Lands’ End: Turning the Tide?

The sailing has been far from smooth for $1.3 billion Lands’ End during the past few years. Disappointing sales growth, diminishing profits, and sliding stock prices have rocked the apparel and bedding mailer like a canoe on the Atlantic. But while the Dodgeville, WI-based industry giant has hit some rough seas lately, most observers feel that the cataloger has begun to right itself.

The mailer’s holiday sales were up 12% from ’99, to $394 million for the eight weeks ended Dec. 22, although that’s on a 20% hike in fourth-quarter catalog circulation. In fact, the increased circulation — and a rise in back orders — led to a scant 1.6% rise in net income during the holiday season, to $33.9 million.

At press time, Lands’ End had yet to report its year-end results. But for the first 47 weeks of fiscal 2000, net sales were $1.25 billion, up just 2.4% from the previous year. Worse, profits for the same period fell 30%, from $53.1 million to $36.8 million.

Lands’ End stock price has also taken a pounding: At the close of business on Jan. 26, the price per share was down to $30.40 from a high of $61.50 in April 2000. And the company’s return on equity (ROE), a key measure of profitability, is in the 12.5%-14% range, says Kevin Silverman, a Chicago-based analyst with ABN-AMRO. That’s the company’s worst since 1991. Just two years ago, its ROE was 24.4%. “Clearly, Lands’ End is in a recession right now,” Silverman says.

Lands’ End Sales
Fiscal 1999 $1.32 billion
Fiscal 1998 $1.37 billion
Fiscal 1999 $1.26 billion
Fiscal 1996 $1.12 billion
Net Income
Fiscal 1999 $48.0 million
Fiscal 1998 $31.2 million
Fiscal 1997 $64.2 million
Fiscal 1996 $51.0 million

Behind the numbers

Critics blame Lands’ End’s weak performance during the past few years on stodgy merchandise offerings and overmailing. And when president/CEO David Dyer took the helm of the company in October 1998, succeeding Michael J. Smith, one of his first initiatives included mailing smarter.

In fiscal 2000 (ended January 2001), Lands’ End dropped 236 million full-priced catalogs. That’s down 9% from the 259 million it mailed in 1999. Besides the flagship book, the company mails Lands’ End for Men, home products title Coming Home, women’s apparel catalog First Person, Kids, and school uniform book Lands’ End for School.

Regarding merchandise, Lands’ End rehired executive vice president of merchandising Mindy Meads in late ’98. She is credited with energizing the product line with more stylish colors and materials.

At the same time, says Derek Leckow, an analyst at Chicago-based Barrington Research Associates, the cataloger reduced the number of overall SKUs it offers, “not offering as many colors in a particular assortment.” This keeps inventory levels more manageable — another of Dyer’s initial goals.

External factors likely contributed to Lands’ End’s woes as well. For one thing, given its fairly broad market sector, Lands’ End is more likely to be hurt by the increasing popularity of cooperative databases. “Because of the co-ops, Lands’ End’s competitors are likely to contact its buyers,” says Scarsdale, NY-based database marketing consultant Michael Grant.

Then, too, Lands’ End is a mature player in a maturing industry. “It could be that Lands’ End simply hit a ceiling,” Silverman says. “Maybe there’s a [finite] point to which people will buy through the mail.”

Growth opportunities

While Lands’ End may have reached maximum penetration among catalog buyers, its online sales are soaring. Web revenue more than doubled last year, to $138 million from $61 million in ’99. And Lands’ End says that in 2000, 20% of its online customers were new to the company.

Its nine-year-old corporate sales division is another shining star. Last year (the first year it released a separate figure), Lands’ End’s corporate sales alone totaled $140 million.

So it seems that Lands’ End is on the right course. Some say that Dyer and company may simply need more time to achieve their goals.

“I think the turnaround has taken longer and been more expensive than even Dyer thought,” says Ken Gassman, an analyst with Richmond, VA-based Davenport Securities. “But in the past quarter or two, he has kept margins up, meaning lower levels of liquidation and more sales at regular prices.”

And despite the recent choppiness, adds Silverman, “Lands’ End is a solid fundamental company. It has no debt and has plenty of cash.”

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Lands’ End: Turning the Tide?

The sailing has been far from smooth for $1.3 billion Lands’ End during the past few years. Disappointing sales growth, diminishing profits, and sliding stock prices have rocked the apparel and bedding mailer like a canoe on the Atlantic. But while the Dodgeville, WI-based industry giant has hit some rough seas lately, most observers feel that the cataloger has begun to right itself.

The mailer’s holiday sales were up 12% from ’99, to $394 million for the eight weeks ended Dec. 22, although that’s on a 20% hike in fourth-quarter catalog circulation. In fact, the increased circulation – and a rise in back orders – led to a scant 1.6% rise in net income during the holiday season, to $33.9 million.

At press time, Lands’ End had yet to report its year-end results. But for the first 47 weeks of fiscal 2000, net sales were $1.25 billion, up just 2.4% from the previous year. Worse, profits for the same period fell 30%, from $53.1 million to $36.8 million.

Lands’ End stock price has also taken a pounding: At the close of business on Jan. 26, the price per share was down to $30.40 from a high of $61.50 in April 2000. And the company’s return on equity (ROE), a key measure of profitability, is in the 12.5%-14% range, says Kevin Silverman, a Chicago-based analyst with ABN-AMRO. That’s the company’s worst since 1991. Just two years ago, its ROE was 24.4%. “Clearly, Lands’ End is in a recession right now,” Silverman says.

Behind the numbers Critics blame Lands’ End’s weak performance during the past few years on stodgy merchandise offerings and overmailing. And when president/CEO David Dyer took the helm of the company in October 1998, succeeding Michael J. Smith, one of his first initiatives included mailing smarter.

In fiscal 2000 (ended January 2001), Lands’ End dropped 236 million full-priced catalogs. That’s down 9% from the 259 million it mailed in 1999. Besides the flagship book, the company mails Lands’ End for Men, home products title Coming Home, women’s apparel catalog First Person, Kids, and school uniform book Lands’ End for School.

Regarding merchandise, Lands’ End rehired executive vice president of merchandising Mindy Meads in late ’98. She is credited with energizing the product line with more stylish colors and materials.

At the same time, says Derek Leckow, an analyst at Chicago-based Barrington Research Associates, the cataloger reduced the number of overall SKUs it offers, “not offering as many colors in a particular assortment.” This keeps inventory levels more manageable – another of Dyer’s initial goals.

External factors likely contributed to Lands’ End’s woes as well. For one thing, given its fairly broad market sector, Lands’ End is more likely to be hurt by the increasing popularity of cooperative databases. “Because of the co-ops, Lands’ End’s competitors are likely to contact its buyers,” says Scarsdale, NY-based database marketing consultant Michael Grant.

Then, too, Lands’ End is a mature player in a maturing industry. “It could be that Lands’ End simply hit a ceiling,” Silverman says. “Maybe there’s a [finite] point to which people will buy through the mail.”

Growth opportunities While Lands’ End may have reached maximum penetration among catalog buyers, its online sales are soaring. Web revenue more than doubled last year, to $138 million from $61 million in ’99. And Lands’ End says that in 2000, 20% of its online customers were new to the company.

Its nine-year-old corporate sales division is another shining star. Last year (the first year it released a separate figure), Lands’ End’s corporate sales alone totaled $140 million.

So it seems that Lands’ End is on the right course. Some say that Dyer and company may simply need more time to achieve their goals.

“I think the turnaround has taken longer and been more expensive than even Dyer thought,” says Ken Gassman, an analyst with Richmond, VA-based Davenport Securities. “But in the past quarter or two, he has kept margins up, meaning lower levels of liquidation and more sales at regular prices.”

And despite the recent choppiness, adds Silverman, “Lands’ End is a solid fundamental company. It has no debt and has plenty of cash.”

Given the success Lands’ End has had with its second channel, the Internet, some observers don’t rule out the possibility that the company will soon start selling through a third channel: retail.

The company has 16 outlet stores in Wisconsin, Illinois, New York, and the Minneapolis-St. Paul airport. Opening full-price stores, says spokesperson Charlotte LaComb, is “something we should consider.” But, she says flatly, “Nothing is on the horizon.”

Kevin Silverman, an analyst with ABN-AMRO, thinks Lands’ End should move into retail sooner rather than later. “Lands’ End could follow the example of Coldwater Creek,” he says. Coldwater Creek slowly opened stores based on the zip codes of of the more productive names in its house file. “Lands’ End would be a stronger national brand reaching a wider audience,” Silverman says.

But others are less bullish. “When you open a retail store, your fixed costs soar, and there’s little margin for error,” says Ken Gassman, an analyst with Davenport Securities. For instance, a company could become bound to a costly store lease that it could not get out of even it decided to close the store.

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