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Background and Basis of Presentation | 9 Months Ended
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Oct. 30, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract] |
Background and Basis of Presentation | NOTE 1. BACKGROUND AND BASIS OF PRESENTATION Description of Business Lands' End, Inc. ("Lands' End" or the "Company") is a leading 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. The information on Lands’ End’s website is not incorporated into this Quarterly Report on Form 10-Q or into any other report or document we file with the SEC. Terms that are commonly used in the Company's notes to Condensed Consolidated Financial Statements are defined as follows:
| • | ABL Facility - Asset-based senior secured credit agreement, dated as of November 16, 2017, with Wells Fargo Bank, N.A. and certain other lenders as amended to date
| • | Adjusted EBITDA - Net income (loss) net of Income tax benefit, Other income (expense), net, Interest expense, Depreciation and amortization and certain significant items
| • | ASC - FASB 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 - FASB Accounting Standards Update
| • | CARES Act – The Coronavirus Aid, Relief and Economic Security Act signed into law on March 27, 2020
| • | Deferred Awards - Time vesting stock awards
| • | EPS - Earnings per share
| • | 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 ending January 29, 2021
| • | Fiscal 2019 - The 52 weeks ended January 31, 2020
| • | Fiscal 2018 – The 52 weeks ended February 1, 2019
| • | 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
| • | Sears Holdings or Sears Holdings Corporation - Sears Holdings Corporation, a Delaware corporation, and its consolidated subsidiaries
| • | SEC - United States Securities and Exchange Commission
| • | Second Quarter 2020 – the 13 weeks ended July 31, 2020
| • | Second Quarter 2019 – the 13 weeks ended August 2, 20 19
| • | Term Loan Credit Agreement - 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
| • | 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 Term Loan Credit Agreement on September 9, 2020
| • | Third Quarter 2020 – the 13 weeks ended October 30, 2020
| • | Third Quarter 2019 – the 13 weeks ended November 1, 2019
| • | 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
| • | Year-to-Date 2020 - The 39 weeks ended October 30, 2020
| • | Year-to-Date 2019 - The 39 weeks ended November 1, 2019
Basis of Presentation The Condensed Consolidated Financial Statements include the accounts of Lands' End, Inc. and its subsidiaries. All intercompany transactions and balances have been eliminated. The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all material adjustments which are of a normal and recurring nature necessary for a fair presentation of the results for the periods presented have been reflected. Dollar amounts are reported in thousands, except per share data, unless otherwise noted. Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with information included in the Lands' End Annual Report on Form 10-K filed with the SEC on March 23, 2020. 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. Additionally, the recent spike in the pandemic leads to continued uncertainty in the Company’s business and the overall economy. H ealth 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. Due to the COVID-19 pandemic, the Company has implemented extra precautions in its 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 in Third Quarter 2020. Consequently, Year-to-Date 2020 eCommerce revenue has increased compared to prior year. The Lands’ End Outfitters (“Outfitters”) and Retail channels Year-to-Date 2020 revenue is lower than Year-to-Date 2019 due to the COVID-19 pandemic, which resulted in lower customer demand in both channels. The Outfitters channel is heavily weighted to the travel industry and the Retail channel experienced lengthy store closures. The Outfitters and Retail channels continued to be negatively impacted by the COVID-19 pandemic in Third Quarter 2020, however these channels have shown better results each quarter in Year-to-Date 2020. 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 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 expense 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 and President, 20% reductions in the base salaries of the Company’s other senior management members and scaled salary reductions throughout the Company. All salaries were restored during Third Quarter 2020.
| • | Furlough of approximately 70% of corporate employees and nearly 100% of retail employees from March 28, 2020 to April 13, 2020, with approximately 49% of the workforce remaining furloughed at the end of First Quarter 2020.
| • | Permanent reduction of approximately 10% of corporate staff during Second Quarter 2020, with all remaining furloughed personnel returning to work by mid-Second Quarter 2020. The Company incurred total severance costs of approximately $3.0 million related to the reduction of corporate staff which was recorded in Other operating expense (income), net in the Condensed Consolidated Statements of Operations. As of October 30, 2020 approximately $0.3 million of the severance costs had yet to be paid.
| • | Fiscal 2020 merit increases were eliminated.
| • | The Board of Directors compensation was temporarily reduced. This compensation was restored in Third Quarter 2020.
| • | The Company's 401(k) match has been temporarily suspended.
| • | 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 duration and severity of the COVID-19 pandemic could result in additional future impairment charges for goodwill and the trade name indefinite-lived intangible asset. The Company considered the COVID-19 pandemic to be a triggering event in First Quarter 2020 for the 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 Outfitters reporting unit and full impairment of the $3.3 million of goodwill allocated to the Japan eCommerce reporting unit, recorded during First Quarter 2020. There was not a triggering event or impairment charges for any reporting unit in Second Quarter 2020 or Third Quarter 2020. Lease M odifications In April 2020, the FASB issued guidance 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 Condensed Consolidated Financial Statements during the nine months ended October 30, 2020.

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