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 fourth quarter in fiscal year 2023, ended February 3, 2024. Joining us today are Kirkland's home CEO, 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 this call 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, Danielle. Except for historical information discussed during this conference call, the statements made by company management 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 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 a telco replay through March 28, 2024. 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 CEO, Amy Sullivan. Amy, over to you.

Thank you, Cody, and good morning, everyone. It's great to be joining today's call as the new CEO of Kirkland's Home. I'm incredibly excited in the opportunity at hand to restore our business to historical levels of operating performance and ultimately reach new heights. Having spent more than a decade of my career at this great company in various leadership roles, I've had the opportunity to see what works and what doesn't work. The strategic repositioning initiatives that we've implemented during the past year are centered around returning to our value heritage. These initiatives are a modernized version of a previous playbook that consistently delivered healthy results, and we believe we can achieve those results again. Although our financial performance has lagged for some time, I wanted to remind everyone of the brand power we have as the original Kirkland with a strong following built over 50 years. This has culminated into over 1 million followers on both Instagram and Facebook, over 7 million customer transactions per year, and more than 18 million customers in our loyalty program. We remain optimistic that with the right strategy in place, we can unlock significant value from our powerful Kirkland brand. With that broader framework in mind, let's jump into how we closed out the year and the progress we're making towards our five strategic priorities. Fiscal 2023 was a year of significant change across our entire organization. and we are proud to report that we saw some of our initial repositioning strategies take hold during the holiday season. Going into this period, compared to the same period last year, we had improved marketing, relevant merchandising, more appropriate levels of inventory, and a more effective pricing and promotion strategy. As a result, we generated a 1.7% increase in our comparable sales, a strong growth profit margin of 32%, adjusted EBITDA of $14.2 million, and healthy operating cash flow. If it weren't for the significant weather in January that impacted much of our retail footprint, we would have likely seen a positive sales comp closer to 3%. Although we are in the early stages of our strategic repositioning, we are pleased with the momentum we generated to close out the year, which gives us confidence that we are on the right path. We believe we can now take these learnings and continue implementing them in 2024 and beyond to get our business back on track. Let's dive into how our five strategic priorities played out in Q4 and what we have in store this year. First and foremost, it is imperative we keep the voice of the customer at the center of our brand and our strategy. As we all know, consumers continue to deal with uncertainties in the broader macro environment and remain price sensitive. While this environment does create challenges for us, it also presents a great opportunity to lean into our value-focused heritage, which is resonating with customers. We saw this during holiday as our brand repositioning took hold, driving a 39% reactivation of lapsed customers. We believe our revitalized merchandising and marketing strategies will keep her engaged throughout the year. With the customer at the center of our decision making, we are beginning to see success in many of the pivots within our marketing strategy. As we shared previously, we recalibrated our marketing tactics to reengage our core customer, and more specifically, to focus our efforts on previously declining brick and mortar traffic. We are pleased with the improvements in our store traffic trends, shifting from down 10% in the first half of the year to up 2% in Q4, largely driven by geo-targeting in our paid media strategy and the reintroduction of direct mail. Additionally, I'm excited to share that we have formalized an exclusive partnership with a digital marketing technology partner. We worked with this partner in Q4 to test video SMS, resulting in a 75% increase in click-through rate compared to our traditional text SMS program. We plan to utilize this new technology to drive increased customer engagement around new product launches and promotional events. As we look ahead to 2024, we expect continued benefits from our reactivation strategies. We will remain nimble in our marketing tactics to ensure we are efficiently managing traffic, conversion, and acquisition tools to solidify a balanced approach to our brand strategy. Our second strategic priority is our commitment to being product-successful by delivering curated, on-trend, and seasonally relevant home decor at a great price. We have brought back our always something new mindset and our customer is responding well. Although larger ticket categories such as furniture and wall decor continue to struggle, we are turning lower ticket categories like decorative accessories, holiday, and gifting much faster. Decorative accessories exceeded our expectations during the holiday season with a 60% sales comp, providing a perfect example of a value decor category that can drive business year-round. Additionally, we reintroduced our gift and impulse category in Q4, which delivered incremental sales that we can now capitalize on in all four quarters. Our holiday assortment was very well received this year, delivering a 2% sales comp and 13% margin comp, largely driven by strong demand in floral, decor, and textiles, further solidifying our customers' passion for decorating. We expect growth from all three of these categories throughout the year. Now I want to turn to our third strategic priority, delivering an omnichannel strategy that meets her whenever and wherever she wants to shop. As I shared earlier, we are seeing a positive trend in store traffic from our marketing and merchandising repositioning. While we have plenty of opportunity to maximize brick and mortar sales through continued execution, our e-commerce business has much more strategic and structural work to be done in order to capture its full potential. There has certainly been a channel shift among consumers back to in-store, but over the long term, we believe in the necessity of a strong e-commerce channel within our overall brand experience. Traffic within e-commerce has continued to be challenging. Some of this is due to that macro shift, but some of it is certainly self-inflicted as we realigned our marketing dollars to better support the larger brick and mortar channel. Additionally, the price resistance to higher ticket categories, such as furniture and wall decor, has a larger impact to our e-commerce business, as those categories have generally been a greater percentage of our online sales. Over the years, the Kirkland's e-commerce strategy has largely been a subset of the brick and mortar strategy, But in our commitment to keeping our customer at the center of our brand, we recognize the need to uniquely refine the assortment, promotional marketing, and technology experience for her online journey. Given our need to improve our online customer experience with modern technology, we are currently in a formal vendor selection process for a re-platform with the goal of a fiscal 2025 relaunch. In the meantime, we are focused on maximizing conversion and profitability on our existing sites, We have created an internal sales task force focused on optimizing inventory, marketing tactics, and promotional strategies to drive e-commerce conversion, and a profitability team for finding our shipping and returns process. Overall, we are working on ways to reignite our existing e-commerce business with the ultimate goal of a replatform next year. Turning to the in-store component of our omnichannel strategy, we are pleased with how our stores have performed. Throughout 2023, we closed several unprofitable stores that were in locations we felt were not worth salvaging. As we look at our 2024 brick-and-mortar priorities, we are working to increase our revenue per square foot within our current footprint. With a return to positive traffic, consistent improvement in conversion, and faster-turning product mix, we believe our in-store opportunity could be an accelerant. We are in the midst of evaluating operating hours across all our stores right now, and we are testing strategies that include opening earlier and staying open later based on current traffic and customer data trends. While it is too early to comment on specific hour changes, we are using this testing period to ensure that we aren't leaving any additional profitable sales on the table. And finally, within our omnichannel strategy, There are a few key expansion initiatives that we are exploring. For example, we are looking at a few markets we previously exited that might be beneficial to us as we reengage our core customer. We are in the early stages with our real estate partners, but we have narrowed in on markets that have incremental growth opportunities based on historic sales and current customer demographics. Overall, we are pleased with our brick-and-mortar results and see it as a leading indicator that the customer is engaged with our strategic repositioning. Now let's discuss the fourth strategy, maintaining disciplined operational effectiveness. With every new initiative and expense that we introduce, we are maintaining a strict discipline to ensure we can see a measurable benefit to our overall profitability. For now, we remain highly focused on implementing the must-haves versus the nice-to-haves, as fiscal responsibility and low risk are key in the short term. More recently, we have invested in improving our planning, allocation, and pricing and promotion strategy to better forecast what drives traffic and profitable sales. This is the latest health check, and we believe this is an investment that will provide a return this year. This promotional effectiveness tool, coupled with a more disciplined approach to a brand calendar, should aid us in overall control of margins, including our clearance markdown strategy, resulting in potential meaningful upside this year. The long-term impact of this implementation will leave the merchants and marketers with a tool to drive into future promotional strategies well in advance of the buying process, driving better management of our in-season sales and profitability. We're also evaluating our overall inventory effectiveness to ensure we have the right inventory in the best location at the optimal time to maximize sales and margins. Through deep analysis of our product lifecycle and current store allocation clusters, we believe there is an opportunity to improve overall inventory turn and profitability. By not doing this effectively, we've left margin on the table, so this could be a significant margin driver for our business going forward. The initial impact of this work will begin to flow through our results in the back half of 2024, But the long-term impact will deliver better inventory optimization starting with the buying process through the full product lifecycle. Last but certainly not least, our fifth priority is focused on driving a high-performance organization built for success and continuity with the voice of our associates at the forefront of our culture. As we close out 2023 and embark on a new year, I want to recognize and thank all of our associates for their unwavering dedication to our turnaround. The passion and energy they bring to every store, distribution center, and home office has made a tangible difference in our results. I'm so proud of the progress we have made in such a condensed timeframe with a limited amount of resources, and we believe we are just getting started. With a merchandise and marketing strategy that is generating positive momentum with our customers and a nimble operations team in place to continue driving efficiencies and profitability, we believe we are well positioned for this year and beyond. We remain committed to unlocking the true potential of Kirkland's home and delivering long-term value to our stakeholders. We appreciate your continued support and commitment as we navigate our repositioning, and we look forward to exceeding your expectations. With that, now I'd like to turn the call over to Mike, who will provide detailed commentary on our financial performance and outlook. I'll be back at the end of the call to answer any questions you may have. Mike, over to you.