Good morning, everyone. Welcome to the 28th Annual ICR Conference. I'm thrilled to be here with the senior management team of Lands' End. With me is Andrew McLean, the CEO. Bernie McCracken, the CFO. Before we enter our conversation, and this is a conversation, some opening remarks.
Good morning. Please note that the information we're about to discuss may include forward-looking statements. Such statements involve risk 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 the company's SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q. 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.
Thank you, Tom.
Thank you. Well, as many of you know, ICR is a retail and consumer conference, and so it's all about goods, things, services. One of the things that's been a real enhancement and rejuvenator for Lands' End this year has been products and pop-ups. And just before we get started, Andrew, do you want to show what you're carrying now?
Well, thank you. Thank you very much, Dana, and welcome, everyone. It's great to have you here. I thought, rather than talk about capital allocation and all those good things, we'd actually talk about product and customer. And actually, one of the starting things for us is, you know, we have an iconic product. Not many brands have iconic products, and our iconic product is the tote, amongst others. And it's like, it's a little bit of a shared space for us, but everybody looks in their closet and finds a Lands' End tote. And we really took that, wrapped it around our customer, and thought, how are we going to move this forward? And we started to do it with collaborations. It was a long time ago. We did it with a brand, an influencer out of Miami, called Parke, and we've added to that.
This one you see is one we did in the summer, which was with Montauk General Store, and it was a fantastic collab. We do very, very small batches. We tend to make them in four or five hundred units, and it's just make sure that they sell out. Kind of, I'm happy about this, and I'm sad about this, Dana. I can go on for a long time. It's like, you might only pay $50-$60 for that, but I regularly see them being resold for $400-$500 at a time. It's like, it's absolutely incredible to see this resale market, and we just see so much opportunity in bringing our brand to life by putting it in cool places where our customer is, and that's so key to us. How am I doing? I'm running out of time already.
You're doing great, but overall, everything we've seen, they've had pop-ups, you've seen the resilience of the tote. Lands' End is a brand now for today and tomorrow. It's not a yesterday's brand, and speaking of that, you've been at Lands' End since 2022. I think 12 or 14 years now, Bernie?
Yeah, 12.
Okay, so the Lands' End.
Well, that's a good thing, Bernie. So like, it's twelve years. Like, we're happy about that. You made me think. But on the tote, we also want to talk that's brought a much younger customer to Lands' End, something that we're driving and striving for and bringing a whole new generation into the brand.
So speaking about new, so you came in 2022, you've brought a lot of newness, new customer acquisition, enhancement of product, while maintaining the relevance and excitement to your core customer too. What does the Lands' End over the next few years look like compared to what it looked like when you got here?
Oh, we're only just getting started. You know how that goes. And it's like, there's always a balancing act. Anyone can come into a brand and get a new customer. The trick is, like, how you bring your old customer along and you balance that out. And if you don't balance that out, how many brands have we all seen that just went off a cliff edge, just chasing a new customer? So this year just gone, and this year we're in. We're really at the tipping point now where we're starting to get more of our new customers and really sort of reach out. And what do I mean by a new customer?
I've used a lot of language about it over the years, but really where we're at, and I saw this with our pop-up, and I think, Dana, you saw it, and I see Marnie in the audience, you saw it as well. We ran a pop-up in Soho heading into the holiday period, and actually what's amazing is we've got the combination that's always worked. Mickey Drexler told me about it, well, almost thirty years ago now, is when you get mother and daughter shopping is when you really start to win. The fantastic thing for us is, as I watched the customers line up to come into our Soho store to get two things, they got a tote, and they would get personalized cashmere.
And it was mother and daughter, and I saw them bringing in their old totes, mom's tote from thirty years ago, and the daughters got it, and we would still embroider it up because we've stayed iconic, we've stayed true to what we do, but we've expanded. And so like, that reach now that goes all the way actually to Gen Alpha is about how we rebuild this brand, how we've rebirthed it, how we've made it relevant. It is your mom's Lands' End, but it's actually your kid's Lands' End as well. And that's what takes us into the future, and that's what makes us such a unique property.
So you have a lot of different channels that you sell through. One of the interesting things that you've done since we've talked about newness is the effectiveness of marketing, like the TikTok Shop. How's it driving business?
You know, we wanted to see how that would go, and it's actually, one of the things I've seen is the TikTok Shop, obviously, it's got our highest growth rate of anything out there. I don't think that's a giveaway, because if you sell one item on it, it's an infinite level of sales. So it is a very, very high growth shop for us, but the reach to it is absolutely incredible. And actually, I saw, particularly during Q4, and I read about this from some of the Circana data out there, that TikTok is now a really relevant sales channel. So we got in timely on that, and I think that that continues to give us great reach.
One of the things I love about TikTok Shop is, it's hard to say that. We are on stage at 8:00 A.M., but what I like about that is, you know, the reach you get, because it's about taking the product, buying the product, and then it's about showing that you as the customer own the product. So the reach in there is going to be tremendous for us. I think that whole marketplace world that we've really brought the brand into over the last couple of years has been absolutely amazing. Actually, we're not giving guides.
Yep.
It's like, so we've done that.
No press release today.
No press release today, but one thing, and if memory serves me right, I've got my CFO here, but if memory serves me right, we did call it out. You know, that marketplace business for us was incredible. We had the number one item in men's sweaters globally on Amazon over the period Black Friday through Cyber Monday. And again, this is where we hit a Gen Z, Gen A trend, which was with, we call it a QZ now, the quarter zip. And it's like, that became a moment for us, and for us to just culturally switch into that and turn on a dime to really own that space just speaks volumes to the speed that this brand can pivot and how quickly we can move and adapt to trends. So TikTok, bring it on.
You talked about product. Tell us about licensing, because that's something new too?
Yeah, we started to build a licensing business. I have a long licensing background, and you know, for me it's about building asset-light, high return on invested cap businesses. We'll do a little bit of the shareholder work, which is, I think, one of the big value propositions aside from the customer and aside from the product and the franchises is that we want to leverage asset-light. And I think there are ways to do that where you don't have to take all your money and capital asset, capital allocation into stores. I think you can look for other ways to do it, and we've used licenses to do that. And that was partly through necessity, if I'm perfectly honest. You know, we look out there and there just isn't the money to put into a big stores channel for us. I'm not saying that we won't get into stores.
Those options are always available to us, but to take licensing and be, and how many doors in Costco were we?
Four hundred at one point.
Yeah.
So, you know, the reality is, it's like, to get that presence and that physical manifestation out there of the brand is absolutely incredible. And I think this is where, you know, omnichannel, multichannel retailing really comes in. Get your brand out there, get it seen, get it distributed, and then have this sort of like, incredible experience that brings the customer back to LandsEnd.com is something we can really leverage, and we continue to do so. And I think we're very proud of our licensing business.
I think we actually can tie the marketplace and the licensing together in that one of our licensees, our shoe licensee, had one of the highest selling kids' snow boots on all of Amazon.
On Twitter.
Yeah.
8:30 on stage, man. It's got the lights.
And then speak about the outfitters business. You had the Delta Air Lines this year. Uniforms has been up double digits. What does outfitters mean and where it's going?
When I got into Lands' End, I really felt that we had incredible opportunity with the commercial uniforms business. There's two parts of it for us. One is the school uniforms business, and then the other part of the commercial uniforms. And it's not that we had let it go, but I don't think we'd invested in it to its potential. And to me, the reach is incredible because it's just, and it's an extension of B to C. It's B to B to C. So like, getting into that space, you're not just talking to a purchasing manager at Delta. You're talking to a hundred thousand employees who can then become a captive audience to you. And it's like, you want them to be the brand ambassadors. And so for us, it really became, let's restart the sales cycle. And those sales cycles are not short.
And the manifestation of that is that really we started to see that over the last twelve months. And having Delta come back and, like, become a customer to us is such a big win for the company. I mean, the revenues that are now going to be associated with a complete global relaunch of their uniform program in the next couple of years offer tremendous upside potential to the brand that I don't actually think is honestly reflected in the stock price, probably because we don't talk about it enough. But that business and that reach is tremendous. And by the way, like everybody else out there, purchasing managers will react to what their customers want, which is their employees. So if they see collab bags and they see us on TikTok, they're going to want us because they want to be part of that success story.
I think that was very much the conversation with Delta and other big customers out there.
Yeah, I think what's really playing well is, you know, we took a lot of share this summer in back to school and into the fall in the back to school. So the school uniform business, we've tied up two or three of our largest uniform customers for longer term contracts. It just shows that the strength of this brand in that marketplace. Everyone else is a commodity, but we're actually bringing a brand to that arena.
And we're very genuine in what we do. We're not going to bring poor materials or bad materials. It's like, we, you know, our school product is all made with OEKO-TEX product. What's OEKO-TEX product? It's just like, you can send your kids to school in the knowledge that you have the safest, least chemical treated product out there, and it's going to last a long time. So that underpinning of our brand on quality, on durability, this will take fifty washes. Like, these jeans will take fifty washes. It's like, that's really important to us that you're buying something that stays in your closet for a long time. We're not going to be fast fashion.
We're going to take fast fashion ideas to push stuff through our supply chain faster, but ultimately we're going to be a brand that stands on our principles of being with you for the long term.
Speaking of the long term, you mentioned marketplaces, Amazon, Macy's. What's it like selling on those platforms? Is there more, and is it the same product?
It is some of the same product, and as that develops, we're continuing to sort our product pyramid so that, you know, you find an entry point on Amazon is going to be different than an entry point on Macy's, and you have to continue to stay with that, and for us, as we look out there, we think Amazon can be a very, very large business. We just, we see almost endless potential with Amazon, but you've got to have the right price point, and actually, your mindset changes. Your mindset when you're on Amazon is more about what's the minimum viable product that meets your standards, your brand integrity, and gets you four point four stars, and that's what you work into because that's how the customer thinks. We all, let's be honest, we all shop based on the number of stars on Amazon.
When was the last time anyone in here bought a one out of five star product on Amazon? You're right, you didn't. And if you did, you're not going to admit it. So it's like, it's really important. It's really important that you have that credibility on the site. And so how we build that product in there and create opening price points kind of around $20 for Amazon is critical because the other thing we looked at is I think 80% of all the apparel that's sold on Amazon is under $20 in the price point. And I know we can talk about luxe, and I know we can talk about other brands that are on there selling for $300, $400, $500. But if you want to hit that mass consumer and really get inside their algorithm, that's how you have to succeed.
And I think when you want to talk about the strength of the brand is how much success we've had on Nordstrom's and that our franchises have really done well. And, you know, it was a marketplace we weren't sure would accept Lands' End, and we've had a really nice run on Nordstrom's.
Cashmere, full price cashmere. That's my Nordstrom brand.
And outerwear.
And now when you marry this also a little bit with the numbers, the gross margin expansion has been nothing to sneeze at either. What's that looking like? What do we have to go?
Yeah, I think what's really interesting for us is that with the tariff headwinds, there was a challenge on being able to still expand gross margin, but we've actually expanded our margin rates over the course of the year despite tariffs. Our goal to start the year when tariffs first were implemented was to drive about 50% through the supply chain of mitigation, 25% through price, and then 25% through cost savings. We didn't hit all those exactly, but we've blended them so that we've exceeded that, the tariff issue and our expanding our gross margins. We believe there's still a lot of expansion for us left through our supply chain and through product and continuing to improve product. So we've been growing margins for all three years of Andrew's stay, and we expect to continue to do so.
I think for those of you who've gone through our 10-K, and if you have, thank you so much. It's like, you'll see that our number of vendors has been falling every year, and I think that's been a function of we want to be more meaningful to fewer vendors who can really give us the leverage and the flexibility we need, and there's a price element in there, but there's also a speed element in there, so I was very much, and this was from experience I had at prior retailers. It's like, this is like, I will sometimes, not always, sometimes give up IMU in order to get MMU, and what do I mean by that? I will pay a little more to get the product out of Western Hemisphere if I can get it closer to market, closer to trend.
I know there's going to be less markdown associated with that. That's always a win. Focus on the MMU. I sit with my merchants. I sit with my planners a lot. Bernie can attest to this. I spend a lot of time focusing on like, what are we actually selling through versus selling in? What are we actually making as money out the door versus what it says on the sheet up front around IMU? I think that's just being very focused on the customer, very focused on the quality of the product, the use of the product, and the franchises that we're building. It's like, it really is a customer first strategy.
I think also going to a smaller vendor base, we've gone to a lot of vendors who have multiple factories in multiple countries, and that's created a flexibility for us in this new world where the environment can change on a daily basis. That ability to have something being made in Vietnam, find out that's a problem and have it moved to India in a few days.
That's very true actually, and in fact, you know, we've, I mean, the old days, like a couple of years ago, you know, it would be like you get one great big factory in China and you sort of like crank everything out of it. Now you need three factories in three different geographies that are going to be able to crank that product out and be able to like move very quickly, so actually a lot of emphasis these days on how you position fabric. It's like the supply chain in many ways is just governed by the speed of the fabric as much as it is by individual factory capacity. There's a lot of capacity out there, which I think gives us all hope.
I know hope is not a strategy, but I think it gives us a lot of belief that we can continue to drive gross margins.
You mentioned the word margins. What are the other puts and takes that you see in margin? AUR, I think, has moved higher. What you're seeing on supply chain? What happens if there's a change in tariffs? What does that do for you?
You mean tariffs are going to go away, Dana?
I'm not saying that. I agree. I'm not saying that yet.
We are positioned to move, to roll with the punches. And I think that's where you've got to be. I think AUR is going to continue to rise. I just think that's a function of where we've been and the repositioning of taking the brand from being so discount oriented towards a new customer who wants to just celebrate their wardrobe and they're going to buy pieces without really needing to be offered so many discounts. So there's going to be more potentially AUR upside to go after. And then I think ultimately the wins are going to be about speed. It's like we need our strategies from each of the marketplaces. We need our strategies for the core site. We need our strategies for the license partners.
You pull all that together, but ultimately the faster we can go, the closer to market we can be, the more we're answering trend head on, the more the upside is going to come from margins. So to me, I'm going to continue, and this is a big Bernie thing. We're going to continue to push margins as hard as we can in the business. You get paid for margins.
What about the balance sheet, Bernie?
I think that's probably been, you know, the least talked about, but most important benefit that we've had over the last three years as we've kind of built this business back to where it was, and we've now started to create the capacity to make different capital allocation decisions going forward, so we're really excited. We brought the debt down. We're more efficient on the inventory. Everything we've talked about layers on top of each other. Being faster on inventory means I invest less in inventory, so we are, you know, less indebted at those times, so we are going to be in a position to continue to improve that and then be able to have more flexibility around our capital allocation decisions.
Oh, were you going to say something?
I was thinking about this, and I was thinking, you know, like over the last sort of three, three and a half years, we've come from being relatively highly leveraged to, you know, where I consider us to be an investment grade company, and I think as we put that balance sheet to work, I give Bernie so much credit for the balance sheet that he's rebuilt along with the team over the last few years. Incredible work. We can put that to work, and if I look at the engine that we've built in Dodgeville, Wisconsin, find that on a map, it's like what we've done is absolutely incredible, and it's like we have an ability and we actually have the beginnings of a balance sheet to go out and add to that, so as we see other opportunities out there, we can feed them into our machine.
And we see that opportunity to scale the business and not just be a single brand. There's an opportunity to be multi-branded and there's an opportunity to grow. And I think, again, that's sort of a missing benefit that we've not been able to approach because of our balance sheet constraints over the years that's now going away. And I think that speaks to a bright future for our company.
You've always used the word Andrew to describe the business as solutions oriented in terms of what you offer. How does that blend in now with what you're saying? It sounds like there's a bigger solution.
I think there is a bigger solution. There's more lives, there's more franchises, there's more customer segments, there's more geographies for us to reach. And it's like Lands' End's on its journey. We've positioned it successfully. It's been here for sixty years. I think we've positioned it successfully for another sixty years. But I think there are other lives that run alongside that, another attributes that we can lean into. And we're good at what we do. So as good brand stewards, we can bring that to other brands. I think the sky's the limit. The learning that has gone on in this company, the change that's gone on in this company is, I think, hard to appreciate from the outside. I get super excited about it.
I only get to talk to people once a year, so I'm going to make the most of my last two minutes and nine seconds. But I think that the opportunity for growth is absolutely incredible in this space.
The other area that just began to grow, it seems like, again, is international.
What have we said about international? Because you're going to keep me honest here.
We need to generate increased revenues and drive more profitability.
We have been seeing trends improving in our international business. We look forward to discussing those more in our Q4 earnings result coming up in March.
So it sounds like we have a lot more to talk about in March and beyond, whether it's international, whether it's other solutions, whether it's the continuation of the speed model, driving margins. Like you're on the journey.
Yes. We have a group of strategies that fit under our solution. We talk about the promise we make is being ready for life's every journey. That's just, that's the promise everybody in the company makes every day. It's like our product is solutions oriented. It's there for your life. And it's like whatever we do, whatever strategy we put in place has to tie back to that mantra. And that's not just the Lands' End brand. It's for whatever brands that we would have out there. It's for the growth that we're going to take forward. And that's the words to live by.
Got it. Anything on long-term algorithms that you want to mention before we close it out?
No, I think we'll be saving that for our Q4 earnings call.
So coy.
Anything you'd like to mention, Andrew?
No, I think there's a great story here. Yes, actually. There's a great story here. There's a great investment story. We'd love to have you in the brand. Like, come along, be part of the journey, and it's like, at the very least, buy yourself a tote, so thank you very much.
Thank you very much. Thank you, Andrew. Thank you, Bernie.
Thank you.
Thank you very much.