Kirkland's, Inc.

Good morning and welcome to the Kirkland's 2019 First Quarter Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference operator 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 touchtone 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 Investor Relations at SCR. Please go ahead.

Thank you. Good morning and welcome to Kirkland's conference call to review results for the fourth quarter of fiscal 2019. On the call this morning, we have Woody Woodward, Chief Executive Officer, and Nicole Strain, Chief Financial Officer. The results, as well as 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 company management are forward-looking and may pursue 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. The risks and uncertainties are more fully described in Kirkland's filings with the Securities and Exchange Commission, including the company's annual report on Form 10-K filed on March 29, 2019. I'll now turn the call over to Woody.

Thanks, Jeff. 2019 was a year of significant transformation for Kirkland's. We took bold steps to reinvigorate our assortment, realign our infrastructure, and improve e-commerce, and we're well along the path of implementing direct sourcing. Overall, the work supports our long-term strategy to preserve Kirkland's value DNA as we increase relevancy and improve retail fundamentals. During 2019, we reinvented core product assortments and added new categories that make us more important to the Kirkland's loyal customer base. We addressed supply chain flow and invested in our omnichannel platforms. The results we reported today reflect the depth of the transition, with plans to close 28 underperforming stores and a further reduction in operating expenses. The results also reflect encouraging progress. We achieved strong e-commerce growth in the quarter, and we had better performance in segments of the assortment, including furniture and tabletop. We ended the year with a solid balance sheet, and we believe we're well-positioned to execute our vision strategy for Kirkland's. Let me share some thoughts about our key priorities for 2020. It starts with further accelerating product development to build on what we've accomplished in 2019. Our goal is to be in the consideration set for a complete home furnishings project in addition to the finishing touches. Let me elaborate on that. Hercules has historically been known as a key resource for accessories when a home decor project is near completion. We've been an ideal stop to pick up a wreath for the front door, a candle for a certain room, some finishing artwork, or even some holiday decor that make your home happy as a happy place to live. We have a long history there, and this focus is concerned about customers as well. At the same time, we've been losing market share to mass merchants and online-only players with an assortment that's too narrowly focused in some cases. During 2019, we added larger furniture pieces, tabletop, rugs, beds, and bedding. We've been more deliberate in our color direction and design point of view and edited assortments to tell a clearer story to the customer. We have also included occasional chairs, recliners, and large-scale tables for our assortment. The final ad is being tested this year with upholstery. This strategy is to get our customers thinking about us for a complete decorating project. We want to be the complete casual home decor store where essentially everything goes together with one point of view. That allows our customers to finish their entire room or home, all within a tight budget. Our goal is to move away from being coupled with mass merchant retailers and fit Squarely as the value home retail store within the specialty world. Our second goal is to improve omnichannel via website enhancements, incremental digital spend, and an expanded online assortment. We view e-commerce as an accelerator to our overall business strategy. Our focus on buy online, pick up in store has been a big success, and we're making additional improvements in the supply chain that will help with both speed and profitability. Third, we will continue to increase direct sourcing with the goal of increasing penetration in 2020. We're in the process of moving from a vendor base of primarily wholesalers to a worldwide direct sourcing base. We believe that can improve margins and quality as we differentiate our assortments to be more exclusive. Fourth, we're investing in marketing spend to drive consumer acquisition and brand awareness. Our stores look and feel better than they ever have. Our assortments are clean, focused, and edited to tell home decor stories. And these elements are starting to take shape with improved sales and margins. We have started to convey our brand messaging to acquire new customers while educating our current loyal base. With traffic continuing to be a challenge, we are concentrating on growing the basket size and the average unit retail by offering unparalleled value at a price. I welcome all of you to see our stores for yourself and let me know what you think. Fifth, we'll continue to preserve our capital to invest in the business. We ended 2019 with over $30 million in cash and no debt under our borrowing agreements. We'll continue to evaluate the store infrastructure, and we'll focus on additional ways to optimize our expense and increase efficiency. We've accomplished a great deal, but emerging as a powerful true home furnishings brand from an accessory store takes time and patience, and that's why we've been conservative with our capital to better facilitate this transition. Now I'll turn it over to Nicole Strain, our Chief Finance Officer.