Lands' End Inc's 2026 Q3: Contradictions Emerge on Inventory Strategy, Promotions, Margins, and Tariff Impact

Date of Call: None provided

Financials Results

• Revenue: $318M, essentially flat year over year
• EPS: $0.21 per diluted share (adjusted), return to EPS profitability (adjusted net income $7M)
• Gross Margin: Nearly 52%, approximately +120 basis points YOY (vs Q3 2024)

Guidance:

• Q4 net revenue expected $460M–$490M; GMV mid-to-high single-digit growth.
• Q4 adjusted net income $22M–$26M; adjusted diluted EPS $0.71–$0.84; adjusted EBITDA $49M–$54M.
• FY net revenue expected $1.33B–$1.36B; GMV low single-digit growth.
• FY adjusted net income $21M–$25M; adjusted diluted EPS $0.68–$0.81; adjusted EBITDA $99M–$104M.
• FY guidance assumes ~$28M capex and current tariff regulatory rates with mitigation measures in place.

Business Commentary:

* Revenue Performance: - Lands' End reported total revenue of $318 million for Q3 2025, staying essentially flat year-over-year, with GMV growing in low single digits. - North American businesses showed low single-digit gains, but the European business faced a 20% year-over-year decline due to promotional activity and macroeconomic pressures. - The flat revenue was attributed to strong performance in the U.S. marketplace and uniform business, offset by European challenges.

• Gross Margin Expansion:
• Gross profit increased by approximately 2% year-over-year, with gross margin in Q3 reaching nearly 52%, an 120 basis point improvement from Q3 2024.

• The improvement was supported by strategies like disciplined supply chain execution and tariff mitigation, despite tariff headwinds.

• Brand Expansion and New Customer Acquisition:

• Lands' End added over 150,000 new customers in November, reaching 500,000 Instagram followers, with new customers skewing younger and more diverse.

• Growth in licensing, marketplace sales, and uniform business contributed to this expansion, with Delta Air Lines and Amazon Prime Week being key drivers.

• Strong E-commerce and Digital Engagement:

• U.S. e-commerce business generated $180 million, down approximately 3% year-over-year, due to improved inventory efficiency and promotional productivity.

• Digital channels saw a 25% increase in traffic, driven by social and search, with record-breaking website visits for the U.S. consumer business.

• Outfitters and Uniform Business Growth:

• Sales in Lands' End Outfitters increased approximately 7% from Q3 2024, while the school uniform channel grew over 20%, driven by a strong back-to-school season.
• The Delta Air Lines uniform partnership and ongoing share gains in the market contributed to this growth.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted 'compelling results' including a 'return to EPS profitability' and '28% growth in our Adjusted EBITDA.' CFO: 'total revenue $318 million, essentially flat YOY' and 'gross margin... nearly 52%, an approximately 120 basis point improvement from the third quarter of 2024.' Management also cited record gross margins, strong customer acquisition, and marketplace growth (Amazon, Macy's).

Q&A:

• Question from Dana Telsey (Telsey Group): As you think about on the revenue side of the business, the puts and takes of any of the different areas relative to your expectations, what did you see in promotional levels? And here, going through Black Friday, any particular surprises? And then just the continued strength of the gross margin is impressive. How do you think of the puts and takes on gross margin and any framework for what could be different in 2026?
  Response: Promotional discipline remained controlled through Black Friday; gross margin expansion was driven by better promotional cadence, higher AUR, tariff mitigation and improved DC/supply-chain efficiency.

• Question from Eric Beder (SCC Research): There’s been a lot of effort put into the licensing business. Could you give us kind of an update of where we are in terms of what we’re going to see in 2026 in terms of licensing? What has been announced? And kind of where does it become more creative and apples to apples in terms of running through here?
  Response: Licensing is accelerating—shoes and kids are annualized, several new licenses signed will ramp into next year, and management expects materially larger, more comparable licensing contribution in 2026.

• Question from Eric Beder (SCC Research): In the international front, you’ve had these great collaborations, Harris Tweed and Lulu Guinness. And when you look at it, A, what does that imply for the U.S.? And also, we’ve talked this conversation about how 15% as a percentage of the international business that comes to the U.S. in terms of product, how should we be thinking about that opportunity going forward? And as kind of the profile in the international completes, you have a handful to do things like that maybe here.
  Response: Collaborations are intended as European halos to build brand cache; successful concepts can be brought to the U.S., and international licensing/localized sites support longer‑term brand valuation.

• Question from Eric Beder (SCC Research): Last question on inventories. So inventories went up for the first time in a while. How should we be thinking about inventories going forward?
  Response: Inventories rose only ~3% (primarily due to tariffs); management expects inventory growth to remain in low single digits going forward.

• Question from Steve Silver (Argus Research): You mentioned scratching the surface as it relates to licensing as well as the momentum you’re seeing with the Amazon marketplace. I’m curious as to your thoughts in terms of how long it takes for that surface to go beyond for deeper penetration to where it really starts driving an inflection point in GMV expansion.
  Response: Amazon and similar channels require channel-specific investments (supply chain, marketing, merchandising); early success (top‑seller badge) shows the model can scale but needs continued deliberate investment.

• Question from Steve Silver (Argus Research): With the customer base skewing to the low side, combined with Lands’ End, its history of innovation, I’m curious as to whether there’s anything category‑wise we should be looking for in terms of new patents heading into the 2026 season?
  Response: The company will continue product innovation (e.g., water‑resistant fleece) and may pursue patents where appropriate, focusing on solution‑driven franchises like outerwear.

Contradiction Point 1

Inventory Management Strategy

It involves a shift in strategy regarding inventory management, which could impact operational efficiency and financial performance.

How should we view future inventory levels considering the recent increase? - Eric Beder (SCC Research)

2026Q3: Inventories are up 3% primarily due to tariffs but are well-managed despite headwinds. - Bernie McCracken(CFO)

What is your target normalized inventory level and future plans? What are the performance trends in key categories (e.g., outerwear), current AURs, and gross margin expansion opportunities? - Dana Telsey (Telsey Advisory Group)

2024Q3: We're working to move our inventory more towards a 3 to 4 turns rate, which is more efficient. Getting products in and out faster allows for more product freshness. - Andrew McLean(CEO)

Contradiction Point 2

Impact of Promotions on Revenue

It relates to the company's approach to promotions, which could influence sales strategies and revenue outcomes.

What were the key revenue performance drivers and unexpected promotional activity trends, particularly during Black Friday? How should we approach the gross margin framework for 2026? - Dana Telsey (Telsey Group)

2026Q3: Revenue in North America was strong, with unsatisfactory results in Europe. Promotional levels were managed well without stepping out of line. The back-to-school campaign was successful, and the season started early, with strong sales around Veterans Day. - Andrew McLean(CEO)

What is the target inventory normalization rate and how will the plan evolve? What are the key trends in categories (e.g., outerwear) and AUR performance? What opportunities exist for gross margin expansion? - Dana Telsey (Telsey Advisory Group)

2024Q3: We've scaled back promotions even during Black Friday and Cyber Monday. Customers are responding to newness rather than discounts. - Andrew McLean(CEO)

Contradiction Point 3

Gross Margin Expectations

It involves changes in financial forecasts, specifically regarding gross margin expectations, which are critical indicators for investors.

Can you explain the factors driving gross margin strength and how 2026 expectations might differ? - Dana Telsey(Telsey Group)

2026Q3: Gross margins were 75.7% compared to 76.1% in the prior year's quarter, driven by lower promotional activity and higher effective rates on import tariffs, partially offset by higher shipping and transportation costs. Despite the decline in gross margin, we expect to maintain a strong gross margin structure as a key growth driver. - Bernie McCracken(CFO)

Will Blackwell's Q4 revenue be additive, and what is the expected gross margin exit rate? - Stacy Rasgon(Bernstein Research)

2025Q2: Gross margins for Q3 are expected around 75%, with full-year guidance in the mid-70s. - Bernie McCracken(CFO)

Contradiction Point 4

Inventory and Tariff Impact

It involves the impact of tariffs on inventory levels, which are crucial for managing supply chain and financial planning.

How should we think about future inventories, given the recent increase? - Eric Beder(SCC Research)

2026Q3: Inventories increased 3% from the end of fiscal 2025. The increase in inventories was driven primarily by additional tariff costs associated with imported goods. - Bernie McCracken(CFO)

Can you provide further insight into the impact of the tariff situation on overall financials? - Corey Tarlowe(RBC Capital)

2025Q2: Fiscal year 2026 inventory guidance increased to a range of $1.12 billion to $1.14 billion. The increase reflects our expectation for additional tariff costs associated with imported goods. - Bernie McCracken(CFO)