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Bear of the Day: Lands End (LE)

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American retailers are seeing a seismic shift in shopping habits, and overall tastes.  Stores that are adapting to these changes are making their brick and mortar stores more exciting with the addition of spas, climbing walls, and even a giant fish tank to test fishing rods.  These new “attractions” are enticing customers to come into the store and buy their products.

But some stores, especially in apparel, are getting crushed by online shopping and the physical stores are basically becoming a big showroom.  Potential customers go into the store to check out the clothes, but then they just take a picture of the clothes to find the same item online for a cheaper price. This is one of the major reasons for the death of the American mall, and its negatively impacting the Zacks Bear of the Day, Lands End Inc. as well.

This Zacks Rank #5 (Strong Sell) operates as a multi-channel retailer. It offers men's, women's, and kids' apparel, outerwear and swimwear; specialty apparel; accessories; footwear; and home products. The Company operates in two segments: Direct and Retail. It offers products through catalogs, online at and affiliated specialty and international Websites, and through retail locations. Lands' End, Inc. is based in Dodgeville, Wisconsin.

Recent Earnings Miss

The company reported Q1 16 results on June 1, and they significantly missed both the Zacks Earnings and Revenue Consensus estimates.   Land End saw year over year losses in Net revenues -8.4%, Same store sales -7.1%, lower gross margins 49% vs. 47.4%, and posted a net loss of $5.8 million.  The company also decreased store shops at Sears as well.  

According to Federica Marchionni, CEO, stated, “We continued to make progress across a number of initiatives; we remained focused on strengthening our core business and launching additional collections that we believe will drive future profitable growth. While we are encouraged by the initial wins, our financial results in the first quarter were impacted by the overall weakness in the retail environment, including aggressive discounting and promotional activity.”

Price and Earnings Consensus Graph

As you can see in the graph below, both the stock price and estimates have been declining for over a year.

Declining Estimates

Over the past 30 days estimates for Q2 16, Q3 16, FY 16 and FY 17 have all seen significant declines; Q2 16 fell from $0.16 to -$0.02, Q3 16 dropped from $0.25 to $0.04, FY 16 plummeted from $1.30 to $0.60, FY 17 crashed from $1.47 to $0.85.

Bottom Line

The apparel segment is highly competitive and it is facing big headwinds from online retailers, and off price retailers.  To combat these headwinds, LE is improving their online presence, but they still have a difficult road ahead.    

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