| Background and Basis of Presentation | NOTE 1. BACKGROUND AND BASIS OF PRESENTATION Description of Business Lands’ End, Inc. (“Lands’ End” or the “Company”) is a leading digital retailer of solution-based apparel, swimwear, outerwear, accessories, footwear, home products and uniforms. Lands’ End offers products online at www.landsend.com , through third-party distribution channels, our own Company Operated stores and third-party license agreements. Lands’ End also offers products to businesses and schools, for their employees and students, through the Outfitters distribution channel. Lands’ End is a classic American lifestyle brand that creates solutions for life’s every journey. References to www.landsend.com do not constitute incorporation by reference of the information at www.landsend.com , and such information is not part of this Quarterly Report on Form 10-Q or any other filings with the SEC, unless otherwise explicitly stated. Terms that are commonly used in the Company’s Notes to Condensed Consolidated Financial Statements are defined as follows: • ABL Facility – Asset-based senior secured credit agreement, providing for a revolving facility, dated as of November 16, 2017, with Wells Fargo Bank, N.A. and certain other lenders, as amended to date • ASC – Financial Accounting Standards Board Accounting Standards Codification, which serves as the source for authoritative GAAP, as supplemented by rules and interpretive releases by the SEC which are also sources of authoritative GAAP for SEC registrants • Company Operated stores – Lands’ End retail stores in the Retail distribution channel • Current Term Loan Facility – Term loan credit agreement, dated as of December 29, 2023, among the Company, Blue Torch Capital, as Administrative Agent and Collateral Agent, and the lenders party thereto • Debt Facilities – Collectively, the Current Term Loan Facility and ABL Facility • Deferred Awards – Time vesting stock awards • FASB – Financial Accounting Standards Board • Fiscal 2024 – The 52 weeks ending January 31, 2025 • Fiscal 2023 – The 53 weeks ended February 2, 2024 • Former Term Loan Facility – Term loan credit agreement, dated as of September 9, 2020, among the Company, Fortress Credit Corp., as Administrative Agent and Collateral Agent, and the lenders party thereto • GAAP – Accounting principles generally accepted in the United States • LIBOR – London inter-bank offered rate • Option Awards – Stock option awards • Performance Awards – Performance-based stock awards • Second Quarter 2024 – The 13 weeks ended August 2, 2024 • SEC – United States Securities and Exchange Commission • SOFR – Secured Overnight Funding Rate • Target Shares – Number of restricted stock units awarded to a recipient which reflects the number of shares to be delivered based on achievement of target performance goals • Term Loan Adjusted SOFR – SOFR plus adjustments of either (a) 0.11448 % for a one-month interest period, (b) 0.26161 % for a three-month interest period, or (c) 0.42826 % for a six-month interest period Basis of Presentation The Condensed Consolidated Financial Statements include the accounts of Lands’ End, Inc. and its subsidiaries. All intercompany transactions and balances have been eliminated. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all material adjustments which are of a normal and recurring nature necessary for a fair presentation of the results for the periods presented have been reflected. Dollar amounts are reported in thousands, except per share data, unless otherwise noted. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Lands’ End Annual Report on Form 10-K filed with the SEC on April 3, 2024. Macroeconomic Challenges Macroeconomic issues which impact consumer discretionary spending, such as realized inflation-based price increases and high interest rates have continued to have an impact on our business. Apparel purchases historically have been influenced by domestic and global economic conditions, which may negatively impact customer demand and may require higher levels of promotion in order to attract and retain customers. Additionally, the variable interest rates associated with our Debt Facilities are negatively affected by higher interest rate environments. Macroeconomic challenges may lead to increased cost of raw materials, packaging materials, labor, energy, fuel, debt and other inputs necessary for the production and distribution of our products. Moreover, uncertainty with respect to trade policy and tariffs, including increased tariffs applicable to countries where the Company’s vendors manufacture our product, may result in an increase in the cost of the Company’s products. Restructuring During Fiscal 2023, the Company reduced approximately 10 % of its corporate office and Hong Kong sourcing office positions and incurred restructuring charges, primarily severance and benefit and other related costs. The reductions in the Hong Kong sourcing office were organizational changes to move positions to the Company’s corporate headquarters to centralize product development to better align with the Company’s speed-to-market initiatives. The reductions in the corporate office positions were made to better align with the evolving needs of the business and to invest in key growth areas. For the 39 weeks ended November 1, 2024, the Company incurred restructuring charges, primarily severance and benefit costs, related to cost optimization of business operations and strategic initiatives. The following table summarizes the restructuring costs recognized in Other operating expense, net in the Condensed Consolidated Statement of Operations for the 13 and 39 weeks ended November 1, 2024 and October 27, 2023:
13 Weeks Ended 39 Weeks Ended
(in thousands) November 1, 2024 October 27, 2023 November 1, 2024 October 27, 2023
Employee severance and benefit costs $ 1,671 $ 2,266 $ 4,351 $ 2,656
Other costs 131 — 131 —
Total restructuring $ 1,802 $ 2,266 $ 4,482 $ 2,656 The following table summarizes the accrued restructuring cost activity included in Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets:
(in thousands) Employee Severance and Benefit Costs Other Costs Total Restructuring
Balance as of February 2, 2024 $ 2,884 $ 1,100 $ 3,984
Estimated costs payable in cash 342 — 342
Cash payments ( 2,068 ) ( 1,100 ) ( 3,168 )
Balance as of May 3, 2024 1,158 — 1,158
Estimated costs payable in cash 2,338 — 2,338
Cash payments ( 589 ) — ( 589 )
Balance as of August 2, 2024 2,907 — 2,907
Estimated costs payable in cash 1,671 131 1,802
Cash payments ( 641 ) — ( 641 )
Foreign currency translation 2 — 2
Balance as of November 1, 2024 $ 3,939 $ 131 $ 4,070 Goodwill impairment assessments In Fiscal 2023, in connection with the preparation of the financial statements for the quarter ended October 27, 2023, the Company considered the decline in the Company’s stock price and market capitalization, as well as the then current market and macroeconomic conditions, to be a triggering event for the U.S. eCommerce and Outfitters reporting units and therefore completed an interim test for impairment of goodwill for these reporting units as of October 27, 2023. The Company tested goodwill for impairment using a one-step quantitative test. The quantitative test compared the reporting unit’s fair value to its carrying value. An impairment was recorded for any excess carrying value above the reporting unit’s fair value, not to exceed the amount of goodwill. The Company estimated fair value of its reporting units using a discounted cash flow model, commonly referred to as the income approach. The income approach used a reporting unit’s projection of estimated operating results and cash flows that was discounted using a weighted-average cost of capital that reflected then current market conditions appropriate to the Company’s reporting unit. The discounted cash flow model used management’s best estimates of economic and market conditions over the projected period using the best information available, including growth rates in revenues, costs and estimates of future expected changes in operating margins and cash expenditures. Other significant estimates and assumptions included terminal value growth rates, weighted average cost of capital and changes in future working capital requirements. The testing resulted in goodwill impairment of the remaining $ 70.4 million and $ 36.3 million of goodwill allocated to the Company’s U.S. eCommerce and Outfitters reporting units, respectively, for the 13 and 39 weeks ended October 27, 2023. Long-lived Asset Impairment Analysis Property and equipment are subject to a review for impairment if events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. In accordance with ASC 360, Property, Plant and Equipment (“ASC 360”) the Company reviewed the long-lived asset groups for impairment as of November 1, 2024. During Second Quarter 2024, the Company considered management’s decision to replace the existing information technology infrastructure with an enterprise resource planning (“ERP”) software system within the next 18 to 24 months to be a triggering event. The Company determined that certain long-lived assets, primarily capitalized internal-use software projects and computer software, would no longer be utilized or have future benefit with the planned ERP platform and recognized impairment in the amount of $ 1.0 million and $ 3.8 million during the 13 weeks and 39 weeks ended November 1, 2024, respectively, recorded in Other operating expense, net in the Condensed Consolidated Statements of Operations. The Company Operated store long-lived asset groups, including Operating right-of-use assets, are regularly reviewed for impairment indicators. Impairment is assessed at the individual store level which is the lowest level of identifiable cash flows and considers the estimated undiscounted cash flows over the asset’s remaining life. If estimated undiscounted cash flows are insufficient to recover the investment, an impairment loss is recognized equal to the difference between the estimated fair value of the asset and its carrying value, net of salvage, and any costs of disposition. The fair value estimate is generally the discounted amount of estimated store-specific cash flows. No impairment was recognized for Operating lease right-of-use assets and property and equipment, net for any individual identified Company Operated stores as of November 1, 2024 and October 27, 2023, respectively. The Company reviewed the remaining long-lived asset groups for impairment as of November 1, 2024. The Company assessed the recoverability of our long-lived asset groups by comparing their projected undiscounted cash flows associated over remaining estimated useful lives of the primary asset in the long-lived asset group against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. As a result of the testing, the undiscounted cash flows of the remaining asset groups exceeded their respective carrying amounts resulting in no impairment as of November 1, 2024 . |
