Q3 2024 Kirkland's Inc Earnings Call

Yeah.

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, our kirkland's, one interim CEO and Joyce President and C. O O 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.

Before we go further I'd like to turn the call over to Mr. Korea 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 made pursuant the safe Harbor provision of the private Securities Litigation Reform Act of 1095.

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 seven 2023.

Webcast replay will also be available via the link provided in today's press release as well as on the company's website at coupons Dot com.

Now I'd like to turn the call over to Kirkland's interim CEO and Joyce and over to you.

Thank you Cody and good morning, everyone.

Before diving into our results I want to thank all of our associates at Kirkman 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 remains up against difficult macroeconomic headwinds, but I believe the actions we've taken and the ones. We are planning can return this company to profitability.

Back in June we discussed returning to the roots of the Kirkland brands, while continuing to modernize and update where appropriate and where we've seen success there.

Teams have to work 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 that they believe in this brand and they love our customer.

While the third quarter Hill had its challenges we began seeing early signs that our strategic repositioning was resonating with our consumer.

In fact, we experienced sequential improvement 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 I focusing on lower ticket items like decorative accessories seasonal decor and.

As a result, our omni channel traffic declines improved from down 14 in August and down six in September and down four in October.

Our Q3 comparable sales improved from down 13 in August sit down nine in September 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 100.

30 basis points to 26, 3%.

During the quarter, we continued to see other promising indicators from the pivots in our marketing strategy it.

It is mission critical for us to Reengage, our loyal customer and we are very encouraged to see a 20% increase in lapsed customer reactivation. 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 a 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 product 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 merchandize assortment and additionally, as you might have.

And 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 product 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 the 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 focus 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 performed extensive deep dive into identify near term strategies and returned 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 C. O O Amy Sullivan to provide a more detailed commentary on the results tied to our strategic initiatives.

Thank you Anne and good morning, everyone I would like to echo and gratitude to our entire organization I've been incredibly impressed and encouraged by the dedication and willingness to pivot and deliver results. This year on our last call I introduced five near term strategic initiatives that we are executing a.

To return to profitable growth.

While we expect these to evolve as we continue to re imagine the possibilities for Kirkland's I'd like to update you on the current progress of each initiative.

First we continue to strengthen our connection to our core customer and are optimistic by the progress we are making to drive engagement and acquisition.

August our digital marketing tactics, we're focused heavily on website conversion and generating traffic from prior online shoppers and we saw on average 17% year over year decline in online traffic. So.

So we made swift changes to our digital marketing strategy to focus on demographic and geographic targeting of core omni channel customers to drive more visits online and into our brick and mortar locations.

We were able to cut our e-commerce traffic decline from negative 17% in the first half of the fiscal year to only negative 3% in October on.

On the brick and mortar front, we improved traffic from a decline of 11% during the first half of the fiscal year to down 4% in October.

In November traffic to our stores stayed positive for the first time in 2023.

Most recently, we piloted an exclusive video SMS campaign, allowing 1 million SMS subscribers access to an exclusive holiday lookbook and coupon offer.

We achieved the largest volume of clicks and highest revenue and he SMS campaign to date, we are thrilled with the promising early results of this innovation and look forward to further utilizing this tool as we move into the new year.

I cannot be more pleased with the rapid turnaround of our marketing strategy and how it is progressing recognizing there is more to be done.

Second we have rebalanced, our category mix and will be known for always something new as we deliver curated seasonally relevant home decor at a great price.

In the third quarter, we were still transitioning our category mix, but began to see promising results from our strategy shifts as the quarter progressed, most notably decorative accessories delivered an 8% sales increase in the third quarter and best represents our future growth potential and value decor.

We're also pleased with the season to date results and our Christmas assortment, which has delivered a 3% sales increase.

We have reintroduced our gifting category for this holiday season, which we anticipate will drive incremental sales for this year's fourth quarter and we expect this to be a year round business in 2024.

We are encouraged by the customer response to these pivots, which position us to drive more profitable demand.

Third with our customer at the center, we are focused on providing a seamless omnichannel experience that meets her whenever and wherever she wants to shop.

We have a new operations leader in place, who is igniting our entire field through engagement contest and incentives.

Our incredible field team delivered a 248 basis point increase in conversion during the third quarter and I'm happy to share that can trend is continuing into Q4 as they drove a low single digit positive sales comp increase in November.

As we build our long term strategy, we have begun evaluating our entire store portfolio to assess real estate customer experience and localization in our product and marketing strategies.

Shifting focus to our E. Comm business, we are pleased with our overall conversion improvement, which increased 17 basis points year over year.

Since our last call. We completed an end to end assessment of our overall site experience through this process, we have outlined the limitations of our current site along with the cost to maintain data technology.

As a result, we are building a new e-commerce strategy defining its role in driving sales and profitability through a modernized customer experience.

There'll be more to come on this initiative as we further build out our plan.

Fourth we are a values specialty retailer and must execute with efficiency and consistency in our end to end operations. It is imperative for us to remain disciplined in our operational effectiveness through supply chain efficiency Tech enablement and cost containment.

With more normalized levels of inventory this year, our supply chain has stabilized.

Allowing us with the help of process improvements in labor management to achieve approximately $500000 in savings in Q3.

In addition, we have enhanced our e-commerce demand forecasting model and our team has done.

An excellent job managing increased ordering unit demand without disrupting the customer experience as.

As we look ahead to our future we are committed to the discipline in our overall cost structure to improve liquidity returning to historic adjusted EBITDA levels and strategically investing capital for the long term growth of the brand.

Last but certainly not least our associates are revitalizing our company culture and day by day, we're committed to our customers our shareholders and our team members as we drive our results remain nimble in our strategy and celebrate our weapons together.

I am encouraged by the continuous improvement now visible in our month to month trend in sales and profitability as.

As we look ahead to 2024 I'm excited by the potential as we realize a full year impact of these strategic initiatives.

We remain committed to delivering long term value to our customers and shareholders as we re imagine the future of Brooklyn with that now I'd like to turn the call over to Mike who will provide detailed commentary on our financial performance in the third quarter and outlook for the remainder of the year Mike over to you.

Thank you Amy and good morning, everybody.

For the third quarter net sales were $116 4 million compared to 131 million in the prior year quarter, which included a 5% decline in the average store count and a comparable sales decline of nine 2%.

The decrease in sales was driven by a decline in the average ticket as well as traffic declines in both stores and online, particularly are partially offset by an increase in conversion rates in both channels.

Breaking down sales within the quarter comps were down 13% in August down, 9% in September and down 6% in October.

E Commerce was 27% of total sales in the current and the prior year quarter.

E Commerce comp sales were down eight 5% and store comps were down nine 5%.

From a merchandize perspective, the largest sales declines were in furniture wall decor and harvest. These declines were partially offset by gains in decorative accessories and strong early selling of Christmas.

Sales performance was relatively consistent across geographic regions, with notably better results in Florida and weaker results in Texas and the west.

Gross profit margin increased 130 basis points to 23, or 26, 3% of sales compared to 25% in the prior year quarter.

The five components of this year over year change were as follows.

First merchandise margin increased 110 basis points to 54% versus 52, 9% in the prior year quarter.

Lower freight rates and inventory levels, along with improved product flow drove the increase in merchandise margin.

Second.

Central distribution costs decreased by 110 basis points to six 1%.

The decrease as a percentage of sales is largely due to the reversal of capitalized costs in the prior year as inventory levels declined from Q2 to Q3.

With a normalized inventory flow this year capitalized costs increased slightly along with the seasonal inventory buildup on.

On a cash basis distribution center costs were $500000 lower than the prior year quarter, reflecting improved labor efficiency and lower inventory storage costs.

Third occupancy costs increased 130 basis points to 12, 1%.

This increase as a percentage of sales is primarily due to deleverage from the sales decline.

The actual cash rent is down slightly versus the prior year quarter.

Fourth outbound freight costs, including both store and ecommerce shipping expenses were 8% of sales flat compared to the prior year quarter.

This comparison reflects a reduction in shipments to the stores in the current year, resulting from lower inventory levels offset by deleverage from the overall sales decline.

And lastly, depreciation included in cost of sales decreased by 40 basis points to one 5%.

Total operating expenses, excluding impairment charges declined by $2 1 million to 37 million or 31, 7% of sales compared to $39 1 million or 29, 9% of sales in the prior year quarter.

The decrease in dollars was primarily the result of reductions in corporate salaries and overhead along with a lower store count.

These decreases were partially offset by planned increases in store payroll hours to support the buildup to our holiday selling season.

Okay.

Impairment charges related to underperforming stores and technology assets were <unk> 3 million for the quarter compared to <unk> 2 million for the prior year quarter.

Adjusted EBITDA, excluding impairment stock compensation and other minor expenses was negative $3 2 million versus negative $1 7 million in the prior year quarter.

This was primarily the result of weaker operating performance during August and September.

During October our adjusted EBITDA loss was lower than the prior year.

As margins improved quarter over quarter, our operating loss was flat at $6 7 million.

Net interest expense was $1 2 million for the quarter compared to 0.7 million in the prior year quarter due to higher interest rates.

Our income tax rate for the quarter was a benefit of 16, 8% compared to an expense of 0.8% in the prior year period.

From a balance sheet perspective, our inventory levels continue to be under control and in line with our planned inventory flow. We ended the quarter with $105 2 million in inventory.

It was a 17% decrease from $126 3 million at the end of the prior year period.

We had borrowings outstanding of $62 million compared to $60 million in the prior year quarter.

Moving to our outlook for the remainder of the year early in the fourth quarter, the environment remains challenging, but our topline and margin trends have improved.

For November we recorded a low single digit positive sales comp along with a strong increase in merchandise margin.

As a reminder November was the toughest toughest monthly sales comparison to last year when comps were flat.

Last year December comps were down 11% in January comps were down 8%.

Traffic also turned positive in November, but we remain cautious about assuming the same trend for the rest of the quarter given continued macro uncertainty.

Customers continue to scale back on higher ticket purchases, but our seasonal offering has been well received thus far as shown in our customer conversion rate and our merchant merchandize margin improvement.

With less inventory to clear compared to last year, we expect the merchandize margin improvement to continue for the remainder of the quarter.

Supply chain costs continued to normalize and we are managing operating expenses very tightly.

For the year to date operating expenses are down approximately $10 million versus the same nine months for 2022.

We expect operating expenses to be down again in Q4 versus the prior year when adjusted for the additional week in this year's retail calendar.

As a result, we expect a solid year over year improvement in adjusted EBITDA for the fourth quarter.

In the fourth quarter of 2022, adjusted EBITDA was $2 $6 million.

Looking beyond this year, our goal is to get back to mid to high single digit adjusted EBITDA margins, which has had has been our historical average.

Amy outlined we are beginning to see improvements in sales and merchandise margin through our pricing and promotional strategies.

We have already taken steps to enhance our sourcing capabilities improve supply chain efficiencies and remove fixed costs from our distribution facilities.

We are addressing additional ways to streamline our operating cost structure.

Significant reductions have been achieved over the last several years, but we believe there are additional areas to address and redeploy.

The combination of these factors provides a pathway to returning to historical adjusted EBITDA levels.

In the coming quarters, we will provide updates on our progress in each of these areas.

Yes.

Lastly, I'd like to reiterate our priorities for capital allocation.

We continue to focus first on reducing borrowings and reestablishing a level of liquidity that allows us to operate the business with more flexibility.

As of today, we have reduced our borrowings from $62 million at the end of Q3 to $35 million.

Given the current uncertain economic conditions, we are evaluating ways to expand our borrowing capacity to ensure that we have the liquidity cushion to support and accelerate our turnaround efforts. Once that milestone is achieved is achieved we plan to focus our efforts on reinvesting in the business and.

There, we can start looking at share repurchases and dividends as additional ways to return value to our shareholders.

That concludes my prepared remarks, I'll hand, it back over to Ann for her closing remarks, and then we'll move to Q&A Ann Thank you Mike.

Before taking your questions I wanted to reiterate my thanks to our dedicated associates for what they have accomplished in such a short period of time to achieve the improvements that we've talked about today. It took a tremendous amount of effort and determination.

Although there is still much more to achieve it is important to acknowledge the work that has improved our business trend in such a condensed time frame or.

Our improved results are energizing, our organization and we have no plans of slowing down.

We're heading into 2024 with a renewed sense of optimism and a plan that we believe will translate into improved financial results I greatly appreciate all our stakeholders and the support we continue to receive as we strategically repositioned the business amidst the challenging consumer environment I firmly believe that your pace.

<unk> will pay off in the long run.

Operator, we're now ready for Q&A.

Thank you ma'am, ladies and gentlemen at this time, we'll begin the question and answer session to ask a question you May press star and one using a touchtone telephone withdraw.

Withdraw your question you May Press Star then two.

If you are using a speaker phone, we do ask that you. Please pick up the handset prior depressing the numbers to ensure the best sound quality.

Once again that is star and then one to join the question queue.

And our first question today comes from Jeremy Hamblin from Craig Hallum. Please go ahead with your question.

Thanks, and congratulations on the <unk>.

Proved results and progress against our strategic initiatives.

I wanted to start with you know getting a better understanding of what you're seeing or what you're expecting.

On the margin front, particularly you noted that you expect merch margin to continue to improve here.

In Q4.

And I wanted to just get a sense of the potential magnitude around that.

You know last year Q4 was pretty tough there were a lot of markdowns.

You made really nice progress here in Q3 to see gross margin up 140 bps.

And as we look at it Q4, I'm I'm I'm wondering in context of <unk>.

You saw like a peak in Q4 gross margin of just over 33% and if we go back to 2019. It was like 29.8 wanted to see if you could have a little context for what we think.

Q4 of this year could look like.

Rage or whatnot.

Yes.

Thanks, Jeremy it's Mike.

I'll start and others may want to chime in I think the one big point I would make going into this is.

If you compare this year to last year the way, we're coming into this quarter. We came in with a with a much higher I am use were going in margin is better and that's in part due to some of our efforts with our vendor base, but it's also due to the freight rates being lower so where we're coming in in a stronger position.

This the increase we saw in November was was significant it was it was a nice improvement from where we had been running and that it actually started to build through the third quarter. So we really started early in the fourth in the third quarter with some pretty heavy markdowns still moving through a lot.

Some of these other categories not fully equipped with with some of the changes that we've made in the assortment and we're in a better position on that front.

Going into Q4, so so those factors I think give us that.

Feeling that we have a better chance to improve on that as we move through Q4, and yes. We were still clearing a lot of inventory ended December last year that we just don't have to do this year.

On the other components, we continue to improve our supply chain efficiency I think that's going to be in our favor in the fourth quarter and.

And if we can get some top line momentum to continue through the rest of the quarter I think we would get.

Get back not to those historical levels, but certainly into that 30% range in the fourth quarter on gross profit.

And it will depend on the leverage in the sales results as to how well, we do plus or minus but I just think the overall positioning us better coming into this year as you look at that to last year.

That's that's great and then you also noted in your remarks that.

You did have some larger ticket items.

That you may still have in your inventory and looking to move on from although they're not key items here.

During the holiday period. It does sound like there was still some items maybe to move through as we get into 'twenty four and I wanted to just see if you could add a little context around.

What our expectation should be on that and how long do you think.

Some of that may be aged inventory might linger.

Hi, Jeremy it's Amy I'll I'll take that and Mike can later on if he if he wants to add anything else.

The two areas in particular, where we have higher ticket AUR inventory sort of carrying from the earlier part of the year would be in furniture, and sort of all things wall wall decor, and art and those categories have always been part of the cartoons business and will always be a part of the kirkland's business that as you know.

Earlier in the year they were a significant penetration to the total and that has continued to dwindle as we get into the back part of the year I'm really comfortable with where we are in furniture as we move through the end of this year and into next year and I think we'll be at the right balance there was a little bit of residual oil, particularly in the wall areas in that.

A bit of our higher ticket items from earlier in the year as well as just an overall macro decline in that category.

But not significant enough that I'm terribly worried about it having a 2024 impact them as.

As we move into the post Christmas period, not only will we have new spring product coming in to help bring up our IMU, but we'll also use that time, that's sort of the post holiday clearance period to really strategically get focused on some of that clearance hangover from earlier in the year and try to get out of that and be clean going into 2024.

Got it that's great.

And then I wanted to move on to your marketing so you've made some really nice tidbits here.

On your strategy and how that messaging is being delivered to your customer base.

Hum.

Wanted to understand in terms of your marketing budget for 2023.

I think that was down pretty meaningfully on a year over year basis.

As you guys reduce cost I wanted to get an understanding of.

What that budget looks like here in Q4, and then as we look ahead into planning for 2024.

What should we be expecting in terms of of how that marketing budget.

Might compare in 24 versus 23.

So Jeremy it's Amy again, right now we are running around 2.5% to 3% of sales for our marketing budget and we intend to hold that flat as we move into 2020 for the different says we're deploying it in more successful places and so we've recalibrated at how we're spending.

The marketing budget that we have and testing and learning our way into funding additional things I mentioned during my script that new Fms program that we're doing and we've had a lot of success. There. So that's opportunity for next year, what we might put some additional funding there and really trying to think of our marketing budget. Similarly to an open to buy that are merchant.

And as we test and learn things that are working funding at a little more.

I'd love to grow that budget ever so slightly as sales grow to make sure that we're continuing to capitalize on the positive traffic that we're seeing right now, but we will stay really close to it and really play it month by month and Jeremy on the numbers side of that but I mean, we are down about 5 million give or take a year over year 'twenty three to 'twenty two.

And in the fourth quarter.

It's pretty it's pretty flat I mean, we spend a little bit more in the back half as you would imagine in a little bit more in the fourth quarter to support the sales but.

It's not going to be much different than what you've seen each quarter. This year.

Yeah.

Great and then.

Wanted to also just understand so.

It looks like you've seen some.

Stability here in the store fleet.

Wanted to just confirm as we make this progress.

Back to into a positive.

Comp trends in and in some of the changes that you've made overall.

First wanted to understand whether or not you felt like there was any.

Additional like acceleration of score close closures you had to do.

As we head into 'twenty for you or if we kind of have just kind of some of the typical closures.

One and then part two would be just in terms of the balance sheet and how you would expect to utilize your your credit line here.

Here in 'twenty, four there's kind of a natural ebb and flow.

Related to your balance sheet and inventory needs as we progress through the year.

You've already made some really nice you know pay downs on that debt line.

Here in Q4, but wanted to just understand what you thought you might need for your kind of peak.

Use of that credit line and into 'twenty, four and then improve presumably similar timing where that that maxes out in Q3.

Yeah, Jeremy I'll start with the store question.

I think the way to think about store fleet right. Now is we are maintaining.

There are going to be a few closings in January I would expect to see eight or nine closings in January but I would consider that.

Typical housekeeping.

And in dealing with rent or lease explorations and renewals.

So youll see that but largely we are looking at their says lets improve our position as well as we can in each location and let's consider each location showplace for us that that really drive the business to those stores, but also in an omnichannel way. So those stores are really important for the e-commerce side of the business.

Well, so we are maintaining.

We would like to get to a point and that's kind of leads into your second question about the liquidity in the balance sheet.

We certainly want to.

Build our liquidity position such that we can play a little more offense than we're playing right now and that's why I cited that in the prepared remarks, I mean, we we feel comfortable with our credit line.

And in the way that works and flexes up with our build to peak.

But in order for us to be really.

A more offensive in terms of what we're trying to do.

Speed, the turnaround and invest wisely in things that we know will work for us.

We need that flexibility and that's why we're just kind of taken a look at everything we don't have anything to talk about yet, but we're considering how we might bolster that position throughout 2024.

Okay.

And in addition to that I would say as Amy mentioned earlier about the strategy around igniting the field. It includes physically visiting every single store and understanding what are the triggers to the performance, which is not dislocation and demographic what allocation and localization of product et cetera, and anything there.

It can affect the performance in a positive way, we're taking action on them in parallel to.

Their real estate strategy conversation.

Points that Mike just made.

Got it thanks for the color congratulations and.

Wishing you the best got a great holiday season.

Thanks, Jeremy.

Do you.

And our next question comes from John Lawrence from Benchmark. Please go ahead with your question.

Good morning.

Yeah.

Gratulation zone, the numbers I mean, certainly we.

We're seeing tremendous change in the stores that we visited and certainly have seen that traffic in.

Resonate.

Across the board so congratulations from that standpoint.

Ken can you.

Either Andrew or Amy either one just sort of describe a little bit when you. When you laid out for your short months, you mentioned a little bit about it in the prepared remarks, but what it is.

If you look at the balance of.

Harvest and in the second quarter, you talked about a little bit.

Of sort of that improvement and as you moved into the into the third quarter.

What would maybe be a couple of categories that maybe surprised you or disappointed with you as you just look obviously.

It all looks very positive I'm, just trying to dial into some of those categories that meal.

Either work better or worse than you expected.

Yeah sure.

So specific to Q3, I mean, as we mentioned the decorative accessories.

The accessories category really is a standout and for us that is.

He says basket sort of all of the core accent pieces throughout the customer's home and over the years of growing furniture that is one of the categories that historically had been kind of our best value category and I think the pricing along with furniture got too high for our customer. So we really turned that.

One completely upside down and got back into sort of the basics and high value high unit velocity items and saw a ton of success there.

You've heard me mention a couple of times the impact them and the importance of the seasonal business for us here and I would say that one kind of a tale of two stories. If you think about Q3 Halloween had just a runaway success, probably the fastest in early season demand that we have seen for that business in my time here and there.

Harvest I would say with a little bit disappointing some of that we pulled some of those sales forward into Q2. So there was a little bit of a pull forward there.

Because of the states that we were in in Q3 is still dialing in our marketing strategy is still being in the mix that's sort of the old product strategy and new product strategy, we had to leverage harvest, that's a little bit of a loss leader to drive traffic and demand and so we are routed that AUR more than I would've liked to.

And then the last thing I would say.

It's just again on those higher ticket categories as I mentioned on on Jeremy's question is while furniture I feel really good about the direction that that putting in getting back into true value furniture for our customer the wall areas or sell the ones that industry wide. We are seeing in depth, but I think we've still got a little bit more work to do in the balance of this year.

To get the pricing right there but.

But I feel like we can get that back on track as we go into 'twenty four.

Yeah.

Great. Thanks for that and last thing for me is as you look at that a short month.

What do you think you are as you look into 'twenty four.

And changes deletions from the assortment.

What will we see as we move through the first half of 'twenty four.

You'll see a continuation of more importance on the seasonally relevant category. So as you think about.

Spring Florals.

Making sure that we're well in stock and the smaller holidays like Valentines and Easter and then I would say the biggest sort of shift year over year and I've alluded to this on the past couple of calls is this notion of always something new and so just ensuring that we have.

Faster, turning lower ticket little trend in moments that come in throughout the quarter. So mother's day different holidays that resonate with our customer and then the other thing I would say as I mentioned, the gifts and sort of impulse category and you've been with us long enough to know that used to be a really important part of our business and we reintroduce that.

That's Q4, and that's doing amazing.

So having that year round next year, I think it's going to be some upside for us as well both in top line sales and certainly in conversion in stores.

Great. Thanks for your time congratulations.

Thank you John.

And ladies and gentlemen at this time this completes our question and answer session and concludes today's teleconference. We thank you for your participation you may now disconnect your lines.

Yes.