Good day, and welcome to the Land's End First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there’ll be a question-and-answer. [Operator instructions]. As a reminder, this 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 Land's End earnings call for a discussion of our first quarter fiscal 2022 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 session. 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. 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 Jerome Griffith.

Thank you, Bernie. Good morning, and thank you for joining us today for a discussion of our first quarter results. Let me begin by expressing my gratitude to our team, who continue to demonstrate fortitude and agility as we navigate the ongoing supply chain challenges, the changing consumer landscape, and the difficult macro conditions. By actively managing our cost structure during this challenging period, we achieve adjusted EBITDA results within our expected range in the first quarter. Revenue for the quarter was down 6% versus 2021, but up 16% compared to 2019. We are seeing supply chain and macro pressures impact our global direct consumer e-commerce business. However, we continue to see growth, with strong performance across our Outfitters business, and in our third-party distribution channels. With our proven digitally-led business model, combined with our strategic pillars of growth and proven success in executing our strategic initiatives, we remain confident in the long-term growth potential of our business, despite the challenging period. Touching on the quarter, a number of factors impacted our topline results, including ongoing supply chain delays that continue to impact the flow of new styles and colors. In addition, we saw on industrywide slowdown in e-commerce traffic, particularly in the apparel category. Furthermore, unprecedented inflation in food and fuel impacted discretionary spending for many consumers. These challenges led to an associated decline in our buyer file for the quarter compared to last year. Given our highly loyal customer base with an average tenure of 18 years, we are confident that as inventory flow normalizes and the macro headwinds subside, these customers will return and we will be ready to meet their needs. While we navigate these headwinds, we continue to control what we can and leverage the strength of our digitally-driven operating model to advance our strategic…

Thank you, and good morning. We're pleased to have achieved adjusted EBITDA in line with our expectations, despite challenging macro headwinds that impacted our topline and created incremental cost pressures. While we expect these challenges to continue in the near-term, we remain confident in our strategic growth pillars, as well as the long-term health of our business. For the first quarter, as compared to last year, total revenue decreased 6% to $304 million. As expected, we continued to experience transportation delays through the quarter, which negatively impacted our in-stock position in certain key items, resulting in lost sales. Our global e-commerce sales decreased 16% from 2021. Within that, our US e-commerce business decreased 14%, and our international business decreased 22% from 2021. Revenue for our third-party business continues to be very strong, increasing to $22 million, a $10 million improvement or 83% compared to last year. This increase was largely driven by strong performance at Kohl's and Amazon, particularly within the women's apparel and swim categories at Kohl's. In addition, we added another partner in the US, with our QVC on-air launch in April. And even though it's early, we're extremely pleased with the results. In our Outfitter business, sales increased 33%, driven by strength across all three business lines. We continue to see growth in our national accounts. We're very pleased to have seen our small to medium-sized businesses also show strength during the quarter, as the return to in-person events increased the need for customized apparel. And lastly, we are seeing high demand in our school uniforms, with increased basket sizes demonstrating strong demand heading into the back-to-school season. Moving to our retail business. During the quarter, we delivered revenue of $9 million, with the performance of our US same store sales increasing approximately 4% from the first…

In spite of the macro challenges we are experiencing, the fundamentals of our business remain strong. As we continue through 2022, our strategy will remain the same. We will leverage our digitally-led business model to advance our four strategic pillars of growth, which include product, digital, unit channel distribution, and infrastructure, across all of our businesses. We remain confident in the long-term outlook that we provided in January for several reasons. We have strong brand heritage, with a highly loyal customer base. We offer the right quality value relationship they look for. We continue to diversify both our consumer and Outfitters businesses across channels. And finally, we remain committed to reinvesting in our infrastructure to support long-term growth in our business. With that, we will now take your questions

[Operator instructions]. Our first question comes from Dana Telsey with Telsey Advisory Group. Your line is open.

Good morning, Jerome, and Jim. Wanted to get an expanded discussion perhaps on two - a couple of things. First, the debt profile and how you're thinking about that over the next few months, what the options could be, and what that could look like. Jerome, on Kohl's, how is that doing? It sounds like the expanded product categories are working. And what does that mean for potential other third-party opportunities? And then lastly, you had mentioned in the guide that gross margin has the opportunity to improve in the second half. Where do you see that coming from? Are you taking price and how has that been received? Thank you.

Thanks, Dana. Thanks for all those questions. Maybe I'll take the first one on the debt, and probably aren't in a position to give you necessarily any more specifics as to what our plan is on this point, but I would maybe comment a little bit on the process. As I mentioned that beginning of September, certainly gives us more flexibility on possibly refinancing the debt, but we're certainly not waiting until then. I would say that that we're already well into our process. And as far as options, I would say all of the options are on the table and we're looking at any and all options at this point. And I say that - I do hope to come back to everybody well before September, the coming months, but I certainly hope to be back before then. And at that point, I think we’d be in a better position to share all the specifics and what our plan will be.

And I'll start off with Kohl’s, Dana. Thanks for the question. Third party has actually been pretty good for us. We've been very pleased with what the results look like. And what we're seeing is that our best sellers on our own website seem to be the best sellers everywhere, whether it's in somebody else's store or on a third-party marketplace website. Swim was an outstanding category, though swim is an outstanding category for us overall over the first quarter of this year. And what we see going down the road is expansion into stores, which, what we're seeing as we go into more Kohl’s stores, is that our online business also picks up. So, it's one business helping the other. QVC was a great launch for us, well exceeded everybody's expectations this past month, and what we're expecting is to expand that offering going into the back part of this year, and then the next. We're also looking for other opportunities, which we're well underway with that. From a gross margin standpoint, what we're seeing is, on the product margin, we've been performing relatively well. We've been handling the raw materials increases, very good with price increases. And we haven't really seen any major pushback from consumers on increased price. What we're seeing is, less people shopping on the web. But from how we're managing the increases in raw materials, we've been pretty pleased with what the results look like there.

Got it. And then …

Yes. And maybe to add to that a little bit, Dana, too, another benefit that we have built into the back half will be some of this normalization from a freight charge perspective. We gave you the numbers, the incremental freight for the first and the second quarter, and that's the majority of what we're anticipating seeing for the full year. So, when we get into the back half of the third quarter and into the fourth quarter, we're going to be up against comparables of a much higher freight rate. So, that should also give us some benefit in the gross margin.

Got it. And then on driving traffic to the web, your top-of-funnel marketing that you're initiating, when do we begin to see that, and how do you think about driving traffic to the web? Thank you.

Our expectation is that you'll start to see some results for that in the back part of Q3 and Q4. That's really when we think we have the biggest opportunity coming up this year. And what you'll - should really be seeing is more top-of-funnel. We've been looking at bottom-of-funnel, and I think we do a really good job, particularly with SEO. But we've got other opportunities in bringing in newer customers to the brand. And we've not really done a lot of top-of-funnel marketing over the course of the last couple of years. So, I think it's going to be worthwhile for us, and it should be exciting to see.

Thank you.

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

Hey guys. Thanks for taking my question, and congratulations on hitting your Q1 EBITDA guidance, not a lot of companies doing that recently, given all of the headwinds. So, certainly a strong quarter here. Wanted to ask about the slowdown in demand that you and everyone else are seeing and the e-commerce sales being down. I mean, are there kind of generalities in what consumers have been pulling back on? It certainly seems from what we read and hear from others is that, people are kind of shifting there, spending more into services and experiences and that probably makes sense, given what you're seeing with the strength in swim. What categories have people been pulling back on.

From an apparel standpoint, pretty much across the board. There's no one category I would say, Alex, that they've been focusing on, but really all of apparel. Where people seem to be spending their money right now is food and fuel. I mean, those two commodities are definitely being driven up in price, and I think that's hurt us, particularly being up against a couple of really great quarters a year ago, and there was a lot of stimulus money out there and people were still looking for - working from home and looking for comfortable clothing to work at home. So, I think that's generally what you're seeing. And we're waiting to see what the future looks like for us.

Great. That's helpful, Jerome. And then can I ask about just the gross margin outlook? I mean, it sounds like the biggest variable here is supply chain costs and you guys have done a really good job over the past couple of years, managing prices and markdowns, but this is probably the first time we've seen a really kind of sudden drop in demand across the board here. And I would imagine your category that's most at risk for markdowns is swimwear. So, good to hear that that category is going well. But can you talk about a little bit, what your expectations are for markdowns and what's kind of baked into the guidance here?

Yes. Actually, we feel pretty good about our overall quality of inventory, even though we're showing a higher inventory, that's more about going forward than it is about excess inventory coming out of the season. That entire increase in inventory is either the result of us trying to pull forward as many receipts as we can to try to improve the in-stocks because the supply chain has been so choppy and the flow of inventory has been so choppy. Or remember that these added freight costs end up getting capitalized into inventory. So, that's also driving up the inventory value. So, we don't have a significant amount of added markdowns built into that forecast because our inventory is in pretty good shape.

Great. That's really helpful. Thanks, Jim.

Thank you. That concludes our question-and-answer session. Thank you for joining today's conference call. This does include the program and you now disconnect. Everyone, have a great day.