LE - NASDAQ

Thank you for your continued patience. Your meeting will begin shortly. Thank you for your continued patience. Your meeting will begin shortly.

Standby, your meeting is about to begin. Hello, and welcome, everyone, to today's Lands' End, Inc. Third Quarter 2025 Earnings Call. At this time, all participants or any listeners will have the opportunity to ask questions. To register to ask a question at any time, please press 1. Please note this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Tom Altholz. Please go ahead.

Good morning, and thank you for joining us this morning for a discussion of our third quarter 2025 results, which we released this morning and can be found on our website landsend.com. I'm Tom Altholz, Lands' End's Senior Director of Financial Planning and Analysis, and I'm pleased to join you today with Andrew McLean, our Chief Executive Officer, and Bernie McCracken, our Chief Financial Officer. After the prepared remarks, we will conduct a question and answer session. This 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-Ks 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 will 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'll turn the call over to Andrew.

Thank you, Tom. Good morning, and thank you for joining us. At its core, our third quarter performance was a strong demonstration of our strategy and its ability to drive value for all stakeholders. We generated compelling results, including gross margin expansion, stronger customer engagement, and enhanced brand awareness. Critically, we built on and sustained the positive momentum that began during the second quarter. As a customer-obsessed, solutions-oriented, forward-looking business, we are connecting with customers where and how they want to shop, delivering high-quality solutions that fit their lives. We are doing all this in an asset-light, agile way that provides the opportunity for us to continue focusing on driving growth and value creation. For example, a return to EPS profitability and 28% growth in our adjusted EBITDA, coupled with record gross margin and adjusted EBITDA rates since our spin-off, point to a brand delivering on its potential. In addition, growth in our GMV was supplemented by low single-digit gains in our North American businesses with flat revenues overall. Underpinning these wins is an unwavering belief in the customer. Over the last three years, we have intentionally taken steps to expand our traditional base to include new and evolved products, playing to our strengths with core products or developing new and exciting solutions to reach a broader audience. Our brand is more relevant than ever. Our marketing has expanded from functional to fun, our product speaks directly to how the customer wants to feel, and our ambitions have found us increasingly meeting the customer where they are. Starting with our B2B businesses, one of the most exciting developments in our outfitters business was securing a long-term partnership with Delta Airlines, which Delta announced in November. Delta selected Lands' End as the exclusive design and manufacturing partner for its next generation of uniforms, outfitting more than 60,000 employees worldwide, including airport customer service agents, onboard flight attendants, and ground operations teams. Our school uniform business delivered on the promise we've discussed all year, up over 20%, with a broad base of growth from both new and existing schools during the all-important back-to-school season. Turning to B2C, our licensing and third-party marketplace businesses remain major growth drivers. Third-party sales rose 34% year over year, led by Amazon and Macy's, both up approximately 40%. Amazon's Prime Week performance was exceptional, with our top 25 items accounting for more than half of our Amazon Marketplace sales. Our performance in this channel is also proving to be a great conduit to landsend.com. And yet, we recognize that we are still only scratching the surface of this opportunity. Our U.S. Consumer business profitability increased year over year, with outerwear leading the way, supported by strong results in both knitwear and bottoms. As we've discussed before, we're keenly focused on weatherproofing our assortment. Perhaps no category demonstrates that weatherproofing strategy more than outerwear, which is now an always-on category with transitional styles like Sherpa and rainwear extending the season and contributing to our performance. Importantly, we saw the largest new customer increase during a quarter other than peak COVID in Q3 2020. Traffic increases in our U.S. Consumer business were up 25%, driven by digital channels, social, and search, with the most U.S. e-commerce website third-quarter visits ever. A very positive indicator heading into the holiday season. Turning to our holiday strategy, we leveraged learnings from last year and launched our holiday shop in mid-September, well ahead of many brands. The results were strong. Holiday patterns and novelty assortments sold rapidly. Christmas needlepoint stockings were up high double digits year over year, and several prints in sleepwear and knits sold out quickly. Our focus on customization and personalization continues to resonate, reinforcing our positioning as a solutions-oriented brand. As part of our holiday launch, we executed another very successful pop-up shop in New York City in November, called our chaotically customized holiday shop. We were thrilled to see so many customers come out to customize our iconic tote bags and cashmere sweaters. A major success for raising brand awareness and introducing Lands' End to new customers, many of whom are much younger than our typical customer. A pop-up shop not only drove strong in-person sales but was a huge success online, with more than 5,000,000 social media impressions in just five days, and coincided with record-breaking traffic to landsend.com, almost the same level we saw last year on Black Friday. With the introduction of embroidered totes, adding more customization options, canvas tote sales were up triple digits. Europe began to show early signs of improvement. During the first half of the year, we focused our efforts to become more effective sellers and position the brand to build on the success that we are seeing in the U.S. As part of these efforts, we recently announced two exciting collaborations with Harris Tweed and Lulu Guinness. In addition, we expanded our marketplace presence to include Amazon and Debenhams, implementing our successful U.S. philosophy to meet the customer where they are. We achieved record gross margins against the backdrop of uncertainty around tariffs and continue to refine our highly flexible co-source strategy, allowing us to shift production as needed. Our focus around a smaller vendor pool is clearly winning and continues at pace. As I mentioned, we added more customers in the third quarter than at any point outside of the pandemic since our spin-off eleven years ago. Leveraging additional channels as part of our distributed commerce model is yielding results. We opened the TikTok shop and saw our Instagram followers swell toward 0.5 million. These customers are skewing younger, and we are seeing the brand relevance growing significantly with millennials, with new-to-file customers averaging in the 45 to 50-year-old cohort. Taken altogether, our third-quarter results reflect the intentional work we've done to weatherproof our assortment, align our promotional calendar to consumer behavior, and ensure our customers can buy what they want when they want it. I'll now turn it over to Bernie to discuss our third-quarter performance in more detail.

Thank you, Andrew. For 2025, total revenue performance was $318,000,000, essentially flat year over year, while GMV increased low single digits. Through licensing, our network of third-party marketplace partners, and our Uniform business, we've built a more resilient model that doesn't rely too heavily on any one business unit, product, or partner. Our U.S. e-commerce business generated $180,000,000, a decrease of approximately 3% compared to 2024. The decrease was largely the result of improvements in promotional productivity and enhanced inventory efficiency, which resulted in over 100 basis points of gross margin expansion compared to the prior year. Our third-party marketplace business grew approximately 34%, with nearly all of our marketplace partners delivering year-over-year growth. We were very pleased with our exceptionally strong performance in Amazon and Macy's. Our strategic investment in third-party marketplaces is accelerating brand reach and reinforcing our digital ecosystem while driving deeper customer engagement on landsend.com and positioning the brand for long-term growth. Sales from Lands' End Outfitters increased approximately 7% from 2024. Sales in our school uniform channel grew over 20%, driven by a strong back-to-school season and continued share gains across the market as we capitalize on industry disruption. We recently reacquired the Delta Airlines Uniform. While Lands' End will produce and supply new inventory going forward, we did not acquire Delta's existing stock. During the transition period, we will distribute a mix of Delta-owned and Lands' End-owned products to Delta employees. Revenue from Delta's legacy inventory will primarily consist of processing fees, whereas Lands' End products will generate full retail. Sales in Europe decreased approximately 20% year over year, primarily due to increased promotional activity and continued macroeconomic pressures. Revenue from our licensing business grew over 30% year over year, reflecting the continued momentum of our licensing program. This growth was fueled by increased brand visibility from existing licensees, further expanding our reach and impact. Gross profit increased by approximately 2% compared to last year. Gross margin in the third quarter was nearly 52%, an approximately 120 basis point improvement from 2024. Margin improvement was supported by continued strength across key categories, at a higher average unit retail, and growth in our licensing business, partially offset by tariffs. These actions reflect disciplined execution by our supply chain team, which effectively minimized the impact of global tariffs. SG&A expenses decreased by $2,000,000 year over year. As a percentage of net revenue, SG&A decreased approximately 60 basis points, primarily driven by operational efficiencies and strong cost controls across the entire business. For the third quarter, we had an adjusted net income of $7,000,000 or $0.21 per share. We delivered adjusted EBITDA of $26,000,000 in the third quarter, representing a year-over-year increase of $6,000,000 or approximately 28%. The increase was primarily due to strong SG&A. Moving to our balance sheet, inventories at the end of the third quarter were $347,000,000, increasing only 3% compared to last year. This increase compared to the prior year was primarily due to tariffs, partially offset by continued diligence in inventory management and tariff mitigation strategy. In terms of our debt, at the end of the third quarter, our term loan balance was $237,000,000, and our ABL had $75,000,000 of borrowings outstanding, flat to last year. Now moving to guidance. For the full year, our guidance includes the impact of tariffs at the current regulatory rates. We have implemented mitigation measures to effectively manage the tariff headwinds at these levels for the remainder of 2025. For the fourth quarter, we expect net revenue to be between $460,000,000 to $490,000,000, while GMV is expected to be mid to high single-digit growth. Adjusted net income of $22,000,000 to $26,000,000 and adjusted diluted earnings per share of $0.71 to $0.84, and our adjusted EBITDA to be in the range of $49,000,000 to $54,000,000. Turning to the full year, we now expect net revenue to be between $1,330,000,000 to $1,360,000,000, while GMV is expected to be low single-digit growth. Adjusted net income of $21,000,000 to $25,000,000 and adjusted diluted earnings per share of $0.68 to $0.81, and our adjusted EBITDA to be in the range of $99,000,000 to $104,000,000. Our guidance for the full year incorporates approximately $28,000,000 in capital expenditures. With that, I'll turn the call back over to Andrew.

Thanks, Bernie. Turning to our fourth quarter, we were pleased with November, starting with a strong Veterans Day holiday and continuing through the Black Friday-Cyber Monday period. Successes were shared across our channels, with notable achievements including European Black Friday volumes hitting a post-pandemic high and a record-breaking performance from our Amazon Marketplace business. Our deliberate and patient efforts to build our brand showed significant progress. We added more than 150,000 new customers in November and reached 0.5 million followers on Instagram. Our new customers continue to be younger and more diverse, extending our presence with millennials and touching all the way to Gen

Thank you. Our first question comes from Dana Telsey of Telsey Group. Please go ahead. Your line is open.

Hi. Good morning, Andrew and Bernie. Nice to hear the update on the business. As you think about the revenue side of the business, the puts and takes of any of the different areas relative to expectations, what did you see in promotional levels? And here going through Black Friday, any particular surprises? And then just the continued strength of the gross margin is impressive. How do you think of the puts and takes on gross margin and any framework for what could be different in '26? Thank you.

Thank you, Dana. Great set of questions. With revenue, clearly, we were very happy with what we saw in the business in North America. We saw that move to back to growth after a number of years of decline. The disappointment in there was the business in Europe, which we've spoken to in the past. I think looking at it, we've been leaning in, and we continue to see that growth into the fourth quarter. I think from my comments, you would have picked up that we saw some tremendous numbers from our European business in the month of November. So what I would say is the continues to build. We're incredibly excited about it. And if you recall, over the three years we've been together, our gross margins have made a step change during that period. So to now be growing top line, with that gross margin structure in place, really augurs well for the future of the brand. In terms of promo levels, you know, we did not see promo levels step out of line. We actually ran a very successful back-to-school campaign in August, and for many years, we had not really approached back-to-school. But reaching to a newer consumer who is younger has been really powerful for us because she comes in and shops for the kids and then shops for herself. And so we were able to manage promo levels really pretty well and felt good about that, and that's something that again, has continued into the fourth quarter. And actually, if I I'm sort of mixing between third and fourth quarter, we were very, very thoughtful about how we would manage our promo levels, and we were very thoughtful about making sure we don't chase the business and that we get ahead of it and really manage to that gross margin because I think the route to the future of Lands' End lies through continuing to push that gross margin. And the sales will always follow when you do that, and that's a function of having the right product for the right customer in the right channels. In terms of Black Friday surprises in there, I was actually very happy with how we ran Black Friday. I think the biggest surprise got was actually prior to Black Friday when we had tremendous success around Veterans Day. So the season started earlier for us, and we had made comments in the script there that we had started in September, but, we did see good selling in September, but the selling was really very strong, very early in the quarter and then continued right through. And that was a different curve than we've been on. There's a lot I could say about that. Here's what I think about it, and I think that we are seeing so many new consumers to the brand with a different profile and different psychographic than we've necessarily seen in the past. That we're actually seeing our seasonality change. As we reflect that customer, and it probably looks more like something from a younger brand. And, you know, I can talk about that more if you want when we talk later. But we feel good about where we're at. Bernie, is there anything I missed?

No. I think you covered it all. As far as the puts and takes on gross margin, I think we're really proud of what we did in the third quarter. With the headwinds of tariffs, we were able to still drive an incremental improvement in gross margin rate. Much of that is being driven by what Andrew just talked about about promotions, and being very deliberate about our promotional calendar and selling more full price at the start of the season and then pushing into promotions later in the season. But it also the tech you know, we worked very hard to mitigate the tariffs to the best of our ability. But then we also really have pushed the investment in our DCs and in our systems. And we are really much more efficient than we were a year ago in putting product through our DCs and being more profitable in the process.

Thank you.

Thanks, Dana. You too.

Thank you. We'll now move on to Eric Beder of SCC Research. Your line is now open.

Morning. Let me add my congratulations. We had a lot put into the licensing business. Could you give us kind of an update of where we are in terms of what we're gonna see in 2026 in terms of licensing? Has been anniversaried, kind of where does it become more accretive and apples to apples in terms of buying through here?

Yeah. Sure, Eric. I think that to start with, the Shoes and Kids business, we have annualized. And the upside to those businesses is they're getting their feet under them on our website and selling. And so we've seen really nice progression from them in growing that business. And we think that will continue to grow. We announced a couple of quarters ago signing five or six smaller licenses. Those will kick into effect a little bit in the fourth quarter, but more so next year. And then we have a pipeline of additional licenses that we are working to expand to. And then we have a pipeline of additional licenses that we are working to. Okay. So it's fair to say that next year it becomes you're apples to apples, most of the categories, and we start to see the full kind of impact on what licensing can do in terms of revenues and in terms of margins, yes.

We expect and good morning to you, Eric. I hope you're doing well. We expect to see licensing continue to grow for us. We see this as a growth opportunity. If you look at just choosing kids by way of example, I mean, I believe we're still scratching the surface on that in terms of how far we can push it and new doors that we can go to. And then actually if you pick up on Bernie's comments, what we're doing on the website is phenomenal as well. We're really rebuilding those businesses and actually there's leverage that we get by having higher quality kids and shoes on our website along with other licenses. But I'll just stick to those two because they are anniversarying themselves. We're able to complete baskets and pull customers to the web for other categories. And I go back to the customer that we are attracting to Lands' End, which is a younger, millennial customer who's often got kids. It's like to be able to come in and get their kids dressed and pull that together into one story is really key. So I'll give you an example. You know, when we licensed kids out, we did not we separated kids from our catalogs, and we separated design. We've really taken the view over this back half of the year that they should come back together. So for example, if you watch sleepwear, we now do sleepwear for the family, and we do that tightly in partnership with our licensees. So what we're starting to see is the leverage now that you get from having those licenses so closely intertwined with the core business and tell one story. And I think that's upside that we're really anticipating coming through in full next year. So we see opportunity.

Great. I mean, the international front, you've had these great collaborations, Harris Tweed and Lulu Guinness. And when you look at it, you know, a, what does that imply for The U.S.? And, also, we've talked this conversation about how 15% as a percentage of the international business, that comes to The U.S. in terms of product, how should we be thinking about that opportunity going forward and as kind of the profile in the international completes, potential to do things like that maybe here.

So we do so it's a great question. Thank you. We do do collaborations in The U.S. So I think Park collaboration has been really key. And if you go look at Park, she's an influencer out of Miami, splits her time in New York and has done work with a number of terrific brands of which Lands' End is one. So I just think that's a natural extension of what we are already doing. With the Harris Tweed and Lulu Guinness collaborations, we wanted them to be halos in Europe and really help build the brand identity there. We have no issue and no reason not to bring those to The U.S. And I think you'll see more of us starting to do that. I think that's a little bit of the tail wagging the dog because what we're actually trying to do and intent on doing with the business in Europe is creating a halo there where it sits in more rarefied air and really pulls through a higher valuation for the brand because we've got this European cachet and this European halo. That's part of the reason that we opened the French language website this year, which has actually been a really nice for us. We didn't talk about it specifically on the call, but we've seen the ability to reach a French customer, adds cache, adds sophistication. And that creates a halo that I think creates valuation for us. So we're not running these in isolation. We're not ignoring, working with influencers or other brands. It's all there, and we're doing it all the time.

Thank you. Last question. Inventories. So inventories went up for the first time in a while. How should we be thinking about inventories going forward? Thank you.

Sure, Eric. Actually, we're pretty proud that the inventory is only up 3% because with the overhang or headwinds of tariffs, we've worked very hard to be more efficient to bring product closer to selling and keep our inventories down. So despite the tariffs, we're only up 3% and we really feel good about how hard the teams worked on that.

And should we expect kind of that level, kind of low single digits going forward?

That's fair.

Okay. Okay, guys. Thank you. And luck for the rest of the holiday season.

Thanks, Eric. You too.

We'll now move on to Steve Silver of Argus Research. Please go ahead. Your line is now open.

Thank you, operator, and thanks for taking my questions and my congratulations as well. Andrew, a couple of times during the prepared remarks, mentioned the term scratching the surface, I guess, it relates to licensing as well as the momentum you're seeing with the Amazon Marketplace. I'm curious as to your thoughts in terms of how long it takes for that surface to go beyond for deeper penetration to where it really starts driving an inflection point in GMV expansion?

That's a great question. Good morning. I think that Amazon is a perfect example of scratching the surface where you have to create momentum. I think there's a perception out there that you can take any brand and add it to Amazon and it will drive volume and profitability. The reality is this is, it's a channel that you have to open up. You have to market it in a different way, and you have to spend time, you know, really betting in how your brand performs because you're going to bring a different merchandising profile. You're going to bring a different costing profile. And you're gonna bring a different marketing profile because you're gonna reach different consumers. And so how you sell on Amazon is different than how you would necessarily sell on your own website or in stores or wherever. And I think that that's not done lightly. It requires changes to supply chain. It requires changes to how you think about your marketing. It's more digital. It's more done with Amazon. And it's like and then you have to make decisions on know, what customer you're going to meet there. And I think we've done all that heavy lifting. Really over the last couple of years that set us up for tremendous growth. And we look out there, and I hesitate to give numbers, Steve, but as I think about it, you know, the bigger brands on Amazon in our space tend to have a handful of items. And get to a couple of $100,000,000. And that tends to get you that number one badge. Now we've started to do that I was very proud that, whole week of Black Friday and into Cyber Monday. We had the number one badge for Swen Quarter

That's helpful. Great. So with the customer base skewing to the low side combined with Lands' End, Inc.'s history of innovation, curious as to whether there's anything category-wise we should be looking for in terms of new patents heading into the 2026 season?

Well, we are always open to that, and I think that you will continue to see that as we build around our concept of solutions. I have the company very focused on solutions, and those solutions lead to franchises. If I look at elsewhere, you've got franchises like feather-free, you know, we'll continue to evolve those. And I think, you know, some of the work that we've been doing this year, you know, we've produced water-resistant fleece. Have we put a patent on it? Not yet. Will we? Probably. But the reality is that we continue to look for ways to innovate that our customer will notice because it's a solution that really gets them ready for life's journey. And that's something that we're incredibly proud of. And I encourage all our teams at Lands' End to always be innovating. And I think that the customer recognizes it and they lean into it. So it continues to be critical to our future.

Great. Thanks so much and best of luck again through the rest of the holiday season as well.

Thanks, Steve. Take care.