Lands End: Zacks’ Bear of the Day Play

Lands’ End, Inc. (LESnapshot Report) has joined the ranks of struggling retailers as its products aren’t connecting with consumers. This Zacks Rank #5 (Strong Sell) is expected to see declining earnings in 2015.

Lands’ End is a Wisconsin-based retailer that was formerly owned by Sears. Founded in 1963 as a catalog for yachtsmen, the company now offers clothing, accessories, and footwear for men, women and children through catalogs, its online web site, and in retail stores primarily located in Sears and some standalone Lands’ End Inlet stores.

It is especially well known for its winter apparel, swimsuits and footwear.

As of May 1, 2015 it operated 235 Lands’ End Shops at Sears, 14 global Lands’ End Inlet stores and 5 international shop-in-shops.

First Quarter Sales Disappoint

On June 4, Lands End reported its first quarter results and beat the Zacks Consensus by 2 cents. Earnings were $0.05 compared to the Zacks Consensus of $0.03.

But the earnings surprise doesn’t tell you the whole story with the retailers. It’s all about sales and inventories.

Merchandise sales and services fell 9.4% to $299.4 million from a year ago, with currency translation impacting by $9 million.

The Direct segment fell 8.2% to $253.4 million while Retail fell 15.5% to $46 million.

Being associated with Sears doesn’t appear to be helping the brand.

Same store sales fell 12.1%, driven by lower sales in the company’s Lands’ End Shops at Sears.

Gross margin remained unchanged at 49% in the quarter.

Tranformational Period to Come

While the company called the retail environment “challenging” it also said that the next 12 to 18 months will be an important “transformational period” where it will focus on product design and enhancing technology.

Lands End has a strong brand and loyal customers. But its product mix has been off this year.

This is the problem with many retailers right now. Consumers are spending, but they are fickle. They’ll turn on a brand in a heart beat.

Estimates Fall

Given the pessimistic near term outlook, it’s not surprising that estimates have been cut for 2015.

The 2015 Zacks Consensus Estimate has sunk to $1.46 from $2.00 in the last week.

That’s an earnings decline of 39% compared to 2014. Lands End made $2.39 last year.

Earnings are only expected to rebound to $1.69 in 2016.

Shares Sink

It’s been a tough 2015 for Lands End shareholders. Shares have sunk to new 52-week lows and are now lower than the IPO price in 2014.

Is Lands End a value play?

Shares are trading at 12.5x, which is well under the average of the S&P 500 of 18.1.

It has a price-to-book ratio of 2.0. A P/B under 3.0 usually indicates value.

Lands End also has a price-to-sales ratio of just 0.5. A P/S ratio under 1.0 can mean a company is undervalued.

It’s not surprising, given these fundamentals, that Lands End has a Zacks Style Score for value of A.

But until those estimates turn around, it’s still a Zacks Rank #5 (Strong Sell).

For investors who don’t want to wait around for the “transformation”, you should consider Express (EXPRSnapshot Report). It’s a Zacks Rank #1 (Strong Buy) and has already been through a turnaround process in the last year.

Want More of Our Best Recommendations?

Zacks’ Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Then each week he hand-selects the most compelling trades and serves them up to you in a new program called Zacks Confidential.

Learn More>>

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Insider Trader and Value Investor services. You can follow her on twitter at @TraceyRyniec.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s