Good day everyone, and welcome to today's Lands’ End 3Q Earnings Call. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question-and-answer session [Operator Instructions]. Please note this call is being recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Tom Altholz.

Good morning. And thank you for joining the Lands’ End earnings call for discussion of our third quarter 2024 results, which we released this morning and can be found on our website, www.landsend.com. I'm Tom Altholz, Lands’ End Senior Director of Financial Planning and Analysis, and I'm pleased to join you today with Andrew McLean, our Chief Executive Officer; and Bernie McCracken, our Chief Financial 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 risk and uncertainty. 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 the forward-looking statements made by us. Subsequent events and developments may cause the company's outlook to change. During this call, we will 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, Tom. Good morning, and thank you for joining us today. Our performance in the third quarter of 2024 was characterized by the continued execution of our solutions-based strategy and customer focus to drive higher quality sales. In the third quarter, we delivered net revenue of $319 million, adjusted EBITDA of $20 million, a year-over-year increase of 17%, and a low double-digit percentage growth in GMV. Through the evolution of our strategy, we're further solidifying our position as a classic American lifestyle brand that creates solutions for life's every journey and attracting new and existing customers to our wide-ranging assortment of fresh, on-trend items. At the same time, we're leveraging new and innovative tactics, including greater personalization across our marketing program to best engage customers and drive greater buying throughout the year. Paired with our strong execution, we also delivered growth in gross margin and gross profit dollars in the third quarter. When looking at our inventories, our efforts are continuing to yield results. In the third quarter, we drove a 20% year-over-year improvement in our inventory position and a double-digit increase in our churn rate. Our focus on newness and wear now products remain key to this success. By bringing customers' relevant items faster, we're able to increase full-price sales of quality inventory that fit the moment, thereby reducing the debt [ph] of promotions. One way we're optimizing our supply chain is by moving fabric closer to production with a focus on the Western Hemisphere, which helps reduce shipping time while diversifying our sourcing relationships. We're always focused on identifying efficiencies across our supply chain, and we will continue to take steps to innovate and enhance our resiliency. Critically, our ongoing efforts to redefine and elevate our brand across our marketing channels is proving fruitful. As we continue…

Thank you, Andrew. For the third quarter, total revenue performance came in at the middle of our guidance range at $319 million, a decrease of 2% compared to last year. When excluding the impact of transitioning the kids and footwear products to licensing agreements, total revenue grew by low single digits year-over-year. GMV increased low double digits for the third quarter of 2024, which exceeded our guidance. We delivered adjusted EBITDA of $20 million in the third quarter, which came within our guidance range and was a 17% increase over last year. These results reflect our continued efforts to prioritize profitability and balance sheet efficiency versus only the top line. We continue to improve profit margin across our business units, which has allowed us to continue to reinvest in the business. Gross profit increased by 6% compared to last year, driven by our 7th straight quarter of gross margin expansion. Gross margin in the third quarter was 51%, an approximately 360 basis point improvement from the third quarter of 2023. The margin improvement was driven by newness across the assortment and lower promotional activity. Our U.S. eCommerce business saw a sales decrease of 2% compared to the third quarter of 2023. Excluding the impact of kids and footwear, U.S. eCommerce sales increased low double digits year-over-year. We generated a 6% increase in gross profit dollars driven by continued efforts to prioritize higher quality sales. Our European eCommerce business increased gross margin by approximately 900 basis points and gross profit dollars by 13% compared to the third quarter of 2023, with sales decreasing 5% year-over-year. Sales from Lands' End Outfitters were down 1% from the third quarter of 2023. Sales from business uniform channel increased 7% over last year, primarily due to the ramp up of our partnership with Wells Fargo.…

Thank you, Bernie. I want to spend a minute discussing our initial read on the Black Friday, Cyber Monday weekend. This kickoff to the holiday season was in line with our expectations and was further demonstration that our strategy is working. Throughout the weekend, we saw both longer-tenured and newer to Lands’ End customers visit, engage, and purchase directly from Lands’ End. We also saw balance across our channels, continued strength and growth in our licensed products, and strong performance in our marketplace business. Taken together, we're pleased with this start to the holiday season. Before we conclude, I'd like to highlight two updates to our leadership team. First, I'd like to congratulate Kym Maas on her appointment as Lands’ End’s Chief Creative Officer. Kym previously served as our Senior Vice President of Products and Merchandising, where she played a key part in our brand evolution efforts. I look forward to her future contributions in her new role, where she leads all elements of the creative vision to the Lands' End global brand. Secondly, in October, we announced that after over 30 years at Lands' End, Angie Rieger, our Chief Transformation Officer, will retire effective April 15, 2025. Angie is a consummate leader who has not only been instrumental to the execution of our inventory strategy, but has become a trusted advisor. On behalf of the entire Lands' End team, I want to thank Angie for all her contributions. We wish her nothing but the best in her well-deserved retirement. As always, I want to thank all of the Lands' End employees, wherever they are, for their dedication to the brand, the company, and our continued success. With that, we look forward to your questions.

[Operator Instructions]. We will pause for a moment to allow questions to queue. And we'll take our first question from Dana Telsey with Telsey Group. Your line is open.

Hi, good morning, everyone. The new customer acquisition increase of 20% was definitely a call-out. What are you seeing working there? What are the demographics of these new customers? And how is it informing your product development? And then just getting some more color on the Black Friday weekend and the kickoff to this – well, we're in the fourth quarter, but the fourth quarter. What are you seeing in terms of the promotional landscape, given the fact of the strength of your margins? How much is internal versus external? And lastly, China, any percentage of goods from China and thoughts on tariff impact and what it may mean for pricing for you? Thank you.

Great. I'll kick off with China, Dana. We've worked to put some real agility into our supply chain over the last couple of years, and China now accounts for less than 6% of our open to buy. We have been progressively moving towards Western Hemisphere. We have taken a view that the closer we can get the product to our customer, the quicker we're going to be able to churn and that works with our margin model really well. So we're not feeling much pressure around China. If there's anything specifically, it would be around cashmere, but that tends to be a smaller part of our assortment in any case, so we're good there. In terms of – they kind of go together, the new customer and that promotional landscape in the fourth quarter. If we look at the new customer, we're really seeing a couple of cohorts, which we talked about before on prior calls. We've got the revolvers, which tend to be our traditional customer, come back, tend to buy the same items, wear it out and come back. And then we've got a revolver who tends to be a newer customer. We continue to see the path with adding revolvers as our new customers. They tend to be 10 to 12 years younger. We see them coming in from all avenues, our website, our third-party business, our stores. And I can talk about the pop-up that we had in Soho, because it sort of really spoke to sort of a cultural moment that we're having with our tote bags, where we're able to reach out via influencers and just like target a customer who's in their late 20’s to early 30’s. So we're continuing to halo down and reach this new group. And they come with a…

Thank you.

Thanks to you.

Thank you. We'll take our next question from Eric Beder with SCC Research. Your line is open.

Good morning.

Morning, Eric.

Hey. Let's talk – tell me a little bit about licensing. First of all, I know you talked about aggressively adding more licensing. What is kind of the criteria when you look for new licenses and where do you want to go? And could you – that's one. Could you remind us of what is new that beyond the two licenses you have coming up for 2025? And how should we think about longer term, the split kind of here between licenses product and non-licensed product?

Sorry, what was the last part? You broke up on me there, Eric.

I'm sorry, the split between, you know longer term, what should be the split between amount of licensed product sold versus non-licensed product?

I'll start with that one. It's an 80-20 rule in there. I think about 20% of what we should be doing should be coming from licenses. I've been doing this for a lot of my career, and I think when you start to become over-licensed, you probably give up too much brand control. Mostly it's about just trying to keep the whole concert, that's when playing, it is playing to the same beat. And if you have too many licensees, that becomes a challenge. I've talked before about just trying to manage to, you know between five and 10 licensees for the whole of the business. For licenses that we'll be adding on top of the ones we've discussed, HomeStart [ph] in 2025, we will continue to provide our own home merchandise on our site, although we've given ourselves the option to be able to buy from our license partner, and we can evaluate that as we go forward, but we just didn't have the experience of selling it in, outside of our digital channels. We're looking at non-core categories. So I would think beauty is one that we continue to look at. We look at things like luggage. We look at things like fragrance. There's a number of areas that we can lean into in that space and we'll continue to do that. The other big one that's going to be coming up is international. There's the three license groups that we've talked about; one's product, one's channel and one's geographic. I think what you'll see as we build the brand up over the coming months, that we'll start to look more towards international and we’re already talking to a number of potential partners about it. And I think that could be very positive for the business and really…

Great. One last figure on inventories. You've done a tremendous job of reducing inventories and listening kind of to licensing and kind of where you are resetting the manufacturing. It sounds like there's actually probably still more there. How should we be thinking about the opportunities in inventories, even though you've spent the last seven quarters reducing the inventory amount? Thank you.

Yeah, Eric. We expect to normalize inventory levels going forward. As we continue to improve our infrastructure and our supply chain processes, there will be some efficiencies built into that where we'll be able to, as Andrew said, near shore more product and not have to have it on our balance sheet, and be able to buy closer to trend. So we're excited about that going forward. But you can think of our inventory levels now as being our normalized levels going forward as we build those efficiencies.

Okay. Great. Thank you and good luck for the rest of the holiday season.

Thanks Eric. Take care.

Thank you. We'll take our next question from Alex Fuhrman with Craig-Hallum Capital Group. Your line is open.

Hey guys, thanks for taking my question, and congratulations on a strong quarter during what seems like has been a pretty promotional holiday season for a lot of retailers here. I wanted to ask just about the guidance, if we could just drill into the revenue versus GMV. It looks like a little bit lower GMV guidance despite revenue guidance being within the prior range, albeit a little bit lower at the midpoint. Is there a simple explanation there, or is it just a matter of a small move lower, and that's just all there is to it?

Yeah Eric, of course, our U.S. e-commerce has the impact of transitioning our kids and footwear products to licensing arrangements. So naturally the revenue year-on-year will be lower in that business, but those businesses lean heavier into Q4, so there will be a little more effect on the revenue line in Q4, but that does not affect GMV as those businesses will be selling Lands’ End branded products.

Okay, that's helpful, Bernie. And then just big picture, you know marketing. Over the last year or so, you guys have been spending a lot more on marketing and seem to be getting a very strong return on that. Are there opportunities to continue to increase marketing spending next year and in future years off of this base, or do you feel like you've found a pretty good level for now?

We've spent the year investing in our marketing. As you can tell that, it's driven a very nice new customer acquisition, which we expect to create a flywheel and drive additional business going forward. As we generate those additional revenues, we expect to then still spend a percentage of that, an equal percentage on marketing to keep that flywheel going. So we feel strongly that it will stay on a percentage basis and we'll be able to start. As we improve our gross margins over the year, we've spent some of that investing in this marketing and new customer acquisition, and I think we'll be able to start leveraging that going forward.

Okay, that's really helpful. Thank you.

Thank you. We'll take our last question from Steve Silver with Argus Research. Your line is open.

Thanks operator, and thanks for taking the questions. I'm curious about the rollout of the third-party business. Over the last couple of quarters there's been a lot of talk about the expansion of the roster, including Nordstrom and Costco among others. I'm curious as to how long do you expect that will take to kind of translate into increased traffic to the Lands’ End website, which you guys have talked about in previous quarters, and the double-digit increase in GMV in Q3, I'm curious as to how much of that you attribute to the third-party expansion versus other channels. I'm just trying to get a sense as to the data you are capturing from these third-party businesses in terms of your new customer acquisitions, in terms of what percentage of that is organic versus coming to you from these third parties.

Yeah, first of all, good morning Steve. How are you doing?

I'm well, thank you.

It's a great couple of questions. I'm going to take the first one on the third-party business. We started Nordstrom in the summer, and it has exceeded all our expectations. What's been interesting is that we're tailoring each of these businesses to a specific customer, so we will merchandise accordingly from both their assortment and the price point. So, for example, with Nordstrom, we've already found that there's a very strong school customer on there, and we're finding that we're able to be – actually at the moment Nordstrom's the only resource for school, and it's really opened up a new avenue for us. So there is a lag between seeing those customers from the Nordstrom website onto the Lands’ End website, but we do see them, because we curtail the inventory, we curtail the assortment, we make it quite specific, and then we use that to find their way back. Our data, we do spend a lot of data on this. Third-party seems to be one of the biggest areas from which we grab customers. Now, there's a second part to this question, which is Costco. Costco's managed Arms Lens [ph]. It's a licensed partner, where we manage that Nordstrom's relationship very specifically ourselves, and that's supplied from our inventory. But with a Costco, that's supplied from a partner inventory, so it's harder for us to get the data. Here's how I view it, though. Having that physical manifestation of the brand in like-minded retailers and while Costco is a club, I very much view it as a like-minded retailer, given the demographics of the customer. It presents almost as a store in many ways. And it like, opens us up not just to our existing consumer shopping there, but very much to a new consumer. And we do see the benefit as we go back and look at our customers, and try and match up against those that we survey to see if there's a growing percentage of them come from Costco, for example. And we do see that coming through. But in terms of hard and fast being able to tie that together, we don't have the insights, given the Arms Lens [ph] nature of that licensing agreement versus owning a third party.

Yeah, and to add on to that, Steve, the new customers in marketplaces, 80% of our sales on the marketplaces are from customers who either have never shopped or haven't shopped with Lands’ End in over five years. So it's a new customer we're attracting there. And then the benefit of the marketplace as Andrew says, is we are fulfilling that product from our single source of inventory. So one, it de-risks our inventory, but two, more importantly, from a customer acquisition standpoint, is we are getting the information on that customer and knowing what that journey is for that customer, which as we're only a year or a couple of years into our expanded marketplace that we're starting to build those customer journeys and truly understand where their next purchase is from. Is it from that same marketplace? Is it on landsend.com? And its data analytics that we're very excited to keep learning from.

And we're seeing customers come from many avenues. We're really only a year into our journey on Instagram, and we have 200,000 followers now. So even we're able to see customers from places where we've never seen them before. So what Bernie's saying is, right, we've invested against understanding that customer journey is why we're so excited about the new customers that we're seeing to file in the third quarter and into the fourth quarter, where they are coming in, they are younger, they come from many venues, and they are much more about occasion buyers than they are necessarily about an event buyer. I think that high intent is really transferring through to much, much stronger margins for us and we'll continue to do so.

Great, I appreciate all the color. And again, best of luck for the rest of the holiday season.

Hey, thank you very much. Take care. Happy Holidays! End of Q&A:

Thank you. And that concludes today's teleconference. Thank you for your participation. You may now disconnect.