LANDS' END, INC.

LE
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LANDS' END : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

09/09/2020 | 04:39pm


You should read the following discussion in conjunction with the Condensed
Consolidated Financial Statements and accompanying notes included elsewhere in
this Quarterly Report on Form 10-Q. This Management's Discussion and Analysis of
Financial Condition and Results of Operations contains forward-looking
statements. The matters discussed in these forward-looking statements are
subject to risks, uncertainties, and other factors that could cause actual
results to differ materially from those made, projected or implied in the
forward-looking statements. See "Cautionary Statements Concerning
Forward-Looking Statements" below and "Item 1A. Risk Factors" in our Annual
Report filed on Form 10-K for the year ended January 31, 2020, the risk factors
contained in our Current Report on Form 8-K dated June 2, 2020, and "Part II,
Item 1A Risk Factors" of this Quarterly Report on Form 10-Q, for a discussion of
the uncertainties, risks and assumptions associated with these statements.




As used in this Quarterly Report on Form 10-Q, references to the "Company",
"Lands' End", "we", "us", "our" and similar terms refer to Lands' End, Inc. and
its subsidiaries. Our fiscal year ends on the Friday preceding the Saturday
closest to January 31. Other terms that are commonly used in this Quarterly
Report on Form 10-Q are defined as follows:



• ABL Facility -Asset-based senior secured credit agreements, dated as of



November 16, 2017, with Wells Fargo Bank, N.A. and certain other lenders



• CARES Act - The Coronavirus Aid, Relief and Economic Security Act signed



into law on March 27, 2020.



• Company Operated stores - Lands' End retail stores in the Retail channel



• Debt Facilities - Collectively, the ABL Facility and the Term Loan Facility





• EOM - Enterprise order management software solutions



• ESL - ESL Investments, Inc. and its investment affiliates, including



Edward S. Lampert


• First Quarter 2020 - The 13 weeks ended May 1, 2020


• First Quarter 2019 - The 13 weeks ended May 3, 2019


• Fiscal 2020 - The 52 weeks ending January 29, 2021


• Fiscal 2019 - The 52 weeks ended January 31, 2020


• Fiscal 2018 - The 52 weeks ended February 1, 2019


• GAAP - Accounting principles generally accepted in the United States



Lands' End Shops at Sears - Lands' End shops operated within Sears stores





• LIBOR - London inter-bank offered rate


• Sears Holdings or Sears Holdings Corporation - Sears Holdings



Corporation, a Delaware corporation, and its consolidated subsidiaries





SEC - United States Securities and Exchange Commission


• Second Quarter 2020 - the 13 weeks ended July 31, 2020


• Second Quarter 2019 - the 13 weeks ended August 2, 2019



• Separation - On April 4, 2014 Sears Holdings distributed 100% of the
outstanding common stock of Lands' End to its shareholders



• Term Loan Facility - Term loan credit agreements, dated as of April 4,



2014, with Bank of America, N.A. and certain other lenders


• Third Quarter 2020 - the 13 weeks ending October 30, 2020


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• Transform Holdco - Transform Holdco LLC, an affiliate of ESL, which on



February 11, 2019 acquired from Sears Holdings substantially all of the



go-forward retail footprint, and other assets and component businesses of



Sears Holdings as a going concern


• Year-to-Date 2020 - The 26 weeks ended July 31, 2020


• Year-to-Date 2019 - The 26 weeks ended August 2, 2019






Executive Overview



Description of the Company



Lands' End is a leading uni-channel retailer of casual clothing, accessories,
footwear and home products. Operating out of America's heartland, we believe our
vision and values make a strong connection with our core customers. We offer
products online at www.landsend.com, on third party online marketplaces and
through retail locations. We are a classic American lifestyle brand with a
passion for quality, legendary service and real value, and seek to deliver
timeless style for women, men, kids and the home.



Lands' End was founded in 1963 by Gary Comer and his partners to sell sailboat
hardware and equipment by catalog. While our product focus has shifted
significantly over the years, we have continued to adhere to our founder's motto
as one of our guiding principles: "Take care of the customer, take care of the
employee and the rest will take care of itself."



Lands' End seeks to provide a common customer experience regardless of whether
our customers are interacting with us on our company websites, third party
marketplaces, at Company Operated stores or other distribution outlets. We have
one external reportable segment and identify our operating segments according to
how our business activities are managed and evaluated. Our operating segments
consist of U.S. eCommerce, Retail, Lands' End Outfitters ("Outfitters"), Europe
eCommerce and Japan eCommerce. We have determined that each of our operating
segments share similar economic and other qualitative characteristics, and
therefore the results of our operating segments are aggregated into one external
reportable segment.



Lands' End's product channels are eCommerce, Retail and Outfitters. eCommerce
offers products through the Company's eCommerce websites, third party online
marketplaces and direct mail catalogs. Retail sells products and services
through Company Operated stores. Outfitters sells products to end consumers,
located primarily in the United States, through negotiated arrangements with
client organizations to make specific styles or embroidered products available
to members of client organizations, as well as through the Company's eCommerce
websites and direct mail catalogs.




Impact of the COVID-19 Pandemic






Over the past few months, we have seen the profound impact that COVID-19
pandemic is having on human health, the global economy and society at large.
Lands' End has been actively addressing the COVID-19 pandemic and its impact
globally, working to mitigate the potential impacts to our employees, customers
and business. The impact of the COVID-19 pandemic and measures to prevent its
spread are affecting our business in a number of ways.



We continue to believe that we will emerge from these events well positioned for
long-term growth, though we cannot reasonably estimate the duration and severity
of this global pandemic or its ultimate impact on the global economy and our
business and results.




Health and Safety of our People and Consumers






From the beginning of the COVID-19 pandemic, our priority has been the safety of
our employees and customers. On March 16, 2020, we temporarily closed our 26
U.S. stores. These stores reopened during Second Quarter 2020. Additionally, the
Company opened four new stores in Second Quarter 2020. Due to the COVID-19
pandemic we have implemented extra precautions in our offices and distribution
centers. These precautions were developed in line with guidance from global,
federal and state health authorities, including work-from-home policies, social
distancing, thermal scanning and partitions in our facilities.



Customer Demand



In the Second Quarter 2020, customer demand in the eCommerce channel rebounded
from the decline experienced in First Quarter 2020. The eCommerce channel
delivered a double-digit revenue increase and consequently Year-to-Date 2020
eCommerce revenue has increased compared to prior year. Year-to-Date 2020
revenue in the Outfitters and Retail channels is lower than Year-to-Date 2019
due to the reduction in customer demand caused by the COVID-19 pandemic. Retail
revenue also declined due to lengthy store closures. The ultimate timing and
impact of customer demand levels will depend on the duration and scope of the
COVID-19 pandemic, overall economic conditions and consumer preferences.



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Supply Chain



We have not experienced significant supply chain disruptions related to the
COVID-19 pandemic. We continue to place a priority on business continuity and
contingency planning. We may experience disruptions in our supply chain as the
pandemic continues, though we cannot reasonably estimate the potential impact or
timing of those events, and we may not be able to mitigate such impact.



Expense Reduction




Beginning in First Quarter 2020, we took the following actions to reduce overall
expense as a response to decreased customer demand due to the COVID-19 pandemic:



• Temporarily reduced base salaries, including a reduction of 50% in the



base salary of our Chief Executive Officer and President, 20% reduction



in the base salaries of our other senior management members and scaled
salary reductions throughout the Company.


• Furlough of approximately 70% of corporate employees and nearly 100% of
retail employees from March 28, 2020 to April 13, 2020, with
approximately 49% of the workforce remaining furloughed at the end of
First Quarter 2020.



• Permanent reduction of approximately 10% of corporate staff during Second



Quarter 2020, with all remaining furloughed personnel returning to work



by mid-Second Quarter 2020. The Company incurred total severance costs of



approximately $3.0 million related to the reduction of corporate staff
which was recorded in Other operating expense (income), net in the
Condensed Consolidated Statements of Operations. As of July 31, 2020
approximately $1.2 million of the severance costs had yet to be paid.


• Fiscal 2020 merit increases were eliminated.


• The Board of Directors compensation was temporarily reduced.


• The Company's 401(k) match was temporarily suspended.


• Other discretionary operating expenses were significantly reduced.




Basis of Presentation



The Condensed Consolidated Financial Statements have been prepared in accordance
with GAAP and include the accounts of Lands' End, Inc. and its subsidiaries. All
intercompany transactions and balances have been eliminated. The COVID-19
pandemic has had an impact on our Year-to-Date 2020 results and we expect it to
continue to have an impact on our results. As such, this interim period, as well
as upcoming periods, may not be comparable to past performance or indicative of
future performance



Related party



Following the Separation, we began operating as a separate, publicly traded
company, independent from Sears Holdings. According to statements on Schedule
13D filed with the SEC by ESL, ESL beneficially owned significant portions of
both the Company's and Sears Holdings Corporation's outstanding shares of common
stock. Therefore Sears Holdings Corporation, the Company's former parent
company, is considered a related party both prior to and subsequent to the
Separation. On February 11, 2019, Transform Holdco acquired from Sears Holdings
substantially all of the go-forward retail footprint, and other assets and
component businesses of Sears Holdings as a going concern. We believe that ESL
holds a significant portion of the membership interests of Transform Holdco and
therefore consider that entity to be a related party as well.



Seasonality



We experience seasonal fluctuations in our net revenue and operating results and
historically have realized a significant portion of our net revenue and earnings
for the year during our fourth fiscal quarter. We generated 37.9% and 34.6% of
our net revenue in the fourth fiscal quarter of Fiscal 2019 and Fiscal 2018
respectively. Thus, lower than expected fourth quarter net revenue could have an
adverse impact on our annual operating results.



Working capital requirements typically increase during the second and third
quarters of the fiscal year as inventory builds to support peak shipping/selling
periods and, accordingly, typically decrease during the fourth quarter of the
fiscal year as inventory is shipped/sold. Cash provided by operating activities
is typically higher in the fourth quarter of the fiscal year due to reduced
working capital requirements during that period.



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Results of Operations



The following table sets forth, for the periods indicated, selected income
statement data:



13 Week Period Ended
July 31, 2020 August 2, 2019
% of % of
(in thousands) $'s Net revenue $'s Net revenue
Net revenue $ 312,083 100.0 % $ 298,267 100.0 %
Cost of sales (excluding depreciation
and amortization) 176,661 56.6 % 169,182 56.7 %
Gross profit 135,422 43.4 % 129,085 43.3 %
Selling and administrative 111,478 35.7 % 122,260 41.0 %
Depreciation and amortization 9,378 3.0 % 7,408 2.5 %
Other operating expense (income), net 3,373 1.1 % (22 ) (0.0 )%
Operating income (loss) 11,193 3.6 % (561 ) (0.2 )%
Interest expense 4,916 1.6 % 6,235 2.1 %
Other expense (income), net 1,333 0.4 % (608 ) (0.2 )%
Income (loss) before income taxes 4,944 1.6 % (6,188 ) (2.1 )%
Income tax expense (benefit) 568 0.2 % (3,174 ) (1.1 )%
NET INCOME (LOSS) $ 4,376 1.4 % $ (3,014 ) (1.0 )%




26 Week Period Ended
July 31, 2020 August 2, 2019
% of % of
(in thousands) $'s Net revenue $'s Net revenue
Net revenue $ 529,091 100.0 % $ 560,700 100.0 %
Cost of sales (excluding depreciation
and amortization) 299,514 56.6 % 311,741 55.6 %
Gross profit 229,577 43.4 % 248,959 44.4 %
Selling and administrative 217,276 41.1 % 239,104 42.6 %
Depreciation and amortization 18,164 3.4 % 15,026 2.7 %
Other operating expense, net 7,656 1.4 % 126 0.0 %
Operating loss (13,519 ) (2.6 )% (5,297 ) (0.9 )%
Interest expense 10,227 1.9 % 14,069 2.5 %
Other expense (income), net 1,160 0.2 % (1,475 ) (0.3 )%
Loss before income taxes (24,906 ) (4.7 )% (17,891 ) (3.2 )%
Income tax benefit (8,639 ) (1.6 )% (8,059 ) (1.4 )%
NET LOSS $ (16,267 ) (3.1 )% $ (9,832 ) (1.8 )%




Depreciation and amortization are not included in our cost of sales because we
are a reseller of inventory and do not believe that including depreciation and
amortization is meaningful. As a result, our gross margins may not be comparable
to other entities that include depreciation and amortization related to the sale
of their product in their gross margin measure.




Net Income (Loss) and Adjusted EBITDA






We recorded Net income of $4.4 million in Second Quarter 2020 compared to Net
loss of $3.0 million in the Second Quarter 2019. In addition to our Net income
and Net loss determined in accordance with GAAP, for purposes of evaluating
operating performance, we use an Adjusted EBITDA measurement. Adjusted EBITDA is
computed as Net income or Net loss appearing on the Condensed Consolidated
Statements of Operations net of Income tax benefit, Interest expense,
Depreciation and amortization, and certain significant items set forth below.
Our management uses Adjusted EBITDA to evaluate the operating performance of our
businesses for comparable periods, and as an executive compensation metric. The
methods used by the Company to calculate its non-GAAP financial measures may
differ significantly from methods used by other companies to compute similar
measures. As a result, any non-GAAP financial measures presented herein may not
be comparable to similar measures provided by other companies. Adjusted EBITDA
should not be used by investors or other third parties as the sole basis for
formulating investment decisions as it excludes several important cash and
non-cash recurring items.



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While Adjusted EBITDA is a non-GAAP measurement, management believes that it is
an important indicator of operating performance, and is useful to investors,
because:



• EBITDA excludes the effects of financings, investing activities and tax
structure by eliminating the effects of interest, depreciation and income
tax.





• Other significant items, while periodically affecting our results, may



vary significantly from period to period and have a disproportionate



effect in a given period, which affects comparability of results. We have



adjusted our results for these items to make our statements more
comparable and therefore more useful to investors as the items are not
representative of our ongoing operations.


• Corporate restructuring - corporate restructuring actions and
activities including severance for the reduction in corporate staff,
in the 13 weeks ended July 31, 2020 and the 26 weeks ended July 31,
2020
and August 2, 2019.


• Long-lived asset impairment - charge associated with the non-cash
write-down of certain long-lived assets in the 13 weeks ended July
31, 2020
.


Goodwill and long-lived asset impairment - charge



associated with



the non-cash write-down of certain long-lived assets and goodwill in
the 26 weeks ended July 31, 2020.


• Loss or gain on property and equipment - management


considers the



losses or gains on asset valuation to result from investing
decisions rather than ongoing operations for the 13 weeks and 26
weeks ended July 31, 2020 and August 2, 2019.




13 Weeks Ended
July 31, 2020 August 2, 2019
% of % of
(in thousands) $'s Net revenue $'s Net revenue
Net income (loss) $ 4,376 1.4 % $ (3,014 ) (1.0 )%
Income tax expense (benefit) 568 0.2 % (3,174 ) (1.1 )%
Other expense (income), net 1,333 0.4 % (608 ) (0.2 )%
Interest expense 4,916 1.6 % 6,235 2.1 %
Operating income (loss) 11,193 3.6 % (561 ) (0.2 )%
Depreciation and amortization 9,378 3.0 % 7,408 2.5 %
Corporate restructuring 2,925 0.9 % - 0.0 %
Long-lived asset impairment 400 0.1 % - 0.0 %
Loss (gain) on property and equipment 48 0.0 % (22 ) (0.0 )%
Adjusted EBITDA $ 23,944 7.7 % $ 6,825 2.3 %




26 Week Period Ended
July 31, 2020 August 2, 2019
% of % of
(in thousands) $'s Net revenue $'s Net revenue
Net loss $ (16,267 ) (3.1 )% $ (9,832 ) (1.8 )%
Income tax benefit (8,639 ) (1.6 )% (8,059 ) (1.4 )%
Other income (loss), net 1,160 0.2 % (1,475 ) (0.3 )%
Interest expense 10,227 1.9 % 14,069 2.5 %
Operating loss (13,519 ) (2.6 )% (5,297 ) (0.9 )%
Depreciation and amortization 18,164 3.4 % 15,026 2.7 %
Corporate restructuring 2,925 0.6 % 207 0.0 %
Goodwill and long-lived asset impairment 3,844 0.7 % - 0.0 %
Loss (gain) on property and equipment 887 0.2 % (81 ) (0.0 )%
Adjusted EBITDA $ 12,301 2.3 % $ 9,855 1.8 %




In assessing the operational performance of our business, we consider a variety
of financial measures. We operate in three channels: eCommerce, Outfitters, and
Retail. A key measure in the evaluation of our business is revenue performance
by channel. We also consider gross margin and Selling and administrative
expenses in evaluating the performance of our business.



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To evaluate revenue performance for the eCommerce and Outfitters channels we use
Net revenue. For our Retail channel, we use Company Operated stores Same Store
Sales as a key measure in evaluating performance. A store is included in Same
Store Sales calculations when it has been open for at least 14 months and
selling square footage has not changed by 15% or more within the past year.
Online sales and sales generated through our in-store web portal are considered
revenue in our eCommerce channel and are excluded from Same Store Sales.



Discussion and Analysis




Second Quarter 2020 compared with Second Quarter 2019






Net Revenue




Net revenue for Second Quarter 2020 was $312.1 million, compared with $298.3
million
in the comparable period of the prior year, an increase of $13.8
million
, or 4.6%.






eCommerce Net revenue was $270.2 million for Second Quarter 2020 an increase of
$51.6 million or 23.6%, from the comparable period of the prior year. The
increase was primarily driven by customer demand for key items and strong new
customer acquisition both of which benefitted from the more prevalent work from
home lifestyle.




Outfitters Net revenue was $37.4 million for Second Quarter 2020, a decrease of
$28.0 million or 42.8%, from the comparable period of the prior year. The
decrease was due to lower customer demand due to the COVID-19 pandemic.






Retail Net revenue was $4.5 million in Second Quarter 2020, a decrease of $9.7
million
or 68.5%, from the comparable period of the prior year. This decrease
was driven by the closure of all Lands' End Shops at Sears locations and, due to
the COVID-19 pandemic, the temporary closure of U.S. retail stores on March 16,
2020
. As of July 31, 2020 all 26 U.S retail stores had reopened. On July 31,
2020
we had 30 U.S. Company Operated stores, which includes four new stores
opened within the Second Quarter 2020, compared with 21 U.S. Company Operated
stores on August 2, 2019.



Gross Profit



Gross profit was $135.4 million in Second Quarter 2020, an increase of $6.3
million
from the comparable period of the prior year. Gross margin increased
approximately 10 basis points to 43.4%, in Second Quarter 2020, compared with
43.3%, in Second Quarter 2019, primarily driven by improved promotional
strategies and continued use of analytics, partially offset by the liquidation
of seasonal inventory as retail stores reopened.




Selling and Administrative Expenses






Selling and administrative expenses decreased $10.8 million to $111.5 million or
35.7% of total Net revenue, in Second Quarter 2020, compared with $122.3 million
or 41.0% of Net revenue, in Second Quarter 2019. This 530 basis point decrease
was primarily due to strong controls to manage non-essential operating expenses
and structural costs in response to the COVID-19 pandemic.




Depreciation and Amortization






Depreciation and amortization expense was $9.4 million in Second Quarter 2020,
an increase of $2.0 million compared with $7.4 million in Second Quarter 2019.
This increase was primarily attributable to depreciation associated with our EOM
system implementation, continued investment in our digital infrastructure and an
increased number of U.S. Company Operated stores.



Other Operating Expense



Other operating expense, net was $3.4 million in Second Quarter 2020 compared to
an insignificant amount in Second Quarter 2019 due to the impact of corporate
restructuring which includes severance for the reduction in corporate staff in
Second Quarter 2020.



Operating Income/Loss




As a result of the above factors, Operating income was $11.2 million in Second
Quarter 2020 compared to Operating loss of $0.6 million in Second Quarter 2019.






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Interest Expense




Interest expense was $4.9 million in Second Quarter 2020 compared to $6.2
million
in Second Quarter 2019, driven by lower interest rates.






Other Expense/ Income




Other expense was $1.3 million in Second Quarter 2020 compared to Other income
of $0.6 million in Second Quarter 2019.






Income Tax Benefit



We recorded tax expense at an overall effective tax rate of 11.5% for Second
Quarter 2020. This rate reflects the tax expense generated from changes in
estimates related to improvement in Company performance and revised outlook for
Fiscal 2020 as a result of the COVID-19 pandemic. We recorded an income tax
benefit of 51.3% for Second Quarter 2019. This rate reflects the tax benefits
resulting from the change in status of various foreign jurisdictions.



Net Income/Loss




As a result of the above factors, Net income was $4.4 million and diluted
earnings per share was $0.13 in Second Quarter 2020 compared with a Net loss of
$3.0 million and diluted loss per share of $0.09 in Second Quarter 2019.






Adjusted EBITDA




As a result of the above factors, Adjusted EBITDA increased $17.1 million to
$23.9 million in Second Quarter 2020 as compared to $6.8 million in Second
Quarter 2019.



Year-to-Date 2020 compared with Year-to-Date 2019






Net Revenue




Net revenue for Year-to-Date 2020 was $529.1 million, compared with $560.7
million
in the comparable period of the prior year, a decrease of $31.6 million,
or 5.6%.






eCommerce Net revenue was $451.7 million for Year-to-Date 2020, an increase of
$24.2 million or 5.7%, from the comparable period of the prior year. The
increase was primarily driven by customer demand for key items and strong new
customer acquisition both of which benefitted from the more prevalent work from
home lifestyle.




Outfitters Net revenue was $69.2 million for Year-to-Date 2020 a decrease of
$39.3 million or 36.2%, from the comparable period of the prior year. The
decrease in revenue was primarily attributable to the COVID-19 pandemic.






Retail Net revenue was $8.1 million in Year-to-Date 2020, a decrease of $16.5
million
or 67.0%, from the comparable period of the prior year. This decrease
was driven by the closure of all Lands' End Shops at Sears locations and, due to
the COVID-19 pandemic, the temporary closure of U.S. retail stores on March 16,
2020
. As of July 31, 2020 all 26 U.S. retail stores had reopened. On July 31,
2020
, the Company had 30 U.S. Company Operated stores, which includes four new
stores opened within the Second Quarter 2020, compared with 21 U.S. Company
Operated stores on August 2, 2019.



Gross Profit




Gross profit decreased $19.4 million to $229.6 million primarily due to the
COVID-19 pandemic. Gross margin decreased approximately 100 basis points to
43.4%, for Year-to-Date 2020, compared with 44.4%, for Year-to-Date 2019,
primarily driven by promotional activity throughout the industry and liquidation
of seasonal inventory as retail stores reopened, partially offset by more
disciplined promotional strategies and continued use of data analytics.



Selling and Administrative Expenses






Selling and administrative expenses decreased $21.8 million to $217.3 million,
or 41.1% of total Net revenue, in Year-to-Date 2020, compared with $239.1
million
, or 42.6% of Net revenue, in Year-to-Date 2019. This 150 basis point
decrease was primarily due to strong controls to manage non-essential operating
expenses and structural costs in response to the COVID-19 pandemic.



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Depreciation and Amortization






Depreciation and amortization expense was $18.2 million in Year-to-Date 2020, an
increase of $3.1 million, compared with $15.0 million in Year-to-Date 2019. The
increase was primarily attributable to depreciation associated with our EOM
system implementation, continued investment in our digital infrastructure and an
increased number of U.S. Company Operated stores.



Other Operating Expense



Other operating expense was $7.7 million in Year-to-Date 2020 compared to $0.1
million
in Year-to-Date 2019. This increase was due to impairment of goodwill
and long-lived assets as well as the impacts of corporate restructuring which
include severance for the reduction in corporate staff in Second Quarter 2020.



Operating Loss




As a result of the above factors, Operating loss was $13.5 million in
Year-to-Date 2020 compared to $5.3 million in Year-to-Date 2019.






Interest Expense




Interest expense was $10.2 million in Year-to-Date 2020 compared to $14.1
million
in Year-to-Date 2019, reflective of the $100.0 million voluntary
prepayment on the Term Loan in First Quarter 2019 and lower interest rates.






Other Expense/Income, Net




Other expense, net was $1.2 million in Year-to-Date 2020 compared to Other
income, net of $1.5 million in Year-to-Date 2019.






Income Tax Benefit



We recorded tax benefit of 34.7% for Year-to-Date 2020. This rate reflects the
estimated tax benefits as a result of the CARES Act. We recorded an income tax
benefit of 45.0% for Year-to-Date 2019. This rate reflects the tax benefits
resulting from the change in status of various foreign jurisdictions.



Net Loss




As a result of the above factors, Net loss was $16.3 million and diluted loss
per share was $0.50 in Year-to-Date 2020 compared with a Net loss of $9.8
million
and diluted loss per share of $0.30 in Year-to-Date 2019.






Adjusted EBITDA




As a result of the above factors, Adjusted EBITDA increased $2.4 million to
$12.3 million in Year-to-Date 2020 as compared to $9.9 million in Year-to-Date
2019.



Liquidity and Capital Resources






Our primary need for liquidity is to fund working capital requirements of our
business, capital expenditures, debt service and for general corporate purposes.
Our cash and cash equivalents and the ABL Facility serve as sources of liquidity
for short-term working capital needs and general corporate purposes. As of July
31, 2020
we had zero borrowings on the ABL Facility. Cash generated from our net
revenue and profitability, and somewhat to a lesser extent our changes in
working capital, are driven by the seasonality of our business, with a
significant amount of net revenue and operating cash flows generally occurring
in the fourth fiscal quarter of each year. The following information relates to
the Term Loan Facility and ABL Facility as each was in effect at July 31, 2020.

The Debt Facilities include customary events of default including non-payment of
principal, interest or fees, violation of covenants, inaccuracy of
representations or warranties, cross defaults related to certain other material
indebtedness, bankruptcy and insolvency events, invalidity or impairment of
guarantees or security interests, and material judgments and change of
control. The Term Loan Facility was scheduled to mature on April 4, 2021, and on
September 9, 2020 was replaced by the new Term Loan Credit Agreement. The ABL
Facility was amended on August 12, 2020 and matures on November 16, 2022. See
Note 13, Subsequent Events in Notes to Condensed Consolidated Financial
Statements for additional information. As a result of this refinancing, we
believe we have sufficient liquidity to satisfy our obligations for the
foreseeable future.

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Description of Material Indebtedness






Debt Arrangements



On November 16, 2017, the Company entered into the ABL Facility, which provides
for maximum borrowings of $175.0 million for the Company, subject to a borrowing
base. During First Quarter 2020, the Company increased capacity under the ABL
Facility by $25.0 million, so that maximum borrowings were $200.0 million at the
end of First Quarter 2020. The ABL Facility has a letter of credit sub-limit of
$70.0 million. The ABL Facility is available for working capital and other
general corporate purposes. As of July 31, 2020, the Company had zero
borrowings, outstanding letters of credit of $12.0 million and $188.0 million in
availability under the ABL Facility. Upon entering into the ABL Facility, the
Company incurred $1.5 million in debt origination fees. The fees were
capitalized as debt issuance costs and are being amortized as an adjustment to
Interest expense over the remaining life of the Debt Facilities.



On April 4, 2014, Lands' End entered into the Term Loan Facility of $515.0
million
, the proceeds of which were used to pay a dividend of $500.0 million to
a subsidiary of Sears Holdings Corporation immediately prior to the Separation
and to pay fees and expenses associated with the Debt Facilities at that time of
approximately $11.4 million, with the remaining proceeds used for general
corporate purposes. The fees were capitalized as debt issuance costs and are
being amortized as an adjustment to Interest expense over the remaining life of
the Debt Facilities. In First Quarter 2019, Lands' End made a $100.0 million
voluntary prepayment on the Term Loan from excess cash on hand.




Maturity; Amortization and Prepayments






The Term Loan Facility amortizes at a rate equal to 1% per annum, and is subject
to mandatory prepayment in an amount equal to a percentage of the borrower's
excess cash flows (as defined in the Term Loan Facility) in each fiscal year,
ranging from 0% to 50% depending on Lands' End's secured leverage ratio, and the
proceeds from certain asset sales and casualty events.




The Term Loan Facility matures on April 4, 2021. The ABL Facility matures on
November 16, 2022.






Guarantees; Security



All obligations under the Debt Facilities are unconditionally guaranteed by
Lands' End, Inc. and subject to certain exceptions, each of its existing and
future direct and indirect wholly-owned domestic subsidiaries. The ABL Facility
is secured by a first priority security interest in certain working capital of
the borrowers and guarantors consisting primarily of accounts receivable and
inventory. The Term Loan Facility is secured by a second priority security
interest in the same collateral, with certain exceptions.



The Term Loan Facility is also secured by a first priority security interest in
certain property and assets of the borrowers and guarantors, including certain
fixed assets and stock of subsidiaries. The ABL Facility is also secured by a
second priority security interest in the same collateral.



Interest; Fees



The interest rates per annum applicable to the loans under the Debt Facilities
are based on a fluctuating rate of interest measured by reference to, at the
borrowers' election, either (i) an adjusted LIBOR rate plus a borrowing margin,
or (ii) an alternative base rate plus a borrowing margin. The borrowing margin
is fixed for the Term Loan Facility at 3.25% in the case of LIBOR loans and
2.25% in the case of base rate loans. For the Term Loan Facility, LIBOR is
subject to a 1% interest rate floor. The borrowing margin for the ABL Facility
is subject to adjustment based on the average excess availability under the ABL
Facility for the preceding fiscal quarter. In the case of LIBOR borrowings this
adjustment will range from 1.25% to 1.75% for the ABL Facility. Base rate
borrowings will range from 0.50% to 1.00% for the ABL Facility.



Customary agency fees are payable in respect of the Debt Facilities. The ABL
Facility fees also include (i) commitment fees in an amount equal to 0.25% of
the daily unused portions of the ABL Facility and (ii) customary letter of
credit fees.




Representations and Warranties; Covenants






Subject to specified exceptions, the Debt Facilities contain various
representations and warranties and restrictive covenants that, among other
things, restrict the ability of Lands' End and its subsidiaries to incur
indebtedness (including guarantees), grant liens, make investments, make
dividends or distributions with respect to capital stock, make prepayments on
other indebtedness, engage in mergers or change the nature of their business. In
addition, if excess availability under the ABL Facility falls below the greater
of 10% of the loan cap amount or $15.0 million, Lands' End will be required to
comply with a minimum fixed charge

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coverage ratio of 1.0 to 1.0. The Debt Facilities do not otherwise contain
financial maintenance covenants. The Company was in compliance with all
financial covenants related to the Debt Facilities as of July 31, 2020.






The Debt Facilities contain certain affirmative covenants, including reporting
requirements such as delivery of financial statements, certificates and notices
of certain events, maintaining insurance, and providing additional guarantees
and collateral in certain circumstances.



Events of Default



The Debt Facilities include customary events of default including non-payment of
principal, interest or fees, violation of covenants, inaccuracy of
representations or warranties, cross defaults related to certain other material
indebtedness, bankruptcy and insolvency events, invalidity or impairment of
guarantees or security interests, and material judgments and change of
control.




Cash Flows from Operating Activities



Net cash provided by operating activities decreased to $8.0 million in
Year-to-Date 2020 from $17.0 million in Year-to-Date 2019 primarily driven by a
reduction in inventory related payables.



Cash Flows from Investing Activities






Net cash used in investing activities was $19.8 million and $24.8 million for
Year-to-Date 2020 and Year-to-Date 2019, respectively. Cash used in investing
activities for both periods was primarily used for investments to update our
information technology infrastructure and property and equipment.




Cash Flows from Financing Activities






Net cash used in financing activities was $3.0 million for Year-to-Date 2020 and
$103.3 million for Year-to-Date 2019 consisting primarily of a $100.0 million
voluntary prepayment of our Term Loan Facility in First Quarter 2019.




Contractual Obligations and Off-Balance-Sheet Arrangements



There have been no material changes to our contractual obligations and
off-balance-sheet arrangements as discussed in our Annual Report on Form 10-K
for the fiscal year ended January 31, 2020.



Financial Instruments with Off-Balance-Sheet Risk






On November 16, 2017, the Company entered into the ABL Facility, which provides
for maximum borrowings of $175.0 million for the Company, subject to a borrowing
base. During First Quarter 2020, the Company increased capacity under the ABL
Facility by $25.0 million. The ABL Facility has a letter of credit sub-limit of
$70.0 million and matures on November 16, 2022. The ABL Facility is available
for working capital and other general corporate purposes. As of July 31, 2020,
the Company had zero outstanding borrowings, outstanding letters of credit of
$12.0 million and $188.0 million in availability under the ABL Facility. The ABL
Facility was amended on August 12, 2020. See Note 13, Subsequent Events in Notes
to Condensed Consolidated Financial Statements for additional information.




Application of Critical Accounting Policies and Estimates






We believe that the assumptions and estimates associated with revenue, inventory
valuation, goodwill and intangible asset impairment assessments and income taxes
have the greatest potential impact on our financial statements. Therefore, we
consider these to be our critical accounting policies and estimates.




Goodwill and Trade Name Impairment Analysis






The duration and severity of the COVID-19 pandemic could result in additional
future impairment charges for goodwill and the trade name indefinite-lived
intangible asset. We considered the COVID-19 pandemic to be a triggering event
for goodwill in First Quarter 2020 for the Outfitters and Japan eCommerce
reporting units, resulting in full impairment of the $3.3 million of goodwill
allocated to Japan eCommerce reporting unit, recorded during First Quarter 2020.
There was not a triggering event or impairment charges for any reporting unit in
Second Quarter 2020.




The Company concluded that recent events did not result in a triggering event
for trade name in First Quarter 2020 or Second Quarter 2020.



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For a complete discussion of our critical accounting policies, please refer to
our Annual Report on Form 10-K for the year ended January 31, 2020, and Note 2,
Recent Accounting Pronouncements. There have been no significant changes in our
critical accounting policies or their application since January 31, 2020.




Recent Accounting Pronouncements






See Part I, Item 1, Note 2, Recent Accounting Pronouncements, of the Condensed
Consolidated Financial Statements (Unaudited) included in this Quarterly Report
on Form 10-Q for information regarding recent accounting pronouncements.




CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION






This document contains forward-looking statements. Forward-looking statements
reflect our current views with respect to, among other things, future events and
performance. These statements may discuss, among other things, our net sales,
gross margin, operating expenses, operating income, net income, cash flow,
financial condition, impairments, expenditures, growth, strategies, plans,
achievements, dividends, capital structure, organizational structure, future
store openings, financing activities, liquidity, the impact of the COVID-19
pandemic, market opportunities and general market and industry conditions. We
generally identify forward-looking statements by words such as "anticipate,"
"estimate," "expect," "intend," "project," "plan," "predict," "believe," "seek,"
"continue," "outlook," "may," "might," "will," "should," "can have," "could
have," "likely," "targeting" or the negative version of these words or
comparable words. Forward-looking statements are based on beliefs and
assumptions made by management using currently available information. These
statements are only predictions and are not guarantees of future performance,
actions or events. Forward-looking statements are subject to risks and
uncertainties. If one or more of these risks or uncertainties materialize, or if
management's underlying beliefs and assumptions prove to be incorrect, actual
results may differ materially from those contemplated by a forward-looking
statement. These risks and uncertainties include those risks, uncertainties and
factors discussed in the "Risk Factors" section of our Annual Report on Form
10-K for the fiscal year ended January 31, 2020, as supplemented by the risk
factors contained in the Current Report on Form 8-K dated June 2, 2020 and as
modified by "Part II, Item 1A Risk Factors" of this Quarterly Report on From
10-Q. Forward-looking statements speak only as of the date on which they are
made. We expressly disclaim any obligation to update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise, except as required by applicable securities laws and regulations.



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