Lands’ End, Inc. (NASDAQ:LE) Q2 2024 Earnings Call Transcript

Lands’ End, Inc. (NASDAQ:LE) Q2 2024 Earnings Call Transcript September 5, 2024

Lands’ End, Inc. beats earnings expectations. Reported EPS is $-0.02, expectations were $-0.1.

Operator: Good morning and welcome to the Lands’ End Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ prepared remarks, there will be a question-and-answer session. [Operator Instructions] Please note today’s call will be recorded and I’ll be standing by if you should need any assistance. It is now my pleasure to turn the call over to Tom Altholz, Senior Director, Financial Planning and Analysis. Please go ahead.

Tom Altholz: Good morning and thank you for joining the Land’s End earnings call for a discussion of our second quarter 2024 results, which we released this morning and can be found on our website, landsend.com. I’m Tom Altholz, Lands’ End Senior Director of Financial Planning and Analysis, and I’m pleased to join you today with Andrew McLean, our Chief Executive Officer, and Bernard McCracken, our Chief Financial Officer. After the prepared remarks, we will conduct a question-and-answer session. Please also note that the information we’re about to discuss includes forward-looking statements. Such statements involve risks and uncertainties. The Company’s actual results could differ materially from those discussed on this call.

Factors that could contribute to such differences include, but are not limited to, those items noted and included in the company’s SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q. The forward-looking information that is provided by the company on this call represents the company’s outlook as of today, and we do not undertake any obligation to update forward-looking statements made by us. Subsequent events and developments may cause the company’s outlook to change. During this call, we will be referring to non-GAAP measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures can be found in the earnings release issued earlier today, a copy of which is posted in the Investor Relations section of our website at landsend.com.

With that, I will turn the call over to Andrew.

Andrew McLean: Thank you, Tom. Good morning and thank you for joining us today. We delivered robust second quarter 2024 results reflecting the continued execution of our solutions-based strategy. Our focus on innovation across our business is evolving the Lands’ End brand and assortment, attracting new customers and further improving our supply chain and inventory position. These achievements are driving increased gross margin and gross profit dollars. Let me provide a few highlights. We delivered net revenue of $317 million, at the top end of our guidance range. Adjusted EBITDA of $17 million, a year-over-year increase of 8%, also at the high end of our guidance range. And GMV up mid-single-digits percentage growth. Innovation is the keystone of our strategy.

By bringing fresh thinking and new approaches across our business, we’re driving more profitable sales. As a result, we are confident that we position Lands’ End well for a strong back half of the year and beyond. Our continued efforts to prioritize newness and speed-to-market in our assortment resulted in a 21% year-over-year improvement in our inventory position and a15% increase in our churn rate. We remain nimble in managing our inventory as we take a deliberate approach to our assortment. Staying on top of trends and introducing fresh styles, fabrics and colors that fit the moment are consistent with our brand and most importantly, that customers love. We also made strides in our efforts to redefine and elevate our brand across our digital channels in the second quarter.

The progress we’ve made is showcasing Lands’ End as a quality brand that appeals to a wide range of consumers. Year-to-date, we’ve seen mid-single digit growth in our new-to-file customers and importantly, these new-to-file customers are on average 10 years younger. All told, our marketing investments are reinvigorating both our brand, [Technical Difficulty] driving more traffic to our own channels, translating to greater new customer conversion and more full price sales. Since we’re generating today, we are laying the groundwork for sustained long-term growth tomorrow. From a product perspective, [Technical Difficulty] throughout the quarter, resulting in gross margin and profit meaningfully higher than the same period last year. Our speed-to-market initiatives to facilitate our wear now approach to our assortment.

Customers responded incredibly well to newness [Technical Difficulty] driven by new product at the highest levels we’ve seen in five years, newness in woven dresses and tops and denim performed as [Technical Difficulty] despite the warmer weather, the strength of our layering products showed through in the second quarter with summer sweaters and this in particular seeing higher [Technical Difficulty] sales volume and demand. The standout category for the whole of spring summer has been women’s apparel. From our new denim [Technical Difficulty], we have seen huge success. The drifter sweater has rapidly become one of our leading items and is now expanding [Technical Difficulty]. As we turn our attention to fall holiday, we are well positioned to transition our assortment towards our weatherproofed outerwear, [Technical Difficulty] the Wanderweight franchise and our Anyweather Fleece, both of which are trending strongly thus far in the third quarter capitalizing on [Technical Difficulty] trends.

On swim, we are pleased with our performance across our swim and vacation categories. Like I mentioned earlier, we [Technical Difficulty] our products throughout the quarter and we’re proud to have filed another patent in our swim lineup during the quarter for next season. This one for [Technical Difficulty] future, innovation remains a continued theme across our entire business as we listen carefully to our customers, build [Technical Difficulty] style and bring speed-to-market. That’s exactly what this new patented technology in our swim business does and we’re thrilled to have [Technical Difficulty] for our customers. Turning to the performance of our various businesses, we are continuing to prepare to evolve the way we talk about our business to be more consistent with the evolution of our brand.

Specifically, we plan to discuss our business in terms of B2C and B2B. Beginning with our B2C activities. Our US eCommerce business is our largest direct-to-consumer channel. The business delivered its sixth consecutive quarter of great margin performance with an increase of over 700 basis points due to our more targeted approach to promotions and refined marketing strategy [Technical Difficulty] quality sales, new-to-file customer growth and improved inventory management. We continue to maximize key events such as [Technical Difficulty] to drive demand. Combined with our targeted promotion and marketing strategies, these key events enable us to showcase our [Technical Difficulty] centric assortment across owned and organic channels to drive more traffic and ultimately more higher margin sales.

[Technical Difficulty] work that our European business has come full circle with growth in revenue and profitability during the quarter. The team in Europe continue to continues to innovate and [Technical Difficulty] customers well. Europe has proven to be a great test market for the rest of our business. Turning to third party. We [Technical Difficulty] invest in our strategy to focus on assortments tailored to individual marketplaces and work with partners that share our vision for customer-focused solutions. We’re pleased to announce that we recently launched on Nordstrom’s online marketplace, presenting a terrific opportunity to further elevate our brand [Technical Difficulty] partnership, we’re broadening the availability and visibility of Lands’ End merchandise while reaching new customers who can find their way to [Technical Difficulty].

Now on to licensing, which provides asset-light recurring income streams while allowing us to concentrate on [Technical Difficulty]. Licensing continued to grow in the quarter, and we are pleased to announce that we have entered into a license to distribute Lands’ End apparel [Technical Difficulty] wholesale accounts. This will further the visibility and reach of our brand among a broader consumer base, while creating [Technical Difficulty] stations of Lands’ End. Our clubs channel performed well in the second quarter. We remain bullish on clubs as a powerful part of [Technical Difficulty] strategy by providing access to an attractive customer who may be familiar with Lands’ End or may be meeting us for the first time. While we [Technical Difficulty] and fulfillment fees on our P&L, the GMV associated with our licensed business allowed us to drive overall brand growth and [Technical Difficulty].

Turning now to our B2B Outfitters business. We made solid progress during the second quarter to reap [Technical Difficulty] business around its core strengths that are hallmarks of our brand, particularly high quality, durable, relevant, personalized and customized [Technical Difficulty] backed by outstanding customer service. Our site, catalogs and marketing were all relaunched with a more contemporary feel to better [Technical Difficulty] purchasing managers more interested in product that fits the work and home life of a dynamic US employee base. We are also opening [Technical Difficulty] which we expect will enable our outfitters, sales and merchandise teams to better attract and serve customers through our expertly crafted branded apparel solutions.

Additionally, during this period, we made the decision to exit the low profit and commoditized promotional products category, allowing us to focus on serving our customers from a point of strength. We’ve developed strong capabilities to serve customers in the financial services industry and are targeting growth in that sector. As companies increasingly recognize the economic and professional benefits of branded workforce apparel. For example, we have partnered with a major client, Wells Fargo, entering into a multi-year agreement to launch the career apparel program. Beginning this month, Lands’ End will outfit approximately 35,000 employees across over 4,000 branches. In the school channel, even with a later back-to-school season, we saw outstanding results in the second quarter that have continued into August, with our first half revenue up low single-digits and gross margin expanding by over 500 basis points.

Our commitment last year to deliver great product on time earned us high marks with our PTAs and we were able to add and service new schools this year with a strong pipeline for 2025. It’s worth mentioning that our Wisconsin-based embroidery centers make us the largest and arguably most nimble domestic provider in this channel. Before handing it over to Bernie, I want to spend a moment elaborating on the fantastic progress that we’ve made to improve our inventory position and how the concept of speed is so critical to our strategy. It is worth noting that during the quarter we achieved the lowest second quarter inventory levels this decade coupled with the lowest discount rate and one of the fastest turning inventory levels since our public listing in 2014.

Speed is a watchword for our teams. Over the last year, we have significantly increased speed across our supply chain, shifting production to the western hemisphere, lowering SKU counts, creating chase capabilities for new and existing product and leaving inventory open well into each season, as we deliver freshness to the customer every single month. We look forward to accelerating our speed-to-market initiatives which create more opportunities for inventory reductions, drive margin and ultimately let us better serve our customers. I’ll now turn it over to Bernie to discuss our second quarter performance in more detail.

Bernie McCracken: Thank you, Andrew. For the second quarter, total revenue performance came in at the high end of our guidance range at $317 million, a decrease of 2% compared to last year. GMV increased mid-single-digits for the second quarter of 2024, which was in line with our guidance. As a reminder, we believe GMV, which accounts for the total order value of all merchandise sold to customers through B2C and B2B channels, as well as the retail value of the merchandise sold through third party channels, is an important indicator of the performance of the comparable growth of our brand. As Andrew noted, we delivered adjusted EBITDA of $17 million in the second quarter, which came in at the high end of our guidance range and a year-over-year increase of 8%.

These results reflect our continued efforts to prioritize profitability and balance sheet efficiency versus solely sales. We continue to improve profit margin across our business units, which has allowed us to reinvest in the business, especially in new customer acquisition. Gross profit increased by 9% compared to last year, driven by our sixth straight quarter of gross margin expansion. Gross margin in the second quarter was 48%, an approximately 470 basis point improvement from the second quarter of 2023. The margin improvement was driven by product solutions and newness across the assortment, lower promotional activity, reduction in sales of clearance inventory and improved supply chain costs. Our US eCommerce business saw a sales decrease of 4% compared to the second quarter of 2023.

Excluding the impact of transitioning kids and footwear products from a direct to a licensed model, our US eCommerce sales would have increased mid-single digits. We generated a 14% increase in gross profit dollars driven by continued efforts to prioritize higher quality sales. Our European eCommerce business increased gross profit dollars by 26% compared to the second quarter of 2023 with sales increasing 1% year-over-year. Sales from Lands’ End outfitters were down 7% from the second quarter of 2023. We were pleased with the strong start to the back-to-school season as our school uniform revenue increased by mid-single digits compared to last year. Our business uniform channel decreased year-over-year primarily due to the timing changes with certain national accounts and some pricing resistance from smaller accounts, as a result of macroeconomic challenges.

We continue to work to offset these challenges through margin and branding initiatives. Our third-party business increased gross profit dollars by over 30% compared to the second quarter of 2023 with revenue increasing by over 23% year-over-year. The increase was primarily due to revenue generated from licensing and wholesale arrangements. Licensing and our expansion to Nordstrom’s marketplace continued to help the business diversify and reduce risk to any one individual partner. As a percentage of sales, SG&A was 43%, which was an increase of approximately 440 basis points compared to 2023, primarily driven by reinvesting in the business through higher digital marketing spend focused on new customer acquisition, third-party professional services and higher incentive-related personnel costs.

For the second quarter, we had a net loss of $5.3 million, or $0.17 per share. We had an adjusted net loss of $0.7 million, or $0.2 per share, which exceeded our guidance range. Moving to our balance sheet. Inventories at the end of the second quarter were $312 million compared to $396 million a year ago. The 21% improvement in our inventory position benefited from our supply chain team’s ongoing efforts to drive efficiencies, paired with our deliberate strategy to increase terms of our assortment. In terms of our debt, at the end of the second quarter, our term loan balance was $254 million and our ABL had $20 million of borrowings outstanding, which was $50 million lower than the second quarter last year. During the second quarter, we repurchased $4 million worth of shares under our $25 million share repurchase authorization announced in March, bringing the balance of the remaining authorization to $20 million as of the end of the quarter.

Now moving to guidance. We are continuing to prioritize high quality sales and improved cash flows, which we expect to drive continued gross profit and margin expansion during the fall and holiday selling season. In the third quarter, we expect net revenue to be between $300 million and $340 million with gross merchandise value, or GMV, expected to be mid-to-high single-digit growth. We expect an adjusted net income of $0 million to $3 million and adjusted diluted earnings per share to be between $0 and $0.10. We expect adjusted EBITDA to be in the range of $19 million to $23 million. For the full year, we have raised our profit guidance. We now expect net revenue to be between $1.35 billion to $1.43 billion, while GMV is expected to be mid-to-high single-digit growth.

We now expect adjusted net income of $9 million to $15 million and adjusted diluted earnings per share $0.29 to $0.48. We now expect our adjusted EBITDA to be in the range of $90 million to $98 million. Our guidance for the full year incorporates approximately $35 million in capital expenditures. As we have discussed, we expect our improved inventory management to enable us to maintain inventory at normalized levels and bolster our work to further expand gross margin moving forward. With that, I will turn the call back over to Andrew.

Andrew McLean: Thanks Bernie. We have made significant progress in the second quarter against our strategic goals to expand our operational efficiency and our entire go-to-market philosophy. I’d like to thank our employees for their continued efforts to build an innovative customer-first brand. Innovation has been the keystone of our success over the last 61 years and the can-do culture of Lands’ End is well suited to continue to drive that success. To that end, over the next 12 months to 24 months, we will implement a new ERP that will increase collaboration and planning across the business. Crucially, it will enable us to build a more authentic and innovative Lands’ End digital experience with improvements in speed, personalization, loyalty, promotions and merchandising.

We really are evolving a world-class brand and doing so in a way that’s consistent with Lands’ End’s commitment to delivering the best possible customer experience. Lands’ End has always had the potential to be larger than its digital engine and while that will remain core to our success, we are well positioned to accelerate our momentum and drive brand growth via multiple avenues. We look forward to your questions.

Q&A Session

Operator: [Operator Instructions] Our first question will come from Dana Telsey with Telsey Advisory Group. Please go ahead.

Dana Telsey: Good morning, everyone, and nice to see the progress. New customer file up mid-single — the new customer file up mid-single-digits is impressive. Anything that you’re noticing about the demographics of that customer base versus your core, given what you’ve mentioned about younger customers, and then also what resonated throughout with the gross margin is lower promotions, what are you seeing in each of the channels with pricing and promotion? And can you just also talk about the cadence in the quarter and how the exit rate is into the third quarter? Thank you.

Andrew McLean: Morning, Dana. Nice to hear from you. Great questions as always. I’m just writing them down, so I don’t miss any part of it. I know Bernie is doing the same. It’s like the consumer — Dana, I think there’s some noise on the line. It’s really about the consumer health, I think, with the new customer file and from my perspective, it’s a great measure of consumer health. And we saw that mid-single-digit positive, and it lined up with the growth in our overall GMV and specifically the US eCommerce business. So they were both mid-single-digit positive as well. So we saw patterns in the business that spoke to health in the consumer. I’ve talked in the past without having multiple paths to our plan. And in particular, we talked about product and distribution.

But it’s equally important to recognize that the customers weigh on that. So it was pleasing that the customers we added were in our high growth category. They were our revolvers, and on average, they were 10 years younger. What I would add to your question about where we saw them, if that was consistent across the channels that we could measure, we were reaching a younger consumer everywhere. And the average reduction ranged from about eight years in some channels to 12 years in others. So it was pretty tight in terms of what we saw, and it very much fit that evolver, which is powerful for us because we see them leaning into a broader range of categories. And it continued to bolster our database. We saw increases in ARB and increases in AUR, which underpinned the margin conversation.

Summing it up, I mean, I would view that as a trend that we’ve continued to see from Q2 into Q3. If I look at the weekend, we just went through with the Labor Day holiday, we had a lot of new customer activity. There’s a lot of intrigue with what we’re seeing. Some of our classes, I think, about dresses are performing particularly well. We’re seeing that customer might really come in and there’s no price resistance to it. I’ll let Bernie chime in with part of it but we drove the lowest promotion rates that we’ve seen in the company in a number of years. I look back all the way through to 2014 in the IPO, and we saw — we saw a promotion rate fall. And we see that as an avenue forward, continually updating our product, moving with speed, like reacting to the customer more.

And it’s very virtuous having that model and how it pushes us forward.

Bernie McCracken: I would just add, Dana, these customers, the new customers we found, actually a portion of them are actually returning quicker than we have seen in the past and buying within a month or two again. And then just to reiterate the strength of our customer file, once we have tagged on and have a customer, they have an average tenure of us with 18 years, and we convert at twice the industry average with those customers. And then to your question about the flow of the quarter, it was fairly even for us through the quarter. And the one benefit from us having multiple businesses is our [indiscernible] business had a strong second quarter and that just offsets some of the other business where we’re not as big a back-to-school business in our USD business, but in our school business, that carries July and August for us, and they had a very strong second quarter and into August.

Dana Telsey: Got it. Thank you. And one other quick thing on the inventory levels, Bernie. Inventory continues to remain very clean. Are you seeing any — how you’re planning inventories go forward? And what are you seeing in terms of any freight charges or lead times in getting product and any outlook for the holiday? Thank you.

Bernie McCracken: Yes. As we reported, we have a 470-basis point improvement in gross margin. We expect to continue to see those types of improvements through the back half of the year. They do account for any challenges in our freight and transportation. Our transportation team has done a fantastic job of avoiding any of and being proactive to any of the issues that we’ve seen, and we’ve been able to mitigate those costs and those delays up to this point. So they’ve done an excellent job. We expect our inventories to stay at historical lows, as Andrew has implemented, and he talked about in his comments an initiative around speed and we’ll be bringing in product more frequently and closer to our shores.

Andrew McLean: Yeah, and I think I’d just add to that, Dana. We talked about, it’s more than just SKU count reduction. We’re getting speed from being closer to the customer, and we’ve moved a material amount of our business, and it will continue to grow during the back half into western hemisphere. So we don’t really experience the transportation issues with that. It’s three days from Central America to Port Houston, so we get speed in there and there is a lot of capacity in that lane, and we don’t expect that to change. So we see the whole package really coming together as we get nearer to the customer and being able to control more of the variables related to supply chain.

Dana Telsey: Thank you.

Operator: Thank you. Our next question will come from Eric Beder with SCC Research. Please go ahead.

Eric Beder: Good morning.

Andrew McLean: Good morning, Eric.

Eric Beder: Congratulations on adding Nordstrom to the digital marketplace mix. You now have a pretty wide range of customers now in the digital marketplace, from Kohl’s, Target, Nordstrom, Macy’s. Do you — are you actively looking for even further partners here? Is there ability maybe to do that internationally? And where should we see that evolving now that you’ve added all these players to the mix in terms of digital marketplaces?

Andrew McLean: Yeah. Morning, Eric. It’s a great question. I mean, I think what you’re continuing to see as we put more energy into it — is that we’ve got a very good spread. And if you think about the merchandising pyramid, good, better, best, we’ve got some good players in there. We’ve got some better players in there. And we now have a best layer in there with Nordstrom’s. And it’s more about how we evolve our product architecture on those sites. And I think if you look at what we’ve done with Nordstrom’s, one of the areas we really went into, and the great conversations with them was around school and school uniforms. So we don’t have that really as part of our merchandising strategy for the others. And that was a first for Nordstrom’s.

And I think as we lean in, it’s like we can be more strategic, have better strategic conversations with our marketplace partners, and then tailor that assortment. I mean, I will tell you, Target tends to be more about swim, and Kohl’s tends to be more about women’s wear, and Macy’s is somewhere in between. You’re dead right in where we go next. I think there are a few infill points that we would look for in the US and in North America, but I think that the opportunity for us is to really grow international, and it’s something that we can now fully come to terms with. I do want to plug the international business. I made it in my comments, but I just want to reiterate, they returned their business to growth. They returned their business to profitability.

And there aren’t that many European-based retailers who were saying that at the moment. So I would congratulate my team on that. And now it’s about how we take that forward. And those are some of the conversations we’re all familiar with the players in the UK, this is a long-established market, same with Germany. And I think it actually gives us expansion opportunities, not just in Europe, but into, in particular, South America and north of the border into Canada, that we can really begin to pursue over the next couple of quarters. And that will be another growth area for us.

Eric Beder: Interesting. I see that you have continued to expand the categories in the catalog. You rolled out jewelry this month. When you look at it, I guess as you go back and forth on the catalog, trying to maximize the overall returns, how should we be thinking about the potential to add categories, and actually, could you remind us how the catalog interplays with the licenses also? Thank you. Excuse me, the catalog interplays with the licensing.

Andrew McLean: Yeah, absolutely. So that’s part of a package of services that we bring to our license partners and that there are some contractual obligations certainly around marketing that we expect to support the categories they’ve taken on, but in addition, we can offer a placement or catalogs for them out of cycle. And that’s a nascent part of the organization that we’re building, which is our marketing services group for those partners. And it’s something I’ve done before. It’s something that a number of retailers have done, and it’s a great skillset to have because you basically come to the table to a partner with a suite of services. And it’s like we had talked in the past. I know we’ve talked to you about it, about the book of business that those partners picked up when they became our partners.

So this takes it to the next level in terms of categories that we put in. One of my strategies for this company, and it’s a winning strategy, is to build more of a collection business. And that’s really important to get away from just having been an item business. The item business is there. We know it’s important. But being able to sell that story in a maximalist kind of way, and it’s like, build the outfit, we’ll build the basket. And it’s no surprise to me that we’re seeing our AOV’s build season after season, month after month, as the customer comes in and is able to complete the outfit. And things like jewelry, they’re wonderful add-ons to complete the outfit. You should never go crazy on it and make it 50% of your buy conceptually, but it should be there and it should be part of the package, because what we found over time, apologies for a big verbose, but we have found over the years from our catalog that if, say, we have a pair of shoes in there that aren’t a Lands’ End pair of shoes, we’ve got the customer calling our call center and asking where they can buy them from.

So they want to buy everything they see. So we’ll sell them everything they see.

Eric Beder: Great. And last question. In terms of — excuse me. In terms of outfitters, I know you’ve got your management in there. You’re starting to see the turns. Where are we, kind of like, what inning or quarter are we in in terms of outfitters getting to kind of where you like it to be and the potential for it? Thank you.

Andrew McLean: I spend my whole life at the bottom of the second, the top of the third. So it’s like, it’s really hard for me to — like there — at no point in my career have I ever said, yeah, we’re at the bottom of the ninth. It’s like we’re always striving for what’s next. And as I look at it, I think you’re seeing all the signs that you would want to see in that business. I mean, with the addition of another large customer, we call them whales in Wells Fargo, was a significant win for the company, not just the uniforms business in the second quarter. And it can’t be understated what that means for us, because it’s not just about Wells Fargo, it’s about the fact that we have built a sales team, and we have built an organizational support system that can go out and build on that with further whales.

So that’s very much in place and that’s a focus for our business. We had started to drift down the path of B2C practices within the uniforms business and I’ve taken us back to being much more focused on B2B. Lands’ End is a great brand, it is an iconic American brand. And we bring not just that brand, but we bring really amazing products that lasts and endures and fantastic customer service. And those are the attributes that we’re really getting behind in the uniforms business. And if it’s not core to that, we’re not going to do it. And it’s the same with the schools business. That was — we’re probably at the top of the third there because last summer we made sure we delivered on that business and that was paramount to us. This year we’ve done it again, but we’ve done it with more margin.

There’s been less discounting and we’re adding schools as a consequence of that and building a pipeline. So if you hear me talking about the school uniform business and you hear me talking about the larger customers, that gives you an identity to where the strategy is really going to be focused over the next few years. And the signs were excellent in the second quarter.

Eric Beder: Many congrats. Good luck for the holiday season.

Andrew McLean: Thanks, Eric.

Operator: Thank you. Our next question will come from Alex Fuhrman with Craig-Hallum Capital Group. Please go ahead.

Alex Fuhrman: Great. Thanks very much for taking my question. It sounds like you’re having a lot of success in the club channel. I’m curious if that is the biggest driver of the higher GMV guidance, despite GAAP revenues moving a little bit lower, if there’s maybe strength elsewhere in the third party or licensing portfolio, that’s driving that dynamic.

Bernie McCracken: Yeah, I got this, Alex. I think one of the things I’m most excited about is you’ll notice in our comments that when you exclude the shoes and the kids from last year’s numbers, our USD business was up 6% — up mid-single-digits. So I think we have growth there. Our [indiscernible] business is up in the quarter during the back-to-school season, and then you get to layer in the licensing business and especially the clubs where they only get to see one or two styles. And if they are enamored with the Lands’ End product, then their next place to go is to landsend.com. So yes, that is a big portion of our GMV growth, but also our underlying businesses are supporting that also.

Andrew McLean: It’s worth noting, Alex, and one of the reasons I particularly like Costco and Sam’s is that with a Costco, we’re just reaching so many of our potential evolver customers. There’s something like a third of the US shops at Costco in any given year, and they are $100,000 plus income customers. And they are typically in their 30s, 40s and 50s. And it’s just the ability to harvest from them is up to us in order to be able to make sure that we’re putting great products in front of them. Then the other piece you get from it is — Bernie’s right, it is a very narrow assortment, but they buy one to two orders of magnitude bigger than we would ever have on our website. So that really gets that one item out there. It distributes it widely, and we see that customer back into our core landsend.com business.

But I can’t underestimate the power anymore. It’s like, it’s a fabulous business for us to be part of and we’re very happy where that’s going. If it’s driving a big piece of the business, we’re happy with that as well. But I think Bernie’s points hold on top of that. There’s lots of places where the GMV is coming from, and it’s great to see us growing market share in this new business model.

Alex Fuhrman: Great. That’s really helpful. Thanks. And then just lastly for me, Andrew, you mentioned new customers coming in have been about ten years younger than the average customer in your file. How should we think about that? Is that more or less consistent with what you need to kind of maintain a steady age profile as the rest of your customers get older? Or is this really a conscious effort to try to attract younger customers and move the brand? You know, perhaps a tiny bit younger?

Andrew McLean: It’s a great question, Alex. It’s a little bit from column A, it’s a little bit from column B. Right. You’re always managing to a particular point. Some seasons it’s going to be more about managing the yield of your existing customers. Some seasons it’s going to be about bringing in a new customer who’s 10 years plus younger. And what I would say is that the customer has been aging in our file for the last few years, and this is the first time when that customer has stopped aging our file as we looked at it at the end of the second quarter was the same age as it was in the same period last year, and that is a great thing to see. And it’s like, if we can now start to back that up a little bit and build again the long term, it all goes well for years of growth in this brand.

Alex Fuhrman: Great. That’s really helpful. Thank you so much.

Operator: Thank you. Our next question will come from Steve Silver with Argus Research. Please go ahead.

Steve Silver: Thanks, operator. And congratulations on the quarter as well. My question is, given the fact that a really big part of the growth proposition for Lands’ End is being able to sell products with minimal discounting, I’m curious as to how that’s playing into the SG&A cost expansion, we saw in Q2 to acquire new customers, and just if you’re using more aggressive discounting in conjunction with customer acquisitions for first time visits to the website and things of that nature.

Andrew McLean: Yeah, Steve, thanks. What you’ll find when you look at our growth of 470 basis points of gross margin, close to two thirds of that was driven from a higher average unit retail out the door. So we’re actually discounting less as a whole as a company, that’s heavily driven by our product solutions and the newness that we’re constantly bringing into the business. And then the new customer acquisition is more in areas like social and new areas for us. That’s why that customer is 10 years younger and they’re actually buying at a higher average unit retail than our normal customer, or that our long-tenured customer. So we’re actually being able to acquire those customers at a higher margin.

Steve Silver: Great. And one follow-up if I can. You talked about the new patent being filed in the swim category. I’m curious as to whether the company maintains a pipeline of patent-eligible products in development and maybe if so, how that tracks, maybe even as compared to just a couple of years ago.

Andrew McLean: It tracks different from a couple of years ago in that we had not been doing this a couple of years ago, and one of the things I noticed about Lands’ End was that it was, in its earlier years, it was incredibly innovative. We had one of the first companies to have a [1800] (ph) number, which seems raisable now, but at the time was incredible, one of the first companies onto the web — really one of the first companies to put data science behind its cataloging. And I have an aspiration for the company to innovate along those avenues. I think innovation is dangerous when it just lands in one place in the company, and you have to stay ahead of innovation. So I want to see innovation from everyone. I think it’s part of everyone’s job, but I want to see the culture of the company be more innovative.

And so as I’ve come in, it became clear to me that I wanted to really open the floodgates. And if we were talking about innovation in the past, it tends to be more on our digital footprint, and that certainly is important. We’re making strides on that path. But I think fundamentally, if we put our customer first, as we have done, and we build a great brand for them, we also build great product for them, which means differentiation. I’ve talked a lot about the solutions business, and it’s us being more of a solutions business than the fashion business. And those solutions, they require innovation and I want us to protect that innovation. And so there is a pipeline that’s coming along, and I fear we’ll get to calls where I just won’t talk about innovation on patents because we’re doing so many of them.

And I’m making a note to myself as I speak to you that I’m going to continue to do that because I want this company to become known again for its innovation. And right now, building solutions for our customer is a critical part of that. So thank you for letting me get on my soapbox for that question.

Steve Silver: Okay. Thanks for all the additional color. Appreciate it.

Andrew McLean: Thank you.

Operator: Thank you. At this time, there are no further questions in queue. This will conclude the Lands’ End second quarter earnings call. You may disconnect your line at this time and have a wonderful day.