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 first quarter ended May 4th, 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, Caitlin Churchill. Following their remarks, we'll open the call for your questions. Before we go further, I would like to turn the call over to Ms. Churchill. She will read the company's safe harbor statement within the meeting of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements. Caitlin, please go ahead.

Thank you. 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 filing to the Securities and Exchange Commission. A webcast replay of today's call will be available via the link provided in today's press release, as well as on the company's website at Kirkland.com. Now, I would like to turn the call over to Kirkland CEO, Amy Sullivan. Amy?

Thank you, Caitlin, and good morning, everyone. As we have previously communicated, over the past year, we have been dedicated to improving our performance by returning to our value heritage and reengaging our core customer. Kirkland's has a strong history with an incredibly loyal customer, and we are well positioned in our industry with our value-oriented, differentiated, and curated product assortment to once again thrive. During this time, as we work through our repositioning that is currently underway, we are staying focused on executing our strategic initiatives, controlling the controllables, and driving improvement across all areas of the business. Our first quarter top line results reflect a continued challenging industry environment with total comparable sales down 3.5%. However, we continued to see early indicators that our strategic initiatives are gaining traction. Our store channel delivered a 2.8% comparable sales increase driven by our marketing and merchandising strategies. In fact, overall units sold was up almost 20% in Q1 compared to last year as growth and value decor offset the lower demand of higher-priced goods. With respect to profitability, adjusted EBITDA improved $1.3 million compared to last year, driven by gross margin expansion and disciplined expense management. As we noted in our press release, Following the quarter end, we deployed a number of cost savings initiatives to further align our cost structure with the current business environment. Through these actions, we expect to deliver $6 million in expense savings inside this fiscal year. We are focused on minimizing any potential impact to our strategic initiatives and, most importantly, the customer experience. While these decisions are never easy, we believe they are the right actions to take as we remain focused on improving our profitability and liquidity. We have also retained consensus and investment banking firm specializing in consumer facing companies to serve as a financial advisor to assist the board in the pursuit and evaluation of potential strategic opportunities to support our efforts and plans. We know to drive success, we must deliver sales growth, and this is where the entire organization is keenly focused. Let me refresh you on our strategic initiatives. First, re-engaging our core customer. Second, refocusing our product assortment. And third, strengthening our omnichannel capabilities. Let me dive deeper into each one. First, re-engaging our core customer. As we have discussed previously, we are intently focused on keeping a consistent brand voice while leveraging efficient marketing tactics to drive results. Since the start of Q4, we have seen a 36% reactivation of lapsed customers, largely driven by our shift back to home decor and gifts, where we have meaningful category dominance compared to our furnishing strategies. We know our customer continues to feel pressure on her wallet, as many of our competitors recently reported. But we have seen that when we provide a sense of urgency or a call to action type of promotion, she responds. For example, our April friends and family event drove positive traffic and conversion in both channels, ultimately resulting in positive comp sales compared to the same event last year. We continued to see positive news from our SMS program, which drove 30% increases in both conversion and revenue this quarter by highlighting timed events with our best offers. In addition, we continued to maximize our email file, expanding our triggered email campaigns to notify the customer if recently searched items are low in stock or back in stock. We reintroduced a birthday reward to our loyalty customers to help drive both traffic and frequency in our channels. We expect to continue to benefit from these SMS and email campaigns through the balance of the year as we continue to engage our 17 million core and reactivated customers. Turning next to our second strategic initiative to refocus our product assortment by bringing back our always something new mindset and delivering curated, on-trend, and seasonally relevant home decor at a great price. We made strides over the past several months in reducing penetration of our furniture category. And as we continue to rebalance our assortment and introduce more frequent newness, we believe in time we will return to historical inventory terms above three times. Our merchant teams are constantly in the market and analyzing social media to capitalize on trends and lean into the seasonal moments our customers love. We are particularly pleased with a 15% year-over-year sales increase from decorative accessories, which continues to win with the customer, as has our holiday and floral assortments, which continue to be core strengths for the brand. Gifts, which we tested and reintroduced in Q4, has been a bright spot and delivered an incremental $2 million in revenue driven by sentiment, religious, and Mother's Day themes. Within gifts, we maximized the power of a key item in our beach tote, which ended up being the number three item in the total company in Q1. This is a great example of how our teams are reacting quickly and leaning into on-trend moments our customers love. Again, as reported by our competitors, we continue to see challenges in high-ticket items, such as furniture, mirrors, and rugs. While we planned these businesses down appropriately for the quarter, demand did remain soft. As we look ahead, we will continue to monitor the demand and price sensitivity of these categories while driving more substantial growth in holiday, floral, decor, and gifts. Finally, let me turn to our third initiative to strengthen our omnichannel capabilities. As we have discussed, we see ample opportunities to improve our e-commerce business. We have recently retained additional leadership to help oversee our e-commerce strategy, and she is actively identifying and addressing areas to improve results. As a reminder, our e-commerce assortment has a greater penetration of high-ticket categories, and while continued softness of these categories weighs on AOV, we are pleased to see positive conversion for the channel overall in the quarter. We are maintaining a dominant share of voice in key categories, such as holiday, art, decor, and florals compared to our peers. That said, given the results in e-commerce, we are planning the business conservatively for the remainder of the year and are taking actions to rationalize our SKUs to optimize value. In addition, we are continuing to work on plans for a 2025 re-platform, which will deliver a more seamless customer experience while improving efficiencies. With respect to stores, as mentioned in my opening comments, we are pleased with the 2.8% comparable sales growth we drove in this channel. Our store teams are maximizing our new assortment and delivered double-digit increases in conversion and transactions in the first quarter. We believe in the new store growth opportunity in front of us and see it as a potential accelerant to our overall value creation. There is clear opportunity to re-enter into many of the markets we previously exited and we are actively engaging in discussions. However, timing will depend on our capital priorities and investment needs. As we look to the future, we remain confident in our three strategic initiatives focused on driving sales growth. We believe these initiatives, coupled with maintaining disciplined operational effectiveness and improved liquidity, should give us a path to $600 million in revenue in the next five years. which in turn would enable us to return to adjusted EBITDA margin in the mid to high single-digit range. Before I turn the call over to Mike, I want to thank all of our associates. Your dedication to our customers and commitment to our initiatives is directly tied to our results. It's an honor to be on this journey with each of you, and I'm confident in our collective ability to return our brand to long-term profitable growth for our shareholders. Mike, over to you.