Land's End Tumbles on Weak November Sales

At midsession, Lands' End shares (LE) were down $15.50, or 27%, at $42.25 in active trading.

Lands' End had previously warned that it expected fiscal fourth-quarter sales to be somewhat down from the prior year, but the sales decline for the latest five-week period was greater than even the company expected. The company had sales of $541.2 million for the year-ago fourth quarter.

Lands' End said sales for the period ended Dec. 3 were especially hurt by planned catalog-circulation reductions toward the end of the period.

In addition to decreased page circulation, the company said other factors hurting November sales included "significantly" fewer liquidation and promotional sales in the current year's fourth quarter, compared with the prior year, as well as an overall softness in most cold-weather clothing categories and the shifting of a clearance catalog to the third quarter of this year from the fourth quarter a year earlier.

In November, Lands' End said it would cut page circulation by about 20% to eliminate unprofitable mailings and to switch from print to electronic commerce. As a result, it said it expected sales in the fourth quarter to be "somewhat down" compared with a year ago, as the company sends out fewer and thinner catalogs and tries shifting some customers from traditional mail-order purchasing to ordering from its Web site.

The company said page circulation for the last six months of fiscal 2000 was reduced by about 20% as part of its strategy to focus on improving earnings rather than being driven by growth.

Unlike conventional retailers, whose store sales aren't declining as they establish online stores, some catalogers are seeing short-term sales declines even as they attempt to reduce their costly mailings and instead try to direct shoppers to their Web sites, where selling costs are typically lower.

Analysts had hoped that such a strategy, combined with fewer and more targeted mailings overall, would represent a quick fix for Lands' End, which last year brought in a new chief executive to try overhauling a company saddled with unexciting inventory and bloated costs.

But throughout the industry, Internet retail sales remain a fraction of the total. While online sales at Lands' End are rising rapidly, the company said they were only about 4.5% of total net sales in the last fiscal year.

The return a year ago of Dave Dyer, a former Lands' End merchandising manager who came back as chief executive, had raised the hopes of analysts and investors. He cut costs, closed an unpromising catalog and reduced the number of catalog mailings, seeking a more targeted audience.

Lands' End is attempting to reduce catalog-related expenses after increasing the number of catalogs mailed by 22% over the last two fiscal years in an effort to get rid of excess inventory. It had also added more pages to some existing catalogs, increasing its total number of pages by 38%.

Lands' End has said the recent catalog reductions have increased productivity, or sales per page.

Last month, Lands' End said that during the third quarter ended Oct. 29, liquidation of excess inventory accounted for 16% of total sales during the quarter, up from 12% a year earlier. The gross profit margin slipped to 43.2% of sales from 45.1%.

Stephen "Chip" Orum, the company's chief financial officer, said at the time that the cataloger has significantly improved its inventory problem and won't rely on liquidation as heavily in the fiscal fourth quarter.

The mean estimate of analysts surveyed by First Call/Thomson Financial is for fourth-quarter earnings of $1.42 a share.

During the fiscal third quarter, the company had net income of $8.8 million, or 28 cents a diluted share, up from $347,000, or one cent a share, a year earlier. Sales for the third quarter were $326 million, up 1% from $322.4 million.