Good day, ladies and gentlemen, and welcome to the Lands’ End Second Quarter Fiscal 2017 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 be given at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the call over to Bernie McCracken, Chief Accounting Officer. You may begin.

Good morning, and thank you for joining the Lands’ End earnings call for our second quarter fiscal 2017 results, which we released this morning, and can be found on our website landsend.com. On the call today, you will hear from Jerome Griffith, our Chief Executive Officer; and Jim Gooch, our Chief Operating Officer and Chief Financial Officer. After the Company’s prepared remarks, we will conduct a question-and-answer session with our covering analysts. Please also note that the information we are about to discuss includes forward-looking statements. Such statements involve risks and uncertainties. The Company’s actual results could differ materially from those discussed on this call. 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-10K and quarterly reports on Form 10-Q. The forward-looking information that is provided by the Company in this call represents the Company’s outlook as of today, and we do not undertake any obligations to update forward-looking statements made by us. Subsequent events and developments may cause the Company’s outlook to change. During this call, we will be referring to non-GAAP measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measure can be found in our earnings release issued earlier today, a copy of which is posted in the Investor Relation section of our website at landsend.com. With that, I will now turn the call over to Jerome Griffith.

Thank you, Bernie, and thank you everyone for joining us today. We’re very pleased with the progress that we made on several initiatives during the second quarter, as evidenced by positive results across a number of key metrics. We saw improved performance in our U.S. Consumer business, positive comps on our Retail business, stabilization in international markets and significant improvement in our customer files. Throughout the quarter, we remained focused on delivering a consistent brand vision across our business and took steps to further enhance our product offering, marketing strategy and customer engagement. Jim will review the details of our financial performance shortly, but let me provide a few highlights from the second quarter. We continue to successfully invest our marketing dollars into working digital and print media, which drove traffic and strong customer response. This effort contributed to double-digit growth in our overall customer files attributable to both our lapsed and new customer files as well as mid-single-digit increase in our active customer file. We once again saw improved trends in our U.S. Consumer business led by positive consumer response to our swimwear offering as well as strength in women’s apparel, particularly bottoms; men’s woven tops; and our home category. In addition, we saw double-digit increases in our U.S. e-commerce sales, which is our largest distribution channel. In our Retail channel, we posted another positive same-store sales comp increase in the quarter, driven by swimwear, men’s and women’s bottoms and the tops. In addition, our international business performed well as a result of more segmented marketing. Overall, while still in the early stages of our strategic plan, we’re pleased with our progress. Importantly, we believe we’re headed in the right direction as we continue to execute on our strategic priorities. As we look ahead, we’re focused on four priorities…

Thank you, Jerome, and good morning. We are pleased with the continued progress that we made in the second quarter. Revenue for the quarter increased 3.5% to $302.2 million, compared to $292 million in the same period last year. Importantly, we continue to see improvement across a number of areas, particularly in our U.S. Consumer business as well as our retail comp stores. Sales in our Direct segment increased 5.5% to $259.9 million and retail sales decreased 7.4% to $42.2 million. In terms of our product, as Jerome mentioned, sales in swimwear were strong as customers responded well to the enhanced innovation. Our women’s bottoms, men’s woven tops and home categories also saw strong sales increases during the quarter. We’re pleased that new customers are coming into the brand through many of our categories, specifically in women’s where we’ve seen our Beach Living products really resonating well with current and new customers. We’re also happy with the performance of our non-swimwear items, such as our Starfish pants and our extended-size women’s bottoms as well as various home offerings. We’ll continue to work to further enhance our offering across all categories, and as we head into the fall season, we see further opportunity in our home products, our transitional outerwear, bottoms and women’s tops. We continue to make strides in improving traffic and conversion, which we attribute to a number of factors. First, we further reallocated our marketing dollars to our most effective media channels, focusing on digital media and our catalog, which helped to drive traffic. Second, we maintain the disciplined strategic approach to our promotions, utilizing a test, learn and react approach, improving our promotional productivity and profitability. And third, we continue to see a positive impact from the refinements we made within our catalog, helping to drive improved…

Thank you. [Operator Instructions] Our first question comes from the line of Alex Fuhrman of Craig-Hallum Group. Your line is now open.

Great. Thank you very much for taking my question. I wanted to ask a little bit about the growth in the customer file that you’re talking about. Presumably, this is what’s leading to the nice turnaround there in the U.S. e-commerce business. Can you give us a little bit of color on where that’s coming from and if you expect that to continue throughout the rest of the year and into next year?

Well, it’s coming from us making that strategic decision that we talked about a couple of times, Alex, to reallocate some of our marketing dollars over to working media. So we’re seeing those dollars become more and more productive there. And we’re – it’s certainly helping to drive the performance in the current quarter, I think an important thing is as our customer file builds, you’re going to continue to have that rebuy with a stronger customer base, and so that performance should help to continue into the back half of last year. We’re also planning to continue with that spend, focus on working media through the back half of this year, so we would anticipate continued momentum in our buyer file.

That’s great. So that means – do you feel then that, that you kind of turned the corner on the Direct business? I mean, you’ve obviously been declining for several years in a row. It sounds like the first quarter probably would have been up a little bit if not for the timing of some big orders. Comparisons start to get a little bit harder in the back half of the year. I mean, do you feel that with the momentum you have and the Delta business coming online, whether in Q4 or Q1, do you hope that sales in the Direct channel are going to be positive from here on out?

Well, without giving any direct items on what we anticipate, we certainly feel good about what we’ve done. And I think that, as we’ve said on prior calls, that strength in the buyer file should yield results going forward. And so we do feel like we’ve turned the corner. It’s still a very promotional environment out there, so we continue to have a little bit of headwind from our gross margin rate. But from a top line – from a units and from a top line sales, I think we’re feeling very good about where our Direct business stands.

Okay. Now that’s very helpful. And then just interested about your comment about certain openings standalone stores in 2018. Can you give us a little bit of a sense of how many you might be thinking of? And just in terms of real estate, I mean, it seems like the stores you have right now or have opened historically are incredibly varied, from small little trip centers to the pop-ups that you were doing in New York City. What might these look like from a cost and size standpoint? And then putting that all together, where, ballpark, do you think margins could start to shake out over the next year or two? Wasn’t that long ago that the business was doing a nice high single-digit operating margin? I mean, is that kind of something that you think can be done again in the next couple of years? Or just potentially, the movement to open stores maybe start to lay the groundwork for more long-term stuff, but perhaps you’ll weigh on that in the short term?

Alex, concerning the question about stores, we’re working on a strategic plan for that now. Working on a concept for the stores, depending on what we want the store to look like and also what type of technology is going to go into the stores. We’re kind of finalizing the plan throughout quarter three. We have a bunch of stores right now, about 11. And overall, we make money in those stores. But we didn’t really feel like it was a smooth customer experience. We didn’t feel that the concept was really right, so we’ve been putting together a real estate strategy, and we’ll probably open mid-single digits in stores next year in areas where we know that we have a very good customer base in order to test this out or to make sure that we have a good profit model before we move forward. And as we get the numbers pulled together probably by end of quarter three, we can share a little bit of that with you.

And I think on your question on margin, I wouldn’t see, certainly in the short term, I wouldn’t see retail having a significant impact on what the margins look like. As Jerome said, we’re just going to be opening a handful next year and then hopefully more in the following year. So I wouldn’t see a significant shift in our margin structure as a result of new store openings.

Okay, that’s really helpful. Thanks. And then just, yes, I guess, forgetting about the stores then, just trying to put everything together, gross margin and SG&A. I mean, it seems like the overall margins of the business have shrunk a lot over the last couple of years. I mean, how much do you think is reasonable? What is your goal? How much of that needs to be recovered over the next couple of years?

More so than a goal, I think what we said in my prepared remarks around some of the headwinds that we had from a margin perspective, we had some onetime things in this quarter that I think will normalize out. We had some increased shipping costs, we had the increases in net duty expenses, we had the FX impact, so some of those things will normalize out. We’re also in the middle of liquidating through some product. I think we’ll be through the vast majority of that here into the third quarter and definitely into the fourth quarter, so that should help to improve margins. I think what we’re doing underlying that, we’re being far more productive with what we’re doing, from a promotional offering, from a promotional cadence, and we’re starting to see the positive impact from that. And so I think as we go into the back half, we anticipate some stronger year-over-year margin performance, but we also certainly still anticipate being in this very highly promotional environment. So that will be our challenge.

I appreciate the comments. Thank you very much.

Thank you.

Thank you. And that is all the questions we have today. Ladies and gentlemen, thank you for participating in today’s conference. That does conclude today’s program, you may all disconnect. Everyone, have a great day.