Good day, ladies and gentlemen. And welcome to the Lands' End First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will be given at that time [Operator Instructions]. As a reminder, this conference maybe recorded. I would now like to turn the conference over to Bernie McCracken, CAO. You may begin.

Good morning. And thank you for joining the Lands' End earnings call for a discussion of our first quarter fiscal 2019 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 President 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. 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 10-K and quarterly reports on Form 10-Q. The forward-looking information that is provided by the company on this call 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. 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 measures can be found in our earnings release issued earlier today, a copy of which is posted in the Investor Relations section of our website at landsend.com. With that, I will turn the call over to Jerome Griffith.

Thank you, Bernie. Good morning. And thank you for joining us to discuss our first quarter financial and business results. We're very pleased with delivered results at the high end of our first quarter expectations across key financial metrics, and to be reiterating our full year revenue and adjusted EBITDA guidance for fiscal 2019. This performance further illustrates the continued progress we're making across our strategic initiatives. Our U.S. e-commerce business continued to deliver solid results. Comparable store sales in our U.S. company-operated retail stores remained strong, again showing double-digit growth. Gross margin expanded approximately 130 bps and adjusted EBITDA was at the high-end of our expected range. Additionally, we voluntarily prepaid $100 million of our term loan with excess cash on hand, further strengthening our balance sheet. As a result of the debt reduction, we were adjusting our net income guidance to reflect the positive impact of interest expense savings. Jim will provide details on our guidance. The continued progress we're making across our numerous growth initiatives put us on track to achieve our stated long-term objectives of $1.8 billion to $2 billion in revenue, and high-single-digit EBITDA margin. I'd like to take this opportunity to elaborate on our strategies to achieve these goals. Our growth strategy is centered around getting the product right; operating as a digitally led company; executing a unit channel strategy; and improving business processes and infrastructure. We believe these strategies will enable us to successfully grow e-commerce, develop our unit channel capabilities and reach and expand our outfitters business. All of our growth initiatives begin with getting the product right. We believe our growth will be driven first and foremost by the continued optimization of our products assortments, focused on our key item strategy. Our goal is to retain our core customers and attract…

Thank you, Jerome, and good morning. As Jerome mentioned, we're pleased with a strong start to fiscal 2019. We saw strength in our U.S. e-commerce and retail businesses. Although, total company revenue and EBITDA declined as we not only anniversaried the Delta launch last year, but also operated a 120 fewer Lands' End shops at Sears. The U.S. e-commerce business increased 8.1% and comps at our U.S. company operated stores increased 12%. For the first quarter, total company revenue decreased 12.5% to $262.4 million compared to $299.8 million in the same period last year. Excluding the impact of sales from the Delta launch last year and our Sears performance, revenue would have increased 3.4%. We saw solid performance across most of our categories with particularly strength in knit tops, bottoms as we continue to focus on delivering relevant, high quality product at great value to our customers. Beginning with our retail business, as I said, we drove strong performance in our U.S. stores, delivering a 12% comp store growth for the quarter. We saw customers respond very favorably to our product assortment across most categories with particularly strength in bottoms and knit tops. During the quarter, we opened three new stores and ended the quarter with 19 U.S. company operated stores. As Jerome mentioned, we're encouraged with the performance of our new stores and plan to open an additional seven stores to nine stores this year. Overall, sales in our retail business did increase by $16 million to $10.4 million. As expected, sales within our retail business continue to adversely impacted by Sears closings with 120 fewer locations compared to the same period of last year. We ended the quarter with 39 shops at Sears, all of which have leases expiring by the end of 2020. Within outfitters, sales declined…

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

Great, thanks very much for taking my question and congratulations on another strong quarter here. I wanted to ask about some of the initiatives that you're making to really make the company more digital first and mobile first. And I know you've talked about today improving the site speed on your mobile site, and other initiatives improving the way that you can attract organic search and things like that. And just curious if you can give us a sense of how far along you are on some of those initiatives? I know those are things you've been working on for a little while. Sounds like some of these things are starting to generate positive results for you. I'm just curious how far you are in terms of time and then also just in terms of expense on some of these initiatives as you're going forward?

I think, as you look at last year and some of the work that we did last year, particularly with dynamic pricing, particularly with search, you saw some pretty good results going into quarter three and quarter four. Some of that has continued into this year. Customer behavior continues to shift somewhat from desktop or laptop and then into mobile. We think there's a lot of opportunity for us on mobile with our product display pages and being able to get the product in front of the consumer faster, making it easier for them to check out. As you know, there's really no end of technological advancements out there. So we think this is going to be long term for us. But we think when it comes to expense, we've spent a very large amount of money over the last few years on our backbone system, ERP is complete now. EOM is under way. Those are bigger expenses than continuing to manage your website and upgrade the speed or upgrade the flexibility of your website. So we think the bigger costs for us are behind us. But we will see continued investment into our website going forward, that's not going to stop. And as customer behavior continues to evolve, we'll evolve right along with it.

And then if we could switch gears maybe and ask about just uses of cash. Obviously, you paid down a big chunk of debt just about a month ago. Sounds like you're also pretty optimistic about the new stores you've been opening and looking to open 50, 60 new stores over the next few years. So just curious how you think about deploying your cash flow. I mean, going forward, might we see another chunk of debt that gets repaid? Or at this point, should we think about your cash more going into some of those new store openings?

I think from a debt perspective, we're starting conversations right now to look at what that refinancing will look like. And we'll probably have the answer for you probably during the next 12 months or so. As far as uses of cash, going forward, as Jerome mentioned, we have our largest behind us, which was that ERP implementation with the finalization of that new AP-IP that puts that multi-year roll-out behind us. What we now have on our plate is our EOM or order management system that will be over the next 12 months, far smaller than certainly what the ERP was and then we're scoping out the WMS. And then besides that, you hit on it, we have our new store roll-outs and we have the expenses in the capital spend on what we're doing from a digital perspective. But all of those individually are certainly smaller than what the ERP. And we think we can do all those in the CapEx guidance that we've given.

And then lastly, if I could just ask about swim sounds like a number of different merchandising and design initiatives that are under way for that category. This year, obviously, we can see your Q2 guidance and your full-year guidance, which I'm sure you incorporated everything that that's been going on. But just any learnings that you can share with thoughts on what the reception has been to your swim collection just given how big of a category that is for you? And curious if there's a good read you've been able to have on the design changes that you've made for that category?

It's still really key item driven, Alex, board shorts, tankinis, seamless tanks, seem to be the things that continue to resonate with customers. Our customers also like color and pattern quite a lot. I think for quarter one, the weather was a bit cold for swim. We did extremely well in other product categories with layering and with rainwear and bottoms. But we see swim probably picking a bit more going into the second quarter as things get a little bit warmer. Last weekend was pretty decent. So we still feel pretty good. We're in a much better inventory position this year than we were last year. And feel pretty good about where we're going to finish the quarter right now.

Thank you. And our next question comes from Steve Marotta of CL King & Associates. Your line is now open.

First, Jim from exposure to China standpoint, you mentioned the potential obviously of tariffs and mitigating factors. What is your specific exposure to China now on domestic COGS? I'll start there. And where do you think it'll be at the end of the year?

We've been as high up in the 40% range. Moving through this year, we're going to end probably lower in the lower 30s. And as we move into this year, we anticipate moving that even lower, probably in the mid 25% range somewhere in there.

As it pertains to speed to market, you mentioned earlier in the call that you're endeavoring to shorten that product cycle and product initiations. Could you talk a little bit about where you are now and where you expect to be toward year end?

We ended up through 2018 shaving-off somewhere around 20%, 25% of the time that it took us to get product to market. We're working with some outside people to help us right now, continue to shave that down. It depends on what type of product you're looking at Steve, because we've bucketed things into three areas. We've got product, which are basics, we carry on-day in and day-out. We've got product which are seasonal items, which come in for six months to nine months and then fashion items. So we'll look at different timeframes for each one of those. With the thought that it's going to help us continue to free up capital and continue to have us help manage our inventory in a better more productive way. As you've seen, we've continued to whittle down old inventory over the course of the last several quarters. I think the guys have been doing a pretty darn good job at it. But there's still ways to go and we'll continue to work at that and making ourselves more productive.

Also, it's been widely reported across the retail space in the first quarter was pretty difficult. There's a little bit of inventory backing up in the system, promotions are ticking up. Can you talk a little bit about the environment that you find yourself in vis-à-vis competitors? How much promotional stance, if you will, is provided in the second quarter guidance and where you think things shake out by the time back-to-school comes around?

Well, my feeling is for quarter one we actually came through the quarter relatively okay. I mean, our largest business, which is our U.S. direct business was up in the high-single digits. So I think that was pretty good, double-digit comps on our owned stores I think that was also pretty good. And overall, our margins ticked up a little bit. But I got to say, I still see a pretty promotional environment out there. Customers are a lot more well-informed than they have been in the last few years. I think our biggest initiative, which is dynamic promotion is under way. We're still testing a lot of stuff. We see ourselves testing a lot through the summer to get ready and see what we can really implement well for Q3 and Q4 sales for this year. I think back-to-school, every year it gets a little bit tougher quite honestly. You have X amount of students and it's not like it's growing huge out there. So you're generally taking business from somebody else. I think it'll be a relatively promotional time period yet again, as we have seen in the past. And I don't think that there's any signs of that changing out there. If you look at the retail environment, I think the tariff discussions have been difficult for some people. I think that's hurt people's bottom line, has definitely hurt what the evaluations have been on the market. And whether that's right or wrong, it is what it is for the time being and you're going to have to manage yourself through the rest of the year. As you guys saw last year, the beginning of the year is a little bit slower than that part of the year ticks up a bit when people get into the buying mood and we expect to see that again this year.

Steve, I think a couple of things to go on and talk about. That promotional environment, we feel like we've included that into our guidance. We don't anticipate it getting any better in the second quarter and really throughout the rest of this year. As it relates to your comment on inventory, you can see that our inventory is higher year-over-year. But if you go back to last year, you would recall that we were very light on inventory coming out of first quarter and into the second quarter. And we specifically talked about how that negatively impacted our top line sales. So we're very comfortable with where we are, not only from a quantity but from a mix and from our quality of inventory. Jerome mentioned, our each inventory were really at an all-time low with our inventory over one year old. So we do have more inventory year-over-year, but we feel like we're in a much better in-stock position.

That's great. Very helpful. I'll take the rest of my questions offline. Thanks again.

Thanks Steve.

Thank you. And this does conclude our question and answer session. Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.