Good day, ladies and gentlemen, and welcome to the Lands’ End Third Quarter Fiscal 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would like to introduce your host for today’s conference, Bernie McCracken, Chief Accounting Officer. Please go ahead.

Good morning, and thank you for attending the Land’s End earnings call for our third 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 Financial Officer. To begin our prepared remarks, Federica will discuss our third quarter results and progress today on key initiatives, and then Mike will provide additional details on our third quarter performance. 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 third 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 discussions 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 our Chief Executive Officer, Federica Marchionni.

Thank you, Bernie. Good morning, everyone. Our third quarter financial results did not meet our expectations, which we attribute to both external factors, including the challenging retail environment and warm weather, as well as internal dynamics. Importantly, we have made progress on a number of initiatives that we believe will position our company for the future many of which will take hold over time. Net revenues for the third quarter were $334 million, down 10%, due primarily to a decrease in the U.S. consumer business in addition to a decline in Retail segment sales. The decline of sales in the U.S. consumer business was the result of fewer promotions relative to last year. The planned reduction in catalog circulation and a lack of product acceptance in addition to pressure stemming from a difficult retail environment a $5 million negative FX impact and the impact of the warm weather on seasonal product. In an effort to drive more profitable sales and protect the brands, we made the decision to pull back on broad promotion during the quarter and to focus on product specific promotions, which drove a higher margin rate. However, even we were operating in a highly promotional retail environment, the sales impact from this decision was larger than we expected. And, therefore, we updated the structure of the promotional strategy in the second-half of the quarter to drive sales volume. That said, we were able to achieve a higher gross margin rate on a currency natural basis for that Direct segment. We will continue to evaluate and evolve promotions in order to strike the right balance between driving sales and maximize gross margin dollars. In addition, it is important to note that the sales impact from our planned catalog reductions during the quarter was partially offset, as we reinvested…

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. Total revenue was $334 million, which was a decrease of $39 million, or 10% to last year. This was comprised of a decrease in the Direct segment of $33 million, or 10% to $288 million and a decrease in the Retail segment of $6 million, or 12% to $47 million. The decrease in Direct segment revenue was primarily due to the decline in sales in the U.S. region. The U.S. business realized negative comparable sales in almost all product categories. And as Federica outlined earlier, the decrease is attributable to a combination of internal and external factors. Internal dynamics affecting the decline in U.S. revenue included fewer promotions relative to last year, planned reduction in the lowest performing sector of our catalog circulation, and continued low product acceptance of our merchandise offerings. The sales decline was partially offset by revenue driven by our new brand marketing initiatives. Externally, we continue to experience a challenging and highly promotional apparel retail environment, as well as the unseasonably warm temperatures, which impacted our cold weather merchandise sales. International revenue in the Direct segment was impacted by foreign exchange headwinds, which negatively impacted reported revenue by approximately $5 million mostly in Europe. On a constant currency basis, international revenue in the Direct segment increased slightly. Revenue in the Retail segment decreased $6 million, or 12% attributable to a same-store sales decrease of 8.9% and operating 15 fewer locations at the end of the quarter, compared to the same period last year. The same-store sales decrease was primarily attributable to many of the same factors, which impacted our Direct…

Thank you. [Operator Instructions] Our first question comes from Alex Fuhrman of Craig-Hallum Capital. Your line is open.

Great. Thanks for taking my question. I appreciate the comments and about the competitive environment. Certainly, we’re hearing that from a lot of other retailers that the holiday season so far has been very promotional. Can you give us a little bit more quantitatively about what we should really be expecting for the fourth quarter? I mean, would you expect revenue trends more or less consistent with what we saw in the third quarter? What would it take for you to get, reinvest a little bit more in the marketing, or are you kind of pulling back on that a little bit for the next few quarters?

Yes, thanks, Alex. I think the first, as you know, we don’t give any forward guidance. But with that, I would like to comment that we do have a number of initiatives that Federica did outline on what we will be doing to drive business in the fourth quarter. And those include the marketing initiatives we just talked about both the brand marketing and the changes to the catalogs, as we speak to our customer and how we’re speaking to them the Bruce Weber campaign. And those will be how we look at focusing on the fourth quarter, as well as being in touch and in tune with the consumer as we look at the promotions that we need to drive our business.

All right. That’s helpful, thanks. And then can you just share how the uniforms business performed in the third quarter and your outlook for that segment in the fourth quarter, I think, that would be helpful to try to dissect how the rest of your core direct-to-consumer business performed in the third quarter?

Yes. When we broke out the – we look at the uniform business as a category of U.S. business and we said the U.S. business was down, that was mainly driven by the consumer business. So our uniform category did perform better slightly positive, but it’s not a number that we do break out. But as we said the biggest decrease that we did see was from the U.S. consumer market.

That’s helpful. Thank you. And then, just thinking more broadly limited history here and only the couple stores. But the pop-ups that have been done so far, I’m curious to what the response has been there from a branding perspective in those markets and maybe thinking a few more years out, I mean, has there – have there been learnings there that would suggest that perhaps a more conventional retail store rollout might make more sense for the brand at some point?

Good morning. This is Federica. Well, the pop-up store really give us an incredible experience to learn what is good at Lands’ End already? What do we have? How do we – how we can move and how fast we can move? That, first of all, our team made an incredible work in making happen those two pop-up stores. We choose those two locations based on different criterias. And the learnings are definitely in line of what in a way we were expecting, of course, people would like to have firsthand experience. But as you also saw from data that are public, [ph] people tend, especially in U.S. to shop more online. So the online will definitely still be our first focus nationally and internationally. But the pop-up store can be one of the way that we can increase, first of all, the brand awareness. And as we look at the distribution this is definitely one of the area where we can grow on the retail.

Great. Thank you very much.

Thank you.

Thank you. Our next question comes from Steve Marotta of C.L.K Associates. Your line is open.

Good morning, everybody. Just a quick question on the inventory being up 8% you mentioned that there’s going to be steps taken in order to reduce the inventory levels. Can you talk a little bit about those? Do you anticipate increasing promotions as the fourth quarter progresses in order to enter the New Year in a clean inventory position?

Yes, good morning, Steve. Yes, I would say, as we’ve talked about in the script one of the big drivers for our decrease was the promotions that we didn’t run this year as compared to last year. And this holiday season will be important that we keep our eye on the promotions that are needed for our customers. And so we will be reactive to the marketplace and aware of the learnings we have from Q3.

Okay. I know you don’t give any sort of forward projections. Can you talk a little bit about how you would like to end the year, however, from an inventory standpoint?

Yes, as we look at this right now, we’re about roughly $30 million over where we were as we break that down into the receipts, I think, it’s important first to note that this is – well, this is slightly above last year, it is the second lowest inventory we’ve had at this point in time in the last five years. So we are – we’ve been doing a lot of work with our inventory. We will continue to do that. We are always looking at our forward commitments to see what we can adjust. We are in a much better spot in our aged inventory than we’ve been in four years age being defined as inventory we’ve held over one year. About 85% of our business is what we would classify as basics or seasonal basics, which means that, it’s not a big fashion risk with the assortment that we would be carrying. So we – like we previously answered was, we’ll be looking to move in the fourth quarter as necessary in the promotional environment that we would be – what we’re seeing out there. But that, I think, we – we’re going to continue to work on it and continue to adjust any forward commitments that we would see necessary. And then just one more point, I think, when we look at the receipts that we did bring in this year, we started the year at $69 million last – than last year. And we brought in just slightly more than $60 million of receipt. So, as we look at the mess, it is mainly due to the sales revenue that we did not generate versus last year, and we’ll continue to focus on that.

I can also add, Steven, good morning.

Yes, Federica, hello.

Hello. I can also add that my focus is very much on building a very qualitative inventory for next year. So everything that we need to buy and everything that will be an additional thing for what we already have on the sizing on the colors, I think that we can do a much better work in what I will – what I call always to streamline the merchandising offer. So we need to definitely offer new product the way we structure the inventory will be a key to the success. And so that is a very big focus for me and the inventory team at the moment.

Okay. So if I read that correctly then if inventory is increasing, say, at the end of the fourth quarter and into the first quarter that because of investments – product investments that are being made for the first and second quarter?

Yes, I don’t – our commitments are done through first quarter. So we’ve worked into a fair amount of what Federica would say as the assortment changes she is making, and that’s all built in factored into what sales we expect to generate. So the change in inventory wouldn’t drive any larger investment. It’s just we want to make sure that we bring in the right inventory for the right amount of inventory for the sales we expect to generate.

Okay. And, Mike, I’ve got a one more question for you and then one more question for Federica. The 85% in basics or seasonal basics, do you – I’m reading that to believe that you would pack away, say, seasonal merchandise that doesn’t sell this year, because maybe of cold – the lack of cold weather, or for whatever reason, and that can be packed away for next year. Is that accurate?

Yes, we do every year an analysis as any retailer would do that. You look at the – anybody that’s a direct/retail in four walls, it’s more difficult. But in the direct/retail, you would look at the benefits of moving that inventory now versus keeping it to sell again at a full price in non-markdown situation next year. So each – it’s a factor of what the product is? What we think the relevance is the acceptance that we did see this year and our actual size runs and that sort of stuff. So it’s a – it’s almost a product – by product assessment, but that is certainly an option.

Okay, great. And, Federica, I got one more question for you. As it pertains to the marketing initiatives to-date in digital and social media, I’m assuming that you can better track your customer acquisition costs. And can you talk a little bit about how the – how your ability to acquire new customers to the brand, I know, it’s been a relatively difficult environment, I know, it’s also something that’s influx, it’s, everything is changing. But can you talk about the initial successes of the digital marketing program to-date?

As I was saying everything that we’re doing is that is new initiative, it’s too soon to say and especially for this retail environment do not give justice of everything that we did. But I can give you few examples on the good success stories that we experienced. But let me start with a catalog first even if it’s not a digital thing. First of all, we also introduced the digital catalog, which drove an higher conversion rate versus the other catalog, again, this is a very limited experience about the positive response, it’s already a good starting point on the catalog. When we launched the first one, the market was not as bad as we started in September. And in August, we dropped the new revamped catalog. We had made a significant calculation, but we had a productivity increase by 75%. I think those are the things that we need to see. And, of course, after when the market started to be very difficult and then the weather didn’t help, we had experienced a different situation. This is also one of the reason why we increased the promotions. The – on the digital side, we are an e-commerce company, but the focus on the digital and social media as I just mentioned weren’t that strong. We have a very strong Facebook following, but especially for the new customer acquisition we need to be stronger in other platform. And I mentioned Instagram aware, since I started, we completely doubled the Instagram base. It’s still relatively low number, but before the quarter, for example, we increased 36%. So everything that we’re doing on, it really give us a good hope that we are in the right direction. On the digital catalog, of course, there is so much we can still do. But the fact that today you can click on the catalog and you can shop immediately, make a better experience for the customer, and we will improve even more the circulation of this catalog the way we expose our catalogs there. We can do much more even on the media side to distribute this digital catalog. That doesn’t mean that we want to completely walk away from the current catalog that we have today, because that remains our biggest focus on the direct marketing that we want to make it in a very efficient way. So, as I was saying the September situation that didn’t happen, but when we dropped that catalog, that is the story that I would like to tell a 75% increase in productivity with a much lower reduction in circulation, meaning investments.

That’s very helpful. Thank you and best of luck.

All right. Thank you.

Thank you.

Thank you. I’m not showing any further questions in queue at this time. That concludes the Q&A session for today. Ladies and gentlemen, thank you for participating in today’s conference. That concludes today’s program. You may all disconnect. Everyone have a wonderful day.