UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | |
Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended October 27, 2017
-OR-
☐ | |
Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
to .Commission File Number: 001-09769
Lands’ End, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 36-2512786 | |
(State or Other Jurisdiction of | (I.R.S. Employer |
1 Lands’ End Lane Dodgeville, Wisconsin | 53595 | |
(Address of Principal Executive Offices) | (Zip Code) |
(608) 935-9341
(Registrant’s Telephone Number Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, par value $0.01 per share | LE | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) YES
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large"large accelerated filer”, “accelerated filer”,filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☒ | |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES
As of December 5, 2017,August 27, 2021, the registrant had 32,097,48332,981,027 shares of common stock, $0.01 par value, outstanding.
LANDS’ END, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED OCTOBER 27, 2017
TABLE OF CONTENTS
Page | ||||
Item 1. | ||||
Condensed Consolidated Statements of Comprehensive Operations | ||||
Condensed Consolidated Statements of Changes in Stockholders' Equity | 5 | |||
6 | ||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 | ||
Item 3. | 30 | |||
Item 4. | ||||
32 | ||||
Item 1. | ||||
Item 1A. | ||||
Item 6. | 33 | |||
34 |
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LANDS’ END, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
|
| 13 Weeks Ended |
|
| 26 Weeks Ended |
| ||||||||||
(in thousands, except per share data) |
| July 30, 2021 |
|
| July 31, 2020 |
|
| July 30, 2021 |
|
| July 31, 2020 |
| ||||
Net revenue |
| $ | 384,109 |
|
| $ | 312,083 |
|
| $ | 705,406 |
|
| $ | 529,091 |
|
Cost of sales (excluding depreciation and amortization) |
|
| 206,320 |
|
|
| 176,661 |
|
|
| 379,880 |
|
|
| 299,514 |
|
Gross profit |
|
| 177,789 |
|
|
| 135,422 |
|
|
| 325,526 |
|
|
| 229,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative |
|
| 136,649 |
|
|
| 111,478 |
|
|
| 262,171 |
|
|
| 217,276 |
|
Depreciation and amortization |
|
| 9,791 |
|
|
| 9,378 |
|
|
| 19,695 |
|
|
| 18,164 |
|
Other operating expense, net |
|
| — |
|
|
| 3,373 |
|
|
| 443 |
|
|
| 7,656 |
|
Operating income (loss) |
|
| 31,349 |
|
|
| 11,193 |
|
|
| 43,217 |
|
|
| (13,519 | ) |
Interest expense |
|
| 8,837 |
|
|
| 4,916 |
|
|
| 17,897 |
|
|
| 10,227 |
|
Other (income) expense, net |
|
| (123 | ) |
|
| 1,333 |
|
|
| (290 | ) |
|
| 1,160 |
|
Income (loss) before income taxes |
|
| 22,635 |
|
|
| 4,944 |
|
|
| 25,610 |
|
|
| (24,906 | ) |
Income tax expense (benefit) |
|
| 6,414 |
|
|
| 568 |
|
|
| 6,750 |
|
|
| (8,639 | ) |
NET INCOME (LOSS) |
| $ | 16,221 |
|
| $ | 4,376 |
|
| $ | 18,860 |
|
| $ | (16,267 | ) |
NET INCOME (LOSS) PER COMMON SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic: |
| $ | 0.49 |
|
| $ | 0.13 |
|
| $ | 0.57 |
|
| $ | (0.50 | ) |
Diluted: |
| $ | 0.48 |
|
| $ | 0.13 |
|
| $ | 0.56 |
|
| $ | (0.50 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
| 32,979 |
|
|
| 32,600 |
|
|
| 32,875 |
|
|
| 32,524 |
|
Diluted weighted average common shares outstanding |
|
| 33,713 |
|
|
| 32,838 |
|
|
| 33,710 |
|
|
| 32,524 |
|
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
(in thousands, except per share data) | October 27, 2017 | October 28, 2016 | October 27, 2017 | October 28, 2016 | ||||||||||||
Net revenue | $ | 325,489 | $ | 311,476 | $ | 896,044 | $ | 876,919 | ||||||||
Cost of sales (excluding depreciation and amortization) | 183,515 | 177,825 | 497,262 | 477,446 | ||||||||||||
Gross profit | 141,974 | 133,651 | 398,782 | 399,473 | ||||||||||||
Selling and administrative | 129,122 | 132,365 | 377,804 | 390,291 | ||||||||||||
Depreciation and amortization | 6,347 | 4,795 | 19,031 | 13,419 | ||||||||||||
Other operating expense (income), net | 564 | (86 | ) | 2,552 | (40 | ) | ||||||||||
Operating income (loss) | 5,941 | (3,423 | ) | (605 | ) | (4,197 | ) | |||||||||
Interest expense | 6,350 | 6,149 | 18,642 | 18,493 | ||||||||||||
Other income, net | (576 | ) | (432 | ) | (1,812 | ) | (1,413 | ) | ||||||||
Income (loss) before income taxes | 167 | (9,140 | ) | (17,435 | ) | (21,277 | ) | |||||||||
Income tax expense (benefit) | 5 | (1,918 | ) | (5,878 | ) | (6,316 | ) | |||||||||
NET INCOME (LOSS) | $ | 162 | $ | (7,222 | ) | $ | (11,557 | ) | $ | (14,961 | ) | |||||
NET INCOME (LOSS) PER COMMON SHARE (Note 2) | ||||||||||||||||
Basic: | $ | 0.01 | $ | (0.23 | ) | $ | (0.36 | ) | $ | (0.47 | ) | |||||
Diluted: | $ | 0.01 | $ | (0.23 | ) | $ | (0.36 | ) | $ | (0.47 | ) | |||||
Basic weighted average common shares outstanding | 32,095 | 32,029 | 32,068 | 32,018 | ||||||||||||
Diluted weighted average common shares outstanding | 32,117 | 32,029 | 32,068 | 32,018 |
See accompanying Notes to Condensed Consolidated Financial Statements.
1
LANDS’ END, INC.
Condensed Consolidated Statements of Comprehensive Operations
(Unaudited)
|
| 13 Weeks Ended |
|
| 26 Weeks Ended |
| ||||||||||
(in thousands) |
| July 30, 2021 |
|
| July 31, 2020 |
|
| July 30, 2021 |
|
| July 31, 2020 |
| ||||
NET INCOME (LOSS) |
| $ | 16,221 |
|
| $ | 4,376 |
|
| $ | 18,860 |
|
| $ | (16,267 | ) |
Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| (36 | ) |
|
| 1,382 |
|
|
| 275 |
|
|
| 123 |
|
COMPREHENSIVE INCOME (LOSS) |
| $ | 16,185 |
|
| $ | 5,758 |
|
| $ | 19,135 |
|
| $ | (16,144 | ) |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
(in thousands) | October 27, 2017 | October 28, 2016 | October 27, 2017 | October 28, 2016 | ||||||||||||
NET INCOME (LOSS) | $ | 162 | $ | (7,222 | ) | $ | (11,557 | ) | $ | (14,961 | ) | |||||
Other comprehensive (loss) income, net of tax | ||||||||||||||||
Foreign currency translation adjustments | (79 | ) | (2,183 | ) | 1,060 | (2,952 | ) | |||||||||
COMPREHENSIVE INCOME (LOSS) | $ | 83 | $ | (9,405 | ) | $ | (10,497 | ) | $ | (17,913 | ) |
LANDS’ END, INC.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except per share data) |
| July 30, 2021 |
|
| July 31, 2020 |
|
| January 29, 2021 |
| |||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 39,223 |
|
| $ | 62,624 |
|
| $ | 33,933 |
|
Restricted cash |
|
| 2,102 |
|
|
| 1,843 |
|
|
| 1,861 |
|
Accounts receivable, net |
|
| 30,203 |
|
|
| 24,367 |
|
|
| 37,574 |
|
Inventories, net |
|
| 464,291 |
|
|
| 441,510 |
|
|
| 382,106 |
|
Prepaid expenses and other current assets |
|
| 31,127 |
|
|
| 48,095 |
|
|
| 40,356 |
|
Total current assets |
|
| 566,946 |
|
|
| 578,439 |
|
|
| 495,830 |
|
Property and equipment, net |
|
| 136,714 |
|
|
| 153,003 |
|
|
| 145,288 |
|
Operating lease right-of-use asset |
|
| 33,989 |
|
|
| 37,882 |
|
|
| 35,475 |
|
Goodwill |
|
| 106,700 |
|
|
| 106,700 |
|
|
| 106,700 |
|
Intangible asset, net |
|
| 257,000 |
|
|
| 257,000 |
|
|
| 257,000 |
|
Other assets |
|
| 4,347 |
|
|
| 4,300 |
|
|
| 5,215 |
|
TOTAL ASSETS |
| $ | 1,105,696 |
|
| $ | 1,137,324 |
|
| $ | 1,045,508 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt |
| $ | 13,750 |
|
| $ | — |
|
|
| 13,750 |
|
Accounts payable |
|
| 211,916 |
|
|
| 202,629 |
|
|
| 134,007 |
|
Lease liability - current |
|
| 5,437 |
|
|
| 5,676 |
|
|
| 5,183 |
|
Other current liabilities |
|
| 130,285 |
|
|
| 99,016 |
|
|
| 161,982 |
|
Total current liabilities |
|
| 361,388 |
|
|
| 307,321 |
|
|
| 314,922 |
|
Long-term borrowings on ABL Facility |
|
| 25,000 |
|
|
| — |
|
|
| 25,000 |
|
Long-term debt, net |
|
| 240,020 |
|
|
| 381,909 |
|
|
| 245,632 |
|
Lease liability - long-term |
|
| 35,912 |
|
|
| 40,588 |
|
|
| 37,811 |
|
Deferred tax liabilities |
|
| 47,469 |
|
|
| 65,619 |
|
|
| 47,346 |
|
Other liabilities |
|
| 6,084 |
|
|
| 5,530 |
|
|
| 5,094 |
|
TOTAL LIABILITIES |
|
| 715,873 |
|
|
| 800,967 |
|
|
| 675,805 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01 authorized: 480,000 shares; issued and outstanding: 32,981, 32,604 and 32,614, respectively |
|
| 330 |
|
|
| 326 |
|
|
| 326 |
|
Additional paid-in capital |
|
| 370,353 |
|
|
| 364,773 |
|
|
| 369,372 |
|
Retained earnings (accumulated deficit) |
|
| 30,086 |
|
|
| (15,877 | ) |
|
| 11,226 |
|
Accumulated other comprehensive loss |
|
| (10,946 | ) |
|
| (12,865 | ) |
|
| (11,221 | ) |
TOTAL STOCKHOLDERS' EQUITY |
|
| 389,823 |
|
|
| 336,357 |
|
|
| 369,703 |
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ | 1,105,696 |
|
| $ | 1,137,324 |
|
| $ | 1,045,508 |
|
(in thousands, except share data) | October 27, 2017 | October 28, 2016 | January 27, 2017 | |||||||||
ASSETS | ||||||||||||
Current assets | ||||||||||||
Cash and cash equivalents | $ | 92,913 | $ | 131,532 | $ | 213,108 | ||||||
Restricted cash | 1,640 | 3,300 | 3,300 | |||||||||
Accounts receivable, net | 39,044 | 40,101 | 39,284 | |||||||||
Inventories, net | 423,540 | 425,290 | 325,314 | |||||||||
Prepaid expenses and other current assets | 48,934 | 40,942 | 26,394 | |||||||||
Total current assets | 606,071 | 641,165 | 607,400 | |||||||||
Property and equipment, net | 129,955 | 115,871 | 122,836 | |||||||||
Goodwill | 110,000 | 110,000 | 110,000 | |||||||||
Intangible asset, net | 257,000 | 430,000 | 257,000 | |||||||||
Other assets | 17,454 | 16,142 | 17,155 | |||||||||
TOTAL ASSETS | $ | 1,120,480 | $ | 1,313,178 | $ | 1,114,391 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Current liabilities | ||||||||||||
Accounts payable | $ | 160,340 | $ | 180,608 | $ | 162,408 | ||||||
Other current liabilities | 103,886 | 101,093 | 86,446 | |||||||||
Total current liabilities | 264,226 | 281,701 | 248,854 | |||||||||
Long-term debt, net | 487,197 | 490,992 | 490,043 | |||||||||
Long-term deferred tax liabilities | 91,392 | 158,048 | 90,467 | |||||||||
Other liabilities | 14,568 | 16,766 | 13,615 | |||||||||
TOTAL LIABILITIES | 857,383 | 947,507 | 842,979 | |||||||||
Commitments and contingencies | ||||||||||||
STOCKHOLDERS’ EQUITY | ||||||||||||
Common stock, par value $0.01 authorized: 480,000,000 shares; issued and outstanding: 32,095,021, 32,029,359 and 32,029,359, respectively | 320 | 320 | 320 | |||||||||
Additional paid-in capital | 346,153 | 343,319 | 343,971 | |||||||||
Retained (deficit) earnings | (72,010 | ) | 34,368 | (60,453 | ) | |||||||
Accumulated other comprehensive loss | (11,366 | ) | (12,336 | ) | (12,426 | ) | ||||||
Total stockholders’ equity | 263,097 | 365,671 | 271,412 | |||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,120,480 | $ | 1,313,178 | $ | 1,114,391 |
See accompanying Notes to Condensed Consolidated Financial Statements.
3
LANDS’ END, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
| 26 Weeks Ended |
| |||||
(in thousands) |
| July 30, 2021 |
|
| July 31, 2020 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 18,860 |
|
| $ | (16,267 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 19,695 |
|
|
| 18,164 |
|
Amortization of debt issuance costs |
|
| 1,597 |
|
|
| 858 |
|
Loss on property and equipment |
|
| 443 |
|
|
| 887 |
|
Stock-based compensation |
|
| 6,069 |
|
|
| 4,542 |
|
Deferred income taxes |
|
| 46 |
|
|
| 7,936 |
|
Goodwill impairment |
|
| — |
|
|
| 3,300 |
|
Other |
|
| 194 |
|
|
| 1,115 |
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 7,071 |
|
|
| 26,966 |
|
Inventories |
|
| (81,971 | ) |
|
| (65,553 | ) |
Accounts payable |
|
| 78,376 |
|
|
| 48,858 |
|
Other operating assets |
|
| 10,615 |
|
|
| (11,361 | ) |
Other operating liabilities |
|
| (30,470 | ) |
|
| (11,461 | ) |
Net cash provided by operating activities |
|
| 30,525 |
|
|
| 7,984 |
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
| (11,961 | ) |
|
| (19,758 | ) |
Net cash used in investing activities |
|
| (11,961 | ) |
|
| (19,758 | ) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
Proceeds from borrowings under ABL Facility |
|
| 75,000 |
|
|
| 75,000 |
|
Payments of borrowings under ABL Facility |
|
| (75,000 | ) |
|
| (75,000 | ) |
Principal payments on long-term debt, net |
|
| (6,875 | ) |
|
| (2,575 | ) |
Payments of employee withholding taxes on share-based compensation |
|
| (5,084 | ) |
|
| (423 | ) |
Payment of debt-issuance costs |
|
| (932 | ) |
|
| — |
|
Net cash used in financing activities |
|
| (12,891 | ) |
|
| (2,998 | ) |
Effects of exchange rate changes on cash, cash equivalents and restricted cash |
|
| (142 | ) |
|
| (58 | ) |
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
|
| 5,531 |
|
|
| (14,830 | ) |
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD |
|
| 35,794 |
|
|
| 79,297 |
|
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD |
| $ | 41,325 |
|
| $ | 64,467 |
|
SUPPLEMENTAL CASH FLOW DATA |
|
|
|
|
|
|
|
|
Unpaid liability to acquire property and equipment |
| $ | 2,726 |
|
| $ | 2,303 |
|
Income taxes paid, net of refunds |
| $ | 18,338 |
|
| $ | (47 | ) |
Interest paid |
| $ | 16,306 |
|
| $ | 9,087 |
|
Lease liabilities arising from obtaining operating lease right-of-use assets |
| $ | 1,161 |
|
| $ | 3,525 |
|
See accompanying Notes to Condensed Consolidated Financial Statements.
4
LANDS' END, INC.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
|
| Common Stock Issued |
|
| Additional Paid-in |
|
| Retained |
|
| Accumulated Other Comprehensive |
|
| Total Stockholders' |
| |||||||||
(in thousands) |
| Shares |
|
| Amount |
|
| Capital |
|
| Earnings |
|
| Loss |
|
| Equity |
| ||||||
Balance at January 29, 2021 |
|
| 32,614 |
|
| $ | 326 |
|
| $ | 369,372 |
|
| $ | 11,226 |
|
| $ | (11,221 | ) |
| $ | 369,703 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,639 |
|
|
| — |
|
|
| 2,639 |
|
Cumulative translation adjustment, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 311 |
|
|
| 311 |
|
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| 2,513 |
|
|
| — |
|
|
| — |
|
|
| 2,513 |
|
Vesting of restricted shares |
|
| 553 |
|
|
| 4 |
|
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Restricted stock shares surrendered for taxes |
|
| (190 | ) |
|
| — |
|
|
| (5,013 | ) |
|
| — |
|
|
| — |
|
|
| (5,013 | ) |
Balance at April 30, 2021 |
|
| 32,977 |
|
| $ | 330 |
|
| $ | 366,868 |
|
| $ | 13,865 |
|
| $ | (10,910 | ) |
| $ | 370,153 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 16,221 |
|
|
| — |
|
|
| 16,221 |
|
Cumulative translation adjustment, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (36 | ) |
|
| (36 | ) |
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| 3,556 |
|
|
| — |
|
|
| — |
|
|
| 3,556 |
|
Vesting of restricted shares |
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Restricted stock shares surrendered for taxes |
|
| (3 | ) |
|
| — |
|
|
| (71 | ) |
|
| — |
|
|
| — |
|
|
| (71 | ) |
Balance at July 30, 2021 |
|
| 32,981 |
|
| $ | 330 |
|
| $ | 370,353 |
|
| $ | 30,086 |
|
| $ | (10,946 | ) |
| $ | 389,823 |
|
|
| Common Stock Issued |
|
| Additional Paid-in |
|
| Retained Earnings/ (Accumulated |
|
| Accumulated Other Comprehensive |
|
| Total Stockholders' |
| |||||||||
(in thousands) |
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit) |
|
| Loss |
|
| Equity |
| ||||||
Balance at January 31, 2020 |
|
| 32,382 |
|
| $ | 324 |
|
| $ | 360,656 |
|
| $ | 390 |
|
| $ | (12,988 | ) |
| $ | 348,382 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (20,643 | ) |
|
| — |
|
|
| (20,643 | ) |
Cumulative translation adjustment, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,259 | ) |
|
| (1,259 | ) |
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| 1,828 |
|
|
| — |
|
|
| — |
|
|
| 1,828 |
|
Vesting of restricted shares |
|
| 275 |
|
|
| 2 |
|
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Restricted stock shares surrendered for taxes |
|
| (61 | ) |
|
| — |
|
|
| (410 | ) |
|
| — |
|
|
| — |
|
|
| (410 | ) |
Balance at May 1, 2020 |
|
| 32,596 |
|
| $ | 326 |
|
| $ | 362,072 |
|
| $ | (20,253 | ) |
| $ | (14,247 | ) |
| $ | 327,898 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,376 |
|
|
| — |
|
|
| 4,376 |
|
Cumulative translation adjustment, net of tax |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,382 |
|
|
| 1,382 |
|
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| 2,714 |
|
|
| — |
|
|
| — |
|
|
| 2,714 |
|
Vesting of restricted shares |
|
| 10 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Restricted stock shares surrendered for taxes |
|
| (2 | ) |
|
| — |
|
|
| (13 | ) |
|
| — |
|
|
| — |
|
|
| (13 | ) |
Balance at July 31, 2020 |
|
| 32,604 |
|
| $ | 326 |
|
| $ | 364,773 |
|
| $ | (15,877 | ) |
| $ | (12,865 | ) |
| $ | 336,357 |
|
39 Weeks Ended | ||||||||
(in thousands) | October 27, 2017 | October 28, 2016 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (11,557 | ) | $ | (14,961 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 19,031 | 13,419 | ||||||
Product recall | — | (212 | ) | |||||
Amortization of debt issuance costs | 1,284 | 1,284 | ||||||
Loss on disposal of property and equipment | 151 | 172 | ||||||
Stock-based compensation | 2,855 | 1,578 | ||||||
Deferred income taxes | 355 | 839 | ||||||
Change in operating assets and liabilities: | ||||||||
Inventories | (96,522 | ) | (99,997 | ) | ||||
Accounts payable | 944 | 40,186 | ||||||
Other operating assets | (21,890 | ) | (25,100 | ) | ||||
Other operating liabilities | 17,542 | 15,933 | ||||||
Net cash used in operating activities | (87,807 | ) | (66,859 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Proceeds from sale of property and equipment | — | 44 | ||||||
Change in restricted cash | 1,660 | — | ||||||
Purchases of property and equipment | (29,143 | ) | (26,083 | ) | ||||
Net cash used in investing activities | (27,483 | ) | (26,039 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Payments on term loan facility | (3,863 | ) | (3,863 | ) | ||||
Payments of employee withholding taxes on share-based compensation | (674 | ) | (396 | ) | ||||
Net cash used in financing activities | (4,537 | ) | (4,259 | ) | ||||
Effects of exchange rate changes on cash | (368 | ) | 321 | |||||
NET DECREASE IN CASH AND CASH EQUIVALENTS | (120,195 | ) | (96,836 | ) | ||||
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 213,108 | 228,368 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 92,913 | $ | 131,532 | ||||
SUPPLEMENTAL CASH FLOW DATA | ||||||||
Unpaid liability to acquire property and equipment | $ | 4,796 | $ | 3,101 | ||||
Income taxes paid, net of refunds | $ | 3,220 | $ | 3,220 | ||||
Interest paid | $ | 17,106 | $ | 16,892 |
See accompanying Notes to Condensed Consolidated Financial Statements.
5
LANDS’ END, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BACKGROUND AND BASIS OF PRESENTATION
Description of Business and Separation
Lands' End, Inc. (“("Lands' End”End" or the “Company”"Company") is a leading multi-channeluni-channel retailer of casual clothing, accessories, footwear and footwear,home products. Lands’ End offers products online at www.landsend.com, on third-party online marketplaces and through its own Company Operated stores, as well as home products. Lands' End offers products through catalogs, online at
Terms that are commonly used in the Company's notesNotes to condensed consolidated financial statementsCondensed Consolidated Financial Statements are defined as follows:
• | ABL Facility - Asset-based senior secured credit agreements, providing for a revolving facility, dated as of November 16, 2017, with Wells Fargo Bank, N.A. and certain other lenders, as amended to date |
• | Adjusted EBITDA - Net income (loss) appearing on the Condensed Consolidated Statements of Operations net of Income tax expense/(benefit), Interest expense, Depreciation and amortization and certain significant items |
• | ASC – Financial Accounting Standards Board Accounting Standards Codification, which serves as the source for authoritative GAAP, as supplemented by rules and interpretive releases by the SEC which are also sources of authoritative GAAP for SEC registrants |
• | ASU – Financial Accounting Standards Board Accounting Standards Update |
• | CARES Act – The Coronavirus Aid, Relief and Economic Security Act signed into law on March 27, 2020 |
• | Company Operated stores – Lands’ End retail stores in the Retail channel |
• | Current Term Loan Facility – Term loan credit agreement, dated as of September 9, 2020, among the Company, Fortress Credit Corp., as Administrative Agent and Collateral Agent, and the lenders party thereto |
• | Debt Facilities - Collectively, the Current Term Loan Facility and ABL Facility |
• | Deferred Awards - Time vesting stock awards |
• | EPS - Earnings per share |
• | FASB - Financial Accounting Standards Board |
• | First Quarter 2021 – The 13 weeks ended April 30, 2021 |
• | First Quarter 2020 - The 13 weeks ended May 1, 2020 |
• | Fiscal 2022 – The 52 weeks ending January 27, 2023 |
• | Fiscal 2021 - The 52 weeks ending January 28, 2022 |
• | Fiscal 2020 - The 52 weeks ended January 29, 2021 |
• | Former Term Loan Facility - Term loan credit agreements, dated as of April 4, 2014, with Bank of America, N.A. and certain other lenders, and replaced by the Current Term Loan Facility on September 9, 2020 |
• | GAAP - Accounting principles generally accepted in the United States |
• | LIBOR - London inter-bank offered rate |
6
Table of April 4, 2014, with Bank of America, N.A. and certain other lendersContents
• | Option Awards - Stock option awards |
• | Performance Awards - Performance-based stock awards |
• | SEC – United States Securities and Exchange Commission |
• | Second Quarter 2021 – The 13 weeks ended July 30, 2021 |
• | Second Quarter 2020 – The 13 weeks ended July 31, 2020 |
• | Third Quarter 2021 – The 13 weeks ending October 29, 2021 |
• | Third Quarter 2020 – The 13 weeks ended October 30, 2020 |
• | Year-to-Date 2021 - The 26 weeks ended July 30, 2021 |
• | Year-to-Date 2020 - The 26 weeks ended July 31, 2020 |
• | Year-to-Date 2019 – The 26 weeks ended August 2, 2019 |
Basis of Presentation
The Condensed Consolidated Financial Statements include the accounts of Lands' End, Inc., and its subsidiaries. All intercompany transactions and balances have been eliminated.
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all material adjustments which are of a normal and recurring nature necessary for a fair presentation of the results for the periods presented have been reflected. Dollar amounts are reported in thousands, except per share data, unless otherwise noted. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Lands' End Annual Report on Form 10-K filed with the SEC on March 31, 2017.
Impact of the COVID-19 Pandemic
COVID-19 surfaced in late 2019 and in March 2020, the World Health Organization declared COVID-19 a pandemic. The onset of the COVID-19 pandemic had a disruptive impact on the Company’s business operations and an unfavorable impact on the Company’s results of operations during the first half of Fiscal 2020. During the Second Quarter 2017,2020, the Company began a significant recovery that continued to build on the momentum experienced before the COVID-19 pandemic. The Company’s strong foundation and ongoing enhancements across the four strategic pillars of product, digital, uni-channel distribution and business processes supported the Company adopted ASU 2016-09,
Health and Safety of Employees and Consumers
From the beginning of the COVID-19 pandemic, the Company’s priority has been the safety of employees and customers. On March 16, 2020, the Company temporarily closed its Company Operated stores. These stores reopened during Second Quarter 2020. Additionally, the Company opened 4 new U.S. Company Operated stores in Second Quarter 2020. These new stores were already planned, and construction was underway prior to the start of the COVID-19 pandemic. Since the onset of the COVID-19 pandemic, the Company has taken extra precautions in its offices and distribution centers which have varied from an operating activitytime to a financing activity.time based on the then current guidance from global, federal and state health authorities. These measures have included COVID-19 retail guidelines, work-from-home policies, social distancing, masking, thermal scanning and partitions in all facilities. With the emergence of the delta variant of COVID-19, the Company has been required to keep these measures in place longer than anticipated.
7
Supply Chain
The COVID-19 pandemic continues to cause supply chain disruptions across all industries, and the Company continually monitors its supply chain for manufacturing and transportation delays caused or exacerbated by the COVID-19 pandemic. In the first half of Fiscal 2021, the COVID-19 pandemic impacted the Company’s distribution centers, third-party manufacturing partners and logistics partners, including freight capacity, port congestion, other logistics constraints, and closure of certain third-party manufacturing facilities and production lines. These disruptions and constraints resulted in later timing of Spring 2021 inventory receipts and deliveries, as well as higher freight, distribution and other supply chain costs. These disruptions have led, at times, to lower inventory positions and higher than normal back orders, as manufacturing, transport, receipt and stocking of inbound product is delayed. In addition, increased demand for parcel delivery has led to carrier limitations, as well as rate surcharges, throughout the industry, generally, and for the Company, in particular.
The Company expects these supply chain disruptions and constraints and increases in costs to continue through the balance of Fiscal 2021 and into Fiscal 2022. As a result of the adoption,these impacts, the Company reclassified payments of employee withholding taxes on share-based compensation from Other operating liabilitiesanticipates later than expected fall and holiday season inventory receipts and deliveries to the Company’s wholesale customers and inventory availability for the YearCompany’s distribution channels. These additional costs and shipping delays may impact the Company’s future net sales and gross margin results, depending upon the ultimate timing of delivery and availability of product to Date 2016sell.
Expense Reduction
Beginning in First Quarter 2020, the Company took aggressive actions to Paymentsreduce overall expenses as a response to decreased customer demand due to the COVID-19 pandemic. The Company reduced operating expenses and structural costs by enacting employee furloughs and temporary tiered salary reductions for the executive team and corporate staff. In addition, other discretionary operating expenses and planned capital expenditures for Fiscal 2020 were significantly reduced. As the COVID-19 pandemic continues and new variants emerge, the Company will continue to monitor the impact of employee withholdingthe COVID-19 pandemic to manage overall expenses.
Goodwill and Indefinite-Lived Intangible Asset
The Company considered the COVID-19 pandemic to be a triggering event in First Quarter 2020 for the Company’s Outfitters and Japan eCommerce reporting units and therefore completed an interim test for impairment of goodwill for these reporting units as of May 1, 2020. The testing resulted in 0 impairment of the Company’s Outfitters reporting unit and full impairment of the $3.3 million of goodwill allocated to the Company’s Japan eCommerce reporting unit. There was 0t a triggering event or impairment charge Year-to-Date 2021.
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): “Simplifying the Accounting for Income Taxes”, which is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and by clarifying and amending existing guidance to improve consistent application. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Certain amendments within this ASU are required to be applied on share-based compensation. Other requirements ofa retrospective basis, certain other amendments are required to be applied on a modified retrospective basis and all other amendments on a prospective basis. The Company adopted this guidancestandard in First Quarter 2021 and the adoption did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
NOTE 2.3. EARNINGS (LOSS) PER SHARE
The numerator for both basic and diluted EPS is net income (loss). The denominator for basic EPS is based upon the number of weighted average shares of Lands’ End common stock outstanding during the reporting periods. The denominator for diluted EPS is based upon the number of weighted average shares of Lands' End common stock and common stock equivalents outstanding during the reporting periods using the treasury stock method in accordance with the ASC.GAAP. Potentially dilutive securities for the diluted EPS calculations consist of nonvestednon-vested equity shares of common stock and in-the-money outstanding options where the current stock options, if any, to purchaseprice exceeds the Company’s common stock.
8
The following table summarizes the components of basic and diluted EPS:
|
| 13 Weeks Ended |
|
| 26 Weeks Ended |
| ||||||||||
(in thousands, except per share amounts) |
| July 30, 2021 |
|
| July 31, 2020 |
|
| July 30, 2021 |
|
| July 31, 2020 |
| ||||
Net income (loss) |
| $ | 16,221 |
|
| $ | 4,376 |
|
| $ | 18,860 |
|
| $ | (16,267 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
| 32,979 |
|
|
| 32,600 |
|
|
| 32,875 |
|
|
| 32,524 |
|
Dilutive effect of stock awards |
|
| 734 |
|
|
| 238 |
|
|
| 835 |
|
|
| — |
|
Diluted weighted average common shares outstanding |
|
| 33,713 |
|
|
| 32,838 |
|
|
| 33,710 |
|
|
| 32,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
| $ | 0.49 |
|
| $ | 0.13 |
|
| $ | 0.57 |
|
| $ | (0.50 | ) |
Diluted earnings (loss) per share |
| $ | 0.48 |
|
| $ | 0.13 |
|
| $ | 0.56 |
|
| $ | (0.50 | ) |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
(in thousands, except per share amounts) | October 27, 2017 | October 28, 2016 | October 27, 2017 | October 28, 2016 | ||||||||||||
Net income (loss) | $ | 162 | $ | (7,222 | ) | $ | (11,557 | ) | $ | (14,961 | ) | |||||
Basic weighted average shares outstanding | 32,095 | 32,029 | 32,068 | 32,018 | ||||||||||||
Dilutive effect of stock awards | 22 | — | — | — | ||||||||||||
Diluted weighted average shares outstanding | 32,117 | 32,029 | 32,068 | 32,018 | ||||||||||||
Basic earnings (loss) per share | $ | 0.01 | $ | (0.23 | ) | $ | (0.36 | ) | $ | (0.47 | ) | |||||
Diluted earnings (loss) per share | $ | 0.01 | $ | (0.23 | ) | $ | (0.36 | ) | $ | (0.47 | ) |
Stock awards are considered anti-dilutive based on the application of the treasury stock method or in the event of a net loss. There were 827,057, 376,347, 692,175 and 314,664Anti-dilutive shares excluded from the diluted weighted average shares outstanding for Third Quarter 2017, Third Quarter 2016, Year to Date 2017were 89 anti-dilutive shares in the 13 weeks ended July 30, 2021, 978,983 anti-dilutive shares in the 13 weeks ended July 31, 2020, 44 anti-dilutive shares in the 26 weeks ended July 30, 2021 and Year to Date 2016, respectively.
NOTE 3.4. OTHER COMPREHENSIVE (LOSS) INCOME
Other comprehensive (loss) incomeloss encompasses all changes in equity other than those arising from transactions with stockholders and is comprised solely of foreign currency translation adjustments.
|
| 13 Weeks Ended |
|
| 26 Weeks Ended |
| ||||||||||
(in thousands) |
| July 30, 2021 |
|
| July 31, 2020 |
|
| July 30, 2021 |
|
| July 31, 2020 |
| ||||
Beginning balance: Accumulated other comprehensive loss (net of tax of $2,900, $3,790, $2,987, and $3,453, respectively) |
| $ | (10,910 | ) |
| $ | (14,247 | ) |
| $ | (11,221 | ) |
| $ | (12,988 | ) |
Other comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments (net of tax of $10, $(370), $(77) and $(33), respectively) |
|
| (36 | ) |
|
| 1,382 |
|
|
| 275 |
|
|
| 123 |
|
Ending balance: Accumulated other comprehensive loss (net of tax of $2,910, $3,420, $2,910 and $3,420, respectively) |
| $ | (10,946 | ) |
| $ | (12,865 | ) |
| $ | (10,946 | ) |
| $ | (12,865 | ) |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
(in thousands) | October 27, 2017 | October 28, 2016 | October 27, 2017 | October 28, 2016 | ||||||||||||
Beginning balance: Accumulated other comprehensive loss (net of tax of $6,054, $5,467, $6,691 and $5,053, respectively) | $ | (11,287 | ) | $ | (10,153 | ) | $ | (12,426 | ) | $ | (9,384 | ) | ||||
Other comprehensive (loss) income: | ||||||||||||||||
Foreign currency translation adjustments (net of tax (benefit) expense of $66, $1,176, $(571) and $1,590, respectively) | (79 | ) | (2,183 | ) | 1,060 | (2,952 | ) | |||||||||
Ending balance: Accumulated other comprehensive loss (net of tax of $6,120, $6,643, $6,120 and $6,643, respectively) | $ | (11,366 | ) | $ | (12,336 | ) | $ | (11,366 | ) | $ | (12,336 | ) |
NaN amounts were reclassified out of Accumulated other comprehensive loss during any of the periods presented.
NOTE 4.5. DEBT
ABL Facility
The Company’s $275.0 million revolving ABL Facility includes a $70.0 million sublimit for letters of credit and is available for working capital and other general corporate liquidity needs. The balance outstanding was $25.0 million and 0 on July 30, 2021 and July 31, 2020, respectively. The balance of outstanding letters of credit was $16.7 million and $12.0 million on July 30, 2021 and July 31, 2020, respectively.
During Fiscal 2020, the Company exercised the “accordion” feature under the ABL Facility increasing the maximum borrowings available under the facility from $175.0 million to $275.0 million, subject to a borrowing base (the “Loan Cap”). This was completed in two separate transactions. The first was a $25.0 million increase effective March 19, 2020 and the second was a $75.0 million increase effective September 9, 2020. The latter was completed through the Second Amendment to the ABL Facility executed on August 12, 2020.
On July 29, 2021, the Company executed the Third Amendment to the ABL Facility resulting in favorable financial terms compared to the Second Amendment to the ABL Facility and extension of the maturity date of the ABL Facility, as discussed below.
9
Long-Term Debt
On September 9, 2020, the Company entered into the Current Term Loan Facility which provides a term loan facility of $275.0 million, the proceeds of which were used, along with borrowings of $125.0 million under the ABL Facility, to repay all of the indebtedness under the Former Term Loan Facility and to pay fees and expenses in connection with the financing. Origination costs, including an Original Issue Discount (“OID”) of 3% and $5.1 million in debt origination fees, were paid upon entering into the Current Term Loan Facility. The OID and the debt origination fees are presented as a direct deduction from the carrying value of the Current Term Loan Facility and are amortized over the term of the loan to Interest expense in the Condensed Consolidated Statements of Operations.
The Company's long-term debt consisted of the following:
|
|
| July 30, 2021 |
|
| July 31, 2020 |
|
| January 29, 2021 |
| ||||||||||||||||||
(in thousands) |
|
| Amount |
|
|
| Interest Rate |
|
| Amount |
|
|
| Interest Rate |
|
| Amount |
|
|
| Interest Rate |
| ||||||
Former Term Loan Facility |
|
| $ | — |
|
|
|
| — | % |
| $ | 382,812 |
|
|
|
| 4.25 | % |
| $ | — |
|
|
|
| — | % |
Current Term Loan Facility, maturing September 9, 2025 |
|
|
| 264,688 |
|
|
|
| 10.75 | % |
|
| — |
|
|
|
| — | % |
|
| 271,563 |
|
|
|
| 10.75 | % |
|
|
|
| 264,688 |
|
|
|
|
|
|
|
| 382,812 |
|
|
|
|
|
|
|
| 271,563 |
|
|
|
|
|
|
Less: Current portion of long-term debt |
|
|
| 13,750 |
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
|
| 13,750 |
|
|
|
|
|
|
Less: Unamortized debt issuance costs |
|
|
| 10,918 |
|
|
|
|
|
|
|
| 903 |
|
|
|
|
|
|
|
| 12,181 |
|
|
|
|
|
|
Long-term debt, net |
|
| $ | 240,020 |
|
|
|
|
|
|
| $ | 381,909 |
|
|
|
|
|
|
| $ | 245,632 |
|
|
|
|
|
|
October 27, 2017 | October 28, 2016 | January 27, 2017 | |||||||||||||||||||
Amount | Rate | Amount | Rate | Amount | Rate | ||||||||||||||||
Term Loan Facility, maturing April 4, 2021 | $ | 496,975 | 4.49 | % | $ | 502,125 | 4.25 | % | $ | 500,838 | 4.25 | % | |||||||||
ABL Facility, maturing April 4, 20191 | — | — | % | — | — | % | — | — | % | ||||||||||||
496,975 | 502,125 | 500,838 | |||||||||||||||||||
Less: Current maturities in Other current liabilities | 5,150 | 5,150 | 5,150 | ||||||||||||||||||
Less: Unamortized debt issuance costs - Term Loan Facility | 4,628 | 5,983 | 5,645 | ||||||||||||||||||
Long-term debt, net | $ | 487,197 | $ | 490,992 | $ | 490,043 |
The following table summarizes the Company's borrowing availability under the ABL Facility:
|
| July 30, 2021 |
|
| July 31, 2020 |
|
| January 29, 2021 |
| ||||||||||||
(in thousands) |
| Amount |
| Interest Rate |
|
| Amount |
| Interest Rate |
|
| Amount |
| Interest Rate |
| ||||||
ABL Facility maximum borrowing |
| $ | 275,000 |
|
|
|
|
| $ | 200,000 |
|
|
|
|
| $ | 275,000 |
|
|
|
|
Less: Outstanding borrowings |
|
| 25,000 |
| 2.75% |
|
|
| — |
| —% |
|
|
| 25,000 |
| 3.00% |
| |||
Less: Outstanding letters of credit |
|
| 16,693 |
|
|
|
|
|
| 12,020 |
|
|
|
|
|
| 27,131 |
|
|
|
|
Borrowing availability under ABL Facility |
| $ | 233,307 |
|
|
|
|
| $ | 187,980 |
|
|
|
|
| $ | 222,869 |
|
|
|
|
October 27, 2017 | October 28, 2016 | January 27, 2017 | ||||||||||
ABL maximum borrowing | $ | 175,000 | $ | 175,000 | $ | 175,000 | ||||||
Outstanding Letters of Credit | 17,788 | 13,845 | 19,705 | |||||||||
Borrowing availability under ABL | $ | 157,212 | $ | 161,155 | $ | 155,295 |
Interest; Fees
Between September 9, 2020 and July 30, 2021, the ABL Facility provided that for LIBOR loans, the interest rate is LIBOR (subject to an interest rate floor of 0.75%) plus a borrowing margin which was, where the average daily total loans outstanding for the previous quarter were (i) less than $50.0 million, 1.75%, (ii) equal to or greater than $50.0 million but less than $100.0 million, 2.00%, (iii) equal to or greater than $100.0 million but less than $200.0 million, 2.25%, and (iv) greater than $200.0 million, 3.50%. For Base Rate loans, the borrowing margin was, where the average daily total loans outstanding for the previous quarter were (i) less than $50.0 million for the previous quarter, 1.00%, (ii) equal to or greater than $50.0 million but less than $100.0 million, 1.25%, (iii) equal to or greater than $100.0 million but less than $200.0 million, 1.50%, and (iv) greater than $200.0 million, 2.75%.
Pursuant to the Third Amendment of the ABL Facility for LIBOR loans, commencing July 31, 2021 the borrowing margin will be, where the average daily total loans outstanding for the previous quarter are (i) less than $95.0 million, 1.25%, (ii) equal to or greater than $95.0 million but less than $180.0 million, 1.50%, and (iii) greater than or equal to $180.0 million, 1.75%. For Base Rate loans, the borrowing margin will be, where the average daily total loans outstanding for the previous quarter are (i) less than $95.0 million for the previous quarter, 0.50%, (ii) equal to or greater than $95.0 million but less than $180.0 million, 0.75%, and (iii) greater than or equal to $180.0 million, 1.00%. The Third Amendment to the ABL Facility replaced the 0.75% LIBOR floor with a 0.00% LIBOR floor.
The interest rates per annum applicable to the loans under the Debt FacilitiesCurrent Term Loan Facility are based on a fluctuating rate of interest measured by reference to, at the borrowers’ election, either (i)(1) an adjusted LIBOR rate (with a minimum rate of 1.00%) plus a borrowing margin,9.75%, or (ii)(2) an alternative base rate plus a borrowing margin. The borrowing margin(which is fixed for the Term Loan Facility at 3.25%greater of (i) the prime rate published in the caseWall Street Journal, (ii) the federal funds rate, which shall be no lower than 0.00% plus ½ of 1.00%, and (iii) the one month LIBOR loans and 2.25% inrate plus 1.00% per annum) plus 8.75%.
10
Pursuant to the case of base rate loans. For the Term Loan Facility, LIBOR is subjectSecond Amendment to a 1% interest rate floor. The borrowing margin for the ABL Facility, is subjectthe ABL Facility fees also included (i) commitment fees which range from 0.25% to adjustment0.375% based onupon the average excess availabilitydaily unused commitment (aggregate commitment less loans and letter of credit outstanding) under the ABL Facility for the preceding fiscal quarter and may range from 1.50% to 2.00% in(ii) customary letter of credit fees.
Effective with the case of LIBOR borrowings and may range from 0.50% to 1.00% in the case of base rate borrowings.
Customary agency fees are payable in respect of the Debt Facilities.
Maturity; Amortization and Prepayments
The Third Amendment to the ABL Facility extended the maturity from November 16, 2022 to the earlier of (a) July 29, 2026 and (b) June 9, 2025 if, on or prior to such date, the Current Term Loan Facility has not been refinanced, extended or repaid in full in accordance with the terms thereof and not replaced with other indebtedness.
The Current Term Loan Facility matures on September 9, 2025 and amortizes at a rate equal to 1.25% per quarter. It is subject to mandatory prepayments in an amount equal to a percentage of the borrower’s excess cash flows in each fiscal year, ranging from 0% to 75% depending on the Company’s total leverage ratio, and with the proceeds of certain asset sales, casualty events and extraordinary receipts. The loan may not be voluntarily prepaid during the first two years of its term, without significant penalties. A prepayment premium is applicable to voluntary prepayments and certain mandatory prepayments made prior to the fourth anniversary of the closing date of the Current Term Loan Facility.
Guarantees; Security
All obligations under the Debt Facilities are unconditionally guaranteed by Lands’ End, Inc. and, subject to certain exceptions, each of its existing and future direct and indirect subsidiaries. The ABL Facility is secured by a first priority security interest in certain working capital of the borrowers and guarantors consisting primarily of accounts receivable and inventory. The Current Term Loan Facility is secured by a second priority security interest in the same collateral with certain exceptions.
The Current Term Loan Facility is secured by a first priority security interest in certain property and assets of the borrowers and guarantors, including certain fixed assets such as real estate, stock of the subsidiaries and intellectual property, in each case, subject to certain exceptions. The ABL Facility is secured by a second priority interest in the same collateral, with certain exceptions.
The Former Term Loan Facility, which was replaced by the Current Term Loan Facility on September 9, 2020, had the same priority security interest in the same collateral, with certain exceptions.
Representations and Warranties; Covenants
Subject to specified exceptions, the Debt Facilities contain various representations and warranties, and restrictive covenants that, among other things and subject to specified exceptions, restrict the ability of Lands’ End, Inc.’s and its subsidiariessubsidiaries’ ability to incur indebtedness (including guarantees), grant liens, make investments, make dividends or distributions with respect to capital stock, make prepayments on other indebtedness, engage in mergers or change the nature of their business. In addition,
The Current Term Loan Facility is subject to certain financial covenants, including a quarterly maximum total leverage ratio test, a weekly minimum liquidity test and an annual maximum capital expenditure amount.
Under the ABL Facility, if excess availability under the ABL Facility falls below the greater of 10% of the loan capLoan Cap amount or $15.0 million, Lands’ Endthe Company will be required to comply with a minimum fixed charge coverage ratio of 1.0 to 1.0. The Debt Facilities do not otherwise contain financial maintenance covenants. The Company was in compliance
Effective with all financial covenants relatedthe Second Amendment to the Debt Facilities asABL Facility, the ABL Facility had a cash maintenance provision which applied a limit of October 27, 2017.
11
The Debt Facilities contain certain affirmative covenants, including reporting requirements such as delivery of financial statements, certificates and notices of certain events, maintaining insurance, and providing additional guarantees and collateral in certain circumstances.
As of July 30, 2021, the Company entered into an asset-based lending credit agreementwas in compliance with Wells Fargo Bank, National Association, which provides for maximum borrowingsall of $175.0 million forits covenants in the Company, subject to a borrowing base. Debt Facilities.
Events of Default
The New ABL Facility has a letterDebt Facilities include customary events of credit sub-limitdefault including non-payment of $70.0 million. The New ABL Facility is available for working capital and other general corporate purposes. The New ABL Facility will mature no later than November 16, 2022, subject to customary extension provisions provided for therein.
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
(in thousands) | October 27, 2017 | October 28, 2016 | October 27, 2017 | October 28, 2016 | ||||||||||||
Deferred Awards | $ | 879 | $ | (301 | ) | $ | 2,315 | $ | 1,067 | |||||||
Option Awards | 176 | — | 452 | — | ||||||||||||
Performance Awards | — | 127 | 88 | 511 | ||||||||||||
Total stock-based compensation expense | $ | 1,055 | $ | (174 | ) | $ | 2,855 | $ | 1,578 |
Deferred Awards | Option Awards | Performance Awards | |||||||||||||||||||
(in thousands, except per share amounts) | Number of Shares | Weighted Average Grant Date Fair Value per Share | Number of Shares | Weighted Average Grant Date Fair Value per Share | Number of Shares | Weighted Average Grant Date Fair Value per Share | |||||||||||||||
Outstanding as of January 27, 2017 | 252 | $ | 24.42 | — | $ | — | 69 | $ | 26.38 | ||||||||||||
Granted | 403 | 21.79 | 343 | 8.73 | — | — | |||||||||||||||
Vested | (59 | ) | 23.00 | — | — | (41 | ) | 28.33 | |||||||||||||
Exercised | — | — | — | — | — | — | |||||||||||||||
Forfeited or expired | (80 | ) | 24.77 | — | — | (28 | ) | 23.47 | |||||||||||||
Outstanding as of October 27, 2017 | 516 | 22.39 | 343 | 8.73 | — | — |
Assumption | Low | High | ||
Risk-free interest rate | 1.82% | - | 1.90% | |
Expected dividend yield | —% | - | —% | |
Volatility | 45.59% | - | 46.12% | |
Expected life (in years) | 6.25 | - | 6.25 | |
Weighted average exercise price per share | $18.10 | - | $22.00 |
October 27, 2017 | October 28, 2016 | January 27, 2017 | ||||||||||||||||||||||
(in thousands) | Carrying Amount | Fair Value | Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||||||||
Long-term debt, including short-term portion | $ | 496,975 | $ | 414,353 | $ | 502,125 | $ | 386,636 | $ | 500,838 | $ | 379,385 |
NOTE 6. STOCK-BASED COMPENSATION
The Company expenses the fair value of all stock awards over their respective vesting periods, ensuring that, the amount of cumulative compensation cost recognized at any date is at least equal to the portion of the grant-date fair value of the award that is vested at that date. The Company has elected to adjust compensation expense for an estimated forfeiture rate for those shares not expected to vest and to recognize compensation cost on a straight-line basis for awards that only have a service requirement with multiple vest dates.
The Company has granted the following types of stock awards to employees at management levels and above, each of which are granted under the Company’s stockholder approved stock plans, other than March 6, 2017 grants to the Company’s Chief Executive Officer which were made as inducement grants outside of the Company’s stockholder approved stock plans in accordance with NASDAQ Listing Rule 5635(c)(4):
i. | Time vesting stock awards ("Deferred Awards") are in the form of restricted stock units and only require each recipient to complete a service period for the award to be earned. Deferred Awards generally vest over three years. The fair value of Deferred Awards is based on the closing price of the Company's common stock on the grant date and is reduced for estimated forfeitures of those awards not expected to vest due to employee turnover. |
ii. | Performance-based stock awards ("Performance Awards") are in the form of restricted stock units and have, in addition to a service requirement, performance criteria that must be achieved for the awards to be earned. For Performance Awards the Target Shares earned can range from 50% to 200% once minimum thresholds have been reached and depend on the achievement of Adjusted EBITDA and revenue performance measures for the cumulative three-fiscal year performance period beginning with the fiscal year of the grant date. The applicable percentage of the Target Shares, as determined by performance, vest after the completion of the applicable three-year performance period and upon determination of achievement of the performance measures by the Compensation Committee of the Board of Directors, and unearned Target Shares are forfeited. The fair value of the Performance Awards is based on the closing price of the Company’s common stock on the grant date. Stock based compensation expense is recognized ratably over the related service period, reduced for estimated forfeitures of those awards not expected to vest due to employee turnover, and adjusted based on the Company's estimate of the percentage of the aggregate Target Shares expected to be earned. The 2018 Performance Awards vested on March 25, 2021 at 111%. The compensation expense associated with the 2021 Performance Awards and 2019 Performance Awards are accrued at 193% and 147% of Target Shares, respectively. |
iii. | Stock option awards ("Option Awards") provide the recipient with the option to purchase a set number of shares at a stated exercise price over the term of the contract, which is ten years for all Option Awards currently outstanding. Options are granted with a strike price equal to the stock price on the date of grant and vest ratably over a four-year period. The fair value of each Option Award is estimated on the grant date using the Black-Scholes option pricing model. |
The following table provides a summary of the Company's stock-based compensation expense, which is included in Selling and administrative expense in the Condensed Consolidated Statements of Operations:
|
| 13 Weeks Ended |
|
| 26 Weeks Ended |
| ||||||||||
(in thousands) |
| July 30, 2021 |
|
| July 31, 2020 |
|
| July 30, 2021 |
|
| July 31, 2020 |
| ||||
Deferred awards |
| $ | 1,484 |
|
| $ | 1,383 |
|
| $ | 2,845 |
|
| $ | 3,024 |
|
Performance awards |
|
| 2,072 |
|
|
| 1,144 |
|
|
| 3,121 |
|
|
| 1,144 |
|
Option awards |
| — |
|
|
| 187 |
|
|
| 103 |
|
|
| 374 |
| |
Total stock-based compensation expense |
| $ | 3,556 |
|
| $ | 2,714 |
|
| $ | 6,069 |
|
| $ | 4,542 |
|
12
The following table provides a summary of the Deferred Awards activity for Year-to-Date 2021:
|
| Deferred Awards |
| |||||
(in thousands, except per share amounts) |
| Number of Shares |
|
| Weighted Average Grant Date Fair Value per Share |
| ||
Unvested as of January 29, 2021 |
|
| 1,093 |
|
| $ | 10.86 |
|
Granted |
|
| 245 |
|
|
| 29.95 |
|
Vested |
|
| (395 | ) |
|
| 13.85 |
|
Forfeited or expired |
|
| (12 | ) |
|
| 11.49 |
|
Unvested as of July 30, 2021 |
|
| 931 |
|
|
| 14.61 |
|
Total unrecognized stock-based compensation expense related to unvested Deferred Awards was approximately $10.5 million as of July 30, 2021, which is expected to be recognized ratably over a weighted average period of 2.2 years. Deferred Awards granted to employees during Fiscal 2021 vest ratably over a period of three years.
The following table provides a summary of the Performance Awards activity for Year-to-Date 2021:
|
| Performance Awards |
| |||||
(in thousands, except per share amounts) |
| Number of Shares |
|
| Weighted Average Grant Date Fair Value per Share |
| ||
Unvested as of January 29, 2021 |
|
| 393 |
|
| $ | 18.32 |
|
Granted (1) |
|
| 166 |
|
|
| 29.95 |
|
Vested |
|
| (165 | ) |
|
| 21.90 |
|
Forfeited or expired |
|
| 0 |
|
|
| 0 |
|
Unvested as of July 30, 2021 |
|
| 394 |
|
|
| 21.72 |
|
(1) | Performance shares granted assume achievement performance at 100% of target. |
Total unrecognized stock-based compensation expense related to unvested Performance Awards was approximately $9.8 million as of July 30, 2021, which is expected to be recognized ratably over a weighted average period of 2.3 years. Performance Awards granted to employees during Fiscal 2021 and Fiscal 2019 vest, if earned, after completion of the applicable three-year performance period.
The following table provides a summary of the Options Award activity for Year-to-Date 2021:
|
| Option Awards |
| |||||
(in thousands, except per share amounts) |
| Number of Shares |
|
| Weighted Average Grant Date Fair Value per Share |
| ||
Unvested as of January 29, 2021 |
|
| 85 |
|
| $ | 8.73 |
|
Granted |
|
| 0 |
|
|
| 0 |
|
Vested |
|
| (85 | ) |
|
| 8.73 |
|
Forfeited or expired |
|
| 0 |
|
|
| 0 |
|
Unvested as of July 30, 2021 |
|
| — |
|
| — |
|
As of July 30, 2021, there were 0 unvested Option Awards. The Option Awards have a contractual term of ten years and vested ratably over the first four years. As of July 30, 2021, 343,135 shares related to Option Awards were exercisable. NaN options have been exercised as of July 30, 2021.
NOTE 7. FAIR VALUE MEASUREMENTS OF FINANCIAL ASSETS AND LIABILITIES
Restricted cash is reflected on the Condensed Consolidated Balance Sheets at fair value. The fair value of restricted cash was $2.1 million, $1.8 million and $1.9 million as of July 30, 2021, July 31, 2020 and January 29, 2021, respectively based on Level 1 inputs. Restricted cash amounts are valued based upon statements received from financial institutions.
13
Carrying values and fair values of long-term debt, including current portion, in the Condensed Consolidated Balance Sheets are as follows:
|
| July 30, 2021 |
|
| July 31, 2020 |
|
| January 29, 2021 |
| |||||||||||||||
(in thousands) |
| Carrying Amount |
|
| Fair Value |
|
| Carrying Amount |
|
| Fair Value |
|
| Carrying Amount |
|
| Fair Value |
| ||||||
Long-term debt, including current portion |
| $ | 264,688 |
|
| $ | 263,030 |
|
| $ | 382,812 |
|
| $ | 352,666 |
|
| $ | 271,563 |
|
| $ | 277,265 |
|
Long-term debt, including current portion, was valued utilizing Level 3 valuation techniques based on a third-party analysis on July 30, 2021 and January 29, 2021. The fair value of the debt on July 31, 2020 was determined utilizing Level 2 techniques based on the closing inactive market bid price on July 31, 2020. There were 0 nonfinancial assets or nonfinancial liabilities recognized at fair value on a nonrecurring basis as of July 30, 2021, July 31, 2020, and January 29, 2021.
NOTE 8. INCOME TAXES
Provision for Income Taxes
At the end of each quarter, the Company estimates its effective income tax rate pursuant to ASC 740. The rate for the period consists of the tax rate expected to be applied for the full year to ordinary income adjusted for any discrete items recorded in the period.
The Company recorded a tax expense at an overall effective tax rate of 28.3% and 11.5% for the Second Quarter 2021 and 2020, respectively. The Second Quarter 2021 rate is higher than Second Quarter 2020 primarily as a result of changes in estimates due to uncertainties related to the Company’s performance as a result of the COVID-19 pandemic in 2020. The Company recorded a tax expense at an overall effective tax rate of 26.4% for Year-to-Date 2021 and a tax benefit of 34.7% for Year-to-Date 2020. The Year-to-Date 2021 rate is lower than Year-to-Date 2020 primarily due to the generation of pretax income in 2021 compared to a pretax loss in 2020 in addition to the estimated tax benefits recorded as a result of the CARES Act in 2020.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is party to various claims, legal proceedings and investigations arising in the ordinary course of business. Some of these actions involve complex factual and legal issues and are subject to uncertainties. At this time, the Company is not able to either predict the outcome of these legal proceedings or reasonably estimate a potential range of loss with respect to the proceedings. While it is not feasible to predict the outcome of such pending claims, proceedings and investigations with certainty, management is of the opinion that their ultimate resolution should not have a material adverse effect on results of operations, cash flows or financial position taken as a whole.
As of June 6, 2017 the City has refunded, as the result of various court decisions and a settlement agreement, over $7.5 million in excessive taxes and interest to the Company. All excessive property tax assessment claims arising with respect to the tax years 2005 through 2016 are now closed.
By order dated April 20, 2020, the Court consolidated the Gilbert and Andrews cases (the “Consolidated Wisconsin Action”) and stayed the Davis case.
Plaintiffs in the Consolidated Wisconsin Action and Davis each assert that its historical operating results indicate substantial doubt existsthe damages sustained by the members of the proposed class exceed $5,000,000. Plaintiffs in each caseseek damages for personal injuries, pain and suffering, severe emotional distress, financial or economic loss, including medical services and expenses, lost income and other compensable injuries. Plaintiffs in the Consolidated Wisconsin Action seek class certification with respect to performance of the uniforms and warranty claims and maintain individual claims for personal injury by numerous named plaintiffs.
14
On August 18, 2021, the Court ruled on several pending motions. The Court denied Plaintiffs’ motion for class certification with respect to performance of the uniforms and warranty claims. The Court denied Plaintiffs’ motion for partial summary judgment regarding crocking claims and granted Lands’ End’s motion for partial summary judgment related to its abilitycertain warranty claims. In addition, giving effect to continueboth the addition and voluntary dismissal of individual plaintiffs over the course of the litigation, the number of individual plaintiffs had been reduced from 1,089 to 603 as of August 18, 2021. On September 1, 2021, Plaintiffs filed a going concern. Sears Holdings also disclosed it believes that actions it has taken inRule 23(f) petition, seeking interlocutory review of the last 12 months and expected benefits from actionsCourt’s decision denying class certification.
The Consolidated Wisconsin Action continues to be taken in 2017discovery. Lands' End is vigorously defending these lawsuits and believes they are probable to mitigate the substantial doubt raised by its historical operating results and therefore will satisfy its liquidity needs for the 12 months following the issuance of its financial statements.
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
(in thousands, except for number of stores) | October 27, 2017 | October 28, 2016 | October 27, 2017 | October 28, 2016 | ||||||||||||
Rent, CAM and occupancy costs | $ | 5,376 | $ | 6,165 | $ | 16,882 | $ | 18,707 | ||||||||
Retail services, store labor | 5,268 | 6,004 | 16,410 | 18,034 | ||||||||||||
Financial services and payment processing | 479 | 573 | 1,627 | 1,963 | ||||||||||||
Supply chain costs | 167 | 183 | 558 | 735 | ||||||||||||
Total expenses | $ | 11,290 | $ | 12,925 | $ | 35,477 | $ | 39,439 | ||||||||
Number of Lands’ End Shops at Sears at period end | 188 | 219 | 188 | 219 |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
(in thousands) | October 27, 2017 | October 28, 2016 | October 27, 2017 | October 28, 2016 | ||||||||||||
Sourcing | $ | 3,445 | $ | 4,941 | $ | 8,525 | $ | 7,979 | ||||||||
Shop Your Way | 83 | 596 | 780 | 1,670 | ||||||||||||
Shared services | 48 | 48 | 143 | 143 | ||||||||||||
Total expenses | $ | 3,576 | $ | 5,585 | $ | 9,448 | $ | 9,792 |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
(in thousands) | October 27, 2017 | October 28, 2016 | October 27, 2017 | October 28, 2016 | ||||||||||||
Call Center Services | $ | — | $ | 1,976 | $ | 1,160 | $ | 5,777 | ||||||||
Lands' End Business Outfitters revenue | 222 | 333 | 764 | 1,307 | ||||||||||||
Credit card revenue | 205 | 265 | 638 | 776 | ||||||||||||
Royalty income | 55 | 56 | 169 | 182 | ||||||||||||
Gift card (expense) | (7 | ) | (7 | ) | (20 | ) | (20 | ) | ||||||||
Total income | $ | 475 | $ | 2,623 | $ | 2,711 | $ | 8,022 |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
(in thousands) | October 27, 2017 | October 28, 2016 | October 27, 2017 | October 28, 2016 | ||||||||||||
Net revenue: | ||||||||||||||||
Apparel | $ | 272,175 | $ | 252,082 | $ | 759,460 | $ | 725,062 | ||||||||
Non-apparel | 38,559 | 37,854 | 93,067 | 95,021 | ||||||||||||
Service and other | 14,755 | 21,540 | 43,517 | 56,836 | ||||||||||||
Total net revenue | $ | 325,489 | $ | 311,476 | $ | 896,044 | $ | 876,919 |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
(in thousands) | October 27, 2017 | October 28, 2016 | October 27, 2017 | October 28, 2016 | ||||||||||||
Net revenue: | ||||||||||||||||
Direct | $ | 290,326 | $ | 272,080 | $ | 778,554 | $ | 750,660 | ||||||||
Retail | 35,104 | 39,340 | 117,317 | 126,077 | ||||||||||||
Corporate / other | 59 | 56 | 173 | 182 | ||||||||||||
Total net revenue | $ | 325,489 | $ | 311,476 | $ | 896,044 | $ | 876,919 |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
(in thousands) | October 27, 2017 | October 28, 2016 | October 27, 2017 | October 28, 2016 | ||||||||||||
Adjusted EBITDA: | ||||||||||||||||
Direct | $ | 29,100 | $ | 13,904 | $ | 54,018 | $ | 41,516 | ||||||||
Retail | (6,003 | ) | (3,583 | ) | (7,405 | ) | (7,063 | ) | ||||||||
Corporate / other | (10,245 | ) | (9,035 | ) | (25,635 | ) | (25,271 | ) | ||||||||
Total adjusted EBITDA | $ | 12,852 | $ | 1,286 | $ | 20,978 | $ | 9,182 | ||||||||
Product recall | — | (212 | ) | — | (212 | ) | ||||||||||
Loss on disposal of property and equipment | 89 | 126 | 151 | 172 | ||||||||||||
Transfer of corporate functions | 475 | — | 2,401 | — | ||||||||||||
Depreciation and amortization | 6,347 | 4,795 | 19,031 | 13,419 | ||||||||||||
Operating income (loss) | $ | 5,941 | $ | (3,423 | ) | $ | (605 | ) | $ | (4,197 | ) | |||||
Interest expense | 6,350 | 6,149 | 18,642 | 18,493 | ||||||||||||
Other income, net | (576 | ) | (432 | ) | (1,812 | ) | (1,413 | ) | ||||||||
Income tax expense (benefit) | 5 | (1,918 | ) | (5,878 | ) | (6,316 | ) | |||||||||
NET INCOME (LOSS) | $ | 162 | $ | (7,222 | ) | $ | (11,557 | ) | $ | (14,961 | ) |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
(in thousands) | October 27, 2017 | October 28, 2016 | October 27, 2017 | October 28, 2016 | ||||||||||||
Depreciation and amortization: | ||||||||||||||||
Direct | $ | 5,747 | $ | 4,027 | $ | 17,015 | $ | 11,097 | ||||||||
Retail | 285 | 408 | 992 | 1,233 | ||||||||||||
Corporate / other | 315 | 360 | 1,024 | 1,089 | ||||||||||||
Total depreciation and amortization | $ | 6,347 | $ | 4,795 | $ | 19,031 | $ | 13,419 |
(in thousands) | October 27, 2017 | October 28, 2016 | January 27, 2017 | |||||||||
Total Assets: | ||||||||||||
Direct | $ | 934,508 | $ | 1,073,975 | $ | 805,201 | ||||||
Retail | 67,965 | 78,373 | 69,792 | |||||||||
Corporate / other | 118,007 | 160,830 | 239,398 | |||||||||
Total assets | $ | 1,120,480 | $ | 1,313,178 | $ | 1,114,391 |
13 Weeks Ended | 39 Weeks Ended | |||||||||||||||
(in thousands) | October 27, 2017 | October 28, 2016 | October 27, 2017 | October 28, 2016 | ||||||||||||
Capital expenditures: | ||||||||||||||||
Direct | $ | 8,791 | $ | 8,041 | $ | 29,004 | $ | 25,804 | ||||||||
Retail | — | 25 | 10 | 279 | ||||||||||||
Corporate / other | 129 | — | 129 | — | ||||||||||||
Total capital expenditures | $ | 8,920 | $ | 8,066 | $ | 29,143 | $ | 26,083 |
NOTE 13. RECENT ACCOUNTING PRONOUNCEMENTS
The Company’s operating segments consist of: U.S. eCommerce, Europe eCommerce, Japan eCommerce, Outfitters, Third Party and Other
Lands’ End identifies 5 separate distribution channels for revenue reporting purposes:
• | U.S. eCommerce offers products through the Company’s eCommerce website utilizing digital marketing and direct mail catalogs. |
• | International offers products primarily to consumers located in Europe and Japan through eCommerce international websites and third-party affiliates. |
• | Outfitters sells uniform and logo apparel to businesses and their employees, as well as to student households through school relationships, located primarily in the U.S., through negotiated arrangements to make specific styles or customized products which are made available for purchase on the Company’s eCommerce websites. |
• | Third Party sells the same products as U.S. eCommerce but direct to consumers through third-party marketplace websites and through domestic wholesale customers. |
• | Retail sells products through Company Operated stores. |
Net revenue is presented by distribution channel in the following table:
|
| 13 Weeks Ended |
|
| 26 Weeks Ended |
| ||||||||||
(in thousands) |
| July 30, 2021 |
|
| July 31, 2020 |
|
| July 30, 2021 |
|
| July 31, 2020 |
| ||||
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. eCommerce |
| $ | 237,618 |
|
| $ | 220,906 |
|
| $ | 441,191 |
|
| $ | 359,743 |
|
International |
|
| 47,819 |
|
|
| 44,187 |
|
|
| 104,263 |
|
|
| 85,386 |
|
Outfitters |
|
| 65,633 |
|
|
| 37,416 |
|
|
| 106,313 |
|
|
| 69,215 |
|
Third Party |
|
| 19,098 |
|
|
| 5,108 |
|
|
| 30,902 |
|
|
| 6,614 |
|
Retail |
|
| 13,941 |
|
|
| 4,466 |
|
|
| 22,737 |
|
|
| 8,133 |
|
Total net revenue |
| $ | 384,109 |
|
| $ | 312,083 |
|
| $ | 705,406 |
|
| $ | 529,091 |
|
NOTE 11. REVENUE
Revenue includes sales of merchandise and recorddelivery revenue related to merchandise sold. Substantially all of the amountCompany's revenue is recognized when control of goodwill impairment asproduct passes to customers, which for the excess of a reporting unit's carrying amount over its fair value, not to exceedeCommerce, Outfitters and Third Party channels is when the total amount of goodwill allocated to the reporting unit, during its annual test for impairmentmerchandise is expected to be conducted asreceived by the customer and for the Retail channel is at the time of sale in the end of Fiscal November 2017.store. The new guidance does not amend the optional qualitative assessment of goodwill impairment.
15
The Company's revenue is disaggregated by distribution channel and geographic location. Revenue by distribution channel is presented in Note 10, Segment Reporting. Revenue by geographic location was:
|
| 13 Weeks Ended |
|
| 26 Weeks Ended |
| ||||||||||
(in thousands) |
| July 30, 2021 |
|
| July 31, 2020 |
|
| July 30, 2021 |
|
| July 31, 2020 |
| ||||
Net revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States |
| $ | 330,890 |
|
| $ | 264,162 |
|
| $ | 591,296 |
|
| $ | 436,906 |
|
Europe |
|
| 38,019 |
|
|
| 32,375 |
|
|
| 84,906 |
|
|
| 62,775 |
|
Asia |
|
| 10,490 |
|
|
| 12,304 |
|
|
| 20,549 |
|
|
| 23,653 |
|
Other |
|
| 4,710 |
|
|
| 3,242 |
|
|
| 8,655 |
|
|
| 5,757 |
|
Total net revenue |
| $ | 384,109 |
|
| $ | 312,083 |
|
| $ | 705,406 |
|
| $ | 529,091 |
|
Contract Liabilities
Contract liabilities consist of payments received in advance of the transfer of control to use more judgmentthe customer. As products are delivered and make more estimates than under today’s guidance. These may include identifying performance obligationscontrol transfers, the Company recognizes the deferred revenue in Net revenue in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. This guidance was deferred by ASU 2015-14,
|
| 13 Weeks Ended |
|
| 26 Weeks Ended |
| ||||||||||
(in thousands) |
| July 30, 2021 |
|
| July 31, 2020 |
|
| July 30, 2021 |
|
| July 31, 2020 |
| ||||
Deferred revenue beginning of period |
| $ | 25,374 |
|
| $ | 15,896 |
|
| $ | 17,187 |
|
| $ | 8,096 |
|
Deferred revenue recognized in period |
|
| (25,160 | ) |
|
| (15,896 | ) |
|
| (16,973 | ) |
|
| (8,096 | ) |
Revenue deferred in period |
|
| 18,141 |
|
|
| 11,901 |
|
|
| 18,141 |
|
|
| 11,901 |
|
Deferred revenue end of period |
| $ | 18,355 |
|
| $ | 11,901 |
|
| $ | 18,355 |
|
| $ | 11,901 |
|
Revenue from gift cards is recognized when (i) the gift card is redeemed by the customer for merchandise, or (ii) as gift card breakage, an estimate of gift cards which will not be redeemed where the Company does not have a legal obligation to remit the value of the unredeemed gift cards to the presentationrelevant jurisdictions. Gift card breakage is recorded within Net revenue in the Condensed Consolidated Statements of Operations. Prior to their redemption, gift cards are recorded as a liability, included within Other current liabilities in the Condensed Consolidated Balance Sheets. The liability is estimated based on expected breakage that considers historical patterns of redemption. The following table provides the reconciliation of the reserve forcontract liability related to gift cards:
|
| 13 Weeks Ended |
|
| 26 Weeks Ended |
| ||||||||||
(in thousands) |
| July 30, 2021 |
|
| July 31, 2020 |
|
| July 30, 2021 |
|
| July 31, 2020 |
| ||||
Balance as of beginning of period |
| $ | 27,466 |
|
| $ | 23,202 |
|
| $ | 26,798 |
|
| $ | 22,592 |
|
Gift cards sold |
|
| 13,949 |
|
|
| 11,104 |
|
|
| 24,996 |
|
|
| 19,935 |
|
Gift cards redeemed |
|
| (12,963 | ) |
|
| (10,587 | ) |
|
| (23,228 | ) |
|
| (18,714 | ) |
Gift card breakage |
|
| (111 | ) |
|
| (68 | ) |
|
| (225 | ) |
|
| (162 | ) |
Balance as of end of period |
| $ | 28,341 |
|
| $ | 23,651 |
|
| $ | 28,341 |
|
| $ | 23,651 |
|
Refund Liabilities
Refund liabilities, primarily associated with product sales returns and retrospective volume rebates, represent variable consideration and are estimated and recorded as a reduction to Net revenue based on historical experience. As of July 30, 2021, July 31, 2020 and January 29, 2021, $17.4 million, $23.2 million and $25.7 million, respectively, of refund liabilities, primarily associated with product returns, were reported in addition to increased disclosures required. The Company is continuing to study the impacts of this standard and its amendments and expects to finalize its evaluationOther current liabilities in the fourth quarter of Fiscal 2017.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the Condensed Consolidated Financial Statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk,risks, uncertainties, and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. See “Cautionary Statements"Cautionary Statement Concerning Forward-Looking Statements”Statements" below, and "Item 1A. Risk Factors" in our Annual Report filed on Form 10-K for the year ended January 27, 2017,29, 2021 and "Part II, Item 1A Risk Factors" of this Quarterly Report on Form 10-Q, for a discussion of the uncertainties, risks and assumptions associated with these statements.
As used in this Quarterly Report on Form 10-Q, references to the “Company”"Company", “Lands' End”"Lands' End", “we”"we", “us”"us", “our”"our" and similar terms refer to Lands' End, Inc., and its subsidiaries. Our fiscal year ends on the Friday preceding the Saturday closest to January 31. Other terms that are commonly used in this Quarterly Report on Form 10-Q are defined as follows:
• | ABL Facility -Asset-based senior secured credit agreements, providing for a revolving facility, dated as of November 16, 2017, with Wells Fargo Bank, N.A. and certain other lenders, as amended to date |
• | CARES Act – The Coronavirus Aid, Relief and Economic Security Act signed into law on March 27, 2020 |
• | Company Operated stores - Lands' End retail stores in the Retail channel |
• | Current Term Loan Facility – Term loan credit agreement, dated as of September 9, 2020, among the Company, Fortress Credit Corp., as Administrative Agent and Collateral Agent, and the lenders party thereto |
• | Debt Facilities - Collectively, the Current Term Loan Facility and ABL Facility |
• | First Quarter 2020 - The 13 weeks ended May 1, 2020 |
• | Fiscal 2022 – The 52 weeks ending January 27, 2023 |
• | Fiscal 2021 – The 52 weeks ending January 28, 2022 |
• | Fiscal 2020 - The 52 weeks ended January 29, 2021 |
• | Fiscal 2019 – The 52 weeks ended January 31, 2020 |
• | Former Term Loan Facility - Term loan credit agreements, dated as of April 4, 2014, with Bank of America, N.A. and certain other lenders, and replaced by the Current Term Loan Facility on September 9, 2020 |
• | GAAP - Accounting principles generally accepted in the United States |
• | LIBOR - London inter-bank offered rate |
• | SEC - United States Securities and Exchange Commission |
• | Second Quarter 2021 – The 13 weeks ended July 30, 2021 |
• | Second Quarter 2020 – The 13 weeks ended July 31, 2020 |
• | Second Quarter 2019 – The 13 weeks ended August 2, 2019 |
• | Third Quarter 2021 – The 13 weeks ending October 29, 2021 |
• | Third Quarter 2020 – The 13 weeks ended October 30, 2020 |
• | Year-to-Date 2021 - The 26 weeks ended July 30, 2021 |
• | Year-to-Date 2020 - The 26 weeks ended July 31, 2020 |
• | Year-to-Date 2019 – The 26 weeks ended August 2, 2019 |
17
Table of April 4, 2014, with Bank of America, N.A. and certain other lenders
Executive Overview
Description of the Company
Lands' End Inc. is a leading multi-channeluni-channel retailer of casual clothing, accessories, footwear and footwear,home products. Operating out of America’s heartland, we believe our vision and values make a strong connection with our core customers. We offer products online at www.landsend.com, on third-party online marketplaces and through our own Company Operated stores, as well as home products. We offer products through catalogs, online at
Lands’ End was founded in 1963 in Chicago by Gary Comer and his partners to sell sailboat hardware and equipment by catalog. While our product focus has shifted significantly over the years, we have continued to adhere to our founder’s motto as one of our guiding principles: “Take"Take care of the customer, take care of the employee and the rest will take care of itself.”
We seek to provide a common customer experience regardless of whether our customers are interacting with us on our company websites, third-party marketplaces, at our Company identifiesOperated stores or other distribution channels.
We have one external reportable segment and identify our operating segments according to how our business activities are managed and evaluated. EachOur operating segments consist of: U.S. eCommerce, Europe eCommerce, Japan eCommerce, Outfitters, Third Party and Retail. We have determined that each of our operating segments share similar economic and other qualitative characteristics, and therefore the Company’sresults of our operating segments are aggregated into one external reportable segment.
Distribution Channels
We identify five separate distribution channels for revenue reporting purposes:
• | U.S. eCommerce offers products through our eCommerce website utilizing digital marketing and direct mail catalogs. |
• | International offers products primarily to consumers located in Europe and Japan through our eCommerce international websites and third-party affiliates. |
• | Outfitters sells uniform and logo apparel to businesses and their employees, as well as to school households through school relationships, located primarily in the U.S., through negotiated arrangements to make specific styles or customized products which are made available for purchase on the Company’s eCommerce websites. |
• | Third Party sells the same products as U.S. eCommerce but direct to consumers through third-party marketplace websites and through domestic wholesale customers. |
• | Retail sells products through our Company Operated stores. |
Impact of the COVID-19 Pandemic
COVID-19 surfaced in late 2019 and in March 2020, the World Health Organization declared COVID-19 a pandemic. The onset of the COVID-19 pandemic had a disruptive impact on our business operations and an unfavorable impact on our results of operations during the first half of Fiscal 2020. During the Second Quarter 2020, we began a significant recovery that continued to build on the momentum experienced before the COVID-19 pandemic. Our strong foundation and ongoing enhancements across the four strategic pillars of product, digital, uni-channel distribution and business unitsprocesses supported us during this COVID-19 pandemic and continues to support the strength of our financial performance and encouraging customer metrics. The COVID-19 pandemic continues to adversely impact us and our supply chain and remains a threat to our workforce.
We continue to believe that offer similar productswe will emerge from these events well positioned for long-term growth, though we cannot reasonably estimate the duration and services but are sold either directlyseverity of this global pandemic or its ultimate impact on the global economy and our business and results.
Health and Safety of our People and Consumers
From the beginning of the COVID-19 pandemic, our priority has been the safety of our employees and customers. On March 16, 2020, we temporarily closed our Company Operated stores. These stores reopened during Second Quarter 2020. Additionally, we opened four new U.S. Company Operated stores in Second Quarter 2020. These new stores were already planned, and construction
18
was underway prior to the start of the COVID-19 pandemic. Since the onset of the COVID-19 pandemic, we have taken extra precautions in our offices and distribution centers, which have varied from time to time based on the then current guidance from global, federal and state health authorities. These measures have included COVID-19 retail guidelines, work from home policies, social distancing, masking, thermal scanning and partitions in all facilities. With the emergence of the delta variant of COVID-19, we have been required to keep these measures in place longer than anticipated.
Supply Chain
The COVID-19 pandemic continues to cause supply chain disruptions across all industries, and we continually monitor our warehouses (Direct)supply chain for manufacturing and transportation delays caused or exacerbated by the COVID-19 pandemic. In the first half of Fiscal 2021, the COVID-19 pandemic impacted our distribution centers, third-party manufacturing partners and logistics partners, including freight capacity, port congestion, other logistics constraints, and closure of certain third-party manufacturing facilities and production lines. These disruptions and constraints resulted in later timing of Spring 2021 inventory receipts and deliveries, as well as higher freight, distribution and other supply chain costs. These disruptions have led, at times, to lower inventory positions and higher than normal back orders, as manufacturing, transport, receipt and stocking of inbound product is delayed. In addition, increased demand for parcel delivery has led to carrier limitations, as well as rate surcharges, throughout the industry, generally, and for the Company, in particular.
We expect these supply chain disruptions and constraints and increases in costs to continue through the balance of Fiscal 2021 and into Fiscal 2022. As a result of these impacts, we anticipate later than expected fall and holiday season inventory receipts and deliveries to our retail stores (Retail).
Expense Reduction
Beginning in First Quarter 2020, we took aggressive actions to reduce overall expenses as a response to decreased customer demand due to the COVID-19 pandemic. We reduced our operating expenses and structural costs by enacting employee furloughs, and temporary tiered salary reductions for the executive team and corporate staff. In addition, other discretionary operating expenses and planned capital expenditures for Fiscal 2020 were significantly reduced. As the COVID-19 pandemic continues and new variants emerge, we will continue to monitor the impact of the COVID-19 pandemic to manage overall expenses.
Basis of Presentation
The Condensed Consolidated Financial Statements have been prepared in accordance with GAAP and include the accounts of Lands' End, Inc., and its subsidiaries. All intercompany transactions and balances have been eliminated.
Seasonality
We experience seasonal fluctuations in our Netnet revenue and operating results and historically have realized a significant portion of our net salesrevenue and earnings for the year during our fourth fiscal quarter. We generated an average of 33%37.7% and 37.9% of our Netnet revenue in the fourth fiscal quarter of the past three years.Fiscal 2020 and Fiscal 2019 respectively. Thus, lower than expected fourth quarter Netnet revenue could have an adverse impact on our annual operating results.
Working capital requirements typically increase during the second and third quarterquarters of the fiscal year as inventory builds to support peak shipping/selling periodperiods and, accordingly, typically decrease during the fourth quarter of the fiscal year as inventory is shipped/sold. Cash provided by operating activities is typically higher in the fourth quarter of the fiscal year due to reduced working capital requirements during that period.
The following table sets forth, for the periods indicated, selected income statement data:
|
| 13 Weeks Ended |
| |||||||||||||
|
| July 30, 2021 |
|
| July 31, 2020 |
| ||||||||||
(in thousands) |
| $'s |
|
| % of Net revenue |
|
| $’s |
|
| % of Net revenue |
| ||||
Net revenue |
| $ | 384,109 |
|
|
| 100.0 | % |
| $ | 312,083 |
|
|
| 100.0 | % |
Cost of sales (excluding depreciation and amortization) |
|
| 206,320 |
|
|
| 53.7 | % |
|
| 176,661 |
|
|
| 56.6 | % |
Gross profit |
|
| 177,789 |
|
|
| 46.3 | % |
|
| 135,422 |
|
|
| 43.4 | % |
Selling and administrative |
|
| 136,649 |
|
|
| 35.6 | % |
|
| 111,478 |
|
|
| 35.7 | % |
Depreciation and amortization |
|
| 9,791 |
|
|
| 2.5 | % |
|
| 9,378 |
|
|
| 3.0 | % |
Other operating expense, net |
|
| — |
|
|
| — | % |
|
| 3,373 |
|
|
| 1.1 | % |
Operating income |
|
| 31,349 |
|
|
| 8.2 | % |
|
| 11,193 |
|
|
| 3.6 | % |
Interest expense |
|
| 8,837 |
|
|
| 2.3 | % |
|
| 4,916 |
|
|
| 1.6 | % |
Other (income) expense, net |
|
| (123 | ) |
|
| (0.0 | )% |
|
| 1,333 |
|
|
| 0.4 | % |
Income before income taxes |
|
| 22,635 |
|
|
| 5.9 | % |
|
| 4,944 |
|
|
| 1.6 | % |
Income tax expense |
|
| 6,414 |
|
|
| 1.7 | % |
|
| 568 |
|
|
| 0.2 | % |
NET INCOME |
| $ | 16,221 |
|
|
| 4.2 | % |
| $ | 4,376 |
|
|
| 1.4 | % |
|
| 26 Weeks Ended |
| |||||||||||||
|
| July 30, 2021 |
|
| July 31, 2020 |
| ||||||||||
(in thousands) |
| $'s |
|
| % of Net revenue |
|
| $’s |
|
| % of Net revenue |
| ||||
Net revenue |
| $ | 705,406 |
|
|
| 100.0 | % |
| $ | 529,091 |
|
|
| 100.0 | % |
Cost of sales (excluding depreciation and amortization) |
|
| 379,880 |
|
|
| 53.9 | % |
|
| 299,514 |
|
|
| 56.6 | % |
Gross profit |
|
| 325,526 |
|
|
| 46.1 | % |
|
| 229,577 |
|
|
| 43.4 | % |
Selling and administrative |
|
| 262,171 |
|
|
| 37.2 | % |
|
| 217,276 |
|
|
| 41.1 | % |
Depreciation and amortization |
|
| 19,695 |
|
|
| 2.8 | % |
|
| 18,164 |
|
|
| 3.4 | % |
Other operating expense, net |
|
| 443 |
|
|
| (0.0 | )% |
|
| 7,656 |
|
|
| 1.4 | % |
Operating income (loss) |
|
| 43,217 |
|
|
| 6.1 | % |
|
| (13,519 | ) |
|
| (2.6 | )% |
Interest expense |
|
| 17,897 |
|
|
| 2.5 | % |
|
| 10,227 |
|
|
| 1.9 | % |
Other (income) expense, net |
|
| (290 | ) |
|
| (0.0 | )% |
|
| 1,160 |
|
|
| 0.2 | % |
Income (loss) before income taxes |
|
| 25,610 |
|
|
| 3.6 | % |
|
| (24,906 | ) |
|
| (4.7 | )% |
Income tax expense (benefit) |
|
| 6,750 |
|
|
| 0.9 | % |
|
| (8,639 | ) |
|
| (1.6 | )% |
NET INCOME (LOSS) |
| $ | 18,860 |
|
|
| 2.7 | % |
| $ | (16,267 | ) |
|
| (3.1 | )% |
13 Weeks Ended | ||||||||||||||
October 27, 2017 | October 28, 2016 | |||||||||||||
(in thousands) | $'s | % of Net revenue | $’s | % of Net revenue | ||||||||||
Net revenue | $ | 325,489 | 100.0 | % | $ | 311,476 | 100.0 | % | ||||||
Cost of sales (excluding depreciation and amortization) | 183,515 | 56.4 | % | 177,825 | 57.1 | % | ||||||||
Gross profit | 141,974 | 43.6 | % | 133,651 | 42.9 | % | ||||||||
Selling and administrative | 129,122 | 39.7 | % | 132,365 | 42.5 | % | ||||||||
Depreciation and amortization | 6,347 | 1.9 | % | 4,795 | 1.5 | % | ||||||||
Other operating expense (income), net | 564 | 0.2 | % | (86 | ) | — | % | |||||||
Operating income (loss) | 5,941 | 1.8 | % | (3,423 | ) | (1.1 | )% | |||||||
Interest expense | 6,350 | 2.0 | % | 6,149 | 2.0 | % | ||||||||
Other income, net | (576 | ) | (0.2 | )% | (432 | ) | (0.1 | )% | ||||||
Income (loss) before income taxes | 167 | 0.1 | % | (9,140 | ) | (2.9 | )% | |||||||
Income tax expense (benefit) | 5 | — | % | (1,918 | ) | (0.6 | )% | |||||||
NET INCOME (LOSS) | $ | 162 | — | % | $ | (7,222 | ) | (2.3 | )% |
39 Weeks Ended | ||||||||||||||
October 27, 2017 | October 28, 2016 | |||||||||||||
(in thousands) | $’s | % of Net revenue | $’s | % of Net revenue | ||||||||||
Net revenue | $ | 896,044 | 100.0 | % | $ | 876,919 | 100.0 | % | ||||||
Cost of sales (excluding depreciation and amortization) | 497,262 | 55.5 | % | 477,446 | 54.4 | % | ||||||||
Gross profit | 398,782 | 44.5 | % | 399,473 | 45.6 | % | ||||||||
Selling and administrative | 377,804 | 42.2 | % | 390,291 | 44.5 | % | ||||||||
Depreciation and amortization | 19,031 | 2.1 | % | 13,419 | 1.5 | % | ||||||||
Other operating expense (income), net | 2,552 | 0.3 | % | (40 | ) | — | % | |||||||
Operating loss | (605 | ) | (0.1 | )% | (4,197 | ) | (0.5 | )% | ||||||
Interest expense | 18,642 | 2.1 | % | 18,493 | 2.1 | % | ||||||||
Other income, net | (1,812 | ) | (0.2 | )% | (1,413 | ) | (0.2 | )% | ||||||
Loss before income taxes | (17,435 | ) | (1.9 | )% | (21,277 | ) | (2.4 | )% | ||||||
Income tax benefit | (5,878 | ) | (0.7 | )% | (6,316 | ) | (0.7 | )% | ||||||
NET LOSS | $ | (11,557 | ) | (1.3 | )% | $ | (14,961 | ) | (1.7 | )% |
Depreciation and amortization isare not included in our cost of sales because we are a reseller of inventory and do not believe that including depreciation and amortization is meaningful. As a result, our gross margins may not be comparable to other entities that include depreciation and amortization related to the sale of their product in their gross margin measure.
Net Income (Loss) and Adjusted EBITDA
We recorded Net income of $0.2$16.2 million in ThirdSecond Quarter 20172021 compared to a Net lossincome of $7.2$4.4 million in Thirdthe Second Quarter 2016.2020. In addition to our Net income (loss) determined in accordance with GAAP, for purposes of evaluating operating performance, we use an Adjusted EBITDA measurement.metric. Adjusted EBITDA is computed as Net income (loss) appearing on the Condensed Consolidated Statements of Operations net of Income tax expense expense/(benefit), Other income, net, Interest expense, Depreciation and amortization and certain significant items as set forth below. Our management uses Adjusted EBITDA to evaluate the operating performance of our businesses,business for comparable periods, and as well asa basis for an executive compensation metrics, formetric. The methods used by us to calculate our non-GAAP financial measures may differ significantly from methods used by other companies to compute similar measures. As a result, any non-GAAP financial measures presented herein may not be comparable periods.to similar measures provided by other companies. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items.
20
While Adjusted EBITDA is a non-GAAP measurement, management believes that it is an important indicator of operating performance, and is useful to investors, because:
• | EBITDA excludes the effects of financings, investing activities and tax structure by eliminating the effects of interest, depreciation and income tax. |
• | Other significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate effect in a given period, which affects • Corporate restructuring – corporate restructuring actions and activities including severance for the reduction in corporate positions for the 13 weeks and 26 weeks ended July 31, 2020. • Goodwill and long-lived asset impairment – charges associated with • Other – amortization of transaction related costs associated with Third Party channel for the 13 weeks and 26 weeks ended July 30, 2021. • Loss on 13 Weeks Ended July 30, 2021 July 31, 2020 (in thousands) $’s % of Net revenue $’s % of Net revenue Net income $ 16,221 4.2 % $ 4,376 1.4 % Income tax expense 6,414 1.7 % 568 0.2 % Other (income) expense, net (123 ) (0.0 )% 1,333 0.4 % Interest expense 8,837 2.3 % 4,916 1.6 % Operating income 31,349 8.2 % 11,193 3.6 % Depreciation and amortization 9,791 2.5 % 9,378 3.0 % Corporate restructuring — — % 2,925 0.9 % Goodwill and long-lived asset impairment — — % 400 0.1 % Other 250 0.1 % — — % Loss on property and equipment — — % 48 0.0 % Adjusted EBITDA $ 41,390 10.8 % $ 23,944 7.7 % 26 Weeks Ended July 30, 2021 July 31, 2020 (in thousands) $’s % of Net revenue $’s % of Net revenue Net income (loss) $ 18,860 2.7 % $ (16,267 ) (3.1 )% Income tax expense (benefit) 6,750 0.9 % (8,639 ) (1.6 )% Other (income) expense, net (290 ) (0.0 )% 1,160 0.2 % Interest expense 17,897 2.5 % 10,227 1.9 % Operating income (loss) 43,217 6.1 % (13,519 ) (2.6 )% Depreciation and amortization 19,695 2.8 % 18,164 3.4 % Corporate restructuring — — % 2,925 0.6 % Goodwill and long-lived asset impairment — — % 3,844 0.7 % Other 500 0.1 % — — % Loss on property and equipment 443 0.1 % 887 0.2 % Adjusted EBITDA $ 63,855 9.1 % $ 12,301 2.3 % 21 In assessing the operational performance of our business, we consider a variety of financial measures. We operate in To evaluate revenue performance for the Discussion and Analysis Second Quarter Due to the impact of the COVID-19 pandemic on our financial operating results during the Second Quarter 2020, we also have included select comparisons to Second Quarter 2019 as management believes such comparisons are relevant to rate of recovery during the COVID-19 pandemic and performance of our business. Net Revenue Net revenue for U.S. eCommerce Net revenue was $237.6 million for Second Quarter 2021, an increase of $16.7 million or 7.6%, from $220.9 million during the Second Quarter 2020, and an increase of $62.5 million or 35.7% from $175.1 million during the Second Quarter 2019. The increase in revenue in Second Quarter 2021 was primarily driven by stronger website traffic and a higher average order value as customers continued to react positively to the product assortments and digital capabilities, which drove a year over year increase in our new customers acquired and our overall customer file. International eCommerce Net revenue was $47.8 million for Second Quarter 2021, an increase of $3.6 million or 8.2%, from $44.2 million during the Second Quarter 2020, and an increase of $7.4 million or 18.3% from $40.4 million during the Second Quarter 2019. These increases in revenue were primarily driven by implementing U.S. eCommerce initiatives in Europe eCommerce which resulted in stronger demand as customers reacted positively to the product assortments and digital capabilities, which drove a year over year increase in our new customers acquired and overall customer file. Outfitters Net revenue was $65.6 million for Second Quarter 2021, an increase of $28.2 million or 75.4%, from $37.4 million during the Second Quarter 2020, and an increase of $0.1 million or 0.2% from $65.5 million during the Second Quarter 2019. Compared to the Second Quarter 2020, the increase was primarily attributed to stronger demand within our travel-related national accounts and school uniforms as households roughly recovered to prior Third Party Net revenue was $19.1 million for Second Quarter 2021, an increase of $14.0 million Retail Net revenue was $14.0 in Second Quarter 2021, an increase of $9.5 million or 211.1% from $4.5 million during Second Quarter 2020, and a decrease of $0.2 million or 1.4% from $14.2 million during Second Quarter 2019. Compared to Second Quarter 2020, the increase was attributed to the stores being closed for a portion of Second Quarter 2020 and an increase in Gross Profit Gross profit was $177.8 million for Second Quarter 2021, an increase of $42.4 million or 31.3% from $135.4 million during the Second Quarter of 2020. Gross margin increased 22 Compared to Second Quarter 2020, gross margin increased Selling and Administrative Expenses Selling and administrative expenses increased $25.1 million to $136.6 million or 35.6% of total Net revenue in Depreciation and Amortization Depreciation and amortization expense was Other Operating Expense Other operating expense, net was Operating Income Operating income was $31.3 million in Second Quarter 2021 compared to Interest Expense Interest expense was $8.8 million in Second Quarter 2021 compared to $4.9 million in Second Quarter 2020. The $3.9 million increase was primarily attributed to higher interest rates associated with the Other Income Other income was Income Tax Expense We recorded income tax expense Net Income As a result of the above factors, Net income was Adjusted EBITDA As a result of the above factors, Adjusted EBITDA 23 Year-to-Date 2021 compared with Due to Net Revenue Net revenue for U.S. eCommerce Net revenue was $441.2 million for Year-to-Date 2021, an increase International eCommerce Net revenue was $104.2 million for Year-to-Date 2021, an increase of Outfitters Net revenue was $106.3 million for Year-to-Date 2021, an increase of $37.1 million or 53.6%, from $69.2 million during the Year-to-Date 2020, and a decrease of $2.2 million or 2.0% from $108.5 million during the Year-to-Date 2019. Compared to the Year-to-Date 2020, the increase was primarily attributed to stronger demand within our travel-related national accounts and school uniforms as households roughly recovered to prior back-to-school shopping patterns, with a slower recovery in our Third Party Net revenue Retail Net revenue was Gross Profit Gross profit was $325.5 million for Year-to-Date 2021, an increase of $95.9 million or 41.8% from $229.6 million during the Year-to-Date of 2020. Gross margin increased to 46.2% in Year-to-Date 2021, compared with 43.4% in Year-to-Date 2020. Compared to Year-to-Date 2020, gross margin increased due to merchandise margin expansion in the U.S. eCommerce channel driven by enhanced promotional strategies and continued use of analytics for both our pricing and inventory management, offset by Selling and Selling and Depreciation and amortization expense was Other Operating Expense Other operating expense, Operating Income (Loss) Operating income was $43.2 million in Year-to-Date 2021 compared to Operating loss of $13.5 million in Year-to-Date 2020. The increase was driven by the increase in Gross profit from the increased revenue and improved margins over Year-to-Date 2020 partially offset by higher selling and administrative expenses. Interest Expense Interest expense was $17.9 million in Year-to-Date 2021 compared to $10.2 million in Year-to-Date 2020. The $7.7 million increase was primarily attributed to higher interest rates associated with the Other Income Other income was $0.3 million in Income Tax Expense (Benefit) We recorded income tax expense at an overall effective tax rate of 26.4% for Year-to-Date 2021 and an income tax benefit of 34.7% for Year-to-Date 2020. The Year-to-Date 2021 rate is lower than Year-to-Date 2020 primarily due to Net Income As a result of the above factors, Net Adjusted EBITDA As a result of the above factors, Adjusted EBITDA Liquidity and Capital Resources Our primary need for liquidity is to fund working capital requirements of our business, capital expenditures, debt service and for general corporate purposes. Our cash and cash equivalents and the 25 Description of Material Indebtedness Debt Arrangements Our $275.0 million revolving ABL Facility During Fiscal 2020, we exercised the “accordion” feature under the ABL Facility increasing the maximum borrowings available under the facility from $175.0 million to $275.0 million, subject to a borrowing base (the “Loan Cap”). This was completed in two separate transactions. The first was a $25.0 million increase effective March 19, 2020 and the second was a $75.0 million increase effective September 9, 2020. The latter was completed through the Second Amendment to the ABL Facility executed on August 12, 2020. On July 29, 2021, we executed the Third Amendment to the ABL Facility resulting in favorable financial terms compared to the Second Amendment to the ABL Facility and extension of the On September 9, 2020, we entered into the Current Term Loan Facility which provides a term loan facility of $275.0 million, the proceeds of which were used, along with borrowings of $125.0 million under our ABL Facility, to repay all the indebtedness under the Former Term Loan Facility and pay fees and expenses in connection with the Interest; Fees Between September 9, 2020 and July 30, 2021, the ABL Facility provided that for LIBOR loans, the interest rate was LIBOR (subject to an interest rate floor of 0.75%) plus a borrowing margin which was, where the average daily total loans outstanding for the previous quarter were (i) less than $50.0 million, 1.75%, (ii) equal to or greater than $50.0 million but less than $100.0 million, 2.00%, (iii) equal to or greater than $100.0 million but less than $200.0 million, 2.25%, and (iv) greater than $200.0 million, 3.50%. For Base Rate loans, the borrowing margin was, where the average daily total loans outstanding for the previous quarter were (i) less than $50.0 million for the previous quarter, 1.00%, (ii) equal to or greater than $50.0 million but less than $100.0 million, 1.25%, (iii) equal to or greater than $100.0 million but less than $200.0 million, 1.50%, and (iv) greater than $200.0 million, 2.75%. Pursuant to the Third Amendment of the The interest rates per annum applicable to the loans under the Current Term Loan Facility are based on a fluctuating rate of interest measured by reference to, at the borrower’s election, either (1) an adjusted LIBOR (with a minimum rate of 1.00%) plus 9.75% or (2) an alternative base rate (which is the greater of (i) the prime rate published in the Wall Street Journal, (ii) the federal funds rate, which shall be no lower than 0.00% plus ½ of 1.00%, and (iii) the one month LIBOR rate plus 1.00% per annum) plus 8.75%. Pursuant to theSecond Amendment to the ABL Facility, the ABL Facility fees also included (i) commitment fees which range from 0.25% to 0.375% based upon the average daily unused commitment (aggregate commitment less loans and letter of credit outstanding) under the ABL Facility for the preceding fiscal quarter and (ii) customary letter of credit fees. Effective with the Third Amendment to the ABL Facility, the Customary agency fees are payable in respect of the Debt Facilities. 26 Maturity; Amortization and Prepayments The Third Amendment to the ABL Facility The Current Term Loan Facility matures on Guarantees; Security All The Current Term Loan Facility The Former Term Loan Facility, which was replaced by the Current Term Loan Facility on September 9, 2020, had the same priority security interest in the same Representations and Warranties; Subject to specified exceptions, the Debt Facilities The Current Term Loan Facility contains certain financial covenants, including a quarterly maximum total leverage ratio test, a weekly minimum liquidity test and an annual maximum capital expenditure amount. Under the ABL Facility, if excess availability Effective with the Second Amendment to the ABL Facility, the ABL Facility had a cash maintenance provision which applied a limit of $75.0 million on the amount of cash and cash equivalents (subject to certain exceptions) that we could hold when outstanding loans under the ABL Facility equaled or exceeded $125.0 million. The Third Amendment to the ABL Facility eliminated this cash maintenance provision. The Debt Facilities contain certain affirmative covenants, including reporting requirements such as delivery of financial statements, certificates and As of July 30, 2021, we were in compliance with all Events of Default The Debt Facilities Net cash provided by operating activities Cash Flows from Investing Activities Net cash used in investing activities was For Fiscal Cash Flows from Financing Activities Net cash used Contractual Obligations and Off-Balance-Sheet Arrangements There have been no material changes to our contractual obligations and off-balance-sheet arrangements as discussed in our Annual Report on Form 10-K for the fiscal year ended January Financial Instruments with Off-Balance-Sheet Risk The $275.0 million ABL Facility Application of Critical Accounting Policies and Estimates We believe that the assumptions and estimates associated with revenue, inventory valuation, goodwill and intangible asset impairment assessments and income taxes have the greatest potential impact on our financial statements. Therefore, we consider these to be our critical accounting policies and estimates. For a complete discussion of our critical accounting policies, Recent Accounting Pronouncements See Part I, Item 1, Note CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION This document contains forward-looking statements. Forward-looking statements ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risk inherent in our financial instruments represents the potential loss arising from adverse changes in currency rates. A significant portion of our business is transacted in U.S. dollars, and is expected to continue to be transacted in U.S. dollars or U.S. dollar-based currencies. As of We are subject to interest rate risk with the Current Term Loan Facility and the ITEM 4. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Based on their evaluation for the period covered by this Quarterly Report on Form 10-Q, Lands’ End’s Chief Executive Officer and President and Changes in Internal Control over Financial Reporting There have been no changes in the Company's internal PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is party to various claims, legal proceedings and investigations arising in the ordinary course of business. Some of these actions involve complex factual and legal issues and are subject to uncertainties. At this time, the Company is not able to either predict the outcome of these legal proceedings or reasonably estimate a potential range of loss with respect to the proceedings. While it is not feasible to predict the outcome of pending claims, proceedings and investigations with certainty, management is of the opinion that their ultimate resolution should not have a material adverse effect on our results of operations, cash flows or financial For a description of our legal proceedings, see Note 9, Commitments and Contingencies in Notes to Condensed Consolidated Financial Statements ITEM 1A. RISK FACTORS There have been no material changes to the risk factors disclosed in Index of Exhibits ITEM 6. EXHIBITS The following documents are filed as exhibits to this report:
33 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Lands’ End, Inc. (Registrant) Dated: September 2, 2021
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