more consistent with the evolution of our brand. B2C comprises our North American and international businesses, serving consumers across a number of channels, while B2B comprises our school uniform and business uniforms verticals. More to come on this next quarter. Our U.S. e-commerce business, our largest B2C channel, delivered a third consecutive quarter of great margin performance, with an increase in gross margin of approximately 520 basis points year over year due to our more targeted approach to promotions driving higher quality sales and improved inventory management. As we've discussed before, we continue to maximize key events and holidays to drive demand. Following record performance through the Black Friday to Cyber Monday period, we leveraged our data throughout the holiday season to adapt our assortment in real time based on how our customers were responding. This aligns with our broader strategy of putting inventory to work by taking a more outfit-centric approach that exploits category selling across natural adjacencies. Moving to our third-party business, we found continued success in our balanced approach towards working with a handful of like-minded partners that share our vision for customer-focused solutions. That resulted in a low single-digit improvement in revenues, coupled with gross profit dollars increasing by over 50%. Our new exclusive swim product in 200 target doors is performing well and our focus on assortments tiered to the individual marketplace delighted our customer and created both the engagement and journey between channels that we believe amplifies the opportunity. As our product and own channels evolve, we are seeing the behavior and positioning improve within our marketplaces, speaking to the value we place on managing personalized customer journeys. We continue to execute on our licensing strategy, which adds asset-light recurring income streams while allowing us to continue to focus on our core capabilities. As we said in our last call, we expect to begin seeing royalties in 2024 from our recent licensing agreements for club stores, primarily Costco, kids categories, and footwear. Moving forward, we have a belief that expansion into existing and white space products channel and geographic licenses can increase the reach of our brand, finding the customer when they want to shop, where they want to shop, and amplify performance across the entire brand footprint. Turning to our international business, we are pleased with how our performance in Europe is trending and firmly believe that the business has stabilized. Like in the U.S., we continue to prioritize assortment newness and better inventory management with a focus on protecting margin through lower levels of promotional activity. While revenue was down 6% year over year in Europe, the business increased gross profit dollars by 24% and expanded gross margin by over 1,000 basis points year over year. We were also pleased to see early success in our efforts in Europe to unlock speed and innovation to deliver our customers the best product, quality, and service. We're leveraging new global sourcing capabilities, including with partners like Lee & Fun, to more quickly respond to customer needs and supplement our assortment with market goods, including festive styles like satin skirts that were in demand during the holiday season, while testing new outerwear silhouettes like our long gilet vest. Turning to our B2B Outfitters business. We saw nice performance during the quarter as our effort to deepen the new customer funnel began to bear fruit, resulting in the launch of new partnerships and continued progress in our school uniform business. We're seeing an encouraging trend upward for the business. Our customer service and can-do attitude, coupled with our highly recognizable brand DNA, set us apart in this space. Over the last year, we deepened relationships with new and prospective customers We accomplished this through restructured sales and service organizations that placed decision-making closer to the customer and supported it with rigorous feedback processes to ensure their voice was heard and acted upon. Ultimately, we took it upon ourselves to make 2023 about crisp, on-point execution, receiving, by way of example, an A-plus grade on our school uniforms business from decision-makers across the country. We will continue this focus into 2024 as an underlying business USP. Simultaneously, our restructured high-performance sales and business development teams are building a robust pipeline of opportunities, implementing initiatives to support leadership in service and technology, and providing future upside to the business. Internally, we are pleased with the book of recurring business being generated, both in time and in volume. To summarize the quarter and year, we made tremendous progress on our strategy and put Land's End in a great position to build on our successes in the years ahead. I'm confident that by continuing to extend our leadership as the solutions provider of choice, we'll be able to drive enhanced value for our customers, employees, shareholders, and other stakeholders over the long term. Bernie will now discuss our fourth quarter performance as well as our 2024 outlook.