Lands’ End said that first quarter 2022 sales fell 5.5 percent and blamed “unprecedented inflation in food and fuel”, according to CEO Jerome Griffith. “The customer was looking for comfortable, casual clothes a year ago since he was working at home.” That is true and created a spike in demand. However, that has now eased up and the current inflationary pressures have just reinforced the shift in consumer shopping patterns.

The litany of high inventory and low sales complaints, brought on by not understanding the shift in consumer preferences is by now well documented. Walmart
WMT
, Target
TGT
, Ross Stores
ROST
, and other retailers have all reported inventory that is too high and out of sync with current customer preferences. Customers are coming back to work in offices, shedding their casual sweater and pants and dressing up in business casual again. No ties, but more traditional workwear is becoming part of the routine again for many. That is prompting consumers to refresh this part of their wardrobe rather than continue to buy more casual attire.

Based on the way many stores planned their merchandise buys, it seems no one predicted how quickly the change in daily apparel would happen. But it happened while more casual goods were flowing into stores and being unpacked, leaving stores like Lands’ End with excess inventory. Their inventory rose about 11 percent compared with last year while revenues were dropping 5.5 percent.

Gross margin dropped 42.5 percent due to incremental costs in the supply chain of $14 million. The company is optimistic that its inventory flow will soon normalize and that the company will better meet customer’s needs in the future. Lands’ End is adjusting their product assortment to adapt to the customer’s preference changes.

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It is important to note that Jim Gooch, CFO
CFO
of Land’s End, said that he is encouraged to see some stabilization of transportation costs, as carriers have now begun honoring contracted rates. This is good news indeed for Lands’ End and the retail industry. However, transportation costs are expected to remain high for the remainder of this year.

Lands’ End now has its assortment in 300 Kohl’s stores. The assortment will be expanded to 500 stores by Fall 2022 and end up in about 600 stores by year’s end. This should boost sales because of the additional stores. In the first quarter, sales increased 83% with third party vendors.

Global e-commerce revenues decreased 15.7% in the first quarter. Breaking it down geographically, net revenues in U.S. e-commerce decreased 14.1% and international e-commerce decreased 21.7%. The company indicated that the delayed receipts of key products was responsible.

Outfitters net revenues (merchandise for business and uniform use) increased 32.6%, due to strong demand from the company’s small and medium business customers, national accounts and school uniform accounts.

To recap:

For the three-months ended April 29, 2022, net revenues dropped 5.5 percent to $303.7 million from $321.4 million last year. In 2021, the company reported a loss of $2.4 million or $0.07 a diluted share. The company now projects net revenues of $1.62 to $1.68 billion and net income between $20.0 and $29.0 million. It expects adjusted EBITDA to be between $100 and $112 million and capex to be about $37 million.

POSTSCRIPT: One hopes that specialty retailers will be nimbler in assessing future customer demand. Here we see again that long-term commitments by any retailer have pitfalls. We all knew that there would be an effort to bring people back to offices and that in-person teamwork would be revived, and retailers must watch for such shifts carefully. While COVID-19 still takes its toll, most office workers want to have some connection to their office. They will wear clothes that are appropriate. It still allows for leisure time and leisure wear, but that merchandise was bought and will do for now. Customers want fresh product for the way their daily routines are today.

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