Ladies and gentlemen, thank you for standing by. And welcome to the Lands' End Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions]. I would now like to hand the conference to your speaker today, Bernie McCracken, Chief Accounting Officer. Please go ahead, sir.

Good morning. And thank you for joining the Lands' End earnings call for discussion of our third quarter fiscal 2019 results, which we released this morning and can be found on our website landsend.com. On the call today you will hear from Jerome Griffith, our Chief Executive Officer and President; and Jim Gooch, our Chief Operating Officer and Chief Financial Officer. After the company’s prepared remarks, we will conduct a question-and-answer session. Please also note that the information we are about to discuss includes forward-looking statements. Such statements involve risks and uncertainties. The company's actual results could differ materially from those discussed on this call. Factors that could contribute to such differences include, but are not limited to, those items noted and included in the company's SEC filings, including our Annual Report on Form 10-K and quarterly reports on Form 10-Q. The forward-looking information that is provided by the company on this call represents the company's outlook as of today. And we do not undertake any obligation to update forward-looking statements made by us. Subsequent events and developments may cause the company's outlook to change. During this call, we will be referring to non-GAAP measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release issued earlier today, a copy of which is posted in the Investor Relations section of our website at landsend.com. With that, I will turn the call over to Jerome Griffith.

Thank you, Bernie, and good morning. We are very pleased to have delivered both strong earnings growth for the third quarter and great progress on our strategic initiatives across our businesses. Briefly highlighting our financial results, revenue increased nearly 5% when adjusted for Sears closures with growth led by our U.S. business. In the U.S., e-commerce sales grew 7.4%, while our U.S. company-operated retail stores once again delivered strong comparable sales growth of 8.3%. Adjusted EBITDA grew nearly 20% to $18.8 million, resulting from gross margin expansion of approximately 110 basis points, driven by more disciplined promotional strategies, as well as expense controls. While we faced sales headwinds related to unseasonably warm temperatures earlier in the quarter, we saw an uptick in selling trends, particularly in heavier outerwear as colder weather arrived. The progress we're making across our numerous strategic initiatives continues to put us on track to achieve our long-term financial targets. During the third quarter, we continued to advance our growth strategies which remain centered on getting the product right, operating as a digitally-led company, executing a uni-channel strategy and improving business processes and infrastructure. Our mission is to deepen our relationships with the core customers while attracting new customers to Lands' End. This effort begins with consistently delivering product with purpose. And we are driving our product strategy through four main objectives: own the water; on the weather; layers, layers, layers; and we fit everybody. During the third quarter we saw a favorable response to newness in our assortment as we increasingly leveraged our data to inform product efficiency. We were particularly pleased with the double-digit growth in our knits and sleeper categories, which represent a meaningful portion of seasonal sales. We saw strength in our denim and expanded transitional businesses in both men's and women's. Our…

Thank you, Jerome and good morning. For the third quarter total company revenue decreased slightly to $340 million compared to $341.6 million in the same period last year. Our performance reflects 89 fewer Lands' End Shops at Sears and a slower start to our heavier outerwear business. After adjusting for the Shops at Sears, our revenue increased 4.7%. We saw continued strength in our U.S. e-commerce business, which increased 7.4% as well as continued growth in comparable sales at our company-operated stores. While outerwear and cold weather categories were challenged with unseasonably warm weather, we were pleased to see solid performance across many of our categories, particularly with strength in our women's denim and expanded transitional businesses in both men's and women's. Our sweaters and heavier outerwear business began to improve late in the quarter, with the arrival of colder weather. While we continue to achieve strong growth in new customer acquisition, consistent with our overall performance, total buyers were relatively flat. We again delivered strong performance in our US company-operated stores with an 8.3% comp store increase for the quarter. We're seeing comp improvements across both our legacy stores as well as our newer stores we opened in 2018, which are delivering even stronger performance in their second year. We also remain pleased with the performance of our new stores. We opened one store in the third quarter and three additional stores in November, giving us 25 U.S. company-operated stores. As we expected with the significant number of Sears store closures, our overall retail sales decreased from $27.8 million to $14.4 million. We ended the quarter with 36 shops at Sears, all of which are in liquidation and have leases expiring this year. Within Outfitters, our sales increased $1.1 million. In our school uniform business, we made the strategic…

Actually, Jim, before we get started with the Q&A, I just want to make one comment because I don't want to get the question about Cyber Week. Keep in mind that Black Friday and Cyber Monday and Tuesday are three of our biggest volume days of the year. Overall, we're very pleased with our performance so far during this busy shopping period. We're still in the middle of it but we're in line with our expectations. So now with that, let's open it up for questions.

[Operator Instructions]. Our first question comes from Steve Marotta with CL King & Associates. Your line is now open.

Good morning, Jerome and Jim. Congratulations on the quarter. Jerome, just following up with your comment regarding Cyber Monday, I'm assuming, given the weather around the country that the colder weather categories performed well, but maybe you want to peel that onion back one layer on Black Friday through Cyber Monday and the categories that you're most excited about, and even the promotional cadence over the weekend as well?

Sure. We saw a lot of gift-giving activity actually over the weekend. Big categories have been performing well for us and these should be really no surprise to you. Turtlenecks has been doing extremely well, we were selling over a 1,000 a minute for several hours over the weekend. Personalized Christmas stockings, pajamas, gown mesh, had been doing very well. Flannel Shirts, we sold a lot of and people have been personalizing lots of product as well. And number one monogram has been mom. So far number two has been dad. So a lots of gift-giving activity. Cold weather, yes for sure it helps and we definitely saw that as we were coming into November and yes, it's okay for the weekend, but quite honestly it's the gift giving time of year and that's what we have been selling lot of volume wise.

I see. Jim, can you talk a little bit about mitigating factors next year for tariffs, are they similar from a vendor concession standpoint. I know that you're obviously moving as fast as you can out of China. From a price increase standpoint, can you talk a little bit about what your expectation is for next year in endeavoring to mitigate the tariff headwind?

Yes, Steve. I think the things that we were able to do this year to help mitigate were a couple of things that you highlighted there. Working with the vendors, but then we were also able to accelerate receipts in front of the tariff increase. Obviously, we don't have that opportunity next year, but next year we are going to continue to look to move volume out of China. As we've said a couple of times now, we're looking at that number being close to 20% of our total shipments next year, which is down significantly from where we were this year and certainly where we've been in prior years.

Okay. Lastly, Jerome. I think you mentioned leveraging data analytics during the prepared remarks, can you talk a little bit about what analytics you're currently getting now versus a year ago and how you anticipate that will help in markdown cadence and promotional activity and inventory management?

A couple of things. Part of it is we put data teams together internally and work with our data in order to understand better. What the customer is actually looking for so as we're building the line doing the line plans, trying to make smarter decisions upfront, but the bigger push is really AI based something we call dynamic promo. It's trying to maximize the gross margin and sales volume with all of your items through item numbers and also through colors and sizes. So we've been working and have gone through several cash in this past year, trying to get the algorithms just right in order to maximize price for the customer and maximize our gross margins. We've seen some pretty good headway, so far, and we'll continue to experiment with this going into the coming year, and we think we want to drill down beyond just style and size and color into customer attributes as we run through 2020.

[Operator Instructions]. Our next question comes from Alex Fuhrman with Craig-Hallum Capital. Your line is now open.

One thing I wanted to ask about is, you have this nice American Airlines partnership that's about to launch soon. Obviously, that's a very nice piece of revenue as you think about your three-year financial targets, is it necessary that in 2020 there will be another big uniform win in order to grow EBITDA and revenue on top of what you've been able to do for this year? If you could just talk a little bit about how you balance the sort of regular ongoing business with some big new account wins and how those can contribute to getting to that goal?

I think it's great, Alex, that we get these -- lot of confidence from a lot of these larger companies, you think of American and Delta, the largest airlines in the world, we do Chase Bank. So Chase is the largest bank in America. That's great, but those things can be a little bit choppy, particularly around times when you have a launch of new products versus just day in day out business. One of the things we will be concentrating on in the coming year is really our consumer site for our LEO business. There's a lot of small and mid-size businesses out there that we think we have a lot of opportunity in growing and making the site experience a lot more seamless for the customer that comes on there. There's other companies out there, which have been gotten into this business and have grown pretty rapidly and we think that there is market share that we could take if we make the buying experience a lot easier for the customer, particularly when it comes to getting your logo on products. The other thing that we've been concentrating on and have had predicted good success with in this year has been our school uniform business and managing that at a much less promotional price point. And Jim talked about a little bit, where the margins came out, in business Outfitters and we were very pleased with that. It is really one of the things that we're working on over the next two, three years. It is continuing to pick up our gross margin with how we're managing price points and how we're managing pricing in front of the consumer.

And then if I could ask also just about the inventory, this looks like the second quarter in a row. It was up pretty significantly and you mentioned the American launches as well as proactively bringing in some products ahead of tariffs. Can you talk a little bit about just the composition of that inventory? Do you feel confident that as you work toward more normalized levels at the end of Q4, as you indicated that the composition of that inventory won't be heavily weighted toward any of your seasonal categories?

Yes, I think, first of all we feel very confident in the composition of the inventory. As I said, it's very seasonally appropriate. American Airlines, just the timing of that, we start to take orders, right at the beginning of November and so all of that inventory was sitting in the balances that we discussed with no sales against it at that point in October. So that will normalize during the course of the launch. The tariff was something that we intentionally did and it had sizable cost avoidance against it. We feel that that's also going to normalize by the end of the year. The third piece of it, which is the smallest piece is obviously our top-line sales were a little bit soft in the third quarter, but the softness was driven by our colder weather categories and as we mentioned as the weather cool off at the end of the third quarter into the fourth quarter, we started to see a pickup in those categories. And so we still feel very comfortable that by the end of the fourth quarter, we're going to be able to work to a normalized level.

Thank you. I’m not showing any further questions at this time. Ladies and gentleman this concludes today's conference call. Thank you for participating. You may now disconnect.