Q4 2024 Kirkland's Inc Earnings Call

Operator: and the rest. Good morning everyone, and thank you for participating in today's conference call to discuss Kirkland's financial results for the fourth quarter of fiscal year 2023, which ended February 3, 2024. Joining us today are Kirkland's Home CEO Amy Sullivan, EVP and FO 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.

Okay.

Speaker Change: Good morning, everyone and thank you for participating in today's conference call to discuss Crooklyn's financial results for the fourth quarter and fiscal year 2023 ended February 3rd 2024.

Speaker Change: Joining us today are Crooklyn's home home C E O.

Speaker Change: Sullivan E V. P N C F L. Mike Madden and the company's external director of Investor Relations Cody Cree.

Speaker Change: Following their remarks, we'll open the call for your questions.

Speaker Change: Please note this call is being recorded.

Cody Cree: Before we go further I would like to turn the call over to Mr. Cree as he reads the Companys Safe Harbor statement.

Cody Cree: Within the meaning of the private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward looking statements.

Cree: Please go ahead.

Cree: 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.

Cody Cree: 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 forecasts. Those risks and uncertainties are more fully described in Kirkland's filings with the Securities and Exchange Commission. I'd 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's CEO, Amy Sullivan, to you. Thank you, Cody, and good morning, everyone.

Cree: 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.

Cree: Risks and uncertainties are more fully described in kirkland's filings with the Securities and Exchange Commission.

Cree: I'd like to remind everyone that this call will be available for a telco replay through March 28 2024.

Cree: 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 Dot com.

Cree: Now I'd like to turn the call over to Kirk one CEO, Amy Sullivan, maybe over to you.

Cree: Yeah.

Amy A. E. Sullivan: Thank you Cody and good morning, everyone.

Amy A. E. Sullivan: It's great to be joining today's call as the new CEO of Kirkland's Home. I'm incredibly excited about 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 implemented during the past year are centered around returning to our values 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 at the original Kirkland's with a strong following built over 50 years. This has culminated in 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.

Amy A. E. Sullivan: It's great to be joining today's call as the new CEO of Kirkland, something I'm incredibly excited and the opportunity at hand to restore our business to historical levels of operating performance and ultimately reached new Heights.

Amy A. E. Sullivan: 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.

Amy A. E. Sullivan: The strategic repositioning initiatives that we've implemented during the past year are centered around returning to our value heritage.

Amy A. E. Sullivan: These initiatives are a modernized version of a previous playbook that consistently delivered healthy results and we believe we can achieve those results again.

Amy A. E. Sullivan: Although our financial performance has lagged for some time I wanted to remind everyone of the brand power we have as the original park one with a strong following built over 50 years.

Amy A. E. Sullivan: This is 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.

Amy A. E. Sullivan: We remain optimistic that with the right strategy in place, we can unlock significant value from our powerful Kirkland's brand. With that broader framework in mind, let's jump into how we closed out the year and the progress we're making on 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.

Amy A. E. Sullivan: We remain optimistic that with the right strategy in place, we can unlock significant value from our powerful Kirkland's brand.

Amy A. E. Sullivan: With that broader framework in mind, let's jump into how we close out the year and the progress we're making towards our five strategic priorities.

Amy A. E. Sullivan: Fiscal 2023 was a year of significant change across our entire organization and we are proud to report that we saw from with our initial repositioning strategy take hold during the holiday season.

Amy A. E. Sullivan: 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 gross profit margin of 32%, adjusted EBITDA of 14.2 million, and a 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%.

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 promotions promotion strategy.

Amy A. E. Sullivan: As a result, we generated a one 7% increase in our comparable sales.

Amy A. E. Sullivan: A strong gross profit margin of 32% adjusted EBITDA of $14 2 million and healthy operating cash flow.

Amy A. E. Sullivan: 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%.

Amy A. E. Sullivan: 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 that we keep the voice of the customer at the center of our brand and our strategy.

Amy A. E. Sullivan: 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're on the right path.

Amy A. E. Sullivan: We believe we can now take these learnings and continue implementing them in 2024 and beyond to get our business back on track.

Amy A. E. Sullivan: Let's dive into how our five strategic priorities played out in Q4, and what we have in store this year.

Amy A. E. Sullivan: First and foremost it is imperative we keep the voice of the customer at the center of our brands and our strategy.

Amy A. E. Sullivan: 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 the holiday season 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.

Amy A. E. Sullivan: As we all know consumers continue to deal with uncertainties in the broader macro environment and remain price sensitive.

Amy A. E. Sullivan: 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.

Amy A. E. Sullivan: We saw that during holiday as our brand repositioning took hold driving a 39% reactivation of lapsed customers.

Amy A. E. Sullivan: We believe our revitalized merchandising and marketing strategies will keep her engaged throughout the year.

Amy A. E. Sullivan: 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 recalibrate at our marketing tactics to Reengage, our core customer and more specifically to focus our efforts on previously declining brick and mortar traffic we are.

Amy A. E. Sullivan: 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 re-engage our core customers 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 geotargeting 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.

Amy A. E. Sullivan: 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 and our paid media strategy and the reintroduction of direct mail.

Amy A. E. Sullivan: 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 S. M S, resulting in a 75% increase in click through rate compared to our traditional text SMS program.

Amy A. E. Sullivan: 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 strategy. 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 obsessed 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 customers are 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.

Amy A. E. Sullivan: 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.

Amy A. E. Sullivan: We will remain nimble in our marketing tactics to ensure we are efficiently managing traffic conversion and acquisition tool.

Solidify a balanced approach to our brand strategy.

Amy A. E. Sullivan: Our second strategic priority is our commitment to being product obsessed by delivering curated on trend and seasonally relevant home decor at a great price.

Amy A. E. Sullivan: We have brought back are always something new mindset and our customer is responding well.

Amy A. E. Sullivan: Although larger ticket categories, such as furniture and wall decor continue to struggle, we are turning lower ticket categories like decorative accessories holiday and gift it much faster.

Amy A. E. Sullivan: [laughter] decorative accessories exceeded our expectations during the holiday season, with a 60% sales comp providing a perfect example of the value of the core category that can drive business year round.

Amy A. E. Sullivan: 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 a 13% margin comp, largely driven by strong demand for 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 omni-channel strategy that meets her whenever and wherever she wants to shop.

Amy A. E. Sullivan: Additionally, we reintroduced our guests an impulse category in Q4, which deliver incremental sales that we can now capitalize on in all four quarters.

Amy A. E. Sullivan: Our holiday assortment was very well received for this year, delivering a 2% sales comp and 13% margin comp largely driven by strong demand in floral decor and textiles.

Amy A. E. Sullivan: Further solidifying our customers' passion for decorating.

Amy A. E. Sullivan: We expect growth from all three of these categories throughout the year.

Amy A. E. Sullivan: Now I want to turn to our third strategic priority delivering an omni channel strategy that meets her whenever and wherever she wants to shop.

Amy A. E. Sullivan: As I shared earlier, we are seeing a positive trend in store traffic from our marketing and merchandising repositioning.

Amy A. E. Sullivan: 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, and 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 stores. Additionally, price resistance to higher ticket Over the years, Kirkland's e-commerce strategy has largely been a subset of its brick-and-mortar strategy.

Amy A. E. Sullivan: While we have plenty of opportunity to maximize in brick and mortar sales through continued execution.

Amy A. E. Sullivan: Our ecommerce business is much more strategic and structural work to be done in order to capture its full potential.

Amy A. E. Sullivan: 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.

Amy A. E. Sullivan: 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.

Amy A. E. Sullivan: 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 ecommerce strategy has largely been a subset of the brick and mortar strategy.

Amy A. E. Sullivan: 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 re-launch. 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 is evaluating 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.

Amy A. E. Sullivan: But in our commitment to keeping our customer at the center of our brands, we recognize the need to uniquely refine the assortment promotional marketing and technology experience for online journey.

Amy A. E. Sullivan: Yeah.

Amy A. E. Sullivan: Given our need to improve our online customer experience with modern technology. We are currently in a formal vendor selection process for a re bought form with.

Amy A. E. Sullivan: With the goal of a fiscal 2025 relaunch.

In the meantime, we are focused on maximizing conversion and profitability on our existing site.

Amy A. E. Sullivan: We have created an internal sales task force focused on optimizing inventory marketing tactics and promotional strategies to drive E Commerce conversion.

Amy A. E. Sullivan: And our profitability team finding our shipping and returns process. Overall, we are working on ways to reignite, our existing e-commerce business with.

Amy A. E. Sullivan: With the ultimate goal of our re platform next year.

Amy A. E. Sullivan: Turning to the in store component of our omni channel strategy.

We are pleased with how our stores have performed.

Amy A. E. Sullivan: Throughout 2023 can be closed several unprofitable stores that were in locations. We felt were not worth salvaging.

Amy A. E. Sullivan: 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 and conversion, and a 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.

Amy A. E. Sullivan: As we look at our 2020 for brick and mortar priority. We are working to increase our revenue per square foot within our current footprint.

Amy A. E. Sullivan: 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.

Amy A. E. Sullivan: 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 of them later based on current traffic and customer data trends.

Amy A. E. Sullivan: 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.

Amy A. E. Sullivan: And finally within our Omnichannel strategy. There are a few key expansion initiatives that we are exploring for example, we're 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 opportunity.

Amy A. E. Sullivan: For example, we are looking at a few markets we have 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 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.

Amy A. E. Sullivan: Based on historic sales and current customer demographic.

Amy A. E. Sullivan: Overall, we are pleased with our brick and mortar results and see it as a leading indicator, but the customers engaged with our strategic repositioning.

Amy A. E. Sullivan: Now, let's discuss the fourth strategy maintaining disciplined operational effectiveness.

Amy A. E. Sullivan: 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.

Amy A. E. Sullivan: For now we remain highly focused on implementing the must have versus a nice to have as fiscal responsibility and low risk are key in the short term.

Amy A. E. Sullivan: 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 the 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 merchants and marketers with a tool to drive 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 a margin on the table.

Amy A. E. Sullivan: More recently, we have invested in improving our planning allocation and pricing and promotion strategy to better forecast, what drives traffic and profitable sales.

Amy A. E. Sullivan: This is the latest health checks and we believe this isn't an investment that will provide a return this year. This promotional effectiveness tool coupled with a more disciplined approach to our brand calendar should aid us in overall control of margin, including our clearance markdown strategy, resulting in potential meaningful upside this year.

Amy A. E. Sullivan: 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 N season sales and profitability.

Amy A. E. Sullivan: 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 margin.

Amy A. E. Sullivan: Through deep analysis of our product lifecycle and current store allocation clusters. We believe there is an opportunity to improve overall inventory turn in profitability.

Amy A. E. Sullivan: By not doing this effectively.

Amy A. E. Sullivan: We've left margin on the table. So this could be a significant margin driver for our business going forward.

Amy A. E. Sullivan: 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.

Amy A. E. Sullivan: The initial impact of this work will begin to flow through our results in the back half of 'twenty 'twenty four but the long term impact will deliver better inventory optimization, starting with the buying process through the full product lifecycle.

Amy A. E. Sullivan: Last but certainly not least our fifth priority is focused on driving a high performance organization built for success in continuity with the voice of our associates at the forefront of our culture.

Amy A. E. Sullivan: As we close out 2023, and embark on a new here 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 time.

Amy A. E. Sullivan: 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 time frame with a limited amount of resources, and we believe we are just getting started.

Amy A. E. Sullivan: Frame with a limited amount of resources and we believe we are just getting started.

Amy A. E. Sullivan: With our merchandise and marketing strategy that is generating positive momentum with our customers and our 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.

Amy A. E. Sullivan: 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 said, 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. Thank you, Amy, and good morning, everyone.

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Amy A. E. Sullivan: We appreciate your continued support and commitment as we navigate our repositioning and we look forward to exceeding your expectations.

Amy A. E. Sullivan: 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.

Mike Madden: Thank you Amy and good morning, everyone for the fourth quarter net sales were $165 9 million compared to $162 5 million in the prior year quarter.

Mike Madden: Fourth quarter of fiscal 2023.

<unk> 14 weeks as compared to 13 weeks in the fourth quarter of last year. The extra week of sales this year amounted to approximately $6 $6 million.

Mike Madden: Comparable sales using a 13 week comparison increased one 7% for the quarter. The average store count was down 5% compared to the prior year quarter.

Mike Madden: For the fourth quarter, net sales were 165.9 million compared to 162.5 million in the prior year quarter. The fourth quarter of fiscal 2023 included 14 weeks as compared to 13 weeks in the fourth quarter of last year. The extra week of sales this year amounted to approximately $6.6 million. Comparable sales using a 13-week comparison increased 1.7% for the quarter. The average store count was down 5% compared to the prior year quarter.

Mike Madden: The increase in comparable sales was driven by an increase in store traffic and Omnichannel conversion, partially offset by a decline in the average ticket in both channels.

Mike Madden: Breaking down sales within the quarter comps were up 1% in November up 5% in December and down 4% in January.

Mike Madden: January business was hampered by winter weather, which disproportionately affected our store footprint.

Mike Madden: Store sales drove the overall comparable sales increase for the quarter posting an increase of 5% while e-commerce was down 8%.

Mike Madden: The increase in comparable sales was driven by an increase in store traffic and omni-channel conversion, partially offset by a decline in the average ticket in both channels. Breaking down sales within the quarter, comps were up 1% in November, up 5% in December, and down 4% in January. January business was hampered by winter weather which disproportionately affected our store footprint.

Mike Madden: E Commerce accounted for 23% of total sales in the quarter down from 26% in the prior year quarter.

Mike Madden: From a merchandize perspective decorative accessories seasonal gift and lamps, all had strong increases versus the prior year as we repurposed our assortment to emphasize faster turning lower price point options <expletive>.

Mike Madden: Store sales drove the overall comparable sales increase for the quarter, posting an increase of 5%, while e-commerce was down 8%. E-commerce accounted for 23% of total sales in the quarter, down from 26% in the prior year. From a merchandise perspective, decorative accessories, seasonal, gift, and lamps all had strong increases versus the prior year as we repurposed our assortment to emphasize faster turning, lower price point options. Clines in the wall categories, furniture, and housewares partially offset the gain. However, sales performance was relatively consistent across geographic regions with particularly strong results in Florida.

Mike Madden: Declines in the wall categories furniture, and housewares, partially offset the gains.

Sales performance was relatively consistent across geographic regions with particularly strong results in Florida.

Mike Madden: Gross profit margin increased 720 basis points to 32% of sales compared to 24, 8% in the prior year quarter.

Mike Madden: The five components of this year over year change were as follows first merchandise margin increased 410 basis points to 54% versus 49, 9% in the prior year quarter.

Mike Madden: Improved sell through of our seasonal inventory assortment combined with lower freight rates and a reduction in clearance activity drove the increase in merchandise margin.

Mike Madden: Second central distribution costs decreased by 160 basis points to four 7% of sales compared to six 3% of sales in the prior year quarter incur.

Mike Madden: Gross profit margin increased 720 basis points to 32% of sales compared to 24.8% in the prior year quarter. The five components of this year-over-year change were as follows: merchandise margin increased 410 basis points to 54% versus 49.9% in the prior year quarter.

Mike Madden: Increased efficiency in a smoother inventory flow led to lower labor and operational costs within our distribution centers.

Mike Madden: Third outbound freight cost, including both store and ecommerce shipping expenses decreased 130 basis points to 7% as a percentage of sales compared to the prior year quarter.

Mike Madden: Improved sell-through of our seasonal inventory assortment combined with lower freight rates and a reduction in clearance activity drove the increase in merchandise margins. Additionally, central distribution costs decreased by 160 basis points to 4.7% of sales compared to 6.3% of sales in the prior year quarter. Increased efficiency and a smoother inventory flow led to lower labor and operational costs within our distribution center, and the third outbound freight cost, including both store and e-commerce shipping expenses, decreased 130 basis points to 7% as a percentage of sales compared to the prior year quarter. The comparison reflects a reduction in shipments to the stores in the current year, resulting from lower inventory levels and a reduction in rates on parcel delivery. Fourth, store occupancy costs increased 20 basis points to 9.2%.

Mike Madden: The comparison reflects a reduction in shipments to the stores in the current year, resulting from lower inventory levels and reduction in rates on parcel deliveries.

Mike Madden: Fourth store occupancy costs increased 20 basis points to nine 2%.

Mike Madden: The increase as a percentage of sales was primarily due to increases in the average store rent being slightly more than the comparable sales increase.

Mike Madden: And lastly, depreciation included in cost of sales decreased by 40 basis points to one 1%.

Mike Madden: Total operating expenses decreased by $1 1 million to $42 4 million or 25, 5% of sales compared to $43 5 million or 26, 8% of sales in the prior year quarter.

Mike Madden: The increase in the percentage of sales is primarily due to increases in the average store rent being slightly more than the comparable sales increase, and lastly, depreciation, including cost of sales, decreased by 40 basis points to 1.1%. Total operating expenses decreased by $1.1 million to $42.4 million, or 25.5% of sales, compared to $43.5 million, or 26.8% of sales in the prior year quarter. The decrease in dollars was primarily the result of lower impairment charges of $1.3 million and year-over-year reductions in advertising, e-commerce, and corporate salaries.

Mike Madden: The decrease in dollars was primarily the result of lower impairment charges of $1 3 million and year over year reductions in advertising e-commerce and corporate salaries.

Mike Madden: These declines were largely offset by the effect of an extra week in the calendar, which accounted for approximately $2 $4 million in extra operating expenses in the current year.

Mike Madden: Yeah.

Mike Madden: Adjusted EBITDA, excluding impairment stock compensation and other minor expenses was $14 2 million versus $2 6 million in the prior year quarter.

This is primarily the result of positive comparable store sales.

Mike Madden: And significant gross margin improvement along with continued tight expense control.

Mike Madden: Operating income was $10 7 million or six 4% of sales as compared to an operating loss of $3 2 million or 2% of sales.

Mike Madden: These declines were largely offset by the effect of an extra week in the calendar, which accounted for approximately $2.4 million in extra operating expenses in the current year. Adjusted EBITDA, excluding impairment, stock compensation, and other minor expenses, was $14.2 million versus $2.6 million in the prior year quarter, primarily the result of positive comparable store sales and significant gross margin improvement along with continued tight expense control. Operating income was $10.7 million, or 6.4% of sales, as compared to an operating loss of $3.2 million, or 2% of sales. Net Other Expense, which is largely comprised of interest expense offset by other income, was $749,000 for the quarter compared to $409,000 in the prior quarter. Included in these amounts, net interest expense was $902,000 for the quarter compared to $509,000 in the prior year quarter due to higher borrowing levels and higher interest rates.

Mike Madden: Net other expense, which is largely comprised of interest expense offset by other income was 749000 per quarter compared to 409000 in the prior year quarter incur.

Mike Madden: Included in these amounts net interest expense was 902000 for the quarter.

Mike Madden: Third to 509000 in the prior year quarter due to higher higher borrowing levels and higher interest rates.

Mike Madden: Our income tax for our income tax rate for the quarter was a benefit of 2% of pretax income compared to an expense of five 2% of pre tax loss in the prior year period.

Mike Madden: From a balance sheet perspective, our inventory levels continue to be under control and in line with our plan to inventory flow.

Mike Madden: We ended the quarter with $74 1 million of inventory, a 12% decrease from $84 1 million at the end of the prior year.

Mike Madden: We had borrowings outstanding of 34 million at year end compared to $15 million at the end of the prior year.

Mike Madden: The increase in borrowings reflects the negative operating performance for fiscal 'twenty, three capital expenditures of $4 8 million and $1 2 million and refinancing costs associated with our credit facility Amendment in March of 'twenty, three and the closing of our additional credit facility in January of 'twenty four.

Mike Madden: Our income tax rate for the quarter was a benefit of 2% of pre-tax income compared to an expense of 5.2% of pre-tax loss 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 $74.1 million in inventory, a 12% decrease from $84.1 million at the end of the prior year. We had borrowings outstanding of $34 million at year end, compared to $15 million at the end of the prior year.

As we enter the new fiscal year, we are continuing our policy of not providing specific guidance given the difficulty in forecasting visibility around the macro economic environment and its impact on our traffic and conversion. However, we do want to provide some color around our expectations in key areas.

Mike Madden: Early in the first quarter, we have seen continued strength from our brick and mortar stores through positive foot traffic and an improved conversion rate.

Mike Madden: The increase in borrowings reflects the negative operating performance for fiscal 23, capital expenditures of $4.8 million, and $1.2 million in refinancing costs associated with our credit facility amendment in March of 23 and the closing of our additional credit facility in January of 24. As we enter the new fiscal year, we are continuing our policy of not providing specific guidance given the difficulty in forecasting visibility around the macroeconomic environment and its impact on our traffic and conversions. However, we do want to provide some color around our expectations in key areas. Early in the first quarter, we have seen continued strength from our brick-and-mortar stores through positive foot traffic and an improved conversion rate, partially offset by a decline in our average ticket. Demand on the e-commerce side has been down owing to weaker traffic and conversion trends along with a lower average order value.

Actually offset by a decline in our average ticket.

Mike Madden: Demand on the ecommerce side has been down owing to weaker traffic and conversion trends.

Mike Madden: Along with a lower average order value.

Mike Madden: February comp sales results were slightly positive with a strong gross profit improvement and continued expense control.

Mike Madden: March is off to a softer start from a sales perspective, but we expect some recovery to occur as we closed the month with an early Easter this year.

Mike Madden: For the balance of the year, we expect improvement in sales as we build towards the holiday season, coupled with continued merchandise margin improvement driven by our assortment shift to faster turning categories and our aggressive focus on promotional effectiveness and inventory clearance to ensure freshness throughout the year.

Mike Madden: Supply chain costs are declining as we improve labor and transportation efficiency and we are managing operating expenses very tightly and reducing costs across the business.

Mike Madden: February comp sales results were slightly positive, with a strong gross profit improvement and continued expense control. March is off to a softer start from a sales perspective, but we expect some recovery to occur as we close the month with an early Easter this year. For the balance of the year, we expect improvement in sales as we build toward the holiday season, coupled with continued merchandise margin improvement driven by our assortment shift to faster-turning categories and our aggressive focus on promotional effectiveness and inventory clearance to ensure freshness throughout the year. Supply chain costs are declining as we improve labor and transportation efficiency, and we are managing operating expenses very tightly and reducing costs across the business.

Mike Madden: With a favorable macro economic backdrop, the combinations of these factors provide us with a path to positive adjusted EBITDA and 24 after two years of losses.

Mike Madden: Yeah.

Mike Madden: Looking beyond this year, our goal is to get back to a mid to high single digit adjusted EBITDA margin as Amy outlined we are beginning to see improvements in sales and merchandise margin through our pricing and promotional strategies.

Mike Madden: Our long term sales goals are.

Mike Madden: Our two returns store profitability or productivity.

Mike Madden: The historical levels of $1 4 million through merchandising and marketing initiatives and enhance our e-commerce technology to unlock the full potential of that channel.

Mike Madden: On the cost side, we have already taken steps to improve supply chain efficiencies and remove fixed costs from our distribution facilities.

Mike Madden: With a favorable macroeconomic backdrop, the combinations of these factors provide us with a path to positive adjusted EBITDA in 24 after two years of losses. Looking beyond this year, our goal is to get back to a mid to high single-digit adjusted EBITDA margin. As Amy outlined, we are beginning to see improvements in sales and merchandise margins through our pricing and promotional strategies. Our long-term sales goals are to return store profitability or productivity to historical levels of 1.4 million through merchandising and marketing initiatives and enhance our e-commerce technology to unlock the full potential of that channel. On the cost side, we have already taken steps to improve supply chain efficiencies and remove fixed costs from our distribution facilities.

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

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

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

Mike Madden: And lastly, I'd like to reiterate our priorities for capital allocation, our number one priority for the business right now is returning to positive cash flow.

As we make progress toward that end, we continue to focus on reducing borrowings and reestablishing our level of liquidity.

Mike Madden: It allows us to operate the business with more flexibility.

Mike Madden: The expanded credit facility, we closed in January was crucial in providing additional capacity.

Mike Madden: We execute our strategy.

Mike Madden: 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. In the coming quarters, we will provide updates on our progress in each one of these areas. And lastly, I'd like to reiterate our priorities for capital allocation.

Mike Madden: As we do so we are also focused on reinvesting in the business.

Mike Madden: E Commerce technology enhancements and targeted store openings and relocations are the priorities for the near term as we continue to execute our repositioning.

Mike Madden: And that concludes our prepared remarks, Danielle we're now ready for some Q&A.

Danielle: Thank you Sir we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.

Mike Madden: Our number one priority for the business right now is returning to positive cash flow. As we make progress toward that end, we continue to focus on reducing borrowings and reestablishing a level of liquidity that allows us to operate the business with more flexibility. The expanded credit facility we closed in January was crucial in providing additional capacity as we execute our strategy.

Danielle: If youre using a speakerphone please pick up your handset before pressing the keys.

Danielle: If at any time a question has been addressed and you would like to withdraw your question. Please press Star then two.

Danielle: The first question comes from Jeremy Hamblin, with Craig Hallum Company capital.

Jeremy Scott Hamblin: I'm sorry. Please go ahead.

Jeremy Scott Hamblin: Thanks, and congrats on the strong results and our momentum in the business I wanted to come back to the commentary around near term.

Operator: As we do so, we are also focused on reinvesting in the business. E-commerce Technology Enhancements and targeted store openings and relocations are the priorities for the near term as we continue to execute our repositioning. And that concludes our prepared remarks. Danielle, we're now ready for some Q&A. Thank you, sir. We will now begin the question and answer session. To ask a question, you may press the star then 1 on your touch cone.

Jeremy Scott Hamblin: Results. So it sounds like you know slightly positive comps.

Jeremy Scott Hamblin: In February you noted that March was a bit softer, which I'm, assuming means may be flat or a.

Jeremy Scott Hamblin: Slightly down year over year can you just remind us.

Jeremy Scott Hamblin: When we look at the comparisons that you have year over year how.

Operator: If you are using a speakerphone, please pick up your handset. If at any time a question has been addressed and you would like to withdraw your question, please press star there. The first question comes from Jeremy Hamblin.

Jeremy Scott Hamblin: How April shaped up.

Jeremy Scott Hamblin: And then as a follow on you noted that you expect some nice improvement on gross margin.

Jeremy Scott Hamblin: In Q1, and I wanted to see if you could give us a sense of the magnitude that.

Jeremy Scott Hamblin: But you might be expecting there.

Speaker Change: Jeremy Let me give a little context on sort of March April and then Mike can give you some specifics just as a reminder.

Jeremy Scott Hamblin: Go ahead. Thanks and congrats on the strong results and momentum in the business. I wanted to come back to the commentary around near-term results. So it sounds like, you know, slightly positive comps.

Speaker Change: For this period that we're in right now, we're lapping pretty high furniture sales and specifically in March we had a really robust all furniture events last year in 2023, So I think some of our softness year over year, it's really and still that consistent sort of pressure to the decline in that furniture.

Amy A. E. Sullivan: February, you noted that March was a bit softer, which I'm assuming means maybe flatter, and the rest of the board, and then, as a follow-on, you noted that you expect some nice improvement on gross margin in Q1. I wanted to see if you could give us a sense of the magnitude. Jeremy, let me get a little context on sort of March, April, and then Mike can give you some specifics. Just as a reminder, for this period that we're in right now, we're lapping pretty high furniture sales, and specifically in March, we had a really robust all furniture event last year in 2023. So I think some of our softness year over year is really due to that consistent sort of pressure on the decline in that furniture category.

Laurie we're still seeing positive momentum and the go forward categories of growth for us.

Speaker Change: But lapping some of that higher AUR pressure that we're up against last year. I think is really a big part of March as well as the calendar shifts that were in this year and we really as Mike said I expect that to come back around as we get closer to Easter, which is a key period for us and then I'll, let Mike comment on yeah, and just to add to that.

Amy A. E. Sullivan: We're still seeing positive momentum in the go forward categories of growth for us. But lapping some of that higher AUR pressure that we were up against last year, I think is really a big part of March, as well as the calendar shifts that we're in this year. And we really, as Mike said, expect that to come back around as we get closer to Easter, which is a key period for us. And then I'll let Mike comment on that.

Mike Madden: I think if you look at the comp like you were asking Jeremy I think it's a little difficult because of the calendar shifts you have not only a calendar shift with Easter you've got a retail calendar shift that where we're dealing with and have been talking about.

Mike Madden: On paper actually April was the stronger months last year in the first quarter, but just looking at our promotional calendar and what we have planned I wouldnt way too much into that in terms of evaluating you know as we progress what we're up against just because.

Amy A. E. Sullivan: Yeah. And just to add to that, I think if you look at the comps like you're asking, Jeremy, I think it's a little difficult because of the calendar shifts. You have not only a calendar shift with Easter, but you've got a retail calendar shift that we're dealing with and have been talking about. You know, on paper, actually, April was the stronger month last year in the first quarter. But just looking at our promotional calendar and what we have planned, I wouldn't weigh too much into that in terms of evaluating, you know, as we progress. But I think that's what we're up against, and the calendar is quite different. So I'll just make that point.

Mike Madden: The calendar is quite different so.

Mike Madden: I would just make that point and then on your question about the margin.

Mike Madden: We continue to see positive trends in each component of the margin, which is encouraging we're doing a lot of work on the merchandize margin and went through a lot of that in her remarks.

Mike Madden: A key component to driving continued merchandise margin improvement for the rest of the year.

Mike Madden: But if you could kind of dig in.

Mike Madden: And then on your question about the margin, we continue to see positive trends in each component of the margin, which is encouraging. We're doing a lot of work on the merchandise margin. Amy went through a lot of that in her remarks.

Mike Madden: So that that's our merchandize margin improvement and we expect that to continue.

Mike Madden: This year, but also on the supply chain side, which is included in our gross profit margin.

Mike Madden: Eliminated a lot of fixed costs closing two hubs last year closing a lot of off site.

Mike Madden: That's a key component to driving continued merchandise margin improvement for the rest of the year. But if you kind of dig in, so that's our merchandise margin improvement, and we expect that to continue this year, but also on the supply chain side, which is included in our gross profit margin. We've eliminated a lot of fixed costs, closing two hubs last year, and closing a lot of offsite. We've revised our parcel contract, so that's helping us on the e-commerce side. We're doing a really good job of managing routes to our stores and kind of cutting them back where needed to reduce the cost there. And our labor efficiency is getting better along with lower inventory levels. We expect all of that to really be in play for the year.

Mike Madden: We've revised our parcel contract so that's helping us on the e-commerce side.

Mike Madden: We're doing a really good job of managing routes to our stores and kind of cutting them back where where needed to reduce the cost there and our labor efficiencies getting better along with lower inventory levels. We expect all of that to really be in play for the year. So.

Mike Madden: You know I think last year, we had a gross profit margin of 26 seven.

Mike Madden: We've got you know ample improvement.

Mike Madden: Ability to improve on that for Q1.

Mike Madden: I don't think it will be to the level of Q4, just because of the.

Mike Madden: The amount of sales that flow through during that timeframe, but I do expect that we'll see significant improvement.

Jeremy Scott Hamblin: So, you know, I think last year we had a gross profit margin of 26.7. We've got, you know, ample improvement or ability to improve on that for Q1. I don't think it'll be to the level of Q4 just because of the amount of sales that flow through during that timeframe, but I do expect that we'll see significant improvement.

Mike Madden: That's great.

Speaker Change: And let me just transition here.

Speaker Change: To the comments around your e-commerce platform.

Speaker Change: Which it sounds like you know great improvement on store traffic.

Speaker Change: E Commerce is struggling a bit more and you know I wanted to get into a little bit more detail about the relaunch plan for 2025 so it.

Amy A. E. Sullivan: And let me just transition here to the comments around your e-commerce platform, which sounds like a great improvement on store traffic. Ecommerce is struggling a bit more, and you know I wanted to get into a little bit more detail about the relaunch, the plan for 2025. So is the relaunch around e-com more just about fitting the assortment to better meet the needs of what the online shopper is? And is that when you talk about a relaunch of that platform? What portion of the assortment might be different for your e-commerce channel and the rest, the commercial, and the store, and then secondly, do you have the technology investment needed to do that relaunch? Can you talk about anything that you think you might? Sure.

Speaker Change: Is the relaunch of around E com more just about fitting the assortment to better meet the.

Speaker Change: The needs of what the online shopper is in is that when you talk about a re launch of that platform is would it be.

Speaker Change: What portion of the assortment might be different for your E Commerce channel as opposed to what our customers are going to see in stores and then secondly, do you have from a technology investment.

Speaker Change: Needed to do that relaunch can you can you talk about anything that you think you might need to help support that.

Speaker Change: Move forward.

Speaker Change: Sure.

Amy A. E. Sullivan: So at sort of the highest level, we need to go through and really define the channel strategy for e-commerce. I made a comment in my remarks that e-commerce, historically at Kirkland's, has been more of just an extension of the brick-and-mortar strategy, and we recognize that customer shopping behavior is different online. And as I shared, those higher-ticket categories like furniture and wall decor have historically been a much more significant part of that business, and that predates even our prior strategy. It's always been a little heavier in those categories.

Speaker Change: So that's sort of the highest level, we need to go through and really define the channel strategy for E. Commerce I made a comment in my remarks that E. Commerce. Historically at Kirkland's has been more of just an extension of the brick and mortar strategy and we recognize that the customer shopping.

Speaker Change: Behavior is different online and as I shared those higher ticket categories like furniture and wall decor have historically been a much more significant part of that business and that predates even our prior strategy. It's always been a little heavier in those categories and so I think we've got to do a better job at insurer.

Amy A. E. Sullivan: And so I think we've got to do a better job at ensuring that we're adequately supporting the assortment mix needs, and some of this planning and allocation health check that we're doing right now is going to help give our merchant team better visibility into demand forecasting online and how that differs in store. So it certainly starts with making some adjustments to the assortment strategy to ensure that we're giving that online customer what she needs. In terms of how it would compare to a brick-and-mortar assortment, we definitely want the overall brand experience, aesthetic, and design to still be very much one brand, but we believe there's an opportunity online, obviously, to have some white space opportunities tested, and we believe that's going to be a very important part of the assortment strategy.

Speaker Change: Bring that were adequate adequately supporting the assortment mix needs and some of the planning and allocation health checks that we're doing right now is going to help give our merchant team better visibility to demand forecasting online and how that differs in store. So it certainly starts with having some adjustments to the assortment strategy too.

Speaker Change: Sure that we're giving that online customer what she needs.

In terms of how it would compare to a brick and mortar assortment, we definitely want the overall brand experience aesthetic design to still be very much one brand, but we believe theres opportunity online obviously to have some white space opportunities tests into some new businesses in the future our drop ship business.

Speaker Change: It's a good place to do that.

Speaker Change: So that's really sort of the assortment mix part of it and then on the technology side. Our current platform. It's 12 years old and so most of you know go and upgrade technology every four or five years and so we are we are really at that point, where we're behind the game in my opinion on really the baseline X.

Amy A. E. Sullivan: So I think we've got to do a better job at ensuring that we're adequately supporting the assortment mix needs, and some of this planning and allocation health check that we're doing right now is going to help give our merchant team better visibility to demand forecasting online, and some of this planning and allocation health check that we're doing right now is going to help give our merchant team better visibility to demand forecasting online, we have a little more significant dips in conversion, we have some issues on our cart abandonment that continue to hinder us, and so it's time and probably past due time for us to make an investment in a more modernized technology to support our future business. The good news on that, and I won't get into too many specifics unless Mike wants to add some color on it, is, The cost of maintaining a 12 year old platform is very expensive.

That patients of what our current customer experience should be online we have a little more significant depth in conversion.

Some issues on our cart abandonment that continue to hinder us and so it's time and probably a past due time for us to make an investment in a more modernized technology to support our future business.

Speaker Change: The good news on that and I won't get into too many specifics unless Mike wants to add some color on it is the cost of maintaining a 12 year old platform is very expensive.

Amy A. E. Sullivan: So as we move forward, we haven't fully identified which partner we're going to go with, but we're getting near that decision. It will actually be beyond the implementation year. We would see flat to slightly slightly and Michael Holt.

Speaker Change: So as we move forward, where we haven't fully identified which partner we're going to go with but we're getting near that decision.

Speaker Change: It will actually be beyond the implementation here, we would see flat to slightly.

Speaker Change: Flight savings on a new platform.

Jeremy Scott Hamblin: I think we are going to be able to make some slight savings on a new platform because of how much it is requiring us to bandage our existing one together. Implementation would be a little bit of a capital outlay, and Mike shared that we are protecting that in our capital budget for whenever that kicks off, whether it is the end of this year or early next year. Just based on being able to walk away from some of the older expenses and contracts we have with people helping us manage a really dated website. Got it. Helpful caller. And then just last two for me, and I'll hop out of the queue.

Speaker Change: Because of how much it's requiring us to sort of band aid our existing one together so implementation, obviously would be a little bit of a capital outlay and make sure that we're protecting that and our capital budget for whenever that kicks off whether it's the end of this year early next year.

Speaker Change: But it's definitely something that I think will not only improve conversion and ultimately sales, but also will give us probably unexpected savings for several years to come just based on being able to walk away from some of these older expenses in these contracts that we have of people, helping us manage our really data at website.

Speaker Change: Got it helpful color.

Speaker Change: And then just a last two for me and I'll hop out of the queue.

Mike Madden: What is your CapEx expectation for 2024? And then on the balance sheet side, you know, what, Mike, do you think would be kind of, and based on your current outlook, in terms of what you might draw down on your credit Yeah, so looking at CAPEX, last year I think we were at 4.7 or so, 4.8. I think it'll be a little bit less than that this year. We've got some projects that we are doing, but it's very much a maintenance CAPEX budget year. So I expect that it will be, and could be in the 3, 4 million range.

Speaker Change: What is your Capex expectation for 2024, and then on the balance sheet side, what Mike do you think would be kind of the peak need based on your current outlook.

Speaker Change: In terms of what you might draw down on your credit facility.

Speaker Change: Yeah.

Speaker Change: So.

Speaker Change: Looking at the the Capex.

Speaker Change: Last year, I think were four seven or so forth.

Speaker Change: I think it'll be a little bit less than that this year and we've got some projects that we are doing but it's very much a maintenance capex budget year. So I expect that will be it could be three 4 million range.

Mike Madden: I mentioned we're trying to be budget-friendly and play a little offense. I mean, we talked about the e-commerce platform. We also talked about some real estate.

Speaker Change: I mentioned, we're trying to be.

Speaker Change:

Speaker Change: You know play a little offense I mean, we talked about the.

Speaker Change: The E Commerce platform. We also talked about some real estate I mean, we're trying to do it it won't be a big program, but we're at least going through an evaluation to really target, where we might be able to.

Mike Madden: I mean, we're trying, it won't be a big program, but we're at least going through an evaluation to really target where we might be able to fill out some markets or enter some tried and true areas that we know will really work for us. So we're trying to hold back some capabilities to do that. On the balance sheet side, obviously, our seasonality dictates how borrowings occur in our inventory flow, and we expect a normal buildup in inventory. I think we will peak out higher than last year on borrowing simply because we're starting higher.

Speaker Change: Fill out some markets or enter some tried and true areas that we know will really work for us. So we're trying to hold back some capability to do that.

Speaker Change: On the balance sheet side.

Speaker Change: Obviously, our seasonality dictate how borrowings occur in our inventory flow and we expect a normal buildup in inventory I think we will peak out higher than last year on the borrowing simply because we're starting higher we do have more capacity.

Mike Madden: We do have more capacity, and that capacity expands as we get deeper into the season. But how much and the timing will really have a lot to do with that, but it's going to be more than last year, but we do have additional capacity to cover that this year. Got it. Thanks so much, and good luck this year.

Speaker Change: And that capacity expands as we get deeper into the season, but.

Speaker Change: How much and the timing will really have a lot to do with that but it's got to be more than last year.

Speaker Change: But we do have additional capacity to cover that this year.

Speaker Change: Got it thanks, so much and good luck this year.

Jeremy Scott Hamblin: Thanks, Jeremy. The next question comes from John Lawrence from the Benchmark Company. Please go ahead.

Speaker Change: Thanks, Jeremy Jeremy.

Speaker Change: The next question comes from John Lawrence from the Benchmark Company. Please go ahead.

John Russell Lawrence: Great, thanks. Congratulations, guys, on a great fourth quarter. Amy, can you talk a little bit about when you went into holiday and just, looking at the whiteboard across the categories, what would you say you gave the grades to? What you expected to be really good and how that turned out, from sort of the planning and allocation standpoint and presentation, and maybe what surprised you or what disappointed you in the assortment?

John Russell Lawrence: Great. Thanks, Congrats guys on a great fourth quarter.

John Russell Lawrence: Can you.

John Russell Lawrence: Amy can you talk a little bit about when you went into holiday and just.

John Russell Lawrence: Looking at the whiteboard across the categories. What would you say you give the grades to.

John Russell Lawrence: What do you expect it to be really good and how it turned out.

Amy A. E. Sullivan: From sort of the planning and allocation standpoint, and presentation and maybe what surprised you or what disappointed you in the assortment.

Sure.

Amy A. E. Sullivan: I would say, obviously, just from a volume perspective and another win for this category is that, you know, Holiday continues, as we all know, to be really a hero category for this brand. And so we have really strong results. I think the merchants on that team did a really great job of right-sizing the value and buying into depth of key items. We had a handful of items in our floral category that really had a viral reaction in the consumer marketplace. So that was a huge win for us. Strategically, we re-implemented the gift category, which you've been with us long enough to know has historically been a really strong part of the business. Faster turning, really high margins, and we were very pleased.

Amy A. E. Sullivan: I would say, obviously just from a volume perspective and another win for this category is that you know holiday continues as we all know to be really a hero category for the brand and so we had really strong results I think the merchants of that team did a really great job of right sizing the value.

Amy A. E. Sullivan: You and buying into depth of key items.

Amy A. E. Sullivan: We had a handful of items in our in our floral category.

Amy A. E. Sullivan: But really had a viral reaction out in the consumer marketplace. So that was a huge win for us.

Amy A. E. Sullivan: Strategically we re implemented the gift category, which you've been with US long enough to know that has historically been a really strong part of the business faster.

Amy A. E. Sullivan: Faster, turning really high margins and we were very pleased I'm not shocked because I think we are all had really high expectations of the category, but it did exceptionally well.

Amy A. E. Sullivan: I'm not surprised because I think we all had really high expectations for the category, but it did exceptionally well to the point where there were weeks in the peak holiday season where one individual gift item was the top item in the company. And so we really feel good about the fact that we have gotten back into that business, and we're going to maximize that all four quarters of the year. Even if you think about the first half of the year, we have a Mother's Day period that we think we have really walked away from in recent years, and that could give us some real upside in the first half of the year, largely driven by that gift assortment.

Amy A. E. Sullivan: To the point of there are weeks and the peak holiday season, where one individual guest item was the top item in the company and so we really feel good about the fact that we have gotten back into that business and we're going to maximize that all four quarters of the year. Even if you think about the first half of the year, we have the mother's day period.

Amy A. E. Sullivan: But we think we really walked away from over recent years and that could give us some real upside in the first half of the year largely driven by that gift assortment.

Amy A. E. Sullivan: And then I would say my biggest surprise probably is just the ongoing turnaround of that decorative accessories category. If you look back at sort of historical years at Kirkland's, that has been a category that's really been a driver in the front half of the year and tends to fall off a little bit in the holidays because of holiday decorating. But, as I shared in my commentary, it had just immense growth and continues to be a really strong driver for us, and then, I guess I would say, in terms of sort of, and obviously, the furniture and wall categories continue to turn a little slower than we would like them to. It's categories that we are downtrending as well. So nothing that I don't think we can't manage through. But we were very pleased that between the in-store traffic, the improvements, and conversion, we were able to overcome those deficits in MQ4 with the categories that really drove fast-turning sales. Great, thanks.

Amy A. E. Sullivan: And then I would say my biggest surprise probably is just the ongoing turnaround of that decorative accessories category.

Amy A. E. Sullivan: If you look back at sort of historical years at Heartland has been a category that's really been a driver in the front half of the year and tends to fall off a little bit on holiday because of holiday decorating, but as I shared in my commentary. It had just immense growth and continues to be a really strong driver for us.

Amy A. E. Sullivan: And then I guess I would say in terms of sort of.

Amy A. E. Sullivan: Disappointment I'm, obviously, the the furniture and wall categories continue to turn a little slower than we would like them to in categories that we are down trending as well. So nothing that I don't think we can't manage through them, but we were very pleased that between the in store traffic the improvements in conversion that we were able to overcome.

Amy A. E. Sullivan: Those deficits and in Q4 with the categories that really drove fast turning sales.

Speaker Change: Great Thanks and.

Mike Madden: Just to get through January a little bit, obviously, it cost you a point, a point and a half. I assume that... and any stores here in the Met South, which I assume were closed for several days. A real impact. I assume not only customers couldn't get to the store but neither could employees, correct? Yeah, I mean, John, that was true. I think we just, the way our store footprint is laid out, we took the brunt of that. So it was about $2 million.

Speaker Change: Just to go through January a little bit obviously cost you a point point and a half I assume that Oh.

Speaker Change: The new stores here in the med South we're awesome close couple days, a real impact us I'm not only customers could.

Get to the store, but maybe.

Speaker Change: Neither could employees correct.

Speaker Change: Yeah, John that that was true I mean, I think we just.

Speaker Change: The way the way our store footprint is laid out we took the brunt of that so.

Speaker Change: It was about $2 million, we mentioned that.

Mike Madden: We mentioned that in Amy's remarks about it would have been a little bit closer to $3 million on the comp had it been kind of a normal month. I mean, we know weather gives and it takes. So we'll be up against this next year. Hopefully, that will help January at the end of this fiscal year. But, yeah.

Speaker Change: And Amy's remarks about would have been a little bit closer to three on the comp.

Speaker Change: And then kind of a normal month, I mean, we know whether Gibbs and it it takes.

Speaker Change: It will be up against this next year and hopefully that'll help helped January and.

Speaker Change: At the end of this fiscal year, but yes.

Speaker Change: So last question for me is when you look at the store fleet you know the the nine or 10 stores you closed during the quarter as you look at that and Amy as you.

John Russell Lawrence: So the last question for me is, when you look at the store fleet, you know, the nine or ten stores you closed during the quarter, as you look at that, and Amy, when you took the top spot and you looked across the fleet of stores, are there some of those, I assume, with these changes over the last six months and improvements? There are some of those stores that are staying open that would have been closed. Is that fair?

Speaker Change: When when you took the top spot and you look across the fleet.

Speaker Change: Of stores are there some of those I assume with these changes over the last six months an improvement.

Speaker Change: There's some of those stores that are staying open that would've been closed is that fair.

Amy A. E. Sullivan: Certainly. I mean, we've definitely seen improvements in some of our former top volume stores, and they have sort of returned to their top spot. And that's really also kind of the driving force behind this wish list of stores that we're targeting for potential new openings, too. If you go back and look at the store closures over the past, you know, three to four years at Kirkland's under the old strategy, it made sense at the time, perhaps, to close some of those stores because of the market they were in.

Amy A. E. Sullivan: Certainly I mean, we've seen an improvement definitely and in some of our former pop volume stores have sort of returned to their top spot and that's really also kind of driving force behind this win.

Amy A. E. Sullivan: List of stores that we're targeting for potential new openings to if you go back and look at the store closures over the past three to four years at Kirkland's on an old strategy. It made sense at the time, perhaps to close some of those stores because of the market. They were in but as we reposition them, we were able to use some customer data to sort of over.

Mike Madden: But as we reposition, we were able to use some customer data to sort of overlay on our old real estate map and our new real estate map and some very obvious opportunities where there is a dense population of our current core customers where we could go back into those and really stimulate sales. So on both ends, seeing some positivity in our sort of historic real estate strategy really responding to the changes that we've made. Great And just the idea that, can you give us a sense of how many stores are close to that, and I know there's work to be done there, but a sense that some of those have got to be approaching those numbers. Yeah, I mean that's an average, so it's, you know, we're currently at like a one, between a million and a million, one, say. I'm really talking about stores.

Amy A. E. Sullivan: Lay on our old real estate map, and our new real estate map and some very obvious opportunities where theres a dense population of our current core customer or we could go back into those and really stimulate sales. So on both and seeing some positivity in our sort of historic real estate strategy really resonating with the changes that we've made.

Speaker Change: Great and just.

Speaker Change: Just the idea that.

Speaker Change: Can you give us a sense of how many stores are or close to that.

Speaker Change: One point to 1.4, and gaining almost numbers as we speak and I know there's work to be done there but.

Speaker Change: A sense of some of those have gotta be approaching those numbers.

Speaker Change: Yeah, I mean, that's an average so it's.

Speaker Change: We're currently at like a one.

Speaker Change: One between $1 million and 1 million, one, let's say and I'm really talking about the stores, we're not allocating any E comm necessarily to that other than bogus.

Mike Madden: We're not necessarily allocating any e-comm to that other than BOPUS. But I think to Amy's point, what we've seen, I think the takeaway for now on the merchandise strategy and how that is feeding into our stores. What we're seeing is some of the historical and many other strong market areas that we've been in are picking up faster than maybe some of the more recent ones that we did in say the last five years or so. So I think that speaks to a customer base that knows us, that has been with us over these years and is seeing the changes that we've implemented over the last 12 months starting to show. And that's drawing her in, and I think that's part of the traffic increase we're seeing in the stores right now.

Speaker Change: So, but I think to Hany's point, what we've seen I think the takeaway for now.

Speaker Change: What the merchandise strategy and how that is feeding into our stores.

Speaker Change: What we're seeing is some of the historical.

Speaker Change: Strong market areas that we've been in are picking up faster than than maybe some of the more recent ones that we didn't say in the last five years or so so I think.

Speaker Change: That speaks to a.

Speaker Change: Our customer base that knows us that has been with us over these years and is seeing the changes that we've implemented over the last 12 months starting to show up in <unk>.

Speaker Change: And that's drawn are in and I think that's part of the traffic increase we're seeing in the stores right now so.

Mike Madden: So more to come on that, but I think that's why we think if we look at, like we have built a wish list, and we don't know how many opportunities will really present themselves so quickly, but we want to be there and ready to go because we feel strongly that if we fill back into some of these areas, we'll be successful.

Speaker Change: More to come on that but I think that's why we think if we look at it.

We have built a wish list and we don't know how many opportunities over really present themselves.

Speaker Change: So quickly, but we want to be there and ready to go because we feel strongly that if we fill back into some of these areas we will be successful.

Speaker Change: Great Congrats again and good luck.

John Russell Lawrence: Great. Congratulations again and good luck. Thank you, John. At this time, this concludes our question and answer session and concludes today's teleconference. Thank you for your participation. You may now disconnect.

Speaker Change: Thank you John.

Speaker Change: At this time this completes our question and answer session and concludes today's teleconference. Thank you for your participation you may now disconnect your lines.

Speaker Change: Okay.