Kirkland's, Inc.

Greetings, and welcome to the Kirkland's Home Conference Call to discuss strategic partnership with Beyond. At this time, all participants will be in a listen-only mode. The question-and-answer session will follow the formal presentation. If anyone today should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Caitlin Churchill of Investor Relations. Thank you. You may now begin.

Good morning, everyone, and thanks for joining us today for the conference call to discuss the strategic partnership announced this morning between Kirkland and Beyond. On the call today are Kirkland's CEO, Amy Sullivan, and EVP and CFO, Mike Madden. On today's call, the management team will only be speaking pertaining to today's announcement and will not be discussing current financial performance. Any discussion of current financial performance will take place on the company's next earnings call. As a reminder, Beyond is hosting its investor event on Thursday, October 24th, and will be reporting its Q3 earnings at that time. I would also like to remind everyone that except for historical information discussed during this conference call, the statements made by the company are forward-looking and made 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 each company's actual results in future periods to differ materially from forecasted results. Those risks and uncertainties are more fully described in Kirkland's and Beyond's filings with the Securities and Exchange Commission. A webcast replay will also be available via the link provided in today's press release, as well as on the investor relations page on Kirkland's website. Now I'll turn the call over to Kirkland's CEO, Amy Sullivan. Amy?

Thank you, Kaitlin. I am thrilled to announce the strategic partnership between Kirkland and beyond that we believe will drive value to all of our stakeholders. As you may recall earlier this year we initiated a strategic alternatives review to evaluate opportunities that would support Kirkland long term growth and drive value for our shareholders. Through this process, we were introduced to Marcus Limonis and the BEYOND team and began discussions on how our companies could collaborate to drive both of our long-term strategic visions. As detailed in today's press release, this collaboration will enable both of our respective companies to enhance our financial performance by leaning into and leveraging each company's competitive strengths. During Beyond Investor Day later this week, the team will provide more details on their broader vision of expanding their asset-light model in which partners like Kirkland will benefit from collaboration and licensing agreements providing access to Beyond's growing data platform, intellectual property, and e-commerce expertise. On today's call, however, I wanted to provide a little more color from Kirkland's perspective on what excites us for this partnership. First and foremost, the investment from beyond enables Kirkland to be in a much healthier financial position to not only execute our strategic repositioning, but also provides new avenues for exciting growth opportunities. We expect the overall terms of the arrangement with Beyond, including the fee structures described in our press release and SEC filings, to be largely neutral from a P&L perspective, compared to that of our previous debt capital structure, while providing us significant growth opportunities. As part of this partnership, we are going to continue to lean into the core strengths of our team and Kirkland's 58-year legacy. We are skilled merchants who will continue to lead with product through identifying trend, unique product development, diversified sourcing, and strategic assortment planning. We are also disciplined operators that know how to leverage our brick and mortar footprint and channel expertise to create memorable customer experiences. As the exclusive licensee developing the new neighborhood store format, We will leverage those strengths to drive the revitalization of the Bed Bath & Beyond shopping experience she loved with a curation of the top national brands she expects. We are planning to open our first neighborhood Bed Bath & Beyond stores in 2025 with an initial pilot of up to five stores. We expect these stores have the potential to deliver revenue that well exceeds the current average Perkins store. And while we will be measured in our initial pilot, we will move quickly based on learning. We are very excited for the opportunities to further expand our network beyond our current brand. As we have previously shared, we continue to see strength in brick and mortar, and our real estate strategy will evolve as we incorporate the Bed Bath & Beyond neighborhood stores into our overall growth plan. In addition to operating and expanding our store network, we will also enhance our customer acquisition strategies by leveraging Beyond's robust customer database. Starting today, almost 40 million more customers will see the Kirkland brand as we launch across all of our combined platforms. As you may be aware, part of the current strategy has been to reengage our core customer. This has been successful and cost efficient to date, but we have not been able to truly explore a new customer acquisition strategy, which this partnership now affords us. This collaboration also allows us to work with Beyond's e-commerce and technology teams to leverage their expertise as we continue efforts to improve Kirkland's e-commerce performance, including the work we are set to do with our e-commerce re-platform. We will be able to leverage not only the expertise of the Beyond team, but also improve cost efficiencies related to our tech strategy as we negotiate with stronger economies of scale alongside our partners. Lastly, this collaboration will provide the opportunity to improve inventory turns and profitability as we expand our points of distribution for Kirkland's product across Beyond's website, leveraging overstock.com more efficiently moving slower turning products. In closing, we see a tremendous amount of opportunity in front of us, which we expect will benefit both Kirkland's and Beyond. I want to thank the team at Kirkland's as well as the BEYOND team for all of the work that has been done in getting us to this milestone announcement. I am so excited for the path ahead and the partnership we have already begun to establish that I believe will provide significant value to all of our collective stakeholders. We believe this strategic partnership has the potential to accelerate the timeline to achieve our targeted margins and growth guidance for 2028 and look forward to sharing more with you at a later date as we progress in our plan. Operator, we are now ready to take Q&A.