Lands' End Revenue Miss Sends Shares Up 15%

Lands' End Revenue Missed But That’s Not The Real Story 

Lands' End (LE) reported Q3 results this morning and missed the consensus estimate for revenue by -0.25%. Despite the miss, shares of the stock are up more than 13% in early trading and show signs of extending those gains in future sessions. The reason for the move is simple, Lands' End management has been working on a series of strategic initiatives to improve profitability and their efforts are paying off.

Revenue for the quarter fell -0.5% YOY but earnings per share were well above expectations. On a GAAP basis, EPS of $0.11 per share beat expectations by $0.03 and reversed losses seen earlier this year. On a YOY basis, EPS is up by $0.01 per share.

EPS growth can be attributed to more than one of the company’s initiatives including a more disciplined approach to marketing. The savings helped drive a 100 basis point improvement in gross margins.

On an adjusted basis revenue would have risen 4.7% YOY. The adjustment is for Sears. With Sears closing down there are now 89 fewer Lands' End Shop At Sears locations. That affected net revenue by $17.0 million.

Jerome S. Griffith, Chief Executive Officer, and President said this in the press release

“We were pleased to have delivered strong financial results for the third quarter as gross margin expansion and expense management enabled us to achieve Adjusted EBITDA growth of approximately 20%.”

The Outlook For Growth Is Positive

The news that sparked the rally is the company’s guidance. Guidance for the full year has been increased on a both a net-income and EPS basis. Lands' End cites strength in the eCommerce segment, a segment of focus in management’s quest for growth.

Ecommerce grew 7.4% in the 3rd quarter and is expected to continue growing at a high-single-digit rate for the foreseeable future. Growth in the eCommerce segment is driven by the rising demand for core items, a phenomenon seen at most other merchants making gains with online retail. Demand at Lands' End is seen in the high-single-digit increase in eCommerce customer acquisitions as well as the 8.3% increase in company-owned comp-store sales.

Jerome S. Griffith, Chief Executive Officer, and President

“our transitional product resonated with customers and sales trends improved as the colder weather arrived …  Looking ahead, our growth strategies remain centered on delivering a product with a purpose, operating as a digitally-led company, executing a uni-channel strategy and improving business processes and infrastructure. Overall, we are pleased with our progress and remain on track to achieve our long-term financial targets.”

The company is well-positioned for the holiday season, something I’ve heard from other retailers. Lands' End has plenty of inventory, demand for its products, and plenty of free cash. Inventories are up $65 million over last year, partly in response to a large order from American Airlines and in part to front-run tariffs. Total cash on hand fell 90% on a YOY basis but can be explained by the increase of inventory and reduction of debt. Total long-term debt has been reduced by 25% leaving ample room for borrowing when and if needed.

The Technical Outlook; Reversal In Progress

The technical outlook for shares of Lands' End is bullish. Mostly because it looks like a major reversal in prices is underway. The stock price jumped more than 15% after the release of 3rd quarter earnings and formed a very large candle. The candle and its jump from the short-term moving average confirm support at the $10 level, a level that has provided support in the past, but do not guarantee prices will continue to move higher. While support at the $10 level looks strong this stock has not truly confirmed reversal yet. Resistance remains at the $14 level, a break above that would be a buy signal.