Lands' End, Inc. Common Stock 2027 Q2 Earnings Call

Please go ahead. Good morning, and thank you for joining us for a discussion of our second quarter fiscal 2026 results, which were released this morning and can be found on our website, landsend.com.

I'm Tom Altholz, Lands' End Senior Director of Financial Planning and Analysis, and I'm pleased to join you today with Charlie Cole, our Chief Executive Officer, and Bernard McCracken, our Chief Financial Officer. After prepared remarks, we will conduct a question and answer session. Please also note the information we're about to discuss includes forward-looking statements. Such statements involve risk 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.

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. 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 Charlie.

Thank you, Tom, and good morning, everyone. I'm honored to be joining you for my first earnings call as CEO of Lands' End. I've spent my career leading digital and e-commerce companies through customer engagement and brand transformations, and I'm excited to be utilizing that experience to help unlock the next phase of growth for this iconic American brand. As you know, I joined the company on July 13th, and I've spent the past several weeks getting to know the company. Since then, I've been meeting with teams across the company, reviewing the business, and listening to customers to ensure a strong foundation to evaluate and execute on the right opportunities ahead. What I've found reinforces my confidence in the strength of this brand, loyalty of our customer base, and a strong culture that remains a genuine competitive advantage.

It's clear to me that the opportunity is significant, and we have strong strategic direction. The work now is ensuring the infrastructure is in place to support it. Put simply, Lands' End is a great business with tremendous opportunity ahead. With that, let me take you through the highlights of the quarter. Across the business, our teams made deliberate decisions on marketing spend, on customer acquisition, and on inventory, which we believe position us well for the back half of the year. The product portfolio had clear bright spots this quarter, continuing to leverage product solutions through our key franchises. Women's and men's apparel, especially knits, had a good quarter overall. Bags performance, led by our iconic five-pocket tote, was a meaningful driver of growth and new customer acquisition.

Our swim business continued to execute on owning the weather with high single-digit revenue growth in the U.S. e-commerce business in the quarter. The areas generating real momentum are the ones I'm most energized about. For example, totes remain one of our strongest new-to-brand acquisition tools, and value-added services like embroidery and personalization make the economics even more attractive. Our U.S. new-to-file customer count grew double digits, largely driven by totes and swim, demonstrating our continued ability to use accessories to reach new demographics. Sleepwear is a category we're excited to develop year-round, and early indicators are positive. Initial reads on outerwear and Christmas stockings are also encouraging, give us good initial visibility into Q3 and Q4. Beyond the product, our marketing activity in Q2 generated some real highlights.

Our collaborations with TNT and Wawa and our presence in Nantucket each put Lands' End in front of new and younger audiences in ways that felt authentic to who we are, driving real engagement across social platforms and building the kind of brand equity that compounds over time, not just immediate conversion. We were especially pleased with our Wawa collaboration, where our iconic tote to over 2.6 billion impressions, and more importantly, sold out in hours. These types of activations are driving a step change in our social media following. Of note, traffic across our social channels, including Instagram, increased over 30% year-over-year. While it is early in my tenure, I already see a meaningful opportunity to strengthen how we reach, engage, and convert customers. We have a strong data foundation and a loyal core customer base.

The opportunity is to use that foundation more effectively, including through more personalized marketing, better customer targeting, and greater efficiency at acquisition. We will pursue that work deliberately with the core Lands' End customer at the center of our strategy. Turning to inventory. Our inventory levels in the second quarter were higher than the prior year due to tariff uncertainty last year. Current year inventory is more representative of pre-2025 levels and is within our planned parameters. Include increases due to continued tariff headwinds and challenges processing value-added service orders with our new warehouse management system. Our U.S. e-commerce business increased 9% compared to Q2 2025, reflecting the recovery with the rollout of our new warehouse management system across our distribution centers in the first quarter. That issue has been addressed in our core U.S. e-commerce business, and we caught up with shipments by the end of the quarter.

In our third-party marketplace business, the standout was Nordstrom. The anniversary sale was a strong moment for the brand and our franchise categories, outerwear and Wanderweight in particular, continue to resonate in that channel. Across our marketplaces, we continue to pursue a disciplined strategy that emphasizes quality and higher margin sales over volume. In our Europe business, we made several deliberate pivots and the early results are encouraging. Revenue finished essentially flat, but our product margin performance was strong, reflecting the strategic choice to leverage key franchises to build the business for long-term success. This, paired with our successful efforts to reach new customers at lower costs and through more deliberately differentiated storytelling in our markets, give us confidence in the path ahead for our Europe business.

In addition to the improvement in profitability this quarter, Amazon Germany went live in August, and we are excited to leverage our global experience on Amazon with an entirely new customer. Turning to Lands' End Outfitters, our B2B business. Underlying demand was solid in the quarter, though revenue performance does not fully reflect that. Challenges in our value-added services related to our new warehouse management system and concentrated in B2B customers carried into Q2, which was not anticipated, and are reflected in our results. Revenue increased approximately 4% year-over-year, with strength in national accounts partially offset by warehouse management system challenges that impacted the timing of school uniform shipments. Within national accounts, the story is positive, with the enterprise segment up year-to-date by more than 15% versus last year, led by growth in our airline accounts.

We entered a new multi-year partnership with Delta Air Lines in the second quarter of fiscal 2025, and employee reception to the program was overwhelmingly positive. Today, Delta is in the wear testing phase of its Distinctly Delta uniform collection, with more than 1,400 frontline employees participating across the system. Feedback and insights from the wear test will be incorporated into final product refinements ahead of the planned second half 2027 rollout. Our school uniform business was impacted by challenges within our new warehouse management system related to processing value-added service products. As a result, shipments were delayed and backlog levels were significantly higher than the prior year, reducing revenue recognition during the quarter. Improving operations at Lands' End Outfitters is a priority.

We have and will continue to take action, including working to increase output capacity, improve efficiency in our production process, and prioritize shipment of orders to get ahead of customer timing dynamics. We continue to be encouraged by the early progress of our intellectual property joint venture with WHP Global. As previously disclosed, the JV amended several significant licensing agreements that are expected to generate more than $150 million of long-term guaranteed royalty value, reinforcing our confidence in the long-term growth opportunities created by the partnership. I'll now turn it over to Bernie McCracken to discuss our second quarter financial performance in more detail.

Thank you, Charlie. For the second quarter of 2026, total revenue was $302 million, an increase of 3% compared to the second quarter of last year. Our U.S. e-commerce business saw a sales increase of 9% compared to the second quarter of 2025. As Charlie discussed, the order backlog from the new warehouse management system challenges in the first quarter benefited Q2 and positively impacted results. We are confident that the warehouse management system issue has been addressed in our core U.S. e-commerce business. Our third-party marketplace business decreased approximately 20% as we continue to prioritize profitable, high-quality sales and brand integrity over lower margin promotional volume. While we saw a decline in revenue, our like for like gross margin compared to last year improved by over 500 basis points year-over-year, reflecting the benefits of our disciplined strategy by individual marketplace.