June 9, 1994
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of 1934, we
are transmitting herewith the attached Form 10-Q for the quarter ended
April 29, 1994.
Sincerely,
Kathy Gies
Lands' End, Inc.
One Lands' End Lane
Dodgeville, WI 53595
KLG/tlk
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarter Ended April 29, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ...... to ......
Commission file number 1-9769
LANDS' END, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2512786
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Lands' End Lane, Dodgeville, WI 53595
(Address of principal executive (Zip code)
offices)
Registrant's telephone number, 608-935-9341
including area code
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of June 3, 1994:
Common stock, $.01 par value 35,000,518 shares outstanding
LANDS' END, INC. & SUBSIDIARIES
INDEX TO FORM 10-Q
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations for the
Three Months Ended April 29, 1994, and
April 30, 1993 .................................... 3
Consolidated Balance Sheets, at April 29, 1994,
and January 28, 1994 .............................. 4
Consolidated Statements of Shareholder's Investment
for the Three Months Ended April 29, 1994, and
Fiscal Years Ended January 28, 1994, and January 29,
1993, ............................................. 5
Consolidated Statements of Cash Flows for the
Three Months Ended April 29, 1994, and
April 30, 1993 .................................... 6
Notes to Consolidated Financial Statements ......... 7-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ..................................... 14-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .................................... 17
Item 4. Submission of Matters to a Vote of
Security Holders .................................. 17
Item 6. Exhibits and Reports on Form 8-K ..................... 17
Signature .................................................... 18
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three months ended
April 29, April 30,
1994 1993
(unaudited)
Net sales................................ $187,012 $156,256
Cost of sales.......................... 107,294 92,083
Gross profit 79,718 64,173
Selling, general and
administrative expenses............ 71,911 57,519
Income from operations................... 7,807 6,654
Other income (expense):
Interest expense..................... (41) (20)
Interest income...................... 60 87
Other................................ 232 136
Total other income (expense), net.... 251 203
Income before income taxes and cumulative
effect of change in accounting......... 8,058 6,857
Income tax provision................. 3,180 2,607
Net income before cumulative effect
of change in accounting................ 4,878 4,250
Cumulative effect of change in
accounting for income taxes............ - 1,300
Net income............................... $ 4,878 $ 5,550
Net income per share before cumulative
effect of change in accounting......... 0.14 0.12
Cumulative effect of change in accounting - 0.04
Net income per share..................... $ 0.14 $ 0.16
Note: All per share amounts have been adjusted for the two-for-
one stock split declared in May 1994.
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
April 29, January 28,
1994 1994
Assets (Unaudited)
Current assets:
Cash and cash equivalents............ $ 441 $ 21,569
Receivables.......................... 1,664 3,644
Inventory............................ 168,067 149,688
Prepaid expenses..................... 8,201 11,787
Deferred income tax benefit.......... 5,588 5,588
Total current assets..................... 183,961 192,276
Property, plant and equipment, at cost:
Land and buildings................... 60,997 60,866
Fixtures and equipment............... 60,273 57,769
Leasehold improvements............... 1,370 1,346
Construction in progress............. 251 -
Total property, plant and equipment...... 122,891 119,981
Less - accumulated depreciation
and amortization................... 43,061 40,290
Property, plant and equipment, net....... 79,830 79,691
Intangibles, net......................... 1,825 1,863
Total assets............................. $265,616 $273,830
Liabilities and shareholders' investment
Current liabilities:
Lines of credit...................... $ 17,986 $ -
Current maturities of long-term debt. 40 40
Accounts payable..................... 41,307 54,855
Reserve for returns.................. 3,709 3,907
Advance payment on orders............ 450 568
Accrued liabilities.................. 16,581 16,875
Accrued profit sharing............... 187 2,276
Income taxes payable................. 3,475 12,528
Total current liabilities................ 83,735 91,049
Long-term debt, less current maturities.. 40 40
Deferred income taxes.................... 5,200 5,200
Minority interest in equity of
consolidated affiliate................. 452 256
Shareholders' investment:
Common stock, 40,220,588 and 20,110,294
issued respectively................. 402 201
Donated capital...................... 8,400 8,400
Paid-in capital...................... 24,687 24,888
Deferred compensation................ (1,923) (2,001)
Currency translation adjustments..... 205 246
Retained earnings.................... 198,338 193,460
Treasury stock, 4,563,270 and 2,154,235
shares at cost, respectively....... (53,920) (47,909)
Total shareholders' investment........... 176,189 177,285
Total liabilities and shareholders'
investment............................. $265,616 $273,830
Note: Common stock data for the current year has been adjusted for the
two-for-one stock split declared in May 1994.
The accompanying notes to consolidated financial statements are
an integral part of these consolidated balance sheets.
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
Lands' End, Inc. & Subsidiaries
Accum-
<CAPTION> ulated
Common Stock Paid-In Donated Deferred Trans. Retained Treasury Stock
(Dollars in thousands) Shares Amount Capital Capital Compens. Adjust. Earnings Shares Amount Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1992 20,110,294 $201 $23,782 $8,400 $ (886) $ - $123,418 1,638,840 $(28,283) $126,632
Cash dividends paid to
common shareholders
($0.20 per share) - - - - - - (3,589) - - (3,589)
Purchases of treasury stock - - - - - - - 680,195 (20,972) (20,972)
Issuance of treasury stock - - - - (985) - (5) (237,000) 3,541 2,551
Tax benefit of stock options
exercised - - 1,075 - - - - - - 1,075
Deferred compensation expense - - - - 191 - - - - 191
Net income - - - - - - 33,500 - - 33,500
__________ ___ ______ ______ _______ ___ _______ _________ ________ ________
Balance, January 29, 1993 20,110,294 201 24,857 8,400 (1,680) - 153,324 2,082,035 (45,714) 139,388
Cash dividends paid to
common shareholders
($0.20 per share) - - - - - - (3,592) - - (3,592)
Purchases if treasury stock - - - - - - - 89,800 (2,861) (2,861)
Issuance of treasury stock - - - - (564) - (1) (17,600) 666 101
Tax benefit of stock options
exercised - - 31 - - - - - - 31
Deferred compensation expense - - - - 243 - - - - 243
Foreign currency translation - - - - - 246 - - - 246
Net income - - - - - - 43,729 - - 43,729
__________ ____ _______ ______ ________ ____ ________ _________ _________ ________
Balance, January 28, 1994 20,110,294 201 24,888 8,400 (2,001) 246 193,460 2,154,235 (47,909) 177,285
Two-for-one stock split
(See Note 2) 20,110,294 201 201 - - - - 2,154,235 - -
Purchases of treasury stock - - - - - - - 254,800 (6,011) (6,011)
Deferred compensation expense - - - - 78 - - - - 78
Foreign currency translation - - - - - (41) - - - (41)
Net income - - - - - - 4,878 - - 4,878
__________ ____ _______ ______ ________ ____ ________ _________ _________ ________
Balance, April 29, 1994 40,220,588 $402 $24,687 $8,400 $(1,923) $205 $198,338 4,563,270 $(53,920) $176,189
<FN>
Note: Common stock data has been adjusted for the two-for-one stock split declared in May 1994.
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.
</TABLE>
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
April 29, April 30,
1994 1993
(Unaudited)
Cash flows (used for) from
operating activities:
Net income before cumulative effect.. $ 4,878 $ 4,250
Adjustments to reconcile net income
to net cash flows from operating
activities -
Depreciation and amortization.... 2,477 1,930
Deferred compensation expense.... 78 61
Loss on sales of fixed assets.... - 22
Changes in current assets and
liabilities:
Receivables.................. 1,980 (399)
Inventory.................... (18,379) (9,467)
Prepaid expenses............. 3,586 (1,643)
Accounts payable............. (13,548) 3,773
Reserve for returns.......... (198) (689)
Advance payment on orders.. 118 (530)
Accrued liabilities........ (297) 1,772
Accrued profit sharing..... (2,089) (1,363)
Income taxes payable....... (9,053) (8,236)
Other................................ 155 343
Net cash flows used for
operating activities............... (30,292) (10,176)
Cash flows (used for) from
investing activities:
Purchase of assets................... (2,811) (2,090)
Net cash flows used for
investing activities............. (2,811) (2,090)
Cash flows (used for) from
financing activities:
Proceeds from short-term borrowing... 17,986 -
Purchases of treasury stock.......... (6,011) (1,881)
Net cash flows (used for)
from financing activities........ 11,975 (1,881)
Net increase (decrease) in cash
and cash equivalents................... (21,128) (14,147)
Beginning cash and cash equivalents
balance................................ 21,569 22,754
Ending cash and cash equivalents balance. $ 441 $ 8,607
Supplemental cash flow disclosures:
Interest paid........................ $ 48 $ 25
Income taxes paid.................... 12,205 10,800
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to April 29, 1994, and the three months
ended April 29, 1994, and April 30, 1993, is unaudited.)
The condensed consolidated financial statements included
herein have been prepared by Lands' End, Inc. (the company),
without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission, and in the opinion of
management contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial
position. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the
company believes that the disclosures are adequate to make the
information presented not misleading. The results of operations
for the interim periods disclosed within this report are not
necessarily indictive of future financial results. It is
suggested that these condensed consolidated financial statements
be read in conjunction with the financial statements and the
notes thereto included in the company's latest annual report on
Form 10-K.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
Lands' End, Inc., (the company) is a direct marketer of
traditionally-styled apparel, domestics (primarily bedding and
bath items), soft luggage and other products.
Principles of consolidation
The consolidated financial statements include the accounts
of the company and its subsidiaries after elimination of
intercompany accounts and transactions.
Fiscal year
The company utilizes a 52-53 week fiscal year ending on the
Friday nearest January 31.
Fair values of financial instruments
The fair value of financial instruments does not materially
differ from their carrying values.
Inventory
Inventory, primarily merchandise held for sale, is stated at
last-in, first-out (LIFO) cost, which is lower than market. If
the first-in, first-out (FIFO) method of accounting for inventory
had been used, inventory would have been approximately
$19,570,000 and $19,120,000 higher than reported at April 29, and
January 28, 1994, respectively.
Catalog costs
Prepaid expenses primarily consist of catalog production and
mailing costs that have not yet been fully amortized over the
expected revenue stream, which is approximately three months from
the date catalogs are mailed.
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to April 29, 1994, and the three months
ended April 29, 1994, and April 30, 1993, is unaudited.)
Depreciation
Depreciation expense is calculated using the straight-line
method over the estimated useful lives of the assets, which are
20 to 30 years for buildings and land improvements and 5 to 10
years for leasehold improvements and furniture, fixtures,
equipment and software. The company provides one-half year of
depreciation in the year of addition and retirement.
Intangibles
Intangible assets consist primarily of goodwill, the excess
of cost over the fair market value of net assets of a business
purchased. Goodwill is being amortized over 40 years on a
straight-line basis. Other intangibles are amortized over a
shorter life. Total accumulated amortization of these
intangibles was $164,000 as of April 29, 1994.
Net income per share
Net income per share is computed by dividing net income by
the weighted average number of common shares outstanding during
each period. The weighted average common shares outstanding were
35,858,932 and 36,009,442 after the two-for-one stock split (See
Note 2) for the three-month periods ended April 29, 1994, and
April 30, 1993, respectively. Common stock equivalents
consisting of awards, grants and stock options have been issued
by the company. The common stock equivalents do not
significantly dilute basic earnings per share.
Reserve for losses on customer returns
At the time of sale, the company provides a reserve equal to
the gross profit on projected merchandise returns, based on its
prior returns experience.
Forward exchange contracts and import letters of credit
1. These contracts are for delivery or purchase of foreign
currencies at specified future dates. At April 29, 1994,
the company had forward exchange contracts maturing during
fiscal 1995 to sell approximately 1.3 million British
pounds, and to purchase about 2.2 million British pounds
and 2.7 million Canadian dollars.
2. Import letters of credit are for commitments issued through
third parties to guarantee payments for merchandise within
specified time periods according to terms of the agreements.
Import letters of credit were approximately $10.5 million as
of April 29, 1994.
Foreign currency translation
Financial statements of the foreign subsidiaries are
translated into U.S. dollars in accordance with the provisions of
Statement of Financial Accounting Standards No. 52. Foreign
currency transaction gains were $205,000 and $123,000 for the
periods ended April 29, 1994, and April 30, 1993, respectively.
Postretirement benefits
The company does not currently provide any postretirement
benefits for employees other than profit sharing.
LANDS' END, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information pertaining to April 29, 1994, and the three months
ended April 29, 1994, and April 30, 1993, is unaudited.)
Reclassification
Certain financial statement amounts have been reclassified
to be consistent with the fiscal 1995 presentation.
NOTE 2. SHAREHOLDERS' INVESTMENT
Capital stock
Upon shareholder approval, the company increased its
authorized shares from 30 million shares of $0.01 par value
common stock to 160 million. The company has authorized
5 million shares of preferred stock, $0.01 par value. The
company's board of directors has the authority to issue shares
and to fix dividend, voting and conversion rights, redemption
provisions, liquidation preferences, and other rights and
restrictions of the preferred stock.
Two-for-one stock split
In May 1994, the company declared a two-for-one split in the
form of a stock dividend payable on or about June 15, 1994, in
the company's common stock for shareholders of record at the
close of business on May 31, 1994, will receive one additional
share for each common share held on that date. The stock split
resulted in an increase in the stated capital of the company from
$201,103 to $402,206 with a corresponding reduction in paid-in
capital. This has been reflected retroactively in the April 29,
1994, balance sheet, share presentation, and earnings per share
calculations presented.
Treasury stock
The company's board of directors authorized the additional
purchase of 1,000,000 shares of the company's common stock.
Total shares authorized to be purchased increased from 3,100,000
to 4,100,000. After the two-for-one stock split, this number
increased from 4,100,000 shares to 8,200.000. After giving the
effect of the stock split, a total of 5,072,470 and 4,817,670
shares had been purchased as of April 29, and January 28, 1994,
respectively.
Stock awards and grants
Shareholders of the company have approved the company's
restricted stock award plan. Under the provisions of the plan, a
committee of the company's board of directors can award shares of
the company's common stock to its officers and key employees.
Such shares generally vest over a ten-year period on a straight-
line basis from the date of the award.
In addition, the company has granted shares of its common
stock to individuals as an inducement to enter the employ of the
company. The shares granted are subject to vesting on a
straight-line basis over a ten-year period.
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Information pertaining to April 29, 1994, and the three months
ended April 29, 1994, and April 30, 1993, is unaudited.)
Giving the effect of the two-for-one stock split, the following
table reflects the activity under the stock award and stock grant
plans:
Awards Grants
Balance at January 31, 1991 100,000 22,000
Granted -
Forfeited 2,880 -
Balance at January 31, 1992 97,120 22,000
Granted 74,000 -
Forfeited - -
Balance at January 29, 1993 171,120 22,000
Granted 27,200 -
Forfeited 3,600 -
Balance at January 28, 1994 194,720 22,000
Granted - -
Forfeited - -
Balance at April 29, 1994 194,720 22,000
A total of 55,560 shares awarded and granted have vested as
of April 29, 1994.
The granting of the above awards and grants has been
recorded as deferred compensation based on the fair market value
of the shares at the date of grant. Compensation expense under
these plans is recorded as shares vest.
Stock options
Upon shareholder approval, the company increased its
reserved shares from 1,000,000 to 1,250,000 shares of common
stock, either authorized and unissued shares or treasury shares,
for use by the plan. After the two-for-one stock split, the
shares increased from 1,250,000 to 2,500,000. Options are
granted at the discretion of a committee of the company's board
of directors to officers and key employees of the company. No
option may have an exercise price less than the fair market value
per share of the common stock at the date of grant.
Giving the effect of the two-for-one stock split, activity under
the stock option plan is as follows:
Average
Exercise
Options Price
Balance at January 31, 1991 900,000 $ 6.38
Granted 480,000 $12.69
Exercised - -
Balance at January 31, 1992 1,380,000 $ 8.57
Granted 80,000 $13.96
Exercised 400,000 $ 6.38
Balance at January 29, 1993 1,060,000 $ 9.81
Granted 637,200 $19.12
Exercised 8,000 $12.69
Balance at January 28, 1994 1,689,200 $13.31
Granted - -
Exercised - -
Balance at April 29, 1994 1,689,200 $13.31
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Information pertaining to April 29, 1994, and the three months
ended April 29, 1994, and April 30, 1993, is unaudited.)
The above options outstanding vest over a 5 year period from
the date of grant (1,089,200) or on the fifth anniversary from
the date of grant (600,000). A total of 372,000 options have
vested as of April 29, 1994. The outstanding options expire as
follows:
1995 - 500,000
2001 - 472,000
2002 - 80,000
2003 - 637,200
1,689,200
NOTE 3. INCOME TAXES
In January 1993, the company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
Under the liability method prescribed by SFAS 109, deferred taxes
are provided based upon enacted tax laws and rates applicable to
the periods in which taxes become payable.
Temporary differences which give rise to deferred tax assets
and liabilities as of April 29, 1994, are as follows (in
thousands):
Current Deferred Long-term Deferred
Tax Benefit Tax Liabilities
Catalog advertising $(1,988) $
Inventory 5,585
Employee benefits 673
Reserve for returns 482
Depreciation 5,200
Foreign operating loss
carryforwards (933)
Valuation allowance 933
Other 836 ______
$5,588 $5,200
The valuation allowance required under SFAS No. 109 has been
established for the deferred income tax benefits related to
certain subsidiary loss carryforwards, which may not be realized.
The differences between income taxes at the statutory federal
income tax rate of 35 percent in the three-month period ended
April 29, 1994, and income taxes reported in the consolidated
statements of operations are due primarily to the effect of state
income taxes.
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Information pertaining to April 29, 1994, and the three months
ended April 29, 1994, and April 30, 1993, is unaudited.)
NOTE 4. LINES OF CREDIT
The company has unsecured lines of credit with various banks
whereby it may borrow up to a total of $110 million. Borrowings
bear interest at the banks' prime rates, or at the company's
option, LIBOR plus a fixed percentage, or Federal Funds rate-
based negotiated pricing or the banks' Wholesale Certificate of
Deposit rate plus a fixed percentage. The company also has a
$2 million unsecured bank credit line that bears interest at the
bank's prime rate plus 2%. There was $17 million outstanding at
April 29, 1994, at interest rates averaging 4.3%, compared to no
outstanding amount on January 28, 1994.
In addition, the company secured lines of credit with
foreign banks totaling the equivalent of $20 million for a wholly
owned foreign subsidiary. There was $1 million outstanding at
April 29, 1994, at interest rates averaging 3.0%, compared to
none as of January 28, 1994.
NOTE 5. LONG-TERM DEBT
Long-term debt was $40,000 as of April 29, 1994, and
January 28, 1994.
The company has an agreement which expires December 31,
1994, with a bank for a $20 million credit facility. Outstanding
balances will bear interest at the bank's prime rate or, at the
company's option, LIBOR plus a fixed percentage. The company is
currently in compliance with all lending conditions and covenants
related to this debt facility.
NOTE 6. LEASES AND PURCHASE COMMITMENTS
The company leases store and office space and equipment
under various leasing arrangements. The leases are accounted for
as operating leases. Total rental expense under these leases was
$2,107,000 and $1,873,000 for the three-month periods ended
April 29, 1994, and April 30, 1993, respectively.
Total future fiscal year commitments under these leases as
of April 29, 1994, are as follows (in thousands):
1995 (nine months) $5,047
1996 5,538
1997 4,206
1998 2,437
1999 733
After 1999 1,239
$19,200
Purchase commitments as of April 29, 1994, for property, plant
and equipment were $2,789,000.
LANDS' END, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Information pertaining to April 29, 1994, and the three months
ended April 29, 1994, and April 30, 1993, is unaudited.)
NOTE 7. RETIREMENT PLAN AND ACCRUED COMPENSATION
The company has a retirement plan which covers most regular
employees and provides for annual contributions at the discretion
of the board of directors. Beginning in fiscal 1993, a 401(k)
feature was added to the plan which enables employee
contributions and a related company match on a portion of those
contributions. Total expense provided under this plan was
$718,000 and $629,000 for the three-month periods ended
April 29, 1994, and April 30, 1993, respectively. Accrued
liabilities include accrued compensation of $930,000 and
$1,647,000 at April 29, 1994, and January 28, 1994, respectively.
NOTE 8. STATE SALES AND USE TAX
A Supreme Court decision confirmed in May 1992, that the
Commerce Clause of the United States Constitution prevents a
state from requiring the collection of its use tax by a mail
order company unless the company has a physical presence in the
state. The company believes that the decision invalidated laws
adopted by a number of states, including California and
Tennessee, which purported to require out-of-state mail order
companies to collect and remit sales and use taxes with respect
to mail order sales in such states. However, the decision also
established that Congress has the power to enact legislation
which would permit states to require such collection by mail
order companies. Congress is currently addressing a bill which
would require mail order companies to collect and remit sales and
use tax in all states. It is anticipated that the change, if
adopted, will be applied prospectively. Although such a change
would likely influence the buying decisions of some customers,
the company believes there would be no material adverse effect on
financial results.
NOTE 9. ACQUISITION
In March 1993, the company purchased a majority interest in
a catalog company, The Territory Ahead. Its operations were not
material to the company, and as a result no proforma data is
presented. The transaction was accounted for using the purchase
method. The excess of the purchase price over the fair value of
net assets received was recorded as goodwill. The operating
results of The Territory Ahead are included in the consolidated
financial statements of the company from the date of acquisition.
Beginning in 2003, the minority shareholders have the option
to require the company to purchase their shares, and the company
will have the option to require the minority shareholders to sell
their shares in The Territory Ahead. The price per share would
be based on the fair market value of The Territory Ahead.
Item 2. Management's Discussion
and Analysis
Results of Operations
Three Months Ended April 29, 1994, compared with
Three Months Ended April 30, 1993
The company's net sales in the first quarter of fiscal 1995
increased 19.7 percent to $187.0 million, from $156.3 million in
the first quarter of fiscal 1994. The improvement in net sales
was due primarily to an increase in the number of catalogs mailed
and additional issues of Textures, its women's tailored clothing
catalog, and Beyond Buttondowns, featuring tailored clothing for
men. While the primary catalogs performed below company
expectations, the women's apparel lines in these catalogs were
exceptionally strong. About one-third of the sales growth came
from international business and the company's two new businesses,
The Territory Ahead and Corporate Sales. Additionally, sales
during the quarter benefitted from increased mailing of prospect
catalogs to attract new customers in advance of the anticipated
1995 increase in postal rates.
Gross profit in the quarter just ended was $79.7 million, or
42.6 percent of net sales, compared with $64.2 million, or 41.1
percent of net sales, in the first quarter of the prior year.
The increase in gross profit margin was due to lower merchandise
costs, mostly from improvements in domestic and off-shore
sourcing. Liquidations of excess inventory were about 8 percent
of net sales in the quarter just ended, compared to 10 percent in
the prior year.
First quarter ending inventory was $168.1 million, up from
$115.5 million a year ago which contributed to lower than planned
service levels in Spring 1993. Higher inventory levels sometimes
result in greater product liquidations at lower margins in future
periods. In the first quarter of this year, higher inventory
levels helped the company achieve higher order fulfillment and a
strong sales performance.
For the first quarter this year, selling, general and
administrative expenses increased 25 percent to $71.9 million,
compared with $57.5 million for the similar quarter last year.
As a percentage of net sales, SG&A was 38.5 percent, compared
with 36.8 percent in the same period last year. The relative
higher costs due to increased primary and prospect catalog
mailings were mostly offset by reductions in catalog production
costs. There were also higher costs associated with the
increased mailings in international and new businesses. In
addition, fixed and variable operating expense ratios rose due to
higher employee benefit costs, as well as continuing investment
spending on information systems, customer acquisition, and
building the international and new business development areas.
As stated previously, such efforts have a negative impact on the
SG&A-to-sales ratio.
Net income for the quarter was $4.9 million, or 14 cents per
share, compared with $4.3 million, or 12 cents per share, for the
first quarter last year before an accounting change. During the
first quarter of last year, the company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes." This added $1.3 million of net income, or 4 cents per
share, to the results for fiscal 1994, bringing the total for
that quarter to $5.6 million, or 16 cents per share. All
earnings per share amounts have been adjusted for the two-for-one
stock split.
After the shareholders approved an amendment to the
company's certificate of incorporation to increase the number of
authorized common shares from 30 million to 160 million in May
1994, the board of directors announced its authorization of a
two-for-one split in the company's common stock, to be effected
as a stock dividend payable on or about June 15, 1994, to share-
holders of record as of May 31, 1994. This stock split was made
to broaden the market for the company's shares and bring its
price within a range which is more suitable for individual
investors.
Additionally, the board of directors has evaluated its
dividend practice whereby it has paid an annual dividend of 20
cents per share (10 cents post split) for the past eight years.
In light of the company's intent to buy back additional shares,
the directors believe that the current practice is no longer
desirable and the continuing payment of a cash dividend is not
planned for the foreseeable future.
The Financial Accounting Standards Board recently issued
Statement Nos. 112 and 115, "Employer's Accounting for Post-
employment benefits" and "Accounting for Certain Investments in
Debt and Equity Securities," respectively. The company adopted
these standards in the first quarter of fiscal 1995, and they
do not have a material impact.
The company could experience an adverse impact to expenses
if there is a legislated change in health care benefits provided
to temporary employees. Due to the seasonal nature of the
business, it is a necessity that the company utilize temporary
employees during the busy holiday season. During the peak winter
season of fiscal 1994, approximately 3,500 of the company's 6,400
employees were temporary employees. Currently, health care
benefits are not provided to seasonal employees.
Seasonality
The company's business is highly seasonal. The fall/winter
season, which the company regards as a five-month period ending
in December, includes the peak selling season during the Thanks-
giving and Christmas holidays in the company's fourth quarter.
In the longer spring/summer season, orders are fewer and the
merchandise offered generally has lower unit selling prices than
products offered in the fall/winter season. As a result, net
sales are usually substantially greater in the fall/ winter
season and SG&A as a percentage of net sales is usually higher in
the spring/summer season. In addition, as the company continues
to refine its marketing efforts by experimenting with the timing
of its catalog mailings, quarterly results may fluctuate.
Liquidity and Capital Resources
To date, the bulk of the company's working capital needs
have been met through funds generated from operations and from
short-term bank loans. The company's principal need for working
capital has been to meet peak inventory requirements associated
with its seasonal sales pattern. In addition, the company's
resources have been used to make asset additions, pay cash
dividends to shareholders and purchase treasury stock, and to
acquire a majority interest in a specialty catalog company, The
Territory Ahead.
The company continues to explore investment opportunities
arising from the expansion of its international business, the
development of new businesses and the acquisition of existing
businesses. These efforts, which could have a negative impact on
earnings during the initial years of the investments, are not
expected to have a material effect on liquidity.
The company currently has unsecured bank credit lines
totaling $112 million. At April 29, 1994, the company has
$17 million outstanding on its short-term lines of credit
compared with none as of April 30, 1993. The company had a
separate $20 million bank facility available to fund treasury
stock purchases and capital expenditures. The facility runs
through December 31, 1994.
In addition, the company obtained lines of credit with
foreign banks totaling the equivalent of $20 million for a wholly
owned foreign subsidiary. The company had about $1 million
outstanding on these short-term lines of credit as of
April 29, 1994.
The company purchased 5,729,270 shares of its common stock
from February 1, 1990, through June 3, 1994. As of June 3, 1994,
the company was authorized to purchase up to an additional
2,470,730 shares. For further information, see note 2 to the
consolidated financial statements.
Capital expenditures for fiscal 1995 are currently planned
to be about $20 million, of which $2.8 million had been expended
through April 29, 1994. Major projects will include constructing
a second distribution center in Reedsburg, Wisconsin, new
computer hardware and software, and new materials handling
equipment. The company believes that its cash flow from
operations and borrowings under its credit facilities will be
adequate to meet its capital requirements and operational needs
for the foreseeable future.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings presently
pending, except for routine litigation incidental to
the business, to which Lands' End, Inc. is a party or
of which any of its property is the subject.
Items 2 and 3 are not applicable and have been omitted.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on May 18,
1994, pursuant to the Notice of Annual Meeting of
Shareholders and attached Proxy Statement dated
April 18, 1994.
(a) Each of the two nominees (Richard C. Anderson and
Howard G. Krane) were elected as directors;
(b) An amendment of Article Fourth of the Company's
Certificate of Incorporation to increase the number
of authorized shares of Common Stock from
30 million to 160 million was approved (14,796,031
votes for, 1,084,927 votes against, and 21,580
votes abstained);
(c) An amendment to the Company's Stock Option Plan to
increase the number of shares reserved from
1,000,000 to 1,250,000 was approved (15,420,079
votes for, 453,845 votes against, and 28,614 votes
abstained);
(d) The appointment of Arthur Andersen & Co. as
independent public accountants for the Company for
the fiscal year ending January 27, 1995, was
ratified.
Item 5 is not applicable and has been omitted.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed as a part of this
report:
Exhibit 11 Statement re: Computation of
Earnings Per Share
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the
three-month period ended April 29, 1994.
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, its duly authorized officer and
chief financial officer.
LANDS' END, INC.
Date: June 3, 1994 By: STEPHEN A. ORUM
Stephen A. Orum
Senior Vice President
(Chief Financial Officer)
LIST OF DOCUMENTS INCORPORATED BY REFERENCE
In addition to the exhibits filed with this report, the exhibits
listed below have been heretofore filed with the Securities and
Exchange Commission as exhibits to the company's registration
statement on Form S-8 (File No. 33-46133) and on Form S-1 (File No.
33-08217) or to other filings with the Commission and are
incorporated herein as exhibits by reference, pursuant to Rule 24 of
the SEC Rules of Practice. The exhibit number of the document so
filed is stated next to the description of such exhibit. The file
number for all other documents is 1-9769.
Table Exhibit Document
Number Description of Item Number Description
(3) Articles of Incorporation and By-laws:
Certificate of Incorporation of the
company, as amended through
October 3, 1986. 1 S-1
Amendment to Certificate of 3 10-Q
Incorporation of the company, October 1987
dated August 10, 1987.
Amended and Restated By-Laws of 2 10-K 1993
the company.
(4) Equity Instrument and Agreements
relating to Debt Obligations:
Form of Certificate to evidence 1 10-Q
the Common stock. August 1990
(10) Material Contracts:
Form of letter from bank approving 7 10-K 1992
the company's unsecured line of
credit and corresponding note.
Term Loan Note and Loan Agreement 11 10-Q
between the company and the August 1990
American National Bank and Trust
Company of Chicago.
First Amendment to Loan Agreement 13 10-Q
between the company and the August 1991
American National Bank and Trust
Company of Chicago, dated
June 1, 1991.
Second Amendment to Loan Agreement 15 10-K 1992
between the company and the
American National Bank and Trust
Company of Chicago, dated
January 27, 1992.
Table Exhibit Document
Number Description of Item Number Description
(10) Third Amendment to Loan Agreement 16 10-K 1993
between the company and the
American National Bank and Trust
Company of Chicago, dated
December 11, 1992.
Fourth Amendment to Loan Agreement 1 10-K 1994
between the company and the
American National Bank and Trust
Company of Chicago, dated
December 1, 1993.
Buying Agreement between the company 7 10-Q
and European Buying Agency, Ltd. November 1990
Salaried Incentive Bonus Plan. 9 S-1
Second Amended and Restated 1989 12 10-Q
Restricted Stock Plan of the November 1991
company.
Amended and Restated Additional 17 10-Q
Incentive Bonus Plan of the November 1991
company.
Stock Option Plan of the company. 2 10-K 1994
Amended and Restated Retirement Plan, 3 10-K 1994
dated February 1, 1992.
(13) Annual Report to Shareholders for the 10-K 1994
fiscal year ended January 28, 1994.
Exhibit 11: Computation of Earnings Per Share
LANDS' END, INC. & SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Three Months Ended
April 29, 1994 April 30, 1993
Net income before cumulative effect
of change in accounting..................... $ 4,878,000 $ 4,250,000
Cumulative effect of change in
accounting for income taxes................. 0 1,300,000
Net income.................................... $ 4,878,000 $ 5,550,000
Average shares of common stock
outstanding during the period............... 35,858,932 36,009,442
Incremental shares from assumed
exercise of stock options (primary)......... 758,876 318,050
36,617,808 36,327,492
Net income per share before cumulative
effect of change in accounting.............. $ 0.14 $ 0.12
Cumulative effect of change in accounting..... - 0.04
Primary earnings per share.................... $ 0.14 $ 0.16
Average shares of common stock
outstanding during the period............... 35,858,932 36,009,442
Incremental shares from assumed exercise
of stock options (fully diluted)............ 718,022 359,497
36,576,954 37,368,939
Net income per share before cumulative
effect of change in accounting.............. $ 0.14 $ 0.12
Cumulative effect of change in accounting..... - 0.04
Fully diluted earnings per share $ 0.14 $ 0.16
Average shares of common stock
outstanding during the period............... 35,858,932 36,009,442
Basic earnings per share...................... $ 0.14 $ 0.16
Note: The above data has been adjusted to reflect the two-for-one stock
split declared in May 1994.
