The Brand House Collective, Inc

Good morning, everyone, and thank you for participating in today's conference call to discuss Kirkland's financial results for the third quarter ended October 28, 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 the remarks, we'll open the call for your questions. Before we go further, I'd 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, Jamie. Except for historical information discussed during this conference call, the statements made by company management are forward-looking and may pursue 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 December 7, 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 Kirkland's.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 diving into our results, I want to thank all of our associates at Kirkland's for their ongoing commitment to the success of this brand. This team has spent the last several months assessing and taking corrective action across every area of the business, all while preparing for the important holiday season. We knew these efforts weren't going to be easy as we remained up against difficult macroeconomic headwinds. But I believe the actions we've taken and the ones we are planning can return us, this company, to profitability. Back in June, we discussed returning to the roots of the Kirkland brand while continuing to modernize and update where appropriate and where we've seen success. The teams have worked tirelessly to make significant changes to the product, marketing, operational effectiveness, expense management, and culture. And I want to thank them for all their efforts. Our people are our greatest assets. and they are experts in their field, they believe in this brand, and they love our customer. While the third quarter still had its challenges, we began seeing early signs that our strategic repositioning was resonating with our consumer. In fact, we experienced sequential improvements in traffic and comparable sales each month of the quarter, along with expanded gross margins. On the macro level, inflation remains a challenge for our customers, particularly in high ticket categories such as furniture and wall decor. However, we have been able to drive improvements in traffic and demand by focusing on lower ticket items like decorative accessories, seasonal decor, and gifting. As a result, our omnichannel traffic declines improved from down 14 in August to down 6 in September and down four in October. Our Q3 comparable sales improved from down 13 in August to down nine in September to down six in October. In addition, our merchandise margin improved by 110 basis points, leading to an overall year-over-year improvement in Q3 gross profit margin of 130 basis points to 26.3%. During the quarter, we continue to see other promising indicators from the pivots in our marketing strategy. It is mission critical for us to re-engage our loyal customer, and we are very encouraged to see a 20% increase in lapsed customer reactivations during Q3. We are seeing sequential improvement in traffic and conversion with less discounting and improved profitability. We believe those trends are a result of the strategic shifts in product mix and marketing. As we discussed on our last call, we have renewed our emphasis on seasonally relevant value home decor. We are encouraged by the performance of our decorative accessories category during Q3, which had an 8% increase in sales and a 23% increase in margin dollars. We also saw unprecedented early selling of our holiday products during Q3. Although we did have some margin impacts from the lingering effects of the remaining higher priced assortments in furniture and wall decor that required higher levels of discounting, we believe that these will have less of an impact on our business as we continue to optimize our merchandise assortment. Additionally, as you might expect, in our holiday selling season, those larger ticket categories have less of an impact on our business. Shifting the focus to operations, we have continued to improve our discipline and accuracy in our inventory flow. We ended Q3 with 17% less inventory than last year, along with being in stock and on time with products for the holiday season, putting us in good position to meet the demands of our peak season. Our supply chain efficiencies are continuing to increase through effective use of technology contract negotiations, and process improvements. For example, we closed our two e-commerce hubs and have consolidated our e-commerce operations in our Jackson, Tennessee distribution center. Cost containment remains critical for our operation, and in our third quarter, we were able to reduce operating expenses by over $2 million compared to the prior year period. Overall, we've made significant strides shoring up the operations to support the strategic repositioning There is still work to be done, but the changes we've made so far are working, and we are establishing a mindset across our teams focused not just on cutting expenses, but on sustainable cost efficiencies through process change that we believe will benefit us for years to come. As we continue to demonstrate our ability to execute our strategic repositioning, we expect to impact Q4 more significantly than originally anticipated. Our teams across the business have been re-energized by the progress we're making, and we're better engaging our consumer base as they decorate, entertain, and shop for gifts this holiday season. As a result, we are encouraged by a low single-digit increase in comparable sales at a much improved merchandise margin in November, which includes Black Friday. Amy will speak more about this in her commentary. Reflecting on the initial phase of our turnaround strategy, we knew it would be a time of transition as we perform extensive deep dives into identifying near-term strategies and return to profitability and growth. Many of our initial changes are already delivering value as we continue to see improved trends, and positive customer response. Overall, I remain confident in our team's ability to deliver on the expectations we have set for ourselves. We are committed and driven to return the company to profitability and ultimately deliver the value to our shareholders. Now, I'd like to turn the call over to our president and COO, Amy Sullivan, to provide a more detailed commentary on the results tied to our strategic initiatives.