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Hello, and welcome, everyone, joining today's Lands' End First Quarter Fiscal 2026 Enhanced Earnings Call. Operator instructions were provided. Please note, this call is being recorded. It is now my pleasure to turn the meeting over to Tom Altholz. Please go ahead.
Good morning, and thank you for joining our First Quarter Fiscal 2026 Enhanced Earnings Conference Call. In addition to our financial results, we will discuss our forward-looking strategy and financial outlook following the closing of our joint venture transaction with WHP Global. This morning's news release and an accompanying investor presentation can be found on our website, landsend.com. I'm Tom Altholz, Lands' End's Senior Director of Financial Planning and Analysis, and I'm pleased to join you today with Andrew McLean, our Chief Executive Officer; and Bernie McCracken, our Chief Financial Officer. After the prepared remarks, we will conduct a question-and-answer session. Please also note that the information we're about to discuss includes forward-looking statements. Such statements involve risks and uncertainties. The company's actual results could differ materially from those discussed on this call. Factors that could contribute to such differences include, but are not limited to, those items noted and included in the company's SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q and in the slides which accompany this webcast and can be found on our Investor Relations website. The forward-looking information that is provided by the company on this call represents the company's outlook as of today, and we do not undertake any obligation to update forward-looking statements made by us. Subsequent events and developments may cause the company's outlook to change. In addition, our comments also present illustrative examples of potential outcomes related to our joint venture. There can be no assurance that such examples will occur or that the joint venture will deliver the hypothetical results presented. During this call, we will be referring to non-GAAP measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release issued earlier today, a copy of which is posted in the Investor Relations section of our website at landsend.com. With that, I'll turn the call over to Andrew.
Thank you, Tom. Good morning, everyone. I'll begin by noting that as we previewed last quarter, today's call will cover both our Q1 earnings as well as a more comprehensive discussion of our strategic priorities and the significant opportunities ahead. After our quarterly results, we will provide an overview of the joint venture transaction with WHP Global, which closed on April 1, our post-transaction operating model, including the key growth drivers behind it, our financial outlook for Q2, and full year 2026 as well as 3-year targets and the potential value creation opportunities the joint venture unlocks. We'll discuss more shortly, but at a high level, it's helpful to note that the creation of the joint venture marked a genuine inflection point for our business. By changing the structure of our business, we believe that we have enhanced the character of Lands' End as an investment and enhanced the prospects for this iconic American brand and company. We entered this new chapter with momentum. We closed fiscal 2025 with a return to top line growth in the fourth quarter. For the full year, we expanded gross margin, grew adjusted EBITDA and more than doubled adjusted net income, building a strong foundation for what comes next. Because of the many changes to our business on today's call, we will provide you with a clear picture of what to expect from the company. And then, of course, we'll look forward to your questions. With that, let me touch on some highlights from the first quarter. As we look at the first quarter, the most important takeaway is that underlying demand for the Lands' End brand continued to strengthen. Consumer traffic was up double digits, new customer acquisitions improved and Outfitters entered the year with a growing order book that reinforces our confidence in the business. While our reported results were affected by the temporary operational disruption tied to our U.S. distribution center upgrades, which delayed shipments, and therefore, muted sales, the underlying sales performance of the business was stronger than the headline numbers suggest. Absent those issues, we had the orders needed to drive positive sales comps for the company. Europe provides a particularly clear proof point. In that business, where distribution centers were not an issue, we delivered strong double-digit revenue growth, confirming that our product merchandising resonated with customers. Importantly, the backlog that built to roughly one week of demand has now been cleared. We are back to operating in a steady state, and we are already beginning to capture efficiency gains that should improve delivery speed, elevate the customer experience and support stronger execution as we move through the year. Despite the operational challenges in the first quarter, we saw year-over-year improvement in both adjusted net income and adjusted earnings per share. A primary driver of that improvement was lower interest expense following repayment of the term loan in the quarter. And we have seen that momentum continue into the second quarter. Q2 has started off well with positive revenue comps and ongoing new customer growth through and now post the important Memorial Day period, led by key categories, including swim, totes and men's. There are, of course, a few factors that make the first quarter more complex to read on the surface. We repositioned parts of our marketplace business to prioritize profitability over lower-quality revenue, and that decision weighed on top line growth in the quarter, even as it improved the quality of our sales and flow-through of profitability. We also completed the creation of our joint venture with WHP Global during the quarter, an important strategic milestone that changes how certain elements of our P&L are presented. Gross margin now reflects the additional cost of royalty payments under the license structure. Licensing royalty revenue is no longer reflected in our reported revenue and the benefit of our 50% share of JV profits is reflected in adjusted EBITDA. At the same time, elimination of our term loan materially lowers interest expense. Bernie will walk through these changes later in our call. Another factor affecting the quarter was tariffs. We continue to manage through that pressure, including booking at the higher rate currently in effect, while policy remains uncertain. Even with that headwind, we see encouraging evidence that the underlying margin structure of the business is improving. When we put it all together, our view is clear: fiscal 2026 is positioned to deliver positive revenue growth. Our customer file is expanding with strength in younger cohorts, underlying merchandise margins are improving before the impact of tariffs and royalties and our operational footing is getting stronger. Just as important, we are guiding our adjusted EBITDA to grow versus 2025 on a like-for-like basis with further upside based on WHP Global unlocking more licensing value from the Lands' End brand. That is why we remain optimistic, energized and confident in the path ahead. Those themes show up clearly when we look at the first quarter across our businesses. Our core franchises continue to resonate. Customer engagement improved and each part of the portfolio offers useful evidence that the strategic work underway is strengthening the foundation of the company. Turning to our U.S. consumer business. Our solutions-based products and franchises continue to resonate as the reliable anchors of the business. Women's apparel and swim delivered positive comps in the first quarter, driven by product and fit improvements that are also showing up in lower return rates, a testament to the success of our solution strategy and our product and merchandising teams. Swim also continues to benefit from our separate strategy and UPF 50 franchise. Continuing a theme we've seen build over the past several years, totes were a standout, driving revenue and bringing new customers into the brand. The strong response to newness in the assortment, including our Canvas Dog Tote Carrier, reinforces our view that totes remain both a meaningful growth category and a powerful expression of the brand. And to put a finer point on it, there is no category that better showcases the strength of our embroidery and personalization offering. From an overall product perspective, heading into Q2, we feel good about the assortment and the print and color stories we have in place. Our new CMO, Sarah Sylvester, who joined in March, is already having a stellar impact, building on the success of our focus to better market the brand and reach new customers. New-to-brand customer acquisition was up low single digits in the quarter over last year, proof that we are continuing to convert new customers. Social followership continued to increase by more than 30% year-over-year, and traffic was up mid-teens across U.S. digital channels with every channel showing growth. In addition to adding new customers, our product-led solutions-based approach continued to win across multigenerational customer segments. We are also continuing to lean into experiential marketing. Recent swim-focused activations and our plans for another Nantucket pop-up build on the success we had there last year. These efforts are designed to put the brand in front of new customers in high-affinity environments with one of our most important categories. In third-party marketplaces, we deliberately pulled back on promotional activity to prioritize profitability. Amazon performed well, and we remain focused on making our key items bigger on the platform. At Nordstrom, more full-price selling in the quarter reinforces how we want the brand to be positioned in a premium retail environment. Our European business had a strong first quarter, and the top and bottom line results reflect disciplined execution. The strategic shift to a franchise-first assortment simplifies the business, improves inventory efficiency and ensures our strongest programs anchor the range. Our focus on newness and solutions-based products resonated with our customers when they were ready to buy early in the season. Investment in a more localized consumer experience, European photography, more locally relevant content, resonated with customers. We also launched a charity tote collaboration with four prominent London-based designers to reimagine our signature canvas tote ahead of London Fashion Week, a brand moment that reinforced our relevance with a new and influential audience. Turning to our business-to-business offering, Lands' End Outfitters. Outfitters had a strong quarter with demand led by national accounts, specifically our airline accounts, a channel where we have demonstrated expertise and leadership in meeting clients' exacting requirements. In schools, the timing of promotional activity shifted in the quarter, and we pulled back in February and April. We view this as a timing dynamic, not a demand issue, and expect a portion of that volume to come back in Q2. Importantly, the pipeline remains healthy. Overall, underlying demand in our Outfitters business is strong. The pipeline is growing, and we see identifiable opportunities ahead in Q2 and beyond. I'll now turn it over to Bernie to discuss our first quarter performance in more detail.
Thank you, Andrew. For the first quarter, total revenue was $239 million, a decrease of 9% compared to Q1 2025. That result was driven primarily by the temporary disruption associated with the rollout of our new warehouse management system and the deliberate pacing of shipments as we ramped our distribution centers back to normal capacity. Importantly, that disruption was timing related rather than demand related. And excluding its impact, we would have expected low single-digit revenue growth in the quarter. We delivered adjusted EBITDA of negative $6 million, down $16 million from the prior year, reflecting the shipment timing disruption, the effect of the new royalty structure following the WHP Global transaction and continued tariff pressure. Our U.S. e-commerce business decreased 10% compared to Q1 2025, reflecting the temporary disruption tied to the rollout of our new warehouse management system across our distribution centers. That issue is behind us, and we expect to return to positive comps in Q2. Sales from Lands' End Outfitters decreased 10% from Q1 2025, while Outfitters results were also affected by the distribution center upgrades. Absent those issues, we would have had positive sales comps, and we continue to feel good about the underlying demand environment, the order book and the pipeline heading into the balance of the year. Third-party marketplace revenue decreased 6%. The decline was mainly driven by a strategic focus on higher-margin, higher-quality sales, prioritizing brand integrity over lower-value promotion-driven volume. Performance on Amazon remained solid, and we were encouraged by the level of full-price selling in premium environments such as Nordstrom. As a result, while this strategy weighed on reported revenue, it improved the quality of the business and supports healthier margin flow-through over time. In our European e-commerce business, our transformation work is continuing. Sales grew 15% versus last year and profitability improved with gross margin increasing approximately 70 basis points in the first quarter. Gross profit in the first quarter decreased 16% versus the prior year, and gross margin was down approximately 410 basis points year-over-year. That decline was driven principally by the deleverage created by the temporary distribution center disruption, the new royalty structure associated with the WHP Global joint venture and continued tariff headwinds. At the same time, the underlying merchandise margin of the business remained healthy, supported by our solutions-focused merchandising strategy, disciplined promotional posture and better product mix. SG&A increased $3 million year-over-year and as a percentage of net revenue increased approximately 570 basis points. This reflected a combination of the fixed cost deleverage from lower reported revenue and the ongoing investment in marketing and brand building. Adjusted net loss for the quarter was $4 million or $0.11 per share compared to adjusted net income of $5 million or $0.18 per share in the prior year. While those comparisons reflect a complex quarter, we believe they do not fully capture the underlying momentum in demand, the benefits of the new structure or the earnings power of the business as operations normalize. Turning to the balance sheet. Inventory at the end of the first quarter was $300 million compared to $262 million a year ago. That increase primarily reflects the timing effects of the distribution center ramp-up and the impact of tariffs on inventory costs. As operations normalize and inventory flow improves, we expect inventory levels to become better aligned with demand and with our revenue trajectory. In terms of our debt, we ended the first quarter with $30 million in ABL borrowings compared to $40 million last year. As previously announced, we used the majority of the $300 million in cash proceeds from the WHP Global transaction to fully repay our term loan, leaving us with enhanced liquidity and significantly reduced interest payments. The remainder of the transaction consideration was used for transaction-related and other corporate expenses. Finally, in conjunction with the April 1 closing of the WHP Global transaction, our Board authorized the repurchase of up to $100 million of common stock through March 31, 2029. As we will discuss in more detail shortly, with a strong balance sheet and this authorization in place, we have meaningful flexibility to evaluate opportunities to enhance shareholder value, including returning capital to shareholders. We will provide second quarter and full year 2026 guidance in the next section of this call. With that, I'll turn it back to Andrew.
Thanks, Bernie. We'll now turn to a broader discussion of our strategy and outlook following the completion of the transformational JV we created with WHP Global and the opportunity for shareholder value it created going forward. I'll be referring to the slides, which are now on the screen of this webcast and can also be found on our Investor Relations website. Beginning on Slide 3, we want to spend a moment clearly laying out the strategic and financial rationale for the JV and importantly, how it translates into multiple reinforcing drivers of shareholder value. First, in April, we completed the creation of the JV, which included Lands' End contributing our intellectual property in exchange for $300 million in gross proceeds from WHP Global. Lands' End and WHP each have 50% ownership of the JV with WHP having a controlling interest. We believe this transaction drove immediate value for our shareholders, both indirectly and directly. The $300 million of proceeds from WHP enabled us to immediately pay our term loan in full, deleveraging the balance sheet and fundamentally changing our financial position. This is a step change, not an incremental improvement in financial flexibility. In addition, WHP Global completed a tender offer for approximately $100 million in Lands' End shares at a purchase price of $45 per share available to all shareholders to realize near-term value creation. WHP's acquisition of approximately 7% of Lands' End at a substantial premium signals their commitment to the future success and growth of our company. Under the long-term license agreement with the JV, Lands' End will pay the JV annual royalties of at least $50 million, and we will receive half of all JV profits on a quarterly basis. These profits will come from the royalties we pay, the growth of Lands' End's existing licenses, which were contributed to the JV as well as the growth of the brand with new licenses. The expansion possibilities available to the JV create a highly attractive revenue stream, creating a recurring, high-quality source of earnings with the JV expected to operate with EBITDA margins of no less than 85%. By partnering with WHP Global, we believe Lands' End is now positioned as a brand to grow faster and more profitably than it could have on a stand-alone basis. This is because WHP is a proven global licensing platform with a track record of scaling brands across new categories, new geographies and new partners. In just a moment, I'll discuss the JV's early wins. Finally, the opportunity to exchange our stake into WHP Global equity creates a unique and powerful second layer of value for shareholders should WHP execute a monetization event, such as a sale or an IPO. Lands' End may exchange our stake in the JV for equity in WHP Global at the same multiple that WHP receives in the monetization event. Importantly, scaled brand management companies like WHP typically command materially higher valuation multiples than traditional retailers. This creates the opportunity for Lands' End shareholders to effectively step up into a higher multiple business through the exchange event. When you step back, this transaction delivers multiple layers of value: immediate value realization, balance sheet transformation, accelerated high-margin licensing growth, growing royalty income platform and high multiple upside opportunity. These are additive, not alternative drivers of shareholder value. Turning to Slide 5. We've outlined here the four key levers to drive value for all Lands' End shareholders. First, as I just referenced, the significant financial flexibility we have following the completion of the JV transaction represents a fundamental reset of our financial position. By eliminating our term loan debt in full, we strengthened our financial position while shedding debt covenants that previously limited our ability to execute on strategies that could grow shareholder value. Second, key to our success over the years has been the strength of our direct-to-consumer business and our B2B platform, Lands' End Outfitters. Across both businesses, we operate highly capable, digitally enabled platforms that when paired with ongoing strategic focus and cost discipline, provide the operating foundation to support future growth, cash generation and shareholder value creation. Third, following the completion of the JV transaction, the Lands' End Board authorized a $100 million share repurchase program through March 2029. This is a clear and deliberate capital allocation option aligned with shareholder value creation. At current prices, this authorization represents the ability to repurchase a significant portion of shares outstanding. Programs at this scale are often associated with both EPS accretion and multiple expansion over time. Importantly, we now have the financial flexibility to act opportunistically when we believe our stock is trading below its intrinsic value. Finally, the ability for Lands' End to exchange our JV stake for equity in WHP Global in a potential WHP monetization event presents compelling and unique upside opportunity. This is a highly differentiated component of our equity story, one that is not typically reflected in traditional retail valuations. Now turning to our commercial strategy on Slide 6. Consistent with the JV agreement, Lands' End will continue to do what it does best and operate its portions of the Lands' End business under a long-term license agreement with the JV. This model creates two complementary growth engines. Lands' End is focused on operating, driving its consumer businesses through its websites, serving the needs of enterprises with Outfitters and day-to-day positioning and delivery of Lands' End through other digital channels such as marketplaces. The joint venture is focused on extending the brand, unlocking higher-margin licensing growth across new categories, partners and geographies. Together, they expand both the earnings power and the strategic reach of the Lands' End brand. Our direct-to-consumer business remains the core of the Lands' End operating model. Through our digital channels in the U.S., U.K., France and Germany as well as marketplace partners, including Amazon, Nordstrom, Kohl's, Macy's and Target, we meet customers where they are and serve them with a solutions-based customer-first assortment. Across this business, we are expanding our customer file, improving new-to-brand acquisition and strengthening gross margin by emphasizing higher quality, full-price selling rather than chasing lower value promotional volume. Next, our B2B business, Lands' End Outfitters, provides branded apparel and uniform solutions to national accounts, Fortune 500 companies, small and midsized businesses and more than 5,000 U.S. schools. Outfitters is a competitively differentiated business with a long runway ahead. We win by combining the strength of the Lands' End brand with market-leading embroidery and personalization capabilities, service levels customers trust and a platform that supports recurring demand across attractive markets. Importantly, these operating businesses are the Lands' End cash flow engine. They fund reinvestment in product, marketing, technology and customer experience. They support disciplined capital return and they provide the earnings base from which we can create value as the JV adds incremental high-margin growth. In other words, Lands' End and the JV are designed to work together. The operating company drives durable commerce and cash generation, while the JV extends the reach and monetization of the brand. Now that we've discussed this transaction and our operating model, it's important to highlight the growth drivers that strengthen Lands' End, support cash generation and position the company to deliver long-term shareholder value. Beginning on Slide 7. On the top left is the strategy you've heard us talk about before, one that has been greatly accelerated through the JV with WHP Global. Together, we're partnering to expand the Lands' End brand into new categories, new channels and international markets where we do not currently operate. WHP Global brings a terrific track record when it comes to licensing high-caliber brands, and we have great confidence in their ability to drive success with the Lands' End brand. This strategy is now materially accelerated through WHP's platform. Shifting to the right, another core growth driver is our solutions-driven product strategy. We build the brand to be ready for life's every journey with franchises that solve real customer needs and keep Lands' End relevant across the arc of the year. In outerwear, we are focused on owning the weather through standard programs like Squall, Wanderweight and Anyweather. In swim, Tugless, Slender and our new SlenderLite Suits extend that same solutions leadership into a category where Lands' End has been a market leader for more than a decade by bridging fashion, technology, fit and function. Our tote franchise tells the same story. It is iconic, functional and a true wardrobe staple and the business continues to grow double digits. Just as important, totes are the number one item purchased by new-to-file customers who are younger than our existing customers, making the category both a significant revenue driver and one of the strongest entry points into the brand. Moving down the slide and picking up on that theme, our customer relationship remains a distinctive advantage with the average customer relationship spanning 20 years, and we continue to bring in new customers who show strong loyalty once they enter the brand. There is also real connectivity across our divisions; a school uniform mom can become a DTC customer, then shop with her child over time, reinforcing the lifetime value cycle that makes the Lands' End customer model so powerful. Finally, underpinning everything we do to drive performance is our continued focus on world-class operational execution. First, we're continuing to invest in and grow our two digitally native businesses, our DTC and B2B platform, leaning into the franchises and solutions that are clearly resonating with customers. Second, we are deploying AI and advanced analytics to sharpen our marketing with a focus on reaching the right customers at the right moment with greater precision and efficiency. Third, we are deepening our personalization capabilities to deliver a stronger digital experience, strengthen customer loyalty and convert one-time buyers into repeat customers. These are active areas of investment and focus, and we believe the progress we make here will be meaningful drivers of the company's future performance. Moving to Slide 9. Our intellectual property joint venture with WHP Global closed on April 1, 2026. And in roughly 60 days, we have already seen clear evidence of the platform's potential. The JV has agreed to consolidate and extend three licenses with our largest apparel licensee to create one license through 2033 at meaningfully higher guaranteed minimum royalties, reached an agreement in principle to extend our footwear partnership by seven years and selected a new home textiles partner after a competitive process. Together, these actions are expected to drive more than $150 million of long-term guaranteed royalty value to the JV over the term of these agreements with additional opportunities active across more than a dozen new categories and international markets. Just as important, WHP Global continues to expand its brand platform with real ambition, validating our choice of partner. This recently announced definitive agreement to acquire Marc Jacobs from LVMH increases WHP's global retail sales to more than $9.5 billion annually and further strengthens its position in premium fashion. That matters to Lands' End because our exchange option gives shareholders exposure not only to the growth of our brands within the JV, but also to the value creation potential of a scaling, increasingly strategic platform. Taken altogether, these updates reinforce the strategic value of the joint venture and give us even greater confidence in the long-term opportunity with WHP Global. Bernie, over to you.
I'll take Slide 11, where we reset the baseline for how to think about Lands' End financially following the creation of the joint venture. What we've done here is recast our fiscal 2025 results as if the JV structure had been in place for the entire year. And similarly, we used the proceeds to pay off the term loan. This is an important step to provide investors with a clear comparable starting point as we move forward. At a high level, there are four key changes to call out in this exercise. First, on revenue. Reported revenue declined modestly by approximately $18 million. This reflects the fact that certain licensing revenues are no longer recorded within Lands' End as those rights now sit with the JV. Second, at the gross profit level, you see a more significant change. Gross profit decreases by about $83 million and gross margin declined from 49% to 43%. This is primarily due to the introduction of royalty payments that Lands' End now makes to the JV under the long-term license agreement. Third, and importantly, you begin to see the offset from the new structure in other income, which now includes our 50% share of JV profits. That contribution adds approximately $37 million in this recast view. When you put these elements together, adjusted EBITDA shifts from $102 million to $56 million. While that is a lower absolute level, it's critical to emphasize that this is largely a structural reclassification rather than a reflection of weaker underlying economics. Finally, and just as important, below the line, the benefits of the transaction become very clear. Interest expense declined dramatically from roughly $37 million to just over $4 million as a result of fully repaying the term loan with the proceeds from the JV transaction. So while adjusted net income and EPS are modestly lower in this recast view, the company is now operating with significantly reduced leverage, materially lower interest burden and a more flexible capital structure. Stepping back, the key takeaway from this slide is straightforward. We are establishing a new financial baseline that reflects a hybrid model where Lands' End generates cash through consumer digital and Outfitters, while the joint venture provides a growing high-margin royalty stream through licensing. This framework is what underpins our outlook for improving earnings quality, stronger cash generation and long-term shareholder value creation. Now turning to guidance on Slide 12. Our guidance reflects current conditions, including tariffs at currently implemented rates and prevailing macroeconomic factors. For the second quarter, we expect net revenue to be between $290 million to $310 million, adjusted net income of $2 million to $5 million and adjusted diluted earnings per share of $0.06 to $0.16 and our adjusted EBITDA to be in the range of $11 million to $14 million. Turning to full year. We expect net revenue to be between $1.3 billion to $1.4 billion, adjusted net income of $10 million to $20 million and adjusted diluted earnings per share of $0.32 to $0.65 and our adjusted EBITDA to be in the range of $68 million to $78 million. Our guidance for the full year incorporates approximately $40 million in capital expenditures. Let me shift now to our 3-year targets, which we view as a separate but important way to frame the earnings power of the business under the new model. Starting with revenue, we are targeting mid-single-digit annual growth over this period. It's important to emphasize that this growth is expected to be driven primarily by our core operating businesses, specifically continued expansion in direct-to-consumer and Outfitters. We see opportunity to grow through increased customer acquisition and retention, strength in key product franchises and continued momentum in our B2B platform. Turning to profitability. We expect to deliver a growing adjusted EBITDA margin reaching the high single digits over time. That margin expansion is supported by improved merchandise margins, disciplined cost management, operating leverage as the business scales and increasing contribution from high-margin JV profit streams. And importantly, underpinning both our growth and margin outlook is the step change in financial flexibility we've achieved following the JV transaction. With a stronger balance sheet and significantly reduced interest burden, we now have greater capacity to allocate capital deliberately and consistently in support of shareholder value creation. That includes reinvestment in the business to support profitable growth, maintaining a disciplined cost structure and executing against our authorized share repurchase program when we see compelling value. So while revenue growth is driven by the core business, the combination of financial flexibility, capital allocation discipline and high-margin JV economics positions us to deliver high-quality earnings and stronger long-term returns to shareholders. Back to you, Andrew.
Thanks, Bernie. We want to spend a few minutes walking through how Lands' End realizes value from the JV today and the potential additional upside embedded in the exchange option over time. On Slide 13, the framework is straightforward. There are two complementary sources of value from the JV, recurring royalty cash flow and event-driven equity upside. First, the JV generates royalty income from the Lands' End operating company from new licenses added over time. Because Lands' End owns 50% of the JV, we receive 50% of those profits on a quarterly basis, net of expenses. That creates a recurring, high-quality earnings stream that grows as the brand expands. Second, in the event of a qualifying WHP Global monetization event, Lands' End may or in some cases be obligated to exchange its JV stake for equity in WHP Global at the same valuation multiple implied by that transaction. Because scaled brand management companies like WHP often command materially higher multiples than traditional retailers, this creates a meaningful second layer of potential value. Put simply, the JV can create value in two ways: through cash earnings we receive along the way and through the equity value that could be realized in a potential monetization event. Slide 14 is intended to show what the second source of value could mean under various illustrative assumptions. Now turning to Slide 14. This is one of the most important slides in the presentation because it illustrates how a potential WHP monetization event could translate into additional value for Lands' End shareholders beyond the recurring royalty stream we discussed on the prior slide. The mechanics are straightforward. Lands' End owns 50% of the JV and in certain qualifying WHP monetization events such as a sale or an IPO, we may exchange that JV stake for equity in WHP Global. The value of that exchange would be based on the JV's EBITDA at the time of the event and the valuation multiple implied by the WHP transaction. Put differently, if the JV grows meaningfully and WHP is valued at a premium multiple in a monetization event, Lands' End could participate in that upside through the exchange option. To illustrate the range of outcomes, we've modeled two scenarios using different assumptions for JV EBITDA and the monetization multiple. In the first scenario, assuming JV EBITDA of $100 million on a trailing 12-month basis and determined in accordance with our LLC agreement and a 13x monetization multiple, the JV would be valued at approximately $1.3 billion. Lands' End's 50% share of that value would be approximately $650 million, which equates to roughly $22 per Lands' End share. In the second scenario, assuming JV EBITDA of $150 million and a 15x monetization multiple, the JV value would rise to approximately $2.25 billion. Lands' End's 50% share would be approximately $1.1 billion or about $38 per Lands' End share. These scenarios are illustrative and actual outcomes will depend on the timing and terms of any potential monetization event. But the purpose of this slide is clear: to show that the exchange option could represent a meaningful and currently under-reflected component of Lands' End's value. We do not believe this is reflected in our current valuation, and we now have both the balance sheet flexibility and the repurchase authorization to respond when the disconnect is too wide. Before we open the line for Q&A, I want to take a moment to bring together what we have covered today. We came into this call with a clear objective to give investors a fuller picture of where Lands' End is headed and why we believe the company is at a genuine inflection point. We have real momentum in the business, and we are executing against a clear and deliberate strategy. At its core, Lands' End remains fundamentally strong with underlying demand, growing new customer acquisition and improving engagement across key categories. We have created a business model that is now more flexible, less leveraged and better positioned to convert brand strength into earnings and cash flow. At the same time, the WHP transaction has strengthened our investment case in multiple ways. We have realized immediate value through the $45 per share WHP tender offer, significantly deleveraged the balance sheet and created new avenues for long-term value creation through recurring JV profit participation and the exchange option. Additionally, our Board has authorized a $100 million share repurchase program. Taken together, we believe the opportunity in front of Lands' End has never been clearer. We have an iconic brand, durable customer relationships, differentiated operating platforms, improved fundamentals and a capital structure that now gives us the ability to invest in growth while also acting decisively on behalf of shareholders. To our shareholders, our message is straightforward. We believe there is significant value in this company, and we are focused on driving shareholder value. We appreciate your support, and we take this responsibility seriously, and we are focused to deliver the progress and value creation opportunities we have outlined today. Finally, I want to thank all of our dedicated employees at Lands' End. Together, you've built a tremendous brand, and the results we've discussed today are a reflection of your commitment and hard work. With that, we are pleased to open the line for questions.
分析師問答
Operator provided instructions. We'll take our first question from Dana Telsey with Telsey Advisory Group. Please go ahead. Your line is open.
Hi. Good morning, everyone. Thank you very much for the detailed presentation of the opportunities that lie ahead, which certainly are compelling. A couple of questions just on the now and in the future. On the now, in terms of current business trends, what you're seeing, is the distribution center warehouse management system update complete? Is there any hangover into Q2? And then tariffs and tariff refunds and how you're planning that? And then on the future, with the opportunities that WHP brings, particularly in licensing, how are the two of you ensuring that it's the quality that you want, design process? And how do you see the timeline of when new license categories begin to evolve? And what you're thinking about the royalty stream between the two of you? And then lastly, just on that $45 price, how did that come to be? Or how did that number come to be? What's the background? Or how did that get set up?
I'll get going, and Bernie can fill in. Current business trends are really pretty positive. We said in the call that we had seen positive comps not just through Memorial Day, but beyond Memorial Day. We're seeing a stronger swim season come together. There's been a trend in the market for the last couple of years for one-pieces, and we see that continuing. Our big product launch for the spring was the SlenderLite Suit, and that's been very positively received. One of the things that we're seeing that I'm particularly pleased about, because it really is in Lands' End DNA, is two-piece swim. We put mix-and-match capabilities into the site that let you personalize sizing more precisely. They are a great solution because your top may be a medium and your bottom may be a small and we can accommodate that appropriately. I think that continues to be very positive for us and a nice surprise. We've seen really good numbers coming out of our home business, our men's business and our women's business. As it's warmed up, we've really seen the numbers also warm up and feel good about where Q2 is. With regard to tariffs, there are two parts to this: the accounting and the cash flows. We have started to receive cash back from the government for the tariffs that were ruled illegal last year. For this year, we're taking a prudent stance. We're booking everything at 15%, the higher rate, and then realizing it as it comes in at the lower rate. We stand ready to deal with that and have built it into our operating model. We've done a lot of work around average unit cost to make sure that we have a good margin structure that can see us through this. We've done a lot of editing of our line and made sure that it's more balanced and more concentrated. We continue to reduce the number of factories we source from. That's been something I've been working on since I joined the company. With Matt DelVecchio coming in as our Head of Sourcing, we'll continue to see that reduce further. Before I go on to the future questions, I'm just going to see if there are any other points Bernie wants to add.
I think the only thing I'd add on the tariffs is when Andrew talks about us consolidating our supply chain, what we've done is we've gone with many larger manufacturers who have very flexible supply chains and can move between countries so that as there is a challenge with tariffs in one country, we're able to move that production to a different country with the same vendor with the same timing, and that's been very positive for us. As Andrew talked about, it's been very positive for our average unit cost of product.
Thank you, Bernie. Turning to the future and your questions there, Dana. First, let's address partner selection. We ran a long process and found a partner that best matches Lands' End, and that was WHP. We see the world from the same perspective, and we see their ambition and vision, which meshes with us. If you look at the Marc Jacobs deal, that's a big push forward for a scaled brand management company like WHP. From a practical standpoint, we have a governance solution in place where I sit along with my Chair, Josephine, on the board of the IP company, along with Yehuda, Stanley and Effie. So we're able to meet on a regular basis and ensure the brand goes forward correctly. Fundamentally, the work around design and brand direction remains at Lands' End headquarters. All of the design and direction comes out of HQ and we provide that guidance. WHP has been great at tapping into the work that Kim and Sarah are doing in the consumer brand to make sure that we're staying on brand and the story is consistent, and we don't end up with a fragmented brand. On the timeline for new licenses, you should expect to see new licenses start to kick off next year. There's a lot of work going on now. We mentioned that there's probably a dozen or so licenses in the pipeline that Yehuda and his team are working on. We are excited about those and are doing our part to help bring them to market. In terms of how we look at the royalty streams coming in, we're thoughtful about how we balance that and how we put that into the numbers. We looked at various business cases, and the one we presented is the most realistic. Bernie can give comments on timing and financials as well.
I'd like to add on the timeline of opportunities. WHP started by renegotiating the current licenses we have, and they've been able to extend the terms of those licenses and increase the total amount of guaranteed minimum royalties, which we stated in our presentation. That's a big first step and shows what benefits they're going to start applying to this. As far as the royalty streams go, we already had the Lands' End licensing team with some new licenses in line, and those items will start producing royalties in the fall. Then we expect to see the WHP effect take hold in the next year, as Andrew indicated.
On the $45 per share tender offer, I would direct you to WHP for specifics on how they set that price. From our perspective, if you look at Page 10 of the presentation, we modeled potential exchange outcomes. Scenario two shows an incremental $38 per share under certain assumptions. If you take that with our share price now, it helps explain how a number like $45 could be viewed in context. But we can't speak for WHP on the specific mechanics of their tender offer. We believe the structure gives our shareholders a way to participate in potential upside through the JV and gives us multiple paths to create shareholder value. Regarding the DC status, that is behind us. We have completed the implementation and are back on pace and shipping on time.
Yes, Dana, we switched the new warehouse management system on. Like many companies that implement a new WMS, we experienced a short backlog, approximately one week, and we've taken care of that.
Thank you.
We'll move next with Marni Shapiro with The Retail Tracker. Please go ahead. Your line is open.
Hey, guys. So before I ask about product, which is really my favorite conversation, could you just clarify one thing about the JV? Any licenses that Yehuda will do for the brand, do you have at least a veto or approval right so that they don't do something that would be inconsistent with the brand? For example, we don't want to see the brand placed in an inappropriate channel or in a way that dilutes it.
That's a great question, Marni. We have a 50-50 joint venture which controls the licensing rights. WHP has operational control of the JV, but there are instances in our agreement where we retain rights or approvals over where the brand can go, and those guardrails are designed to prevent brand outcomes we would deem inappropriate. There is an understanding that we see the world similarly. We see growth opportunities in categories and channels around the world, and there are many opportunities to pursue that don't require us to compromise the brand. Lands' End was an important deal for WHP and it's meaningful to them strategically, which aligns incentives.
And Marc Jacobs isn't part of our JV; rather, WHP's broader platform has acquired Marc Jacobs. Lands' End would participate indirectly via the exchange option if a WHP monetization event occurred, correct?
That's right. WHP's acquisition of Marc Jacobs strengthens their platform. If WHP has a qualifying monetization event and the mechanics match our agreement, Lands' End's JV stake could be exchanged at the same implied multiple, which is how our shareholders could gain exposure to WHP's value creation.
And on buybacks and valuation, you now have authorization to repurchase up to $100 million. If you believe the stock is undervalued, you can act opportunistically. That repurchase program is a distinct tool to address valuation, correct?
Yes. The Board authorized the $100 million repurchase program to give us the flexibility to return capital when we believe it's the best use. We now have the balance sheet flexibility to act opportunistically if we believe the stock is trading below its intrinsic value. We will consider buybacks as one of multiple capital allocation tools.
Could we talk about two other things. You mentioned marketplaces like Target, Macy's, Nordstrom, and B2B as growth vehicles. If you were to rank the two, is B2B the bigger opportunity right now or are they roughly equal?
B2B is an amazing opportunity and sometimes doesn't get enough airtime. It's an incredibly powerful business with multiple avenues for growth. School uniforms remain a strong, large market for us; we service over 5,000 schools and are the largest player in that category. We also see commercial uniforms and national accounts, like airlines, as areas where we can scale. We plan to offer a mix of full-service and self-serve models to mid- and smaller-sized customers. While I'm ambitious for both DTC and marketplaces, B2B is a standout area with strong potential because of our brand, embroidery and personalization capabilities and service levels.
One more quick question. Product looks greatly improved — the women's assortment has been excellent. At times the site still shows promotions, which can create mixed messages. Is moving away from promotional dependence a process you're actively working on?
Thank you, Marni. We appreciate that feedback. Our customer base includes long-tenured customers who appreciate deals, so our strategy historically has been more of a high-low approach, which we manage carefully. We build margins with that model in mind. We are focused on improving the quality of full-price selling while retaining the ability to engage valued long-term customers. It is a balance we work on daily to improve.
Makes sense. Congrats and best of luck for the summer season.
We will move next with Eric Beder with Small Cap Consumer Research. Please go ahead. Your line is open.
Good morning. A few things here. First, you've emphasized leveraging embroidery and customization to encourage consumers to buy more and to position Lands' End as more of a lifestyle brand. How much are you leaning into personalization across categories beyond totes, and is this bringing in a different or better customer?
We believe personalization is a significant competitive advantage. We are the largest embroiderer in the United States and have invested in that capability. We're leveraging embroidery and personalization across many categories, not just totes. We have the equipment and people, and we've started to run a light manufacturing process in our operations that allows greater throughput. Personalization adds value for customers and for us because there's an incremental revenue opportunity that carries incremental margin. It resonates with new-to-brand customers, especially through social channels, and with long-term customers who appreciate options. It helps differentiate our offer and supports higher conversion and loyalty.
And Eric, by leveraging that infrastructure across our DTC business that we also use for B2B, we realize additional benefit from our machinery and capabilities. It provides operational leverage.
Great. On capital allocation, now that you have more flexibility, is acquiring other brands or companies part of the long-term playbook as well, or will you primarily focus on organic growth and buybacks?
As we build cash and capital flexibility, we have multiple levers. If buying back stock is the best use of capital, we'll do that. If a strategic acquisition is the best use, we'll pursue that. We now have latitude to deploy capital where we think it delivers the best return for shareholders, and we will consider acquisitions when they make strategic sense.
On international: you've expanded in France and Germany. How should we think about the potential for these markets and how the JV structure affects future international expansion?
It will be a hybrid approach. Lands' End operates its digital channels in markets like Germany and France, and the JV may bring licensed distribution in other geographies or channels. We will collaborate where it makes sense. Early results in Germany have been very strong; customers there have embraced our updated brand positioning and franchise-led assortment. The U.K. has been harder due to macro conditions, but even there we've seen positive comps into Q2. The overall approach is to localize content and photography, lean into solutions, and build a consistent, aspirational brand presence that also helps the U.S. business.
Lastly, on the DC upgrades, what improvements will the new systems drive that will materially help operations going forward?
By moving to the new warehouse management system, we've improved real-time inventory and fulfillment capabilities, enabling same-day or faster processing in many instances and reducing overall delivery time by roughly 20% to 25% for standard orders. It also positions us to enable capabilities such as Prime-like badges on our product and better leverage third-party logistics networks, and it supports higher throughput for personalization and embroidery. These are immediate and ongoing enablers for the business.
Great. Congrats, and thank you.
Our next question comes from Michael Kupinski with NOBLE Capital Markets. Please go ahead. Your line is open.
Thank you for the comprehensive detail on the company's transformation. A couple of quick questions. You mentioned CapEx will be $40 million. What additional investments are required to complete the warehouse transformation? And what would maintenance CapEx look like?
Welcome, Michael. Most of the $40 million is our investment in SAP, which we will go live with next year. The warehouse management system implementation is complete and is part of preparing for SAP. From a maintenance standpoint, once SAP is in place and we're at a fully run-rate baseline, we expect maintenance CapEx to be at or below $20 million annually.
Got you. The gross margin decline of roughly 400 basis points: how much was attributable to the distribution disruptions versus tariffs? What gross margin level should investors expect once operations are fully normalized?
As you know, tariffs were not in place on product last year in Q1, so all tariffs are incremental this quarter compared to last year. The distribution disruption created deleverage effects because costs were incurred while revenue recognition timing shifted. If you look at the recast baseline that Andrew referenced, when you include the royalty payments from the WHP deal, the adjusted gross margin profile is lower than the historical percentage. The raw impact on gross margin this quarter was driven by: tariffs, the temporary DC disruption and the royalty structure. Going forward, we expect reported revenue to return to positive comps and operational margin to improve, but the new royalty structure will be a recurring element in the reported gross margin.
If you look at our recast 2025 baseline, that gives you the new starting point for modeling. From that base, you should expect improvement over time as we recover operationally and extract the efficiencies we described.
Understood. About the increased inventory levels, how much was timing related versus strategic repositioning? You mentioned resetting purchasing levels.
It's roughly equal parts timing from the DC ramp, the effect of tariffs compared to last year and the fact that we took a conservative approach when tariff risk increased, which caused us to reduce buys for a period. We're now resetting back to our normal purchasing cadence, which accounts for the increase versus last year.
Are there additional tariff mitigation actions available, or is the posture now largely fixed?
We will continue to consider pricing actions and vendor negotiations. Our working assumption is vendor partners will absorb part of tariffs, and we will share the remainder between the consumer and ourselves where appropriate. We've built that into our guidance and operating plans, and we'll continue to manage assortment and sourcing to mitigate impacts.
One more on buybacks: the $100 million authorization is meaningful. What determines the pace of buybacks, and under what conditions would you be aggressive buyers?
We'll consider buybacks opportunistically and make decisions based on valuation, capital needs, reinvestment opportunities and our assessment of long-term shareholder value. The Board has given us the authorization and the balance sheet flexibility to execute when we see compelling value. We don't have a set pace to disclose today; we'll evaluate it over time and keep investors informed.
This concludes our Q&A session as well as our conference call. Thank you for your participation. You may now disconnect.