SEGMENT REPORTING

The Company is a leading multi-channel retailer of clothing, accessories and footwear, as well as home products, and has two operating segments: Direct and Retail. Product revenues are divided by product categories: Apparel and Non-apparel. The Non-apparel revenues include accessories, footwear, and home goods. Services and other revenue includes embroidery, monogramming, gift wrapping, shipping and other services. Net revenue is aggregated by product category in the following table:



	13 Weeks Ended				26 Weeks Ended
(in thousands)	July 28, 2017		July 29, 2016		July 28, 2017		July 29, 2016
Net revenue:
Apparel	$	256,369	$	241,822	$	488,596	$	472,980
Non-apparel	30,416		30,517		54,548		57,167
Service and other	15,405		19,671		27,411		35,296
Total net revenue	$	302,190	$	292,010	$	570,555	$	565,443

The Company identifies reportable segments according to how business activities are managed and evaluated. Each of the Company’s operating segments are reportable segments and are strategic business units that offer similar products and services but are sold either directly from its warehouses (Direct) or through its retail stores (Retail). Adjusted EBITDA is the primary measure used to make decisions on allocating resources and assessing performance of each operating segment. Adjusted EBITDA is computed as Income before taxes appearing on the Condensed Consolidated Statements of Operations net of interest expense, depreciation and amortization and other significant items that while periodically affecting the Company's results, may vary significantly from period to period and may have a disproportionate effect in a given period, which may affect comparability of results. Reportable segment assets are those directly used in or clearly allocable to an operating segment’s operations. Depreciation, amortization, and property and equipment expenditures are recognized in each respective segment. There were no material transactions between reporting segments for any periods presented.

•

The Direct segment sells products through the Company’s e-commerce websites and direct mail catalogs. Operating costs consist primarily of direct marketing costs (catalog and e-commerce marketing costs); order processing and shipping costs; direct labor and benefits costs and facility costs. Assets primarily include goodwill and trade name intangible assets, inventory, accounts receivable, prepaid expenses (deferred catalog costs), technology infrastructure, and property and equipment.


•	The Retail segment sells products and services through dedicated Lands’ End Shops at Sears across the United States and the Company’s stand-alone Lands’ End stores. Operating costs consist primarily of labor and benefits costs; rent, CAM and occupancy costs; distribution costs; and in-store marketing costs. Assets primarily include retail inventory, fixtures and leasehold improvements.

•

Corporate overhead and other expenses include unallocated shared-service costs, which primarily consist of employee services and financial services, legal and corporate expenses. These expenses include labor and benefits costs, corporate headquarters occupancy costs and other administrative expenses. Assets include corporate headquarters and facilities, corporate cash and cash equivalents and deferred income taxes.

Financial information by segment is presented in the following tables.

SUMMARY OF SEGMENT DATA



	13 Weeks Ended				26 Weeks Ended
(in thousands)	July 28, 2017		July 29, 2016		July 28, 2017		July 29, 2016
Net revenue:
Direct	$	259,938	$	246,395	$	488,228	$	478,580
Retail	42,166		45,521		82,213		86,737
Corporate / other	86		94		114		126
Total net revenue	$	302,190	$	292,010	$	570,555	$	565,443



	13 Weeks Ended						26 Weeks Ended
(in thousands)	July 28, 2017			July 29, 2016			July 28, 2017			July 29, 2016
Adjusted EBITDA:
Direct	$	13,080		$	14,780		$	24,918		$	27,612
Retail	1,773			450			(1,402		)	(3,480		)
Corporate / other	(8,024		)	(7,970		)	(15,391		)	(16,236		)
Total adjusted EBITDA	$	6,829		$	7,260		$	8,125		$	7,896
Loss on disposal of property and equipment	—			60			62			46
Transfer of corporate functions	480			—			1,926			—
Depreciation and amortization	6,175			4,488			12,683			8,624
Operating income (loss)	$	174		$	2,712		$	(6,546	)	$	(774	)
Interest expense	6,167			6,174			12,292			12,344
Other income, net	(494		)	(528		)	(1,236		)	(981		)
Income tax benefit	(1,619		)	(954		)	(5,883		)	(4,398		)
NET LOSS	$	(3,880	)	$	(1,980	)	$	(11,719	)	$	(7,739	)



	13 Weeks Ended				26 Weeks Ended
(in thousands)	July 28, 2017		July 29, 2016		July 28, 2017		July 29, 2016
Depreciation and amortization:
Direct	$	5,489	$	3,720	$	11,267	$	7,070
Retail	353		406		707		825
Corporate / other	333		362		709		729
Total depreciation and amortization	$	6,175	$	4,488	$	12,683	$	8,624



(in thousands)	July 28, 2017		July 29, 2016		January 27, 2017
Total Assets:
Direct	$	846,313	$	980,173	$	805,201
Retail	73,953		78,011		69,792
Corporate / other	202,139		240,254		239,398
Total assets	$	1,122,405	$	1,298,438	$	1,114,391



	13 Weeks Ended				26 Weeks Ended
(in thousands)	July 28, 2017		July 29, 2016		July 28, 2017		July 29, 2016
Capital expenditures:
Direct	$	8,832	$	7,461	$	20,213	$	17,763
Retail	9		71		10		254
Corporate / other	—		—		—		—
Total capital expenditures	$	8,841	$	7,532	$	20,223	$	18,017