UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒
☐
Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended January 29, 2021
-OR-
For the transition period from to to .
Commission File Number: 001-09769
Lands’ End, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation of Organization)
1 Lands’ End Lane
Dodgeville, Wisconsin
(Address of Principal Executive Offices)
36-2512786
(I.R.S. Employer
Identification No.)
53595
(Zip Code)
(608) 935-9341
(Registrant’s Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
LE
The NASDAQ Stock Market LLC
Securities registered under Section 12(g) of the Exchange Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. YES ☐ NO ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of
“large accelerated filer”, “accelerated filer”, "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☒
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒
The aggregate market value (based on the closing price of the registrant's common stock quoted on the NASDAQ Stock Market) of the registrant's common stock owned by non-affiliates, as of July
31, 2020, the last business day of the registrant's most recently completed second fiscal quarter, was approximately $100.3 million.
As of March 23, 2021, the registrant had 32,643,499 shares of common stock, $0.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement relating to the registrant’s 2021 Annual Meeting of Stockholders (the “Proxy Statement”), to be held on May 13, 2021, are incorporated by reference
into Part III of this Annual Report on Form 10-K where indicated. The Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to
which this report relates
LANDS’ END, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
Table of Contents
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Item 16.
Form 10-K Summary
Signatures
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ITEM 1. BUSINESS
PART I
As used in this Annual Report on Form 10-K, references to the "Company", "Lands' End", "we", "us", "our" and similar terms refer to Lands' End,
Inc. and its subsidiaries. Our fiscal year ends on the Friday preceding the Saturday on or closest to January 31. Other terms commonly used in this Annual
Report on Form 10-K are defined as follows:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
ABL Facility - Asset-based senior secured credit agreements, dated as of November 16, 2017, with Wells Fargo, N.A. and certain other
lenders, as amended to date
Brexit - The United Kingdom's exit from the European Union
Company Operated stores - Lands’ End retail stores in the Retail channel
Current 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
Debt Facilities - Collectively, the Current Term Loan Facility and ABL Facility
ESL - ESL Investments, Inc. and its investment affiliates, including Edward S. Lampert
First Quarter 2020 – The 13 weeks ended May 1, 2020
Fiscal 2021 – The Company’s next fiscal year representing the 52 weeks ending January 28, 2022
Fiscal 2020 - The 52 weeks ended January 29, 2021
Fiscal 2019 - The 52 weeks ended January 31, 2020
Fiscal 2018 - The 52 weeks ended February 1, 2019
Former Term Loan Facility – Term loan credit agreement, dated as of April 4, 2014, with Bank of America, N.A. and certain other lenders
Sears Holdings - Sears Holdings Corporation, a Delaware corporation, and its consolidated subsidiaries
SEC - United States Securities and Exchange Commission
Separation - On April 4, 2014 Sears Holdings distributed 100% of the outstanding common stock of Lands' End to its shareholders
Tax Act - The Tax Cuts and Jobs Act passed by the United States government on December 22, 2017
Third Quarter 2020 – The 13 weeks ended October 30, 2020
Lands' End is a leading uni-channel retailer of casual clothing, accessories, footwear and home products. Operating out of America’s heartland, we
believe our vision and values make a strong connection with our core customers. We offer products online at www.landsend.com, on third party online
marketplaces and through our own Company Operated stores, as well as, third-party retail locations. We are a classic American lifestyle brand with a
passion for quality, legendary service and real value. We seek to deliver timeless style for women, men, kids and the home.
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Lands' End was founded in 1963 by Gary Comer and his partners to sell sailboat hardware and equipment by catalog. While our product focus has
shifted significantly over the years, we have continued to adhere to our founder's motto as one of our guiding principles: “Take care of the customer, take
care of the employee and the rest will take care of itself.”
Lands’ End seeks to provide a common customer experience regardless of whether they are interacting with us on our company websites, third-
party marketplaces, at Company Operated stores or other distribution channels.
We have one external reportable segment and identify our operating segments according to how our business activities are managed and evaluated.
Our operating segments consist of: U.S. eCommerce, Lands’ End Outfitters (“Outfitters”), Europe eCommerce, Japan eCommerce, Third Party, and Retail.
We have determined that each of our operating segments share similar economic and other qualitative characteristics, and therefore, the results of our
operating segments are aggregated into one external reportable segment.
Product Channels
Lands’ End identifies five separate distribution channels for revenue reporting purposes:
U.S. eCommerce offers products through the Company's eCommerce website utilizing digital marketing and direct mail catalogs.
International offers products primarily to consumers located in Europe and Japan through eCommerce international websites and third-party
affiliates.
Outfitters sells products to end consumers, primarily located in the U.S., through negotiated arrangements to make specific styles or customized
products available to employees and members of client organizations, as well as through the Company's eCommerce websites.
Third Party sells the same products as U.S. eCommerce but to domestic wholesale customers or direct to consumers through third-party
marketplaces and websites.
Retail sells products and services through Company Operated stores.
In Fiscal 2020, we generated revenue of approximately $1.43 billion. Our revenue is generated worldwide with operations based in the United
States, United Kingdom, Germany and Japan. This network reinforces and supports sales across the channels in which we do business. Net revenue is
presented by product channel in the following table:
(in thousands)
U.S. eCommerce
International
Outfitters
Third Party
Retail
Total Net revenue
$
$
Fiscal 2020
$
% of Revenue Fiscal 2019 % of Revenue Fiscal 2018 % of Revenue
62.8%
12.5%
19.7%
0.9%
4.1%
67.4%
15.6%
12.2%
2.8%
2.0%
58.9%
12.4%
19.9%
0.4%
8.4%
854,361
179,637
289,251
5,931
122,412
$ 1,451,592
910,088
181,087
285,807
13,654
59,565
$ 1,450,201
$
961,911
222,878
174,260
39,945
28,454
1,427,448
In Fiscal 2020, we fulfilled orders to customers in approximately 139 countries outside the United States, totaling approximately 17% of revenue.
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Revenue by the geographical location where the product is shipped is as follows:
(in thousands)
United States
Europe
Asia
Other
Total Revenue
$
$
Fiscal 2020
1,191,346
175,011
49,725
11,366
1,427,448
% of Revenue Fiscal 2019 % of Revenue Fiscal 2018 % of Revenue
86.0%
9.5%
3.3%
1.2%
$ 1,245,157
138,761
50,203
17,471
$ 1,247,288
137,134
48,470
17,309
85.8%
9.6%
3.5%
1.1%
83.4%
12.3%
3.5%
0.8%
$ 1,450,201
$ 1,451,592
Long-lived assets by geographical location are as follows:
(in thousands)
United States
Europe
Asia
Total Property and equipment, net
Fiscal 2020
Fiscal 2019
Fiscal 2018
$
$
136,038
8,267
983
145,288
$
$
148,340
8,716
609
157,665
$
$
140,663
8,773
458
149,894
Strategy
In Fiscal 2020, we continued to leverage our iconic American brand, which was founded on the principles of delivering great quality,
uncompromising service and exceptional value to our customers. We are a vertically integrated retailer that manages most aspects of our design, marketing
and distribution in-house. In Fiscal 2021, we plan to continue to focus on our five strategic pillars, as we have over the past several years:
Product. The soul of the Lands’ End brand has always been products with a purpose. We are focused on delivering key items made of quality
materials, in iconic styles that offer great value to our customers and their families. We provide an assortment of products leveraging our key item strategy
with a focus on delivering comfort, style and value with emphasis on major categories, such as swimwear and outerwear. In addition, we have increased our
focus on inclusivity. We have done this by providing apparel in extended sizes, from petite to plus for women and big and tall for men. In Fiscal 2021, we
plan to continue to leverage customer data to drive decisions around our merchandise assortment, fabrics, silhouettes and price points that our customer
desires. We have worked to drive consistency in our fit across multiple categories and classifications. We are also focused on key relationships, providing
innovative products to meet the needs of our partners.
Digital. We are focused on utilizing digital technologies to obtain new customers and continuously improve the overall customer experience. This
is done by leveraging data analytics to better tailor and personalize the shopping experience for each customer. We are a digitally led organization, applying
technology as we adapt to ongoing shifts in customer shopping behaviors. During Fiscal 2020, we leveraged advanced data analytics and machine learning
in our effort to optimize gross profit through product level promotions and to optimize both internal and external search capabilities. We enhanced our
website with a “test and learn” process which led to improvements in product detail pages and checkout with a focus on the smartphone experience. As part
of our Fiscal 2021 initiatives, we plan to continue to leverage artificial intelligence to analyze customer behavior and optimize promotions.
Distribution. We utilize uni-channel distribution including eCommerce and our own Company Operated stores, as well as, third-party retail stores,
to engage our customer where and how they choose to shop. Our 31 Company Operated stores represent the Lands’ End American Heritage aesthetic,
making it easy for our customers to find our products in an inviting, brand appropriate setting. Given the impact of the COVID-19 pandemic on consumers’
shopping habits, which has driven more consumers to shop online rather than in a store, we do not anticipate opening more Company Operated stores in the
immediate future. We do, however, plan to pursue opportunities to partner with other brick and mortar and online retailers to increase exposure of our
products to more consumers. In Fiscal 2020, we launched nearly all our products for purchase on Kohl’s website, as well as, an
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assortment of products in 150 Kohl’s retail stores and plan to expand to approximately 300 Kohl’s retail stores in Fiscal 2021. For Fiscal 2021, we plan to
continue applying a customer analytics-driven distribution strategy, where we leverage our data to refine product assortment and expand opportunities with
third-party marketplaces and traditional wholesale.
Business Processing. We continue to focus on building strategic competencies through improved business processes that are based on
standardization and efficiency. During 2019 and 2020, we focused on optimizing our business processing capabilities which further enabled us to upgrade
the way we accept, process and fulfill orders across our channels and improve how we interface with our partners. Because of our optimization, we are
upgrading our inventory planning process and data analytic capabilities as we focus on growing the business and operating as a global uni-channel retailer.
During 2021, we plan to begin a multi-year project to implement a warehouse management solution designed to improve our distribution center
operations. See also Item 1A, Risk Factors, in this Annual Report on Form 10-K.
Be a Great Place to Work. Lands’ End strives to be a great place to work, while fostering an inclusive culture where our employees can develop
and grow professionally and contribute to our collective success. During 2020, we built on our existing training and development programs and launched
many employee initiatives, including our Diversity & Inclusion Council and our Business Resource Groups.
History
We were founded in 1963, incorporated in Delaware in 1986, and our common stock was listed on the New York Stock Exchange from 1986 to
2002. On June 17, 2002, we became a wholly owned subsidiary of Sears Roebuck and Co., a wholly owned subsidiary of Sears Holdings. Sears Holdings
distributed 100 percent of the outstanding common stock of Lands' End to its stockholders on April 4, 2014 and our common stock was listed on the
NASDAQ Stock Market.
Lands' End was founded on certain principles of doing business that are embodied in our goal to deliver great quality, uncompromising service and
exceptional value to our customers. Lands’ End founder Gary Comer was quoted as saying: “Take care of the customer, take care of the employee and the
rest will take care of itself."
Competition
We operate primarily in the apparel industry which is highly competitive. We compete with a diverse group of direct-to-consumer companies and
retailers, including national department store chains, women's and men's specialty apparel chains, outdoor specialty stores, apparel catalog businesses,
sportswear marketers and online apparel businesses that sell similar lines of merchandise. We compete principally on the basis of merchandise value
(quality and price), product innovation, our established customer file and award-winning customer service.
Seasonality
We experience seasonal fluctuations in our net revenue and operating results and historically have realized a significant portion of our net revenue
and earnings for the year during our fourth fiscal quarter. We generated 37.7%, 37.9% and 34.6% of our net revenue in the fourth fiscal quarter of Fiscal
2020, Fiscal 2019 and Fiscal 2018, respectively. Thus, lower than expected fourth quarter net revenue could have an adverse impact on our annual
operating results. See also Item 1A, Risk Factors, in this Annual Report on Form 10-K.
Working capital requirements typically increase during the second and third quarters of the fiscal year as inventory builds to support peak
shipping/selling periods and, accordingly, working capital requirements typically decrease during the fourth quarter of the fiscal year as inventory is
shipped/sold. Cash provided by operating activities is typically higher in the fourth quarter of the fiscal year due to reduced working capital requirements
during that period.
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Intellectual Property
Lands' End owns or has rights to use certain word and design trademarks, service marks, and trade names that are registered or exist under common
law in the United States and other jurisdictions. The Lands' End® trade name and trademark are used both in the United States and internationally and are
material to our business. Trademarks that are important in identifying and distinguishing our products and services are Let’s Get Comfy™, Lands’ End
Lighthouse®, Square Rigger™, Squall®, Super-T™, Drifter™, Outrigger®, Marinac®, and Beach Living®, all of which are owned by us, as well as the
licensed marks Supima®, No-Gape®, and others. Other recognized trademarks owned by Lands' End include, Starfish™, Iron Knees®, Hyde Park®, Year’
Rounder®, ClassMate®, Willis & Geiger® and ThermaCheck®. Lands' End's rights to some of these trademarks are limited to select markets.
Product Design and Merchandising
We seek to develop new, innovative products for our customers by utilizing modern fabrics and quality construction to create timeless, affordable
styles with excellent fit. We also seek to present our products in an engaging and inspiring way. We believe that our typical customers expect quality, seek
good value for their money and are looking to add classics to their wardrobe while also placing an emphasis on comfort, functionality and product
innovation that supports their lifestyle. From a design and merchandising perspective, we believe that we have experienced success adding relevant items
into our product assortment, many of which have become customer favorites. We devote significant time and resources to quality assurance, fit testing and
product compliance. Our in-house team manages all product specifications and seeks to ensure brand integrity by providing our customers with the
consistent, high-quality merchandise for which Lands' End is known. Our strategy includes four major themes: own the weather; own the water; layers,
layers, layers; and we fit every body. These, inclusive with our overall message on comfort and great value, resonated well during the COVID-19
pandemic, especially with more people staying at home.
Inventory Planning
Inventory planning seeks to determine optimal inventory levels that align with merchandising and marketing plans and initiatives. The team also
supports efforts to maximize product margin through active management of in-season promotions and post-season clearance activities. In addition,
Inventory Planning partners with our Sourcing team through long range planning efforts designed to reduce supply chain costs.
Consistent with our merchandising strategy we make inventory investments intended to support the growth of key products. In addition, through
continued assortment and inventory management we are striving to reduce inventory levels and increase seasonal sell through. We recently launched new
technology solutions to assist us in these strategic initiatives.
Sourcing and Vendors
Our products are produced globally by independent manufacturers who are selected, monitored and coordinated by our Global Sourcing team based
in Wisconsin and Hong Kong, as well as other third-party buying agents. Our products are manufactured in approximately 29 countries and the majority are
imported from Asia and South America, depending on the nature of the product mix. In Fiscal 2020, our top 10 vendors accounted for approximately 41%
of our merchandise purchases and we worked with approximately 140 vendors that manufactured substantially all our products. We generally do not enter
into long term merchandise supply contracts. We continue to take advantage of opportunities to more efficiently source our products worldwide, consistent
with our high standards of quality and value. Significant areas of non-product spend include transportation, information systems, marketing, packaging and
catalog paper and print. For most of our products, we assume ownership at the port of the vendor’s manufacturing facility. We use third-party shipping
companies to transport the product to our facilities. Our reliance on imported products has certain risks around port congestion, transportation delays and
heightened security measures that could affect timely deliveries of product to our points of distribution. In the fourth
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quarter 2020 and into the first quarter 2021, we have experienced some delivery delays due to the COVID-19 pandemic.
It is important to us that our partners share the same values in business as we do, therefore, we require that the vendors comply with applicable
legal requirements, agree to our global compliance requirements and meet our product quality standards. Our vendors are required to provide us with full
access to their facilities and to relevant records relating to their employment practices, such as, but not limited to, child labor, wages and benefits, forced
labor, discrimination, freedom of association, unlawful inducements, safe and healthy working conditions and other business practices so that we may
monitor their compliance with ethical and legal requirements relating to the conduct of their business. See also Item 1A, Risk Factors, in this Annual
Report on Form 10-K.
Corporate Citizenship
Lands' End is working towards improving its sustainable footprint through key practices like waste reduction, purchasing recycled consumables
and corporate partnerships. Lands' End hopes to inspire customers and other corporations to increase sustainability awareness and initiatives.
We have a focus on raising awareness and educating associates on reducing our internal use of consumables and natural resources. In addition, we
have a broad range of recycling and waste management initiatives at our corporate office and distribution centers. For example, we have addressed our use
and recycling of paper products, aluminum cans, glass, electronics and plastic, as well as disposal of non-recyclables with composting and effective water
management.
Lands’ End also participates in industry educational workshops and initiatives. We have formed strategic relationships with organizations like the
Sustainable Apparel Coalition, bluesign, National Forest Foundation, where we have helped plant over 1 million trees, and the Clean Lakes Alliance, where
we help protect and improve maintenance of local lakes in Wisconsin. These alliances, which respectively operate globally, nationally, and locally, allow us
to engage at a variety of levels.
Marketing
We believe that our most important asset is our brand. The Lands' End brand is well-recognized with a deeply rooted tradition of offering excellent
quality, value and service. Lands' End is an iconic American brand with a large and loyal customer base. Operating out of Wisconsin, in the heartland of the
United States, we believe our vision and values make a strong connection with our core customer. We believe that a key indicator of our success to date has
been the continued growth of our customer file, with increases in new and active customers.
We also invest significantly in brand development through our focus on providing excellent customer service, emphasis on digital transformation
and innovative product development. We believe that this commitment to our brand has helped to generate our large and loyal customer base for over fifty
years.
We attempt to build on our brand recognition through our “Let’s Get Comfy” tagline in multi-channel marketing campaigns including through our
eCommerce website, www.landsend.com, catalog distribution, digital marketing and social media. Creative designs for these marketing platforms are
developed in-house by our creative team. We strive to be efficient in our overall spend, enabling us to invest in initiatives that we believe will yield benefits
over the longer term. We believe we will generate near term return on investment with most of our marketing spend allocated to digital marketing and our
catalog. The catalog continues to be a productive vehicle to drive customers to our website and Company Operated stores. We are also seeking to enhance
our branding initiatives by investing in strategic relationships with other brands, public personalities and online influencers designed to showcase our
apparel.
Customer Service
We are committed to building on Lands' End's legacy of strong customer service. We believe we have a strong track record of improving the
customer service experience through innovation. Lands' End is focused on using our extensive customer data to make the shopping experience as effortless
and personalized as possible, regardless of
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whether our customers shop online or in one of our Company Operated store locations. Our operations include a return policy that is frequently mentioned
as one of the best in the industry, service agents who are available through Company Operated store locations, on the phone, via chat, email or social
media, and an ever-evolving digital self-service platform. These all have contributed to our award-winning customer service, which we believe is one of
our core strengths and a key point of differentiation from our competitors. We have received many accolades over the years and most recently, received the
following:
•
•
Distribution
Lands’ End was included in the Newsweek list of America’s Best Customer Service in 2021, 2020, and 2019. Ranking No.1 for best
customer service in the Online Retailers: Clothing in the Apparel category (November 2020, November 2019, and November 2018)
Lands’ End was included in the Newsweek list of Best Online Shops 2020 (September 2019)
We own and operate two distribution centers and one embroidery operation facility in Wisconsin. Our Dodgeville facility is approximately
1.1 million square feet and is a full-service distribution center, offering monogramming, hemming and embroidery services. Our Reedsburg location is
approximately 400,000 square feet and offers all order fulfillment services except hemming. Our Stevens Point distribution center is approximately 150,000
square feet and primarily focuses on embroidery services. Our customer orders are shipped via third party carriers.
We own and operate a distribution center in the United Kingdom based in Oakham, a community north of London. Our Oakham facility opened in
1998 and is approximately 175,000 square feet. It is a full-service distribution center, including monogramming, hemming and embroidery services for our
European businesses. In September 2020, this facility was approved as a Customs warehouse which provides certain cash flow benefits resulting from
deferred customs duties and simplification of imports and returns to and from the European Union.
Additionally, we lease a 56,000 square foot distribution center in Fujieda, Japan.
Orders are filled on a current basis and order backlog is not material to our business.
Information Technology
Our information technology systems provide comprehensive support for the design, merchandising, importing, marketing, distribution, sales, order
processing and order fulfillment of our Lands' End products. We have a dedicated information technology team that provides strategic direction, application
development, infrastructure services and systems support for the functions and processes of our business. The information technology team contracts with
third party consulting firms to provide cost-effective staff augmentation services and leverages leading hardware, software and cloud-based technology
firms to provide the infrastructure necessary to run and operate our systems. Our core software applications are a combination of internally developed and
packaged third-party systems. The eCommerce solutions powering www.landsend.com, the Outfitters websites, and our international Lands' End websites
are operated out of our own internal data centers, as well as through hosting relationships with third parties and industry-leading cloud providers.
We are in the process of implementing new information technology systems as part of a multi-year plan to expand and upgrade our platforms and
infrastructure. We intend to build off these core systems to drive future improvements in our operations including efficiencies within our internal processes
and reporting. While we focus on customer facing system improvements, we are also pursuing implementation of warehouse management tools designed to
improve warehouse efficiencies and cost-effective third-party delivery to our customer. Implementation of new systems is highly dependent on
coordination of numerous software, hardware, cloud and system integration providers. See also Item 1A, Risk Factors, in this Annual Report on Form 10-
K.
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Human Capital Management
Philosophy and Approach
Since our founding in 1963, Lands’ End has recognized that our people are a critical asset. People, the individuals we employ, the customers we
serve, and their families, are the heart of our company. We are committed to creating an inspiring culture that is welcoming, safe and inclusive for all who
work and shop with us.
Aligning with our overall message of comfort, our desire is to create “A More Comfortable World” with initiatives focused on our employees, our
customers and our planet. Perhaps most telling, at Lands’ End the human resources department has been named “Employee Services” since its early
days. This reinforces the message of our founder, Gary Comer “The really important thing that makes Lands’ End what it has become is people. You, me,
everyone around us. It is what we do as people that makes this a great place to come to work”.
We employ approximately 5,300 employees throughout our operations: approximately 4,400 employees in the United States and approximately 900
employees outside the United States. This workforce consists of approximately 18% salaried employees, 38% hourly employees and 44% part-time
employees. With the seasonal nature of the fourth quarter holiday shopping season in the retail industry, approximately 2,000 additional, flexible, part-time
employees join us each year to support our call and distribution centers.
Recruitment and Retention
Lands’ End leverages a multi-prong recruitment approach to source and hire top talent aligned with our corporate priorities. We maintain a strong
digital presence to represent our brand and proactively target talent, in addition to a meaningful employee referral bonus program. We have annual talent
review processes in place to regularly evaluate and align on high potential talent with development actions that prepare employees for internal promotion
and career growth opportunities, including succession planning for management positions.
Lands’ End has an open-door philosophy. We regularly conduct anonymous employee opinion surveys to seek feedback from all employment
classifications on a variety of topics, including confidence in company leadership, competitiveness of our compensation and benefits package, career
growth opportunities and feedback on how we could improve our efforts to be an even greater place to work. Results are shared company wide, along with
actions to drive meaningful improvements. Our efforts to retain talent and maintain strong employee engagement have been very effective, as evidenced by
43% of our employee base having a tenure of 10 years or more.
Turnover within our workforce is closely monitored to alert management of potential issues aside from our normal and desired turnover. Our 3-year
average global salaried turnover rate is 12%, and the turnover rate for our hourly full-time staff is approximately 10%, which we believe compares
favorably in the marketplace. We maintain a strong focus on employee retention through regular and consistent communication, periodic pulse surveys and
continued emphasis on employee personal health and safety.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic had a profound impact on our employees in 2020. Since mid-March 2020, we have operated primarily in a remote work
environment for our corporate (non-operational) employees. This has required an increased reliance on technology, in the form of teleconferencing, and
driven innovations in the way tasks are accomplished and work gets done. During this period, management had increased its focus and emphasis on
communication and cross-functional cooperation to compensate for the loss of informal day-to-day interaction in the office setting.
In response to the COVID-19 pandemic, we took various actions that impacted our employees, including furloughs, temporary pay reductions,
temporary suspension of 401(k) Company matching contribution and cancellation of budgeted merit-based salary increases.
We established a task force composed of a cross-functional group of senior management to continually assess the work from home impact. This
task force has conducted employee pulse surveys and solicited input on work
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models for the future. We believe that when the COVID-19 pandemic ends, some functions will operate in a hybrid model that combines work from home
with work from office, as opposed to the traditional “five days a week in the office” model. We are focused on monitoring employee satisfaction, formal
and informal employee training and development needs, efficiencies to be gained or lost through a non-traditional work environment, the impact on
corporate culture and overall business and financial performance in order to determine the model that best suits the Company, our shareholders and our
customer needs.
Diversity and Inclusion
As we strive to be a great place to work, we have developed and implemented key initiatives around diversity and inclusion. While we believe
Lands’ End has always espoused these values in the past, due to the heightened awareness of social issues during the summer of 2020, we determined that
we could do more, and a renewed focus and prioritization was in order. We believe our strength in work and life comes from the combination of our unique
experiences, backgrounds, and talents. We established a Diversity & Inclusion Council (“D&I Council”) consisting of employees who come from diverse
backgrounds, with Lands’ End’s Chief Executive Officer serving as the executive sponsor. The D&I Council oversees programming designed to celebrate
diversity and foster awareness of all perspectives. To that end, the D&I Council established training modules, which are required of all employees, and
launched a relevant speaker series. The D&I Council maintains a prominent online presence within the Company’s intranet through which it communicates
with all employees across a wide range of subjects, including the recognition of important days with various cultures and educational materials in support
of building greater awareness and appreciation of our individual stories, experiences and lives.
We have also established Business Resource Groups (“BRGs”) to provide support for our employees. The BRGs are employee-led and consist of
individuals with common interests, backgrounds or demographic factors such as gender, race or ethnicity. We currently have five groups: Lands’ End Pride
(LGTBQ+), Lands’ End Working Parents, Lands’ End Employees with Disabilities and Allies, Lands’ End Veterans and Lands’ End Multicultural. The
groups are open to all employees, including allies who want to be supportive and involved. In establishing the BRGs, we are reinforcing our message of
inclusion and hope to further empower our employees to utilize their voice to make Lands’ End welcoming, understanding and stronger.
The Employee Services team has been working to evolve key processes to support more diverse and inclusive hiring practices. We are developing
strategies to extend our reach by targeting areas of country and industry groups that have top diverse talent along with aligning with diverse business
organizations that are in line with our overall brand strategy. In addition, we are committed to support recruitment free of bias, educating our interview
panels and tracking progress to identify areas of improvement.
Compensation and Benefits
We have demonstrated a history of investing in our workforce by offering competitive salaries and wages and are committed to a total
compensation program that is competitive for our type of business and within the markets where we operate. We also aim to pay employees equitably who
are performing in similar roles. When making compensation decisions, Lands’ End considers compensation market data primarily focused on apparel retail
companies and other related industries. In addition to paying competitive salaries and wages, Lands’ End has various compensation awards and programs
in place for all employees based on their position, such as annual incentive plans, equity awards, sales incentive plans, peak incentives and discretionary
bonuses based on company performance.
We offer a comprehensive benefit package to all eligible employees. In the U.S. these include the following, among other benefits:
•
•
Comprehensive health insurance coverage that is offered to full-time employees
Parental leaves provided to all new parents for birth, adoption or foster placement
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•
•
•
•
Paid caregiver leave allowing employees to take up to 20 days off to care for a seriously ill spouse or child
Community Giving programs providing employees the opportunity to give back to nonprofit organizations
Health and wellness programs, exercise classes (including virtual classes during the COVID-19 pandemic), health coaching and wellness
incentive programs
Services designed to help employees balance work and life, including an Employee Assistance Plan, a health advocate service and financial
education workshops
Outside of the U.S., we provide competitive benefits which align with market specific needs, including comprehensive health, dental and vision
coverage, pension plans, employer-provided life insurance and paid time off benefits such as paid leave, vacation and holidays.
Training and Development
Lands’ End partners with employees to discover and develop their talents and abilities through various programs. Development opportunities are
available throughout the employee lifecycle from internships and onboarding to emerging leaders and executive coaching. Programs cover a variety of
topics, including diversity and inclusion, cybersecurity, harassment free workplace, product updates and deployment of new technology. Senior
management regularly reviews organizational talent assessments to identify employees who possess the potential for advancement and to identify,
recommend and address developmental needs. We are committed to performance management, offering annual reviews, goal setting, 360 feedback and
formal coaching support and mentorships for employees.
Corporate Information
Our principal executive offices are located at 1 Lands' End Lane, Dodgeville, Wisconsin 53595. Our telephone number is (608) 935-9341.
Available Information, Internet Address and Internet Access to Current and Periodic Reports and Other Information
Our website address is www.landsend.com. 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 Annual Report on Form 10-K. We file our Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q and Current Reports on Form 8-K, and all amendments to those reports, as well as proxy and information statements, electronically with the
SEC, and they are available on the SEC's web site (www.sec.gov), which contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. We also make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports
on Form 8-K and amendments to those reports available through the Investor Relations section of our website, free of charge, as soon as reasonably
practicable after we file such material with, or furnish it to, the SEC.
Our Corporate Governance Guidelines, the charters of the Audit Committee, the Compensation Committee and the Nominating and Corporate
Governance Committee of the Board of Directors, our Related Party Transactions Policy, our Director Compensation Policy, our Code of Conduct, and our
Board of Directors Code of Conduct are available at the "Corporate Governance" page in the “Investor Relations” section of www.landsend.com.
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Information about our Executive Officers
The following table sets forth information regarding our executive officers, including their positions.
Name
Jerome Griffith
James Gooch
Peter L. Gray
Sarah Rasmusen
Chieh Tsai
Position
Chief Executive Officer
President and Chief Financial Officer
Executive Vice President, Chief Administrative Officer and General Counsel
Executive Vice President, Chief Customer Officer
Executive Vice President, Chief Product Officer
Age
63
53
53
48
55
Jerome Griffith has served as Chief Executive Officer and as a member of the Board of Directors since March 2017. In addition, between March
2017 and March 2021 he was also President. He served as the Chief Executive Officer and President and as a member of the board of directors of Tumi
Holdings, Inc., a manufacturer and retailer of consumer goods including business bags, luggage, apparel and other travel-related goods, from April 2009
until its sale to Samsonite International S.A. in August 2016. 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, a global fashion brand. 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., a global clothing and accessories retailer. From 2013 to 2020 he served as a member of the board of
Parsons School of Design, which is part of the New School. He has served as a member of the board of Vince Holding Corp. since November 2013 and
Samsonite International S.A. since August 2016.
James Gooch joined the Company as Executive Vice President, Chief Operating Officer and Chief Financial Officer in January 2016 and in March
2021 he was promoted to President and Chief Financial Officer. He also served as our Co-Interim Chief Executive Officer from September 2016 to March
2017. From March 2014 until December 2014, he served as Co-Chief Executive Officer and Chief Administrative Officer of DeMoulas Supermarkets, Inc.,
a regional supermarket chain. He served as President and Chief Executive Officer of RadioShack Corporation, an electronics retailer, from May 2011 to
October 2012, as President and Chief Financial Officer of RadioShack Corporation from January 2011 to May 2011, and as Chief Financial Officer of
RadioShack Corporation from August 2006 to January 2011. Earlier in his career he was employed by Helene Curtis, The Quaker Oats Company and
Kmart Corporation.
Peter L. Gray joined Lands' End as Executive Vice President, Chief Administrative Officer and General Counsel in May 2017. Mr. Gray served as
Executive Vice President, General Counsel and Secretary of Tumi Holdings, Inc., a manufacturer and retailer of consumer goods including business bags,
luggage, apparel and other travel-related goods, from December 2013 until November 2016. He was employed by ModusLink Global Solutions, Inc.
(formerly CMGI, Inc.), a supply chain business process management company from June 1999 to October 2013, most recently as Executive Vice President,
Chief Administrative Officer and General Counsel. Earlier in his career, he was a junior partner at Hale and Dorr LLP. He also serves as Chairman of the
Board of Directors of the Tufts University Hillel Foundation.
Sarah Rasmusen joined Lands’ End in November 2019 as the Senior Vice President, U.S. eCommerce becoming Chief Customer Officer in 2020
and promoted to Executive Vice President, Chief Customer Officer in March, 2021. She was previously employed by Lands’ End between 2006 and 2010.
From January 2012 to October 2018, she was employed by Kohl’s Corporation in a variety of capacities, most recently Vice President of Digital
Merchandising & Analytics. Between 2010 and 2011, she worked for CUNA Mutual Group, leading their digital eCommerce strategy. Between 1999 and
2006, she worked in a variety of eCommerce leadership positions for Saks,
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Inc., Bloomingdale’s and Bates Worldwide. Early in her career, she held technology roles with KPMG and Pillsbury Law (formerly known as Winthrop,
Stimson, Putnam & Roberts).
Chieh Tsai joined Lands’ End in May 2016 and has served as the Executive Vice President, Chief Product Officer since January 2019. From
September 2017 to January 2019 she served as Senior Vice President of Design and from May 2016 to August 2017 she served as Vice President of Design.
Prior to joining Lands' End, she served in multiple leadership roles with Ann Taylor, Inc. from May 2005 until May 2015, most recently as the Vice
President of Design. She served as the Design Director for CK Calvin Klein from March 2004 until May 2005 and as Senior Designer of Nine West from
August 2000 until March 2004.
ITEM 1A. RISK FACTORS
You should carefully consider the following risks and other information in this Annual Report on Form 10-K in evaluating our company and our
common stock. Any of the following risks could materially and adversely affect our business, results of operations or financial condition.
RISKS RELATED TO MACROECONOMIC RISKS
The COVID-19 pandemic has significantly disrupted and will continue to disrupt our business.
The outbreak of, and local, state and federal governmental responses to, the COVID-19 pandemic have significantly disrupted and will continue to
disrupt our business. In the United States and other regions, social distancing restrictions have been enacted.
Our Company Operated stores temporarily closed on March 16, 2020 and reopened during the Second Quarter 2020. From time to time our
employees have tested positive for COVID-19 or have come in close contact with individuals with COVID-19. If a significant percentage of our workforce
is unable to work, due to COVID-19 illness, quarantine, or other government restrictions in connection with COVID-19, our operations may be negatively
impacted, potentially materially adversely affecting our liquidity, financial condition or results of operations. Our vendors, manufacturers and other
suppliers could be similarly adversely impacted by the COVID-19 outbreak and sales could be adversely impacted by such supply chain interruptions.
Additionally, an outbreak or perceived outbreak of COVID-19 connected to one or more of our offices, distribution facilities or Company Operated
store locations could cause negative publicity directed at our brand and cause customers to avoid our products or Company Operated store locations. We
cannot predict how long the COVID-19 pandemic will last, whether it will reoccur, what additional restrictions may be enacted or if individuals will be
comfortable visiting our stores while adhering to social distancing protocols. Similarly, we cannot predict the effects the COVID-19 pandemic will have on
the apparel or retail industry. All these factors could materially adversely affect our financial performance.
The impact of economic conditions on consumer discretionary spending and on our business-to-business customers could materially adversely affect
our financial performance.
Apparel purchases are discretionary expenditures that historically have been influenced by domestic and global economic conditions. The outbreak
of, and local, state and federal governmental responses to, the COVID-19 pandemic have led to a national and global economic downturn. Consumer
discretionary spending has weakened, and some experts are predicting that it will continue to weaken. Reduced discretionary spending could influence our
sales which could have a material impact on our financial performance.
Global and domestic conditions, including as a result of the COVID-19 pandemic, that have an effect on consumer discretionary spending include
but may not be limited to: unemployment, general and industry-specific inflation, consumer confidence, consumer purchasing and saving habits, credit
conditions, stock market performance, home values, population growth, household incomes and tax policies. Material changes to governmental policies
related to domestic and international fiscal concerns, and/or changes in central bank policies with respect to monetary policy also could affect consumer
discretionary spending. Any of these additional factors
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affecting consumer discretionary spending may further influence our customers’ purchasing preferences, potentially having a further material impact on our
financial performance.
In addition, over 50% of our national accounts business-to-business sales, made by Outfitters, are to travel-related companies. These customers’
businesses have been adversely impacted by the COVID-19 pandemic, and therefore, caused a dramatic decrease in uniform sales to this sector. Should
these travel-related companies continue to be adversely impacted, our sales to them would be affected. Similarly, our small and mid-size business
customers’ businesses have been adversely impacted, resulting in a decrease in sales to those organizations. The timing of the recovery of our small to mid-
size business customers will impact our sales to those organizations. Finally, with the closure of schools and remote learning during the COVID-19
pandemic, our sales of school uniforms have been reduced. Should schools continue to operate remotely, school uniform sales would continue to be
adversely impacted.
Our business and results of operations could be negatively impacted by natural disasters, extreme weather conditions, public health or political crises
or other catastrophic events.
Our third-party vendors are located throughout the world including in locations subject to natural disasters or extreme weather conditions, as well
as other potential catastrophic events, such as public health emergencies, including COVID-19, terrorist attacks, political or military conflict. The
occurrence of any of these events could disrupt our operations and negatively impact sales of our products.
Unseasonal or severe weather conditions may adversely affect our merchandise sales.
Our business is adversely affected by unseasonal weather conditions. Sales of our spring and summer products, which traditionally consist of
lighter clothing and swimwear, are adversely affected by cool or wet weather. Similarly, sales of our fall and winter products, which are traditionally
weighted toward outerwear, are adversely affected by mild, dry or warm weather. In addition, severe weather events typically lead to temporarily reduced
traffic at Company Operated store locations which could lead to reduced sales of our merchandise. Severe weather events may impact our ability to supply
our Company Operated stores, deliver orders to customers in a timely manner and adequately staff our Company Operated stores and distribution centers,
which could have an adverse effect on our business and results of operations.
RISKS RELATED TO MICROECONOMIC CONDITIONS
Our business is seasonal in nature and any decrease in our sales or margins could have an adverse effect on our business and results of operations.
Our business is seasonal, with the highest levels of sales occurring during the fourth quarter of our fiscal year. Our sales and margins during the
fourth quarter may fluctuate based upon factors such as the timing of holiday seasons, promotions, level of markdowns, competitive factors, weather and
general economic conditions. Any decrease in sales or margins, whether as a result of increased promotional activity or because of economic conditions,
poor weather or other factors, could have an adverse effect on our business and results of operations. In addition, seasonal fluctuations also affect our
inventory levels since we usually order merchandise in advance of peak selling periods. We generally carry a significant amount of inventory, especially
before the fourth quarter peak selling periods. If we are not successful in selling inventory during these periods, we may have to sell the inventory at
significantly reduced prices, which could adversely affect our business and results of operations. Furthermore, with the seasonal nature of our business,
over 2,000 flexible part-time employees join us each year to support our varying peak seasons, including the fourth quarter holiday shopping season. An
inability to attract qualified seasonal personnel could interrupt our sales during this period.
Increases in postage, paper and printing costs could adversely affect the costs of producing and distributing our catalog and promotional mailings
which could have an adverse effect on our business and results of operations.
Catalog mailings are an important aspect of our marketing efforts. Increases in costs relating to postage, paper and printing would increase the cost
of our catalog mailings and could reduce our profitability to the extent that we
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are unable to offset such increases by raising prices, by implementing more efficient printing, mailing, delivery and order fulfillment systems or by using
alternative direct-mail formats.
We currently use the national mail carriers for distribution of substantially all our catalogs and an increasing quantity of our outbound customer
deliveries. Therefore, we are vulnerable to postal rate increases. The current economic and legislative environments may lead to further rate increases or a
discontinuation of the discounts for bulk mailings and sorting by zip code and carrier routes which the Company currently leverages for cost savings.
Paper for catalogs and promotional mailings is a vital resource in the success of our business. The market price for paper has fluctuated
significantly in the past and may continue to fluctuate in the future. In addition, future pricing and supply availability of catalog paper may be impacted by
the continued consolidation or closings of production facilities in the United States. We do not have multi-year fixed-price contracts for the supply of paper
and are not guaranteed access to, or reasonable prices for, the amounts required for the operation of our business over the long term.
We also depend upon external vendors to print and mail our catalogs. Partially due to the consolidation of printing companies, there is a limited
number of printers that can handle such needs which subjects us to risks if any printer fails to perform as required.
Our approach to merchandise promotions and markdowns to encourage consumer purchases could adversely affect our gross margins and results of
operations.
The apparel industry is dominated by large brands and national/mass retailers, where price competition, promotion, and branded product assortment
drive differentiation between competitors in the industry. In order to be competitive, we must offer customers compelling products at attractive prices. In
recent periods, the use of promotions and markdowns, as appropriate, is a strategy we have employed to offer attractive prices. Heavy reliance on
promotions and markdowns to encourage customers to purchase our merchandise, could have a negative impact on our brand equity, gross margins and
results of operations.
Our leverage may place us at a competitive disadvantage in our industry. The agreements governing our debt contain various covenants that impose
restrictions on us that may affect our ability to operate our business.
We have significant debt service obligations. Our debt and debt service requirements could adversely affect our ability to operate our business and
may limit our ability to take advantage of potential business opportunities. Our level of debt presents the following risks, among others:
•
•
•
•
•
•
we could be required to use a substantial portion of our cash flow from operations to pay principal (including amortization) and interest on
our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, strategic acquisitions and other
general corporate requirements;
our substantial leverage could increase our vulnerability to economic downturns and adverse competitive and industry conditions and could
place us at a competitive disadvantage compared to those of our competitors that are less leveraged;
our interest expense could increase if prevailing interest rates increase, because a substantial portion of our debt bears interest at variable
rates;
our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business, our industry and changing
market conditions and could limit our ability to pursue other business opportunities, borrow more money for operations or capital in the
future and implement our business strategies;
our level of debt may restrict us from raising additional financing on satisfactory terms to fund working capital, capital expenditures,
strategic acquisitions and other general corporate requirements;
the agreements governing our debt contain covenants that limit our ability to pay dividends or make other restricted payments and
investments;
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•
•
•
the agreements governing our debt contain operating covenants that limit our ability to engage in activities that may be in our best interests
in the long term, including, without limitation, by restricting our subsidiaries' ability to incur debt, create liens, enter into transactions with
affiliates or prepay certain kinds of indebtedness;
the agreements governing our debt contain certain financial covenants, including a quarterly maximum total leverage ratio test, a weekly
minimum liquidity test and an annual maximum capital expenditure amount (the “financial covenants”); and
the failure to comply with the operating and financial covenants could result in an event of default which, if not cured or waived, could
result in the acceleration of the applicable debt or may result in the acceleration of any other debt to which a cross-acceleration or cross-
default provision applies, and in the event our creditors accelerate the repayment of our borrowings, we and our subsidiaries may not have
sufficient assets to repay that debt and the lenders could proceed against the collateral granted to them to secure such indebtedness. Our
ability to meet these covenants can be affected by events beyond our control, and we cannot assure that we will meet them.
We may need additional financing in the future for our general corporate purposes or growth strategies and anticipate the need to refinance our long
term debt and such financing may not be available on favorable terms, or at all, and may be dilutive to existing stockholders.
We may need to seek additional financing for our general corporate purposes or growth strategies. In addition, we anticipate the need to refinance
some, or all, of the ABL Facility that matures in November 2022. We may be unable to obtain any desired additional financing or refinance the ABL
Facility on terms favorable to us, or at all, depending on market and other conditions. The ability to raise additional financing depends on numerous factors
that are outside of our control, including general economic and market conditions, the health of financial institutions, our credit ratings and lenders'
assessments of our prospects and the prospects of the retail industry in general, all of which may be impacted by the COVID-19 pandemic. The lenders,
under any credit facilities or loan agreements we may execute, may not be able to meet their commitments if they experience shortages of capital and
liquidity. If we raise additional funds by issuing debt, we may be subject to limitations on our operations due to restrictive covenants. If adequate funds are
not available on acceptable terms, we may be unable to fund our expansion, successfully develop or enhance our products, or respond to competitive
pressures, any of which could negatively affect our business. If we are not able to fulfill our liquidity needs through operating cash flows and/or borrowings
under credit facilities or otherwise in the capital markets, our business and financial condition would be adversely affected.
We could incur charges due to impairment of goodwill, other intangible assets and long-lived assets.
As of January 29, 2021, we had goodwill and intangible asset balances totaling $363.7 million, which are subject to testing for impairment annually
or more frequently if events or changes in circumstances indicate that the asset might be impaired. Our intangible assets consist of a trade name of $257.0
million and goodwill of $106.7 million. Any event that impacts our reputation could result in impairment charges for our trade name. Long-lived assets,
primarily property and equipment, are also subject to testing for impairment if events or changes in circumstances indicate that the asset might be impaired.
A significant amount of judgment is involved in our impairment assessment. If actual results fall short of our estimates and assumptions used in estimating
revenue growth, future cash flows and asset fair values, we could incur further impairment charges for intangible assets, goodwill or long-lived assets,
which could have an adverse effect on our results of operations.
RISKS RELATED TO BRAND AND BRAND EXECUTION
If customer preference for our branded merchandise and services changes or we cannot compete effectively in the apparel industry, our business and
results of operations may be adversely affected.
Our products and services must satisfy the desires of customers, whose preferences change over time. Sales of branded merchandise account for
substantially all our total revenues and the Lands' End brand is a critical differentiating factor for our business. Our inability to develop products that
resonate with our existing customers and attract new customers, our inability to maintain our strict quality standards or to develop, produce and deliver
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innovative products in a timely manner, or any unfavorable publicity with respect to the foregoing or otherwise could negatively impact the image of our
brand with our customers and could result in diminished loyalty to our brand. As customer preferences change, our failure to anticipate, identify and react
in a timely manner to emerging trends and appropriately provide attractive high-quality products that maintain or enhance the appeal of our brand through
our websites, catalogs and Company Operated stores could have an adverse effect on our sales, operating margins and results of operations.
The apparel industry is highly competitive. We compete with a diverse group of direct-to-consumer companies and retailers, including national
department store chains, women's and men's specialty apparel chains, apparel catalog businesses, sportswear marketers and online apparel businesses that
sell similar lines of merchandise. Brand image, marketing, design, price, service, quality, image presentation and fulfillment are all competitive factors. Our
competitors may be able to adopt more aggressive pricing policies, adapt to changes in customer preferences or requirements more quickly, devote greater
resources to the design, sourcing, distribution, marketing and sale of their products, or generate greater national brand recognition than we can. An inability
to overcome these potential competitive disadvantages or effectively market our products relative to our competitors could have an adverse effect on our
business and results of operations. Similarly, our inability to market and sell our products in foreign jurisdictions could have an adverse effect on our
business and results of operations.
The success of our business depends on our overall marketing strategies for digital marketing and direct mail catalogs and customers' use of our digital
platform, including our eCommerce websites.
The success of our business depends on customers' use of our eCommerce websites and their response to our digital marketing and direct mail
catalogs. The level of customer traffic and volume of customer purchases on our eCommerce websites is substantially dependent on our ability to provide
attractive and accessible websites, maintain a robust customer list, provide a high-quality customer experience and reliable delivery of our merchandise. If
we are unable to maintain and increase customer traffic to our eCommerce websites and the volume of goods they purchase, including, as a result of
changes to the level and types of marketing or amount of spend allocated to each type of marketing, or through our failure to otherwise successfully
promote and maintain our eCommerce websites and their associated services, our revenue and results of operations could be adversely affected.
The Company has been increasing its investment in digital marketing and optimizing its catalog productivity. Digital marketing costs now exceed
direct mail catalog costs and this shift in marketing strategy could have a negative impact if customers that previously relied on the direct mail catalog do
not respond as favorably through the digital marketing channel.
Any future privacy rules or other regulations could adversely impact our business to the extent we need to limit or change our digital marketing
efforts.
If we are unable to protect or preserve the image of our brands, our reputation and our intellectual property rights, our business may be adversely
affected.
We regard our copyrights, service marks, trademarks, trade dress, trade secrets and similar intellectual property as critical to our success. As such,
we rely on trademark and copyright law, trade secret protection and confidentiality agreements with our associates, consultants, vendors and others to
protect our proprietary rights. Nevertheless, the steps we take to protect our proprietary rights may be inadequate and we may have trouble in effectively
limiting unauthorized use of our trademarks and other intellectual property worldwide. Unauthorized use of our trademarks, copyrights, trade secrets or
other proprietary rights may cause significant damage to our brands and our ability to effectively represent ourselves to agents, suppliers, vendors, licensees
and/or customers.
Additionally, our efforts to pursue licensing and wholesaling activities with third parties increases risk of brand damage. If third parties do not
adhere to our standards or if we fail to maintain the image of our brands due to merchandise and service quality issues, adverse publicity, governmental
investigations or litigation, or other reasons, our brands and reputation could be damaged, and our business may be adversely affected.
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Third parties may sue us for alleged infringement of their proprietary rights. The party claiming infringement might have greater resources than we
do to pursue its claims, and we could be forced to incur substantial costs and devote significant management resources to defend against such litigation. If
the party claiming infringement were to prevail, we could be forced to discontinue the use of the related trademark or design, pay significant damages, or
enter into expensive royalty or licensing arrangements with the prevailing party, assuming these royalty or licensing arrangements are economically
feasible, which they may not be.
We rely on third parties to provide us with services in connection with certain aspects of our business, and any failure by these third parties to perform
their obligations could have an adverse effect on our business and results of operations.
We have entered into agreements with third parties for logistics services, information technology systems (including website hosting), credit card
processing, onshore and offshore software development and support, catalog production, distribution and packaging and employee benefits. Services
provided by any of our third-party suppliers could be interrupted as a result of many factors, such as acts of nature or contract disputes. Any failure by a
third party to provide us with contracted-for services on a timely basis or within service level expectations and performance standards could result in a
disruption of our business and have an adverse effect on our business and results of operations.
Our Company Operated stores may not be successful and as a result our business and results of operations could be adversely affected.
Our Company Operated stores are dependent on our ability to operate all locations effectively and attract customers with a compelling assortment.
Our Company Operated store operations include managing the store and recruiting and hiring store management and associates. In addition, we are
required to implement retail-specific marketing plans, and enhance inventory management skills specific to retail, such as those related to allocation and
replenishment of product. If customers are not receptive of our store locations and concept, customer traffic, projected store sales and profitability may
suffer.
RISKS RELATED TO SUPPLY CHAIN AND GLOBAL OPERATIONS
If we fail to timely and effectively obtain shipments of products from our vendors and deliver merchandise to our customers our business and operating
results could be adversely affected.
We do not own or operate any manufacturing facilities and therefore depend upon independent third-party vendors for the manufacture of our
merchandise. We cannot control all of the various factors that might affect timely and effective procurement of supplies of product from our vendors. The
products that we purchase must be shipped to our distribution centers in Wisconsin, the United Kingdom and Japan. While our reliance on a limited number
of distribution centers provides certain efficiencies, it also makes us more vulnerable to unforeseen causes that could delay or impair our ability to fulfill
customer orders and/or ship merchandise to our Company Operated stores. Our ability to mitigate the adverse impacts of these events depends in part upon
the effectiveness of our disaster preparedness and response planning, as well as business continuity planning. Our utilization of imports also makes us
vulnerable to risks associated with products manufactured abroad, including, among other things, risks of damage, destruction or confiscation of products
while in transit to a distribution center, organized labor strikes and work stoppages, transportation and other delays in shipments, heightened security
screening and inspection processes or other port-of-entry limitations or restrictions in the United States, the United Kingdom (including as a result of
Brexit), the Netherlands and Japan, unexpected or significant port congestion, lack of freight availability and freight cost increases.
We rely upon third-party land-based and air freight carriers for merchandise shipments from our distribution centers to customers. Accordingly, we
are subject to the risks, including labor disputes, union organizing activity, inclement weather and increased transportation costs, associated with such
carriers' ability to provide delivery services to meet outbound shipping needs. As a result of shifting consumer behavior due to the COVID-19 pandemic,
certain freight carriers are deemphasizing historical, large commercial customers in favor of higher
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margin individual customers. The changing mix of our outbound freight carriers may result in higher costs and customer delays. In addition, if the cost of
fuel rises or surcharges increase, the cost to deliver merchandise from distribution centers to customers may rise, and, although some of these costs are paid
by our customers, such costs could have an adverse impact on our profitability. Any increase in shipping costs and surcharges may have an adverse effect
on our profitability and future financial performance.
Fluctuations and increases in the cost, availability, and quality of raw materials as well as fluctuations in other production and distribution related
costs could adversely affect our business and results of operations.
Our products are manufactured using several key raw materials, including wool, cotton and down, which are subject to fluctuations in price and
availability and many of which are produced in emerging markets in Asia and Central America. The prices of these raw materials can be volatile due to the
demand for fabrics, weather conditions, supply conditions, government regulations, general economic conditions, crop yields and other unpredictable
factors. Such factors may be exacerbated by legislation and regulations associated with global climate change. The prices of these raw materials may also
fluctuate based on a number of other factors beyond our control, including commodity prices such as prices for oil, changes in supply and demand, labor
costs, competition, import duties, tariffs, anti-dumping duties, currency exchange rates and government regulation. These fluctuations in cost, availability
and quality of raw materials used to manufacture our merchandise may result in an increase in our costs to purchase products from our vendors and could
have an adverse effect on our cost of goods.
If we do not accurately forecast our inventory needs, efficiently manage inventory levels and have proper controls to protect our inventory, our results
of operations could be adversely affected.
We must maintain sufficient inventory levels to operate our business successfully, but we must also avoid accumulating excess inventory, which
increases working capital needs and could lower gross margins. Sufficient inventory levels are maintained by our ability to accurately forecast the product
needs for each channel, our ability to accurately report our inventory levels and our ability to protect those assets.
If we do not accurately anticipate the future customer demand for a particular product, be able to report the current inventory level for a particular
product, protect the physical inventory or project the time it will take to obtain new inventory, inventory levels will not be appropriate, and our results of
operations could be adversely affected.
We obtain substantially all our inventory from vendors located outside the United States. Some of these vendors require lengthy advance notice of
order requirements in order to be able to supply products in the quantities requested. This usually requires us to order merchandise and enter into
commitments for the purchase of such merchandise well in advance of the time these products will be offered for sale, which makes responding to
changing markets challenging.
Our own websites, third party suppliers and third-party marketplaces rely on our ability to report accurate inventories by style, color and size to
support customer orders. This includes the ability to exchange accurate inventory information with third parties, whether that represents our inventory on
their website or represents their inventory on our website.
We store high volumes of inventory and are subject to the attendant risks of inventory loss, spoilage, shrink, scrap and theft (which we collectively
refer to as "shrinkage"). Although some level of inventory shrinkage is an unavoidable cost of doing business, if we were to experience higher rates of
inventory shrinkage, be unable to accurately record inventory transactions or incur increased security costs to combat inventory theft, it could have a
material adverse effect on our business.
Deterioration of relationships with our vendors and/or the failure of our new merchandise sourcing initiatives could have an adverse effect on our
competitive position and operational results.
We have long standing relationships with the vendors that supply a significant portion of our merchandise, but do not operate under long-term
agreements. Therefore, our success relies on maintaining good relations with these
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vendors. Our growth strategy depends to a significant extent on the willingness and ability of our vendors to efficiently supply merchandise that is
consistent with our standards for quality and value. In the event we engage new vendors, it may cause us to encounter delays in production and added costs
as a result of the time it takes to guide and educate our vendors in producing our products and adhering to our standards. If we cannot obtain a sufficient
amount and variety of quality product at acceptable prices it could have a negative impact on our competitive position. This could result in lower revenues
and decreased customer interest in our product offerings, which, in turn, could adversely affect our business and results of operations.
Our arrangements with our vendors are generally not exclusive. As a result, our vendors might be able to sell similar or identical products to our
competitors, some of which purchase products in significantly greater volume. Our competitors may enter into arrangements with suppliers that could
impair our ability to sell those suppliers' products, including by requiring suppliers to enter into exclusive arrangements, which could limit our access to
such arrangements or products.
Our merchandising sourcing strategies increase the efficiency and responsiveness of our supply chain and include both vendor rationalization and
vendor productivity. In the event these strategies are unsuccessful our business could be adversely affected.
Our reputation and customers' willingness to purchase our products depend in part on our vendors' compliance with ethical employment practices,
such as with respect to child labor, wages and benefits, forced labor, discrimination, freedom of association, unlawful inducements, safe and healthy
working conditions, and with all legal and regulatory requirements relating to the conduct of their business and safety standards of materials. While we
operate compliance and monitoring programs to promote ethical and lawful business practices and verify compliance with safety standards, we do not
exercise ultimate control over our independent vendors or their business practices and cannot guarantee their compliance with ethical and lawful business
practices and safety standards. Violation of ethical, labor, safety, or other standards by vendors, or the divergence of a vendor's labor practices from those
generally accepted as ethical in the United States could hurt our reputation or materially impact our ability to import products manufactured by these
vendors or from the regions in which they operate, which could have an adverse effect on our business and results of operations.
We conduct business in and rely on sources for merchandise located in foreign markets and our business may therefore be adversely affected by legal,
regulatory, economic and political risks associated with international trade in those markets.
The majority of our merchandise is manufactured in Asia and South America, depending on the nature of the product mix. These products are
either imported directly by us or indirectly by distributors who, in turn, sell products to us. Any increase in the cost of merchandise purchased from these
vendors or restrictions on the merchandise made available by these vendors could have an adverse effect on our business and results of operations.
We also sell our products globally. Our reliance on vendors in foreign markets and the marketing of products to customers in foreign markets
creates risks inherent in doing business in foreign jurisdictions, including:
•
•
•
•
•
the burdens of complying with a variety of foreign laws and regulations, including trade and labor restrictions;
economic and political instability in the countries and regions where our customers or vendors are located;
adverse fluctuations in currency exchange rates;
compliance with United States and other country laws relating to foreign operations, including the Foreign Corrupt Practices Act, and the
U.K. Bribery Act;
changes in United States and non-United States laws affecting the importation and taxation of goods, including duties, tariffs and quotas,
enhanced security measures at United States ports, or imposition of new legislation relating to import quotas;
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•
•
•
•
•
increases in shipping, labor, fuel, travel and other transportation costs;
the imposition of anti-dumping or countervailing duty proceedings resulting in the potential assessment of special anti-dumping or
countervailing duties;
transportation delays and interruptions, including those due to the failure of vendors or distributors to comply with import regulations;
political instability and acts of terrorism; and
changes in tariffs in the United States that may have an impact on the trading status of certain countries and may include retaliatory duties
or other trade sanctions.
Any inability on our part to rely on our foreign sources of production due to any of the factors listed above could have an adverse effect on our
business, results of operations and financial condition.
The United Kingdom’s exit from the European Union will continue to have uncertain effects and could adversely impact our business, results of
operations and financial condition.
The United Kingdom withdrew from the European Union effective January 31, 2020 and concluded a trade agreement with the European Union
days before the December 31, 2020 end of the transition period. Given the shortness of time, there remains considerable uncertainty around the impact of
new, post-Brexit regulations, volatility in the securities markets and in currency exchange rates. As new regulations are developed and the implementation
of such matures, we could incur additional costs and customs duties fulfilling orders in Europe which could adversely affect our business.
Our efforts to expand our channels and geographic reach may not be successful.
Our strategy includes initiatives to further our reach in the United States and in several countries throughout the world, through various channels
and brands, including through relationships with third party eCommerce marketplaces. We have limited experience operating in many of these locations
and with third parties and face major, established competitors. We may also experience barriers to entry. We may seek additional business partners or
licensees to assist us in these efforts, however we may not be successful in establishing such relationships. Moreover, consumer tastes and trends may differ
in many of these locations from those in our existing locations, and as a result, the sales of our products may not be successful or profitable. If our
expansion efforts are not successful or do not deliver an appropriate return on our investments, our business could be adversely affected.
RISKS RELATED TO INFORMATION TECHNOLOGY, CYBERSECURITY AND DATA PRIVACY
If we do not maintain our current information technology systems or fail to effectively implement new information technology systems, it could result
in significant disruptions to our operations.
We rely upon sophisticated systems to operate our business including web sites, point of sale, telecommunications, email, inventory management,
warehouse management, and financial and human resources. Some of these systems are based on end-of-life or legacy technology, operate with minimal or
no vendor support and are otherwise difficult to maintain. Our systems are subject to damage or interruption from power outages, computer and
telecommunications failures, computer viruses, security breaches, catastrophic events such as fires, tornadoes and hurricanes, and usage errors by our
employees or vendors. Operating legacy systems subjects us to inherent costs and risks associated with maintaining, upgrading and replacing these systems.
We must recruit and retain sufficiently skilled personnel to maintain and operate the systems and demands on management time along with other risks and
costs. Our eCommerce websites are subject to numerous risks associated with selling merchandise, including unanticipated operating problems, reliance on
third-party computer hardware and software providers and system failures.
Our strategic initiatives include implementing new information technology systems, support, and infrastructure enhancements to provide improved
capabilities to better serve our customers and accommodate future growth. Implementation of these systems is highly dependent on coordination of
numerous software, hardware and cloud-based system providers and internal business teams. Additionally, the deployment of new technology systems,
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may require substantial investments in our infrastructure and network. As we deploy, update and make enhancements, we must, among other things,
continue to update internal controls and operational processes as implementation progresses, recruit and train qualified personnel to assist with change
management, and conduct, manage and control routine business functions.
We plan to start the planning and implementation of a multi-year project for a new warehouse management system in Fiscal 2021. Implementation
of a warehouse management system is highly dependent on coordination of numerous software and system providers and internal business teams. The
interdependence of these systems is a significant risk to the successful completion and the failure could have a material adverse effect on our overall
information technology infrastructure. The first phase of this project will be focused on labor savings and package consolidation while optimizing our third
party carrier rates. We expect this implementation to drive operational efficiencies and working capital improvements. We may experience difficulties as
we transition to the new warehouse management system, including inability to receive product from vendors, inability to ship or delayed shipments to
customers, decreases in productivity as our personnel and third-party providers implement and become familiar with the new warehouse management
system, loss or corruption of data and increased costs and lost revenues.
Any difficulties encountered in completing these activities, as well as problems in technical resources, system performance or system adequacy,
including loss or corruption of data, could delay implementation and deployment of new technologies, delayed shipments, decreases in productivity. Failure
to successfully deploy new technologies, enhancements of the infrastructure in a cost-effective manner, and in a manner that satisfies consumers'
expectations, could have an adverse impact on our capital resources, financial condition, results of operations or cash flows.
If we do not adequately protect against cyber security threats or maintain the security of customer, employee or company information, we could
experience significant business interruption, damage to our reputation, incur substantial additional costs, and become subject to litigation.
Our information technology systems are potentially vulnerable to malicious intrusion and targeted or random cyber-attacks. Although we have
invested in the protection and monitoring of our information technology network, proprietary and customer data and systems, there can be no assurance that
these efforts will prevent breaches in our information technology systems that could adversely affect our business.
The regulatory environment related to information security and privacy is increasingly rigorous, with new and rapidly changing requirements
applicable to our business. We could be held liable to our customers or other parties or be subject to regulatory or other actions for breaching privacy and
information security laws and regulations, and our business and reputation could be adversely affected by any resulting loss of customer confidence,
litigation, civil or criminal penalties or adverse publicity.
Any significant compromise or breach of customer, employee or company data security, could significantly damage our reputation and result in
additional costs, lost sales, fines and lawsuits. There is no guarantee that the procedures that the Company or our third-party providers have implemented to
protect against unauthorized access to secured data are adequate to safeguard against all data security breaches.
RISKS RELATED TO MAJORITY OWNERSHIP
ESL, whose interests may be different from the interests of other stockholders, may be able to exert substantial influence over our company.
According to an amendment to Schedule 13D filed with the SEC on March 3, 2021, ESL beneficially owned 55.0% of our outstanding shares of
common stock as of March 1, 2021. Accordingly, ESL could have substantial influence over many, if not all, actions to be taken or approved by our
stockholders, including in the election of directors and any transactions involving a change of control. The interests of ESL, which has investments in other
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companies (including Sears Holdings and Transform Holdco), may from time to time diverge from the interests of our other stockholders.
Our common stock price may decline if ESL decides to sell a portion of its holdings of our common stock.
ESL is not subject to any contractual obligation to maintain its ownership position in us. Consequently, we cannot assure you that ESL will
maintain its ownership interest in us. Any sale by ESL of our common stock, or any announcement by ESL that it has decided to sell shares of our common
stock, could have an adverse impact on the price of our common stock.
Potential liabilities may arise related to the Separation, which could have an adverse effect on our financial condition and our results of operations.
The Official Committee of Unsecured Creditors of Sears Holdings Corporation has filed a lawsuit against ESL, former Sears directors and others
alleging that several transactions, including the Separation, can be avoided as fraudulent transfers, and attacking the Separation and the decision to
undertake the Separation on other similar theories of liability. If a court were to determine that the Separation was voidable, in whole or in part, then subject
to various defenses, the court might require ESL or other recipients of value received in connection with the Separation (potentially including our
stockholders as recipients of shares of our common stock in connection with the Separation), to return some or all of the property received, or enter
judgment against the recipient in the amount of the some or all of the value received. If any of the agreements we entered into with Sears as part of the
Separation (or payments we received thereunder) are challenged and avoided, subject to various defenses, the court might require us to return some or all of
the property received, or enter judgment against us in the amount of some or all of the value received, under or in connection with those agreements.
GENERAL RISKS
Failure to retain our executive management team and to attract qualified new personnel could adversely affect our business and results of operations.
We depend on the talents and continued efforts of our executive management team. The loss of members of our executive management may disrupt
our business and adversely affect our results of operations. Furthermore, our ability to manage further expansion will require us to continue to train,
motivate and manage employees and to attract, motivate and retain additional qualified personnel. Competition for these types of personnel is intense, and
we may not be successful in attracting, assimilating and retaining the personnel required to grow and operate our business profitably.
Other factors may have an adverse effect on our business, results of operations and financial condition.
Many other factors may affect our profitability and financial condition, including:
•
•
•
•
•
changes in laws and regulations and changes in their interpretation or application, including changes in accounting standards, taxation rates
and requirements, product marketing application standards and environmental laws;
differences between the fair value measurement of assets and liabilities and their actual value, particularly for intangibles and goodwill; and
for contingent liabilities such as litigation, the absence of a recorded amount, or an amount recorded at the minimum, compared to the
actual amount;
changes in the rate of inflation, interest rates and the performance of investments held by us;
changes in the creditworthiness of counterparties that transact business with or provide services to us;
changes in business, economic and political conditions, including war, political instability, terrorist attacks, the threat of future terrorist
activity and related military action; natural disasters; the cost and availability of insurance due to any of the foregoing events; labor
disputes, strikes, slow-downs or other forms of labor or union activity; and pressure from third-party interest groups; and
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•
the Company is self-insured for employee medical claims and workers’ compensation claims. If there were negative claim experiences and
higher than normal large claims this could have a significant effect on the Company’s profitability.
Our share price may be volatile.
The market price of our common stock may fluctuate significantly due to several factors, some of which may be beyond our control, including:
•
•
•
•
•
actual or anticipated fluctuations in our operating results;
changes in earnings estimated by securities analysts or our ability to meet those estimates;
the operating and stock price performance of comparable companies;
changes to the regulatory and legal environment under which we operate; and
domestic and worldwide economic conditions.
Further, when the market price of a company's common stock drops significantly, stockholders often initiate securities class action lawsuits against
the company. A lawsuit against the Company could cause us to incur substantial costs and could divert the time and attention of our senior management and
other resources.
Your percentage ownership in Lands' End may be diluted in the future.
In the future, your percentage ownership in Lands' End may be diluted because of equity issuances for acquisitions, strategic investments, capital
market transactions or otherwise, including equity awards that we may grant to our directors, officers and employees.
Exposure to periodic litigation and other regulatory proceedings, including with respect to product liability claims. These proceedings may be affected
by changes in laws and government regulations or changes in their enforcement.
From time to time, we may be involved in lawsuits and regulatory actions relating to our business or products we sell or have sold. These
proceedings may be in jurisdictions with reputations for aggressive application of laws and procedures against corporate defendants. We are impacted by
trends in litigation, including class-action allegations brought under various consumer protection and employment laws, including wage and hour laws,
privacy laws, and laws relating to eCommerce. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the
ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse effect on our business and results of operations.
Potential assessments for additional state taxes, which could adversely affect our business.
In accordance with current law, we pay, collect and/or remit taxes for Federal, State and local and foreign jurisdictions where we are required by
law. While we believe that we have appropriately remitted all taxes based on our interpretation of applicable law, tax laws are complex, and their
application differs by taxing jurisdiction.
An increasing number of taxing jurisdictions may attempt to assess additional taxes and penalties on us or assert an error in our calculation. These
include new obligations to collect sales, consumption, value added, or other taxes on online marketplaces and remote sellers, or other requirements that
may result in liability for third party obligations. A change in the application of law, or an interpretation of the law that differs from our own may, if
successful, adversely affect our business and results of operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
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ITEM 2. PROPERTIES
Facilities and Store Locations
We own or lease domestic and international properties used as offices, customer sales/service centers, distribution centers and Company Operated
stores. We believe that our existing facilities are well maintained and are sufficient to meet our current needs. We review all leases set to expire in the short
term to determine the appropriate action to take with respect to them, including moving or closing Company Operated stores or entering into new leases.
Domestic Headquarters, Customer Service and Distribution Properties
The headquarters for our business is located on an approximately 200 acre campus in Dodgeville, Wisconsin. The Dodgeville campus includes
approximately 1.7 million square feet of building space between multiple different buildings that are all owned by the Company. The primary functions of
these buildings are customer sales/service, distribution center and corporate headquarters. We also own customer sales/service and distribution centers in
Reedsburg and Stevens Point, Wisconsin.
International Offices, Customer Service and Distribution Properties
We own a distribution center and customer sales/service center in Oakham, United Kingdom that supports our northern European business. We
lease two buildings in Mettlach, Germany for customer sales/service center supporting our central European business. We lease office space in Shin
Yokohama, Japan for a customer sales/service center as well as general administrative offices and a distribution center in Fujieda, Japan. We also lease
office space for an international sourcing office in Kwun Tong, Hong Kong.
Lands' End Retail Properties
As of January 29, 2021, our U.S. retail footprint consists of 31 Company Operated stores. The U.S. Company Operated stores average
approximately 7,300 square feet. Additionally, we have one smaller school uniform showroom that is used for fittings.
ITEM 3. LEGAL PROCEEDINGS
See Part II, Item 8, Financial Statements and Supplementary Data and Notes to Consolidated Financial Statements, Note 10, Commitments and
Contingencies, for additional information regarding legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information
Lands' End's common stock is traded on the NASDAQ Stock Market under the ticker symbol LE. There were 6,916 stockholders of record as of
March 23, 2021.
Stock Performance Graph
The following graph compares the cumulative total return to stockholders on Lands' End common stock from January 29, 2016 through January 29,
2021, with the return on the NASDAQ Composite Index and the NASDAQ Retail Smart Index (NQSSRE) for the same period.
On September 18, 2020 the NASDAQ Global Retail Index was terminated. The cumulative total shareholder return as of September 18, 2020 (the
last day information was made available by NASDAQ Global Retail Index) was $191. In accordance with SEC rules, the most recent available information
for the NASDAQ Global Retail Index is presented below, in addition to the NASDAQ Retail Smart Index which we have selected to replace the NASDAQ
Global Retail Index for our Stock Performance Graph.
The graph assumes an initial investment of $100 on January 29, 2016 in each of our common stock, the NASDAQ Composite Index and the
NASDAQ Retail Smart Index.
Lands' End, Inc.
NASDAQ Composite Index
NASDAQ Retail Smart Index
NASDAQ Global Retail Index
1/29/2016 1/27/2017 2/2/2018 2/1/2019 1/31/2020 9/18/2020 1/29/2021
127
$
283
$
$
140
$
77 $
161 $
107 $
140 $
71 $
234 $
123 $
191
82 $
158 $
102 $
139 $
53 $
198 $
112 $
158 $
100 $
100 $
100 $
100 $
70 $
122 $
90 $
107 $
This performance graph shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act or incorporated by reference into
any of our filings, as amended, with the SEC, except as shall be expressly set forth by specific reference in such filing.
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Dividends
Since the Separation we have not paid and we do not expect to pay in the foreseeable future, dividends on our common stock. Any payment of
dividends will be at the discretion of our board of directors and will depend upon various factors then existing, including earnings, financial condition,
results of operations, capital requirements, level of indebtedness, any contractual restrictions with respect to payment of dividends, restrictions imposed by
applicable law, general business conditions and other factors that our board of directors may deem relevant. Additionally, the Debt Facilities contain
various representations and warranties and restrictive covenants that, among other things, and subject to specified exceptions, restrict the ability of Lands'
End and its subsidiaries to make dividends or distributions with respect to capital stock.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with the Consolidated Financial Statements and accompanying notes included elsewhere in
this Annual Report on Form 10-K. Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking
statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to
differ materially from those made, projected or implied in the forward-looking statements. See "Cautionary Statements Concerning Forward-Looking
Statements" below and Item 1A, Risk Factors, in this Annual Report on Form 10-K for a discussion of the uncertainties, risks and assumptions associated
with these statements.
This section discusses our results of operations for the year ended January 29, 2021 as compared to the year ended January 31, 2020. For a
discussion and analysis of the year ended January 31, 2020 compared to February 1, 2019, please refer to “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” included in Item 7 of our Annual Report on Form 10-K for the year ended January 31, 2020, filed with the
SEC on March 23, 2020.
As used in this Annual Report on Form 10-K, references to the "Company", "Lands' End", "we", "us", "our" and similar terms refer to Lands' End,
Inc. and its subsidiaries. Our fiscal year ends on the Friday preceding the Saturday closest to January 31.
Executive Overview
Description of the Company
Lands' End, Inc. is a leading uni-channel retailer of casual clothing, accessories, footwear and home products. Operating out of America’s
heartland, we believe our vision and values make a strong connection with our core customers. We offer products online at www.landsend.com, on third-
party online marketplaces and through our own Company Operated store locations and third-party retail stores. We are a classic American lifestyle brand
with a passion for quality, legendary service and real value. We seek to deliver timeless style for women, men, kids and the home.
Lands’ End was founded in 1963 by Gary Comer and his partners to sell sailboat hardware and equipment by catalog. While our product focus has
shifted significantly over the years, we have continued to adhere to our founder’s motto as one of our guiding principles: "Take care of the customer, take
care of the employee and the rest will take care of itself."
Lands’ End seeks to provide a common customer experience regardless of whether our customers are interacting with us on our company websites,
third-party marketplaces, at Company Operated stores or other points of distribution.
We have one external reportable segment and identify our operating segments according to how our business activities are managed and evaluated.
Our operating segments consist of: U.S. eCommerce, Outfitters, Europe eCommerce, Japan eCommerce, Third Party, and Retail. We have determined that
each of our operating segments share similar economic and other qualitative characteristics, and therefore, the results of our operating segments are
aggregated into one external reportable segment.
Product Channels
Lands’ End identifies five separate distribution channels for revenue reporting purposes:
U.S. eCommerce offers products through the Company's eCommerce website utilizing digital marketing and direct mail catalogs.
International offers products primarily to consumers located in Europe and Japan through eCommerce international websites, and third-party
affiliates.
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Outfitters sells products to end consumers, located primarily in the U.S., through negotiated arrangements to make specific styles or customized
products available to employees and members of client organizations, as well as through the Company's eCommerce websites.
Third Party sells the same products as U.S. eCommerce but to domestic wholesale customers or direct to consumers through third-party
marketplaces and websites.
Retail sells products and services through Company Operated stores.
Impact of the COVID-19 Pandemic
A novel strain of coronavirus (“COVID-19”) surfaced in late 2019 and in March 2020, the World Health Organization declared COVID-19 a
pandemic.
Health and Safety of Employees and Consumers
From the beginning of the COVID-19 pandemic, the Company’s priority has been the safety of employees and customers. On March 16, 2020, the
Company temporarily closed its 26 U.S. Company Operated stores. These Company Operated stores reopened during Second Quarter 2020. Additionally,
the Company opened four new Company Operated stores in Second Quarter 2020 and one new Company Operated store in Third Quarter 2020. These new
Company Operated stores were already planned and construction underway prior to the start of the COVID-19 pandemic. In response to the COVID-19
pandemic, the Company has implemented extra precautions in its Company Operated stores, offices and distribution centers. These precautions were
developed in line with guidance from global, federal and state health authorities, including work from home policies, social distancing, thermal scanning
and partitions in all facilities.
Customer Demand
The eCommerce channel experienced a decline in customer demand in First Quarter 2020, which rebounded in Second Quarter 2020 and continued
to be strong the remainder of the year. Consequently, Fiscal 2020 eCommerce revenue increased compared to prior year. Fiscal 2020 revenue in the
Outfitters and Retail channels was lower than in Fiscal 2019 due to the reduction in customer demand caused by the COVID-19 pandemic. Retail revenue
also declined due to lengthy store closures. The ultimate timing and impact of customer demand levels will depend on the duration and scope of the
COVID-19 pandemic, overall economic conditions and consumer preferences.
Supply Chain
The Company has not experienced significant supply chain disruptions related to the COVID-19 pandemic. The Company continues to place a
priority on business continuity and contingency planning. The Company may experience disruptions in the supply chain as the COVID-19 pandemic
continues, though the Company cannot reasonably estimate the potential impact or timing of those events, and the Company may not be able to mitigate
such impact.
Expense Reduction
Beginning in First Quarter 2020, the Company took the following actions to reduce overall expenses as a response to decreased customer demand
due to the COVID-19 pandemic:
•
•
Temporarily reduced base salaries, including a reduction of 50% in the base salary of its Chief Executive Officer, 20% reductions in
the base salaries of the Company’s other senior management members and scaled salary reductions throughout the Company. All
salaries were reinstated during Third Quarter 2020.
Furloughed approximately 70% of corporate employees from March 28, 2020 to April 13, 2020. As work demand increased, the
remaining workforce returned to work on an as needed basis with all furloughs ending by mid-Second Quarter 2020. When the
Company Operated stores temporarily closed nearly 100% of Company Operated store employees were furloughed until reopening.
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•
•
•
•
Fiscal 2020 merit increases were eliminated.
The Board of Directors compensation was temporarily reduced. This compensation was reinstated in Third Quarter 2020.
The Company's 401(k) matching contribution was suspended from April 16, 2020 until January 30, 2021.
Other discretionary operating expenses were significantly reduced.
In response to the COVID-19 pandemic, the Company’s planned capital expenditures for Fiscal 2020 were significantly reduced.
Goodwill and Indefinite-Lived Intangible Asset
The Company considered the COVID-19 pandemic to be a triggering event in First Quarter 2020 for its Outfitters and Japan eCommerce reporting
units and therefore completed an interim test for impairment of goodwill for these reporting units as of May 1, 2020. This testing resulted in no impairment
of the Company’s Outfitters reporting unit and full impairment of the $3.3 million of goodwill allocated to the Company’s Japan eCommerce reporting unit
recorded in the First Quarter 2020. There were no triggering events or impairment charges for any reporting unit in the remainder of Fiscal 2020.
Corporate Restructuring
The Company reduced approximately 10% of corporate positions during the Second Quarter 2020. The Company incurred total severance costs
of approximately $2.9 million related to the reduction of corporate positions which was recorded in Other operating expense (income), net in the
Consolidated Statements of Operations. As of January 29, 2021, approximately $0.2 million of the severance costs had yet to be paid. In Fiscal
2019, the Company closed five school uniform showrooms.
Basis of Presentation
The Consolidated Financial Statements have been prepared in accordance with GAAP and include the accounts of Lands' End, Inc. and its
subsidiaries. All intercompany transactions and balances have been eliminated.
Related party
Following the Separation, we began operating as a separate, publicly traded company, independent from Sears Holdings. At the time of the
Separation, ESL beneficially owned significant portions of both the Company's and Sears Holdings' outstanding shares of common stock and therefore,
Sears Holdings, the Company's former parent company, was considered a related party both prior to and after the Separation. On February 11, 2019,
Transform Holdco acquired from Sears Holdings substantially all of the go-forward retail footprint and other assets and component businesses of Sears
Holdings as a going concern. We believe that ESL holds a significant portion of the membership interests of Transform Holdco and therefore consider that
entity to be a related party as well.
Seasonality
We experience seasonal fluctuations in our net revenue and operating results and historically have realized a significant portion of our net revenue
and earnings for the year during our fourth fiscal quarter. We generated 37.7% and 37.9% of our net revenue in the fourth fiscal quarter of Fiscal 2020 and
Fiscal 2019 respectively. Thus, lower than expected fourth quarter net revenue could have an adverse impact on our annual operating results.
Working capital requirements typically increase during the second and third quarters of the fiscal year as inventory builds to support peak
shipping/selling periods and typically decrease during the fourth quarter of the fiscal year as inventory is shipped/sold. Cash provided by operating
activities is typically higher in the fourth quarter of the fiscal year due to reduced working capital requirements during that period.
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Results of Operations
Fiscal Year. Our fiscal year end is on the Friday preceding the Saturday closest to January 31 each year. The fiscal periods in this report are
presented as follows, unless the context otherwise requires:
Fiscal Year
2020
2019
Ended
January 29, 2021
January 31, 2020
Weeks
52
52
The following tables sets forth, for the periods indicated, selected income statement data:
(in thousands)
Net revenue
Cost of sales (excluding depreciation
and amortization)
Gross profit
Selling and administrative
Depreciation and amortization
Other operating expense, net
Operating income
Interest expense
Other expense (income), net
Income before income taxes
Income tax expense
Net income
Fiscal 2020
Fiscal 2019
$’s
$ 1,427,448
% of Net
Revenue
$’s
% of Net
Revenue
100.0% $ 1,450,201
100.0%
821,595
605,853
518,897
37,343
8,471
41,142
27,754
796
12,592
1,756
10,836
$
57.6%
42.4%
36.4%
2.6%
0.6%
2.9%
1.9%
0.1%
0.9%
0.1%
0.8% $
828,309
621,892
543,962
31,136
1,357
45,437
25,987
(1,912)
21,362
2,072
19,290
57.1%
42.9%
37.5%
2.1%
0.1%
3.1%
1.8%
(0.1)%
1.5%
0.1%
1.3%
Depreciation and amortization are not included in our cost of sales because we are a reseller of inventory and do not believe that including
depreciation and amortization is meaningful. As a result, gross profit may not be comparable to other entities that include depreciation and amortization
related to the sale of their product in their gross profit measure.
Net Income and Adjusted EBITDA
We recorded Net income of $10.8 million and $19.3 million for Fiscal 2020 and Fiscal 2019, respectively. In addition to our Net income
determined in accordance with GAAP, for purposes of evaluating operating performance, we use an Adjusted EBITDA measurement. Adjusted EBITDA is
computed as Net income appearing on the Consolidated Statements of Operations net of Income tax expense, Interest expense, Depreciation and
amortization and certain significant items set forth below. We use Adjusted EBITDA to evaluate the operating performance of our business for comparable
periods and as the basis for an executive compensation metric. The methods we use to calculate our non-GAAP financial measures may differ significantly
from methods other companies use to compute similar measures. As a result, any non-GAAP financial measures presented herein may not be comparable to
similar measures provided by other companies. Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating
investment decisions as it excludes a number of important cash and non-cash recurring items.
While Adjusted EBITDA is a non-GAAP measurement, management believes that it is an important indicator of operating performance, and useful
to investors, because:
•
•
EBITDA excludes the effects of financings, investing activities and tax structure by eliminating the effects of interest, depreciation and
income tax.
Other significant items, while periodically affecting our results, may vary significantly from period to period and have a disproportionate
effect in a given period, which affects comparability of results. We
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have adjusted our results for these items to make our results more comparable and therefore more useful to investors as the items are not
representative of our ongoing operations.
▪
▪
▪
Corporate restructuring – Severance costs associated with the reduction in corporate positions in Fiscal 2020 and closure of five
school uniform showrooms in Fiscal 2019.
Goodwill and long-lived asset impairment – charges associated with the non-cash write-down of goodwill and certain long-lived
assets in Fiscal 2020 and Fiscal 2019.
Gain or loss on disposal of property and equipment - management considers the gains or losses on asset valuation to result from
investing decisions rather than ongoing operations in Fiscal 2020 and Fiscal 2019.
(in thousands)
Net income
Income tax expense
Other expense (income), net
Interest expense
Operating income
Depreciation and amortization
Other operating expense
Corporate restructuring
Goodwill and long-lived asset impairment
Loss (gain) on disposal of property and equipment
Adjusted EBITDA
Fiscal 2020
Fiscal 2019
$’s
10,836
1,756
796
27,754
41,142
37,343
383
2,941
3,844
1,303
86,956
$
$
% of Net
Revenue
0.8% $
0.1%
0.1%
1.9%
2.9%
2.6%
0.0%
0.2%
0.3%
0.1%
6.1% $
$’s
19,290
2,072
(1,912)
25,987
45,437
31,136
—
258
1,365
(266)
77,930
% of Net
Revenue
1.3%
0.1%
(0.1)%
1.8%
3.1%
2.1%
—%
0.0%
0.1%
(0.0)%
5.4%
Discussion and Analysis
Fiscal 2020 Compared to Fiscal 2019
Net revenue
Total Net revenue for Fiscal 2020 was $1.43 billion, a decrease of $22.8 million or 1.6% from Fiscal 2019. U.S. eCommerce and International saw
increased demand as customers reacted positively to the continued enhancements in our seasonal product assortments and digital capabilities, along with an
increase in Third Party revenues with the launch of our product with Kohl’s. However, this was more than offset by the decrease across our entire Outfitters
and Retail channels due to decreased customer demand related to the COVID-19 pandemic.
Net revenue is presented by product channel in the following table:
(in thousands)
U.S. eCommerce
International
Outfitters
Third Party
Retail
Total Net revenue
Fiscal 2020
% of Revenue
Fiscal 2019 % of Revenue
$
$
961,911
222,878
174,260
39,945
28,454
1,427,448
67.4%
15.6%
12.2%
2.8%
2.0%
$
$
910,088
181,087
285,807
13,654
59,565
1,450,201
62.8%
12.5%
19.7%
0.9%
4.1%
U.S. eCommerce Net revenue was $961.9 million in Fiscal 2020, an increase of $51.8 million or 5.7% from $910.1 million during the same period
of the prior year. The increase in U.S. eCommerce was largely attributable to an increase in online shopping as customers reacted positively to the
continued enhancements in our seasonal
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product assortments and digital capabilities, which drove a year over year increase in our new customers acquired and overall customer file.
International Net revenue was $222.9 million in Fiscal 2020, an increase of $41.8 million or 23.1% from $181.1 million during the same period of
the prior year. The increase in International was largely attributable to an increase in online shopping as customers reacted positively to the U.S.
eCommerce digital capabilities leveraged globally and the continued enhancements in our seasonal product assortments, which drove a year over year
increase in new customers acquired and overall customer file.
Outfitters Net revenue was $174.3 million in Fiscal 2020, a decrease of 39.0% from $285.8 million during the same period of the prior year.
Excluding the approximately $36 million net impact from the American Airlines launch, net revenue would have decreased 30.7%. The remaining decrease
in Outfitters was largely attributable to the impact of the COVID-19 pandemic due to the decrease in travel that impacted the national account clients, as
over 50% of these sales are to travel-related companies. Additionally, reduced customer demand from our small and medium sized businesses and
temporary closures of schools impacted the Outfitters product channel.
Net revenue in Third Party was $39.9 million in Fiscal 2020, an increase of $26.3 million or 192.6% from $13.7 million during the same period of
the prior year. The increase was primarily attributed to the launch of Lands’ End product on Kohls.com and at 150 Kohl’s retail locations. Due to the early
success with Kohl’s, the Company plans to expand to 300 Kohl’s retail locations by the end of Fiscal 2021.
Net revenue in Retail was $28.5 million in Fiscal 2020, a decrease of $31.1 million or 52.2% from $59.6 million during the same period of the prior
year. Approximately $21.3 million of the decrease was attributed to the closure of all Lands’ End Shops at Sears in Fiscal 2019 and the remaining
attributable to the temporary closures of our retail stores and lower traffic since reopening due to the COVID-19 pandemic. On January 29, 2021 there were
31 U.S. Company Operated stores compared to 25 U.S. Company Operated stores on January 31, 2020.
Gross Profit
In Fiscal 2020, total gross profit decreased 2.6% to $605.9 million compared with $621.9 million for Fiscal 2019. Gross margin decreased 50 basis
points to 42.4% of total Net revenue in Fiscal 2020 from 42.9% of total Net revenue in Fiscal 2019 due to increased shipping costs and surcharges partially
offset by improved promotional strategies and continued use of analytics.
Selling and Administrative Expenses
Selling and administrative expenses were $518.9 million, or 36.4% of total Net revenue in Fiscal 2020 compared with $544.0 million, or 37.5% of
total Net revenue in Fiscal 2019. The approximately 110 basis points decrease was primarily due to strong controls to manage non-essential operating
expenses and structural costs in response to the initial uncertainty surrounding the COVID-19 pandemic partially offset by increases in digital marketing.
Depreciation and Amortization
Depreciation and amortization were $37.3 million in Fiscal 2020, an increase of $6.2 million or 19.9%, compared with $31.1 million in Fiscal
2019. The increase in depreciation and amortization was primarily attributable to the depreciation associated with our Enterprise Order Management
system implementation, continued investment in our digital infrastructure and an increased number of Company Operated stores.
Other Operating Expense, Net
Other operating expense, net was $8.5 million in Fiscal 2020 compared to $1.4 million in Fiscal 2019. The increase of $7.1 million was primarily
related to the $3.3 million impairment charge of goodwill allocated to the
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Company’s Japan eCommerce reporting unit and $2.9 million of severance costs paid as part of the restructuring of corporate positions.
Operating Income
Operating income was $41.1 million in Fiscal 2020, compared with $45.4 million in Fiscal 2019. The decrease of $4.3 million was primarily due to
the reduction in gross profit, increased depreciation and certain other operating expenses, partially offset by reductions in overall selling and administrative
expenses.
Interest Expense
Interest expense was $27.8 million in Fiscal 2020, compared with $26.0 million in Fiscal 2019. The increase of $1.8 million in interest expense was
driven by higher interest rates associated with the Current Term Loan Facility.
Other Expense (Income)
Other expense was $0.8 million in Fiscal 2020 compared to Other income of $1.9 million in Fiscal 2019. The increase in Other expense was
attributed to less interest income and the final payment to an affiliate of Transform Holdco associated with the transitioning of a sourcing office.
Income Tax Expense
Income tax expense of $1.8 million was recorded for Fiscal 2020 which resulted in an effective tax rate of 13.9%. This compared to income tax
expense of $2.1 million in Fiscal 2019 which resulted in an effective tax rate of 9.7%. The Fiscal 2020 tax rate reflected a $3.1 million benefit as a result of
the CARES Act. The Fiscal 2019 tax rate reflected a $3.4 million benefit related to the Company’s election to treat certain foreign entities as a U.S. Branch.
Net Income
As a result of the above factors, Net Income was $10.8 million, or $0.33 per diluted share in Fiscal 2020 compared to $19.3 million, or $0.60 per
diluted share in Fiscal 2019.
Adjusted EBITDA
As a result of the above factors, Adjusted EBITDA increased 11.6% to $87.0 million in Fiscal 2020, compared to Adjusted EBITDA of $77.9
million in Fiscal 2019.
Liquidity and Capital Resources
Our primary need for liquidity is to fund working capital requirements of our business, capital expenditures, debt service and for general corporate
purposes. Our cash and cash equivalents and the ABL Facility serve as sources of liquidity for short-term working capital needs and general corporate
purposes. The revolving ABL Facility had a balance outstanding of $25 million at January 29, 2021, other than for letters of credit. Cash generated from
our net revenue and profitability, and somewhat to a lesser extent our changes in working capital, are driven by the seasonality of our business, with a
significant amount of net revenue and operating cash flows generally occurring in the fourth fiscal quarter of each year. We expect that our cash on hand
and cash flows from operations, along with borrowings on the ABL Facility, will be adequate to meet our capital requirements and operational needs for at
least the next 12 months.
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Description of Material Indebtedness
Debt Arrangements
In Fiscal 2020, the Company exercised the “accordion” feature under the ABL Facility increasing the maximum borrowings available under the
facility from $175 million to $275 million, subject to a borrowing base (the “Loan Cap”). This was completed in two transactions. The first was a $25
million increase effective March 19, 2020, and the second a $75 million increase effective September 9, 2020. The latter was completed through the Second
Amendment to the ABL Facility executed on August 12, 2020. The revolving ABL Facility has a letter of credit sublimit of $70.0 million and matures on
November 16, 2022, subject to customary extension provisions provided for therein, and is available for working capital and other general corporate
liquidity needs. The balance outstanding on January 29, 2021, was $25 million. There was no balance outstanding as of January 31, 2020. The balance of
outstanding letters of credit was $27.1 million and $23.3 million on January 29, 2021, and January 31, 2020, respectively.
On September 9, 2020, the Company entered into the Current Term Loan Facility which provides a term loan facility of $275 million, the proceeds
of which were used, along with borrowings of $125 million under the Company’s revolving ABL Facility, to repay all the indebtedness under the Former
Term Loan Facility and pay fees and expenses in connection with the financing. Origination costs, including an Original Issue Discount (OID) of 3% and
$5.0 million in debt origination fees were paid upon entering into the Current Term Loan Facility.
Maturity; Amortization and Prepayments
The Current Term Loan Facility matures on September 9, 2025 and will amortize at a rate equal to 1.25% per quarter. It is subject to mandatory
prepayments in an amount equal to a percentage of the borrower’s excess cash flows in each fiscal year, ranging from 0% to 75% depending on the
Company’s total leverage ratio, and with the proceeds of certain asset sales, casualty events and extraordinary receipts. The loan may not be voluntarily
prepaid during the first two years of its term, without significant penalties. A prepayment premium is applicable to voluntary prepayments and certain
mandatory prepayments made prior to the fourth anniversary of the closing date of the Current Term Loan Facility.
Guarantees; Security
All obligations under the Debt Facilities are unconditionally guaranteed by the Company and, subject to certain exceptions, each of its existing and
future direct and indirect subsidiaries. The ABL Facility is secured by a first priority security interest in certain working capital of the borrowers and
guarantors consisting primarily of accounts receivable and inventory. The Current Term Loan Facility is secured by a second priority security interest in the
same collateral, with certain exceptions.
The Current Term Loan Facility is secured by a first priority security interest in certain property and assets of the borrowers and guarantors,
including certain fixed assets such as real estate, stock of the subsidiaries and intellectual property, in each case, subject to certain exceptions. The ABL
Facility is secured by a second priority interest in the same collateral, with certain exceptions.
The Former Term Loan Facility, which was replaced by the Current Term Loan Facility on September 9, 2020, had the same priority security
interest in the same collateral, with certain exceptions.
Interest; Fees
The interest rates per annum applicable to the loans under the Current Term Loan Facility are based on a fluctuating rate of interest measured by
reference to, at the borrower’s election, either (1) and adjusted LIBOR (with a minimum rate of 1%) plus 9.75% or (2) an alternative base rate (which is the
greater of (i) the prime rate published in the Wall Street Journal, (ii) the federal funds rate, which shall be no lower than 0% plus ½ of 1%, and (iii) the one
month LIBOR rate plus 1% per annum) plus 8.75%.
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The borrowing margin under the ABL Facility is subject to adjustment based on the average daily total loans outstanding under the ABL Facility
for the preceding fiscal quarter. For LIBOR loans, the interest rate is LIBOR (subject to an interest rate floor of 0.75%) plus a borrowing margin which is,
where the average daily total loans outstanding for the previous quarter are (i) less than $50.0 million, 1.75%, (ii) equal to or greater than $50.0 million but
less than $100.0 million, 2.00%, (iii) equal to or greater than $100.0 million but less than $200.0 million, 2.25%, and (iv) greater than $200.0 million,
3.50%. For Base Rate loans, the borrowing margin is, where the average daily total loans outstanding for the previous quarter are (i) less than $50.0 million
for the previous quarter, 1.00%, (ii) equal to or greater than $50.0 million but less than $100.0 million, 1.25%, (iii) equal to or greater than $100.0 million
but less than $200.0 million, 1.50%, and (iv) greater than $200.0 million, 2.75%.
The ABL Facility includes (i) commitment fees which range from 0.25% to 0.375% based upon the average daily unused commitment (aggregate
commitment less loans and letters of credit outstanding) under the ABL Facility for the preceding fiscal quarter and (ii) customary letter of credit fees.
Customary agency fees are payable in respect of the Debt Facilities.
Representations and Warranties; Covenants
Subject to specified exceptions, the Debt Facilities contain various representations and warranties and restrictive covenants that, among other
things, restrict the ability of the Company and its subsidiaries ability to incur indebtedness (including guarantees), grant liens, make investments, make
dividends or distributions with respect to capital stock, make prepayments on other indebtedness, engage in mergers or change the nature of their business.
The Current Term Loan Facility contains certain financial covenants, including a quarterly maximum total leverage ratio test, a weekly minimum
liquidity test and an annual maximum capital expenditure amount.
If excess availability under the ABL Facility falls below the greater of 10% of the Loan Cap amount or $15.0 million, the Company will be
required to comply with a minimum fixed charge coverage ratio of 1.0 to 1.0. The ABL Facility also has a cash maintenance provision, which applies a
limit of $75 million on the amount of cash and cash equivalents (subject to certain exceptions) that the Company may hold when outstanding loans under
the ABL Facility are equal to or exceed $125 million.
The Debt Facilities contain certain affirmative covenants, including reporting requirements such as delivery of financial statements, certificates and
notices of certain events, maintaining insurance and providing additional guarantees and collateral in certain circumstances.
As of January 29, 2021, the Company was in compliance with all covenants related to the Debt Facilities.
Events of Default
The Debt Facilities include customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of
representations or warranties, cross defaults related to certain other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of
guarantees or security interests and material judgments and change of control.
Cash Flows from Operating Activities
Operating activities generated net cash of $91.6 million and $27.3 million in Fiscal 2020 and Fiscal 2019, respectively. Our primary source of
operating cash flows is the sale of merchandise goods and services to customers, while the primary use of cash in operations is the purchase of merchandise
inventories.
In Fiscal 2020, net cash provided by operating activities increased $64.3 million compared to Fiscal 2019 primarily due to a reduction in accounts
receivable balances related to the timing of the American Airlines launch in Fiscal 2019, higher deferred revenue and the timing of expense accruals.
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Cash Flows from Investing Activities
Net cash used in investing activities was $30.1 million and $38.0 million for Fiscal 2020 and Fiscal 2019, respectively. Cash used in investing
activities for all periods was primarily used in investing in information technology infrastructure, Company Operated stores and property and equipment.
For Fiscal 2021, we plan to invest approximately $26 million in capital expenditures for strategic investments and infrastructure, primarily in
technology and general corporate needs.
Cash Flows from Financing Activities
Net cash used in financing activities was $103.1 million and $105.9 million for Fiscal 2020 and Fiscal 2019, respectively. The financing activities
in Fiscal 2020 resulted in the Current Term Loan Facility which was approximately $100 million less than the Former Term Loan Facility. The financing
activities in Fiscal 2019 consisted primarily of a $100 million voluntary prepayment of the Former Term Loan Facility.
Contractual Obligations and Off-Balance-Sheet Arrangements
We have no material off-balance-sheet arrangements other than the guarantees and contractual obligations that are discussed below.
Information concerning our obligations and commitments to make future payments under contracts such as lease agreements, and other contingent
commitments, as of January 29, 2021, is aggregated in the following table:
(in thousands)
Operating leases (1)
Principal payments on long-term debt
Interest on long-term debt and ABL Facility fees
Purchase obligations
Total contractual obligations (2)
1 Year
or less
3-4
Years
Total
12,064 $
10,458 $
$
57,970 $
230,313
13,750
296,563
51,182
142,339
32,312
262,179 262,179
—
$ 759,051 $ 318,699 $ 127,457 $ 293,559 $
Payments Due by Period
2-3
Years
16,112 $
52,500
58,845
—
After 5
years
19,336
—
—
—
19,336
(1)
(2)
Operating lease obligations consist primarily of future minimum lease commitments related to the Company’s operating leases (refer to Note 4, Leases, of the Consolidated Financial
Statements for further details).
Purchase obligations primarily represent open purchase orders for inventory.
Financial Instruments with Off-Balance-Sheet Risk
In Fiscal 2020, the Company exercised the “accordion” feature under the ABL Facility increasing the maximum borrowings available under the
facility from $175 million to $275 million, subject to a borrowing base. This was completed in two transactions. The first was a $25 million increase
effective March 19, 2020, and the second a $75 million increase effective September 9, 2020. The latter was completed through the Second Amendment to
the ABL Facility executed on August 12, 2020. The ABL Facility has a letter of credit sublimit of $70.0 million and matures on November 16, 2022,
subject to customary extension provisions provided for therein. The revolving ABL Facility is available for working capital and other general corporate
liquidity needs. The balance outstanding on January 29, 2021, was $25 million. There was no balance outstanding as of January 31, 2020. The balance of
outstanding letters of credit was $27.1 million and $23.3 million on January 29, 2021, and January 31, 2020, respectively.
Application of Critical Accounting Policies and Estimates
Our Consolidated Financial Statements have been prepared in accordance with GAAP, which requires management to make estimates and
judgments that affect amounts reported in the Consolidated Financial Statements
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and accompanying notes. While our estimates and assumptions are based on our knowledge of current events and actions we may undertake in the future,
actual results may ultimately differ from our estimates and assumptions. Our estimation processes contain uncertainties because they require management
to make assumptions and apply judgment to make these estimates. Should actual results be different than our estimates, we could be exposed to gains or
losses from differences that may be material.
For a summary of our significant accounting policies, please refer to Note 2, Summary of Significant Accounting Policies, of our Consolidated
Financial Statements. We believe the accounting policies discussed below represent the accounting policies we apply that are the most critical to
understanding our Consolidated Financial Statements.
Inventory Valuation
Our inventories consist of merchandise purchased for resale and are recorded at the lower of cost or market. The nature of our business requires
that we make a significant amount of our merchandising decisions and corresponding inventory purchase commitments with vendors several months in
advance of the time in which a particular merchandise item is intended to be included in the merchandise offerings. These decisions and commitments are
based upon, among other possible considerations, historical sales with identical or similar merchandise, our understanding of then-prevailing trends and
influences, and an assessment of likely economic conditions and various competitive factors.
For financial reporting and tax purposes, the Company's United States inventory, primarily merchandise held for sale, is stated at last-in, first-out
("LIFO") cost, which is adjusted to the lower of cost or market. The Company accounts for its non-United States inventory on the first-in, first-out
("FIFO") method. The United States inventory accounted for using the LIFO method as of percentage of the total inventory was 87% at January 29, 2021
and 90% at January 31, 2020.
The Company continually makes assessments as to whether the carrying cost of inventory exceeds its market value and, if so, by what dollar
amount. Excess inventories may be disposed of through our normal course of business. Based on historical results experienced through various methods of
disposition, the Company will write down the carrying value of inventories that are not expected to be sold at or above cost. The excess and obsolete
reserve balances were $22.8 million and $11.0 million as of January 29, 2021, and January 31, 2020, respectively. The $11.8 million increase in the excess
and obsolescence reserve is primarily due to the Company’s limited ability throughout the COVID-19 pandemic to sell through returned embroidered,
hemmed or damaged product compared to prior years. For the inventory marked down to net realizable value, a one percentage point increase in our
assumed recovery rates at January 29, 2021, would have had an immaterial impact on our Consolidated Financial Statements.
Goodwill and Trade Name Impairment Assessments
Goodwill and the trade name indefinite-lived intangible asset are tested separately for impairment annually, during the fourth quarter, or are
evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Frequently our impairment loss calculations contain multiple uncertainties because the calculation requires management to make assumptions and
to apply judgment to estimate future cash flows and asset fair values, including forecasting cash flows under different scenarios. We perform goodwill and
indefinite-lived intangible asset impairment tests on an annual basis and update these annual impairment tests mid-year if events or circumstances occur
that would more likely than not reduce the fair value of a reporting unit or indefinite-lived intangible asset below its carrying amount. If actual results fall
short of our estimates and assumptions used in estimating future cash flows and asset fair values, we may be exposed to future impairment losses that could
be material.
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Goodwill impairment assessments
The Company tests goodwill for impairment using a one-step quantitative test. The quantitative test compares the reporting unit’s fair value to its
carrying value. An impairment is recorded for any excess carrying value above the reporting unit's fair value, not to exceed the amount of goodwill. The
Company estimates fair value of its reporting units using a discounted cash flow model, commonly referred to as the income approach. The income
approach uses a reporting unit's projection of estimated operating results and cash flows that is discounted using a weighted-average cost of capital that
reflects current market conditions appropriate to the Company's reporting unit. The discounted cash flow model uses projections based on 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 include terminal value
growth rates, weighted average cost of capital and changes in future working capital requirements.
In response to the COVID-19 pandemic, during First Quarter 2020 the Company tested its Outfitters and Japan eCommerce reporting units for
goodwill impairment. The testing resulted in no impairment of the Outfitters reporting unit and full impairment of the $3.3 million of goodwill allocated to
the Company’s Japan eCommerce reporting unit. The Company completed its Fiscal 2020 annual goodwill impairment analysis during the fourth fiscal
quarter and determined that the fair value of the U.S. eCommerce and Outfitters reporting units exceeded their carrying values by 61.7% and 108.8%,
respectively. In Fiscal 2019, the fair value of the reporting units exceeded their carrying values and as such, the Company did not record a goodwill
impairment charge.
Goodwill impairment charges may be recognized in future periods to the extent changes in factors or circumstances occur, including deterioration
in the macroeconomic environment, retail industry or in the equity markets, deterioration in our performance or our future projections, or changes in our
plans for the reporting unit.
Indefinite-lived intangible asset impairment assessments
The Company's indefinite-lived intangible asset is the Lands' End trade name. The Company reviews the trade name for impairment on an annual
basis during our fourth fiscal quarter or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The fair
value of the trade name indefinite-lived intangible asset is estimated using the relief-from-royalty valuation method. The relief from royalty method of the
income approach was most appropriate for analyzing the Company's indefinite-lived asset. This method is based on the assumption that, in lieu of
ownership, a firm would be willing to pay a royalty in order to exploit the related benefits of this asset class. The relief from royalty method involves two
steps: (1) estimation of reasonable royalty rates for the assets and (2) the application of these royalty rates to a forecasted net revenue stream and
discounting the resulting cash flows to determine a present value. The Company multiplied the selected royalty rate by the forecasted net revenue stream to
calculate the cost savings (relief from royalty payment) associated with the asset. The cash flows are then discounted to present value using the selected
discount rate and compared to the carrying value of the asset.
In Fiscal 2020 the Company performed the annual testing of the indefinite-lived intangible asset, the Lands’ End trade name. The fair value
exceeded the carrying value by 61.2% and as such, no trade name impairment charges were recorded in Fiscal 2020. The fair value of the Lands’ End trade
name exceeded its carrying value by 19.1% in Fiscal 2019 and as such, no trade name impairment charges were recorded.
See Note 2, Summary of Significant Accounting Policies, and Note 8, Goodwill and Indefinite-Lived Intangible Assets, of the Notes to Consolidated
Financial Statements in this Annual Report on Form 10-K for more information about these assets and the related impairment charges.
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Revenue Recognition
While revenue recognition for the Company does not involve significant judgment, it represents an important accounting policy. For sales shipped
from our distribution centers, we recognize revenue and the related cost of goods sold at the time the products are expected to be received by the customers.
For sales transacted at stores, revenue is recognized when the customer receives and pays for the merchandise at the register. We record an allowance for
estimated returns based on our historical return patterns and various other assumptions that management believes to be reasonable.
We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to calculate our
sales return allowance. However, if the actual rate of sales returns increases significantly, our operating results could be adversely affected. We have not
made any material changes in the accounting methodology used to estimate future sales returns in the past three fiscal years.
Provision for Income taxes
We record a valuation allowance against our deferred tax assets when it is more likely than not that some portion or all of such deferred tax assets
will not be realized. In determining the need for a valuation allowance, management is required to make assumptions and to apply judgment, including
forecasting future income, taxable income and the mix of income or losses in the jurisdictions in which we operate. Our effective tax rate in a given
financial statement period may also be materially impacted by changes in the mix and level of income or losses, changes in the expected outcome of audits,
or changes in the deferred tax valuation allowance.
At any point in time, many tax years are subject to or in the process of being audited by various taxing authorities. To the extent our estimates of
settlements change, or the final tax outcome of these matters is different from the amounts recorded, such differences will impact the income tax provision
in the period in which such determinations are made. Our income tax expense includes changes in our estimated liability for exposures associated with our
various tax filing positions. Determining the income tax expense for these potential assessments requires management to make assumptions that are subject
to factors such as proposed assessments by tax authorities, changes in facts and circumstances, issuance of new regulations, and resolution of tax audits.
The Company performed an evaluation over its deferred tax assets and determined that a valuation allowance is considered necessary. See Note 9, Income
Taxes, for further details on the valuation allowance.
We believe the judgments and estimates discussed above are reasonable. However, if actual results fall short of our estimates or assumptions, we
may be exposed to losses or gains that could be material.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This document contains forward-looking statements. Forward-looking statements reflect our current views with respect to, among other things,
future events and performance. These statements may discuss, among other things, our net sales, gross margin, operating expenses, operating income, net
income, cash flow, financial condition, financings, impairments, expenditures, growth, strategies, plans, achievements, dividends, capital structure,
organizational structure, future store openings, market opportunities and general market and industry conditions. We generally identify forward-looking
statements by words such as “anticipate,” “estimate,” “expect,” “intend,” “project,” “plan,” “predict,” “believe,” “seek,” “continue,” “outlook,” “may,”
“might,” “will,” “should,” “can have,” “likely,” “targeting” or the negative version of these words or comparable words. Forward-looking statements are
based on beliefs and assumptions made by management using currently available information. These statements are only predictions and are not guarantees
of future performance, actions or events. Forward-looking statements are subject to risks and uncertainties. If one or more of these risks or uncertainties
materialize, or if management’s underlying beliefs and assumptions prove to be incorrect, actual results may differ materially from those contemplated by a
forward-looking statement. These risks and uncertainties include those set forth under Item 1A, Risk Factors, in this Annual Report on Form 10-K.
Forward-looking statements speak only as of the date on which they are made. We expressly disclaim any obligation to update or revise any forward-
looking statement, whether as a result of new information, future events or otherwise, except as required by applicable securities laws and regulations.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk inherent in our financial instruments represents the potential loss arising from adverse changes in currency rates. We have not been
materially impacted by fluctuations in foreign currency exchange rates as a significant portion of our business is transacted in United States dollars and is
expected to continue to be transacted in United States dollars or United States dollar-based currencies. As of January 29, 2021, the Company had $29.5
million of cash and cash equivalents denominated in foreign currency, principally in British Pound sterling, Euro and Japanese yen. We do not utilize
financial instruments for trading purposes or hedging and have not used any derivative financial instruments. We do not consider our foreign earnings to be
permanently reinvested.
The Company is subject to interest rate risk with the Current Term Loan Facility and the ABL Facility, as both require the Company to pay interest
on outstanding borrowings at variable rates. Each one percentage point change in interest rates (above the 1% LIBOR floor) associated with the Current
Term Loan Facility would result in a $2.7 million change in our annual cash interest expenses. Assuming our ABL Facility was fully drawn to a principal
amount equal to $275.0 million, each one percentage point change in interest rates (above the 0.75% LIBOR floor) would result in a $2.8 million change in
our annual cash interest expense.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for Fiscal Years Ended January 29, 2021, January 31, 2020 and February 1, 2019
Consolidated Statements of Comprehensive Operations for Fiscal Years Ended January 29, 2021, January 31, 2020 and February 1, 2019
Consolidated Balance Sheets at January 29, 2021 and January 31, 2020
Consolidated Statements of Cash Flows for Fiscal Years Ended January 29, 2021, January 31, 2020 and February 1, 2019
Consolidated Statements of Changes in Stockholders' Equity for Fiscal Years Ended January 29, 2021, January 31, 2020 and February 1, 2019
Notes to Consolidated Financial Statements
44
47
48
49
50
51
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Lands’ End, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Lands’ End, Inc. and subsidiaries (the "Company") as of January 29, 2021 and January
31, 2020, the related consolidated statements of operations, comprehensive operations, cash flows, changes in stockholders’ equity for each of the three
fiscal years in the period ended January 29, 2021, and the related notes (collectively referred to as the “financial statements”). We also have audited the
Company's internal control over financial reporting as of January 29, 2021, based on criteria established in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 29,
2021 and January 31, 2020, and the results of its operations and its cash flows for each of the three fiscal years in the period ended January 29, 2021, in
conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of January 29, 2021, based on criteria established in Internal Control - Integrated Framework
(2013) issued by COSO.
Basis for Opinions
The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company's internal control over
financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control
over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
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Change in Accounting Principle
As discussed in Note 4 to the consolidated financial statements, the Company changed its method of accounting for leases in the year ended January 31,
2020 due to the adoption of ASU No. 2016-02 Leases (Topic 842) using the modified retrospective method.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
Goodwill & Indefinite-Lived Intangible Asset — Refer to Notes 2 and 8 to the financial statements
Critical Audit Matter Description
The Company has goodwill and a trade name that are indefinite-lived intangible assets. As of January 29, 2021, the consolidated carrying value of the
goodwill is $106.7 million, and is associated with the U.S. eCommerce and Outfitters reporting units. The consolidated carrying value of the indefinite
lived trade name is $257.0 million. Goodwill and the indefinite-lived trade name intangible asset are tested separately for impairment on an annual basis
during the fourth fiscal quarter or more frequently whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
The Company estimates fair value of the reporting units using a discounted cash flow model, commonly referred to as the income approach. The fair value
of the trade name indefinite-lived intangible asset is estimated using the relief-from-royalty valuation method. The discounted cash flow model uses
projections based on 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. Other significant estimates and assumptions
include terminal value growth rates, weighted average cost of capital, and changes in future working capital requirements. The relief from royalty valuation
method is based on the assumption that, in lieu of ownership, a firm would be willing to pay a royalty in
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order to exploit the related benefits of this asset class. The relief from royalty method involves two steps: (1) estimation of reasonable royalty rates for the
assets and (2) the application of these royalty rates to a forecasted net revenue stream and discounting the resulting cash flows to determine a present value.
If actual results fall short of the Company's estimates and assumptions used in estimating future cash flows and asset fair values, the Company may be
exposed to losses that could be material.
We identified goodwill and the indefinite-lived intangible asset as a critical audit matter due to the considerable amount of management judgment required
to estimate fair value, especially as it relates to the projection of future operating cash flows, including growth rates in revenues, costs, estimates of future
expected changes in operating margins and selection of the weighted-average cost of capital and royalty rate. Auditing these estimates requires a higher
degree of audit effort including the need to engage specialists to assist with our evaluation of the valuation assumptions used.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the projected future operating cash flows, and the selection of the weighted-average cost of capital for the U.S. eCommerce
and Outfitters reporting units and royalty rate and weighted-average cost of capital for the trade name included the following, among others:
•
•
•
•
We tested the effectiveness of controls over goodwill and the indefinite-lived intangible asset, including those over the projected future
operating cash flows and the selection of the weighted-average cost of capital and royalty rate.
We evaluated the reasonableness of management’s projected future operating cash flows, by comparing to (1) current and historical
performance, (2) external market and industry data, and (3) forecasted information included in Company press releases and internal
communications to management and the Board of Directors as well as performing a sensitivity analysis to understand those judgments made by
management which have the biggest impact on the determination of fair value.
We evaluated the impact of changes in management’s forecasts from the annual measurement date to January 29, 2021.
With the assistance of our fair value specialists, we evaluated management’s judgments as it relates to the selection of the weighted-average
cost of capital, terminal growth rate, royalty rate, and selected valuation methodologies, including testing the underlying source information
and the mathematical accuracy of the calculations by developing a range of independent estimates and comparing those to the rates selected by
management.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
March 25, 2021
We have served as the Company’s auditor since 2012.
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LANDS' END, INC.
Consolidated Statements of Operations
for Fiscal Years Ended January 29, 2021, January 31, 2020 and February 1, 2019
(in thousands except per share data)
REVENUES
Net revenue
Cost of sales (excluding depreciation and amortization)
Gross profit
2020
2019
2018
$
1,427,448 $
821,595
605,853
1,450,201 $
828,309
621,892
1,451,592
835,536
616,056
Selling and administrative
Depreciation and amortization
Other operating expense, net
Total costs and expenses
Operating income
Interest expense
Other expense (income), net
Income before income taxes
Income tax expense (benefit)
NET INCOME
NET INCOME PER COMMON SHARE
ATTRIBUTABLE TO STOCKHOLDERS
Basic:
Diluted:
Basic weighted average common shares outstanding
Diluted weighted average common shares outstanding
518,897
37,343
8,471
564,711
41,142
27,754
796
12,592
1,756
10,836 $
543,962
31,136
1,357
576,455
45,437
25,987
(1,912)
21,362
2,072
19,290 $
0.33 $
0.33 $
0.60 $
0.60 $
32,566
32,652
32,343
32,345
545,590
27,558
309
573,457
42,599
28,909
4,059
9,631
(1,959)
11,590
0.36
0.36
32,190
32,526
$
$
$
See accompanying Notes to Consolidated Financial Statements.
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LANDS' END, INC.
Consolidated Statements of Comprehensive Operations
for Fiscal Years Ended January 29, 2021, January 31, 2020 and February 1, 2019
(in thousands)
NET INCOME
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments
COMPREHENSIVE INCOME
2020
2019
2018
$
10,836
$
19,290
$
11,590
$
1,767
12,603
$
195
19,485
$
(2,591)
8,999
See accompanying Notes to Consolidated Financial Statements.
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(in thousands except per share data)
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Accounts receivable, net
Inventories, net
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use asset
Goodwill
Intangible asset, net
Other assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt
Accounts payable
Lease liability - current
Other current liabilities
Total current liabilities
Long-term borrowings on ABL Facility
Long-term debt, net
Lease liability - long-term
Deferred tax liabilities
Other liabilities
TOTAL LIABILITIES
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, par value $0.01 - authorized: 480,000 shares; issued
and outstanding: 32,614 and 32,382, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
TOTAL STOCKHOLDERS' EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
LANDS' END, INC.
Consolidated Balance Sheets
January 29, 2021
January 31, 2020
$
$
$
$
$
33,933
1,861
37,574
382,106
40,356
495,830
145,288
35,475
106,700
257,000
5,215
1,045,508 $
13,750 $
134,007
5,183
161,982
314,922
25,000
245,632
37,811
47,346
5,094
675,805
326
369,372
11,226
(11,221)
369,703
1,045,508 $
77,148
2,149
50,953
375,670
39,458
545,378
157,665
38,665
110,000
257,000
4,921
1,113,629
5,150
158,436
5,864
114,116
283,566
—
378,657
39,841
57,651
5,532
765,247
324
360,656
390
(12,988)
348,382
1,113,629
See accompanying Notes to Consolidated Financial Statements.
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LANDS' END, INC.
Consolidated Statements of Cash Flows
for Fiscal Years Ended January 29, 2021, January 31, 2020 and February 1, 2019
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization
Amortization of debt issuance costs
Loss (gain) on disposal of property and equipment
Stock-based compensation
Deferred income taxes
Goodwill impairment
Other
Change in operating assets and liabilities:
Accounts receivable, net
Inventories
Accounts payable
Other operating assets
Other operating liabilities
Net cash provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Sales of property and equipment
Purchases of property and equipment
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from borrowings under ABL Facility
Payments of borrowings under ABL Facility
Proceeds from issuance of term loan
Payments on term loan
Payments of employee withholding taxes on
share-based compensation
Payment of debt issuance costs
Net cash used in financing activities
Effects of exchange rate changes on cash, cash equivalents
and restricted cash
NET DECREASE IN CASH, CASH EQUIVALENTS AND
RESTRICTED CASH
CASH, CASH EQUIVALENTS AND RESTRICTED CASH,
BEGINNING OF YEAR
CASH, CASH EQUIVALENTS AND RESTRICTED CASH,
END OF YEAR
SUPPLEMENTAL CASH FLOW DATA
Unpaid liability to acquire property and equipment
Income taxes paid, net of refunds
Interest paid
2020
2019
2018
$
10,836 $
19,290 $
11,590
37,343
3,110
1,303
9,201
(10,770)
3,300
1,852
15,012
(4,081)
(21,208)
(376)
46,111
91,633
—
(30,149)
(30,149)
235,000
(210,000)
266,750
(388,825)
(483)
(5,517)
(103,075)
(1,912)
(43,503)
31,136
1,722
(266)
8,690
(456)
—
1,635
(13,741)
(53,819)
32,716
(3,167)
3,549
27,289
906
(38,878)
(37,972)
99,550
(99,550)
—
(105,150)
(763)
—
(105,913)
540
27,558
1,755
278
6,161
223
—
—
14,675
7,773
(29,433)
3,149
4,471
48,200
456
(44,852)
(44,396)
—
—
—
(5,150)
(603)
—
(5,753)
(635)
(116,056)
(2,584)
79,297
195,353
197,937
35,794 $
79,297 $
195,353
3,245 $
288 $
21,595 $
7,364 $
3,069 $
23,728 $
5,521
1,221
27,243
$
$
$
$
See accompanying Notes to Consolidated Financial Statements.
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(in thousands)
Balance at February 2, 2018
Net income
Cumulative translation adjustment,
net of tax
Change in accounting principle
related to revenue recognition
Stock-based compensation expense
Vesting of restricted shares
Restricted stock shares surrendered
for taxes
Balance at February 1, 2019
Net income
Cumulative translation adjustment,
net of tax
Change in accounting principle
related to lease accounting, net of tax
Stock-based compensation expense
Vesting of restricted shares
Restricted stock shares surrendered
for taxes
Balance at January 31, 2020
Net income
Cumulative translation adjustment,
net of tax
Stock-based compensation expense
Vesting of restricted shares
Restricted stock shares surrendered
for taxes
Balance at January 29, 2021
LANDS' END, INC.
Consolidated Statements of Changes in Stockholders' Equity
Common Stock Issued
Shares
Amount
Additional
Paid-in
Capital
(Accumulated
Deficit) /
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Total
Stockholders'
Equity
32,102 $
—
320 $
—
347,175 $
—
(29,810) $
11,590
(10,592) $
—
307,093
11,590
—
—
—
151
(33)
32,220
—
—
—
—
210
(48)
32,382
—
—
—
299
—
—
—
—
—
320
—
—
—
—
4
—
324
—
—
—
2
—
—
(2,591)
(2,591)
—
6,161
—
1,061
—
—
—
—
—
1,061
6,161
—
(603)
352,733
—
—
(17,159)
19,290
—
(13,183)
—
(603)
322,711
19,290
—
—
195
195
—
8,690
(4)
(763)
360,656
—
—
9,201
(2)
(1,741)
—
—
—
390
10,836
—
—
—
—
—
—
—
(12,988)
—
1,767
—
—
(1,741)
8,690
—
(763)
348,382
10,836
1,767
9,201
—
(67)
32,614 $
—
326 $
(483)
369,372 $
—
11,226 $
—
(11,221) $
(483)
369,703
See accompanying Notes to Consolidated Financial Statements.
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LANDS’ END, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BACKGROUND AND BASIS OF PRESENTATION
Description of Business
Lands' End, Inc. ("Lands' End" or the "Company") is a leading uni-channel retailer of casual clothing, accessories, footwear and home products.
Lands' End offers products online at www.landsend.com, on third-party online marketplaces and through retail locations.
Terms that are commonly used in the Company's Notes to the Consolidated Financial Statements are defined as follows:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
ABL Facility - Asset-based senior secured credit agreements, dated as of November 16, 2017, with Wells Fargo, 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
ASU - Financial Accounting Standards Board Accounting Standards Update
CARES Act – The Coronavirus Aid, Relief and Economic Security Act signed into law on March 27, 2020
Current Term Loan Facility – Term loan credit agreement, dated as of September 9, 2020, among the Company, the Fortress Credit Corp.,
as Administrative Agent and Collateral Agent, and the lenders party thereto
Debt Facilities - Collectively, the ABL Facility and Current Term Loan Facility
Deferred Awards - Time vesting stock awards
EPS - Earnings per share
ERP - Enterprise resource planning software solutions
ESL - ESL Investments, Inc. and its investment affiliates, including Edward S. Lampert
FASB - Financial Accounting Standards Board
First Quarter 2020 - The 13 weeks ended May 1, 2020
Fiscal 2020 – The 52 weeks ended January 29, 2021
Fiscal 2021 – The Company’s next fiscal year representing the 52 weeks ending January 28, 2022
Former Term Loan Facility - Term loan credit agreement, dated as of April 4, 2014, with Bank of America, N.A. and certain other lenders,
and replaced by the Current Term Loan Facility on September 9, 2020
Fourth Quarter 2020 – The 13 weeks ended January 29, 2021
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
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•
•
•
•
•
•
•
•
•
Sears Holdings - Sears Holdings Corporation, a Delaware corporation, and its consolidated subsidiaries
Sears Roebuck - Sears, Roebuck and Co., a subsidiary of Sears Holdings
SEC - United States Securities and Exchange Commission
Second Quarter 2020 – The 13 weeks ended July 31, 2020
Separation - On April 4, 2014 Sears Holdings distributed 100% of the outstanding common stock of Lands' End to its shareholders
Tax Act - The Tax Cuts and Jobs Act passed by the United States government on December 22, 2017
Third Quarter 2020 – The 13 weeks ended October 30, 2020
Transform Holdco - Transform Holdco LLC, an affiliate of ESL, which on February 11, 2019 acquired from Sears Holdings substantially
all of the go-forward retail footprint and other assets and component businesses of Sears Holdings as a going concern
UTBs - Gross unrecognized tax benefits
Basis of Presentation
The Consolidated Financial Statements include the accounts of Lands' End, Inc. and its subsidiaries. All intercompany transactions and balances
have been eliminated.
The accompanying Consolidated Financial Statements have been prepared in accordance with GAAP. In the opinion of management, all material
adjustments are of a normal and recurring nature necessary for a fair presentation of the results have been reflected for the periods presented. Dollar
amounts are reported in thousands, except per share data, unless otherwise noted.
Impact of the COVID-19 Pandemic
A novel strain of coronavirus (“COVID-19”) surfaced in late 2019 and in March 2020, the World Health Organization declared COVID-19 a
pandemic.
Health and Safety of Employees and Consumers
From the beginning of the COVID-19 pandemic, the Company’s priority has been the safety of employees and customers. On March 16, 2020, the
Company temporarily closed its 26 U.S. stores. These stores reopened during Second Quarter 2020. Additionally, the Company opened four new stores in
Second Quarter 2020 and one new store in Third Quarter 2020. These new Company Operated stores were already planned and construction underway
prior to the start of the COVID-19 pandemic. In response to the COVID-19 pandemic, the Company has implemented extra precautions in its Company
Operated stores, offices and distribution centers. These precautions were developed in line with guidance from global, federal and state health authorities,
including work from home policies, social distancing, thermal scanning and partitions in all facilities.
Customer Demand
The eCommerce channel experienced a decline in customer demand in First Quarter 2020, which rebounded in Second Quarter 2020 and continued
to be strong the remainder of the year. Consequently, Fiscal 2020 eCommerce revenue has increased compared to prior year. Fiscal 2020 revenue in the
Outfitters and Retail channels is lower than Fiscal 2019 due to the reduction in customer demand caused by the COVID-19 pandemic. Retail revenue also
declined due to lengthy store closures. The ultimate timing and impact of customer demand levels will depend on the duration and scope of the COVID-19
pandemic, overall economic conditions and consumer preferences.
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Supply Chain
The Company has not experienced significant supply chain disruptions related to the COVID-19 pandemic. The Company continues to place a
priority on business continuity and contingency planning. The Company may experience disruptions in the supply chain as the COVID-19 pandemic
continues, though the Company cannot reasonably estimate the potential impact or timing of those events, and the Company may not be able to mitigate
such impact.
Expense Reduction
Beginning in First Quarter 2020, the Company took the following actions to reduce overall expenses as a response to decreased customer demand
due to the COVID-19 pandemic:
•
•
•
•
•
•
Temporarily reduced base salaries, including a reduction of 50% in the base salary of its Chief Executive Officer, 20% reductions in
the base salaries of the Company’s other senior management members and scaled salary reductions throughout the Company. All
salaries were reinstated during Third Quarter 2020.
Furlough of approximately 70% of corporate employees from March 28, 2020 to April 13, 2020. As work demand increased the
remaining workforce returned to work on an as needed basis with all work furloughs ending by mid-Second Quarter 2020. When the
Company Operated stores temporarily closed nearly 100% of Company Operated store employees were furloughed until reopening.
Fiscal 2020 merit increases were eliminated.
The Board of Directors compensation was temporarily reduced. This compensation was reinstated in Third Quarter 2020.
The Company's 401(k) matching contribution was temporarily suspended from April 16, 2020 until January 30, 2021.
Other discretionary operating expenses were significantly reduced.
In response to the COVID-19 pandemic, the Company’s planned capital expenditures for Fiscal 2020 were significantly reduced.
Goodwill and Indefinite-Lived Intangible Asset
The Company considered the COVID-19 pandemic to be a triggering event in First Quarter 2020 for the Company’s Outfitters and Japan
eCommerce reporting units and therefore completed an interim test for impairment of goodwill for these reporting units as of May 1, 2020. This testing
resulted in no impairment of the Company’s Outfitters reporting unit and full impairment of the $3.3 million of goodwill allocated to the Company’s Japan
eCommerce reporting unit recorded in the First Quarter 2020. There was not a triggering event or impairment charge for any reporting unit in the remainder
of Fiscal 2020.
Corporate Restructuring
The Company reduced approximately 10% of corporate positions during the Second Quarter 2020. The Company incurred total severance costs
of approximately $2.9 million related to the reduction of corporate positions which was recorded in Other operating expense (income), net in the
Consolidated Statements of Operations. As of January 29, 2021, approximately $0.2 million of the severance costs had yet to be paid. In Fiscal
2019, the Company closed five school uniform showrooms.
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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal year end is on the Friday preceding the Saturday closest to January 31 each year. The fiscal periods in this report are
presented as follows, unless the context otherwise requires:
Fiscal Year
2020
2019
2018
Ended
January 29, 2021
January 31, 2020
February 1, 2019
Weeks
52
52
52
Seasonality
The Company's operations have historically been seasonal, with a disproportionate amount of net revenue occurring in the fourth fiscal quarter,
reflecting increased customer demand during the year-end holiday selling season. The impact of seasonality on results of operations is more pronounced
since the level of certain fixed costs, such as occupancy and overhead expenses, do not vary with sales. The Company's results of operations also may
fluctuate based upon such factors as the timing of certain holiday seasons and promotions, the amount of net revenue contributed by new and existing
stores, the timing and level of markdowns, competitive factors, weather and general economic conditions.
Working capital requirements typically increase during the second and third quarters of the fiscal year as inventory builds to support peak
shipping/selling periods and, accordingly, typically decrease during the fourth quarter of the fiscal year as inventory is shipped/sold. Cash provided by
operating activities is typically higher in the fourth quarter of the fiscal year due to reduced working capital requirements during that period.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the
reportable amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported
amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents consist of highly liquid temporary instruments purchased with original maturities of three months or less. It also includes
deposits in-transit from banks for payments related to third-party credit card and debit card transactions.
Restricted cash
The Company classifies cash balances pledged as collateral as Restricted cash on the Consolidated Balance Sheets.
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Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based on historical loss experience, collection experience, delinquency trends,
economic conditions and specific identification. The Accounts receivable balance on the Consolidated Balance Sheets is presented net of the Company's
allowance for doubtful accounts and is comprised of various customer-related accounts receivable.
Changes in the balance of the allowance for doubtful accounts are as follows:
(in thousands)
Beginning balance
Provision
Write-offs
Ending balance
Inventory
Fiscal 2020
Fiscal 2019
511 $
286
(117)
680 $
542
151
(182)
511
$
$
Inventories primarily consist of merchandise purchased for resale. For financial reporting and tax purposes, the Company's United States inventory,
primarily merchandise held for sale, is stated at last-in, first-out ("LIFO") cost, which is lower than net realizable value. The Company accounts for its non-
United States inventory on the first-in, first-out ("FIFO") method. The United States inventory accounted for using the LIFO method was 87% of total
inventory as of January 29, 2021 and 90% as of January 31, 2020. If the FIFO method of accounting for inventory had been used, the effect on inventory
would have been an increase of $0.2 million and $0.9 million as of January 29, 2021 and January 31, 2020, respectively.
The Company maintains a reserve for excess and obsolete inventory. The reserve is calculated based on historical experience related to
liquidation/disposal of identified inventory. The excess and obsolescence reserve balances were $22.8 million and $11.0 million as of January 29, 2021 and
January 31, 2020, respectively. The $11.8 million increase in the excess and obsolescence reserve is primarily due to the Company’s limited ability
throughout the COVID-19 pandemic to sell through returned embroidered, hemmed or damaged product compared to prior years.
Deferred Catalog Costs and Marketing
Costs incurred for direct response marketing consist primarily of catalog production and mailing costs that are generally amortized within two
months from the date catalogs are mailed. Unamortized marketing costs reported as prepaid assets were $10.2 million and $14.7 million as of January 29,
2021 and January 31, 2020, respectively. The Company expenses the costs of marketing for website, magazine, newspaper, radio and other general media
when the marketing takes place. Marketing expenses, including catalog costs amortization, website-related costs and other print media were $195.4 million,
$194.9 million and $186.9 million for Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively. These costs are included within Selling and administrative
expenses in the accompanying Consolidated Statements of Operations.
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Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Additions and substantial improvements are capitalized and include
expenditures that materially extend the useful lives of existing facilities and equipment. Maintenance and repairs that do not materially improve or extend
the lives of the respective assets are expensed as incurred. As of the balance sheet dates, Property and equipment, net consisted of the following:
(in thousands)
Land
Buildings and improvements
Furniture, fixtures and equipment
Computer hardware and software
Leasehold improvements
Construction in progress
Gross property and equipment
Accumulated depreciation
Total property and equipment, net
Asset Lives
(years)
-
15-30
3-10
3-10
3-7
January 29,
2021
January 31,
2020
$
$
3,475 $
101,421
61,807
210,823
12,941
8,343
398,810
(253,522)
145,288 $
3,459
100,269
59,731
181,160
8,423
22,796
375,838
(218,173)
157,665
As of both January 29, 2021 and January 31, 2020, assets in development relate primarily to technological investments.
Depreciation expense is recorded over the estimated useful lives of the respective assets using the straight-line method. Leasehold improvements
are depreciated over the shorter of the associated lease term or the estimated useful life of the asset. Depreciation expense was $37.3 million, $31.1 million
and $27.6 million for Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively.
Impairment of Property and Equipment
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. Company Operated store long-lived assets, including 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. During Fiscal 2020 an impairment of $0.4 million was recognized for property and
equipment in one Company Operated store location. During Fiscal 2019 an impairment of $1.4 million was recognized for property and equipment in two
Company Operated store locations. There was $0.3 million of impairments of property and equipment recognized in Fiscal 2018.
Goodwill and Indefinite-lived Intangible Asset Impairment Assessments
Goodwill and the indefinite-lived trade name intangible asset are tested separately for impairment on an annual basis or whenever events or
changes in circumstances indicate that the carrying amount may not be recoverable.
Frequently, impairment assessments contain multiple uncertainties because the calculation requires management to make assumptions and to apply
judgment to estimate future cash flows and asset fair values, including forecasting cash flows under different scenarios. The Company performs goodwill
and indefinite-lived intangible asset impairment tests on an annual basis and updates these annual impairment tests mid-year if events or circumstances
occur that would more likely than not reduce the fair value of a reporting unit or indefinite-lived intangible asset below its carrying amount. If actual results
fall short of the Company’s estimates and assumptions
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used in estimating future cash flows and asset fair values, the Company may be exposed to future impairment losses that could be material.
Goodwill impairment assessments
The Company tests goodwill for impairment using a one-step quantitative test. The quantitative test compares the reporting unit's fair value to its
carrying value. An impairment is recorded for any excess carrying value above the reporting unit’s fair value, not to exceed the amount of goodwill. The
Company estimates fair value of its reporting units using a discounted cash flow model, commonly referred to as the income approach. The income
approach uses a reporting unit's projection of estimated operating results and cash flows that is discounted using a weighted-average cost of capital that
reflects current market conditions appropriate to the Company's reporting unit. The discounted cash flow model uses 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 include terminal value growth rates,
weighted average cost of capital and changes in future working capital requirements.
In response to the COVID-19 pandemic, during First Quarter 2020 the Company tested its Outfitters and Japan eCommerce reporting units for
goodwill impairment. The testing resulted in no impairment of the Company’s Outfitters reporting unit and full impairment of the $3.3 million of goodwill
allocated to the Company’s Japan eCommerce reporting unit. At the end of Fiscal 2020, the fair value of the U.S. eCommerce and Outfitters reporting units
exceeded the carrying value by 61.7% and 108.8%, respectively. In Fiscal 2019, the fair value of the reporting units exceeded their carrying value and as
such, the Company did not record a goodwill impairment charge.
Goodwill impairment charges may be recognized in future periods to the extent changes in factors or circumstances occur, including deterioration
in the macroeconomic environment, retail industry or in the equity markets, deterioration in performance or future projections, or changes in plans for the
reporting unit.
Indefinite-lived intangible asset impairment assessments
The Company's indefinite-lived intangible asset is the Lands' End trade name. The Company reviews the trade name for impairment on an annual
basis during the fourth fiscal quarter, or whenever events or changes in circumstances indicate the carrying value may not be recoverable. The fair value of
the trade name indefinite-lived intangible asset is estimated using the relief from royalty method. The relief from royalty method is based on the
assumption that, in lieu of ownership, a firm would be willing to pay a royalty in order to exploit the related benefits of this asset class. The relief from
royalty method involves two steps: (1) estimation of reasonable royalty rates for the assets and (2) the application of these royalty rates to a forecasted net
revenue stream and discounting the resulting cash flows to determine a present value. The Company multiplied the selected royalty rate by the forecasted
net revenue stream to calculate the cost savings (relief from royalty payment) associated with the asset. The cash flows are then discounted to present value
using the selected discount rate and compared to the carrying value of the asset.
In Fiscal 2020, Fiscal 2019, and Fiscal 2018, the Company tested the indefinite-lived intangible asset as required resulting in the fair value
exceeding the carrying value by 61.2%, 19.1% and 45.1% respectively. As such, no trade name impairment charges were recorded in all periods
presented.
Financial Instruments with Off-Balance-Sheet Risk
In Fiscal 2020, the Company exercised the “accordion” feature under the ABL Facility increasing the maximum borrowings available under the
facility from $175 million to $275 million, subject to a borrowing base. This was completed in two transactions. The first was a $25 million increase
effective March 19, 2020 and the second was a $75 million increase effective September 9, 2020. The latter completed through the Second Amendment to
the ABL Facility executed on August 12, 2020. The ABL Facility has a letter of credit sublimit of $70.0 million and matures on November 16, 2022,
subject to customary extension provisions provided for therein.
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The revolving ABL Facility is available for working capital and other general corporate liquidity needs. The balance outstanding on January 29, 2021 was
$25 million. There was no balance outstanding as of January 31, 2020. The balance of outstanding letters of credit was $27.1 million and $23.3 million on
January 29, 2021 and January 31, 2020, respectively.
Fair Value of Financial Instruments
The Company determines the fair value of financial instruments in accordance with accounting standards pertaining to fair value measurements.
Such standards define fair value and establish a framework for measuring fair value in accordance with GAAP. Under fair value measurement accounting
standards, fair value is considered to be the exchange price in an orderly transaction between market participants to sell an asset or transfer a liability at the
measurement date. The Company reports or discloses the fair value of financial assets and liabilities based on the fair value hierarchy prescribed by
accounting standards for fair value measurements, which prioritizes the inputs to valuation techniques used to measure fair value into three levels.
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of accounts receivable. Total accounts
receivable was $37.6 million and $51.0 million as of January 29, 2021 and January 31, 2020, respectively.
Cash and cash equivalents, accounts receivable, accounts payable and other current liabilities are reflected in the Consolidated Balance Sheets at
cost, which approximates fair value due to the short-term nature of these instruments.
Long-term debt, net is reflected in the Consolidated Balance Sheets at amortized cost. The fair value of debt was determined utilizing Level 3
valuation techniques based on observed market data on January 29, 2021. The fair value of debt on January 31, 2020 was determined utilizing Level 2
valuation techniques based on the closing inactive market bill price on January 31, 2020. See Note 7, Fair Value of Financial Assets and Liabilities.
Foreign Currency Translations and Transactions
The Company translates the assets and liabilities of foreign subsidiaries from their respective functional currencies to United States dollars at the
appropriate spot rates as of the balance sheet date. Revenue and expenses of operations are translated to United States dollars using weighted average
exchange rates during the year. The foreign subsidiaries use the local currency as their functional currency. The effects of foreign currency translation
adjustments are included as a component of Accumulated other comprehensive loss in the accompanying Consolidated Statements of Changes in
Stockholders' Equity. The Company recognized a foreign exchange transaction gain of $3.4 million in Fiscal 2020, a loss of $3.4 million in Fiscal 2019 and
an insignificant gain in Fiscal 2018. These are recorded in either Cost of sales (excluding depreciation and amortization) or Selling and administrative in
the accompanying Consolidated Statements of Operations based on the underlying nature of the transactions giving rise to the gain or loss.
Revenue Recognition
Revenue includes sales of merchandise and delivery revenue related to merchandise sold. Substantially all of the Company's revenue is recognized
when control of product passes to customers, which for the eCommerce and Outfitters channels is when the merchandise is expected to be received by the
customer and for the Retail channel is at the time of sale in the store. The Company recognizes revenue, including shipping and handling fees billed to
customers, in the amount expected to be received when control of the Company's products transfers to customers, and is presented net of various forms of
promotions, which range from contractually-fixed percentage price reductions to sales returns, discounts, and other incentives that may vary in amount.
Variable amounts are estimated based on an analysis of historical experience and adjusted as better estimates become available. The Company's revenue is
disaggregated by channel and geographic location.
The Company excludes from revenue, taxes assessed by governmental authorities, including value-added and other sales-related taxes, that are
imposed on and concurrent with revenue-producing activities.
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Contract Liabilities
Contract liabilities consist of payments received in advance of the transfer of control to the customer. As products are delivered and control
transfers, the Company recognizes the deferred revenue in Net revenue in the Consolidated Statements of Operations. The following table summarizes the
deferred revenue associated with payments received in advance of the transfer of control to the customer reported in Other current liabilities in the
Consolidated Balance Sheets and amounts recognized through Net revenue for each period presented. The majority of deferred revenue as of January 29,
2021 is expected to be recognized in Net revenue in the fiscal quarter ending April 30, 2021, as products are delivered to customers.
(in thousands)
Deferred revenue beginning of period
Deferred revenue recognized in period
Revenue deferred in period
Deferred revenue end of period
Fiscal 2020
Fiscal 2019
$
$
8,096 $
(7,882)
16,973
17,187 $
9,051
(9,051)
8,096
8,096
Revenue from gift cards is recognized when (i) the gift card is redeemed by the customer for merchandise, or (ii) as gift card breakage, an estimate
of gift cards which will not be redeemed where the Company does not have a legal obligation to remit the value of the unredeemed gift cards to the relevant
jurisdictions. Gift card breakage is recorded within Net revenue in the Consolidated Statements of Operations. Prior to their redemption, gift cards are
recorded as a liability, included within Other current liabilities in the Consolidated Balance Sheets. The liability is estimated based on expected breakage
that considers historical patterns of redemption. The following table provides the reconciliation of the contract liability related to gift cards:
(in thousands)
Balance as of beginning of period
Gift cards sold
Gift cards redeemed
Gift card breakage
Balance as of end of period
Refund Liabilities
Fiscal 2020
Fiscal 2019
22,592 $
52,315
(47,061)
(1,048)
26,798 $
18,191
65,662
(60,043)
(1,218)
22,592
$
$
Refund liabilities, primarily associated with product sales returns and retrospective volume rebates, represent variable consideration and are
estimated and recorded as a reduction to Net revenue based on historical experience. As of January 29, 2021 and January 31, 2020, $25.7 million and $21.6
million, respectively, of refund liabilities, primarily associated with product returns, were reported in Other current liabilities in the Consolidated Balance
Sheets.
Cost of Sales
Cost of sales are comprised principally of the costs of merchandise, in-bound freight, duty, warehousing and distribution (including receiving,
picking, packing, store delivery and value added costs), customer shipping and handling costs and physical inventory losses. Depreciation and amortization
are not included in the Company's Cost of sales.
Selling and Administrative Expenses
Selling and administrative expenses are comprised principally of payroll and benefits costs, marketing, information technology expenses, third-
party services, occupancy costs of Company Operated stores and corporate facilities, and other administrative expenses. All stock-based compensation is
recorded in Selling and administrative expenses. See Note 5, Stock-Based Compensation.
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Income Taxes
Deferred income tax assets and liabilities are based on the estimated future tax effects of differences between the financial and tax basis of assets
and liabilities based on currently enacted tax laws. The tax balances and income tax expense recognized are based on management's interpretation of the
tax laws of multiple jurisdictions. Income tax expense also reflects best estimates and assumptions regarding, among other things, the level of future
taxable income and tax planning. Future changes in tax laws, changes in projected levels of taxable income, tax planning and adoption and implementation
of new accounting standards could impact the effective tax rate and tax balances recorded.
Tax positions are recognized when they are more likely than not to be sustained upon examination. The amount recognized is measured as the
largest amount of benefit that is more likely than not to be realized upon settlement. The Company is subject to periodic audits by the United States Internal
Revenue Service and other state and local taxing authorities. These audits may challenge certain of the Company's tax positions such as the timing and
amount of income and deductions and the allocation of taxable income to various tax jurisdictions. The Company evaluates its tax positions and establishes
liabilities in accordance with the applicable accounting guidance on uncertainty in income taxes. These tax uncertainties are reviewed as facts and
circumstances change and are adjusted accordingly. This requires significant management judgment in estimating final outcomes. Interest and penalties are
classified as Income tax expense in the Consolidated Statements of Operations. See Note 9, Income Taxes, for further details.
The Company performed an evaluation over its deferred tax assets and determined that a valuation allowance is considered necessary for certain
jurisdictions. See Note 9, Income Taxes, for further details on the valuation allowance.
Self-Insurance
The Company has a self-insured plan for health and welfare benefits and provides an accrual to cover the obligation. The accrual for the self-
insured liability is based on claims filed and an estimate of claims incurred but not yet reported. The Company considers a number of factors, including
historical claims information, when determining the amount of the accrual. Costs related to the administration of the plan and related claims are expensed
as incurred. Total expenses, net of employee contributions, were $17.1 million, $17.4 million and $17.1 million for Fiscal 2020, Fiscal 2019 and Fiscal
2018, respectively.
The Company also has a self-insured plan for certain costs related to workers' compensation. The Company obtains third-party insurance coverage
to limit exposure to this self-insured risk.
Retirement Benefit Plan
The Company has a 401(k) retirement plan, which covers most regular employees and allows them to make contributions. The Company also
provides a matching contribution on a portion of the employee contributions. Total expenses incurred under this plan were $0.7 million, $3.6 million and
$3.5 million for Fiscal 2020, Fiscal 2019 and Fiscal 2018, respectively. The decrease in Fiscal 2020 was attributed to the temporary suspension of the
Company’s 401(k) matching contribution as part of the expense reductions in response to the COVID-19 pandemic.
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Other Comprehensive Income (Loss)
Other comprehensive income (loss) encompasses all changes in equity other than those arising from transactions with stockholders and is
comprised solely of foreign currency translation adjustments and net income (loss).
Beginning balance: Accumulated other comprehensive loss (net of tax
of $3,453, $3,505 and $2,816, respectively)
Other comprehensive income (loss)
Foreign currency translation adjustments (net of tax of $(466),
$(52) and $689, respectively)
Ending Balance: Accumulated other comprehensive loss (net of tax of
$2,987, $3,453 and $3,505, respectively)
Fiscal 2020
Fiscal 2019
Fiscal 2018
$
(12,988) $
(13,183) $
(10,592)
1,767
195
(2,591)
$
(11,221) $
(12,988) $
(13,183)
Stock-Based Compensation
Stock-based compensation expense for restricted stock units is determined based on the grant date fair value. The fair value is determined based on
the Company's stock price on the date of the grant. The Company recognizes stock-based compensation cost net of estimated forfeitures and revises the
estimates in subsequent periods if actual forfeitures differ from the estimates. The Company estimates the forfeiture rate based on historical data as well as
expected future behavior. Stock-based compensation is recorded in Selling and administrative expense in the Consolidated Statements of Operations over
the period in which the employee is required to provide service in exchange for the restricted stock units.
Stock option awards ("Option Awards") provide the recipient with the option to purchase a set number of shares at a stated exercise price over the
term of the contract, which is ten years for all Option Awards currently outstanding. Options are granted with a strike price equal to the stock price on the
date of grant and vest ratably over a four-year period.
Earnings per Share
The numerator for both basic and diluted EPS is net income attributable to the Company. The denominator for basic EPS is based upon the number
of weighted average shares of the Company’s common stock outstanding during the reporting periods. The denominator for diluted EPS is based upon the
number of weighted average shares of the Company’s common stock and common stock equivalents outstanding during the reporting periods using the
treasury stock method in accordance with ASC 260, Earnings Per Share.
The following table summarizes the components of basic and diluted EPS:
(in thousands)
Net income
Basic weighted average shares outstanding
Dilutive impact of stock awards
Diluted weighted average shares outstanding
Basic earnings per share
Dilutive earnings per share
Fiscal 2020
Fiscal 2019
Fiscal 2018
$
$
$
10,836 $
32,566
86
32,652
0.33 $
0.33 $
19,290 $
32,343
2
32,345
0.60 $
0.60 $
11,590
32,190
336
32,526
0.36
0.36
Stock awards are considered anti-dilutive based on the application of the treasury stock method or in the event of a net loss. There were 1,093,274,
745,575 and 438,583 anti-dilutive shares excluded from the diluted weighted average shares outstanding in Fiscal 2020, Fiscal 2019 and Fiscal 2018,
respectively.
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Recently Adopted Accounting Pronouncements
In April 2020, the FASB issued Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic,
indicating that entities may elect not to evaluate whether a concession provided by lessors is a lease modification. Under existing lease guidance, an entity
would have to determine if a lease concession was the result of a new arrangement reached with the landlord, which would be accounted for under the lease
modification framework, or if the concession was under the enforceable rights and obligations that existed in the original lease, which would be accounted
for outside the lease modification framework. The FASB guidance provides entities with the option to elect to account for lease concessions as though the
enforceable rights and obligations existed in the original lease.
During Second Quarter 2020 and Third Quarter 2020 as a result of the COVID-19 pandemic, the Company negotiated certain lease concessions
with respect to some of its Company Operated stores and continues to negotiate with landlords for other leased properties. The Company elected the
FASB’s relief to not evaluate whether the enforceable rights and obligations existed in the original lease. The related impact of the concessions did not have
a material impact on the Company’s Consolidated Financial Statements for the year ended January 29, 2021.
In June 2016, the FASB issued ASU 2016-13, Financial Statements - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, which requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a
broader range of reasonable and supportable information to inform credit loss estimates relating to trade receivables, loans and other financial instruments.
The standard is effective for fiscal years beginning after December 15, 2019. The Company adopted this accounting standard in First Quarter 2020. There
was no material impact on the Company's Consolidated Financial Statements and related disclosures as a result of adoption.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure
Requirements for Fair Value Measurement which modifies and adds certain disclosure requirements in Topic 820 “Fair Value Measurement”. The standard
eliminates certain disclosures related to transfers and the valuation process, modifies disclosures for investments that are valued based on net asset values,
clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level 3 fair value measurements. The standard is effective for
fiscal years beginning after December 15, 2019, including interim periods therein. The Company adopted this standard in First Quarter 2020 and the
adoption did not have a material impact on the Company’s Consolidated Financial Statements and related disclosures.
In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s
Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. The amendments in the standard align the
requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing
implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The
Company adopted this standard on a prospective basis in First Quarter 2020 and the adoption did not have a material impact on the Company’s
Consolidated Financial Statements and related disclosures.
Recently Issued Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to
simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and by clarifying and amending existing
guidance to improve consistent application. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2020. Early adoption is permitted. Certain amendments within this ASU are required to be applied on a retrospective basis, certain other amendments
are required to be applied on a modified retrospective basis and all other amendments on a prospective basis. The Company is currently evaluating the
impact the adoption of this standard will have on its Consolidated Financial Statements.
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NOTE 3. DEBT
Debt Arrangements
In Fiscal 2020, the Company exercised the “accordion” feature under the ABL Facility increasing the maximum borrowings available under the
facility from $175 million to $275 million, subject to a borrowing base (the “Loan Cap”). This was completed in two transactions. The first was a $25
million increase effective March 19, 2020 and the second was a $75 million increase effective September 9, 2020. The latter completed through the Second
Amendment to the ABL Facility executed on August 12, 2020. The revolving ABL Facility has a letter of credit sublimit of $70.0 million and matures on
November 16, 2022, subject to customary extension provisions provided for therein, and is available for working capital and other general corporate
liquidity needs. The balance outstanding on January 29, 2021 was $25 million. There was no balance outstanding as of January 31, 2020. The balance of
outstanding letters of credit was $27.1 million and $23.3 million on January 29, 2021 and January 31, 2020, respectively.
On September 9, 2020, the Company entered into the Current Term Loan Facility which provides a term loan facility of $275 million, the proceeds
of which were used, along with borrowings of $125 million under the Company’s revolving ABL Facility, to repay all of the indebtedness under the Former
Term Loan Credit Facility and to pay fees and expenses in connection with the financing. Origination costs, including an Original Issue Discount (“OID”)
of 3% and $5.0 million in debt origination fees, were paid upon entering into the Current Term Loan Facility. The OID and the debt origination fees are
presented as a direct deduction from the carrying value of the Current Term Loan Facility and are amortized over the term of the loan to Interest expense in
the Consolidated Statements of Operations.
The Company's term loan debt and interest rates as of January 29, 2021 and January 31, 2020 consisted of the following:
(in thousands)
Former Term Loan Facility
Current Term Loan Facility, maturing September 9, 2025
Less: current maturities
Less: unamortized debt issuance costs
Long-term debt, net
January 29, 2021
January 31, 2020
Amount
Interest Rate
Amount
Interest Rate
$
$
$
—
271,563
271,563
13,750
12,181
245,632
—% $
10.75%
$
385,388
—
385,388
5,150
1,581
378,657
5.05%
—%
The following table summarizes the Company's borrowing availability under the ABL Facility:
(in thousands)
ABL Facility maximum borrowing
Less: Outstanding borrowings
Less: Outstanding letters of credit
Borrowing availability under ABL
Facility
$
$
January 29, 2021
January 31, 2020
Interest
Rate
$
3.00%
Amount
Interest
Rate
175,000
—
23,299
—%
$
151,701
Amount
275,000
25,000
27,131
222,869
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Interest; Fees
The interest rates per annum applicable to the loans under the Current Term Loan Facility are based on a fluctuating rate of interest measured by
reference to, at the borrower’s election, either (1) an adjusted LIBOR (with a minimum rate of 1%) plus 9.75%, or (2) an alternative base rate (which is the
greater of (i) the prime rate published in the Wall Street Journal, (ii) the federal funds rate, which shall be no lower than 0% plus ½ of 1%, and (iii) the one
month LIBOR rate plus 1% per annum) plus 8.75%.
The borrowing margin under the ABL Facility is subject to adjustment based on the average daily total loans outstanding under the ABL Facility
for the preceding fiscal quarter. For LIBOR loans, the interest rate is LIBOR (subject to an interest rate floor of 0.75%) plus a borrowing margin which is,
where the average daily total loans outstanding for the previous quarter are (i) less than $50.0 million, 1.75%, (ii) equal to or greater than $50.0 million but
less than $100.0 million, 2.00%, (iii) equal to or greater than $100.0 million but less than $200.0 million, 2.25%, and (iv) greater than $200.0 million,
3.50%. For Base Rate loans, the borrowing margin is, where the average daily total loans outstanding for the previous quarter are (i) less than $50.0 million
for the previous quarter, 1.00%, (ii) equal to or greater than $50.0 million but less than $100.0 million, 1.25%, (iii) equal to or greater than $100.0 million
but less than $200.0 million, 1.50%, and (iv) greater than $200.0 million, 2.75%.
The ABL Facility also includes (i) commitment fees which range from 0.25% to 0.375% based upon the average daily unused commitment
(aggregate commitment less loans and letter of credit outstanding) under the ABL Facility for the preceding fiscal quarter and (ii) customary letter of credit
fees.
Customary agency fees are payable in respect of the Debt Facilities.
Maturity; Amortization and Prepayments
The Current Term Loan Facility matures on September 9, 2025 and amortizes at a rate equal to 1.25% per quarter. It is subject to mandatory
prepayments in an amount equal to a percentage of the borrower’s excess cash flows in each fiscal year, ranging from 0% to 75% depending on the
Company’s total leverage ratio, and with the proceeds of certain asset sales, casualty events and extraordinary receipts. The loan may not be voluntarily
prepaid during the first two years of its term, without significant penalties. A prepayment premium is applicable to voluntary prepayments and certain
mandatory prepayments made prior to the fourth anniversary of the closing date of the Current Term Loan Facility.
The Company’s aggregate scheduled maturities of the Current Term Loan Facility and ABL Facility as of January 29, 2021 are as follows:
(in thousands)
2021
2022
2023
2024
2025
Total
Guarantees; Security
$
$
13,750
38,750
13,750
13,750
216,563
296,563
All obligations under the Debt Facilities are unconditionally guaranteed by the Company and, subject to certain exceptions, each of its existing and
future direct and indirect subsidiaries. The ABL Facility is secured by a first priority security interest in certain working capital of the borrowers and
guarantors consisting primarily of accounts receivable and inventory. The Current Term Loan Facility is secured by a second priority security interest in the
same collateral with certain exceptions.
The Current Term Loan Facility is secured by a first priority security interest in certain property and assets of the borrowers and guarantors,
including certain fixed assets such as real estate, stock of the subsidiaries and
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intellectual property, in each case, subject to certain exceptions. The ABL Facility is secured by a second priority interest in the same collateral, with
certain exceptions.
Representations and Warranties; Covenants
Subject to specified exceptions, the Debt Facilities contain various representations and warranties and restrictive covenants that, among other things
and subject to specified exceptions, restrict the Company and its subsidiaries’ ability to incur indebtedness (including guarantees), grant liens, make
investments, make dividends or distributions with respect to capital stock, make prepayments on other indebtedness, engage in mergers or change the
nature of their business.
The Current Term Loan Facility is subject to certain financial covenants, including a quarterly maximum total leverage ratio test, a weekly
minimum liquidity test and an annual maximum capital expenditure amount.
If excess availability under the ABL Facility falls below the greater of 10% of the Loan Cap amount or $15.0 million, the Company will be
required to comply with a minimum fixed charge coverage ratio of 1.0 to 1.0. The ABL Facility also has a cash maintenance provision which applies a
limit of $75 million on the amount of cash and cash equivalents (subject to certain exceptions) that the Company may hold when outstanding loans under
the ABL Facility are equal to or exceed $125 million.
The Debt Facilities contain certain affirmative covenants, including reporting requirements such as delivery of financial statements, certificates and
notices of certain events, maintaining insurance, and providing additional guarantees and collateral in certain circumstances.
As of January 29, 2021, the Company was in compliance with all covenants related to the Debt Facilities.
Events of Default
The Debt Facilities include customary events of default including non-payment of principal, interest or fees, violation of covenants, inaccuracy of
representations or warranties, cross default to certain other material indebtedness, bankruptcy and insolvency events, invalidity or impairment of guarantees
or security interests, material judgments and change of control.
NOTE 4. LEASES
In February 2016, the FASB issued ASU 2016-02, Leases (“Topic 842”), which changed how companies account for leases. On February 2, 2019,
the Company adopted the guidance using the Comparatives under 840 option approach which waives the requirement to apply ASC 842 in the comparative
periods presented within the financial statements in the year of adoption. Lands' End elected the practical expedient package, which among other practical
expedients, includes the option to retain the historical classification of leases entered into prior to February 2, 2019. The Company also elected the practical
expedient to combine lease and non-lease components.
The Company is a lessee under various lease agreements for its equipment and Company Operated store operations. The determination of whether
an arrangement contains a lease and the classification of a lease, if applicable, is made at lease commencement (date in which the Company takes
possession of the asset). At lease commencement the Company also measures and recognizes a right-of-use asset, representing the Company’s right to use
the underlying asset, and a lease liability, representing the Company’s obligation to make lease payments under the terms of the arrangement. The lease
term is defined as the noncancelable portion of the lease term plus any periods covered by an option to extend the lease, if it is reasonably certain that the
option will be exercised. For the purposes of recognizing right-of-use assets and lease liabilities associated with the Company’s leases, the Company has
elected the practical expedient of not recognizing a right-of-use asset or lease liability for short-term leases, which are leases with a term of twelve months
or less. The Company's leases are classified as operating leases, which are included in the Operating lease right-of-use asset, Lease liability - current and
Lease liability - long-term on the Company's Consolidated Balance Sheets.
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Right-of-use assets and lease liabilities are recognized based on the present value of the future minimum lease payments, over the lease term, as of
the commencement date. Minimum lease payments include the fixed lease component of the agreement as well as any variable rate payments that depend
on an index, initially measured using the index at the lease commencement date. Lease terms may include options to renew. If it is determined the lease will
not be renewed, the right-of-use asset and lease liability for that lease will be adjusted to reflect the updated lease term. The Company does not have any
leases with residual value guarantees or restrictions or covenants imposed by the lease.
Due to the absence of an implicit rate in the Company’s lease contracts, the Company estimates its incremental borrowing rate for each lease based
on the lease term, lease currency and the Company’s credit spread. The yield curve selected at the lease commencement date represents one notch above the
Company’s unsecured credit rating, and therefore is considered a close proxy for the incremental borrowing rate the Company would incur for secured
debt.
Lease expense is recognized on a straight-line basis over the lease term and is included in Selling and administrative expense in the Consolidated
Statements of Operations. Variable lease payments that do not depend on a rate or index and short-term rentals (leases with terms less than 12 months) are
expensed as incurred.
At the time of implementation in Fiscal 2019, the Company determined certain Operating lease right-of-use assets were impaired and recorded a
$1.7 million adjustment to beginning retained earnings related to these impairments, net of tax.
The Company is a lessee under various lease agreements for its Company Operated store operations and equipment. All leases are classified as
operating leases. The Company’s leases have remaining terms of less than one year to ten years and contain various renewal options. The period which is
subject to an option to extend the lease is included in the lease term if it is reasonably certain that the option will be exercised. Options to extend are
reviewed within two years of option date.
The components of lease expense are as follows:
(in thousands)
Operating lease expense
Variable lease expense
Ending Balance
Fiscal 2020
Fiscal 2019
$
$
8,516 $
2,303
10,819 $
9,210
1,682
10,892
Short-term lease cost was not material for Fiscal 2020 or Fiscal 2019.
Supplemental balance sheet information related to operating leases are as follows:
(in thousands)
Operating lease right-of-use asset
Lease liability - current
Lease liability - long-term
Weighted average remaining lease term in years
Weighted average discount rate
$
Fiscal 2020
Fiscal 2019
$
35,475
5,183
37,811
7.56
6.44%
38,665
5,864
39,841
8.03
6.39%
Supplemental cash flow information related to operating leases are as follows:
(in thousands)
Operating cash outflows from operating leases
Operating lease right-of-use-assets obtained in exchange for lease liabilities
Fiscal 2020
Fiscal 2019
$
8,710 $
3,406
10,631
19,584
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Maturities of operating lease liabilities as of January 29, 2021 are as follows:
(in thousands)
2021
2022
2023
2024
2025
Thereafter
Total operating lease payments
Less imputed interest
Present value of lease liabilities
$
$
$
10,458
8,972
7,140
6,290
5,774
19,336
57,970
14,976
42,994
NOTE 5. STOCK-BASED COMPENSATION
The Company expenses the fair value of all stock awards over their respective vesting periods, ensuring that, the amount of cumulative
compensation cost recognized at any date is at least equal to the portion of the grant-date value of the award that is vested at that date. The Company has
elected to adjust compensation expense for an estimated forfeiture rate for those shares not expected to vest and to recognize compensation cost on a
straight-line basis for awards that only have a service requirement with multiple vest dates.
The Company has granted the following types of stock awards to employees at management levels and above:
i.
ii.
Time vesting stock awards ("Deferred Awards") are in the form of restricted stock units and only require each recipient to complete a
service period for the awards to be earned. Deferred Awards generally vest over three years. The fair value of Deferred Awards is based on
the closing price of the Company's common stock on the grant date and is reduced for estimated forfeitures of those awards not expected to
vest due to employee turnover.
Performance-based stock awards ("Performance Awards") are in the form of restricted stock units and have, in addition to a service
requirement, performance criteria that must be achieved for the awards to be earned. For Performance Awards granted in Fiscal 2018 and
after, the Target Shares earned can range from 50% to 200% once minimum thresholds have been reached, and depend on the achievement
of Adjusted EBITDA and revenue performance measures for the cumulative three-fiscal year performance period beginning in the fiscal
year of the grant date. The applicable percentage of the Target Shares, as determined by performance, vest after the completion of the
applicable three-year performance period, and unearned Target Shares are forfeited. The fair value of the Performance Awards granted in
Fiscal 2018 and after are based on the closing price of the Company’s common stock on the grant date. Stock based compensation expense
is recognized ratably over the related service period reduced for estimated forfeitures of those awards not expected to vest due to employee
turnover and adjusted based on the Company's estimate of the percentage of the aggregate Target Shares expected to be earned. Typically,
the Company accrues for Performance Awards on a 100% payout unless it becomes probable that the outcome will be significantly
different, or the performance can be accurately measured. The performance period has been completed for the 2018 Performance Awards
and based on the Company’s performance relative to the Adjusted EBITDA and revenue performance measures these awards are accrued at
111%. The 2019 Performance Awards are accrued at 100% payout.
iii.
Stock option awards ("Option Awards") provide the recipient with the option to purchase a set number of shares at a stated exercise price
over the term of the contract, which is ten years for all Option Awards currently outstanding. Options are granted with a strike price equal to
the stock price on the date of grant and vest ratably over a four-year period. The fair value of each Option Award is estimated on the grant
date using the Black-Scholes option pricing model.
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The following table summarizes the Company's stock-based compensation expense, which is included in Selling and administrative expense in the
Consolidated Statements of Operations:
(in thousands)
Deferred Awards
Performance Awards
Option Awards
Total stock-based compensation expense
Fiscal 2020 Fiscal 2019
$
5,752 $
2,701
748
9,201 $
$
5,591 $
2,352
748
8,690 $
Fiscal 2018
4,407
1,006
748
6,161
Deferred Awards
The following table provides a summary of the Deferred Awards activity for Fiscal 2020 and Fiscal 2019:
(in thousands, except per share amounts)
Unvested deferred awards at beginning
of year
Granted
Vested
Forfeited
Unvested deferred awards at end of year
January 29, 2021
January 31, 2020
Fiscal Year Ended
Number
of Shares
Weighted
Average
Grant Date
Fair Value
Number
of Shares
Weighted
Average
Grant Date
Fair Value
745 $
765
(299)
(118)
1,093 $
18.49
6.97
19.68
12.22
10.86
594 $
428
(210)
(67)
745 $
21.96
15.62
21.93
20.65
18.49
Total unrecognized stock-based compensation expense related to unvested Deferred Awards was approximately $5.4 million as of January 29,
2021, which is expected to be recognized ratably over a weighted average period of 1.7 years. Deferred Awards granted to employees during Fiscal 2020
vest ratably over a period of three years.
Performance Awards
The following table provides a summary of the Performance Awards activity for Fiscal 2020 and Fiscal 2019:
(in thousands, except per share amounts)
Unvested performance awards at beginning
of year
Granted
Change in estimate - performance
Vested
Forfeited
Unvested performance awards at end of year
January 29, 2021
January 31, 2020
Fiscal Year Ended
Number
of Shares
Weighted
Average
Grant Date
Fair Value
Number
of Shares
Weighted
Average
Grant Date
Fair Value
412 $
—
16
—
(35)
393 $
18.15
—
21.90
—
18.02
18.32
176 $
265
—
—
(29)
412 $
21.93
15.73
—
—
18.85
18.15
Total unrecognized stock-based compensation expense related to unvested Performance Awards was approximately $1.5 million as of January 29,
2021 which is expected to be recognized ratably over a weighted average period of 1.0 years. Performance Awards granted to employees during Fiscal
2019 and Fiscal 2018 vest, if earned, after completion of the applicable three-year performance period.
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Options Awards
The following table provides a summary of the Options Award activity for Fiscal 2020 and Fiscal 2019:
(in thousands, except per share amounts)
Unvested option awards at beginning
of year
Granted
Vested
Forfeited
Unvested option awards at end of year
January 29, 2021
January 31, 2020
Fiscal Year Ended
Number
of Shares
Weighted
Average
Grant Date
Fair Value
Number
of Shares
Weighted
Average
Grant Date
Fair Value
171 $
—
(86)
—
85 $
8.73
—
8.73
—
8.73
257 $
—
(86)
—
171 $
8.73
—
8.73
—
8.73
Total unrecognized stock-based compensation expense related to unvested Option Awards was approximately $0.1 million as of January 29, 2021,
which is expected to be recognized ratably over a weighted average period of 0.2 years. The Option Awards have a life of ten years and vest ratably over
the first four years. As of January 29, 2021, 257,351 shares related to Option Awards were exercisable. No options were exercised during the fiscal year
ended January 29, 2021.
NOTE 6. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following:
(in thousands)
Accrued employee compensation and benefits
Deferred gift card revenue
Reserve for sales returns and allowances
Accrued property, sales and other taxes
Deferred revenue
Other
Total other current liabilities
January 29,
2021
January 31,
2020
$
$
54,944 $
26,798
25,716
24,905
17,187
12,432
161,982 $
42,809
22,592
21,641
9,242
8,096
9,736
114,116
NOTE 7. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
The Company determines fair value of financial assets and liabilities based on the following fair value hierarchy, which prioritizes the inputs to
valuation techniques used to measure fair value into three levels:
Level 1 inputs—unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. An active
market for the asset or liability is one in which transactions for the asset or liability occurs with sufficient frequency and volume to provide ongoing pricing
information.
Level 2 inputs—inputs other than quoted market prices included in Level 1 that are observable, either directly or indirectly, for the asset or liability.
Level 2 inputs include, but are not limited to, quoted prices for similar assets or liabilities in an active market, quoted prices for identical or similar assets or
liabilities in markets that are not active and inputs other than quoted market prices that are observable for the asset or liability, such as interest rate curves
and yield curves observable at commonly quoted intervals, volatilities, credit risk and default rates.
Level 3 inputs—unobservable inputs for the asset or liability.
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Restricted cash is reflected on the Consolidated Balance Sheets at fair value. The fair value of Restricted cash as of January 29, 2021 and January
31, 2020 was $1.9 million and $2.1 million, respectively, based on Level 1 inputs. Restricted cash amounts are valued based upon statements received from
financial institutions.
Carrying values and fair values of other financial instruments in the Consolidated Balance Sheets are as follows:
(in thousands)
Long-term debt, including current portion
January 29, 2021
January 31, 2020
Carrying
Amount
$
271,563 $
Fair
Value
277,265 $
Carrying
Amount
385,388 $
Fair
Value
378,643
Long-term debt, net is reflected in the Consolidated Balance Sheets at amortized cost. The fair value of debt was determined utilizing Level 3
valuation techniques based on a third-party analysis as of January 29, 2021. The fair value of debt on January 31, 2020 was determined utilizing Level 2
valuation techniques based on the closing inactive market bid price on January 31, 2020. There were no nonfinancial assets or nonfinancial liabilities
recognized at fair value on a nonrecurring basis as of January 29, 2021 and January 31, 2020.
NOTE 8. GOODWILL AND INDEFINITE-LIVED INTANGIBLE ASSET
The Company's intangible assets, consisting of a goodwill and trade name, were originally valued in connection with a business combination
accounted for under the purchase accounting method. Goodwill represents the excess of the purchase price over the fair value of the net assets acquired.
The following table summarizes the Company's goodwill and indefinite-lived intangible asset:
(in thousands)
Goodwill balance
Trade name balance
January 29, 2021
January 31, 2020
$
$
106,700
257,000
$
$
110,000
257,000
ASC 350, Intangibles - Goodwill and Other, requires companies to test goodwill and indefinite-lived intangible assets for impairment annually, or
more often if an event or circumstance indicates that the carrying amount may not be recoverable. In First Quarter 2020, the Company tested goodwill for
impairment in response to the COVID-19 pandemic for its Outfitters and Japan eCommerce reporting units. The testing resulted in no impairment for the
Outfitters reporting unit and full impairment of the $3.3 million goodwill allocated to the Japan eCommerce reporting unit, which is recorded in Other
operating expense, net in the Consolidated Statements of Operations. The Company completed its annual impairment test for all reporting units in Fiscal
2020 and no further impairment charges were recorded. Of the total $106.7 million of goodwill recorded as of January 29, 2021, $70.4 million and $36.3
million relates to the Company’s U.S. eCommerce and Outfitters reporting units, respectively. The Company conducted impairment testing of its goodwill
in Fiscal 2019 and Fiscal 2018 and there was no impairment charge recorded for goodwill.
In Fiscal 2020, Fiscal 2019, and Fiscal 2018, the Company conducted impairment testing of its indefinite-lived intangible asset. There were no
impairments of the trade name during any period presented.
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NOTE 9. INCOME TAXES
The Company's income (loss) before income taxes in the United States and in foreign jurisdictions is as follows:
(in thousands)
Income before income taxes
United States
Foreign
Total income before income taxes
Fiscal 2020
Fiscal 2019
Fiscal 2018
$
$
173 $
12,419
12,592 $
21,406 $
(44)
21,362 $
16,297
(6,666)
9,631
Certain foreign operations are branches of Lands’ End and are subject to U.S. as well as foreign income tax. The pretax income by location and the
analysis of the income tax provision by taxing jurisdiction are not directly related.
The components of the provision for (benefit from) income taxes are as follows:
(in thousands)
United States
Foreign
Total provision (benefit)
(in thousands)
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Total provision (benefit)
Fiscal 2020
Fiscal 2019
Fiscal 2018
725 $
1,031
1,756 $
2,105 $
(33)
2,072 $
(1,959)
—
(1,959)
Fiscal 2020
Fiscal 2019
Fiscal 2018
8,334 $
3,675
517
12,526
(8,413)
(2,871)
514
(10,770)
1,756 $
979 $
1,549
—
2,528
340
(763)
(33)
(456)
2,072 $
(4,457)
2,275
—
(2,182)
1,650
(1,427)
—
223
(1,959)
$
$
$
$
A reconciliation of the statutory federal income tax rate to the effective income tax rate is as follows:
Tax at statutory federal tax rate
State income taxes, net of federal tax benefit
Foreign differential
Permanent differences
CARES Act
Repatriation of foreign earnings
Uncertain tax benefits
Change in foreign valuation allowance
Foreign branches
Other, net
Total
Fiscal 2020
Fiscal 2019
Fiscal 2018
21.0%
5.0%
2.7%
16.8%
(24.6)%
—%
(1.6)%
(3.8)%
—%
(1.6)%
13.9%
21.0%
2.9%
(4.0)%
4.3%
—%
—%
(0.8)%
4.2%
(15.9)%
(2.0)%
9.7%
21.0%
10.0%
(4.6)%
23.4%
—%
(38.4)%
(38.6)%
19.2%
—%
(12.3)%
(20.3)%
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Deferred tax assets and liabilities consisted of the following:
(in thousands)
Deferred tax assets
Deferred revenue
Legal accruals
Deferred compensation
Reserve for returns
Inventory
CTA investment in foreign subsidiaries
Operating lease liabilities
Other
Net operating loss carryforward
Total deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities
Intangible assets
LIFO reserve
Property and equipment
Operating lease right-of-use assets
Catalog advertising
Total deferred tax liabilities
Net deferred tax liability
January 29,
2021
January 31,
2020
February 1,
2019
$
$
$
$
4,882 $
3,551
16,147
3,072
6,390
2,987
9,677
2,668
3,093
52,467
(3,896)
48,571 $
62,372 $
15,191
8,660
7,882
1,812
95,917
47,346 $
3,797 $
1,938
12,507
2,654
3,413
3,453
10,319
2,764
6,018
46,863
(6,526)
40,337 $
62,397 $
17,503
7,208
8,586
2,294
97,988
57,651 $
3,053
1,714
10,360
2,271
3,690
3,505
—
3,041
5,117
32,751
(5,079)
27,672
62,959
16,382
5,098
—
1,903
86,342
58,670
As of January 29, 2021, the Company had $8.5 million of state net operating loss (“NOL”) carryforwards (generating a $0.6 million deferred tax
asset) available to offset future taxable income. The state NOL carryforwards generally expire between 2022 and 2038 with certain state NOLs generated
after 2017 having indefinite carryforward. The Company’s foreign subsidiaries had $8.9 million of NOL carryforwards (generating a $2.5 million deferred
tax asset) available to offset future taxable income. These foreign NOLs can be carried forward indefinitely, however, a valuation allowance was
established since the future utilization of these NOLs is uncertain.
A reconciliation of the beginning and ending amount of UTBs is as follows:
Gross UTB balance at beginning of period
Tax positions related to the prior periods - gross
decreases
Settlements
Gross UTB balance at end of period
Fiscal 2020
Fiscal 2019
Fiscal 2018
$
1,202 $
1,458 $
4,531
(190)
—
1,012 $
(179)
(77)
1,202 $
(2,588)
(485)
1,458
$
As of January 29, 2021, the Company had UTBs of $1.0 million. Of this amount, $0.8 million would, if recognized, impact its effective tax rate.
The Company does not expect that UTBs will fluctuate significantly in the next 12 months for tax audit settlements and the expiration of the statute of
limitations for certain jurisdictions. Tax years 2015 through 2019 remain open for examination by the Internal Revenue Service as well as various state and
foreign jurisdictions.
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The Company classifies interest expense and penalties related to UTBs and interest income on tax overpayments as components of income tax
expense. As of January 29, 2021, the total amount of interest expense and penalties recognized on the balance sheet was $0.6 million ($0.5 million net of
federal benefit). As of January 31, 2020, the total amount of interest and penalties recognized on the balance sheet was $0.7 million ($0.6 million net of
federal benefit). The total amount of net interest expense recognized in the Consolidated Statements of Operations was insignificant for all periods
presented. The Company files income tax returns in both the United States and various foreign jurisdictions.
Impacts of the Tax Act
On December 22, 2017, the Tax Act was signed into law. The Tax Act contains significant changes to corporate taxation, including (i) the reduction
of the corporate income tax rate to 21%, (ii) the acceleration of expensing for certain business assets, (iii) the nonrecurring transition tax related to the
transition of U.S. international tax from a worldwide tax system to a territorial tax system, (iv) the repeal of the domestic production deduction, (v)
additional limitations on the deductibility of interest expense, and (vi) expanded limitations on the deductibility of executive compensation.
In December 2017, the SEC staff issued Staff Accounting Bulletin (SAB) 118 to provide guidance for companies that had not completed their
accounting for the income tax effects of the Tax Act. Due to the complexities involved in accounting for the enactment of the Tax Act, SAB 118 allowed
for a provisional estimate of the impacts of the Tax Act in the Company’s earnings for the year ended February 2, 2018, as well as up to a one-year
measurement period that ended on December 22, 2018, for any subsequent adjustments to such provisional estimate. Pursuant to SAB 118, the Company
completed its analysis of the impacts of the Tax Act, including analyzing the effects of any Internal Revenue Service (IRS) and U.S. Treasury guidance
issued, and state tax law changes enacted, within the maximum one-year measurement period resulting in an additional $3.7 million benefit in Fiscal 2018.
Impacts of the CARES Act
In response to the COVID-19 pandemic, the CARES Act was signed into law on March 27, 2020. The CARES Act, among other things, includes
provisions related to refundable payroll tax credits, deferment of employer side social security payments, net operating loss utilization and carryback
periods, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax
depreciation methods for qualified improvement property. In Fiscal 2020, the Company recorded a $3.1 million benefit related to the technical corrections
aspect of the CARES Act related to carryback of net operating losses in years beginning in 2017.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is party to various claims, legal proceedings and investigations arising in the ordinary course of business. Some of these actions
involve complex factual and legal issues and are subject to uncertainties. At this time, the Company is not able to either predict the outcome of these legal
proceedings or reasonably estimate a potential range of loss with respect to the proceedings. While it is not feasible to predict the outcome of such pending
claims, proceedings and investigations with certainty, management is of the opinion that their ultimate resolution should not have a material adverse effect
on results of operations, cash flows or financial position taken as a whole.
Lands' End is the defendant in three separate lawsuits, each of which allege adverse health events and personal property damage as a result of
wearing uniforms manufactured by Lands’ End: (1) Gilbert et al. v. Lands' End, Inc., United States District Court for the Western District of Wisconsin,
Civil Action No. 3:19-cv-00823-JDP, complaint filed October 3, 2019; (2) Andrews et al. v. Lands' End, Inc., United States District Court for the Western
District of
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Wisconsin, Civil Action No. 3:19-cv-01066-JDP, complaint filed on December 31, 2019, on behalf of 521 named plaintiffs, later amended to include 1,089
named plaintiffs; and (3) Davis et al. v. Lands' End, Inc. and Lands' End Business Outfitters, Inc., United States District Court for the Western District of
Wisconsin, Case No. 3:20-cv-00195, complaint filed on March 4, 2020. Plaintiffs in Gilbert, Andrews, and Davis seek nationwide class certification on
behalf of similarly situated Delta employees.
By order dated April 20, 2020, the Court consolidated the Gilbert and Andrews cases (the “Consolidated Wisconsin Action”) and stayed the Davis
case. Plaintiffs in the Consolidated Wisconsin Action and Davis each assert that the damages sustained by the members of the proposed class exceed
$5,000,000. Plaintiffs in each case seek damages for personal injuries, pain and suffering, severe emotional distress, financial or economic loss, including
medical services and expenses, lost income and other compensable injuries. Plaintiffs in the Consolidated Wisconsin Action seek class certification with
respect to performance of the uniforms and warranty claims and maintain individual claims for personal injury by numerous named plaintiffs.
The Consolidated Wisconsin Action has several motions pending before the Court and continues to be in discovery. Lands' End is vigorously
defending these lawsuits and believes they are without merit.
NOTE 11. RELATED PARTY AGREEMENTS AND TRANSACTIONS
At the time of the Separation, ESL beneficially owned significant portions of both the Company’s and Sears Holdings’ outstanding shares of
common stock and therefore, Sears Holdings, the Company’s former parent company, was considered a related party both prior to and after the Separation.
On February 11, 2019, Transform Holdco acquired from Sears Holdings substantially all of the go-forward retail footprint and other assets and
component businesses of Sears Holdings as a going concern. The Company believes that ESL holds a significant portion of the membership interests of
Transform Holdco and therefore consider that entity to be a related party as well.
In connection with and subsequent to the Separation, the Company entered into various agreements with Sears Holdings which, among other
things, (i) governed specified aspects of the Company's relationship following the Separation, especially with regards to the Lands’ End Shops at Sears, and
(ii) established terms pursuant to which subsidiaries of Sears Holdings provided services to the Company. Some of these agreements have been assumed by
and assigned to Transform Holdco.
Lands' End Shops at Sears
All Lands’ End Shops at Sears closed by January 31, 2020 and accordingly there was no rent or retail operation related party transactions with
Sears Holdings or Transform Holdco in Fiscal 2020. Total rent, retail services and other costs related to Lands’ End Shops at Sears were $7.7 million in
Fiscal 2019 and $30.6 million in Fiscal 2018.
Sourcing
The Company contracted with a subsidiary of Sears Holdings, which became a subsidiary of Transform Holdco, to provide agreed upon buying
agency services, on a non-exclusive basis, in foreign territories from where the Company purchases merchandise. These sourcing services, primarily based
upon quantities purchased, included quality-control functions, regulatory compliance, product claims management and new vendor selection and setup
assistance. The Company's contract for these services expired on June 30, 2020
Total expense from these sourcing services was $2.2 million for Fiscal 2020, $7.5 million for Fiscal 2019 and $7.5 million for Fiscal 2018. These
amounts were capitalized into inventory and expensed through cost of goods sold over the course of inventory turns and included in Cost of sales in the
Consolidated Statements of Operations. Additionally, a final payment of $1.0 million was paid to the affiliate of Transform Holdco associated with the
transitioning of a sourcing office. This was recorded in Other expense (income), net in the Consolidated Statements
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of Operations.
In anticipation of the expiration of the buying agency service agreement, the Company established a sourcing office located in Hong Kong which
became operational in April 2020.
NOTE 12. SEGMENT REPORTING
The Company's operating segments consist of U.S. eCommerce, Outfitters, Europe eCommerce, Japan eCommerce, Third Party and Retail. The
Company reviewed its current structure of its business units and the internal reporting used to provide information to management. As a result of this
process, the Company concluded there is one additional operating segment, Third Party. This business consists of U.S. wholesale revenues and sales on
third-party marketplaces. The Company determined that each of the operating segments share similar economic and other qualitative characteristics thus
the results of the operating segments are aggregated into one external reportable segment, consistent with the Company's multi-channel business approach.
Lands’ End identifies five separate distribution channels for revenue reporting purposes:
U.S. eCommerce offers products through the Company's eCommerce website utilizing digital marketing and direct mail catalogs.
International offers products primarily to consumers located in Europe and Japan through eCommerce international websites and third party
affiliates.
Outfitters sells products to end consumers, located primarily in the U.S., through negotiated arrangements to make specific styles or customized
products available to employees and members of client organizations, as well as through the Company's eCommerce websites.
Third Party sells the same products as U.S. eCommerce but to domestic wholesale customers or direct to consumer through third-party
marketplaces and websites.
Retail sells products and services through Company Operated stores.
Net revenue is presented by product channel in the following table:
(in thousands)
U.S. eCommerce
International
Outfitters
Third Party
Retail
Total Net revenue
$
$
Fiscal 2020
$
% of Revenue Fiscal 2019 % of Revenue Fiscal 2018 % of Revenue
62.8%
12.5%
19.7%
0.9%
4.1%
67.4%
15.6%
12.2%
2.8%
2.0%
58.9%
12.4%
19.9%
0.4%
8.4%
854,361
179,637
289,251
5,931
122,412
$ 1,451,592
910,088
181,087
285,807
13,654
59,565
$ 1,450,201
$
961,911
222,878
174,260
39,945
28,454
1,427,448
The geographical allocation of Net revenue is based upon where the product is shipped. The following presents summarized geographical
information:
(in thousands)
United States
Europe
Asia
Other
Total Revenue
$
$
Fiscal 2020
1,191,346
175,011
49,725
11,366
1,427,448
% of Revenue Fiscal 2019 % of Revenue Fiscal 2018 % of Revenue
86.0%
9.5%
3.3%
1.2%
$ 1,245,157
138,761
50,203
17,471
$ 1,247,288
137,134
48,470
17,309
83.4%
12.3%
3.5%
0.8%
85.8%
9.6%
3.5%
1.1%
$ 1,450,201
$ 1,451,592
Other than the United States and Europe, no geographic region represented more than 10% of Net revenue.
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Property and equipment, net by geographical location are as follows:
(in thousands)
United States
Europe
Asia
Total Property and equipment, net
Fiscal 2020
Fiscal 2019
Fiscal 2018
$
$
136,038
8,267
983
145,288
$
$
148,340
8,716
609
157,665
$
$
140,663
8,773
458
149,894
Other than the United States, no geographic region is greater than 10% of total Property and equipment, net.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We have established disclosure controls and procedures to ensure that the information required to be disclosed by the Company in the reports that it
files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules
and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to the officers who certify the
Company's financial reports and to other members of senior management and the Board of Directors as appropriate to allow timely decisions regarding
required disclosure.
Based on their evaluation, the Chief Executive Officer and the President and Chief Financial Officer have concluded that our disclosure controls
and procedures (as defined in Rule 13a-15(e) and 15-d-15(e) under the Securities Exchange Act of 1934, as amended) are effective as of January 29, 2021.
Management's Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f)
under the Securities Exchange Act of 1934. Our internal control over financial reporting is a process designed under the supervision of the Chief Executive
Officer and the President and Chief Financial Officer to provide reasonable assurance regarding the reliability of our financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal
control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected
on a timely basis.
Management, including our Chief Executive Officer and our President and Chief Financial Officer conducted an evaluation of the design and
effectiveness of our internal control over financial reporting based on the criteria set forth in Internal Control-Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation our management concluded that our internal control over
financial reporting was effective as of January 29, 2021. Our independent registered public accounting firm has issued an audit report on the effectiveness
of our internal control over financial reporting, which is included herein.
Changes in Internal Control over Financial Reporting
Regulations under the Exchange Act require public companies including our Company, to evaluate any change in our “internal control over
financial reporting” as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) of the Exchange Act. We have not experienced any material impact to our
internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We continually
monitor and assess the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.
ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information required by Item 10 with respect to directors, the audit committee, audit committee financial experts and Section 16(a) beneficial
ownership reporting compliance is included under the headings "Item 1. Election of Directors - Committees of the Board," "Corporate Governance -
Director Independence" and in the biographies of the directors contained in "Item 1. Election of Directors," in our definitive proxy statement for our annual
meeting of stockholders to be held on May 13, 2021 (the "2021 Proxy Statement") which are incorporated herein by reference. With regard to the
information required by this item regarding compliance with Section 16(a) of the Exchange Act, we will provide disclosure of delinquent Section 16(a)
reports, if any, in our Proxy Statement related to the 2020 Annual Meeting of Shareholders under the heading "Other Information - Delinquent Section
16(a) Reports", and such disclosure, if any, is incorporated herein by reference. The 2021 Proxy Statement will be filed within 120 days after the end of
our fiscal year.
The information required by this Item 10 regarding the Company's executive officers is set forth under the heading "Information about our
Executive Officers" in Part I of this Form 10-K and is incorporated herein by reference.
Lands' End has adopted a Code of Conduct, which applies to all employees, including our principal executive officer, principal financial officer and
principal accounting officer, and a Code of Conduct for its Board of Directors. Directors who are also officers of Lands' End are subject to both codes of
conduct. Each code of conduct is a code of ethics as defined in Item 406 of SEC Regulation S-K. The codes of conduct are available on the Corporate
Governance section under Investor Relations on our website at www.landsend.com. Any amendment to, or waiver from, a provision of either code of
conduct will be posted to the above-referenced website.
There were no changes to the process by which stockholders may recommend nominees to the Board of Directors during the last year.
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ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth in our 2021 Proxy Statement under Item 1. Election of Directors (i) under the heading
"Compensation of Directors," and (ii) under the heading "Executive Compensation," under the subheadings "Compensation Discussion and Analysis,"
"Compensation Committee Report," and "Compensation Committee Interlocks and Insider Participation," "Summary Compensation Table," "Grants of
Plan-Based Awards," "Outstanding Equity Awards at 2020 Fiscal Year End," "Option Exercises and Stock Vested," "Employment Arrangements,"
"Potential Payments upon Termination of Employment," and "CEO Pay Ratio," and is incorporated herein by reference. The material incorporated herein
by reference to the information set forth under the heading "Executive Compensation - Compensation Committee Report" of the 2021 Proxy Statement
shall be deemed furnished, and not filed, in this Annual Report on Form 10-K and shall not be deemed incorporated by reference in any filing under the
Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, as a result of this furnishing except to the extent that it is
specifically incorporated by reference by the Company.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Information regarding security ownership of certain beneficial owners and management is incorporated herein by reference to the material under
the heading "Item 1. Election of Directors - Beneficial Ownership of the Company's Common Stock" of the 2021 Proxy Statement.
Equity Compensation Plan Information
The following table sets forth certain information regarding the Company's equity compensation plans as of January 29, 2021:
Number of
securities to
be issued
upon exercise
of outstanding
options,
warrants
and rights
(in thousands)
(a)
Weighted-
average
exercise
price of
outstanding
options,
warrants
and rights*
(b)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities
reflected in
column (a))**
(in thousands)
(c)
1,506
22.00
1,540
324
1,830
18.10
18.66
—
—
Plan Category
Equity compensation plans approved by
security holders
Equity compensation plans not approved
by security holders***
Total
*
**
***
The weighted-average exercise price does not take into account the shares issuable upon vesting of outstanding awards of RSUs, which have no
exercise price.
Represents shares of common stock that may be issued pursuant to the Lands' End, Inc. Amended and Restated 2017 Stock Plan (the "2017 Stock
Plan"). Awards under the 2017 Stock Plan may be restricted stock, stock unit awards, incentive stock options, nonqualified stock options, stock
appreciation rights, or certain other stock-based awards.
In connection with commencing employment, on March 6, 2017, the current CEO was granted options to purchase 294,118 shares of the
Company’s common stock all of which were outstanding, and 117,647 restricted stock units, of which 29,411 were unvested as of January 29, 2021.
These awards were made as inducement grants outside of our stockholder approved stock plans in accordance with NASDAQ Listing Rule 5635(c)
(4).
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information regarding certain relationships and related transactions and director independence is incorporated herein by reference to the material
under the headings "Certain Relationships and Transactions" and "Corporate Governance" of the 2021 Proxy Statement.
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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information regarding principal accountant fees and services is incorporated herein by reference to the material under the heading "Item 3.
Ratification of Appointment of Independent Registered Public Accounting Firm - Independent Registered Accounting Firm Fees" of the 2021 Proxy
Statement.
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PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following information required under this item is filed as part of this report:
1. Financial Statements
See the “Index to Consolidated Financial Statements” on page 43 of this report.
2. Financial Statement Schedules
All financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to
require submission of the schedule, or because the information required is included in the Consolidated Financial Statements and accompanying notes
included in this Form 10-K.
3. Exhibits required by Item 601 of Regulation S-K.
The following documents are filed as exhibits hereto:
Exhibit
Number Exhibit Description
2.1
3.1
3.2
4.1
4.2
4.3
4.4
4.5
Separation and Distribution Agreement, dated as of April 4, 2014, by and between Sears Holdings Corporation and Lands' End, Inc.
(incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on April 8, 2014 (File No. 001-09769)).
Amended and Restated Certificate of Incorporation of Lands' End, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current
Report on Form 8-K filed on March 20, 2014 (File No. 001-09769)).
Amended and Restated Bylaws of Lands' End, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K
filed on April 8, 2014 (File No. 001-09769)).
ABL Credit Agreement, dated as of November 16, 2017, by and between Lands' End, Inc. (as the Lead Borrower), Wells Fargo Bank, N.A. (as
Agent, L/C Issuer and Swing Line Lender), the Other Lenders party thereto, Wells Fargo Bank, N.A. (as Sole Lead Arranger and Sole
Bookrunner) and BMO Harris Bank, N.A. (as Syndication Agent), and SunTrust Bank (as Documentation Agent) (incorporated by reference to
Exhibit 4.2 to the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2018 (File No. 001-09769)).
First Amendment to ABL Credit Agreement, dated December 3, 2019, by and between Lands’ End, Inc. (as the Lead Borrower), Wells Fargo
Bank, N.A. (as Agent, L/C Issuer and Swing Line Lender), the Other Lenders party thereto, Citizens Bank, N.A. (as Lender) and Suntrust
Bank (as Lender), BMO Harris Bank N.A. (as Lender), and JPMorgan Chase Bank N.A. (as Lender) (incorporated by reference to Exhibit 4.2
to the Company's Annual Report on Form 10-K for the fiscal year ended January 30, 2020).
Second Amendment to ABL Credit Agreement, dated August 12, 2020, by and among Lands’ End, Inc. (as the Lead Borrower), the guarantors
party thereto, the lenders party thereto and Wells Fargo Bank, National Association (as Agent, L/C Issuer and Swing Line Lender)
(incorporated by reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2020 (File No.
001-09769)).
Term Loan Credit Agreement, dated September 9, 2020, among Lands’ End Inc., as the Borrower, Fortress Credit Corp., as Administrative
Agent and Collateral Agent, and the lenders party thereto (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed on
September 15, 2020 (File No. 001-09769))
Guaranty and Security Agreement, dated September 9, 2020, by Lands’ End, Inc., as the Borrower, and the other grantors party thereto and
Fortress Credit Corp., as Agent (incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K filed on September 15, 2020 (File No.
001-09769))
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*4.6
Description of Securities Registered Under Section 12 of the Exchange Act.
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
Lands' End, Inc. Amended and Restated 2017 Stock Plan (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed
by Lands' End, Inc. on May 13, 2019 (File No. 001-09769)).**
Director Compensation Policy effective as of March 19, 2019 (incorporated by reference to Exhibit 10.21 to the Company's Annual Report on
Form 10-K for the fiscal year ended February 1, 2019 (File No. 001-09769))**
Lands' End, Inc. Umbrella Incentive Program (As Amended and Restated) (incorporated by reference to Exhibit 10.12 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 30, 2015 (File No. 001-09769)).**
Lands' End, Inc. 2014 Stock Plan (As Amended and Restated) (incorporated by reference to Exhibit 10.11 to the Company's Annual Report
on Form 10-K for the fiscal year ended January 30, 2015 (File No. 001-09769)).**
Form of Time-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form
8-K filed on March 16, 2021 (File No. 001-09769)).**
Form of Performance-Based Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.2 to the Company's Current Report on
Form 8-K filed on March 16, 2021 (File No. 001-09769)).**
Form of Nonqualified Stock Option Agreement (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K
filed on March 16, 2021 (File No. 001-09769)).**
Lands' End, Inc. Annual Incentive Plan (As Amended and Restated) (incorporated by reference to Exhibit 10.16 to the Company's Annual
Report on Form 10-K for the fiscal year ended January 30, 2015 (File No. 001-09769)).**
Lands' End, Inc. Long-Term Incentive Program (As Amended and Restated) (incorporated by reference to Exhibit 10.14 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 30, 2015 (File No. 001-09769)).**
Lands' End, Inc. Cash Long-Term Incentive Plan (As Amended and Restated) (incorporated by reference to Exhibit 10.15 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 30, 2015 (File No. 001-09769)).**
Letter from Lands' End, Inc. to Jerome S. Griffith relating to employment, dated December 19, 2016 (incorporated by reference to Exhibit
10.26 to the Company's Annual Report on Form 10-K for the fiscal year ended January 27, 2017 (File No. 001-09769)).**
*10.12
Executive Severance Agreement dated and effective as of December 19, 2016 between Lands' End, Inc. and its affiliates and subsidiaries and
Jerome S. Griffith.**
10.13
10.14
10.15
Sign-on Restricted Stock Unit Agreement dated and effective as of March 6, 2017 between Lands' End, Inc. and Jerome S. Griffith
(incorporated by reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K for the fiscal year ended January 27, 2017 (File
No. 001-09769)).**
Sign-on Nonqualified Stock Option Agreement dated and effective as of March 6, 2017 between Lands' End, Inc. and Jerome S. Griffith
(incorporated by reference to Exhibit 10.29 to the Company's Annual Report on Form 10-K for the fiscal year ended January 27, 2017 (File
No. 001-09769)).**
Letter from Lands' End, Inc. to James Gooch relating to employment, dated January 26, 2016 and effective as of January 27, 2016
(incorporated by reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2016 (File
No. 001-09769)).**
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Table of Contents
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
Letter from Lands' End, Inc. to James Gooch relating to employment,
dated December 20, 2016 (incorporated by reference to Exhibit 10.31
to the Company's Annual Report on Form 10-K for the fiscal year
ended January 27, 2017 (File No. 001-09769)).**
Letter from Lands' End, Inc. to James Gooch relating to employment, dated March 29, 2017 (incorporated by reference to Exhibit 10.48 to
the Company's Annual Report on Form 10-K for the fiscal year ended January 27, 2017 (File No. 001-09769)).**
Executive Severance Agreement dated and effective as of January 27, 2016 between Lands' End, Inc. and its affiliates and subsidiaries and
James Gooch (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended May
3, 2019 (File No. 001-09769)).**
Letter from Lands' End, Inc. to Peter L. Gray relating to employment, dated April 21, 2017 (incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 28, 2017 (File No. 001-09769)).**
Executive Severance Agreement dated and effective as of April 21, 2017 between Lands' End, Inc. and its affiliates and subsidiaries and
Peter L. Gray (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April
28, 2017 (File No. 001-09769)).**
Letter from Lands' End, Inc. to Chieh Tsai relating to employment, dated January 3, 2019 (incorporated by reference to Exhibit 10.46 to the
Company's Annual Report on Form 10-K for the fiscal year ended February 1, 2019 (File No. 001-09769)).**
Executive Severance Agreement dated and effective as of January 7, 2019 between Lands' End, Inc. and its affiliates and subsidiaries and
Chieh Tsai (incorporated by reference to Exhibit 10.47 to the Company's Annual Report on Form 10-K for the fiscal year ended February 1,
2019 (File No. 001-09769)).**
Executive Severance Agreement dated and effective as of December 5, 2014 between Lands' End, Inc. and its affiliates and subsidiaries and
Kelly Ritchie (incorporated by reference to Exhibit 10.48 to the Company's Annual Report on Form 10-K for the fiscal year ended February
1, 2019 (File No. 001-09769)).**
*10.24
Letter from Lands' End, Inc. to Sarah Rasmusen relating to
employment, dated October 16, 2017.**
*10.25
Letter from Lands' End, Inc. to Sarah Rasmusen relating to
employment, dated September 4, 2019.**
*10.26
Executive Severance Agreement dated and effective as of October 16,
2017 between Lands' End, Inc. and Sarah Rasmusen.**
*21
*23
Subsidiaries of Lands' End, Inc.
Consent of Deloitte & Touche LLP.
*31.1
Certification of Chief Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
*31.2
Certification of Chief Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.
*32.1
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.***
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Inline XBRL Instance Document
*101.INS
*101.SCH Inline XBRL Taxonomy Extension Schema Document
*101.CAL
*101.DEF
*101.LAB
*101.PRE
*104
Inline XBRL Taxonomy Extension Calculation Linkbase Document
Inline XBRL Taxonomy Extension Definition Document
Inline XBRL Taxonomy Extension Label Linkbase Document
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit 101)
*
**
***
Filed herewith.
A management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K
pursuant to Item 15(b) of Form 10-K.
This exhibit shall be deemed to be "furnished" and not "filed."
Certain of the agreements incorporated by reference into this report contain representations and warranties and other agreements and undertakings
by us and third parties. These representations and warranties, agreements and undertakings have been made as of specific dates, may be subject to
important qualifications and limitations agreed to by the parties to the agreement in connection with negotiating the terms of the agreement, and have been
included in the agreement for the purpose of allocating risk between the parties to the agreement rather than to establish matters as facts. Any such
representations and warranties, agreements, and undertakings have been made solely for the benefit of the parties to the agreement and should not be relied
upon by any other person.
ITEM 16. FORM 10-K SUMMARY
None.
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Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
LANDS' END, INC.
(Registrant)
By:
Name:
Title:
/s/ James Gooch
James Gooch
President and Chief Financial Officer
Date: March 25, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature:
/s/ Jerome Griffith
Jerome Griffith
/s/ James Gooch
James Gooch
Director and Chief Executive Officer (Principal Executive Officer)
March 25, 2021
Date:
President and Chief Financial Officer (Principal Financial Officer)
March 25, 2021
/s/ Bernard McCracken
Vice President, Controller and Chief Accounting Officer (Principal
March 25, 2021
Accounting Officer)
Chair of the Board of Directors
March 25, 2021
Bernard McCracken
/s/ Josephine Linden
Josephine Linden
/s/ Robert Galvin
Robert Galvin
/s/ Elizabeth Leykum
Elizabeth Leykum
/s/ John T. McClain
John T. McClain
Director
Director
Director
/s/ Maureen Mullen Murphy
Director
Maureen Mullen Murphy
/s/ Jignesh Patel
Jignesh Patel
/s/ Jonah Staw
Jonah Staw
Director
Director
88
March 25, 2021
March 25, 2021
March 25, 2021
March 25, 2021
March 25, 2021
March 25, 2021
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
EXHIBIT 4.6
Lands’ End, Inc. has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended: our Common Stock.
DESCRIPTION OF COMMON STOCK
The following description of our Common Stock is a summary and does not purport to be complete. It is subject to and qualified in its entirety by
reference to our Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) and our Amended and Restated Bylaws (the
“Bylaws”), each of which are incorporated by reference as exhibits to the Annual Report on Form 10-K. We encourage you to read our Certificate of
Incorporation, our Bylaws and the applicable provisions of the Delaware General Corporation Law, as amended, for additional information.
Authorized Shares of Capital Stock
Our authorized capital stock consists of 480,000,000 shares of common stock, $0.01 par value per share (“Common Stock”). As of January 29,
2021, there were 32,614,088 shares of Common Stock outstanding. The outstanding shares of our Common Stock are fully paid and nonassessable.
Listing
Our common stock is listed and principally traded on The Nasdaq Stock Market LLC under the symbol “LE”.
Voting Rights
Holders of Common Stock are entitled to one vote per share on all matters voted on by the stockholders, including the election of directors. Our
Common Stock does not have cumulative voting rights.
Dividend Rights
The holders of Common Stock are entitled to receive dividends, if any, as may be declared from time to time by the Board of Directors in its
discretion out of funds legally available for the payment of dividends.
Liquidation Rights
Holders of Common Stock will share ratably in all assets legally available for distribution to our stockholders in the event of dissolution.
Other Rights and Preferences
Our Common Stock has no sinking fund or redemption provisions or preemptive, conversion or exchange rights. Holders of Common Stock may
act by unanimous written consent.
Transfer Agent and Registrar
Computershare Investor Services is the transfer agent and registrar for our common stock.
EXECUTIVE SEVERANCE AGREEMENT
EXHIBIT 10.12
This Executive Severance Agreement (“Agreement”) is made effective as of the 19th day of December, 2016 (the “Effective Date”), between
Lands’ End, Inc., a Delaware corporation (together with its successors, assigns and Affiliates, the “Company”), and Jerome S. Griffith (“Executive”).
WHEREAS, in light of the Company’s size and its visibility as a publicly traded company that reports its results to the public, the Company has
attracted the attention of other companies and businesses seeking to obtain for themselves or their customers some of the Company’s business acumen and
know-how; ; and
WHEREAS, the Company and Executive have entered into an employment letter agreement dated December 19th, 2016 (the “Employment
Letter”), pursuant to which the Company has agreed to employ Executive commencing on March 6, 2017 (the “Start Date”) on the terms and conditions
contained in the Employment Letter, which includes Executive entering into this Agreement, and Executive has agreed to accept such employment on such
terms and conditions, including those obligations contained in this Agreement; and
WHEREAS, the Company shall, in connection with Executive commencing employment with the Company, share with Executive certain
aspects of its business acumen and know-how as well as specific confidential and proprietary information about the products, markets, processes, costs,
developments, ideas, and personnel of the Company; and
WHEREAS, the Company shall, in connection with Executive commencing employment with the Company, imbue Executive with certain
aspects of the goodwill that the Company has developed with its customers, vendors, representatives and employees; and
WHEREAS, in consideration for Executive commencing employment with the Company and entering into this Agreement, the Company is
extending to Executive the opportunity to receive severance benefits under certain circumstances as provided in this Agreement.
NOW, THEREFORE, in consideration of the foregoing, and of the respective covenants and agreements of the parties set forth in this
Agreement, the parties hereto agree as follows:
1.
Definitions. As used in this Agreement, the following terms have the meanings indicated (but if not otherwise defined herein,
capitalized terms as used in this Agreement will have the meanings indicated in the Employment Letter):
a.
“Accrued Accounts” means (i) unpaid base salary, accrued but unused vacation and expense reimbursements due, which
shall be paid promptly after Executive’s Separation from Service, amounts due under any benefit or equity plan, grant or program, paid in
accordance with the terms of such plan, grant or program, and any unpaid bonus for any prior completed fiscal year paid when the bonus would
otherwise be paid for such prior fiscal year (which, for the avoidance of doubt, shall not be paid in duplication of the same or any similar
obligations under any other arrangement) and (iv) to the extent that a Qualifying Termination occurs within the last six calendar months of a
given fiscal year, a pro rata bonus that would otherwise be payable under the Company’s Annual Incentive Plan for such fiscal year based on
actual results from the fiscal year, multiplied by the ratio of the number of days employed during such fiscal year to the number of days in the
year, and paid when bonuses are otherwise paid under the Annual Incentive Plan for such fiscal year (but in no event later than April 15
following the end of such fiscal year).
b.
“Affiliate” means any subsidiary or other entity that, directly or indirectly through one or more intermediaries, is
controlled by Lands’ End, Inc., whether now existing or hereafter formed or acquired. For purposes hereof, “control” means the power to vote
or direct the voting of sufficient securities or other interests to elect one-third of the directors or managers or to control the management of such
subsidiary or other entity.
c.
“Annual Bonus” shall mean the average bonus (annualized for any partial fiscal year) paid (if any) to Executive under the
Company’s Annual Incentive Plan in the last two consecutive completed fiscal years ending prior to the Date of Termination, provided that, (i)
Executive’s Target Annual bonus shall be used for either of the fiscal years beginning in each of January 2017 and 2018 to the extent the Date
of Termination occurs prior to the date that annual bonuses for the applicable fiscal year has been determined (and, if payable, paid) in respect
of both years or (ii) if payment under this Agreement is being triggered upon a Change in Control Termination, Annual Bonus shall for this
purpose mean the higher of the applicable amount determined under clause (i) of this definition and the Executive’s Target Annual Bonus.
d.
“Cause” means (i) a material breach by Executive (other than a breach resulting from Executive’s incapacity due to a
condition that with the passing of time would be a Disability) of Executive’s duties and responsibilities which breach is demonstrably willful
and deliberate on Executive’s part, is committed in bad faith or without reasonable belief that such breach is in the best interests of the
Company and is not remedied in a reasonable period of time after receipt of written notice from the Board specifying such breach; (ii) the
indictment and conviction of, or pleading of guilty or nolo contendere by, Executive to a felony; or (iii) willful misconduct in connection with
Executive’s employment.
e.
f.
“Change in Control” shall have the meanings such term in the Company’s 2014 stock plan.
“Change in Control Termination” means a Qualifying Termination occurring either (i) within 180 calendar days prior to a
Change in Control, so long as a definitive agreement pursuant to which transactions contemplated thereunder would result in a Change in
Control, has been executed by the Company prior to such Date of Termination or (ii) on or with two (2) years after a Change in Control occurs.
g.
“Code” means the Internal Revenue Code of 1986, as amended.
h.
limited to Executive) that:
“Competitive Business” means any corporation, partnership, association, or other person or entity (including but not
i.
is listed on Appendix A or is otherwise included in the Company’s annual proxy statement (the “Proxy”) as
most recently filed prior to the Date of Termination, each of which Executive acknowledges is a Competitive Business, whether or
not it falls within the categories in subsection (c)(ii) immediately below; or
ii.
engages in any business which, at any time during the most recent eighteen (18) months of Executive’s
Company Employment and regardless of the business format (including but not limited to a department store, specialty store,
discount store, direct marketing, or electronic commerce): (A) consists of marketing, manufacturing or selling apparel and/or home
products that are material products of the Company, at a price point similar to that of the Company and which entity has a
combined annual revenue in excess of $250 million that is primarily generated by any combination of the products described above
; and (B) the Board of Directors of the Company (the “Board”) (or a designated committee thereof) reasonably identifies and adds
to Appendix A by written notice to Executive at least ninety (90) days prior to the Date of Termination (provided that the
Company’s filing of the Proxy with the Securities and Exchange Commission shall constitute valid notice to Executive of any such
identification or addition regardless of whether such filing occurs at least ninety (90) days prior to the Date of Termination).
2
Notwithstanding the foregoing, in no event shall “Competitive Business” include (A) any activity in which Executive
proposes to engage, to which the Board provides its written consent to Executive, not to be unreasonably withheld; or (B) services
by Executive as an advisor to any private equity firm, so long as Executive is providing strategic investment and management
advice (including on an acquisition, but excluding for the avoidance of doubt, advising in respect of any company that would
otherwise meet the definition of a Competitive Business already in, or once it becomes a part of, the private equity firm portfolio)
in the area of apparel and/or home products generally and is not otherwise sharing Confidential Information or providing advice
and/or guidance to any entity listed as a Competitive Business as referenced in subparagraphs i. and ii. above.
i.
“Confidential Information” means information related to the Company’s business, not generally known in the trade or
industry, which Executive learns or creates during the period of Executive’s Company Employment, which may include but is not limited to
product specifications, manufacturing procedures, methods, equipment, compositions, technology, formulas, know-how, research and
development programs, sales methods, customer lists, customer usages and requirements, personnel evaluations and compensation data,
computer programs and other confidential technical or business information and data that is not otherwise in the public domain.
j.
“Disability” means disability as defined under the Company’s long-term disability plan (regardless of whether Executive
is a participant undersuch plan), including the completion of any time period required for full coverage under such plan.
k.
“Executive’s Company Employment” means the time during which Executive is employed by any entity comprised within
the definition of “Company,” regardless of any change in the entity actually employing Executive.
l.
“Good Reason” shall mean, without Executive’s prior written consent, (i) a reduction of more than ten percent (10%) from
the highest prior level of either the Executive’s annual rate of base salary or Target Annual Bonus under the Company’s Annual Incentive Plan
(and for the avoidance of doubt, any reduction that is equal to or less than such 10% amount may only occur to the extent in connection with a
general reduction of annual rate of base salary that applies proportionately to all executive officers); (ii) Executive’s mandatory relocation to an
office more than fifty (50) miles from the primary location at which Executive was required to perform Executive’s duties prior to such
relocation; (iii) Executive is no longer the principal executive officer of the Company; (iv) a material diminution in Executive’s duties,
responsibilities or authority, or the assignment of duties or responsibilities materially inconsistent with Executive’s position as principal
executive officer of the Company (which shall be presumed to occur if Executive ceases to report directly to the Board); (v) any time that ESL
Investments, Inc. and its affiliate entities beneficially own more than twenty percent (20%) of the Company’s shares entitled to vote for
directors, and they, in whole or in part, vote against Executive’s reelection to the Board while Executive is serving as the Chief Executive
Officer of the Company; or (vi) anyother action or inaction that constitutes a material breach of the terms of the Employment Letter, including
the failure of a successor company to assume or fulfill the obligations under the Employment Letter or this Agreement. In each case, Executive
must provide Company with written notice of the facts giving rise to a claim that “Good Reason” exists for purposes of this Agreement, within
sixty days of the initial existence of such Good Reason event, and Company shall have the right to remedy such event within thirty (30) days
after receipt of Executive’s written notice. “Good Reason” shall cease to exist, and may not form the basis for claiming any compensation or
benefits under this Agreement, if any of the following occurs:
i.
Executive fails to provide the above-referenced written notice of the Good Reason event within sixty (60) days
of its occurrence;
ii.
Company remedies the Good Reason event within the above-referenced thirty (30) day remediation period; or
3
iii.
Executive fails to resign within fifteen (15) days after the above-referenced thirty (30) day remediation
period.
m.
“Qualifying Termination” means the first to occur of a termination of the Executive’s Company Employment by the
Company without Cause or by Executive upon his resignation for Good Reason, in any such case in accordance with the applicable procedural
provisions set forth in this Agreement.
n.
“Restricted Period” means (i) twenty-four (24) months following the Date of Termination that corresponds to any
Separation from Service described in Section 2(a) below or (ii) twelve (12) months following the Date of Termination that corresponds to any
Separation from Service not described in Section 2(a) below. Notwithstanding any provision of this Agreement to the contrary, on and after the
first anniversary of a Qualifying Termination, Executive may elect, by written notice to the Company, to (a) forfeit all rights to the payments
and benefits otherwise to be provided under Section 2 of this Agreement between and including the date on which Executive commences
engaging in activity that would, but for this provision, constitute a breach of Section 8 of this Agreement (such date to be specified in such
notice, the “Forfeiture Date”)) through the end of the Salary Continuation Period and (b) reimburse the Company, in an amount in cash equal to
the prorata portion of the value of the portion of the Sign-On Awards (as such term is defined in the Employment Letter) that became vested in
accordance with the terms of the applicable Sign-On Award grant agreements as of Executive’s Date of Termination, with such amount equal to
the product of (i) the sum of (x) the net after-tax amount on Executive’s Date of Termination of the shares of Company common stock delivered
to Executive in settlement of the Sign-on RSUs (as such term is defined in the Employment Letter) that became vested in accordance with the
terms of the applicable Sign-On RSU grant agreement as of Executive’s Date of Termination plus (y) the net after-tax amount that Executive
would have realized on the Date of Termination in respect of the Sign-On Options assuming that, as of Executive’s Date of Termination,
Executive had exercised in full all Sign-On Options (as such term is defined in the Employment Letter) and (ii) a fraction, equal to (x) the
number of calendar days remaining between and including the Forfeiture Date through the end of the Salary Continuation Period, divided by
(y) the number of days in the Salary Continuation Period, and upon such forfeiture and reimbursement, the restrictions imposed on Executive
under Section 8 of this Agreement shall cease to apply to Executive as of the Forfeiture Date.
o.
“Salary Continuation” means the sum of monthly base salary, based on Executive’s highest monthly base salary rate prior
to the date Executive’s Company Employment terminates (“Date of Termination”) and one- twelfth of Executive’s Annual Bonus payable for a
period of twenty-four (24) months following the Date of Termination (“Salary Continuation Period”), provided that, if the event giving rise to
payment of Salary Continuation is a Change in Control Termination, such period shall be thirty (30) months.
p.
“Section 409A Threshold” means an amount equal to the sum of the following amounts: (x) two times the lesser of (1)
Executive’s base salary for services provided to the Company as an employee for the calendar year preceding the calendar year in which
Executive has a Separation from Service; and (2) the maximum amount that may be taken into account under a qualified plan in accordance
with Code Section 401(a)(17) for the calendar year in which the Executive has a Separation from Service, and (y) the amount of Executive’s
Salary Continuation that does not otherwise provide for a deferral of compensation by application of Treasury Regulation Section 1.409A-1(b)
(4). In all events, this amount shall be limited to the amounts specified under Treasury Regulation Sections 1.409A-1(b)(9)(iii)(A) and 1.409A-
1(b)(9)(iii)(B) and the amount of any payments of Salary Continuation described in Treasury Regulation Section 1.409A-1(b)(4)(i) or any
successors thereto.
q.
“Separation from Service” means a “separation from service” with the Company within the meaning of Code Section
409A (and regulations issued thereunder). Notwithstanding anything herein to the contrary, the fact that Executive is treated as having incurred
a Separation from Service under Code Section 409A and the terms of this Agreement shall not be determinative, or in any way affect the
analysis, of whether Executive has retired, terminated employment, separated from service, incurred a severance from employment or become
entitled to a distribution, under the terms of any qualified retirement plan (including pension plans and 401(k) savings plans) maintained by the
Company.
4
r.
s.
“Specified Employee” means a “specified employee” under Code Section 409A (and regulations issued thereunder).
“Trade Secret” means information, including a formula, pattern, compilation, program, device, method, technique or
process, that derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable
by proper means by, other persons who can obtain economic value from its disclosure or use, and that is the subject of efforts to maintain its
secrecy that are reasonable under the circumstances. Employment.
2.
Severance.
a.
Upon the occurrence of a Qualifying Termination, Executive shall be entitled to the following:
i.
ii.
Salary Continuation during the Salary Continuation Period.
Continuation of health, dental and vision coverage for Executive, his spouse and his dependents, as applicable,
at the applicable active employee rate (which shall be withheld, as applicable, from payments of Executive’s Salary Continuation)
until the end of the pay period that includes the last day of the Salary Continuation Period, on the same terms as they were provided
immediately prior to the Date of Termination (the “Continuation Benefits”). Any such coverage provided during the Salary
Continuation Period shall not run concurrently with the applicable continuation period in accordance with the provisions of the
Consolidated Omnibus Budget Reconciliation Act (“COBRA”). If Executive becomes eligible to participate in another medical or
dental benefit plan or arrangement through another employer during such period, the Company shall no longer pay for continuation
coverage benefits and Executive shall be required to pay the full COBRA premium. Executive is required to notify the Company
within thirty (30) days of obtaining other medical or dental benefits coverage. Any coverage provided under this Section 2(a)(ii)
shall be subject to such amendments (including termination) of the coverage available to active participants as the Company shall
make from time to time at its sole discretion, including but not limited to changes in covered expenses, employee contributions for
premiums, and co-payment obligations, and shall be, to the fullest extent permitted by law, secondary to any other coverage
Executive may obtain from subsequent employment. If the Company’s health plans are self- funded within the meaning of Code
Section 105(h), the premiums paid by the Company for coverage shall be treated as taxable income to Executive.
iii.
Reasonable outplacement services considering Executive’s position, mutually agreed upon by the Company
and Executive from those vendors used by Company as of the Date of Termination, for a period of up to twelve (12) months or
until subsequent employment is obtained, whichever occurs first. In addition, a resignation by Executive for Good Reason under
this Agreement shall also be deemed to be a termination without Cause for purposes of Executive’s Relocation Repayment
Agreement entered into with the Company on or prior to the Start Date, with all attendant benefits to be provided thereunder.
5
iv.
Accrued Amounts.
Executive shall not be entitled to continuation of compensation or benefits if Executive’s employment terminates for any other reason,
including due to death or Disability, except as may be provided under any other agreement or benefit plan applicable to Executive at the time of
the termination of Executive’s employment and except for Accrued Benefits (provided that upon a resignation without Good Reason or
Termination for Cause, the pro rata annual bonus otherwise payable in respect of the year in which the Date of Termination occurs shall not be
paid). Executive shall also not be entitled to Salary Continuation, the Continuation Benefits nor the outplacement services pursuant to clause iii.
above, after Executive materially violates the terms of this Agreement, including the material requirements under Section 8, unless such
violation is effectively curable and Executive cures such violation within ten (10) business days after written notice of such violation by the
Company. Except as provided in this Section 2, all other compensation and benefits shall terminate as of the Date of Termination.
b.
Subject to subsection (c), Company shall pay Executive’s Salary Continuation due under Section 2(a)(i) in substantially
equal installments on each regular salary payroll date for the Salary Continuation Period, except as otherwise provided in this Agreement.
Salary Continuation payments shall be subject to withholdings for federal and state income taxes, FICA, Medicare and other legally required or
authorized deductions. For the avoidance of doubt, Executive shall not be obligated to seek affirmatively or accept an employment, contractor,
consulting or other arrangement to mitigate Salary Continuation and any other amounts received for such activities shall not reduce the
amounts due hereunder. Further, to the extent Executive does not execute and timely submit the General Release and Waiver (in accordance
with Section 7) by the deadline specified therein, or revokes such General Release and Waiver, Salary Continuation payments Continuation
Benefits shall terminate and forever lapse, and Executive shall be required immediately to reimburse the Company for any portion of the Salary
Continuation and health benefits premiums paid during the Salary Continuation Period. For clarity, the Salary Continuation and Continuation
Benefits shall, subject to paragraph c below, start immediately upon the Date of Termination and not be delayed until such General Release and
Waiver is executed and not revoked. To the extent such Salary Continuation was paid in a calendar year prior to the calendar year in which such
reimbursement is received by the Company, the reimbursement shall be in the gross amount of such Salary Continuation on a pre-tax-
withholding basis. To the extent such Salary Continuation was paid in the same calendar year as the reimbursement is received by the
Company, the reimbursement shall be in the net amount of such Salary Continuation on an after-tax-withholding basis. In the event such
reimbursement is required with respect to Salary Continuation payments that are reported on a Form W-2 for Executive, Executive shall be
solely responsible for claiming any related tax deduction, and the Company shall not be required to issue a corrected Form W-2 except as
required by law.
c.
If at the time of Separation from Service, the Executive is a Specified Employee, payment of any nonqualified deferred
compensation due during such six (6) month period shall be deferred until the earlier of six (6) months and one (1) day after the Executive’s
Separation from Service or the Executive’s death and then paid in a lump sum; provided that, if the Executive’s Separation from Service
qualifies under Code 409A for the application of the Section 409A Threshold, such Section 409A Threshold shall be applied, after application
of any short term deferral period that applies to payments, such that full payment of the nonqualified deferred compensation shall be made until
the Section 409A Threshold is reached and then any remaining payments during such six (6) months period shall be deferred until the end of
the period or Executive’s earlier death.
d.
If the Termination is a Change in Control Termination and occurs prior to the Change in Control, any increased Annual
Bonus amount that becomes due as a result of the Change in Control from the period prior to the Change in Control shall be paid in a lump sum
upon the Change in Control, but if, and only if, the Change in Control is covered by Treasury Reg. 1-409A-3(i)(v).
6
e.
If any of the payments or benefits received or to be received by Executive (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement, or otherwise) constitute “parachute payments” within the meaning of Section 280G of
the Code and would, but for this paragraph, be subject to the excise tax imposed under Section 4999 of the Code (the “Excise Tax”), then such
payments shall be reduced by the minimum possible amounts until no amount payable to Executive will be subject to the Excise Tax; provided,
however, that no such reduction shall be made if the net after-tax payment (after taking into account federal, state, local or other income,
employment and excise taxes) to which Executive would otherwise be entitled without such reduction would be greater than the net after-tax
payment (after taking into account federal, state, local or other income, employment and excise taxes) to Executive resulting from the receipt of
such payments with such reduction. In applying any such reduction, the Executive shall be entitled to elect the order of reduction to the extent
such right would not be a violation of Code Sections 280G, 409A or 4999. If it is a violation or the Executive does not elect, to the extent any
such payments may be subject to Code Section 409A, the reduction shall be applied to in the following order (i) any payments of Salary
Continuation starting with the last payment due, (ii) vesting of compensatory awards of shares (or in the absence of shares, restricted stock
units) to the extent Treas. Reg 1.280G-Q and A24(c) does not apply in reverse order, (iii) vesting of compensatory awards of shares (or in the
absence of shares, restricted stock units) to the extent such Section does not apply in reverse order, (iv) compensatory stock options on the sum
basis and sum order as (n) and (m) and then (v) any remaining payments on a pro rata basis in proportion to the amount of such payments that
are considered “contingent on a change in ownership or control” within the meaning of Section 280G of the Code. All calculations and
determinations under this subsection (e) shall be made by an independent accounting firm or independent tax counsel appointed by the
Company whose determinations shall be conclusive and binding on the Company and the Executive for all purposes and who (x) shall provide
an opinion to the Company (in respect of which the Company shall use its reasonable best efforts to also require such firm or counsel to provide
an opinion to Executive) that can be relied on for filing tax returns and (y) shall provide copies of all such calculations, as well as a copy of a
formal valuation of any non-competition provision that impacts the foregoing calculations. All fees and expenses of the accounting firm or tax
counsel shall be borne solely by the Company and shall be paid by the Company.
3.
Confidentiality. Subject to Section 11(b) below, in addition to all duties of loyalty imposed on Executive by law or otherwise, during
the term of Executive’s Company Employment and for two years following the termination of such employment for any reason, other than in the
reasonable and good faith performance of his duties to the Company, Executive shall maintain Confidential Information in confidence and secrecy and shall
not disclose Confidential Information or use it for the benefit of any person or organization (including Executive) other than the Company without the prior
written consent of an authorized officer of the Company (except for disclosures to persons acting on the Company’s behalf with a need to know such
information).
4.
Non-Disclosure of Trade Secrets. Subject to Section 11(b) below, during Executive’s Company Employment, except in the
reasonable and good faith performance of his duties to the Company, Executive shall preserve and protect Trade Secrets of the Company from unauthorized
use or disclosure; and after termination of such employment, Executive shall not use or disclose any Trade Secret of the Company for so long as that Trade
Secret remains a Trade Secret.
5.
Third-Party Confidentiality. Executive shall not disclose to the Company, use on its behalf, or otherwise induce the Company to use
any secret or confidential information belonging to persons or entities not affiliated with the Company, which may include a former employer of Executive,
if Executive then has an obligation or duty to any person or entity (other than the Company) to not disclose such information to other persons or entities,
including the Company. Executive acknowledges that the Company has disclosed that the Company is now, and may be in the future, subject to duties to
third parties to maintain information in confidence and secrecy. By executing this Agreement, Executive consents to be bound by any such duty owed by
the Company to any third party of which he is informed.
7
6.
Work Product. Executive acknowledges that all ideas, inventions, innovations, improvements, developments, methods, designs,
analyses, reports, databases, and any other similar or related information (whether patentable or not) which relate to the actual or anticipated business,
research and development, or existing or known future products or services of the Company which are or were conceived, developed or created by
Executive (alone or jointly with others) during Executive’s Company Employment (the “Work Product”) is and shall remain the exclusive property of the
Company. Executive acknowledges and agrees that all copyrightable Work Product was created in Executive’s capacity as an employee of Lands’ End and
within the scope of Executive’s Company Employment, and thus constitutes a “work made for hire” under the Copyright Act of 1976, as amended.
Executive hereby assigns to the Company all right, title and interest in and to all Work Product, and agrees to perform all actions reasonably requested by
the Company to establish, confirm or protect the Company’s ownership thereof (including, without limitation, executing assignments, powers of attorney
and other instruments).
7.
General Release and Waiver. Upon or following Executive’s Date of Termination potentially entitling Executive to Salary
Continuation and other benefits under Section 2 above, Executive will execute a binding general release and waiver of claims in a form substantially
similar to the attached Appendix B. If the General Release and Waiver is not signed within the time it requires or is signed but subsequently revoked,
Executive will not continue to receive any Salary Continuation otherwise payable, and shall reimburse any Salary Continuation previously paid.
8.
Noncompetition. During Executive’s Company Employment and thereafter for the applicable Restricted Period, Executive shall not,
directly or indirectly, participate in, consult with, be employed by, or assist with the organization, planning, financing, management, operation or control of
any Competitive Business, provided the foregoing shall not limit Executive from being involved in the noncompetitive portion of a Competitive Business.
9.
Nonsolicitation. During Executive’s Company Employment and for eighteen (18) months following the termination of such
employment for any reason, Executive shall not, directly or indirectly, either by himself or by providing substantial assistance to others (i) solicit any
employee of the Company to terminate employment with the Company, or (ii) employ or seek to employ, or cause or assist any other person, company,
entity or business to employ or seek to employ, any individual who was both an employee of the Company as of Executive’s Date of Termination and has
been an employee of the Company in the six (6) months prior to the event. The foregoing shall not be violated by general advertising not targeted at
employees of the Company or serving as a reference upon request to an entity with which Executive is not associated.
10.
Future Employment. During Executive’s Company Employment and thereafter for the applicable Restricted Period, before
accepting any employment with any Competitive Business (whether or not Executive believes such employment is prohibited by Section 8), Executive
shall disclose to the Company the identity of any such Competitive Business and a complete description of the duties involved in such prospective
employment, including a full description of any business, territory or market segment to which Executive will be assigned. Further, during Executive’s
Company Employment and for eighteen (18) months following the termination of such employment for any reason, Executive agrees that, before accepting
any future employment, Executive will provide a copy of this Agreement to any prospective employer of Executive, and Executive hereby authorizes the
Company to do likewise, whether before or after the outset of the future employment.
11.
Nondisparagement; Cooperation.
a.
During Executive’s Company Employment and for two (2) years following the termination of such employment for any
reason, Executive (i) will not criticize or disparage the Company or its directors, officers, employees or products, and (ii) will reasonably
cooperate with the Company in all investigations, potential litigation or litigation in which the Company is involved or may become involved
with respect to matters that relate to Executive’s Company Employment (other than any such investigations, potential litigation or litigation
between Company and Executive); provided, that, with regard to Executive’s duties under clause (ii), Executive shall be reimbursed for
reasonable travel and out-of-pocket expenses related thereto, but shall otherwise not be entitled to any additional compensation. During
Executive’s Company employment and for two (2) years following the termination of such employment, the Company’s executive officers and
its directors shall not, directly or indirectly, except the directors and/or executive officers amongst themselves while Executive is employed in
their reasonable and good faith performance of their duties to the Company, criticize or disparage Executive.
8
b.
Notwithstanding the foregoing, nothing in this Section 11 or any other provision of this Agreement shall prevent
Executive or the officers and directors from (i) making any truthful statement to the extent, but only to the extent (A) necessary with respect to
any litigation, arbitration or mediation involving this Agreement or the Employment Letter, including, but not limited to, the enforcement of
this Agreement or the Employment Letter, in the forum in which such litigation, arbitration or mediation properly takes place or (B) required by
law, legal process or by any court, arbitrator, mediator or administrative or legislative body (including any committee thereof) with apparent
jurisdiction, (ii)making normal competitive statements any time after the expiration of the applicable Restricted Period, (iii) rebut false or
misleading statements made by others and/or (iv) making any statements in the reasonable and good faith performance of duties to the
Company while Executive is employed by the Company.
12.
Indemnification. After termination, the Company shall continue to maintain a directors and officers liability insurance policy
covering Executive to the extent the Company provides such coverage for its executive officers and directors and shall continue to cover Executive under
any indemnification agreement, by-laws or other existing indemnification rights while liability continues to exist after the Date of Termination.
13.
Notices. All notices, request, demands and other communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given (or received, as applicable) upon the calendar date when delivered by hand or when mailed by United States certified or
registered mail with postage prepaid addressed as follows:
above.
a.
b.
If to Executive, to such person or address which Executive has furnished to the Company in writing pursuant to the
If to the Company, to the attention of the Company’s General Counsel at the address set forth on the signature page of this
Agreement or to such other person or address as the Company shall furnish to Executive in writing pursuant to the above.
14.
Enforceability. Executive recognizes that irreparable injury may result to the Company, its business and property, and the potential
value thereof in the event of a sale or other transfer, if Executive breaches any of the restrictions imposed on Executive by this Agreement, and Executive
agrees that if Executive shall engage in any act in violation of such provisions, then the Company shall be entitled, in addition to such other remedies and
damages as may be available, to an injunction prohibiting Executive from engaging in any such act.
15.
Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon and enforceable by Lands’ End, Inc., its
successors, pending assigns and Affiliates, all of which (other than Lands’ End, Inc.) are intended third-party beneficiaries of this Agreement. Executive
hereby consents to the assignment of this Agreement to any person or entity, which is a successor to all or substantially all of the Lands’ End business
provided such entity assumes the obligation hereunder in writing.
16.
Validity. Any invalidity or unenforceability of any provision of this Agreement is not intended to affect the validity or
enforceability of any other provision of this Agreement, which the parties intend to be severable and divisible, and to remain in full force and effect to the
greatest extent permissible under applicable law.
17.
Choice of Law; Jurisdiction. Except to the extent superseded or preempted by federal U.S. law, the rights and obligations of the
parties and the terms of this Agreement shall be governed by and construed in accordance with the domestic laws of the State of Wisconsin, but without
regard to the State of Wisconsin’s conflict of laws rules. The parties further agree that the state and federal courts in Madison, Wisconsin, shall have
exclusive jurisdiction over any claim which in any way arises out of Executive’s employment with the Company, including but not limited to any claim
seeking to enforce the provisions of this Agreement.
9
18.
Section 409A Compliance. To the extent that a payment or benefit under this Agreement is subject to Code Section 409A, it is
intended that this Agreement as applied to that payment or benefit comply with or be exempt from the requirements of Code Section 409A, and the
Agreement shall be administered and interpreted consistent with this intent. Notwithstanding any provision of this Agreement to the contrary, for purposes
of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment that are
considered deferred compensation under Section 409A, references to Executive’s “termination of employment” (and corollary terms) with the Company
shall be construed to refer to Executive’s “separation from service” (within the meaning of Treas. Reg. Section 1.409A-1(h)) with the Company. Whenever
payments under this Agreement are to be made in installments, each such installment shall be deemed to be a separate payment for purposes of Section
409A. With respect to any reimbursement or in-kind benefit arrangements of the Company that constitute deferred compensation for purposes of Section
409A, except as otherwise permitted by Section 409A, the following conditions shall be applicable: (i) the amount eligible for reimbursement, or in-kind
benefits provided, under any such arrangement in one calendar year may not affect the amount eligible for reimbursement, or in-kind benefits to be
provided, under such arrangement in any other calendar year, (ii) any reimbursement must be made on or before the last day of the calendar year following
the calendar year in which the expense was incurred, and (iii) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for
another benefit.
19.
Effectiveness. The parties to this Agreement each acknowledge and agree that Executive’s employment shall not commence, and
Executive shall not be subject to or eligible for payments and benefits under this Agreement, in each case until Executive commences Executive’s
Company Employment on the Start Date. Notwithstanding the foregoing, in the event that, after the Effective Date but prior to the Start Date, (a) the
Company terminates the Employment Letter and this Agreement and rescinds the offer to Executive to commence employment with the Company on the
Start Date (under circumstances other than those which, if Executive were employed with the Company at such time, would constitute Cause), then
Executive shall be entitled to receive the Salary Continuation in accordance with the terms of Section 2.a.i. above, with the Salary Continuation Period to
commence on the next regularly scheduled payroll date occurring after the Company has provided written notice to Executive of its termination of the
Employment Letter and this Agreement, or (b) Executive terminates the Employment Letter and this Agreement, Executive shall first be required to
provide sixty (60) days advance written notice to the Company of such termination, in which case Executive acknowledges and agrees that Executive, for
good and valuable consideration, shall be bound by the restrictive covenants set forth in Sections 3 through 9 of this Agreement, as if Executive had
resigned without Good Reason on the date of such written notice.
20.
Miscellaneous. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not set forth expressly in this Agreement. This Agreement may be modified only by a written agreement
signed by Executive and a duly authorized officer or director of the Company.
[END OF DOCUMENT. SIGNATURES ON NEXT PAGE.]
10
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written.
EXECUTIVE
By:
Name:
/s/ Jerome S. Griffith
Jerome S. Griffith
LANDS’ END, INC.
/s/ Josephine Linden
By:
Name:
Josephine Linden
Its: Chair, Board of Directors
5 Lands’ End Lane
Amazon.com
Ann Taylor
Ascena Retail Group, Inc.
Bonobos
Brooks Brothers
Chico’s
Eddie Bauer
The Gap Company
J.C. Penney Company Inc.
J. Crew
Jos A. Bank
Kate Spade
Kohl’s
L Brands
L.L. Bean
Next Retail
Polo Ralph Lauren
Talbots
Target
Tommy Hilfiger
Vineyard Vines
Appendix A
A-1
Appendix B
NOTICE: YOU MAY CONSIDER THIS GENERAL RELEASE AND WAIVER FOR UP TO TWENTY-ONE (21) DAYS. YOU MAY NOT
SIGN IT UNTIL ON OR AFTER YOUR LAST DAY OF WORK. IF YOU DECIDE TO SIGN IT, YOU MUST DELIVER A SIGNED COPY TO
LANDS’ END, INC. BY NO LATER THAN THE TWENTY- SECOND (22ND ) DAY AFTER YOUR LAST DAY OF WORK TO THE
GENERAL COUNSEL, LANDS’ END, INC., 5 LANDS’ END LANE, DODGEVILLE, WISCONSIN 53595. YOU MAY REVOKE THE
GENERAL RELEASE AND WAIVER WITHIN SEVEN (7) DAYS AFTER SIGNING. ANY REVOCATION WITHIN THIS PERIOD MUST BE
IMMEDIATELY SUBMITTED IN WRITING TO THE GENERAL COUNSEL AT THE ADDRESS SET FORTH ABOVE. YOU MAY WISH
TO CONSULT WITH AN ATTORNEY BEFORE SIGNING THIS DOCUMENT.
GENERAL RELEASE AND WAIVER
In consideration of the severance benefits that are described in the attached Executive Severance Agreement that I previously entered into with
Lands’ End, Inc., dated December 19, 2016, I, for myself, my heirs, administrators, representatives, executors, successors and assigns, do hereby release
Lands’ End, Inc., its current and former agents, subsidiaries, affiliates, related organizations, employees, officers, directors, shareholders, attorneys,
successors, and assigns (collectively, “Lands’ End”) from any and all claims of any kind whatsoever, whether known or unknown, arising out of, or
connected with, my employment with Lands’ End and the termination of my employment. Without limiting the general application of the foregoing, this
General Release & Waiver releases, to the fullest extent permitted under law, all contract, tort, defamation, and personal injury claims; all claims based on
any legal restriction upon Lands’ End’s right to terminate my employment at will; Title VII of the Civil Rights Act of 1964, 42 U.S.C. §§ 2000e et seq.; the
Age Discrimination in Employment Act, 29 U.S.C. §§ 621 et seq.; the Americans with Disabilities Act, 42 U.S.C. §§ 12101 et seq.; the Rehabilitation Act
of 1973, 29 U.S.C. §§ 701 et seq.; the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq. (“ERISA”); 29 U.S.C. § 1985; the
Civil Rights Reconstruction Era Acts, 42 U.S.C.§§ 1981-1988; the National Labor Relations Act, 29 U.S.C. §§ 151 et seq.; the Family & Medical Leave
Act, 29 U.S.C. §§ 2601 et seq.; the Immigration & Nationality Act, 8 U.S.C. §§ 1101 et seq.; Executive Order 11246 and all regulations thereunder; the
Wisconsin Fair Employment Act, Wis. Stat. §§ 111.31-111.395; the Wisconsin Family & Medical Leave Act, Wis. Stat. § 103.10; the Wisconsin Worker’s
Compensation Act, Wis. Stat. Ch. 102; and any and all other state, federal or local laws of any kind, whether administrative, regulatory, statutory or
decisional.
This General Release & Waiver does not apply to any claims that may arise after the date I sign this General Release & Waiver. Also excluded
from this General Release & Waiver are any claims that cannot be waived by law, including but not limited to (1) my right to file a charge with or
participate in an investigation conducted by the Equal Employment Opportunity Commission and (2) my rights or claims to benefits accrued under benefit
plans maintained by Lands’ End and governed by ERISA. I do, however, waive any right to any monetary or other relief flowing from any agency or third-
party claims or charges, including any charge I might file with any federal, state or local agency. I warrant and represent that I have not filed any complaint,
charge, or lawsuit against Lands’ End with any governmental agency or with any court. The release does not cover any rights to indemnification or rights to
directors and officers liability insurance coverage.
I also waive any right to become, and promise not to consent to become a participant, member, or named representative of any class in any case
in which claims are asserted against Lands’ End that are related in any way to my employment or termination of employment at Lands’ End, and that
involve events that have occurred as of the date I sign this General Release and Waiver. If I, without my consent, am made a member of a class in any
proceeding, I will opt out of the class at the first opportunity afforded to me after learning of my inclusion. In this regard, I agree that I will execute,
without objection or delay, an “opt-out” form presented to me either by the court in which such proceeding is pending, by class counsel or by counsel for
Lands’ End.
I have read this General Release and Waiver and understand all of its terms. I have signed it voluntarily with full knowledge of its legal
significance.
B-1
I have had the opportunity to seek, and I have been advised in writing of my right to seek, legal counsel prior to signing this General Release &
Waiver.
I was given at least twenty-one (21) days to consider signing this General Release & Waiver. I agree that any modification of this General
Release & Waiver Agreement will not restart the twenty-one (21) day consideration period.
I understand that if I sign the General Release & Waiver, I can change my mind and revoke it within seven (7) days after signing it by notifying
the General Counsel of Lands’ End in writing at Lands’ End, Inc., 5 Lands’ End Lane, Dodgeville, Wisconsin 53595. I understand the General Release &
Waiver will not be effective until after the seven (7) day revocation period has expired.
I understand that the delivery of the consideration herein stated does not constitute an admission of liability by Lands’ End and that Lands’ End
expressly denies any wrongdoing or liability.
Date: SAMPLE ONLY - DO NOT DATE
Signed by:
SAMPLE ONLY - DO NOT SIGN
Witness by:
SAMPLE ONLY - DO NOT SIGN
B-2
EXHIBIT 10.24
October 16, 2017
Sarah Rasmusen
[Address Omitted]
Dear Sarah,
We are pleased to confirm an offer of employment to you as SVP, E-Commerce. We all believe the future of Lands' End will provide us with many opportunities for growth
and the company is well positioned for continued success.
Some key elements of the position are as follows:
•
•
•
•
•
•
Your offer is contingent upon our Board of Directors approval and upon satisfactory completion of a criminal background check, employment authorization and
verification and confirmation that you are not subject to any restrictions arising out of your prior employment which would be breached or violated by your
accepting a position with Lands’ End.
The primary work location will be in our Dodgeville, WI office. All requested business travel and lodging will be at company expense subject to Lands’ End’s
applicable Travel & Entertainment Employee Expense Policy.
Annual base salary of $310,000 paid in bi-weekly payments (your first check will be a live check followed by direct deposit the next pay period). Increases will
be determined based on a number of factors, with performance typically being the most significant factor. Since you are beginning employment with Lands'
End after the start of our new fiscal year you will be first eligible for merit increase consideration in the 2018 merit cycle.
You will receive a one-time cash sign-on bonus of $75,000 (“Sign-On Bonus”). If your employment is terminated by Lands’ End for Cause (as defined in the
Executive Severance Agreement) or by you without Good Reason (as defined in the Executive Severance Agreement) prior to the second anniversary of your
Start Date, within 30 days of your last day worked, you will be required to pay back the pre-tax amount of the Sign-On Bonus paid to you within the 365 days
immediately preceding the date your employment is terminated. For the avoidance of doubt, you shall not have to return any such amounts if your employment
terminates by Lands’ End without Cause, by you for Good Reason
or as a result of your death or Disability (as defined in the Executive Severance Agreement).
You will be eligible for an annual target bonus incentive (“AIP”) opportunity of 50% of your base salary. The portion of the bonus target paid each year is based
on your performance and the company’s fiscal results. Since you are beginning employment after the start of the fiscal year, your incentive opportunity under the
2017 AIP will be prorated from your start date through February 2, 2018, the last day of the company’s 2017 fiscal year.
You will be eligible to receive a restricted stock unit grant valued at $50,000 as of the grant date. Equity awards are approved by a committee of our Board of
Directors and are made quarterly. It is expected that the next quarterly award will be made in early December, soon after the public release of our third quarter
results. This grant will be made under the Lands’ End, Inc. 2014 Stock Plan (As Amended and Restated) (“the 2014 Plan”), be subject to the terms of a
Restricted Stock Unit Agreement, which will be provided to you and vest 25%, 25% and 50%, on the first, second and third anniversaries of the grant date.
•
•
•
•
You will be eligible to participate in the Lands' End Retirement Plan, which includes 401(k) employee contribution and Company Match features. As a past
participant you will have the opportunity to start employee deferrals immediately upon rehire. Lands’ End will begin matching your contributions at 50% on the
first 6% of your eligible earnings, beginning January 1, 2019, if you work 1,000 hours in 2018.
In recognition of your previous related experience, you will receive 20 business days of vacation as of your start date, with an additional 5 business days after
ten years of service.
With this position, for our 2018 fiscal year, it is our intent to offer an annual long-term incentive with a target value of 75% of your base salary which is
$232,500 annualized. Further details regarding the Fiscal 2018 LTI target award will be provided following approval by the Compensation Committee.
As a condition of employment, you will be required to sign an Executive Severance Agreement (ESA). While the terms and conditions of the ESA will govern,
here is a summary of some of the items covered by the ESA: If your employment with Lands’ End is terminated by LE (other than for Cause, death or
Disability) or by you for Good Reason (as defined in the ESA), you will receive twelve (12) months of salary continuation, equal to your base salary at the time
of termination, reduced by any interim earnings you may otherwise receive. Under the ESA, you agree, among other things, not to disclose confidential
information and, for eighteen (18) months following termination of employment, not to solicit our employees. You also agree not to aid, assist or render services
for any ‘Lands’ End Competitor’ (as defined in the ESA) for twelve (12) months following termination of employment. The non-disclosure, non-solicitation
and non-compete provisions apply regardless of whether you are eligible for severance benefits under the ESA.
•
All aspects of this offer are subject to approval by the Compensation Committee of the Lands’ End Board of Directors.
If you need additional information or clarification, please call me at 608-935-4377.
Sincerely,
/s/ Kelly Ritchie
Jerome Griffith
SVP – Employee Services
/s/ Sarah Rasmusen
Sarah Rasmusen
EXHIBIT 10.25
September 4, 2019
Sarah Rasmusen
Dear Sarah,
We are pleased to confirm the details of your salary adjustment effective Aug 31, 2019. Your title will remain Chief Customer Officer and you will continue to report to me.
We all believe the future of Lands' End will provide us with many opportunities for growth and the company is well positioned for continued success.
The following outlines the changes to your compensation package:
•
•
•
Annual base salary of $425,000 paid in bi-weekly payments.
Continued participation in the Lands’ End, Inc. Annual Incentive Plan (“AIP”) with your annual target incentive opportunity increasing to 75% of your base
salary as of your effective date. Bonus is based on fiscal earnings and is payable by April 15, 2020. Should Lands’ End fiscal results warrant a bonus payment,
your incentive payment would be pro-rated based on eligible earnings under each AIP target.
Participation will continue in the Lands’ End Long-term Incentive program (“LTI”). For FY2019, your target incentive opportunity under the LTI will remain
at 75% of your base salary, as granted on March 25, 2019. For future LTI Plans, your target incentive opportunity will increase to 100% of your base salary.
Sarah, we all think highly of you and believe there will be opportunity to leverage your knowledge, experience, and leadership as we continue to grow as a trusted American
lifestyle brand.
Sincerely,
/s/ Jerome Griffith
Jerome Griffith
CEO & President
/s/ Sarah Rasmusen
Sarah Rasmusen
EXECUTIVE SEVERANCE AGREEMENT
EXHIBIT 10.26
This Executive Severance Agreement (“Agreement”) is made as of the 16th day of October, 2017, between Lands’ End, Inc., a
Delaware corporation together with its successors, assigns and Affiliates, the “Company”), and Sarah Rasmusen (“Executive”).
WHEREAS, in light of the Company’s size and its visibility as a publicly-traded company that reports its results to the public, the
Company has attracted attention of other companies and businesses seeking to obtain for themselves or their customers some of the
Company’s business acumen and know-how; and
WHEREAS, the Company has shared with Executive certain aspects of its business acumen and know-how as well as specific
confidential and proprietary information about the products, markets, processes, costs, developments, ideas, and personnel of the Company;
and
WHEREAS, the Company has imbued Executive with certain aspects of the goodwill that the Company has developed with its
customers, vendors, representatives and employees; and
WHEREAS, as consideration for entering into this Agreement, the Company is extending to Executive the opportunity to receive
severance benefits under certain circumstances as provided in this Agreement; and
WHEREAS, as additional consideration for entering into this Agreement, the Company has granted to Executive restricted stock
units pursuant to a Restricted Stock Agreement entered into between the Company and the Executive.
NOW, THEREFORE, in consideration of the foregoing, and of the respective covenants and agreements of the parties set forth in
this Agreement, the parties hereto agree as follows:
1.
Definitions. As used in this Agreement, the following terms have the meanings indicated:
a.
“Affiliate” means any subsidiary or other entity that, directly or indirectly through one or more intermediaries,
is controlled by Lands’ End, Inc., whether now existing or hereafter formed or acquired. For purposes hereof, “control” means the
power to vote or direct the voting of sufficient securities or other interests to elect one-third of the directors or managers or to
control the management of such subsidiary or other entity. Notwithstanding the foregoing, if the Executive’s “Salary
Continuation” exceeds the “Section 409A Threshold” (as such terms are defined below), then Affiliate shall mean any person with
whom the Company is considered to be a single employer under Code Section 414(b) and all persons with whom the Company
would be considered a single employer under Code Section 414(c), substituting “50%” for the “80%” standard that would
otherwise apply.
b.
“Cause” means (i) a material breach by Executive (other than a breach resulting from Executive’s incapacity
due to a Disability) of Executive’s duties and responsibilities which breach is demonstrably willful and deliberate on Executive’s
part, is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and is not
remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach; (ii) the
commission by Executive of a felony; or (iii) dishonesty or willful misconduct in connection with Executive’s employment.
c.
“Competitive Business” means any corporation, partnership, association, or other person or entity (including
but not limited to Executive) that:
1.
is listed on Appendix A, each of which Executive acknowledges is a Competitive Business, whether
or not it falls within the categories in subsection (c)(2) immediately below, and further acknowledges that this is not an
exclusive list of Competitive Businesses and is not intended to limit the generality of subsection (c)(2) immediately
below; or
Executive acknowledges that the Company shall have the right to propose modifications to Appendix A
periodically to include (i) emergent Competitive Businesses in the existing lines of business of the Company, and (ii)
Competitive Businesses in lines of business that are new for the Company, in each case, with the prior written consent
of Executive, which consent shall not be unreasonably withheld.
d.
e.
“Code” means the Internal Revenue Code of 1986, as amended.
“Confidential Information” means information related to the Company’s business, not generally known in the
trade or industry, which Executive learns or creates during the period of Executive’s Company Employment, which may include
but is not limited to product specifications, manufacturing procedures, methods, equipment, compositions, technology, formulas,
know-how, research and development programs, sales methods, customer lists, customer usages and requirements, personnel
evaluations and compensation data, computer programs and other confidential technical or business information and data that is
not otherwise in the public domain.
f.
“Disability” means disability as defined under the Company’s long-term disability plan (regardless of whether
Executive is a participant under such plan).
g.
“Executive’s Company Employment” means the time (including time prior to the date hereof) during which
Executive is employed by any entity comprised within the definition of “Company”, regardless of any change in the entity actually
employing Executive.
h.
“Good Reason” shall mean, without Executive’s written consent, (i) a reduction of more than ten percent
(10%) in the sum of Executive’s annual base salary and target bonus under Company’s Annual Incentive Plan; (ii) Executive’s
mandatory relocation to an office more than fifty (50) miles from the primary location at which Executive was previously required
to perform Executive’s duties; (iii) any other action or inaction that constitutes a material breach of the terms of this Agreement,
including failure of a successor company to assume or fulfill the obligations under this Agreement. In each case, Executive must
provide Company with written notice of the facts giving rise to a claim that “Good Reason” exists for purposes of this Agreement,
within thirty (30) days of the initial existence of such Good Reason event, and Company shall have the right to remedy such event
within sixty (60) days after receipt of Executive’s written notice. “Good Reason” shall cease to exist, and may not form the basis
for claiming any compensation or benefits under this Agreement, if any of the following occurs:
i.
ii.
Executive fails to provide the above-referenced written notice of the Good Reason event within thirty (30)
days of its occurrence;
Company remedies the Good Reason event within the above-referenced sixty (60) day remediation period; or
2
iii.
Executive fails to resign within ninety (90) days of Executive’s written notice of the Good Reason event.
i.
“Salary Continuation” means continuation of base salary, based on Executive’s annual base salary rate as of the
date Executive’s Company Employment terminates (“Date of Termination”), payable for a period of twelve (12) months following
the Date of Termination (“Salary Continuation Period”).
j.
“Section 409A Threshold” means an amount equal to two times the lesser of (i) Executive’s base salary for
services provided to the Company as an employee for the calendar year preceding the calendar year in which Executive has a
Separation from Service; or (ii) the maximum amount that may be taken into account under a qualified plan in accordance with
Code Section 401(a)(17) for the calendar year in which the Executive has a Separation from Service. In all events, this amount
shall be limited to the amount specified under Treasury Regulation Section 1.409A-1(b)(9)(iii)(A) or any successor thereto.
k.
“Separation from Service” means a “separation from service” with the Company within the meaning of Code
Section 409A (and regulations issued thereunder). Notwithstanding anything herein to the contrary, the fact that Executive is
treated as having incurred a Separation from Service under Code Section 409A and the terms of this Agreement shall not be
determinative, or in any way affect the analysis, of whether Executive has retired, terminated employment, separated from service,
incurred a severance from employment or become entitled to a distribution, under the terms of any retirement plan (including
pension plans and 401(k) savings plans) maintained by the Company.
l.
thereunder).
“Specified Employee” means a “specified employee” under Code Section 409A (and regulations issued
m.
“Trade Secret(s)” means information, including a formula, pattern, compilation, program, device, method,
technique or process, that derives independent economic value, actual or potential, from not being generally known to, and not
being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and that
is the subject of efforts to maintain its secrecy that are reasonable under the circumstances.
2.
Employment. During Executive’s Company Employment, Executive agrees to devote all of Executive’s professional
time and attention to the duties required by such Company Employment and to the best interests of the Company, and to engage in other
business, professional or philanthropic activities only with the prior written approval of the Company. Executive shall also comply with all
generally applicable policies of the Company, including but not limited to the Company’s Code of Conduct, as such policies may be amended
from time to time. Except as may be otherwise expressly provided in any written agreement between the Company and Executive other than
this Agreement, Executive’s Company Employment is terminable by either party at will.
3.
Severance.
a.
If Executive’s Company Employment is involuntarily terminated without Cause or if Executive resigns for
Good Reason, Executive shall be entitled to the following:
i.
Salary Continuation.
3
ii.
iii.
iv.
Continuation of health, dental and vision coverage at the applicable active employee rate until the end of the
pay period that includes the last day of the Salary Continuation Period, on the same terms as they were
provided immediately prior to the Date of Termination, subject to the Company’s ability to continue to make
these payments without incurring discrimination penalties under the Patient Protection and Affordable Care
Act, Pub. L. No. 111-148, and all applicable regulations and guidance thereunder. Any such coverage
provided during the Salary Continuation Period shall not run concurrently with the applicable continuation
period in accordance with the provisions of the Consolidated Omnibus Budget Reconciliation Act
(“COBRA”). If Executive becomes eligible to participate in another medical or dental benefit plan or
arrangement through another employer or spousal plan during such period, the Company shall no longer pay
for continuation coverage benefits and Executive shall be required to pay the full COBRA
premium. Executive is required to notify the Company within thirty (30) days of obtaining other medical or
dental benefits coverage. Any coverage provided under this Section 3(a)(ii) shall be subject to such
amendments (including termination) of the coverage as the Company shall make from time to time at its sole
discretion, including but not limited to changes in covered expenses, employee contributions for premiums,
and co-payment obligations, and shall be, to the fullest extent permitted by law, secondary to any other
coverage Executive may obtain from subsequent employment or any other source.
Reasonable outplacement services, mutually agreed upon by the Company and Executive from those vendors
used by Company as of the Date of Termination, for a period of up to twelve (12) months or until subsequent
employment is obtained, whichever occurs first.
Notwithstanding any limitation on the payment of benefits upon termination of employment that may be
provided for under its vacation pay policy, Company shall provide Executive a lump sum payment, promptly
after the expiration of the revocation period set forth in Appendix B, of the unused vacation pay benefits
which Executive had been granted prior to the Date of Termination to the maximum extent permitted
pursuant to Section 409A of the Code.
Executive shall not be entitled to continuation of compensation or benefits if Executive’s employment terminates for any other
reason, including due to death or Disability, except as may be provided under any other agreement or benefit plan applicable to
Executive at the time of the termination of Executive’s employment. Executive shall also not be entitled to Salary Continuation or
any of the other benefits above if Executive does not meet all of the other requirements under, or otherwise violates the terms of,
this Agreement, including the requirements under Section 8. Except as provided in this Section 3, all other compensation and
benefits shall terminate as of the Date of Termination.
4
b.
Subject to subsection (c), Company shall pay Executive Salary Continuation in substantially equal
installments on each regular salary payroll date for the Salary Continuation Period, except as otherwise provided in this
Agreement. Salary Continuation payments shall be subject to withholdings for federal and state income taxes, FICA, Medicare
and other legally required or authorized deductions. Notwithstanding the foregoing, the obligations of the Company to pay Salary
Continuation shall be reduced on a dollar-for-dollar basis (but not below zero) by the amount, if any, of fees, salary or wages that
Executive earns from a subsequent employer (including those arising from self-employment) during the Salary Continuation
Period. Executive shall promptly notify the Company of any subsequent employment or self-employment and the amount of any
such fees, salary, wages or any other form of compensation earned. Any such fees, salary, wages or compensation shall reduce the
Salary Continuation payments in reverse chronological order, beginning with the Salary Continuation payment that would be the
final Salary Continuation payment in the absence of such reduction. For avoidance of doubt, Executive shall not be obligated to
seek affirmatively or accept an employment, contractor, consulting or other arrangement to mitigate Salary Continuation. Further,
to the extent Executive does not execute and timely submit the General Release and Waiver (in accordance with Section 8) by the
deadline specified therein, or revokes such General Release and Waiver, Salary Continuation payments shall terminate and forever
lapse, and Executive shall be required immediately to reimburse the Company for any portion of the Salary Continuation paid
during the Salary Continuation Period. To the extent such Salary Continuation was paid in a calendar year prior to the calendar
year in which such reimbursement is received by the Company, the reimbursement shall be in the gross amount of such Salary
Continuation on a pre-tax-withholding basis. To the extent such Salary Continuation was paid in the same calendar year as the
reimbursement is received by the Company, the reimbursement shall be in the net amount of such Salary Continuation on an after-
tax-withholding basis. In the event such reimbursement is required with respect to Salary Continuation payments that are reported
on a Form W-2 for Executive, Executive shall be solely responsible for claiming any related tax deduction, and the Company shall
not be required to issue a corrected Form W-2.
c.
Notwithstanding anything in this Section 3 to the contrary, if the Salary Continuation payable to Executive
during the first six (6) months after Executive’s Separation from Service would exceed the Section 409A Threshold and if, as of
the date of the Separation from Service, Executive is a Specified Employee, then payment shall be made to Executive on each
regular salary payroll date during the six (6) months of the Salary Continuation Period until the aggregate amount received equals
the Section 409A Threshold. Any portion of the Salary Continuation in excess of the Section 409A Threshold that would
otherwise be paid during such six (6) months, and any portion of the Salary Continuation that is otherwise subject to
Section 409A, shall instead be paid to Executive in a lump sum payment on the date that is six (6) months and one (1) day after the
date of Executive’s Separation from Service.
4.
Confidentiality. In addition to all duties of loyalty imposed on Executive by law or otherwise, during the term of
Executive’s Company Employment and for two years following the termination of such employment for any reason, Executive shall maintain
Confidential Information in confidence and secrecy and shall not disclose Confidential Information or use it for the benefit of any person or
organization (including Executive) other than the Company without the prior written consent of an authorized officer of the Company (except
for disclosures to persons acting on the Company’s behalf with a need to know such information).
5
5.
Non-Disclosure of Trade Secrets. During Executive’s Company Employment, Executive shall preserve and protect
Trade Secrets of the Company from unauthorized use or disclosure; and after termination of such employment, Executive shall not use or
disclose any Trade Secret of the Company for so long as that Trade Secret remains a Trade Secret.
6.
Third-Party Confidentiality. Executive shall not disclose to the Company, use on its behalf, or otherwise induce the
Company to use any secret or confidential information belonging to persons or entities not affiliated with the Company, which may include a
former employer of Executive, if Executive then has an obligation or duty to any person or entity (other than the Company) to not disclose
such information to other persons or entities, including the Company. Executive acknowledges that the Company has disclosed that the
Company is now, and may be in the future, subject to duties to third parties to maintain information in confidence and secrecy. By executing
this Agreement, Executive consents to be bound by any such duty owed by the Company to any third party.
7.
Work Product. Executive acknowledges that all ideas, inventions, innovations, improvements, developments, methods,
designs, analyses, reports, databases, and any other similar or related information (whether patentable or not) which relate to the actual or
anticipated business, research and development, or existing or known future products or services of the Company which are or were
conceived, developed or created by Executive (alone or jointly with others) during Executive’s Company Employment (the "Work Product")
is and shall remain the exclusive property of the Company. Executive acknowledges and agrees that all copyrightable Work Product was
created in Executive’s capacity as an employee of Lands’ End and within the scope of Executive’s Company Employment, and thus
constitutes a "work made for hire" under the Copyright Act of 1976, as amended. Executive hereby assigns to Company all right, title and
interest in and to all Work Product, and agrees to perform all actions reasonably requested by Company to establish, confirm or protect
Company’s ownership thereof (including, without limitation, executing assignments, powers of attorney and other instruments).
8.
General Release and Waiver. Upon or following Executive’s Date of Termination potentially entitling Executive to
Salary Continuation and other benefits under Section 3 above, Executive will execute a binding general release and waiver of claims in a
form to be provided by the Company (“General Release and Waiver”). The General Release and Waiver will be in a form substantially
similar to the attached Appendix B. If the General Release and Waiver is not signed within the time it requires or is signed but subsequently
revoked, Executive will not continue to receive any Salary Continuation otherwise payable, and shall reimburse any Salary Continuation
previously paid.
9.
Noncompetition. During Executive’s Company Employment, and for a period of time after the Date of Termination
equal to the Salary Continuation Period referred to in Section 1(i) above (but regardless whether the Executive is receiving Salary
Continuation or other benefits under Section 3), Executive shall not, directly or indirectly, participate in, consult with, be employed by, or
assist with the organization, planning, ownership, financing, management, operation or control of any Competitive Business.
10.
Nonsolicitation. During Executive’s Company Employment and for eighteen (18) months following the termination
of such employment for any reason, Executive shall not, directly or indirectly, either by himself or by providing substantial assistance to
others (i) solicit any employee of the Company to terminate employment with the Company, or (ii) employ or seek to employ, or cause or
assist any other person, company, entity or business to employ or seek to employ, any individual who was an employee of Company as of
Executive’s Date of Termination.
6
11.
Future Employment. During Executive’s Company Employment and for eighteen (18) months following the
termination of such employment for any reason, before accepting any employment with any Competitive Business (whether or not Executive
believes such employment is prohibited by Section 8), Executive shall disclose to the Company the identity of any such Competitive
Business and a complete description of the duties involved in such prospective employment, including a full description of any business,
territory or market segment to which Executive will be assigned. Further, during Executive’s Company Employment and for 18 months
following the termination of such employment for any reason, Executive agrees that, before accepting any future employment, Executive will
provide a copy of this Agreement to any prospective employer of Executive, and Executive hereby authorizes the Company to do likewise,
whether before or after the outset of the future employment.
12.
Nondisparagement; Cooperation. During Executive’s Company Employment and for two (2) years following the
termination of such employment for any reason, Executive (i) will not criticize or disparage the Company or its directors, officers, employees
or products, and (ii) will fully cooperate with Company in all investigations, potential litigation or litigation in which Company is involved or
may become involved with respect to matters that relate to Executive’s Company Employment (other than any such investigations, potential
litigation or litigation between Company and Executive); provided, that with regard to Executive’s duties under clause (ii), Executive shall be
reimbursed for reasonable travel and out-of-pocket expenses related thereto, but shall otherwise not be entitled to any additional
compensation.
13.
Notices. All notices, request, demands and other communications required or permitted hereunder shall be in writing
and shall be deemed to have been duly given when delivered by hand or when mailed by United States certified or registered mail with
postage prepaid addressed as follows:
a.
If to Executive, to the address set forth by Executive on the signature page of this Agreement or to such other
person or address which Executive shall furnish to the Company in writing pursuant to the above.
b.
If to the Company, to the attention of the Company’s General Counsel at the address set forth on the signature
page of this Agreement or to such other person or address as the Company shall furnish to Executive in writing pursuant to the
above
14.
Enforceability. Executive recognizes that irreparable injury may result to the Company, its business and property, and
the potential value thereof in the event of a sale or other transfer, if Executive breaches any of the restrictions imposed on Executive by this
Agreement, and Executive agrees that if Executive shall engage in any act in violation of such provisions, then the Company shall be entitled,
in addition to such other remedies and damages as may be available, to an injunction prohibiting Executive from engaging in any such act.
15.
Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon and enforceable by Lands’
End, Inc., its successors, assigns and Affiliates, all of which (other than Lands’ End, Inc.) are intended third-party beneficiaries of this
Agreement. Executive hereby consents to the assignment of this Agreement to any person or entity.
16.
Validity. Any invalidity or unenforceability of any provision of this Agreement is not intended to affect the validity or
enforceability of any other provision of this Agreement, which the parties intend to be severable and divisible, and to remain in full force and
effect to the greatest extent permissible under applicable law.
7
17.
Choice of Law; Jurisdiction. Except to the extent superseded or preempted by federal U.S. law, the rights and
obligations of the parties and the terms of this Agreement shall be governed by and construed in accordance with the domestic laws of the
State of Wisconsin, but without regard to the State of Wisconsin's conflict of laws rules. The parties further agree that the state and federal
courts in Madison, Wisconsin, shall have exclusive jurisdiction over any claim which is any way arises out of Executive’s employment with
the Company, including but not limited to any claim seeking to enforce the provisions of this Agreement.
18.
Section 409A Compliance. To the extent that a payment or benefit under this Agreement is subject to Code
Section 409A, it is intended that this Agreement as applied to that payment or benefit comply with the requirements of Code Section 409A,
and the Agreement shall be administered and interpreted consistent with this intent.
19.
Miscellaneous. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either party which are not set forth expressly in this Agreement. This
Agreement may be modified only by a written agreement signed by Executive and a duly authorized officer of the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date and year first above written.
EXECUTIVE
/s/ Sarah Rasmusen
Name:
Sarah Rasmusen
Address:
[Address Omitted]
LANDS’ END, INC.
5 Lands’ End Lane
Dodgeville, WI 53595
/s/ Kelly Ritchie
SVP, Employee and Customer Care Services
By:
Its:
8
Appendix A
COMPETITIVE BUSINESSES
The following companies (including affiliates and subsidiaries within the same controlled group of corporations) are
included within the definition of “Competitive Businesses”, as referred to under subsection 1(c) of the Executive Severance Agreement
(“Agreement”):
Amazon.com
Ann Taylor
Bonobos
Brooks Brothers
Chico’s
Eddie Bauer
Gap
J.C. Penney Company Inc.
J. Crew
Jos A. Banks
Kohl’s
L Brands
L.L. Bean
Macy’s
Next Retail
Polo Ralph Lauren
Talbots
Target
V.F. Corporation
Vineyard Vines
9
Appendix B
NOTICE: YOU MAY CONSIDER THIS GENERAL RELEASE AND WAIVER FOR UP TO TWENTY-ONE (21) DAYS. YOU
MAY NOT SIGN IT UNTIL ON OR AFTER YOUR LAST DAY OF WORK. IF YOU DECIDE TO SIGN IT, YOU MAY REVOKE
THE GENERAL RELEASE AND WAIVER WITHIN SEVEN (7) DAYS AFTER SIGNING. ANY REVOCATION WITHIN THIS
PERIOD MUST BE IMMEDIATELY SUBMITTED IN WRITING TO GENERAL COUNSEL, LANDS’ END, INC., 5 LANDS’
END LANE, DODGEVILLE, WISCONSIN 53595. YOU MAY WISH TO CONSULT WITH AN ATTORNEY BEFORE SIGNING
THIS DOCUMENT.
GENERAL RELEASE AND WAIVER
In consideration of the severance benefits that are described in the attached Executive Severance Agreement, I, for myself, my
heirs, administrators, representatives, executors, successors and assigns, do hereby release Lands’ End, Inc., its current and former agents,
subsidiaries, affiliates, related organizations, employees, officers, directors, shareholders, attorneys, successors, and assigns (collectively,
“Lands’ End”) from any and all claims of any kind whatsoever, whether known or unknown, arising out of, or connected with, my
employment with Lands’ End and the termination of my employment. Without limiting the general application of the foregoing, this General
Release & Waiver releases, to the fullest extent permitted under law, all contract, tort, defamation, and personal injury claims; all claims
based on any legal restriction upon Lands’ End’s right to terminate my employment at will; Title VII of the Civil Rights Act of 1964, 42
U.S.C. §§ 2000e et seq.; the Age Discrimination in Employment Act, 29 U.S.C. §§ 621 et seq.; the Americans with Disabilities Act, 42
U.S.C. §§ 12101 et seq.; the Rehabilitation Act of 1973, 29 U.S.C. §§ 701 et seq.; the Employee Retirement Income Security Act of 1974, 29
U.S.C. §§ 1001 et seq. (“ERISA”); 29 U.S.C. § 1985; the Civil Rights Reconstruction Era Acts, 42 U.S.C. §§ 1981-1988; the National Labor
Relations Act, 29 U.S.C. §§ 151 et seq.; the Family & Medical Leave Act, 29 U.S.C. §§ 2601 et seq.; the Immigration & Nationality Act, 8
U.S.C. §§ 1101 et seq.; Executive Order 11246 and all regulations thereunder; the Wisconsin Fair Employment Act, Wis. Stat. §§ 111.31-
111.395; the Wisconsin Family & Medical Leave Act, Wis. Stat. § 103.10; the Wisconsin Worker’s Compensation Act, Wis. Stat. Ch. 102;
and any and all other state, federal or local laws of any kind, whether administrative, regulatory, statutory or decisional.
This General Release & Waiver does not apply to any claims that may arise after the date I sign this General Release &
Waiver. Also excluded from this General Release & Waiver are any claims that cannot be waived by law, including but not limited to (1) my
right to file a charge with or participate in an investigation conducted by the Equal Employment Opportunity Commission and (2) my rights
or claims to benefits accrued under benefit plans maintained by Lands’ End and governed by ERISA. I do, however, waive any right to any
monetary or other relief flowing from any agency or third-party claims or charges, including any charge I might file with any federal, state or
local agency. I warrant and represent that I have not filed any complaint, charge, or lawsuit against Lands’ End with any governmental
agency or with any court.
I also waive any right to become, and promise not to consent to become a participant, member, or named representative of any
class in any case in which claims are asserted against Lands’ End that are related in any way to my employment or termination of
employment at Lands’ End, and that involve events that have occurred as of the date I sign this General Release and Waiver. If I, without my
knowledge, am made a member of a class in any proceeding, I will opt out of the class at the first opportunity afforded to me after learning of
my inclusion. In this regard, I agree that I will execute, without objection or delay, an “opt-out” form presented to me either by the court in
which such proceeding is pending, by class counsel or by counsel for Lands’ End.
10
I have read this General Release and Waiver and understand all of its terms.
I have signed it voluntarily with full knowledge of its legal significance.
I have had the opportunity to seek, and I have been advised in writing of my right to seek, legal counsel prior to signing this
General Release & Waiver.
I was given at least twenty-one (21) days to consider signing this General Release & Waiver. I agree that any modification of this
General Release & Waiver Agreement will not restart the twenty-one (21) day consideration period.
I understand that if I sign the General Release & Waiver, I can change my mind and revoke it within seven (7) days after signing it
by notifying the General Counsel of Lands’ End in writing at Lands’ End, Inc., 5 Lands’ End Lane, Dodgeville, Wisconsin 53595. I
understand the General Release & Waiver will not be effective until after the seven (7) day revocation period has expired.
I understand that the delivery of the consideration herein stated does not constitute an admission of liability by Lands’ End and
that Lands’ End expressly denies any wrongdoing or liability.
Date: SAMPLE ONLY - DO NOT DATE
Signed by:
SAMPLE ONLY - DO NOT SIGN
Witness by:
SAMPLE ONLY - DO NOT SIGN
11
The following is a list of subsidiaries of Lands’ End, Inc., the names under which such subsidiaries do business, and the state or country in which each was
organized.
Subsidiaries of Registrant
EXHIBIT 21
Names
Lands’ End Canada Outfitters ULC
Lands’ End Direct Merchants, Inc.
Lands’ End International, Inc.
Lands’ End Europe Limited
Lands’ End GmbH
Lands’ End (HK) Limited
Lands’ End Japan, Inc.
Lands’ End Japan, KK
Lands’ End Publishing, LLC
LEGC, LLC
State or Other Jurisdiction of Organization
Canada
Delaware
Delaware
England & Wales
Germany
Hong Kong
Delaware
Japan
Delaware
Virginia
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-195111, 333-215262, 333-217096 and 333-231470 on Form S-8 of our
report dated March 25, 2021, relating to the consolidated financial statements of Lands’ End, Inc. and subsidiaries (the “Company”), and the effectiveness
of the Company’s internal control over financial reporting appearing in this Annual Report on Form 10-K of Lands’ End, Inc. for the year ended January
29, 2021.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
March 25, 2021
I, Jerome Griffith, certify that:
1.
I have reviewed this annual report on Form 10-K of Lands’ End, Inc.;
CERTIFICATIONS
EXHIBIT 31.1
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions).
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
March 25, 2021
/s/ Jerome Griffith
Jerome Griffith
Chief Executive Officer
(Principal Executive Officer)
Lands’ End, Inc.
I, James Gooch, certify that:
1.
I have reviewed this annual report on Form 10-K of Lands’ End, Inc.;
CERTIFICATIONS
EXHIBIT 31.2
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most
recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions).
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
March 25, 2021
/s/ James Gooch
James Gooch
President and Chief Financial Officer
(Principal Financial Officer)
Lands’ End, Inc.
Pursuant to 18 U.S.C. 1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002
CERTIFICATION
EXHIBIT 32.1
Each of the undersigned, Jerome Griffith, Chief Executive Officer of Lands’ End, Inc. (the “Company”) and James Gooch, President and Chief Financial
Officer of the Company, has executed this certification in connection with the filing with the Securities and Exchange Commission of the Company’s
Annual Report on Form 10-K for the fiscal year ended January 29, 2021 (the “Report”).
Each of the undersigned hereby certifies that:
1.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company
March 25, 2021
/s/ Jerome Griffith
Jerome Griffith
Chief Executive Officer
(Principal Executive Officer)
March 25, 2021
/s/ James Gooch
James Gooch
President and Chief Financial Officer
(Principal Financial Officer)