Dive Brief:

• Lands' End reported Tuesday that its first-quarter net revenue fell 12.5% year over year to $262.4 million even as its U.S. same-store sales rose 12% and e-commerce sales went up 5.1%.
• Much of the sales decline came from the apparel brand's pullback from Sears. The company said in a press release that it had closed 120 Lands End shops inside Sears stores by the end of Q1, which accounted for a $17.9 million drop in revenue.
• Lands End's gross margins increased about 1.3%, but it's net loss widened by 160% to $6.8 million.

Dive Insight:

As Lands' End winds down its relationship with Sears, it has been building out its own retail portfolio. The company said it added three stores in Q1 and is on track to open another seven to nine stores in fiscal 2019. Lands' End has previously said it would open a total of 40 to 60 locations over the next several years.

But as the Q1 results showed, cutting ties with Sears will not be painless. Revenue at Lands End would have increased 3.4% year over year were it not for closed shops in Sears stores and a previous rollout of uniforms to Delta Airlines employees (some of whom have sued the brand for clothes they say gave them rashes), the latter of which made for a difficult comp.

Lands End's pullback from the department store chain is also complicated by the fact that Sears' owner, Eddie Lampert and his hedge fund ESL Investments, also owns nearly 65% of Lands End's shares, which gives Lampert significant influence in the brand's decisions and board.

After spinning off from Sears in 2014, Lands' End CEO Jerome Griffith said in 2018 the company would no longer be "relying on Sears," which housed around 180 store-within-a-store locations at the time. In its Q4 earnings release, Lands' End reported that it exited 125 Sears locations by the end of the fourth quarter.

Many analysts see the departure from Sears as a smart move, given the department store retailer's own far-diminished brand, footprint and customer base. "Lands' End is smart to go the owned retail route," Carol Spieckerman, president of Spieckerman Retail, said in a recent Retailwire Braintrust panel discussion on the topic. "It's the best way to showcase its arrays of styles and colorways. For Lands' End, multiple purchases are the secret sauce and brick-and-mortar is the key ingredient."