With Lands’ End Adrift, Can New CEO Jerome Griffith Steer It Back To Dry Land?

Nearly three years after its April 2014 spinoff from Sears Holdings(SHLD), Lands’ End(LE) is fairing only marginally better than its former parent, which is teetering on the edge of bankruptcy. Lands End, which just after its spinoff had a market capitalization of $900 million, is worth just $485 million today. The company has nearly $500 million in long term debt which it used to give a $500 million parting gift to its former parent. The company remains tightly connected to Sears through Edward Lampert who controls 59.8% of its stock through various entities. Lampert purchased additional shares on the open market as recently as October. Significant revenue is derived from the 219 Lands’ End locations within moribund Sears stores. This is in jeopardy as Sears closes locations. As well, the company paid Sears and its affiliates over $50 million in the first 39 weeks for 2016 for rent and services including sourcing, Shop Your Way, and call center.

Earlier this year, Lands’ End fired CEO Federica Marchionni who spent 18 months of Ron Johnson-like cluelessness trying to turn the company into a fashion forward brand. In the end, her tenure, during which she never moved from New York to Lands’ End Wisconsin headquarters, was marked by plunging sales and expensive inventory writedowns.

For the first 39 weeks of 2016, Lands’ End sales dropped from $946 million to $876 million the previous year. Unfortunately, SG&A was almost flat, decreasing just $4 million from 2015’s $394 million. This lead to a swing from net income of $19.9 million to a net loss of $14.9 million. The company’s accounts payable grew from $151 million to $180 million, while inventories shrank modestly from $436 million to $425 million. The company’s negative operating cash flow of $67 million plus the payments on long term debt point to an increasingly dire situation. Mr. Lampert, who has recently extended large lines of credit to both Sears Holdings and Seritage(SRG), may lack the firepower or interest in yet another bailout.

Into this situation steps new CEO Jerome Griffith.  Mr. Griffith comes to Lands’ End after successfully growing luggage maker Tumi Holdings and selling the company to Samsonite.

Mr. Griffith served as the Chief Executive Officer, President and a member of the board of directors of Tumi Holdings, Inc. from April 2009 until its sale in August 2016 to Samsonite International S.A., where he now serves as a non-executive director. From 2002 to February 2009, he was employed at Esprit Holdings Limited, a global fashion brand, where he was promoted to Chief Operating Officer and appointed to the board in 2004, then promoted to President of Esprit North and South America in 2006. From 1999 to 2002, he worked as an executive vice president at Tommy Hilfiger. From 1998 to 1999, he worked as the president of retail at the J. Peterman Company, a catalog-based apparel and retail company. From 1989 through 1998, he worked in various positions of increasing responsibility at Gap, Inc. Mr. Griffith is a member of the board of VINCE, Tom Tailor SE, Samsonite and Parsons, The New School of Design. He graduated from Pennsylvania State University with a Bachelor’s Degree in Marketing.

Mr. Griffith will really need to work hard to restore credibility to the brand, particularly in the Direct channel. Incredibly, though the drop in Direct sales was less than the drop in Retail, the majority of the drop in gross profit was in the Direct segment. Knowing that Retail will continue to drop, Mr. Griffith will need to focus on growing both revenue and margin in Direct. At the same time, SG&A needs to be adjusted downward to the new reality. JC Penney(JCP) had been mildly successful at returning to its roots and stabilizing the company after the disastrous Ron Johnson era. Can Mr. Griffith execute a similarly successful strategy here once he takes over in March?

Disclosure The author owns shares of SRG and JCP.