Good day, and welcome to the Land's End Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After this speaker's presentation, there will be a question-and-answer session. . As a reminder, this call is being recorded. I will now turn the call over to Bernard McCracken, Chief Accounting Officer. You may begin.

Good morning. And thank you for joining the Land's End Earnings Call for a discussion of our third quarter 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 President and Chief Financial Officer. After the Company's prepared remarks, we will conduct a question-and-answer segment. Please also note that the information we're 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. Of note in this respect, the COVID-19 pandemic continues to have an impact on our business and its duration can materially alter our outlook. During this call, we'll 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 A - Jerome Griffith.

Thank you, Bernie. Good morning, everyone, and thank you for joining us today for a discussion of our third quarter results. Our performance this quarter demonstrates the strength of our offering and distribution strategy that creates our dynamic operating model. The flexibility of our model enabled us to mitigate much of the macro challenges and achieve adjusted EBITDA at the high end of our guidance. Despite these headwinds, we delivered 4% top-line growth contributing to our 22% growth year-to-date, and achieved 129% adjusted EBITDA expansion year-to-date. We're extremely proud and grateful for our team's ability to execute at an exceptional level as we navigate this challenging operating environment. We're very pleased with our sales over Cyber Week, where we saw strong online and in-store traffic. Sales during this period were up high single-digits year-over-year as a result of strong demand and improvement in stock positions in time for early holiday shopping, as Jim will discuss shortly. We believe that the strong operating platform we established, combined with our ongoing progress across 4 strategic growth pillars, including product, digital, unit channel distribution, and infrastructure, set us up for long-term success. Our commitment to operating a digitally led business is driving our customer growth, which we expect will expand by approximately 6% to an all-time high of over 7 million customers this year. And we still see a long runway ahead. We are optimistic about our future and look forward to sharing updated long-term goals with you in January at the ICR Conference. Now I will provide some brief highlights from the quarter before turning it over to Jim to discuss our performance in more detail. Starting with product, we remain focused on emphasizing our successful, Let's Get Comfy positioning, as we continue to capitalize on the strong casualization trend, even as…

Thank you, and good morning. We're pleased with our performance this quarter, despite the very difficult environment. We remain confident in the strength of our customer, as well as the long-term health of our business. There were supply chain challenges and labor constraints that we, along with the rest of the industry, faced this quarter that were difficult to navigate. In light of these challenges, I would like to reiterate Jerome's comments, and how proud we are of our team's ability to work through them. Similar to the last quarter, I'll make select comparisons to our third quarter of 2019 to help normalize for the impact COVID had on our business in Q3 of last year. For the third quarter, as compared to last year, total revenue increased 4.4% to $375.8 million and grew 10.5% from 2019. Revenue in the third quarter was impacted by inventory delays related to manufacturing challenges, particularly in Vietnam, and shipping issues resulting in lost sales and back orders. While we saw the impact of out-of-stocks in the third quarter, the actions we've taken to expedite shipments enabled us to recover inventory levels consistent with prior years going into Cyber Week. We believe we're currently positioned well for the remainder of this year, and also as we head into 2022. Our Global eCommerce sales decreased 6% from 2020, but still increased 9% from 2019. Within that, our U.S. eCommerce business decreased 3.5% from 2020, but still increased 6% from 2019, while our international business decreased 15.7% in the quarter, but still showed a very strong 27.6% increase from 2019. The challenges in both businesses compared to 2020, we're largely due to inventory constraints and resulting lower in-stocks. Revenue for our third-party business continues to be very strong, increasing to $19.3 million, a $7.3 million improvement,…

Thanks, Jim. We remain committed to building upon our strategic pillars, which have allowed us to create a strong and resilient foundation from which we expect to continue driving long-term profitable growth. As we look ahead, we are particularly excited about the significant opportunities we see in further growing our third-party partnerships, expanding our marketplace, and increasing our collaborations. These initiatives remain in their early stages and we have a long runway ahead. We believe the shift in consumer behavior to online shopping, is here to stay and expect comfort to remain a key attribute for our customers. The increased willingness of U.S. households, within our demographic to shop online, which accounts for over 95% of our business, has meaningfully expanded our addressable market. We plan to capitalize on this by building our brand awareness and bringing more consumers to Land's End, as we see compelling growth opportunities with new customers. As such, we will continue to prioritize spending in our marketing initiatives to expand brand awareness and drive customer growth. Our digital strategy is an important focus and represents roughly half of our overall marketing spend. We are testing new strategies in social media, where we have accelerated our investments this past year, as well as refining our search engine optimization. We're also improving our catalog spending efficiency to drive profitability. Turning to product, we will continue to lead with our effective Let's get comfy positioning, emphasizing our comfort, versatility, and great fit. This messaging leverages the strong casualization trend, as well as the surge and return-to-office comfort fashion. We will continue to emphasize messaging around our one-closet offering and extensive fit capabilities as we introduce seasonal colors and outerwear for the holiday. As always, we will use our data analytics capabilities to inform our product assortment, which we…

Our first question comes from Steven Morada with CL King. Your line is open.

Good morning, Jerome and Jim. Just to put a fine point on the fourth quarter sales expectations, am I correct in thinking that the delta between what was previously expected and what's now expected is the lost sales in the month of November associated with supply chain disruptions, and that the inventory that you got in just prior to Cyber Week is more where you would have otherwise expected to be for the entire quarter? Is that accurate?

I think you're pretty you're accurate. Not to say, overall, if you look at our prior guidance there's two factors that are impacting it. There's the lack of in-stock, especially early in the quarter, and then from a profitability perspective, there's an incremental $15 million that we highlighted that relates to inbound freight.

Right. Exactly. Okay. That's great. One overarching question and something that I think that's a little bit different this year than in previous years, is that there could be winter items like boots and coats, outerwear, fleece that sell more closely to full-price in January than ever before. In other words, considering that consumer demand is so elevated that general inventory levels are still very constrained, there could be winter items that would have otherwise been marked down significantly on December 26th and beyond that might not be this year. And the volume of those items actually even higher, ironically, because of supply chain constraints. Am I thinking about that right?

Yes, Steve. I would say you are. First of all, our inventory levels today are, where we are pretty much in line with where we were last year. So, we're feeling much better about that. And secondly, since we felt very large percentage of basics or seasonal basics, you're exactly right, because we're going to have a much longer life time this year.

Yes, I would think so. And could -- I don't want to try to get ahead of myself, but could provide upside to the fourth quarter in sales and earnings if that dynamic happens this year relative to previous years, is that -- is that accurate?

If you look at customer traffic and you look at demand, it's still there. I mean, it's just the availability of product I think, that's been holding people back. And when we went through Cyber Week, last week, we were pretty pleased with what the outcome was, the number of customers that came to the site, who was buying, what they were buying, and how. So, we think that there is potential upside towards the back part of the quarter.

Great. Last question. As it pertains to the supply chain expectations for the first half of next year and into the second half of next year, not asking for guidance, of course, just how much do you think how much oil will be placed into the gears that drive the supply chain for deliveries that are expected in say, March, April, May, June, that kind of time frame?

I think there's no question. It's going to continue to be challenging. I think the thing that we've done internally is, we have adjusted some of our lead times to account for the factors that we know about. Now, unfortunately, there have been several things that are outside of our control, but we are hopeful that we'll certainly be in a better position than what we were in the back half, but we still are anticipating challenges, at least going through the first half of next year.

Totally understand. I'll take my balance of questions offline. Thank you.

Thanks, Steve.

Our next question comes from Alex Fuhrman with Craig-Hallum Capital. Your line is open.

Great. Thanks very much for taking my question. If you know, I was wondering if you can talk a little bit more about the $15 million of supply chain costs that you're expecting here in the fourth quarter. Can you unpack that a little bit more about what those dollars were? And then as we think about the -- you mentioned potential pressure extending into the first half of next year. How many of those initiatives do you see extending into the first half of the year? Is there anything you can give us to kind of try to size that up would be helpful?

The two biggest components were the inbound cargo freight rates that were up dramatically year-over-year, and then the second is that we did air more product than what we would normally do. Just some of our key items that we're worried about, even if we expedited things on boats and trucks, it wasn't going to get here on time. So, as we go into next year, we're anticipating that some of those inbound cargo freight rates will continue to be higher than what they were year-over-year. But as I mentioned to Steve earlier, Alex, I think some of the things we've done with adjusting or lead times should hopefully make it so we don't have to air to the level that we did in the fourth quarter of this year.

Yeah. That makes a lot of sense. I mean, if costs remain elevated for the foreseeable future is there a point in time next year where you would either becoming less promotional or raising ticket prices on your goods. How should you think about that? Or are you kind of waiting to see what happens in the spring?

No. We've already gone back and we looked at pricing for next year, for spring, and for fall. And obviously that after the price increases to make up for the increase in costs. Though I would say, we think that, while the cost probably will not make it down to last year's level, we don't think it's going to continue with this year's level either, as you go through the back half of next year.

I think the other thing on that too, Alex, as you've heard us talk on prior calls about our dynamic promotion tool, that's really allowed us to be more effective from a promotional productivity perspective. We think that'll be a great tool going into next year to impact pricing.

Okay. That's really helpful, guys. Thank you very much.

Next question comes from Dana Telsey with Telsey Advisory Group. Your line is open.

Good morning, everyone and nice to see the progress. Jerome, you've talked a lot about the future initiatives, expanding the reach and presence of the brand. What do you see is the opportunity for the TAM of Land's End, given the different verticals and the long-term growth? Where does it grow? What do you see that being, as we move forward into 2022 and beyond? Thank you.

Thanks, Dana. A couple of things. First off, due to what's happened over the last couple of years and the proliferation of more people shopping online and their being comfortable shopping online, we believe that the customers that are online shopping now, more than where they were a couple of years ago, are really our demographic. You've seen it in the longer-term new customer acquisition numbers, and we're starting to see it again in December of this year. The ability for us to reach more customers through just organic growth with our global website is a big foundation for us, and we see that continuing to grow. Second thing is getting our brand name in front of so many other consumers with 3rd-party marketplaces, like an Amazon, like a Kohl's, like a John Lewis as like as are all working for us. And we believe that there is very long runway there also. And with the numbers that we've been seeing from those marketplaces, it's all new customers from 70% anyway. So, the largest share of the customers that are coming to us, have not shopped with Land's End before and are discovering the brand. So, with those two initiatives, plus what we're doing in Outfitters, with the upgrade on the website, we see very good long-term runway for us. And short-term issues like what we're seeing today, really don't faze us, because you can very clearly see where you're going to be going over the next few years.

Got it. Any -- and the partnerships business or what you have with Kohl's, are there more opportunities like those ahead? And how big do you expect the partnership business to get over the next year or 2?

We haven't shared numbers yet, on the size of the partnership business that we will talk about in January when we lay out our long-term goals. We see it is extremely significant. I'd rank them. I think our organic growth is probably going to be our number 1 growth -- growth factor over the course of the next 5 years, but right behind is going to be those 3rd-party marketplaces because we've got so much opportunity. When new customers experienced the brand, we have a very large percentage of them that turn into active customers and you know from previous discussions that are active customers stay with us, are extremely loyal, that stay with us for approximately, 17 years. So, it's a very long-term relationship with them.

Thank you.

There are no further questions at this time. This does conclude the program. You may now disconnect. Everyone, have a great day.