Good day, ladies and gentlemen, and welcome to the Lands' End First Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the conference over to Bernie McCracken, Chief Accounting Officer. Please go ahead, sir.

Good morning and thank you for joining the Lands' End earnings call for our fiscal first quarter 2016 results. On the call today you will hear from Federica Marchionni, our President and Chief Executive Officer; and Jim Gooch, our Chief Operating Officer and Chief Financial Officer. To begin our prepared remarks, Federica will discuss the current state of the business, and then Jim will provide details on our first quarter performance. After the company's prepared remarks, we will conduct a question-and-answer session with our covering analysts. Please note that this morning we released our fiscal first quarter 2016 earnings results which are now available on landsend.com. I would like to remind you that today's discussion will contain forward-looking statements related to future events and expectations. These statements are based on current expectations and the current economic environment or are based on potential opportunities. Actual results may differ materially from those expressed or implied in the forward-looking statements. Factors that could cause the company's actual results to differ materially from those discussed are posted in the investors' information section of landsend.com and in our most recent SEC filings. Our discussion will also include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures also can be found in the investor information section of landsend.com. Any reference in our discussion today to EBITDA means adjusted EBITDA as defined in the earnings release. Lastly, we assume no obligation to update the information presented on this call except as required by law. I will now turn the call over to our Chief Executive Officer, Federica Marchionni.

Good morning. I'd like to welcome everyone to the first quarter earnings call for 2016. As with many others in the industry, we continue to be impacted by the soft retail environment including weak consumer traffic trends and aggressive promotional activities in addition to unseasonable weather and order shift in consumer spending away from apparels. While we have accomplished a great deal in transforming our business over the last several quarters, these headwinds continue to pressure our financial performance. Sales in the first quarter were $273.4 million, down 8.7% as compared to the last year's first quarter. Loss per share were $0.18 and EBITDA was $636,000. We were able to maintain less inventory year-over-year to last quarter despite a challenging market and the launch of a new collection. Jim will talk to these in more detail in his financial review. While results were disappointing, I'm encouraged by some of the positive signs we're seeing in our business. Our increased conversion rate across channels indicates that consumer are responding favorably to our products. In addition, we have seen a number of small green shoots throughout the business that give us confidence that we are continuing to move in the right direction. Product is the heart of our business, and we continue to seek to evolve the assortments to ensure that it speaks to Lands' End customers through timeless yet updating styling, high-quality and a strong value proposition. We are focused on our core business where we saw positive response to new patterns including florals [indiscernible] and colors; great example of this include our fine gauge cardigans and updated neck details in the [indiscernible]. We also saw a strong response to our [indiscernible] which was presented in a nautical stripe and florals during the quarter. In addition, we saw some positive response…

Thank you, Federica and good morning. I'll start by walking you through our financial results for the quarter. Revenue for the first quarter was $273.4 million. That's down 8.7% compared to $299.4 million last year. The sales decline was comprised of an 8.4% decrease in the Direct segment with sales of $232.2 million and a 10.4% decrease in the Retail segment with sales of $41.2 million. The decrease in the Direct segment was driven by the decline in both the U.S. region and to a lesser extent the international business. The U.S. business continued to realize negative comparable sales in many product categories, as our traffic numbers continue to be very challenging. During the quarter, we saw the continuation of a highly promotional retail environment with unseasonable weather; both of which negative impacted our business. In addition, the decline in U.S. revenue reflected a planned reduction in our catalog circulation as we continue to optimize our marketing expense. The decline in the Retail segment reflected a 7.1% decrease in same-store sales, combined with 10 fewer locations. We ended the quarter with 225 shops at Sears, and that compared to 235 at the end of the first quarter last year. The decline in same-store sales was primarily driven by many of the same factors which impacted our Direct business, in addition to an overall drop in traffic at our Sears locations. While we've been pleased to see our conversion improved during the quarter, traffic across all channels has remained challenging. We continue to see traffic trends being negatively impacted by both external and internal factors. As we've discussed in the past, currently our largest traffic driver is our catalogs. We've made a number of changes in our catalogs, including circulation as well as product and promotional presentation, all of which were…

Thank you. [Operator Instructions] And our first question comes from Alex Fuhrman with Craig-Hallum Capital Group. Your line is open.

Hey. Thanks for taking my question. So, it's been a couple challenging quarters in a row now. I'm wondering if you could give us a little bit more insight in what give you confidence that we'll start to see a sequential improvement in Q2. And to what extent some of the new initiatives like the Canvas and the Lighthouse and the designer collection are feeding into that. And then, just to understand Jim's closing remarks about marketing spend, is it your expectation that you're going to start to put more dollars in circulation into marketing in the back half of the year and that will help to drive an increase in traffic or are you kind of saying that you're expecting to see the increase in traffic and then you're going to push into that with more marketing spend to ramp up as that starts to happen? Thanks.

Good morning, Alex; and good morning, everyone. This is Federica. First of all, we are confident, as we said, for the initial wins that we experienced by the new initiatives that we have taken. And we are also going forward to improve our product offerings. We are increasing circulation and having a more efficient digital marketing expense for search, e-mails, affiliates and improving our shopping experience with the online new websites and rigid inventory management. We're also looking for increasing the efficiency of the marketing expense in particular for catalogs where we are seeing an increase of conversion rates. The conversion rates are increasing across channels. And all of this give us confidence to have sequential improvement starting from Q2.

Yeah, maybe a couple of additional comments for you on that, Alex, and maybe, again, the comment that I made. But, as we look at our initiatives and some of the things that we're starting to see action on, there are some short-term, some mid-term and some long-term initiatives. On the short-term side, we think we have some [indiscernible] learnings over the last few quarters and what we've done from a marketing, from a promotion, both from the catalogs and from the digital, and we feel confident that we're going to be able to apply those. I think you'll start to see some of those impacts immediately in the second quarter. Some other things that are more mid-term and long-term around product changes or around some of the other marketing as it relates to more branding marketing, those are going to be there more in the back-half or even into 2017. So, we still expect to see the sequential [indiscernible] through 2016 as we start to see more of these initiatives become a more meaningful part of the total.

Great. That's helpful. Thank you. And could you comment on how the Lands' End Outfitters business did in the quarter? And given your pipeline of customers there, what's your outlook for that business in the balance of the year?

It's remained very strong. We're actually very pleased with both sides of our Outfitters, both the corporate side and the school side. And the pipeline remains strong and we have a positive outlook for that business going forward.

Great. That's very helpful. Thank you very much.

Thank you. Our next question comes from Steve Marotta with CLK & Associates. Your line is open.

Good morning, Federica and James. Can you talk a little bit about inventory composition at this time? With the inventory up substantially over the sales decline, is a lot of that hoping for basics or is it a little bit more seasonal? Can you give us a little bit of confidence that the inventory can be right-sized without material margin pressure?

Good morning, Steve. For the inventory, we are very proud of our achievement because we achieved in maintaining a slight inventory level by introducing also new line and streamline the merchandising plan to make sure that we have productive SKUs in the inventory. And as we look forward, we will continue to build our lines and our new introduction with eliminating redundant product or colors that are not productive enough in our inventory. And I'll pass over to Jim to give you more nuances on the inventory.

Good morning, Steve. Maybe a couple of things on inventory. When I mentioned that it was flat year-over-year, quarter-over-quarter, if I look at last quarter, we sat at $28 million over last year. And then when we ended this quarter, we're $25 million over last year. So, a few reasons I think why I feel pretty good about that $25 million number, number one is we obviously had an 8.7% decrease in sales. So, even with that decrease in sales, we're able to make a little bit of progress of inventory compared to last year. But, maybe the larger point and a point that Federica touched on is there's a significant piece of that $25 million that relates to the Canvas launch. So, if you were to pull that out, you'd see even a greater improvement in the core classic inventory year-over-year. So, that's one piece. Then as we go through and we break down the quality of inventory, if we look at what's markdown inventory versus full price, what's basic versus seasonal, and maybe, more importantly, as we look at our age inventories, what's age more than 12 months, that number year-over-year continues to come down. So, we've made progress year-over-year in the core. We've been able to launch the Canvas, brought the total down and that age number continues to come down.

All right. That's helpful. Thank you. And can you talk about how many fewer catalogs were sent in the first quarter versus last year [indiscernible] absolute number, but just as a percentage would be helpful? And then, what do you see as the progression going out? Is it going to be flattish in the second quarter and then increases in the back-half? Is it still going to be a small decline in the first quarter and then maybe flattish in the third quarter, higher in the fourth quarter? Can you give us just a little bit more color on number of catalogs sent versus last year and the changes going forward?

I'll give you a little sense. Overall, the circulation was definitely down in the first quarter and you're looking at double-digit percentage. The second and the third quarter, we expect to see, as we said, sort of strategically building back that circulation and you can expect to see an increase in circulation in both those two quarters. Fourth quarter will be more flattish. Haven't finalized all the numbers there, but it will be much closer to flat. Overall, for the last three quarters combined, you'll see an increase over the last three quarters.

And, Steve, what I want to add on that is the reason why there are certain changes in the number, is because what we did last year and we accomplished more on the Q4 is to increase, what I would say, the conversion rate. So that's our goal first of all. So, the more we can increase the productivity, the more we can increase the circulation. That's our criteria.

I think overall we're taking what we've done over the last few quarter and as we've said applying some of those learnings. If you notice, this month, for instance, there was Friends and Family that was incremental, this month being May, incremental year-over-year. So, as we look at what performed last year, that was the decision that we made to add that into the second quarter.