Back in April, we discussed that we suggested closing a public trade here on Lands’ End, Inc. (NASDAQ:LE) and suggested leaving some profit running in a so-called “house position.” Since that time, shares have appreciated another 30%. However, given the massive gains, we did not want to risk giving it all back. We provide a lot of detail on this approach at our full service, where you can also see a history of those trades and our approach.

Given that the company just reported earnings, we are revisiting the suggested “house position” in this ticker. As a reminder, Lands’ End specializes in casual clothing, swimwear, footwear, and home products and, of course, you can get these products with their Lands’ End, Lands’ End Lighthouse, Drifter, and several other brands. As it is a specialty retailer, you must understand that competition for limited consumer dollars is rampant, and only the strongest performers have been able to succeed in the tough macro environment in the last few quarters. It took a while, but the impact of high rates, record consumer credit card debt, sky-high housing and rent costs, food costs, and the return of student loan payments has finally started to weigh. While consumer confidence remains resilient, after listening to hundreds of earnings calls, it is clear that pressure is mounting on retail, and consumer discretionary as a whole, but there are clear winners and losers right now.

For many quarters, Lands’ End, Inc. stock had been a loser as the company suffered. But over the last 9 months or so since we called for a buy, the stock has performed well as the company has turned around. Looking at Q2 revenue, sales were still down, hitting $317.2 million and falling 1.9% from last year. That said, this was a nice beat against the consensus of $9.94 million. This is a digitally focused retailer, and global online revenue was $211.3 million, a decrease of $7.4 million from $218.7 million a year ago. U.S. online revenue was $188.3 million, a decrease of 3.9% from $195.9 million a year ago. This was driven by the transition of kids and footwear products from a direct to a license model, lower promotional activity and improved inventory management, resulting in increased gross profit from higher gross margins.

Adjusting for the impact of transitioning the kids and footwear products to licensing arrangements, U.S. online revenue increased by mid-single digits year-over-year. International online revenue increased 0.9%, primarily driven by an increase in full price sales. The “Outfitters” brand saw sales of $63.2 million, falling 7.1% from $68.0 million last year. Business uniforms faced pressure, but school uniforms performed well.

As we told you in our trade idea, the company has made strong efforts to boost its margins. This has continued. Here in Q2, the company saw gross margin expansion of approximately 470 basis points! Gross margin hit 47.9% rising from 43.2% a year ago and adjusted EBITDA was $17.1 million a rising from $15.8 million a year ago. In terms of inventory, it was outstanding. The company saw a 21% reduction in year-over-year inventory, suggesting that the company is efficiently moving products. This continues a run of significant inventory and margin improvement. With the much wider margins, adjusted net loss was $0.7 million, or $0.02 loss per diluted share. However, this loss was driven by a non-cash charge related to long-lived asset impairment and restructuring costs. This also beat by $0.08 and improved compared to an adjusted net loss of $7.6 million or $0.24 loss per share last year.

As we look ahead, for fiscal 2024, management sees sales between $1.35 billion and $1.43 billion. This is a mid-single digit decline from $1.47 billion in 2023. The company is guiding for a winning year as well. Net income will be between $5.0 million and $11.0 million, or $0.26 per share at the midpoint. Adjusted EBITDA looks strong and is expected to be around $94 million. This is way up from the initial guide at the start of the year, while adjusted diluted earnings per share should hit $0.39 at the midpoint, also way up from $0.18 at the midpoint to start the year. Still, the stock is quite expensive on this basis, but the improvement is real.

At this point, we continue to rate Lands’ End, Inc. stock neutral, and suggest keeping a house position on. We would not initiate a new position at this level given the valuation here, but are encouraged by the significant progress made.