Why Lands’ End Inc. Stock Skyrocketed Today

What happened

Shares of Lands’ End (NASDAQ: LE) soared today after the apparel and outdoor retailer delivered a narrower loss than expected in its first-quarter earnings report and said it would move further away from former parent Sears Holdings (NASDAQ: SHLD), which appears to be failing. As a result, the stock closed the day up 27.2%.

Image source: Getty Images.

So what

Lands’ End is still struggling to emerge from Sears’ shadow as same-store sales plunged 18.9%, falling 20.4% at locations within Sears stores and 9.9% elsewhere. However, direct-to-consumer revenue, which makes up the bulk of the business, increased 19.7%, driving 11.7% growth in total revenue to $299.8 million, which easily beat estimates at $285 million.

Gross margin declined 130 basis points to 44.4%, possibly due to lower store-based sales, but leverage improved in other areas including selling, general, and administrative expenses, and the company posted a net loss of $0.08 per share, which compared to a loss of $0.24 the year before. That was better than analyst estimates of a $0.17-per-share loss.

CEO Jerome Griffith said, “Our first quarter results represent the fourth straight quarter of top line growth and third quarter of profitability growth, demonstrating the continued progress we have made across our strategic initiatives. We saw excellent growth in our uniform business with the successful launch of our Delta Airline business.”

Now what

Lands’ End didn’t issue guidance in its report, but investors clearly like the direction in which the company is headed, especially its move to separate the brand from Sears. Management said it would cut the number of its shops inside the department store chain to from 159 to 100 by the end of the year, and it’s also focusing on opening smaller-footprint, stand-alone retail stores.

That strategy along with its strong growth online could pay off as it still has a well-known brand. The uniform business as the CEO referred to with Delta also presents an intriguing opportunity.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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