Good day, everyone, and welcome to today's Lands' End's First Quarter Earnings Call. At this time all participants are in a listen-only mode. [Operator Instructions]. It is now my pleasure to turn the conference over to Bernie McCracken, Interim Chief Financial Officer.

Good morning, and thank you for joining the Lands' End earnings call for a discussion of our first quarter 2023 results. which we released this morning and can be found on our website, landsend.com. I'm Bernie McCracken, Interim Chief Financial Officer, 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'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 Andrew.

Thank you, Bernie. Good morning, and thank you for joining us today. I'm pleased with our results for the first quarter, which demonstrate the strength of the Lands' End brand and deep customer affinity, the value of our core offerings, and our company-wide focus on stellar execution. We generated revenues of $310 million at the high end of our expectations and adjusted EBITDA of $19.5 million, well exceeding our guidance. I'll provide more commentary on our strong first quarter in a moment. But first, I want to focus on the progress we're seeing from our strategic initiatives that I shared with you last quarter and the work we continue to do to enhance value for our customers, employees, and shareholders. As you know, I believe Lands' End has a tremendous opportunity ahead and we are well-positioned to generate value for all our stakeholders to achieve that value creation, we are taking a page from our iconic brand's 60-year history. Beating our customer focus and ensuring that we're providing our customers and partners with the high-quality products they are looking for. In just a few short months, we're seeing progress as our renewed focus on our customers and prioritization of core products is driving tangible results. To be clear, we shared last quarter that Swim was performing well. and that it is a priority for us alongside its natural vacation adjacencies like tops, tells, and cover-ups. Year-over-year, our Swim business is up high single digits. And the MPD scores we're seeing in our women's Swimwear business show that we have the leading brand in the swim category and they're a top gainer of market share. What's exciting for us and gives us confidence in the path we are pursuing is that customers are responding well to newness. We've taken steps to…

Thank you, Andrew. For the first quarter, as Andrew mentioned, total revenue performance was at the high end of our guidance range at $310 million, an increase of 2% compared to last year. Our U.S. e-commerce business, which represents our largest go-to-market segment, so a sales increase of 2% from the first quarter of 2022, driven by targeted promotions within swim and adjacent product categories. Our Europe e-commerce business in the quarter was down 29%, reflecting the continued lower levels of consumer demand in Europe, as Andrew noted. Globally, e-commerce sales decreased 7% from 2022 or 4% when adjusting for Japan, which closed last year and accounted for $8.5 million of revenue in the first quarter 2022. Results from our Land’s End outfitters were strong year-over-year with revenue of 37% over the first quarter of 2023, which was lifted by the inventory sales to Delta at the anticipated conclusion of their five-year contract in April, excluding the $18 million difference in year-over-year revenue from Delta, the Land’s End outfitters business was up 4%. We continue to be pleased with revenue for our third-party business, which increased 6% as compared to the first quarter of 2022, driven by growth in our partners’ online marketplaces. As noted, swim was a winning category for us, and that included selling swim inventory through these important partners. We launched our Macy's partnership in the quarter and expected to contribute to the future strength of our third-party business. Moving to our retail stores, we delivered revenue of $10 million, with U.S. same-store sales increasing approximately 9.5% from the first quarter of 2022. Gross margin in the first quarter increased to 45%, approximately a 210-basis point improvement from 2022. The margin improvement was driven by leveraging our strength in owning the vacation and travel across our channels,…

Thank you, Bernie. As you've heard me say before, we are taking aggressive, achievable actions to improve the business today to-date to drive growth and profitability overtime, and our strong first quarter results give us confidence in the strategy we're pursuing. With Swim and Vacation as our template, we’ll continue innovating our product strategy, customer engagement, and internal approach to ensure we're building on and staying true to Lands’ End's history and brand. We also continue to make key hires, that are further ramping up our leadership team. In addition to Jim O'Connor joining us as Senior Vice President and General Manager of Lands’ End Outfitters; Stuart Hope joined Lands’ End as SVP, U.S. E-commerce in April. Stuart is a digitally savvy leader with more than 20 years of industry experience. He enjoyed a successful career at Nike and joined us from McKinsey where he advised clients on digital, omnichannel retail, and marketing transformation initiatives. With the strength and growth potential for our profitable U.S. direct business, we're pleased to have such a strong leader as Stuart as part of our team. As we execute our strategy and bring innovation across the business, we'll continue to provide updates about how our work is delivering for our customers, employees and shareholders. With that, we look forward to your questions.

[Operator Instructions] We'll take our first question from Dana Telsey with Telsey Advisory Group. Dana Telsey your line is open. Please ask your question. And once again, Dana Telsey if you would like to ask your question, please speak now. Your line is open.

Hi. Can you hear me, okay?

Yes, we can hear you fine.

Sorry about that. It was a little confusing. So, congratulations on the nice progress. As you think of the swim and vacation related apparel, how do you see this expanding beyond the purview during the remainder of the year, beyond summer? Secondly, on the marketplace initiative that you have, where are you seeing the greatest growth from and how are the margins there? And also, on the inventory levels, which are brought in nicely, how do you see that going through the rest of the year and what are you seeing in the promotional landscape? Thank you.

Okay. Thank you, Dana. Talking to swim and vacation. I mean, we took a view coming into the quarter that we had a leading market share and the best thing to do with a leading market share is rather and defend is attack. And we went out, and we actually found that we took market share by starting earlier and running longer, and then being able to get ourselves into trends faster by being able to pull product through our supply chain faster. So, we've been able to react to trends. We used our data to give us a good insight into where the trends were going to go. And we expect that market now will continue to be something that prolongs into the back half. Traditionally, we've wrapped up swim in a June, July timeframe. We now expect to see that continue on into late summer and to all intents and purposes be part of a year-round business for us. Particularly given what we saw in the fourth quarter with some of our swim sales. Where vacation goes is -- we're going to continue to evolve it. So, vacation for us will evolve into the back half of the year, and we'll pick up outerwear, where we have a strong market share position in outerwear and largely our intention is to do with outerwear what we've done with swim and we feel really strong about the product that we put behind that. What we're seeing is that expands having vacation and having this ownership and having these solutions, we're able to expand beyond that. So, we've seen ownership in our bottoms business, which we called out on the call, been really strong, and we're seeing trends, particularly wide lag, typically nets that are like lasting and enduring for us.…

Thanks, Andrew. Yes. So, inventory, the transportation has stabilized for us on the inbound and we've really taken advantage of that. The team's worked very hard to get our inventory flows aligned with our selling periods. And we are now going to be able to keep our inventories down mid-double digits in that 15% range for the rest of the year on the quarters. We are -- as far as the promotional business, it is definitely a very promotional market still, where we found strength is in newness, as Andrew has noted. And that is where we are going to lean in and try to drive our higher margin business and know that there are other products, we will have to join the rest of the promotional industry and have to go into a discount to liquidate that inventory. But from a total inventory standpoint, we feel very good about our inventory levels and will be at normalized levels for the rest of the year.

David, just to add to that, as like we want -- we're determined to drive a turn up and keep that fresh at much higher. And I think that traditionally, we've got a cataloging background. We were one of the original catalogers, and effect, we would bring in a lot of inventory set at the beginning of the season and let it run down. So, it starts to get a little stale as you get towards the end of the season. In fact, we're going to and are progressively bringing in the inventory in shots and matching it better against the revenue. Its better for cash flow, its better for freshness, it's better for markdowns. There's just a whole lot of advantages to it. But as we move forward, you'll see the business run that way. And it will come through materially in margins for us, and you'll see it reflected in turns as well as we're able to keep that inventory better matched to the revenue profile.

Got it. And just one follow-up. With the better-than-expected adjusted EBITDA uptick from the prior guidance, the main driver of that is that on the gross margin side, the SG&A side? How do we unpack that in terms of the levers? Thank you.

Yes, Dana, it's driven by gross margin. And our improvements in -- as you have heard from most of our industry, transportation costs are down and we're benefiting from that. And we also see continued improvement in our average unit cost of our product coming in, and we see real tailwinds in our lower cost and our ability to drive those lower costs through, as Andrew said, the timing and have it at the right times.

Yes. I mean one of the opportunities Dana as we speed our turn it looks like we're sitting on less inventory program from last year at a higher cost. And so, we see that as a tailwind that we can take forward for some considerable period of time.

Thank you.

And we'll take our next question from Alex Fuhrman with Craig-Hallum Capital Group.

Nice to speak with you. Congratulations on a really nice start to the year here. Let's see, Dana didn't leave a whole lot to ask about. But maybe just to start from a high level here. A lot of other retailers have been talking about just seeing demand soften over the last month or two? Obviously, it doesn't sound like you're seeing that with a really strong guidance for the year. Is there anything you have noticed lately in terms of maybe basket size or customer acquisition costs that would kind of be indicative of that? Or has it really just been kind of steady as she goes here for your customer since the last update?

I mean, overall, Alex, it's been pretty steady. But I mean, as you can imagine, and I know you're a key watcher of our site. It's just like it's choppy. Every day is a little different, and we're thinking more -- we think a lot more about how to reach our customers across the various channels from Macy's to target Amazon to landsend.com and how we're best going to position for them. And I think that we're doing a better job as our company working out how to address our customers in those channels. So, for example, we're reaching a much younger consumer with our swim business, and we're able to do that via Instagram. I don't know if you noticed, but we made the Instagram site shoppable and that's become a viable place to acquire new customers. And we've seen about a 10% lift in the number of followers that we're getting off Instagram. And I just called that as an example because it's one that's probably shown the most change and it's probably the easiest to track. So, we're being more thoughtful about the levers that we pull within the channels that we operate and viewing them as one digital enterprise rather than a series of silos where we think about basis differently. When we think about Amazon differently, we're actually connected the dots between them all and are able to amplify that and it get leverage across the business. So, I think you're seeing more of that coming through. And that, along with everything we talked to Dana about it gives us some running as we get through the rest of the year.

Okay. That's really helpful. And then Andrew, I thought it was interesting the commentary about licensing. I feel like that's something we've seen kind of some efforts that never really got off the ground, several CEOs ago in that area. Can you give us a little bit more insight into how those talks have progressed and what categories you might be looking to license?

So, yes, sure, it's a good question. For us, it's very important that we maintain a stance as a family variety retailer. We've always been that. It's been our heritage, we're going to stay with that. At $1.6 billion, we can't be putting all of our eggs in one basket. We've got this resource that we're spreading across a lot of categories and a lot of geographies. And for us, we view licensing as an opportunity to still remain really competitive in categories or channels or geographies that we wouldn't otherwise be able to show up in a way that we were completely proud of. And at the same time, it allows us to take that resource and position it behind things where we know we can really, really set ourselves apart like swim or light bottoms or like outerwear. So, it's more about where we want to invest our next dollar ourselves and then look for partners to really support the growth of the business. And I would say to you, it's going to be the lesser categories or the non-core categories and geographies and channels, that we haven't necessarily got to. We're in conversations geographically to take the business into places like Latin America or into the Middle East. We couldn't possibly go in there ourselves. We don't have that expertise to get in there, but we recognize from our digital sales that there's demand that we can capture. And so, having that partner in place really helps us. And again, I mean, you can do the math on it. It really -- it's a great opportunity for us to build our margins and build up expansion and demand much quicker than we could sort of organically just given some of the constraints we face.

Okay. That's really helpful. Thanks again. And congratulations again on the great start to the year.

Thank you. Appreciated.

And there are no more questions at this time. That concludes today's teleconference. Thank you for your participation. You may now disconnect.