Kirkland's, Inc.

Good morning and welcome to the Kirkland's first quarter 2019 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Jeff Black of SCR Partners. Jeff, please proceed.

Thank you. Good morning, and welcome to the Kirkland's Conference Call to Review Results for the first quarter of fiscal 2019. On the call this morning are Woody Woodward, Chief Executive Officer, Mike Carnes, President and Chief Operating Officer, and Nicole Strain, Interim Chief Financial Officer. The results, as well as notice of the accessibility of this call on a listen-only basis over the Internet, were announced earlier this morning in a press release that has been fully covered by the financial media. Except for historical information discussed in this call, the statements made by company management are forward-looking. They're made pursuant to the safe harbor provisions of the Private Securities Mitigation Reform Act of 1995. Forward-looking statements involve both known and unknown risks and uncertainties. which may cause Kirkland's actual results in future periods to differ materially from forecasted results. Those risks and uncertainties are more fully described in Kirkland's filings with the SEC, including the company's annual report on Form 10-K, which was filed on March 29, 2019. With that, I will turn it over to Woody.

Thanks, Jeff, and good morning to everyone on the call. We appreciate you joining us to review the first quarter and our plans for 2019 and beyond. The first quarter was challenging. Seasonal product performed well and comps positive. And we continue to make strides in Kirkland's dot com. Unfortunately, brick and mortar traffic remained a significant headwind. We're taking meaningful steps to transform the business to address ongoing changes in home decor retailing. The strategy we're executing was never going to be a first quarter story. It will take time to see the full realization of our work. Yet the measures we're taking today ensure our infrastructure is much more in line with our revenues, and I feel good about the focus as we approach the second half. As we outlined in our release this morning, we made solid progress on our strategic priorities in the quarter. Our focus for 2019 includes plans to add product categories that can significantly broaden our reach, expand BOPUS, and improve our supply chain efficiency. I'm pleased to report that all of our initiatives are on schedule. and I'm excited about prospects to improve sales and earnings and re-accelerate long-term growth. I was clear when I spoke to you that to accomplish our goals, it's imperative that we accelerate our efforts to improve the customer experience and advance our business improvement initiatives. While the environment remains challenging, we are doing what's necessary to stay on track. For example, we've added a program to reduce operating costs by $10 million in 2019. we're eliminating costs that do not impact our ability to drive scale or deliver quality. This will enable us to become more efficient while directing time and energy to our strategic priorities. This initiative is a result of comprehensive review of each element of our operations to ensure that we're pulling every lever we can to make the business stronger and more effective. In addition, we're finalizing plans to address the potential impact of additional tariffs in home decor. That includes work with our vendors, as well as a category by category assessment of pricing. While we expect tariffs to pressure our merchandise margin, our goal is to mitigate the impact while maintaining our focus on affordable home decor. The work joins initiatives that are well underway to revitalize our assortment, expand our margin, and optimize the omnichannel platform. In particular, I'm pleased with how the merchant team is coming together. We put together an exceptional seasonal assortment for fall, and we're excited about new products in bedding, tabletop, and area rugs that are on the way. The presentations are an important step in our evolution to execute a stronger design ethos across Kirkland's. We're bringing simplicity, universal appeal, and utility to our offerings while infusing more confidence in our buying decisions. We're refocusing investments in key items to make sure we're fulfilling customers' expectations. And that will be an important component of our product revitalization strategy over the coming years. As we improve our existing assortment, we're driving Kirkland's into adjacent categories that are particularly relevant to the home shopper. We've started to introduce rugs into our stores, and these are high-quality Turkish-made rugs that can fit perfectly into any home at a great value. In addition, we're preparing to launch into tabletop and bedding businesses with simple, high-quality, and attainable lines with aggressive pricing strategies designed to improve traffic, reputation, and market share. We plan on moving into some additional categories in 2020. These product categories are vital in ensuring that we are playing in non-discretionary spending spaces, particularly as millennials begin to enter key life stages, including marriage, the purchase of their first home, and the addition of children. Our seasonal offerings will remain important, but the goal is to ground the business with a better year-round balance across the central range of categories that appeal to new and existing customers. Mike and Nicole will go into some detail on our strategy and financial assumptions in a moment. I don't want to minimize the challenges that lay ahead of us, but I'm cautiously optimistic about the second half. The cost reductions we made will help stabilize performance, We're introducing three new product categories, rugs, bedding, and tabletop. We have more purposeful depth in key items, and our best-selling furniture is back in excellent in-stock position. We're applying learnings from the fourth quarter of last year, which include an earlier drop of post-Christmas floor set, and we'll benefit from a second warehouse in Dallas and a more efficient supply chain overall. The path to sustainable growth will take time, but we have a solid plan in place, and every improvement we make in the value chain from concept to customer is a chance to improve margin and deliver increasingly sustainable growth. I'll now turn it over to Mike. Thanks, Woody.