Good afternoon, everyone. We're here today. I'm Dana Telsey. We're here today at the 1:30 P.M. session with the senior management team of Lands' End. We're going to have a fireside chat after some introductory remarks.
Thank you, Dana.
Thank you.
Good afternoon, and thank you, everyone, for joining Lands' End for this fireside chat. Please also note that the information we're about to discuss may include forward-looking statements. Such statements involve risks and uncertainties. Our actual results could differ materially from those discussed today. Factors that could contribute to such differences include, but are not limited to, those items noted and included in our company's SEC filings, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and an investor presentation we filed yesterday with the SEC and posted to our website, landsend.com. Any forward-looking information 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. Turn it back over to you.
Thank you very much. Okay, it's on, right? Oh, excellent. Well, good afternoon, everyone. I'm thrilled to be here today to host a fireside chat and a discussion with the senior management team of Lands' End. If you don't know Andrew McLean, you should. He's been at Lands' End since November of 2022.
That's right.
It's not the Lands' End story that you knew. He's made complete change in enhancing the business model, putting a solutions-oriented offering in, and with his partner, Bernie McCracken, who's the CFO, who's been at Lands' End much longer, they've really retooled the business model and the strategy of Lands' End. It's the modernized Lands' End of today. Andrew, we're sitting here in 2023. It's now the beginning of 2025. Just to give a refresher and frame things for everyone, what happened in 2024, and how do you think about that informing 2025 to Lands' End?
Thank you, Dana. Thank you, everyone, for being here. It's great to have you all here today. You know, we changed the business. We made a promise, and the promise was to be ready for life's every journey. And that was just the thing I asked all the employees to be thinking about every day for every decision they made. And by doing that, we put the customer back at the center of everything we do. And I think once you make that promise to the customer, everything goes from there. So, you know, we started to work on really great merchandising, great product to meet that customer's needs. We knew her well. She'd been with us 17 years, and she'd been with ups and downs with the brand.
But I think that we were letting her down, and we saw that because she was just buying into one category, and she was becoming more discount-driven. So for us, it was about creating energy and enthusiasm and putting emotion into the product and then doing the things that we do right. And by doing that, we started to create great product that we could then take the Lands' End brand and really start to wrap around all the values of such an iconic American brand and start to leverage those together. And there's so much more that goes behind that, but I think we're going to get to that as we go through the Q&A. But fundamentally, we are a customer-first brand.
Bernie, a lot has happened because, do I remember correctly, that there's seven quarters of consistent gross margin improvement?
Yeah, I think what's underneath what Andrew was just commenting on is that we've changed the model of the business. And in doing so, we've strengthened our balance sheet, we've reduced inventory, we've reduced debt, and that only comes with better inventory management. And in that better inventory management, we have generated higher gross margin. And what we've talked to the investment community about is that we're going to grow gross profit dollars, and we're going to do that by selling higher quality sales, changing the model, changing our distribution points, and winning with the customer.
You're leading off on a good word, the customer. Andrew, you've given us two words to describe who your new customer is or who your customer base is: the evolvers and the resolvers. What happened to them in 2024, and how do you think about that customer file?
So, one of the things with Lands' End is that we have these seven million customers who shop the brand, and a couple of million of them are active. And so, you know, within that, you don't want to throw the baby out with the bathwater. And we viewed them very much as Resolvers, and they were brand loyalists. They've been with the brand. They follow it through thick and thin, but their set of behaviors is more about replenishment and less about fashion. But we saw this total available market, and we saw some of these customers in our portfolio, and we called them Evolvers. And we love the Evolvers because they're open-minded to having a partner in Lands' End that's going to help them complete their closet and fill their closet.
And for us, it was really important to be able to keep both of them and move forward and so grow one and maintain the other. And that's really what we've been able to do by personalizing the journeys that you can reach the brand on. And that might involve, for those of you who are out there on Instagram, taking a look at what we've done with Instagram. We've doubled the amount of followers on Instagram on the brand over the last couple of years, and we intend to do that again as we see a more fashion-conscious customer. And there are places where we'll meet, and we use some of our marketplaces to do this to meet a customer who is more value-oriented. And being able to do that is allowing us to really grow the business.
And while I know Bernie said that we're focused on our gross margins, we are also focused on our top line, and we'll get to it. We changed the model a little bit, and so as we look at our gross merchandise value, we've seen that grow, and that's gone in a slightly separate direction to where our revenues have gone because some of our revenues moved out under licensing where we meet a particular customer. And so there's been real growth on what I consider to be the top line and the bottom line of Lands' End as a consequence of being able to hold those two customer groups and move them forward.
You just mentioned something very important: GMV and that gross merchandise value. Talk about the new streams of business, what licensing means, U.S. e-commerce, B2B, what's happening with outfitters. You have a lot of different channels to drive sales.
Yeah, absolutely. I think it's a question for both of us, and I'll kick it off, and Bernie can fill in the parts that I will miss, but you know, fundamentally, Lands' End, a lot of people think about it as a consumer direct business via a catalog and via a website. About 94% of our sales are driven by a click, so we're very much a digital-first company. But within that, we look at different ways to reach different consumers, and on the B2C side, we have landsend.com as the primary vehicle supported by a catalog. But beside that, we leverage our single inventory by being on marketplaces. So we're on Target's marketplace. We're on Nordstrom's marketplace. We've been elevating the brand and reaching wealthier customers, and we have a long relationship that's been going for the best part of seven, eight years now with Kohl's.
Those have all been relationships where we can reach a new consumer who doesn't normally see us. That plugs in, and we find a way to get that customer to come to LandsEnd.com. How would you do that? Really, we do that through merchandising. Each of the marketplaces that we're in, we really have narrowed the assortment and made it just about getting a taster for what's right for that customer. Once they get to know Lands' End, we bring them to the mother site, and then they can really shop the whole catalog, as it were, online. That's been incredibly powerful for us. The other part of this is really in licensing, and we don't particularly have a physical manifestation of the brand other than our catalog.
I do want to emphasize the importance of the catalog in underpinning our B2C business, but we don't have traditional stores beyond 20, 22 of them. As a function of that, creating physical manifestations of the brand has become key for us. Hard to do when you're building a $750 million company and you want to get focused on what your bests are. Wholesale runs a different calendar, and so we've gone out and created licenses. One of our most successful licenses is with the Costco channel, where we're represented across all Costco doors and on their website with a handful of items. But we look at it and we're like, we're reaching a third of Americans, and it's the third of Americans that we really want to reach. We see a lot of that evolver customer in there, and there's power in that.
I'll let Bernie fill in the missing pieces and maybe talk to B2B.
Yeah, and I'll start first with what the dynamics of what Andrew's talking about of being in the different channels. He hinted towards it's a single inventory. By being able to address these different marketplaces, we're using one inventory. It's leveraging that inventory. A good example is our business at Target tends to be more of a kids' and a swim business. Our business at Macy's and then stepping up toward Nordstrom's tends to lean into some of the heavier product. What this really does for us is it de-risks our inventory. As you'll see, we've reduced inventory significantly over the last two years. One of the real key factors in this process has been the ability to turn off.
So if we have a very hot item and it's, of course, easier for us to generate profits or higher profits on the landsend.com, we can just turn it off from our partners. So we have that control. We have control of the inventory. And when you talk about licensing, we're not even owning any inventory and driving a baseline of profits that are guaranteed over the course of a year. When you turn to our B2B business, which we're very excited about, it's a substantial part of our business. Again, when you talk about our national accounts, like an American, Chase, or Wells, they are five-year contracts. So they drive, again, guaranteed profits over a five-year period that we are able to then build the rest of the business off. We're a leading school uniform provider, and we have found strength there.
We're one of the top brands, and there's definitely some opportunity to improve that as some of our competitors weaken along the way.
So when you think about school uniforms and the uniform business, tell us about licensing a little bit. What categories are you licensing? What's the opportunity and the margin impact?
So big fan of licensing. It's capital light, and it lets you build up an expertise where you wouldn't necessarily have the time or the money to invest in it because you're doing what you do, and you can work on your own competitive advantage. So licensing falls into three categories for us. There's channel, there's product, there's geography. And we really began with the channels, and the Costco license was one of the first ones that we got into. And that's been incredibly powerful. We've subsequently continued to build that with some of the other clubs out there and into wholesale. In addition to that, we've taken product categories. And, you know, one of the things I would say about licensing is from a consumer standpoint, we always turn back to our customer at Lands' End.
For them, they have to have a seamless experience where they see the brand, the best vision of the brand, and they have no particular sense that they're buying perhaps from a licensor. So product categories that we've licensed to date have included kids' and shoes and our home product that will be hitting stores and websites later this year. That's been incredibly powerful for us, and we see great growth opportunity in there. We are reviewing license opportunities internationally. We see significant opportunity for the brand just based on our passive selling, quite frankly, in some of these markets over the years. We see tremendous opportunity there as well.
Actually, maybe I'm stealing your thunder. Within licenses, again, you're signing multi-year contracts, so you've got recurring revenue that's going to come, and you can build a firewall for your business, which is really based on minimum royalties that come from that, and this has been a significant growth driver for us.
The only thing I'd add to that is the shoes and the kids is a unique model that not many other providers can provide to their licensees. It was very exciting for our licensees as we went out and started to do this because we have seven million customers, and they got to be on our website with those products and act as Lands' End in the shoes and the kids' category. We fulfill that product from our DC, so there's no difference to the consumer. What they're going to see in a pair of shoes will show up in the same box as a winter coat. It's been very productive and very exciting. We fulfill for them. We charge a fulfillment fee to do that. They market with our marketing, and they pay for those marketing costs. It's been a nice partnership with them.
And with your own product, leveraging speed to market seems to be a big focal point in order to take advantage of where now. Where are you on that journey?
It's a never-ending journey. You and I were talking about this beforehand. It's like you should always be working on this journey. For us, freshness, and it's a recurring theme. Freshness in our product assortment will drive top line and profitability for us. And so there's key, and you can see that. Our gross margins in the third quarter were the highest gross margins that we had recorded at any time since our IPO, and I just couldn't get back further to find higher numbers with our history. So there's a lot of upside to being fresh and current in your inventory, and that's something that we talk about every day. And we've moved from only having two product drops a year to having 11 product drops a year. We have 11 and a half, candidly, and almost constantly flowing product and getting a turn on that.
So we move through it. We create momentum for the customer. There's always something to come back and look at. And a big thing is we don't overbuy it. We're not buying it for a whole season. And if you don't buy it now, careful, because it might be gone if you think you're going to wait for a discount. And that's been incredibly important. I understand that that's very old-fashioned retail thinking, but there's something to be said for old-fashioned retail thinking, which is turn your inventory, create demand, drive margins.
One of the other things with new retail thinking in a way is the ability to chase and how you've shifted production closer to the Western Hemisphere in order to be able to do that. What is that doing? Bernie, how does that impact the income statement and the balance sheet?
As Andrew said, with the additional shipments, instead of bringing inventory in on a one time and holding it so long, we're turning the inventory faster, which of course means we're holding less inventory on the balance sheet. We're lowering our debt costs. By having it closer, we are, especially in a volatile world, we have easier access to it. With the Southern Hemisphere that we've been able to drive more production out of, it lets us buy closer to season. As Andrew said, you know, we've driven close to 500 basis point margins every quarter this year, and a lot of that is driven off of lower discounting, which is from fresher, newer product.
I think, you know, last year in particular, for the first time ever, we were replenishing swim in season. It was historically, you'd buy it, you'd run out of it. You're kind of out of luck if there was more demand. We've really created the narrative now where it's like if we see the read, we'll turn around and lean back into it and bring that inventory back in for within the season. That's incredibly powerful. It also opens you up to things like having a great test strategy. You can test and learn on ideas and read and react to those. I think, again, there's real power in that from an inventory management side and the attendant growth that you get in gross margin.
Tell us about the new categories or existing categories that you've updated, enhanced, reinvented that you're excited about?
We're coming out of the winter season, and we're super excited about where we've gone with our outerwear. We weatherproofed our outerwear. That was a whole strategy that we came up with early on where it was no longer about just having one warm parka to get you through. It was about having something that starts in August and continues through to May and being able to weatherproof your wardrobe. And that's led us down the path of innovation. A product that we just dropped, actually. I'm really pleased you asked this question. A product we just dropped.
Look at the sweater you're wearing, and you wanted him to wear the same sweaters.
I know I wanted to because we look the same. One of the products that we're super excited about that we just dropped is that we put a new puffer jacket out there. For us, it's about solutions. It's got to be more than a fashion piece. It's got to bring something else with it. So obviously, a puffer jacket's warm. Lots of people love puffer jackets. But our puffer jacket is actually waterproof. So we've gone out and developed a new technology, and it's proprietary, you know the word I'm trying to say, to us. That's kind of the thinking that we've got for these newer product categories within swim, which we have a leading market position in. Equally excited as we lean into the season. I'm going to talk about fashion for a minute.
Please do.
The fashion that we're really leaning into is like bold and vibrant flower prints. We just see that that's a really strong trend in the marketplace. We've developed our one-piece, which has continued to become strong for us over the last couple of years, and we've sort of like a meet in the middle, Tankini meets a one-piece, which is a Midkini. And I think that we've been able to put a lot of our solutions into it to make it look great on almost everybody. I think that's critical for us as we innovate and go forward, so I'm super excited about those ideas, but it's fashion meets innovation meets solutions that keeps us ready for that every journey that the customers want.
We just heard that from Lands' End four years ago or three years ago. That's the new Lands' End.
That is the new Lands' End. We're really proud of what we're doing. And I hope you all come shop with us. Follow us on Instagram at the very least.
New ERP systems? What does that look like?
Yeah, I think at Lands' End, we have one of our biggest strategies is letting our partners do what they do best and us only focusing on what we do best, and having an aging technology stack really inhibits that ability to partner with others, so we're putting an SAP this year that should be ready in mid to early third quarter, and we're very excited to build that infrastructure that will then be able to grow the rest of the company around.
The next wave of innovation in our sector is going to be AI-driven personalization. And I know AI gets thrown around a lot.
What are you doing with AI?
Actually, right now we're using AI already. We use it in a lot of our marketing subject lines. We use it in personalized emails. And actually, we've put it into search. So at the bottom of the page, when you're on a product page, there'll be suggestions for you. They're coming from an AI-driven tool now. So we experimented with it most of last year, and we really sort of unleashed it as we went into holiday and felt good about what we were seeing. But I think that journey is now set to continue where it's going to be about more of what are you going to see versus what you're going to see and have a very personalized solution. So a lot of our technology is enabling what we just see is going to be the next really big wave in what drives the e-commerce industry.
With this newness and product and freshness, who are you taking share from?
We take a little bit of share from everywhere. I mean, I'd love to say there was one company that we were taking share from. We admire certain brands, and I suppose if you admire certain brands, it might be that you're taking share away from them. We had an amazing experience running into holiday with pop-up shops around tote bags, and we think that that's an incredible area for us. Tote bags have longevity to them versus like a plastic carrier bag. Everybody wants to be seen with one. We've put in place that you can customize it. We ran a store in Crosby Street in SoHo. We let everybody come in and customize it. We had lines around the block. It was influencer-driven marketing that was absolutely incredible for the brand.
And we had fun with one of our big competitors who consider themselves to be the OG of tote bags. And our whole shtick on it was that life is better with pockets because our totes, Lands' End pockets, I'm saying, that's where you would want to be. So please feel free to customize your Lands' End tote and use the pockets to your heart's content.
So you just think about the numbers. Profitability prioritization is top of mind. I think $1.4 billion in sales this year is the guidance, $92 million-$95 million in Adjusted EBITDA. With the new initiatives, where do we go from here? How do you think of the step ladder?
Yeah, for us, it's continuing to build each of these businesses. And what we've really created by taking a strong approach to making a stronger balance sheet and being more efficient with our inventory, that is going to allow us to be much more flexible in our capital allocation decisions in the next year and going forward. And I think that's one of the next steps for us is where we can go with capital allocation decisions, not just share repurchase, which we do perform already, but going to the next stage of those.
Yeah, we're going to put, like, Bernie's done an amazing job rebuilding the balance sheet, and we're going to put that balance sheet to work now.
You've got top line. You've got balance sheet. This is the new Lands' End of going forward into 2025 and beyond.
Dana, we could sit here all day with you without a shadow of a doubt.
Any questions before we close out the chitchat? No questions? Well, do you have a tote bag for them?
You know, if you come next year, because I know you all will, tote bags for everyone.
I think they have a breakout in Palazzo C, did you say? Or where was Palazzo C? W ell, Andrew, Bernie are going to be in Palazzo C so you can continue to hear the modernization of the new Lands' End. Thank you very much for joining us today.
Thanks, Dana. Thank you, everyone.