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 second quarter ended August 3rd, 2024. Joining us today are Kirkland Homes 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 as she 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. 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 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 company's website at Kirkland.com. Now, I would like to turn the call over to Kirkland's CEO, Amy Sullivan. Amy?

AMY SULLIVAN Thank you, Caitlin, and good morning, everyone. I will begin today's discussion with a review of highlights from our second quarter performance and will then provide an update on the progress we are making against our strategic initiatives before turning the call over to Mike to review our financial results in more detail. Our second quarter comparable sales performance reflects a sequential improvement from the first quarter as we continue reengaging our core customer, refocusing our product assortment, and strengthening our omnichannel capabilities. For the quarter, total comparable sales declined 1.7%, reflecting a 1.8% increase in comparable store sales growth, which was offset by a 10.6% sales decline in e-commerce. While we continued to see year-over-year declines in average ticket, given our ongoing work to rebalance our assortment and reduce penetration in higher ticket, slower turning categories, overall units sold were up approximately 20% compared to last year. With respect to profitability, adjusted EBITDA improved $3.3 million compared to last year as we drove gross margin expansion despite increased promotional activity by maintaining a disciplined approach to cost and expense management. As a reminder, in May, we executed a number of cost savings initiatives to improve our profitability and liquidity. Through these actions, we continue to expect to deliver $6 million in expense savings by the end of fiscal 2024. While the second quarter is historically our smallest quarter from a sales and profit perspective, It is an important transition as we prepare for our peak season. Within the quarter, we strategically took advantage of key holiday shopping events, such as Memorial Day and Fourth of July. We also reintroduced seasonally relevant micro trend collections, such as Mother's Day gifting and back to campus decor, improving our consumer relevance within the summer months. Our Halloween and harvest assortments arrived in stores in July, and we are pleased by the early reads we have seen, giving us confidence in our strategies as we enter the important back half of the year. While the consumer backdrop remains challenging in the home sector, we remain encouraged by the response to our brand repositioning. This now leads me to our discussion on our strategic initiatives. First, reengaging our core customer. We remain keenly focused on strengthening and retaining an authentic relationship with our core customer and are pleased by another quarter of positive reactivation rates of our lapsed customers. Over the last 12 months, we have seen a 39% reactivation of lapsed customers driven by continued focus on seasonally relevant high-value decor. As you have heard from our peers, the overall cost of marketing has increased and the cost of customer acquisition is high in an election year. With this in mind, we maximized cost efficient marketing strategies and focused on building our customer data profiles within our lowest volume quarter to allow us to maximize our reach and the impact of our marketing spend in the back half. Our K Club loyalty program was enhanced at the end of Q1 by the reintroduction of a birthday reward, resulting in 40,000 redemptions in Q2. We also kicked off an incentive campaign to drive profile completion within her K Club account, focused on obtaining her birth date and cell phone number, enabling us to have even more touch points with her throughout the year. This leads me to the continued success in our SMS text program. The file size continues to grow and is currently at 1.2 million subscribers. During the quarter, we launched triggered SMS campaigns to match the success we have seen in triggered email campaigns. In both channels, email and SMS, we continue to drive improved conversion through back in stock and price drop messaging, particularly when focused on seasonally relevant product categories. Last, we are continually enhancing our social media presence, to increase engagement with our over 3 million followers while expanding our reach across all platforms. During the quarter, we focused on video content with plans to grow our TikTok presence during the upcoming holiday season. We were thrilled to see our Halloween in-store shopping reel go viral with now over 5 million views across all platforms. Overall, we are encouraged by the consistent improvement in customer reactivation in-store traffic, and overall brand engagement, and we believe these learnings and enhancements will have an even greater impact in the back half. Now on to our second strategic initiative, refocusing our product assortment. With our always something new mindset, we delivered more frequent newness in key categories, such as floral and decorative accessories, as well as highly seasonal micro-collections throughout the quarter. We believe increased frequency of product launches are key to keeping our customer highly engaged, driving increased visits, and ultimately improving inventory turns to our historic norms. Diving into the details, our holiday and floral categories drove double-digit sales increases year over year, with Halloween being the standout winner in the quarter. The reintroduction of gift and impulse continues to exceed our expectations, driven by key items such as the carry-all tote and monogrammed jewelry box. With respect to our high-ticket furnishings categories, in line with our sector and competitors, we continue to see challenges in items such as furniture, mirrors, and rugs. While we planned these businesses down appropriately for the quarter, overall demand remains soft. We will continue to evolve these categories to meet the value demands of the customer and her wallet without sacrificing style or quality. As we look ahead, we will continue to monitor the demand and price sensitivity of the high-ticket categories while driving more substantial growth in holiday, floral, decor, and gifts. These growth categories are significant contributors to the back half and we remain optimistic on the continued success of these seasonally relevant assortments. Finally, let me talk about our third strategic initiative, strengthening our omnichannel capabilities. As we have discussed previously, given the challenges in our e-commerce channel, we have been planning the business prudently and actively working on our long-term digital strategy. With new leadership reviewing all aspects of our e-commerce channel, we are finding opportunities for improvement but most importantly, developing our business case and roadmap for our future re-platform. While we did see year-over-year conversion improvement in the channel, largely driven by the successes in our holiday and floral product categories, that was offset by the declines in our furniture, rugs, and wall categories. In the near term, we are actively implementing a new pricing tool to help our e-commerce merchants better analyze the marketplace, particularly for our dropship assortments. We expect to see the initial impact of this new tool before our peak holiday season. With respect to our store channel, we remain encouraged by the positive results we continue to drive through increased traffic, conversion, and items per transaction. Throughout the quarter, all three metrics remained positive, driven by our highly engaged store teams. We realigned the store leadership organization within the quarter, allowing us to further unify our field and recognize the talent and leadership that exists within the organization. Our stores capitalized on new product launches and seasonal promotions to create unique shopping experiences personalized for their market and their deep understanding of the customer. With new holiday and gift product arriving in our stores later this month, we remain optimistic in the results we can drive in this channel in the back half. Longer term, we have shared that we clearly see white space for new store locations, especially within many of the markets we have previously exited. The timing will ultimately depend on our capital allocation priorities. Modernizing our e-commerce experience and ultimately syncing it with our in-store experience remains key to meeting the demands of our omnichannel shopper. We remain committed to a unified experience that meets her whenever and wherever she wants to shop. As I wrap up, I want to thank our associates. It is their ongoing passion for our brand and dedication to our customer that is driving the progress we are making towards our strategic initiatives. I am so proud to be part of this team as we position Kirkland's for long-term success. Before I turn the call over to Mike, as noted in our release, we continue to be engaged in the pursuit and evaluation of potential strategic opportunities to support the company and our initiatives. This process is ongoing and we remain laser focused on pursuing a path that will both keep our business on solid footing and create value for our shareholders. We look forward to sharing more when appropriate, but we do not intend to comment further at this time. And now, over to Mike.