Lands' End (LE) Prelim. Q4 Numbers Miss Estimates

Lands' End (NASDAQ: LE) announced estimated preliminary financial results for the fourth quarter and fiscal year ending January 30, 2015.

Merchandise sales and services, net are expected to be between $505 million and $515 million in the fourth quarter of fiscal 2014, a decrease of 3% to 5% from $530 million in the fourth quarter of fiscal 2013.

Merchandise sales and services, net in the Direct segment are expected to decrease slightly to between $434 million to $442 million for the fourth quarter of fiscal 2014 compared to $443 million for the fourth quarter of fiscal 2013. This is attributable to a decrease in our international businesses resulting primarily from the unfavorable impact of changes in currency exchange rates and a decrease in Europe, largely offset by an increase in our U.S. businesses.

Merchandise sales and services, net in the Retail segment are expected to be between $71 million and $73 million in the fourth quarter of fiscal 2014, a decrease of 16% to 18% from $87 million in the fourth quarter of fiscal 2013. The expected decrease is estimated to be driven by a decrease in the number of Lands' End Shops at Sears, a decrease in same store sales and a decrease in Shop Your Way redemption credits resulting from the commercial agreements entered into with Sears Holdings Corporation and its subsidiaries as part of the Company's separation. Same store sales in the Retail segment are expected to decrease between 7% and 9%. The Company operated 236 Lands' End Shops at Sears, 14 global Lands' End Inlet stores and five international shop-in-shops on January 22, 2015 compared to 274 Lands' End Shops at Sears and 16 global Lands' End Inlets on January 31, 2014.

Gross margin is expected to be between 43.8% and 44.0% in the fourth quarter of fiscal 2014 compared to 43.7% in the fourth quarter of fiscal 2013. This 10 to 30 basis point expected improvement in the fourth quarter of fiscal 2014 is on top of the 390 basis point increase in the fourth quarter of fiscal 2013. The expected increase in Gross margin is driven by an increase in the Direct segment, partially offset by a decrease in the Retail segment.

Net income is expected to decrease 20% to 26% to between $34 million and $37 million and diluted earnings per share is expected to be $1.06 to $1.16 in the fourth quarter of fiscal 2014 compared with $45.9 million and $1.44, respectively, in the fourth quarter of fiscal 2013. Interest, incentive compensation, and stand-alone public company costs are expected to be between $9 and $10 million pretax and between $5 and $6 million after tax in the fourth quarter of fiscal 2014 compared with no interest, incentive compensation, and stand-alone public company costs in the fourth quarter of fiscal 2013.

*** The Street sees Q4 EPS of $1.38 and revs of $542.2 million.

Adjusted EBITDA1 is expected to be in the range of $66 million to $71 million in the fourth quarter of fiscal 2014, compared to $80.1 million in the fourth quarter of fiscal 2013.

Edgar Huber, Lands' End's President and Chief Executive Officer, stated,

"During the fourth quarter, we continued to execute our targeted promotional strategy that we began to implement in last year's fourth quarter and took a balanced approach to driving both sales and margin in the US direct-to-consumer business. Although our US Direct businesses generated increases in both sales and gross margin, we were disappointed by the performance of our cold weather assortment, especially during the peak holiday period. We also experienced mixed customer reactions to some of our fashion investments in key women's categories such as sweaters and knits. The international direct business continued to show improvements in gross margin but had revenue decreases which were significantly impacted by currency translation. The Retail Segment revenue decrease resulted from the right-sizing of our Lands' End Shops at Sears, declines in store traffic and a decrease in Shop Your Way Rewards credits."

For the full year fiscal 2014, Merchandise sales and services, net are anticipated to be $1.56 billion to $1.57 billion, adjusted EBITDA1 is expected to be $160 million to $165 million and net income is expected to be $74.5 million to $77.5 million. This compares with Merchandise sales and services, net, adjusted EBITDA1 and net income of $1.56 billion, $150 million and $78.8 million, respectively, in fiscal 2013.

Fiscal 2014 Gross margin is expected to exceed prior year Gross margin by 175 to 185 basis points. Interest, incentive compensation, and stand-alone public company costs are expected to be between $39 million and $40 million pretax and $24 million to $25 million after tax in fiscal 2014 compared with no interest or stand-alone costs and $0.7 million pretax and $0.4 million after tax incentive costs in fiscal 2013.

The Company expects fiscal 2014 balance sheet ending inventory to be down mid-teens compared to fiscal 2013.

In relation to the full year, Mr. Huber continued,

"We are committed to transforming Lands' End into a global lifestyle brand. The full year results of the US Direct businesses show measurable improvements in all major metrics including revenue, gross profit and gross margin. Despite the challenges of the international direct business and the Retail Segment, we expect to deliver full year Adjusted EBITDA improvement of $10 million to $15 million compared to the prior year. Over the past two years, we have redesigned the merchandise architecture, enhanced our digital shopping experience, implemented a more targeted promotional strategy, aggressively managed inventory and reduced operating expenses."

The Company currently plans to release its full fourth quarter and fiscal 2014 results on March 26, 2015.

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