jumped 13% Wednesday as a strong earnings report showed the catalog retailer is slashing costs.
The Dodgeville, Wis., company beat Wall Street's first-quarter consensus earnings estimate by an impressive 18 cents, according to
Thomson Financial/First Call
. Profit jumped to 20 cents in the latest quarter from a penny a year ago, as Lands' End cut expenses, mainly by reducing national advertising. Sales for the quarter rose 9% from a year ago, to $311 million.
But the news wasn't all good for investors. Lands' End didn't budge from fiscal 2002 earnings projections, saying it expects sales to suffer from a shaky U.S. economy until the holiday season. Lands' End expects cost-cutting to continue to drive its financial success, projecting a 20% gain in 2002 earnings on only a single-digit gain in sales.
The company's failure to boost earnings guidance coming off a blowout quarter raised some eyebrows. In a cheery, back-slapping conference call Wednesday morning,
Credit Suisse First Boston
analyst Richard Baum asked executives why they weren't willing to assure Wall Street that this quarter's surprising strength won't give way to next quarter's unexpected weakness.
"The key word we've used is that we are telling folks it is 'at least' 20%," Jeffrey Jones, the company's chief operating officer, responded. "To get what we think inside we'd have to put you on the payroll." He continued by saying the company expects "slowness" in the consumer economy to continue through the second and third quarters, and to begin to pick up only during the holiday season.
Investors, who have moved the stock sharply in recent years in reaction to news both good and bad, loved Wednesday's numbers. In recent trading shares were up $4.25 at $34.44, putting them at almost double their 52-week low of $18.70, reached last October. Still, the company is coming off a damaging string of
earnings warnings last year that punished the stock and the company's credibility, taking shares below $20 last fall from a high in the $80 range. The stock trades at 25 times this year's estimated earnings, which is toward the high end of the range for retailers.
That said, in the first quarter Lands' End also showed some gains outside its core catalog business. Notably, sales at the company's Internet division rose 40% to $54 million. The retailer is one of the few company's that can boast of a profitable Web venture.
"This is probably the best e-tailing company that is out there, in my view," says Derek Leckow, an analyst at
Barrington Research Associates
, who has a strong buy rating on the stock. (His firm hasn't had a banking relationship with Lands' End.)
Along those lines, while Lands' End at one time shunned all talk of expanding into the bricks-and-mortar world, the company has
indicated it would explore such an idea. That subject didn't arise in Wednesday's conference call.
Most analysts say the company could be successful in opening shops, for the same reason it has done well on the Internet: by leveraging the assets of its catalog business. The vast amount of customer data compiled from years of mailing catalogs would help the company decide where to put stores, for example.
However, that appears a long way off.
"That's clearly an opportunity they haven't talked much about," Leckow says.