In Focus

Unscrambling Lands' End (NYSE: LE)

Running Lands' End, Inc. through the Chicks' Dozen
by Chick Cheryl

We've been enjoying some pretty wonderful weather out here in California. My bathing suits have finally made it down from their hiding place on the top shelf in my closet. Despite my efforts to find a fabulous new suit that I love each year, it seems that I keep returning to my old favorite, the one from Lands' End!

1. Buy What You Know  Has everyone heard of Lands' End? Raise your hand if you haven't, I'll send you a catalog. They're best known for their preppie-style casual apparel. They're a good old slice of Americana, headquartered in Chick Kristin's home state, Wisconsin! Last year they mailed out approximately 236 million full-priced catalogs worldwide. Products are exported to more than 150 countries.

2. Keep It Simple Sister  Lands' End is a direct merchant. What's that you say? It means a customer can shop with them directly from their home or office. Using a catalog, one can order by phone, by mail or by fax. One can also shop via the internet at www.landsend.com. Why do they choose to sell this way? Its cheaper for us... no middle man to mark things up!

According to the company website, they organize and manage their businesses based on type of catalog, which focuses on specific customer needs and markets served. To name a few, they have their regular catalog, a Kids catalog, a Coming Home catalog and an International catalog written in the local languages and denominated in local currencies.

3. Industry  They are in the Retail (Catalog & Mail Order) industry. To see its competitors, just open your mailbox and see what other catalogs you find offering traditionally styled casual clothing for men, women and children, in addition to accessories, domestics, shoes and soft luggage. Obviously, this industry is burgeoning as consumers are looking for added convenience in their busy lives. In fact, the Lands' End website boasts that they are devoting their energies to making it as easy as possible to shop with them. You don't have to drive to a mall, run from store to store or wait in any lines. (They do have a few outlet stores to get rid of overstock and clearance items.)

4. Leader In Its Field  According to the National Retail Federation, landsend.com is the largest seller of apparel online. The company states that it is thought of as one of the most well-known and well-respected catalog companies in the United States, and that reputation is spreading throughout the world.

5. Repeat Profitability  We're Chicks, we certainly understand the ongoing need for new apparel. As long as fashion and trends continue to reinvent themselves, we will be shoppers!

NOTE: The following numbers were taken from the quarterly balance sheets and income statements (1/26/01) found at www.marketguide.com. Numbers are in millions.

6. Gross Margins

(Sales - Cost of Goods Sold) / Sales

(604.3 - 372.1) / 604.3

232.2 / 604.3 = .38

.38 x 100 = 38%

Not quite up to our Chicky 50%, but not a bad number, not bad at all!

7. Net Margins

Net Income / Sales

31.8 / 604.3 = .05

.05 x 100 = 5%

Again, the number is not quite our Chicky 8%, but they're making a nice profit margin just the same.

8. Cash vs. Long Term Debt

Cash* / Long Term Debt

75.4 / 0 = 0

*cash, including marketable securities

Obviously, this equation is not applicable to Lands' End, as they have no long term debt, very Chicky indeed!

9. Flow Ratio

(Total Current Assets - Cash*) / (Total Current Liabilities - Short Term Debt)

(321.7 - 75.4) / (178.9 - 16.9)

246.3 / 162 = 1.52

*cash, including marketable securities

Remember, this equation is applying a numerical value to an intellectual concept. Basically, it measures a company's efficiency. Lands' End's flow ratio is right in line with the high standards of the Chicks.

10. Increasing Growth

(most recent quarter's sales - last year same quarter's sales) / last year same quarter's sales = X

Sales Q1/26/01 = 604.3; Sales Q1/28/00 = 449.3

(604.3 - 449.3) / 449.3

155 / 449.3 = .34

.34 x 100 = 34% sales increase

Wow, hasn't every other company of late been crying about the economic slowdown? Well, not Lands' End! In fact, just last week the company released their latest earnings report, boasting big gains in quarterly profit. Analysts were expecting 2 cents per share and Lands' End made 20 cents! They had nice increases in their Kids' division and saw a 40% increase in Internet sales. Their dot-com certainly isn't crashing! They have been recognized as one of the few retailers able to make a successful venture into the world wide web. Despite their stellar earnings, management does recognize the toll they have taken from the economic climate. Its higher earnings are the result of lower expense dollars and lower cost of goods to offset lower sales. They expect the next two quarters to remain difficult, but have a positive outlook for the holiday season.

Although the company has previously ruled out the possibility, some have speculated that Lands' End might add some bricks and mortar stores to complete the circle of their business. With their vast experience with catalog sales and customer data, they would certainly know where to put them, however such a move appears a long way off.

11. Strong Management and Operating History  The current Chairman of the Board is also the former long time CEO and founder of Lands' End. His name is Gary Comer and served as CEO from 1963 until 1990. Prior to 1963 he was actually a copywriter at the well-known advertising agency Young & Rubicam. Today's President, CEO and Director, David Dyer, actually worked at Lands' End in various positions from 1989-1994. He then became the President and COO of the Home Shopping network for one year. Following that, he became a catalog/retail consultant for companies such as J. Crew Group and Burdine's. In 1998, he returned to Lands' End in his current management capacity

12. Buy on Sale

52 week high: 42

52 week low: 18.70

52 week average: 30.35

Current stock price: 34.16

The company stock was on sale until their recent blowout earnings report. The stock market seems to work just like store clothes on a rack. As soon as consumers start to like it and buy it, the price goes up! Wow, look what we've learned thanks to my swimsuit! Next time I'm out frolicking in my favorite suit, I can talk about Lands' End's Gross Margins and not my own!