Good day, everyone and welcome to the Lands’ End Third Quarter Earnings Conference Call. [Operator Instructions] Please note today’s call will be recorded, and I’ll be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Bernie McCracken, Chief Financial Officer. Please go ahead.

Good morning and thank you for joining the Lands’ End earnings call for a discussion of our third quarter 2023 results, which we released this morning and can be found on our website, landsend.com. I am Bernie McCracken, Lands’ End’s Chief Financial Officer and I am 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 positive 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. Before I turn to our Q3 results, I’d like to congratulate Bernie on his appointment to Chief Financial Officer, which we announced in September after having served as our interim CFO since January. I couldn’t be more pleased to continue working with Bernie and I am more than confident that he will continue to lead our financial organization with abstinence. With that, I’ll turn to our Q3 performance. Our results were characterized by strong execution of our solutions-based strategy to deliver quality for our customers and value to our shareholders. We built on our momentum from Q2, further improved our inventory position, injected newness across our assortment and continued to prioritize gross margin improvement to drive incremental gross profit dollars. Our deliberate strategy to improve development of our solution-driven products generated more profitable sales, resulting in gross margin and profit expansion and adjusted EBITDA of $17 million above the high end of our guidance range. As I have previously noted, we are executing a deliberate strategy to drive higher quality sales with a larger portion of our sales occurring with no or lower levels of promotions rather than simply prioritizing moving units so we can enhance gross margin and deliver increased cash flows. Paired with our work to further improve our inventory position, it’s clear this strategy is working. Q3 marked our third successive quarter of significant inventory and margin improvement, with a 25% reduction and 700 basis points of improvement respectively. We are confident that we have found a winning formula, increasing churns of merchandise while maintaining lower, more efficient inventory due to our targeted customer cohorts. We are taking advantage of the flexibility that our lower inventory levels provide to continuously refresh our assortment with new…

Thank you, Andrew. For the third quarter, total revenue performance came in slightly below our guidance range at $325 million, a decrease of 12.5% compared to last year or 9% when adjusting for our Japan e-commerce business which closed in 2022 and accounted for $10 million of revenue in the third quarter of last year and excluding the $4 million difference in year-over-year revenue from Delta. As Andrew noted, we delivered adjusted EBITDA of $17 million, up 4% year-over-year, which exceeded the high end of our guidance range. Fundamental to these results is our conscious decision to focus on profitability and balance sheet efficiency versus solely on revenue, which has improved gross profit dollars and markets. Gross margin in the third quarter was 47% and an approximately 700 basis point improvement from the third quarter of 2022. The margin improvement was primarily driven by new products across the brand, strength in transitional outerwear and adjacent product categories, reduction in sales of clearance inventory and improvements in supply chain costs. While we are pleased with our gross margin improvements, we were focused on driving additional supply chain cost savings and product cost reductions and improved seasonal inventory management. While our U.S. e-commerce business saw sales decrease of 10% compared to the third quarter of 2022, we generated an increase in gross profit dollars of 7% driven by our concerted effort to reduce promotions within categories, especially our outwear solutions, new products across the brand and improved inventory management. Sales in our euro e-commerce business in the quarter were down 8% year-over-year, reflecting continued macroeconomic challenges but again, increased gross profit dollars by 18%, driven by promotional effectiveness and improved inventory management. Globally, e-commerce sales decreased 13% from last year or 10% when adjusted for Japan. Sales from Lands’ End outfitters were…

Thank you, Bernie. Before we wrap up, I’d like to briefly touch on our holiday sales trends. Like other retailers, we introduced Black Friday promotions earlier this year and began to see traffic ramp up as we progress through November with significantly stronger traffic and increased gross profit dollars across our channels on Black Friday and over the weekend, had a [indiscernible]. This holiday season, we are better engagement with our customers through our improved brand focus debit higher-quality sales, further supporting our enhanced inventory position as we approach the end of our fiscal year. Like other retailers, holiday promotions are higher than across the balance of the year. However, we continue to scale those promotions back versus prior holiday periods and remain committed to our strategy of driving increased gross margin in both dollars and rate. We will remain competitive with our pricing and be smart about how we target the different segments of our customer file to drive classical demand throughout the holiday season. However, we remain cautious given that we set and the additional weekend between Black Friday and Christmas, which could push some business later and beyond our shipping cat loss. As I mentioned earlier, we are confident that we have found the winning formula to achieve more conductive sales by focusing on a better understanding of our customers’ shopping behavior and faster-moving inventory. Our customer-centric strategy is working, as I am pleased with the progress our team has made. As we continue to play to our strengths and improve operational efficiencies across the business, we’re well positioned to finish strong through the year. That concludes our prepared remarks. We look forward to your questions.

[Operator Instructions] We will take our first question from Dana Telsey with Telsey Advisory Group. Please go ahead.

Hi. Good morning everyone and nice to see the progress on the profitability. The continuation of the lower inventories, I think down 30% in the second quarter, down 25% now in the third quarter. Where do you see what the normalized rate of inventory level should be, how are you planning that going forward? And then on – it’s nice to see scaling back on the promotions that you are seeing, especially post the Black Friday time period, what are you seeing in terms of categories, outerwear, how are you planning? How are AURs? And then on the margin focus, what are you seeing in terms of under the hood on the margins, whether it’s freight or whether it’s AUC, what is the opportunity for the gross margin going forward? Thank you.

Dana, how are you?

Good. How are you?

Good. So, leading into the question that we continue to see opportunity with inventory and pulling that back, working on the working business more to return and see an opportunity to move in the business between three turns and four turns. I mean obviously, it gets harder as the turns increase where you are looking, but it’s a function of the speed that we are putting into our supply chain. So, I mean we have talked a lot, and this is going to be related to your AUR comments as well. We have talked a lot about getting speed in and having more freshness, more consistently in the business month-after-month-after-month versus that more traditional model of not buying twice a year. And that in and itself will give us more opportunity to increase the turns going into next year, and it will give us opportunity to just show up and maintain the average of retail. I am going to talk to scaling back promotions. We scaled back promotions even through Black Friday and Cyber Monday. I just want to emphasize that point in the script. We did come into early, one of the things I have noticed about Lands’ End, it’s probably more to do with our capital in history than everything else. We really kick off holiday in October. October tends to be a bigger month for us than August, but that’s different than I have experienced in my career. And it’s really – it’s the start of the holiday shopping period. And holiday for us is really all about successful October and November and in that last couple of weeks after Cyber Monday. So, what you saw is that really begin to market Black Friday in October, consistent with our starting holiday, and that’s what’s new in there.…

Got it. Thank you very much.

Thanks. You bet.

Thank you. Our next question will come from Alex Fuhrman with Craig-Hallum Capital Group. Please go ahead.

Hey guys. Thanks very much for taking my question. So, clearly, the focus on prioritizing profitability over revenue is producing some nice results here. I am curious how much more room you think there is to pull back on unprofitable sales? Could there be another leg down of revenue as you identify more promotions or clearance activity that you want to pull back on? And then looking out over the next couple of years, as you add more high-margin revenue, presumably from growing the licensing business, can you continue to grow EBITDA without necessarily a big increase in revenue? Can this be a $100 million EBITDA business on the current $1.5 billion revenue base as you start to grow some of those other areas like licensing?

Yes. Alex, I am not sure you have been sitting in some of our strategy meetings. But yes, I think what really is important for us when we talk about licensing, that’s one of the strategies that will reduce our current sales. When we get out of the products, we are not as focused on and we don’t have authority on. We will be able to drive without a top line, we will be able to drive a better profit, a better net income number from a licensing arrangement than selling a lot of product at clearance that we tended to do in the past. So, I think you would definitely hit on that we expect to be able to drive up $1 million of EBIT, $1.5 billion revenue company.

And we can say that, Alex, it’s like as we look further out, there is a point where we have the customer reeducated. That’s what’s happening right now. I mean that we have customer deciles and our lowest decile is the one that we have probably averaged the most customers, they love the brand, they are committed to the brand. You know what customers come then they stay with Lands’ End ‘17, ‘18, ‘19 years. What they are not – what they are struggling most to respond to is that they traditionally uses a little bit like a such option, which is like they put product in their basket and they wait and talk they get the price they want, and then they will buy it. We are moving towards customers who will buy the product narrow or it won’t be there. We are not going to discount our product. We are going to spend on our brands. We are going to stand on what we believe are the key attributes of the Lands’ End solution company that we have built and we are going to drive that. And I think what you will see, and we are seeing ourselves in our internal discussions is we are shifting from – sorry, all simple decile based model that looks at our customers the same and we are moving to more thoughtful psychographic model that looks at customers in cohorts and the two cohorts that we have identified are resolvers and evolvers. And it would be fair to say that we have used the fourth quarter to start repositioning some of the thinking around them and how we go to market to them, how we sell to them more uniquely versus more generically and how we attract them, part of what we have been doing in Q4 and part of what we use Black Friday and Cyber Monday for us to go out and find new customers, new customers that we like, which is why – and I know with just some throwaway comments in the script, but it’s why we talk so much about social media. We really like the customer we are finding from that. They fit our revolver platform, and it’s like they are much less inclined to buy at a discount. So, we are doing the hard work right now, the commitments you are getting from me, the commitments you are getting from this management team is that we are going to deliver gross margin comps in dollars. This isn’t just about getting rate and declaring victory. We understand, so we are here to drive EBITDA and ultimately, earnings per share. And it’s like we are fairly focused on that. So, we are constantly evaluating that and threading that need every day, be that Black Friday, Cyber Monday or just like Casual Tuesday in January.

Okay. That’s really helpful. Thank you. I appreciate your insights, and congratulations again on the strong third quarter results.

Thank you.

Thank you. This does conclude today’s Lands’ End third quarter earnings call. You may all disconnect at this time and have a wonderful day.