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Lands' End is No Bargain in Trading Debut

Stocks in this article: LESHLD

NEW YORK (The Deal) -- Lands' End  (LE) began trading on Monday, but not to cheers from investors, as the retailer's stock price closed down 3% at $29.55 per share, with the slide continuing Tuesday, as the outdoor apparel retailer's shares closed down another 7% at $27.34.

Market participants are likely to take notice that though adjusted Ebitda and net income for the Dodgeville, Wisc.-based company has increased, its sales are declining. In fiscal 2013 ended Jan. 31, Lands' End had about $1.56 billion in revenue, while in fiscal 2012 sales were nearly $1.59 billion, according to a regulatory filing. Net income, however, was nearly $79 million in fiscal 2013, while in fiscal 2012 it was almost $50 million. Meanwhile, adjusted Ebitda was about $150 million in fiscal 2013 and almost $108 million for the same period a year prior.

Its market cap of about $864 million, based on the nearly 32 million shares distributed to shareholders last Friday, April 4, by Sears Holdings (SHLD), plus a $515 million term loan on the balance sheet used to pay a $500 million dividend to Sears, gives Lands' End an enterprise value of $1.38 billion.

That enterprise value is less than the roughly $1.8 billion Sears paid for Lands' End back in 2002, but it is about 9.2 times trailing adjusted Ebitda, hardly a discount for an apparel retailer with exposure to a declining department store chain.

Sears shares took a hit at the separation, falling 24% Monday to close at $38.10, on the notion that it had spun off its best performing asset. (Tuesday, it closed down again at $36.99 per share.) Sears no longer has a stake in the apparel company, but besides the dividend payment, it will begin collecting rent from Lands' End for the store-within-a-store formats it operates in some Sears' locations.

Investor fears mirror the concerns about Lands' End former parent, which has been struggling for some time with outdated stores and shrinking customer base.

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