Kirkland's, Inc.

Kirkland's financial results for the second quarter ended July 29, 2023. Joining us today are Kirkland's home interim CEO, Ann Joyce, President and COO, Amy Sullivan, EVP and CFO, Mike Madden, and the company's external director of investor relations, Cody Cree. Following their remarks, we'll open the call for your questions. Please note, today's conference is being recorded. Before we go further, I would like to turn the call over to Mr. Cree as he reads the company's safe harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Cody, please go ahead.

Thanks, Rocco. Except for historical information discussed during this conference call, the statements made by company management are forward-looking and may pursuant to the safe harbor provision 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 Securities and Exchange Commission. I'd like to remind everyone that this call will be available for replay through September 13th, 2023. A webcast replay will also be available via the link provided in today's press release, as well as on the company's website at kirklands.com. Now, I'd like to turn the call over to Kirkland's Interim CEO, Anne Joyce. Anne, over to you.

Thank you, Cody, and good morning, everyone. Before we jump into the results, I want to start by expressing my gratitude For the tireless work our associates at Kirkland's are putting in to return our business to profitability. We knew these efforts were not going to translate into immediate success, and we remain up against difficult macroeconomic headwinds. But I am confident we are doing all the right things to right the ship and return the company to profitability. As expected, Q2 was a difficult quarter with challenging sales comparison due to prior year inventory liquidation activity. On a macro level, inflation remains a challenge as our customers continue to spend a large portion of their disposable income on necessities and experiences. This shift in consumer behavior that began after the pandemic continues to impact our traffic levels as the battle for share of wallet has become even more competitive. As a result of the difficult year-over-year comparisons and decline in traffic throughout the quarter, Q2 comparable sales were down 9.7%. As we discussed on our last call and as part of our efforts to better engage our customers, we refocused our brand voice toward value and emphasized seasonally relevant home decor, which has historically been a focal point for our brand. And as a result, our decorative accessories category delivered a strong comp increase. We expect continued growth in this category in the quarters to come. Additionally, we had a highly successful Christmas in July promo that drove increased demand in early season Christmas decor, which is typically a strong indicator for the back half. The performance in these categories led us to a higher year-over-year conversion rate in both channels, and that trend has continued into Q3. During the quarter, we saw promising indicators from our pivots in the marketing strategy. We shifted our brand voice, getting back our value roots. And while we were more promotional than planned, we were able to leverage our customer data platform to better target our offers. This approach, along with the initial product shift to emphasize seasonally relevant value decor and a normalizing supply chain, enabled us to expand our merchandise margin by 320 basis points, the key driver in our overall gross profit margin improving by 140 basis points. We also implemented win-back campaigns to target our lapsed customers, and we are encouraged with the initial response from the customers who were quick to reengage. Through the success we experienced with these merchandise and marketing shifts, our team is already planning to expand these initiatives next summer to capitalize on the additional opportunities in floral, outdoor expanded holiday products, and a reintroduction of back to campus. We believe these product assortment changes, along with the revitalized marketing strategy, has the potential to drive more consistent traffic and stronger demand during our historically weakest quarter. Shifting the focus to operations, I'm proud of how well our organization has managed inventory. With 30% less inventory on the balance sheet compared to the end of Q2 last year, We successfully reduced overhang, resulting in lower borrowings year over year. Our network inventory flow has improved, and we have the appropriate levels of inventory on hand and in time for harvest and for holiday. Cost containment remains critical for our operations, and in the second quarter, we were able to reduce our operating expenses by over $5 million compared to the prior year period. We continue to manage expenses tightly, as we aim to increase the efficiency of every dollar going out the door and improve profitability for the future. Overall, we anticipated the quarter would be a challenge. We knew this would be a time of transition as we performed an extensive deep dive and identified near-term strategies to return to profitability and growth. Some of our initial changes look promising, but we are still up against difficult headwinds. The home sector remains generally soft, and the consumer is under pressure from persistent inflation, mounting credit card debt, and higher interest rates. However, we are working diligently to combat the issues outside of our control and significantly improve the areas of business that are within our control. Over the last three months, we have done a great deal of work to strategically reposition ourselves for success. We've restructured our teams to be a flatter organization with the ability to be nimble, We are listening closely to the voice of the associate and the voice of the customer directly through connections that are direct, surveys, social listening, and more. We've candidly analyzed numerous aspects of our business, including our brand positioning, customer behavior, marketing tactics, and our overall operational effectiveness. We've worked with industry experts to help drive our assessment and, frankly, also dusted off some of the work previously conducted at Kirkland's and modernized what we believe worked. While this process is still ongoing, we have already discovered many issues to address, and our teams have begun executing these near-term initiatives. Overall, I remain confident in our team's ability to deliver upon the expectations that we have set for ourselves. We are committed and driven to return the company to profitability Now, I would like to turn the call over to our president and COO, Amy Sullivan, who will provide a more detailed commentary on the results of our diagnostics and health checks, as well as our near-term improvement strategies.