Good day, and welcome to Lands' End's Fourth Quarter and Full-Year Fiscal 2022 Results Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there’ll be a question-and-answer session, and instructions will be given at that time. As a reminder, this call may be recorded. I would now like to turn the call over to Bernie McCracken, Interim Chief Financial Officer. You may begin.

Good morning, and thank you for joining the Lands' End earnings call for a discussion of our fourth quarter and full-year fiscal 2022 results, which we released this morning and can be found on our website, Lands’ End.com. I’m Bernie McCracken, Interim Chief Financial, and I’m pleased to join you today with Andrew McLean, our Chief Executive Officer. After the 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’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 Lands’ End.com. With that, I will turn the call over to Andrew.

Thank you, Bernie. Good morning, and thank you for joining us today. On today's call, we'll discuss Lands’ End's fourth quarter and full-year 2022 results. We'll also discuss our strategy and the work we're doing to ensure Lands’ End effectively serves all of our stakeholders in the years ahead. I'll begin by saying just how excited I am to have joined Lands’ End and for the opportunity to lead this iconic American brand. Lands’ End has a fantastic 60-year history, and thanks to the hard work of our talented and dedicated team with a strong platform for continued growth and profitability. We'll speak to our performance in the fourth quarter in a moment, but as this is my first earnings call addressing you as CEO, I want to provide my perspective on the business and how we plan to build on all the progress made by Jerome Griffith and the entire Lands’ End team over the past several years. At our core, Lands’ End is in the business of providing products that solve life’s issues. We deliver consumers the high quality products they're looking for, for themselves and their families. We plan to continue focusing on our successful franchises and product strengths, while driving innovation across the enterprise, and as always, placing the customer at the center of our decisions. The leadership team and I have spent the last few months refining our strategy, thinking about how we can best leverage our strengths to execute, and I'm pleased to share some more details today. To be clear, the evolution of our strategic value drivers, builds on a strong foundation from which to drive enhanced growth and profitability, and we will prioritize execution and innovation to position Lands’ End for long-term success. I mentioned it earlier, but it's worth repeating. Lands’…

Thank you, Andrew. For the fourth quarter, as Andrew mentioned, total revenue was at the high end of our guidance range at $530 million, a decrease of 5% compared to last year. Our global eCommerce sales decreased 6% from 2021, with our US eCommerce business decreasing 2% from 2021, and our international business decreasing 31% in the quarter. Our international business continued to be impacted by inflation and geopolitical turmoil in Europe, as well as the previously announced closure of the Japan eCommerce business. In our outfitters business, sales decreased 2%, mostly from timing differences due to last year's supply chain disruption. In our business uniforms, we were favorable to last year for both the quarter and the full-year. Within school uniforms, we're pleased with our overall performance for the year, and maintained our overall share in the school segment. Revenue for our third-party business continues to be strong, increasing 8% as compared to the fourth quarter last year. This increase was largely driven by sales growth in the Kohl's marketplace, particularly within fleece and outerwear, as well as growth in our other online marketplaces. Moving to our retail business, during the quarter, we delivered revenue of $15 million, with US same-store sales decreasing approximately 4% from the fourth quarter of 2021. Gross margin in the fourth quarter decreased to 33%, approximately a 340-basis point decline from 2021. The margin pressure was driven by increased industry-wide promotional activity, and a focused effort to move through less productive units, slightly offset by lower inbound transportation costs. As a percentage of sales, SG&A was 28%, a decrease of approximately 260 basis points from 2021, driven by continued expense controls across the entire business, and lower digital marketing spend. Our performance led to a net loss for the quarter of $3.3 million or…

Thank you, Bernie. As we close the book on 2022 and embark on the next phase of our strategy, I want to reiterate the confidence we have in our business. Lands’ End is an iconic 60-year old classic American lifestyle brand, and with the foundation that Jerome and the team put in place, we are well positioned to drive strong growth and profitability. This won't all happen overnight. We are taking aggressive, achievable actions, to simplify and refocus our efforts to ensure we're providing the high quality products our customers demand in the categories that they look for from us most, and that we're engaging with them in whatever channel or venue they want. We've already announced a number of changes to our executive leadership team and how we organize internally, and those changes are already having a positive effect. As a reminder, Peter Gray is now our Chief Commercial Officer. In this capacity, Peter is charged with driving revenue growth in existing businesses, and developing new income streams. He oversees our eCommerce, Outfitters, B2B, third-party, retail, and international businesses, and will have responsibility for the company's license businesses and marketplace development. Angie Rieger is now our Chief Transformation Officer, where she'll oversee the company's brand management and inventory-planning functions. A longtime Lands’ End leader, Angie is critical to ensuring a consistent flow of information across our operating groups, making sure diverse constituents remain connected, and that we move as an organization on one calendar. Industry veteran Kym Maas recently joined the company as Senior Vice President, Product & Merchandising, reporting to Angie. Kym is responsible for developing and implementing growth strategies in merchandising and brand management for the company, as well as testing new strategies and concepts for future growth. Sarah Rasmusen has taken on the newly created role of Chief Innovation Officer, and will be responsible for driving our innovation efforts across the enterprise, while ensuring the customer is at the center of all decisions. Sarah’s charge is to deliver innovative, customer-centric connections, leveraging our data, and driving it across the organization in ways that prioritize activities to grow our digitally-native company. I'm confident these organizational changes better position us to be more product-driven and nimble as we deliver on our strategies. We'll look forward to providing additional updates on our strategy as we continue to make progress on our initiatives. In the meantime, my mantra is execute, execute, execute, and we'll continue working to do that so we can deliver for our customers, employees, and shareholders. With that, we look forward to your questions.

I think we have a question from Dana Telsey.

Alex, are you available to ask a question? Operator, are you able to start the Q&A session, please? Please hold on for one second. We have a technical issue. Alex, you have a question?

I sure do. Can you guys hear me?

We can hear you.

All right. That's terrific. Well, congratulations, guys on a strong finish to the year and what sounds like a pretty good start to 2023. I wanted to ask about gross margins. It sounds like you're looking for that to be up nicely in ‘23. Can you give us a sense of how much of that is coming from lower costs that you have good visibility into, and what your expectation is for promotions compared to last year, which sounds like was a little bit more than usual?

Sure, Alex, I'll take the cost. We are already experiencing lower inbound transportation costs year-on-year, which we expect to continue throughout the year. And then from a promotional activity, we finished 2022 by getting our inventory in a very healthy position, which is going to allow us to optimize our promotional and markdown activity into 2023. And Andrew, did you want to add to that?

Yes, I mean, I think, I mean, just picking up on what Bernie said, we feel really good about the inventories and cleaning those up. That was important to us to get ourselves so that we had seasonally-appropriate merchandise that we could lean into for the customer. As we look at it, and I think for those of you, and I know you do watch the site, we saw that by starting to win early, we were able to build momentum with the customer in January, and really use that as a springboard into the first quarter, and we'll do that through the year as we make that business into a year-round event. I think I'd also say on this as we look at the three pockets of margin out there, obviously we're going after the cost of the goods, and we're working with our vendors on that. Bernie mentioned that the transportation costs have fallen, and then just having better merchandise is going to let us reduce the markdown levels that we're experiencing. So, I think if you put all that together, there's a good margin tailwind here that we can get behind for this year and start to look to get ourselves back to more historical levels (indiscernible).

Okay, that's really helpful. Thanks. And then it sounds like you had a lot of swim inventory at the beginning of the quarter here, and expect to have that worked down throughout the quarter. Is it fair to assume that the early reads on your swim through season are pretty strong then?

Yes, I would say that we're having a good start to swim. We decided to engage with it in December. It's not something that we've necessarily done in the business before, but we felt like it's a year-round business, our data, and we have immeasurable troves of data here, I said that at ICR, I still continued to be astonished by, was telling us about the customer - certain customer cohorts were leaning in heavily to swim, and we followed that through. I talked to ICR about owning the vacation. That's not changed. It's not just about selling swim. It's about the merchandise that we've gathered around it. So, we're selling from slides, slides on her feet to the hat on her head, and that's working strongly for us. Having that inventory, which arrived late last year and was not saleable at the time we got it available to go, has really helped to fuel us with that early start, and we're going to build into it. So, we're already getting into a situation where we're having to chase some swim because we're working through the inventory so quickly.

Wow. That's exciting. Thank you for that. And then, kids, sounds like kids have been down for you lately. That historically, has been a pretty strong category for Lands’ End. Do you have a sense of why that business has been weak, and are you expecting any improvement this year?

I think we've seen this weakness in the business because we've been in and out of it in a way. We had tried to license it going into the pandemic. We pulled that license back. We tried to run it ourselves, and we've under-resourced it. And I think for us, it's a strategic decision about how we resource that appropriately going forward. We've talked about various ways to execute that business. We're not going to walk away from kids, should be the takeaway in this, but we will look for ways to improve it, make sure it's appropriately resourced and find its place in the family variety of Lands’ End.

Okay, that's really helpful. Thank you very much.

Thank you. One moment for our next question, and that will be coming from the line of Dana Telsey with Telsey Group. Your line is open.

Hi. Hope you can hear me now.

Yes, we can hear you now, Dana.

Oh, great. Hi, Andrew. Hi, Bernie. Great to hear from you. So, Andrew, you mentioned throughout the call the focus on data, and it seems like that's one of the key elements that you are bringing to the Lands’ End brands. As you think about the different channels, you also mentioned the additional marketplaces. How do you see - whether it's outfitters, whether it's eCommerce, how do you see the channels penetration differing as you move forward, and what could that mean for margins? And then just in the near-term with the promotional environment, how are you planning in terms of margins to manage the promotional environment, whether by channel, whether by category? And then lastly on cotton costs and raw material costs, what does that mean for your cost of goods as we move through the year? And one more thing, retail. I think you had thought about retail as being a potential opportunity. Is it? Thank you.

All right. Thanks for the point. Let's see. I'll start with retail. It's one of a list of things that we are evaluating, Dana, and it's - I would say this, as we continue to refine and look at the ROI of retail, we think there is other priorities that are going to be ahead of it. So, I don't see it being this year part of the strategy. You may see some experiments from us, but we're not going to lean into that specifically. Coming back to it, we do see a lot of data. We have an amazing amount of data and the data - we stopped looking at the customer just in terms of a demographic, and we started looking at behavioral cohorts. And as we got further into those behavioral cohorts, we've seen that there are patterns in the customer that we can use to help them connect the dots across our categories. So, whereas we have had cohorts for the customer tend to just shop one item, outer wear, that might be the shop that they are, swim, that might be the shop that they are, we will look for ways to connect them across our categories. The best example I can give you is the mom who's shopping for a school uniform for her kids. It's a great school uniform business for us. We see that she was leaning into our swim, and by encouraging her, by advertising to her directly, marketing to her with our catalogs, we've been able to engage her with our swim product. Once you get her into the swim product, we see that the collection of goods that sit around that, as I mentioned earlier, which is going to move from slides on her feet, hats on her head,…

Yes, I'll take that, Dana. We will experience some headwinds in the first half around fabric costs, but we expect that to dissipate in the back half. And then when you talked about the promotional environment, each month in the fourth quarter, we got sequentially better, and we've seen that progress into the first quarter this year, an improvement, but it is still a promotional environment at this time.

Thank you.

And thank you all. I'm showing no further questions at this time. Thank you for participating. This concludes today's program. You may now disconnect.