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				39 Weeks Ended
(in thousands)	October 27, 2017		October 28, 2016		October 27, 2017		October 28, 2016
Net revenue:
Apparel	$	272,175	$	252,082	$	759,460	$	725,062
Non-apparel	38,559		37,854		93,067		95,021
Service and other	14,755		21,540		43,517		56,836
Total net revenue	$	325,489	$	311,476	$	896,044	$	876,919

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				39 Weeks Ended
(in thousands)	October 27, 2017		October 28, 2016		October 27, 2017		October 28, 2016
Net revenue:
Direct	$	290,326	$	272,080	$	778,554	$	750,660
Retail	35,104		39,340		117,317		126,077
Corporate / other	59		56		173		182
Total net revenue	$	325,489	$	311,476	$	896,044	$	876,919



	13 Weeks Ended						39 Weeks Ended
(in thousands)	October 27, 2017			October 28, 2016			October 27, 2017			October 28, 2016
Adjusted EBITDA:
Direct	$	29,100		$	13,904		$	54,018		$	41,516
Retail	(6,003		)	(3,583		)	(7,405		)	(7,063		)
Corporate / other	(10,245		)	(9,035		)	(25,635		)	(25,271		)
Total adjusted EBITDA	$	12,852		$	1,286		$	20,978		$	9,182
Product recall	—			(212		)	—			(212		)
Loss on disposal of property and equipment	89			126			151			172
Transfer of corporate functions	475			—			2,401			—
Depreciation and amortization	6,347			4,795			19,031			13,419
Operating income (loss)	$	5,941		$	(3,423	)	$	(605	)	$	(4,197	)
Interest expense	6,350			6,149			18,642			18,493
Other income, net	(576		)	(432		)	(1,812		)	(1,413		)
Income tax expense (benefit)	5			(1,918		)	(5,878		)	(6,316		)
NET INCOME (LOSS)	$	162		$	(7,222	)	$	(11,557	)	$	(14,961	)



	13 Weeks Ended				39 Weeks Ended
(in thousands)	October 27, 2017		October 28, 2016		October 27, 2017		October 28, 2016
Depreciation and amortization:
Direct	$	5,747	$	4,027	$	17,015	$	11,097
Retail	285		408		992		1,233
Corporate / other	315		360		1,024		1,089
Total depreciation and amortization	$	6,347	$	4,795	$	19,031	$	13,419



(in thousands)	October 27, 2017		October 28, 2016		January 27, 2017
Total Assets:
Direct	$	934,508	$	1,073,975	$	805,201
Retail	67,965		78,373		69,792
Corporate / other	118,007		160,830		239,398
Total assets	$	1,120,480	$	1,313,178	$	1,114,391



	13 Weeks Ended				39 Weeks Ended
(in thousands)	October 27, 2017		October 28, 2016		October 27, 2017		October 28, 2016
Capital expenditures:
Direct	$	8,791	$	8,041	$	29,004	$	25,804
Retail	—		25		10		279
Corporate / other	129		—		129		—
Total capital expenditures	$	8,920	$	8,066	$	29,143	$	26,083