Welcome to Lands' End Second Quarter 2015 Earnings Call. At this time, participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce Bernard McCracken, Chief Accounting Officer.

Good morning and thank you for attending the Land’s End earnings call for our second quarter 2015 results. On the call today you will hear from Federica Marchionni, our President and Chief Executive Officer; and Mike Rosera, our Chief Operating Officer and Chief Finance Officer. To begin our prepared remarks, Federica will discuss our second quarter revenue and margin performance, and then Mike will provide additional details on our second quarter performance. Federica will close with progress to date on key initiatives. After the company’s prepared remarks, we will conduct a question-and-answer session with our covering analysts. Please note that this morning we released our second quarter earnings results which are now available on landsend.com. I would like to remind you that today’s discussion will contain forward-looking statements related to future events and expectations. These statements are based on current expectations and the current economic environment or are based on potential opportunities. Actual results may differ materially from those expressed or implied in the forward-looking statements. Factors that could cause the company’s actual results to differ materially from those discussed are posted in the Investors Information section of landsend.com and in our most recent SEC filings. Our discussion will also include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures also can be found in the Investor Information section of landsend.com. Any reference in our discussion today to EBITDA means adjusted EBITDA as defined in the earnings release. Lastly, we assume no obligation to update the information presented on this call except as required by law. I will now turn the call over to Federica.

Thank you, Bernie. Good morning everyone. While we made compelling progress on many key strategic fronts and laid the groundwork for future growth, the second quarter was not a quarter without its share of disappointment. There were a few key factors that contributed to our results, some were internal factors as the lower than expected consumer acceptance of our Spring/Summer collection which we are already addressing, some were external factors which require more flexibility such as highly promotional competitive environment. And consistent with prior quarters, our revenue was also negatively impacted by macroeconomic headwinds and currency rates. Therefore, we believe the results that we are sharing today do not represent the full potential of our company. Total revenues were $312 million, which was a decrease of $35 million compared to last year as a result of sales decline in both the direct and the retail segments. Foreign currency rates impacted revenues by approximately $8 million. We saw declining performance in all our channels; online, catalog and retail shops, mainly related to disappointed customer acceptance of our Spring/Summer collection and marketing initiatives. The assortment which was committed to well over a year ago was largely upfront and did not resonate with our consumer. In women’s, our largest category, the design of many of our product turnout to be upfront. For example, we were over assorted in neat dress. And our popular dress, we oversold screens and patterns in the first quarter and were left with too many solid options in the second quarter. The newness of our men product was too fashion forward resulting in sales decline in casual shirt both knit and woven and bottom, primarily shorts. And in footwear, we did not have the correct product mix as our assortment did not meet our consumers’ expectation. In a moment…

Thank you, Federica. I will review the revenue and gross margin results for each of our segments and review additional operating items as well as certain balance sheet and cash flow components on a consolidated level. As Federica discussed, the second quarter had its challenges. Total revenue was $312 million which was a decrease of $35 million or 10% to last year. This was comprised of a decrease in the direct segment of $28 million or 10% to $265 million and a decrease in the retail segment of $7 million or 13% to $48 million. The direct segment revenue decrease was evenly split between our U.S. and international operations. The U.S. direct business realized negative comparable sales in all product categories due primarily to the customer acceptance of our Spring/Summer collection and our reduced promotional approach compared to last year. Overall, the U.S. marketplace was promotional earlier, the discounts were deeper than expected and consumers often seem to have promotional fatigue. As a result of loss revenue earlier in the quarter, we began increasing our promotions to be more compelling and relevant in the current environment. Revenue performance in the second half of the quarter was improved from the first half, but we did see a relative reduction in our gross margin rate. International revenue in the direct segment was impacted by foreign exchange headwinds which negatively impacted reported revenue by approximately $8 million primarily in Europe, representing nearly 60% of international revenue decrease. On a constant currency basis, international revenue in the direct segment decreased approximately 12%. Revenue in the retail segment decreased $7 million or 13% attributable to the same-store sales decrease of 7.5% and operating 18 fewer Shops at Sears at the end of the quarter compared to the same period last year. The same-store sales decrease…

Thank you, Mike. The second quarter results were disappointing and the performance is not acceptable. However, we are taking many actions at this time not only to address the current business but also to have a stronger product offering, marketing proposition, go-to-market strategy and operating platform for future periods. Since I joined the company early this year, my objective has been clear, growth, profitability and adaptability. Those will result from a combination of enhancing our core business as well as attracting new consumer and operating in new retail environment. Our priority growth is to maximize our potential with our core customer by increasing the fundamental metrics such as average order value, unit per transaction, traffic and conversion. In pursuit of this goal, we will build capabilities that can be leveraged in new opportunities. We seek to grow and expand into new consumer segment, market and channel and actively look for both in the market as an opportunity to bridge the gap, gain market share and win new consumers. Profitability is an ever-present guiding principle and align with our growth initiative. As I stated at the shareholder meeting in June, I’m very bottom line driven. While our clear objective is to grow, doing so at the expense of profitability is neither desirable nor sustainable from a long term standpoint which brings us to adaptability. To achieve profitable growth, it is inevitable that change needs to be made in order to succeed in today’s practically and highly competitive retail environment. I have been leading a concentrated effort to build on our solid foundation to motivate the teams to achieve greater efficiency and show the way to reach milestone previously deemed unattainable. Always taking great care of our people, empowering employees and making sure the new hires are smoothly integrated into this incredible…

Thank you. [Operator Instructions] Our first question is from Alex Fuhrman with Craig-Hallum Capital Group. You may begin.

Great. Thank you for taking my question. Exciting to be doing these conference calls now and hear a little bit more about your strategy. I was wondering if you could talk a little bit about your capital structure, you now have more than $200 million of cash on the balance sheet and presumably you will have quite a bit more than that at the end of the year. How do you start to think about that cash balance? Is there a certain point at which you’d start to think about buying back stock down here or thinking about the investments that you just talked about that we are going to see over the next 12 months? Is some of that cash perhaps earmarked for those investments? Thanks.

Thanks, Alex. This is Mike. We haven’t really changed anything on that front. We’ve been pretty consistent. At this point, the intent is to continue to build our liquidity and our balance sheet with the intent of investing in strategic initiatives and like you said, Federica has outlined quite – in some detail some of the initiatives that we are focusing on and that will the focus of our cash at this point.

Okay. Thanks, Mike. And then just thinking about gross margin, which obviously it sounds like there were some one time issues that impacted the second quarter and there are some opportunities for some of your initiatives to take hold in the back half of the year. Given that the dollar is still strong year-over-year, would it be reasonable to assume that gross margin will be down similar amount in Q3 as it was in Q2 if you just eliminate that 40 basis point impact from the port issues and then just thinking about your opportunity for gross margin in 2016 and 2017, where do you think gross margins can go, is it possible to get back up to that 49%, 50% level, that you are at five or six years ago, or is that going to be harder to do know just given changes in shipping, rates and other things like that?

Good morning, Alex. I just to re-underline a principle that I’m keep saying to all of you. The profitability is definitely our first goal and will let Mike explain what we are doing for – in that front.

Alex, you are aware, we, at this point in time, giving out any guidance or forward outlook. But a lot will be pinned when you talked about Q3 and the environment that we are operating in. And we’ve mentioned that we had – in the second quarter, we had established increases in our margins rates, but the promotional environment that we were operating in, we did some discount pricing in response to that, and so a lot of will depend in Q3 and Q4 on how the environment plays out.

Okay. That’s very helpful. Thank you. And then, lastly, if I could just touch on the uniforms business, I mean, it seems like from the shareholder meeting a couple of months ago and the information you gave and there seems like that’s been a very nicely growing business over the last five years for you. Can you just talk a little bit about how the uniforms business performed in Q2 and then particularly given that about half of that business is corporate orders that can be a little bit lumpy, were there any quarters last year that were particularly strong or weak given the timing of orders that might cloud the numbers going forward this year?

In fact, this is the point as the fluctuation that – of the orders that made this quarter having some reductions and decreases versus Q2 last year, but this business is strong, is healthy and we will look to opportunities, but we are already taking action to increase and expand in this area. I don’t know if you saw that we also launched just recently few days ago a workwear that we never had and really encourage you to see it because it can be another area of opportunity and what I’m doing with this area is to give much more visibility and we are including in the messaging of the core, even more the information of what we are doing on this area for the uniform. We also explained other initiatives that will play this year. You will see – while I want to speak on everything that I already accomplished and achieved like the workwear for example, the next one you will see that is a major initiative. So I’m expecting this business to continue to rise.

Thank you. Our next question comes from Steve Marotta with C.L. King & Associates. You may begin.

Good morning, everybody. Federica, given the fact that you arrived in February and clearly you will not have a full effect on the product until spring/summer of 2016, do you have any effect on the fall product line even the margin for fall/winter 2015 and then you could estimate how many styles out of all of the styles you would have affecting the near-term, in the second half of this year?

Good morning, Steve. Well, as you know, the product development and the lead time is very long in our industry. So we also taking action to actually to reduce this lead time by increasing our flexibility for the future. But for the moment, the first things I did was definitely to start immediately on the spring/summer collection, at the same time, since most of the purchase for fall/winter was already done. I’ve met with the merchandize team and the inventory team and the design team to see what could have been done in that area to define first of all which were the products that [indiscernible] and which were the successful product in our historical phase in the past and we created – so we leverage first of all on the success that we had historically and we created a marketing strategy which was the thing that at least so we can change on the Q3 and Q4 compared to Q2 because it couldn’t be possible for the timing, but as you see we just started and we have plan to be much more relevant, but specifically going after product that we think we can sell, we can be even more successful by the approach, so all the inventory being reviewed as much as we could in that sense.

Okay. You touched on the marketing. Can you talk very specifically about how digital marketing initiatives that may have drove incremental traffic to the website, not only in the second quarter, but perhaps in the third quarter to-date as well as again the marketing initiative that you would expect would be traffic drivers and convertors to the – of the website?

I start from the big one, which I really hope that you see and everybody saw, which is the brand marketing campaign that we are doing in a relevant way in the print and digital media. The type of messaging that we are giving so far we got a very good response from both the core customer and we start to see a track of new customer acquisition. Thanks to this initiative. Most importantly it’s the shopping experience because once you increase the traffic and you get the consumer into your website, they need to see that you are consistent with what they see and what they would like to see from you. So from the website that we started to enhance since May 27, as I was saying, we did an incredible job with the team to be fast enough and to start this enhancement, which today has in order important step forward and will be completed, as I said, by early 2016. These drive and is driving higher traffic and higher conversion. Then there are small things in this low hanging fruits that we can get and for example and I want to mention the G&I promotion that we did, which is part of the strategy on how we can do promotion. We saw some promotional fatigue on just be discounted because in the same states with the competitors, we need to be more creative. So we initiated that as by only that event, we acquire more than 5,000 new customers. So it is important that we see not just activities and initiatives to acquire on a longer term but also on a short term. So the mix of those two action are so far positive, of course it’s definitely too early to judge and to see the results that we want to and we expect to see from us.

Great. And lastly, as it pertain specifically to inventory, are you where you want to be at the end of the second quarter or do you wish you were a little lighter or a little heavier, very specifically to plan for the back half of the year or where do you feel your inventory stands at the end of the second quarter? Thank you.

Thanks, Steve. Yes, we mentioned that we had taken actions at the end of the quarter where we increased our promotions so that we did come in out of the quarter in a much cleaner position. So we are – we feel we are in a good position and we also as we look at our mix of markdown inventory this year versus last year we are cleaner in that respect too. So, yes, I think we are in a good position.

And most importantly, Steve, one of our focus is how we build inventory from now on. So this is one of the key when I say that we need to streamline our merchandising assortment, this is the key. The way we create inventory will be part of our success and thanks also to the fact that we hire the Chief Merchandising Officer, Joe Boitano, coming from Saks, his best expertise is definitely to have a very productive inventory level because our goal is to increase the returns and the sell through.

Thank you. Ladies and gentlemen, this concludes the Q&A session. Thank you for your participation. You may now disconnect and everyone have a wonderful Labor Day weekend.