Kirkland's, Inc.

Good morning and welcome to Kirkland's third quarter 2019 conference call. All participants are in a listen-only mode. Should you need assistance, please see an oil conference specialist by pressing the star key followed by zero. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Jeff Black, SCR Partners. Please go ahead.

Thank you, good morning, and welcome to Kirkland's conference call to review results for the third 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, Chief Financial Officer. The results, as well as a notice of the accessibility of this conference call on a listen-only basis over the internet, were announced earlier this morning in a press release that has been covered by the financial media. Except for historical information discussed during this conference call, The statements made by the company management are forward-looking and made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve 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 filed on March 29, 2019. With that, I will turn it over to Woody.

Thanks, Jeff. Good morning, and thank you for joining us today. The third quarter remained challenging. We made progress on key merchandising initiatives and will continue to add new categories to Kirkland's to broaden our reach. E-commerce trends reaccelerated in the quarter, and we're driving more of a total business, the BOPAS, which supports our focus on running a true omnichannel platform. Looking at some specifics for the quarter... We had success in our seasonal products of harvest, Halloween, and early Christmas merchandise. Our new categories are starting off well. Collections of dinnerware, flatware, drinkware, housewares, dining furniture, and tabletop textiles are emerging as the clear winners. New editions of rugs and bedding remain promising, and we're excited about their potential as we increase category awareness. We experienced mixed results in core categories. Furniture and textiles performed well, though the mixed shift to furniture is impacting margin rate. We're pleased with the acceleration in our e-commerce revenue. Our BOCA sales accounted for a growing share of e-commerce sales in the channel, and we're encouraged about its potential to improve traffic and profitability. Brick-and-mortar traffic remained weak. Our marketing spend did not drive the returns we were looking for in Q3, which resulted in additional merchandise promotions that negatively impacted the margin rate. At the same time, new categories and growth in e-commerce were not enough to offset negative store comps, which deleveraged operating expenses. We've adjusted our outlook to reflect these trends, and Nicole and Mike will discuss those later. We are working aggressively to address infrastructure and operating costs. As we look to the fourth quarter, our focus is on helping customers find ways to bring happiness home. We have a more purposeful depth in key items to complement our seasonal merchandise, and our new categories reinforce Kirkland's long heritage of offering shoppers value. We've added new colors in tabletop and a new collection in January that we're calling Everyday Nostalgia. In floor coverings, we're adding new larger rugs where we've seen customer demand. Our inventory balance reflects these quality investments as well as our traditional seasonal build. We exited the harvest inventory within the quarter, and we've transitioned through Black Friday and remain on track with Christmas merchandise sell-throughs. As we look to 2020 and beyond, we will continue to evolve our merchandise to improve relevance while focusing on simplicity, function, and value. We're moving more of our mix to good, better, best merchandising approach supported by direct sourcing that will have a result of higher AURs and have potential to help offset traffic while maintaining a strong presence in value merchandise. As it relates to marketing, we've completed a customer segmentation study to better understand our target customer and we're making customer acquisition a key priority. We will continue to grow, we will continue to update you on the progress to broaden our brand appeal and to drive profitable growth. While we've had some early successes, I'm disappointed that we've not made faster progress and we're redoubling our efforts to achieve our goals. We expect to end the year in a net positive cash position and we believe our work to lower occupancy improve product margin, and reduce other operating costs can benefit earnings in 2020 and beyond. Now I'll turn the call over to Mike.